European Commission publishes new tax package for fair and simple taxation

Deloitte Malta tax alert

21 July 2020

On 15 July 2020, the European Commission (the ‘Commission’) published a new tax package in its pursuit to achieve fair, efficient and sustainable taxation in the European Union (the ‘Package’).

The aims

The Package aims to ease administrative burdens, to address tax abuse, harmful tax competition and a gap in tax transparency rules in the case of digital revenue streams, and to increase technological use and communication in tax administrations.

The Package also strives to improve cooperation with non-EU countries, and strengthens the Commission’s support to developing countries.

The measures

The Package includes three distinct but complementary initiatives.

1. An action plan for fair and simple taxation supporting the recovery strategy

This Action Plan contains 25 initiatives that are to be carried out between 2020 and 2024 to make taxation fairer, simpler and more adapted to modern technology. It sets out to ensure that swift economic recovery will ensue and that there is sufficient public revenue for long-term growth in the EU with measures such as:

  • The reduction of tax obstacles and unnecessary administrative burdens for business in the EU;
  • The provision of aid to Member States with regards to the enforcement of existing tax rules and the improvement of tax compliance;
  • The improvement of communication and data-sharing between tax authorities to effectively combat tax fraud and evasion; and
  • The promotion of taxpayers’ rights, thereby simplifying their obligations and easing their tax compliance.

In particular, the Commission proposes to amend the VAT Directive with the objective of moving towards a single EU-wide VAT registration, through which businesses would be able to provide services and/or sell goods anywhere in the EU. In addition, the Commission will be presenting a legislative proposal with a view of adapting EU VAT rules to digitalisation. This proposal intends to elevate the use of IT as a tool for easier compliance and a more efficient fight against tax fraud by modernising VAT reporting obligations and facilitating e-invoicing. It will also include an update of the VAT rules for the platform economy.

Furthermore, the Commission expressed its commitment to set out the next steps on the reform of the corporate tax system to fit the modern and increasingly digitalised economy by the end 2020, taking into account the results of the global discussion at the level of the OECD and the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting.

The Commission also expressed its intention to further explore the potential ways of exploiting article 116 of the Treaty on the Functioning of the European Union (allowing the use of ordinary legislative procedure, i.e. qualified majority voting) in the area of taxation.

Further details on the action plan may be found here.

2. A proposal for a Council Directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation (the ‘DAC7 Proposal’)

The DAC7 Proposal aims to extend the EU tax transparency rules to digital platforms, resulting in an automatic exchange of information between Member States on income/revenues generated by sellers on digital platforms. The proposal is intended to help national authorities identify where tax should be paid, reduce administrative burdens currently faced by such platforms and ultimately, strengthen administrative cooperation by means of the clarification and improvement of existing rules (for instance, by means of an explicit inclusion of joint tax audits and group requests).

The full text of the DAC7 Proposal may be found here.

3. The Communication on “Tax good governance in the EU and beyond”

The communication sets out the ways in which the EU can further promote the principles of transparency and fair taxation within the EU and internationally. This includes improvements to the EU list of non-cooperative jurisdictions tackling non-EU countries that refuse to follow international standards on cross-border co-operation.

The Commission is also proposing a reform of the Code of Conduct Group on Business Taxation. This forum sets the parameters for fair tax competition in the EU and was initially established in 1997. The Commission’s intention is to review the scope and criteria of the Code of Conduct on the Business Taxation with a view to cover not just specific preferential measures, but also further types of regimes and general features of the national corporate tax systems as well as taxes other than corporate tax.

Finally, the Communication also outlines the EU’s approach to assisting developing countries in the area of taxation in line with the 2030 Sustainable Development agenda.

Further details on the communication may be found here.

Further plans

In the Package, the Commission once again re-affirmed its commitment to address challenges, such as limitations for tax competition and increasingly aggressive tax planning, brought about by globalisation, digitalisation and modern business models in upcoming proposals.

The full press release may be found here.

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