The EU Commission's new Tax Package

The EU Commission has published an updated Tax Package of measures which it hopes to implement to promote a fairer system of taxation in the EU as well as promoting economic recovery and long-term growth. It includes measures designed to prevent tax evasion and avoidance, curb unfair tax competition and increase tax transparency. In addition, it focusses on simplifying tax rules and procedures to improve the environment for businesses across the EU.

The Tax Package is made up of three separate elements:

• The Tax Action Plan, which is a set of 25 initiatives

• DAC 7 to extend EU tax transparency rules to digital platforms, and

• A Communication on tax good governance focussing on promoting fair
  taxation and tackling unfair tax competition both in the EU and
  internationally.

The DAC 7 proposals have, in particular, been awaited and come on the back of similar, recently released published OECD Model reporting rules for digital platform operators.

The Tax Action Plan

The Tax Action Plan is a set of 25 initiatives the European Commission will seek to implement by 2024 “to make taxation fairer, simpler and more adapted to modern technologies”. The Tax Action Plan includes measures designed to:

• Reduce tax obstacles and unnecessary administrative burdens for
  businesses in the Single Market to improve the business environment,
  enhance business competitiveness and contribute to economic growth.

• Help Member States enforce existing tax rules and improve tax
  compliance, ensuring they can secure reliable tax revenues.

• Help tax authorities better exploit existing data and share new data
  more efficiently, in a way which will improve the enforcement of tax
  rules and help combat tax fraud and evasion more effectively.

• Promote taxpayers’ rights, by increasing their awareness of their
  rights under EU law, simplifying their obligations and facilitating
  their compliance.

These measures cover the full range of taxes, including direct taxes, VAT, customs and excise, transfer pricing as well as dispute resolution.

Most notably, the actions include a proposal to update and simplify the VAT rules for financial services, to ensure a level playing field within the Union and the international competitiveness of EU companies. This measure is listed as late 2021, but many will remember that the previous long-running effort to update these rules ended in failure following the financial crisis of 2008. Also notable are proposals to extend automatic exchange of information to cryptoassets/e-money, achieve consistency of tax residence rules for individuals to avoid double (non)-taxation and to establish an expert group on transfer pricing to elaborate pragmatic, non-legislative solutions to practical problems posed by transfer pricing practices in the EU.

Whilst the Commission Communication recognises “the complexity that arises from the patchwork of 27 different tax systems” and laments that this both creates loopholes for tax abuse and also uncertainty for taxpayers that can be overwhelmed and thus inadvertently not comply with tax rules, there is no direct mention of the Commission’s proposals for a Common Consolidated Corporate Tax Base (CCCTB).

DAC 7

The proposal on administrative cooperation (DAC 7) is the most concrete and discrete of the elements of the package. It would extend EU tax transparency rules to digital platforms, so that those who make money through the sale of goods or services on platforms pay their fair share of tax too. This new proposal will ensure that Member States automatically exchange information on the revenues generated by sellers on online platforms.

The proposal follows on the heels of the OECD proposal for model reporting rules (MRDP) which covers much the same ground. (See OECD proposes model reporting rules for platform operators.) However, there are notable differences too.

The major difference between DAC 7 and the MRDP is the widening of the scope of activities covered to include the sale of goods, rental of any mode of transport and investing/lending in the context of crowdfunding. In addition, the definition of a Reporting Platform Operator is broader to include a PE in a Member State or one that facilitates the carrying out of a relevant activity by reportable sellers in the Member States.

Overall, the DAC 7 package (Proposal and Annex) published does not include a detailed commentary to assist with the interpretation of the provisions as was provided under the OECD MRDP. Therefore, it will be important to monitor the implementation of DAC 7 in each Member State which will likely give rise to differences in interpretation and scope as has been seen with previous DAC measures. Member States must adopt and publish the laws, regulations and administrative provisions necessary to implement DAC 7 in their country by 31 December 2021 with the provisions applying from 1 January 2022.

Tax Governance

The Communication on tax good governance focusses on promoting fair taxation and clamping down on unfair tax competition, in the EU and internationally. To this end, the Commission suggests a reform of the Code of Conduct, which addresses tax competition and tackles harmful tax practices within the EU. It also proposes improvements to the EU list of non-cooperative jurisdictions, which deals with non-EU countries that refuse to follow internationally agreed standards. This has, so far encouraged third countries to adopt tax good governance standards, but more needs to be done. The Communication also outlines the EU's approach to work together with developing countries in the area of taxation, in line with the 2030 Sustainable Development agenda.

The Commission indicates that the Tax Package is the first part of a “comprehensive and ambitious EU tax agenda for the coming years”. The Commission will also work on a “new approach to business taxation for the 21st century, to address the challenges of the digital economy and ensure all multinationals pay their fair share”. In the context of the Green Deal, the Commission will make proposals to ensure that taxation supports the EU's objective of reaching climate neutrality by 2050.

More information

• Communication from the Commission to European Parliament and the
  Council - An action plan for fair and simple taxation supporting the
  recovery strategy
• Communication from the Commission to European Parliament and the
  Council - An action plan for fair and simple taxation supporting the
  recovery strategy - Annex
• Proposal for a Council directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation
• Proposal for a Council directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation - annex