On 15 June 2020, the Commission presented a new Tax Package. On the same day, the European General Court (EGC) issued a ruling, which once again clarifies the already known tax-related regulatory requirement.
The Tax Package presented on 15 July 2020 shall give the EU’s tax policy new impetus again and support the economic recovery. Further measures, such as an action plan on corporate taxation and proposals as to how the tax policy may contribute to achieving climate neutrality by 2050, are to follow. The Tax Package, comprising three initiatives, was introduced by Executive Vice President Valdis Dombrovskis and Commissioner for Economy, Paolo Gentiloni.
EGC ruling Apple/Ireland vs European Commission
In its 2016 ruling, the EU Commission argued that Ireland would grant Apple illegal subsidies by not taxing the majority of global profits, which were channelled via Ireland. Hence, Apple should pay Ireland 13 billion euro for non-paid taxes. Both Ireland and Apple sued the Commission because of this decision. The EGC now ruled in favour of Ireland and Apple. Margrethe Vestager announced in a statement: “The Commission will continue to look at aggressive tax planning measures under EU State aid rules to assess whether they result in illegal State aid. At the same time, State aid enforcement needs to go hand in hand with a change in corporate philosophies and the right legislation to address loopholes and ensure transparency. We have made a lot of progress already at national, European and global levels, and we need to continue to work together to succeed.”
Initiative 1: Tax action plan
The Commission proposes the introduction of 25 measures within the scope of a tax action plan. These shall remove bureaucratic obstacles and simplify the tax system for “honest taxpayers”. Member States shall be supported in combatting tax fraud by exploiting the potential of data and new technologies more effectively and to ensure a greater compliance with already existing provisions.
Initiative 2: Proposal for improved administrative cooperation
A Directive amendment shall improve the level of information and the administrative cooperation in the EU. The amendments shall also extend the application area of EU tax transparency to digital platforms. Based on this proposal, the Commission wants to do justice to the increase use of digital platforms and introduces compulsory registration for them.
Initiative 3: Communication on Tax Good Governance
Promoting fair taxation and tax competition is the focus at EU and at international level. The Communication on Tax Good Governance addresses reform and improvement of the effectivity of the Code of Conduct on Business Taxation. The area of application of the code of conduct shall – among other – be structured in such a way that all dangers of fair tax competition shall be counteracted. Practices, such as the use of awarding citizenships in form of “Golden Visa” shall be stopped, as these often result in the unfair recruitment of individuals and businesses, being accompanied by an increased risk of money laundering, corruption and tax evasion. An update of the EU list of non-cooperative third countries, which was carried out last in February 2020, is also planned.
Fighting unfair competition
Whilst the current legal statutory framework conditions still allow the shifting of large sums to European and international tax havens, the principle of unanimity in matters of tax still hinders any progress. In order to prevent individual small countries from blocking more tax justice and the fight against tax evasion, the Commission is planning a review of Art. 116 TFEU. Based on this article, measures may be taken to fight unfair competition. Paul Tang, MEP of the S&D group and future head of the sub-committee on tax matters, which was set up in June, welcomed this according to the Financial Times: “Article 116 of the EU treaty gives Brussels the powers to stop unfair practices in EU tax havens. It is a race to the bottom, which benefits a few at the expense of the rest.”
From the AK’s point of view, the Tax Package is heading in the right direction. However, it could have been more ambitious. According to the TAX3 special committee report, the EU misses out on 825 billion euro by tax avoidance on an annual basis. Further measures are needed fast in order to ensure more tax justice. The way out of the crisis should be based on tax justice, accompanied by draining tax swamps and closing regulation gaps.