Anti-Fraud Taxation Package – Companies and Governments to Face Far-Reaching EU Measures

The tax package could be a paradigm game-changer for companies and governments in Europe and certainly beyond. The controversial nature of parts of the proposal will draw significant attention despite its publication – a coincidence? - during the summer holidays.  Member States are under further pressure to surrender their sovereignty in one of the few domains where the EU has no full competence: tax policies. For companies and governments – in particular third-countries - the time to act and engage is now!   

On 15 July 2020, the European Commission presented the first initiatives of a much-anticipated comprehensive set of policy and legislative measures in the pursuit of four objectives:

  1. Reducing administrative burdens in the field of taxation to facilitate business in the EU;
  2. Addressing tax abuse and harmful tax competition;
  3. Closing gaps in tax transparency rules by adapting them to the digital world; and
  4. Seizing the opportunities provided by digital technologies and data analytics.

In the words of Commissioner for the Economy Paolo Gentiloni, the package aims “to make life easier for honest taxpayers, and to make life harder for those actively trying to cheat the system.”

The package consists of three individual proposals:

  1. Tax Action Plan – The “Action Plan for fair and simple taxation supporting the recovery” puts forward 25 initiatives to be implemented over the next five years to simplify taxation, make it fairer and adapt it to digital technologies. The proposed measures will have a major impact on companies operating across the EU, including by means of:
    • Tax simplification;
    • Support to Member States for better enforcement of and compliance with tax rules; and
    • Better exploitation of data and more efficient data sharing to combat tax fraud and evasion.
  2. Revision of the Directive on Administrative Cooperation (DAC7) – The proposed amendment of the Directive on Administrative Cooperation would extend the scope of the EU tax transparency framework to additionally include income generated by sellers on digital platforms.
  3. Communication on Tax Good Governance in the EU and beyond – This policy document on tax good governance proposes means for greater transparency and fairer taxation, including a reform of the Code of Conduct on fair tax competition in the EU, amendments to the EU’s list of non-cooperative tax jurisdictions, and an approach for EU assistance to developing countries in view of taxation.

The presentation of the tax package comes at a time where the EU and individual Member States are in dire need of additional revenues to be fed into the post-Covid-19 economic recovery. Against the background of the global operations in particular of major digital companies – this set of measures forms part of the wider effort of the European Commission and some Member States to better tackle tax evasion and tax avoidance.

The proposed package contains a wide range of concrete measures such as a single EU VAT registration, an EU-wide cooperative compliance framework, uniform reporting obligations for digital platforms, and plans to strengthen the EU (“black”) list of non-cooperative tax jurisdictions. Already this loose list of individual proposed measures indicates that the new taxation package will have a far-reaching impact on virtually all companies operating across the EU.

The Commission will follow up on this first set of proposed tax measures by putting forward additional proposals in the coming months. In autumn 2020, the Commission is expected to present plans for business taxation in the 21st century, which will also refer to the ongoing discussions about digital taxation at OECD level. In the first half of 2021, proposals will be put forward to revise current energy taxation in line with the EU’s Green Deal. In addition, in the ongoing discussions about additional own resources for the EU in the context of the post-Covid-19 Recovery Plan, new measures in the field of taxation are being considered.

The proposed measures will in the next step be discussed amongst the Member States. It can be expected that the policy and legislative process of adopting these new tax initiatives will be politically charged. Member States that are generally cautious when it comes to further EU-wide fiscal integration will be breakers in this debate. Nevertheless, there are some major EU Member States that are keen to achieve progress in the EU-wide and international (OECD) tax debate. From the taxpayers’ perspective, there will be a large amount of new policy and legislative debates on tax carried forward at the EU level over the coming months.

Our team at Acquis EU Law & Policy stands ready to provide businesses and governments with strategic advice and to help engage with the EU institutions.