Yesterday evening (Wednesday 10 March), the European Parliament adopted a strong parliamentary position for greater cooperation in tax matters by a large majority. 568 MEPs voted in favour of the report yesterday. The 63 votes against were cast primarily by MEPs from the right-wing “Identity and Democracy” group and the “European Conservatives and Reformists”.
In July 2020, the Commission had presented its proposal on how to improve the existing directive on administrative cooperation in tax matters (DAC) by extending it to digital platforms. This is already the seventh revision of the directive since 2011. The Council must decide unanimously on the adoption of the proposal in the area of tax policy. The Council is not obliged to take into account the position of the Parliament. The Council of Ministers has already informally defined its position at the end of last year and is now only waiting for the Parliament’s position before announcing its official decision. Nevertheless, the European Parliament’s report is an important contribution to the further development of European rules on cooperation between tax authorities. The eighth revision of the directive is already being prepared by the Commission and is expected later this year. As rapporteur, I will emphasise the European Parliament’s demands in this revision process. I will also present my draft report on the implementation of the first four directives very soon, with detailed proposals on how the cooperation between tax authorities can be improved. This report also contains important proposals on how we can achieve fairer taxation in Europe.
MEP Sven Giegold, Parliament’s rapporteur for the report voted yesterday and financial and economic policy spokesperson of the Greens/EFA group, commented:
“The European Parliament is sending a strong and united signal for better cooperation between tax authorities across borders. European tax law is arriving in the digital age. An extension of the existing directive to digital platforms is urgently needed but priorities are upside down. We are missing the point if tax authorities receive information about unpaid neighbourly help offered on online platforms while owners of properties worth millions are still not covered. Unfortunately, the Council has already decided its position without waiting for Parliament’s proposals. The Council has decided to postpone the implementation of the new directive by one year. The extended directive will thus probably not be implemented until January 2023. It is irresponsible to forgo much-needed tax revenue in this time of crisis. Instead of properly equipping their tax authorities, member states apparently prefer to weaken the Commission’s urgently needed proposals to improve the directive.
With the extension of the directive to digital platforms, a loophole has been closed, but many more holes remain wide open. Exchange of information can only live up to its full potential if all types of income and assets are consistently recorded. It creates political disenchantment when honest taxpayers dutifully fill out their tax returns while tax dodgers can hide behind letterbox companies. The EU Commission must take its responsibility seriously in times of rising public deficits and push for a far-reaching revision of the directive.
The European Parliament’s report is an appeal to member states: Finally give yourselves the means to collect unpaid taxes! With a large majority, the pro-European parties have spoken out in favour of a far-reaching extension of the directive, effective sanctions and a systematic review of its implementation. With this strong parliamentary position, I will work to ensure that the Commission introduces Parliament’s proposals into the legislative process this year.”
The parliamentary report can be accessed here: https://www.europarl.europa.eu/doceo/document/A-9-2021-0015_EN.html
Since 2011, the directive on administrative cooperation between tax authorities has regulated the exchange between member states of information on taxable income and assets held in other EU countries. The seventh amendment to the directive aims to extend the automatic exchange of information between tax authorities to digital platforms. The new proposal includes important extensions to effectively tax providers on platforms such as Amazon, Airbnb or Uber. Under the revised directive, digital platforms will have to send tax-relevant information about their users, e.g. sellers, landlords or drivers, to the tax authorities. This information will then also be exchanged between European member states. This is to ensure that companies that offer their services via platforms pay taxes just like traditional companies do.
However, the Council of Ministers weakened the Commission’s proposal in important points. The Commission had rightly suggested that private individuals should also be allowed to initiate a cross-border tax audit – the Council of Ministers deleted this in its preliminary decision. Furthermore, the Council of Ministers wants to exempt companies such as hotel chains and tour operators from the reporting obligation by not requiring providers with a high number of rental properties in a building to report. We are already dealing with many loopholes in the exchange of tax information that undermine the effectiveness of the rules. With this report, the European Parliament presents a series of proposals that go far beyond the additions for digital platforms.
The main demands of the European Parliament are:
- Less bureaucracy: Relevant activities and reportable platform operators must be defined in a way that it minimises bureaucracy. Small platforms and non-remunerated activities should be excluded from its scope.
- Effective sanctions: If platforms do not comply with their reporting obligation, member states should impose penalties. The revised directive should set out a catalogue of penalties to ensure uniform sanction measures across the EU. This is the only way to ensure the effective and uniform implementation of the reporting obligation for platform companies throughout the EU.
- Mandate to expand the directive: A review clause should be inserted which mandates the EU Commission to comprehensively review and expand the directive. This is urgently needed, as we see time and again that EU rules in the fight against financial crime and tax avoidance are circumvented or inadequately implemented.
- Duty of cooperation for member states: Today, the authorities of a member state only automatically pass on information to other EU member states which is easily available to them. In future, member states should be obliged to also share information which they can provide with reasonable effort. Here, the focus must be particularly on the careful recording of types of income that are insufficiently taxed in the member states themselves.
- Use tax information to curb other financial crime, too: Member states should generally be free to use the information they receive for non-tax purposes as well. So far, the EU directive stipulates that such use requires authorisation by the competent authority of the transmitting state. This is a disproportionately high hurdle, as such information is very valuable especially in the fight against financial crime and money laundering.
- Comprehensive exchange of tax rulings: All relevant cross-border tax rulings and agreements on tax-saving offsetting of profits within a multinational company should be exchanged in future. To ensure that all relevant tax rulings are exchanged, the duty to exchange information must be extended to informal agreements with tax offices as well as domestic tax rulings. This would constitute an effective way to prevent unfair competition in Europe.
- Transparency in European tax cooperation: We need more information on the state of cooperation of national tax authorities and where we still need to create better conditions for a smooth exchange of information. Member states are already required to send assessments and analyses on the implementation and impact of the automatic exchange of information to the Commission at regular intervals – it is just that these analyses have not been publicly available so far. Once a year, the Commission should therefore publish anonymised summaries of the statistical data it has received from the Member States.
P.S. Petition: Digital Tax Now! – Shops are closing, Amazon & Co are making huge profits without paying their fair share of tax: a digital tax must come now! Together we have the chance to finally overcome the blockade on the digital tax: Please sign our petition and share it with your contacts! https://www.change.org/digitaltax-now