The European Parliament Comes To Washington To Talk Tax

Johan Langerock, coverage adviser within the European Parliament, discusses his go to to Washington, D.C., the way forward for the OECD two-pillar tax plan, and the European Union’s inexperienced initiative.

This transcript has been edited for size and readability.

David D. Stewart: Welcome to the podcast. I am David Stewart, editor in chief of Tax Notes In the present day Worldwide. This week: on a mission.

With worldwide coordination on tax issues rising in significance, a delegation of the lately created European Parliament tax subcommittee got here to Washington, D.C., to debate quite a few points. Whereas right here, they met with United States policymakers, and representatives of multinational organizations and firms.

Throughout their go to, we have been capable of get one of many members of the delegation into the studio to speak about what the group had hoped to perform, what they heard from their U.S. counterparts, and different points which might be dealing with European lawmakers after they get again to Brussels.

Earlier than we begin this interview, I ought to notice that we recorded this on Might 26. So, any references to “this week” are referring to then. And with that, let’s go to that interview.

Becoming a member of me now’s Johan Langerock, coverage advisor for the Greens-European Free Alliance within the EP . Johan, welcome to the podcast.

Johan Langerock: Thanks. Joyful to be right here.

David D. Stewart: So, you are in Washington with a delegation of the tax subcommittee of the EP. Might you first off inform us what the tax subcommittee is?

Johan Langerock: The tax subcommittee is sort of a brand new committee within the EP. It began in 2020. The Parliament at all times had advert hoc committees to take care of tax points. It was about time to have a everlasting subcommittee coping with tax points, which is a subcommittee of the ECON committee, which offers with financial and monetary points.

Each committee within the EP goes on missions overseas. The tax committee selected Washington for the identified context of the worldwide tax deal, International Account Tax Compliance Act-related points, and an alternate of views with each Democrats and Republicans.

David D. Stewart: You met with Democrats and Republicans. What different teams did you meet with whilst you have been right here?

Johan Langerock: We had fairly an intensive program over three days, spanning from Monday to Wednesday this week.

First day was extra of an introduction to civil society, varied stakeholders in Washington. We additionally met Google, Meta, and Amazon; society organizations just like the Monetary Accountability and Company Transparency Coalition or Transparency Worldwide, World Monetary Integrity; additionally the European delegation right here in D.C. that briefed us on the context. It was extra of an introductory day.

Then Tuesday, second day, Congress — all day on the Hill — assembly each Senate and Home, and each side, so Republicans and Democrats.

The final day, we went to the Treasury, and met with the IMF and World Financial institution.

David D. Stewart: When assembly along with your U.S. counterparts right here, what kind of subjects have been prime of thoughts?

Johan Langerock: We actually got here with two important priorities, after which a number of smaller subjects that we wished to deal with. In fact, the principle matter was positively the worldwide tax deal. I feel we Europeans wish to hear from the Individuals how they will get this deal by way of Congress. That was our important query. I do not assume we obtained a reply, however we are able to talk about that additional.

Their query was clearly, “What are you going to do with digital companies taxes?” As we perceive that, each Democrats and Republicans hate DSTs.

Then the second subject was actually FATCA and OECD frequent reporting requirements (CRS). There’s nonetheless this inequality, unlevel taking part in area. We Europeans share what the U.S. desires us to share with them, however we do not get the data that we wish out of the U.S. We addressed that matter fairly extensively throughout our conferences.

David D. Stewart: Let’s begin with the OECD’s two-pillar challenge. I perceive you met with Sen. Ron Wyden, D-Ore., on Capitol Hill. Our Capitol Hill reporter mentioned that Wyden mentioned that the dialogue was constructive, and he instructed you that the U.S. desires to implement pillar 1 and pillar 2 shortly as coverage.

What was your take in your assembly with him?

Johan Langerock: No, I’ve to say all conferences have been very constructive with each side. It is true, one can have each an optimistic and a pessimistic view after these conversations.

The optimistic me actually desires to imagine that this deal will get by way of each in Europe and within the U.S., and that the U.S. will implement pillar 2 by reforming its world intangible low-taxed earnings guidelines. Wyden did give that confidence that this may occur and that the Democrats will work exhausting to get this by way of over the approaching months.

David D. Stewart: Did you get an optimistic learn from Treasury as nicely?

Johan Langerock: From Treasury, we additionally obtained an optimistic learn, sure. Additionally, in fact they do admit that there are difficulties on the street. In fact, I’ve simply been right here three days so do not count on me to completely perceive U.S. Congress and all of the ins and outs. It is simply very exhausting to learn as a European.

From what I perceive, there’s loads of optimism in that this may get by way of Congress. However, in fact, the 2 pillars are very completely different by way of technique.

What I understood from pillar 2 is that it is a matter of months. There’s additionally the hope that Europeans get pillar 2 by way of as quickly as doable, which we hope there’s an approval on June 17. This can actually assist the U.S. to have pillar 2 voted in Congress too.

Then on pillar 1, we additionally heard from Treasury that technical negotiations are nonetheless ongoing with the opposite nations within the OECD inclusive framework, particularly bigger nations like India and in addition the EU. These technical particulars are very essential to then make it a bipartisan challenge to get it by way of Congress.

David D. Stewart: You talked about that you simply additionally met with some tech corporations whilst you have been right here. How did they react to the place of the EP members about how the EU member states might reintroduce DSTs if the U.S. is unable to implement pillar 1 beneath a multilateral conference?

Johan Langerock: At most, we’re in a standstill. There’s the settlement among the many U.S., France, and the UK to freeze the DSTs after which withdraw these DSTs as soon as the multilateral conference is ratified by all sides. In fact, this settlement must be prolonged as a result of there’s now a delay in pillar 1. It was anticipated for the summer season, however now we hear it is for the tip of the 12 months.

In fact, they don’t seem to be comfortable, and Massive Tech hates DSTs identical to Democrats and Republicans do. So, what their message to us was, “We would like pillar 1 and pillar 2 and that is what we’re telling our counterparts within the Congress.” I am undecided how a lot they’re advocating for pillar 1 successfully.

After I communicate to the Republicans, I did not actually hear that Massive Tech have been lobbying them actively to implement pillar 1 and to be supportive of it. Seemingly this may occur as soon as the multilateral conference is out, the main points are identified, and perhaps the specter of DSTs turns into a bit extra outspoken once more.

We truly additionally requested Massive Tech what are their plans with voluntary public country-by-country reporting. We did not get a really enthusiastic reply from their facet.

It is a bit unusual to listen to from Google, Meta, and Amazon — huge information firm specialists in processing information, not less than that is how they out compete everybody — that they’ve difficulties in gathering their very own information and publishing it, which we discovered fairly humorous from EP facet. At the very least they promised us that they may respect the European directive, which we thought it was a traditional factor to do.

They assured us that they may do the required European public CbC reporting. However we hope to see a change on their entrance quickly as additionally many stakeholders and traders are pushing them to alter their views on voluntary public CbC reporting.

David D. Stewart: Might you inform us about what you heard from U.S. policymakers about monetary account info alternate? You talked about FATCA and CRS. Do they appear open to implementing one thing nearer to CRS right here?

Johan Langerock: Yeah, so the exchanges on FATCA have been truly fairly attention-grabbing.

Our first statement was speaking with senators, particularly additionally from the Republican facet, was that there was no consciousness of the issue, or little or no consciousness. There’s some consciousness of the so-called Unintended American subject in Europe, however the consciousness of the truth that there’s an inequality in alternate of data was not likely there. As soon as we addressed it, there was additionally an understanding from the American facet that clearly that wasn’t truthful or regular.

I might contemplate it a small win for the EP as nicely, to perhaps elevate this consciousness in Congress on this subject.

Then Treasury had excellent news for us that within the inexperienced guide for the price range of 2023, there’s provisions to make FATCA extra reciprocal. To make alternate of data with accomplice nations extra reciprocal, and to already alternate info on points that weren’t exchanged to this point. In fact, this nonetheless must move. But it surely’s a constructive improvement that it’s on prime of their minds in Treasury, and that they’ve been listening to what Europeans have been asking them over the past years and months on the matter.

Hopefully we’ll see a extra reciprocal alternate of data within the coming years, which might then lower a bit of economic secrecy of the U.S. The U.S. was listed because the No. 1 monetary secrecy haven by Tax Justice Community. We hope that may change sooner or later.

David D. Stewart: I assume you had some objectives coming into your journey right here. Did you be taught what you have been hoping to? How will what you came upon whilst you have been right here inform the work of your committee going ahead?

Johan Langerock: Excellent query. I am nonetheless processing this journey, so, I would do the processing proper right here.

We obtained to know a bit extra of how each Democrats and Republicans assume. We see the frequent denominators, like a transparent disapproval of DSTs, however we additionally see the variations.

We see the variations in why the Republicans are in the intervening time hesitant on pillar 2 and the way they need to reform GILTI because of how tax credit shall be handled within the U.S. going ahead. However we stay hopeful that the GILTI guidelines shall be reformed to be equal with the OECD pillar 2.

On pillar 1, what we discovered is admittedly extra particulars are wanted. The multilateral conference with all its technical particulars is required to do an influence evaluation and to get this by way of Congress.

I am extra optimistic in that sense. At first, earlier than coming right here, I believed pillar 1 is near being lifeless. Now I feel truly if the technical particulars are out, and one can clearly clarify that each side — Europeans and Individuals — have executed sacrifices, that that is the way in which to maneuver ahead and to cease unilateral measures such because the DSTs, then I feel pillar 1 will get by way of Congress.

However that is my very optimistic studying. I do know U.S. coverage is about far more than only a rational selection and plenty of partisan points. I am not going to deep dive into these as a result of it is not my space.

David D. Stewart: Certain. Effectively, turning from U.S. politics to European politics, the Greens and European Free Alliance are pushing for pillar 2 to be adopted by way of certified majority or enhanced cooperation. Is that legally doable?

Johan Langerock: That is a superb query. We’ve some #TaxTwitter debates about it.

Is it doable? For me, there’s at all times a distinction between what the “pure authorized causes” and politics. For me, this can be a political selection firstly.

In the mean time we’re in a state of affairs within the EU the place we nonetheless have unanimity on tax issues. One member state can block any tax proposal. The Poles are at second blocking the implementation of minimal tax directive. Not as a result of they wish to hyperlink it with pillar 1.

There are numerous debates additionally on the market that the Poles may be proper, that it is wanted to hyperlink pillar 2 to pillar 1. Sorry, it is simply [expletive]. They don’t seem to be looking for to hyperlink one to the opposite. They’re simply blocking it as a result of they need the COVID-19 restoration funds, which we name the Restoration and Resilience Funds within the EU, to be dispersed to them.

However the fee does not wish to disperse them as a result of they are not respecting a court docket of justice ruling. They first have to present ensures that they may respect it, reform their judicial system to be able to be totally impartial once more, after which the cash may be disbursed. Then the Poles block this minimal tax directive. So, it’s kind of of a cut price.

There is a hope that the state of affairs could possibly be solved by June. However what we are saying as Greens is that we should not enable one member state to dam the proposal that’s permitted by 26 different member states. There’s an instrument to which we name enhanced cooperation within the EU, which may be taken on the initiative of 9 member states to maneuver ahead. In that situation truly 26 member states might simply transfer forward with pillar 2, and the Poles could be left behind.

I am fairly assured that might not elevate too many points from authorized jurisprudence perspective. However I do know that some listeners may disagree, and we might have an hour lengthy debate about it.

David D. Stewart: From what I perceive, the Greens help extra of a generalized push towards a professional majority voting on tax issues. What are the professionals and cons of shifting to that system? Are different events becoming a member of in that effort?

Johan Langerock: To start with, it is good to know that we have despatched letters. Our MEPs, Ernest Urtasun and Kira Marie Peter-Hansen, have led on a letter despatched by the Greens to Commissioner Paolo Gentiloni Silveri and to the French Presidency Emmanuel Jean-Michel Frédéric Macron to ask them to alter technique on the minimal tax directive.

However extra typically, certainly, we’re in favor of certified majority in tax issues. It isn’t solely us. It is the European residents who’ve clearly voiced their help for certified majority in tax issues. Vetoes don’t work, and it permits member states to misuse a file to be able to achieve good points on one other file.

We’re totally in favor of certified majority in tax issues within the EU.

David D. Stewart: Altering gears a little bit bit. Lately there was a leak of paperwork that confirmed loads of belongings hidden within the United Arab Emirates. It has been referred to as the Dubai papers. Is it probably that the UAE goes to seek out itself on the EU’s listing of noncooperative jurisdictions?

Johan Langerock: It is at all times very complicated, and it is probably the EU’s fault.

There is a listing of noncooperative jurisdictions, which is what we name the tax haven blacklist. There’s additionally an anti-money laundering (AML) blacklist. Each are barely completely different in process as a result of the tax haven blacklist is determined by the council, the member states, and the AML blacklist is determined by the fee, which then must be permitted by the member states and by division.

What we ask is that the AML blacklist is up to date so as to add the UAE. This isn’t an bold name from the Greens. That is simply regular as a result of the UAE are listed by the Monetary Motion Activity Drive (FATF) since March this 12 months, and the AML blacklist within the EU follows the FATF grey listing. As soon as a rustic is added on the FATF grey listing to EU, the fee ought to replace its AML blacklist.

What we imagine as Greens is that we’ve a rustic that isn’t respecting AML requirements, not respecting FATF requirements. We all know that the nation is being additionally abused or not less than used as a platform to avoid sanctions imposed on Russian oligarchs. We’ve loads of components in there to listing the UAE as quickly as doable on the AML blacklist. We actually do not perceive why the commissions aren’t shifting forward quicker on this.

David D. Stewart: Following the invasion of Ukraine there was loads of effort to trace down Russian oligarch cash. How is that taking part in out within the EP?

Johan Langerock: We are attempting to watch as shut as doable how the freezing and seizing of belongings goes. We’re placing some stress on the fee as nicely to be as clear as doable. There is a Freeze and Seize Activity Drive, a little bit of a copy-paste from the G-7 taskforce on the identical matter. You’ve got additionally job power within the U.S. which is named, KleptoCapture if I am not mistaken. However we nonetheless have little or no transparency of how a lot is being frozen and seized in member states.

There have been some leaks and we all know that some member states are stronger than others. The Netherlands and Germany are performing fairly weakly. Belgium has been fairly sturdy. However we wish to have an summary per member state of what’s being frozen and what’s being seized.

We’d additionally prefer to go additional as Greens. We have been defending that we should always look into confiscation of these belongings, and we totally help the decision made by the European Fee President Ursula Von der Leyen in Davos the place she mentioned we should always confiscate to then spend money on the Ukrainian restoration.

However in fact, all of these items are additionally legally very difficult. I do perceive that confiscating an asset has some authorized hurdles to it which we have to remedy.

The European Fee has truly additionally put ahead a proposal to alter the foundations round confiscation within the EU. Let’s have a look at how far this may also help within the present state of affairs. Guidelines would have to be permitted and enter into power, so it is probably these guidelines will not be used within the present disaster.

David D. Stewart: One query that strikes me is that we have been discussing earlier the pillar 1 and pillar 2. We speak loads about company earnings tax. Nevertheless, VAT accounts for a a lot greater proportion of income. Are we spending an excessive amount of time speaking about company tax when VAT is that this a lot larger pot of cash?

Johan Langerock: Yeah, it is one other well-known tax debate, whether or not we’re spending an excessive amount of time or not on company earnings tax. I totally agree, we should always spend extra time on different tax points as nicely. I am undecided in the event you ought to spend much less time on company tax, or you must simply maybe spend extra time as nicely on different tax issues.

VAT, money-wise, is some huge cash. Within the EU, VAT fraud accounts for greater than €130 billion in 2019. I feel these are the most recent figures. Nonetheless we’re in a state of affairs there once more, unanimity performs a task.

We wished to maneuver to the definitive regime within the EU, which means that we apply a destination-based precept to business-to-business transactions. This proposal was made in 2018. It is nonetheless blocked in council as a result of there’s nonetheless no unanimity discovered on this matter.

As a result of that is taking so lengthy, lately the EP needed to endorse an extension of what we name a reverse cost mechanism or a fast response mechanism. These are mechanisms in place that member states can change from origin to destination-based precept in VAT on sure issues in case of a excessive danger of fraud.

That is, once more, a typical instance the place one thing is blocked in council. We’ve to endorse an extension of an distinctive regime simply because member states lack the political will to essentially successfully remedy the matter. We remorse the state of affairs, however that is the state of affairs by which we’re in.

David D. Stewart: Turning to the opposite vital subject of our time, environmental taxation. What’s the tax committee doing proper now on environmental tax points?

Johan Langerock: In the mean time, within the EP, we’re discussing the vitality taxation directive. It is a directive that could be a revision of the prevailing directive of 2003, and it is a part of the European Inexperienced deal, which was revealed in July 2021. The vitality taxation is essential.

What the fee desires to do is to revise the charges. The directive establishes minimal charges on vitality merchandise. What we wish to do now’s to alter the charges from volume-based to vitality content-based. We additionally wish to enable indexation. The issue was that since 2003 the charges have not modified so you may think about that the charges these days aren’t of that a lot worth.

What we’d like is, 1) to replace the charges to replicate vitality content material and never quantity; 2) to additionally make them mechanically improve over time in accordance with the index. That is an ongoing negotiation. It isn’t a straightforward one as a result of carbon pricing, carbon taxes is a really divisive matter. As Greens we’re totally supportive, and we expect it is crucial. The Oil Firms Worldwide Marine Discussion board and others are very supportive of those issues. However there are nonetheless some political teams which might be very hesitant on rising environmental taxes.

David D. Stewart: That leads me to my final query. What’s subsequent for the tax committee once you get again to Brussels?

Johan Langerock: There’s loads on our plate. First there is a legislative observe, which is handled by our different committee, ECON committee. But it surely’s roughly the identical individuals concerned. There’s the Unshell directive or which we name ATAD III, which is to deal with shell corporations within the EU. That is one.

There’s additionally the most recent debt-equity bias discount allowance proposal to unravel the debt fairness bias.

We’re additionally engaged on two workstreams. Mainly we’re engaged on a solution to the Pandora Papers. We’re engaged on additional reforms wanted in company earnings taxation.

In the mean time we’re additionally engaged on a report on how new applied sciences will affect taxation. Truly on this it was a really attention-grabbing assembly with the IMF this week as a result of they clearly talked about, and I actually imagine on this, that new applied sciences will assist to make our tax system extra complete once more.

We went to a tax system the place we have been reducing our wealth taxes, capital good points taxes, as a result of we at all times imagine that they have been advanced to implement and enforcement was tough. We went to a tax system extra primarily based on VAT earnings taxes, which led to rising inequalities. What the IMF actually says is, “Let’s use these new applied sciences to essentially reinstore efficient wealth taxation, capital good points taxation, property inheritances.”

It is a observe for EP to work on as a result of in November there shall be a tax symposium organized by European Fee by which the European Fee desires to have a look at the perfect tax combine, a roadmap to 2050.

As you mentioned on this dialog already, we have been focusing a lot on company earnings tax, maybe it is time to give attention to private earnings tax points and wealth and capital. As Greens we’re very supportive of this, and we actually goal to work extra on these issues within the coming months and years within the subcommittee.

David D. Stewart: Effectively, it positively sounds such as you’ve obtained loads in your plate. Thanks for taking the time to speak to me.

Johan Langerock: Thanks very a lot.