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EU watch: European Commission’s tax measures to support coronavirus efforts

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As is well known, taxation is one of those policy areas where the Commission’s powers are relatively limited, and sovereignty lies strictly with the member states. Despite these limitations, the European Commission has evidently tried to do all it can to ensure that EU countries can introduce the measures they deem necessary to fight the impacts of the coronacrisis.

For example, the Commission has granted flexibility in the application of the EU’s state aid rules through a so-called temporary framework. As part of this framework, EU member states may grant selective tax advantages to businesses. Member states are also allowed to introduce tax deferrals as deemed necessary.

On indirect taxes – where EU harmonisation is more advanced than on direct taxes – the European Commission has proposed to temporarily allow EU member states to suspend tariffs and VAT on imported protective medical equipment. The Commission decision will be applicable from 30 January 2020 until 31 July 2020. This would allow imports carried out during the incipient phase of the outbreak to also benefit from the exemption.

In the meanwhile, the Commission’s timeline for non-coronavirus related tax initiatives is holding for now. On 10 June, the Commission will publish its action plan on the fight against tax fraud. And on 24 June, the Commission intends to publish its communication for business taxation in the 21st century. Needless to say, depending on the severity of the ongoing crisis, the Commission might need to revise these timelines too.

And finally, the European Parliament has gone full-digital and postponed its major Plenary sessions all the way to autumn. This also means that progress on all non-priority initiatives will be delayed. Whether and to what degree this will also affect the setting up of the permanent tax Committee, normally expected for this spring, remains to be seen.

The EU has faced criticism from some circles for its perceived lack of action to fight the coronacrisis. What is evident in areas such as taxation, however, is not an unwillingness from the Commission to act, but rather an inability to do more due to institutional constraints. It remains to be seen whether, after the crisis, there will be new momentum for re-thinking the EU’s areas of competence and where reinforcing them might lead to more effective action.