Fighting tax avoidance and evasion will be important in the EU’s economic recovery from the coronavirus pandemic, according to the 2020 European Semester Spring Package.
In its annual report, the European Commission laid out recommendations for member states and the EU as a whole to more effectively weather the crisis and the upcoming recovery, including the transition to growth-friendly tax systems and the fight against aggressive tax planning.
But progress has been slow in broadening the tax base in the EU, the report says. Members of the European Parliament are pushing for new own resources to fund the EU’s €2 trillion multiyear budget and coronavirus recovery fund, for which the commission has been slow to announce funding.
“The fight against aggressive tax planning again features in our recommendations, and I must say this is an even clearer priority than in the past,” EU Tax Commissioner Paolo Gentiloni said at a May 20 press conference. “All member states, especially in the recovery situation, must be able to rely on their fair share of tax revenues to implement the fiscal support needed to get through this crisis.”
The report encourages some member states to reform their tax systems, in part by shifting from labor taxes to environmental taxes such as those on carbon or plastics.
“Growth-friendly tax systems can support private investment and improve the business environment, encourage employment, reduce inequalities and contribute to an environmentally resilient economy. Moreover, simplifying the tax system can help limit economic distortions and reduce the administrative burden for companies,” the report says.
The commission continues to take a strong stance against aggressive tax planning “to allow member states to rely on their fair share of tax revenues to implement fiscal support,” according to the report.
Member states were expected to implement measures prescribed by DAC6 (Council Directive (EU) 2018/822), an administrative cooperation directive that introduced new mandatory tax reporting rules for some cross-border arrangements, on July 1. But on May 8 the commission proposed delaying some deadlines for filing and exchanging information under the DAC6.
The transposition of the DAC6 and other international initiatives will help curtail aggressive tax planning practices, the report says. But it notes that companies that engage in aggressive tax planning use features of tax systems in places like Cyprus, Hungary, Ireland, Luxembourg, Malta, and the Netherlands. “In this light, these Member States are recommended to curb aggressive tax planning,” the report says.