EU’s ‘number one priority’ in tax is implementing OECD deal, Gentiloni says

By Doug Connolly, MNE Tax

Making the recent OECD Inclusive Framework agreement operational “is now crucial,” European Commissioner for Economy Paolo Gentiloni said in November 30 remarks to the European Parliament’s subcommittee on tax matters.

However, it’s not the only ambitious tax initiative in the EU calendar. The EU tax agenda in the coming year “is going to be very demanding,” Gentiloni explained, “and we need to work at speed on many fronts.”

Topping the agenda is implementing the OECD deal. Both pillars of the agreement are planned to come into effect in 2023. With OECD model rules expected “we hope … in the coming days,” the European Commission “will move very quickly to put it into practice in the EU.”

The proposed EU directive on the Pillar 2 global minimum tax is expected by the end of the year – i.e., in the next few weeks. That proposal “will be fully consistent with” the OECD model rules, while ensuring the rules “are implemented in a manner that is fully compatible with EU law.” In this respect, Commission officials have previously indicated that the directive will not distinguish between domestic and cross-border situations so as not to violate EU anti-discrimination standards.

Gentiloni added that the first ministerial discussions on the minimum tax directive will likely take place in January “with a view to reaching a swift agreement during the French presidency” (i.e., by June 2022).

Regarding implementation of the Pillar 1 tax allocation rules, Gentiloni stated that “we will have more clarity on the EU’s way forward” once work at the OECD level has sufficiently advanced on the text of the multilateral convention to implement the rules.

In light of the prioritization of the OECD deal, the decision to “put on hold” the proposed digital levy “remains valid.” However, Gentiloni added, “next year will be rich in new proposals.”

Other tax initiatives underway include measures to tackle the use of shell companies with an aim to ensure that tax advantages do not accrue to legal entities in the EU with no or minimal economic substance.

In addition, Gentiloni announced that consideration is being given to “a more robust approach for zero tax jurisdictions in the context of the EU list of non-cooperative jurisdictions” (i.e., the so-called black list). In this respect, he added that the EU may either lead or act multilaterally, noting that it is awaiting further response from the OECD Global Forum on Harmful Tax Practices and the Inclusive Framework.

Climate taxation is also on the agenda. Gentiloni emphasized the “need to see a swift adoption” of proposals for a Carbon Border Adjustment Mechanism and a revised Energy Taxation Directive

Other ongoing tax initiatives include broadening the mandate of the Code of Conduct Group, pushing for higher transparency on large companies’ effective tax rates, enhancing administrative cooperation for information exchange, addressing debt-equity bias, and furthering the EU’s “BEFIT” new common corporate tax base proposal.

“Next year we will be moving forward to implement [the OECD] agreement and on multiple fronts,” Gentiloni contended, “to deliver fairer, more transparent and more sustainable taxation systems for the benefit of all Europeans.”