On September 23, 2022 the Dutch Minister of Finance sent a summary of discussions of the informal EUROGROUP meeting of September 9, 2022 and the informal Economic and Financial Affairs (ECOFIN) Council of September 9-10, 2022 to the Dutch House of Representatives. In this article we will focus on some matters of the ECOFIN Council that the Minister discusses in her summary, because these give an interesting insight on the discussions regarding corporate income taxation in the EU.

 

Work session III 'Framework for Income Taxation in the EU'

According to the Dutch Minister of Finance the Ministers exchanged views on developments in the area of direct taxation. The session was introduced by Mr. James Watson (Director of Economics at BusinessEurope) and Mr. Piergiorgio Valente (President of the CFE Tax Advisers Europe (Confédération Fiscale Européenne)). The Presidency asked Member States whether soft law, such as through non-legally binding recommendations or rules of conduct, could be a tool to speed up decision-making on tax issues.

The Commission indicated that given the current economic conditions, businesses and citizens are experiencing difficult times. Certain initiatives in the area of direct tax can help to create more certainty. The Commission hereby mentioned the initiative for BEFIT (Business in Europe: Framework for Income Taxation), which is expected to be published next year. This proposal is about creating a framework for common corporate income tax rules. In addition, the Commission called on the Council to come a swift agreement on a global effective minimum level of taxation (Pillar 2).

During the round table, many Member States called for a rapid implementation of Pillar 2 at EU level. Some Member States indicated that if this fails, other options should be explored, including an enhanced cooperation or a coordinated implementation. Several Member States called the Code of Conduct Group as a good example of soft law. On the other hand Member States agreed that any harmonization in direct taxation would in most cases require hard law (eg Directives and Regulations). The Netherlands has called for the swift implementation of Pillar 2 and has indicated that if desired legislation is the best way to achieve a joint EU approach. Soft law can complement, but not replace such legislation. An important reason here for is that soft law cannot create a level playing field. And precisely such level playing field is an important criterion for the proper functioning of the internal market.

 

Global effective minimum level of taxation (Pillar 2)

During the Commission debate on macroeconomic developments in a European perspective (incl. Eurogroup/Ecofin Council) on September 8, 2022 I promised the House of Representatives to come back to the latest state of affairs regarding the proposal for an EU Directive to implement Pillar 2. As stated in my letter of September 9, 2022 after the Commission debate of the Eurogroup/Ecofin Council on September 8, 2022 the Netherlands was approached with the request to issue a joint statement together with France, Germany, Italy and Spain. This statement emphasizes the desire for an agreement in the Council and underlines the commitment to implement Pillar 2 by 2023. In line with various motions adopted by the Dutch House of Representatives, the Government has made every effort to ensure that the negotiations on the proposal for an EU Directive to implement Pillar 2 would be successful. The government believes it is important to keep moving forward with the proposal for an EU Directive to implement Pillar 2, so that further progress can be made with the national implementation of the proposal. Therefore Netherlands has co-signed the joint statement. The government hopes that it thereby has sent out a strong signal. On September 10, 2022 the matter of the proposal for an EU Directive to implement Pillar 2 was discussed during the informal ECOFIN Council (see above under the header Work session III 'Framework for Income Taxation in the EU'). In her letter of September 23, 2022 the Dutch Minister of Finance states that: “To date Hungary is still blocking a Council agreement”.

Perhaps this latter remark of the Dutch Minister of Finance is the reason that until now the matter of the proposal for an EU Directive to implement Pillar 2 is not yet included in the provisional agenda for the upcoming ECOFIN Council of October 4, 2022.

The letter from the Dutch Minister of Finance to the Dutch House of Representatives can be downloaded here. (Unfortunatly only available in the Dutch language)

 

 

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