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European Commission’s first plans for tax reform within the EU

In mid-July, the European Commission published a first draft of a new tax package aimed to boost the economy and create fair and simple taxation rules within the EU. A more detailed version will be published at the end of 2020, should the OECD’s initiatives mainly regarding corporate and digital tax fail to be implemented.

Recent developments, mostly affected by the coronavirus outbreak, brought the European Union and its member states a number of new challenges, especially in connection with the subsequent downturns of the global and European economies. Tax systems must also cope with the dynamic development of digital technologies, the growing importance of multinational companies, tax evasion, and tax havens.

To respond to all of the above challenges, the European Commission has prepared a vast reform of its taxation policy whose general outlines were presented in mid-July and are part of a fair and simple taxation package. The package is made up of three basic initiatives:

The action plan presents 25 distinct actions to make taxation simpler, fairer and better attuned to the modern economy. These actions will make life easier for honest taxpayers by removing administrative obstacles at every step of the tax proceedings. The implementation of these measures is planned for 2020-2024.

The proposal for the revision of the directive on administrative cooperation in tax matters (DAC 7) focuses on the automatic exchange of information about revenues generated from digital services.

The EC’s communication on tax good governance emphasises the promotion of fair taxation and clamping down on unfair tax competition, in the EU and internationally. It also proposes improvements to the EU list of non-cooperative jurisdictions, which deals with non-EU countries that refuse to follow internationally agreed standards.

Both the action plan and the EC’s communication primarily stress the need for fairer taxation of digital platforms and other technology companies; simultaneously, they draw attention to the importance of a code of conduct for corporate entities, the reform of the VAT payment system, the fight against tax evasion, fairer taxation of corporate entities including the simplification of administration when paying taxes across the EU, and dealing with the issue of tax havens. The commissionaires also propose a radical reform of the taxation of income of corporate entities within the EU, previously known as the Common Consolidated Corporate Tax Base – CCCTB, on the EU agenda since 2011.

The documents issued do not include any concrete measures within the individual actions; these should be presented by the end of 2020, as the EC currently gives preference to solutions at the OECD level. If consensus is not reached on a global level, the EU will adopt its own legislative solution for corporate and digital taxes. It should also be made clear that unanimous consent of all member states is necessary to approve the EC’s tax package, which seems very improbable based on previous experience.