EC acknowledges in it’s Tax Package that simpler taxation would support EU’s recovery

Fri, 07/17/2020 - 08:21

On 15 July the European Commission released a Tax Package, consisting of three related entities. In short, the package consists of means to a) make taxation simpler and b) fight tax fraud, evasion and avoidance.

The Technology Industries of Finland strongly supports digitalisation and automation of taxation procedures, which could lead to notable savings to both the companies and tax administrations due to smaller administrative costs, as well as minimise the tax gap and tax evasion. Making taxation simpler would mean a better functioning, competitive Single Market, an appealing location for businesses to locate and grow. In addition, structured financial and taxation data are the building blocks to enhance real-time economy.

The three entities of the Tax Package:

1. Tax action plan for fair and simple taxation presenting 25 practical action proposals to make taxation simpler and reduce administrative burdens. Many of the actions are related to modernising VAT rules, also to fit the online platform and digital economy, e.g. a proposal to amend VAT directive to move towards a single EU VAT registration system, and impact assessment (possibly leading to a directive) introducing a dispute resolution mechanism in the field of VAT.

Other proposals include e.g. clarifying tax residency rules to avoid double taxation and a pilot project related to preventive dialogue between tax administrations and businesses for the common resolution of cross-border tax issues as well as overall leveraging of new taxation technology and data analytics.

An informative overview of tax initiatives that are part of the action plan for 2020-2023 is included (Annex, COM(2020) 312).

2. Better administrative cooperation includes for example a “DAC7” proposal that extends EU tax transparency rules to digital platforms so that Member States will automatically receive and exchange information on the revenues generated by sellers on online platforms. Proposal also clarifies other rules linked to exchange of information, e.g. in joint tax audits.

3. Tax good governance in the EU and beyond includes reform of the Code of Conduct, improvements to the EU list of non-cooperative jurisdictions and discusses EU’s cooperation with developing countries in the area of taxation.

What is hidden under the surface?

Due to the COVID-19 crisis, the EU and all its Member States are understandably in acute need to find new tax resources. When releasing the long-term budget (MFF) the Commission opened up a discussion on the EU’s new own resources, meaning own taxing right for the EU. As the EC says in the Tax Package, the action plan is one key element of a comprehensive and ambitious EU tax agenda for the coming years, which also includes e.g. environmental taxes to support green transition, a deep reform of the corporate tax system to fit modern and increasingly digitalised economy as well as exploring whether article 116 TFEU (qualified majority voting, QMV) could be used in taxation matters.

Compliant with these comments in the Tax Package, as own recourses to the EU budget the EC has mentioned:

  • CCCTB, common consolidated corporate tax base
  • EU’s DST, digital services tax
  • FTT, financial transaction tax
  • ETS, revenues from (a widened) emission trading system
  • Tax on non-recycled plastic packaging waste
  • Carbon border adjustment mechanism

As taxation gives Member States the means to finance their welfare state (such as education, healthcare, rescue department), changes to EU taxation rules needs unanimous decision making.  Introducing QMV to taxation matters would limit the decision-making power and variety of taxation measures of smaller Member States.

Thus, even though the EC’s newly released Tax Package includes many steps to the right direction, big substantial reforms are wrapped in the same package and should be analysed with caution. Introducing globally different tax legislation might end up adding administrative burden, tension in trade relations, tax disputes and double taxation. Changes in taxation should be executed so that they really support EU’s recovery, not hinder it. The now introduced tax action plan making taxation simpler has the most potential to do so.

For additional information:
Head of Taxation Policy
Maria Volanen