Europe’s proposed new tax agenda
By Donald Drysdale for ICAS
29 October 2019
Studying the plans being set by the new European Commission, Donald Drysdale finds that its tax agenda rests heavily on climate change, digitalisation, and closer EU integration.
The new European Commission
In the midst of all the uncertainties which Brexit has created, many businesses based in the UK will continue to be affected significantly by tax developments in the EU.
The European Commission is appointed for a period of five years and then replaced. On 31 October the existing Commission headed by Jean-Claude Juncker had been expected to come to the end of its term, but is now likely to continue in office until 30 November.
Ursula von der Leyen – a German politician – has been nominated by the European Council and elected by the European Parliament as President-elect of the new European Commission from 2019 to 2024.
Von der Leyen will be the first female President of the EC. Following unexpected problems in securing the European Parliament's approval of her new team (the new College of Commissioners), her Commission is now expected to take office on 1 December.
Former Italian Prime Minister Paolo Gentiloni is designated to become the Commissioner for the Economy, covering tax. His responsibilities will overlap with those of certain other Commissioners, and he will work particularly closely with Executive Vice-Presidents-designate Frans Timmermans and Margrethe Vestager.
Tax priorities
The remit which von der Leyen has set for Gentiloni charges him with the following:
- Leading international efforts to find an agreed approach on digital taxation, working with the OECD and the G20 – and, if no consensus emerges by the end of 2020, leading on the proposal for a fair European digital tax.
- Playing a central role in the European Green Deal, which von der Leyen has branded as the ‘hallmark’ of her new Commission, and leading the work on the review of the Energy Taxation Directive to align it with the EU’s ambitions and bring an end to fossil-fuel subsidies.
- Leading on the proposal for a new Carbon Border Tax, working closely with the Executive Vice-President-designate for the European Green Deal; this tax will be a key tool to avoid carbon leakage and ensure that EU companies can compete on a level playing field, and it will have to be fully compliant with WTO rules.
- Focusing on making the EU’s tax systems simpler, clearer and easier to use – and, within this, leading efforts on making a common consolidated corporate tax base a reality. (CCCTB was originally proposed as far back as 2011, but it stalled largely because of objections from the UK and Ireland. Amended proposals have existed since 2016.
- Stepping up the fight against tax fraud, tax evasion and tax avoidance – including working towards a fraud-proof VAT regime and looking at how cooperation between member states’ national authorities can be improved.
- Helping to develop stronger measures to combat harmful tax regimes around the world, including making full use of the list of non-cooperative jurisdictions for tax purposes.
- Ensuring progress by making full use of the clauses in the EU treaties that allow tax proposals to be adopted by co-decision and qualified majority voting.
- Strengthening the customs union to better protect EU citizens and the single market – including full implementation of the EU customs code with the necessary digital systems; this will also require an integrated European approach to reinforce risk management and work more closely with member states to ensure controls are effective.
Environmental taxes
Frans Timmermans (already First Vice-President of the European Commission and now Executive Vice-President-designate for the European Green Deal) will coordinate the work on environmental taxes.
He is to ensure that tax policies enable the EU to deliver on its climate ambitions – becoming the world’s first climate-neutral continent, conducting a review of the Energy Taxation Directive, and working on the Carbon Border Tax.
The Energy Taxation Directive currently discriminates against renewable fuels in favour of conventional fuels, particularly diesel, thus discouraging the promotion of renewable and other clean energy sources.
It is unclear as yet whether von der Leyen’s new Carbon Border Tax – an import tax on goods based on the volume of CO2 emitted during their manufacture – would be compatible with the EU’s existing free-trade agreements and WTO rules.
Digital services tax
Margrethe Vestager (already a European Commissioner and now Executive Vice-President-designate for a Europe fit for the Digital Age) will coordinate on digital taxes. She is charged with finding a consensus at international level by the end of 2020 or proposing a fair European tax.
While press reports have quoted Gentiloni as saying that a global approach to taxing digital services would be the most effective solution, he has made it clear that in its absence the EU would not be prepared to wait – it would go it alone.
The starting point for a unilateral EU approach might bear some resemblance to pre-existing proposals for an EU digital services tax, but these were not supported by all members states.
The way forward
In her mission letters to Commissioners-designate, setting out their respective duties and responsibilities, von der Leyen has emphasised to each that their stated mission is neither exhaustive nor prescriptive. She believes that other opportunities and challenges will appear over the course of the next five years.
From this side of the Channel, it is particularly encouraging to see her stating that, once there is more clarity about Brexit, the Commission should be ready to pave the way for an ambitious and strategic partnership with the UK. Let’s hope that this comes about.
Article supplied by Taxing Words Ltd