The next EU legislature will focus on ambitious tax changes specifically on technology and digitalisation, sustainability and the single market. This is picking up on the work that the departing EU legislators put in place, and will inevitably impact the tax landscape in Europe and beyond.
It is common wisdom that tax matters are a national competence and that the EU has very limited legislative capabilities in this area. This is because all 28 EU member states must unanimously approve all tax proposals, which puts small countries on a level playing field with large ones. The European Parliament, for its part, may only submit its non-binding opinion to the member states on any new tax legislation.
However, the past five years have proven such common wisdom on EU tax matters to be questionable at the very least.
The previous European Parliament successfully mobilised public opinion, generated political momentum and put pressure on national governments. At the same time, it also provided the Commission with a strong case for action. A number of tax-related proposals from past years can be traced back to repeated calls and campaigns from the Parliament. To name just a few, public country by country reporting (CBCR), the tax intermediaries Directive (DAC 6) and the whistleblower protection Directive.
The departing European Commission, for its part, reacted to scandals such as Lux Leaks and the Panama Papers, and heeded the European Parliament’s calls for action. The Commission’s motivation was also bolstered by Europe-wide opinion polls that have repeatedly shown that one of areas where citizens want more EU action is on tax. The Commission would be foolish not to act.
And the Commission has been relatively successful in its efforts. For example, it managed to get EU member states to agree on more extended exchange of tax information between tax administrations. It pushed through the anti-tax avoidance Directive (ATAD) that implements OECD BEPS into EU law. It established a list of non-cooperative tax jurisdictions. And it has taken forward a number of key VAT files, including on e-commerce. The list goes on.
The Commission further demonstrated its ability to expand its tax reach into conventionally non-tax areas. Famously, the Commission’s competition department (DG COMP) under the firm leadership of the Danish commissioner Margrethe Vestager initiated several state aid investigations into EU member states offering beneficial tax treatment to large multinationals.
Tax professionals should expect nothing less from the next European Parliament and Commission, who will continue to see tax policy as an opportune area to harness public support and deliver results.
What, then, is on the menu for the next five or so years?
We have been monitoring the election debates and Commission documents and can make some educated guesses as to the next Commission’s plans on tax.
On this basis, we have identified three pillars for the next European Commission’s future tax work will rest upon three pillars:
The first pillar of a competitive European tax system is based on finding a balance between EU member states’ tax sovereignty and tax competition, whilst ensuring a level playing field. The purpose would be to ensure that tax competition does not lead to inefficiencies and to avoid compliance burdens for cross-border businesses. Specific measures in this area might include continuing to push for a harmonised and consolidated European tax base (so-called CCCTB) and improving tax certainty, for example by promoting cooperative compliance across Europe.
The second pillar aims for a tax system that supports a green transition of the economy. The Commission has not hidden its desire to find a European approach to aviation taxes, coordinate on CO2 taxation and put more tax burden on resource use. Various tax incentives may also be considered to help speed up the green transition, from environmental VAT to a tax regime for green bonds.
The third pillar seeks to adapt the tax system into an increasingly digitalising economy and new technologies. This would include developing a common EU position and contributing to the ongoing OECD negotiations on digital taxation; introducing an eventual OECD agreement into EU law; or, in the absence of an OECD agreement, resuming work on EU-specific solutions. The Commission is also concerned that the current tax system might not be fit for new forms of labour that emerge with the digital economy. Hence why the Commission might encourage member states to shift the tax burden away from labour towards less distortive areas.
In addition, efforts to fight tax avoidance and increase tax transparency will continue. The Commission can be expected, for example, to keep pushing for public country by country reporting (CBCR), coordinating on the EU list of non-cooperative tax jurisdictions, work at the OECD level on the so-called BEPS 2.0 minimum tax negotiations, and implementing an eventual agreement into EU law. A range of VAT measures are also still on the table: most notably, the so-called ‘definitive regime’ that would introduce a destination-based VAT system across the EU.
Members of the European Parliament (MEPs), for their part, will likely continue to dominate the political tax agenda. Until now, the European Parliament lacked a permanent Committee on tax matters. During the last term, MEPs across political groups called for the establishment of a permanent tax Committee to replace all the temporary and ad hoc tax committees that were formed so far.
Such a permanent committee would of course only have a consultative role, given the Parliament’s lack of powers on tax. But it would be highly effective in keeping tax on the political agenda and building political momentum, as happened with past temporary tax Committees. We will know in a few weeks’ time whether or not setting up a permanent tax committee materialises.
Moreover, the balance of power in the Parliament has shifted following the elections. The Greens have increased in numbers, placing them into a decisive role on many issues. This means that their ambitious tax priorities can also be expected to gain prominence.
This is also the case for the liberal ALDE Group, consisting of several new MEPs from Emmanuel Macron’s Renaissance movement. These representatives saw the explosive potential of taxation in France with the yellow vests movement, and are likely to promote ‘fair taxation’ at the EU agenda. And, of course, the Social-Democrats as the second largest group in the Parliament will continue to eagerly work with others to reinforce the Parliament’s tax work.
Finally, given that the Parliament only has a formally consultative role on tax matters, the MEPs will seek to advance the tax agenda in non-tax files as much as possible. They have had some success on this in the past, for example with public CBCR. In the future, it is conceivable that the MEPs will call for stricter rules on tax advisors as part of audit, services or competition legislation.
What, then, with the EU member states in the Council? This is the institution where the member states get to have their say, and continuity is often the norm. The Council often aims to preserve the status quo – for better or worse.
On digital taxation, Ireland and the Nordics are unlikely to cede ground. Smaller member States will continue to defend their tax sovereignty, and aim to maintain the need for unanimous approval of all tax measures. The reluctance to progress on a VAT definitive regime or CCCTB will also persist for some while.
But some proactive initiatives are possible from the Council too. There is, for example, a renewed push by a group of member states for a so-called financial transaction tax (FTT) based on the French model. Several member states, including the Netherlands, France, Spain and Belgium, are actively calling for a common EU approach to environmental taxation – including taxes on flying, ‘dirty’ energy imports and carbon at Europe’s borders. The Netherlands has already announced that it will go ahead with a unilateral national flight tax if there is no EU framework by 2021.
Whether it is the European Commission, the European Parliament or the Council, the EU’s tax agenda will be full for the next few years. It will go beyond the current anti-avoidance agenda to building a more future-proof European tax system.
Technology, sustainability and a coherent single market will be the three key drivers of EU’s tax agenda. What concrete measures, proposals or initiatives will emerge from these drivers remains to be seen. Until then, tax professionals should closely follow the trends and discussions in Brussels.
The next EU legislature will focus on ambitious tax changes specifically on technology and digitalisation, sustainability and the single market. This is picking up on the work that the departing EU legislators put in place, and will inevitably impact the tax landscape in Europe and beyond.
It is common wisdom that tax matters are a national competence and that the EU has very limited legislative capabilities in this area. This is because all 28 EU member states must unanimously approve all tax proposals, which puts small countries on a level playing field with large ones. The European Parliament, for its part, may only submit its non-binding opinion to the member states on any new tax legislation.
However, the past five years have proven such common wisdom on EU tax matters to be questionable at the very least.
The previous European Parliament successfully mobilised public opinion, generated political momentum and put pressure on national governments. At the same time, it also provided the Commission with a strong case for action. A number of tax-related proposals from past years can be traced back to repeated calls and campaigns from the Parliament. To name just a few, public country by country reporting (CBCR), the tax intermediaries Directive (DAC 6) and the whistleblower protection Directive.
The departing European Commission, for its part, reacted to scandals such as Lux Leaks and the Panama Papers, and heeded the European Parliament’s calls for action. The Commission’s motivation was also bolstered by Europe-wide opinion polls that have repeatedly shown that one of areas where citizens want more EU action is on tax. The Commission would be foolish not to act.
And the Commission has been relatively successful in its efforts. For example, it managed to get EU member states to agree on more extended exchange of tax information between tax administrations. It pushed through the anti-tax avoidance Directive (ATAD) that implements OECD BEPS into EU law. It established a list of non-cooperative tax jurisdictions. And it has taken forward a number of key VAT files, including on e-commerce. The list goes on.
The Commission further demonstrated its ability to expand its tax reach into conventionally non-tax areas. Famously, the Commission’s competition department (DG COMP) under the firm leadership of the Danish commissioner Margrethe Vestager initiated several state aid investigations into EU member states offering beneficial tax treatment to large multinationals.
Tax professionals should expect nothing less from the next European Parliament and Commission, who will continue to see tax policy as an opportune area to harness public support and deliver results.
What, then, is on the menu for the next five or so years?
We have been monitoring the election debates and Commission documents and can make some educated guesses as to the next Commission’s plans on tax.
On this basis, we have identified three pillars for the next European Commission’s future tax work will rest upon three pillars:
The first pillar of a competitive European tax system is based on finding a balance between EU member states’ tax sovereignty and tax competition, whilst ensuring a level playing field. The purpose would be to ensure that tax competition does not lead to inefficiencies and to avoid compliance burdens for cross-border businesses. Specific measures in this area might include continuing to push for a harmonised and consolidated European tax base (so-called CCCTB) and improving tax certainty, for example by promoting cooperative compliance across Europe.
The second pillar aims for a tax system that supports a green transition of the economy. The Commission has not hidden its desire to find a European approach to aviation taxes, coordinate on CO2 taxation and put more tax burden on resource use. Various tax incentives may also be considered to help speed up the green transition, from environmental VAT to a tax regime for green bonds.
The third pillar seeks to adapt the tax system into an increasingly digitalising economy and new technologies. This would include developing a common EU position and contributing to the ongoing OECD negotiations on digital taxation; introducing an eventual OECD agreement into EU law; or, in the absence of an OECD agreement, resuming work on EU-specific solutions. The Commission is also concerned that the current tax system might not be fit for new forms of labour that emerge with the digital economy. Hence why the Commission might encourage member states to shift the tax burden away from labour towards less distortive areas.
In addition, efforts to fight tax avoidance and increase tax transparency will continue. The Commission can be expected, for example, to keep pushing for public country by country reporting (CBCR), coordinating on the EU list of non-cooperative tax jurisdictions, work at the OECD level on the so-called BEPS 2.0 minimum tax negotiations, and implementing an eventual agreement into EU law. A range of VAT measures are also still on the table: most notably, the so-called ‘definitive regime’ that would introduce a destination-based VAT system across the EU.
Members of the European Parliament (MEPs), for their part, will likely continue to dominate the political tax agenda. Until now, the European Parliament lacked a permanent Committee on tax matters. During the last term, MEPs across political groups called for the establishment of a permanent tax Committee to replace all the temporary and ad hoc tax committees that were formed so far.
Such a permanent committee would of course only have a consultative role, given the Parliament’s lack of powers on tax. But it would be highly effective in keeping tax on the political agenda and building political momentum, as happened with past temporary tax Committees. We will know in a few weeks’ time whether or not setting up a permanent tax committee materialises.
Moreover, the balance of power in the Parliament has shifted following the elections. The Greens have increased in numbers, placing them into a decisive role on many issues. This means that their ambitious tax priorities can also be expected to gain prominence.
This is also the case for the liberal ALDE Group, consisting of several new MEPs from Emmanuel Macron’s Renaissance movement. These representatives saw the explosive potential of taxation in France with the yellow vests movement, and are likely to promote ‘fair taxation’ at the EU agenda. And, of course, the Social-Democrats as the second largest group in the Parliament will continue to eagerly work with others to reinforce the Parliament’s tax work.
Finally, given that the Parliament only has a formally consultative role on tax matters, the MEPs will seek to advance the tax agenda in non-tax files as much as possible. They have had some success on this in the past, for example with public CBCR. In the future, it is conceivable that the MEPs will call for stricter rules on tax advisors as part of audit, services or competition legislation.
What, then, with the EU member states in the Council? This is the institution where the member states get to have their say, and continuity is often the norm. The Council often aims to preserve the status quo – for better or worse.
On digital taxation, Ireland and the Nordics are unlikely to cede ground. Smaller member States will continue to defend their tax sovereignty, and aim to maintain the need for unanimous approval of all tax measures. The reluctance to progress on a VAT definitive regime or CCCTB will also persist for some while.
But some proactive initiatives are possible from the Council too. There is, for example, a renewed push by a group of member states for a so-called financial transaction tax (FTT) based on the French model. Several member states, including the Netherlands, France, Spain and Belgium, are actively calling for a common EU approach to environmental taxation – including taxes on flying, ‘dirty’ energy imports and carbon at Europe’s borders. The Netherlands has already announced that it will go ahead with a unilateral national flight tax if there is no EU framework by 2021.
Whether it is the European Commission, the European Parliament or the Council, the EU’s tax agenda will be full for the next few years. It will go beyond the current anti-avoidance agenda to building a more future-proof European tax system.
Technology, sustainability and a coherent single market will be the three key drivers of EU’s tax agenda. What concrete measures, proposals or initiatives will emerge from these drivers remains to be seen. Until then, tax professionals should closely follow the trends and discussions in Brussels.
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