Explanatory Memorandum to COM(2024)497 - Amendment of Directive 2011/16/EU on administrative cooperation in the field of taxation - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2024)497 - Amendment of Directive 2011/16/EU on administrative cooperation in the field of taxation. |
|---|---|
| source | COM(2024)497 |
| date | 28-10-2024 |
1. CONTEXT OF THE PROPOSAL
Reasons for and objectives of the proposal
Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large sale domestic groups in the Union1 (the Pillar Two Directive) implemented within the EU the agreement reached by the OECD/G20 Inclusive Framework (OECD/G20 IF) on Base Erosion and Profit Shifting (BEPS) on 8 December 2021. The Directive also follows closely the Global Anti-Base Erosion Rules (GloBE) Model Rules agreed by the OECD/G20 IF and published on 20 December 2021.
The Pillar Two Directive is designed to ensure that large multinational enterprises groups (MNEs) pay a minimum level of tax on the income arising in each jurisdiction where they operate. Entities within the scope of the rules must calculate their effective tax rate for each jurisdiction where they operate and pay a top-up tax for the difference between their effective tax rate per jurisdiction and the 15% minimum tax rate. Any resulting top-up tax is generally charged in the jurisdiction of the ultimate parent entity (UPE) of the MNE. The rules also take into account the possibility that jurisdictions introduce their own qualified domestic top-up tax (QDTT), thereby preserving a jurisdiction’s primary right of taxation over their own income. This qualified domestic top-up tax eliminates any top-up tax liability when it is treated as a QDTT Safe Harbour.
Article 44 of the Pillar Two Directive sets out the requirements on filing that entities within scope of the Directive must meet. It refers to a Top-up tax information return which must be filed using a standard template and includes certain specified data points. The Top-up tax information return is a risk-assessment tool: it contains the information a tax administration needs to perform an appropriate risk assessment and evaluate the entity’s tax liability correctly.
The baseline scenario for filing, under Article 44(2) of the Pillar Two Directive, is that each constituent entity must file its Top-up tax information return in the Member State where it is located. This means that each constituent entity of the MNE would need to file with its tax administration very extensive reports that would also include high-level information from the MNE to which is belongs. However, Article 44(3) provides for a derogation from this local filing requirement to the extent that the UPE (or a designated filing entity) files this Top-up tax information return on behalf of the entire MNE. The only condition attached is that arrangements to exchange information between tax administrations must be in place between the jurisdictions involved (i.e. the jurisdiction of the UPE or the designated filing entity and the jurisdictions of the other constituent entities within the group in question). Under these arrangements the reporting is only done once for the whole MNE, and the constituent entities are then exempted from filing reports themselves locally. It is expected that general reporting by the entity designated for the entire group will be the main approach taken by MNEs to report the information required by the Pillar Two Directive.
The OECD has developed a standard template (GloBE Information Return or GIR)2 to be used by the entities to fulfil their filing obligations. It contains the data points to be exchanged and explanatory guidance on its use and strikes a balance between providing tax administrations with the data they need to undertake adequate compliance checks, while limiting the cost of compliance for MNEs. This proposal transposes the GIR into EU law by making it the Top-up tax information return envisaged in Article 44 of the Pillar Two Directive.
This proposal also lays down a framework to facilitate the exchange of Top-up tax information return between Member States and enable MNEs to switch from local to central filing (i.e. filing by the UPE or a designated filing entity instead of filing by each constituent entity). This framework includes a “dissemination approach” to ensure that all relevant jurisdictions receive the information they need, based on their role in the MNE, in line with the OECD framework.
For the exchange of information with third country jurisdictions, Member States will have to sign appropriate international agreements with those jurisdictions. To ensure a smooth functioning of the information exchange, and in order to minimise administrative burden, the proposed rules applicable within the EU are fully compatible with the rules governing information exchange with third country jurisdictions.
Consistency with existing provisions in the policy area
This proposal is fully consistent with and operationalises a specific provision (Article 44) of the Pillar Two Directive.
Article 44(5) of the Pillar Two Directive lists the relevant information needed to file returns under the Pillar Two Directive. In particular, this concerns the identification of the constituent entities of an MNE, information on the corporate structure of the MNE and information which is necessary to compute the effective tax rate of constituent entities, the top-up tax and allocations. This has been further specified at the OECD/G20 IF level in the GIR, which this proposal incorporates into the body of EU law as a Top-up tax information return. This proposal does not involve processing of personal data within the meaning of Article 5 of Regulation (EU) 2016/6793 and Article 3 of Regulation (EU) 2018/17254.
Secondly, this proposal lays down the rules for the exchange of Top-up tax information returns in line with the OECD framework.
Consistency with other EU policies
This proposal is fully consistent with and contributes to the Commission’s efforts to rationalise and simplify reporting requirements for business, with the aim of reducing this burden by 25%, without undermining the related policy objectives5. This is achieved by implementing through a Directive the exchange of information framework that underpins the Pillar Two Directive. This approach ensures the uniform and cross-cutting implementation across Member States of the rules on filing the Top-up tax information return. Moreover, it enables the MNE to fulfil its filing obligations only once (in the Member State of the UPE or of the designated filing entity) as opposed to having to file a Top-up tax information return in each Member States where constituent entities are located.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
Legal basis
Articles 113 and 115 of the Treaty on the Functioning of the European Union (TFEU) are the legal base for legislative initiatives in the field of administrative cooperation and direct taxation. Although no explicit reference to direct taxation is made, Article 115 can be used for the approximation of national laws and administrative practices that directly affect the establishment or functioning of the single market in the field of direct taxation.
As the proposed initiative amends the DAC, the legal base chosen remains the same. Indeed, the proposed rules, which aim to ensure a functioning framework with respect to the exchange of information between competent authorities for the purposes of the Pillar Two Directive, do not deviate from the subject matter of the DAC. In particular, the amendments envisaged will provide a clear and harmonised framework for filing and exchanging the Top-up tax return. The consistent application of these provisions can only be achieved through the approximation of national laws following a uniform approach, as prescribed in Articles 113 and 115 TFEU.
Subsidiarity (for non-exclusive competence)
The proposal fully observes the principle of subsidiarity as set out in Article 5 TFEU. It addresses administrative cooperation in the field of taxation. The proposal is twofold: firstly, it operationalises Article 44 of the Pillar Two Directive by providing uniform reporting requirements for the MNEs within the scope of the Directive; secondly, it expands the scope of the automatic exchange of information between the competent authorities of Member States to the reports filed by MNEs for the purposes of the Pillar Two Directive.
Legal certainty and clarity for MNEs and tax administrations can only be ensured by creating a single set of uniform rules applicable to all Member States. The existing rules for ensuring a global minimum level of taxation for MNEs and Large-scale domestic groups in the EU, which are enshrined in the Pillar Two Directive, would be severely undermined if Member States were to implement different reporting requirements nationally.
While a common approach to filing and information exchange for the purposes of Pillar Two has been developed at international level by means of the GloBE model rules, it is important to ensure that this is implemented in the EU in a coherent way. In the EU, which consists of highly integrated economies, there is a need for coordinated action, to improve the functioning of the single market and guarantee the proper functioning of the Pillar Two Directive in ensuring the minimum effective taxation of business profits. This can only be achieved if the reporting obligations are also enacted centrally and transposed in a uniform fashion.
An EU initiative adds value, as compared to what a multitude of national implementation methods based on the legally non-binding GloBE model rules could achieve. There are three main advantages to an EU approach. Firstly, the legal framework for filing and exchanging information between tax authorities would be fully aligned across Member States, which would ease the reporting requirements for MNEs. Secondly, the exchange of information would be supported by a common IT infrastructure. Finally, a uniform implementation at EU level would give taxpayers legal certainty as to their filing obligations and the rules on the exchange of information between competent authorities.
Proportionality
The proposal implements the existing obligations under Article 44 of the Pillar Two Directive on the filing obligations of MNEs within the scope of the Directive, and extends the scope of the automatic exchange of information under the DAC to the reports filed by these MNEs. Considering that these MNEs have operations beyond the borders of a single Member State, EU common rules represent the minimum level of regulation necessary to ensure effective reporting.
The Directive, therefore, does not go beyond what is necessary to achieve its objecives and respects the principle of proportionality.
Choice of instrument
The proposal is for a Directive, which is the only available instrument available under the legal base of Articles 113 and 115 TFEU. Furthermore, this Directive represents the eighth amendment to the Directive on Administrative Cooperation (2011/16/EU), following Council Directives 2014/107/EU, 2015/2376/EU, 2016/881/EU, 2016/2258/EU, 2018/822/EU, 2021/514/EU and 2023/2226/EU.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
Impact assessment
No impact assessment was carried out for this proposal.
The proposal operationalises Article 44 of the Pillar Two Directive in a manner which is fully consistent with and closely replicates what has been developed at global level. There are no other policy options to choose from. In addition, there is a political urgency to proceed with the proposal as the first reporting will need to take place by 30 June 2026, which is the deadline set by the Pillar Two Directive. This means that it is essential to have a swift adoption and implementation process of this initiative by the Member States.
Fundamental rights
Contents
This proposed Directive respects fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union
4. BUDGETARY IMPLICATIONS
2024-2027. It will be financed through redeployment of funds from the existing Fiscalis programme. For further details, see the legislative financial statement.
5. OTHER ELEMENTS
Detailed explanation of the specific provisions of the proposal
The Pillar Two Directive envisages local filing as the default rule for all constituent entities of the MNE within EU. However, it allows for central filing if two conditions are fulfilled: (1) an agreement to exchange information is in effect between the jurisdiction of the entity designated to file the Top-up tax information return on behalf of the group (i.e. the UPE or the designated filing entity) and the jurisdictions of the constituent entities; and (2) the UPE or the designed filing entity have indeed done so. This proposal lays down the exchange of information framework within the EU, therefore enabling central filing within the EU.
The proposal consists of two parts: (a) amendments to the text of the DAC; and (b) a new Annex.
(a) Amendments to the text of the DAC – Framework for the exchange of Top-up tax information returns
The main change is the new Article 8ae, which sets out the framework for the exchange of Top-up tax information returns. The basic rules for filing the Top-up tax information return are set out in Article 44 of the Pillar Two Directive, which contains the information that are to be provided by the reporting entities of an MNE or LSDG so that Member States’ tax administration can monitor whether the entities in scope are correctly applying the rules of the Pillar Two Directive.
Member States should take the necessary measures to enable the reporting entities of an MNE that is resident for tax purposes within the EU to file the Top-up tax information return within 15 months after the last day of the Reporting fiscal year, except for the first Reporting fiscal year, where the filing must be done no later than 18 months after the last day of the Reporting fiscal year. These deadlines are stipulated in Articles 44 (7) and 51 of the Pillar Two Directive. After the Top-up tax information return is filed with the Member State, the competent authority of that Member State sends appropriate parts of that report to the relevant competent authorities of relevant other Member States.
Competent authorities communicate the Top-up tax information return in the following manner (i.e. “dissemination approach”):
- the Member State of the UPE of the MNE receives the full Top-up tax information return;
- all Implementing Member States receive the full General section of the Top-up tax information return;
- qualified domestic top-up tax (QDTT)-only Member States, where constituent entities of the MNE are located, receive the relevant parts of the General section of the Top-up tax information return;
- Member States with taxing rights under the Pillar Two Directive receive specific Jurisdictional sections.
The relevant parts of the Top-up tax information return should be exchanged as soon as possible and, in any case, no later than 3 months after the filing deadline for that Reporting fiscal year. For the first year of application of the Pillar Two Directive (i.e. Reporting fiscal year 2024), the deadline for exchanging the information is six months after the filing deadline. Top-up tax information returns received after the filing deadline should also be exchanged as soon as they have been received and, in any case, no later than 3 months after they have been received.
The communication of information to competent authorities of other Member States will take place using the standard computerised form that will be developed by the Commission by means of an implementing act.
For Member States that have elected not to apply the qualified income inclusion rule (IIR) and the qualified under-taxed profit rule (UTPR) pursuant to Article 50(1) of the Pillar Two Directive, the application of the rules of this Directive is also postponed.
The new Article 9a provides a possibility for the competent authority to enquire about a Top-up tax information return that was notified to be filed centrally but which has not been exchanged. The competent authority of a Member State where the filing entity is resident for Pillar Two purposes can then verify if such a report has been filed and enquire about the expected date of filing if this has not already been done. If the Top-up tax information return has not been received within 3 months of the new expected filing date, local filing requirements may be imposed on the constituent entities of the MNE in order to obtain the Top-up tax information return since the conditions for central filing have not been met. On the other hand, no local filing may be imposed on the constituent entities before the abovementioned deadline has passed.
Furthermore, when the Top-up tax information return has been received and, after verification, the competent authority has reason to believe that it requires corrections, they should notify the competent authority of the sending Member State. The sending competent authority should, without delay, take appropriate measures to obtain the corrected Top-up tax information return from the filing entity and exchange it with the relevant competent authorities of Member States.
(b) Annex VII
The proposal adds a new Annex VII to the DAC. The first section defines certain terms used in the Annex and the relevant Articles in the DAC. The second section describes the filing rules that apply to the filing entity of the MNE. The third section includes the Top-up tax information return (which is fully in line with the GIR developed by the OECD) and aligns it with the Pillar Two Directive. The Top-up tax information return can be amended by the Commission by delegated act to reflect future update agreed at international level.