CFE’s Global Tax Top 10 – October 2023




OECD Publishes Text of Pillar One Treaty

In October, the OECD published a draft text of the multilateral convention (MLC) related to implementation of Amount A of Pillar One, agreed by the IF’s Task Force on the Digital Economy and not yet open for signature. According to the OECD, the text of the MLC reflects the consensus achieved to date, with different views among countries on a “handful of items in footnotes by a small number of jurisdictions”. The text “moves the international community a step closer towards finalisation of the Two-Pillar Solution to address the tax challenges arising from the digitalisation and globalisation of the economy”, the OECD stated. 

However, the U.S. Treasury Secretary Janet Yellen speaking to reporters in Luxembourg said the United States will not be ready to sign the treaty by the end of this year. “The U.S. will conduct a consultation on the multilateral treaty with all relevant stakeholders for two months. It is critically important for a treaty of this level of importance and complexity to be shown to the American public, and for Congress and the business community to hear what their reactions are and to ensure that we have public support.”, Ms Yellen said. Missing the end of year deadline could mean introduction of further national digital services taxes that would effectively tax the U.S. tech companies in market jurisdictions. The U.S. Congress recently warned Canada of “significant consequences” should it proceed with unilateral taxation of US tech companies with introduction of a digital services tax on 1 January 2024. 

Global South jurisdictions such as India, Brazil, Nigeria and Colombia also maintain reservations about the complexity and/or their capacity and ability to effectively raise taxes under such rules. The African Tax Administration Forum (ATAF) stated that some members have expressed concern about “continued loss of revenue from non-taxation of the digital economy and the length and complexity of the Amount A rules as the published MLC and Explanatory statement text is 850 pages long.” The ATAF Executive Secretary, Logan Wort said of the developments: “It is vital that African countries effectively tax highly digitalised businesses, which is not possible under the current global tax rules. As indicated by our membership, Amount A is not only complex but more concerning is the uncertainty of when it will be implemented, meaning a continued lack of opportunity to tax the growing digital economy.”, Mr Wort said. 

For the MLC to enter into force, it needs to be ratified by at least 30 jurisdictions including the headquarters jurisdictions of at least 60% of MNEs currently expected to be within Amount A’s scope. The Explanatory Statement (ES) which accompanies the MLC forms part of the context per customary international law for interpretation purposes. The MLC is also accompanied by an Understanding on the Application of Certainty (UAC) which contains further details on how aspects of the Amount A tax certainty framework will operate in practice. The OECD also provided updated estimates of the economic and revenue impacts of Amount A.

European Commission Adopts 2024 Work Programme 

The European Commission has adopted its Commission Work Programme 2024, setting out priorities and legislative proposals that will form the focus of the upcoming year. The Programme has a focus on simplification and competitiveness for EU business, with emphasis being placed on measures to be introduced for SMEs.

In terms of taxation, the Programme emphasises that progressing currently tabled legislative proposals will be the central focus, stating that the EU “need to agree on the new rules on withholding tax procedures, the proposal to prevent the misuse of shell entities for tax purposes and a series of measures to modernise the EU’s ValueAdded Tax (VAT) system and make it more resilient to fraud by embracing digitalisation. Furthermore, we need to advance on the proposal to improve business taxation (BEFIT and transfer pricing) and the comprehensive reform of the EU Customs Union.” The Programme document claims that the BEFIT proposal on business in Europe: framework for income taxation could reduce tax compliance costs for businesses operating in the EU by up to 65%.

It also emphasises as priority progressing the Commission’s regulatory fitness and performance programme (REFIT), establishing a Head Office Taxation system to simplify rules and cut tax compliance costs for SMEs expanding their operations across borders as a key priority for 2024.

United Nations (UN) Tax Committee Meeting: 17 – 20 October in Geneva

The 27th session of the United Nations (UN) Committee of Experts on International Cooperation in Tax Matters took place at the Palais des Nations in Geneva, Switzerland, from 17 to 20 October 2023. The Committee focused on advancing the implementation of its work plan, adopted for the 2021-2025 period.

The UN Tax Committee agenda, as approved by ECOSOC, comprised the following items: Taxation and the Sustainable Development Goals; Issues related to the United Nations Model Double Taxation Convention between Developed and Developing Countries; Update of the United Nations Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries; Transfer pricing; Taxation of the extractive industries; Environmental taxation; Dispute avoidance and resolution; Taxation issues related to the digitalised and globalised economy; Taxation of crypto-assets; Digitalisation and other opportunities to improve tax administration; Increasing tax transparency; Wealth and solidarity taxes; Indirect taxes; Health taxes; Relationship of tax, trade and investment agreements; and, Capacity-building.

A recent UN report sought to reinforce United Nations’ role in international tax matters, stating that “enhancing the UN’s role in setting and shaping global tax rules appears the most viable path for making international tax co-operation fully inclusive and more effective.” The UN noted that the substantive rules developed through the OECD initiatives often do not adequately address the needs and priorities of the Global South countries, are not sufficiently reflected in the OECD agenda and/ or are beyond their capacities to implement.

CFE Tax Advisers Europe is represented at the United Nations Committee in Tax Matters by Chair of the Direct Taxes Subcommittee, Mr Jos Goubert.

ECOFIN – Council of the EU Approves Tax Blacklist Updates & DAC8 Directive on Administrative Cooperation

On 17 October, Finance Ministers sitting at the Council of the European Union voted to approve changes to the EU List of Non-Cooperative Jurisdictions for Tax Purposes, adding Antigua and Barbuda, Belize and Seychelles, and removing British Virgin Islands, Costa Rica and Marshall Islands from the list. The following 16 jurisdictions remain on the list: American Samoa, Antigua and Barbuda, Anguilla, Bahamas, Belize, Fiji, Guam, Palau, Panama, Russia, Samoa, Seychelles, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands and Vanuatu.

The EU Finance Minisers also adopted the DAC8 directive on administrative cooperation in the field of taxation. The directive strengthens the EU’s existing legislation in the field, by enlarging the scope for registration and reporting obligations and overall administrative cooperation of tax administrations.

The Directive sets out new reporting requirements related to the Crypto-Asset Reporting Framework (CARF) and amendments to the Common Reporting Standard (CRS). The G20 endorsed the CARF and the amendments to CRS, both of which it considers to be integral additions to the global standards for automatic exchange of information. The Directive also extends the scope of the current rules on exchange of tax-relevant information by including provisions on exchange of advance cross-border rulings concerning high-net-worth individuals, as well as provisions on automatic exchange of information on noncustodial dividends and similar revenues, in order to reduce the risks of tax evasion, tax avoidance and tax fraud, as the current provisions of DAC do not cover this type of income. 

CFE Statement on Interest Payable on Overpayment of Taxes in Breach of EU Law (Case C-322 E v Dyrektor Izby Administracji Skarbowej we Wroclawiu)

This month, CFE Tax Advisers Europe issued an Opinion Statement prepared by the ECJ Task Force on the CJEU’s decision of 8 June 2023 in case C-322/22, E. v Dyrektor Izby Administracji Skarbowej we Wrocławiu, concerning the right to be paid interest on overpayment of taxes in breach of EU Law. CFE welcomes the decision of the Court as it reinforces the taxpayers’ right to interest on refunds in cases where a tax is imposed in breach of EU law. CFE also acknowledges that the Court has limited competence to ensure the enforcement of EU law at this level. Therefore, additional action seems to be necessary to establish a common normative framework for the reimbursement of unduly paid taxes and its corresponding right to interest. Currently, there is a margin of discretion in the regulation by the Member States (in what concerns both the exercise of the rights and their content), which may lead to unwanted asymmetries in the levels of protection of the same EU rights in the different Member States. Such diversity is not welcomed in view of strengthening the internal market. Cases such as the one at hand urge reflection on whether the EU institutions could start taking a different approach. This is particularly true in the case of the European Commission, which, as “guardian of the Treaties”, is responsible for ensuring that EU law is timely interpreted and applied. This includes extracting adequate conclusions from CJEU’s rulings. Several actions could be considered.

First, the EU Commission could engage in constructive dialogue with the Member States, actively asking whether they consider legislative action necessary to ensure full compliance with EU law in the aftermath of a Court case considering certain tax provisions as inadmissible.

Second, the EU Commission could lead the efforts in assessing whether further action (by that Member State or by any other Member State) is required to ensure compliance with EU law. This could be ensured with the following initiatives: 

  • Public consultations, inviting all stakeholders to provide input on the amendments needed;
  • By public tenders, commissioning studies to expert organisations on the amendments needed;
  • By asking the EU tax observatory, financed by the European Commission, to include such assessments in their activities.

Third, the Commission could consider, as a priority, the assessment of domestic tax systems whenever the same provision or the same point of law is referred for the second time to the CJEU.

CFE would welcome actions by EU institutions (and particularly by the European Commission) towards ensuring effective protection of the right to interest on refunds in cases where a tax is imposed in breach of EU law. Such actions would not only be adequate but also needed and could include soft law (such as a Communication regarding the implementation of such rights in accordance with the case law) and/or hard law (namely, a directive laying down the adequate normative framework for the implementation of such rights).

European Parliament Adopts Resolutions on Role of Tax Policy & Reform of Corporate Tax Policy 

In October, the European Parliament’s Committee on Economic and Monetary Affairs adopted two resolutions concerning taxation issues, one concerning the role of tax policy in times of crisis and the other concerning reform of corporate taxation rules. 

The resolution concerning tax policy in times of crisis highlights issues surrounding excess profits made by multinationals due to times of crisis, and the fact that environmental taxation remains low in terms of total tax revenue in the EU. It calls for increased taxation of air and sea transport. The resolution also identifies issues posed to tax systems by cross-border working and the need to reduce tax fraud, avoidance and evasion, calling for solutions to issues surrounding these topics. 

The resolution concerning reform of corporate taxation rules focuses on making recommendations on how Member States can ease the burdens on SMEs through the use of corporate tax rules. It recommends that Member States enact temporary measures to mitigate high energy costs and use revenues to provide relief to SMEs. Further, it calls on the Commission to evaluate action taken since 2011 in relation to corporate taxation with a focus on how best to ease administrative burdens on businesses. It also recommends the Commission propose further enhanced cooperation between tax authorities on best practices concerning the use of technology in improving tax related administrative procedures.

OECD Updated FAQs on Model Reporting Rules for Digital Platforms

This month, the OECD updated the Model Reporting Rules for Digital Platforms: Frequently Asked Questions. The Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy were developed “in light of the rapid growth of the digital economy and in response to calls for a global reporting framework in respect of activities being facilitated by such platforms, in particular in the sharing and gig economy. Activities facilitated by platforms may not always be visible to tax authorities or self-reported by taxpayers. At the same time, the platform economy also permits increased access to information by tax administrations, as it brings activities previously carried out in the informal cash economy onto digital platforms. As such, the Model Reporting Rules for Digital Platforms are designed to help taxpayers in being compliant with their tax obligations, while ensuring a level-playing field with traditional businesses”. 

The FAQs were received from business and government delegates and answers to such questions clarify the Model Rules and assist in ensuring consistency in their implementation. Further information concerning the Model Rules is available here.

EU Commission & Parliament Co-Host EU Tax Symposium in Brussels

The EU Commission and EU Parliament co-hosted the second EU Tax Symposium in Brussels on 24 and 25 October 2023, on the theme “The future of taxation in the EU: Challenges ahead & changes needed”.

Panel topics at the Symposium included: VAT in a digital world; the role of behavioural taxation; balancing incentives and redistribution: the future of Personal Income Taxation (PIT); the role of wealth taxation in the tax mix of tomorrow; does our tax mix age well: next generation taxation and structural changes; decision-making on taxation – combining the national, EU and international level; beyond the international agreement: how to further improve the business tax framework within the Single Market; the future of taxation in the EU: challenges ahead & changes needed; and, competitiveness vs fairness: what role can taxation play.

The panel discussions can be replayed via the EU Tax Symposium webpage.

EU Tax Observatory Calls for Global Minimum Wealth Tax

The EU Tax Observatory has called for a global minimum tax of wealthy individuals in its Global Tax Evasion Report 2024 published this month, citing statistics that the effective tax rates of billionaires is equivalent to 0% to 0.5% of their wealth, far less than ordinary citizens.

The report also takes aim at the effectiveness of the OECD BEPS measures in fighting international tax evasion and harmful tax competition, stating that the proposed 15% minimum corporate tax rate for multinational companies is not only “far too low” but “has been made largely toothless by a series of loopholes and “carveouts”.

The report examines trends in global offshore tax evasion, global corporate profit shifting, new forms of international tax competition, tax deficits in high net worth individuals and sets out proposed policies to collect the tax deficit of multinationals and wealthy individuals. 

European Commission Publishes 2023 VAT Gap Report 

The European Commission published the 2023 VAT Gap Report in October, which shows that the EU VAT Gap decreased by around 38 Billion Euro, an unprecedented improvement as compared to previous years, with most Member States demonstrating a decrease in the VAT Gap. Some Member States demonstrated particularly notable reductions in the national VAT Gap figures, in particularly Poland and Italy. The smallest gaps observed were in the Netherlands, Finland, Spain and Estonia.

The report concludes that revenues lost through the VAT Gap were mainly due to VAT fraud, evasion and avoidance, non-fraudulent bankruptcies, miscalculations and financial insolvencies, but that targeted policy were having an impact, particularly those concerning digitalisation of tax systems, real-time reporting of transactions and e-invoicing. 

The report is available here.

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