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Presentation 5

A long and complicated chess match. The role of the european commission in the oecd/g20’s current debate on the taxation of the digital economy*

Franco Roccatagliata

European Commission, TAXUD, Brussels- Belgium

INTRODUCTION

The Treaty on the Functioning of the European Union recognises that the Organisation for Economic Cooperation and Development (OECD) plays a fundamental role on the world stage and pushes, explicitly, the European Union to avoid any ‘regionalistic’ isolation and to co-operate with it and with other major international Institutions (10).

The European Commission, the executive branch of the European Union, has concretely acted in accordance with the abovementioned political orientation included in the ‘constitutional charts’ of the Union. In fact, the Commission, on the legal basis of the Supplementary Protocol to the OECD Convention, enjoys a special and unique ‘full participant’ status, which enables it to fully engage, participate and contribute to the work of the OECD on an equal footing with full Members, except for voting rights (11).

Whilst in the remote past (12) there were tensions between the OECD and the European Union, as both sought to influence economic and social policy in European countries, relations have improved as more countries joined the EU, while the OECD adopted a more global focus (13). The OECD currently has 37 members, 22 of which are EU Member States (14), but, unfortunately –at least on tax matters– the EU does not consistently “speak with one voice” as a global actor on the OECD scenario. Nonetheless, the European Union is a major contributor to the overall OECD budget through voluntary contributions, with EU funds representing a quarter of all voluntary funding given to the Organisation in 2019. In addition, the 22 EU Member States provide together a major part of the OECD budget (about 40% of the assessed contributions). As numerous Commission services are financing OECD work annually (15), the Commission, obviously, have an interest to have the OECD functioning in a way that serves common interests.

TAXATION ISSUES

This is in particular true for the work on taxation, which is, currently, a hot topic for the OECD, especially for the follow-up of the BEPS Action Plan and in particular the so-called BEPS 2.0 on the taxation of the digital economy. As it is well known, the new OECD’s initiative, in agreements with G20 leaders, intends creating a real Copernican revolution of the international tax system based on two central pillars: one pillar addressing the broader challenges of the digitalization of the economy and focusing on the allocation of taxing rights, and a second pillar introducing minimum taxation standards.

Today, these initiatives involve 138 countries to achieve a consensus position. The level of participation and the geographical diversity represented around the OECD’s table (now –due to the pandemic emergency– unfortunately, a “virtual table”) would seem to be a concrete evidence of the perceived importance of the role of the OECD in developing international tax norms.

Direct taxation issues, as EU law stands at present, do not fall within the purview of the Union, but have been retained mainly by the Member States, as the Court of Justice (CJEU) case-law –with regard to the application of fundamental freedoms to direct taxation– has been repeatedly stressing (16). Therefore, Member States maintain their own tax sovereignty on issues as tax treaty interpretation and the creation of guidelines for tax aspects of border activities. Accordingly, the main role of the Commission in the OECD instances is to ensure a coherence of the EU and OECD tax initiatives and to avoid any potential clash between international tax law rules and EU Law fundamental principles (and the EU secondary tax law).

As the tax sovereignty retained by the Member States must be exercised consistently with EU law, the Commission’s delegates regularly presented to OECD Member countries the evolution of the “negative” (market integration: CJEU decisions) and “positive” (policy integration: proposed and adopted directives) integration of the EU Internal Market. EU Commission’s representatives also alert the OECD Secretariat and other delegates whenever an international tax guideline under discussion in the OECD working groups can conflict –at least theoretically–with the EU Law principles.

In more complex cases (e.g.: the minimum standard of Action 6 of BEPS) (17), the Commission has also organized pre-meetings in Brussels to discuss EU aspects of international tax rules in depth and to prepare common strategies. Sometime, preparatory meetings are also useful for updating on the latest tax developments the EU Member States that are not member countries of the OECD, with a view to consider their needs and, eventually, to uphold their instances in Paris (18).

THE TAXATION OF THE DIGITAL ECONOMY

The fair taxation of the digital economy is a top priority for the European Union. According to the political programme (19) of the President of the Commission, Ursula von der Leyen, one of the key foundations of our social market economy is that everybody pays their fair share. A race to the bottom on taxation undermines the ability of countries to set tax policies that meet the needs of their economies and people.

The European Institutions share the view expressed by OECD and G20 that international tax systems are in urgent need of reform. They are not fit for the realities of the modern global economy and do not capture the new business models in the digital world. On this point the Commission insists: there can be no exceptions for tax fairness; “bricks-and-mortar” or digital businesses have to pay taxes following similar criteria.

“Digital technologies are transforming the world at an unprecedented speed” said von der Leyen in 2019. The statement is particularly true in our current dramatic and historical situation. An EU Digital Single Market will offer European enterprises the possibility to compete efficiently in the overall global market. Individual choices of the EU Member States (even totally understandable and justified), fragmenting the Single Market, are not in the interest of the EU. What the Union needs –as the OECD and G20– is a unique solution on both Pillar 1 (digital taxation) and Pillar 2 (minimum effective taxation), as only a combination of both can provide a comprehensive answer to the tax challenges of our modern economies and ensure that countries abandon their unilateral measures.

The Covid-19 pandemic crisis created a health emergency without precedent. Understandably, this situation resulted in a change of the original deadline for the final adoption of this epoch-making reform. However, the new deadline of 2021 agreed by G20 Finance Ministers must be the final one. For the European Commission and all EU Members a global solution remains the preferred option. Certainly, all effort will be made to reach a worldwide agreement in the current year, but in the absence of a unanimous consensus at the OECD/G20 level, the 27 Member States of the Union will be continuing on the path traced by the Commission proposals of 2018 (20) and will go it alone.

*Visiting Professor (EU Tax Law) at the College of Europe, Bruges and Principal Administrator, European Commission, Brussels.

10.TFUE, Art. 220, para. 1: “The Union shall establish all appropriate forms of cooperation with the organs of the United Nations and its specialised agencies, the Council of Europe, the Organisation for Security and Cooperation in Europe and the Organisation for Economic Cooperation and Development”.

11.Doctrine has been often using the expression “quasi-member”, even if it is not legally correct. In fact, in the Supplementary Protocol to the OECD Convention the signatory States decided that the Commission of the European Community “shall participate in the work” of the Organisation and this participation goes well beyond that of a mere observer, enjoying nearly all the same rights and privileges as those EU Member States which have joined the OECD.

12.When the OECD was, still, the Organisation for European Economic Co-operation (OEEC) emerged from the Marshall Plan.

13.European Parliamentary Research Service, “The OECD: Promoting better policies for better lives”, Briefing, October 2014. The first non-EU members –United States and Canada– joined the OECD in 1961 the founders of the OEEC (the predecessor of the OECD), which, from 1948, were all European countries.

14.Romania, Bulgaria, Croatia, Malta and Cyprus are not OECD member countries. However, Romania, Bulgaria and Croatia have introduced requests of membership which are under consideration by the OECD Council.

15.To the sum of € 35-50 Million, depending on the year.

16.Since 1995, in case C-279/93 (Schumacker).

17.Some aspects of the “limitation of benefits clause” and the “principal purposes test” originally proposed in Action 6 of BEPS as a minimum standard to avoid any tax treaty abuse, limit necessarily fundamental freedoms of the internal market. The Court of Justice, in a famous case-law –C-196/04 (Cadbury Schweppes)– justified measures to prevent abusive conduct limiting it at “the creation of wholly artificial arrangements which do not reflect economic reality”.

18.All EU Member States have joined the Inclusive Framework of the OECD/G20 BEPS; it is, therefore, not necessary to activate the power of the Commission to intervene on behalf of a Member State in tax meetings related with BEPS exercise but may still be useful in a different tax context. In should be pointed out, for example, that Turkey is an OECD member country but Cyprus –which is an EU Member State - is not.

19.U. von der Leyen, “A Union that strives for more: my Agenda for Europe”. Political Guidelines for the next European Commission 2019-2024.

20.On 21 March 2018, the European Commission proposed new rules to ensure that digital business activities are taxed in a fair and growth-friendly way in the EU: “Proposal for a Council directive laying down rules relating to the corporate taxation of a significant digital presence”, COM (2018)147; and Proposal for a Council directive on the common system of a digital services tax on revenues resulting from the provision of certain digital services, COM (2018)148.