In addition to its fiscal nature, taxation is very important for achieving development and environmental goals. Therefore, it must keep pace with rapid economic and social change. This finding was also confirmed by the need to address the effects of climate change, the pandemic and geopolitical developments.
In recent years, amid challenges, EU Member States have made significant changes to both corporate tax rates and the tax base in an effort to boost the necessary growth momentum. In particular, nine Member States reduced corporate tax rates, with the largest reductions being observed in Hungary (-9.4 percentage points), Belgium (-9 percentage points) and France (-6 percentage points). Rates also fell in Croatia, Greece, Italy, Luxembourg, Slovakia and Sweden.
The only EU Member States to increase rates were Latvia (+5 percentage points), Portugal (+ 2 percentage points) and Slovenia (+ 2 percentage points). The reforms adopted by the Member States include a mix of measures to expand and at the same time reduce the tax base. Member States have broadened their tax bases by adopting anti-tax avoidance measures and abolishing exemptions and rebates – such as limiting the possibility of deducting losses (Latvia, the Netherlands, Sweden) or reducing the rate of exemption of dividends from taxable income (taxable income). ), or capital gains (Spain).
However, new exemptions and reductions were introduced in other Member States, such as tax breaks for reinvested earnings (Latvia, Portugal), application of redundancies (Italy), enhancement of progress on tax scales (Netherlands, Belgium, Luxembourg, etc.). zones (Poland). In addition, there is a tendency to introduce investment incentives and research and development incentives (R&D). In this context, some Member States have introduced preferential tax schemes for intellectual property income (patent boxes), schemes that include Allowance for Corporate Equity (ACE) and loan interest deductions. , with the result that the average tax rate in the EU continues to decline.
In addition, unilateral preset price agreements (APAs) appear to have become the standard practice in many Member States.
In addition, Member States, in an effort to expand or maintain the tax base, have introduced a number of preferential measures in the personal income tax (mainly to attract investors). A significant number of the measures target high-income individuals, who are offered preferential tax rates or exemptions as incentives to relocate their tax residence. While the number of beneficiaries of such individual schemes in the EU varies considerably, their total number has doubled since 2009 and now stands at 200,000 in the EU.
In December 2021, the Commission presented a proposal for a directive on the prevention of the misuse of fictitious entities for tax purposes (Unshell proposal). This is a targeted initiative to improve the current institutional framework with a view to ensuring fair and efficient taxation. The aim of the proposal is to prevent tax evasion and evasion, through actions by companies that have little real substance and economic activity, while at the same time automatically exchanging information between Member States and conducting new tax audits.
In addition, in May 2022, the Commission presented a proposal for a directive on tackling debt relief and limiting the possibility of deducting interest for corporate tax purposes (DEBRA proposal). The above legislative initiative aims to encourage companies to finance their investments with equity contributions (equity) and not with loan funds that affect private debt (System-ACE). It is noted that only six Member States (Belgium, Malta, Cyprus, Italy, Poland and Portugal) have similar national measures.
With regard to climate change proposals, a general approach agreement was reached in the ECOFIN Council in March 2022 on the proposed cross-border carbon adjustment/pricing (CBAM), reaffirming the strong political will to promote the relevant “green” proposals in the framework of the meters fit for
55, amid geopolitical developments and the impact on energy prices.
The important proposal for energy taxation, which aims to facilitate the transition from minerals to cleaner energy sources, is also still a priority. It is estimated that the proposal could also contribute to EU energy self-sufficiency policies, enhancing the environmental footprint.
In order to strengthen the EU’s energy autonomy, a proposal for a regulation was submitted by REPowerEU, which, with additional investments, aims at energy savings, diversification of energy supply and faster spread of RES. The successful Recovery and Sustainability Mechanism (RRF) is at the heart of the REPowerEU project, supporting the coordination and funding of cross-border and national energy infrastructure.
In conclusion, the new EU package aims to address the impact of political developments on energy prices and inflation, the fair distribution of burdens and enhance the applicability of ecological transition policies. A Member State’s tax system must be prepared to meet the ongoing challenges by maintaining and enhancing its growth characteristics.
