The European finance ministers will meet in Brussels on Tuesday 14 May to discuss two tax texts relating to value added tax (VAT) and withholding tax procedures. They will also discuss macro-financial assistance to Ukraine, the European Recovery Plan, Next Generation EU, and financial education.
Taxation. The ministers will discuss the new withholding tax procedure on cross-border financial income, i.e. dividends on shares and interest on bonds. Presented in June 2023 under the name ‘FASTER’, this directive should harmonise the procedures for applying reduced rates, which currently depend on bilateral agreements.
At present, it is up to the banks to identify the beneficiary and, if necessary, apply the withholding tax in accordance with the terms and conditions set out in the agreements. This directive would not only improve the movement of capital within the EU, but would also prevent the fraudulent implementation of these provisions, which has given rise to cum-cum/cum-ex fraud schemes.
The latest compromise drawn up by the Belgian Presidency of the Council of the EU provides for a derogation mechanism from this harmonised procedure for Member States representing less than 1% of European market capitalisation, i.e. sixteen Member States (see EUROPE 13407/6).
According to our latest information, this measure is not the “first-rate optimum” for certain countries, but would not be grounds for refusal. For a European source consulted on Monday 13 May, despite progress on the technical front, political issues are still on the table, and these are the points that will be addressed by the ministers with a view to reaching a compromise.
To read the Presidency’s compromise proposal: https://aeur.eu/f/c6i
To read the general approach: https://aeur.eu/f/c6j
The ministers will also discuss the package on value added tax (VAT) in the digital age (ViDA), which aims to reduce the administrative burden on businesses and combat fraud. This package comprises three legislative proposals: single registration, digital platforms and the exchange of information based on electronic invoicing. It is the second point in particular that poses a problem, as Estonia maintains its opposition (see EUROPE 13405/9). The Commission’s initial proposal, presented in December 2022, provided for the introduction of a specific regime in the short-term accommodation rental and passenger transport sectors.
The country does not want digital platforms to be considered as deemed service providers and is calling for an exemption, such as that provided for small and medium-sized enterprises (SMEs) (see EUROPE 13407/28). “There have been a lot of concessions already and it is now time to make this package a reality with the shared ultimate goals of combating VAT fraud and easing administrative burden on the businesses”, a European source told us on Monday 13 May. The Belgian Presidency is working bilaterally to find a compromise during the meeting. For its part, the Commission recalled the importance of this issue “in the fight against fraud in e-commerce and in ensuring a level playing field”.
To read the compromise proposal: https://aeur.eu/f/c6m
To read the general approach: https://aeur.eu/f/c6o
To read the Commission’s statement: https://aeur.eu/f/c6q
Ukraine. The ministers will take stock of the economic impact of the war in Ukraine, with their Ukrainian counterpart Serhiy Marchenko taking the floor via video conference. They are expected to formally approve the programme of reforms and investments that Ukraine has submitted to the European level in the framework of the ‘Ukraine Facility’, the EU instrument that will provide macro-financial assistance to Ukraine to the tune of €50 billion until 2027 (see EUROPE 13407/3).
This programme sets out a series of investments and reforms with a timetable that the Ukrainian authorities will have to implement in order to receive instalments of financial aid from the EU. Kyiv has already received €6 billion in bridge finance (see EUROPE 13398/47).
See the draft EU Council decision approving Ukraine’s programme: https://aeur.eu/f/c5l
See the annex detailing the nature and timetable of the investments and reforms identified by Ukraine: https://aeur.eu/f/c5m
On the other hand, the Ecofin Council will not formally adopt the legislative proposal aimed at mobilising the profits generated by the Central Bank of Russia’s assets frozen in the EU since the start of Russia’s military aggression against Ukraine, following the political agreement in principle sealed at the level of the Member States’ ambassadors to the EU (Coreper) (see EUROPE 13407/2). The proposal, which will be adopted by the ‘General Affairs’ Council on Wednesday 22 May, is expected to raise up to €3 billion a year, a sum which at this stage will be used mainly to provide military aid to Ukraine. The first payment is expected to be made in July, said a European source on Monday 13 May.
RRF. The Ecofin Council will briefly discuss the European Recovery Plan, Next Generation EU, at a time when €232 billion has already been paid to the Member States. Without debate, it will adopt the technical revision, under exceptional circumstances, of the post-Covid-19 recovery plans for Spain and Italy.
See the decision modifying the Italian plan: https://aeur.eu/f/c6u
See the decision modifying the Spanish plan: https://aeur.eu/f/c6v
Capital Markets Union. The European ministers are also expected to address the issue of financial culture in order to make the Capital Markets Union (CMU) a reality. Since the informal meeting in Ghent at the end of February (see EUROPE 13357/8), European leaders have been meeting actively in recent weeks to discuss the CMU, resulting in a series of declarations of intent and recommendations. These include the 13 key measures proposed by the Eurogroup (see EUROPE 13368/3) and Enrico Letta’s report advocating a ‘Savings and Investment Union’.
The ministers will discuss how to stimulate the acquisition of financial knowledge among citizens, specifically with regard to investing in the markets. These discussions will follow an initial exchange on the CMU, held during a working dinner between the ministers of the euro area countries on Monday 13 May (see EUROPE 13407/5).
Miscellaneous. The ministers will adopt conclusions on the sustainability of public finances in a context of an ageing population, with the European Commission being invited to integrate this societal evolution into its fiscal surveillance activities. They will be briefed on the discussions held at the G20 Finance Summit and the IMF Spring Meeting in Washington, as well as on the ongoing discussions within the international coalition of finance ministers to combat climate disruption currently chaired by the Netherlands and Indonesia. (Original version in French by Anne Damiani, with Mathieu Bion and Bernard Denuit)