International Tax Observatory cautions against weakening CFC rules in light of Pillar 2
In its proposal for a direct tax omnibus, the European Commission has put forward a carve-out from the controlled foreign company (CFC) rules for companies in scope of Pillar 2. The Directive 2022/2523, transposing Pillar 2 into EU law, introduces a global minimum effective tax rate of 15% for large multinational groups, imposing a top-up tax where profits are taxed below this threshold. On 20 July 2026 the International Tax Observatory published a policy note which cautions against treating CFC rules as redundant now that Pillar 2 is in force. The policy, drawing from three lessons from OECD and Eurostat data, finds that CFC rules still fulfil a very important purpose. First, the two regimes only partially overlap in scope, since Pillar 2 applies solely to multinational groups with annual revenues above €750 million, covering just 2.3% of EU multinational groups, while CFC rules reach a far broader population and target specifically low-taxed passive income such as royalties, interest and dividends. Second, empirical studies, including analysis of the aftermath of the Cadbury Schweppes ruling, consistently associate weaker CFC enforcement with higher profit shifting towards low-tax jurisdictions. Third, Pillar 2 itself carries structural weaknesses, as substance-based carve-outs and qualifying refundable tax credits can push its effective floor down to around 10%, meaning that in seven of the eight Member States analysed, national CFC rules already impose a higher effective tax threshold than Pillar 2. On this basis, the authors recommend that the EU preserve and harmonise CFC rules rather than weaken them, treating Pillar 2 as a complement to, rather than a substitute for, existing anti-avoidance instruments.
UN publishes a draft framework for the Convention on International Tax Cooperation
On 21 July 2026, the co-lead of Workstream I of the UN Framework Convention on International Tax Cooperation (UNFCITC) released a Zero Draft of the Framework Convention, the overarching treaty intended to establish inclusive global governance for international tax matters. The Convention is being negotiated by an Intergovernmental Negotiating Committee (INC) established following a UN General Assembly resolution adopted in December 2024, with member states aiming to finalise the text by mid-2027. The draft sets out general principles, including sovereignty over national tax policy, fair allocation of taxing rights and transparency, alongside substantive provisions on the effective taxation of high-net-worth individuals, tax-related illicit financial flows, harmful tax practices and mutual administrative assistance between states. It also proposes an institutional architecture comprising a Conference of the States Parties as the treaty's main governing body, a subsidiary body for implementation staffed by technical experts, and a secretariat initially serviced by the UN Secretary-General. The Convention is designed as a framework instrument, meaning its substantive rules would be developed further through separate protocols, with states only bound by a protocol once they separately ratify it. The fifth negotiating session of the INC is scheduled for 3-14 August 2026 in New York, where the framework Convention will be discussed further alongside the two early protocols, as per the draft programme.
UN proposes new rules for digital and cross-border service income
On 20 July 2026, the co-lead of Workstream II released a draft protocol on the taxation of income from cross-border services, part of the ongoing negotiations towards a UN Framework Convention on International Tax Cooperation (UNFCITC). These negotiations follow a UN General Assembly resolution adopted in December 2024, which established an Intergovernmental Negotiating Committee (INC) tasked with drafting a new global tax treaty and two accompanying early protocols, with Member States aiming to conclude the process by mid-2027. The draft protocol would allow source states, meaning the countries where income is generated, to tax fees for cross-border services, income from automated digital services such as online advertising, cloud computing and platform intermediation, and insurance premiums paid to non-residents, subject to withholding tax rate caps still to be agreed. Where a service provider has a physical presence in the source state, taxation would instead follow a profit-based approach reflecting the services actually performed there. The draft also includes a low-tax carve-out, under which the protocol's limits on source taxation would not apply where the income is subject to a low effective tax rate in the recipient's state of residence, and sets out relief mechanisms to avoid double taxation.
New UN draft protocol addresses prevention and resolution of cross-border tax disputes
On 20 July 2026, the co-leads of Workstream III released a draft protocol on the prevention and resolution of tax disputes, one of two early protocols being negotiated alongside a new UN Framework Convention on International Tax Cooperation (UNFCITC). On prevention, the draft would allow taxpayers to request bilateral or multilateral advance pricing arrangements to agree transfer pricing treatment in advance, advance rulings on other tax questions, and cooperative compliance arrangements involving ongoing dialogue with tax authorities, alongside simultaneous or joint audits allowing two or more states to coordinate their examination of the same taxpayer, all subject to acceptance by the competent authorities concerned. On resolution, disputes would first go through a mutual agreement procedure between the competent authorities involved, with defined access criteria and indicative timeframes for reaching a solution. Where this does not resolve the case, the draft provides for optional mediation or conciliation by an independent third party, and, if the mutual agreement procedure remains unresolved after three years, binding arbitration by a panel of three arbitrators drawn from a roster maintained by the UN, subject to strict independence and conflict-of-interest requirements. The draft also addresses how these mechanisms interact with existing bilateral tax treaties, allowing states to reserve against specific mechanisms or agree to replace treaty-based procedures with those under the protocol. Numerous procedural details, including specific deadlines and the applicable arbitration process, remain in square brackets pending further negotiation.
Environmental taxation trends: tax revenue rose, but its share of GDP continued to fall
New Eurostat data published on 22 July 2026 shows that environmental tax revenue across the EU rose to €371.9 billion in 2024, up 6.1% on 2023, driven mainly by energy taxes, with smaller contributions from transport levies and taxes on pollution and resource use. Despite this increase in cash terms, environmental taxes continue to account for a shrinking share of both the EU economy and public revenue more broadly, a decline that has been ongoing for over a decade, falling from 2.5% of GDP in 2014 to 2.1% in 2024, and from 6.1% to 5.1% of total government revenue from taxes and social contributions over the same period. This means that although governments are collecting more from environmental taxes overall, these taxes are growing more slowly than the economy and are gradually being overtaken by other sources of revenue. National trends also diverge, with revenue rising in 22 Member States in 2024, led by Romania, Lithuania, Poland and Hungary, while five countries, including Sweden, Slovakia and Finland, recorded a decline.
IMF working paper favours destination-based VAT over unilateral digital taxes
The International Monetary Fund (IMF) published a working paper on 17 July 2026, "Taxing Cross-Border Services", examining how countries are trying to tax services that cross borders digitally without any local presence. The paper notes that services now make up 27.2% of world trade, the highest share since 2005, with digital delivery driving much of that growth and trade increasingly concentrated through a small number of conduit jurisdictions. It compares the main tools countries have used in response: VAT on imported services, digital services taxes (DSTs), expanded permanent establishment and significant economic presence rules, withholding taxes on outbound payments, anti-base-erosion measures such as deduction limits and diverted profits taxes, and the newer UN Model Tax Convention provisions, including article 12B on automated digital services and the recently agreed article 12AA on cross-border service fees more broadly. The authors find that DSTs tend to be passed through to consumers and business users rather than falling on the foreign provider's profits, and that expanded nexus rules often succeed in creating a taxable presence without resolving how much profit should actually be attributed to it. They also flag that article 12AA remains contested, with industry-commissioned analysis warning of trade and investment costs and campaigners disputing that assessment. The paper's overall conclusion is that broader reliance on destination-based VAT would tackle the underlying problems more effectively, and with less economic distortion, than the narrower unilateral measures adopted so far.
AMLA consults on new formats for reporting suspicions and transaction records
The Anti-Money Laundering Authority (AMLA) has opened a public consultation on draft Implementing Technical Standards (ITS) under article 69(3) of the Anti-Money Laundering Regulation (Regulation (EU) 2024/1624), setting out common formats for obliged entities to report suspicions and provide transaction records to Financial Intelligence Units (FIUs). The draft ITS introduces templates adapted to different types of obliged entities, alongside dedicated templates for the provision of transaction records by credit and financial institutions, and aims to bring greater convergence to reporting practices across the EU while accommodating the specificities of the non-financial sector. AMLA has also published an accompanying interpretative note, which is technical rather than legally binding, structuring the data points to be reported for suspicious transaction and activity reports around categories covering the report itself, natural and legal persons, accounts, transactions, and adverse information such as politically exposed person (PEP) and sanctions status, while clarifying that not all templates or data points will apply to every obliged entity depending on sector and the type of suspicion reported. Stakeholders are invited to submit comments by 20 September 2026, and AMLA will consider the feedback received when preparing its submission to the European Commission by 30 November 2026. Additionally, AMLA will hold a public hearing on 9 September 2026 from 10:00 to 12:00 CEST, with registration taking place online, to discuss further.
The next edition of the Weekly Tax News will be published after the summer break, on 1 September 2026.
