(June 1): The European Union will propose a streamlining of rules and exemptions in the area of taxation, its latest effort to reduce bureaucracy.
The European Commission, the EU’s executive branch, wants to cut compliance costs by €7 billion (US$8.17 billion or $10.42 billion) annually through changes to tax rules, according to a draft of the commission’s tax simplification plans seen by Bloomberg.
Among the changes that will be proposed are a broadening of withholding tax exemptions to include more companies; a new research and development allowance accessible to any company across the EU; and an exemption for the bloc’s defence industry from borrowing costs.
It is also advocating exemptions for small and medium-sized enterprises, as well as large companies, from provisions of the bloc’s anti-tax avoidance rules.
The tax simplification proposal, to be presented June 24, is one of the many areas of law the commission is seeking to simplify.
Once published, it will be up to EU countries to amend and finalise the bill. Tax legislation requires unanimity for approval.
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In the draft, which could be subject to change, the commission notes that while the EU’s tax rules have reduced tax avoidance and encouraged cross-border commerce, the complexity of the rules has “significantly increased”, and made compliance harder for businesses and tax administrations in the EU.
The EU has implemented a minimum tax law, following an agreement at the level of the Organisation for Economic Co-operation & Development, or OECD, in 2021, that applies to large companies. Now it argues that it is redundant for those companies to also follow certain provisions of the bloc’s anti-tax avoidance rules.
The exemption for large companies from so-called controlled foreign company rules — meant to curb companies from shifting profits to low-tax countries — could save €160 million annually, the draft said.
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The document lays down an EU-wide “R&D allowance, as a minimum standard, in order to ensure full deductibility” on expenditures, with a view to immediately deduct expenditure, or over the next four tax periods.
The proposal will also move away from prior approval procedures for tax exemptions, moving instead toward self-assessment and audits for verification. That would mean less paperwork and easier access, according to the draft.
A spokesperson for the commission declined to comment.
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