Weekly Tax News - Monday 30 October 2023

October 30, 2023

European Commission and European Parliament hold second EU Tax Symposium

The European Commission and the European Parliament held the second EU Tax Symposium on Tuesday 24 October and Wednesday 25 October 2023 in Brussels. During two days, EU officials and tax experts, including ETAF, discussed the future of EU taxation. During his keynote speech, EU Tax Commissioner, Paolo Gentiloni said he sees 3 areas where changes are needed: - putting in place a more effective tax mix, including by rebalancing the tax burden between labour and capital; - digitalisation and the change in the nature of work; and - decision making methods, with a progressive move from unanimity to qualified majority voting on certain tax files. On Tuesday 24 October, ETAF representative in the European Commission’s VAT expert group, Dr. Stefanie Becker, participated in a discussion on VAT in the digital age. This session looked into how the current VAT system can be adapted to the digitised economy, with real time flow of information and exchange. It also delved into how evolving technologies could be used. Stefanie Becker said that the ViDA package presented by the Commission in December 2022 can be an impulse to businesses to go digital as it can save costs and human resources. However, we need time to inform the companies, to train them and to correctly implement the new rules, she warned. The role of behavioural taxation and of wealth taxation in the tax mix of tomorrow as well as the future of personal income taxation and the taxation of digital nomads were also discussed during the two-day event. New decision-making methods were analysed as well. In this regard, speakers discussed the role of the United Nations, the OECD, the EU, Member States and their parliaments in the international tax policy setting and how these different governance levels can better work together to address emerging challenges to our tax systems.

Five EU Member States request delayed implementation of Pillar Two

Estonia, Latvia, Lithuania, Malta, and Slovakia have requested delayed implementation of Pillar Two rules, Benjamin Angel, Director for direct taxation, tax coordination, economic analysis and evaluation at the European Commission, reportedly said on Wednesday 25 October during the annual Congress of the International Fiscal Association in Mexico. This possibility is indeed given by the EU Directive implementing Pillar Two for Member States with fewer than 12 Ultimate Parent Entities (UPEs) of in-scope multinational enterprise groups. Benjamin Angel reportedly said that he does not expect the number of Member States which requested delayed implementation to increase before the end of the year. EU Member States must transpose the Directive by 31 December 2023 to ensure the rules start taking effect on 1 January 2024. So far, 17 Member States have announced the drafting of legislation transposing the directive, Mr Angel said, adding that the Commission hoped for a higher number by this point in the year.

MEPs adopt their opinion on the ViDA package

On Tuesday 24 October, MEPs of the European Parliament’s Committee on Economic and Monetary Affairs (ECON) adopted their non-binding opinion on the VAT in the digital age (‘ViDA’) package, drafted by MEP Olivier Chastel (Renew Europe, Belgium). As expected, MEPs agreed on a 1-year delay of the 3 pillars of the reform: - the introduction of common e-invoicing and digital reporting requirements, - updated VAT rules for passenger transport and short-term accommodation platforms, and the - introduction of a single VAT registration across the EU. They also call for an extension of the deadline of two days after the chargeable event takes place for the issuance of invoices to 8 days. Moreover, MEPs propose a modified definition of e-invoicing, including the use of PDF invoices until January 2028. Finally, due to security and confidentiality risks, MEPs decided to remove the IBAN number of the supplier's bank as well as the time of the payment from the elements to be contained in the invoicing content standard. The compromise amendments between the political groups on the revision of the VAT directive can be found here. The final vote on the report is due to take place during the plenary session of the European Parliament on 20 November.

European Commission reports progress on VAT compliance

Most EU Member States made progress in the enforcement of VAT compliance in 2021, according to a new report released by the European Commission on Tuesday 24 October. The annual VAT gap study, which measures the difference between theoretically expected VAT revenues and the amount actually collected, shows that Member States lost around 61 billion € in VAT in 2021, compared to 99 billion € in 2020. This figure represents revenues lost mainly to VAT fraud, evasion and avoidance, non-fraudulent bankruptcies, miscalculations and financial insolvencies, the Commission explains. A number of Member States such as Italy (-10.7 percentage points) and Poland (-7.8 percentage points) recorded particularly notable reductions in their national VAT gap figures. The report further shows that targeted policy responses made a difference, particularly those related to digitalisation of tax systems, real-time reporting of transactions and e-invoicing. At the same time, temporary factors such as government support measures implemented during the COVID-19 pandemic, which were often contingent on paying taxes, may also have played a role in driving this positive change, it adds.

MEPs issue recommendations on further reform of corporate taxation rules

On Tuesday 24 October, MEPs from the ECON committee adopted an own-initiative report on further reform of corporate taxation rules, drafted by Isabel Benjumea (EPP, Spain). The text makes recommendations on how to use corporate tax rules to ease the burden on businesses, especially SMEs. Among other recommendations, it calls on the Commission to present an overall evaluation of previous actions taken on corporate taxation since 2011 and to publish a thorough impact assessment on the best options towards easing the administrative burden on businesses, particularly SMEs. To reduce compliance costs and administrative burdens the resolution particularly calls on the Commission to conduct an impact assessment on the use of new technologies to improve the speed, efficiency, reliability, transparency and resilience of tax-related administrative procedures. It adds that this may lead the Commission to follow-up this exercise with a proposal to enhance cooperation between tax authorities, taking advantage of good practices identified, leading to a business-friendly environment. The final vote of the report in plenary is scheduled on 11 December.

EP adopts its report on tax policy in times of crisis

On Tuesday 24 October, MEPs from the ECON committee adopted an own-initiative report on the role of tax policy in times of crisis, drafted by MEP Kira Marie Peter-Hansen (Greens/EFA, Denmark). The report makes recommendations on how to better use tax policy as a tool to facilitate redistribution, raise revenue and steer behaviours, notably towards favouring environment friendly behaviours. In particular, it calls for concrete policies, timelines and measures to phase out fossil fuel subsidies through tax measures as soon as possible, asking specifically that the taxation of air and sea transport be increased. It also highlights the need to focus on reducing tax fraud, avoidance and evasion in the area of direct and indirect taxation, calling on Member States to use the current legal and administrative tools more effectively. The report also outlines the problems posed to the international tax systems due to the rise of cross-border teleworking. Finally, the resolution invites the Commission to analyse a temporary excess profit tax on various sectors for future crises. The final vote of the report in plenary is due to take place on 11 December.

EU Tax Observatory global tax evasion report

A persistently large amount of profits is shifted to tax havens (1 trillion $ in 2022), according to a report on global tax evasion published by the EU Tax Observatory on Monday 23 October. The loss of corporate tax revenue caused by this transfer represents almost 10% of corporate tax revenues collected worldwide. US multinationals are responsible for around 40% of global profit shifting and Continental European countries appear to be the most affected by this evasion, the report finds. However, researchers found that, thanks to the automatic exchange of bank information, offshore tax evasion has declined by a factor of about three in less than 10 years. The EU Tax Observatory also makes six recommendations to “reconcile globalization with tax justice”: - introduce a 25% corporate tax rate and eliminate the loopholes in the OECD Two-Pillar solution; - introduce a new global minimum tax for the world’s billionaires equal to 2% of their wealth; - introduce mechanisms to tax wealthy individuals who have been long-term residents in a country and choose to move to a low-tax country; - implement unilateral measures to collect some of the tax deficits of multinational companies and billionaires if global agreements fail; - create a global asset register; - strengthen the application of economic substance and anti-abuse rules. “Tax evasion is not a law of nature but a policy choice”, researchers argue. Although they recognise that international cooperation is always preferable, unilateral action, if it is well-founded economically, can accelerate rather than impede global cooperation, they say.

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