New EU Tax Directives on the Horizon

26 May 2021

The Communication set out the following measures:

Implementation of OECD Pillars 1 and 2 through EU Directives and EU Digital Levy

The forthcoming OECD agreements with respect to Pillar 1 (reallocation of taxing rights) and Pillar 2 (global minimum taxation) will be implemented by EU Directives. It is noted that the Directive for implementing Pillar 2 will reflect the OECD rules but also take into account necessary adjustments as it will have an impact on the current CFC rules under the ATAD.

In addition, the Commission will propose EU Digital Levy that would be independent of and co-exist with the OECD agreement on Pillar 1. The proposal is expected already in June 2021.

Short term proposals on public tax transparency, misuse of shell companies, equity allowance and carry-back of losses

The Commission demands a greater public tax transparency from large companies with operations in the EU and will propose an annual publication of effective tax rates utilizing the OECD methodology for Pillar 2 calculations (proposal by 2022).

The Commission intends to introduce new legislation to combat the misuse of shell companies for tax purposes. New rules would impose new reporting obligations and deny tax benefits linked to the abusive use of shell companies (proposal by Q4 2021).

Interestingly, the Commission also wishes to address the current pro-debt bias of tax rules by creating a new incentive for equity financing through so called ‘Debt Equity Bias Reduction Allowance’ (DEBRA) (proposal by Q1 2022).

A recommendation on the domestic tax treatment of losses was adopted alongside the Communication. It recommends the Member States to allow a carry-back of business losses during the COVID-19 crisis. The recommendation is not legally binding to the Member States.

Longer term proposals: BEFIT is the old CCCTB

The Commission is proposing a new framework for income taxation of businesses in Europe labelled as ‘BEFIT’ (Business in Europe: Framework for Income Taxation). BEFIT is intended to provide a common corporate tax base and allocation of profits between Member States based on formulary apportionment. The proposal would replace the pending proposals for CCCTB (Common Consolidated Corporate Tax Base), which will be withdrawn. Despite similarities with the CCCTB proposals, the Commission indicates that the new proposal would better reflect the current economy and international tax framework. The Commission’s proposal is expected in 2023.
 

For a more detailed analysis, see our tax@hand article.