In the light of the current invasion of Ukraine, we would like to ensure our clients, partners and colleagues that our Ukrainian branch office continues to operate and service customers, prioritising the safety, security, well-being and awareness of all parties involved. We have taken all the necessary precautions and steps to ensure business and service continuity, having implemented a set of systems and processes that allow us to stay committed to our community and activities.

Being present in Ukraine since 2007, we successfully managed to mitigate the potential impact of external factors these past years and what we are facing now is no exception. We coordinate both with our clients and partners to help each other, our employees and the employees of our clients. Backed up by an international team of experts and online solutions available anytime from anywhere, Accace Ukraine is ready to support existing and new customers in the capacity we always had available.“We are positive that Ukrainian businesses will recover as soon as it will be possible based on the circumstances,” says Anna Magdich, Managing director of Accace Ukraine. “Our dedicated team is ready to keep on providing support and facilitate the growth of companies, contributing to and building a thriving future for our country.”

Our professional team closely monitors the evolving government guidance and adopted legislation to understand what changes need to be made to our operations and to be able to swiftly react in the interest of our clients in Ukraine, ensuring full compliance. The experts in our other branch locations are also actively overseeing the local legislative changes implemented to support Ukrainian citizens and businesses, providing the latest information in the surrounding European countries.

For more information about the latest legislation, support measures and adopted aid, visit our dedicated section in our Newsroom

In this issue of our News Flash, we would like to briefly outline two recent cases of the European Court of Justice (ECJ), which both concern the identification of real supplier for VAT deduction – namely, the the refusal to right to deduct VAT in cases where the real supplier of goods or services has not been identified.

Is the realization of the supply not sufficient for VAT deduction?

In cases C-281/20 from 11th November 2021 and C-154/20 from 9th December 2021 is ECJ dealing with the similar question, whether the Council Directive on the common system of value added tax must be interpreted that in case of undeniably realized supply of goods/services it is necessary, among other things, to prove and identify real supplier of such goods/services, in order to exercise a right for deduction of the input tax.The first case concerns a Spanish company Ferimet that acquired goods and the company itself issued invoice for this supply, where it has been proven that the supplier stated on the invoice is not the real supplier of goods. The real supplier of goods has not been identified. Goods were supplied in tax regime of „reverse charge“ when Ferimet taxed acquisition of goods but deduction of tax was not allowed.

The second case concerns a Czech company Kemwater ProChemie that was refused to deduct a VAT paid in respect of advertising services provided during a golf tournament. Managing director of services supplier stated that he had no knowledge of the fact that those services had been provided, and also company Kemwater ProChemie was not able to demonstrate that the mentioned company was indeed the supplier of those services.

What conditions need to be examined for VAT deduction?

As results from the settled case-law of the ECJ, the right to deduct VAT is subject to compliance with material as well as formal conditions where the fundamental principle of VAT neutrality requires deduction of input VAT to be allowed if the material conditions are satisfied, even if the taxable person has failed to comply with some of the formal conditions.

ECJ further added that even though the naming of the supplier on the invoice relating to the goods or services on the basis of which the right to deduct VAT is exercised, is a formal condition for the exercise of that right, on the other side, the status of the supplier of the goods or services as a taxable person is among the material conditions for the exercise of that right.

ECJ declared in both mentioned cases that the taxable person must be refused the right to deduct VAT if, taking into account the factual circumstances and despite of the evidence provided by that taxable person, the information necessary to verify that the real supplier of goods or services had the status of taxable person is lacking, because one of the material conditions of allowing the right to deduct VAT is that the goods or services on the basis of which the right to deduct VAT is exercised, have been actually supplied by taxable person.

Impact of a non-existing tax advantage

Additionally, in Ferimet case, ECJ dealt with the question whether the non-existence of a factual tax advantage has any impact on the company´s right to deduct VAT. ECJ stated that a non-existing factual tax advantage or fact if VAT payable on the prior or subsequent supplies of the goods concerned has or has not been paid to the treasury is irrelevant to the right of the taxable person to deduct VAT. A finding of a risk of loss of tax revenue is not, therefore, necessary in order to justify such refusal of right to deduct VAT.

Recommendation

For exercising the right to deduct VAT is important not only the fact if the goods or services have been supplied, but also knowing by whom they have actually been supplied. Importance of identification of the factual supplier shall not be underestimated. We recommend to taxable persons, for the purpose of possible later tax audit, to secure all available evidence proving by whom the goods or services have actually been supplied. Burden of proof lies on taxable person.

Last year, the EU Council approved the Directive 2021/514, known as DAC7, amending the Directive 2011/16/EU on administrative cooperation in the field of taxation. The DAC7 Directive introduces new reporting obligations for digital platform operators towards the Financial Administration and consequently, the scope of the automatic exchange of information between member states’ tax authorities is being extended. Digital platform operators will be required to report revenues generated by sellers using the digital platform. Reportable activities performed through digital platforms will include:

New rules will apply from January 1, 2023 and will apply to digital platforms operated by operators from Union, as well as Non-Union jurisdictions. Member states have time to transpose the new rules into national law until December 31, 2022.

In the Czech Republic, the Ministry of Finance is responsible for implementing DAC 7. In this context, the Ministry prepared a draft amendment to Act No. 164/2013 Coll., On International Cooperation in Tax Administration. According to the proposal, the new rules will be effective from January 1, 2023.

To implement DAC7 into national legislation, the Hungarian Parliament needs to prepare the amendment to Act no. 37 of 2013 on rules for international administrative cooperation in relation to taxes and other charges with the proposed effect from January 1, 2023.

The Romanian Ministry of Public Finance has somehow transposed the requirements provided by DAC7 within the Romanian Fiscal Procedure Code (e.g. platform operators would be requested to report transactions performed by the sellers). Still, the manner in which such reporting would be performed should be further regulated. Normally, these new requirements would be applicable starting with January 1, 2023.

In order to implement DAC7 into national legislation, the Ministry of Finance of the Slovak republic is currently preparing a draft amendment to Act no. 442/2012 Coll. on international assistance and cooperation in tax administration with the proposed effect from January 1, 2023.

The platform operator is an entity that makes the platform available to sellers based on a concluded contract. However, the form of the contract is not specifically specified, it can take any form, not just in writing. Natural persons are excluded from the scope of DAC7 platform operators.

The reporting obligation will apply to the following digital platform operators who are:

tax residents of the Union, or

operators who are not tax residents of the Union, but are registered in the Union or have a seat of management or a permanent establishment in the Union and are not qualified non-Union platform operators,

foreign platform operators (doing business in the Union, but they are not tax residents, they are not registered and don’t have a management or permanent establishment in a member state, but they facilitate performance of the reportable activity) and they are not qualified non-Union platform operators. We note that such foreign operators will also be subject to special registration obligations.

Qualified non-Union platform operators are excluded from the reporting obligation as they comply with the reporting obligation in a qualified non-member state of establishment which cooperates with the member states and apply the automatic exchange of equivalent information.

If an operator, who would otherwise have had to report information, demonstrates in advance and on annual basis to the competent authority of the member state, that the platform´s entire business model is such that it does not have reportable sellers, it will be excluded from the reporting obligation.

In the Czech Republic, the competent authority will be the Specialized Tax Office.

In Hungary the competent authority will be the National Tax and Customs Office of Hungary.

In Romania, the competent authority will be the National Agency of Public Finance if no further amendments are brought.

In the Slovak republic, the competent authority will be the Financial Directorate of the Slovak Republic.

The choice of sanctions remains at the discretion of the member states, but the penalties should be effective, proportionate, and discouraging.

The proposal of the Ministry of Finance of the Czech Republic states the possibility of imposing a fine of up to CZK 1.5 million (approx. EUR 60,000) for non-compliance with the obligations of reporting information.

The amount of the fine for non-compliance with the obligations of reporting information to the National Tax and Customs Office of Hungary and due diligence procedures at the maximum of HUF 5,000,000.

As per the Romanian Fiscal Procedure Code, failure to comply with the reporting liability may be imposed with a fine ranging from RON 2,000 to RON 14,000 based on the type of entity operating the platform. Nevertheless, it may be subject to amendments, considering that the implementation of DAC 7 within the national legislation is still ongoing.

The Ministry of Finance of the Slovak Republic proposes the amount of the fine for non-compliance with the obligations of reporting information to the competent authority of the Slovak Republic and due diligence procedures at the level of EUR 10,000, which may be imposed repeatedly.

The Exposure Draft ED/2019/7 includes the proposals of the International Accounting Standards Board (Board) to improve how information is communicated in the financial statements, with a focus on information about performance of the statement of profit or loss. The Board is proposing following limited changes in general IAS presentation and disclosures, affecting the statement of cash flows and the statement of financial position.

Structure of the Exposure Draft

The Exposure Draft that brings changes in general IAS presentation and disclosures includes:

• a proposal to replace IAS 1 Presentation of Financial Statements with a new Standard that would comprise:
• new requirements on presentation and disclosures in the financial statements.
• requirements brought forward from IAS 1 with only limited changes to the wording.
• proposed amendments to other Standards:
  • IAS 7 Statement of Cash Flows;
  • IFRS 12 Disclosure of Interests in Other Entities;
  • IAS 33 Earnings per Share;
  • IAS 34 Interim Financial Reporting;
  • IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to include some requirements from IAS 1;
  • IFRS 7 Financial Instruments: Disclosures to include some requirements from IAS 1.

The Exposure Draft proposes that an entity presents the following new subtotals in the statement of profit or loss:

• operating profit or loss;
• operating profit or loss and income and expenses from integral associates and joint ventures;
• profit or loss before financing and income tax.

Integral and non-integral associates and joint ventures

The Board proposes to define ‘integral associates and joint ventures’ and ‘non-integral associates and joint ventures’, and to require an entity to classify its equity-accounted associates and joint ventures as either integral or non-integral to the entity’s main business activities.

The Board also proposes to require an entity to provide information about integral associates and joint ventures separately from that for non-integral associates and joint ventures.

The Board proposes that an entity would be required to:

• classify, in the integral associates and joint ventures category of the statement of profit or loss, income and expenses from integral associates and joint ventures, and present a subtotal for operating profit or loss and income and expenses from integral associates and joint ventures .
• present, as cash flows from investing activities in the statement of cash flows, cash flows from investments in integral associates and joint ventures separately from the cash flows from investments in non-integral associates and joint ventures
• present, in the statement of financial position, investments in integral associates and joint ventures separately from investments in non-integral associates and joint ventures
• disclose, in the notes, information required for integral associates and joint ventures separately from non-integral associates and joint ventures.

EBITDA

The Board does not propose to define earnings before interest, tax, depreciation and amortization (EBITDA) in this project.

The Board considered it, but rejected, describing operating profit or loss before depreciation and amortization as EBITDA.

However, the Board proposes to exempt from the disclosure requirements for management performance measures a subtotal calculated as operating profit or loss before depreciation and amortization.

More than ever before, if companies want to maintain their stable position on the current market, their management requires a greater dose of flexibility and innovative processes. The demand for more resilience can be seen across most departments in companies – and HR is not an exception.

Both local and international companies – either opening new branches, entering the market, expanding their production or exploring new business opportunities – encounter difficulties not only with finding and recruiting candidates, but they are also burdened by the personnel agenda and the associated administration. In recent years, it has proven to be no longer profitable for most companies to employ their own HR employee. Therefore, they opt for external support and more efficient opportunities, such as outsourcing.

HR outsourcing and its 4 main benefits

HR outsourcing services enable the transfer of certain human resources processes to an external provider, who can fully cover the client’s complex HR agenda. Nonetheless, it offers also other valuable benefits to companies.

Financial relief not only for the HR department

Undoubtedly, one of the greatest benefits, especially for smaller companies, are financial savings. Companies can cut costs not only on the employee’s payroll, but also on their equipment, such as a laptop or mobile phone, or HRM software used, which needs to fulfil certain security standards. The savings on operating costs and rent will also have a positive effect, as the company does not need to set up an office for their HR department. Additional cost savings are related to the training of employees, which in this case is covered by the outsourcing service provider.

Extensive expertise in multiple areas

Outsourcing providers engage multiple local and international teams of experts, therefore they have access to an extensive knowledge in the field of HR administration, labour law, payroll administration and other related areas. Thanks to outsourcing, the client will acquire not only one HR specialist, but a whole team of HR and payroll experts, who are ready to solve any challenging or ad-hoc agenda, even through a hotline support.

Easy management of employee agenda

Another advantage is the takeover of responsibility by the HR outsourcing vendor for all HR administrative matters concerning employees: their registration and deregistration to and from local authorities, insurance companies, the administration associated with health and safety trainings and medical examinations, preparation, update and signing of employment contracts. All being one under the highest privacy compliance regulations and data security. In certain scenarios, the HR outsourcing includes the onboarding process itself, as well as support in more sensitive matters, such as the termination of employment.

Full compliance with legislative changes, anywhere and anytime

Another significant benefit of HR outsourcing is the liberation from lengthy and time-consuming activities related to the up-to-date legislation. Monitoring, studying amendments and regulations, translating them into comprehensive language and helping with their application in practice is managed by the vendor. Therefore, the client company does not need to study the latest legislation and complex local or international legal frameworks or labour codes. HR outsourcing ensures full compliance at all times, across all locations where contracted, no matter the frequency of new obligations.

Entrust your HR agenda to us – benefit from our HR outsourcing services

Complex management of HR agenda

Take advantage of our labour law advisory along with the execution of specialized tasks, for instance when employing foreigners or submitting information cards that are a vital agenda of recruiting and employing of foreigners. We can cover the comprehensive administration for domestic and foreign business travels, starting with travel orders, billing of expenses to the preparation of PD A1 forms necessary for travel.

Cloud-based HR solutions

Become completely paper-free with our help and get access to a cloud-based archive of electronic documents. Transfer personal files and attendance records online with 24/7 access from any location or device. Forget about paper requests for annual leave – our online time and attendance portal allows you to approve these requests from your mobile through.

Custom service offering

Take only what you need thanks to the possibility of tailor-made solutions and custom service packages based on your requirements. We can take care either of the whole agenda or only a part of it, such as setting up internal guidelines or a training program for your employees.

When to choose HR outsourcing for your company?

The HR agenda is getting more complex by every change in the economy, society or technological advancements. HR specialists must be able to pay attention to a great number of details, control the processes, work with the latest legislation and constantly implement innovations or the latest technology to keep pace with the industry. By outsourcing, you gain a more effective management of crucial processes and allow your company to shift the focus from internal administrative matters to the growth of your business.

Effective since June 25, 2018, the EU Council Directive 2011/16, or in short, the DAC 6 directive, covers the mandatory disclosure and automatic exchange of information among EU member states in the field of taxation related to reportable cross-border arrangements. The reporting obligation aims to strengthen tax transparency, prevent tax avoidance and tax evasion.

When to report cross-border arrangements

The subjects of reporting are cross-border tax arrangements which meet at least one or more specific characteristics identified as potentially indicative of aggressive tax planning – the so-called hallmarks.

The hallmarks are the following:

• Generic hallmarks linked to the main benefit test (confidentiality conditions, fee arrangements, standardized documentation)
• Specific hallmarks linked to the main benefit test (acquiring a loss-making company, converting income into capital, gifts or other categories of revenue which are taxed at a lower level or exempt from tax, circular transactions resulting in the round-tripping of funds)
• Specific hallmarks related to cross-border transactions (deductible cross-border payments made between two or more associated enterprises where one enterprise is resident in a jurisdiction with null or preferential tax regime (note: this is also linked to the main benefit test), deductible cross-border payments made between two or more associated enterprises where the recipient is not resident for tax purposes in any tax jurisdiction or is resident for tax purposes of a state listed by EU or OECD as being non-cooperative, depreciation deductions on the same asset claimed in more jurisdictions, relief from double taxation in respect of the same item of income or capital is claimed in more jurisdictions, transfers of assets that generate a material difference in the amount being treated as payable)
• Specific hallmarks concerning automatic exchange of information and beneficial ownership (arrangements that are undermining the reporting obligation, arrangement involving a non-transparent legal or beneficial ownership chain)
• Specific hallmarks concerning transfer pricing (use of unilateral safe harbour rules, the transfer of hard-to-value intangibles, intragroup cross-border transfer of functions and/or risks and/or assets)

Requirements for intermediaries and taxpayers

The primary person which is obliged to file the information is the so-called intermediary. It can be any person who:

• designs, sells, organizes cross-border arrangements subject to reporting,
• makes available for implementation or manages the implementation of a cross-border arrangement subject to reporting,
• meets certain additional conditions.

The obligation may also fall on the relevant taxpayer (in other terms, the user), i.e. any person who:

• is provided with a cross-border arrangement that is the subject of reporting for implementation, or
• is prepared to implement a cross-border arrangement that is the subject of reporting, or
• implemented the first stage of such an arrangement.

The relevant taxpayer or user is obliged to report the cross-border arrangement when they propose the reportable arrangement on their own (so-called in-house), when the intermediary is not from an EU member state or when the intermediary is bound by a legal duty of confidentiality.

Failure to comply with DAC6 rules can result in penalties.

Comparison of implemented DAC 6 rules in 5 European countries

The Table shows that some countries when implementing the DAC6 rules went beyond minimum requirements required by the EU directive. For example, Poland extended the scope of reportable transactions to domestic transactions, too. Moreover, they defined additional hallmarks and aim also on VAT. Also penalties for non-compliance, although they differ from country to country, may be material. Therefore, we recommend taxpayers taking care of these rules.

We recommend taxpayers evaluating the cross-border arrangements in which they were/are involved in terms of the above-mentioned characteristics, in order to identify a possible reporting obligation and checking presence of specific DAC6 reporting requirements given by local legislation. The reporting obligation arises only in case when you identify arrangements that are subject to the reporting. Keeping of defence file can help you to prove that you act in compliance with legislation.

Does the reporting obligation apply to you? Find out from our questionnaire

Disclaimer: Our questionnaire does not represent a comprehensive analysis of a cross-border arrangement. The questionnaire is meant to help determine whether a person is obliged to file the corresponding documentation based on general criteria only. Accace is not responsible for any person’s or entity’s decisions taken based on our questionnaire’s results. Before taking any action, we recommend you to consult an advisor.

In this ECJ Judgement article, we would like to introduce you a case decided recently by the European Court of Justice (ECJ) that concerns applying of value-added taxation of occupational pension fund management services . In the judgment of the Court No. C-235/19 of October 8th 2020, the ECJ dealt with the question if providing of management services of pension funds could be considered as „insurance transaction“ that should be VAT exempted in accordance with the Council Directive 2006/112/EC on the common system of value added tax (further referred to as “Directive”).

Case circumstances

This judgment refers to British companies United Biscuits (Pensions Trustees) Ltd. and United Biscuits Pension Investments Ltd. that administrate occupational pension scheme established for employees of United Biscuits (UK) Ltd. Both these companies used services of investment managers when administrating pension funds, who had a status of „insurers“ and „non-insurers“ as well. The status of insurers belongs to subjects, which provided management services of pension funds based on the license granted in accordance with the British Insurance Companies Act. On the other hand, non-insurers were subjects that provided the same services but based on the license granted in accordance with different law.In line with the local legislation, VAT exempted were that services provided by insurers, based on the conclusion that they carried out the activity falling within a sector of insurance when executed in accordance with the Insurance Companies Act. On the other side, services provided by non-insurers could not be VAT exempted.

Companies United Biscuits (Pensions Trustees) Ltd. and United Biscuits Pension Investments Ltd. complained and unsuccessfully asked the United Kingdom tax authority for reimbursement of the VAT at issue which they paid. Later they brought an action before the High Court of Justice, which rejected their action; consequently the Court of Appeal decided to stay the proceedings and to refer the question to the ECJ whether the supplies of pension fund management services provided by (a) insurers and (b) non-insurers were “insurance transactions” within the meaning of Article 135(l)(a) of the Directive.

Insurance transactions

The ECJ in this case said, as generally understood and according to settled case-law that a term insurance transactions requires that the insurer undertakes, in return for prior payment of a premium, to provide the insured, in the event of materialisation of the risk covered, with the service agreed when the contract was concluded.

In this case under consideration it was approved that services provided based on the concluded contract only consisted of investment management services solely, to the exclusion of any indemnity from risk. Further, the ECJ added to this that no other criterion connected with the concept of ‘insurance transactions’ may be derived from the case-law of the Court or EU law in the matter of insurance, except that above mentioned.

ECJ Judgment

The ECJ came to a conclusion that investment fund management services supplied for an occupational pension scheme, which do not provide any indemnity from risk, cannot be classified as ‘insurance transactions’, within the meaning of the provision of Article 135(1)(a) of the Directive, and thus do not fall within the VAT exemption laid down in that provision.

The judgment of the European Court of Justice (ECJ) of March 11, 2021 in case C-812/19 (Danske Bank case) clarified how the provision of cross-border services within the same legal entity should be treated from a VAT perspective. The case concerns the principal establishment of Danske Bank, which is based in Denmark and is a member of a VAT group in that country, where its branch established in Sweden, which is the recipient of cross-border services provided by the principal establishment, is not a member of the Danish VAT group, and nor any other in the country of establishment.

Circumstances of the case and questions referred by the ECJ

Danske Bank’s principal establishment, based in Denmark, which is part of the Danish VAT group, provides IT services in the form of a computer platform to its Swedish branch. Then the costs associated with using that platform are charged to Swedish branch by Danish principal establishment.  The branch established in Sweden is not a member of any VAT group.

The Swedish branch of the company asked Revenue Law Commission in Sweden for a tax statement on whether the principal establishment in Denmark and its branch in Sweden could be considered as single taxable person or two separate persons for VAT purposes, and whether the services provided by the principal establishment to its the Swedish branch where the associated costs are charged to it, shall be considered as a taxable transaction for which the Swedish branch, as the recipient of the services, is required to pay VAT. The case was later taken over by the Supreme Court, Sweden, which stayed the proceedings and referred the matter to the ECJ.

ECJ conclusion

In order to answer these questions, the ECJ drew on an earlier judgment of 17 September 2014 in Case C-7/13 (Skandia America Corp. (USA), filial Sverige), where a principal establishment based in USA provided services to its branch established in a Member State of the European Union, which was a member of a VAT group in that Member State. In that judgment, the ECJ held that the supply of services by a principal establishment of a company established in a third country to its branch in a Member State shall be considered as a taxable transaction if that branch is a member of a group of persons who may be regarded as a single taxable person for VAT purposes.

The ECJ further highlighted the territorial limitation arising from Article 11 of Directive 2006/112/EC (hereinafter “the VAT Directive”), which regulates the possibility to treat several persons as a single taxable person. The Danish legislation, which transposes Article 11 of the VAT Directive, authorizes several taxable persons who have the same owner and are established in the same Member State to register a Danish VAT group. The group can only concern undertakings established in Denmark.

Based on the stated above, the ECJ held as follows:

• The supply of services by a principal establishment in Denmark to its branch established in another Member State (Sweden) constitutes a taxable transaction if that principal establishment is part of a VAT group, the members of which may be regarded as a single taxable person. From a VAT perspective in a given case, it is the Danish VAT group which is providing the services to the Swedish branch.
• In accordance with the geographical limitation of the VAT group registration in Article 11 of the VAT Directive, the Swedish branch of Danske Bank cannot be regarded as part of a Danish VAT group of which the company’s principal establishment is a member.
• Following the reasons above, the ECJ held that the principal establishment in Denmark, which is a member of a VAT group in that country, and its branch in Sweden cannot be regarded as a single taxable person. They are to be considered as separate taxable persons when the principal establishment provides services to its branch, where the associated costs are charged to it.

Practical recommendations

The rules for VAT group registration (pursuant to Article 11 of the VAT Directive) have been implemented by several EU countries, including Slovakia. If the company has several establishments in different countries, when reposting the costs of services provided between these establishments within the same legal entity, we recommend checking whether any of these establishments is part of the VAT group in the country of establishment. Participation in a VAT group registration may result in the transaction being regarded as a transaction between two different taxable persons and will be subject to VAT.

On 18 May 2021, the European Commission adopted a Communication on Business Taxation for the 21st century (COM(2021) 251 final). It sets out short-term and long-term agenda for business taxation in the European Union.

Below we would like to draw your attention to the planned actions based on the Communication, which we consider the most significant.

BEFIT

The European Commission will present, by 2023, a new framework for income taxation. The “Business in Europe: Framework for Income Taxation” (or BEFIT) will provide a single corporate tax rulebook for the European Union. The BEFIT will consolidate the profits of the EU members of a multinational group into a single tax base, which will then be allocated to Member States using a formula, to be taxed at national corporate income tax rates. It will replace the pending proposal for a Common Consolidated Corporate Tax Base, which will be withdrawn.

Greater public transparency on the taxes paid by large economic actors

The European Commission will issue a new proposal requiring certain large companies operating in the European Union to publish their effective tax rates based on the methodology under discussion in Pillar 2 of the OECD negotiations by 2022. The effective corporate tax rate provides information regarding the proportion of corporate tax paid by companies relative to the amount of profits they generate rather than relative to their ‘taxable profits’, which can be reduced through various means such as tax allowances.

Fight against the abusive use of shell companies

The European Commission will tackle the abusive use of shell companies through the proposal of new anti-tax avoidance measures (ATAD 3) by the fourth quarter of 2021. The initiative aims to ensure that EU legal entities with no or minimal substantial presence and real economic activity will not benefit from tax advantages. The Commission also intends to take further steps to prevent royalty and interest payments leaving the EU from escaping taxation (so-called ‘double non-taxation’).

DEBRA

The European Commission will support innovation by addressing the debt-equity bias in the current corporate taxation (which treats debt financing of companies more favourably than equity financing) via an allowance system (Debt Equity Bias Reduction Allowance (or DEBRA)) for equity financing by the first quarter of 2022.

Recommendation to Member States on treatment of losses

Additionally, the European Commission has recommended Member States allowing businesses to carry back losses as a support measure for their recovery from the COVID-19 pandemic. The loss carry-back would enable companies that were making a profit and paying taxes in the years prior to 2020 to offset their 2020 and 2021 losses against these taxes. The recommendation was issued on 18 May 2021 (C(2021)3484 final). In order to limit the impact on national budgets, Member States should limit the amount of losses to be carried back. EUR 3 million per loss making fiscal year should be the maximum amount for the loss carry back.

E-shop operators, attention! From July 1, 2021 the rules for the sale of goods via mail order will change substantially.

If your e-shop delivers goods to customers in other EU states in B2C transactions, a change in the VAT treatment of mail order sales will apply to you from the middle of this year. The reason is the change of the VAT legislation in the field of distance sales of goods, formerly known as dispatching goods to another EU member state. This change will apply to the cases when goods are delivered to other member states to end consumers (citizens, non-entrepreneurs), i.e. persons for whom acquisition of goods is not subject to VAT.

We have prepared a useful summary of the VAT changes for eCommerce in the European Union to help you find answers to your questions.