EU Direct Tax Newsletter

EU rules came into effect on 1 January 2024 introducing a minimum effective rate of tax rate of 15%. Groups with a turnover of more than €750 million will be subject to new regulations.

The multilateral instrument concerning the Subject to Tax Rule has been open for signature since 2 October 2023. A signing ceremony of the STTR will be held on 19 September 2024. During the signing ceremony, there is also the opportunity for countries that do tax the payments in question, at a rate of at least 9%, to express their support for the STTR. 

It has also been agreed within the Inclusive Framework that countries that subject the relevant payments to a rate of less than 9%, include the STTR in their tax treaties with developing countries if they request it.

Several countries have introduced registration and notification requirements. On 29 May 2024, Belgium published a Royal Decree including details about the registration and notification requirements for Pillar 2. This requirement entails that in-scope groups with a presence in Belgium must submit an extensive notification form to obtain a registration number from the Belgian Trade Register.

This notification form must be filed by 13 July 2024 (or within 30 days after the start of the first Pillar 2 reporting year). The Belgian authorities have granted an extension to this notification deadline, for groups that do not intend to prepay the deadline is now 16 September 2024.

On 20 May 2024, HMRC published practical guidance on Pillar 2, including a notification requirement. In-scope groups with a presence in the UK must register for Pillar 2 with the HMRC. This registration must be submitted within six months from the end of the first accounting period that started on or after 31 December 2023.

Grant Thornton is an international network with global Pillar 2 specialists available to assist you with both the implementation of Pillar 2 and all your Pillar 2 compliance obligations.

In October 2023, after months of discussion on the various compromise texts, member states seemed to favour a suggested approach to initially limit the directive to the exchange of information on shell companies, despite the commission’s strong advocacy for including tax consequences in the directive. This approach would remove the economic substance test and restrict reporting obligations to entities at high risk of being used in abusive tax schemes. 

The new approach proposed by the commission no longer includes common tax consequences. Instead, it obliges Member States to use exchange of information to take administrative measures, such as tax audits, to identify potential abuse schemes and apply their national anti-abuse rules accordingly.

As of June 2024, no agreement is expected in the short term, and it is thought that the proposal will not be adopted in its original form. Some member states are concerned that the proposed measures will lead to a disproportionate increase in administrative burdens and are pushing for the directive's simplification. However, the negotiations are not yet at a standstill.

The Hungarian presidency has stated their intention to progress the taxation files currently on the agenda with one of their high priority areas being fighting tax evasion, which suggests that Unshell is still very much on the agenda.

The ECOFIN Report to the European Council on Tax Issues published on 24 June 2024 includes a section on Unshell stating that whilst most delegations supported the proposal, further technical work was required before an agreement could be feasible. [1] 

The Commission has stated that an agreement needs to be reached on the Unshell Directive before progressing with a proposal on the SAFE initiative. To date, there has been no formal wording for this SAFE proposal.

The timeline therefore remains unclear as the Commission has not announced when the SAFE initiative will be tabled for further discussion.

Following an in-depth analysis instigated by the Belgian Presidency, a detailed discussion took place mainly looking at potentially aligning the first 20 articles of the commission proposal with Pillar Two rules.

The broad aims of the proposal (simplifying corporate taxation rules and reducing the administrative burden to businesses and tax authorities) are supported by Member States. Concerns have been raised that the proposal in its current form will not achieve these desired outcomes, as well as issues concerning operation with Pillar Two rules, national corporate tax rules, and other existing areas of EU taxation (anti-abuse measures for example).

There have been calls by some Member States for a political discussion, whilst the technical analysis of the proposal continues.

Therefore, it will likely take some time to negotiate the BEFIT proposal. Unanimous approval from all Member States will be required before adoption.

An implementation date of 1 July 2028 has been proposed.

The proposal was assigned to the Economic and Monetary Affairs Committee in the European Parliament. It was adopted by ECOFIN on 22 February 2024, strongly supporting the overall proposal.

To ensure that more companies would be able to benefit from the simplifications, the report proposes to extend HOT's scope to companies that operate in other Member States through no more than two subsidiaries (next to companies that operate through PEs). The European Parliament adopted its (non-binding) report with the amendments on 10 April 2024.

Whilst Member States support the general objective to facilitate cross-border activities for SMEs, concerns expressed relate to the possibilities for aggressive tax planning, administration issues, potential effects on tax revenues for Member States, and risks linked to the competitiveness of domestic markets, as well as concerns about tax sovereignty. It has been suggested that more general discussions take place before further technical progress can be made.

Further work on this proposal could continue with the objective of preparing a high-level discussion on the policy choices that would need to be made.

The Commission proposed that Member States would implement the directive by 31 December 2025 with the provisions applying from 1 January 2026.

Member States have criticised the proposal and raised the question as to why OECD transfer pricing rules need to be codified at an EU level when transfer pricing legislation already exists in Member States.

It has been suggested that the proposal appears to remove flexibility for Member States and may result in binding rules for certain transactions at an EU level.

Feedback submitted to date outlines the fact that the proposal of the 25% ownership threshold for associated enterprises is stricter than the current threshold of most Member States, increasing the number of transactions falling within transfer pricing rules.

The directive includes a standardised definition of a controlled company. Moreover, the TP Directive mandates that Member States adhere to the most recent version of the OECD Guidelines, making them legally enforceable. 

The Belgian Presidency invited Member States to exchange views on the following topics: 

• the status of the OECD Transfer Pricing Guidelines;
• the question to what extent the Directive could apply to cross-border transactions in relation to non-EU entities and tax authorities; 
• further alignment of the Commission proposal with the OECD Model Tax Convention;
• functioning of the proposed rules on transfer pricing for permanent establishments and for associated enterprises, including possible way forward as regards the definition of the associated enterprises; 
• possible scope of procedural rules on transfer pricing that could be harmonised at the EU level, and potential merits thereof;
• the possibility of creating a discussion and coordination platform between Member States for transfer pricing issues. [2]

Discussions have indicated that the proposal is unlikely to be supported by Member States in its current form, further work will be needed to make progress.

On May 14, 2024, Council ministers reached a general consensus on the proposal. Member States acknowledged the significance of FASTER, especially considering the EU's renewed focus on the Capital Markets Union, and fully supported the directive's objectives. However, the Council's text differed significantly from the Commission's original proposal in several areas.

The Council decided that Member States must implement either the relief at source or quick refund mechanisms for withholding tax relief on dividends paid for publicly traded shares. However, Member States with an existing comprehensive relief at-source system and a market capitalization ratio below a certain threshold are allowed to maintain their own national system if they prefer.

Regarding the European Tax Residency Certificate, the Council fully endorsed its implementation across all EU Member States, closely following the Commission's initial blueprint. However, the Council extended the deadline for issuing such certificates from one working day to fourteen calendar days. Besides, Member States shall process a refund request within sixty calendar days.

Because the Council has changed the original Commission proposal, the European Parliament will need to be consulted again before the Council can formally adopt it.

Member states must transpose the directive into national legislation by 31 December 2028, but the national rules must become applicable on 1 January 2030. The previous entry into force date of 1 January 2027 would be very difficult to achieve, so 1 January 2030 is a more realistic timeline. 

The first reporting obligation for Platform Operators was due on 31 January 2024. 

Sellers who were already active on the platform before 1 January 2023 (so-called 'existing sellers') do not have to be reported for the first time until January 2025. 

Certain Member States have opted to provide short extensions to the reporting deadline under the domestic transposition of DAC 7; to date, these are Ireland, Cyprus, Italy, Luxembourg, Germany, Spain, and Greece. 

The Council opposed the Commission's proposal to establish a standardized minimum financial penalty for late or incorrect filings under the DAC.

DAC8 entered into force on 13 November 2023 and, for the most part, will come into effect for all EU Member States from 1 January 2026. Member States have until 31 December 2025 to transpose DAC8 into national domestic law.

The new reporting requirements on crypto-assets, e-money, and central bank digital currencies (MICA) were published in the Official Journal of the European Union on 9 June and entered into force on 29 June 2023. The regulation will apply from 30 December 2024.

Under the regulation, Crypto Asset Service Providers (CASP) will require authorization from a Competent Authority to operate within the EU. This includes individuals or companies located outside the EU that promote or advertise their services to clients within the EU.