DAC7 will enforce annual reporting obligations for digital online platforms, crypto-assets and e-money also to be brought into scope
Covid-19 continues to cause disturbance to economies around the globe and it is not clear when there will be a return to the pre-Covid standard of living, if ever.
On 15 July 2020 during the coronavirus (COVID-19) pandemic, the European Commission (‘EC’) published a Package for Fair and Simple Taxation to help EU member states with their economic recovery.
The package consists of three main elements:
- An Action Plan for Fair and Simple Taxation which sets out 25 initiatives that the EC will undertake between now and 2024.
- A proposal to amend the EU Directive 2011/16 on Administrative Cooperation in the field of taxation in the EU (‘DAC’). This proposal will be the seventh amendment to the original directive, hence the DAC7 moniker.
- The Communication on Tax Good Governance in the EU and beyond, which aims to further strengthen transparency and fair taxation.
The Tax Action Plan covers a number of taxes but many measures are particularly focused on value-added tax (VAT). This is unsurprising given that the EU VAT Gap, which is the difference between the expected revenues and the amount of VAT actually collected. Crucially, this included an amount of 50 billion euros in respect of cross-border fraud which is higher than the estimated 36 billion euros lost to corporate tax evasion and evasion of 46 billion euros by individuals in respect of their personal taxes.
The Covid-19 crisis means that governments will receive reduced tax and VAT revenues at a time when their expenditure on public health and supporting the economy and citizens has reached extraordinary levels. Consequently, the need to increase revenue is therefore paramount and collecting amounts lost to fraud is clearly a priority as this reduces the necessity to increase the burden on compliant businesses and individuals by increasing taxes.
This new package is the continuation of existing initiatives such as the Action Plan on VAT which was launched by the Commission in 2016 and is still in the process of being implemented with several significant measures not yet in place due to Covid-19. For instance, the pandemic has had an impact already on one of these measures with the E-Commerce Directive being delayed by six months to July 1, 2021.
Future of VAT
It is clear that there will be considerable changes to how businesses account for VAT in the EU in the coming years. In addition to the proposed changes in the Tax Action Plan, the 2016 Action Plan on VAT proposed a definitive VAT regime for intra-EU B2B supplies which would fundamentally change how such transactions are treated.
The above matters have a relevance for all organizations, particularly those who operate in the EU.
Middle East businesses, particularly those that operate in the EU, should monitor developments at OECD, EC and local domestic levels.
The compliance landscape in this area is continually evolving and businesses should ensure they remain abreast of the latest developments to be well positioned to respond in a strategic manner.
For further information relating to the DAC-7 implementation in Cyprus, please contact us.