2021-12-08-KPMG_Global-Euro_Tax_Flash_from_KPMG_s_EU_Tax_Centre_6页_256kb

KPMG EU Tax Flash Summary: Code of Conduct Group Report (Slovenian Presidency)

Core Content

The KPMG EU Tax Centre has published a summary of the Code of Conduct Group (Group) report, approved by the ECOFIN Council on December 7, 2021, detailing the work performed during the Slovenian Presidency (second half of 2021). The report covers several key areas: the revised mandate of the Group, the current state of the standstill and rollback review processes, the Group's screening and listing exercise of non-cooperative jurisdictions, and an overview of defensive measures implemented by EU Member States.

Main Points

1. Revised Mandate of the Code of Conduct Group

• The ECOFIN Council welcomed discussions on revising the Group's mandate in 2020, which should include features of tax systems with general application that may have harmful effects.
• The Group proposed an updated Code in November 2021, which included a broader definition of harmful tax regimes, additional rollback options, and stricter information exchange rules.
• However, Member States did not reach agreement on the revised Code proposal, with Estonia and Hungary blocking the reform.
• The revision of the Code remains pending, and it is unclear if it will be finalized before the OECD's global tax reform in 2023.

2. Standstill and Rollback Review Process

• The Group noted that some newly identified tax measures do not require assessment, such as:
  • Italy's introduction of a tax credit in the Budget law.
  • Lithuania's corporate income tax for large projects.
  • Romania's measures to support capital maintenance/increase.
• The standstill review is ongoing, with several preferential tax measures to be assessed, including:
  • Croatia's reduction of tax rate for small and mid-sized taxpayers.
  • Romania's profit tax exemption for innovation and R&D companies (currently on hold).
• For the rollback review, Poland has completed legislative work on two out of three aspects of its Investment Zone, while the third is still pending. The Group will review the adequacy of the rollback once the third aspect is finalized.

3. Screening and Listing Exercise on Non-Cooperative Jurisdictions

• The Group updated the EU list of non-cooperative jurisdictions, which was approved by ECOFIN on October 5, 2021 and published on October 12, 2021.
• Transparency criterion 1.4, which relates to the exchange of beneficial ownership information, was not discussed further due to the impact of the COVID-19 pandemic.
• The Group will revisit this criterion in the future.
• Harmful tax regimes under criterion 2.1 and offshore-friendly regimes under criterion 2.2 were assessed, with the following outcomes:
  • Six foreign source income exemption (FSIE) regimes were deemed harmful.
  • Five jurisdictions (Costa Rica, Hong Kong (SAR), China, Malaysia, Qatar, and Uruguay) committed to repeal or amend their regimes and were added to the grey list.
  • Panama did not express a commitment, while the remaining three (Maldives, Nauru, and Singapore) were deemed compliant.
• Under criterion 3.2, the Group agreed that jurisdictions should:
  • Have arrangements (multilateral or bilateral) to exchange country-by-country reporting (CbCR) with all EU Member States by the end of 2019.
  • Be assessed positively in the Inclusive Framework's Phase 3 peer reviews.

4. Defensive Measures by Member States

• The Group's report includes an overview of defensive measures applied by Member States against non-cooperative jurisdictions, in line with the guidance from the ECOFIN Council in December 2019.
• These measures include legislative actions to block or limit the benefits of harmful tax practices.
• For more details, refer to KPMG's summary of defensive measures.

Key Information

• The EU list of non-cooperative jurisdictions is regularly updated based on the Group's work.
• The standstill and rollback processes are ongoing, with some measures being reviewed or postponed.
• The revised mandate of the Code of Conduct Group is not yet approved, which could affect the Group's future work.
• The European Parliament has criticized the current EU list as a "blunt instrument" and called for urgent reforms, but these remain non-binding and subject to the discretion of the ECOFIN Council and the European Commission.
• The OECD's global tax reform is expected in 2023, which may influence the future direction of the Group's work.

Conclusion

The report highlights the ongoing efforts of the EU to combat harmful tax practices and promote transparency and good governance globally. Despite progress in some areas, challenges remain, particularly in achieving consensus on the revised mandate of the Group and in addressing the transparency criterion 1.4. The future of the EU list and the Code of Conduct Group will depend on the outcome of the OECD reform and the willingness of Member States to cooperate.