What’s next on the EU tax policy agenda?

From trending debates to industry impact

Where 2019 is the year of change, 2020 will be the year of impact. The new European Commission mandate and European Parliament mean that new legislation will be on the horizon. Tax policy has become a highly political and important point on the European agenda. Tax is used as an instrument to make the industry greener and more competitive. Tax is expected to remain of high importance for the next five years while the European decision-makers search for an answer to the most difficult question on taxation – what is a company’s fair share of taxes and where should it be paid?  This will impact businesses across all sectors.

Prepare your calendars for the opportunities and challenges this 5-year mandate could throw your way, as we outline the top five issues and trends likely to dominate the EU’s tax policy agenda.

1. TAX GOES GREEN

The EU aims to reach carbon-neutrality and promote a sustainable lifestyle. Taxation is one of the most effective ways of incentivising changes. The European Commission has already considered a potential change in 2020 of the Energy Tax Directive. This would mean minimum tax rates on energy products and electricity, the promotion of renewable energy use and an increased energy efficiency. New taxes on aviation and marine transport fuel may also see the light of day. One of the most controversial ideas is getting more traction; a Carbon Border Tax on the import of goods, and potentially on services as well, from countries that have not meaningfully reduced their carbon emissions. This proposal could be seen by some as a tariff while others argue it is a needed measure to protect European businesses from environmental dumping.

Potential impact? The changes to green taxation will directly affect energy producers as well as the broader economy by impacting compliance costs and changing power dynamics among market operators. While developing these changes, legislators face difficulties in anticipating and addressing the potential negative impacts.

2. 21ST CENTURY TAXATION

The European leaders have set the end of 2020 as deadline for finding a new international solution on taxing the digital economy, as negotiated at the Organisation for Economic Co-operation and Development (OECD). The corporate tax system is challenged in multiple areas as it is no longer aligned with the economic realities and further exacerbated by digitalisation. If the OECD reaches an agreement, the EU will focus on ensuring a swift implementation, which is also compatible with the EU Treaties. These rules would replace unilateral initiatives that Member States have planned and implemented. On the other hand, if there is no international agreement by the end of 2020, the European Commission’s controversial idea of imposing a Digital Services Tax on the turnover from certain digital activities, will be revived.

Potential impact? EU policymakers will pay close attention to the development of the international solution and will implement it swiftly if agreed. Given that the broader European economy is digitalising, the impact might be much broader than some of the industries are expecting.

3. THE TAX LOOPHOLES

Tax base erosion and profit shifting (BEPS) remains a concern for EU policy makers. With the aim of removing incentives for multinationals to shift profits to low tax jurisdictions, the OECD is trying to agree on a minimum global effective tax rate. This to be implemented in the EU, in parallel with the EU’s continuous excercise to list uncooperative tax jurisdictions (the so-called – “EU tax haven blacklist”). More jurisdictions will be assessed in the upcoming years. Finally, the policy push for greater transparency is expected to manifest in more tangible results. The legislative proposal on Public Country-by-Country Reporting (CBCR) has been put on hold until a later date by the Member States. However, increased voluntary reporting by the industry and standardised industry initiatives may provide the needed arguments for supporters of the public CBCR rules.

Potential impact? If a global minimum tax rate is agreed and then implemented in the EU, it could increase multinationals’ tax bills or at least tax compliance costs. Additionally, multinationals face reputational risks coming from a misinterpretation of the publicly disclosed information on where the taxes are paid.  

4. ONGOING REFORMS

Several tax reforms are deadlocked, due to a lack of the Council of the EU support. This is due to Member States no matter their size being able to veto these reforms, this includes the definitive VAT regime reform (from 2017); the financial transaction tax (from 2011), and the Common Consolidated Corporate Tax Base (CCCTB) (initially from 2011 and relaunched in 2017). The new European Commission will have to decide if negotiations should continue.

Potential impact? Some of these reforms have been anticipated (like the CCCTB) while others are heavily resisted by the stakeholders (like the FTT). A new impetus could revive these dormant discussions which could lead to agreements at EU level and considerable changes to the tax EU framework.

5. TAX CERTAINTY

Taxpayers’ investment decisions are often made based on the stability of the jurisdiction. Therefore, clear and predictable tax rules can have a significant impact on the economic growth of a country. Following the grand reshuffle of tax rules by the BEPS reform implementation, many stakeholders ask for a pause in legislation with the objective of tax certainty. The EU policy makers are expected to support this and work towards a more accessible, clear and predictable tax. However, it will be difficult to reach this goal considering the other ongoing tax policy initiatives.

Potential impact? The newly revived attention from policy makers to the need of ensuring tax certainty is welcomed.Considering broad-reaching discussions on tax policy, e.g. green taxes and digital taxation, it will take efforts on all sides of the discussion to ensure policy makers keep on top of their agenda.

Seize the opportunity, manage the risk

New mandate, new legislators, new conversations. Now is the time for companies across sectors to assess and prioritise the technical implications and business impact of each of these issues. Is this an opportunity or could your license to operate be at stake?

Want to know more? Contact Thea Utoft Høj Jensen or go to getready4.eu

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This factsheet only addresses a selection of the key files impacting tax rules for all industries The views expressed are those of the author and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates or its other professionals

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