The
EU Council continues to struggles to find agreement on the proposed pillar two
minimum tax Directive. There are now also confirmed plans about a EU regulation
of tax advice, as well as the previously reported proposal on a debt-equity
bias allowance.
At the 5 April ECOFIN meeting of EU finance ministers, member states yet again failed to find unanimous support for European Commission’s Directive to implement OECD pillar two into EU law. The French Council Presidency had worked hard to win the hearts of the final holdouts, namely Estonia, Malta and Poland. Whilst the former two supported the latest compromise proposal, Poland still vetoed the agreement, continuing to insist on the need for a legal link between pillars one and two.
The question of this legal link is a tricky one, as establishing one would risk undermining the primacy and integrity of EU law in the single market. Poland, no doubt aware of this, still refused to back the compromise. The French finance minister sought to bring the Directive again to the finance ministers’ agenda on the 24 May ECOFIN meeting, but this was cancelled due to continued objections from Poland despite last minute diplomatic efforts. All eyes will now be on the 17 June ECOFIN, but there is at the time of writing no clear solution visible.
In other news, there was a formal announcement by the European Commission at a 25 April European Parliament hearing that it is working on a EU regulation of tax advice provision. Commission’s Jasna Voje explained that this is a reaction to the Pandora Papers which emerged in October 2021.
The Commission is still mulling over the details of the plan, with a lot of internal decisions still to be taken. However, Ms Voje explained at the hearing that the current intention is to regulate the activity of providing tax advice, rather than tax advisory professions. The idea would be to set up a set of criteria for what constitutes ‘acceptable’ tax planning, and for tax advice providers to apply these criteria when devising tax arrangements or face penalties in case of non-compliance. In other words, this puts the responsibility for compliance on the adviser, rather than the taxpayer being advised.
One of the current questions concerns the potential legal base for its implementation. It is possible that the Commission could use either tax or non-tax legal base for its proposal, although there has been no confirmation one way or the other for now. The non-tax base would mean equal legislative powers to the Council and the Parliament, and there would be no need for Council unanimity for it to be approved. But choosing the non-tax base could provoke some member states which are sensitive about the Commission legislating on what they see as tax proposals via non-tax legal base, as was arguably the case with public country by country reporting.
A public consultation was initially scheduled to run from 12 May until 20 July, but this is now expected later (and there is no indication yet as to when it might be).
And finally, on 11 May the Commission published its debt-equity bias reduction allowance (DEBRA) proposal. DEBRA’s aim is to foster the development of the EU Capital Markets Union by granting companies incentives to use equity, rather than debt, to finance their activities. It stipulates that increases in a taxpayer’s equity from one tax year to the next should be deductible from its taxable base, similarly to what happens to debt. Moreover, SMEs would benefit from a higher notional interest rate under the proposed rules.
As a next step, the EU Council needs to approve the proposal through unanimity, while the European Parliament must provide its legally non-binding opinion.
Home >Articles > EU watch: pillar two, regulating tax advice and DEBRA Directive
EU watch: pillar two, regulating tax advice and DEBRA Directive
The
EU Council continues to struggles to find agreement on the proposed pillar two
minimum tax Directive. There are now also confirmed plans about a EU regulation
of tax advice, as well as the previously reported proposal on a debt-equity
bias allowance.
At the 5 April ECOFIN meeting of EU finance ministers, member states yet again failed to find unanimous support for European Commission’s Directive to implement OECD pillar two into EU law. The French Council Presidency had worked hard to win the hearts of the final holdouts, namely Estonia, Malta and Poland. Whilst the former two supported the latest compromise proposal, Poland still vetoed the agreement, continuing to insist on the need for a legal link between pillars one and two.
The question of this legal link is a tricky one, as establishing one would risk undermining the primacy and integrity of EU law in the single market. Poland, no doubt aware of this, still refused to back the compromise. The French finance minister sought to bring the Directive again to the finance ministers’ agenda on the 24 May ECOFIN meeting, but this was cancelled due to continued objections from Poland despite last minute diplomatic efforts. All eyes will now be on the 17 June ECOFIN, but there is at the time of writing no clear solution visible.
In other news, there was a formal announcement by the European Commission at a 25 April European Parliament hearing that it is working on a EU regulation of tax advice provision. Commission’s Jasna Voje explained that this is a reaction to the Pandora Papers which emerged in October 2021.
The Commission is still mulling over the details of the plan, with a lot of internal decisions still to be taken. However, Ms Voje explained at the hearing that the current intention is to regulate the activity of providing tax advice, rather than tax advisory professions. The idea would be to set up a set of criteria for what constitutes ‘acceptable’ tax planning, and for tax advice providers to apply these criteria when devising tax arrangements or face penalties in case of non-compliance. In other words, this puts the responsibility for compliance on the adviser, rather than the taxpayer being advised.
One of the current questions concerns the potential legal base for its implementation. It is possible that the Commission could use either tax or non-tax legal base for its proposal, although there has been no confirmation one way or the other for now. The non-tax base would mean equal legislative powers to the Council and the Parliament, and there would be no need for Council unanimity for it to be approved. But choosing the non-tax base could provoke some member states which are sensitive about the Commission legislating on what they see as tax proposals via non-tax legal base, as was arguably the case with public country by country reporting.
A public consultation was initially scheduled to run from 12 May until 20 July, but this is now expected later (and there is no indication yet as to when it might be).
And finally, on 11 May the Commission published its debt-equity bias reduction allowance (DEBRA) proposal. DEBRA’s aim is to foster the development of the EU Capital Markets Union by granting companies incentives to use equity, rather than debt, to finance their activities. It stipulates that increases in a taxpayer’s equity from one tax year to the next should be deductible from its taxable base, similarly to what happens to debt. Moreover, SMEs would benefit from a higher notional interest rate under the proposed rules.
As a next step, the EU Council needs to approve the proposal through unanimity, while the European Parliament must provide its legally non-binding opinion.
