This year will be another busy one for tax policy in the EU. The first few months promise a lot of action ahead…
First months of 2021 – what to expect?
This year will be another busy one for tax policy in the EU. The first few months promise a lot of action ahead, with the European Commission planning the following:
- Revision of the Energy Tax Directive (ETD) and proposal on a carbon border adjustment mechanism (CBAM) in June
- Proposal on a digital levy in June, and a proposal on Pillar 2 (minimum taxation) with the exact timeline still to be determined
- DAC 8 proposal in the second half of 2021, with a public consultation expected for February
- Communication on Business taxation for the 21st Century in the spring
- Proposal on VAT for financial services by the end of the year
The Portuguese Council Presidency, for its part, will also keep busy on the tax agenda by trying to advance on public country by country reporting (CBCR) and financial transaction tax (FTT) files.
The European Parliament, with its permanent tax (FISC) and other relevant Committees, will also continue its work on tax. It has just approved a Motion for Resolution on the EU list of tax havens, and is scrutinising the EU-UK trade agreement for its tax provisions. Moreover, although the Parliament is usually only consulted on tax proposals, it appears that CBAM will most likely be proposed with ordinary legislative procedure (OLP), i.e. European Parliament having an equal say with the Council.
In summary, busy times ahead! See in this update for more details on some of the above, and my latest contribution to Tax Journal for an additional overview.
Tax elements of the EU-UK trade agreement
The EU and the UK reached a trade agreement for post-Brexit relations on 24 December 2020. The agreement mainly covers trade in goods, but leaves services out of its scope.
On tax, the agreement commits the UK to following existing international OECD standards on exchange of information on financial accounts, cross-border tax rulings, CBC reports between tax administrations, and potential cross-border tax planning arrangements, as well as rules on interest limitation, controlled foreign companies and hybrid mismatches.
The agreement also obliges the UK to maintain the public CBCR requirement for credit institutions and investment firms that exists in EU law (capital requirements Directive, CRD IV).
Commission adopts proposal to adapt decision-making process for interpreting certain VAT concepts
The Commission proposal, published on 18 December, puts in place a new decision-making process for certain VAT rules. by changing the rules of the EU’s VAT Committee.
The VAT Committee consists of representatives of EU Member States and of the Commission, and examines the application of EU VAT provisions raised by the Commission or a Member State.
VAT Committee can currently only agree non-binding guidelines on the application of the VAT Directive. But the new proposed process would mean that certain VAT committee decisions would be taken under the so-called ‘comitology procedure’, allowing for the adoption of binding interpretations of certain concepts in the EU’s VAT rules. The decisions would also be taken via qualified majority, rather than unanimity.
Commission launches first round of feedback on its digital levy
On 18 January, the Commission launched a public consultation on its future ‘digital levy’, which is due to be published in June 2021.
The consultation, to which stakeholders can provide feedback until 12 April, seeks input notably on the design of the tax, for example whether it should be a:
- corporate tax top-up on all companies conducting certain digital activities in the EU
- tax on revenue created by certain digital activities in the EU
- tax on business-to-business digital transactions
The Commission is also consulting on other aspects of the levy, including:
- scope and definition of digital activities/transactions and of applicable companies
- compatibility with EU’s international obligations (e.g. DTAs)
- impact on SMEs and consumers
Commission planning Communication on VAT gap in the EU
The Communication, scheduled for Q1 2021, will highlight measures and best practices taken by European countries’ tax administrations to reduce their national VAT gaps. The purpose is to facilitate an exchange of best practices and enable the national administrations to learn from each other’s approaches.
The Commission already published a short Roadmap outlining the main objectives and further details of the upcoming Communication. Stakeholders may submit feedback on the Roadmap until 3 March.
Commission launches public consultation on VAT for financial and insurance services
The much-awaited consultation was launched on 8 February. The new revision comes after a 2017 ruling by the Court of Justice of the EU (CJEU) found provisions of the rules, such as cost-sharing arrangements used by financial and insurance operators, to be inadmissible. On top of this, the Commission finds the VAT treatment of financial and insurance services to be complex and difficult to apply in practice, and potentially not fit for new digital services in the financial industry.
Stakeholders have until 3 May to respond to the public consultation. The stakeholder input will feed into a Commission proposal, which is currently scheduled for Q4 2021.
Commission publishes delegated regulation on the implementation of VAT for e-commerce provisions
The special scheme for charging VAT for non-established taxable persons providing telecommunications, broadcasting or electronically supplied services to non-taxable persons has been enlarged to cover all services and distance sales of goods made to non-taxable persons. As a result, the Commission is amending its relevant regulation accordingly and lays down rules to audit transactions recorded on these special schemes.
Stakeholders can give feedback on the proposal until 18 March.
Gaps in the exchange of tax data in the EU may encourage tax avoidance and evasion
The European Court of Auditors (ECA) has published a report on the EU exchange of tax information framework.
ECA reports that there is still insufficient sharing of tax information between EU member states to ensure fair and effective taxation throughout the Single Market. The problems are not only with the EU’s legislative framework (Directive on administrative cooperation – DAC), but also with its implementation and monitoring, ECA argues. In particular, the information exchanged is often of limited quality or underused.
MEP Questions & Answers
Commission clarifies implementation of joint liability for distance sales of goods imported from 3rd countries & future plans on VAT for e-commerce
- Question by MEPs Pascal Arimont (RE/Belgium) and Benoît Lutgen (RE/Belgium)
- Reply by Commissioner Gentiloni
Commission report on mutual assistance of EU member states on tax related claims recovery
Commission publishes evaluation report on VAT scheme for travel agents