As reported in the last Tax Policy Update, the European Commission is considering the option of new taxes to help fund the EU COVID recovery package – including a so-called “Single Market tax” (SMT) that has baffled the tax policy world…
European Commission
Commission mulls the single market tax option
As reported in the last Tax Policy Update, the European Commission is considering the option of new taxes to help fund the EU COVID recovery package – including a so-called “Single Market tax” (SMT) that has baffled the tax policy world.
Since then, further details have emerged on it might entail. According to Commissioner Hahn (budget) this annual SMT would target up to 70,000 companies with a global turnover above EUR 750 million that operate in the Single Market. The Commissioner hopes that such a tax would yield EUR 10 billion. The tax rate could reportedly be 0,2% of the companies’ turnover.
But there seems to be no unity even within the Commission, with reportedly Commissioner Breton (single market and SMEs) cautioning against it. A number of business associations have also warned that it might endanger Europe’s economic recovery.
Commissioner Gentiloni re-iterates new EU tax proposals in 2021 if OECD fails
Commissioner Gentiloni has re-iterated that the EU will proceed with proposals in 2021 on digital and minimum taxation if the OECD’s discussions fail to deliver this year. He also said at a webinar co-organised by the Greens that minimum taxation would be most impactful in terms of additional tax revenues for Europe.
At the same webinar, the Commissioner excluded the option of using “enhanced cooperation” for an eventual minimum tax proposal, saying it makes little sense if only countries with ‘good tax governance’ participate. He also reminded that the use of Article 116 is being studied by the Commission, which would allow tax proposals to be adopted by qualified majority rather than unanimity, if they try to fix disruptions in the Single Market. He did not specify whether the minimum tax proposal specifically would fulfil this condition.
European Commission launches COVID recovery package, considers new taxes
On 27 May, the European Commission published its long-awaited COVID recovery plan to help rebuild Europe’s economy. It includes a one-off EUR 750 billion recovery instrument to help finance member states’ economies that have been weakened by the ongoing pandemic. Of this, EUR 500 billion would be in the form of grants, and EUR 250 billion in loans.
Interestingly, the Commission intends to consider several tax measures as options to help finance the recovery funding:
A carbon border tax
An “own resource based on the operation of large companies” – dubbed a “Single Market tax” that could yield up to EUR 10 billion
A digital tax based on OECD’s work or EU’s own action if OECD fails. According to initial estimates, a tax on large digital companies like Facebook and Google could generate about EUR 1 billion annually
Simplified VAT
A plastics tax that is expected to yield up to EUR 7 billion.
The Commission also commits to stepping up the fight against “tax fraud and other unfair practices”, and underlines the potential benefits of a common consolidated corporate tax base (CCCTB).
Beyond the references above, the Commission’s package did not include any tax proposals as such, but they do give indications to what is to be expected from the 15 July tax package as well as any subsequent tax initiatives.
European Commission launches public consultation on VAT scheme for travel agents
On 25 May, the European Commission launched a public consultation to review the special VAT regime for travel agents.
The consultation aims to gather views on how the special scheme meets its objectives, and to which extent existing rules are still relevant and aligned with stakeholders’ needs. The consultation also seeks to identify potential distortions of competition and the regulatory costs and benefits for businesses taxed under the special scheme.
The deadline for submitting comments is 14 September.
European Parliament
European Parliament aims to approve COVID VAT postponements in July
On 9 June, ECON Committee of the European Parliament discussed the Commission’s proposed COVID postponements to the VAT e-commerce system (original proposals here and here). The new system should make it easier for consumers and businesses to buy and sell goods cross-border online as well as help Member States to collect VAT.
At the hearing, MEPs agreed to aim for a quick agreement on the two files in order to deliver the Parliament’s opinion ideally at the July Plenary. The files in the Parliament are led by MEPs Ondrej Kovarik (RE/Czech Republic) and Ludek Niedermayer (EPP/Czech Republic).
The Parliament’s opinion is necessary before the Commission’s proposals can enter into force.
European Parliament decides to set up permanent tax Committee
On 11 June, the European Parliament’s Conference of Presidents agreed to set up a permanent tax Committee, to work under ECON.
Reportedly, the Committee’s mandate would focus on tax avoidance, fraud, evasion and transparency.
The exact seat allocation is to be confirmed, but our preliminary information indicates that EPP would get 8 seats, S&D 6, RE 4, Greens 3 and GUE-NGL 2. The Committee would be chaired by the MEP Paul Tang (S&D/Netherlands), but this is also to be set in stone. The total number of members would be 30, with 4 vice-chairs.
A confirmatory vote in Plenary is expected for Thursday 18 June.
Vestager hints at digital tax being used as EU’s own resource
On 25 May, Commission Vice-President Margrethe Vestager participated at a hearing of ECON Committee to discuss the economic impact of and response to COVID.
Responding to questions on digital taxation from a number of MEPs, Vestager re-iterated that should the OECD fail to agree on digital taxation, the Commission will step in. She also mentioned the possibility of using a EU digital levy as an own-resource to the Commission, but emphasized that first and foremost the priority must be to agree on a digital tax framework in the first place.
Vestager also told MEPs that the Commission cannot include tax related conditionalities on businesses that receive COVID financial aid.
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