On 1 January 2024, Belgium took over the six-monthly rotating Presidency of the Council of the European Union from Spain. In a presidency heavily influenced by national and European elections, Belgian Prime Minister Alexander de Croo has already made it clear that: taxTaxes are mandatory payments or charges that local, state, and national governments collect from individuals or businesses to cover the cost of common government services, goods, and activities.
This policy will continue to be an important topic of discussion.
What is the current state of European tax policy?
During his presidential term, Spain prioritized establishing a common minimum standard for corporate taxation across all member states (the OECD’s Pillar 2 framework) and reforming fiscal rules. Furthermore, the Spanish Presidency was shaped by the European Commission’s proposals on doing business in Europe. These are the Framework for Income Taxation (BEFIT), the Council Directive on Transfer Pricing and the Council Directive introducing the Headquarters Tax for Small and Medium Enterprises (HOT) regime. and medium-sized companies.
European tax policy is currently shaped by national implementation of the EU Minimum Tax Directive (Pillar 2). Under the EU Directive, member states must start implementing the Income Inclusion Regulation (IIR) and the Tax Deductible Benefits Regulation (UTPR). Implementing legislation has been fully enacted in 4 Member States (Denmark, Hungary, Ireland, Sweden) and 11 Member States (Austria, Belgium, Bulgaria, Czech Republic, Germany, Ireland, Luxembourg, Netherlands, Romania, Slovakia, Slovenia) . Two Member States (Finland and France) have submitted draft legislation for consideration by their national parliaments, and seven Member States (Croatia, Cyprus, Estonia, Italy, Latvia, Lithuania and Spain) have published draft legislation. Meanwhile, Greece, Malta, Poland and Portugal have not yet published their legislation, and five member states (Estonia, Latvia, Lithuania, Malta and Slovakia) have been given the option to postpone implementation.
The Spanish Presidency performed technical work on most of the files on deck. On 8 December 2023, the representatives of the Economic and Fiscal Council of the European Union (ECOFIN Council) approved a report to the European Council outlining the progress achieved by the Presidency. This report highlights progress on the proposed UNSHELL Directive (Abuse of Shell Entities in the EU). Tax withholdingWithholding is income that an employer withholds from an employee’s paycheck and remits to federal, state, or local governments. This is calculated based on the amount of income earned, the taxpayer’s filing status, the number of benefits claimed, and any additional amounts requested by the employee.
Tax relief regime, also known as the Faster and Safer Relief of Excess Withholding Taxes Directive (FASTER), and technical works related to the exchange of tax information with non-EU jurisdictions, and the launch of the EU Minimum Tax Directive. Political support for UNSHELL During his presidential term, Spain unsuccessfully proposed two approaches to UNSHELL (one in September and one in November) to garner support from member states. Belgium is now tasked with reaching unanimity, but UNSHELL does not appear to be a priority for Belgium.
Belgium may succeed in reaching unanimity on FASTER. According to the ECOFIN report, FASTER appears to be the most advanced, as member states consider the possibility of maintaining the current relief regime at source.
Regarding new own resources, the Spanish Presidency noted the general skepticism from EU Member States towards the Commission’s proposal for temporary new own resources based on business interests. Member States appear to be most concerned about the added value of such new indigenous resources. Furthermore, the Council appears that she welcomes the introduction of contributions based on receipts generated by the EU Carbon Border Adjustment Mechanism (CBAM).
What are the priorities of the Belgian president?
The Belgian presidency will be shaped by the need to reach agreement on parts of the agenda before the European elections. The Belgian Presidency will prioritize measures aimed at curbing tax evasion, tax avoidance, aggressive tax planning and harmful tax competition. In practice, this will update the EU’s list of non-cooperative jurisdictions, advance legislative and non-legislative efforts to reduce compliance costs for cross-border investors, and reduce tax abuses related to withholding. means working on it.
Belgium intends to work on the European Commission’s proposal and add its own touch. Belgium welcomed the BEFIT package and said it would “explore in the long term the utility of a more harmonized tax system in other areas, such as with regard to mobile workers”. In this respect, the recently agreed approach between Belgium and the Netherlands on telework could serve as a blueprint for Belgium at EU level.
Belgium’s priorities also include closing the value-added tax (VAT) gap, continuing work on VAT in the Digital Age Proposal (ViDA) and reviewing the Energy Taxation Directive.
Belgium may also change the EU’s budget approach. It will conclude the mid-term review of the Multiannual Financial Framework (MFF) for 2021-2027 under the jurisdiction of the General Affairs Council and will hold a conference on the future of the EU budget. Belgian Prime Minister De Croo said the European Union needed more funding from member states’ contributions or, in some cases, EU-wide taxes. According to De Croo, this funding will not only help the EU cope with current economic demands, but will also help strengthen the EU’s democratic legitimacy.
What will happen to European tax policy in the future?
European tax policy is at a turning point. Despite the momentum with which many proposals are on the agenda, upcoming elections in Belgium and at EU level from 6 to 9 June may draw less attention to the Council’s submissions.
When the Belgian Presidency considers plans to manage these tax files, it will need to consider principles-based tax policy. For example, improving VAT compliance can generate revenue, but focusing on the gaps in viable VAT policy, i.e. the additional VAT revenue that can realistically be collected by removing reduced rates or certain exemptions. It will be even more beneficial for the EU and national budgets. Revenue from compliance gaps is more than tripled.
Regarding BEFIT, Belgium could promote a smart and pro-growth tax policy by truly simplifying the filing of tax returns for companies, rather than creating one more stop. Furthermore, it is necessary to keep in mind the harmonization of her BEFIT (e.g. capital) at EU level. Cost recoveryCost recovery is the ability of a company to recover (deduct) its investment costs.that It plays an important role in defining a company’s tax base and can influence investment decisions. If a company cannot fully deduct capital expenditures, it will have fewer capital expenditures and fewer employees.‘s Productivity and wages.
) You should strive upwards instead of fitting downwards.
Belgium is expected to act as an honest mediator and lead negotiations on these proposals among member states to reach unanimity. However, the deadline for some of these files, especially as many believe the European elections, where political trends could change the balance of power within the EU, is to retain the rotating Presidency. comes with great responsibility.
In such a decisive period for Europe, principled tax policy could be an important lever for a more competitive European Union.
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