Context
An important cost driver of tax compliance burden is complexity due to a fragmentation of rules across Member States. Notably, SMEs often face a disproportionate burden compared to large enterprises, despite their importance in the EU[1]. High business compliance costs threaten to compromise the competitiveness of the EU vis-à-vis other regions in the world. Additionally, large businesses need to learn how to navigate the Minimum Tax Directive (Pillar II Directive) in force from 1 January 2024.
The EU is committed to enhancing the competitiveness of European businesses and reducing their burden by creating a single internal market. This requires the reduction of barriers created by fragmented national tax systems and complicated standards and practices in national markets. Recent EU-action aims at pursuing a simpler and more modern tax environment. For example, the proposal on Value Added Tax (VAT) in the Digital Age (ViDA)[2] aims to simplify and modernise compliance and make the cross-border operation of businesses easier. Unsurprisingly, tax and customs reforms require technological infrastructures to facilitate digital adaptation. These are supported by the European Commission digital strategy including programmes such as DIGITAL and Europe’s Digital Decade strengthening the digital transformation for businesses and public services[3]. These EU proposals are reflected internationally by OECD initiatives such as Tax Administration 3.0[4] and Treaty Relief and Compliance Enhancement (TRACE)[5].
How the above initiatives are applied in practice depends to a large extend on the level of fitness of the national revenue administrations. Tax and customs administrations that are streamlined and simplified through business process improvement, digitalisation and innovation will be better prepared to administer future EU tax and customs frameworks. Member States maintain flexibility and opportunities to simplify and modernise at their own initiative and according to their own design, however there are significant variations across administrations. Providing tailor made solutions to tax and customs administration will level the playing field when future rules are adopted, and this will reduce administrative barriers across the internal market.
[1] SMEs currently account for almost all European Union (EU-27) non-financial business sector enterprises (99.8%), two-thirds of total EU-27 employment (66.6%) and slightly less than three-fifths (56.8%) of the value added generated by the nonfinancial business sector. This is why even small improvements in the regulatory environment for SMEs may have a large impact on the economy of the EU. Source: study for the EC (2022) ‘Tax compliance costs for SMEs: An update and a complement’.
[2] https://taxation-customs.ec.europa.eu/taxation-1/value-added-tax-vat/vat-digital-age_en.
([3]) See: European Trust and Cooperation Approach – ETACA Pilot Project for MNEs (europa.eu), European Commission Digital Strategy (europa.eu), The Digital Europe Programme | Shaping Europe’s digital future (europa.eu), Europe's Digital Decade | Shaping Europe’s digital future (europa.eu).
[4] https://www.oecd.org/tax/tax-administration-3-0-and-connecting-with-natural-systems-53b8dade-en.htm.
[5] https://www.oecd.org/ctp/exchange-of-tax-information/treatyreliefandcomplianceenhancementtrace.htm.
Objectives
The overarching goal of this flagship initiative is to contribute - in line with the EU actions and national initiatives - to a business-friendly environment in terms of Member States’ tax and customs administration while simultaneously strengthening voluntary compliance. This flagship aims to support EU tax and customs authorities in their efforts to alleviate the administrative burden on businesses and their own revenue administrations through simplification, streamlining and modernisation.
Specific objectives are:
- Reducing the complexity of the national tax and customs administration systems by simplifying, streamlining, and modernising administrative procedures and processes that ensure compliance and responsiveness, with focus on reducing the administrative burden for SMEs.
- Boosting tax certainty through implementation, cooperation and dialogue between tax administrations and large businesses and multinational corporations.
- Improving the tax policy frameworks of Member States by making these more inclusive, fair, balanced and simpler.
In the long term, this flagship is expected to contribute to increased tax compliance, reduced administrative burden for taxpayers and tax administrations, reduce costs for businesses, and improve the business environment which stimulates economic growth, innovation, and competitiveness.
Targeted beneficiary authorities under this flagship are tax and customs administrations, as well as tax policy departments under the Ministry of Finance.
Indicative Support Measures
Under this flagship, EU Member States may request technical support to review their tax policy and streamline their revenue and customs administrations to simplify tax compliance for all taxpayers, while paying particular attention to the burden on small and medium enterprises through the following proposed work packages and measures:
- Modernising and simplifying tax and customs processes and procedures to facilitate compliance and reduce the administrative burden for SMEs
- Business process re-design for simplification of tax and customs forms, processes, and regulations[1];
- Digitisation of processes and real-time reporting obligations for taxpayers and business operators;
- Implementation of customer-centred services, which guarantee inclusiveness, efficiency and effectiveness for taxpayers and business operators;
- Tax certainty through targeted implementation and cooperation with large businesses and multinational corporations
- Implementation and evaluation of Cooperative Tax Compliance Programmes (CTCP), including multi-lateral cooperative compliance.
- Application of transfer pricing (TP) rules, risk assessment and audit; Administration of advance price agreements (APA);
- Implementation of the global minimum tax directive (Pillar II Directive).
- Inclusive, balanced and fair tax policy framework
- Review and assessment of existing tax policy and legal framework including tax expenditure and tax mix in view of simplification;
- Implementation of micro-simulation and modelling tools for impact assessment and evaluation of tax policy changes;
- Implementation of policy measures to reduce the burden on small and medium enterprises, for example how they can be supported to implement digital reporting requirements.
All components will offer a support for an enhanced multi-country cooperation between national revenue administrations and capacity building.
[1] Aligned with EU requirements and regulations where applicable.
