On July 15th 2020, the European Commission (EC) adopted an ambitious new package of measures that, if successful, will cause big changes to the way companies handle their tax compliance in the region. The package has two aims – most immediately, to support economic recovery from COVID-19 with some of the measures but in the long term the hope is to increase transparency. The package adds new initiatives in the fight against tax abuse and promoting fair taxation through governance.
The tax package proposed by the EC consists of three pillars:
- A Tax Action Plan for Fair and Simple Taxation
This is a list of 25 actions to be taken between 2020 and 2023. These actions are aimed at fair and simple taxation throughout the European Union (EU) with the goal of supporting the EU economic recovery strategy. The actions can be broken down into a few broad categories:
- Single EU VAT registration
- Modernised reporting obligations
- Recovery of unpaid taxes
- Easier but more effectively monitored cross-border transactions
- Prevention and resolution of disputes
- Simplified EU tax rules to improve competitiveness
Focus points as part of these categories are:
- The use of data analysis and the development of new digital solutions for taxpayers and tax administrations
- Extension of the VAT One Stop Shop already in use for telecommunications, broadcasting and electronic services to include the distance sales of goods and services
- Legislation to clarify the determination of tax residency on a more consistent basis
- The further development of EUROFISC – an EU mechanism implemented to fight cross-border VAT fraud
- The negotiation of administrative cooperation agreements regarding VAT with main trade partners of the EU and update the VAT rules for financial services, passenger transport and ecommerce
- Revision of the Directive on Administrative Cooperation (DAC7)
The Directive on Administrative Cooperation will be amended to extend the EU tax transparency rules and regulations to digital platforms. Providers of digital platforms will be asked to collect and report information on parties using their services to sell goods or services. The information collected will be automatically exchanged between EU member states and will be used to ensure taxation takes place in the right jurisdiction, as well as to fight fraud. The amendment also includes provisions to introduce the concept of joint audits and the reinforcement of administrative cooperation between EU member states.
- Communication on Tax Good Governance
The EC proposes several changes in the field of governance to promote fair taxation and clamp down on unfair tax competition in the EU as well as internationally. The EC has proposed changes to:
- The Code of Conduct – to include relevant taxes other than corporate income tax and widen the scope
- The EU list of non-cooperative jurisdictions – to improve the selection criteria
- The outline for the EU’s approach on cooperation with developing countries on the topic of taxation
In summary, this tax package is a first step in the EU’s tax agenda for the coming years. It is meant to tackle the challenges brought forth by the digital era and the sharing economy and ensure tax measures are in place to support the EU’s goals on climate neutrality in 2050, whilst contributing to both short term economic recovery as well as long term economic growth for the EU and its member states.
Negotiations between members states regarding the cooperation needed on different levels have already started. While it may seem like the package is aimed at the future, the first tranche of the measures are planned to be launched in the fourth quarter of 2020 and VAT measures like the VAT ‘One Stop Shop’ extension are currently scheduled to go live on July 1st, 2021. Even though the package has to be ratified by all 27 EU member states and is bound to undergo revisions and changes, it would be recommended for EU taxpayers to closely monitor the proposals brought forth by the European Commission and to assess the impact of these and future tax measures on their business.