By Francesca Amaddeo, Researcher, Tax Law Competence Centre (SUPSI), Manno, Switzerland
On 27 November, the EU Council released its assessment of Europe’s 2020 tax policy achievements and set out its plans for 2021. The EU Council’s conclusions follow reports by ECOFIN and the Code of Conduct Group, also providing updates on EU taxation efforts, both released on 20 November.
Along with the COVID-19 recovery strategy, and conscious of the difficulties arising from the pandemic, the EU tax plans remain ambitious.
Taxation of the digital economy, VAT, and tax good governance are the main issues to be addressed, but without forgetting direct taxes, administrative cooperation, and tax compliance.
Tax challenges arising from the digitalisation of the economy
The global health emergency did not stop the OECD work on the taxation of the digital economy. As well-known, recently the OECD released the blueprint of its two pillars, open to public discussion until 14 December.
Consistent with an ECOFIN report, the EU Council supports the international policy. Efforts made by the OECD are appreciated.
The EU Council will take into account the interests of all Member States to ensure that all corporations pay their fair share of tax on profits generated by their activities in the EU.
The Commission is asked to monitor and provide expertise on the EU legal framework to the Member States to be prepared to implement the eventual global agreement reached by mid-2021 or, in the worst hypothesis, for the absence of international consensus.
A coordination plan will also be developed in the field of direct taxation, respecting the national competence of Member States.
Among these features will be a more consistent determination of the tax residence and the introduction of a standardised EU-wide system for withholding tax relief at source.
Among these features will be a more consistent determination of the tax residence and the introduction of a standardised EU-wide system for withholding tax relief at source.
VAT: dialogue and modernisation
Consistent with the above, the Council embraces remarks emphasised in the ECOFIN report in the area of VAT.
EU proposals within VAT mushroomed in the last years. These aim at modernising the system to better fit the digital economy’s features and meet the needs of small and medium-sized entities. Moreover, the idea is to tackle the VAT gap and improve administrative cooperation in this area.
Preliminary actions must lead to further simplification of the EU cross-border trade, together with the reduction of administrative burdens for both taxpayers and tax administrations. Dialogue is the key.
Member States would be able to strengthen their fight against VAT fraud, in particular if enforced through improving the effectiveness and efficiency of registration of VAT- liable taxpayers within the EU and of the use of taxpayers’ data.
Agreements with countries outside the EU must be developed.
To obtain its own resources, the EU will exploit excise duties and a financial transaction tax.
Even if often underrated, excise duties represent a relevant option for the Member States. They help achieve other policy objectives of public interest, such as in the field of health, environmental protection, and transport.
In particular, manufactured tobacco and alcoholic beverages are in the crosshairs.
Besides, the Commission is expected to present a proposal on e-commerce aspects and cross-border acquisitions of excise goods by private individuals as well as a proposal for the revision of the energy taxation framework.
EU Tax Coordination: the Report of the Code of Conduct Group
Despite COVID-19 slowing down its activity, the Code of Conduct Group is still working, exploiting the available tools.
An assessment of the standstill and rollback notifications of new preferential tax measures enacted by the end of 2020 was launched in mid-November 2020.
The Group decided it did not need to assess the Danish tax regime on investment vehicles or Poland’s cooperative compliance program for large taxpayers (which must be kept monitored). Cyprus’s notional interest deduction regime was declared not harmful, and Romania’s profit tax exemption is still under observation.
The Code of Conduct Group concluded the following tax measures have not affected the business location among Member State in a significant way: Luxembourg’s intra-group financing- safe harbor rule, Lithuania’s extension of corporate income tax incentives in SEZ, Greece’ patent tax incentives, and Portugal’s notional interest deduction regime.
However, the monitoring process should continue.
The EU Council notes the significant contribution of the Code of Conduct Group, especially in the context of the EU list of non-cooperative jurisdictions. Its mandate should also cover features of tax systems that have general application that may have harmful consequences, the Council said.
The EU Council notes the significant contribution of the Code of Conduct Group, especially in the context of the EU list of non-cooperative jurisdictions. Its mandate should also cover features of tax systems that have general application that may have harmful consequences, the Council said.
Tax administration and compliance
As part of the fair taxation and good governance package, the EU Council underlines the need to improve tax administration and compliance.
This requires an efficient bridge between tax administrations. It requires a firm legal basis. Initiatives to facilitate and promote business tax compliance include work on a more effective exchange of information mechanism that also encompasses digital platform operators.
Strings around EU Council’s fingers
Next year will be full of challenges, including the unknown effect of the pandemic on our lives.
The EU must undertake crucial decisions for the future of taxation. Once again, the digitalisation of the economy seems to affect several aspects of the framework.
The road to fair taxation and good governance is an uphill climb, but we have the right equipment.
Francesca Amaddeo
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