Strasbourg, 10 March 2022
The withholding tax recommendations report, spearheaded by Pedro Marques (S&D, PT), was adopted by 625 votes in favour, 38 against and 28 abstentions. The simplification of tax systems report, led by Luděk Niedermayer (EPP, CZ), was adopted by 478 votes in favour, 78 against and 129 abstentions.
Witholding tax schemes need a shakeup
MEPs adopted recommendations to prevent withholding tax regimes from facilitating tax avoidance, while also reducing barriers for companies and investors who operate cross-border.
The resolution points out that the system of withholding taxes between Member States has remained largely fragmented in terms of rates and relief procedure, creating loopholes and legal uncertainty. It also notes that the current system is abused to shift profits, enables aggressive tax planning and creates the undesired effect of double taxation in addition to barriers to cross-border investments in the single market.
This state of affairs, the general fiscal context and the various tax scandals, notably the cum-ex and cum-cum frauds, require legislation to be put in place, MEPs argue.
The resolution among other things:
- Reiterates a demand made previously to the Commission by MEPs to present a legislative proposal for an EU-wide withholding tax in order to ensure that payments generated within the Union are taxed at least once before leaving it. Adding to this already stated demand, the newly adopted resolution says that such a proposal could contain a possible minimum effective tax rate.
- Calls on the Commission and the Member States to establish a common and standardised withholding tax framework that reduces the complexity for investors, reduces the practice of treaty-shopping and ensures that all dividend, interest, capital gains, royalties payments, professional services payments and relevant contract payments generated in the EU are taxed at an effective tax rate.
- Calls on the Commission to propose measures to enhance cooperation and mutual assistance between tax authorities, financial market supervisory authorities and law enforcement authorities regarding the detection and prosecution of withholding tax reclaim schemes.
- More needs to be done to address the role of intermediaries and therefore calls on the Commission and Member States to develop appropriate measures to prevent intermediaries from facilitating tax abuse and tax avoidance.
- Calls on the Commission to extend the scope of the mandatory exchange of information to dividend arbitrage schemes and all information on capital gains, including the granting of dividend and capital gains tax refunds.
- Urges the Commission to come forward with a common and standardised EU procedure for refunds of withholding tax for all Member States, which would be particularly helpful for retail investors.
Quote Pedro Marques (S&D, PT)
“Our efforts to strengthen cross-border economic activity must go hand-in-hand with a deep commitment to relentlessly combati the risks of tax evasion, avoidance and tax fraud in the European Union. This report followed a win-win approach, seeking to address both dimensions, and I am pleased to see such a broad support from the European Parliament.”
Simplifying taxation to help the economic recovery and for more fairness
MEPs have called for legislation to modernise tax systems to reduce tax evasion and avoidance and help SMEs, thereby making tax policy fit for the 21st Century.
They urge the Commission to come forward with a series of proposals both to better fight tax evasion and avoidance and also to facilitate tax compliance requirements, notably for SMEs.
The report calls on the Commission to propose ways to address the remaining gaps in the existing directive on tax dispute resolution, including also to address changes in the post-COVID economy such as a move to remote and mobile working which has increased the risk of double taxation. It also says that a summary of the outcome of disputes should be made public and should include effective tax rates.
The elements subject to automatic exchange of information between member states should be increased, to cover for example also crypto-assets, the report says. The Commission should assess how to best extend this automatic exchange of information.
The report also says that the Commission should issue guidelines on tax incentives that are not distortive for the single market so that taxpayers and countries would be aware of what incentives can boost economic performance without harming the single market.
With a VAT gap estimated at around EUR 140 billion for 2018, the report calls on the Commission to propose measures which would significantly reduce this revenue loss on EU economies. The report also makes a number of suggestions of how this could be achieved.
The Commission should also perform a thorough impact assessment and include strong anti-avoidance clauses into the future Debt Equity Bias Reduction Allowance proposal, and the report makes specific proposals to this effect.
Finally, the report also calls to strengthen the EU’s network of anti-fraud experts, Eurofisc, by providing it with sufficient resources to effectively carry out joint risk analyses, coordinate investigations and cooperate with the EU Anti-Fraud Office (OLAF), Europol and the newly set up European Public Prosecutor’s Office, particularly to investigate VAT fraud.
Quote Luděk Nidermayer (EPP, CZ)
“While tax policy is mostly in the hands of member states, there is a strong EU dimension. A significant part of tax fraud or tax evasion has a cross border dimension, and high costs of tax compliance is a reality especially for SMEs making business on the single market.
The war in Ukraine, in combination with the impact of the COVID crisis, will have lead to higher debts, fiscal deficits and an urgent need to put the fiscal house in order. Usually, measures must take place on both sides of budget, and it is much better to collect taxes due instead of increasing them even more.”