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EU watch: the Commission's ambitious tax package

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On 15 July, the European Commission published its anticipated tax package. The package consists of a mixture of legislative proposals and non-legislative roadmaps that give indications of the Commission’s future plans. Although there are few surprises, the package demonstrates the Commission's commitment to ambitious tax reforms.

The package consists of three main elements:

  • legislative proposal introducing changes to the Tax Administrative Cooperation Directive (DAC 7);
  • a non-legislative communication on tax good governance in the EU and beyond; and
  • a non-legislative action plan on fair and simple taxation.


The proposed DAC 7 revision extends the scope of EU’s existing tax information exchange rules to digital platforms. It is the only actual legislative proposal of the package.

It aims, on the one hand, to ensure that member states collect and automatically exchange information on the revenues generated by sellers on online platforms. As such, the proposed new rules standardise reporting obligations of platforms across the EU.

On the other hand, DAC 7 aims to clarify the rules in other areas in which member states work together to fight tax abuse, for example with explicit inclusion of joint tax audits and group requests into DAC’s legal text.

The proposals also bring VAT into DAC’s scope by stating that the communicated information between EU member states may also be used for the assessment, administration and enforcement of VAT and other indirect taxes.

As always with tax proposals, EU member states will decide on DAC 7 unanimously, whilst the European Parliament merely provides its non-binding opinion.

Good governance

The second overarching element of the tax package is the communication on tax good governance in the EU and beyond. The communication is legally non-binding, but it presents the Commission’s ‘soft’ measures to promote good tax governance in the coming years.

These include suggestions for reforming the EU’s code of conduct on business taxation (see last EU Watch edition for details). For example, the Communication states that the OECD’s pillar two minimum tax agreement will be introduced into the EU code, or in the absence of an OECD agreement as a stand-alone EU standard. The Commission also calls for widening the code’s scope to cover more types of regimes, general aspects of the national corporate tax systems and relevant taxes other than corporate tax, including golden visas. This is in stark contrast to the status quo, where the code only looks at specific tax types and regimes.

In addition to the above, the Commission:

  • calls on EU countries to implement strict economic substance and transparency standards akin to what the EU already requires from third countries;
  • announces that it will review the scope of the EU’s ‘tax havens list’ by the end of 2020 to allow additional third countries to be included within its screening process;
  • states its intention to propose in 2022 common EU defensive measures against blacklisted third countries if there is insufficient coordination between EU member states; and
  • urges for the inclusion of environmental taxation in the scope of the EU’s international and trade negotiations with third countries (such as, presumably, the UK).

Fair and simple taxation

The third and final element of the tax package is the so-called action plan on fair and simple taxation. Like the communication, it is legally non-binding but possibly one of the package’s juiciest elements, as it presents 25 actions to make tax simpler, fairer and better adjusted to the modern economy that the Commission intends to take.

What's next?

Some initiatives to look forward to include the following:

  • The Commission will explore how to make use of article 116 for tax proposals (see my last EU watch), although there are no further details or timeline indicated;
  • By end 2020: a communication on business taxation for the 21st century, setting out the Commission’s next steps for digital tax and taking into account OECD work;
  • Q1-Q2 2021: launch of a non-legislative pilot project on cooperative compliance framework for the common resolution of cross-border tax issues. The initiative would cover both SMEs and larger companies;
  • Q1 2021: establishment of a Commission expert group on transfer pricing to elaborate non-legislative solutions to practical problems posed by transfer pricing practices;
  • Q3 2021: proposal to extend automatic exchange of information to cryptoassets and e-money (a potential DAC 8 proposal);
  • Q4 2021: update and simplify VAT rules for financial services;
  • 2022: proposal on withholding tax relief at source;
  • 2022: proposal to harmonise tax residence criteria to avoid double (non-) taxation;
  • 2022: possible legislative proposal to update VAT special scheme for travel agents;
  • 2022: review VAT rules on passenger transport to ensure their coherence with the EU’s green objectives;
  • 2022: setting up a VAT dispute prevention and resolution mechanisms;
  • 2022: digital VAT package, including updating VAT rules for the sharing economy, moving to a single EU VAT registration, modernising VAT reporting obligations and facilitating e-invoicing.

In summary, the Commission has announced a vast and ambitious package of tax reforms, which will keep it – as well as tax specialists and EU policy geeks working on taxation – very busy for the next few years.