Menu
Tax Notes logo

EU Plans Tax Initiatives for Transparency, Economic Recovery

Posted on Nov. 24, 2020

The European Commission will announce two tax initiatives in early 2021 on tax transparency and supporting investment and growth in member states during the pandemic recovery, a top commission tax official said.

During a November 23 panel at the virtual International Fiscal Association conference, Benjamin Angel, director for direct taxation at the Directorate-General for Taxation and Customs Union, said the commission will introduce initiatives in February or March to deal with tax transparency — including a third anti-tax-avoidance directive — and to encourage investment and growth in member states hit hard by the economic crisis.

The commission also plans to release a proposal to reform the EU Code of Conduct Group (Business Taxation) by the end of the first quarter of 2021, Angel said. The release was delayed from this year because the OECD pushed to mid-2021 its deadline for an agreement on a two-pillar framework to modernize international corporate tax rules.

“We are reaching the limit of what can be achieved in the current mandate" of the Code of Conduct Group, Angel said during the conference. The group, which is also in charge of preparing the EU list of noncooperative jurisdictions for tax purposes, is not effective in preventing distortive measures and tax regimes in member states, said Angel. He said the commission is proposing to extend the scope of the code to cover the general landscape of the tax regime.

Angel also reiterated that EU representatives have reached a consensus on the seventh directive for administrative cooperation in taxation (DAC7) and said the directive will be formally adopted at an in-person session in January 2021. The commission will then start work on DAC8, which will deal with cryptoassets and harmonized sanctions, he said.

A host of tax developments will stem from the commission’s July 15 action plan for fair and simple taxation, said Angel, including the harmonization of tax residency rules among member states to cut down on confusion caused by remote work during the pandemic. “We need to come up with some sort of common approach,” he said, because there are citizens who meet the threshold for residence-based taxation in several member states.

The commission is preparing an EU cooperative compliance program for both multinationals and small and medium-size enterprises to facilitate the rapid implementation of tax relief. In some member states, Angel said, tax relief has taken a long time to reach the intended beneficiaries, and implementation of the OECD’s Treaty Relief and Compliance Enhancement system has been limited in the EU.

A planned amendment of the VAT directive regarding passenger transport will be delayed until 2022 or 2023, said Angel, but he did not give more details.

A top priority of the commission is to integrate tax policy with the European Green Deal, said Angel. The commission plans to review the energy taxation directive because the directive is “extremely outdated” in terms of accurate pricing and market evolutions, said Angel. “We plan a comprehensive review with new methodology that will take a better account of the need to favor clean sources of energy,” he said. An impact assessment for the directive is ongoing, he said, and the commission will make a proposal in June 2021.

Also in June the commission plans to release a proposal for a carbon border adjustment mechanism that will aim to encourage third countries to decrease their carbon emissions and enable the EU to become carbon neutral by 2050, Angel said. The commission is studying the possibility that the mechanism could interact with the EU emissions trading system and together they could serve as a new own resource to fund the EU’s long-term budget and €750 billion coronavirus recovery fund.

The commission still plans to introduce a proposal for an EU-wide digital levy in June 2021 if OECD countries fail to reach agreement on pillar 1, which calls for amending profit allocation and nexus rules, and pillar 2, which calls for a global minimum tax rate. Both Angel and Bob Stack, former deputy assistant secretary for international tax affairs at the U.S. Department of Treasury, who also spoke at the conference, expressed doubts that countries would reach agreement by the new deadline. “By spring, it is rather unlikely that we have full clarity on the OECD process,” said Angel.

Angel said it is difficult to predict what OECD negotiations will look like once U.S. President-elect Joe Biden takes office, and he did not appear optimistic about the effect the presidency would have on pillar 1 negotiations. Any agreement on pillar 1 would be a multilateral convention and in the United States would need approval from the Senate, which is currently under Republican control, he said. However, Angel noted that Biden’s tax plan calls for increasing the global intangible low-taxed income rate to 21 percent, which could positively affect pillar 2 negotiations.

Copy RID