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EU watch: OECD implementation, public CBCR and more

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The mechanics of implementation.

The European Commission is busy working on imminent key files, not least EU implementation of the recent OECD agreement on pillars one and two. But there’s a lot more in the Commission’s pipeline too. It will be interesting to see how many new initiatives will come out before the end of the year, or instead postponed into early 2022.

The historic international tax agreement reached on 8 October paves the way for jurisdictions to start planning the deal’s implementation. The same applies to the EU as well – and the European Commission has announced its intention to implement the deal into EU law ‘as soon as possible’.

In formal documents, the Commission has indicated that it will propose a Directive to implement pillar one (re-allocation of taxing rights) to ensure its coherent implementation in the EU. However, key Commission officials in DG TAXUD continue to insist that there is no final conclusion in the Commission yet on whether a pillar one Directive might be needed. This is because pending on the final format of the OECD agreement for that pillar, it might be directly binding for the signing countries anyway. In any case, no EU Directive for pillar one should be expected before at least Q3 2022, given that the OECD will only finalise certain key provisions – including the multilateral instrument – next summer.

On pillar two (minimum taxation), the Commission is ambitiously aiming to propose a EU implementing Directive before the end of the year (probably December). Failing that, it will in any case propose it in early 2022. The Commission proposal is pending on the OECD finalising key technical details in the course of November. In order to ensure a smooth and rapid agreement on the Directive by EU member states, the Commission intends to stick as closely as possible to the pillar two agreement’s provisions.

The pillar two Directive, once proposed, will be accompanied by another Directive on public disclosure of minimum effective tax rates (ETRs) in the EU by companies that fall under the OECD agreement’s scope. The methodology for the disclosable tax rate will be based on the pillar two proposal.

It remains to be seen which legal tool the Commission will use for the ETR disclosure provisions. At first glance, one would guess this will be based on taxation (meaning EU Council unanimity, no European Parliament co-decision). However, public country by country reporting (CBCR) was actually proposed by the Commission as a revision of the EU Accounting Directive (meaning Council qualified majority and co-decision by the Parliament). Following the same logic, it is plausible that the Commission would decide to do so with ETR disclosures as well.

And speaking of public CBCR, the Council has now formally approved, and the Parliament is proceeding with formally approving, the deal reached earlier this year. However, eight EU member states (Cyprus, Czech Republic, Hungary, Ireland, Luxembourg, Malta and Sweden) in the Council have again raised their objections about the legal base (accounting, not tax) used by the Commission. In theory, they can take the case to the EU court once the Directive is formally adopted into EU law – a prospect the Commission itself acknowledges, although it remains confident that its view would prevail in a court challenge. Watch this space.

As for other pending proposals:

  • The Commission is still scheduled to publish its initiative on shell entities on 22 December. This early Christmas gift to give tax policy followers some work for the holiday period might be postponed into early 2022, however.
  • A public consultation on the pan-EU framework on withholding taxes is also still scheduled for before the year-end (followed by a proposal in Q4 2022).
  • A revision of the Directive on Administrative Cooperation (DAC 8) to include in its scope crypto-assets, e-money and common EU sanctions is still possible this year, but again it could possibly be postponed to early 2022.
  • The same can be said for the proposal to reform VAT for financial services, which may be around the end of 2021 or early 2022.

And finally, the Commission is currently reflecting on how to react to the recent Pandora Papers revelations. For now, officials point to the public consultation on tax avoidance and the use of shell entities, which will, notably, provide a definition for economic substance in the EU. However, officials have also hinted at needing to further consider the role of tax intermediaries, and whether any additional measures are needed there.

Issue: 1550
Categories: In brief