EU taxation tries to follow digital and globalised economy

Effective taxation and Tax reforms are always among the manifold challenges the EU and its members are currently facing. Transparent, fair and effective taxation is a pre-condition for enhancing social justice and building public trust. The basis for modernising tax systems aiming to serve three equally important strategic goals.

1. Economic stability,
2. Social inclusiveness and
3. Environmental sustainability.

National governments are responsible for raising taxes and setting tax rates. The EU does coordinate some national tax rules and tax rates. Differences among member states might discourage people from buying and selling in other EU countries. The EU also promotes co-operation between its member countries for tackling tax avoidance and tax evasion. EU also work to eliminate discrimination cases and reduce compliance burdens. EU member states want to ensure that EU tax policy remains fit for purpose and results in fair and effective taxation in the increasingly globalised and digitalised economy of the 21st century.

Taxation updates

The EU Council approved conclusions setting out its comprehensive assessment of the main tax policy issues to be addressed. Over the coming years, all Member States will shape the EU policy agenda in the field of taxation. The conclusions outline the Council’s priorities and provide guidance to the Commission in different areas of EU action. Conclusions focus on the challenges of the digitalisation of the economy. Taxation goals include administrative cooperation between member states’ tax authorities and central tax good governance in the EU and beyond.

EU member states are sending a powerful signal in support of a multilateral solution for taxing the digital and globalised economy. The Council fully supports the work of the OECD Inclusive Framework. I am confident that we can reach a global agreement by summer next year. All corporations should pay their fair share of taxes, including corporations in the digital economy. This is a question of justice and fair competition. This is also a question of sovereignty and state capacity to take action. Member states need proper financial resources to counter the coronavirus crisis effectively and to facilitate the digital and green transitions.

Olaf Scholz, Germany’s Federal Minister of Finance and Vice Chancellor

In the conclusions, the Council underlines that fair and effective taxation systems in member states are central to the sustainable recovery of the EU from the COVID-19 crisis. New Taxation models require tax policies that generate revenues for both national and EU budgets. Such systems can also support a smooth transition towards the policy goals of sustainable competitiveness. The new models will support the European Green Deal and the full use of the potential of digitalisation in a global economy.

Code of Conduct for Business Taxation

The Council also underlines the important progress made under the Council’s Code of Conduct for Business Taxation in promoting tax good governance standards in the EU and beyond. This Code of Conduct includes the use of the EU list of non-cooperative jurisdictions for tax purposes. It reiterates its readiness to continue to discuss the scope of the mandate of the Code of Conduct Group (Business Taxation) as soon as there are relevant developments at international level, but no later than by the beginning of 2022.

European exchange of information

Another important work stream concerns administrative cooperation on tax matters. The new EU rules on exchange of information on revenue generated on digital platforms will set an example globally. The Council welcomes the Commission’s intention to propose further amendments to the Council directive on administrative cooperation in the field of taxation. In particular the proposal focus on the exchange of tax-relevant data for new alternative means of payment and investment. Crypto-assets and e-money is a new taxation challenge for all Member States.

VAT and Cross-border taxation

The conclusions also set out the Council’s views on other tax policy issues. These are the modernisation of the EU value added tax (VAT) rules and further assessment of cross-border administrative cooperation in the VAT area, excise duties, and tax administration and tax compliance. The conclusions respond to the Commission’s communications on an action plan for fair and simple taxation. The new taxation action plan supports the recovery strategy and on tax good governance in the EU and beyond. It was presented in July 2020.

OECD Inclusive Framework

The Council welcomes the significant progress made at the level of the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS). Member States updated the international corporate taxation framework and confirmed the continued support for this work. The OECD Framework aims at reaching a global consensus-based solution at the latest by mid-2021. It expresses the willingness of the EU States to look into the possibilities for implementing the global agreement as soon as possible. OECD Framework also recalls that the European Council will assess the issue in March 2021. It asks the Commission to engage on that basis in the relevant preparatory work in the Council on the way forward in line with EU law, in order to address the tax challenges of the digital economy, including in the absence of an international consensus by mid-2021.

Taxation on vital medical equipment

The exemption from customs duties and VAT on imports of medical and protective equipment from non-EU countries will continue to apply until 30 April 2021. The VAT exemption has been applicable from 30 January 2020

As regards the VAT relief for vaccines and testing kits, once agreed by all EU Member States, it will remain in place until the World Health Organisation declares the end of the coronavirus pandemic, or until an agreement is reached on the Commission’s pending proposal for new rules on VAT rates.