EFAA Leadership’s Activities

EFRAG General Assembly, 16 December 2021
Salvador Marin, Paul Thompson and Sara Zambelli participated in this online meeting. EFAA is supportive of EFRAG’s future governance and finance proposals and looks forward to making a substantial contribution to the proposed new sustainability pillar that will develop sustainability reporting standards including a set for voluntary use by SMEs. Read more under ‘Sustainability Reporting and Assurance Update’ below.

Audit Meeting, 16 December, Madrid
Salvador Marin, EFAA President, participated in a hybrid event to present the book “public accounting“. The event was attended by over 500 participants.

SMEunited General Assembly, 9 December 2021
Sara Zambelli participated in this event. Petri Salminen was voted in as the new President for 2022-2023 from 1 January 2022. After his election Salminen stated the focus would remain on the recovery of SMEs following the pandemic crisis and allowing them to make the digital and green transformation as explained in the Press Release.

For more information: Please contact Salvador Marín

EFAA-IFAC EVENT – ‘Sustainability Offers New Opportunities for SMPs’, 15 December 2021

On 15 December 2021, EFAA and IFAC co-hosted a webinar  ‘Sustainability Offers New Opportunities for SMPs’. Over 500 participants from all over the world attended. View the event recording here. EFAA is an IFAC network partner and collaborates with IFAC on areas of mutual interest, in particular the growth and prosperity of SMPs through practice transformation. In his opening remarks, Salvador Marin stressed that EFAA is the leading voice for SMPs in Europe. SMPs are perhaps the most important provider of professional services to SMEs, as well as their most trusted adviser. As EFAA’s Call to Action stresses sustainability offers an opportunity for SMPs to broaden their service provision and help their clients become sustainable business. IFAC used the event to promote its recent publication, “Sustainability Information for Small Businesses: The Opportunity for Practitioners,” exploring the diverse benefits of embracing sustainability information. In his closing remarks Paul Thompson urged SMPs to embrace the opportunity and rise to the challenge in 2022, starting with a New Year’s Resolution to make 2022 a year of action.

EFAA has just created a library of resources, regularly updated, to help SMPs become sustainable here.

For more information: Please contact the EFAA secretariat

Sustainability Reporting and Assurance Update

Global
The Trustees of the IFRS Foundation have announced the appointment of Emmanuel Faber, former Chair of the Board and CEO of Danone, to serve as Chair of the International Sustainability Standards Board (ISSB), effective 1 January 2022. EFRAG has welcomed the nomination and looks forward to cooperation in the sustainability reporting standard-setting field in a co-construction spirit. Faber’s appointment follows the announcement at COP26 in November 2021 about the creation of the ISSB; the consolidation of the Climate Disclosure Standards Board and the Value Reporting Foundation (which houses the Integrated Reporting Framework and the SASB Standards) into the IFRS Foundation; and the publication of prototype general disclosures and climate disclosure requirements developed by the Technical Readiness Working Group – the IFRS Foundation has published a webcast presenting the Technical Readiness Working Group’s prototypes and other recommendations for consideration by the ISSB.  The IFRS Foundation Trustees have started the search for up to 11 members of the ISSB to work together with ISSB Chair Emmanuel Faber and the ISSB Vice-Chairs, who will be announced shortly, as explained here.

IFAC meanwhile has published its vision for high quality sustainability assurance. IFAC says that sustainability-related disclosure is finally taking its rightful place within the corporate reporting ecosystem but to be trusted must be subject to high-quality, independent, external assurance. IFAC’s vision addresses the importance of global standards, regulation that supports decision-useful disclosure, and the value of an interconnected approach to sustainability and financial information reporting and assurance. In this video IFAC explain the state of play in sustainability assurance. This article charts its emergence in the US and predicts growth in ESG assurance opportunities US CPA firms.

The IAASB is ramping up its efforts in relation to sustainability assurance as its chair Tom Seidenstein explains in this article. Seidenstein says the IAASB committed to do more work to enhance the assurance of sustainability/ESG reporting when it approved its new 2022-2023 work plan, A Public Interest Focus in Uncertain Times. The IAASB agreed to dedicate capacity and resources to the assurance of sustainability/ESG reporting. Information gathering and research activities, using dedicated staff resources, to determine future IAASB action will commence in January 2022. This initial work will also determine the precise scope and timing of the IAASB’s efforts. Seidenstein recognizes that ultimately the IAASB might develop a new subject-matter specific standard(s).

Europe
The European Financial Reporting Advisory Group (EFRAG) is on track to meet its ambitious timeline, six months into the drafting of European sustainability reporting standards (ESRS) while reforming its governance structure. EFRAG is currently seeking new members to join its sustainability reporting pillar. EFRAG’s next General Assembly meeting in which new member organisations can be admitted takes place on 21 January 2022. Expressions of interest should be received by 14 January 2022. EFRAG invites all organisations, including civil society, to join its new sustainability reporting pillar. Read the call for expressions of interest and the briefing note on qualification for EFRAG membership. EFAA will participate in the sustainability reporting pillar.

The European Commission is calling for candidates for the Chairs of the EFRAG Reporting Boards and has issued two calls for applications for the positions of Chair of the EFRAG Financial Reporting Board and Chair of the EFRAG Sustainability Reporting Board. In its calls for candidates (Financial Reporting – Sustainability Reporting), the European Commission sets out the requirements for the positions and describes the application and selection procedures. Applications should be submitted by email to FISMAC1@ec.europa.eu no later than 12:00 (mid-day) Brussels time on 1 February 2022. Read more here.

For more information: Please contact the Secretariat

European Commission and Parliament Developments: Quality Reporting and Enforcement, ESAP and DORA

As reported in previous newsletters in November 2021, the EC launched the much-anticipated consultation Strengthening of the Quality of Corporate Reporting and its Enforcement. The consultation aims to enhance the quality of corporate reporting by strengthening the three pillars of corporate governance, audit, and supervision. The consultation focuses on public interest entities (PIEs) and will directly feed into an impact assessment that the Commission will prepare in 2022. The deadline to respond to the consultation is 4 February 2022. Adoption date for legislative proposals is tentatively planned for Q4 2022. EFAA will respond to this consultation from the perspective of SMPs. In December 2021, EFAA convened a joint meeting of its EU Professional Regulation Expert Group and Assurance Expert Group to discuss and agree preliminary views.

The EC is proposing that by the end of 2024, the European Securities and Markets Authority (ESMA) sets up a European Single Access Point (ESAP) and invites feedback on these proposals by 8 February 2022. ESAP will host on a single digital platform all the regulatory information on activities and products that financial market participants must provide to supervisors. Non-listed entities, including SMEs, can make available information on a voluntary basis. The ultimate objective is to enable investors, financial analysts and intermediaries, public authorities, and civil society to make informed decisions. ESAP builds on existing EU disclosure requirements and does not introduce new reporting obligations. With respect to auditors, from 2026, there is a proposal for ESAP to provide access to a public register of auditors, details of sanctions imposed by the competent authorities, and transparency reports.

On 1 December 2021, the Digital Operational Resilience Act (DORA) was adopted on 1 December 2021 in the European Parliament’s Committee on Economic and Monetary Affairs (ECON). There was strong support for the compromise amendment to keep auditors in the scope but with an exemption for certain smaller audit practices. The next step is for the European Parliament to negotiate with the Council (which proposes to exclude auditors completely) to find a mutually agreeable compromise – read the adopted ECON position on DORA here.

For more information: Please contact Paul Thompson

Other Developments in International Standard Setting

General
Readers are reminded that the deadlines for providing input on the exposure draft (ED) of the International Audit and Assurance Standards Board (IAASB)’s proposed new stand-alone standard for audits of financial statements of LCEs – as summarized in this IFAC Gateway article – are imminent. EFAA’s Assurance Expert Group has met to discuss a first draft of EFAA’s response. EFAA encourages all its member organization and SMPs across Europe to respond to the ED in writing (by 31 January 2021) or respond to a survey to offer an alternative way to provide feedback (by 14 January 2022) which is available in English, French, and Spanish and responses are confidential. To learn more check out the IAASB three LinkedIn Live sessions on the new standard: watch first session on LinkedIn, watch second session on LinkedIn, and watch third session on LinkedIn.

At its December 2021 meeting – the meeting summary and agenda papers are here – the IAASB approved the project proposal on fraud focused on actions aimed at enabling consistent and improved auditor behaviour by revising ISA 240, The Auditor’s Responsibility to Consider Fraud and Error in an Audit of Financial Statements. At the same meeting the IAASB approved the revised standard on group audits, International Standard on Auditing (ISA) 600 (Revised). Once approved by the Public Interest Oversight Board the IAASB will publish the standard together with implementation material in Q2. This standard will be effective as of 15 December 2023.

Audit, Assurance and Quality Management
The IAASB’s revised agreed-upon procedure (AUP) – International Standard on Related Services (ISRS) 4400 (Revised), Agreed-Upon Procedures Engagements – becomes effective on 1 January 2022 as this article explains. AUP engagements are widely used in many jurisdictions and demand for AUP engagements continues to grow, particularly related to needing increased accountability around funding and grants. Changes in regulation have also driven increased demand for AUP engagements, especially from SMEs, as increased audit exemption thresholds in some jurisdictions prompt stakeholders to look for alternative services to an audit or other assurance engagements. The IAASB revised the AUP standard in response to this growing demand.

This is a critical time for SMPs as many standards are evolving. Perhaps the most important are the suite of new and revised quality management standards recently approved by the IAASB.  This article says that preparing for their implementation should be a priority for SMPs, as systems of quality management in compliance with this ISQM are required to be designed and implemented by 15 December 2022.
On 30 November 2021, Paul Thompson and Hysen Cela, a member of EFAA’s Assurance Expert Group, participated in the IAASB CAG Meeting to discuss a project proposal for the revision of ISA 240, The Auditor’s Responsibility to Consider Fraud and Error in an Audit of Financial Statements. The meeting recording is here and the papers here. Paul stressed the need for the need to ensure scalability of the revised ISA and the need for examples of fraud from small and less complex entities. Recently ACCA published the report Closing the expectation gap in audit – the way forward on fraud and going concern: A multi-stakeholder approach which sets out recommendations based on research. Test your understanding of ISA 240 here (AU-C Section 240 is identical to ISA 240).

Finally, the IAASB has just released non-authoritative support material to help auditors understand how to plan an audit under International Standard on Auditing (ISA) 300, Planning an Audit of Financial Statements, when using automated tools and techniques (ATT).

Ethics
As technology advances and the world becomes more complex, the professional accountant’s skills and competencies, underpinned by ethics and recognizing their public interest responsibility, are critical in navigating new challenges and opportunities and ensuring trust in the profession. To help professional accountants and stakeholders better understand these topics, the International Ethics Standards Board for Accountants (IESBA), IFAC and two IFAC members, have released Technology is a double-edged sword with both opportunities and challenges for the accountancy profession, the second in a four-part thought leadership series examining the professional accountant’s role in a new technological era. The publication examines the impact of rapid technological change and the importance of ethical leadership from the lens of the professional accountant. It also provides practical guidance to both professional accountants and professional accountancy organizations. The publication is available here. The meeting highlights from the IESBA’s November-December 2021 are available here.

The Board approved revisions to the IESBA Code related to definitions of listed entity and public interest entity (PIE) and quality management conforming amendments. It also approved two exposure drafts related to technology and engagement team-group audits.

Reporting
EFRAG has issued a feedback statement that summarises the findings from the field testing conducted with preparers, on the proposals in the IASBs Exposure Draft (“ED”) Disclosure Requirements in IFRS Standards — A Pilot Approach (Proposed amendments to IFRS 13 and IAS 19). Read more here.

For more information: Please contact Paul Thompson

EFAA Member Initiative: OCC’s Accountant’s Agenda 2022

To help SMPs and their SME clients come through the COVID-19 crisis stronger, smarter and sustainable EFAA has a specially curated list of free guidance here. This guidance will enable SMPs to better manage their practices and provide high quality services to their SME clients. The following is the most recent addition:

Readers interested to know how US SMPs are faring might wish to listen to the AICPA Small Firm Update podcast from 14 December 2021 here and read about the attributes of US top-performing (small) accounting firms revealed here. US SMPs have successfully pivoted during the pandemic so European SMPs stand to learn from their experiences. Meantime this article explains how in the UK a spate of resignations and an increasingly stretched labour market have highlighted glaring skill gaps in the professional services and finance sectors. This demands SMPs to be adaptable and to consider outsourcing.

The EC has a website, Access2Markets, to help SMEs, and their SMP advisors seeking to internationalise. Access2Markets is a free online portal with everything SMEs, and their SMP advisors, need to know to export and import with countries outside the EU: tariffs and taxes; product rules and requirements; step-by-step guides on procedures and formalities; a self-assessment tool for rules of origin; useful information on EU trade deals and their benefits; and much more. The EC has put together a digital information kit with useful materials that can be downloaded in many different languages, here. Further information can be found on the portal itself at Access2Market.

For more information: Please contact Paul Thompson

Accountancy Europe’s new SME strategy: 2 years on

To mark 2 years since the kick-start of its new SME strategy, Accountancy Europe has published an SME work facts & figures document.

It provides key information about our SME achievements in 2020 and 2021. For example, our SME publications have been viewed over 80,000 times, with several of them translated by our members into 7 languages, and we have partnered on SME projects with 15 relevant organisations – including key EU institutions. Read more

European Commission

Commission launches public consultation on digital company law

The consultation, launched on 21 December, aims to contribute to a future European Commission (EC) initiative to further adapt EU company law to continuing digital developments. The deadline for responding is 8 April.

A legislative proposal, scheduled for Q4 2022, intends to:

  • improve transparency on EU companies by making more information available on a cross-border basis
  • enable the cross-border use of trustworthy company data
  • further modernise EU company law rules to make them fit for the digital age

Read more

EC and EUIPO launch new fund to help SMEs protect their intellectual property rights

The new fund, jointly issued by the EC and the European Union Intellectual Property Office (EUIPO), was launched on 10 February. It offers vouchers for EU-based SMEs to help them protect their intellectual property (IP) rights.

This is the second EU SME Fund aiming at supporting SMEs in the COVID-19 recovery and green and digital transitions for the next three years (2022-2024).

The SME fund has a budget of EUR 47 million, and will notably cover:

  • IP scan services
  • trademark and design registration fees – including international registration provided by the World Intellectual Property Organisation
  • fees charged by national patent offices for patent registration
  • further IP support services from 2023 onward

EUIPO’s first call for proposals to get financing from the fund was launched on the same day.

New date for Commission’s sustainable corporate governance initiative

EC has postponed the publication of its sustainable corporate governance (SCG) proposals several times now. However, according to the latest EC’s planning document, SCG proposals are scheduled to be published on 15 February. This date may still change.

One of the expected elements of the SCG proposals is around supply chain due diligence. Most SMEs are expected to be scoped out or only partially included in these requirements. Still, they may face ‘trickle-down’ impacts of the legislation as their larger supply chain partners may request sustainability-related information from them, aiming to fulfil their own legal due diligence obligations.

European Parliament

JURI Committee debates scoping of SMEs in CSRD proposal

The Committee on Legal Affairs (JURI) debate took place on 10 January, on the basis of a draft report prepared by the MEP Pascal Durand (Renew Europe/France) on the EC’s proposal for a corporate sustainability reporting Directive (CSRD). This particular hearing focused on the amendments (see here and here) tabled by other MEPs to Durand’s report. A Committee vote is expected for March.

One of the main points of contention is on scoping of SMEs into the CSRD. MEPs in the room were either for or against including SMEs in the scope. As the views are very divergent, it will be difficult to achieve a consensus, Durand said during the meeting. The negotiations between MEPs will continue in the next weeks.

CSRD institutional debate

The European Parliament (EP) Legal Affairs committee considered the proposed amendments (AM 54 – 269 and AM 270 – 616) to the European Commission’s (EC) Corporate Sustainability Reporting Directive (CSRD). MEPs had divergent views on several matters, to name a few:

  • scope expansion – some MEPs were in favour of including SMEs in the scope, especially those operating in high-risk sectors, while others argued against it suggesting the focus should be on big companies only
  • timeline for reporting – there is an urgency to have the requirements in place, but this needs to be done in a reasonable way
  • audit provisions – a need for proper auditing in place and water-tight provisions was highlighted

MEP Pascal Durand (RE/France) – rapporteur – intends to discuss these matters with shadow rapporteurs to reach a consensus. It is worth noting that Jessica Polfjärd (EPP/Sweden) and Lidia Pereira (EPP/Portugal) – rapporteurs for opinion from ECON and ENVI associated committees – stressed the importance of consistency and alignment with global developments when it comes to sustainability reporting standards.

The Legal Affairs committee vote on the CSRD file is foreseen for March (the exact date is yet to be confirmed).

Institutional debate on the EU green bond standard

MEP Paul Tang (S&D/Netherlands), rapporteur on the file, presented its draft report on the EC proposal for an EU green bond standard to the EP Economic and Monetary Affairs committee (ECON) on 13 January. The rapporteur seeks to reinforce the EC proposal to strengthen public confidence in green bonds and ensure a liquid market. To his view, trustworthiness of green bonds will be crucial. His main concern here is ensuring independence of external verifiers. To this end, he will seek to strengthen provisions on conflict of interest through shareholders, fee structures and outsourcing.

The deadline for tabling amendments (AMs) is 20 January. Consideration of AMs at ECON committee is scheduled for 28 February. The committee is expected to vote on the file on 31 March.

EC calls for applications for Chair of EFRAG Sustainability Reporting Board

The EC will nominate the Chair after consultation with the European Parliament and the Council. The successful candidate will be appointed for an initial period of three years, which may be further extended for another period of three years. The deadline to apply is 1 February 2022, 12.00 AM CET.

Read more

Stakeholders concerned about the EC delaying its Sustainable Corporate Governance initiative

After being postponed twice, the EC Sustainable Corporate Governance initiative is now provisionally scheduled for 15 February. To recall, the proposals have twice failed to pass the EC internal quality control. The latest delay triggered several stakeholders to express strong concerns and to reiterate their support for this legislation. For more information, see the EU NGOs open letter to Ursula von der Leyen and a joint statement by Business & human rights experts and leaders.

Guidance on the Taxonomy Disclosures Delegated Act implementation

The EC issued FAQs to provide large businesses and financial undertakings with additional support for the EU Taxonomy Disclosures Delegated Act (DA) implementation. The DA is meant to supplement the EU Taxonomy Article 8 on reporting obligations for large companies and financial undertakings detailing those rules. The Disclosures DA rules apply as from 1 January 2022. The EC is expected to issue further guidance in January 2022. Additionally, the EU Platform on sustainable finance published considerations on reporting voluntary information as part of Taxonomy eligibility.

EC prepares to adopt a delegated act on nuclear power and gas

The EC is consulting the Member States Expert Group on Sustainable Finance and the EU Platform on Sustainable Finance on a Taxonomy Complimentary DA draft text. This DA covers certain gas and nuclear activities. The EC considers that natural gas and nuclear power can play a role in facilitating the transition towards a renewable-based future. To fit the EU Taxonomy framework, these energy sources need to be classified under ‘clear and tight conditions’.

The EC extended the initial deadline (12 January) to 21 January for experts to provide their contributions. The EC is expected to adopt the DA shortly after and it will be subject to the co-legislators’ scrutiny for four months.

Read more

Social and environmental Taxonomies delayed to 2022

The EC confirmed a new timeline for the EU Platform on Sustainable Finance to deliver further work on taxonomy. The Platform’s reports on the environmental transition taxonomy, social taxonomy and recommendations on technical screening criteria for the remaining environmental objectives are now planned for Q1 2022.

Read more

EIOPA’s sustainable finance priorities

The European Insurance and Occupational Pensions Authority (EIOPA) announced its three-year plan for sustainable finance activities. Among other key areas of activity, EIOPA intends to focus on promotion of sustainability disclosures and a sustainable conduct of business framework by providing guidance on disclosures under the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation.

Read more

EU Tax Policy Report – Semester II – July to December 2021

CFE Tax Advisers Europe has now published its EU Tax Policy Report covering the second semester of 2021. The EU Tax Policy Report is a bi-annual publication which provides a detailed analysis of significant primary law and tax policy developments at both EU and international level that have occurred in the previous six months which would be of interest to European tax advisers. It also includes an overview of selected CJEU case-law and relevant European Commission decisions.

We invite you to read the EU Tax Policy Report and remain available for any questions or comments that you may have.

ECOFIN to Discuss EU Directive on Minimum Tax

At the ECOFIN meeting scheduled to take place tomorrow, 18 January 2022, EU Finance Ministers will hold their first discussions concerning the European Commission proposal for an EU directive on global minimum level of taxation for multinational groups, adopted just prior to Christmas. The French Presidency of the Council of the EU is eager for the Directive to be approved as quickly as possible. Some Member states have already expressed reservations, such as Estonia.

The Directive intends to implement the OECD Pillar 2 agreement into the European Union, and will become EU law once adopted with unanimous vote of all Member states. The EU proposal follows on from the publication of the OECD Pillar 2 Model, which contains detailed rules to assist governments in the implementation of the minimum 15% tax rate as of 2023.

The EU Pillar 2 Implementation Directive follows the OECD model rules to ensure consistency, with one notable departure: in addition to cross-border operating MNEs, the EU Directive is intended to apply to domestic groups reaching the threshold of €750 million revenue (combined financial revenues per year), with either a parent or a subsidiary situated in an EU Member state. The provision on application of the Directive to domestic entities is unlikely to have significant impact and is intended to ensure consistency with EU law principles, notably the principle of equal treatment (non-discrimination). As consequence, the Under-Taxed Payments Rule will only apply to external transactions, and not on the intra-EU level.

The implementation of the Pillar 2 Directive will affect existing EU tax law provisions (ATAD), specifically for the Controlled Foreign Company (CFC) rules, which could interact with the Income Inclusion Rule, the primary rule of Pillar 2, which merits amendments of ATAD. In practice, ATAD CFC rules will take precedence and any additional taxes paid by a parent company under a CFC legislation in a given fiscal year will be taken into consideration by attributing those to the relevant low-taxed entity for the purpose of computing its (jurisdictional) effective tax rate.

EU Commissioner Paolo Gentiloni said at the time of the proposal being published that hot on the heels of this proposal the Commission is already looking towards the new framework for business taxation in the EU (BEFIT), aimed to streamline corporate taxation rules and create a more business-friendly environment in the Single Market, stating “We will follow up with a second directive next summer to implement the other pillar of the agreement, on the reallocation of taxing rights, once the related multilateral convention has been signed. The European Commission worked hard to facilitate this deal and I am proud that today we are at the vanguard of its global rollout.”

CFE Tax Advisers Europe Annual Report

CFE Tax Advisers Europe, in cooperation with IBFD, has published its 2021 Annual Report, which can be viewed on the CFE website. The annual report details CFE’s technical and policy work and relevant events and publications in the 2021 calendar year. The report also provide a detailed overview of our activities aimed at Member organisations and other external and internal stakeholders.

CFE President Piergiorgio Valente said of the occasion: “In 2021, the CFE Executive Board together with the Technical Committees and CFE Team continued to work on existing projects and focus on relevant new technical publications and policy developments, in close conjunction with the Member Organisations and in synergy with the work of the EU institutions and the OECD. Spurred on by the limitations on meeting in-person due to the pandemic, CFE also accelerated the implementation of our Digital Strategy, a key part of which is the creation of digital, online content for our members. The silver lining of this crisis has been the opportunity to transfer and deliver content online, allowing us to provide the best experts and speakers, for the benefit of our joint membership. We have been able to deliver content on international and European tax law and policy to all our members. CFE is proud to be a relatively small organisation with a significant impact. With a small technical team but very dedicated volunteers from our Member Organisations and advisers who volunteer to assist the CFE Executive Board, we have made and continue to make significant impact on the development of the tax profession. We work with our members and gather the best professionals across Europe to share their expertise, exchange views, learn from each other, and most importantly, agree on a common European view on tax policy which is then conveyed to the EU, the OECD, UN and the Platform for Collaboration on Tax. The focus on international tax policy continues to evolve and CFE will continue to support our Member Organisations in their educational endeavours for their members. In doing this CFE continues to give continuous, high-level participation at EU, OECD, UN level and, thus, ensure that tax professionals have a voice that is heard in matters of international tax policy.”

We invite you to read the publication and remain available for any queries you may have.

EU Shell Entities Directive

Prior to the Christmas break, the European Commission adopted a proposal for a directive on the misuse of shell entities, or unshell legislation in the EU-bubble jargon. The directive aims to enable more tools for tax authorities to detect the misuse of shell entities, by requiring reporting (relevant disclosure) in tax returns and consequently denying benefits of tax treaties and EU tax law.

The Directive does not define shell entities, but requires certain criteria to be fulfilled (gateway principle and substance requirements), to allow the tax administrations to designate an entity as a shell. In practice, the gateway principle will look into activities of the entities based on the income where 75% of an entity’s overall revenue in the previous two tax years does not come from the entity’s trading activity or if more than 75% of its assets are real estate property or other private property of particularly high value. The second gateway element looks at the cross-border element and it is satisfied where the relevant income is received through cross-border transactions or it is passed on to other entities abroad. The final gateway indicator is linked to the corporate management and is aimed to asses whether the administrative operations of the entity are in-house or outsourced. With some exceptions, a company which ticks the boxes for these three indicators will be required to disclose in its tax return information concerning the premises of the company, bank accounts, tax residency of its directors and its employees. If an entity fails at least one of the substance indicators, it will be presumed to be a shell.

As a consequence, where a company is considered to be a shell entity, it will be denied tax treaty and EU tax law benefits, notably arising from the Parent-Subsidiary and Interest and Royalties Directives. The Member State of residence of such company can either deny to issue a tax residence certificate or the certificate shall state that the entity is a shell company. In addition, payments to third countries will be subject to withholding tax and will not be seen as passing-through the shell for tax purposes, with inbound payments taxed in the state of the shell’s shareholder as a result of this targeted tax treatment.

The Commission’s impact assessment and public consultation comments from professional associations note that it remains challenging to define what constitutes a shell entity and that assessing lack of substance depends on the facts and circumstances of each specific entity and transaction. Public consultation comments also highlight that taxpayers should always have an effective right to provide evidence of their specific circumstances, particularly concerning structures that are not put in place to obtain tax advantage but for valid commercial reasons, in accordance with settled ECJ case-law. To address some of these concerns, the Commission proposal includes a ‘rebuttal of the presumption’ provisions, where tax administrations are obliged to allow companies deemed to be a shell to rebut this presumption by providing further evidence of the commercial rationale behind their business activity.

Penalties for non-compliance with the reporting requirements of this directive include administrative sanction of at least 5% of the undertaking’s turnover in the relevant tax year, if the undertaking fails to disclose relevant information or if it makes a false declaration in the tax return.

This Directive also requires unanimous support of Member states to be enacted into EU law.

EU Targets Portion of Carbon Tax Revenues & OECD Pillar 1 To Finance Post-Pandemic Recovery

The European Commission is proposing to Member states that part of the revenue generated by the July 2021 proposal for a carbon border adjustment mechanism and the emissions trading scheme (ETS) goes direct into the EU budget, in order to finance the post-pandemic recovery of the European continent. In addition, EU’s own additional resources would come as portion of the residual profits of MNEs within scope of Pillar 1, once the Multilateral Convention negotiated by the BEPS Inclusive Framework and the related EU Directive are both in force, as follows:

  • 25% of the revenues generated by EU emissions trading become an own resource for the EU budget,
  • 75% of the revenues generated by a carbon border adjustment mechanism become an own resource for the EU budget,
  • 15% of the share of the residual profits of the MNEs under Pillar 1.

It is estimated that the package would be worth 17 billion Euros from 2026, as part of the new multi-annual financial framework for the EU. The Commission also aims to create a carbon market for cars and buildings which is opposed at present by France and Spain, as well as a more general opposition towards certain carbon tax measures from the Eastern European Member states who fear these policies are driving energy prices higher up.

European Parliament President David Sassoli has died

The President of the European Parliament, David Sassoli, died at the age of 65 on Monday 10 January in hospital in Italy. The Parliament will hold a special ceremony on Monday 17 January in Strasbourg. David Sassoli was first elected as an MEP in 2009. In July 2019, MEPs elected him President of the Parliament for two and a half years in an informal political agreement on the distribution of top European posts. As first vice-president of the Parliament, the EPP group’s candidate, the Maltese MEP Roberta Metsola – which is the favourite – will act as interim President to ensure that Parliament is able to continue functioning until the new election scheduled for Tuesday 18 January. So far, three other MEPs have announced their candidacy: Alice Kuhnke (Greens/EFA, Sweden), Kosma Zlotowski (ECR, Poland) and Sira Rego (The Left, Spain). The European Parliament is also set to elect its 14 Vice-Presidents and its five Quaestors on Tuesday 18 January and Wednesday 19 January.

EU Finance Ministers to discuss Pillar II

EU Finance ministers will hold on Tuesday 18 January a first policy debate on the EU proposal for a directive on  ensuring a global minimum of taxation for multinational groups in the EU (so called Pillar II), presented on 22 December. According to a press release, Ministers will be invited to provide “political guidance” on whether the file is a priority and the need to urgently transpose the agreed rules of international corporate taxation as soon as possible. The adoption of the directive will come at a later stage, after the examination of the proposal in the Council has been completed, it adds.

The European Commission wants an agreement on Pillar II in Spring

The European Commission wants an agreement as soon as possible and preferably in Spring, on its Directive to implement Pillar II within the EU, the Director for direct taxation at the European Commission, Benjamin Angel said on Friday 14 January during a webinar organized by the Center for European Studies (CefES). The new rules will start to apply in 2023 and since it is a Directive, the EU needs some time for Member States to transpose it, he recalled. He also strongly encouraged businesses to start preparing for the new rules now and not to wait for the adoption of the EU Directive. Giorgia Maffini, Special Advisor on Tax Policy and Transfer Pricing at PwC United Kingdom, outlined that companies are still trying to understand the rules. She explained that the OECD model rules were a “big surprise” and that she wasn’t expecting so many novelties. Joachim Englisch, Professor of Tax Law at the University of Münster, regretted that the Directive contains no provision to allow to adapt it in the future, as the agreement on Pillar II will constantly evolve.

MEPs quiz experts on harmful tax practices

On Monday 10 January, MEPs of the subcommittee of the European Parliament on tax matters (FISC) discussed a study on the “development of potentially harmful tax practices and harmful competition in the area of personal income tax and wealth tax”, presented by Dr Florian Neumeier, Director of the Research Group on Taxation and Tax Policy at the Ifo Institute in Munich. Mr Neumeier explained that the establishment of ground rules would make it possible to avoid aggressive measures and preferential tax regimes. There is evidence that the “unilateral and uncoordinated introduction of preferential tax arrangements can indeed be considered harmful”, as they have a negative impact on the revenue and tax base of other countries, he said. He also encouraged taxation based on immobile criteria, such as housing or goods, which cannot avoid taxation. MEPs also discussed a study on the “evaluation of the anti-tax avoidance and evasion measures introduced in the recent years”.

FATCA: the European Commission rules out once again any action

The European Commission is not entitled to discuss or negotiate bilateral agreements between EU Member States and the United States on the implementation of the US Foreign Account Tax Compliance Act (FATCA), EU Commissioner for Taxation, Paolo Gentiloni said in a written answer published on Tuesday 11 January to a question from the Luxembourgish MEP Christophe Hansen (EPP). FATCA provides for the automatic exchange of information between national tax authorities and the US tax authority. It often entails burdensome tax obligations for US citizens living abroad, especially for so called “accidental Americans”. Commissioner Gentiloni added that any possible negotiation between the EU and US on replacing existing bilateral FATCA arrangements would require both a unanimous decision from the Council of the EU and a willingness from the US to use the international Common Reporting Standard (CRS) rules, rather than FATCA.

Wij willen van deze allereerste ACcTUA van het jaar gebruikmaken om onze beste wensen nogmaals over te maken. Wij hopen uit de grond van ons hart dat u dit jaar persoonlijke en professionele projecten zal kunnen waarmaken.

Het ITAA is 2022 gestart met een verdere evolutie in zijn communicatie.

Eerst en vooral, onze blog. Zoals u allicht al weet, verzamelen we op onze blog alle artikels die ooit verschenen zijn in onze ACcTUA-nieuwsbrieven. Gelieve er rekening mee te willen houden dat sommige van de eerder gepubliceerde artikels (op de ‘oude blog’) actueel nog niet beschikbaar zijn. We zullen ze geleidelijk aan integreren in onze nieuwe blog.

Voor al onze mailings – ITAA-Flash, ITAA-ACcTUA en ITAA-zine – zal het ITAA voortaan gebruikmaken van een technologie welke ons vele mogelijkheden biedt.

Tot slot herhalen we graag nog eens het nut van alle vier de communicatietypes die het Instituut gebruikt:

  • Het ITAA-zine is een maandelijks tijdschrift waarin beroepstechnische artikels uitvoerig worden toegelicht.
  • De ITAA-ACcTUA is een tweewekelijkse nieuwsbrief
  • De ITAA-Flash wordt voornamelijk gebruikt bij dringende en belangrijke nieuwsfeiten
  • De ITAA-VLOG welke korte videoberichten bevat

Wij zouden het zeer op prijs stellen uw suggesties hierover te mogen ontvangen. Ook roepen wij graag op om ons (op termijn) te laten weten of er artikels zijn die nuttig zijn voor uw beroep en welke nog ontbreken op de nieuwe blog maar voordien welk beschikbaar waren.

Neem contact met ons op via communication@itaa.be

Veel leesplezier met deze allereerste ITAA-ACcTUA van 2022.

Op 15 december 2021 vond de algemene vergadering van Accountancy Europe plaats. De deelnemende leden werd gevraagd een opvolger aan te duiden voor Christine Cloquet, actief ITAA-lid, wier mandaat ten einde liep.

Overeenkomstig het samenwerkingsprotocol met betrekking tot de internationale vertegenwoordiging van Belgische beroepsbeoefenaars, dat eind vorig jaar ondertekend werd tussen het ITAA en het IBR, heeft het ITAA de kandidaatstelling van huidig IBR-voorzitter Tom Meuleman ondersteund. Met dien verstande dat het ITAA, volgens het intern reglement, weliswaar niet voor een Belgische kandidaat mocht stemmen.

Tom Meuleman werd unaniem verkozen tot de Board van Accountancy Europe. Het ITAA wil Tom via deze weg dan ook hartelijk feliciteren.

De Raad van het ITAA wil Christine Cloquet in het bijzonder danken voor haar engagement ten dienste van het beroep en de Belgische beroepsbeoefenaars tijdens haar mandaat in de Board. Christine stelt zich momenteel nog ten dienste van het beroep binnen CFE – Tax Advisors Europe -, de Commissie Kwaliteitstoetsing en examenjury van het ITAA. Een welgemeende dankjewel, Christine.

Vier jaar geleden lanceerden Unifiedpost en ITAA een ambitieus project: een e-invoicingplatform, genaamd Billtobox, ter beschikking stellen van alle Belgische ondernemers en hun accountants of belastingadviseurs.

Met dit partnership zou het platform steeds beantwoorden aan de behoeften van de ITAA-leden en hun cliënten. De feedback van de gebruikers wordt dan ook zeer ernstig genomen. Een werkgroep bestaande uit ITAA-leden en een team van Unifiedpost buigt zich regelmatig over de prioritaire ontwikkelingen van de tool.

Op 22 december werd de interface van Billtobox volledig geüpdatet. Die update is een concrete vertaling van de samenwerking tussen het ITAA en Unifiedpost. Een gedetailleerd overzicht van deze updates vindt u hier: https://help.billtobox.com/hc/nl-be/articles/4412542532626.

Concreet betekent het dat de “Billtobox-console”, de nieuwe interface voor accountants en belastingadviseurs, voortaan beschikbaar is. Ter herinnering: Billtobox is gratis voor alle ITAA-leden en aan hun cliënten wordt aangeboden aan de laagste marktprijs.

Op langere termijn biedt dit partnership tussen het ITAA en een Belgische fintech-ontwikkelaar extra garanties dat de gegevens van de ondernemingen door accountants behandeld worden overeenkomstig de beroepswaarden en -ethiek van de accountants en de belastingadviseurs.

Sinds half november 2021 hebben tal van leden aan de servicedesk van het ITAA gemeld dat de contactgegevens van de verschillende diensten van de fiscale administratie verdwenen zijn. Het ITAA ontving bovendien klachten omdat de FOD Financiën telefonisch niet beschikbaar is of omdat te wachttijden veel te lang zijn.

Met die klachten heeft het ITAA de fiscale administratie om meer informatie gevraagd. De FOD Financiën heeft begin december 2021 de hele telefonie-infrastructuur herzien met als doel de communicatie met de belastingcontroleurs bevoegd voor kmo en grote ondernemingen te bevorderen. De administratie PB (natuurlijke personen) zou in de loop van 2022 aan de beurt komen.

Dit ambitieuze doel van de FOD Financiën kan het ITAA alleen maar toejuichen, maar het ITAA stelt wel vast dat de leden sinds begin december 2021 juist meer moeilijkheden ondervinden om antwoord te krijgen op hun telefonische vragen. De leden vermelden bovendien extreem lange wachttijden, maar erger: er komt geen antwoord op de gestelde vragen…

Standpunt van het ITAA

Het ITAA verzette zich in eerste instantie omwille van het gebrek aan informatie vanuit de FOD Financiën over deze veranderingen die toch wel een zware impact hebben op de beroepsbeoefenaars. Zulke veranderingen zouden lang op voorhand moeten zijn aangekondigd. Bovendien moest dit gefaseerd gebeuren opdat de belastingplichtigen, beroepsbeoefenaars maar ook de belastingcontroleurs zelf vertrouwd zouden raken met de nieuwe werkwijze.

Het ITAA pleit er overigens voor dat de FOD Financiën de nieuwe werkwijze dermate zou finetunen dat een telefonisch contact daadwerkelijk sneller tot een pertinent antwoord zou leiden. Met name op het terrein stellen we jammer genoeg vast dat het contact niet is verbeterd, ondanks de goede bedoelingen die de FOD Financiën heeft.

Tot slot verzoekt het ITAA dat de leden minstens rechtstreeks contact kunnen opnemen met de belastingcontroleur die toegang heeft tot de dossiers. Vooral wanneer ze te maken krijgen met een dringend probleem voor hun cliënten. Dat zou bijvoorbeeld kunnen gebeuren via een directe lijn per type belasting die zou voorbehouden zijn aan de beroepsbeoefenaars.

EU Commission Adopts Directive on Minimum Tax & OECD Model Rules Published

The European Commission adopted yesterday the proposal for an EU directive on global minimum level of taxation for multinational groups. The directive intends to implement the OECD Pillar 2 agreement into the European Union, and will become EU law once adopted with unanimous vote of all Member states. The College approval follows the publication of the OECD Pillar 2 Model three days ago, which contains detailed rules to assist governments in the implementation of minimum 15% tax rate as of 2023.

“The model rules are a significant building-block in the development of a two-pillar solution, converting the foundations of a political agreement reached in October into enforceable rules. The fact that Inclusive Framework members have managed to reach a consensus on this detailed and comprehensive set of technical rules demonstrates their commitment to a co-ordinated solution to addressing the challenges raised by an increasingly digitalised and globalised economy.”, said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. Further detail on the implementation rules (ie. the commentary) is expected in January 2022.

The EU Directive implementation Pillar 2 directive into EU law follows the OECD model rules to ensure consistency, with one notable departure: in addition to cross-border operating MNEs, the EU directive is intended to apply to domestic groups reaching the threshold of €750 million revenue (combined financial revenues per year), with either a parent or a subsidiary situated in an EU Member State. The provision on application of the directive to domestic entities is unlikely to have significant impact and is intended to ensure consistency with EU law principles, notably the principle of equal treatment (non-discrimination). As consequence, the Under-Taxed Payments Rule will only apply to external transactions, and not on intra-EU level.

The implementation of the Pillar 2 directive affects existing EU tax law provisions (ATAD), specifically for the Controlled Foreign Company (CFC) rules, which could interact with the Income Inclusion Rule, the primary rule of Pillar 2, which merits amendments of ATAD. In practice, ATAD CFC rules will take precedence and any additional taxes paid by a parent company under a CFC legislation in a given fiscal year will be taken into consideration by attributing those to the relevant low-taxed entity for the purpose of computing its (jurisdictional) effective tax rate.

Some Member states like Estonia have expressed their reservations, with the file now in the hands of the upcoming French presidency of the EU. Additional hurdles include problems with US implementation, where the Build Better Act (which passed the House) has been effectively blocked in the Senate by Democratic Senator Joe Munchin, citing fears of rising inflation and the effect of the bill on the US federal deficit. The White House specifically named Senator Munchin as putting in jeopardy not only the minimum tax provisions but also President Biden’s flagship $1.75 trillion social spending bill.

EU Commissioner Paolo Gentiloni, responsible for Economy, said that he is confident the bill would pass the US Senate, and the Commission is already looking towards the new framework for business taxation in the EU (BEFIT), aimed to streamline corporate taxation rules and create a more business-friendly environment in the Single Market. Commissioner Gentiloni also added: “In October of this year, 137 countries supported a historic multilateral agreement to transform global corporate taxation, addressing longstanding injustices while preserving competitiveness. Just two months later, we are taking the first step to put an end to the tax race to the bottom that harms the European Union and its economies. The directive we are putting forward will ensure that the new 15% minimum effective tax rate for large companies will be applied in a way that is fully compatible with EU law. We will follow up with a second directive next summer to implement the other pillar of the agreement, on the reallocation of taxing rights, once the related multilateral convention has been signed. The European Commission worked hard to facilitate this deal and I am proud that today we are at the vanguard of its global rollout.”

EU Commission Vice-President Dombrovski added: “By moving quickly to align with the far-reaching OECD agreement, Europe is playing its full part in creating a fairer global system for corporate taxation. This is particularly important at a time when we need to increase public financing for fair sustainable growth and investment and meet public financing needs too – both for tackling the pandemic’s aftermath and driving forward the green and digital transitions. Putting the OECD agreement on minimum effective taxation into EU law will be vital for fighting tax avoidance and evasion while preventing a ‘race to the bottom’ with unhealthy tax competition between countries. It is a major step forward for our fair taxation agenda.”, Mr Dombrovski said.

EU Adopts Shell Entities Directive

The European Commission yesterday adopted a proposal for a directive on the misuse of shell entities, or unshell legislation in the EU-bubble jargon. The directive aims to enable more tools for tax authorities to detect the misuse of shell entities, by requiring reporting (relevant disclosure) in tax returns and consequently denying benefits of tax treaties and EU tax law.

The Directive does not define shell entities, but requires certain criteria to be fulfilled (gateway principle and substance requirements), to allow the tax administrations to designate an entity as a shell. In practice, the gateway principle will look into activities of the entities based on the income where 75% of an entity’s overall revenue in the previous two tax years does not come from the entity’s trading activity or if more than 75% of its assets are real estate property or other private property of particularly high value. The second gateway element looks at the cross-border element and it is satisfied where the relevant income is received through cross-border transactions or it is passed on to other entities abroad. The final gateway indicator is linked to the corporate management and is aimed to asses whether the administrative operations of the entity are in-house or outsourced. With some exceptions, a company which ticks the boxes for these three indicators will be required to disclose in its tax return information concerning the premises of the company, bank accounts, tax residency of its directors and its employees. If an entity fails at least one of the substance indicators, it will be presumed to be a shell.

As a consequence, where a company is considered to be a shell entity, it will be denied tax treaty and EU tax law benefits, notably arising from the Parent-Subsidiary and Interest and Royalties Directives. The Member State of residence of such company can either deny to issue a tax residence certificate or the certificate shall state that the entity is a shell company. In addition, payments to third countries will be subject to withholding tax and will not be seen as passing-through the shell for tax purposes, with inbound payments taxed in the state of the shell’s shareholder as a result of this targeted tax treatment.

Commission’s impact assessment and public consultation comments from professional associations note that it remains challenging to define what constitutes a shell entity and that assessing lack of substance depends on the facts and circumstances of each specific entity and transaction. Public consultation comments also highlight that taxpayers should always have an effective right to provide evidence of their specific circumstances, particularly concerning structures that are not put in place to obtain tax advantage but for valid commercial reasons, in accordance with settled ECJ case-law. To address some of these concerns, the Commission proposal includes a ‘rebuttal of the presumption’ provisions, where tax administrations are obliged to allow companies deemed to be a shell to rebut this presumption by providing further evidence of the commercial rationale behind their business activity.

Penalties for non-compliance with the reporting requirements of this directive include administrative sanction of at least 5% of the undertaking’s turnover in the relevant tax year, if the undertaking fails to disclose relevant information or if it makes a false declaration in the tax return.

This Directive also requires unanimous support of Member states to be enacted into EU law.

EU Targets Portion of Carbon Tax Revenues & OECD Pillar 1 To Finance Post-Pandemic Recovery

The European Commission is proposing to Member states that part of the revenue generated by the July 2021 proposal for a carbon border adjustment mechanism and the emissions trading scheme (ETS) goes direct into the EU budget, in order to finance the post-pandemic recovery of the European continent. In addition, EU’s own additional resources would come as portion of the residual profits of MNEs within scope of Pillar 1, once the Multilateral Convention negotiated by the BEPS Inclusive Framework and the related EU Directive are both in force, as follows:

  • 25% of the revenues generated by EU emissions trading become an own resource for the EU budget,
  • 75% of the revenues generated by a carbon border adjustment mechanism become an own resource for the EU budget,
  • 15% of the share of the residual profits of the MNEs under Pillar 1.
It is estimated that the package would be worth 17 billion Euros from 2026, as part of the new multi-annual financial framework for the EU. The Commission also aims to create a carbon market for cars and buildings which is opposed at present by France and Spain, as well as a more general opposition towards certain carbon tax measures from the Eastern European Member states who fear these policies are driving energy prices higher up.

ECJ Advocate-General Opinions in Fiat/ Ireland v Commission (State Aid)

Advocate General Pikamäe issued Opinions in Cases C-885/19 P Fiat Chrysler Finance Europe v Commission and Case C-898/19 P Ireland v Commission, proposing that the Court allows the appeal brought by Ireland and annul the Commission’s decision declaring aid which Luxembourg granted to Fiat as being incompatible with the Single Market, and to dismiss the appeal brought by Fiat Chrysler Finance Europe against the said Commission decision.

The Advocate General suggests that Ireland’s appeal should be declared acceptable in so far as the Commission’s use of the arm’s length principle is not a rule which is expressly codified in national law, therefore in breach of the Treaty provisions governing the division of competences between the European Union and the Member States and providing for a prohibition of harmonisation in the field of direct taxation.

Regarding Fiat’s appeal, the Advocate-General suggests that the Court dismisses the appeal in its entirety. The General Court correctly held that the Commission was not required to take account of the intra-group and cross-border elements of the effects of the tax ruling when determining whether that ruling conferred an advantage, in accordance with applicable provisions of Article 107(1) of the Treaty, the Advocate General notes.

The opinions of EU Advocates General are of advisory character and are not binding for the European Court of Justice.

Annual Report 2021 – CFE Tax Advisers Europe

We are very pleased to inform you that CFE Tax Advisers Europe, in cooperation with IBFD, has published its Annual Report for 2021.CFE President Piergiorgio Valente said of the occasion: “In 2021, the CFE Executive Board together with the Technical Committees and CFE Team continued to work on existing projects and focus on relevant new technical publications and policy developments, in close conjunction with the Member Organisations and in synergy with the work of the EU institutions and the OECD. Spurred on by the limitations on meeting in-person due to the pandemic, CFE also accelerated the implementation of our Digital Strategy, a key part of which is the creation of digital, online content for our members. The silver lining of this crisis has been the opportunity to transfer and deliver content online, allowing us to provide the best experts and speakers, for the benefit of our joint membership. We have been able to deliver content on international and European tax law and policy to all our members. CFE is proud to be a relatively small organisation with a significant impact. With a small technical team but very dedicated volunteers from our Member Organisations and advisers who volunteer to assist the CFE Executive Board, we have made and continue to make significant impact on the development of the tax profession. We work with our members and gather the best professionals across Europe to share their expertise, exchange views, learn from each other, and most importantly, agree on a common European view on tax policy which is then conveyed to the EU, the OECD, UN and the Platform for Collaboration on Tax. The focus on international tax policy continues to evolve and CFE will continue to support our Member Organisations in their educational endeavours for their members. In doing this CFE continues to give continuous, high-level participation at EU, OECD, UN level and, thus, ensure that tax professionals have a voice that is heard in matters of international tax policy.”

On behalf of the CFE Executive Board, we wish all our members, partners and colleagues a very joyful holiday season and a successful New Year.

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