June Updates from KPMG’s EU Tax Centre

• European Commission will support small to medium-sized enterprises (SME) with cross-border tax issues in the European Union (EU) and alleviate tax debt-to-equity bias.
• European Parliament Subcommittee on Tax Matters (FISC) to hold a hearing on green taxation.
• Economic and Financial Affairs Council (ECOFIN) discusses progress over the Portuguese Presidency term.
• June saw the enactment of The Finance Act 2021 in the UK.
• 130 countries agree to global tax reforms.
• Emerging markets demand increased global minimum corporate tax rate.

Each month, professional services network KPMG compiles the latest tax updates from across the European Union (EU) to help businesses understand how the developments could impact cross-border trading. Some of the essential tax updates from last month are as follows:

The European Commission

The European Commission stated they would support small to medium-sized enterprises (SMEs) when conducting cross border activities within the EU. The plan is to allow fairer and simpler taxation for SMEs, many of whom trade with other countries, to help support their financial recovery during the coronavirus pandemic.

As a first step, the European Commission has asked interested stakeholders to complete a questionnaire regarding cross-border dispute resolution to help build the framework to support SMEs. It’s thought that the pilot programme will begin during Autumn 2021.

The European Commission has also revealed a strategy to alleviate tax the debt-to-equity bias. The strategy, known as debt-equity bias reduction allowance (DEBRA), began the hearing by outlining their knowledge of the matter and offered an assessment of the anticipated economic and social impacts.

Debt bias has provided many multinational firms with the opportunity to shift profits to other channels in low-tax countries.

There have been two options for easing debt-equity bias, which is yet to be analysed further. The options include interest payment reduction or creating an equity allowance through notional interest deduction.

Once again, interested stakeholders have been asked to provide their comments and feedback to provide further insight into the initiative, with a more in-depth consultation to take place this month. The legislative proposal is due for Q1 of 2022.

European Parliament

This month will see the European Parliament Subcommittee on Tax Matters (FISC) hold a public hearing regarding green taxation ahead of the upcoming Energy Taxation Directive review, all part of the European Green Deal.

The aims of the European Green Deal are for net-zero carbon emissions by 2050 and to ensure the EU remains an efficient and competitive economy.

Last month also saw a hearing related to tax avoidance schemes that aimed to collate ideas on how to best manage the escalating situation. Paul Tang, who is Chair of the subcommittee, highlighted the mounting pressure that COVID-19 has placed on public finances, making the issue of tax avoidance even more relevant.

Council of the European Union

June 2021 saw the Council of the European Union outline the taxation progress concerning the Portuguese Presidency term. It was confirmed that the key achievements were the introduction of DAC7, which presents new EU tax reporting guidelines for platform operators, the establishment of the “Fiscalis” programme, allowing tax administrations to exchange information and identifying the challenges of the new digital economy.

Organisation for Economic Co-operation and Development

The OECD released an updated report last month on how best to tackle tax crime, which included contributions from heads of tax crime across 44 countries. The second edition report outlines ten principles for best prosecuting tax crimes, including the legal, institutional, administrative, and operational framework. New tax crime challenges are also discussed, including professionals involved in white-collar crimes and developing global cooperation in the recovery of assets.

Changes to UK tax regulations in June 2021

Last month saw the launch of the Finance Act 2021 in the UK, which outlined how corporate tax would rise from 19% to 25% from the financial year beginning April 2023. Also, from April 2023, the diverted profits tax rate in the UK will rise from 25% to 31%.

Between 1st April 2021 and 31st March 2023, super tax deductions will apply for companies investing in plant and machinery.

Business losses taking place between the financial years 2020/21 and 2021/22 can be carried back up to 3 years, up from the previous 1 year. However, any losses carried back to the second and third years will be subjected to a maximum cap of GBP 2 million, applicable for the 2020-21 and 2021-22 periods.

Any provisions relating to the EU Interest and Royalties Directive were revoked.

The UK will introduce a new Plastic Packaging Tax from 1st April 2022. The new tax will apply to materials that do not contain at least 30% recycled plastic.

There will be new provisions to permit the Treasury to implement rules to help digital platforms send data regarding seller income to Her Majesty’s Revenue and Customs (HMRC) and the sellers directly.

130 countries agree to global tax reforms

Last Thursday, The OECD confirmed that 130 countries agreed to a 15% minimum global corporate tax rate of 15%. US Treasury Secretary Janet Yellen labelled the event as a historic day of economic diplomacy.

The OECD said that the new tax reform would generate USD 150 billion a year in tax revenues and prevent large tech companies such as Google and Facebook from avoiding corporate tax. Historically, firms such as Google have built huge businesses worldwide, only declaring minimal profits in the other countries in which they operate.

All Group of 20 (G20) countries signed the agreement, including the US, UK, China and France. However, countries such as Hungary and Ireland declined to sign the deal, stating that they weren’t in a position to do so.

However, US President Joe Biden initially asked for a minimum global corporate tax rate of 21%, which numerous UK politicians say the UK should have also pushed for. Labour shadow chancellor Rachel Reeves stated that the 15% minimum global corporate tax rate was a watered-down version of what the UK intended to achieve.

Many other countries and political leaders also believe the minimum rate of 15% is too low, demanding more from the G7 tax plan.

Emerging markets demand increased global minimum corporate tax rate

The G7 15% minimum global corporate tax rate was described as a historic deal. However, it’s argued that the agreement will do little to benefit emerging markets, with many tax experts highlighting the inequality in taxing rights.

Tax Justice Network CEO Alex Cobham said that the global tax reform shamelessly benefitted G7 countries and left remaining economies across Eastern Europe, Central Asia and Africa behind. It was highlighted that a 15% minimum corporate tax rate would produce USD 170 billion for G7 countries and just USD 100 billion for other countries.

Martín Guzmán, Argentine finance minister, stated that the 15% minimum rate was too low and did not recommend anything less than 21%, with 25% being a more appropriate target.

Although it has been agreed that the G7 tax deal is a step in the right direction to prevent tax avoidance, many have highlighted that there is still a long way to go to ensure all multinational companies pay their fair share of corporate tax.