The EU Tax Package explained

Fair taxation has been a priority for the EC for many years, and the global pandemic pushed the need for it even further. On the 15^th of July 2020, the European Commission finally adopted a tax reform package that aims to bring fairness, efficiency, and sustainability to the EU’s VAT and direct tax regimes. It means that from now on, countries across the Union will adopt new simplified tax rules and procedures, making such processes as online VAT registration, returns, easier.

Why was it adopted?

Currently, the EU has many tax obstacles that hinder the growth of European-based companies, interfering with their innovations and investments. Furthermore, the coronavirus pandemic proved that the Member States need to have secure tax revenues. Only this way can they invest in businesses and individuals, ensuring the EU’s short-term recovery and long-term prosperity.

The Tax package is very significant as it seeks to remove tax obstacles and administrative burdens for taxpayers, making it possible for companies to thrive in times of need. It also intensifies the fight against tax abuse by increasing tax transparency. With unified online VAT registration rules and proper legislation that this package introduces, it’s possible to achieve tax fairness.

The main issues the package addresses

While it aims to resolve various issues, the most notable are these four:

• Complexity and administrative burden. Young and innovative businesses still struggle with high compliance costs and overall administrative complexity, which only hampers their potential growth. They also have to deal with 27 different tax systems, and this often leads to accidental violations of certain rules. That’s why a more modern, simple tax environment is needed so that they can actually compete and succeed in the Single Market and boost the EU’s economic growth.
• Tax abuse and harmful tax competition. While measures are taken to fight tax abuse, digitalisation, globalisation, and the constantly changing business models still allow for the rapid advancement of tax fraud, evasion, and aggressive planning. The appropriate tax authorities have a need for relevant tools and information to fight this, and the parameters of fair tax competition need to be updated accordingly.
• The gap in the tax transparency rules. As online businesses thrive and will continue growing even more in the coming years, the issue of not reporting the exact income earned via digital platforms during online VAT registration persists. Furthermore, it’s quite difficult for tax authorities to detect the income earned, and to tax it appropriately due to the specific, cross-border nature of the platforms.
• The unexploited potential of technology. The fight against tax evasion and avoidance can be significantly improved if tax authorities are provided with the necessary tools to peruse the massive amounts of data at their disposal. Digitalization and the use of data analytics can also help reduce some of the administrative burdens and lead to taxation that better reflects the current digital business environment.

Three initiatives

EU’s tax package is made up of three separate initiatives, but they’re closely tied to each other. These are:

• The Tax Action Plan. It presents 25 specific actions that will make taxation a simpler, fairer process that is better attuned to modern economies. Taxpayers will benefit from the removal of obstacles from online VAT registration, reporting, payment, verification, and even dispute resolution. New technologies will help harness data to fight tax fraud, reduce administrative burdens, and improve compliance.
• The Proposal on administrative cooperation. It extends the EU tax transparency rules to digital platforms so that businesses that earn revenue through this medium also pay their fair share of taxes. The Member States will automatically exchange information on the income generated by online sellers. Additionally, this initiative clarifies rules in certain areas in which EU members work together to fight tax abuse.
• Communication on tax good governance. It promotes clamping down on unfair tax competition both in the EU and internationally. That’s why it suggests a reform of the Code of Conduct and improvements to the EU list of non-cooperative jurisdictions. It also outlines how the European Union should work together with developing countries in the area of taxation.

Currently, this is only the first part of the ambitious EU tax agenda. The European Commission is planning on working on a new approach to business taxation and how to address the issues that the digital economy faces. The ultimate plan is to ensure that all multinationals pay their fair share of taxes, be it through improved online VAT registration or other tools, and to achieve fairer taxation for all. This way, the EU will benefit from sustainable, inclusive economic growth.