CFE’s Tax Top 5 – 29 September 2025

BRUSSELS | 29 SEPTEMBER 2025

FISC Hearing Addresses U.S. Tax Shifts, Pillar 2 Safeguards and EU Competitiveness

On 23 September, the FISC Subcommittee held a public hearing to examine the tax implications of recent US policy developments under the Trump II administration. Benjamin Angel (Director, DG TAXUD, EU Commission) described the interaction of the US corporate minimum-tax landscape of the net CFC-tested income (NCTI/ex-GILTI), Base Erosion and Anti-Abuse Tax (BEAT) and the 15% Minimum Tax. He discussed comparability issues with the OECD’s Pillar Two —especially jurisdictional vs global blending— while cautioning that both systems are complex, the overall effective rates may be similar. On the “side-by-side” arrangement, he stressed that any OECD safe harbour would need safeguards and would require legal changes if agreed; he also flagged ongoing EU work on permanent Pillar Two simplifications and a 2025 “tax omnibus” to review direct-tax legislation.

Prof Kimberly Clausing (Eric M. Zolt Chair in Tax Law and Policy, UCLA School of Law) argued the US regime is weaker on certain features (notably jurisdictional blending), underlined the role of UTPR in deterring free-riding, and pointed to sizeable recent US tax cuts for foreign income of multinationals as evidence of a softer stance. Quentin Parrinello (Policy Director, EU Tax Observatory) warned that equivalence for a global-blending regime could dilute incentives for low-tax jurisdictions to raise rates and weaken revenues and tax morale; he urged preserving a robust minimum-tax framework and caution on making concessions permanent.

BusinessEurope’s Chief Economist, Lúcio Vinhas de Souza, focused on EU competitiveness and simplification, arguing that uneven global take-up of Pillar Two risks asymmetries for EU firms. He called for practical measures within EU streamlined rules, improved withholding-tax/refund processes, stronger dispute resolution mechanisms, investment-supportive tax incentives—and cautioned against new turnover- or DST-type levies that may shift costs to EU users.

In Q&A, members probed spillovers from US-China tariffs, the role of trade-defence tools, prospects for UN-led tax talks, and how to keep the EU’s Savings & Investment Union attractive; speakers broadly agreed that tax is one of several competitiveness drivers and that certainty, simplification and coordinated international engagement remain priorities.

VAT in the Digital Age: EU Commission Publishes Implementation Strategy

The European Commission has published its implementation strategy for the VAT in the Digital Age package, which introduces three major reforms: new digital reporting requirements, updated VAT rules for the platform economy, and a single VAT registration framework. The strategy sets out how businesses and Member States will be supported in applying these changes, aimed at modernising VAT compliance, tackling fraud, and reducing administrative burdens.

Key Measures

Digital reporting: From 2030, cross-border B2B transactions will require real-time digital reporting based on e-invoicing, replacing current recapitulative statements. This is expected to reduce VAT fraud by up to EUR 11 billion annually and cut compliance costs by EUR 4.1 billion per year.

Platform economy: From 2028 (with possible delay to 2030), platforms in short-term accommodation rental and passenger transport will be deemed suppliers, collecting and remitting VAT when underlying providers do not. This ensures consistent treatment across Member States and reduces complexity for SMEs.

Single VAT Registration: From 2027–2028, extensions to the One-Stop Shop (OSS) and new mechanisms such as the “transfer of own goods” scheme and mandatory reverse charge will reduce the need for multiple VAT registrations, supported by significant IT upgrades.

Roadmap of Key Milestones

2026 – Implementing Acts and Technical Specification
In 2026, the Commission will adopt implementing regulations on digital reporting and the architecture of central VIES, while also setting out secure IOSS arrangements. Functional and technical specifications are due by the third quarter, and explanatory notes will be finalised by year-end. This period will lay the legal and IT foundations for the next phases.

2027 – Early SVR Improvement
From 1 January 2027, selected reforms to the Single VAT Registration (SVR) take effect, including enhancements to OSS and IOSS processes and alignment with the SME scheme. Explanatory notes for the platform economy will also be published, ensuring businesses and platforms have clarity on their new obligations.

2028 – Main Reform Stage
The principal measures of ViDA will apply from 1 July 2028. Platforms in passenger transport and short-term accommodation sectors will become deemed suppliers (with an option for Member States to defer to 2030), and the SVR framework will be expanded through the new transfer of own goods module and mandatory reverse charge. Significant OSS/IOSS improvements will also come into force at this stage.

2029–2030 – Digital Reporting Rollout
Between 2029 and mid-2030, Member States will test interoperability between national systems and central VIES. On 1 July 2030, digital reporting requirements (DRR) will enter into force for cross-border B2B transactions, making e-invoicing the default standard across the EU.

2035 – Final Convergence
By 1 January 2035, Member States with domestic real-time digital reporting systems must align them with the EU-wide model, completing the staged implementation of the ViDA package.

Trump to Impose 100% Tariffs on Imported Branded Pharmaceuticals

Last week, US President Donald Trump announced that, as of 1 October 2025, imports of branded or patented pharmaceuticals will face a 100 per cent tariff unless the manufacturer is actively constructing production facilities in the United States. Generic drugs, which account for around 90 per cent of US imports, will be excluded. Trump’s move forms part of a wider extension of tariffs to imported trucks, furniture, and cabinetry, framed by the White House as both economic and national security measures.

The EU indicated confidence that its August agreement with Washington, which caps tariffs on EU goods at 15 per cent, would shield the bloc’s pharmaceutical exports, though industry groups voiced concern over the potential impact on access to life-saving medicines. By contrast, the UK described the decision as “concerning” and pledged to seek outcomes that protect its $6.5bn annual pharma exports to the US. Switzerland, which does not have a specific agreement on pharmaceutical tariffs, remains exposed despite earlier 39 per cent duties excluding drugs.

European drugmakers may be able to offset the effects through existing US investment plans. Several major companies, including AstraZeneca, GSK, Novartis, Roche, and Novo Nordisk, have already committed to new US facilities in a bid to secure exemptions. However, industry executives remain uncertain whether the exemption will apply across product portfolios or only to drugs produced domestically once new plants are operational.

EU Parliament ECON Committee Adopts Position on BEFIT Legislation

The European Parliament’s Economic and Monetary Affairs Committee has adopted its position on the Commission’s proposed BEFIT legislation, which sets out a common framework for calculating the tax base of multinational companies operating in the EU. The report, led by Evelyn Regner (S&D, AT), was approved by 33 votes in favour, 19 against and 5 abstentions. While supporting the core elements of the Commission’s proposal, MEPs introduced several significant amendments.

A “significant economic presence” clause was added, establishing that companies with more than EUR 1 million in revenues in a Member State will be deemed to have a permanent establishment there. This is intended to ensure that digital and service-based businesses are taxed where they generate value, even without a physical presence. MEPs also proposed a royalties limitation rule, under which intra-group payments to entities taxed below 9% must be added back to the payer’s taxable base unless the recipient demonstrates substantial economic activity.

Further anti-avoidance measures were endorsed, including rules requiring that passive income earned by subsidiaries in low-tax jurisdictions without genuine economic activity be consolidated into the parent company’s taxable base. To stimulate investment, MEPs backed accelerated depreciation allowances for assets linked to EU climate, social, digital and defence objectives. In addition, limits were placed on the use of subsidiary losses, which may only reduce the parent company’s taxable base for up to five years, without allowing deductions to lower taxable income below zero.

Rapporteur Regner described the outcome as a “balanced compromise” that modernises establishment rules, strengthens anti-avoidance measures and supports the EU’s social and environmental objectives. The Committee’s position will be put to a Plenary vote in November, after which it will be transmitted to the Council for negotiations with Member States.

The BEFIT framework builds on the EU’s agreement to implement global minimum taxation standards, and will replace existing national corporate tax base rules for groups with revenues exceeding EUR 750 million. It also supersedes earlier proposals for a Common Corporate Tax Base and Common Consolidated Corporate Tax Base. The initiative is expected to simplify compliance, reduce disputes, and limit opportunities for tax avoidance across the single market.

OECD Publishes 2025 Economic Outlook Interim Report

In September, the OECD published the 2025 Economic Outlook Interim Report, noting that global growth has so far been more resilient than anticipated, helped by front-loading of trade ahead of tariff hikes, strong AI-related investment in the United States, and fiscal support in China. Growth is nevertheless projected to slow from 3.3% in 2024 to 3.2% in 2025 and 2.9% in 2026, as higher tariffs and policy uncertainty dampen investment and trade. The United States is forecast to decelerate from 2.8% in 2024 to 1.5% in 2026, the euro area to 1.0%, and China to 4.4%, while India is expected to remain the fastest-growing G20 economy.

The report stresses that trade tensions have intensified, with US bilateral tariff rates rising to 19.5%, the highest since 1933. These increases are beginning to filter through into consumer prices and spending, with disinflation levelling off and food price pressures lifting goods inflation. Headline G20 inflation is projected to fall from 3.4% in 2025 to 2.9% in 2026, while core inflation is expected to remain broadly stable at around 2.5–2.6%. Labour markets are also showing signs of easing, with unemployment edging higher in several advanced economies and wage growth moderating, limiting real income gains.

Financial conditions have loosened, with buoyant equity markets and surging crypto-asset valuations, though vulnerabilities are increasing. The report cautions that further tariff escalation, persistent inflation and fiscal fragility could undermine growth and stability, while stretched asset valuations raise the risk of repricing. Policy recommendations include more predictable trade arrangements, credible fiscal adjustment to safeguard debt sustainability, and structural reforms to lift productivity. Faster adoption of AI technologies, alongside reform, could provide a meaningful upside to long-term growth prospects.

The selection of the remitted material has been prepared by:
Dr. Aleksandar Ivanovski & Brodie McIntosh