BRUSSEL | MAY 2024
OECD Update on Pillar 1 Progress
OECD Secretary-General, Mathias Cormann, has issued a Statement following on from the meeting of the Inclusive Framework which took place in Paris last week from 28 May to 30 May 2024. More than 400 delegates attended the meeting representing 127 jurisdictions and 13 observers. It is anticipated that the signature of the Multilateral Convention (MLC) implementing Amount A of Pillar One will take place by the end of June.
Mr Cormann stated that “This week’s Inclusive Framework plenary meeting has clarified the outstanding issues in its ongoing effort to reach agreement on a fairer allocation of taxing rights across the globe. It has also been an opportunity to reflect on the significant progress already realised over more than a decade of multilateral discussions on addressing the tax challenges arising from digitalisation and globalisation of the economy.
Advances in global tax co-operation have included the minimum standards agreed in the initial BEPS project: reforming harmful tax practices, reducing treaty abuse, improving dispute resolution, and increasing tax transparency through the exchange of country-by-country reporting on the largest multinationals, where we remain committed to ensuring that all countries can benefit.
Importantly, the Global Minimum Tax agreed under Pillar Two is in the process of coming into force in countries worldwide and will raise significant revenues of up to USD 192 billion per year for both developed and developing countries. With the significance of these achievements in mind, the OECD will continue to support the Members of the Inclusive Framework toward a successful conclusion of their necessary work”.
The Inclusive Framework, in its own Statement set out that “following productive discussions on remaining open issues related to Pillar One of the Two-Pillar Solution to address the tax challenges arising from the digitalisation of the economy, we can report that the Inclusive Framework on BEPS is nearing completion of the negotiations on a final package on Pillar One (which includes a text of the Multilateral Convention (MLC) for Amount A and a framework for Amount B) with the goal of reaching a final agreement in time to open the MLC for signature by the end of June. In this regard, we welcome the expressions of interest by France and Brazil in hosting a signing ceremony as soon as practical after the MLC is opened for signature”.
EU Elections: #UseYourVote This Week from 6 to 9 June
This week, the European Union will witness the world’s second-largest democratic exercise as citizens cast their votes in the 2024 European Elections. This moment is an opportunity for every citizen to shape the future of Europe, while also helping uphold democracy – because the more people vote the stronger democracy becomes.
CFE concluded a Partnership Agreement with the European Parliament to promote the 2024 EU elections scheduled for 6 – 9 June 2024, and EU citizens with a right to vote can directly elect Members of the European Parliament from their constituencies.
In recent weeks, the EU Parliament launched its campaign to encourage voter turnout. The emotional campaign is centred around a four minute video featuring senior Europeans who have witnessed first-hand the transformative power of democracy in their lives. These exceptional individuals wanted to pass on their personal stories – whether they lived through times of oppression or experienced the fragility of democracy – to their grandchildren and the next generation more widely. Together, their testimonies paint a story of how voting is not something we should take for granted and urge the viewer to #UseYourVote. Or others will decide for you.
More information on the voting process is available on the EU Elections webpage.
EU Council of Ministers Approve Faster Directive
The Council of the EU, in composition of EU’s finance ministers (ECOFIN), approved the European Commission proposal on a directive establishing faster withholding tax relief (WHT) procedures and common tax residency certificate (eTRC) from 1 January 2030. CFE Tax Advisers Europe welcomed this initiative of the European Commission, and in its representations urged the EU to be bolder and envisage a more ambitious implementation timeline.
Currently, many EU Member states tax dividends and interest paid to foreign investors, resulting in double taxation. Double tax treaties aim to resolve this, but complicated relief procedures make the process lengthy, costly, and susceptible to fraud. The Directive aims to reduce administrative burden and facilitate the relief procedure by establishing:
- Common Tax Residence Certificate (eTRC): EU digital certificate for fast-track double tax relief;
- Fast-Track Procedures with relief-at-source (tax applied at payment) or quick refund within a set deadline. The procedure becomes mandatory for publicly traded shares, and optional for bonds, with current procedures retained under certain conditions;
- Additional provisions: Anti-fraud measures, provisions for indirect investments, due diligence by certified financial intermediaries, financial intermediaries must report transactions, European portal will host national registers, direct and indirect reporting and penalties for non-compliance.
Speaking after the ECOFIN, Vincent Van Peteghem, Deputy PM and minister of finance of Belgium said: “Aligning our tax relief procedures is essential if we want to improve the functioning of the capital markets union. I’m glad we have found an agreement on this important proposal, which will also help to fight tax fraud much more efficiently. It will make investing in other countries easier and hopefully encourage retail investors in particular to invest on European financial markets, which will eventually benefit the whole economy.”
The European Parliament will be consulted again on the agreed text due to changes made by Council after Parliament’s first consultation, and the agreed text will then be translated and published in the Official Journal of the European Union. Member states have a transposition deadline of 31 December 2028, but the national rules will have to become applicable from 1 January 2030.
The Council did not reach an agreement on ViDA, the proposals for reforming VAT fit for the digital age and discussions on the file will continue.
Tax Inspectors Without Borders 2024 Report Published
The 2024 Annual Report of the Tax Inspectors Without Borders, a joint OECD and UN initiative launched in 2015 to assist developing countries with their auditing capacity and in increasing compliance of MNEs worldwide, was published last week.
The report sets out that work of the initiative has resulted in over 2.3 USD billion being collected in additional taxes, and over 6.05 USD billion in tax assessments by developing countries across the globe. The work has also significantly contributed to advancing Sustainable Development Goals (SDGs) by increasing domestic resource mobilisation. The initiative has completed over 71 programmes in Africa, Asia and the Pacific, Eastern Europe and Latin America and the Caribbean, with 59 more projects in development.
OECD Secretary-General Mathias Cormann said of the programme: “The report we are launching today shows that Tax Inspectors Without Borders helped tax administrations in developing countries generate an additional USD 2.3 billion in tax revenues and over USD 6 billion in tax assessments across 62 jurisdictions around the world since its inception in 2015. We are committed to continuing this work to help all countries enhance their tax administration, transparency and global tax coordination, including supporting their effective implementation of the Two Pillar Solution for a more fair, effective global tax system in a globalised, digitalised world.”
CFE & Accountancy Europe Joint Members’ Only Webinar on New EU AML Rules: Changes for Practitioners
In 2021 the European Commission put forward an ambitious package of legislative proposals to strengthen the EU’s Anti-Money Laundering (AML) rules – “the AML Package”. After more than two years of negotiations, the European Parliament adopted the AML package on 24 April 2024. Accountants, auditors and tax advisers play an important role in keeping European citizens safe from money laundering and terrorist financing. The new AML rules will bring significant changes for these professions.
CFE Tax Advisers Europe and Accountancy Europe have partnered to help member bodies, tax advisers, accountants and auditors better understand the changes. We will address how the new requirements will affect practitioners’ day-to-day work, why it’s important to start preparing now and where to start. This is an invitation-only webinar for CFE Tax Advisers Europe and Accountancy Europe Member organisations and their members.
The discussion will take the form of a virtual fireside chat between Angela Foyle, Accountancy Europe AML Working Party Chair, Aleksandra Vasilić, Director AML Office, EY, and Rolf Declerck, President of the Commission on Quality Performance Review, Belgian Institute of Tax Advisors and Accountants, CFE Tax Advisers Europe.
Registration for Members of CFE and Accountancy Europe is now open via the following link.
EU Commission Launches Evaluation of Directive on Administrative Cooperation
The European Commission has initiated an evaluation of Directive 2011/16/EU, also known as the Directive on Administrative Cooperation (DAC). The evaluation aims to measure DAC’s effectiveness, cost-efficiency, relevance to contemporary and forthcoming needs, internal and external coherence, and added value at the EU level. In alignment with the Commission’s goal of simplifying reporting for companies and tax administrations, particular attention will be given to reducing the reporting burden. This evaluation will consider DAC’s operation from 2018 to 2022, excluding DAC7 and DAC8 as they were not yet implemented.
Crucially, this evidence-based exercise will include an evaluation of the hallmarks for the exchange of information on potentially harmful cross-border arrangements introduced by DAC6, which is envisaged in Article 27(2) of the DAC.
Stakeholders are invited to participate in this evaluation by submitting evidence and completing a consultation questionnaire by Tuesday, 30 July 2024.
CFE Statement on EU Dispute Resolution Directive
CFE Tax Advisers Europe has published an Opinion Statement responding to a consultation of the European Commission concerning the operation of the Directive on Tax Dispute Resolution Mechanisms in the European Union. Directive (EU) 2017/1852 on tax dispute resolution mechanisms in the European Union (the “DRM”) was adopted by Member States on 10 October 2017 and is applicable as from 1 July 2019. It lays down rules on a mechanism to resolve disputes between Member States when those disputes arise from the interpretation and application of agreements and conventions that provide for the elimination of double taxation of income and, where applicable, capital. It also lays down the rights and obligations of the affected persons when such disputes arise.
CFE welcomes the adoption of the DRM Directive which it considers to be a positive development for the protection of taxpayers’ rights as explained in our previous Opinion Statements on this matter. It is however still too early to have sufficient practical experience in relation to the functioning of the DRM as it has only been operational since 1 July 2019. There are nevertheless outstanding issues that, in CFE’s view, merit further consideration. In particular, CFE in its Statement raised the following points:
- Closer involvement of the taxpayer in the process would increase tax certainty and the trust of taxpayers in these types of dispute resolution procedures;
- Relationships between taxpayers and tax administrations would be improved if transparency would be reciprocal. Improving tax transparency of tax administrations towards taxpayers would enhance the trust of taxpayers and legal certainty.;
- Member States and tax administrations should have the duty to provide guidelines to taxpayers on the implementation and application of the DRM;
- It would also be crucial to remove barriers to entry to certain remedies, such as tax administrations imposing criminal penalties or pushing for settlements by offering better bargaining positions to close the door to MAP;
- It would be important to ensure that the DRM is an appropriate tool to deal with future disputes related to the application of the Pillar 2 rules as implemented in the EU through Council Directive (EU) 2022/2523;
- The number of disputes may increase in the EU should the Proposal for a Council Directive on transfer pricing be adopted given it sets the threshold for control at a 25% shareholding, while the OECD Transfer Pricing Guidelines apply a 50% shareholding threshold to determine whether the control criterion is met. This 25% threshold would dramatically increase the transfer pricing compliance burden of companies operating in the EU and as a consequence broaden the scope of transactions potentially subject to dispute between two tax administrations in the EU.
CFE hopes that these comments will be helpful to the Commission in the review the functioning of the DRM.
US Will Not Support Global Minimum Wealth Tax: Secretary of Treasury
Proposals for 2% minimum tax on wealthiest individuals does not have the support of the United States government, U.S. Secretary of Treasury Janet Yellen said for The Wall Street Journal in May. “The notion of some common global arrangement for taxing billionaires with proceeds redistributed in some way — we’re not supportive of a process to try to achieve that. That’s something we can’t sign on to.”, Yellen said speaking about the G20 plan which has acquired support from other global players such as Brazil and France. The plan was floated by the EU-financed Tax Observatory and its director Gabriel Zucman, who proposed 2% annual tax applied to the wealth of circa 3,000 billionaires to generated $250 billion in revenue each year.
“Although there is a lot that can be done by countries acting individually, the best way to address this regressivity is by creating a common minimum standard through international coordination. This is because the main obstacle to taxing the very rich in practice is the risk that they may relocate to low-tax places. This international competition has exerted considerable pressure on the design of tax systems globally. But with international coordination, a binding floor can be put to the tax rates of the ultra-wealthy.”, Zucman said speaking at G20.
The proposed measures on establishing global minimum wealth tax have acquired the support from France and the International Monetary Fund (IMF). Speaking separately, French Finance Minister Bruno Lemaire said the proposals have “the absolute support of France”, whereas IMF’s Managing Director Kristalina Georgieva said: “In most countries, the rich pay fewer taxes than the middle class and even the poor. Our first choice is to close the loopholes and prevent tax evasion. We call on the international community to implement agreements that allow sharing of tax information.”
The Belgian presidency of the EU and the European Commission informed EU finance ministers about the outcome of the G20 finance ministers’ and central bank governors’ meeting that took place on 17-18 April 2024 and the spring meetings of the International Monetary Fund (IMF) in Washington DC.
EU Commission May Infringement Package
As part of its May 2024 infringement package, the Commission has taken the following infringement decisions:
DAC 7 – The Commission opened an infringement procedure by way of letter of formal notice to Germany, Hungary, Poland and Romania for failing to exchange timely information on income earned by individuals and companies through the use of online platforms, as required by the directive on administrative cooperation in the field of taxation (DAC7) and the new tax transparency rules for transactions on digital platforms introduced as of 1 January 2023. The countries have two months to respond and address the issues identified.
Transposition of the Pillar 2 Directive – The Commission sent reasoned opinions to Spain, Cyprus, Latvia, Lithuania, Poland and Portugal for failing to notify of their implementing into national law the Pillar 2 Directive on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union by 31 December 2023 as required by the Directive. The Commission in its information about the decision sets out that it considers the two-pillar solution a top priority. All EU Member States were required to bring into force the laws necessary to comply with the Pillar 2 Directive by 31 December 2023. The countries have two months to respond and take necessary steps to notify of their implementing measures.
Merger Directive – The Commission has referred Spain to the Court of Justice of the European Union over conditions in its domestic legislation which in its view restricts EU harmonised rules on divisions of companies under the Merger Directive. The Directive is intended to operate such that business reorganisations are not impeded by taxation upon restructuring, however, Spanish legislation sets out restrictive conditions such that a deferral is not granted if shareholders do not receive the same proportion of shares in all companies unless the assets are branches of activity. A reasoned opinion was first sent by the Commission in 2019 and the Commission is of the view that insufficient efforts have been taken to comply with the reasoned opinion and that implementation is still not in line with the Directive, and have as such referred Spain to the Court of Justice of the European Union.
Freedom of Movement of Capital – The Commission sent a reasoned opinion to Spain for failing to align its rules on the taxation of capital gains obtained in Spain by non-resident taxpayers with the free movement of capital per Article 63 TFEU. Non-residents were not being offered the option to defer payment of capital gains tax to be paid in proportion to cashflow. Spain has two months tor respond to the reasoned opinion.
Freedom to Provide Services – The Commission sent a reasoned opinion to Sweden for infringing the freedom to provide services in line Article 56 TFEU and Article 36 of EEA Agreement, concerning legislation on income taxation. The legislation obliges Swedish clients who pay for work to be carried out by contractors established in other Member States of EEA countries to withhold preliminary income tax at a rate of 30% unless the contractor is in receipt of a F-tax approval from the Swedish tax authorities. The Commission has deemed this to infringe on the freedom to provide services and requested Spain bring its legislation on preliminary income taxation into line with EU law requirements. Spain has two months to respond and comply with the issues identified.
Industry & Tax Professionals Call for Clearer VAT Guidance on Charitable Donations
CFE Tax Advisers Europe has issued a Joint Statement with Accountancy Europe, AmCham EU and E-Commerce Europe calling for clearer VAT guidance on charitable donations for social and sustainability goals.
Our organisations represent a variety of businesses and tax professionals who see an opportunity for the European Commission to strengthen the EU’s values and sustainability goals through the ubiquitous application of VAT relief on charitable donations across the EU. Businesses across Europe can make a difference every day by donating goods, as the destruction of unsold goods comes at an extremely high cost for people and the environment.
The European Environmental Bureau estimates that the value of destroyed electronics and clothing in the EU will amount to €71.29 billion by 2030. Ranging from wholesome food to spare appliances and furniture, the goods in question would not find a place in the market, but could make material contributions to charitable causes while pursuing EU goals in the Waste Framework Directive and in sustainability reporting.
The importance of harmonising VAT donations across the EU27 has also been recognised in the recent Report on the Single Market spearheaded by Enrico Leta, President of the Jacques Delors Institute, which was published on 16 April 2024. This report asks the European Commission to consider greater harmonisation of VAT neutralisation options for donations across the Single Market.
With this statement, we call upon the European Commission to provide further guidance to Member States on applying the VAT Directive exemption on charitable donations, to alleviate concerns about VAT avoidance and to facilitate corporate donations across the EU.
Aleksandar Ivanovski & Brodie McIntosh