Euro Tax Flash from KPMG's EU Tax Centre

With the end of 2024 approaching, KPMG’s EU Tax Centre took the opportunity to look back on some of the highlights of the year in the EU and international tax world. As this was a particularly eventful year from a tax perspective, this special edition of Euro Tax Flash highlights the most important tax developments recorded during 2024 and notes some of the initiative that should be paid attention to in 2025.

• EU Minimum Tax Directive (Pillar Two)
• Exchange of Top-up tax information returns in the EU (DAC9)
• EU implementation of Pillar One
• Proposal to prevent the misuse of shell entities (Unshell)
• Securing the Activity Framework of Enablers (SAFE)
• ATAD evaluation
• Business in Europe: Framework for Income Taxation (BEFIT)
• Transfer Pricing Directive
• Proposal for a debt-equity bias reduction allowance (DEBRA)
• Faster and safer excess refund (FASTER)
• EU Public Country-by-Country (CbyC) Reporting
• Reporting obligations for platform operators (DAC7)
• Extending the scope of reporting and information exchange in the EU (DAC8)
• DAC evaluation
• EU list of non-cooperative jurisdictions
• Foreign Subsidies Regulation (FSR)

EU Minimum Tax Directive (Pillar Two)

EU Minimum Tax Directive at a glance

As previously reported, the EU Minimum Tax Directive (2022/2523) entered into force on December 23, 2022 and required Member States to transpose the rules into domestic law by December 31, 2023.

Member States were generally required to start applying:

• the Income Inclusion Rule (IIR) for fiscal years beginning on or after December 31, 2023, and
• the Undertaxed Profits Rule (UTPR) for fiscal years beginning on or after December 31, 2024.

The Directive allows Member States to defer the application of the IIR and the UTPR up to December 31, 2029, where a maximum number of 12 UPEs are based in that EU Member State. It is important to keep in mind that Member States that do not defer the application for the charging provisions will be required to apply the UTPR with respect to Constituent Entities resident in deferring jurisdictions. 

In addition, the EU Directive provides the option for Member States to implement a qualified domestic minimum top-up tax (QDMTT), without specifying an application date.

Following the entry into force of the EU Minimum Tax Directive, the OECD/G20 Inclusive Framework (IF) published a number of additional rules and clarifications that supplement the OECD GloBE Model Rules. In response, EU Member States approved a Council statement on November 9, 2023, reconfirming their political support for Pillar One and Pillar Two of the OECD's BEPS project. The Council statement and the accompanying statement from the European Commission (EC) also confirm the compatibility of the Safe Harbour rules and the February, July, December 2023 and June 2024 Administrative Guidance agreed by the IF with the EU Minimum Tax Directive. This position was further confirmed in non-binding FAQs published by the European Commission on December 22, 2023.

Status

On October 3, 2024, the European Commission referred Cyprus, Poland, Portugal and Spain to the Court of Justice of the European Union (CJEU) for failing to transpose the Directive into domestic legislation within the deadline set by the Directive.

In the meantime, Poland and Portugal have published final legislation implementing the rules into domestic legislation. As at the date of this publication, the state of play for these EU jurisdictions can be summarized as follows:

• In Cyprus, the Parliament adopted legislation in December 2024 to implement the IIR from 2024 and DMTT and UTPR from 2025. Publication in the Official Gazette is pending.
• In Poland, legislation was signed by the President into law in November 2024.  The IIR, UTPR and DMTT would apply for financial years starting on or after December 31, 2024. The timeline is therefore deferred by one year compared to the EU Directive requirements. However, Polish draft legislation provides for an option for groups to make an irrevocable election to apply the IIR and DMTT earlier (i.e., from January 1, 2024).
• In Portugal, legislation was enacted in November 2024 providing for retroactive application from 2024 for DMTT and IIR, and from 2025 for UTPR.
• In Spain draft legislation was approved by the Congress in November 2024 and submitted to the Senate. The bill provides for application of the IIR and DMTT for financial years starting on or after December 31, 2023, and the UTPR for financial years starting on or after December 31, 2024.

A number of EU Member States (including Belgium, Denmark, France, Germany, Ireland, Luxembourg and Sweden) have already completed or are currently in the process of amending their minimum tax legislation to incorporate additional elements of the Administrative Guidance (e.g., Safe Harbour provisions, anti-hybrid arbitrage rules, elections, etc.) and/or to correct elements from the previously adopted rules.

For more details, please refer to the dedicated KPMG BEPS 2.0 tracker in Digital Gateway, which provides an overview on the status of Pillar Two implementation not only within the EU but globally. The tracker further indicates some of the variations in terms of how countries incorporate the GloBE rules in their domestic legislation, including the application of the different GloBE Safe Harbours, the applicable accounting standard for DMTT purposes, different registration, filing and payments requirements as well as deadlines.

What to keep in mind

Taxpayers operating in the EU will want to monitor how EU Member States incorporate the GloBE rules in their domestic legislation. Key design decisions that are left to national legislators include the operation and design of the DMTT as well as the administration of the rules, including registration and filing requirements:

• DMTT: there is variation with regard to whether countries make use of QDMTT design options that are permitted under OECD Guidance (e.g., carve-out for certain types of entities, no application of substance-based income exclusion or de-minimis exclusion). Note that stricter criteria apply as per OECD Guidance released in July 2023 for a QDMTT to be eligible for the Safe Harbor. Furthermore, approaches are not harmonized across the EU with regard to whether the QDMTT is computed based on the Local Financial Accounting Standard of the QDMTT jurisdiction (subject to conditions) or based on the consolidation standard. In this respect, several EU Member States have been or are in the process of amending their local DMTT rules with the aim of reaching qualified status under the IF peer review process.
• Administration:  local registration, filing and tax payment requirements may differ across GloBE jurisdictions (e.g., requirement to file local self-assessment returns for IIR, UTPR and DMTT purposes in addition to the GloBE Information Return (GIR), setting filing and payment deadlines (including potential advance payment requirements) and providing for centralized group filing and payment). Different registration and notification obligations apply in different jurisdictions. Whilst some Member States require registration within the same deadline as for the GIR, others require (certain) local Constituent Entities to register with local administration already in 2024 (e.g., Belgium, Hungary) or 2025 (e.g., Denmark, France). Some Member States also require or give the option to local Constituent Entities to submit a notification to the local tax administration to identity the designated filing entity responsible for filing and paying top-up tax (if any) on behalf of the local group members. Such notification may already be due by end of 2024 (Austria) or in 2025 (e.g., Germany, France, Romania).

In-scope groups will also want to carefully monitor approaches taken by GloBE jurisdictions in terms of incorporating and applying elements of the OECD Commentary and Administrative Guidance in their legislation. In this context, it is important to note that work is ongoing at the level of the IF on future tranches of Administrative Guidance, which are expected to be released in early 2025. As many Member States have amended or are in the process of amending their domestic Pillar Two legislation, it will be important to monitor whether such amendments introducing aspects of AG will be implemented retroactively for 2024 (e.g., Czechia, Luxembourg) or 2025 (e.g., Netherlands (for certain provisions), Slovakia). It is also important to note that additional clarifications and interpretations brought by individual countries may go beyond what is provided by the OECD materials (e.g., Austria, Italy, Luxembourg).

Another important aspect to monitor is the outcome of the IF peer review for a common assessment of the "qualified" rules status of jurisdictions' implementation of the DMTT, IIR and UTPR. The IF has issued in June 2024 a Q&A document confirming that such assessment will also address the question of whether a jurisdiction's QDMTT meets the additional criteria to be eligible for the QDMTT Safe Harbour in a foreign jurisdiction. The Q&A clarify that a transitional (simplified) self-assessment procedure will apply initially, whereby an implementing jurisdiction can self-certify the status of local rules by providing information on the main features of their legislation to the OECD Secretariat. Depending on the assessment of such information, the country will be awarded a transitional qualified status, which is to be respected by all other countries until a full legislative review is completed. This process will likely provide some comfort for groups having to assess in which countries top-up tax needs to be calculated and potentially paid under the different collection rules. It is expected that the results of the transitional assessment will be released shortly.

On July 18, 2024, the Belgian Constitutional Court announced that the American Free Enterprise Chamber of Commerce filed a request to annul the rules implementing the UTPR (articles 35 and 36 of the Belgian Law to Implement the Minimum Tax Directive). It is considered likely that the Belgian Constitutional Court would refer the case to the CJEU to question the compatibility of the UTPR with EU law.

Exchange of Top-up tax information returns in the EU (DAC9)

DAC9 at a glance

On October 28, 2024, the European Commission adopted a proposal to extend the scope of the Directive on Administrative Cooperation (DAC) to establish a framework for the exchange of information under the EU Minimum Tax Directive (DAC9).

The purpose of the DAC9 proposal is to introduce a framework for the exchange of Top-up tax information returns filed by in-scope groups with the tax administration of an EU Member State. This would allow MNEs to switch from local to central filing in the EU, where the EU UPE or designated filing entity files on behalf of the group in an EU Member State. The proposal includes a dissemination approach for the exchange of information to ensure that Member States only receive the information they need to collect any top-up taxes due in their jurisdiction through one of the available mechanisms, i.e., DMTT, IIR or UTPR, as follows:

• The Member State of the UPE receives the full GIR.
• All Implementing Member States receive the full general section of the GIR.
• QDTT-only Member States, where constituent entities of the MNE are located, receive the general section of the GIR (excluding high-level summary information section).
• Member States with taxing rights (IIR or UTPR) receive specific jurisdictional sections.

This approach follows that published by the OECD in July 2023.

With respect to timing, the relevant sections of the Top-up tax information return should be exchanged with the appropriate Member States as soon as possible, and no later than three months after the filing deadline for the reporting fiscal year. For the first reporting year, however, an extended deadline of six months from the filing date will apply.

The DAC9 proposal also introduces a standard template for the Top-up tax information return, which closely follows the template developed by the OECD for the GloBE Information Return (GIR) – as published in July 2023. The proposal notes that future changes to the GIR would be reflected in the Top-up tax information return via European Commission delegated acts.

Once adopted, EU Member States would be required to transpose the Directive into domestic legislation by December 31, 2025, with the first exchange of information taking place at the latest six months after the filing of the first Top-up tax information return. For calendar year taxpayers, the first exchange would take place after their first filing deadline on June 30, 2026, and exchanges would be made by December 31, 2026, at the latest. Exceptions apply for EU countries that opted for the deferred application of the IIR and UTPR.

Status

On December 10, 2024, the ECOFIN Council approved a report to the European Council providing an overview of the progress achieved during the term of the Hungarian Presidency. With respect to DAC9, the report notes that an initial exchange of views was held in a Council working group on November 13, 2024. According to the report, the proposal is considered a priority file and requires further technical work for it to proceed quickly.

On the day of publication of the Council report, the incoming Polish Presidency of the Council published their program for the first half of 2025. According to the program, steps will be taken to ensure that the DAC9 is fully compliant with the OECD standard, helping to maintain the competitiveness of the European economy.

On December 12, 2024, the Committee on Economic and Monetary Affairs of the European Parliament (ECON Committee) published a draft report on DAC9. In this draft report, the ECON Committee calls for a swift adoption of the Directive by the Council to ensure that the Directive applies in time for the first reporting deadline, which is June 30, 2026.

What to keep in mind

The DAC9 proposal establishes a framework for the exchange of Top-up tax information returns, which serve as the equivalent of the GIR under the OECD Pillar Two Framework. It is important to keep in mind that the proposal does not address exchanges with non-EU jurisdictions. The expectation is that Top-up tax information returns filed by in-scope groups outside of the European Union (i.e., by a non-EU UPE or designated filing entity) will be shared with other relevant tax authorities (including in EU Member States) based on exchange relationships activated through the OECD inclusive Framework or bilateral treaties. The mechanisms provided for under DAC9 will not be relevant in such situations. The OECD is expected to publish a Multilateral Competent Authority Agreement in this respect in early 2025.

Note that the EU Minimum Tax Directive (Article 44 (4)), still requires each Constituent Entity in an EU Member State (or the designated local entity on its behalf) to notify its tax administration of the identity of the entity that is filing the Top-up tax information return, as well as the jurisdiction in which the filing entity is located.

It is furthermore important to keep in mind that the DAC9 proposal does not address any other form of local filing requirements beyond the Top-up tax information return. Please also note that the Top-up tax information return may still be subject to changes due to the ongoing work and release of additional Administrative Guidance at OECD level.

EU implementation of Pillar One

Amount A of Pillar One at a glance

On October 11, 2023, the OECD released the text of a new Multilateral Convention to Implement Amount A of Pillar One (MLC) to reallocate profits of multinational enterprises to market jurisdictions. The October 2023 MLC reflected the consensus achieved among members of the Inclusive Framework at that date. Key elements include:

• Amount A applies to MNEs with global revenues above EUR 20 billion and a pre-tax profit margin greater than 10 percent.
• Amount A reallocates 25 percent of the profit in excess of a 10 percent profit threshold to market jurisdictions (defined as the jurisdiction where the end-user is located).
• Under the so-called Marketing and Distribution Safe Harbour the allocation is adjusted where the market jurisdiction already taxes a portion of the profit.
• A formula identifies jurisdiction(s) obliged to relieve double taxation through either the exemption method or a foreign tax credit.
• The MLC provides that certain withholding taxes (including taxes withheld on interest, royalties and technical fees) are included in the Amount A profit determination and can reduce the profits allocated to a market jurisdiction under Amount A.
• The MLC includes a list of local Digital Service Taxes and relevant similar measures that would need to be removed and outlines criteria to prevent the introduction of such measures in the future.

The MLC was accompanied by an explanatory statement as well as an updated estimate of the economic impact of Amount A. In addition, the MLC was accompanied by an explanatory document, which contains further details on the application of tax certainty for Amount A.

The MLC may only enter into force, once it has been ratified by at least 30 countries accounting for at least 60 percent of the ultimate parent entities (UPEs) of businesses expected to be in scope for Amount A.

Amount B of Pillar One at a glance

On February 19, 2024, the OECD/G20 Inclusive Framework released a report and reader guide on Amount B—an optional simplified and streamlined approach to applying the arm’s length principle (ALP) to baseline marketing and distribution activities.

The guidance gives jurisdictions the option to apply the simplified and streamlined approach from January 2025, either as a taxpayer Safe Harbour or as a mandatory rule. The report has been incorporated into the OECD Transfer Pricing Guidelines as an Annex to Chapter IV (Administrative approaches to avoiding and resolving transfer pricing disputes) and provides an optional simplification that jurisdictions can choose to apply to in-scope distributors, sales agents or commissionaires operating in their jurisdiction for fiscal years commencing on or after January 1, 2025.

On June 17, 2024, the OECD published additional guidance on key definitions related to Amount B of Pillar One, which aims at simplifying and streamlining the application of the arm’s length principle to baseline marketing and distribution activities.  

The OECD have noted that work on an Amount B framework (i.e., political agreement on which jurisdictions will implement Amount B) remains ongoing as part of the broader work on the Pillar One package. Pending the finalization and implementation of any such agreement, Amount B remains optional for jurisdictions. 

Status

On October 24, 2024, the OECD published the Secretary-General Tax Report to the G20 Finance Ministers and Central Bank Governors providing updates on the latest developments in international tax reforms, including on the OECD’s BEPS initiatives, tax transparency efforts and other G20 tax deliverables. With respect to Pillar One, the report notes that members of the Inclusive Framework have secured near full consensus on the MLC to implement Amount A. The focus of the remaining work on Pillar One is reaching political consensus on Amount B beyond the elective approach, to simplify and streamline the pricing of baseline marketing and distribution activities. The report also refers to the Model Competent Authority Agreement (MCAA) to facilitate the implementation of Amount B, which was published on September 26, 2024.

While the work on Amount B is still ongoing, some Member States have started to consider Amount B rules for domestic implementation:

• Ireland: As part of the Finance Act 2024, Ireland has introduced Amount B.
• Netherlands: On December 4, 2024, the Dutch Deputy Minister of Finance published a new decree on the position of the Netherlands with regard to Amount B. The decree states that Amount B rules would not apply to baseline marketing and distribution activities in the Netherlands. However, the Netherlands will honor their commitment towards the OECD and accept the outcome of other jurisdictions applying Amount B.

What to keep in mind

The European Commission has repeatedly advocated for a global solution for the reallocation of profits of multinational enterprises to market jurisdictions to be agreed upon at the level of the OECD, rather than for action to be taken by the EU alone. This view has been confirmed by the new Commissioner for Climate, Net-Zero and Clean Growth, Wopke Hoekstra, who is responsible for taxation matters. However, as part of the confirmation hearing process before the European Parliament, Mr. Hoekstra noted that he will have to convene with EU finance ministers to determine the best possible alternative if negotiations on Pillar One at the level of the Inclusive Framework fail. According to Mr. Hoekstra, a harmonized EU digital services tax (DST) could be considered as a possible solution to avoid a patchwork of national DSTs that would otherwise likely be the results of a failure to reach agreement on Pillar One. Mr. Hoekstra’s comments align with a recent public statement by the Italian Minister of Finance in front of the Italian Parliament where he noted that a DST must be discussed and adopted at an EU level.

Please note that the current agreement on a moratorium on digital services taxes applies for the period between January 1, 2024, and the earlier of December 31, 2024, or the date of entry into force of the MLC. In addition, Austria, France, Italy, Spain and the United Kingdom signed an agreement with the US on existing DSTs in 2021, which was extended in February 2024 from December 31, 2023, to June 30, 2024. Based on the agreement, the respective DSTs can be maintained until Pillar One enters into force. Nevertheless, in case DST liabilities accrued exceed an amount equivalent to the tax due under Pillar One in the first full year of its implementation, the excess will be creditable against certain future Pillar One “Amount A” liabilities. In return, the US has terminated its trade retaliation measures in relation to the DSTs listed above.

In light of a possible demise of Pillar One, some EU countries are already exploring ways to continue applying and potentially strengthening local DSTs. The Italian draft Budget Law 2025 proposed a broadening of the scope of the Italian DST to small and medium sized businesses in the digital economy. 

Proposal to prevent the misuse of shell entities (Unshell)

Unshell at a glance

On December 22, 2021, the EC issued a proposal for a Directive aimed at fighting the use of shell entities and arrangements for tax purposes (Unshell). The Unshell proposal sets out a list of features, referred to as gateways, to filter entities at risk of being misused for tax purposes. High-risk entities would then be required to report on a series of substance indicators through their annual tax return. Companies failing to meet the substance indicators would be deemed to be ‘shell’ entities, potentially triggering the denial of certain tax benefits that would have otherwise been available under double tax treaties and EU Directives.

Status

The text of the proposal has been subject to lengthy discussions in the Council working groups. Several compromise texts were submitted, but Member States have not yet been able to reach consensus on the initiative.

The June 2024 ECOFIN report noted that, in principle, most delegations supported the objectives of the proposal, but were of the view that further important technical work was necessary before an agreement could be feasible. Among the most discussed issues, the report lists: tax consequences, links with domestic anti-abuse legislation, excluded entities, minimum substance, rebuttal of the presumption and reduction of administrative burden, tax residency certificate and exchange of information. Based on the report, on June 11, 2024, the Belgian Presidency of the Council presented a possible way forward at the High-Level Working Party (HLWP).

The December 2024 ECOFIN report highlights that the Hungarian Presidency has put forward concrete drafting suggestions based on the Belgian Presidency's proposed approach. These suggestions focus on key aspects such as scope, hallmarks, reporting obligations, exchange of information, and administrative actions. The report further mentions that on November 26, 2024, the Working Party on Tax Questions (WPTQ) discussed these suggestions, the practical implications, and areas requiring further attention. During the meeting, the need to clarify the interconnection between the Unshell proposal and the Directive on Administrative Cooperation (DAC) was discussed. Additionally, it was emphasized that the Unshell proposal should not impose an excessive administrative burden on businesses and tax authorities.

During the parliamentary confirmation hearing of the Commissioner-designate for Climate, Net-Zero, and Clean Growth, insights into the pending tax files were also provided. Mr. Hoekstra acknowledged the significant role of Member States in taxation and recognized the difficulties in advancing tax proposals due to Member State sovereignty. Nevertheless, Mr. Hoekstra expressed willingness to push forward various pending tax files, including the Unshell proposal.

The work program of the Polish Presidency of the Council mentions that the Presidency intends to continue the work on the tax files currently on the agenda. Supporting EU competitiveness by tackling harmful tax competition is one of the priorities, however the Unshell proposal is not specifically highlighted as a priority.

What to keep in mind

Nearly three years since its release, the proposal is still under negotiation among EU Member States, with its final text and date of application remaining pending. As the Polish Presidency's work program did not specifically mention the Unshell proposal as a priority, it is uncertain whether progress will be made on this file during their term (January 1 – June 30, 2025).

It can be inferred from the latest progress reports published by the ECOFIN that the final text will very likely differ from the initial proposal, possibly substantially. Taxpayers operating in the EU will want to monitor progress on the Unshell proposal and its implementation timeline. Although the risk assessment steps and substance indicators initially proposed by the EC will likely change as a result of the technical work in the Council working groups, the EC’s December 2021 proposal may still serve as a good starting point for an initial assessment of the impact on existing structures.

It is furthermore important to continue to monitor trends regarding the approach of tax administrations across the EU, as well as decisions by national courts in EU Member States on issues related to beneficial ownership and substance, as well as local anti-treaty and anti-directive shopping measures. 

Securing the Activity Framework of Enablers (SAFE)

SAFE at a glance

On July 6, 2022, the EC launched a public consultation on the SAFE initiative following previous statements on its intention to address the behavior of certain intermediaries (enablers) that engage in unacceptable behavior. According to the call for evidence for an impact assessment, three policy options were considered:

• requirement for all enablers to carry out dedicated due diligence procedures;
• prohibition to facilitate tax evasion and aggressive tax planning, combined with due diligence procedures and a requirement for enablers to register in the EU;
• code of conduct for all enablers.

Status

The EC noted that it is important to reach agreement on the proposed Unshell Directive before tabling a proposal in relation to the SAFE initiative. Accordingly, the timeline remains unclear and subject to progress on the Unshell proposal.

What to keep in mind

The European Parliament has repeatedly called for action in this respect, as well as to address the broader issue of the behavior of a minority of intermediaries engaged in unacceptable practices. It will therefore be important to monitor whether or how this translates into further initiatives that may lead to increased due diligence obligations for tax advisors operating in the EU, whether operating as part of a professional services firm or in-house.

ATAD evaluation

ATAD evaluation at a glance

In July 2024, the European Commission launched a public consultation regarding the Anti-Tax Avoidance Directive (ATAD) (Council Directive (EU) 2016/1164 of 12 July 2016 as amended by Council Directive (EU) 2017/952 of 29 May 2017).

Under Article 10 of the ATAD, the Commission is required to evaluate the implementation of the ATAD, and report to the Council on the findings. The evaluation of the ATAD therefore aims to assess its implementation (including the individual policy choices made by the Member States, where allowed under the directive), to understand to what extent the objectives of the directive have been achieved, and whether the measures are future proof, or if they require to be amended in the future.

It is intended that the evaluation provides an evidence-based assessment of the ATAD, based on the following five evaluation criteria: effectiveness, efficiency, relevance, coherence with other EU legislation (notably Pillar Two), and the EU added value of ATAD compared to what Member States could have achieved alone.

Status

Interested parties were invited to provide feedback until September 11, 2024. The EC received a total of 49 responses, including a response letter submitted by KPMG member firms in the EU, which included the following key comments:

• The interaction of ATAD with the EU Minimum Tax Directive creates an additional level of complexity and has created a risk of double taxation, which should be addressed at EU level. In particular, KPMG recommends that ATAD is amended to exempt from CFC regimes those groups that are in scope of Pillar Two.
• Based on our practical experience with the application of ATAD, KPMG notes a number of areas where further clarity and certainty would be welcomed, such as with regard to the treatment of capitalized interest costs for the purposes of the interest limitation rules, and issues related to group taxation in the context of the anti-hybrid rules.
• KPMG also recommends that the adequacy of the deductibility threshold and de minimis rule and the scope of exclusions for long-term public infrastructure projects are revisited to better reflect the current economic environment and international landscape.

The evaluation is expected to be finalized in the third quarter of 2025.

What to keep in mind

In his parliamentary confirmation hearing, the new Commissioner for Climate, Net-Zero and Clean Growth, Wopke Hoekstra, noted that he would focus on streamlining and simplifying EU tax policy. The Commissioner further promised to deliver a holistic effort to declutter tax legislation by 2026. The EC is expected to provide detailed work programs in Q1 2025, which may offer further insights in this respect. Taxpayers operating in the EU may want to monitor how these plans will impact the different elements of the ATAD and contribute to further discussions, where appropriate.

In this context, note that steps are being taken by Member States to explore ways to simply existing domestic anti-abuse measures. For example, a German discussion draft proposes the removal of the German royalty deduction limitation rules from 2025 and the removal of the extended CFC rules for capital investment income (currently providing for a lower participation threshold of at least 1 percent) with retroactive effect from 2022.

At the same time, it can be observed that a number of Member States have amended or are in the process of amending existing anti-abuse legislation to align with ATAD (e.g., the interest limitation rules in the Netherlands, Slovenia and Sweden). 

Business in Europe: Framework for Income Taxation (BEFIT)

BEFIT at a glance

On September 12, 2023, the EC issued a proposal for a Council Directive on Business in Europe: Framework for Income Taxation (BEFIT draft Directive or BEFIT proposal), which provides common rules for determining the corporate tax base for EU-based entities that are part of a group with global consolidated revenues above a certain threshold. Groups not meeting the threshold requirements could opt into the regime.

According to the proposal, BEFIT group entities would have to calculate their preliminary individual tax result by making several adjustments to their financial accounts. These results would then be aggregated into a single tax base and allocated among the members of the BEFIT group.

During the first seven fiscal years post-implementation, the allocation would be made based on the respective average preliminary taxable results in the prior three fiscal years of the BEFIT group members. The EC notes that this transitional approach could pave the way for a permanent method based on formulary apportionment. Once allocated, EU countries may apply further local adjustments (e.g., base increases, deductions, incentives) to the allocated portion of the BEFIT tax base.

The proposal provides for a one-stop-shop system, where the ultimate parent entity would file a single information return for the BEFIT group with its own tax administration. BEFIT group members would then file an individual tax return with their own tax administration, essentially to reflect the local adjustments. In addition, the proposal would introduce the concept of a ‘BEFIT Team’ to reach consensus on the completeness and accuracy of the BEFIT Information among those tax administrations where the BEFIT group operates in the EU.

Status

In February 2024, several EU Member States submitted reasoned opinions to the European Commission or adopted statements raising concerns with respect to the BEFIT proposal. Key concerns include potential conflict with the principles of subsidiarity and proportionality, concerns about the impact on sovereignty of EU countries in the field of direct taxation, concerns about the potential impact on national future tax revenue as well as an increase of the administrative burden for both taxpayers and tax administrations.

A similar perspective was reflected in the June 2024 ECOFIN report to the European Council. Whilst Member States generally support the overall objectives of simplifying corporate taxation rules and reducing the administrative burden in the EU, the report highlighted several concerns that were brought forward during the Council working group meetings on the interplay with existing tax legislation (including national corporate tax rules, Pillar Two rules, EU anti-abuse measures) and also on the scope and determination of the preliminary tax result of in-scope groups.

The December 2024 ECOFIN report to the European Council notes that during the Hungarian Presidency the technical analysis of the proposal continued. According to the report, discussions specifically focused on the proposed rules on tax depreciation, timing and quantification, aggregation and allocation of the BEFIT tax base, the “traffic light” system, and administrative provisions. In addition, the report notes that whilst some Member States called for a political discussion on BEFIT, further reflection and technical work are considered to be required to determine the next steps in these negotiations. In this regard, it was also suggested by several Member States to give priority to certain elements of the proposal, as a way forward.

The BEFIT initiative does not seem to be a priority for the Polish Presidency of the EU Council in the first half of 2025 as its work program does not specifically mention the initiative.

What to keep in mind

As neither the December 2024 ECOFIN report nor the Polish Council Presidency work program include an explicit roadmap for the further steps regarding BEFIT, the future of BEFIT remains uncertain. In his response to the European Parliament's written questionnaire, the new Commissioner for Climate, Net-Zero and Clean Growth, Wopke Hoekstra, described BEFIT as a long-term project which has to be developed by taking into consideration the experiences made with Pillar Two. As such, taxpayers operating in the EU may want to monitor the progress on the BEFIT proposal and contribute to the discussions where appropriate.

Transfer Pricing Directive

Transfer Pricing Directive at a glance

The Transfer Pricing (TP) Directive proposal was released together with the BEFIT initiative and aims at achieving a common method of applying the arm’s length principle (ALP) and increase legal certainty for taxpayers by harmonizing the interpretation of the OECD TP Guidelines.

The EC proposed to incorporate the OECD arm’s length principle and a reference to the ‘OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations’ into EU law, so that their application is harmonized across the EU. The TP Directive would also provide for the gradual development of common approaches in the EU to the practice of applying TP rules, including rules on primary and corresponding adjustments, the application and selection of appropriate TP methods and TP documentation requirements. In addition, the TP Directive proposal would allow the EC to propose common binding rules to provide for additional visibility for taxpayers regarding what Member States consider acceptable for specified transactions, and Safe Harbour provisions.

Status

On April 10, 2024, members of the European Parliament adopted a resolution in support of the TP Directive proposal. The resolution included several suggested amendments to the initial EC proposal. Note, however, that resolutions adopted by the European Parliament with regards to proposals based on Article 115 of the TFEU do not have a binding effect on the Council.

The June 2024 ECOFIN report to the Council noted that Member States raised general concerns about including transfer pricing rules into an EU Directive. According to the report, specific concerns were raised with regards to the risk of possibly creating a double standard in the field of transfer pricing (i.e., at the OECD level and at the EU level), as well as about the loss of flexibility available to Member States in negotiating and applying the OECD Transfer Pricing Guidelines.

According to the December 2024 ECOFIN report to the Council, Member States were not able to resolve the concerns in working group discussions during the Hungarian Presidency. As a result, the report notes that the majority of Member States see no possibility in making further progress on the basis of the Commission proposal in its current form.

Instead, the report notes that, the Member States advanced discussions on the option of establishing a new consensus-based and non-legally binding EU Transfer Pricing Platform. The report notes that the discussions focused on the institutional set-up, structure, mandate, governance and voting rules of such a platform. The report further stresses that such a platform would be established outside the framework of a Council Directive and would be aimed at determining solutions to practical transfer pricing issues. According to the report, further work would be required on such a “soft law” approach subject to the requirements of Article 296(3) of the Treaty on the Functioning of the European Union (TFEU).¹

The TP Directive proposal does not seem to be a priority for the Polish Presidency of the Council in the first half of 2025 as it is not specifically mentioned in its work program.

What to keep in mind

Given that the proposal in its current form has not gained support from the Member States, it appears unlikely that further efforts will be dedicated to advancing the file. However, the proposed “soft law” approach in form of a new EU Transfer Pricing Platform may gain traction as an alternative solution. Note, however, that Article 296(3) TFEU prevents the Council from discussing and adopting acts that are considered to compete against pending Commission proposals. As such, it remains to be seen whether the Commission would first need to withdraw the TP Directive proposal before a decision can be made at Council level on whether to establish such new platform.

Proposal for a debt-equity bias reduction allowance (DEBRA)

DEBRA at a glance

On May 11, 2022, the EC issued its proposal for a Directive on a debt-equity balance reduction allowance (DEBRA). The rules would apply to taxpayers that are subject to corporate income tax in an EU Member State and would provide for an allowance in respect of equity increases in a given tax year. In addition, the Directive proposed the introduction of a new limitation on interest deductibility, which would need to be applied alongside the interest limitation rules under ATAD.

Status

At the ECOFIN meeting on December 6, 2022, it was agreed that the examination of the DEBRA proposal should be suspended until other proposals in the area of corporate income taxation announced by the EC have been put forward. It had been understood that these other proposals relate to the BEFIT initiative. While the Explanatory Memorandum of the BEFIT proposal notes that BEFIT is in line and complements a number of previous EC proposals, DEBRA (or equivalent provisions to address the debt-equity bias) has not found its way into the BEFIT proposal.

Whilst the European Parliament adopted a resolution on DEBRA in January 2024 including some proposed amendments to the EC’s initial text, neither the Belgian, nor the Hungarian Council Presidency relaunched the initiative in 2024. In addition, no reference to the DEBRA Directive proposal was made in the December 2024 ECOFIN report. The work program of the Polish Council Presidency for the first half of 2025 does also not mention this file as a priority.

What to keep in mind

However, in his response to the European Parliament's written questionnaire, the new Commissioner for Climate, Net-Zero and Clean Growth, Wopke Hoekstra, referred to the DEBRA initiative in the context of solutions for removing tax obstacles for the functioning of the EU capital markets. The EC is expected to provide detailed work programs in Q1 2025, which may offer further insights in this respect. As such, taxpayers operating in the EU may want to monitor the progress on this file and contribute to the discussions where appropriate.

In the meantime, Italy (as from 2024) and Belgium (as from 2023) have repealed their Notional Interest Deduction (NID) regimes. By contrast, the Portuguese NID regime was amended in the 2023 Budget law taking into account proposed DEBRA elements.

Faster and safer excess refund (FASTER)

FASTER at a glance

On June 19, 2023, the EC issued a proposal for a Council Directive providing for the “Faster and Safer Relief of Excess Withholding Taxes (FASTER)”, which aims to make withholding tax procedures in the EU more efficient and secure for investors, financial intermediaries, and local tax authorities. 

Key features include:

• a common EU digital tax residence certificate (eTRC), with common content, regardless of the issuing Member State;
• two fast-track procedures complementing the existing standard refund procedure in each Member State, including: (i) a relief at source system, and (ii) a quick refund system. In-scope Member States will be required to implement one of the two systems (or a combination of both);
• the introduction of National Registers for financial intermediaries that will be able to facilitate the fast-track procedures. Such financial intermediaries will be subject to additional due diligence and common reporting requirements.

Status

The text of the FASTER proposal was subject to lengthy discussions in the Council working groups and on May 14, 2024, the ECOFIN reached agreement (general approach) on a compromise text. On December 10, 2024, the Council formally adopted the FASTER Directive and the legislation will enter into force after being published in the Official Journal of the EU.

Member States will need to transpose the Directive by December 31, 2028. The rules will become applicable as of January 1, 2030.

What to keep in mind

Chapter III of the FASTER Directive, which includes provisions regarding national registers of CFIs and the fast-track procedures, amongst others, will not be binding on all Member States. In brief, Member States that meet two cumulative conditions – i) existence of a comprehensive relief at source system (with regards to dividends from publicly traded shares), and ii) low market capitalization, would be allowed to maintain their current withholding tax relief systems. Based on the Belgian Presidency's explanatory note, ten Member States had a market capitalization ratio above the minimum threshold in 2022: Germany, France, Sweden, the Netherlands, Spain, Italy, Ireland, Denmark, Belgium, and Finland. Therefore, all FASTER provisions could be mandatory for these Member States. Since the market capitalization ratio might fluctuate before the rules become effective, the list could be subject to further changes.

The FASTER Directive leaves it up to Member States to determine certain features, such as penalties for non-compliant certified financial intermediaries (CIF)s and related civil liability. It therefore remains to be seen how Member States choose to structure the penalty system, in particular where penalties differ depending on the type of procedure chosen. In addition, the safeguards implemented by Member States around the CIFs liability should be addressed proportionally, so that smaller intermediaries are not discouraged from applying for CIF status.

The Commission has been tasked with developing and adopting multiple implementing acts – including a standardized and computerized common template for the eTRC, statement to be obtained from the registered owners, as well as reporting forms. Interested stakeholders may want to continue to monitor developments and contribute to the process where possible.

Note that the effects of the German Withholding Tax Relief Modernisation Act (published in 2021), which brings significant amendments to existing withholding tax relief procedures in Germany, were postponed until 2027 to ensure alignment with the FASTER Directive.

EU Public Country-by-Country (CbyC) Reporting

Public CbyC reporting at a glance

The EU Public CbyC Reporting Directive entered into force on December 21, 2021, and introduced a timeline for the adoption of rules that will require multinational groups operating in the EU and that exceed certain size thresholds to publish a set of data, including information on taxes accrued and taxes paid.

EU Member States were required to transpose the Directive into domestic legislation by June 22, 2023. The rules apply, at the latest, as from the commencement date of the first financial year starting on or after June 22, 2024. Individual Member States could nevertheless opt for an early adoption of the rules.

Status

To the best of our knowledge, the implementation status across the EU as of the date of this publication is as follows:

• twenty-five Member States have completed the transposition: Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Spain, and Sweden;
• two Member States have not yet initiated the transposition process: Cyprus, Slovenia.

On December 2, 2024, the Commission’s Implementing Regulation, which establishes a common template and electronic reporting formats for the application of the EU Public CbyC Reporting Directive², was published in the Official Journal of the EU (the Regulation). These reporting forms will be applicable for financial years starting on or after January 1, 2025.

Romania has opted for early implementation of the rules, effective from financial years starting on or after January 1, 2023. Therefore, non-EU multinationals with a qualifying presence in Romania have to submit their first public CbyC report by December 31, 2024. The Romanian Ministry of Finance clarified that, during the transitional period between now and the date when the Regulation becomes applicable, entities that are subject to public CbyC requirements in Romania can report based on: the reporting format and instructions used for non-public CbyC reporting, the template and formats introduced through the Regulation, or any other format, as long as all required information under the EU Public CbyC reporting Directive is reported.

Additionally, two other Member States—Croatia and Sweden—have opted for early adoption for financial years starting on or after January 1, 2024, and May 31, 2024, respectively. Hungary and Spain have implemented early reporting deadlines: Hungary requires reporting within four to five months after the end of the financial year, and Spain within six months.

What to keep in mind

The EU Public CbyC Reporting Directive is a minimum standard and several Member States have expanded the scope of the rules by, for example, requiring additional data points. The Directive has several opt-in clauses, which also lead to differences in the way the provisions were transposed into domestic law. Member States also apply different size thresholds for qualifying subsidiaries / branches, due to currency translations or options available under the EU Accounting Directive.

These options and potential scope extensions will impact in particular non-EU headquartered groups, which generally have reporting obligations in each EU country where they have a qualifying presence. Multinational groups headquartered outside the EU are advised to check the specific thresholds applied by each EU jurisdiction where they have a qualifying presence, to determine if a reporting obligation is triggered. Additionally, as there are no priority rules or guidelines on how the various implementing bills interact, non-EU multinational groups should closely monitor deviations from the EU Public CbyC Reporting Directive and analyze how these differences need to be addressed.

The EU Public CbyC disclosure rules are not the only note-worthy development in terms of tax-related disclosures. On December 10, 2024, Australia enacted public CbyC rules for multinational enterprises that go beyond the scope of the EU ones. The rules will apply retroactively for financial years starting on or after July 1, 2024.  Key differences between the Australian rules and the EU ones include:

• approach to tax: groups in scope of the Australian rules are required to provide a description of the CbyC reporting group’s approach to tax. This should be interpreted consistently with GRI 207-1;
• source of data:  under Australian rules, the source of data are the consolidated financial statements of the reporting group;
• level of aggregation: the CbyC reporting parent is allowed to choose between two options, which at the minimum require separate CbyC reporting for Australia and a list of specified jurisdictions. The list was registered with the Australian Parliament on December 17, 2024, and comprises 40 jurisdictions including Singapore, Hong Kong (SAR, China) and Switzerland.
• penalties: the CbyC reporting parent will be liable to administrative penalties for failing to comply with the publishing deadline or for failing to timely correct material errors. The maximum penalty is AUD 825,000 (approximately EUR 508,000).

Additionally, on December 14, 2023, the Financial Accounting Standards Board in the US adopted, significant changes to income tax disclosure and reconciliation requirements.

Multinational groups would need to carefully review the various public CbyC reporting requirements, align their current tax disclosures to ensure compliance with all regulations, and craft their disclosures to provide a clear narrative that would mitigate potential misinterpretation of the published data.

In addition to these targeted tax-related disclosures, information on a group’s tax position will also be relevant in the context of the EU Corporate Sustainability Reporting Directive (CSRD). Under CSRD, companies operating in the EU will need to prepare extensive sustainability reports as part of their management reports. The CSRD is intended to ensure that companies report reliable and comparable sustainability information necessary for stakeholders to evaluate companies’ non-financial performance, with the main goal of improving transparency for all stakeholders. For tax, this will likely represent a step beyond the quantitative data required under EU public CbyC Reporting and towards a focus on qualitative information. Further details on Tax under the CSRD can be found in KPMG's article on Tax Transparency.

Reporting obligations for platform operators (DAC7)

DAC7 at a glance

On March 22, 2021, the Council of the European Union adopted rules revising the Directive on administrative cooperation in the field of taxation (DAC). Council Directive (EU) 2021/514 (DAC7) allows member states' tax authorities to collect and automatically exchange information on income earned by sellers on digital platforms, from 2023 onwards.

The rules impact both EU platform operators, as well as non-EU entities, if facilitating either reportable commercial activities of EU sellers/providers or rental of immovable property located in the EU. Reportable activities comprise of personal services, the sale of goods, as well as the rental of any means of transport and the rental of immovable property.

The reporting obligations apply with respect to cross-border and local commercial activities. Platform operators falling within the scope of DAC7 are required to collect and verify information from sellers/providers operating on their online platform, in line with certain due diligence procedures. Subsequently, certain items of information will be further reported to the sellers/providers and to the relevant tax authority. Such information includes, inter alia, an overview of amounts paid to sellers from the reportable activities, platform fees and commissions incurred.

Status

Member States had until January 1, 2023, to implement DAC7 into national law.

On January 27, 2023, the EC sent letters of formal notice to fourteen Member States that had not notified or only partially notified the national measures transposing DAC7 into domestic legislation. This step was followed by reasoned opinions sent on July 14, 2023 to Belgium (partial transposition), Cyprus, Greece, Spain, Poland and Portugal (lack of transposition). The infringement procedures against Portugal and Greece were closed on December 20, 2023 and May 23, 2024, respectively.

As at the date of this publication, all EU Member States had transposed DAC7 into their legislation. Some Member States have also provided technical and procedural guidance in respect of the application of the rules in practice.

Furthermore, on May 23, 2024, the European Commission sent letters of formal notice to Germany, Hungary, Poland and Romania for failing to exchange timely information on income earned on digital platforms, as required under DAC7. The Directive provides for a first reporting deadline of January 31, 2024, for in-scope digital platform operators. Member States were required to exchange the received information within one month, i.e., by February 29, 2024. However, several Member States extended the reporting deadlines for DAC7 purposes. The infringement procedures against Germany and Hungary were both closed on October 3, 2024.

On November 18, 2024, the European Commission announced an initiative to provide standard forms and computerized formats for the exchange of statistical data between EU countries in relation to DAC7, expected to be adopted by the Commission in the first quarter of 2025.

What to keep in mind

With DAC7 reporting now live in all EU Member States, qualifying platform operators will need to keep track of the different reporting procedures in EU countries and monitor carefully whether potential differences in local implementation and interpretation of the rules will impact their local compliance obligations.

Non-EU platform operators should also consider differences between DAC7 and similar reporting regimes in their country of residence (e.g., based on the OECD’s Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy). To eliminate double reporting, DAC7 contains rules providing relief from the reporting obligations for non-EU platform operators where the EC has determined that Member States receive equivalent information from non-EU countries that apply similar reporting regimes.

In this context, the EC adopted an implementing regulation on April 13, 2023, establishing the criteria for determining whether the information exchanged under an agreement between the tax authorities of Member States and a non-EU country is equivalent to that specified in DAC7.

As at the date of this publication, the following decisions were published in this context:

• following a request by Finland, the European Commission decided in September 2023 that the information that is required to be automatically exchanged between the competent authorities of Finland and the United Kingdom pursuant to the ‘Multilateral Competent Authority Agreement on automatic exchange of information on income derived through digital platforms’ (DPI-MCAA) should be deemed to be equivalent to that specified in DAC7.
• following a request by New Zealand, the European Commission further decided in December 2023, that certain limited information that is required to be automatically exchanged between the competent authorities of New Zealand and Belgium, Bulgaria, Croatia, Cyprus, Estonia, Finland, Ireland, Latvia, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden pursuant to the signed DPI-MCAA should be deemed to be equivalent to that specified in DAC7.
• following a request by Canada, the European Commission further decided in February 2024, that the information that is required to be automatically exchanged between the competent authorities of Canada and Belgium, Bulgaria, Croatia, Cyprus, Estonia, Finland, Ireland, Latvia, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain and Sweden pursuant to the signed DPI-MCAA should be deemed to be equivalent to that specified in DAC7.

The decisions note that the determination of equivalence applies to the same agreement between the competent authorities of any other Member State and the United Kingdom, New Zealand, or Canada, respectively. It is further noted that the determination of equivalence should only apply provided that the exchange relationship between the non-EU country and the signatory Member States is activated.

Extending the scope of reporting and information exchange in the EU (DAC8)

DAC8 at a glance

On October 17, 2023, the Council of the European Union adopted amendments to the Directive on Administrative Cooperation (DAC) to introduce, amongst others, provisions for the exchange of information on crypto-assets, as well as amendments to the rules for the exchange of information on tax rulings for individuals (DAC8).

In the case of crypto-assets, DAC8 includes rules on due diligence procedures and reporting requirements for crypto-asset service providers, based on the OECD’s Crypto-Asset Reporting Framework (CARF). The rules are aligned with the definitions included in the Markets in Crypto-Assets (MiCA) Regulation, that regulates the issuance and trading of crypto-assets within the EU. In-scope crypto-asset service providers would be required to collect and verify information from EU clients, in line with specific due diligence procedures. Subsequently, certain information would be reported to the relevant competent authorities. This information would then be exchanged by the tax authorities of the recipient Member State with the tax authorities of the Member State where the reportable user is tax resident. The aim is to increase the ability of tax authorities to determine whether income derived from crypto-asset transactions is correctly declared.

DAC8 further aims to extent the scope of the exchange of information on cross-border rulings to those involving the tax affairs of high-net-worth individuals. Other changes brought by DAC8 include the extension of the automatic exchange of information to cover non-custodial dividend income and requirements to report the Tax Identification Number (TIN) for certain elements where this was not previously prescribed – including, inter alia, for certain categories of income and capital under DAC1, advance cross-border rulings and advance pricing agreements (DAC3), CbyC reports (DAC4) and reportable cross-border arrangements (DAC6).

Furthermore, DAC8 includes a provision aimed at ensuring the effective use of the information acquired through the reporting and exchange of information under the DAC. Member States are required to put in place effective mechanisms to ensure the use of such data.

Status

The Directive was published in the EU Official Journal on October 24, 2023. With the exception of the provisions related to the TIN, Member States would need to transpose DAC8 by December 31, 2025. Member States that have initiated the process of implementing DAC8 into their legislation include Czechia, Denmark, France, Germany, the Netherlands, Slovakia and Spain. The rules would become applicable as of January 1, 2026 (with some exceptions). This timeline is aligned with the CARF.

On October 2, 2024, the OECD announced the release of XML Schemas and User Guides, which are designed to support the exchange of information with respect to crypto-assets between tax authorities under the Crypto-Asset Reporting Framework (CARF) and the amended Common Reporting Standard (CRS). In addition, the OECD published answers to frequently asked questions (FAQs) on the CARF with a view to ensuring consistent implementation of the CARF.

According to the OECD, the CARF was signed by 48 jurisdictions (e.g. Canada, Israel, Japan, Korea, New Zealand, Norway, Switzerland, Singapore, South Africa, and UK) as at November 26, 2024.

What to keep in mind

DAC8 is an amalgamation of provisions that will impact vastly different stakeholders. Crypto-asset service providers and operators (that provide services to EU clients) should assess whether they are in scope of the new rules and consider how their information collection and reporting systems and processes will need to be updated to meet the new due diligence and reporting obligations.

Furthermore, please keep in mind that DAC8 also provides for amendments on the reporting obligations under DAC6 in respect of cross-border arrangements. This includes changes to the notification requirements for intermediaries bound by legal professional privilege and amendments to the information reportable under DAC6.

DAC evaluation

DAC evaluation at a glance

On May 7, 2024, the EC launched a public consultation concerning Directive 2011/16/EU, on administrative cooperation (DAC). This consultation forms part of a comprehensive evaluation aimed at assessing the effectiveness, efficiency, and ongoing relevance of the DAC and its subsequent amendments (DAC2 to DAC6). Additionally, it seeks to assess the Directive's alignment with other policy initiatives and priorities, as well as its contribution to the overall objectives of the European Union.

The evaluation covers the functioning of the DAC during the period spanning from 2018 to 2022. As such, this assessment excludes DAC7 and DAC8, since the provisions of the two Directives did not yet apply during this period. A first evaluation of the DAC was conducted in 2018, with results published in 2019.

The 2024 consultation was split into two sections: a call for evidence on the impact of exchange of information under DAC and a targeted questionnaire which sought input from stakeholders on the overall assessment of the DAC: its relevance, its contribution to its objectives and its functioning. In particular with regard to the mandatory disclosure rules under DAC6, the evaluation included an assessment of the hallmarks for the exchange of information on potentially harmful cross-border arrangements.

Status

Interested parties were invited to submit their feedback until July 30, 2024. The EC received a total of 39 responses, including a response letter submitted by KPMG member firms in the EU, which includes the following key comments:

• the EC should assess how DAC6 disclosure information is being processed and used by local tax administrations for the purpose of narrowing the scope of the Directive to those provisions and data points that are proven to materially assist tax authorities;
• the EC should re-evaluate whether the current framework provides for proportionate reporting obligations, i.e., whether the scope of reportable arrangements is sufficiently targeted and well defined. This should be aimed at avoiding  disclosures of purely commercial transactions or arrangements that are not associated with any tax considerations, as well as disclosures of arrangements that are already known to the tax authorities);
• the EC should consider establishing a whitelist of arrangements that would not fall in scope of DAC6 reporting requirements and extending the main benefit test to all applicable hallmarks with a view to ensuring that only arrangements that are primarily designed to obtain a fiscally unintended tax advantage are reported;
• the EC should streamline local data collection under the DAC;
• the EC should assess the effectiveness, efficiency, and ongoing relevance of the recently adopted amendments to the DAC, which have not been part of the current evaluation (i.e., DAC7 and DAC8).

The Commission published a report on December 18, 2024 providing a summary of the contributions made by stakeholders on the public consultation. According to the report, the data collected from the consultation activities will from part of the final report detailing the conclusions drawn on the second DAC evaluation. This report is due to be submitted to the European Parliament and the Council in early 2025

What to keep in mind

In his parliamentary confirmation hearing, the new Commissioner for Climate, Net-Zero and Clean Growth, Wopke Hoekstra, noted that he would focus on streamlining and simplifying EU tax policy. The Commissioner further promised to deliver a holistic effort to declutter tax legislation by 2026. The EC is expected to provide detailed work programs in Q1 2025, which may offer further insights in this respect. Taxpayers operating in the EU may want to monitor how these plans will impact the different elements of the DAC and contribute to further discussions where appropriate.

Taxpayers may also want to monitor closely to what extent the EC’s work on the DAC will take into consideration the report on “Combatting harmful tax regimes and corporate tax avoidance” that was recently issued by the European Court of Auditors (ECA). Amongst others, the ECA report highlights concerns in relation to an inconsistent interpretation and application of DAC6 rules, a limited use of DAC6 information by tax authorities, low quantity and quality of DAC6 reports and low levels of penalties for non-compliance with DAC6 obligations. The ECA report further provides recommendations to resolve the identified risks and calls on the EC to address the recommendations by end of 2026 or end of 2027, respectively.

EU list of non-cooperative jurisdictions

EU list of non-cooperative jurisdictions at a glance

The EU list of non-cooperative jurisdictions, first adopted in the Council conclusions of December 5, 2017, is part of the EU’s efforts to curb tax avoidance and harmful tax practices. The list is the result of an in-depth screening of non-EU countries that are assessed against agreed criteria for tax good governance by the Code of Conduct Group (‘CoCG’ or ‘Group’), which is composed of high-level representatives of the Member States and the European Commission.

The current screening criteria focus on:

• Tax transparency: automatic exchange of information (AEOI – criterion 1.1), exchange of information on request (EOIR – criterion 1.2), membership to the OECD multilateral convention on mutual administrative assistance in tax matters (criterion 1.3)
• Fair taxation: existence of harmful tax regimes (criterion 2.1), existence of tax regimes that facilitate offshore structures which attract profits without real economic activity (criterion 2.2)
• Implementation of OECD anti-BEPS measures: commitment to OECD anti-BEPS minimum standards (criterion 3.1), Implementation of the CbCR minimum standard (BEPS Action 13 - criterion 3.2)

Jurisdictions that do not comply with all criteria, but that have committed to reform are included in a state of play document – the so-called “grey list” or Annex II. The lists are an on-going project and are updated and revised twice every year.

Status

In October 2024, the Council agreed to move Antigua and Barbuda from Annex I to Annex II after the Global Forum on Transparency and Exchange of Information for Tax Purposes’ decision to grant Antigua and Barbuda a supplementary review in respect of criterion 1.2 (following its “partially compliant” rating in the 2023 second round EOIR peer review). In addition, the Council release noted that the entries in Annex I for Fiji and Palau have been amended to reflect recent steps towards compliance with the listing criteria.

According to the Council release, the ECOFIN Council further adopted the following conclusions with respect to Annex II:

• Armenia was removed from section 2.1 of Annex II (and therefore removed completely from the grey list) after the country abolished its “Information Technology Projects” regime and amended its “Free Economic Zones” regime, which had previously been deemed a ‘harmful regime’ by the Forum on Harmful Tax Practices (see below).
• Malaysia was removed from section 2.1 of Annex II (and therefore removed completely from the grey list) following amendments to its foreign source income exemption (FSIE) legislation concerning the treatment of capital gains.
• The release also notes that Vietnam has been given more time to comply with its commitment on Country-by-Country Reporting (criterion 3.2).

Following this latest revision, Annex I of the EU list of non-cooperative jurisdictions therefore includes the following eleven jurisdictions: American Samoa, Anguilla, Fiji, Guam, Palau, Panama, the Russian Federation, Samoa, Trinidad and Tobago, the US Virgin Islands and Vanuatu.

Annex II includes the following nine jurisdictions: Antigua and Barbuda, Belize, the British Virgin Islands, Costa Rica, Curaçao, Eswatini, the Seychelles, Türkiye and Vietnam.

The next update of the EU list of non-cooperative jurisdictions is expected to take place in February 2025.

What to keep in mind

According to the CoCG report submitted to the ECOFIN Council in December 2024, the Group will also continue reflections on a possible further strengthening of the EU listing process, including:

• design of the additional criterion 1.4 on the exchange of beneficial ownership information;
• potential link to the Inclusive Framework’s Pillar Two peer-review results once the GloBE rules have been implemented locally;
• review of the methodology used for selecting jurisdictions in relation to the geographical scope.

In addition, it is important for taxpayers to monitor the evolution of the list in light of defensive measures that are being applied by EU Member States against listed jurisdictions in form of e.g., non-deductibility of costs, CFC rules, increased WHT or limitation of participation exemption. Note importantly that EU countries may refer to different (local) lists and apply different defensive measures, based on different application timelines and have other varying requirements in this context. The CoCG has previously indicated its commitment to performing an analysis on how defensive measures have been effectively applied by Member States to enable discussion on whether and how coordination of the measures could be enhanced.

Note that the CoCG is in the process of conducting an in-depth follow-up review of how Member States apply the measures in practice and whether they meet the Group’s expectations in terms of efficiency. The June 2024 CoCG report included a questionnaire for the annual monitoring of tax defensive measures along with a plan to have the first monitoring exercise taking place in 2025 with respect to the application of the measures in 2021. This additional investigation would offer the CoCG an overview of the practical impact of the defensive measures and could serve as a starting point for potential additional guidance to better coordinate existing measures as well as to introduce new types of defensive measures.

Please further note that the EU list of non-cooperative jurisdictions is also relevant for the purposes of the EU mandatory disclosure rules under DAC6, where recipients of cross-border payments are resident for tax purposes in a jurisdiction that is included in Annex I. Under Hallmark C1b(ii)) of DAC6, such payments may trigger a reporting obligation irrespective of whether the transaction is aimed at generating a tax benefit (i.e., the main benefit test does not apply). Note that consensus has not formed among Member States on the point in time at which the list should be tested (e.g. the triggering date, or the reporting date).

In addition, the EU list has a direct impact on EU Public Country-by-Country Reporting obligations that generally apply in relation to financial years starting on or after June 22, 2024 (exceptions apply). Based on the EU Public Country-by-Country Reporting Directive, relevant data points should be made publicly available on a country-by-country basis for each EU Member State as well as for each jurisdiction listed on Annex I of the EU list of non-cooperative jurisdictions and for each jurisdiction that has been on the grey list (Annex II) for a minimum of two years (i.e. as opposed to disclosure of aggregated amounts, which is the requirement for the rest of non-EU jurisdictions).

The EU list further produces effects outside the tax area, such as in respect of EU Regulation 2021/557, which provides that securitisation special purpose entities (SSPEs) should only be established in third countries that are not listed in Annex I of the EU list, or in the list of high-risk third countries which have strategic deficiencies in their regimes on anti-money laundering and counter terrorist financing.

Foreign Subsidies Regulation (FSR)

FSR at a glance

On November 28, 2022, the Council of the European Union adopted a Regulation on foreign subsidies distorting the internal market (Foreign Subsidies Regulation – FSR). The Regulation gives the EC powers to investigate financial contributions received in non-EU countries by groups operating in the EU internal market. The Regulation aims to restore fair competition between all undertakings in the EU internal market, complementing the EU State aid rules. Contributions that may be subject to investigation include tax exemptions granted to an undertaking where these are limited, in law or in fact, to one or more undertakings or industries.

Foreign subsidies under the FSR are deemed to exist where a non-EU country provides a financial contribution which generates a benefit for private or public EU-undertakings, whereby the benefit must be limited to one or more undertakings or industries. In this respect, a financial contribution confers a benefit to an undertaking engaging in an economic activity in the internal market, if it could not have been obtained under normal market conditions. The existence of a benefit is to be determined based on comparative benchmarks.

The FSR entails three different tools enabling the EC to investigate financial contributions granted by a public authority in a non-EU country:

• a notification-based tool to investigate concentrations (mergers and acquisitions),
• a notification-based tool to investigate bids in public procurements, and
• a general market investigation tool for investigating all other market situations as well as lower-value mergers and public procurement procedures.
• Undertakings in scope will have to notify the EC of:
• mergers and acquisitions where at least one of the merging parties has an EU turnover of at least EUR 500 million and there is a foreign financial contribution of at least EUR 50 million;
• tenders in public procurement procedures, where the estimated contract value is at least EUR 250 million and the bid involves a foreign financial contribution of at least EUR 4 million per non-EU country.

Status

The FSR became applicable on July 12, 2023, and the notification obligation entered into force on October 12, 2023.

On June 6, 2023, the EC published non-binding Questions and Answers with respect to the application of the FSR, which have been updated on November 22, 2023.

In February 2024, the Commission published a policy brief offering insights into the first 100 days of the obligation to notify. During that period, the Commission services (DG Competition) had received case team allocation requests and engaged in pre-notification talks with the notifying parties in 53 cases. These cases covered a wide range of sectors, from basic industries to fashion retail and high technologies. Out of these 53 cases, 14 have been formally notified, and 9 have been fully assessed. On July 26, 2024, the European Commission published a staff working document, including questions and answers providing initial clarifications on the application of the Foreign Subsidies Regulation.

The FSR continues to produce effects. On April 2, 2024, the Commission launched two in-depth investigations under the FSR in the solar photovoltaic sector. The investigations relate to the potentially market distortive role of foreign subsidies given to bidders in a public procurement procedure. The Commission will assess whether the economic operators concerned did benefit from an unfair advantage to win public contracts in the EU. On June 10, 2024, the Commission opened an in-depth investigation to assess, under the FSR, the acquisition of a European telecommunication operator. Based on the EC’s press release, the preliminary investigation indicated that there were sufficient indications that the acquiring group had received foreign subsidies distorting the EU internal market.

By January 2026, guidance from the EC is expected on how to determinate the existence of a distortion of the internal market, on how the balancing test functions, how the EC applies its power to request for notification for initially non-notifiable deals and bids and how the distortion in public procurement is assessed.

What to keep in mind

Undertakings that operate on the EU single market and that benefit from subsidies in third countries should assess the impact of this Regulation, in particular in light of the EC’s power to examine ex officio subsidies granted in the five years prior to the date of application of the rules. During its investigations, the EC may request information and conduct inspections inside and outside the EU. Also note that, where the EC suspects that foreign subsidies distorting the internal market exist, it may initiate a dialogue with the third country concerned and explore options for ending or modifying the relevant subsidies.

In-scope entities should also take note of the notification obligations that may arise on transactions entered into with respect to mergers and acquisitions and public tenders.

The EU Tax Centre team would like to take this opportunity to wish you a joyous holiday season and a wonderful New Year! We look forward to continuing to provide updates and insights on EU and international tax developments in 2025, which promises to be another interesting year from a tax perspective.

Pillar Two

• KPMG’s BEPS 2.0 tracker in Digital Gateway
• KPMG’s observations regarding the GloBE Implementation Framework, GloBE Information Return and Administrative Guidance releases
• E-News 202 – OECD Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors
• E-News 201 – CJEU referrals: Four Member States referred to the CJEU for failing to notify measures transposing the EU Minimum Tax Directive
• E-News 199 – Belgium: Request filed by the American Free Enterprise Chamber of Commerce to annul the rules implementing the UTPR
• Euro Tax Flash 535 – State of play of domestic Pillar Two implementation in the EU
• Euro Tax Flash 533 – EU Pillar Two FAQs

DAC9

• Euro Tax Flash 551 – Proposal to incorporate the GloBE Information Return into EU law and related exchange of information under the EU Minimum Tax Directive
• E-News 204 – Council of the EU: December 2024 ECOFIN report on tax issues released

Pillar One

• KPMG’s observations regarding the OECD releases on Amount A
  
• KPMG’s observations on the Amount B Simplified Approach
• KPMG’s observations on Amount B
• Euro Tax Flash 527 – ECOFIN Council and European Commission endorse progress made by the Inclusive Framework in respect of Pillar One and Pillar Two
• E-News 204 – Netherlands: New decree on OECD Amount B
• E-News 204 – Ireland: Finance Act 2024 enacted

Digital Services Taxes

• KPMG’s summary of the taxation of the digitalized economy
• E-News 203 – Parliamentary confirmation hearing of Commissioner-designate for Climate, Net-Zero and Clean Growth
• E-News 202 – Italy: Proposal to remove digital service tax revenue thresholds

Unshell

• KPMG’s insights on Beneficial ownership, governance and substance trends across the EU
• Unshell – On a page
• KPMG’s Unshell Proposal Quick Check
• E-News 204 – December 2024 ECOFIN report on tax issues released

ATAD

• ATAD Implementation Overview 2024
• Euro Tax Flash Issue 548 - KPMG provides feedback on European Commission evaluation of the Anti-tax Avoidance Directive
• E-News 203 – Parliamentary confirmation hearing of Commissioner-designate for Climate, Net-Zero and Clean Growth
• E-News 204 – German Annual Tax Act 2024 enacted
• E-News 204 – Slovenia - Act on amendments to the income tax act published
• E-News 201 – Netherlands - 2025 Tax Plan submitted to Parliament
• E-News 197 – Swedish Government publishes a report suggesting amendments to interest deduction limitation rules

BEFIT

• BEFIT Directive - One page summary
• Euro Tax Flash 536 – KPMG responds to European Commission public consultation on BEFIT proposal
• E-News 204 – December 2024 ECOFIN report on tax issues released
• E-News 203 – Parliamentary confirmation hearing of Commissioner-designate for Climate, Net-Zero and Clean Growth
• E-News 202 – Commissioner-designate for Climate responds to European Parliament's written questionnaire
• E-News 191 – Member States issue formal opinions on the BEFIT Directive proposal

TP Directive

• E-News 204 – December 2024 ECOFIN report on tax issues released
• E-News 194 – European Parliament resolution on Transfer Pricing Directive adopted

DEBRA

• DEBRA – On a page
• E-News 202 – Commissioner-designate for Climate responds to European Parliament's written questionnaire
• E-News 190 – European Parliament: Resolution on DEBRA proposal adopted

FASTER

• E-News 204 – Council adopts the FASTER Directive
• Euro Tax Flash 541 – Council agrees on new rules for harmonized withholding tax procedures in the EU
• E-News 202 – German Parliament adopts updated tax reform bill

Public CbyC Reporting

• KPMG public CbyC Reporting tracker
• KPMG’s dedicated public Country-by-Country Reporting webpage
• E-News 204 - European Commission: Final public CbyC reporting forms published in the Official Journal
• KPMG Australia – Australian public CbyC reporting – legislation enacted, ‘specified jurisdictions’ published
• KPMG Romania - Considerations on Romanian public CbyC reporting requirements

DAC7

• KPMG’s DAC7 Impact & Readiness Quick Check
• E-News 196 – Letters of formal notice sent to Member States for failure to exchange information required under DAC7
• E-News 190 – Certain Member States decide to extend DAC7 reporting deadlines
• E-News 189 – European Commission closes infringement procedures regarding DAC7 transposition

DAC evaluation

• E-News 204 – European Court of Auditors - Report on the design and implementation of ATAD, DAC6 and TDRD
• E-News 199 – KPMG responds to European Commission public consultation on the DAC
• E-News 195 – European Commission - Public consultation on the Directive on Administrative Cooperation (DAC)

EU list of non-cooperative jurisdictions

• E-News 201 – October 2024 update of the EU list of non-cooperative jurisdictions
• E-News 204 – ECOFIN update on non-legislative activities
• KPMG’s dedicated public Defensive measures against non-cooperative jurisdictions webpage