Weekly Tax News - Monday 29 January 2024

January 29, 2024

On Wednesday 24 January, ETAF sent its feedback to the European Commission on the proposal Business in Europe: Framework for Income Taxation (BEFIT), published on 12 September 2023. While we agree, in principle, that a common framework for corporate income taxation has the potential to significantly reduce tax compliance costs, we expressed serious doubts that the BEFIT proposal, in its current form, will really do so. In our view, the lack of sufficient alignment of the proposal with the Pillar Two Directive will bring additional complexities which would outweigh possible compliance cost reductions. As we already argued during the first consultation phase in January 2023, we should wait to first learn the lessons from the implementation of Pillar Two before deciding on any further step to implement a common corporate tax framework in the EU. If BEFIT is not postponed, at the minimum, we advocate for a voluntary application of BEFIT for groups of companies with a consolidated annual turnover of EUR 750 million or more in the transitional period between 1 July 2028 to 30 June 2035. This would give the companies concerned sufficient time to first deal with the implementation and application of the Pillar Two Directive and then implement the BEFIT rules. Moreover, in the absence of harmonization of the 27 procedural laws of the Member States, we expressed some concerns about how the proposed one-stop-shop would work in practice.  Finally, we also stressed that, for the sake of legal certainty, the present proposal for a Directive should not leave it completely open how a final formulary apportionment would look like.

ECON MEPs quiz Belgium Finance Minister Vincent Van Peteghem

On Monday 22 January, MEPs from the ECON committee of the European Parliament held an exchange of views with Vincent Van Peteghem, Belgium's Deputy Prime Minister and Minister of Finance, in his capacity as President of the ECOFIN Council during the Belgian Presidency. On this occasion, Mr Van Peteghem presented Belgian Presidency's priorities in the fields of economic governance, financial services and taxation. The debate with MEPs covered a wide range of topics, including the need to make progress on the Banking Union, the Capital Market Union, tax and economic governance reforms. In particular,  Mr Van Peteghem was asked about the Belgian’s intentions on the UNSHELL Directive, currently stuck in the Council. On this point, he pointed out that the unanimity rule complicates negotiations between Member States, some of whom have actually expressed concerns about the administrative costs that this proposal would entail. He further said that legal and technical questions still need to be resolved. Asked about the slow progress within the OECD on Pillar One, Mr Van Peteghem hoped that the EU would take the lead. He also expressed the view that working at the UN level should not undermine the work already done at the OECD.

MEPs adopt their opinion on the FASTER proposal

On Tuesday 23 January, the ECON committee of the European Parliament adopted its non-binding opinion on the proposal for a Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER). In their position, MEPs reportedly proposed a number of changes to the digital tax residence certificate (eTRC), including giving Member States additional time to issue the eTRC and to inform the applicant of the certificate in the event of verification of a taxpayer’s tax residence. MEPs also want to strengthen controls and the exchange of information. They suggest that the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) regularly monitor the risk of ‘cum-cum’ and ‘cum-ex’ optimisation practices in the EU. They also propose that Member States establish coordinated cooperation and mutual assistance between national competent authorities, tax authorities and other law enforcement bodies, such as the European Public Prosecutor’s Office (EPPO), in order to detect and prosecute illegal withholding tax recovery schemes. Finally, MEPs expect the European Commission, in its assessment of the operation of the Directive after transposition, to examine many more criteria than initially envisaged and, in particular, whether a relief at source system could be envisaged as a procedure for all Member States. In their view, the Commission should also consider further measures, if necessary, to ensure that all dividends, interest, capital gains, royalty payments, professional service payments and relevant contract payments generated in the EU are taxed at least once at an effective rate. The vote of the opinion in Plenary is scheduled for 26 February.

FISC hearing on the taxation of capital gains in the EU

On Tuesday 23 January, the European Parliament’s FISC subcommittee hosted a public hearing on capital gains taxation in the EU. The aim of this hearing was to explore potential measures at EU level to address the issue of the diversity of capital gains taxation in EU Member States and the free movement of capital, which can give rise to risks of aggressive tax planning and tax evasion. Under the supervision of the subcommittee's chairman, MEP Paul Tang, discussions took place, and the views of each speaker were presented. The FISC subcommittee welcomed Sean Bray, Director of European Policy at the Tax Foundation, Chiara Putaturo, Deputy Director of Oxfam's European Office and EU Tax Policy and Inequality Advisor, and Sarah Perret, Head of the Personal and Property Tax Unit, Tax Policy and Statistics Division of the OECD's Centre for Tax Policy and Administration. It was notably proposed to assess whether certain capital tax regimes are considered harmful within the framework of the Code of Conduct Group on Business Taxation. Another approach discussed by speakers was the extension the scope of automatic information exchange to capital gains related to real estate and financial assets. All the presentations from the speakers can be found here.

EESC urges collaboration for the effective implementation of the Head Office Tax system

In its advisory opinion on the Head Office Tax (HOT) system proposal recently adopted and published on Tuesday 23 January, the European Economic and Social Committee (EESC) advocates additional measures and emphasises the need for stronger collaboration among the Commission, Member States and representatives of micro, small and medium-sized enterprises (MSMEs) for effective implementation. EESC rapporteur Katrīna Zariņa emphasises the urgency of adopting the HOT system to catalyse the growth of MSMEs. While supporting the proposal's focus on standalone MSMEs initially, the EESC calls for an evaluation of the possibility to extend the HOT system to include SMEs operating through subsidiaries during the planned ex-post assessment five years after the Directive comes into force. The EESC also acknowledges the complementary nature of the HOT system and the Business in Europe: Framework for Income Taxation (BEFIT) proposal. However, it emphasises the need for vigilance regarding the coexistence of different legal frameworks, urging the European Commission to monitor and address potential fragmentation and discrepancies that may arise.

On Thursday 25 January, the European Commission announced that 9 Member States - Estonia, Greece, Spain, Cyprus, Latvia, Lithuania, Malta, Poland and Portugal – have not yet communicated national measures transposing the Directive on Pillar Two by the deadline of 31 December 2023. The Directive introduces a minimum rate of effective taxation of 15% for multinational companies active in EU Member States. Estonia, Latvia, Lithuania and Malta have notified the Commission their intention to elect for a delayed application of the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR). Article 50 of the Directive indeed provides for the option to delay, for six consecutive fiscal years the application of the IIR and the UTPR for Member States in which no more than twelve ultimate parent entities of groups within the scope of this Directive are located. However, a Member State making the election must nevertheless transpose on time all the other relevant Pillar Two Directive provisions. Consequently, the European Commission decided to open infringement proceedings against these 9 Member States for non-transposition of the Pillar Two Directive. Member States concerned now have two months to reply to the letters of formal notice and complete their transposition, or the Commission may decide to issue a reasoned opinion.

On Thursday 25 January, the European Commission decided to open several tax infringement proceedings. Ireland, Cyprus and Romania are notably asked to transpose the Directive (EU) 2020/284  introducing new transparency rules that harness information collected by payment service providers (PSPs) to help EU Member States crack down on Value-Added Tax (VAT) fraud. The deadline for transposition was on 31 December 2023. Moreover, the European Commission urged Germany and Poland to completely transpose the Directive (EU) 2021/514 of 22 March 2021 amending Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC7). This Directive introduces new tax transparency rules for transactions on digital platforms so Member States can better identify situations where tax should be paid. In addition, DAC7 introduced strengthened rules for joint audits between Member States in the area of taxation in general. All Member States had to notify complete transposition of those new rules on joint audits into their national legislation and inform the Commission before the end of 2023. Member States concerned now have two months to reply to the letters of formal notice and complete their transposition, or the Commission may decide to issue a reasoned opinion.

On Tuesday 30 January, the nine candidates to host the future Anti-Money Laundering Authority (AMLA) will present their bids at a public hearing organized jointly by the European Parliament and the Council of the EU. For the first time and following the ruling of the Court of Justice of the EU which gave the Parliament an equal say with the Council in determining the host cities of future agencies, public hearings will form part of the process of selecting the headquarters of a new EU agency. The seat of the agency will be determined by a joint vote of the Parliament and the Council. Pending this event, and before the anti-money laundering and anti-terrorist financing package comes into force, the Parliament and Council must formally adopt the laws, which they have committed to do before the European elections in June 2024. More information on the whole selection process can be found here.

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