By Francesca Amaddeo, Researcher, Tax Law Competence Centre (SUPSI), Manno, Switzerland
On 19 October, the EU Commission announced its Work Programme 2021, hopefully titled “A Union of vitality in a world of fragility.”
Aware of the hard times due to the COVID-19 pandemic, the EU seeks to arise stronger than ever before, introducing an extraordinary recovery plan.
Once again, taxes will feed such ambitious action. Revisions to the energy tax directive, digital services tax, and carbon border adjustment mechanism are in play.
Environmental taxation
The EU budget is largely made up of Member states’ national tax revenues. After the launch of the so-called Next Generation EU Programme in July, it is necessary to find (and exploit) new resources, the Work Programme confirms.
Despite some criticisms, the idea is to carry forward the EU Green Deal through environmental taxation.
Indeed, policies for clean energy supply are needed.
On the one hand, a revision of the energy tax directive 2003/96 is in progress.
It provides rules for the taxation of energy products used as motor fuel or heating fuel and electricity. This set of provisions has become obsolete, no more in line with the external framework, the EU maintains.
In September 2019, the EU Commission announced its study pinpointing that it provides a wide range of tax exemptions and reductions, which, de facto, encourage the consumption of fossil fuel. Moreover, the existing directive does not properly promote greenhouse gas emission reductions, energy efficiency, or alternative fuels.
Consistent with the Green New Deal, the main objectives of revising the directive are, first of all, aligning taxation of energy products and electricity with EU energy and climate policies and, secondly, preserving the EU single market by updating the scope and the structure of tax rates, and minimising the use of optional tax exemptions and reductions.
The carbon border adjustment mechanism also appears on the EU Commission’s schedule for 2021.
This measure aims to curb the risk of carbon leakage. The scope is twofold: protecting the climate and developing the economy.
Indeed, if companies can move their production to jurisdictions with less strict emission rules, global pollution will not be reduced. The levy of a discouraging carbon tax on imports of specific goods from extra-EU territories may represent a successful choice.
Both the revised energy tax directive and the introduction of the carbon border adjustment mechanism are expected for spring/summer 2021.
EU digital service tax
The taxation of digital services is ever a hot topic.
Notwithstanding the unending work of the OECD at the international level, the EU aims to play a key role in determining the correct assessment of taxes from the digital world.
The COVID-19 pandemic has emphasized the inadequacy of enforced rules for the allocation of taxing rights. Physical presence no longer fits the international tax community’s expectations.
This is even truer when looking at corporate taxation. The well-known problem is that companies are taxed where they are legally resident or have a permanent establishment. Mismatches clearly follow. This territorial link is not sufficient to understand where de facto the value is created.
The EU digital service tax would be levied on specific services provided by the internet.
Companies of a certain size would have to pay a 3% tax on revenues from delivering these services. The proposal aims to stop unilateral measures introduced by each Member State. The structure and the nature of the tax itself are highly debatable.
Anyway, after the recent release of OECD pillar one and two blueprint reports, the EU Commission also confirmed that a digital levy will be introduced in 2021.
Priority pending proposals
Along with the above, the EU Commission does not forget the pending tax proposals, deferred because of the pandemic.
Indeed, Annex III of Work Programme 2021 lists a series of future interventions, which represent EU priorities.
These priorities include amendments to the directive on administrative cooperation 2011/16, a proposal for the introduction of the common consolidated corporate tax base, and a proposal for the introduction of a public country-by-country reporting on corporate income tax for multinationals.
Thoughts
The Work Programme for 2021 reveals a message of hope.
Despite the fact that hard times are far from over, we must pursue the same goal: to take care of our world.
Notwithstanding such a romantic idyll, the Commission focuses on the power of taxation.
The fight against tax evasion and tax avoidance cannot wait. Fairness and transparency shall continue to enlighten the EU policies.
A correct tax assessment provides resources, which surely can help face the economic effects of the pandemic. However, are we sure that these resources are enough?
Francesca Amaddeo
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