European Commission seeks stakeholders’ views on the future Single Market Strategy
The European Commission launched on 3 January 2025 a call for evidence inviting all interested parties to submit their views and ideas to inform the future Single Market Strategy. With this call for evidence, the Commission seeks to gather information on the main obstacles to the free movement of goods and services, the main regulatory and administrative challenges for businesses, including small and medium-sized enterprises, governance and enforcement issues, and possible solutions. Following the European Council's call for a horizontal strategy for the single market by June 2025, the Commission is committed to presenting a blueprint for a modernized single market to enable EU businesses to grow and compete globally, support the EU's green and digital transitions and boost our prosperity, it said. The Single Market Strategy will present an action plan listing binding and non-binding initiatives that the Commission intends to put forward over the coming years to fully exploit the potentials of the Single Market to boost Europe’s productivity. It will focus on removing existing regulatory and administrative barriers and preventing new ones from materialising, the Commission said. This strategy will be articulated closely with the Commission’s strategy to reduce administrative burden and simplify legislation. Interested stakeholders are invited to submit their contributions by 31 January 2025. The ideas collected will be examined at the Single Market Forum to be held in Krakow on 17 February 2025, which the Commission is organizing jointly with the Polish Presidency of the Council.
Polish Presidency of the Council of the EU kicks off
The Polish Presidency of the Council of the EU started on 1 January 2025 for six months. The central theme of the Polish Presidency will be security, in all its dimensions: external, internal, information, economic, energy, food and health. According to a draft agenda of meetings, in the area of taxation, the Presidency only aims at finding an agreement on the ninth Directive on administrative cooperation in the field of taxation (DAC9), possibly on 11 March 2025. It will also proceed with the traditional update of the EU blacklist of non-cooperative jurisdictions in tax matters in February. On several ongoing tax initiatives, such as the Business in Europe: framework for income taxation (BEFIT) and the Directive on transfer pricing, the Presidency only foresees a state of play and guidance for further work at the May Ecofin. Progress reports on the revision of the Energy Taxation Directive (ETD) and the adjusted package for the next generation of own resources are foreseen for the June Ecofin meeting. At the same meeting, the Presidency also aims at adopting conclusions on fair taxation. Moreover, the Presidency plans two policy debates on the Single Market: one on a horizontal strategy for a modernised Single Market at the Competitiveness Council meeting on 6 March and one on creating growth and competitiveness enhancing regulatory framework at the Competitiveness Council on 22-23 May.
European Commission publishes results of the DAC public consultation
The European Commission published on 19 December 2024 a summary report of the answers received to the public consultation on the evaluation of the Directive on administrative cooperation in tax matters (DAC).The report particularly notes that stakeholders were relatively critical of the Directive (EU) 2018/822 regarding mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (DAC6). Starting with the assessment of the screening and reporting process for cross-border arrangements, respondents found both difficult, rating them as either very complex or complex. The questionnaire also investigated the estimation of costs of screening and reporting under DAC6. According to stakeholders, DAC6 has increased administrative costs, particularly for companies with international contacts and professions such as tax advisors, auditors, and lawyers. The costs vary depending on the size, complexity, and the number of cross-border transactions. A significant portion of responses indicates that many hallmarks are either unclear or occasionally raise questions, suggesting widespread uncertainty in the application of DAC6 hallmarks across the different categories. The majority view is that more detailed and practical guidance is needed, as the development of practical guidance and operational examples at EU level for each hallmark was the proposal with the higher positive responses (9 out of 10). This was followed by the necessity for common guidelines endorsed by Member States and the need for a more detailed description in terms of conditions of application of each hallmark (8 responses each). There is also strong support for systematic collection and provision of participants' tax identification numbers and the inclusion of mandatory elements in the DAC6 summary (both indicated by 7 respondents). Conversely, there was less support for adding further detailed hallmarks. The data collected from the consultation activities will form part of the final report detailing the conclusions drawn on the DAC evaluation, due to be published in early 2025.
VEG report on the future of VAT after ViDA
On 16 December 2024, the VAT Expert Group of the European Commission released its reflection report on the future of VAT after the ViDA package. The document looks into the long-term future of a possible EU VAT system and reflects on the political and practical landscape in the EU, looking at current and possible further evolving technologies that could have impacts on a future VAT system. VAT is here to stay, at least for the foreseeable future, particularly keeping in mind that VAT is a growth friendly tax, one of the main revenue raisers for governments, and also a very reliable source of revenues with a stable tax base, the report says. The VEG’s long-term vision (2050 and beyond) proposes a fundamentally restructured VAT system, addressing complexities and administrative burdens within the current framework. A future oriented VAT system should focus on these main objectives: simplifying compliance, fostering neutrality across the EU, and safeguarding VAT revenues by enhancing administrative efficiency, according to the VEG. The report contains a series of suggested deliverables to be further explored aiming at setting up a long-term future VAT system in order to boost future growth and the EU´s economic competitiveness with a possible time frame prepared by the VEG for consideration by the European Commission. This includes, enhancing the ViDA framework to reduce administrative burdens and legal uncertainties whilst updating the current VAT system to better align with contemporary technology-driven business models and ensuring that sustainability goals are also achieved. It is also proposed to refresh some key initiatives that were put on hold like the reform of the VAT rules for financial and insurance services, and the VAT and the tourism package. To achieve all of the above, the VEG proposes the suggested deliverables to be further explored and implemented gradually (2025-2045), allowing the proposed VAT system of the future to fit within the EU legal and administrative context.
Significant progress in VAT compliance in 2022
Most EU Member States made significant progress in VAT collection between 2018 and 2022, according to a new report released on 18 December 2024 by the European Commission. The annual VAT Gap in the EU Report, which measures the difference between theoretically expected VAT revenues and the amount actually collected, shows that Member States lost around €89 billion in VAT in 2022, compared to €121 billion in 2018. This figure represents revenues lost primarily to VAT fraud, evasion, avoidance, non-fraudulent bankruptcies, miscalculations, and other factors. The report highlights that targeted policy measures have made a significant difference, particularly those related to the digitalisation of tax systems, real-time transaction reporting, and e-invoicing. Additionally, the report emphasises that ongoing reforms are critical to further reducing the VAT gap, ensuring more efficient collection, and preventing fraud. Along with this edition, the European Commission also provided a specific analysis of Missing Trader Intra-Community (MTIC) fraud, a prominent form of VAT non-compliance exploiting VAT-free trade of goods and services between EU Member States. In nominal terms, depending on the range of products covered in the analysis, EU Member States lost between €13 and €33 billion per year between 2010 and 2023.
OECD releases new simplification tool for the implementation of Amount B
On 19 December 2024, the OECD released a pricing tool and fact sheets to facilitate the understanding and operation of the simplified and streamlined approach to transfer pricing. Amount B under the Two-Pillar Solution to Address the Tax Challenges of the Digitalising Economy provides for a simplified and streamlined approach to the application of the arm’s length principle to in-country baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries. The fact sheets provide a high-level overview of the mechanics of Amount B, including the steps taxpayers and tax administrations should take to apply Amount B. The Pricing Automation Tool has been developed to automatically compute the Amount B return for an in-scope tested party, requiring only minimal data inputs, and is intended to further optimise the administrative and simplification benefits for both tax administrations and taxpayers. The tool will be updated annually to reflect any changes to the pricing matrix and other data points relevant to the application of Amount B adjustment features, the OECD said. The adoption of Amount B is still under consideration by many Inclusive Framework members as they take time to complete domestic administrative and legislative procedures along with other competing fiscal priorities in 2025/2026. The OECD will hold a technical webinar on 11 February 2025 on the latest developments relating to Amount B, including a demonstration of the Pricing Automation Tool.
Member States may prohibit holdings by purely financial investors in a law firm, ECJ says
On 19 December 2024, the European Court of Justice (ECJ) decided in case C-295/23 on the prohibition of third-party ownership in a law firm (shareholding requirements). The German law firm Halmer Rechtsanwaltsgesellschaft challenged before the Higher Bavarian Lawyers’ Court (Germany) a decision of the Munich Bar Association of 9 November 2021 which revoked its registration with the bar association on account of the fact that an Austrian limited liability company acquired shares in it for purely financial purposes. Under the German legislation applicable at the time, only lawyers and members of certain liberal professions could become a member in a law firm. The Higher Bavarian Lawyers’ Court therefore put questions to the Court of Justice regarding the compatibility of that legislation with EU law. The ECJ ruled that it is admissible to limit third-party ownership. Member States may prohibit holdings by purely financial investors in the capital of a law firm, it stated. Such a restriction on the freedom of establishment and the free movement of capital is justified by the objective of ensuring that lawyers can exercise their profession independently and in compliance with their professional conduct obligations, the ECJ ruled. The judgement can have effect on tax professionals where the independence of the exercise and the compliance with the professional law are legally recognised.