Belgium took over, on Monday 1 January 2024, the rotating Presidency of the Council of the EU for the next six months. On the tax front, the Belgian Presidency aims at reaching an agreement on the proposal for a Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER) at the April Ecofin Council meeting as well as an agreement on the VAT in the Digital Age (ViDA) Package in May, according to an indicative calendar. In the area of direct taxation, priority will be given to measures aiming to curb tax evasion, tax avoidance, aggressive tax planning and harmful tax competition, its programme says. This will involve updating the EU’s list of non-cooperative jurisdictions and propelling both legislative and non-legislative initiatives to decrease compliance costs and the burden for cross-border investors. Belgium says it will also support the implementation of the UNSHELL Directive, continue the review of the Energy Taxation Directive and explore the usefulness of more unified tax rules in other fields over the longer term, such as in relation to mobile workers. It will also work to ensure greater tax transparency and reinforce the exchange of relevant information within the EU, specifically regarding the good functioning of the Pillar Two Directive. On the recent BEFIT, HOT and Transfer Pricing proposals, only progress reports are foreseen by the end of the Belgian Presidency in June.
Pillar Two rules enter into force in the EU
The minimum effective taxation rules, the so-called “Pillar Two” rules agreed on as part of the global deal on international tax reform in 2021, came into effect in the EU on Monday 1 January 2024. The rules will apply to multinational enterprise groups and large-scale domestic groups in the EU, with combined financial revenues of more than €750 million a year. They will apply to any large group, both domestic and international, with a parent company or a subsidiary situated in an EU Member State. The Directive includes a common set of rules on how to calculate and apply a 'top-up tax' due in a particular country should the effective tax rate be below 15%. If a subsidiary company is not subject to the minimum effective rate in a foreign country where it is located, the Member State of the parent company will also apply a top-up tax on the latter. In addition, the Directive ensures effective taxation in situations where the parent company is situated outside the EU in a low-tax country which does not apply equivalent rules. On 22 December 2023, the European Commission published a detailed FAQ on the Directive. Although most EU Member States are prepared to apply global minimum tax provisions at the start of 2024, a small group of Member States is experiencing some delays in implementation.
OECD releases new timeline for Pillar One and further guidance on Pillar Two
The OECD/G20 Inclusive Framework on BEPS released a statement on Monday 18 December 2023 updating the timeline to finalise the text of the Multilateral Convention (MLC) to implement the coordinated reallocation of taxing rights over the profits of the world’s largest and most profitable companies (Amount A of Pillar One). “Recognising that the work to resolve the remaining differences will have to go on into next year, including with respect to the standstill on new Digital Service Taxes and other relevant similar measures, Members of the Inclusive Framework reaffirm their commitment to achieve a consensus-based solution and to finalise the text of the MLC by the end of March 2024, with a view to hold a signing ceremony by the end of June 2024”, the statement says. On the same day, the Inclusive Framework also released further technical guidance to assist governments with implementation of the global minimum tax under Pillar Two. The document includes guidance on the application of the Transitional Country-by-Country Reporting Safe Harbour and a mechanism for allocating taxes arising in a Blended Controlled Foreign Corporation (CFC) Tax Regime when some of the jurisdictions the MNE operates in are eligible for the safe harbour. The Inclusive Framework said it will continue to release further administrative guidance on an ongoing basis.
New rules to combat VAT fraud on cross-border payments in force from 1 January
On Monday 1 January 2024, new rules on cross-border payments helping EU Member States to combat Value Added Tax (VAT) fraud came into force. The new rules, agreed in 2020, will provide EU Member States' tax administrations with payment information that will make it easier for them to detect VAT fraud, particularly in the area of e-commerce. To do this, the new system exploits the key role played by payment service providers, who collectively handle more than 90% of online purchases in the EU. They will be required to monitor the beneficiaries of cross-border payments. In addition, from 1 April 2024, they will have to send information to the administrations of the EU Member States on those who receive more than 25 cross-border payments per quarter. This information will then be centralised in a new European database developed by the European Commission, the Central Electronic System of Payment information (CESOP). All the information contained in CESOP will then be made available to Member States via Eurofisc, the European network of specialists in the fight against VAT fraud launched in 2010.
ETAF feedback on the HOT system
On Wednesday 20 December 2023, ETAF published its answer to the European Commission’s public consultation on the proposal for a Directive establishing a Head Office Tax (HOT) system for micro, small and medium sized enterprises. ETAF members recognize the potential of the proposal, especially for SMEs that may be planning to expand across the borders and may have been held back by the perspective of high compliance costs. However, our response also highlights a number of concerns about how the proposed HOT initiative would work in practice and the unintended effects it could generate. In particular, we find the scope of the directive too narrow, which will not allow many SMEs to benefit from this relief measure. We made several recommendations on the eligibility requirements as well as on the notification of the opt-in and its termination and renewal. Finally, we also flagged some practical problems that could arise in the functioning of the one-stop-shop as well as for audits and appeals in the context of the HOT proposal, and possible risks of distortion of competition.
On Wednesday 20 December 2023, ETAF replied to the European Commission's public consultation on the proposal for a Directive transposing the OECD Transfer Pricing Guidelines into the EU legal order, published on 12 September 2023. ETAF members first of all recognized the importance of ensuring that all EU Member States apply the arm’s length principle in a harmonised way to avoid profit shifting, double taxation, transfer pricing litigations and tax uncertainty. From our perspective, an EU Directive on Transfer Pricing should aim at giving clearer rules to businesses on the way forward. In particular, the main advantage of this initiative would be to make sure that simple and quick corresponding adjustments are accessible for taxpayers in case of transfer pricing corrections. However, we found that most of the proposed provisions are to a large extent repetitions of the OECD Transfer Pricing Guidelines, some of them being mere repetitions with a different wording and others being unjustified aggravations compared to the OECD Guidelines. To avoid ambiguities, interpretation difficulties and possible conflicts, we recommended staying as close as possible to the OECD Guidelines. Our comments also relate to the definition of associated enterprises, corresponding and compensating transfer pricing adjustments, determination of the arm’s length range and transfer pricing documentation.
On Monday 18 December 2023, the Council and the European Parliament representatives reached a common understanding on the process for selecting the seat of the future European authority for countering money laundering and terrorist financing (AMLA). The co-legislators agreed on the principle of organising joint public hearings to allow representatives of Member States’ candidacies to present their applications. The co-legislators will assess each application according to the selection criteria included in the call for applications, the information provided by candidates in their application forms, the Commission’s assessment of those forms as well as the outcome of the joint public hearings. The final decision on the location of AMLA’s seat should be made by the co-legislators in an informal inter-institutional meeting at political level, where the Parliament’s and the Council’s representatives will vote together at the same time with the same number of votes attributed to each co-legislator. Nine Member States submitted applications to host AMLA: Belgium, Germany, Ireland, Spain, France, Italy, Latvia, Lithuania and Austria. The Commission was tasked with assessing the eligibility of the candidacies. The release of the assessment is expected for January 2024. The location of the seat resulting from the process will be included in the AMLA regulation and formally adopted as part of the text.
On Wednesday 22 December 2023, the United Nations (UN) General Assembly adopted by a vote of 111 in favour to 46 against, with 10 abstentions, the resolution 78/230 “Promotion of inclusive and effective international tax cooperation at the United Nations.” The resolution, which was already endorsed by the General Assembly’s Economic and Financial Committee in November, establishes an ad hoc intergovernmental Committee mandated to develop draft terms of reference for a United Nations framework convention on international tax cooperation, with a view to finalizing the Committee’s work by August 2024. The US and EU Member States opposed the resolution because they fear a duplication of the work done at the OECD level on international tax cooperation.
The International Ethics Standards Board for Accountants (IESBA) announced on Thursday 21 December 2023 that it successfully completed and approved the final ethics standards for tax planning and related services. These amendments to the IESBA’s International Code of Ethics for Professional Accountants respond to public concerns about ethical behaviour in tax planning in light of high-profile revelations about tax avoidance schemes in several jurisdictions in recent years. The final provisions establish an ethical framework in the public interest to guide professional accountants in making judgments and decisions when providing tax planning or related services. Pending certification by the Public Interest Oversight Board (PIOB), the final pronouncement is expected to be issued by mid-April 2024.
On Monday 18 December 2023, Tim Power, Deputy Director for International Business and Taxation at His Majesty's Treasury of the United Kingdom, was elected Chair of the OECD Committee on Fiscal Affairs (CFA). He replaces Mr Gaël Perraud, who resigned in December 2023 following his move to a new position within the French Ministry of Finance. Mr Power has significant experience representing the United Kingdom in multilateral discussions within the OECD and a long-standing involvement in the Steering Group of the OECD/G20 Inclusive Framework on BEPS. More recently, he also served as Co-Chair of the Task Force for the Digital Economy including in finalising the Multilateral Convention (MLC) to implement Amount A of Pillar One. The CFA is the OECD's main forum for discussion on taxation, covering both international and domestic tax issues, as well as tax policy and administration. As Chair of CFA, Mr Power will also co-chair the OECD/G20 Inclusive Framework on BEPS, alongside Ms. Marlene Nembhard-Parker of Jamaica, who became Co-Chair in March 2022.