Some tax proposals are stuck in the Council, some have been approved and others are in the pipeline.
EU finance ministers approved on 16 May the latest revision to the EU directive on administrative cooperation on taxation (DAC 8). European Commission proposed the latest DAC revision in December 2022. It expands the Directive’s scope by including in it an obligation to report and automatic exchange of information on revenues generated from cryptoasset transactions, as well as advance tax rulings for high net worth individuals.
The identification of cryptoassets is aligned with another EU directive, the Markets in Crypto Assets (MiCA) proposal which was also approved on the same day. The proposed mandatory tax identification number (TIN) provisions were postponed for later dates than initially wished by the Commission or member states such as Belgium. The Council also adapted DAC to a ruling by the EU Court of Justice, which stated that DAC 6 (exchange of information on tax arrangements) violates legal professional privilege. The final text of DAC 8 therefore clarifies that member states ‘may take the necessary measures to give intermediaries the right to a waiver from filing information on a reportable cross-border arrangement where the reporting obligation would breach the legal professional privilege under the national law of that member state’.
The agreement is not to everyone’s liking. Notably, Belgium lamented the alleged lack of ambition in the final text. Nonetheless, the Commission and Sweden, which holds the ongoing rotating Council presidency until July, will both no doubt be happy with the file’s conclusion.
On the other hand, EU member states are reportedly blocked in their negotiations on the Commission’s shell entities proposal (Unshell directive). This proposal would, among other provisions, establish a pan-EU definition or ‘test’ to determine economic substance. Any entity not fulfilling the substance criteria would risk losing their tax benefits. Finance ministers were supposed to hold a public discussion on Unshell at their 16 May meeting, but this was in the end removed from the agenda. Thus, work will continue on this file during the Spanish Council presidency, which takes over from Sweden in July for a six-month term.
In terms of upcoming proposals, the Commission has postponed its two proposals initially expected for 7 June: a proposal targeting ‘tax enablers’ (SAFE), and another aiming to establish a pan-EU framework for withholding taxation. The former has disappeared from the Commission’s planning agenda, but at the time of writing should still be ‘on track’. The latter is for now scheduled for 28 June. Stakeholders will then have one month to provide their feedback.
SAFE is proving to be relatively ambitious, it appears. Based notably on public remarks by the Commission’s director for direct taxation, Benjamin Angel, the purpose would be twofold: (i) to come up with a EU definition for ‘aggressive tax planning’ (ATP) and (ii) to set up a EU register of tax advisers.
This measure would be strictly linked to third countries and jurisdictions. The tax schemes falling under the scope of the proposal must include at least one non-EU jurisdiction in the arrangement, meaning that purely intra-EU advice and schemes would not be covered. An adviser that wants to advise on non-EU schemes should be on the future register and ensure that their arrangements do not breach the ATP criteria. If the adviser is based outside of the EU and thus beyond reach of EU enforcement, the EU based taxpayer making use of their services would be sanctioned instead.
There are a couple of remaining questions yet to be answered. First, at what ‘level’ would the adviser need to be registered: as an individual or at the legal entity level (or perhaps both)? The second question concerns the legal base. The Commission is looking at both tax and non-tax options for the legal base. A tax base would require the unanimous agreement of EU member states, whilst non-tax would only need a simple qualified majority of member states with the European Parliament legislating on an equal footing. Both options have their respective pros and cons. However, nothing is certain or confirmed until the proposal is actually out, and the Commission has a history of changing aspects of its proposals from what it has previously announced.
Finally, the ‘Business in Europe: Framework for Income Taxation’ (BEFIT) initiative is for now scheduled for 12 September. This proposal would be the latest version of the so-called common consolidated corporate tax base (CCCTB) proposal on which member states failed to agree in the past. It will propose to create a common EU corporate tax base on the basis of allocation criteria including tangible and intangible assets, headcount and turnover. The criteria are to be aligned with the OECD/G20 Pillars One and Two. Whether BEFIT will be more successful than the CCCTB proposal remains to be seen.
Some tax proposals are stuck in the Council, some have been approved and others are in the pipeline.
EU finance ministers approved on 16 May the latest revision to the EU directive on administrative cooperation on taxation (DAC 8). European Commission proposed the latest DAC revision in December 2022. It expands the Directive’s scope by including in it an obligation to report and automatic exchange of information on revenues generated from cryptoasset transactions, as well as advance tax rulings for high net worth individuals.
The identification of cryptoassets is aligned with another EU directive, the Markets in Crypto Assets (MiCA) proposal which was also approved on the same day. The proposed mandatory tax identification number (TIN) provisions were postponed for later dates than initially wished by the Commission or member states such as Belgium. The Council also adapted DAC to a ruling by the EU Court of Justice, which stated that DAC 6 (exchange of information on tax arrangements) violates legal professional privilege. The final text of DAC 8 therefore clarifies that member states ‘may take the necessary measures to give intermediaries the right to a waiver from filing information on a reportable cross-border arrangement where the reporting obligation would breach the legal professional privilege under the national law of that member state’.
The agreement is not to everyone’s liking. Notably, Belgium lamented the alleged lack of ambition in the final text. Nonetheless, the Commission and Sweden, which holds the ongoing rotating Council presidency until July, will both no doubt be happy with the file’s conclusion.
On the other hand, EU member states are reportedly blocked in their negotiations on the Commission’s shell entities proposal (Unshell directive). This proposal would, among other provisions, establish a pan-EU definition or ‘test’ to determine economic substance. Any entity not fulfilling the substance criteria would risk losing their tax benefits. Finance ministers were supposed to hold a public discussion on Unshell at their 16 May meeting, but this was in the end removed from the agenda. Thus, work will continue on this file during the Spanish Council presidency, which takes over from Sweden in July for a six-month term.
In terms of upcoming proposals, the Commission has postponed its two proposals initially expected for 7 June: a proposal targeting ‘tax enablers’ (SAFE), and another aiming to establish a pan-EU framework for withholding taxation. The former has disappeared from the Commission’s planning agenda, but at the time of writing should still be ‘on track’. The latter is for now scheduled for 28 June. Stakeholders will then have one month to provide their feedback.
SAFE is proving to be relatively ambitious, it appears. Based notably on public remarks by the Commission’s director for direct taxation, Benjamin Angel, the purpose would be twofold: (i) to come up with a EU definition for ‘aggressive tax planning’ (ATP) and (ii) to set up a EU register of tax advisers.
This measure would be strictly linked to third countries and jurisdictions. The tax schemes falling under the scope of the proposal must include at least one non-EU jurisdiction in the arrangement, meaning that purely intra-EU advice and schemes would not be covered. An adviser that wants to advise on non-EU schemes should be on the future register and ensure that their arrangements do not breach the ATP criteria. If the adviser is based outside of the EU and thus beyond reach of EU enforcement, the EU based taxpayer making use of their services would be sanctioned instead.
There are a couple of remaining questions yet to be answered. First, at what ‘level’ would the adviser need to be registered: as an individual or at the legal entity level (or perhaps both)? The second question concerns the legal base. The Commission is looking at both tax and non-tax options for the legal base. A tax base would require the unanimous agreement of EU member states, whilst non-tax would only need a simple qualified majority of member states with the European Parliament legislating on an equal footing. Both options have their respective pros and cons. However, nothing is certain or confirmed until the proposal is actually out, and the Commission has a history of changing aspects of its proposals from what it has previously announced.
Finally, the ‘Business in Europe: Framework for Income Taxation’ (BEFIT) initiative is for now scheduled for 12 September. This proposal would be the latest version of the so-called common consolidated corporate tax base (CCCTB) proposal on which member states failed to agree in the past. It will propose to create a common EU corporate tax base on the basis of allocation criteria including tangible and intangible assets, headcount and turnover. The criteria are to be aligned with the OECD/G20 Pillars One and Two. Whether BEFIT will be more successful than the CCCTB proposal remains to be seen.
