Analysis: “Commission’s Action Plan for Fair and Simple Taxation” by Darya Budova
On July 15 2020, the European Commission delivered an ambitious Tax Package aiming to support the EU’s economic recovery and long term growth. This Tax Package includes the legislative proposal to revise the Directive on administrative cooperation (DAC-7), a communication on ‘Tax good governance in the EU and beyond’, and an Action Plan for Fair And Simple Taxation Supporting The Recovery Strategy (the ‘Action Plan’).
The latter is a key element of a comprehensive and ambitious EU tax agenda for the coming years. It is built on two pillars: tax simplification and the fight against tax fraud and it contains 25 (legislative and non-legislative) actions for the upcoming years seeking to achieve fair and efficient taxation, as well as a transition into a greener and more digital world. Several groups of actions can be identified, as follows.
Actions to streamline business taxation in the Single Market
The Commission wants to propose a legislative initiative to introduce a common, standardised, EU-wide system for withholding tax relief at source. This initiative will be accompanied by an exchange of information and cooperation mechanisms among tax administration and, potentially, other administrations, such as financial markets’ supervisory authorities (action 8).
There is another legislative proposal considered by the Commission in this field: to establish consistent rules as to where in the EU taxpayers are to be considered resident for tax purposes. The objective is to ensure more consistent rules in the Single Market, whereas today Member States are using different and various criteria to determine tax residence status (action 7).
Actions that will affect sector-specific VAT and excise arrangements
Some of the proposed actions will affect very specific businesses, although we do not yet know the full scope of the potential changes:
- The Commission intends to make a legislative proposal to update VAT rules on financial services, taking account of the rise of the digital economy (fintech) and the increase in the outsourcing of input services by financial and insurance operators as well as the way this sector is structured (action 18).
- We can also expect a proposal to introduce greener taxation of the passenger transport sector and review the exemptions in this sector and simplify VAT rules regarding the place of taxation of passenger transport services (action 24).
- The Commission will present a legislative proposal to amend the VAT Directive in order to simplify the special scheme for travel agents (action 22).
- There should also be a proposal to simplify the rules that currently make distance selling of excise goods impossible due to the high regulatory burden and costs (action 25).
Package for VAT in the digital age
A handful of actions intend to simplify the VAT obligations of taxpayers across the EU. The Commission proposes the creation of single EU VAT registration (action 1), modernising VAT reporting obligations – seeking a quicker, possibly real-time, and more detailed exchange of information – and exploring a possibility to further expand e-invoicing (action 4) as well as further extending the scope of the One Stop Shop to all business-to-consumer transactions (action 5). The latter system entails a single point of registration and payment of VAT within the EU and is currently available for television, broadcasting and electronic services as well as to certain distance sales for goods and services as of 2021.
The Commission has committed to publishing a Communication taking stock of taxpayer’s existing rights under EU law together with a Recommendation to Member States to facilitate the implementation of taxpayer’s rights and to simplify tax obligations (action 17). This measure is announced as fundamental rights in the tax field are subject to increasing attention from the Court of Justice of the EU.
Exchange of information and data treatment
An important role in the Commissions’ Action Plan is given to the revision and reinforcement of exchange of information and data treatment tools. The proposal includes a reinforcement of verification of cross-border transactions by switching from exchanging to sharing of tax-related data (actions 12 and 13), extension of automatic exchange of information to crypto assets and e-money (action 10), VAT administrative cooperation between the EU and partner countries outside the EU (action 14), joint development of models to respond to new fraud patterns within Eurofisc (action 9), improving the assistance for the recovery of unpaid taxes (action 6), seeking digital solution(s) to ensure better exploitation of data (action 2 and action 20).
Cooperative compliance and dispute resolution
Several initiatives seek to enhance cooperative compliance, creating an EU framework for a preventive dialogue between tax administrations and businesses for the common resolution of cross-border tax issues (action 3) and dispute resolution, including initiatives for monitoring the existing dispute resolution mechanism directive and creation of a prevention and dispute resolution for VAT (actions 15 and 16).
The Commission includes several initiatives revising the role of VAT Committee (action 19) and creating other hubs, such as Tax Observatory (action 11) or the expert group on transfer pricing (action 21).
Other elements of the EU tax agenda for the coming years
Along with this specific Action Plan, the Commission has announced other elements of its ambitious tax agenda yet to come. It includes tax measures for the greener economy; a strong commitment to the reform of a corporate tax system in the context of an increasingly digitalised economy (before the end of the year we can expect an Action Plan for Business Taxation for the 21st century); recommendation to restrict financial support to undertakings with links to non-cooperative jurisdictions; exploring ways to allow proposals on taxation to be adopted by ordinary legislative procedure; as well as the revision of the Tobacco Tax Directive and the Alcohol Tax directives, in the context of public health objectives and tax fraud.
Darya Budova is a practicing attorney in law specialised in tax disputes and EU tax law, with expertise in taxation in international trade.