By Francaesca Amaddeo, Researcher, Tax Law Competence Centre (SUPSI), Manno, Switzerland
On 15 July, the EU Commission released its proposals for fair and simple taxation that also support economic recovery. The Commission says it will explore a new mechanism for enacting tax legislation without the approval of all EU states and offers significant amendments to European VAT rules.
The document seeks tax fairness, transparency, and cooperation. It aims to reinforce the fight against tax abuse and to help tax administrations to keep up with international tax changes.
The tax package includes three groups of reforms. First, an Action Plan presents 25 different actions encompassing both direct and indirect taxes. Second, revisions are made to rules on administrative cooperation. Finally, the package presents Tax Good Governance Communications.
Several proposals will be presented between now and 2024. The EU Commission has a full schedule!
Tax unanimity
The Action Plan includes an unexpected bullet point:
“To fully deliver on the EU’s fair tax agenda, all existing policy levers have to be activated. It is in this context, that the Commission will explore how to make full use of the provisions of the Treaty on the functioning of the EU (TFEU) that allow proposals on taxation to be adopted by ordinary legislative procedure, including article 116 TFEU”.
Yes, you read it correctly, the Commission will consider adopting tax proposals using Article 116 of the Lisbon Treaty.
Since tax matters are a national competence, this seems to be a trick to avoid unanimity in adopting or changing EU tax rules.
Indeed, article 116 TFEU states that in the absence of any distortion of competition in the internal market, Member States do not have to be consulted. The EU Parliament and Council, following the ordinary legislative procedure, shall issue the necessary directives. This would be a shortcut to regulating taxation, circumventing the national veto.
Lively debates lie ahead!
Digitalisation
Digitalisation represents the starting point of the Action Plan.
This term – digitalisation – sounds like a song stuck on repeat when it comes to taxation.
Every change creates challenges, but digitalisation of the economy and of national authorities should also be understood as an opportunity, Commission said.
Tax administrations will become digital. Thus, the Action Plan aims for tax simplification. Reducing tax obstacles and unnecessary administrative burdens for both businesses and competent authorities will improve efficiency and competitiveness, the Commission observes. Simplification will make a huge contribution to economic growth.
Member States play a key role, but they need EU support in enforcing existing tax rules and improving tax compliance. In this way, they can secure reliable tax revenues, which nowadays is more important than ever, as the Coronavirus taught us.
Given the above, competent authorities need to exploit existing data and share new information more efficiently.
The Action Plan sets out a new, balanced approach, combining actions against tax fraud and evasion with measures simplifying the life of honest taxpayers, the Commission states.
Single EU VAT registration
Each taxpayer, as an individual or as VAT-liable person, shall be correctly registered through an identification number, the so-called TIN or VAT registration number.
The assigning procedure must be as simple as possible, especially in cross-border circumstances.
Taxpayers must communicate all data required to tax authorities. Member State databases must be kept updated to grant efficiency and international cooperation.
In this regard, the Commission will propose to amend VAT directive, moving toward a single EU VAT registration.
That’s not all. As mentioned, tax administrations must efficiently deal with taxpayers’ information but comply with EU data protection rules. These objectives will be pursued through a pilot project to create a proper digital platform.
Corporate tax, VAT reporting, e-invoicing
The dialogue between tax administrations and taxpayers is based on the principle of self-assessment. Taxpayers autonomously prepare their tax returns. The idea is to move to pre-filled tax returns to promote complete disclosure of all relevant data for tax matters.
With this in mind, the Commission, together with Member States, will promote an EU cooperative compliance framework to facilitate and improve tax compliance for businesses, inspired by cooperation, trust, and transparency. Its goal is to prevent any cross-border tax issues between tax authorities in the area of corporate income tax.
A legislative proposal for modernising VAT reporting obligations and facilitating e-invoicing will follow.
Platform VAT reporting
An update to the VAT rules for online platforms is also planned. The objective is to elevate the use of IT as a tool to booster tax compliance and efficiency in the fight against fraud in this field, the Commission says.
Tax payment
Tax payment reforms are also crucial.
On the one hand, tax administration must provide simplified methods for payment, exploiting electronic methods such as smartphone apps. On the other hand, the relationship with taxpayers must grow up from new roots leading to reciprocal trust and cooperation.
This is such an ambitious goal, especially in cross-border circumstances. The Commission’s agenda provides that taxpayers should know clearly and in advance where they are deemed to pay taxes without incurring in double taxation. This implies the strengthening of the State of residence’s taxing rights.
Another important point concerns the improvement of assistance for the recovery of unpaid taxes among Member States.
Often the international tax framework lacks such a mechanism: jurisdictions will work on their internal tax recovery systems and deploy sufficient resources to deal with recovery assistance requests.
EU Commission recommendations will be presented on this topic.
Verification, monitoring, and administrative cooperation
To complete the assessment procedure, tax administrations have the thankless task of checking taxpayers’ tax disclosures.
Due to technologies and enhanced cooperation, tax authorities have a wide range of tools to be exploited. The Action Plan suggests different measures, including the involvement of EUROFISC, the Member States’ antifraud experts’ network.
Also, the EU tax Observatory will be set up so the exchange of information will be widened further.
Dispute resolution mechanisms
Since the action plan is entirely devoted to the recognition of taxpayers’ rights, another primary objective is to prevent the possibility of disputes.
Since disputes are costly and time-consuming, the Commission will monitor and amend the dispute resolution mechanism directive: legal certainty must be granted to taxpayers.
Finally, the document stresses the necessity of simplification. Most taxpayers want to pay their fair share, but in some cases, the complexity of tax matters represents a disincentive to so, the Commission says. Indeed, the Commission will publish a kind of Charter on Taxpayers’ rights under EU law.
DAC 7: the exchange of information to digital platforms
Consistent with OECD model rules for tax reporting by gig-economy platform operators, the EU Commission is considering widening exchange of information to cover the digital economy.
Tax administrations of the different Member States would automatically exchange information on income or revenue generated by sellers on digital platforms.
This second pillar will be another branch of Directive 2011/16/EU on administrative cooperation.
Tax authorities have a large database of taxpayer information. As always, when discussing such a mechanism, one wonders about the compatibility of this monitoring system with taxpayers’ rights.
Communication on Tax Good Governance in the EU and beyond
Tax good governance is the basis of fair taxation. As a result of the EU Commission’s pressure, Member States are equipped with a robust tax transparency framework, common anti-tax avoidance measures, and mechanisms for resolving tax disputes.
This Communication on Tax Good Governance clamps down on unfair tax competition both at EU and international levels.
The EU Commission suggests revising rules and criteria defined to tackle harmful tax practices in the EU, encompassed by the well-known Code of Conduct.
Moreover, the EU list of non-cooperative jurisdictions, which deals with non-EU countries that refuse to follow international standards, will be improved and updated.
Hot topics
This package puts a lot of irons in the fire.
Despite EU efforts, some dark corners remain.
Tax authorities have strong monitoring powers on taxpayers’ lives. Usually, the comparison between tax sovereignty and taxpayers’ protection tips the scale in favour of tax administrations.
In this agenda, the EU Commission underlines the necessity to comply with all rights granted under EU laws.
However, there is a mistrust about such a statement. Think about the exchange of information: each expansion complies with fundamental rights. But, what about notification, consultation, and intervention rights of taxpayers?
The fear is that, even in this case, form differs from the substance.
Francesca Amaddeo
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