Covid-19 seems to have done little to stifle EU’s tax ambitions; perhaps it has even had the contrary effect. With the European Commission considering ambitious post-Covid economic recovery measures, the European Parliament stepping up its tax game and Germany taking over the rotating Council presidency, we are in for a busy time in tax for the rest of 2020.
On 27 May, the Commission published its long-awaited Covid-19 recovery plan to help rebuild Europe’s economy. It includes a one-off €750bn recovery instrument to help finance member states’ economies which have been weakened by the ongoing pandemic. Of this, €500bn would be in the form of grants and €250bn in loans.
Interestingly, the Commission intends to consider several tax measures as options to help finance the recovery funding, including:
a carbon border tax;
an ‘own resource based on the operation of large companies’, dubbed a ‘single market tax’, which could yield up to €10bn, according to the Commission’s calculations;
a digital tax based on OECD’s work or EU’s own action if OECD fails, which could generate about €1bn annually;
simplified VAT; and
a plastics tax that is expected to yield up to €7bn.
The revenue from at least some of these would flow directly to the Commission to help fund its borrowing from the financial markets. It is currently unclear whether and in what form the recovery package will be approved by EU member states; but if it is approved, the question of expanding the Commission’s own resources through new pan-European taxes will be put back to the table.
Meanwhile, the Commission’s upcoming tax package remains on schedule for 15 July. It has since been confirmed that the Commission will explore measures to reform the EU’s code of conduct on business taxation, one of the expected intra-EU elements on tax good governance in the package.
The code of conduct is not a legally binding instrument, but rather it is a political commitment by member states to amend or abolish any existing tax measures that constitute ‘harmful tax competition’ and refrain from introducing new ones.
On the digital and minimum tax side of things, the Commission has reiterated, through statements by several commissioners, that the EU will proceed with unilateral action should the OECD fail to deliver. Given the recent US desire to put negotiations on a ‘pause’, this prospect is closer than ever, and autumn will clarify further what the Commission’s exact intentions in this area are.
And finally, the Commission has recently made several remarks to indicate a reinforced determination to use article 116 of the EU Treaties for some of its upcoming tax proposals. Article 116 enables the Commission to propose legislation under qualified majority, rather than unanimity, of EU member states when the legislation in question tries to address distortions in the EU single market. The Commission has said that there is nothing in the treaties prohibiting use of this article for tax proposals too. Article 116 is different from the so-called passerelle clause, which would also allow the Commission to use qualified majority but would, crucially, require an unanimity of EU member states to be approved. Using article 116 for tax policies would be somewhat of a political gamble and viewed as an aggressive move; however, the Commission may think it a necessary step as its patience runs thin with a minority of EU member states blocking its tax proposals.
And what of the European Parliament? Its expected permanent tax committee has now become reality. On 18 June, the European Parliament Plenary approved the setting up of the committee by an overwhelming majority of 613 MEPs in favour, 67 against and 8 abstentions.
The committee will not include anti-money laundering (AML) within its scope, and will instead focus on tax avoidance, evasion, ‘aggressive tax planning’ and tax transparency. The total number of committee members would be 30, with four vice-chairs. Of these, according to preliminary information, the centre-right EPP group would get eight seats, the socialists six, the liberal Renew Europe four, Greens three and the far-left GUE-NGL two. The committee would be chaired by the socialists.
And finally, some news from the Council of the EU. In early July, Germany took over the six-month rotating presidency of the Council from Croatia. On Germany’s menu: introducing a possible OECD agreement on both pillars into EU law; concluding the financial transaction tax (FTT), which was first mooted in 2013; and taking forward work on the Commission’s upcoming amendments (15 July tax package) to the Directive on tax administrative cooperation (DAC). As a reminder, this amendment would include data, including on VAT, from online platforms within DAC’s scope.
It seems therefore that the EU’s tax momentum is as strong as ever.
Covid-19 seems to have done little to stifle EU’s tax ambitions; perhaps it has even had the contrary effect. With the European Commission considering ambitious post-Covid economic recovery measures, the European Parliament stepping up its tax game and Germany taking over the rotating Council presidency, we are in for a busy time in tax for the rest of 2020.
On 27 May, the Commission published its long-awaited Covid-19 recovery plan to help rebuild Europe’s economy. It includes a one-off €750bn recovery instrument to help finance member states’ economies which have been weakened by the ongoing pandemic. Of this, €500bn would be in the form of grants and €250bn in loans.
Interestingly, the Commission intends to consider several tax measures as options to help finance the recovery funding, including:
a carbon border tax;
an ‘own resource based on the operation of large companies’, dubbed a ‘single market tax’, which could yield up to €10bn, according to the Commission’s calculations;
a digital tax based on OECD’s work or EU’s own action if OECD fails, which could generate about €1bn annually;
simplified VAT; and
a plastics tax that is expected to yield up to €7bn.
The revenue from at least some of these would flow directly to the Commission to help fund its borrowing from the financial markets. It is currently unclear whether and in what form the recovery package will be approved by EU member states; but if it is approved, the question of expanding the Commission’s own resources through new pan-European taxes will be put back to the table.
Meanwhile, the Commission’s upcoming tax package remains on schedule for 15 July. It has since been confirmed that the Commission will explore measures to reform the EU’s code of conduct on business taxation, one of the expected intra-EU elements on tax good governance in the package.
The code of conduct is not a legally binding instrument, but rather it is a political commitment by member states to amend or abolish any existing tax measures that constitute ‘harmful tax competition’ and refrain from introducing new ones.
On the digital and minimum tax side of things, the Commission has reiterated, through statements by several commissioners, that the EU will proceed with unilateral action should the OECD fail to deliver. Given the recent US desire to put negotiations on a ‘pause’, this prospect is closer than ever, and autumn will clarify further what the Commission’s exact intentions in this area are.
And finally, the Commission has recently made several remarks to indicate a reinforced determination to use article 116 of the EU Treaties for some of its upcoming tax proposals. Article 116 enables the Commission to propose legislation under qualified majority, rather than unanimity, of EU member states when the legislation in question tries to address distortions in the EU single market. The Commission has said that there is nothing in the treaties prohibiting use of this article for tax proposals too. Article 116 is different from the so-called passerelle clause, which would also allow the Commission to use qualified majority but would, crucially, require an unanimity of EU member states to be approved. Using article 116 for tax policies would be somewhat of a political gamble and viewed as an aggressive move; however, the Commission may think it a necessary step as its patience runs thin with a minority of EU member states blocking its tax proposals.
And what of the European Parliament? Its expected permanent tax committee has now become reality. On 18 June, the European Parliament Plenary approved the setting up of the committee by an overwhelming majority of 613 MEPs in favour, 67 against and 8 abstentions.
The committee will not include anti-money laundering (AML) within its scope, and will instead focus on tax avoidance, evasion, ‘aggressive tax planning’ and tax transparency. The total number of committee members would be 30, with four vice-chairs. Of these, according to preliminary information, the centre-right EPP group would get eight seats, the socialists six, the liberal Renew Europe four, Greens three and the far-left GUE-NGL two. The committee would be chaired by the socialists.
And finally, some news from the Council of the EU. In early July, Germany took over the six-month rotating presidency of the Council from Croatia. On Germany’s menu: introducing a possible OECD agreement on both pillars into EU law; concluding the financial transaction tax (FTT), which was first mooted in 2013; and taking forward work on the Commission’s upcoming amendments (15 July tax package) to the Directive on tax administrative cooperation (DAC). As a reminder, this amendment would include data, including on VAT, from online platforms within DAC’s scope.
It seems therefore that the EU’s tax momentum is as strong as ever.
