6.9.2022
EN
Official Journal of the European Union
C 342/19 Tuesday 15 February 2022
announced by the President of the Commission in her 2021 State of the Union Letter of Intent; calls on the Council to swiftly adopt such proposals to make it effective from 2023; invites the Member States to consider advocating for similar international agreements for other types of suitable taxes;
Recommendations and areas for reform
17.
Points out that in areas of high importance for the functioning of the single market, such as taxation and the capital markets union, more harmonisation is warranted either through better Member State coordination or EU action;
18.
Stresses that Member States still use various criteria to determine tax residence status, creating a risk of double taxation or double non-taxation; recalls, in this regard, the initiatives outlined in the Commission’s July 2020 action plan aiming to put forward a legislative proposal by 2022 or 2023 to clarify where taxpayers active across borders in the EU are to be considered residents for tax purposes; looks forward to this proposal which should aim at ensuring a more consistent determination of tax residence within the single market;
19.
Notes that digitalisation and a heavy reliance on intangible assets which pose challenges to the current tax system warrant a high degree of policy coordination and harmonisation in order to establish a level playing field and to ensure that digital companies are fairly contributing to the societies where they do business; notes the fact that some Member States have pressed ahead with the introduction of national digital taxes despite ongoing negotiations at EU and OECD level; notes that this has had a positive impact on the international debate; stresses that these national measures should be phased out following the implementation of an effective international solution;
20.
Recalls that the EU agreed to implement a new own resource based on a digital levy as a way to finance the NextGenerationEU recovery instrument and calls on the Commission to come forward with alternative proposals that will be compatible with international commitments;
21.
Deplores the fact that differences in withholding tax and withholding tax reimbursement procedures remain a considerable obstacle to further capital markets union integration; welcomes the Commission’s announcement to propose a legislative initiative for introducing a common, standardised, EU-wide system for withholding tax relief at source;
22.
Deplores the debt equity bias in corporate taxation that allows for generous tax deductions on interest payments, while equity financing costs cannot be deducted in a similar manner; highlights the structural disadvantage facing companies that rely on equity financing, in particular if they are young and small companies with poor access to credit; notes that the debt equity bias might incentivise companies to take on too much debt;
23.
Notes that debt equity bias varies considerably between the Member States; notes the fact that some Member States have introduced allowances for corporate equity to address this issue; recalls that some of these allowances for corporate equity have been exploited as tax loopholes, allowing multinational enterprises to artificially deduct national interests; stresses that a common European approach would be preferable in order to avoid distortions in the single market;
24.
Recalls that such bias can be tackled by either allowing for new deduction of costs related to equity financing or by reducing the interest deduction possibilities; recalls that Parliament proposed limiting the deduction of exceeding borrowing costs to up to 20 % of the taxpayer’s earnings before interest, tax, depreciation and amortisation while the Council adopted a higher threshold of up to 30 % (10); recalls that, according to the OECD, a ratio of 30 % may be too high to effectively prevent base erosion and profit shifting (11);
(10) (11)
European Parliament position of 8 June 2016 on the proposal for a Council directive laying down rules against tax avoidance practices that directly affect the functioning of the internal market (OJ C 86, 6.3.2018, p. 176).
OECD, Public Discussion Draft — BEPS Action 4: Interest Deductions And Other Financial Payments, 2014.