The Tax Package contains three separate but related initiatives:
- a Tax Action Plan;
- a proposal to amend the Directive on Administrative Cooperation; and
- Communication on Tax Good Governance.
The Tax Package does not cover the taxation of digital services or minimum effective taxation. These topics are currently being developed at OECD level (see our publication of 17 February 2020).
Tax Action Plan
The Tax Action Plan contains a set of 25 actions that the Commission will propose and implement until 2024. The actions are aimed at:
- reducing administrative obstacles for businesses operating within the EU; and
- helping EU Member States to exploit the potential of data and new technologies to better fight tax fraud, improve compliance and reduce administrative burdens.
The actions are mostly related to VAT. Among others, the Commission proposes to move towards a single EU VAT registration system, to extend the scope of the VAT One Stop Shop (OSS), to modernize the VAT rules in order to ensure that they are adapted to the online platform economy and to introduce a mechanism to prevent and solve VAT disputes. Other noteworthy actions are establishing an expert group on transfer pricing and assessing the harmonization of the criteria to determine tax residence within the EU.
Proposal to amend the Directive on administrative cooperation (DAC7)
The Commission proposes to further amend the Directive on Administrative Cooperation (most recently amended in 2018 by a directive (DAC6) to include mandatory disclosure rules for intermediaries on certain cross-border arrangements). The amendments, which the Commission aims to have in effect as of 2022 (subject to prior adoption by the Council of the EU and implementation by the EU Member States), would extend the EU tax transparency rules to digital platforms.
The proposal would require certain digital platform operators to perform specific due diligence procedures and collect and report information on parties that use their platforms to sell goods, provide certain services or invest and lend in the context of crowdfunding. The information reported would be automatically exchanged between EU Members States.
Furthermore, the proposal seeks to strengthen administrative cooperation by reinforcing existing rules. For example, royalties would be added to the categories of income on which information is automatically exchanged between EU Member States. In addition, a framework is proposed to be introduced for the conduct of joint audits between two or more EU Member States.
Communication on Tax Good Governance
The Communication on Tax Good Governance states how the EU can further promote the principles of transparency and fair taxation.
The Commission intends to start a reform of the Code of Conduct for Business Taxation (the Code), while awaiting the outcome of the international tax reform discussions at OECD level. The Code is a soft law instrument that sets out principles for fair tax competition and is used to determine whether a tax regime or measure is harmful. The Commission proposes to widen the scope of the Code to cover additional types of tax measures and general aspects of national corporate tax systems, as well as relevant taxes other than corporate tax.
The Commission also intends to modify the selection process and screening criteria of non-EU jurisdictions for purposes of the EU list of non-cooperative jurisdictions. The Commission proposes to update the scoreboard being used to select the most relevant jurisdictions to screen by the end of 2020.
The EU list of non-cooperative jurisdictions is already used for two types of countermeasures. First, key EU funding legislation prevents EU funds from being invested in or channeled through listed jurisdictions. Second, EU Member States committed themselves in December 2019 to adopt as from 2021 at the latest at least one defensive tax measure recommended by the EU Code of Conduct group (e.g., denial of deductions of certain payments made to entities in listed jurisdictions or a withholding tax on such payments).
In the Communication, the Commission also urges EU Member States to mirror the EU efforts when it comes to the use of their own funds. It will seek alignment of EU and national funding policies and consider alignment between the use of funds and the application of EU Member States’ defensive measures. The Commission aims to conduct an evaluation of the defensive measures used by EU Member States by 2022. The Commission may then consider putting forward a legislative proposal to coordinate defensive measures.