13th April 2021
As regular readers of our blog will be well aware, we’ve long stated the complexity and ever changing nature of international tax legislation and what this means for recruitment businesses. But this isn’t just the 6CATS view, in fact in a recent interview with Forbes, Benjamin Angel, director of direct taxation at the European Commission’s Directorate-General for Taxation and Customs Union, explains just how complex the European tax landscape is and how it will only become more volatile in future. In this blog, we look at the latest proposals that have risen to the top of the EU tax agenda.
In the interview with Forbes online, Benjamin Angel, outlined the key challenges faced by the legislative arm of the EU and in particular the main issues facing the tax administrations of Europe’s 27 member states. One of the proposals being discussed is digital taxation and in particular a digital levy to be introduced in 2021 amid ongoing discussions with the OECD. Angel refers to “the difficulties traditionally to tax the digital sector while there is no physical presence” given that there are thousands of companies operating in the digital space.
As for tax evasion and tax avoidance, which will impact all companies operating in the EU and covers all forms of cross border activity, the EC plans to reform the domestic part of its code of conduct, which applies to EU countries only. Countries have been clever to circumvent the code and as Angel points out, “some member states have learned with experience how to design regimes, which can sometimes be very distortive, but without any preferential feature, which makes the code of conduct relatively powerless to address it.” Clearly there is still some way to go in getting member states to reach a consensus on “problematic tax regimes”.
There is also the part of the code that affects non-member states and important areas, such as transparency and the exchange of information among tax administrations and authorities. As Angel notes in the Forbes interview, it is one thing to say that you’re agreeing in principle to the requirements, but the actual effectiveness of the implementation may fall short. A register of beneficial ownership – understanding who ultimately owns and controls a company’s assets – for third countries is also on the EC’s tax agenda as is widening the scope of countries (currently at 95).
The European Commission’s 2021 tax proposals
The first pillar of the OECD’s global taxation scheme was originally established to tackle the taxation of profits of global giants such as Google, Amazon, Facebook and Apple (‘GAFA’) who were making profits in territories where they had no physical presence. The second pillar is concerned with a global minimum tax rate for all companies to ensure that countries pay tax where it is rightfully due. In the words of US Treasury Secretary, Janet Yellen, “to ensure a more level playing field in the taxation of multinational corporations”.
The EU tax observatory, a body dedicated to research on EU taxation, directed by French economist and expert in corporate tax havens, Professor Gabriel Zucman of the Paris School of Economics, could play a more significant role into investigating harmful tax practices. “One possibility could be that this independent body is entrusted with this task if such a decision is taken. I cannot make any promises at this stage. We’re looking into it, but what I always recall to the EP [European Parliament] when I get the question is that we never ever ask third countries to do things that are not mandatory on our member states,” stresses Angel.
As part of the crackdown on aggressive tax planning, another area under scrutiny is the revision of the Directive on Administrative Cooperation or the ‘DAC8’ roadmap proposal (which is at the public consultation stage) to include cryptocurrencies and e-money in a bid to tackle EU tax evasion and fraud. This follows DAC7, which covered the activity of sellers on digital platforms. The Markets in Cryptoassets Regulation (MiCA) is another legal framework being proposed by the EC. One of the things that DAC8 also aims to do, says Angel, is ‘harmonize sanctions’ and impose fines that are ‘proportionate’ and ‘dissuasive’.
Other areas of focus on the EC’s tax agenda that will coincide with the digital levy and carbon border adjustment mechanism (CBAM) proposals in June 2021 include the revision of the energy taxation directive which is “horribly outdated” and needs to “fit better with the priorities of the European Green Deal” that aims to make Europe climate neutral by 2050.
Recruiters must remain compliant in light of the European Commission’s future tax agenda
As is evident from the EC’s plans and proposals, the EU tax agenda is very much in the spotlight and is a key area of focus for tax administrations as member states look to shore up their tax systems. For global recruitment agencies operating within the EU, it is vital to understand and adhere to the legislative tax changes that will impact how they operate in different markets. Remaining compliant must be a top priority if they want to avoid potentially disastrous outcomes.
If you’d like to know more about compliance consulting, contractor management or any other of our specialist services, contact 6CATSPRO’s experts now.