Business Taxation, Malta, EU Tax & Compliance Bulletin 77

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AML CFT, Company taxation, EU, VAT (Value Added Tax), European Union Commission, double taxation, roadmap, transfer pricing, business taxation-CFE, OECD Pillar 1

EU Business Taxation for the 21st Century

The European Commission has adopted a Communication on Business Taxation for the 21st century to promote a robust, efficient and fair business tax system in the European Union. The Communication sets out both a long-term and short-term vision to support Europe’s recovery from the COVID-19 pandemic and to ensure adequate public revenues over the coming years. The Commission will be proposing, by 2023, a new framework – “Business in Europe: Framework for Income Taxation” (or BEFIT). This will provide a single corporate tax rulebook for the EU, based on the key features for a common tax base and the allocation of profits between member states based on a formula. The objective is to provide for fairer allocation of taxing rights between Member States.

Furthermore, the tax agenda for the next two years will build on the roadmap set out in the Tax Action Plan, with measures such as:

  • proposing that certain large companies operating in the EU publish their effective tax rates, so as to ensuring greater public transparency, and tackling the abusive use of shell companies through new anti-tax avoidance measures;
  • Supporting the recovery from the COVD-19 pandemic by addressing the debt-equity bias in the current corporate taxation, to encourage companies to finance their activities through equity rather than turning to debt.

The commission also adopted a Recommendation on the domestic treatment of losses, which prompts Member States to allow loss carry-back for businesses to at least the previous fiscal year. This will benefit businesses that were profitable in the years before the pandemic, allowing them to offset their 2020 and 2021 losses against the taxes they paid before 2020. This measure will particularly benefit SMEs.

View the Communication on Business Taxation for the 21st century

European Parliament Calls For Swift Reform of International Tax Rules  

The European Parliament has adopted Resolution 2021/2010/INI calling on international stakeholders to speed up the process of adoption and implementation of the international taxation framework, currently under multilateral negotiation at the OECD.

European Parliament is seeking to put pressure on the process, suggesting immediate overhaul of the “outdated international tax rules, including a minimum effective corporation tax rate”. The resolution calls on the European Commission and the Council to “go ahead alone” should the negotiations fail at OECD level. One of the key demands of the European Parliament is a 21% global minimum tax rate, in support of the recent proposals from President Biden’s administration. Members of the Parliament sought to support a minimum effective tax rate set at a “fair and sufficient level to discourage profit shifting and prevent damaging tax competition.” Should the OECD negotiations fail to produce an agreement by July 2021, the Parliament expects the EU Commission to produce a new proposal on digital services tax and and a Commission road map with different scenarios, with or without agreement at OECD level.

EU Commission Confirms No Delays in New VAT E-Commerce Rules 

Speaking at the CFE Forum in Brussels, Patrice Pillet, Head of VAT at the European Commission, DG TAXUD, confirmed that there will not be a second delay to the entry into force of the new EU VAT rules concerning e-commerce/trade of goods. “The date of 1 July is certain, all of the EU’s 27 member countries have said that they will be ready for the rules when they are due to come into place”, Mr Pillet said at the CFE Forum which discussed the effects of the new, simplified VAT rules and the resulting challenges for business and advisers.

The new rules create a simplified VAT regime for cross-border supplies of goods (B2C)/ distance sales, offer a system to declare and pay VAT in the EU using the Import One-Stop Shop (IOSS) and also level the playing field between EU businesses and non-EU sellers.

EU Sets Out New Corporate Tax Reform Proposals 

The European Commission has published a new plan for corporate tax reform within the European Union, encompassing a number of short term and longer term proposals. The plan is embedded in a Communication on Business Taxation for the 21. Century.

The main pillars of the Commission proposal are set out as follows:

  • Common rulebook for a better business environment in the Single Market “Business in Europe: Framework for Income Taxation” (or BEFIT) intended to cut red tape, reduce compliance costs and minimise tax avoidance;
  • Ensuring greater public transparency: requiring certain large companies to publish their effective tax rates;
  • Supporting businesses to recover from COVID-19 Member States, recommending to allow companies to offset their 2020 and 2021 losses against taxes they paid before 2020;
  • Tackling the abusive use of shell companies: monitoring and reporting requirements for shell companies so tax authorities can better respond to aggressive tax planning;
  • Addressing the debt-equity bias in corporate taxation Encouraging companies to seek finance through equity rather than debt: DEBRA proposal;
  • “On the road to 2050: Rethinking the EU tax mix”, a proposal in support of EU’s green and digital ambition.

The Commission also adopted a recommendation on the tax treatment of losses, allowing loss carry-back for companies that were profitable in the tax periods prior to 2020 – they would be able to offset their 2020 and 2021 losses against profits of the earlier years.

EU Parliament Members Discuss Intra-EU Harmful Tax Competition 

The European Parliament members discussed a draft report prepared by Aurore Lalucq MEP on reforming the EU policy on harmful tax practices (including the reform of the Code of Conduct Group). The report recommends ways in which national tax practices would become subject to an EU level of ‘minimum level of economic substance’, as well as an introduction of a simplified system to identify harmful tax regimes. In addition, the report recommends a reform of the Code of Conduct on Business Taxation in order to improve its governance, transparency and scope of work. Plenary discussion is at present scheduled for September, preceded by Committee vote on the meeting of 13.7.2021.

Ms Lalucq, MEP rapporteur, said at the Committee meeting: “The code of Conduct on Business Taxation has had its successes but harmful tax practices have evolved. Because of this, the Code must also adapt. There has been progress on tackling preferential harmful tax practices but now it is time to also deal with general harmful tax practices”.


Source: Malta Institute of Taxation Click here and CFE Tax Advisors Europe Click Here

Please contact David Marinelli should you wish to discuss any matter relating to your Malta registered company.