EU Commission 2022 Work Programme & Q4 Pillar 1 and 2 Tax Policy Priorities
The European Commission work programme for 2022 indicates that the EU will focus its taxation policy priorities on implementation of the global tax agreement concerning Pillar 1 (reallocation of taxing rights) and Pillar 2 (global minimum company tax). The work programme states the “European Commission will now strive to show the EU’s leadership in global tax fairness, by ensuring a swift and consistent implementation across the EU.” Implementation of Pillar 1 largely depends on the ongoing technical level work at the OECD, which should inform the EU legislative process. Depending on the agreed solution, EU’s implementation of Pillar 1 OECD global agreement on re-allocation of taxing rights might come as a legislative item (directive), under Article 115 TFEU, which requires consensus of all Member states.
Regarding the work priorities for the last quarter of 2021, the Commission listed:
- Directive to fight the use of shell entities; and,
- Proposal on implementation of the OECD global agreement on minimum effective taxation (Pillar 2).
Concerning the initiative to fight the use of shell entities, the EU intends to allow Member states to tax a shell entity located in another EU Member state, satisfying certain conditions, as if the shell were located within their own taxing jurisdiction. It is expected that the criteria identifying a company as a ‘shell entity’ would be based on a methodology similar to the one already used by the EU in the DAC6 hallmarks.
US, UK & EU Countries Agree Transitional Repeal of Unilateral Digital Taxes
Following the agreement reached by 136 jurisdictions on global minimum corporate tax and the partial reallocation of profit to market countries, recently endorsed by G20, the Finance Ministers of Austria, France, Italy, Spain and the United Kingdom have now issued a joint statement with the United States, setting out an agreement reached for a transitional approach to walking back the existing unilateral digital taxes in those countries.
In the statement, Austria, France, Italy, Spain and the United Kingdom set out that they have agreed that the unilateral measures will remain in force until Pillar 1 (reallocation of taxing rights) is implemented, but that if the amount of tax collected in the jurisdictions exceeds the equivalent amount that would be due under Pillar 1 in the first full year of implementation, the excess amount will be creditable against the portion of the corporate income tax liability associated with Amount A (amount allocated to market jurisdiction) as computed under Pillar 1 in these countries, respectively. Further, the United States has also undertaken to terminate any proposed trade action and refrain from taking any further action against Austria, France, Italy, Spain, and the United Kingdom in relation to their unilateral digital taxes until the implementation of Pillar 1 takes place.
The agreement notes that although the United States had argued for an immediate withdrawal of unilateral measures, effective as of the date of the political agreement, i.e. 8 October 2021, the countries with unilateral digital taxes preferred for the withdrawal of these measures to come into effect upon implementation of Pillar 1.
World Leaders Endorse Global Tax Deal
Following the agreement on global minimum corporate tax and the partial reallocation of profit to market countries, endorsed on 8 October by G20 Finance Ministers, the G20 political leaders issued a political declaration setting out their commitment to implement the deal as agreed with the OECD-endorsed timeline. The leaders of 19 nations in Rome were joined by their Russian and Chinese counterparts via video-link to confirm the final political agreement. The latest communique notes the “historic achievement through which we will establish a more stable and fairer international tax system.”
The world leaders called on the OECD and the BEPS Inclusive Framework “to swiftly develop the model rules and multilateral instruments as agreed in the Detailed Implementation Plan, with a view to ensure that the new rules will come into effect at global level in 2023”. The leaders also endorsed further support for developing countries through the Inclusive Framework and further domestic resource mobilisation efforts.
Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, speaking at the Web Summit technology conference in Lisbon last week, said there are outstanding issues with the implementation, including in the US.
