The EU Commission sets out its immediate tax policy agenda
The European Commission's "Communication on Business Taxation for the 21st Century", published on 18 May 2021, sets out a number of tax proposals it aims to have implemented in the immediate future.
Notably the common consolidated corporate tax base (CCCTB), which the Commission has been pushing for over a decade and a half, has been dropped. In its place the Commission proposes a similar regime, the BEFIT (Business in Europe: Framework for Income Taxation). The BEFIT will build on the OECD BEPS 2.0 measures concerning identification of tax base and apportionment of profits. Essentially under the BEFIT, the profits of EU group companies of a multinational would be consolidated into a single tax base using common rules, which would then be apportioned between EU Member States to be taxed at relevant national rates. This is a rebooting of the Commission's aim to implement what it describes as a common tax rulebook. 2023 is given timeframe for this proposal.
The Communication indicates that July 2021 will see proposals tabled for an EU digital levy, to be designed so that it is independent of OECD BEPS 2.0 measures and compatible with WTO and other international obligations. The European Parliament has emphasised the need for a swift agreement on this topic in a resolution on digital taxation adopted in April of this year.
Once the BEPS 2.0 measures are agreed at international level, the EU Commission propose Directives to have the Pillar 1 and 2 measures implemented into EU law so that there will be consistent implementation of the measures in all EU Member States. The Communication identifies that the implementation of Pillar 2 will have implications for existing rules under the ATAD, in particular the Controlled Foreign Company (CFC) rules, which will interact with the primary rule under Pillar 2 (the Income Inclusion Rule (IIR)). When the IIR is implemented in the EU, it will be necessary to explore how to best accommodate the interaction between the two rules. Additionally, the implementation of Pillar 2 should require the implementation of a recast Interest and Royalties Directive.
Additional proposals by the Commission are:
- targeted action on the use of shell companies, by the end of this year
- by 2022, a requirement for large companies to publish their effective tax rates
- by 2022, a new "debt equity bias reduction allowance" (DEBRA) to address pro-debt bias in current tax rules; and
- a recommendation for EU Member States to allow carry-back of losses to support companies with the impact of Covid-19.
While this agenda which would in itself represent significant reform to the basis of taxation in the EU, the Commission is also due to conduct a broader review of the modernisation of tax systems, to consider matters such as a move from over reliance on the taxation of labour, changes to carbon taxation and the proposal for a financial transaction tax.
For more information on this please contact Philip McQueston or any member of our Tax team.
Date published: 3 June 2021