The need for tax simplification

The last decade has resulted in very complex tax legislation in EU Member States. The project of the Organisation for Economic Co-operation and Development (OECD) on Base Erosion Profit Shifting (BEPS) was followed by Anti-Tax Avoidance directives in the EU.  Furthermore, on 8 October 2021, the OECD/Inclusive Framework reached an agreement on the design of a two-pillar solution  package to reform the international corporate tax framework. Despite being a package, Pillar One is still not finished and the US has walked away from Pillar Two – the corporate minimum tax of 15%. The US has its own minimum tax and objects to the extraterritorial features of the OECD/EU tax.

Soon after the OECD agreement, the European Commission tabled a proposal in December 2021 to transpose the minimum tax in the EU (Council Directive 2022/2523). In addition to these directives, the EU Commission has proposed many directives on reporting and exchange of information and on closer coordination of tax rules. It has resulted in an increased administrative burden to such an extent that even very large multinational companies, with large tax departments, claim that they cannot fully comply with all reporting obligations. For SMEs, with much more limited in-house tax expertise, if any, it has resulted in increased costs, having to pay for help from advisory firms.

The EU Commission has realised that European competitiveness is eroding, and a review of overlapping tax rules and fragmented implementation is required. This is a very welcome development. In its work programme for 2025, the EU Commission announced a series of measures to address overlapping, unnecessary or disproportionate rules that create barriers for EU companies. Overall, the EU Commission wants to reduce administrative burdens by 25%, and by 35% for SME’s, by the end of its mandate in 2029. The objective was restated in the Competitiveness Compass.

In our Opinion “Assessing tax reporting obligations in the EU: costs, benefits and effective use of information by tax authorities”, the  EESC recommends conducting competitiveness checks of new legislative initiatives in the field of taxation, including for SMEs, in order to evaluate – through an analytical and dedicated tool – whether the new rules actually support the stated objectives of economic growth, competitiveness and innovation, while minimising unnecessary burdens and compliance costs. The measurement of administrative burden, and its reduction towards the stated objectives, need also to be quickly developed and applied.

The Opinion calls for guidance from the EU Commission when directives are presented. However, it will not be enough to create clarity on complex tax rules and concepts. The EESC therefore proposes that a system of advance rulings at EU level be introduced. A court should be established with the right/obligation to offer rulings on interpretation of a Directive, preferably within a reasonably short-time frame after having been asked to do so, say, within 3-6 months. Only the rules of the Directive – and its transposition into national law – should be ruled on, not other national tax rules. The purpose is to provide clarity on the exact content of a Directive, avoiding different interpretations and implementations in Member States, due to different definitions of concepts or terminology used.

The EESC cautions that Pillar 2 may overlap with certain provisions in the Anti-Tax Avoidance Directives, particularly regarding Controlled Foreign Company (CFC) rules. Member States should review existing CFC rules and consider repealing or modifying those that have become unnecessary.

The Opinion calls for an EU agreement addressing the tax complexity and tax uncertainty for cross-border workers, in particular teleworkers. It also calls for timely repayment of withholding taxes on an individual’s stock investments in another member state. Finally, the EESC underlines the need to adhere to fundamental rights and respect taxpayers' rights.

By Krister ANDERSSON, EESC Employers' Group Member and Rapporteur of Opinion ECO/664 Assessing tax reporting obligations in the EU.