Tax Package for Fair and Simple Taxation

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Tax Package for Fair and Simple Taxation

On 15 July 2020, the European Commission adopted a new Tax Package in an effort to ensure EU tax policy supports Europe’s economic recovery and long-term growth. The Commission believes it is important for Member States to have secure tax revenues, considering the disruption to economies caused by the coronavirus pandemic, which will allow them to invest in the people and businesses who need it most. The European Commission considers fair, efficient, and sustainable taxation key to achieving this.

The Tax Package is built on the twin pillars of fairness and simplicity. Fair taxation remains a top priority for the European Commission, as a means of protecting public revenues that will play an important role in the economic recovery of the EU.

What is the Tax Package?

The Tax Package seeks to address:

complexity and administrative burdens that can hamper businesses in the EU,
tax abuse and harmful tax competition,
gaps in tax transparency rules, due to rapidly evolving online business, and
the unexploited potential of technology which can help administrations and taxpayers.

It also proposes improved cooperation with non-EU countries and strengthens the European Commission’s support to developing countries.

Three Initiatives in the Tax Package

The Tax Package consists of three separate but related initiatives to address the issues outlined above:

1. The Tax Action Plan includes 25 measures the European Commission proposes to implement between 2020 and 2024 to make taxation fairer, simpler, and more adapted to modern technologies.

The Tax Action Plan proposes:

To remove administrative obstacles from registration, reporting, payment, verification, and dispute resolution.
To help Member States harness the potential of data and new technologies, to better fight tax fraud, improve compliance and reduce administrative burdens
A Charter on Taxpayers’ Rights
To update VAT rules on financial services
To transform the status of the VAT Committee
To revise the VAT special scheme for travel agents
To adapt the VAT framework to the platform economy
To establish an expert group on transfer pricing
A Conference on Data Analytics and Digital Solutions in 2021
Greener taxation of the passenger transport sector
An E-commerce package for excise duties

The Commission plans to explore the provisions of the Treaty on the Functioning of the EU (TFEU) which allows proposals on taxation to be adopted by ordinary legislative procedure, including Article 116 of the TFEU. Article 116 states that if the Commission finds that differences in the way EU rules are implemented in Member States are distorting competition within the Single Market it can “issue the necessary directives” through the “ordinary legislative procedure“. This would mean moving to Qualified Majority Voting instead of unanimity.

2. The Proposal on Administrative Cooperation (DAC 7) extends EU tax transparency rules to digital platforms. This new proposal will require Member States to automatically exchange information on the revenues generated by sellers on online platforms. The proposal also provides for changes to the current EU administrative cooperation framework, relating to joint audits. On 22 March 2021, DAC 7 was adopted into EU law.

3. The Communication on Tax Good Governance includes a reform of the Code of Conduct for Business Taxation, which addresses tax competition and tackles harmful tax practices within the EU. It also proposes a review of the EU list of non-cooperative jurisdictions. The Communication also outlines the EU’s approach to working with developing countries in the area of taxation, in line with the 2030 Sustainable Development agenda.

Future Tax Agenda of the European Commission

As part of the Tax Package, the Commission indicated that it was working on a new approach to business taxation, to address the challenges of the digital economy and also in the context of the Green Deal, the Commission indicated that it intended to bring forward taxation proposals which support the EU’s objective of reaching climate neutrality by 2050.

On 18 May 2021, the European Commission adopted a Communication on Business Taxation for the 21st century with the aim of promoting a robust, efficient and fair business tax system in the EU. You can read more about the Communication here.

On 20 December 2021, the European Commission proposed a Directive to implement into EU law the Pillar Two Global Anti-Base Erosion (GloBE) Model Rules (the Model Rules) published by the OECD on 20 December. The proposed Directive closely follows the Model Rules however, it extends the scope of the Model Rules to large-scale purely domestic groups, in order to ensure compliance with EU fundamental freedoms. The publication of the Model Rules followed the Statement on a Two-Pillar Solution to Address the Tax Challenges of the Digitalisation of the Economy that was agreed by the OECD/G20 Inclusive Framework on BEPS in October 2021 (the October Statement). You can read more about the October Statement here.

Regarding Pillar One, the Commission has indicated that it will carefully examine whether a directive is needed to ensure its consistent and effective implementation at EU level.

The Commission has also adopted a proposal for a revision of the Energy Taxation Directive. The new proposal aims to align the taxation of energy products with EU energy and climate policies, promote clean technologies and remove outdated exemptions and reduced rates that currently encourage the use of fossil fuels.