Our Tax expert team has prepared an overview of the most relevant aspects of the latest European Union tax initiatives. Read more on the following topics to discover how these initiatives are relevant to your company.
HOT Directive: SMEs gain the opportunity to use head office taxation rules for calculating taxes
At the beginning of autumn 2023, the European Commission published a new legislative proposal, a Council Directive establishing a Head Office Tax (HOT) system for micro, small and medium-sized enterprises (SMEs) and amending Directive 2011/16/EU (the HOT Directive).
The HOT Directive introduces rules that allow SMEs operating across different European Union (EU) countries to have the option to choose to use the head office taxation rules to calculate the taxable results of their permanent establishment (PE) in other EU member states. However, the applicable tax rate will remain the same as it is in the EU member state where the PE is located. SMEs will have to file a single tax return with the tax administration of the EU member state in which the head office is established. According to the HOT Directive, this option will apply for five years unless the head office changes its residence or the joint turnover of the PEs reaches a level of at least triple that of the head office. The HOT Directive’s rules will not affect the national regulations of EU member states regarding local tax audits, legal remedies, dispute resolution, or applicable bilateral tax conventions on double taxation.
The draft of the HOT Directive stipulates that the provisions of this directive will have to be transposed into national law by the end of 2025 and will enter into force from 1 January 2026. The draft of the HOT Directive has moved to the phase of negotiation between EU member states in order to reach a unanimous agreement.
View the full version of the HOT Directive here.
The Platform Work Directive sets protection standards for digital platform workers
On 11 March 2024, the Council approved the EU Platform Work Directive, which sets minimum protection standards for persons across the EU working for digital labour platforms. The Directive applies to digital platform work companies, employers of record, and self-employed contractors.
The directive requires the member state to introduce a legal presumption of employment for self-employed platform workers, such as rideshare drivers and app-based freelancers. If it is established that the platform operator exercises control and direction over self-employed persons, they will be treated as employees, and as a result, national employment and payroll tax laws will apply to them.
Digital platform operators may refute this presumption by proving that the contractual relationship is not employment. The directive may have far-reaching implications for the business models of digital platform operators and employers of record.
While the member states still have two years to transpose the directive into their national laws, the operators may need to take action now, considering the amount of time any changes may take to implement.
Transfer pricing guideline amendments for distribution and marketing companies
On 22 February 2024, the European Parliament’s Committee on Economic and Monetary Affairs approved the European Commission’s draft Directive on Transfer Pricing, although with substantial amendments – deleting many technical provisions, including determining the market price range and tax adjustments, from the draft. The draft Directive retains only the provision that member states will be obliged to use the OECD Transfer Pricing Guidelines, proposing implementing the Directive from 1 January 2025. Information on the draft Directive is available here.
On 19 February 2024, the OECD Inclusive Framework adopted amendments to the Transfer Pricing Guidelines, which provide a simplified procedure for determining the profits of distribution and marketing companies using the calculation formula and data set out by the OECD, to apply from 1 January 2025. In 2024, the OECD is expected to decide on a list of jurisdictions where the profits of distribution and marketing companies will have to be respected by other OECD participating countries. Information on the guidelines is available here.
Cross-Border Payments Oversight Programme (CESOP) implementation in Estonia, Latvia and Lithuania
CESOP (Cross-Border Payments Oversight Programme) is an additional mechanism for tax administrations to enhance their ability to monitor Value Added Tax (VAT) regulation compliance in e-commerce and bolster efforts to combat VAT fraud. By requiring payment service providers to transmit information on cross-border payments to tax authorities, CESOP enables authorities to gather crucial data related to cross-border transactions in e-commerce.
This information can be instrumental in identifying discrepancies, detecting potential instances of VAT evasion or fraud, and ensuring that VAT regulations are adhered to within e-commerce. By leveraging CESOP, tax administrations can strengthen their monitoring and enforcement capabilities, thereby contributing to a fairer and more robust tax system in the digital economy.
The deadline for submitting data on international payment transactions to the state tax authorities (STA) is approaching – the first data submission for Q1 2024 must be completed no later than April 30, 2024.
Payment service providers in the EU must collect and maintain records of international payment transactions made through them and submit this data to the STA.
The first data submission for Q1 2024 must be completed no later than 30 April 2024.
Depending on the country in question, data will be submitted to the STA:
- using a web service designed to submit the dataset
- through tax and related data-exchange subsystems
- via the Electronic Declaration System.
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