EU Gateway: Priorities of Hungarian Council Presidency and Update on 5 EU Tax Directives
27/06/24
The presidency of the Council of the European Union is held by an EU Member State. The Council is made up of ministers from each EU country. The presidency of the Council rotates among the EU Member States every six months. During this six-month period, the presidency chairs meetings at every level in the Council, helping to ensure the continuity of the EU’s work in the Council. After the first half of 2024, which was held by Belgium, it is now Hungary's turn to continue the work. In this article, we summarise its tax priorities of the Hungarian presidency and provide an update of the work achieved by the previous Belgian presidency.
WHAT DOES IT MEAN FOR YOU?
Keeping track of EU direct tax legislative developments is crucial, but it can be challenging for your organisation. The direction of pending EU Directives is not always clear, potentially impacting your organisation's tax position across different EU Member States. Additionally, not all information regarding the progress of negotiations on pending EU Directives is easily accessible, further complicating the task of staying informed.
At PwC Netherlands, we understand these challenges. That's why we've launched EU Gateway, dedicated to providing coordinated support for non-EU clients navigating the complex EU tax and legal landscape. Our extensive network of tax and legal specialists offers tailored assistance, ensuring you understand and comply with intricate EU regulations effectively. Trust us to guide you through the complexities of EU taxation and legal compliance.
You can find more information on our dedicated EU Gateway website.
Priorities of the Hungarian Presidency of the Council of the EU
In June 2024, the Hungarian presidency published its programme outlining the priorities and directions for its term. In terms of taxation, the presidency aims to advance discussions on taxation files and international issues, focusing on new business models, international cooperation, and fiscal revenues. Key priorities include fighting tax evasion, ensuring legal certainty for taxpayers, and supporting the EU's international engagement.
Additionally, the presidency sees digitalisation, efficient use of information, and simplification as opportunities to enhance the competitiveness of European businesses.
The programme does not specify which direct tax directives will be prioritised for discussion, as this will be determined later.
Progress of Negotiations on 5 Direct Tax Directive Proposals During the Belgian Presidency
Currently, there are 5 direct tax directive proposals pending negotiations. During the Belgian presidency of the Council of the EU, political agreement was achieved on one of them, the FASTER Directive. Although it still needs to be formally finalised, this is primarily a timing issue.
According to the Economic and Financial Affairs Council (ECOFIN) report to the European Council on tax issues, delegations expressed satisfaction with the Council's work, particularly noting the adopted EU legislation and progress in inter-governmental work during the current legislative cycle. Many delegations highlighted the immense workload and IT adjustments required for implementing and applying the legislation, especially for tax authorities. Therefore, delegations emphasised the need to focus on implementing the adopted legislation. We understand that the implementation and application of the Pillar Two Directive in EU27 is a point of attention for many EU Member States.
Some delegations prefer to complete work on current tax initiatives before launching new directives. They also suggested involving EU Member States more in the process and welcomed actions to simplify tax administration and compliance.
FASTER – political agreement by EU27
During the Belgian presidency, political agreement was reached on the FASTER Directive (Faster and Safer Relief of Excess Withholding Taxes). It aims to support the Capital Markets Union, facilitate cross-border investment, and prevent tax fraud. Key features include fast-track procedures for withholding tax relief, a common EU digital tax residence certificate, and a register for certified financial intermediaries. The register would ensure that only certified financial intermediaries can apply for relief of withholding tax on behalf of their clients through the fast-track procedures. Implementation begins on 1 January 2030. See PwC’s Tax Policy Alert for more information on FASTER.
Unshell Directive proposal – further discussions needed
Initially proposed in December 2021, together with the EU Pillar Two Directive, the Unshell Directive proposal aims to fight against the misuse of shell entities in the EU for improper tax purposes and to ensure that shell companies in the EU that have no or minimal economic activity are unable to benefit from tax advantages. Despite amendments December 2023, further technical work is needed for a feasible agreement. Most delegations support its objectives. During the Belgian presidency, a revised version was presented in June 2024, but ongoing discussions are necessary to resolve outstanding issues, per the ECOFIN report.
Transfer Pricing Directive – it cannot be supported by EU Member States under its current form
Initially proposed in September 2023 (together with the BEFIT proposal), the TP Directive proposal aims to integrate OECD key transfer pricing principles and rules in EU27’s domestic laws. This proposal covers the following key aspects: incorporating the arm’s length principle into Union law, harmonising the key transfer pricing rules, clarifying the role and status of the OECD Transfer Pricing Guidelines; and creating the possibility to establish, within the Union, common binding rules on specific transfer pricing subjects within the framework of the OECD Transfer Pricing Guidelines.
Current discussions reveal that EU Member States do not support the TP Directive in its current form due to concerns over double standards in the field of transfer pricing, as well as about the loss of flexibility that they currently have in negotiating and applying the TP guidelines. Further work is needed to lay the groundwork for progress. Many EU Member States suggest creating an “EU Transfer Pricing Platform” akin to the Joint Transfer Pricing Forum as a useful soft law forum.
Take a look at our EU Gateway publication for more information about the TP Directive and our points of attention from the proposal.
BEFIT proposal – it raises concerns regarding its operation with other rules like Pillar Two
Proposed in September 2023, BEFIT (Business in Europe: Framework for Income Taxation) aims to simplify the tax system and reduce compliance costs. It introduces an aggregated common company tax base for "BEFIT groups" distributed among EU Member States over a 7-year transitional period under domestic Corporate Income Tax (CIT) rules.
During the Belgian Presidency in May 2024, discussions focused on aligning the first twenty Articles of the Commission proposal with Pillar Two rules. While EU Member States support BEFIT's objectives, concerns remain about its interaction with national tax rules, Pillar Two, existing EU tax laws, and the scope and calculation of preliminary tax results for BEFIT groups.
Take a look at our EU Gateway publication for more information about BEFIT and its interaction with Pillar Two rules.
Head Office Tax System Directive proposal – large number of delegations raised serious concerns
Initially proposed in September 2023, the Head Office Tax (HOT) System Directive proposal aims to reduce compliance costs and encourage SME cross-border expansion. It introduces a core rule under which the profits of EU permanent establishments will be calculated based on the rules of the head office.
Significant concerns raised about the potential effect on tax revenues of EU Member States, risks linked to competitiveness of the domestic markets (“home” SMEs that choose not to or can’t expand cross-border), administrative or aggressive tax planning challenges that the Directive, as
proposed by the Commission, may create for tax authorities, as well as more general arguments linked to the burden for national tax systems and linked to tax sovereignty.
See PwC’s Tax Policy Alert for more information on the HOT proposal.
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