Weekly Tax News - Monday 9 October 2023

October 9, 2023

OECD opens Pillar Two subject-to-tax rule Convention for signature

The OECD announced on Tuesday 3 October that it has concluded negotiations on a multilateral Convention to facilitate the implementation of the Pillar Two subject-to-tax rule (STTR), which is now open for signature. The STTR will enable developing countries to tax certain intra-group payments, in instances where these payments are subject to a nominal corporate income tax rate below 9%. The STTR allows source jurisdictions to impose a tax where they otherwise would be unable to do so under the provisions of tax treaties. More than 70 developing Inclusive Framework members are entitled to request inclusion of the STTR in their treaties. According to the OECD, the new multilateral instrument represents “a major step forward in concluding the work under Pillar Two”. The OECD also said it is preparing a comprehensive action plan to support the coordinated implementation of Pillar Two, with additional support and technical assistance to enhance capacity for implementation by developing countries. The text of the Convention, along with an explanatory statement, is available here.

Spanish Presidency proposes a new two-step approach on the UNSHELL Directive

The Spanish Presidency of the Council of the EU has reportedly suggested to Member States a new two-step approach to break the deadlock on the proposal for a Directive on the misuse of shell companies (UNSHELL). Under this approach, the UNSHELL proposal would become an amendment to the directive on administrative cooperation (DAC) adding a requirement for Member States to exchange information on shell entities, and in the future, it would be determined if tax consequences should be introduced at EU level. This approach would therefore, in a first step, leave Member States free to apply their own anti-abuse rules to entities considered shell companies. During a high-level working party on taxation meeting on Wednesday 4 October, more than a majority of Member States reportedly expressed support for the two-step approach suggested by the Spanish Presidency. However, the tax consequences were not the only point of contention on this file and discussions on criteria defining the economic substance of a company will also have to continue. It has to be recalled that, if the European Commission decides that the nature of its proposal has been denatured too much in the course of the legislative procedure, it could theoretically decide to withdraw it.

Multiannual work programme of the Code of Conduct Group published

On Tuesday 3 October, the Council’s Code of Conduct Group, which monitors the application of the EU Code of Conduct for Business Taxation, agreed on its work programme for 2023 -2028. According to the programme, the Group will start monitoring tax features of general application notified by Member States as well as continue the monitoring of preferential regimes and evaluate possible trends. The Group is also responsible for the EU listing process of non-cooperative third countries in tax matters. In this regard, the work programme foresees that the Group will continue to work towards a possible extension of the geographical scope of the EU list beyond the current 95 jurisdictions. “The progressive extension of the geographical scope of the EU list should ensure that it remains relevant, effective and credible over time, while keeping on preserving a level playing field among jurisdictions”, the document says. At a later stage, an in-depth revision of the criteria used to assess the relevance of the jurisdictions selected and the weight assigned to these criteria for the assessment would be needed, it adds. As regards the future criterion 1.4 on beneficial ownership (BO) information, the Group will continue the discussion to seek agreement on this criterion as soon as possible. On fair taxation, the Group could be invited to work towards strengthening the approach to economic substance requirements for all 2.2 jurisdictions, in coordination with the OECD. Finally, concerning minimum effective taxation, the Group could explore how to facilitate the proper functioning of the Pillar Two rules by making use of the EU listing process. This work will commence only after the Pillar Two rules start applying, in coordination with the OECD and possibly based on a future peer-review process, the document points out.

CBAM transitional phase started to apply on 1 October

On Sunday 1 October, the Carbon Border Adjustment Mechanism (CBAM) entered into application in its transitional phase. At this stage, CBAM will only apply to imports of cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. EU importers of those goods will have to report on the volume of their imports and the greenhouse gas (GHG) emissions embedded during their production, but without paying any financial adjustment at this stage. While importers are asked to collect data for the fourth quarter of 2023, their first report will only have to be submitted by 31 January 2024. Furthermore, a number of flexibilities have been built into the CBAM's structure for the first year of application, such as the use of default values for the reporting of embedded emissions and the possibility to use the monitoring, reporting and verification rules of the country of production. The transitional phase is supposed to serve as a learning period for all stakeholders as well as to allow the European Commission to collect useful information on embedded emissions in order to refine the methodology for the definitive period, which starts in 2026. As of that date, importers will need to buy and surrender the number of “CBAM certificates” corresponding to the GHGs embedded in imported CBAM goods.

ETAF participates to CECCAR Congress in Bucharest

The representative body of the accountancy profession in Romania (Corpul Experților Contabili și Contabililor Autorizați din România - CECCAR) held on Tuesday 3 October and Wednesday 4 October in Bucharest the 24th edition of its Congress, under the theme “#FutureReadyProfessionals – Evolution or Revolution?”. This edition marked the 100th anniversary of the first Congress of the accounting profession in Romania. On this occasion, essential strategic directions were debated regarding the future of the accounting profession, in meeting the objectives of a sustainable global economy. On Tuesday 3 October, ETAF President, Philippe Arraou, presented the perspective of tax professionals at EU level and ETAF work. He explained that EU tax legislation has become more and more complex these past years and tax professionals need to possess an ever-broader skillset beyond traditional tax knowledge. He presented three trends in EU tax policies that could influence the profession in the future in his opinion: the multiplication and complexification of EU tax legislation, the quest for greater tax responsibility and transparency, and the fight against tax avoidance and the focus on intermediaries. The key to our profession is to stay flexible and adaptable, he concluded. On Wednesday 4 October, ETAF head of office, Michael Schick, participated to a panel discussion on taxation fit for digital transformation. He informed the audience about the current legislative proposals at EU level dealing with digitalisation, including the recent proposal establishing a Head Office Tax System (HOT) for SMEs. Other speakers in the panel were Daniela Teodoru and Sia-Nicoleta Jiru from the Romanian National Fiscal Administration Agency and Marcel Vulpoi from Vulpoi&Toader Management.

ETAF is a registered organisation in the EU Transparency Register, with the register identification number 760084520382-92.

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