Twenty-third Report of Session 2019–21 Contents

6EU Taxation Action Plan: potential implications for the UK56

Overview

These EU documents are politically important because:

  • this “Action Plan” sets out the European Commission’s agenda for reform of EU tax policy over the coming years. Some of the proposals it contains are likely to have an impact on the UK outside the EU in due course as one of its closest and biggest trading partners; and
  • in particular, the Action Plan refers to multiple proposals for changes to EU VAT and excise duty legislation, which are of direct relevance as they may apply in Northern Ireland beyond the end of the post-Brexit transition period under the terms of the Protocol on Northern Ireland in the Withdrawal Agreement governing the UK’s exit from the EU.

Action

  • Draw the European Commission’s tax reform agenda to the attention of the Business, Energy & Industrial Strategy Committee, the Committee on the Future Relationship with the EU, the Northern Ireland Affairs Committee and the Treasury Committee.

6.1In July 2020, the European Commission published an ‘Action Plan‘ for reform of EU tax policy over the coming years. It is aimed at addressing tax avoidance and tax-based anti-competitive practices, and streamlining European tax rules to make doing business in the EU, especially between different Member States, easier. The UK left the European Union on 31 January 2020, but is likely to be affected, directly or indirectly, by several of the EU tax policy initiatives contained in the Action Plan even after EU law ceases to apply to the UK at the end of the post-Brexit transition period on 31 December 2020.

6.2In particular, the Commission confirmed its intention to table a series of proposals to reform EU legislation on VAT and on excise duties for alcohol, tobacco and fuel. These are of direct relevance to the UK, because Northern Ireland will be required to continue applying European VAT and excise rules affecting goods beyond the end of the transition period under the terms of Article 8 of the Protocol on Ireland/Northern Ireland in the Withdrawal Agreement. The Protocol itself has recently become the focal point of a serious political disagreement between the UK and the EU following the publication of the Government’s Internal Market Bill. While Ministers are seeking powers under that Bill to unilaterally override certain provisions of the Protocol,57 these powers as drafted do not relate to Article 8 on VAT and excise.58

6.3In addition, some parts of the Action Plan may have ramifications for the UK’s economic and political relationship with the EU more broadly in the future irrespective of the Protocol.

6.4For example, the Commission has proposed expanding the scope of administrative cooperation between tax authorities in the EU, an area in which it is seeking legal commitments from the Government as part of the new UK-EU trade agreement. It also wants to overhaul the EU’s process for the screening of alleged anti-competitive non-EU tax regimes, the so-called “Code of Conduct” process, in which the UK is likely to be included when the transition period ends. More specifically, the Commission is seeking a more comprehensive toolkit of “defensive” (retaliatory) measures where a non-EU country refuses to alter a tax regime to which the EU objects. Given the UK’s economic size and proximity, the Commission’s plans are linked closely to the wider, and difficult, discussions that are on-going between the Government and the EU on the issue of State aid under a “level playing field” arrangement between the two.59 In the absence of a bilateral mechanism to resolve disputes about selectively-beneficial tax policies when the UK leaves the EU’s State aid regime at the end of transition, for example in relation to the tax incentives the Government is planning for free ports, the EU could use its Code of Conduct mechanism to exert pressure on the UK.

6.5In light of the continued relevance of certain aspects of EU tax policy for the UK, we have described the political and legal context of the recent Action Plan, and the individual proposals it contains, in more detail below. We consider that Parliament should monitor closely the implementation of those policies that will be of direct relevance to Northern Ireland under the Protocol, as well as those that may affect the UK’s economic and political relationship with the EU more generally.

The European Commission’s Taxation Action Plan of July 2020

6.6Taxation is an area of public policy where the European Union has relatively limited competence to set legislation. The EU Treaties restrict its ability to direct the national tax laws of its Member States, primarily in cases considered necessary to protect the “functioning of the internal market” of the EU collectively, namely where divergent or discriminatory national approaches could hinder the free flow of goods, services and capital between Member States.60 It is also one of the few areas where the adoption of new EU rules, after being proposed by the European Commission, still requires unanimity among the Member States in the Council of Ministers, in effect giving each country a veto.

6.7The result of this approach has been a slow but gradual expansion of EU tax rules over the years, which affect some aspects of its Member States’ domestic taxation systems more than others. Laws on ‘indirect taxes’—Value Added Tax (VAT) and excise duty—have been extensively harmonised, given their impact on cross-border trade within the ‘internal market’, whereas EU rules on direct taxes—like income tax and corporate levies—are still the preserve of individual EU countries, but subject to mandatory exchanges of information on the tax affairs of individuals and businesses between Member States to counter tax evasion.61 The unanimity requirement has also meant that discussions on further EU legislation related to corporation tax,62 a financial transactions tax,63 and VAT reform64 have been on-going for years without an agreement currently in sight. Nevertheless, even in the absence of specific EU rules, the European Commission can bring infraction proceedings against a Member State before the Court of Justice of the EU (CJEU) if a national tax regime discriminates against companies or individuals from other Member States, and invoke ‘State aid’ legislation against EU countries that it believes are distorting competition by giving specific companies preferential tax treatment.65

6.8Against this complex legal and political backdrop, taxation remains high on the political agenda, even more so because of the economic damage caused by the COVID-19 pandemic in 2020 and its impact on public finances across Europe. In July 2020, the European Commission published an Action Plan for reform of EU tax policy in the coming years, accompanied by a policy paper on removing unfair national tax regimes within and outside the EU. The key objectives set out in these documents are to address tax avoidance and tax-based anti-competitive practices, and to streamline European tax rules to make doing business in the EU, especially across Member State borders, easier.66 It includes, for example, various proposals to simplify EU VAT rules, an overhaul of the EU’s ‘blacklisting’ process for tax havens, and potential harmonisation of rules on ‘tax residence’. Formal legislative proposals in these areas are expected to follow from 2021 to 2023.

6.9In addition, the Commission’s Action Plan also seeks to address the recurrent difficulty in agreeing new EU tax legislation resulting from the continued requirement for unanimity among all Member States. Instead, it wants such laws to be adopted by Qualified Majority Voting (QMV).

6.10As we described in our Report of 19 February 2019, the Commission’s efforts to introduce QMV for EU tax policy is not new: in January 2019 it proposed to make use of a “passerelle” clause67 in the EU Treaty to gradually abolish the unanimity requirement without the need for formal amendments that would require national ratification in the Member States. The proposals did not go further because they themselves required unanimity among EU countries. The Commission’s ambitions were likely also affected by a ruling of the General Court of the EU in July 2020, which quashed a decision by the European Commission requiring Ireland to seek backdated tax payments from Apple because it had failed to demonstrate the company had enjoyed an unfair tax advantage under EU State aid rules.68 This demonstrated the limits of the EU’s powers under current legislation to address what it perceives as unfair competition created by Member States’ divergent national corporate tax systems.

6.11In light of this, the Taxation Action Plan notes in particular that the Commission “will explore how to make full use of the provisions of the Treaty [….] that allow proposals on taxation to be adopted by ordinary legislative procedure”, meaning the Member States would need to agree by QMV rather than each having a veto. In particular, the document refers to the potential use of article 116 TFEU as a legal base for future EU tax legislation.69 This provision, which has not been used to date, allows the EU to adopt Directives to eliminate a “distortion” in competition within the EU caused by the “law, regulation or administrative action” of a particular Member State, for example a preferential tax regime for a particular multinational company, if consultation with the country concerned does not resolve the issue. This approach is likely to be politically controversial if EU countries feel their right to veto EU tax rules is being circumvented, and could be vulnerable to legal challenge before the Court of Justice of the EU (CJEU) if the resulting legislation is nevertheless adopted by QMV.70

6.12The Action Plan only contains high-level information about the substance of the individual elements of tax reform the Commission intends to pursue, with further details expected to be made public gradually in the coming years. Our initial assessment of the potential relevance to the UK of the policy initiatives contained in the Action Plan is set out below.

The continued relevance of EU tax policy for the UK

6.13The UK left the European Union on 31 January 2020, and EU law—including tax legislation—will generally cease to have effect in the UK at the end of the post-Brexit transition period on 31 December 2020. Nevertheless, several of the EU tax policy initiatives announced in the Action Plan in July 2020 will, or are likely to be, relevant for the UK. There are, broadly speaking, three reasons why this might be the case:71

6.14Of course, new EU law on tax matters will impact the UK far less directly now that it has left the EU than it would otherwise. However, such ramifications will still exist in particular cases and the Government no longer has a veto over new EU tax legislation, even where there is an impact on the UK or its economy. By extension, the European Commission’s continued efforts to introduce Qualified Majority Voting in EU tax policy are also relevant. In areas where the UK is or may still be affected by European tax rules, any weakening of the unanimity requirement could potentially magnify the impact of new EU legislation on the UK by making the adoption of such rules proceed more speedily than in the past and also, when free from the constraints of 27 national vetoes, enable the EU to pursue more ambitious or far-reaching tax legislation that would previously have been blocked.

6.15In the sections below, we have taken a more detailed look at the policy initiatives announced in the Commission’s Tax Action Plan that are, or appear to be, relevant for the UK because of one of the reasons described above.

Tax in the Northern Ireland Protocol: reform of EU VAT and excise legislation

6.16As previously noted, the UK and EU have agreed a special arrangement for Northern Ireland in the context of the UK’s withdrawal from the EU. A Protocol to the Withdrawal Agreement aims to maintain the absence of customs and regulatory infrastructure on the UK-Ireland land border even though the UK is leaving the economic structures—the Single Market and Customs Union—which led to their abolition in the first place. As part of this, EU legislation relating to the production, trade and sale of goods will continue to apply in Northern Ireland until at least 2026.

6.17Article 8 of the Protocol requires the continued application of European rules on VAT, insofar as it “concerns goods”, and on excise duty in and to Northern Ireland. This is because goods entering the EU—and therefore Ireland—are normally subject to fiscal controls to ensure the right amount of tax is paid: this covers not only any applicable import tariff, but also VAT and excise. However, for goods moved between EU Member States such border controls were abolished as part of the Single Market in the 1990s, based on a harmonised EU-wide statutory framework, information exchange systems based on submission of sales data by companies, and legal oversight by the European Commission and the Court of Justice. As a result, goods can currently be moved between Northern Ireland and Ireland without controls.

6.18The Protocol aims to keep these systems and mechanisms in place even when the UK as a whole leaves the Single Market at the end of transition, meaning no new infrastructure is necessary on the land border to apply fiscal controls. However, the consequence is that the relevant VAT and excise formalities will instead be carried out on goods entering Northern Ireland from outside the EU, including from Great Britain.74 This arrangement is unique and untested, and we have repeatedly raised concerns with the Government about its implications for Northern Ireland, the burden it places on businesses there, and for its place within the UK’s internal market.75 The European Commission recently proposed a specific amendment to the EU VAT Directive in relation to the VAT identification number for businesses in Northern Ireland under the Protocol.76 We have considered this proposal in a separate chapter of this Report.

6.19The Protocol itself has recently become the focal point of a serious political disagreement between the UK and the EU following the publication of the Government’s Internal Market Bill While Ministers are seeking powers under that Bill to unilaterally override certain provisions of the Protocol,77 these powers as drafted do not relate to Article 8 of the Protocol on VAT and excise.78 Nevertheless, the exact way in which EU VAT and excise law will operate in Northern Ireland is subject to further uncertainty because the European Commission has made a number of substantial proposals for reform of EU VAT rules in recent years, which remain under negotiation.

6.20These pending EU VAT proposals cover, in particular, the minimum rates applicable to specific goods and how businesses account for VAT on sales between EU countries (and, while the Protocol is in force, Northern Ireland).79 To add to this complexity, the Commission’s new Taxation Action Plan announced a further suite of proposed legislative changes to EU VAT and excise law beyond those already pending. While the Protocol is in force, these reforms—as and when enacted by the EU’s Council of Ministers—will be directly relevant for Northern Ireland and therefore merit special attention from both the Government and Parliament.80

6.21This Committee and its predecessors have covered the Commission’s earlier VAT reform proposals on rates and cross-border sales extensively in previous Reports,81 and will continue to report any relevant developments in that regard to the House while an EU scrutiny system is in place. With respect to the additional proposals announced in the Action Plan in July 2020, it is not yet possible to establish the precise implications under the Protocol given that the Commission is only expected to publish draft legal texts from 2021 to 2023. However, to make clear the extent to which EU legislative activity in this area will continue to be relevant to UK, we have listed those EU VAT and excise reforms announced in July 2020 which appear to be relevant to Northern Ireland below and for which further scrutiny is likely to be required due course.

6.22In particular, the European Commission intends to propose:82

6.23The Action Plan also contains various initiatives related to VAT levied on services.87 As the Protocol in the Withdrawal Agreement only covers trade in goods, any such changes would not apply in Northern Ireland, where VAT on services will be in the UK’s exclusive domestic control. However, they may still have broader economic effects that could have an impact on the UK.88 The EU has proposed a further Protocol between the UK and the EU on ”administrative cooperation and mutual assistance” to fight VAT fraud and facilitate recovery of tax claims more generally as part of the wider free trade agreement.89 In July 2020, the Treasury confirmed the UK was discussing the merits of such an arrangement with the Commission.90

6.24Finally, although not a change in the substance of EU VAT law as such, the Commission also wants to introduce a limited form of Qualified Majority Voting (QMV) for the adoption of certain detailed technical rules to implement the VAT Directive, as part of its broader pursuit of the introduction of QMV for EU tax policy.91 This new approach would in itself, however, require an amendment to the VAT Directive that can only be adopted by unanimity, and can therefore be blocked by any EU Member State.92 The implications of such a change for Northern Ireland under the Protocol would depend on the precise areas in which QMV would be used for measures to implement EU VAT rules, and in particular whether they are relevant under Article 8 of the Protocol, as well as the extent to which the removal of the unanimity requirement in those areas might affect the substance of those rules.

Exchange of information on tax matters

6.25In addition to the subset of European tax legislation that is directly relevant under the Northern Ireland Protocol, the EU is also seeking further legal commitments from the UK about continued cross-border cooperation to address tax evasion and avoidance as part of the new bilateral economic relationship after the end of the transition period.93 There is some overlap between the EU’s proposals in this regard and the contents of the Taxation Action Plan.

6.26First, as noted above, the Commission has proposed a detailed Protocol within the UK-EU free trade agreement on “administrative cooperation and combating fraud in the field of Value Added Tax and on mutual assistance for the recovery of claims relating to taxes and duties”.

6.27Secondly, in the draft treaty text for a UK-EU agreement published by the European Commission in March 2020, the Government would in essence also be asked to continue applying the substance of existing EU legislation in relation to ”exchange of information” between HM Revenue & Customs and the EU twenty-seven national tax authorities as regards “income, financial accounts, tax rulings, country-by-country reports, beneficial ownership and potential cross-border tax-planning arrangements”.94 The rules governing such exchange of confidential taxpayer data are set out in the EU’s Directive on Administrative Cooperation (DAC).95 It is relevant therefore that, alongside its Action Plan, the Commission in July 2020 also published a formal proposal to amend that Directive.96 This would notably extend existing EU mechanisms for automatic exchange of information on income generated by sellers via digital platforms like eBay97 and to income from royalties. The draft legislation also aims to strengthen administrative cooperation by amending how information is exchanged in relation to groups of individuals and the conduct of joint audits of a taxpayer by the authorities of multiple EU countries.

6.28Under the Commission’s version of a trade agreement with the UK, the rules on exchange of tax information between the Government and the EU’s Member States would be those as in effect under EU law at the end of the transition period on 31 December 2020. The latest proposal to amend the DAC Directive would therefore have no direct implications for the UK even if it were to accept the EU’s arrangements for cooperation on tax matters: the new Directive will not take effect before the end of the transition period, and therefore would not be included in the regulatory provisions ‘grandfathered’ into the UK-EU trade agreement as proposed by the Commission.98

6.29In any event, the EU’s approach to exchange of tax information appears to imply continued alignment of UK law with an EU Directive and a potential role for the Court of Justice of the EU in interpreting its provisions beyond the end of the transition period.99 As such, the Government appears to have opposed the proposed arrangement.100 Instead, it is seeking a much less well-defined commitment to exchange information and cooperate on tax matters. However, the proposals relating to exchange of information on income generated through digital platforms are based on international standards developed by the OECD, and in an Explanatory Memorandum the Treasury has said that it “is giving further consideration to signing up to the OECD model reporting rules” (which would, if so, provide the basis for exchange of such information between the UK and other jurisdictions, including the EU).101

6.30As the negotiations with the EU on a trade agreement are on-going, the final shape of any tax-related commitments the Government may make in this context are not yet known. It is likely that the EU’s requests for specific legal commitments of the UK with respect to exchange of information on tax matters may develop in the future in light of the proposed amendments to the DAC published by the Commission in July 2020, even if the Government continues to reject these. It may be appropriate for Parliament to consider this new EU legislation further in due course if it appears that the suggested changes to the Directive may be somehow included in a future UK-EU agreement.102

The EU screening process for non-cooperative tax jurisdictions

6.31Lastly, there is the potential for new EU tax policies to have an impact on the UK even where there is no legal obligation for the UK Government to implement or follow them. In particular, certain EU tax measures specifically target non-Member States, known formally as ‘third countries’.103 In this regard, the major initiative of interest to the UK in the Commission’s Action Plan and the accompanying paper on tax governance is the planned revision of the EU’s “Code of Conduct on Business Taxation“.

6.32The Code of Conduct itself dates back to 1997 and was drawn up as a political framework to guide discussions between EU countries. Its purpose was to allow for a more or less objective determination of whether existing or planned national tax rules in an EU country constitute “harmful tax competition” by “unduly affecting” the location of business activity in the EU by providing specific businesses “with a more favourable tax treatment than that which is generally available in the Member State concerned”. A specific working group composed of the representatives of all EU countries meets regularly to discuss tax measures that are relevant in this regard. However, the Code of Conduct has no legal force, meaning the European Commission cannot take Member States to the Court of Justice for failing to eliminate a specific tax measure on the basis that it could be seen as “harmful tax competition” under the Code.104

6.33Although the Code of Conduct was originally conceived as a mechanism to address unfair tax competition between the EU’s Member States, since 2016 however, it has also formed the basis for periodic assessments by the EU of whether other countries and territories operate tax regimes are deemed to hurt the EU’s economic interests.105 In particular, where non-EU countries are not considered to have addressed harmful tax regimes singled out by the EU on the basis of the Code, they can be placed on a tax haven blacklist, known formally as the “list of non-cooperative jurisdictions“.106

6.34There are, however, very few automatic consequences for blacklisted countries under EU law. Mostly, a listing affects a country’s ability to receive funding from the EU budget (which is unlikely to be relevant for most developed countries). Instead, reflecting the fact that tax policy remains largely a Member State competence, individual EU countries can decide individually which of the ‘defensive measures’ they wish to impose against any given listed country, based on non-binding guidance last updated by EU Finance Ministers in December 2019. Such measures typically aim to increase the tax paid by entities in a blacklisted jurisdiction with operations in a particular EU country, to decrease the benefit it derives from using the alleged offshore tax regime. EU countries also can—and do—maintain their own national tax haven blacklists, which can vary from the one established centrally at EU-level under the Code.107

6.35As part of its Taxation Action Plan, the European Commission in a separate paper on tax governance has argued that the Code of Conduct “is in need of reform and modernisation”. In particular, it wants the Member States to widen the scope of the Code—with respect to both Member State and overseas tax regimes—to “cover all measures which pose a risk to fair tax competition” (including in areas other than corporation tax, such as tax residency rules, tax reliefs designed to attract wealthy individuals or very low rates of general taxation).108 It has also suggested that the working group of Member State officials that oversees the implementation of the Code could “introduce qualified majority voting, to speed up decision-making, and consider effective consequences for Member States that do not comply with the Group’s decisions on time”.

6.36With respect to the EU’s engagement with non-EU jurisdictions on tax matters, where the Commission says the Code has had a “remarkable impact on the global tax environment in recent years”,109 five key changes are proposed:

Implications of the Code of Conduct for the UK

6.37Although the outcome of the process to revise the EU’s approach to tax matters in its engagement with non-EU countries, including changes to the Code of Conduct on Business Taxation, will not be clear for some time,111 it is undoubtedly relevant for the UK.

6.38The Commission has already included the EU’s standard tax governance clause in its draft text for a new UK-EU trade agreement. However, it also added a further “commitment to curb harmful tax measures” and asked the Government to continue to adhere to the EU’s Code of Conduct for business taxation “as applicable at the end of the transition period”. The UK Government’s proposed text on tax governance, by contrast, omits any reference to the Code. Similarly, the EU is seeking specific commitments from the UK that it will accept restrictions on how it can subsidise businesses—including by means of tax advantages or reliefs—as part of a new “level playing field” arrangement for State aid. The Government has also consistently rejected this to date.

6.39As such, in the absence of a bilateral agreement, the EU’s unilateral tools to address what it sees as unfair tax competition are likely to become directly relevant for the UK. In particular, from the end of the transition period, the Government’s tax policies could be subject to a “non-cooperative jurisdiction” assessment under the Code of Conduct if the EU decides to include the UK in this process (as it may do on the basis of the new recommendation for the geographical scope of the screening exercise, which the European Commission is due to make by the end of the year).112 The Commission’s efforts to expand the scope of the Code of Conduct to areas other than corporate tax, and to strengthen the imposition of “defensive measures” to secure elimination of foreign tax regimes the EU has judged to be harmful are clearly relevant in this respect.

6.40Future disagreements over particular British tax policies—for example in relation to the tax incentives the Government is planning for free ports—could lead to formal retaliatory measures under the Code,113 and therefore have ramifications for the wider UK-EU economic and political relationship. The European Commission has also set out its initial suggestions for a new, general anti-subsidy tool that would restrict the EU-based operations of companies in support of subsidies from non-EU governments. As we set out in our Report of 16 July 2020, this new “Level Playing Field” mechanism would also apply to businesses in receipt of financial support, including by means of implicit subsidies in the form of tax breaks, at UK taxpayers’ expense.114

Other EU tax reform initiatives

6.41The Commission’s Action Plan also lists a number of further tax reform initiatives that do not fit into the above categories and as such do not appear to have any significant direct or indirect implications for the UK at this stage.

6.42For example, the Commission has suggested potential new rules harmonising the criteria for determining the ‘tax residence’ of individual taxpayers within the EU, an initiative on withholding of tax relief at source, and the extension of the Directive on Administrative Cooperation to allow for the exchange of information between EU countries on income and capital gains denominated in crypto-assets like bitcoin.115 Separately, the European Commission intends to publish a separate ‘Action Plan for Business Taxation for the 21st century’ on 28 October 2020, which is also likely to contain policy proposals relevant to the UK as a major trading partner of the EU.

6.43The Committee is also aware that the European Commission separately continues to work on other strands of EU tax policy that are not technically part of the Action Plan because they predate it. This includes in particular the question of minimum levels of taxation of digital services providers, a common set of rules to allocate taxable profits of multinationals between EU Member States,116 as well as new “EU taxes” whose revenues to fund the EU budget (in part to pay off the €750 billion the EU is intending to borrow on the capital markets to finance its Coronavirus Recovery Fund).117 In addition, as already noted, the Commission is preparing amendments to the Energy Taxation Directive118 and a revision of the Directive on tobacco duty (both of which will continue to apply in Northern Ireland under the Protocol). It also plans to introduce draft legislation for a “Carbon Border Adjustment Mechanism“, which will tax imports into the EU—including from the UK—with respect to their environmental footprint.119

6.44We have already published Reports on some of these other EU tax initiatives to analyse their potential impact on the UK, and will continue to update the House on relevant developments where appropriate. It may of course be necessary to revisit our assessment of the potential relevance for the UK of any of the above when further details about these initiatives are made public in due course, including in the light of any agreements on tax cooperation between the UK and the EU or their general ramifications for non-EU countries.120 Given that the Action Plan does not in itself provide a comprehensive overview of the EU tax policy agenda, the Annex to this chapter contains an overview of all pending and upcoming EU tax initiatives of which we are aware that will or may be relevant to the UK.

The Government’s position

6.45The Financial Secretary to the Treasury (Rt Hon. Jesse Norman MP) submitted an Explanatory Memorandum on the European Commission’s Taxation Action Plan on 31 July 2020.

6.46As regards the numerous proposals announced by the Commission to amend the EU’s VAT Directive and associated legislation, the Minister acknowledges the potential ramifications for Northern Ireland under the Protocol. He says the Government “will be watchful for proposed changes […] which could have a negative impact on UK based business by increasing burdens on them without commensurate benefits to them or the UK tax authorities”, in particular with respect to the “the proposals for modernising VAT reporting and revised cross-border audit arrangements”. The Minister also notes that the Government anticipates that the UK-EU Joint Committee “will be able to explore aspects of future proposals brought to the attention of the Committee” to assess how these would affect Northern Ireland specifically, and—presumably—discuss how any negative impact in that regard might be mitigated by formal Decisions of that Committee. The Memorandum did not make clear that the Government was at that stage preparing legislation to unilaterally override certain elements of the Protocol.

6.47With respect to administrative cooperation on tax matters between the EU and the UK more generally, the Minister notes that the Government is currently engaged through the Future Trade Agreement (FTA) talks in discussions of the Commission’s proposed VAT and Recovery Protocol. While referring to the need to protect the UK’s “tax sovereignty”, the Minister does not indicate to what extent this may involve continued UK application of the substantive rules on exchange of information on taxpayers pursuant to the EU’s legislation on administrative cooperation in VAT and other tax matters.

6.48With respect to the Code of Conduct and the proposed changes to the EU’s listing of “non-cooperative jurisdictions” in the area of tax, the Minister makes no assessment at all of the potential consequences if the UK were to be included in the screening process, or of the EU’s proposal asking the Government to “reaffirm [its] commitment to the Code of Conduct for business taxation” as part of the trade agreement.

Action

6.49Given the potential implications of EU tax policy for the UK, in particular for Northern Ireland under the Protocol, the Committee is of the view that Parliament should continue to closely monitor the implementation of the Commission’s Taxation Action Plan and other EU taxation initiatives. In this context, any moves towards the introduction of Qualified Majority Voting on new EU tax legislation within the Council of Ministers would also remain an area of interest.

6.50We will seek to update the House again on the specific EU tax initiatives announced by the European Commission and when there are relevant developments to report, in particular in light of the Commission’s upcoming policy paper on corporate taxation and the reform of EU VAT and excise legislation, with the latter being especially relevant for Northern Ireland and, by extension, potentially for the UK as a whole. In this context, we would also need to consider the implications of the Internal Market Bill or any subsequent legislation, should an Act of Parliament give Ministers the ability to unilaterally override certain elements of the Northern Ireland Protocol.

6.51We also consider that the application of the EU’s screening process for non-EU tax regimes under its Code of Conduct on Business Taxation, and the Commission’s suggested changes to this process, are of direct relevance to the UK. They may have significant ramifications in the longer term if there is a divergence in the approach to tax policy and related issues between the UK and the EU. This should also be seen in the context of the on-going negotiations on a ‘Level Playing Field’ under a new UK-EU free trade agreement, where the EU is seeking to pre-empt future divergence by seeking a commitment from the Government to continue observing both the Directive on Administrative Cooperation and the Code of Conduct itself. The Committee therefore believes Parliament should stay informed of any changes to the Code of Conduct, as it will form part of the EU’s political and legal framework for potential retaliatory measures against the UK in case of disputes about the harmful effects of tax policies, if there is no bilateral framework in place to manage such issues.

6.52In the meantime, we draw the EU’s overall tax reform agenda, and our assessment thereof, to the attention of the Business, Energy & Industrial Strategy Committee, the Committee on the Future Relationship with the EU and the Treasury Committee. We also draw the elements that may affect Northern Ireland under the Protocol in the Withdrawal Agreement to the particular attention of the Northern Ireland Affairs Committee.

Annex: Overview of pending and upcoming EU tax policy initiatives

6.53The table below lists the key pending and upcoming EU tax policy initiatives referred to in this chapter, in particular where there is a direct or potential relevance for the UK. It is not a comprehensive overview of the European Commission’s tax reform agenda, in particular because it omits many non-legislative initiatives.

Area

Initiative

Status

Note

Corporate taxation

Common Consolidated Corporate Tax Base

Legislative proposals published in October 2016, negotiations appear suspended since March 2020

UK companies would not be covered but may have indirect economic impact

Corporate taxation

Taxation of the digital economy

Legislative proposals published in March 2018, negotiations suspended pending global talks at OECD

May impact on wider UK-EU trading relationship

Corporate taxation

Corporate Taxation Action Plan

Publication expected in October 2020

Likely to contain information on the EU’s approach relevant to the UK’s new economic relationship with the EU

Environmental taxation

Carbon Border Adjustment Mechanism

Proposal expected in 2021

Would impact on UK exports to the EU

Tax avoidance and evasion

Revision of the Code of Conduct on Business Taxation for EU Member States and non-EU jurisdictions

Timing unclear

-

Tax avoidance and evasion

Update of the geographical scope of the EU’s assessment of non-cooperative tax jurisdictions

Commission recommendations expected by the end of 2020

Could lead to the UK being included in the EU’s assessment process for harmful tax regimes

Tax avoidance and evasion

EU-wide defensive measures against non-cooperative tax jurisdictions

If taken forward, the Commission may publish further information in 2022

Any EU-level defensive measures in retaliation for alleged unfair tax competition could potentially be applied to the UK

Tax avoidance and evasion

Common criteria for tax residence in the EU to avoid double (non-)taxation

Further details expected in 2022

-

Tax avoidance and evasion

Amendment to the Directive on Administrative Cooperation on direct taxation as regards crypto-assets and e-money

Further details expected in Q3 2021

Potential area for UK-EU cooperation under the new economic relationship

VAT & excise

Minimum VAT rates on goods and services

Legislative proposal published in January 2018, negotiations on-going

May be applicable in Northern Ireland under the Protocol in due course and affect divergence in VAT rates between Great Britain and Northern Ireland

VAT & excise

VAT treatment of cross-border transactions in the EU

Legislative proposal published in May 2018, negotiations on-going

May be applicable in Northern Ireland under the Protocol in due course

VAT & excise

VAT identification code for Northern Ireland

Legislative proposal published in Q3 2020, negotiations on-going

Directly relevant to Northern Ireland under the Protocol as it is part of the EU’s preparations for its operationalisation from 1 January 2021

VAT & excise

“VAT in the digital age” package121

Further details expected in 2022

May be relevant for Northern Ireland under the Protocol

VAT & excise

VAT dispute resolution mechanism between tax authorities

Further details expected in 2022

May be relevant for Northern Ireland under the Protocol and potentially for the wider UK-EU trading relationship

VAT & excise

Distance selling of excise goods

Further details expected in 2022

May be relevant for Northern Ireland under the Protocol

VAT & excise

Revision of the Energy Taxation Directive

Proposal expected in June 2021

May be applicable in Northern Ireland under the Protocol, and potentially be relevant to the wider UK-EU trading relationship and cooperation on environmental matters

VAT & excise

Revision of the Tobacco Taxation Directive

Timing unclear

May be applicable in Northern Ireland under the Protocol, and potentially be relevant to the wider UK-EU trading relationship and cooperation on health matters

VAT & excise

Revision of the “Eurofisc” anti-VAT fraud platform

Further details expected in 2023

May be relevant for HMRC under the Protocol in respect of VAT fraud involving businesses in Northern Ireland

VAT & excise

Automated exchange of VAT-related data on cross-border transactions

Further details expected in 2023

-

VAT & excise

Introducing Qualified Majority voting for implementing rules under the VAT Directive

Proposal expected in Q4 2020

-

VAT & excise

VAT on financial services

Further details expected in Q4 2021

Not applicable to Northern Ireland under the Protocol as it concerns services, not goods122

VAT & excise

Review of EU VAT rules for travel agents and passenger transport

Further details expected in 2022

Not applicable to Northern Ireland under the Protocol as it concerns services, not goods123

Other

Financial Transactions Tax

Draft Directive under enhanced cooperation under discussion since February 2013. Negotiations appear suspended since September 2019.

-

Other

Rules on withholding tax relief at source

Further details expected in 2022

-

Other

EU “own resources” to fund the EU budget

Timing unclear

-

Other

Charter on Taxpayers’ Rights under EU law

Policy paper expected in Q3 2021

May be relevant for Northern Ireland under the Protocol


56 (a) An Action Plan for Fair and Simple Taxation supporting the Recovery Strategy; (b) Communication from the Commission on Tax Good Governance in the EU and beyond; (c) Proposal for a COUNCIL DIRECTIVE amending Directive 2011/16/EU on administrative cooperation in the field of taxation; Council and COM numbers: (a) COM(2020) 312; (b) COM(2020) 313; (c) 9753/20, COM(2020) 314; Legal base: (a) and (b) Not applicable; (c) Articles 113 and 115 TFEU; special legislative procedure; unanimity; Department: HM Treasury; Devolved Administrations: Northern Ireland consulted; ESC numbers: (a) 41409; (b) 41410; (c) 41411.

57 The Bill would allow the Government to dis-apply the State aid provisions of the Protocol and any requirements under EU law to observe “exit procedures”—such as export or exit summary declarations—on goods moved from Northern Ireland to Great Britain. That would also affect the movement of excise goods in that direction. The longer term political and legal implications of the resulting disagreement over the implementation of the Protocol are unclear.

58 The Government is reportedly seeking similar powers to dis-apply certain elements of the Protocol under the upcoming Finance Bill in relation to import duties on trade between Great Britain and Northern Ireland. The Government has referred to the imposition of import VAT on such trade in this context, meaning the Bill could also include proposals relating to Article 8. The Committee will revert to this matter in the future if necessary.

59 Separately, the European Commission is also preparing other EU tax policies, for example a carbon levy on imports and new taxes to fund the EU budget, which it had already announced before publication of the Action Plan and are therefore not considered in detail in this chapter.

60 EU legislation harmonising the tax rules of its Member States is based on Articles 113 and 115 TFEU, which give the EU competence to act with respect to indirect taxes and direct taxes respectively. The difference is that Article 113 allows “harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition”, whereas Article 115—used for other types of tax legislation—allows the EU to “issue directives for the approximation of such laws, regulations or administrative provisions of the Member States as directly affect the establishment or functioning of the internal market”.

61 The rules on exchange of information on the tax affairs of individuals and businesses between EU Member States are set out in the Directive on Administrative Cooperation (DAC), which we discuss further elsewhere in this chapter in the context of the UK-EU negotiations on a new economic relationship.

62 European Commission, “Common Consolidated Corporate Tax Base (CCCTB)” (accessed 11 August 2020).

63 European Commission, “Taxation of the financial sector“ (accessed 11 August 2020).

64 European Scrutiny Committee, “Value Added Tax: EU proposals for reform and the implications of Brexit“ (April 2018).

65 The use of State aid rules to address EU countries’ tax regimes has not been wholly successful, as shown for example by the CJEU’s dismissal of the European Commission’s case against Ireland in July over the latter’s tax treatment of Apple. However, as a legal principle, “Member States’ tax systems and tax treaties must in any event respect the fundamental Treaty principles on the free movement of workers, services and capital and the freedom of establishment […] and the principle of non-discrimination”. See: European Commission, “The Lisbon Treaty and tax legislation in the EU“ (accessed 11 August 2020).

66 The Commission’s proposals to achieve these objectives are set out in two separate policy papers, namely a “Tax Action Plan“, focussed on the specific EU taxation policies and reforms the Commission intends to pursue within the legal limits set by the Treaties, and a “Communication on tax good governance”, which deals with how the Commission intends to engage with both EU Member States and non-EU countries on national tax policy issues.

67 A passerelle clause enables changes to be made to the EU Treaties without the need for a formal amendment to the Treaties requiring an Intergovernmental Conference and national ratification of an amending Treaty. In the area of tax, the Commission had proposed the use of a passerelle in Article 48(7) TEU, which would allow the applicable legislative procedure where unanimity applies—like taxation—to be changed to Qualified Majority Voting (QMV). This passerelle requires the unanimous consent of all Member States in the Council and can be vetoed by any national Parliament.

68 The European Commission can appeal this decision, on points of law, to the Court of Justice of the EU (CJEU) for a final ruling within two months and ten days, in this case by 25 September 2020. It is not yet clear if it intends to do so.

69 The Commission is also considering proposing an amendment to the VAT Directive that would allow it to adopt Implementing Acts—a type of EU Statutory Instrument—with technical VAT rules with the support of a Qualified Majority of Member States, avoiding the current need for unanimity in the Council. This is part of the wider effort, described elsewhere in this chapter, to move away from the unanimity requirement for EU tax policy.

70 Member States could argue that the legislation in question should have been based on the traditional legal basis for EU tax law (Articles 113 or 115 TFEU), which require unanimity. In any event, Article 116 TFEU could presumably not be used to harmonise a particular element of taxation law EU-wide, because that would go beyond what is needed to eliminate the ‘distortive’ effect of a particular national tax measure.

71 EU law, including tax legislation, also continues to apply to and in the UK during the post-Brexit transition period set out in the Withdrawal Agreement. However, the transition is due to end on 31 December 2020, well before any of the initiatives announced by the Commission will take effect. This is therefore not relevant when considering the relevance of the Action Plan for the UK.

72 The regulatory alignment provisions of the Protocol are subject to the periodic democratic consent of the members of the Northern Ireland Assembly. They are due to vote on whether to keep those provisions in effect for the first time by 1 January 2025, and if they reject them that element of the Protocol will become inoperative after a two-year period, i.e. from 1 January 2027.

73 The clauses of the Government’s Internal Market Bill, which would allow it to unilaterally alter the operation of the Protocol by means of regulations, would not apply to Article 8 on VAT and excise. Although the Government will reportedly include additional such clauses for different parts of the Protocol in the upcoming Finance Bill, their proposed scope is unclear at this stage.

74 The Protocol also contains special arrangements with respect to the application of customs duties on goods entering Northern Ireland from Great Britain and from non-EU countries. These are beyond the scope of this Report, but are covered extensively in the Northern Ireland Affairs Committee Report, “Unfettered Access: Northern Ireland and customs arrangements after Brexit“ (14 July 2020).

76 European Commission document COM(2020) 360.

77 The Bill would allow the Government to dis-apply the State aid provisions of the Protocol and any requirements under EU law to observe “exit procedures”—such as export or exit summary declarations—on goods moved from Northern Ireland to Great Britain. That would also affect the movement of excise goods in that direction. The longer term political and legal implications of the resulting disagreement over the implementation of the Protocol are unclear.

78 The Government is reportedly seeking similar powers to dis-apply certain elements of the Protocol under the upcoming Finance Bill in relation to import duties on trade between Great Britain and Northern Ireland. The Government has referred to the imposition of import VAT on such trade in this context, meaning the Bill could also include proposals relating to Article 8. The Committee will revert to this matter in the future if necessary.

79 The technical detail of the application in Northern Ireland of EU VAT law concerning goods as it currently stands is still subject to discussions between the Government and the EU within the UK-EU Joint Committee established by the Withdrawal Agreement. The Joint Committee, by mutual consent of the UK and EU, can adopt formal Decisions containing derogations or exemptions for Northern Ireland where EU VAT law would otherwise apply, but it is not clear what the Government has proposed in this respect, or what the EU is willing to countenance.

80 Under the Protocol, the UK may have to apply any changes agreed by the remaining 27 Member States to EU VAT and excise law where they fall within the scope of the alignment provisions of the Protocol. However, the Government will have no formal input when this new EU legislation is drafted and, more importantly, it no longer has a veto. The Protocol only provides for a “Joint Consultative Working Group” in which “the [EU] shall inform the United Kingdom about planned Union acts within the scope of this Protocol, including Union acts that amend or replace the Union acts listed in the Annexes to this Protocol”.

81 In particular, the European Scrutiny Committee considered the then-pending proposals for reform of EU VAT law extensively in its Report of April 2018, “Value Added Tax: EU proposals for reform and the implications of Brexit“.

82 Depending on the detail of the listed Commission proposals in due course, it may be necessary to read “EU country” or “EU Member State” in the descriptions as including the UK in respect of Northern Ireland.

83 The tax authority of the Member State where the business is based then remits the amount collected to its counterpart in the Member State of the customer, where the tax is due. The OSS was originally applied only to the sale of digital services from one EU country to a consumer in another, but will be expanded from 2021 to B2C sales of other services and distance sales of goods.

84 VIES is the principal replacement for fiscal border controls on goods sold from one EU country to another, with national tax authorities able to access information on goods and services reported to have been bought from or sold to a business in their jurisdiction by or from a business in another EU country. At present, such information is exchanged on a ‘manual’ (i.e. ad hoc) basis. See Council Regulation 904/2010 (listed in the Protocol on Ireland/Northern Ireland).

85 The UK, when it was an EU Member State, refrained from joining a working group within Eurofisc, called Transaction Network Analysis (TNA), because it “raises potential sovereignty concerns—for example, there is a risk that the new tool will evolve into a wider and more prescriptive joint risk analysis. This could require even more trader data and undermine UK tax sovereignty. It might also lead to HMRC investigators being directed by other Member States as to which businesses they should visit.” See for more information our predecessors’ Report of 23 May 2018.

86 See for more information the relevant chapter of this Report.

87 In particular, the Commission intends to evaluate the EU’s approach to VAT for travel agents, financial services and passenger transport services.

88 For example, the Commission’s description in its Action Plan of the planned review of VAT for both the financial services and travel agents sector refers to the effects on the “international competitiveness” of the EU’s businesses in those industries. With respect to financial services, it notes that the evaluation “will take account of the rise of the digital economy (fintech) and the increase in the outsourcing of input services by financial and insurance operators as well as the way this sector is structured”.

89 European Commission proposal for a “Protocol on administrative cooperation and combating fraud in the field of Value Added Tax and on mutual assistance for the recovery of claims relating to taxes and duties“ (March 2020).

90 HM Treasury Explanatory Memorandum on the Taxation Action Plan (31 July 2020). It states: “The UK is committed to the principles of fair and simple taxation including through seeking to simplify the taxation process, increasing compliance and facilitating administrative cooperation internationally in so far as it is compatible with UK tax sovereignty. In respect of administrative cooperation, the Government is currently engaged through the Future Trade Agreement (FTA) talks in discussions of the Commission’s proposed VAT and Recovery Protocol.”

91 More specifically, the Commission wants to secure a legal authority to set such rules by means of Implementing Acts, a type of EU Statutory Instrument which are subject to the approval of a Qualified Majority of the Member States, rather than needing to obtain the unanimous agreement of all EU countries as at present. In its Action Plan, the Commission refers to this proposal as modifying its VAT Committee—an informal group of experts from the Member States—into a formal “Comitology Committee” which would have the power to approve Implementing Acts. Such an arrangement is already in place for certain the adoption of certain technical rules related to EU excise duty legislation, as well as for administrative cooperation.

92 In its Action Plan, the Commission is circumspect about the exact areas in which it wants to be able to exercise the ability to supplement the VAT Directive without the need for unanimity, noting that “the precise scope of [its] implementing powers would have to be determined”. A legislative proposal on the nature of the VAT Committee is due in the fourth quarter of 2020.

93 The EU’s detailed negotiating position for the trade talks with the UK, adopted by the remaining 27 Member States on 25 February 2020, stated that the UK-EU Agreement should “prevent distortions of trade and unfair competitive advantages” by upholding “common high standards in […] relevant tax matters” that rely on “appropriate and relevant Union and international standards”. These standards, they said, should be subject to “effective implementation […], enforcement and dispute settlement, including appropriate remedies”, and give either side the “possibility to apply autonomous interim measures to react quickly to disruptions of the equal conditions of competition” in areas including tax.

94 In the same vein, the EU also proposed that the UK should continue applying EU rules “in relation to the fight against tax avoidance practices” (the Anti Tax Avoidance Directive) and public country-by-country reporting by credit-institutions and investment firms” (Article 89 of the Capital Requirements Directive). However, these are not subject to any changes under the Taxation Action Plan and therefore not directly relevant to this chapter.

95 On 28 May 2020, UK Chief Negotiator David Frost characterised the EU’s ask as “non-regression on three specific tax measures about antiavoidance, which really equate to EU directives, again policed by a dispute settlement mechanism that involves the European Court of Justice”, and the Government “have some problems with that aspect of this”.

96 As the original DAC has been amended five times previously, the proposal is known as “DAC7”.

97 The Treasury has stated that the proposed reporting rules for digital platforms “draw heavily on model reporting rules recently agreed at the Organisation for Economic Cooperation and Development (OECD)”. However, it notes that “there are a few differences”, notably the fact that the Commission proposal has a broader scope by including sales of goods, and not including the OECD’s optional exclusion for start-up platforms.

98 The Commission proposal foresees the new Directive applying from 1 January 2022, but this is dependent on the agreement of all EU Member States on both the substance and timing of the proposed legislation.

99 Albeit, as noted, only with respect to the text of the Directive as it stands by the end of the transition period, notwithstanding any future amendments.

100 In the draft UK-EU trade agreement published by the Government in May 2020, there is a single substantive article on cooperation on tax matters that would not establish mandatory exchange of information between the UK and the EU, and it would be excluded from any binding dispute settlement procedures. In particular, Articles 29.1 and 29.2 of the draft UK-EU free trade agreement published by the Government read: “The United Kingdom and the Union will promote good governance in tax matters and improve international cooperation in the tax area. The Parties recognise and commit to implementing the principles of good governance in the area of taxation reflecting the OECD principles concerning fair tax competition, the global standards on tax transparency and exchange of information, and the OECD minimum standards against Base Erosion and Profit Shifting (BEPS). […] The provisions of this Chapter shall not be subject to dispute settlement”.

101 The Treasury has also noted that the Commission proposals to amend the DAC “suggest that the UK could be affected as a third country, in so far as UK companies or permanent establishments could be included in scope of the rules if they operate in a Member State. The rules could also apply where a UK company facilitates relevant activities in a Member State without being incorporated, managed or having a permanent establishment there. The current proposals do not give much detail to which platforms would be captured, how this would work in practice, or how it would be enforced”.

102 The European Commission’s draft legal text for the UK-EU trade agreement would allow the ‘Partnership Council’, a forum of the UK Government and the EU, to “modify the common standards [on tax] in order to include therein additional areas or to lay down higher standards”.

103 The UK will automatically be treated as such under EU law when the transition period ends, which is the reason that—as we set out in our Report of 10 September 2020—trade and transport links between the UK and the EU are likely to face disruption when the UK loses its preferential treatment as a ‘Member State’ under EU law, which is how it is treated in a legal sense in most respects during transition.

104 Of course it remains open to the Commission to bring legal proceedings against a Member State in relation to corporate tax policy where it sees ground for doing so under EU law, for example under State aid rules.

105 Non-EU countries are assessed against three criteria: tax transparency, fair taxation and the implementation of the OECD Base Erosion and Profit Shifting (BEPS) minimum standards.

106 The countries on the EU blacklist as of August 2020 are American Samoa, the Cayman Islands, Fiji. Guam, Oman, Palau, Panama, Samoa, the Seychelles, Trinidad & Tobago, the US Virgin Islands and Vanuatu.

107 At EU-level, countries can also be ‘grey-listed’, meaning that—in the EU’s views—they “do not yet comply with all international tax standards but have committed to reform”.

108 Over the longer term, the Commission also considers that new standards on minimum effective taxation of multinationals should be incorporated into the Code, either based on globally-agreed standards as currently under discussion within the OECD, or—“if there is no consensus on minimum taxation at global level”, as an EU standard “to ensure that all businesses pay their fair amount of tax when they generate profits in the Single Market”.

109 In its policy paper on tax governance, released alongside the Taxation Action Plan, the Commission states that “by the start of 2020, over 120 harmful tax regimes had been eliminated globally in direct response to the EU listing process” and “dozens of third countries had also taken concrete measures to improve their tax transparency standards, in line with EU requirements”.

110 The text of the standard clause was endorsed by the Member States, then including the UK, in May 2018. It reads: “The Parties recognise and commit themselves to implement the principles of good governance in the tax area, including the global standards on transparency and exchange of information, fair taxation, and the minimum standards against Base Erosion and Profit Shifting (BEPS). The Parties will promote good governance in tax matters, improve international cooperation in the tax area and facilitate the collection of tax revenues.”

111 Any amendments to the Code of Conduct, as an EU tax policy instrument, require the agreement of all 27 EU Member States. This applies irrespective of whether the changes relate to the assessment of EU countries’ own tax regimes, or the screening process for non-EU countries.

112 Since the screening process was established in 2016, the EU’s Code of Conduct working group screened 95 jurisdictions, selected on the basis of their economic ties with the EU, their institutional stability, and the importance of the country’s financial sector. Based on those criteria, and the fact that Switzerland has previously been ‘screened’, it might be expected that the UK will also be included in the process.

113 For example, concerns have consistently been raised about the accuracy of the UK’s register of ultimate beneficial ownership (UBO) of companies, and the Commission now refers to UBO as a new area to be included in assessments under the Code.

114 Similarly, as we set out in our Thirteenth Report of 2019–2021, the UK will at the end of the transition period become a ‘third country’ for the purposes of the EU’s Anti-Money Laundering Directive, which could also lead to restrictions on cross-border capital flows and require the Government to commit to continued alignment with EU rules in return for preferential access to the EU market for British financial services providers.

115 The Commission is separately also preparing draft EU legislation on the regulation of crypto-assets more generally. A legal text is expected to be published later in 2020.

116 This is known formally as the proposal to establish a Common (Consolidated) Corporate Tax Base or CCCTB.

117 As noted in the section on EU VAT and excise duty reform, the Commission is also preparing amendments to the EU’s legislation on excise duties on alcohol and tobacco and has already proposed significant changes to the EU’s VAT Directive.

118 The Commission notes that the primary aim of the revision of the Energy Taxation Directive is “to ensure that taxation supports the EU’s objective of reaching climate neutrality by 2050”.

119 There is no reference in the Action Plan to the controversial Financial Transactions Tax (FTT), which is still being formally pursued by a sub-set of 10 EU Member States but on which an agreement remains elusive.

120 Other non-legislative initiatives announced in the Action Plan include the exploration of options for further digitalisation of tax administration, a report on the Tax Recovery Assistance Directive, a “Cooperative Compliance” framework for a preventive dialogue between tax administrations and businesses for the common resolution of cross-border tax issues, the establishment of an expert group on transfer pricing for transactions between related parties, and a “Charter on taxpayer’s rights” which will take stock of taxpayers’ existing rights under EU law.

121 This encompasses the proposals described earlier in this chapter with respect to the VAT rules applicable to the “gig economy”, the extension of the “One Stop Shop”, a single EU VAT registration, streamlining of VAT reporting obligations and e-invoicing.

122 There may nevertheless be an indirect impact on the UK insofar as this legislation, in due course, contributes to the European Commission’s stated objective of “enhancing the international competitiveness of EU companies”.

123 There may nevertheless be an indirect impact on the UK insofar as this legislation, in due course, contributes to the European Commission’s stated objective of ensuring “the international competitiveness of the EU travel industry”.




Published: 7 October 2020