Changes from report parliamentary committee draft to plenary report

AddedRecital 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.

AddedRecital 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.

AddedRecital 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.

AddedRecital 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.

AddedRecital 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.

AddedRecital 7 a (new): (7a) The one-stop-shop solution is valued by Union SMEs and its creation represents an optional facilitation tool for the tax-related procedures of SMEs. The positive experience with the VAT return via the one-stop-shop, with 130 000 companies filling their VAT return via the one-stop-shop and more than EUR 17 billion collected in VAT revenue, in 2022, motivates the model replication in the context of this Directive.

AddedRecital 13 a (new): (13a) The Commission’s evaluation report should assess all relevant aspects of implementation of this Directive and focus on the advantages of a possible extension of the scope, the adequacy of the eligibility requirements, the appropriateness of the exclusion situations, namely the set up of subsidiaries, and the need for the exclusion of shipping activities. The Commission should address those aspects in its possible proposal to amend this Directive, or give reasons to justify why it is not necessary to change the existing rules.

AddedRecital 13 b (new): (13b) As the potential reduction of tax compliance costs by SMEs depends directly from their voluntary adoption of the rules set out in this Directive, a thorough and comprehensive Union-wide information campaign targeting SMEs should be envisaged by the Commission. Such information campaign should be integrated in a wider communication strategy on the new tax-related Union law and its impact on Union businesses. All information should be provided in all the official languages of the Member States.

AddedRecital 14: (14) Member States may process personal data under this Directive solely for the purpose of verifying the eligibility requirements or determining the tax liability of permanent establishments and. subsidiaries. Any processing of personal data carried out for this purpose should comply with Regulation (EU) 2016/679.

AddedRecital 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.

RemovedArticle 4 – paragraph 1 – point b: (b) it has been resident for tax purposes in the head office Member State during the last fiscal year;

AddedArticle 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:

RemovedArticle 4 – paragraph 1 – point c: (c) it has met the conditions laid down in Article 2(1), point d) for the last fiscal year.

AddedArticle 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.

RemovedArticle 6 – paragraph 1: 1. The head office which opts to apply the head office taxation rules to its permanent establishment(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.

AddedArticle 3 – paragraph 1 – point 1 a (new): (1a) ‘subsidiary’ means a subsidiary within the meaning of Article 3(1), point (b), of Council Directive Council Directive 2011/96/EU situated in another Member State and controlled by the head office;

AddedArticle 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;

AddedArticle 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;

AddedArticle 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;

AddedArticle 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;

AddedArticle 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.

AddedArticle 4 – paragraph 1 – introductory part: 1 The head office may opt to apply the head office taxation rules in respect of its permanent establishments and subsidiaries in other Member States if it meets the following requirements:

AddedArticle 4 – paragraph 1 – point a: (a) the joint turnover of its permanent establishments and subsidiaries did not exceed, for the last three fiscal years, an amount equal to triple the turnover generated by the head office;

AddedArticle 4 – paragraph 1 – point b: (b) it has been resident for tax purposes in the head office Member State during the last fiscal year or, if more recently, since the establishment of the head office;

AddedArticle 4 – paragraph 1 – point c: (c) it has met the conditions laid down in Article 2(1), point d) for the last fiscal year or, if more recently, since the establishment of the head office.

AddedArticle 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.

AddedArticle 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.

AddedArticle 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.

AddedArticle 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.

AddedArticle 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.