IESBA’s work on ethical conduct in tax planning
On Friday 17 February, the International Ethics Standards Board for Accountant (IESBA) proposed to introduce several amendments to its International Code of Ethics for Professional Accountants to “guide judgments and behaviours of professional accountants when providing tax planning and related services”. This move has been triggered by the increasing public interest concerns about tax avoidance and the role played by professional tax advisers in light of revelations in recent years such as the Paradise and Pandora Papers, IESBA explains. The main amendments to the Code aim at: - explaining the types of threats to compliance with the fundamental ethics principles of the Code that might be created when professional accountants are involved in tax planning; - setting a clear principle that professional accountants recommend or otherwise advise on a tax planning arrangement only if they have determined that there is a credible basis in laws and regulations for it; - requiring consideration of the reputational, commercial and wider economic consequences that could arise from the way stakeholders might view the tax planning arrangement before determining whether to proceed with the recommendation or advice; - providing practical guidance to assist professional accountants in navigating the “grey zone” uncertainty when carrying out tax planning; - dealing with other practical matters, including disagreement with the client or management or those charged with governance, and documentation. Interested stakeholders have until 18 May 2023 to comment on the draft. The IESBA is organizing three online webinars this week to explain more in detail its main proposals. More information is available here.
Chances of an agreement on digital taxation are “slim”, says French Finance minister
Negotiations on the reallocation of taxing rights (so-called Pillar One of the OECD agreement) are reportedly being blocked by the United States, Saudi Arabia and India. “The chances of success are slim”, reportedly said French Economy and Finance Minister, Bruno Le Maire on Monday 20 February to the press. According to him, “today, things are blocked, notably by the United States, Saudi Arabia and India”. Saudi Arabia would have some concerns about the scope of exemptions concerning extractive activities, while India would reportedly like to improve the support mechanism and, in particular the tax capacity building mechanism in order to help jurisdictions in developing countries implement the OECD agreement. The OECD is working to prepare the text of the multilateral convention for signature by the summer so Pillar One starts taking effect in 2024. The multilateral convention will also require signatories to withdraw any digital services taxes and other similar unilateral measures they may have adopted. Bruno Le Maire reiterated the French position that if the G20 and OECD countries could not agree on the practical implementation of digital taxation, it would argue for its implementation at EU level. Pillar One was discussed during a meeting of G20 Finance Ministers and Central Bank Governors of the G20 in India on 24-25 February. The traditional OECD Secretary-General Tax Report to G20 Finance Ministers can be consulted here.
New EP study on the tax compliance costs faced by companies
Tax compliance costs faced by private enterprises in the European Single Market range between 1% and 2% of turnover, according to a new study requested by the subcommittee on tax matters (FISC) of the European Parliament and published on Wednesday 22 February. Compliance costs amount on average to about 15 000€ per year for enterprises located in the EU-27 countries plus the UK, the study shows. Tax compliance costs would grow in absolute terms with firm size, but less than proportionally. Consequently, smaller enterprises are burdened with relatively larger compliance costs, the study found. Average tax compliance costs would range between 13 897€ for micro-sized companies and 33 917€ for large companies. The authors conclude that the harmonisation of tax bases would in principle imply a reduction in complexity and, consequently, in compliance costs associated with the different activities and the expertise required to properly fulfil compliance obligations. In particular, they recognize that the future Business in Europe: Framework for Income Taxation (BEFIT) proposal has great potential to reduce compliance costs. On the contrary, they pointed out that EU-wide reforms that still permit national governments to keep tax exemptions or those that only impose minimum regimes (such as the ATAD rules) or those that apply to a very limited set of enterprises are likely less effective in curbing tax compliance costs.
EPPO busts 25 million € VAT fraud spread across eight Member States
On Tuesday 21 February, the European Public Prosecutor’s Office (EPPO) arrested several people during an operation carried out in eight countries against a criminal organisation centred in Spain, believed to have orchestrated a massive 25 million € VAT fraud, it said in a press release. During the operation code-named ‘Marengo Rosso’, 39 searches were carried out and 17 people were arrested in several countries, in a simultaneous probe in Czechia, Hungary, Italy, Luxembourg, Portugal, Poland, Slovakia and Spain. At stake is a suspected VAT carousel fraud, a criminal scheme that takes advantage of EU rules on cross-border transactions between its Member States, as these are exempt from VAT. According to the investigation, the fraudulent scheme involved the use of shell companies in different countries, through which phones, tablets, computers and other electronic equipment were traded, using fictitious invoices, in order to evade the payment of VAT. The chain of shell companies also allowed to claim VAT reimbursements from the national tax authorities to which the alleged perpetrators were not entitled, all leading to illicit profits of massive proportions. Finally, the goods were sold at very competitive prices through online marketplaces in several countries. The criminal profits were then laundered and reinvested in high-value real estate in different countries, including Czechia, Italy and Portugal, the EPPO explained.
DG TAXUD actions to help Ukraine
After one year since the start of Russia’s aggression in Ukraine, the Directorate-General for Taxation and Customs Union (DG TAXUD) of the European Commission took stock of the actions it has conducted to help Ukraine, in a newsletter published on Wednesday 22 February. On the taxation side in particular, DG TAXUD launched a tax enforcement plan included actions by EU tax authorities such as tax audits, tax refund screening and information exchange between authorities. A tax subgroup was set up within the EU’s Freeze and Seize Task Force to coordinate the work on this plan and ensure its proper implementation. On the humanitarian side, DG TAXUD worked quickly to grant VAT and customs duty relief to goods that Member States imported to help Ukrainians. Discussions were also launched amongst Member States to avoid the double-taxation of Ukrainian refugees and a reflection began on other tax and customs measures that could help facilitate the integration of Ukrainian people into the EU market, it said.
This newsletter contains information about European tax policies and developments gathered from official documents, hearings, conferences and the press. It does not reflect the official position of ETAF nor should it be taken as a written statement on behalf of ETAF.