The next Economic and Financial Affairs (ECOFIN) Council is taking place on March 15, 2022. On March 7, 2022 the Dutch Minister of Finance sent an annotated agenda for this ECOFIN Council to the Dutch House of Representatives. According to this annotated agenda several tax topics will be discussed during this meeting.
According to this annotated agenda as sent by the Dutch Minister of Finance a.o. the following tax subjects are going to be discussed during the upcoming ECOFIN Council:
· The Directive ensuring a global minimum level of taxation for multinationals in the EU (Proposal for a COUNCIL DIRECTIVE on ensuring a global minimum level of taxation for multinational groups in the Union as released on December 22, 2021); and
· Council Conclusions on the implementation of the VAT e-commerce package.
Below you will find an unofficial translation of the parts that relate to the 2 subjects mentioned above as they were included in the annotated agenda.
The Directive ensuringing a global minimum level of taxation for multinationals in the EU
The Dutch Minister of Finance states that based on the information currently available, the Presidency aims that during the ECOFIN Council of March 15, 2022 an agreement is reached on the proposed Directive ensuring a global minimum level of taxation for multinationals in the European Union (EU) (hereinafter: proposed Pillar 2 Directive). The European Commission released its proposal for a Directive on December 22, 2021. Article 115 of the Treaty on the Functioning of the European Union is the legal basis for the proposal for a Directive. Decision-making on the proposal is to be unanimous (with consultation of the European Parliament).
The Dutch House of Representatives has placed a reservation on the proposal because of its political importance. In this context, also information agreements (between the Dutch government and the Dutch House of Representatives) have been made regarding the underlying proposal. Due to the rapid progress of the negotiations, it is possible that decisions regarding this proposal for a Directive will be made during the ECOFIN Council. In line with the information agreements, the annotation below considers, among other things, the force field and the progress of the negotiations.
The French Presidency of the Council has energetically set to work to arrive at a rapid adoption of the proposed Directive in line with agreed the Inclusive Framework (IF) implementation plan. In recent weeks, various Council working groups have taken place in which negotiations at a technical level about the various chapters have taken place. Since the proposed directive is largely similar to the model texts on which agreement has been reached with 137 countries within the IF it was possible to make rapid progress. In addition to a few specific topics of which the technical content was discussed, discussions in particular regarded the possibilities of bringing the proposed Directive even more into line with the IF model texts. Following these negotiations, the French Presidency has prepared several compromise texts which have been submitted to the Member States. No substantial new elements have been added to the original proposal for a Directive.
In addition to these technical points, the following political points are under discussion:
· Entry into force;
· The link between Pillar 1 and Pillar 2; and
· Mandatory application of the Income Inclusion Rules.
Entry into force
In line with the IF agreement, the current text includes January 1, 2023 as the application date. Several Member States have indicated that the implementation deadline is ambitious and (too) tight. At the same time, all EU Member States that are members of the IF have committed themselves to the implementation plan as agreed in the IF. Reference is made, for example, to the national procedures that must be followed for the transposition into national legislation. In line with the Dutch government's commitment as included in the BNC file, the Dutch government supports the proposed entry into force date. When the negotiations regarding the Directive have been completed, the Dutch government will draw up legislation on the basis of the final directive and ensure that the bill is submitted on time.
The link between Pillar 1 and Pillar 2
The agreement reached within the IF is based on two pillars. With respect to the largest and most profitable multinationals Pillar 1 arranges a different distribution of profits and taxing rights between countries. Further elaborations on Pillar 1 are currently taking place within the IF. Based on thereupon, the European Commission is expected to present a proposal for a Directive for the implementation of the Pillar 1 before the summer of 2022. Some member states request that the entry into force of Pillar 2 is to be made dependent on the entry into force of Pillar 1. The Dutch government does not support these Member States. Although the agreement pertains to both pillars, the Dutch government does not see a conditional link between Pillar 1 and Pillar 2, as advocated by these Member States. Since it has been agreed in the IF that the IF-agreement will enter into force in 2023, the Dutch government is of the opinion that within this implementation plan a different time frame can be used for both pillars. For the sake of timely implementation and transposition into national legislation, it is desirable to reach consensus on Pillar 2 as soon as possible and not to wait for the proposal for a Pillar 1 Directive.
Mandatory application of the Income Inclusion Rule
The proposed Directive provides for the extension of the Income Inclusion Rule, in such way that it also applies to domestic subsidiaries. Some Member States have indicated that they find this mandatory extension disproportionately burdensome and therefore suggest not to include it in the proposal. The Legal Service of the Council, the French Presidency and the European Commission indicate that this mandatory application of the Income Inclusion Rule is necessary to avoid a conflict with European law. The Dutch government endorses this position and is not in favor of amending the proposal to accommodate the Member States concerned.
It is expected that the French presidency will use the days towards the upcoming ECOFIN Council to consider whether a compromise can be agreed upon regarding the abovementioned political discussion points. Depending on this, it will be considered whether it is possible to put the proposal on the agenda for a general approach. This is a Council decision adopting a political position on the proposal. A general approach ensures that Member States are in political agreement with the proposal, so that it can be finalized on short notice.
Council Conclusions on the implementation of the VAT e-commerce package
During the Ecofin Council of March 15, 2022 the Council conclusions on VAT e-commerce will be adopted as an A point. The decision-making with regard to these Council conclusions is consensus. The aim of the French Presidency with these Council conclusions is to reflect with the Member States on the implementation and the functioning of the e-commerce package, while looking ahead at possible further steps to improve the VAT system.
The VAT e-commerce package entered into force on July 1, 2021. The aim of this package is to modernize and simplify VAT legislation, to create a 'level playing field' for entrepreneurs from within and from outside the EU and to combat VAT fraud. On a technical level, the European Commission has shared the first results with the Member States and concluded that the VAT e-commerce package contributes to digital transition, economic recovery and sustainable public finances. Due to IT problems the implementation has been an intensive process in the Netherlands. At the moment, part of the package is still running on a so-called emergency track.
The present Council conclusions call for further research and an evaluation of the implementation of the VAT e-commerce package so that Member States can have a better-established discussion about possible adjustments. The present Council conclusions also emphasize that there must be sufficient time in the Member States for the IT implementation and that the position of customs authorities must be taken into account in any proposals that the European Commission will present.
The Dutch government is positive about the present Council conclusions, because they reflect the Dutch contribution to the aforementioned points. During the negotiations on the Council conclusions, the Netherlands among other things drew attention to the implementation aspects and drew particular attention to the IT implications and the possible consequences for implementation periods of intended regulations. The Dutch government believes that it is important that the tax authorities are given the time and space necessary to make the necessary adjustments to the current IT systems. The Dutch government also indicated that it will of course support the pursuit of improvements, but that at the moment the main should be on the functioning of the current package of measures.
The studies referred to in the Council conclusions are expected to result in a legislative proposal from the European Commission later this year.
The annotated agenda that the Dutch Minister of Finance sent to the Dutch House of Representatives can be downloaded here (available in the Dutch language only).
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