Review of European and Comparative Law

Polycrisis, Megatrends – Tax Policy Trends and Responses

Gabriella Csürös — 2024-09-30

The EU relies heavily on labor taxation including social security contributions (accounting for more than half of all EU-27 tax revenues), though it can discourage labor market participation. Besides, ageing, digitalization, global markets, new forms of work and increasing labor mobility question the residence-based principle of personal income tax. The sustainability of the social security system can be promoted by additional behavioral tax (linked, for example, to the consumption of unhealthy products or the use of risky services). In the former socialist countries analyzed in this study (Croatia, Bulgaria, Latvia, Estonia, Hungary, Poland and Romania), the share of consumption taxes in total tax revenue is above 38%, well above the EU average. In countries with high consumption tax rates and significant consumption tax revenues, both labor and capital income tax revenues are typically below the EU average. The share of environmental taxes in tax systems is low, both on average in the EU and in the examined countries (although most of them are at or above average). Nonetheless, in the former socialist countries, the share of property taxes is lower than the EU average (for historical reasons, property taxation is less accepted by their societies). According to a Commission study published in 2024 (see: “Growth-Friendly Taxation in a High-Inflation Environment,” European Commission, European Economy Economic Brief 079), strengthening property taxation would help to make the tax system fairer, although not in a time of high inflation and crisis. Harnessing the potential of digitalization contributes to efficient and effective tax administration and can also reduce administrative costs, thus facilitating compliance. Latvia, Hungary and Poland recorded an exceptionally large improvement in VAT compliance, with VAT gaps falling between 2013 and 2021 by over 15 pp, which turned them into the best performers in the EU (Romania still faces challenges in the field of tax avoidance, VAT compliance gap and inefficient tax auditing). Tax administrations in most of the analyzed countries are therefore well adapted to the challenges of digitalization. The future tax system must implement a desirable green tax reform shifting a part of the tax burden away from labor to tax bases linked to environment taxes and other behavioral taxes – regarding the sustainability of the tax system as the European and national budgets face significant financial pressure due to the polycrisis, megatrends and EU loans.

In the studied former socialist countries (Croatia, Bulgaria, Latvia, Estonia, Hungary and Romania) the share of consumption taxes in total tax revenue is above 38%, well above the EU average. In countries with high consumption tax rates and significant consumption tax revenues, both labour and capital income tax revenues are typically below the EU average.

The share of environmental taxes in tax systems is low, both on average in the EU and in the countries studied (although most of them are at or above average). Though, in the former socialist countries the share of property taxes is lower than the EU average (for historical reasons, property taxation is less accepted by their society).

According to a Commission study in 2024, strengthening property taxation would help to make the tax system fairer, although not in a time of high inflation and crisis.

Harnessing the potential of digitalisation contributes to efficient and effective tax administration and can also reduce administrative costs, thus facilitating compliance. Latvia, Hungary and Poland recorded an exceptionally large improvement in VAT compliance, with VAT gaps falling between 2013 and 2021 by over 15 pp and currently they belong to the best performers in the EU. Tax administrations in most of the studied countries are therefore well adapted to the challenges of digitalisation.

The future tax system must implement a desirable green tax reform shifting a part of the tax burden away from labour on to tax bases linked to environment taxes and other behavioural taxes – regarding the sustainability of tax system as the European and national budgets faces significant financial pressure due to the the policrisis, megatrends and EU loans.

The Weakening of Taxpayer Rights in the Exchange of Information between Tax Authorities

Gianluca Selicato — 2024-09-30

Developments in international legislation and the growing digitalization of tax law support the development of global networks between tax authorities. We are witnessing an integration of databases that will lead to increasingly intense coordination of the fight against tax evasion at a supranational level. As in social networks and digital commerce, databases are increasingly enriched, contain increasingly precise information on the individual taxpayer and use common languages that allow for automated exchanges of information. While waiting for the creation of a global database – not conditioned by the constraints of reciprocity and abstractly usable by all authorized entities who need it – the first risks of limitation of the taxpayer’s rights are emerging. In fact, these phenomena have dark sides that are starting to emerge in use, at a national level and with respect to individual taxpayers, of interpolated databases. Moreover, a growing amount of information flows from heterogeneous and increasingly widespread sources, sometimes not protected by the requirements of professionalism, legality and public trust since data collection and entry can be delegated to economic entities, intermediaries and consultants. The absence of an authority responsible for the unitary management of global databases and for the resolution of their conflicts, the slow and timid affirmation (only in some national systems) of the taxpayer’s right of access to information concerning them, the difficult configuration of the faculty to request the correction of erroneous data and of the specular public power to remove the reported inaccuracies, weaken the system of protections gradually erected to protect the taxpayer’s position. In this way, the coordination of national systems that contemporary tax law creates is strongly unbalanced on the side of the protection of tax interests. International and European tax law should instead provide greater guarantees in favor of the taxpayers, defending their right to fair taxation.

Value Added Tax on Financial Services in the EU: The Complete Story

Lyubomir Antonov — 2024-09-30

The paper provides an extensive overview of the VAT exemption of financial services in the EU. The topic is surrounded by conceptual and practical challenges. The main issues are presented in a retrospective plan. They have been clearly defined and discussed since the very inception of the EU VAT system. The difficulties this tax regime is faced with today reveal the logical sequence that can be traced as far back as the 1970s. In its first part, the paper looks at the topic from a historical perspective, exploring the inclusion of financial services within the scope of the first VAT rules. Further insight is subsequently provided on the application of the VAT exemption over the past decades until the present-day rules. At its core, the text relies mostly upon the CJEU case law. Capital issues for VAT fiscal neutrality are also given careful consideration. This is the major concern inspiring the Commission’s attempts and proposals for VAT reforms. After a concise examination of the efforts to revise the legislation, the paper focuses on the most recent developments in the financial industry, which is a major stakeholder concerned by the recent aspirations of Brussels.

Goals, Effects and Challenges of the Financial Transaction Tax: A Comparative Law Study in France, Italy and Spain

Juan Benito Gallego López — 2024-09-30

The Preamble of the Spanish Financial Transactions Tax Law establishes that “[t]he shaping of the tax follows the line taken by our neighbouring countries, including France and Italy, thus contributing to greater coordination of these taxes across Europe.” In this sense, the Spanish tax shows important similarities with those established in France and Italy in relation to the levy on the acquisition of certain shares and securities representing the capital of a company for consideration. Nevertheless, both the French and the Italian taxes apply to other types of transactions, not covered by the Spanish Law, which is why it is necessary to carry out the corresponding comparative study. Furthermore, the effects that have arisen from the application of this kind of taxes to financial transactions merited a proper analysis in order to determine if the main goals pursued by these taxes have been achieved in an efficient way. In any case, there are emerging tax challenges in financial markets connected, on the one hand, to the use of crypto-assets and distributed ledger technology, and, on the other hand, to the implementation of artificial intelligence and machine learning and the fair taxation of these operations.

In this sense, the Spanish tax presents important similarities with those established in France and Italy in relation to the levy of acquisition for consideration of certain shares and securities representing the capital of a company. Nevertheless, both the French and the Italian taxes subject other types of transactions, out of scope of the Spanish Law, which is why it is necessary to carry out the corresponding comparative study.

Furthermore, the effects that have arisen from the application of this kind of taxes on financial transactions merited a proper analysis in order to determine if the main goals persuaded by theses taxes have been achieved in an efficient way.

In any case, there are emerging tax challenges in financial markets connected, by the one hand, to the use of crypto-assets and distributed ledger technology; by the other one, to the implementation of artificial intelligence and machine-learning and the fair taxation of these operations.

Tax Challenges Arising from Digitalization: Evaluating the Taxation Models Proposed by the European Commission and the OECD

Paulius Čerka — 2024-09-30

The world has entered a period of deep transition with rapid and phenomenal development of innovations. The rise of the digital economy has dramatically changed the global business environment, creating new challenges for the tax system. Newspapers and magazines are being replaced by the Internet, and trade in material goods – by digital services. The digital economy eliminates the barriers of time, space and distance. The server where the transaction is processed, the location from which the goods or services are supplied and the place of supply of such goods or services are in different jurisdictions, therefore, the question “Where should the transaction be taxed?” is raised. Meanwhile, the digital economy opens up unprecedented opportunities to avoid taxes with the international tax rules which are still “stuck” in 20th-century business concepts, because the companies operating in the digital space do not need factories, stores or other permanent residences to develop their activities. This article aims to evaluate the efforts of the European Union and international standard-setting entities to find a solution for fair taxation of the digital economy. The first part of the article delves into the concept of the digital economy and its essential features with a special emphasis on the role of the digital service user which is unique and more complex than the role usually played by the customer. This part also analyses the differences between digital and traditional business. The second part of the study emphasizes the reasons that will lead to the necessity of taxation of the digital economy, discusses the digital services tax applied in certain countries of the European Union and highlights the weakness of the concept of digital establishment in double taxation agreements concluded by the countries. The final part explores the proposals submitted by the European Commission regarding the introduction of a common consolidated corporate tax base and the inclusion of the concept of virtual permanent establishment in the tax system in the context of the digital economy taxation model proposed by international organizations.

Cooperative Compliance in Poland: The Question of Equality

Marcin Burzec — 2024-09-30

An increasing number of tax jurisdictions are implementing the concept of cooperative compliance into their tax systems. It aims to improve tax compliance by building an enhanced relationship between tax authorities and taxpayers. In principle, the programme is aimed at large taxpayers capable of engaging in aggressive tax optimization that is detrimental to state revenue. Dedicating the programme exclusively to large taxpayers may raise doubts about whether it violates the principle of equality before the law. In Poland, the legislation governing the cooperative compliance programme was introduced on July 1, 2020. As in other countries, it was targeted at large taxpayers. The article therefore discusses the question whether the Polish legal regulations on cooperative tax compliance are in line with the constitutional principle of equality.

The Hungarian Retail Sales Tax in the Changing EU Context

Dóra Lovas — 2024-09-30

In the last twenty years, Hungary has had three periods of special taxes (introduced as a result of the crises), but before and after 2010, and after the recession following the COVID-19 epidemic and the Russian-Ukrainian war, there were different legal policy reasons behind special taxes (including the retail sales tax). This raises questions as to whether the regulatory solutions implemented to address market failures during the first period are playing the same role today as they did in the past, and how their role has changed over the years. The introduced taxes often remain part of the general tax system, i.e. they are applied on a permanent basis (rather than on a temporary basis, as is usual with special taxes), and in 2023 they already accounted for almost 14% of total tax revenue (a higher proportion than, for example, corporate tax), which puts their role in the tax system in a different light. The Court of Justice of the European Union (CJEU) has repeatedly examined the EU framework, but it appears that the control has been weakened, mainly due to the impact of the current crises. At the same time, the Hungarian Constitutional Court is bound by the limits of the debt brake when examining the constitutional framework. The study explores the regulation of the Hungarian retail sales tax and its EU context, in particular with regard to the changes triggered by the crises.

The introduced taxes often remain part of the general tax system, i.e. they are not applied on a temporary basis, and in 2023 they already accounted for almost 14% of total tax revenue (a higher rate than, for example, corporate tax), which puts their place in the tax system in a different light. The Court of Justice of the European Union (CJEU) has repeatedly examined the EU framework, but it appears that the control has been weakened, mainly due to the impact of the current crises, while the Hungarian Constitutional Court is bound by the limits of the debt brake when examining the constitutional framework.The study deals with the regulation of the Hungarian retail sales tax and its EU context, in particular with regard to the changes induced by the crises.

A Critical Analysis of Selected Aspects of Real Estate Taxation in the Context of Recent Legislative Amendments in the Czech Republic

Taťána Zelenská — 2024-09-30

The real estate tax is the sole property tax in the Czech Republic and has been part of its tax system since its establishment, i.e. since January 1, 1993. The Czech Republic has long been recommended by the Organisation for Economic Co-operation and Development (OECD) to increase the collection of this tax because its yield as a share of gross domestic product (GDP) is one of the lowest among all OECD and EU countries. The lower yield is in part attributable to the manner in which the tax base is determined. The Czech Republic, with the exception of a few minor instances, continues to employ the assessment-based rather than the value-based method of determining the tax base. Furthermore, the Czech Republic is encouraged to use the correction elements at the disposal of municipalities to influence the amount of property tax. This article examines the revenue aspect of real estate tax in the Czech Republic, including the determination of the tax base and the use of correction mechanisms. In light of these considerations, it is evident that the development of the Czech real estate tax system has been influenced by a number of factors, including the introduction of one of the most significant amendments to the Real Estate Tax Act in the country’s history. This amendment, known as the consolidation package, was implemented on January 1, 2024 and has had a profound impact on the current legislation.

Characteristics, Legal Nature and Taxation of Management Contracts According to the Macedonian Law

Zoran Mihajloski — 2024-09-30

Managerial contracts are essentially synthesis of the power of management and the power of the leadership of the company. The conclusion of management contracts is not a simple and routine task which the contracting parties will easily access or, on the other hand, they will assign that task to other (third) persons. With the adoption of corporate decisions by the company, at the moment of appointment to the management body, and thus becoming a member of the body, rights and obligations determined by law arise. In the process of transferring the status powers to the management body or the manager, the owners of the companies or their representatives inevitably have to share a part of the power with the elected managers. The managerial contract is an act of free entrepreneurial will of the two parties that conclude the contract. Thus, this contract regulates the salary, allowances, participation in profit, reimbursement for expenses, reimbursement for life insurance, insurable income, and other employment rights and obligations. On the other hand, managers as individuals facing professional risk are to create a professionally based coalition of interests of all those involved in realizing the company’s corporate goals and business policy and thereby enable economic growth and development.

Combating Food Waste: Legal Analysis and Fiscal Solutions in the Italian and European Context

Emilia Bruno — 2024-09-30

This contribution aims to analyze the new measure of Food Income, an Italian legislation that has been introduced recently to combat food poverty. This tool enables the free distribution of food parcels made from unsold commercial products, donated by participating businesses to people in absolute poverty. Beginning with the analysis of the measure, which is currently being tested in some Italian municipalities, the goal of this contribution is to provide a comprehensive overview of current practices and developments in addressing food waste within the Italian legal system, offering a comparative and multilevel perspective on the multiple purposes that can be served by a sustainable food chain.

Regulatory Developments on Sustainability Issues in Light of Delegated Regulation (EU) 2023/2772 (ESRS)

Virginia Martínez-Torres — 2024-09-30

Sustainability reports have undergone significant evolution with the implementation of Directive 2022/2464 (CSRD). Despite the standardization efforts through the European Sustainability Reporting Standards (ESRS) developed by EFRAG, in 2023, the European Commission proposed significant reductions in reporting requirements, with cuts of up to 50%. This step back in the requirements has caused uncertainty about the CSRD’s ability to ensure effective environmental sustainability reporting. The changes, formalized in Delegated Regulation (EU) 2023/2772, represent a turning point in regulating corporate sustainability, and their adequacy in achieving transparency and comparability objectives continues to be a matter of debate.

The Role of Local Government in the Process of the Brownfield Regeneration – Case Study of Košice , Slovakia

Jana Džuňová — 2024-09-30

Many enterprises were created during the process and steps of societal changes related to industrialization. Currently, we are undergoing further development and again changes, during which the established enterprises have been closed, and unused spaces have been left behind. The issue of brownfields is increasingly becoming more and more relevant. It is in everyone’s interest to use the potential of any area at the highest possible level. Brownfields offer several opportunities for overall revitalization using existing buildings. The main aim of this article is to analyze the status and possibilities of revitalizing brownfields in the city of Košice from a local government perspective. It also includes an optimal global model that covers the basic elements of subprocesses necessary for the local government’s revitalization of brownfields. The research results illustrate that identifying these objects generates a wealth of new information useful in understanding the current state of brownfields in Košice. This new knowledge can subsequently contribute to the quality of public administration’s public space management, the redevelopment of urban sites, and the improvement of urban life for everyone.