Sittings · Document

DRAFT REPORT (COM(2023)0528 – C90340/2023 – 2023/0320(CNS)) 2023-11-17

On the proposal for a Council directive establishing a Head Office Tax system for micro, small and medium sized enterprises, and amending Directive 2011/16/EU

Committee on Economic and Monetary Affairs · Rapporteur: Lídia Pereira

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DRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION

on the proposal for a Council directive establishing a Head Office Tax system for micro, small and medium sized enterprises, and amending Directive 2011/16/EU

(COM(2023)0528 – C90340/2023 – 2023/0320(CNS))

(Special legislative procedure – consultation)

– having regard to the Commission proposal to the Council (COM(2023)0528),

– having regard to Article 115 of the Treaty on the Functioning of the European Union, pursuant to which the Council consulted Parliament (C90340/2023),

– having regard to Rule 82 of its Rules of Procedure,

– having regard to the report of the Committee on Economic and Monetary Affairs (A90000/2023),

1. Approves the Commission proposal as amended;

2. Calls on the Commission to alter its proposal accordingly, in accordance with Article 293(2) of the Treaty on the Functioning of the European Union;

3. Calls on the Council to notify Parliament if it intends to depart from the text approved by Parliament;

4. Asks the Council to consult Parliament again if it intends to substantially amend the Commission proposal;

5. Instructs its President to forward its position to the Council, the Commission and the national parliaments.

Amendment 1

Proposal for a directive

Recital 1

Text proposed by the Commission

Amendment

(1) In the Union, there is currently no common approach to the computation of the taxable base for businesses. EU businesses are therefore obliged to comply with the rules of different corporate tax systems, depending on the Member State in which they operate.

(1) In the Union, there is currently no common approach to the computation of the taxable base for businesses when operating across borders. Union businesses are therefore obliged to comply with the rules of different corporate tax systems, depending on the Member State in which they operate. Union businesses, in particular small and medium-sized enterprises (SMEs), face significant compliance costs linked to taxation, due to the absence of a solution for the computation of their taxable base.

Or. en

Amendment 2

Proposal for a directive

Recital 2

Text proposed by the Commission

Amendment

(2) The co-existence and interaction of 27 different corporate income tax systems in the Union gives rise to complexity in tax compliance and leads to an uneven level playing field for businesses. This state of play has a higher impact on SMEs than on larger taxpayers and has become more evident as globalisation and digitalisation of the economy have significantly altered the perception of borders and business models. The attempts by governments to adapt to this new reality have resulted in a fragmented response among Member States, leading to further distortions in the internal market. Furthermore, the various legal frameworks inevitably lead to different tax administration practices across Member States. This often entails lengthy procedures characterised by unpredictability and inconsistency along with high compliance costs.

(2) The co-existence and interaction of 27 different corporate income tax systems in the Union gives rise to complexity in tax compliance and leads to an uneven level playing field for businesses. This state of play has a higher impact on SMEs than on larger taxpayers and has become more evident as globalisation and digitalisation of the economy have significantly altered the perception of borders and business models. Furthermore, the various legal frameworks inevitably lead to different tax administration practices across Member States. This often entails lengthy procedures characterised by unpredictability and inconsistency along with high compliance costs.

Or. en

Amendment 3

Proposal for a directive

Recital 5

Text proposed by the Commission

Amendment

(5) To prevent abusive tax practices, specific anti-tax abuse rules are designed, for example to address the tax avoidance risks associated with transferring the tax residence of an SME, and thus to avoid that the location of the head office is determined on the basis of tax motives. Accordingly, it would be necessary to monitor the evolution of the turnover attributed to the permanent establishment(s) in order to maintain their operations as secondary to the main activity which should be carried out by the head office. In this way, the rules would not risk being misused by setting up empty head offices while the bulk of business activities takes place abroad. In the same vein, the eligibility to the tax simplification system as well as the termination and renewal of the option should be subject to strict conditions. Such conditions should be coupled with requirements relating to the turnover of the head office as compared to that of the permanent establishment(s). The aim would be to further underline that the business operated through the permanent establishment(s) can merely be an extension of the main activity of the head office. Additionally, once the option is made to apply the tax simplification framework, it should have an obligatory duration, to prevent situations where the residence of the head office is frequently moved to take advantage of occasional and short-term tax beneficial situations.

Or. en

Amendment 4

Proposal for a directive

Recital 15

Text proposed by the Commission

Amendment

(15) A retention period is provided to allow Member States to comply with most of the statute of limitation rules, thus following closely such domestic rules in respect of its starting point or suspension. The retention period should not however go further than what is necessary to ensure that the competent tax authorities are able to determine the tax liabilities, thus striking a balance between the ability of the tax authority to ensure proper assessment and collection of taxes and taxpayers’ right to legal certainty.

(15) A proportionate retention period is provided to allow Member States to comply with most of the statute of limitation rules, thus following closely such domestic rules in respect of its starting point or suspension. The retention period should not however go further than what is strictly necessary to ensure that the competent tax authorities are able to determine the tax liabilities, thus striking a balance between the ability of the tax authority to ensure proper assessment and collection of taxes and taxpayers’ right to legal certainty.

Or. en

Amendment 5

Proposal for a directive

Recital 17

Text proposed by the Commission

Amendment

(17) The European Data Protection Supervisor was consulted in accordance with Article 42(1) of Regulation (EU) 2018/1725 of the European Parliament and of the Council and delivered its opinion on […].

Or. en

Amendment 6

Proposal for a directive

Article 2 – paragraph 1 – point e

Text proposed by the Commission

Amendment

(e) they operate in other Member States exclusively through one or more permanent establishments;

(e) they operate in other Member States through one or more permanent establishments;

Or. en

Amendment 7

Proposal for a directive

Article 3 – paragraph 1 – point 2

Text proposed by the Commission

Amendment

(2) ‘head office’ means an SME, as referred to in Article 2(1), which operates in (an)other Member State(s) exclusively through one or more permanent establishment;

(2) ‘head office’ means an SME, as referred to in Article 2(1), which operates in (an)other Member State(s) through one or more permanent establishment;

Or. en

Amendment 8

Proposal for a directive

Article 4 – paragraph 1 – point a

Text proposed by the Commission

Amendment

(a) the joint turnover of its permanent establishments did not exceed, for the last two fiscal years, an amount equal to double the turnover generated by the head office;

deleted

Or. en

Amendment 9

Proposal for a directive

Article 4 – paragraph 1 – point b

Text proposed by the Commission

Amendment

(b) it has been resident for tax purposes in the head office Member State during the last two fiscal years;

(b) it has been resident for tax purposes in the head office Member State during the last fiscal year;

Or. en

Amendment 10

Proposal for a directive

Article 4 – paragraph 1 – point c

Text proposed by the Commission

Amendment

Or. en

Amendment 11

Proposal for a directive

Article 6 – paragraph 1

Text proposed by the Commission

Amendment

1. The head office which opts to apply the head office taxation rules to its permanent establishment(s) shall notify its choice to the filing authority, together with the name of the host Member State(s). The notification shall be made at least three months before the end of the fiscal year preceding the fiscal year in which that SME wishes to start applying the head office taxation rules.

1. The head office which opts to apply the head office taxation rules to its permanent establishment(s) shall notify its choice to the filing authority, together with the name of the host Member State(s). The notification shall be made at least two months before the end of the fiscal year preceding the fiscal year in which that SME wishes to start applying the head office taxation rules.

Or. en

Amendment 12

Proposal for a directive

Article 6 – paragraph 2

Text proposed by the Commission

Amendment

2. The filing authority shall verify whether the eligibility requirements set out in Article 4 are met and shall inform the head office of its findings within two months of the notification referred to in paragraph 1.

2. The filing authority shall verify whether the eligibility requirements set out in Article 4 are met and shall inform the head office of its findings within one month of the notification referred to in paragraph 1.

Or. en

Amendment 13

Proposal for a directive

Article 6 – paragraph 3 – subparagraph 1

Text proposed by the Commission

Amendment

3. If the eligibility requirements are met, the filing authority shall inform the tax authorities of the host Member States within two months of the notification referred to in paragraph 1 that the taxable result of the relevant permanent establishments shall be computed in accordance with the head office taxation rules as of the following fiscal year, as applied in the head office Member State. The tax authority of the host Member State(s) shall communicate to the filing Authority the applicable tax rate.

3. If the eligibility requirements are met, the filing authority shall inform the tax authorities of the host Member States within one month of the notification referred to in paragraph 1 that the taxable result of the relevant permanent establishments shall be computed in accordance with the head office taxation rules as of the following fiscal year, as applied in the head office Member State. The tax authority of the host Member State(s) shall communicate to the filing Authority the applicable tax rate.

Or. en

Amendment 14

Proposal for a directive

Article 6 – paragraph 3 – subparagraph 4

Text proposed by the Commission

Amendment

If the filing authority concludes that the eligibility requirements are not met, it shall inform the head office within two months of the notification referred to in paragraph 1 and the head office may appeal against it in accordance with the national law.

If the filing authority concludes that the eligibility requirements are not met, it shall inform the head office within one month of the notification referred to in paragraph 1 and the head office may appeal against it in accordance with the national law.

Or. en

Amendment 15

Proposal for a directive

Article 7 – paragraph 1

Text proposed by the Commission

Amendment

1. The head office that has opted to apply head office taxation rules to its permanent establishments in one or more host Member States shall apply those rules for a period of five fiscal years.

1. The head office that has opted to apply head office taxation rules to its permanent establishments in one or more host Member States shall apply those rules for an indefinite period of time.

Or. en

Amendment 16

Proposal for a directive

Article 7 – paragraph 1 a (new)

Text proposed by the Commission

Amendment

1a. The head office referred to in paragraph 1 may decide to terminate the application of head office taxation rules by notifying the filing authority about such a decision at least two months before the end of the fiscal year.

Or. en

Amendment 17

Proposal for a directive

Article 7 – paragraph 1 b (new)

Text proposed by the Commission

Amendment

1b. The filing authority shall regularly check that the head office continues to meet the eligibility requirements set out in Article 4.

Or. en

Amendment 18

Proposal for a directive

Article 7 – paragraph 1 c (new)

Text proposed by the Commission

Amendment

1c. In the event of termination under paragraph 1a, the filing authority shall inform the tax authorities of the host Member States of such termination within one month of the receipt of the notification referred to in paragraph 1a.

Or. en

Amendment 19

Proposal for a directive

Article 7 – paragraph 2

Text proposed by the Commission

Amendment

2. At the end of the period referred to in paragraph 1, the head office taxation rules shall cease to apply in respect of the permanent establishments situated in the host Member States, unless the head office notifies to the filing authority its option to renew the application of the head office taxation rules, in accordance with the procedure set out in Article 9.

deleted

Or. en

Amendment 20

Proposal for a directive

Article 8 – paragraph 1

Text proposed by the Commission

Amendment

1. The option to apply the head office taxation rules shall be terminated before the end of the five-year period referred to in Article 7(1) for any of the following reasons:

1. The option to apply the head office taxation rules shall be terminated when the SME referred to in Article 2(1) transfers its tax residence out of the head office Member State;

(a) the SME referred to in Article 2(1) transfers its tax residence out of the head office Member State;

(b) for the last two fiscal years, the joint turnover of its permanent establishments exceeded an amount which is equal to triple the turnover of the head office.

Or. en

Amendment 21

Proposal for a directive

Article 8 – paragraph 2

Text proposed by the Commission

Amendment

2. In any of the cases referred to in paragraph 1, the head office taxation rules shall cease to apply as of the fiscal year that follows the one in which the reasons referred to in paragraph 1 occur.

2. The head office taxation rules shall cease to apply as of the fiscal year that follows the one in which the reason referred to in paragraph 1 occur.

Or. en

Amendment 22

Proposal for a directive

Article 9

Text proposed by the Commission

Amendment

Article 9

deleted

Renewal of the option to apply the head office taxation rules

1. If the head office wishes to renew its option, it shall notify the filing authority thereof at least six months before the end of the period referred to in Article 7(1) and shall list the names of the host Member States. The filing authority shall verify whether the SME continues to meet the eligibility requirements set out in Article 4.

2. The filing authority shall confirm the renewal of the option within two months of the receipt of the notification referred to in paragraph 1 after it has verified that the eligibility requirements set out in Article 4 are met. It shall communicate its decision to the head office, together with the information that the grounds for exclusion laid down in Article 10 do not apply. The filing authority shall also inform the tax authorities of the host Member States of the renewal within four months of the receipt of the notification referred to in paragraph 1.

Or. en

Amendment 23

Proposal for a directive

Article 10 – title

Text proposed by the Commission

Amendment

Exclusion from the renewal to apply the head office taxation rules

Exclusion from the head office taxation rules

Or. en

Amendment 24

Proposal for a directive

Article 10 – introductory part

Text proposed by the Commission

Amendment

The head office shall not be entitled to renew the option for applying the head office taxation rules if during the five-year period when head office taxation rules initially applied, any of the following situations occurred:

The head office shall not be entitled to continue to apply the head office taxation rules if any of the following situations occurred:

Or. en

Amendment 25

Proposal for a directive

Article 10 – paragraph 1 – point a

Text proposed by the Commission

Amendment

(a) for any two fiscal years taken separately, the joint turnover of the permanent establishments exceeded an amount which is equal to double the turnover of the Head Office;

deleted

Or. en

Amendment 26

Proposal for a directive

Article 11 – paragraph 8

Text proposed by the Commission

Amendment

8. If the tax authority of the host Member State rejects the draft tax assessment notice, it shall revise this draft tax assessment in connection with the attribution of profits to the permanent establishment in accordance with the provisions laid down in the applicable bilateral convention for the avoidance of double taxation between the host and head office Member States. After the attribution of profits to the permanent establishment has been revised and communicated to the filing authority in accordance with Article 8ae of Directive 2011/16/EU, the filing authority shall re-compute the taxable result in accordance with the taxation rules of the head office Member State, and a revised tax assessment shall be issued by this Member State. The taxpayer shall be entitled to appeal against this revised tax assessment before the courts of the head office Member State. Any dispute concerning the amount of profits attributable to the permanent establishment shall be settled in accordance with the applicable bilateral convention for the avoidance of double taxation, or the provisions set out in Council Directive (EU) 2017/1852 of 10 October 201717.

8. If the tax authority of the host Member State rejects the draft tax assessment notice, it shall revise this draft tax assessment in connection with the attribution of profits to the permanent establishment in accordance with the provisions laid down in the applicable convention for the avoidance of double taxation to which the host and head office Member States are party. After the attribution of profits to the permanent establishment has been revised and communicated to the filing authority in accordance with Article 8ae of Directive 2011/16/EU, the filing authority shall re-compute the taxable result in accordance with the taxation rules of the head office Member State, and a revised tax assessment shall be issued by this Member State. The taxpayer shall be entitled to appeal against this revised tax assessment before the courts of the head office Member State. Any dispute concerning the amount of profits attributable to the permanent establishment shall be settled in accordance with the applicable convention for the avoidance of double taxation, or the provisions set out in Council Directive (EU) 2017/1852 of 10 October 2017.

_________________

17 Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union (OJ L 265, 14.10.2017, p. 1–14).

Or. en

Amendment 27

Proposal for a directive

Article 14 – paragraph 1 – point 2

Directive 2011/16/EU

Article 8ae – paragraph 1

Text proposed by the Commission

Amendment

1. If a head office as defined in Article 3, point (2), of Directive on establishing a Head Office taxation rules for micro, small and medium sized enterprises20, which opts to apply the head office taxation rules to its permanent establishment(s) in accordance with Article 6 of that, meets the eligibility requirements for applying such rules, the competent authority of the Member State of the head office shall by means of automatic exchange of information communicate to the competent authority of the Member State of the permanent establishment that the taxable result of the relevant permanent establishment is to be computed in accordance with the head office taxation rules. Such communication shall take place within two months from the notification by the Head Office of its option to apply head office taxation rules.

1. If a head office as defined in Article 3, point (2), of Directive on establishing a Head Office taxation rules for micro, small and medium sized enterprises20, which opts to apply the head office taxation rules to its permanent establishment(s) in accordance with Article 6 of that, meets the eligibility requirements for applying such rules, the competent authority of the Member State of the head office shall by means of automatic exchange of information communicate to the competent authority of the Member State of the permanent establishment that the taxable result of the relevant permanent establishment is to be computed in accordance with the head office taxation rules. Such communication shall take place within one month from the notification by the Head Office of its option to apply head office taxation rules.

______________________

20 Directive…[OJ: Please insert the number, date, title and OJ reference of that Directive].

Or. en

Amendment 28

Proposal for a directive

Article 14 – paragraph 1 – point 2

Directive 2011/16/EU

Article 8ae – paragraph 2

Text proposed by the Commission

Amendment

2. The competent authority of the Member State of the permanent establishment shall communicate to the competent authority of the Member State of the head office the tax rate applicable for the purpose of determining the tax liability of the permanent establishment(s) situated on its territory, within three months from the notification by the competent authority of the Member State of the head office of the decision on the application of the head office taxation rules.

2. The competent authority of the Member State of the permanent establishment shall communicate to the competent authority of the Member State of the head office the tax rate applicable for the purpose of determining the tax liability of the permanent establishment(s) situated on its territory, within two months from the notification by the competent authority of the Member State of the head office of the decision on the application of the head office taxation rules.

Or. en

Amendment 29

Proposal for a directive

Article 17 – paragraph 1

Text proposed by the Commission

Amendment

The European Parliament shall be informed by the Commission of the adoption of delegated acts, of any objection formulated to them, and of the revocation of the delegation of powers by the Council.

The European Parliament shall be informed by the Commission of the adoption of delegated and implementing acts, of any objection formulated to them, and of the revocation of the delegation of powers by the Council.

Or. en

Amendment 30

Proposal for a directive

Article 18 – paragraph 2

Text proposed by the Commission

Amendment

2. Information, including personal data, processed in accordance with this Directive shall be retained only as long as necessary to achieve the purposes of this Directive, in particular, verification of eligibility requirements and determination of the tax liability of the taxpayers, in accordance with each data controller’s domestic rules on the statute of limitations, but in any case no longer than ten years.

2. Information, including personal data, processed in accordance with this Directive shall be retained only as long as strictly necessary to achieve the purposes of this Directive (the ‘retention period’), in particular, verification of eligibility requirements and determination of the tax liability of the taxpayers, in accordance with each data controller’s domestic rules on the statute of limitations. The retention period shall start when personal data is processed for the purposes of this Directive for the first time and shall, in any event, not exceed five years.

Or. en

Amendment 31

Proposal for a directive

Article 19 – paragraph 1 a (new)

Text proposed by the Commission

Amendment

1a. The report referred in paragraph 1 shall evaluate, among other relevant aspects, the adequacy of the eligibility requirements laid down in Article 4 in view of adhesion of SMEs to the head office taxation rules and, in particular, the appropriateness of a possible requirement relating to the joint turnover of the permanent establishments.

Or. en

Amendment 32

Proposal for a directive

Article 20 – paragraph 1 – subparagraph 1

Text proposed by the Commission

Amendment

1. By 31.12.2025, the Member States shall adopt and publish the measures necessary to comply with this Directive. They shall immediately inform the Commission thereof.

1. By 31 December 2024, the Member States shall adopt and publish the measures necessary to comply with this Directive. They shall immediately inform the Commission thereof.

Or. en

Amendment 33

Proposal for a directive

Article 20 – paragraph 1 – subparagraph 2

Text proposed by the Commission

Amendment

They shall apply those measures from 1.1.2026.

They shall apply those measures from 1 January 2025.

Or. en

EXPLANATORY STATEMENT

The Proposal for a Council Directive establishing a Head Office Tax system for micro, small and medium sized enterprises and amending Directive 2011/16/EU, the HOT Initiative, represents a window of opportunity for Member States to facilitate the business environment in the Single Market. As part of the SME Relief Package, this proposal pursues the fundamental goal of simplifying the legal and administrative framework in which Europe´s 24 million SMEs create jobs, growth and wealth.

Tax compliance represents an excessive burden on companies, especially on Small and Medium Enterprises (SME) that spend approximately 2,5% of their turnover on tax-related administrative procedures. These companies are the core of the European economy, amounting to 99% of EU´s businesses. SMEs are strategic to create jobs, to boost the competitiveness of our economy and to promote a fair and transparent competition within our Single Market.

The main priorities of EU legislation must be facilitation, simplification and reduction of excessive burdens, including administrative and tax burdens. The HOT Initiative must be interpreted in the context of a broader legislative agenda to support SMEs and to take on the combat against bureaucracy. This perspective require that any new piece of legislation represent less burden and more accessibility to the opportunities of the Single Market. We want our SMEs to prosper in their national markets, but in a fully integrated Single Market, we have to guarantee the conditions for any company to operate in any of the 27 EU jurisdictions without any obstacle. The HOT Initiative pursues this goal and the Commission proposal represents, already, a step ahead on this direction.

The rapporteur understands that, although the nature of the legislative procedure (a consultation procedure under Article 115º TFEU), the European Parliament have an important role on calling the Council for a swift and efficient adoption of the HOT Initiative. That is why the rapporteur proposes to shorten the deadline for the transposition of this Directive. European businesses need a strong signal of support from the EU in the complex and volatile context of today.

The report intends to go beyond the proposal and transform the good starting point into a real instrument at the service of European SMEs. The proposed amendments try to increase the ambition of the proposal while safeguarding the feasibility of this new system. First, the rapporteur proposes to limit the eligibility requirements to widen the access to the system while maintaining the scope. Second, the rapporteur proposes to transform the system and guarantee an indefinite duration for the application of the rules, freeing SMEs for more compliance costs regarding renovation processes. Third, the rapporteur shortens the deadlines for applications from SMEs and for national authorities to exchange information, guaranteeing a quicker and more efficient system of applications.

The HOT Initiative represents an opportunity for the EU to send a clear signal to European SMEs and to reconfirm our Single Market as a place of opportunities for European business to thrive and contribute for the creation of jobs and for the boost of our market´s competitiveness.