CFE’s Tax Top 5 – 2 December 2024

The United Nations General Assembly’s Second Committee (Economic and Financial) approved four draft resolutions and two draft decisions at its 79th Session on 27 November, 2024, including a significant resolution on international tax cooperation.

The resolution, titled “Promotion of inclusive and effective international tax cooperation at the United Nations” (document A/C.2/79/L.8/Rev.1), was introduced by Nigeria on behalf of the African Group. It seeks to establish terms of reference for a UN Framework Convention on International Tax Cooperation. The resolution passed with 125 votes in favour, 9 against, and 46 abstentions, reflecting mixed support. Concerns were raised, particularly by the United States and the European Union, over the lack of emphasis on consensus-based decision-making and potential overlaps with existing tax governance frameworks.

Key points of contention were the resolution’s operative paragraphs 2 and 5, which were retained despite votes called by the European Union and others seeking revisions. EU representatives emphasised the importance of consensus for sustainable international agreements, while African Group representatives argued that the terms reflected months of negotiations and balanced perspectives from diverse Member States. The EU raised particular issues regarding decision-making processes, representation inclusiveness, and the adoption of the Terms of Reference without full agreement, emphasising the need for consensus-based decision-making.

Abstentions and opposition from countries like Japan, Australia, New Zealand, and the UK highlighted concerns about the framework’s implications for existing international tax standards and its exclusion of non-state jurisdictions from key discussions. The EU warned that failure to address these concerns in the upcoming negotiations could lead to its disengagement from the process. The Bahamas, representing interests of financial service-dependent economies, supported the resolution, describing it as a transformative opportunity for developing nations to influence the global tax agenda.

New EU Commission Commences Duties : EU Parliament Approves College of Commissioners 

European Parliament approved the new EU College of Commissioners in a vote that took place in Strasbourg on 27 November, with the new Commission now having assumed office on 1 December 2024. During the plenary session in Strasbourg, President Ursula von der Leyen presented her vision for the next five years, emphasising freedom as the EU’s driving force. “Because fighting for freedom connects us as Europeans,” she stated, underlining the importance of nurturing and protecting this value through deliberate choices. These choices will be guided by the Commission’s first major initiative, the Competitiveness Compass, which focuses on innovation, decarbonisation, and enhancing security to reduce dependencies. “The Compass will be built on the three pillars of the Draghi report. The first is closing the innovation gap with the US and China. The second is a joint plan for decarbonisation and competitiveness. And the third is increasing security and reducing dependencies,” the President explained. Von der Leyen also highlighted the diversity and expertise of her team, which includes leaders from various sectors and backgrounds.

In a press conference following the vote, von der Leyen expressed gratitude for the Parliament’s confidence and outlined ambitious plans for her first 100 days in office. Key initiatives include a Clean Industrial Deal, a Cybersecurity Action Plan for Health Infrastructure, and Youth Policy Dialogues to amplify the voices of young Europeans. Stressing the need for strong cooperation between the EU institutions, she remarked, “Over the next five years, European unity will be absolutely critical.” Von der Leyen reaffirmed her team’s commitment to fostering this partnership to address pressing challenges and uphold Europe’s unity and progress.

Progress on Crypto-Asset Reporting Framework at Global Forum’s 17th Plenary Meeting  

The Members of the OECD’s Global Forum held their 17th Plenary Meeting in Asunción, Paraguay last week, with over 400 representatives from more than 110 jurisdictions and 13 international organisations gathering to review recent achievements, address emerging challenges, and plan future actions. The 2024 Global Forum Annual Report was published on the occasion of the Plenary, and sets out progress made by the Global Forum concerning global tax transparency and cooperation.

A key highlight was the advancement of the Crypto-Asset Reporting Framework (CARF), designed to extend automatic exchange of information (EOI) to crypto assets. Sixty-one jurisdictions, including major crypto-asset centres, have committed to implementing CARF by 2027 or 2028, with 48 jurisdictions set to formalise this commitment through a multilateral agreement. The initiative is expected to strengthen global efforts to address tax evasion in the evolving digital asset landscape.

In addition to CARF, the Global Forum has introduced amendments to the Common Reporting Standard (CRS) for financial account exchanges. These changes, slated for implementation by 2027, aim to expand the scope of CRS, improve its effectiveness, and ensure consistency with CARF. Combined, these measures aim to future-proof international tax transparency frameworks, building on the Forum’s track record of advancing transparency and information exchange standards.

EU Commission Publishes Explanatory Notes for Special Scheme for SMEs 2024

The European Commission has published a comprehensive set of Explanatory Notes to assist small enterprises (SMEs) in navigating the changes to the EU VAT regime, effective from January 1, 2025. These notes provide detailed, practical guidance on the revamped SME scheme, introduced under Council Directive (EU) 2020/285, which offers VAT exemptions and compliance simplifications for eligible SMEs. Although not legally binding, the Explanatory Notes are designed to clarify the new rules and their application, helping SMEs understand both the benefits and responsibilities of the regime.

The updated SME scheme allows small enterprises with an annual turnover not exceeding €100,000 across all Member States to opt for VAT exemption on their supplies of goods and services, reducing compliance burdens such as VAT registration and periodic reporting. However, enterprises that choose the exemption will forfeit the right to deduct input VAT on their purchases. The scheme’s dual-layer structure—domestic and cross-border—provides flexibility for businesses to apply the exemption within their Member State of establishment or across other Member States where VAT is due.

A notable feature of the scheme is its simplification measures. SMEs can now register once in their Member State of establishment, obtaining a single “EX” identification number valid across all participating Member States. VAT compliance is further streamlined through a single quarterly report, replacing multiple VAT returns. Harmonized thresholds have been introduced, with a maximum domestic turnover limit of €85,000, and Member States have the option to set sector-specific thresholds. The cross-border application ensures equal treatment for SMEs, whether domestic or foreign, addressing previous distortions of competition.

The Explanatory Notes also address transitional provisions for SMEs currently under the domestic scheme, rules for leaving or rejoining the scheme, and scenarios involving other VAT mechanisms like the One-Stop-Shop (OSS). By offering clear, accessible guidance, the European Commission aims to support SMEs in understanding and leveraging the new regime effectively while easing the administrative transition. Businesses are encouraged to consult the publication thoroughly to ensure compliance and maximise the benefits of the updated VAT framework.

Peer Review Report on Automatic Exchange of Financial Account Information 

The Global Forum on Transparency and Exchange of Information for Tax Purposes published its latest peer review report on the implementation of the Automatic Exchange of Information (AEOI) Standard in November. This international standard facilitates the annual exchange of financial account information between tax authorities to improve compliance with tax obligations. By 2024, 111 jurisdictions participate in the AEOI framework, exchanging information on over 134 million accounts valued at EUR 12 trillion in 2023. The report updates on the progress of jurisdictions implementing the AEOI Standard and evaluates the effectiveness of these exchanges in practice.

Among 114 jurisdictions assessed for their legal frameworks, 108 were found to have systems that are fully or substantially in place. However, six jurisdictions received a “Not In Place” determination, with deficiencies noted in their frameworks. Practical implementation was assessed for 104 jurisdictions, with 67 rated as “On Track” for meeting compliance requirements. The report identifies areas for improvement, particularly in the administrative compliance and enforcement frameworks used to ensure reporting by financial institutions.

The report also includes updates from the second round of peer reviews, which began in 2023. These reviews involve detailed assessments, including onsite visits, to examine how effectively jurisdictions are implementing the AEOI Standard in practice. They focus on compliance frameworks, enforcement measures, and information exchange procedures. Jurisdictions are encouraged to address identified gaps to improve effectiveness and ensure a consistent approach across participating countries.

The Forum has also supported more than 28,970 requests for information under EOI frameworks, aiding ongoing tax investigations. Capacity-building initiatives have been a cornerstone of the Forum’s work, with 100 jurisdictions receiving direct support in 2024, the highest number since the program began. These activities, alongside the Forum’s peer review process, underscore its role in enhancing global adherence to transparency standards and equipping jurisdictions to address new and complex tax challenges effectively. The findings are current as of November 2024 and are accessible through the Global Forum’s website for further reference.

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