The ETLC

The ETLC covers a wide range of topics, including:

• EU (case) law and legislation on corporate and individual income tax
• State aid and tax law
• Protection of fundamental rights

The ETLC aims to help to understand the complexities of EU tax law and how this can impact your business, enabling you to better predict how rules will develop and how to leverage opportunities and minimize risks arising from EU tax law.

EU law is taking an increasingly centre stage position in the EU tax world. Whether it is a decision of the EU Court of Justice, a new cross-border tax regulation, or an investigation launched by the European Commission, businesses can no longer ignore its consequences. The EU Tax Centre is here to meet that need.

Since the beginning of 2019, the OECD/G20 Inclusive Framework has been working on a consensus-based approach to address the challenges of the digitalization of the economy, which were identified as one of the main areas of focus of the Base Erosion and Profit Shifting (BEPS) Project.

The tax work of the OECD/G20 Inclusive Framework on BEPS, regarding the digitalization of the economy  has culminated in two proposals for each of the “pillars”:

• The Pillar One proposal focuses on the reallocation of taxing rights, with the aim to undertake a coherent and concurrent review of profit allocation and nexus rules. in January 31, 2020, an updated version of this proposal was published, highlighting progress on the scope of the new taxation rights and agreeing to a timeline to reach a consensus position by the end of the year.
   
• The Pillar Two proposal (also referred to as the “GloBE” proposal) focuses on the remaining BEPS issues and aims to develop a set of rules that jurisdictions would have the right to apply where other jurisdictions have not exercised their primary taxing rights or the income is taxed below an effective minimum rate, and which seek to address remaining BEPS risk of profit shifting to entities subject to no or very low taxation. 
   

Documents of interest:

 Comments on Pillar I and Pillar II

Pillar I: Executive Summary 

Pillar II: Executive Summary

Directive 2018/822/EU amending (for the sixth time) Directive 2011/16/EU as regards the mandatory automatic exchange of information in the field of taxation of reportable cross-border tax arrangements ("DAC 6") entered into force on 25 June 2018. The transposition into national law by the EU Member States was due on 31 December 2019.

The main goal of the Directive is to provide tax authorities with an early warning mechanism on new risks of tax avoidance and thereby enable them to carry out audits more effectively, with the final objective of improving the functioning of the internal market by discouraging the use of aggressive cross-border tax-planning arrangements

The reporting obligation applies not only to tax advisors (so-called intermediaries), but also to the taxpayers themselves.

The Directive states that cross-border arrangements that meet certain “hallmarks” must be reported electronically to the respective tax authorities of the EU Member States. In principle, the reporting obligation to the tax authorities begins on 1 July 2020 (in Poland, however, the reporting obligation has already been in force since the beginning of 2019). However, cross-border tax arrangements must also be reported in case the first step of such a tax arrangements was implemented between 25 June 2018 and 30 June 2020 (so called retrospective reporting obligation). The first reports are due in August 2020*.

*Important update: On the 8th of May 2020, the European Commission published a Proposal for a Council Directive amending Directive 2011/16/EU to address the urgent need for deferring certain time limits for the filing and exchange of information in the field of taxation due to the COVID-19 pandemic.  The Directive proposes changes to certain time limits for filing and exchanging information under Council Directive 2011/16/EU, more specifically concerning information on financial accounts as provided by Council Directive 2014/107/EU and reportable cross-border arrangements as provided by Council Directive 2018/822/EU. 

The proposed rules:

• Defer the time limit for exchanges of information on Reportable Financial Accounts by 3 months, i.e. until 31 December 2020;
• Change the date for the first exchange of information on reportable cross-border arrangements that feature in Annex IV to Council Directive 2011/16/EU from 31 October 2020 to 31 January 2021;
• Change the date for the beginning of the period of 30 days for reporting cross-border arrangements which are included in Hallmarks listed in Annex IV to Council Directive 2018/822/EU from 1 July 2020 to 1 October 2020;
• Change the date for the reporting of the ‘historical’ cross-border arrangements (i.e. arrangements that became reportable from 25 June 2018 to 30 June 2020) from 31 August 2020 to 30 November 2020.

Documents of Interest:

WTS Global DAC 6 Executive Summary

Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements

Council Directive 2011/16/EU  of 15 February 211 on administrative cooperation in the field of taxation (consolidated text)

Proposal for a Council Directive amending Directive 2011/16/EU deferring certain time limits for the filing and exchange of information

For more information, please visit the DAC 6 section in the WTS website:

DAC 6 - Reporting obligations for tax planning

On July 15, 2020 the European Commission published a proposal to amend the DAC in order for it to address the challenges posed by the digitalization of the economy. This Proposal of DAC 7 is largely based on the OECD model rules of reporting for platform operators with respect to sellers in the sharing and gig economy (the “OECD Model Reporting Rules”).

DAC 7 was approved by the EU Council on 22 March 2021 and Member States will need to implement the new provisions by December 2022.

The characteristics of the digital platform economy, specially in a cross-border context, has created a regulatory gap that causes a shortfall of Member States’ tax revenues and provides the users of the digital platforms with an advantage compared to service providers and sellers who are not active on digital platforms. The goal of the DAC 7 is to cover this gap to ensure fair taxation.

Therefore, the DAC 7 foresees a reporting obligation for any Platform Operator that can be located in an EU member state, by any of the common methods, and it includes a catch-all-clause for the rental of immovable property. The Proposal states that any Platform Operator that facilitates the rental of immovable property in an EU member state has a reporting obligation, regardless of the aforementioned criteria on allocation. This reporting obligation encloses information on the income derived via the platforms by the Sellers and the amounts paid by other users.

In order to catch as many digital transactions as possible under its scope, the proposal establishes broad definitions for both a Platform and a Platform Operator. A Platform is described as: “any software that allows Sellers to be connected to other users” and a Platform Operator is defined as: “any entity that allows Sellers access to the platform”. However some software is explicitly excluded from the scope (e.g. software to process payments, advertising software and - contrary to the OECD Model Reporting rules - also software to redirect users).

The targeted services are broader than those in the OECD Model Reporting Rules: not only are Platform Operators obliged to report on rental of immovable property and personal services (providing transport or delivery) but also on the sale of goods, rental of any mode of transport, investing and lending in the context of crowdfunding as on income from royalties.

The obligation that is put on the Platform Operator implies that they must perform due diligence on the Seller: they must not only collect information on the Sellers on their platform, but also determine the reliability of the information. This obligation must be met while complying with the GDPR. Therefore the Platform Operator needs to accurately inform each individual Seller and user on his digital platform about this collecting and reporting of their information to the competent authorities.

The Platform Operator must file the reported information within one month of the end of a reportable period (i.e. January 31 of the year following the reporting period) with the competent authority of the EU member state. These authorities will exchange the reported information within two months after the end of a reporting period.

This proposal was approved by the Council of the European Union on 22nd March 2021. As a consequence, the so-called DAC 7 introduces the following amendments:

• Expands reporting obligations and exchange of information to cover sales through digital platforms. These rules would apply from 2023. 
• Amends the actual exchange of information and cooperation between EU member states, focusing on joint actions and joint audits. These rules would apply from 2024

Several EU Member States have already adopted domestic measures imposing reporting obligations to digital platforms. You can find an overview here.

The proposal for DAC 7 was part of a publication of the EC called “A Package for Fair and Simple Taxation to help EU member states with their economic recovery (referring to the economic damage caused by the COVID-19 pandemic)”. This package already hinted at a new future amendment of the DAC, namely DAC 8. The goal of this amendment is to expand the scope of the directive with alternative means of payment and investment, such as crypto-assets and e-money.  A proposal on this amendment has yet to be published.

This publication is planned for the third quarter of 2021. For now the initiative is open for feedback of the public. The feedback period opened at November, 23rd and will close on December 21st.

Council Directive 2017/1852 of 10 October 2017 laid down new rules on tax dispute resolution aiming to improve the resolution of tax disputes, as they ensure that businesses and citizens can resolve disputes related to the interpretation and application of tax treaties more swiftly and effectively. These new rules apply since 1 July 2019 and they also cover issues related to double taxation.

In case the dispute is not resolved with a MAP ("Mutual Agreement Procedure") between competent authorities, the taxpayer can request to set up an Advisory Commission. The Advisory Commission is composed of the competent authorities of the Member States in dispute and three independent persons (one of whom acts as the Chair). These persons are drawn from a purpose-compiled list to which they get nominated by Member States in accordance with the Directive. Bernard Peeters, Director of the WTS Global Board and Tax Partner at Tiberghien has been appointed for the Belgian list of independent persons of standing who will form part of the Advisory Commission.

The Advisory Commission delivers its opinion within 6 months and such opinion is then notified to the competent authorities of the Member States concerned, who make a final decision. If they do not manage to agree a final decision on time, the opinion becomes binding on the competent authorities. 

Relevant material:

• Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union
• Commission Implementing Regulation (EU) 2019/652 of 24 April 2019 laying down standard Rules of Functioning for the Advisory Commission or Alternative Dispute Resolution Commission and a standard form for the communication of information concerning publicity of the final decision in accordance with Council Directive (EU) 2017/1852 

WTS Articles:

• Nigeria: Navigating a Tax Dispute Resolution
• Implementation of the EU Directive on Tax Dispute Resolution Mechanisms in Austria