Anthony Zoppo: Welcome to Tax Notes Talk, a podcast from Tax Notes, the leading source of tax news, information, and analysis.

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: EU policy check-in.

As the European Commission works toward its tax omnibus expected later this year, it's weighing several tax policy considerations: windfall taxes, pillar 2 implementation, and double taxation concerns, to name a few. So, what lies ahead for the commission?

Here to talk more about this is Tax Notes senior EU reporter Elodie Lamer. Elodie, welcome back to the podcast.

Elodie Lamer: Thank you for having me. Merci. I dare to speak French because we were two native French speakers speaking English for the interview.

David D. Stewart: I understand you recently talked with someone about this. Who did you talk to?

Elodie Lamer: We had a podcast interview with Benjamin Angel. Benjamin Angel is the director for direct taxation at the European Commission's Directorate-General for Taxation and Customs Union. He basically is the official responsible for the drafting of proposals that the commission will put to member states, and then will participate in negotiation with member states, obviously.

David D. Stewart: What issues did you get into?

Elodie Lamer: We had a full hour, and we tried to cover as many issues as we could. Obviously, I started asking him about windfall taxes on energy companies, because there's been a request recently by member states to have such taxes, but at a recent finance minister meeting, the commission seemed a bit reluctant, so I wanted to get into that with him and understand the reluctance — or the caution, as he called it. Then we went into pillar 2. We discussed the side-by-side deal. One issue that I was really interested in is the fact that obviously parliaments in the European Union and member states are starting to discuss the side-by-side agreement. In France specifically there's been some requests to have estimates of revenue loss from exempting U.S. companies, but also the impact of competitiveness, double taxation. So, we got into those issues.

There's also requests by member states in the whole context of simplification to reopen pillar 2, as well, and try to simplify pillar 2 now. He doesn't believe that it's time to simplify pillar 2 now, but we touched upon the simplification agenda. As you may know, the commission is about to propose amendments to 16 tax directives — obviously, the nine directives on administrative cooperation, so everything related to reporting requirements and exchange of information, but also the anti-tax-avoidance directive, the parent-subsidiary directive, the merger directive, and so on and so on. This will be presented on June 24 or 25, he said. We got a more precise date at this stage.

We touched a bit on pillar 1 as well, because pillar 1 — I know that the U.S. thinks pillar 1 is dead, but discussion in the inclusive framework on the taxation of the digital economy. Then I really wanted to know a bit about the future of tax policy. As you may know, the commission has had to withdraw several tax proposals because member states did not want to work on them or failed to agree on them. So there's a couple of draft directives that will be withdrawn this year. There's this separate workstream of commission economic recommendations to each country. And because of the recovery plan, they started to link disbursement of EU money to the implementation of reforms, and so I was wondering if it was a new way to push for tax reform within member states when you cannot adopt directives.

David D. Stewart: All right. Let's go to that interview.

Elodie Lamer: Hi, Benjamin. Thank you for being here with us. This is kind of a dream come true for me because I have so many questions that I want to ask you, but I limited myself to 25. I hope that we'll be able to get into all of them.

We will talk, obviously, about pillar 2, pillar 1, and the simplification that you have planned for later in this year, but I wanted to start with a hot topic. We have five countries — so it's Austria, Germany, Italy, Portugal, and Spain — which requested some sort of windfall tax because of the current energy situation. There seems to be some reluctance from the commission. The commission said it's assessing, it's a possibility, but it's been done before, and I don't really understand why we cannot say, "OK, Let's do it again because we have a precedent." Can we start by talking about that? Do you think there's some reluctance, and if so, why?

Benjamin Angel: I wouldn't say reluctance, but it's normal when we get a request to create a possible new tax that we look at the details and that we assess whether this request is warranted, how much money it would provide. In 2022, when we created the solidarity levy, as you recall, Elodie, we managed to raise some €26 billion, if my recollection is correct, over two years. At the same time, we had more visibility at that time on the relatively lasting high energy prices. Today, I think it's fair to say that there is far more uncertainty on how the situation in the Strait of Hormuz will evolve, which in turn will also impact the existence or nonexistence of windfall profits. We need to do some serious assessment and also sound out member states beyond the five which have written to us to assess whether there is scope for a possible initiative or not. Not reluctant, but just a normal caution and normal need to assess whether there is a case.

Elodie Lamer: I'm just wondering, because I remember when the solidarity contribution was adopted in 2022, I think it was Sweden and Hungary that insisted to adopt a statement to the minutes of the ECOFIN finance ministers meeting. They said, "This is not a precedent for how we adopt tax issues," because they saw it as a tax, and the legal basis use for that solidarity contribution allowed us to use qualified majority instead of unanimity. I'm wondering if this is one of the reasons of the caution — that member states back then were like, "This is not a precedent, so let's not do that every time."

Benjamin Angel: Well, I don't want to enter into legal issues. I think we have used Article 122 [of the Treaty on the Functioning of the European Union] because it was an appropriate legal base for measures of a temporary nature. We could not use it if we were to create a permanent tax. The reason why we're taking the time to examine the situation is more from an economic point of view, checking whether there is ground for having a windfall profit tax and whether the money that would be generated is worth the effort or not. The gas prices, for instance, are way below what they were in '22, just one example.

Elodie Lamer: Yeah. When the finance ministers met two weeks ago, the commission drafted a document encouraging member states to consider windfall taxes, and it really insisted that it's not the time now for more lenient fiscal rules. We know that member states have a lot of budgetary constraint, which allows me to turn to pillar 2. Because in recent weeks, members of the French Assembly have had hearings with OECD officials, with finance ministry officials, and it's pretty clear that some MEPs have raised concerns about how much revenue we might lose because of the side-by-side deal that we had in the inclusive framework early January. The S&D — the Socialists and Democrats Group — in the European Parliament also asked you to come up with revenue estimates. I'm wondering if you're aware of any estimates of how much revenue we might lose because of the side-by-side deal, and if you're willing to do such a calculation, as requested by the European Parliament, or the group in the European Parliament.

Benjamin Angel: Well, first, we are not in a position to do such calculation now. No one has a figure. We will get more information once an exchange of information has taken place, and this exchange of information will start in June. Today, I think no one has a clear view. Some countries, like the one you know best, are in a bit better position because of prepayment possibilities, so they have more data. But beyond that, one has to remember that the primary goal behind pillar 2 is not to fill our pockets, but to level the playing field and to ensure that there is a floor to the race to the bottom in corporate income tax.
We have concluded the side-by-side agreement because we have reached a conclusion that the rules in place in the United States do ensure a broadly comparable level of protection [to] the one we have under pillar 2. It's not a question of losing or gaining money; it's rather a question of whether we are right in reaching this conclusion that the level of seriousness of the U.S. system is comparable to ours — we think it is the case — and whether we're comfortable with this conclusion.

Elodie Lamer: But then why couldn't we just grant them equivalence then?

Benjamin Angel: Because on those directives, there are a number of conditions which were set for equivalence, and one of them cannot be met. This is a jurisdictional blending. The U.S. system is still based on global blending, and as such, from a legal point of view, the commission was not in a position to take an equivalence decision, at least without amending the directive, which itself would have been complicated for other reasons.

Elodie Lamer: There's been a lot of talks, not only of revenue loss, but also competitiveness, etc. You've had a lot of opportunities to discuss this. I'm just wondering if there's a risk that EU companies might face double taxation if they are hit by both the U.S. minimum tax rules and EU tax rules.

Benjamin Angel: Well, we would have preferred first that EU MNEs do not have to face any obligation under the U.S. systems as to a full symmetry. This is not a secret. We did not manage to secure it during this negotiation. We secured some other elements, like the absence of pushdown of GILTI. Whether some of our MNEs can be subject to tax obligations in the United States is a matter of U.S. tax law, so it's hard to answer ex ante what the result will be. I would assume, nevertheless, that an EU MNE being subject to pillar 2 by definition is already subject to a set of rules which ensure a relatively sufficient level of taxation, which in itself makes it relatively unlikely that it is subject to the U.S. rule of global taxation — that is, GILTI being based on a global average. It's hard to imagine a scenario where the global average of EU MNEs subject to pillar 2 would be below the GILTI threshold. So I would deem it a relatively unlikely scenario.

Elodie Lamer: OK. Not 100 percent certain.

Benjamin Angel: It's complex to compare the two systems because, for instance, we have a substance carveout in pillar 2 that they don't have in the United States. The rules of tax credits are not the same, as well. I think no one can promise with 100 percent certainty that such a scenario can never, ever happen. Nevertheless, one can claim with 100 percent certainty that such a scenario is very unlikely.

Elodie Lamer: But still, there seems to be a lot of uncertainty for competitiveness, for revenue loss, double taxation. I'm wondering, if a national parliament says, "OK, we don't like this; we don't have enough information. We will not adopt changes to national law to allow U.S. exemptions." I mean, if they do that, this side-by-side applies anyway because you adopted a notice in the official journal. So, a national parliament now doesn't have any power to veto this deal, right?

Benjamin Angel: Well, the deal is indeed part of the pillar 2 under union law, and as such, all member states are bound to respect it. I've not heard any member state opposing it, and they already rallied immediately — well, the vast majority immediately, and three of them after further discussion. The EU member states are law-abiding countries — pacta sunt servanda — and I have no doubt that they will implement the agreement as-is. It is not in the European culture to deviate from international agreement to which we have subscribed.

Elodie Lamer: Yeah, but public debates and impact assessments are usually part of lawmaking, I guess.

Benjamin Angel: The European Commission itself has promised that it will assess the impact of pillar 2 on competitiveness. We have made an official statement to this effect at the beginning of the year. Of course, we cannot do this examination now because to do an examination on the impact of competitiveness, you need figures, and it will take some time before we have any figures allowing ["us"?] to have any solid examination. So we will certainly start the work somewhere around the end of next year with a view to communicating to states in assessment somewhere in 2028.

Elodie Lamer: We're implementing the side-by-side through article 32, which means that we will not amend the directive. Some academics and some member states have said we cannot use article 32 for this. You disagreed. I'm wondering — I'm not going to ask you to give me your legal view on this again, because you've expressed this — but I'm wondering if you expect it to maybe be raised in the case that was brought against the UTPR in the European Court of Justice.

Benjamin Angel: Well, I haven't checked the last development, but to the best of my knowledge, the plaintiff has already submitted their case. One would have to check whether they alluded to it. I don't think so, but I'm not 100 percent certain, either. Let me stress again that this article 32 is the explicit intention of the legislators. It was introduced because a safe harbor was still in discussion at the point in time where the directive was adopted. So it is a deliberate decision that we create a dynamic link with a safe harbor from the OECD, so as to have enough flexibility to capture future development in this field. We have already used this article in the past. It is not new; it's just a new use of this article. I know that the academia has sometimes expressed some criticism, but from where I sit, what matters so much is not the criticism of the academia, but whether we do respect the law and the will of the legislature, and we think we do.

Elodie Lamer: I'm wondering — and we'll get to the future review of pillar 2 later, but just to bounce back on this — when we review the pillar 2 directive, will it be worth it to try to maybe add some delegated act power so it's easier in the future to just make changes, like substantive changes to the pillar 2 directive?

Benjamin Angel: Well, a delegated act or implementing act, rather, to the council, you can use it, from a legal point of view, as long as they don't affect essential elements of the directive. It's always a thin line to determine what is essential or not. I would think on a personal basis that it's a good idea to have implementing acts for some elements which are clear, or even delegated acts sometimes for some elements which are nonessential. To give you an example, in the DAC9, we have the GLOBE information return. This is a living animal; it may change many times. So that is the kind of things for which it would make sense, in my view, to have an implementing act. But experience shows that member states are, for mysterious reasons, relatively allergic to the concept, even though council implementing acts are adopted by unanimity. So in that sense, there is not a big difference with the adoption directive. They tend to prefer modification of the directive itself.

Elodie Lamer: Yeah. But maybe the experience with amending DAC9 every time there's a change in the GLOBE information return will — maybe they would be like, "OK, this is too lengthy. This is too —" I don't know.

Benjamin Angel: Probably DAC9 is not the best example, because traditionally DACs are relatively uncontroversial. I think the real test case is when you have to reopen a more politically loaded directive such as pillar 2 rather than discussing the mere implementing act.

Elodie Lamer: In the pillar 2 directive as of now, if I'm not mistaken, we have granted no equivalence to any other country, but other countries have implemented pillar 2 outside the EU. So I'm wondering, what are the practical implications of not having granted equivalence to other countries?

Benjamin Angel: Well, none of the countries so far, none of the foreign countries were meeting the condition for equivalence established by the directive. What are the consequences? Well, I would say not many, because de facto, there is another modality for implementing pillar 2, which is introducing a QDMTT — a qualified domestic [minimum] top-up tax. You don't have to implement the IIR and the UTPR if you have a QDMTT, which is national tax. You're also fine with pillar 2. Going forward, there will be possibly other countries that will qualify for the side-by-side other than the United States. This will be taken into account automatically by the fact that the side-by-side mechanics have been imported in the implementation of the directive.

Elodie Lamer: Just one last question on pillar 2 in the OECD context. There will be this stock-taking exercise to see how we can simplify pillar 2. I'm wondering what kind of priorities would be for the EU in this discussion at the OECD inclusive framework level, if there's any at this stage, obviously.

Benjamin Angel: Well, simplification is a major objective for us, but so far we are very busy with the other directive. For pillar 2, as such, OECD itself has flagged some directions, like routine profit. We will start this discussion very soon in Paris with a discussion with a relevant working party scheduled to restart in the coming weeks, and we will take it from there and see how things deploy.

Elodie Lamer: I want to quickly turn to pillar 1 before we go into simplification. I'm wondering, seeing how the world has evolved since the pillar 1 deal — the new business models, the new big players that have emerged — how should what we had back then be adapted to reflect how the world has evolved, maybe?

Benjamin Angel: I think no one has the answer to your question, Elodie. At this stage, we supported pillar 1. We were happy with the result of the multilateral convention, but the United States have made clear that they don't see it as a workable avenue anymore, and they want to restart a more fundamental discussion on what is it that we want to achieve and how best to achieve it. So whether we like it or not, pillar 1 was discussed last year, to use the own words of the U.S. delegate, is dead, as you remember, the convention was constructed in such a way that it does not meet a critical mass without the United States. So it's not a scoop, it's a fact.

How do we take it from there? It's very difficult to anticipate how the discussion will evolve. I think it's positive that the United States are willing to have such a discussion in the OECD that, for instance, [they are] not willing to have such discussion in the United Nations; they do not participate to the U.N. discussion. We were supposed to start this discussion in the meeting of the inclusive framework that was to be held in Abu Dhabi, but because of the circumstances, as this meeting has been postponed, so we have to see when it is rescheduled for us to be able to restart this discussion.

Going forward, it would be important to identify an avenue which has a real chance of success. So, for instance, avenues that would involve, on the other side of the Atlantic, the support by 67 senators to materialize would clearly be extremely challenging. It's an extremely high bar, which is hard to meet, most likely. So whether there are alternatives that do not involve such a high bar, that is the main element that will need to be explored in this discussion. We remain convinced that a solution needs to be found to the issue of the fair taxation of the digital sector.

This is still an important topic. The commission has made proposals in the past, and we have worked several occasions and possible initiatives and decided to park them because the OECD discussions were making progress. Now, we have to park the former outcome and work together with the other countries in the framework to see whether a different outcome can be constructed. I can have a personal view, but somehow this personal view is irrelevant because whatever is done in OECD is the result of the collective work of 150 countries, not only the European Union.

Elodie Lamer: Are you expecting the EU to come with a joint position on this? Are you trying to have member states agree on a single position?

Benjamin Angel: We will for sure try to coordinate member states, but it's too early, because at this point in time there is nothing on the table. Once we have more clarity on the direction to be taken and on what the United States themselves feel comfortable to work on, we can fine-tune our position and try, whenever possible, to come up with some kind of coordinated stance in this discussion. But now would be premature. It is no secret that such discussion is also politically complicated for the Europeans.

We have some member states with a strong interest for digital taxation and a strong public opinion push for having a solution for the fair taxation of the digital sector — primarily the countries which today have a digital service tax, but not exclusively, since they are also discussions in some member states which do not have such tax today. But there are also member states which are far less interested in the topic and where, strangely enough, there is not much interest from the public opinion for having a common solution be brought to the issue of digital taxation. As the European Union, we have to find some kind of middle ground between all our member states, and we cannot do it in abstracto. It's only something we can do once it's clear that there is some kind of sense of direction or likely direction, and then we will work on it.

Elodie Lamer: At the Tax Foundation event, your director-general, Gerassimos Thomas, said that we want an agreement this year. I mean, we're already almost mid-April. Is that realistic? What happens if we don't? Do we go back to the new digital tax?

Benjamin Angel: I think the events in the gulf have impacted the calendar of the OECD. No one knows when the meeting in Abu Dhabi can be reprogrammed, so it's hard at this stage to set any deadline, and by construction, even harder to set any alternative scenario, if discussion were to be bogged down. It's a decision that would have to be taken if and when they are bogged down, and also taking into account the broader general situation, including the state of our trade relations with the United States.

Elodie Lamer: Do you think there's room to simplify some aspects of the pillar 2 directive in the omnibus already?

Benjamin Angel: The omnibus and the DAC recast will touch 16 directives, but not the pillar 2 directive. That said, we believe in pillar 2. We fought hard to have it first, and then to keep it. So precisely because we trust the ability of pillar 2 to provide a safety net against aggressive practices, the commission will most likely propose some alleviation of some antiabuse measure for the companies which are already subject to the mother of all antiabuse measures that is pillar 2 itself.

Elodie Lamer: It's not really simplification, but you promised Estonia, Latvia, Lithuania, Malta, and Slovakia to relay their concerns. They asked for next to a six-year delay. How can you make what you're going to give them future-proof so that they're really at peace forever with pillar 2?

Benjamin Angel: Well, we cannot prejudge the assessment before it has been made, Elodie. We promised it not this year, but later. This year would be too soon to reassess the situation of the five countries having the possibility to have a delayed implementation. How things will develop? I don't know, but interestingly, I don't think the five will be interested by having necessarily a delayed implementation. I've seen already in some of them a lot of unhappiness from the business community about the decision that was taken by their government. Businesses say that they will be much better off if the decision was made to implement directly pillar 2, because today their businesses are subject to pillar 2. But instead of dealing on a daily basis with the tax administration they know best and the language they know best, they end up dealing with the multiplicity of tax administrations in foreign languages and paying taxes, but not to their own government.

So, same from their own businesses, it's lose-lose: It's more complex for them, more costly, more expensive, and their own government doesn't get the money. So I see this debate growing already in some of the five. Whether it will exist in all five, I don't know, but I would not prejudge any conclusion.

Elodie Lamer: Do you have a clear date on when the omnibus and the DAC will be presented? We've heard June.

Benjamin Angel: Most likely at the end of June.

Elodie Lamer: The end of June, OK.

Benjamin Angel: Most likely around the 24th, 25th, but obviously this may change, depending on the priority of the commission. We are still living in a complex environment where one crisis replaces the others. By definition, sometimes it has [the] effect [of rocking] the priority agenda.

Elodie Lamer: Since some members have expressed willingness to already simplify some aspects of pillar 2 in the omnibus, if they decide to do that in the council, I think they can legally, but the commission has to agree. Do you think the commission will oppose?

Benjamin Angel: Well, that's a very speculative question. If I may, this mechanic is of limited interest in taxation. This is the general mechanic in union law, indeed, where changes are brought in the council against the agreement of the commission, but the effect of the general mechanics in the council is that member states can overrule the commission only unanimously, but taxation is anyway to be decided unanimously. So it doesn't make much difference whether the commission agrees or opposes a change. That said, I deem it extremely unlikely, in view of the fact that we will already discuss 16 directives, that member states would suddenly want to make it even broader than it already is.

Elodie Lamer: In the public consultation that just ended a few days ago, one of the requests of the business community was to extend the dispute resolution mechanism to cover pillar 2 disputes. Is this something that you're considering?

Benjamin Angel: It's not well suited as such to tackle this kind of dispute, so the answer is negative. No. I think because of technical reasons on the way this directive works today, and keep in mind on top that disputes affecting multinationals are very, very, very unlikely to have an exclusive European dimension, because almost all MNEs are global, and the results for any political calculation are made at group level for the activity of the whole group. So the right approach will be to develop some approach for dispute resolution at the OECD. For sure it will come, but one step at a time.

Elodie Lamer: To stay with pillar 2 linked simplification, I think even the commission acknowledged that DAC4 — so, the country-by-country reporting to tax administrations — and DAC9 reporting on pillar 2 duplicates. But then, when you look at the evaluation of the DAC that the commission published in November, you can see that out of the €6.8 billion of annual DAC benefits, DAC4 brings €5.6 billion. So how can you streamline without losing the benefit of DAC4, because it brings the bulk of the money, basically?

Benjamin Angel: It's a good question. I think the intention is not to replace one by the other; the intention is to make sure that we don't end up with multiple reporting from the same company. So if we can streamline the reporting and only one notification, one form and one report, that will be already a very significant simplification for businesses while ensuring the tax administrations do not lose data they're using today.

Elodie Lamer: We know a lot of things already on what you're planning for the omnibus. You mentioned deactivating CFC rules for pillar 2 companies. That's one of the things — maybe limiting the option for CFC rules. So there's a lot of things that you've already said publicly on the omnibus. I'm wondering if there's something that we don't know yet that you could tell us, more than one thing.

Benjamin Angel: Yeah, I think we don't know yet, but I understand that the path to discover it will have to be the College of Commissioners, and they will have to decide whether they like or not what we have in mind. But what I can tell you is that we are preparing a very ambitious package that will provide a drastic simplification of our framework. We don't want token simplification; we want really a simplification that contributes big time. The collective effort of the commission to cut the red tape. You know that we have this general objective of cutting it by 25 percent for companies and 35 percent for SMEs. We are preparing an omnibus, which will generate a very high level of savings for businesses, and probably one of the most far-reaching omnibuses among those [proposed] by the commission so far.

Elodie Lamer: At the IFA in Lisbon or Madrid recently, you said that we should have the discussion about having a tax on financial flows within the EU, that it's maybe in a single market that doesn't make sense. So this is about the parent-subsidiary directive and the interest and royalty directive, which will be part of the omnibus, so will be amended. I'm wondering, there's some talks that you might remove the condition of participation in those two directives. Can you say a few words about this, and how do you ensure that you do not open loopholes by simplifying this?

Benjamin Angel: We are looking into the question of withholding tax. Indeed, this is a major obstacle to the good functioning of the single market,de facto it's a fan being put in the machine today. The very existence of withholding tax and financial flows within the single market is intellectually difficult to reconcile with the very philosophy sustaining the single market. But as you said yourself, Elodie, this question is tuned to another question, which is if we make progress to simplifying further or even going more drastically within the single market, we need also to have an approach that ensures that we don't end up with double nontaxation — that is, we need to examine also what would be appropriate for outbound payment outside the European Union.

There's a longstanding discussion in the European Union, one for which the [council] itself has adopted multiple CSRs (country-specific recommendations) over time. Many member states have made progress towards ensuring a high level of protection, but clearly we cannot disentangle the discussion from what to do with withholding tax in the European Union with the one on what to do for flows leaving the European Union. Otherwise, we run the risk that flows are just directed towards the zero-tax jurisdictions and are never taxed anywhere. What we want to do is improve the functioning in single market. We do not want to have a door wide open to tax abuse.

Elodie Lamer: So this means that if you simplify this rule, you need to do something also to make sure that financial flows do not leave the EU?

Benjamin Angel: We need to make sure that financial flows are taxed somewhere.

Elodie Lamer: OK. Turning to the directives on administrative cooperation So you will recast it, the nine directives, but you will also add a new provision. I think you will try again to simplify two [harmonizing] sanctions.

Benjamin Angel: We never announced that we plan to harmonize sanctions. We have tried — not that it would be a bad idea, don't get me wrong — we have tried several times in the past to have floor sanctions because we do consider that there is an issue with sanctions, or rather with the fact that some member states do not have sanctions which fully meet the requirement to have sanctions which are effective, dissuasive, and proportionate, which is a formula that you have in the directive today. We try to do it via the way of setting floors in the past. In the work, we fail to reach unanimity, and I'm going to say we even face a strong hostility from the majority of member states. There are also avenues to address the incorrect implementation of an existing obligation as a directive. So when there are cases where there is blatant lack of deterrent effect of a sanction, the commission may open infringement procedures.

Elodie Lamer: Have you figured out how to introduce Unshell? So the failed directive, draft directive to tackle the misuse of shell entities, their substance hallmark into the DAC. Have you moved forward on this question?

Benjamin Angel: There is indeed a substance hallmark, and somehow the whole discussion surrounding Unshell was about answering one question, which is, what is substance? There's a good and a bad experience. The bad experience is that we failed collectively to agree on a common definition. At the same time, at no point in time did we face a member state saying, "We think it's a bad idea to try to do something in this field," or that we should not try to have a common definition. Sometimes when you propose a tax, some member states a very bad idea and wants it. That never was the case here. Everyone was of the view — "yes, we have a problem with shell companies, we need to do something." So in the framework of the DAC, probably some further work will be needed to understand what is meant by its existing hallmark, because today there is no guidance, there is nothing, and that's probably an area where we could use some collective work to try to approximate in the future a common definition.

Elodie Lamer: To go back to the DAC, have you identified any new need for reporting requirements?

Benjamin Angel: Oh, yes. There is an important development in the OECD in the field of real estate. The European Union has been a front-runner in the exchange of information on real estate because we have it already for a very long time for real estate income. So this aspect is being brought into the OECD which is not new for us, but the OECD also brings a new aspect that we don't have yet, which is the exchange of information on beneficial ownership for real estate. This is very important in particular for fighting tax evasion of rich people, because the common reporting standard today, if you want to evade taxation, you don't put money in an account abroad because sooner or later your tax administration will know. You'd rather buy some luxury residence, and today it won't know. So, having a good register in place for beneficial ownership and an exchange of information will allow to make further progress.

The European Union is always a front-runner in the implementation of OECD agreements on the exchange of information, and we intend to keep it that way. So we will include in the DAC an extension of the exchange of information to cover beneficial ownership and real estate.

Elodie Lamer: We mentioned earlier the DAC4 — the duplication between DAC4 and DAC9. There's also a duplication with the public country-by-country reporting. This is not in the remit of tax suits; we will just have to accept that we will have duplication there. What is FISMA doing?

Benjamin Angel: Well, FISMA is doing a lot. It has a vast legislative program still in council and trial logs, so certainly they cannot be accused of being evil. But as far as this directive is concerned — and to be fair with my colleagues, one has to keep in mind that reaching an agreement in trialogue between the council and parliament, has been extremely difficult. Really extremely difficult, probably a level of difficulty almost comparable to the one we had with pillar 2 itself, and that creates a certain political caution when facing the idea of a possible reopening of this directive. When you manage to finish something on the edge, you're not so eager to risk everything again. So we will not touch public CBCR at this stage.

Elodie Lamer: But can you take that into account when you review the DAC? You're like, "Oh, yeah, we have the public CBCR." But I mean, the tax administration needed information. You cannot just say, "We have public CBCR and it's enough," right?

Benjamin Angel: But the CBCR, which are contained in DAC4, will not disappear. What we are working on is a single notification that allows to make sure that there is no double reporting between the global information return in DAC9 and the CBCR in DAC4, but member states will still receive an extensive set of data in the CBCR. The public CBCR is something slightly different and less extensive than the one which is exchanged under DAC4.

Elodie Lamer: At the symposium, you moderated a panel. You seemed really interested with the Irish commissioner, if I'm not mistaken, on her position on a possible tax data hub. I'm wondering if the commission is looking into it.

Benjamin Angel: We're not looking into it now, but as you know, the commission, my director-general actually has been very busy building a custom data hub. Once this custom data hub is fully up to speed and operational and we have more experience in the way it is running, I think it would be a good source of inspiration for making progress in the tax field. Keep in mind, also, that many administrations [in the] European Union are both tax and customs administrations, so they have also a firsthand view on the usefulness of this custom data. Anything that can reduce the exchange of information and move to a system where we pull the data rather than having to exchange it in all possible directions is less administratively cumbersome and is likely to be more efficient.

We already have introduced sometimes a system of repository of data rather than exchange, but nothing comparable to the custom data hub. So, wait and see first the lesson we can grow from the custom data hub. If it works fine, which we all hope will be the case, because everyone — not only the commission, but all member states — place big hopes in the success of custom that I hope it will get data hub. It will certainly be a valuable source of information for building a tax data hub.

Elodie Lamer: I'm going to turn quickly to the future of tax policy, and then I'll let you go. First, it may sound weird, but why not withdraw BEFIT (Business in Europe: Framework for Income Taxation proposal) and HOT (head office taxation proposal), those two corporate taxation proposals that are not even discussed within the council?

Benjamin Angel: Well, the discussion on BEFIT has not even started. It was presented to the council, but it has not started primarily because all the brain capacity has been absorbed by pillar 2. I think the discussion on BEFIT should restart at some point — not now, because now the effort is to be placed on simplification. As you can imagine, when you come with amendments to 16 directives, it's also a big and time-consuming effort, not only for us, but for all member states to go through it. But once it's behind us, we have to restart this discussion. But the first step for restarting this discussion is probably not to do it with BEFIT as it stood exactly when it was adopted. Some elements were already highlighted at the time of the publication showing some minor inconsistencies and adjustments with pillar 2, but the fact is that since BEFIT was tabled, pillar 2 has changed a lot.

The administrative guidance must have been multiplied by five or six in size. We have some new safe harbors. The first step that is needed before any restart of discussion of BEFIT is a thorough cross-examination. The mechanics of BEFIT was in parallel the mechanics as it stands of pillar 2, so as to ensure maximum consistency. Logic of BEFIT is to simplify life for businesses. Clearly, if you have differences between the two, it does not simplify anything; it's just imposed two separate sets of rules to the same companies, because BEFIT does apply to the very same companies which are in scope of pillar 2 since it uses the same threshold. So the commission itself, we have to do some important homework ahead of any restart of this discussion. This is not the priority now; our priority is simplification. But once it's behind us, this is something we will have to do.

Elodie Lamer: There is a tax provision popping up in nontax dossiers. I think you call it TINTA — tax in nontax affairs. For example, in the 28th regime for innovative companies, there's a tax provision. There's a tax provision in the Pan-European pension product. Member states seem reluctant, but do you think that it's maybe the future of tax harmonization to have just one or two provisions in nontax dossiers? Because tax is everywhere, basically.

Benjamin Angel: Tax is everywhere. I don't think there is any opposition between the two. We will still make tax proposals whenever needed for pure tax stuff. When we have proposals which are related to another topic for which there is an ancillary element related to taxation, then this ancillary element can be put in that tax. What you cannot do is hijack a legal base which has nothing to do with taxation and introduce a big harmonization in such a text that is not a legal possibility. That is why you shouldn't think in terms of alternative options, because in terms of complementarity, there are bits and pieces that can do in other tax — not big things, but some progress here and there. When there is the opportunity to do it, we should use such opportunity.

Elodie Lamer: But even like that, it's sensitive, right?

Benjamin Angel: Well, it's always sensitive, but I think what was proposed in all the recent initiatives was relatively narrow and targeted and makes sense. So I think it's important that people go beyond their spontaneous neo-Pavlovian reaction saying, "Oh, this is tax; it should be in the tax text," and rather focus on what exactly is proposed and whether they like it or not.

Elodie Lamer: Two last questions. The recovery plan allowed the commission to push tax reform in member states, and the next EU budget will — so the recovery plan was basically countries had to implement milestones, and then they had disbursement of EU money from the recovery fund. This same logic will apply for the next EU budget as it is proposed right now — so, money for reform, basically. Do you think that it's a good way for the commission to push reform that it cannot push through directives?

Benjamin Angel: It proved to be a very useful way, but let me correct a bit your presentation because I don't think that the commission pushing for reform against the carrot is the right presentation, because too often even eminent journalists such as you tend to forget that the milestones were discussed and agreed with the member states.

Elodie Lamer: Yeah, but based on economic recommendations from the commission.

Benjamin Angel: It was a bilateral process. No one was forced to agree [to] a milestone upfront.

Elodie Lamer: Yeah, but it's a legal requirement that they have to be inspired by the economic recommendations of the commission.

Benjamin Angel: Sure. But we have some member states which agreed for a number of tax milestones and some of the member states where there are very few, if any, tax milestones. So no one has been forced into accepting the tax milestones. There are some member states for which you had repeated CSRs on important topics related to taxation for which there was no milestone at all on this topic because the member state has refused to have it. But once we have reached an agreement on what should be the benchmark for reform, then indeed we stick to it and we monitor its implementation and we condition the disbursement.

I think it's fair to say that in the tax field, RRF [the recovery and resilience fund] has allowed [us] to make significant progress and that it is a good source of inspiration for the future. It's a cooperative approach, which creates also a positive environment for member states, and it helps them also to convince more easily their national parliaments if there are benefits attached, and not only from Brussels.

Elodie Lamer: The commission published a study yesterday showing that actually, thanks to RRF, in 2019 you singled out six countries for tax avoidance risk, and now there's only one left, which I will not mention not to get in trouble.

Then my last question: In December you published the first report, Mind the Gap, on tax expenditures. We've had the VAT gap report for years, and it helps justify policy action. I'm wondering if it's the same approach with the tax expenditure report and the policy gap.

Benjamin Angel: Well, you have two kind of gaps: You have the compliance gap and the policy gap. The compliance gap, indeed, in the VAT field has been subject to an intense collective effort of measurement, and I think each time you have a problem. Knowing the extent of the problem is really the first step for addressing it. We have had in the past a high number of member states with a very high VAT gap, and the very fact that we were able to assess and publish this VAT gap has really helped focus the member states on making important efforts to tackle it and reduce it. So when you look at, in the last decade, the evolution of the VAT gap, the progress has been absolutely spectacular. Now we need to go beyond the VAT, and that's difficult because it raises methodological issues. It raises a question of data availability.

The commission has published for the first time some figures related to corporate income tax for most member states, not all. Those figures are not perfect; they can be improved from a methodological point of view. We're working at the moment on also making further progress on measuring the excise gap, which is not measured today. We have a dedicated workstream ongoing with all EU tax administrations involving them directly in making progress in the measurement, which is led by our Italian colleagues, which is good that the tax administrations themselves have a direct role in making progress in the measurement.

A different issue is the one of the policy gap, and we feel that, while everyone agrees naturally that the compliance gap is a bad thing, that we need to measure and address it, too often there is not enough attention to the policy yet. The policy gap is the one created by the succession of decisions over time to create reduced rates, tax credits, etc. Those decisions may be perfectly sound, but the only thing we want to make sure of is that, A, it's measured properly. There is already new directives that ask member states to communicate data on their tax expenditures, but this directive has been interpreted in different ways by member states. The data are not exactly comparable. And B, even more important that member states take steps to ensure that they have a regular fitness check of the value for money of the tax expenditures, because that is the step that is too often missing.

This is not anecdotal, because the tax expenditures sometime can be huge. I think the highest volume of tax expenditures in our Mind the Gap record, report was found in the Netherlands, where, according to the official Dutch data, the annual tax expenditure represents 15 percent of GDP. It gives you an idea that working on making sure that the tax expenditure is presenting a good value for money is potentially having a very strong positive effect on the sound management of public finances.

Elodie Lamer: OK. Well, thank you very much for your time and your answers, and I'll see you next time. Thank you, Benjamin.

Benjamin Angel: Bye.

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