There were huge sighs of relief in Brussels and beyond as the Council of EU finally overcame Hungary’s veto and approved the Commission’s Pillar Two Directive. In less visible developments, the Commission also published two completely new legislative proposals.
EU countries finally approved the Pillar Two minimum tax Directive on 15 December. This precedes months of deadlock, as Hungary continued to use its veto to prevent the proposal’s adoption. It is by now explicitly recognized both by fellow member states as well as the Commission that Hungary was using Pillar Two as a bargaining chip to gain access to EU COVID recovery funding, which it had so far been blocked from due to concerns over Hungary’s rule of law situation.
Czech Republic, which holds the rotating 6-month Council presidency until the end of the year, was working relentlessly to find an agreement on Pillar Two. This required a move to a ‘package deal’ approach. As part of the package, EU member states agreed to freeze €6.3bn of the EU cohesion funds destined for Hungary. They also agreed to formally greenlight Hungary’s Covid recovery funding share worth several billion euros. However, this money will remain frozen and subject to a set of milestones that Hungary will need to achieve.
Member states will now have to implement the Directive into national laws by the end of 2023. The Pillar Two saga – and both Hungary and Poland taking turns to unilaterally veto the Directive for various often dubious reasons – has also reignited the debate on tax decision-making in the EU. A growing number of countries and observers are now questioning the unanimity rule, although it is not immediately clear how this might be overcome as overruling unanimity – whether through existing EU treaty provisions such as the passerelle clause or through treaty reform – will in itself require unanimity.
Apart from the Pillar Two agreement, a couple of additional noteworthy developments took place. European Commission published on 8 December two long-awaited proposals: to include crypto-assets and e-money in the scope of the Directive on administrative cooperation (DAC 8), and updating VAT rules for the realities of digitalised economy.
On DAC 8, the proposal puts forward changes to existing provisions on exchanges of information and administrative cooperation. It also extends the Directive’s scope to the automatic exchange of information reported by crypto-asset service providers. The rules on due diligence procedures, reporting requirements and other rules applicable to reporting crypto-asset service providers are based on the OECD crypto-asset reporting framework.
The proposal also extends exchange of advance cross-border rulings and advanced pricing agreements to high-net-worth individuals who hold a minimum of €1m in financial or investable wealth or assets under management, excluding that individual’s main private residence. Finally, the proposal introduces in article 25a more specific penalties for various breaches of the DAC rules.
The VAT in the digital age proposal, for its part, introduces at least three key changes:
A move to real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU and a harmonised framework for domestic transactions;
Updated VAT rules for passenger transport and short-term accommodation platforms. Under the new rules, platform economy operators themselves will be deemed responsible for collecting VAT when service providers do not and for remitting this VAT to tax authorities; and
The introduction of a single VAT registration across the EU.
As always on tax, both proposals will need to be adopted by the Council of the EU by unanimity.
Home >Articles > EU watch: It almost didn’t happen until it did
EU watch: It almost didn’t happen until it did
There were huge sighs of relief in Brussels and beyond as the Council of EU finally overcame Hungary’s veto and approved the Commission’s Pillar Two Directive. In less visible developments, the Commission also published two completely new legislative proposals.
EU countries finally approved the Pillar Two minimum tax Directive on 15 December. This precedes months of deadlock, as Hungary continued to use its veto to prevent the proposal’s adoption. It is by now explicitly recognized both by fellow member states as well as the Commission that Hungary was using Pillar Two as a bargaining chip to gain access to EU COVID recovery funding, which it had so far been blocked from due to concerns over Hungary’s rule of law situation.
Czech Republic, which holds the rotating 6-month Council presidency until the end of the year, was working relentlessly to find an agreement on Pillar Two. This required a move to a ‘package deal’ approach. As part of the package, EU member states agreed to freeze €6.3bn of the EU cohesion funds destined for Hungary. They also agreed to formally greenlight Hungary’s Covid recovery funding share worth several billion euros. However, this money will remain frozen and subject to a set of milestones that Hungary will need to achieve.
Member states will now have to implement the Directive into national laws by the end of 2023. The Pillar Two saga – and both Hungary and Poland taking turns to unilaterally veto the Directive for various often dubious reasons – has also reignited the debate on tax decision-making in the EU. A growing number of countries and observers are now questioning the unanimity rule, although it is not immediately clear how this might be overcome as overruling unanimity – whether through existing EU treaty provisions such as the passerelle clause or through treaty reform – will in itself require unanimity.
Apart from the Pillar Two agreement, a couple of additional noteworthy developments took place. European Commission published on 8 December two long-awaited proposals: to include crypto-assets and e-money in the scope of the Directive on administrative cooperation (DAC 8), and updating VAT rules for the realities of digitalised economy.
On DAC 8, the proposal puts forward changes to existing provisions on exchanges of information and administrative cooperation. It also extends the Directive’s scope to the automatic exchange of information reported by crypto-asset service providers. The rules on due diligence procedures, reporting requirements and other rules applicable to reporting crypto-asset service providers are based on the OECD crypto-asset reporting framework.
The proposal also extends exchange of advance cross-border rulings and advanced pricing agreements to high-net-worth individuals who hold a minimum of €1m in financial or investable wealth or assets under management, excluding that individual’s main private residence. Finally, the proposal introduces in article 25a more specific penalties for various breaches of the DAC rules.
The VAT in the digital age proposal, for its part, introduces at least three key changes:
A move to real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU and a harmonised framework for domestic transactions;
Updated VAT rules for passenger transport and short-term accommodation platforms. Under the new rules, platform economy operators themselves will be deemed responsible for collecting VAT when service providers do not and for remitting this VAT to tax authorities; and
The introduction of a single VAT registration across the EU.
As always on tax, both proposals will need to be adopted by the Council of the EU by unanimity.
