Changes from plenary report to adopted text

(Special legislative procedure – consultation)

The European Parliament,

– 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 the reasoned opinion submitted, within the framework of Protocol No 2 on the application of the principles of subsidiarity and proportionality, by the Swedish Parliament, asserting that the draft legislative act does not comply with the principle of subsidiarity,

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

– having regard to the report of the Committee on Economic and Monetary Affairs (A9-0064/2024),

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.

Recital 1: (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, which constitutes a barrier for small and medium-sized enterprises (SMEs) when accessing the internal market. Union businesses, in particular SMEs, face significant compliance costs linked to taxation, due to the absence of a solution for the computation of their taxable base.

Recital 2: (2) The co-existence and interaction of 27 different corporate income tax systems in the Union gives rise to complexity in tax compliance costs and leads to a playing field for businesses that can negatively impact cross-border investments, hampering the development of the internal market compared to third countries. This state of play has a significant impact on SMEs and has become more evident as globalisation and digitalisation of the economy have significantly altered the perception of borders and business models particularly the further development of the internal market, which requires that further measures be taken. Furthermore, the various legal frameworks lead to different tax administration practices across Member States. This often entails lengthy procedures characterised by unpredictability and inconsistency along with high compliance costs which largely affect SMEs, discouraging them from investing in more than one Member State. Mutual trust and good faith among Member States are required in order to achieve cooperation on tax decisions and complete, improve and further develop the internal market.

Recital 2 a (new): (2a) The 24 million SMEs established in the Union represent two thirds of private sector jobs and 99 % of all businesses in the Union and are the backbone of the Union economy. It is therefore essential to support micro enterprises and SMEs in order to promote job creation, enhance growth, to encourage fair and transparent competition, support competitiveness and attract investment. Regulatory obstacles or administrative burden continues to be the key challenge for Union SMEs.

Recital 2 b (new): (2b) SMEs spend approximately 2,5 % of their turnover on compliance costs related to tax obligations. The situation of very small enterprises is particularly serious, as their corporate income taxes-related compliance costs represent 90 % of the estimated yearly Union businesses compliance costs of EUR 54 billion. A calculation of the taxable results based on the rules of the Member State where the head office (headquarters of the SME) is resident for tax purposes should significantly reduce tax compliance cost and free financial resources to allow SMEs to invest.

Recital 3: (3) The variety of ways for doing business in the internal market requires different solutions for different businesses when it comes to tackling the current challenges posed by their cross-border operations. For smaller businesses, it is more difficult to expand cross-border than for larger businesses. It is thus more burdensome for those smaller businesses to grapple with complex procedures and high compliance costs, as well as the uncertainty involved in investing their own assets in an unknown market. It is therefore evident that micro, small and medium-sized enterprises, at the initial stages of expansion, need a solution such as a simplified mechanism for the computation of their taxable result when they operate across the border exclusively by way of permanent establishments or a maximum of two subsidiaries. Transparency is essential for the smooth functioning of the internal market.

Recital 3 a (new): (3a) Combatting fraud, tax evasion and tax avoidance are overriding political priorities, as aggressive tax planning practices are unacceptable from the point of view of the integrity of the internal market and social justice.

Recital 4: (4) To remedy tax uncertainty and the difficulty in complying with the rules of an unknown tax system when operating in (an)other Member State(s) (which is one of the key impeding factors for SMEs to expanding abroad), the taxable result of permanent establishments or subsidiaries should be computed on the basis of the rules of the Member State where the Head Office (headquarters of the SME) is resident for tax purposes. This also means that the principles governing the attribution of income to a permanent establishment or subsidiary, set out in the applicable bilateral convention for the avoidance of double taxation between the Member State of the permanent establishment or subsidiary and the Member State of the Head Office, would also continue to apply. To ensure that any new rules constitute a source of simplification for SMEs, their application should be optional, and thus left to the choice of the taxpayer and enough leeway should be provided for their application and adaptation to the new rules.

Recital 4 a (new): (4a) Equality of tax treatment for all taxpayers, and in particular for all undertakings, is a sine qua non for the internal market. A coordinated approach to the implementation of this rule by national tax systems is vital for the proper functioning of the internal market, and would contribute to preventing tax avoidance and profit shifting.

Recital 5: (5) To prevent abusive tax practices, robust and 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) and/or subsidiaries 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.

Recital 6: (6) International shipping is a specific sector of activity subject to special tax regimes in several Member States. Those regimes mostly consist of computing the tax base on the basis of the tonnage (i.e. the carrying capacity) of the operated ships rather than on the basis of actual profits or losses incurred by the company. On this premise, SMEs that derive income from shipping activities covered by a tonnage tax regime should be excluded from opting in the SME simplification rules in respect of such income attributed to a permanent establishment or the subsidiary. This exclusion would avoid additional complication, which would be expected to arise from the interaction between the SME tax simplification framework and tonnage tax regimes. In addition, such a potential complication would appear disproportionate, considering the absence of such special tax regimes in some Member States. In any event, that exclusion should be properly evaluated after five years of implementation of this Directive. No other activity than the one covered by the tonnage tax regime would be excluded from the scope of the Directive.

Recital 7: (7) The proposal aims to provide significant procedural simplification, thus a one-stop-shop should be put in place, whereby the tax filing, tax assessments and the collection of the tax due by the permanent establishment(s) or subsidiaries would be dealt with through a single tax authority (‘filing authority’), i.e. the tax authority in the Member State of the head office. The one-stop-shop should provide all the features of simplification so as not to become another obstacle for businesses that wish to invest abroad. In full respect of Member States’ sovereignty in tax matters, audits, appeals and dispute resolution procedures would primarily be kept domestic and in accordance with the procedural rules of the respective Member State. To support the functioning of a one-stop-shop, it would be critical to provide for joint audits, creating a cooperation obligation for the Member States’ tax authorities, whereby the Member State of the head office should cooperate if the tax authority of the permanent establishment or subsidiary requests an audit covering the computation of the taxable result of its taxpayer. In that sense, if the Member State of the head office conducts an audit at its own initiative, it should invite the host Member State to carry out such audit jointly.

Recital 15: (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 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.

Recital 17: (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 3 November 2023.

Recital 18: (18) Since the objective of this Directive, namely the simplification of tax rules for certain SMEs operating cross border in the internal market through permanent establishment(s) and up to two subsidiaries, cannot sufficiently be achieved by the Member States individually but can rather, by reason of the existing challenges which are caused by the interaction between 27 different national corporate tax systems, be better achieved at Union level through mutual cooperation between Member States, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on the European Union. In accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective;

Article 1 – paragraph 1: This Directive lays down rules for computing the taxable result of permanent establishments and subsidiaries of SMEs which fulfil the criteria set out in Article 2(1) (“Head Office Taxation” rules).

Article 2 – paragraph 1 – point e: (e) they operate in other Member States through one or more permanent establishments and/or up to two subsidiaries;

Article 2 – paragraph 2 – introductory part: 2. The Commission is empowered to adopt delegated acts in accordance with Article 16 to amend Annexes I to IV, in order to take account of changes to the laws of the Member States and based on the information provided by the relevant Member State concerning:

Article 2 – paragraph 3: 3. This Directive shall not affect the right of the Member State where a permanent establishment or the subsidiary is situated to determine the applicable tax rate, nor the applicability of bilateral conventions for the avoidance of double taxation, or the rules on the social protection of workers in the Member State of the permanent establishment or the subsidiary.

Article 3 – paragraph 1 – point 2: (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 and/or up to two subsidiaries;

Article 3 – paragraph 1 – point 4: (4) ‘head office taxation rules’ means the taxation rules of the head office Member State which are used to compute the taxable result of the head office and its permanent establishments or subsidiaries;

Article 3 – paragraph 1 – point 5: (5) ‘host Member State’ means the Member State in which the permanent establishment or subsidiary of an SME referred to in Article 2(1) is situated;

Article 3 – paragraph 1 – point 6: (6) ‘taxable result of the permanent establishment’ means the taxable income or loss attributed to the permanent establishment and up to two subsidiaries and computed in accordance with the Head Office Taxation rules;

Article 3 – paragraph 1 – point 8: (8) ‘Head office taxation tax return’ means the tax return filed by an SME referred to in Article 2(1) covering the taxable results of the head office and of the permanent establishments or subsidiaries, as computed in accordance with the head office taxation rules.

Article 4 – paragraph 2: 2. If the head office opts to apply the head office taxation rules in accordance with paragraph 1, it shall apply those rules to all its permanent establishments or subsidiaries in other Member States. If it creates a new permanent establishment in another Member State, it shall apply head office taxation rules to such permanent establishment from the moment of its establishment. If it creates a first subsidiary in another Member State, it shall apply head office taxation rules to that subsidiary from the moment of its establishment and shall inform the host Member State thereof.

Article 4 – paragraph 2 a (new): 2a. The requirement referred to in paragraph 1, point (a), shall not be applied when the head office was established less than three years before the date of the option to apply the head office taxation rules.

Article 5 – paragraph 1: Where the head office derives income from shipping activities and this income is subject in the head office Member State to a tonnage tax regime, such head office shall be excluded from applying the head office taxation rules in respect of its permanent establishments and the subsidiaries in other Member States to the extent that these derive income from shipping activities.

Article 6 – paragraph 1: 1. The head office which opts to apply the head office taxation rules to its permanent establishment(s) and/or subsidiarie(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.

Article 6 – paragraph 1 a (new): 1a. For the establishment of its first permanent establishment or subsidiary in another Member State, an SME may apply the head office taxation rules from the year in which the permanent establishment or subsidiary is established, without having to notify the filing authority three months before the end of the previous tax year.

Article 6 – paragraph 2: 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.

Article 6 – paragraph 2 a (new): 2a. The filing authority shall obtain confirmation from the host Member State that the establishment in the host Member State constitutes a permanent establishment for the purposes of bilateral tax treaties.

Article 6 – paragraph 3 – subparagraph 1: 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 and subsidiaries 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.