Despite yet another setback in the adoption of the EU pillar two directive, there is no rest in the horizon for EU’s tax policies. As the Commission and the Council reflect on ways forward on minimum taxation, there is much more to look forward to: renewed prospect of a EU digital tax initiative, possible initiative to circumvent Council’s unanimity rule on tax policies, a proposal to tackle tax enablers, exchanging information on crypto-assets, and adapting VAT rules for the digital age.
The 17 June ECOFIN Council felt like a deja-vu already. EU finance ministers were supposed to finally unanimously adopt the proposed minimum Directive, implementing in EU law the OECD’s pillar two agreement. Poland had just lifted its veto on the proposal too. And then came Hungary, this time its turn to veto the agreement on the grounds that the war in Ukraine had changed the economic circumstances and a minimum tax would be harmful for the economy.
At the time of writing, there is no clear way forward to get Hungary lift its veto. EU’s appetite for offering concessions – especially ones that might risk undermining its dedication to the rule of law – is weak. Even the US threw its hat into the ring, threatening to annul a tax treaty that it has with Hungary in objection to its veto of the EU proposal. But whether even this will help to change the mind of Hungary and its leader Viktor Orban, who has only doubled down on his objection to the directive, remains to be seen. It is now up to the new Council Presidency holder, Czech Republic, to find a way around the impasse.
Hungary’s (and before it, Poland’s) veto of the pillar two proposal has had at least one clear result: reviving EU discussions about how to get rid of or at least circumvent the Council’s unanimity requirement for adopting tax proposals.
The European Parliament, long-time vocal in calling for unanimity to be lifted, held a hearing on 27 June with Commissioner Gentiloni, EU’s tax leader. During the hearing, several MEPs pressed the Commissioner on the next steps for pillar two, some calling on the Council to use so-called enhanced cooperation. This would allow a minimum of nine willing EU member states to move ahead with the pillar two proposal, leaving out those countries that object to the proposal. This move appears to at least have the support of France and its finance minister, Bruno Le Maire.
The Commissioner, however, insisted on the need for consensus on the proposal, preferring to get Hungary on board rather than trying to circumvent it completely. However, if the impasse continues, even the Commission might change its tune.
MEPs also called on the Commission to use article 116 to adopt 'certain tax policies' through qualified majority voting rather than unanimity. Indeed, article 116 of the Treaty on the Functioning of the EU (TFEU) allows the Commission to use qualified majority if the integrity of the EU internal market is in peril. However, according to many legal observers and, crucially, the Commission itself, this Article can be used only to fix a specific distortion in the EU market. It thus cannot be used for major tax harmonization measures.
However, the Commissioner did say that 'it is time' to use article 116 to address 'specific and severe distortions of the Single Market'. This would be in the area of fighting tax evasion and aggressive tax planning. When, and what, the Commission would propose is still unclear.
Some other tax developments to note also took place in past weeks. First, the Council has called on the Commission to assess in June 2023 the state of play of Pillar 1 negotiations in the OECD. If there is insufficient progress, the Commission should revisit EU’s own proposals to address taxation of the digital economy.
The Commission also published on 6 July its much-anticipated public consultation to regulate 'tax enablers' in the EU. The consultation deadline is 12 October, and a proposal would be launched in early 2023. The Commission has previously indicated that the purpose would be to address specifically tax enablers that help set up tax planning structures outside of the EU.
And finally, two other major tax proposals are currently scheduled for 16 November. The first one is DAC 8 (Directive on administrative cooperation), which would expand automatic exchange of tax information between tax administrations to also cover crypto-assets and e-money. The other is the so-called VAT in the digital age proposal, which would adapt the VAT system to new technologies and take into account the platform economy.
Home >Articles > EU watch: where next for the EU tax agenda?
EU watch: where next for the EU tax agenda?
Despite yet another setback in the adoption of the EU pillar two directive, there is no rest in the horizon for EU’s tax policies. As the Commission and the Council reflect on ways forward on minimum taxation, there is much more to look forward to: renewed prospect of a EU digital tax initiative, possible initiative to circumvent Council’s unanimity rule on tax policies, a proposal to tackle tax enablers, exchanging information on crypto-assets, and adapting VAT rules for the digital age.
The 17 June ECOFIN Council felt like a deja-vu already. EU finance ministers were supposed to finally unanimously adopt the proposed minimum Directive, implementing in EU law the OECD’s pillar two agreement. Poland had just lifted its veto on the proposal too. And then came Hungary, this time its turn to veto the agreement on the grounds that the war in Ukraine had changed the economic circumstances and a minimum tax would be harmful for the economy.
At the time of writing, there is no clear way forward to get Hungary lift its veto. EU’s appetite for offering concessions – especially ones that might risk undermining its dedication to the rule of law – is weak. Even the US threw its hat into the ring, threatening to annul a tax treaty that it has with Hungary in objection to its veto of the EU proposal. But whether even this will help to change the mind of Hungary and its leader Viktor Orban, who has only doubled down on his objection to the directive, remains to be seen. It is now up to the new Council Presidency holder, Czech Republic, to find a way around the impasse.
Hungary’s (and before it, Poland’s) veto of the pillar two proposal has had at least one clear result: reviving EU discussions about how to get rid of or at least circumvent the Council’s unanimity requirement for adopting tax proposals.
The European Parliament, long-time vocal in calling for unanimity to be lifted, held a hearing on 27 June with Commissioner Gentiloni, EU’s tax leader. During the hearing, several MEPs pressed the Commissioner on the next steps for pillar two, some calling on the Council to use so-called enhanced cooperation. This would allow a minimum of nine willing EU member states to move ahead with the pillar two proposal, leaving out those countries that object to the proposal. This move appears to at least have the support of France and its finance minister, Bruno Le Maire.
The Commissioner, however, insisted on the need for consensus on the proposal, preferring to get Hungary on board rather than trying to circumvent it completely. However, if the impasse continues, even the Commission might change its tune.
MEPs also called on the Commission to use article 116 to adopt 'certain tax policies' through qualified majority voting rather than unanimity. Indeed, article 116 of the Treaty on the Functioning of the EU (TFEU) allows the Commission to use qualified majority if the integrity of the EU internal market is in peril. However, according to many legal observers and, crucially, the Commission itself, this Article can be used only to fix a specific distortion in the EU market. It thus cannot be used for major tax harmonization measures.
However, the Commissioner did say that 'it is time' to use article 116 to address 'specific and severe distortions of the Single Market'. This would be in the area of fighting tax evasion and aggressive tax planning. When, and what, the Commission would propose is still unclear.
Some other tax developments to note also took place in past weeks. First, the Council has called on the Commission to assess in June 2023 the state of play of Pillar 1 negotiations in the OECD. If there is insufficient progress, the Commission should revisit EU’s own proposals to address taxation of the digital economy.
The Commission also published on 6 July its much-anticipated public consultation to regulate 'tax enablers' in the EU. The consultation deadline is 12 October, and a proposal would be launched in early 2023. The Commission has previously indicated that the purpose would be to address specifically tax enablers that help set up tax planning structures outside of the EU.
And finally, two other major tax proposals are currently scheduled for 16 November. The first one is DAC 8 (Directive on administrative cooperation), which would expand automatic exchange of tax information between tax administrations to also cover crypto-assets and e-money. The other is the so-called VAT in the digital age proposal, which would adapt the VAT system to new technologies and take into account the platform economy.
