Legal provisions of COM(2023)528 - Head Office Tax system for micro, small and medium sized enterprises

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dossier COM(2023)528 - Head Office Tax system for micro, small and medium sized enterprises.
document COM(2023)528 EN
date September 12, 2023

Contents

CHAPTER - I

GENERAL PROVISIONS

Article 1 - Subject matter 

This Directive lays down rules for computing the taxable result of permanent establishments of SMEs which fulfil the criteria set out in Article 2(1) (“Head Office Taxation” rules).

Article 2 - Scope

1. This Directive applies to SMEs which fulfil the following criteria:

(a)they are established under the law of a Member State and take one of the forms listed in Annexes I and II;

(b)they are resident for tax purposes in a Member State in accordance with the tax laws of that Member State, including its bilateral conventions for the avoidance of double taxation;

(c)they are subject, directly or at the level of their owners, to a tax on profits listed in Annexes III and IV, or to any other tax with similar characteristics;

(d)they qualify as micro, small and medium-sized (SMEs), as defined in Directive 2013/34/EU 16 ;

(e)they operate in other Member States exclusively through one or more permanent establishments;

(f)they are not part of a consolidated group for financial accounting purposes in accordance with Directive 2013/34/EU and constitute an autonomous enterprise, that fulfils either of the following conditions:

–it is not an associated enterprise within the meaning of Article 2(13) of Directive 2013/34/EU; 

–it is not a linked enterprise within the meaning of Article 3(3) of Commission Recommendation 2003/361/EC.

2. The Commission is empowered to adopt delegated acts in accordance with Article 16 to amend Annexes I to IV, in order to take account of changes to the laws of the Member States concerning:

(a)legal forms of entities established under the law of a Member State (Annexes I and II);

(b)taxes on profits or any other tax with similar characteristics to which such entities are subject directly or at the level of their owners (Annexes III and IV). 

3. This Directive shall not affect the right of the Member State where a permanent establishment is situated to determine the applicable tax rate, nor the applicability of bilateral conventions for the avoidance of double taxation, or the rules on the social protection of workers in the Member State of the permanent establishment.

Article 3 - Definitions

For the purposes of this Directive, the following definitions shall apply:

(1) ‘permanent establishment’ means a fixed place of business situated in another Member State, as defined under the relevant bilateral convention on the avoidance of double taxation or, in absence thereof, in national law;

(2) ‘head office’ means an SME, as referred to in Article 2(1), which operates in (an)other Member State(s) exclusively through one or more permanent establishment;

(3) ‘head office Member State’ means the Member State in which the SME referred to in Article 2(1) is resident for tax purposes;

(4) ‘head office taxation rules’ means the taxation rules of the head office Member State which are used to compute the taxable result of the head office and its permanent establishments;

(5) ‘host Member State’ means the Member State in which the permanent establishment of an SME referred to in Article 2(1) is situated;

(6) ‘taxable result of the permanent establishment’ means the taxable income or loss computed in accordance with the Head Office Taxation rules;

(7) ‘filing authority’ means the competent tax authority in the Head Office Member State;

(8) ‘Head office taxation tax return’ means the tax return filed by an SME referred to in Article 2(1) covering the taxable results of the head office and of the permanent establishment(s), as computed in accordance with the head office taxation rules.

CHAPTER I - I

Head Office Taxation

Article 4 - Eligibility requirements

1. The head office may opt to apply the head office taxation rules in respect of its permanent establishment(s) in other Member States if it meets the following requirements:

(a)the joint turnover of its permanent establishments did not exceed, for the last two fiscal years, an amount equal to double the turnover generated by the head office; 

(b)it has been resident for tax purposes in the head office Member State during the last two fiscal years;

(c)it has met the conditions laid down in Article 2(1), point d) for the last two fiscal years.

2. If the head office opts to apply the head office taxation rules in accordance with paragraph 1, it shall apply those rules to all its permanent establishments in other Member States. If it creates a new permanent establishment in another Member State, it shall apply head office taxation rules to such permanent establishment from the moment of its establishment.

Article 5 - Exclusion from the head office taxation rules

Where the head office derives income from shipping activities and this income is subject in the head office Member State to a tonnage tax regime, such head office shall be excluded from applying the head office taxation rules in respect of its permanent establishment(s) in other Member States to the extent that these derive income from shipping activities.

Article 6 - Exercise of the option to apply Head office taxation rules

1. The head office which opts to apply the head office taxation rules to its permanent establishment(s) shall notify its choice to the filing authority, together with the name of the host Member State(s). The notification shall be made at least three months before the end of the fiscal year preceding the fiscal year in which that SME wishes to start applying the head office taxation rules.

2. The filing authority shall verify whether the eligibility requirements set out in Article 4 are met and shall inform the head office of its findings within two months of the notification referred to in paragraph 1.

3. If the eligibility requirements are met, the filing authority shall inform the tax authorities of the host Member States within two months of the notification referred to in paragraph 1 that the taxable result of the relevant permanent establishments shall be computed in accordance with the head office taxation rules as of the following fiscal year, as applied in the head office Member State. The tax authority of the host Member State(s) shall communicate to the filing Authority the applicable tax rate. 

The information referred to in the first subparagraph shall be communicated by means of an automatic exchange of information referred to in Article [8ae] of Directive 2011/16/EU.

The host Member State may challenge the decision of the filing authority regarding the fulfilment of the eligibility requirements in accordance with the provisions set out in Article 13. Notwithstanding such proceedings, the SMEs may start applying the head office taxation rules.

If the filing authority concludes that the eligibility requirements are not met, it shall inform the head office within two months of the notification referred to in paragraph 1 and the head office may appeal against it in accordance with the national law.

4. Where a host Member State concludes that the presence of an SME in its territory qualifies as a permanent establishment, it shall inform the filing authority. Upon that information, the filing authority shall inform the competent tax authority of the host Member State on whether the head office applies the head office taxation rules in respect of its permanent establishments.

Article 7 - Duration of the option to apply the head office taxation rules

1. The head office that has opted to apply head office taxation rules to its permanent establishments in one or more host Member States shall apply those rules for a period of five fiscal years. 

2. At the end of the period referred to in paragraph 1, the head office taxation rules shall cease to apply in respect of the permanent establishments situated in the host Member States, unless the head office notifies to the filing authority its option to renew the application of the head office taxation rules, in accordance with the procedure set out in Article 9.

Article 8 - Termination of the option to apply the Head Office Taxation rules

1. The option to apply the head office taxation rules shall be terminated before the end of the five-year period referred to in Article 7(1) for any of the following reasons:

(a)the SME referred to in Article 2(1) transfers its tax residence out of the head office Member State;

(b)for the last two fiscal years, the joint turnover of its permanent establishments exceeded an amount which is equal to triple the turnover of the head office. 

2. In any of the cases referred to in paragraph 1, the head office taxation rules shall cease to apply as of the fiscal year that follows the one in which the reasons referred to in paragraph 1 occur.

3. The filing authority shall inform the host Member States of the termination referred to in paragraph 1 before the end of the fiscal year in which the reasons for that termination occurred.

4. If the SME referred in Article 2(1) transfers its tax residence to another Member State, it may opt to apply the head office taxation rules of its new Member State of tax residence in accordance with Articles 4 to 7. This shall be considered a new option.

Article 9 - Renewal of the option to apply the head office taxation rules

1. If the head office wishes to renew its option, it shall notify the filing authority thereof at least six months before the end of the period referred to in Article 7(1) and shall list the names of the host Member States. The filing authority shall verify whether the SME continues to meet the eligibility requirements set out in Article 4.

2. The filing authority shall confirm the renewal of the option within two months of the receipt of the notification referred to in paragraph 1 after it has verified that the eligibility requirements set out in Article 4 are met. It shall communicate its decision to the head office, together with the information that the grounds for exclusion laid down in Article 10 do not apply. The filing authority shall also inform the tax authorities of the host Member States of the renewal within four months of the receipt of the notification referred to in paragraph 1.

Article 10 - Exclusion from the renewal to apply the head office taxation rules

The head office shall not be entitled to renew the option for applying the head office taxation rules if during the five-year period when head office taxation rules initially applied, any of the following situations occurred:

(a)for any two fiscal years taken separately, the joint turnover of the permanent establishments exceeded an amount which is equal to double the turnover of the Head Office;

(b)the SME set up one or more subsidiaries within or outside the Union;

(c)the criterion set out in Article 2(1), point (d) has not been met for two consecutive fiscal years.

Article 11 - Filing of the Head office taxation tax return, tax assessment and coordination between authorities

1. The head office shall file the Head office taxation tax return with the filing authority. 

2. The Head office taxation tax return shall include the following information:

(a)the tax liability of the SME with regard to its taxable result in the head office Member State;

(b)the tax liability of the SME with regard to the taxable result of each permanent establishment in other Member States. The tax liability shall be computed by applying the national tax rate of the respective host Member State to the taxable result, as it was computed in accordance with the head office taxation rules.

3. Where one or more permanent establishment of the SME are not required to prepare separate financial accounting statements under the law of the host Member State, the HOT tax return shall include the following information:

(a)assets and liabilities attributed to the permanent establishment(s);

(b)profits attributable to the permanent establishment(s) in other Member States. 

4. The filing authority shall issue the following notices:

(a)a tax assessment notice for the head office; 

(b)a draft tax assessment notice for each permanent establishment.

5. The filing authority shall communicate to the tax authorities of the host Member States the following documents and information, in accordance with the rules set out in Article 14:

(a)the Head office taxation tax return, accompanied by copies of the financial accounting statements and of any other relevant documents, as required and prepared under the law of the head office Member State;

(b)a draft tax assessment notice for the relevant permanent establishment(s);

(c)where necessary, any other information to allow the assessment of additional national or regional non-profit or profit-based taxes or surcharges or other inter-related features of personal income tax, in accordance with the tax rules of the host Member State.

The information referred to in this paragraph shall be communicated by means of an automatic exchange of information referred to in Article [8ae] of Directive 2011/16/EU.

6. The tax authority of the host Member State shall accept or reject the draft tax assessment notice referred to in paragraph 5, point (b), within two months of its receipt and shall inform the filing authority accordingly.

7. If the tax authority of the host Member State accepts the draft tax assessment notice or does not react within the deadline referred to in paragraph 6, the draft tax assessment notice becomes final and may be appealed against by the head office before the filing authority and in accordance with the national rules of the head office Member State.

8. If the tax authority of the host Member State rejects the draft tax assessment notice, it shall revise this draft tax assessment in connection with the attribution of profits to the permanent establishment in accordance with the provisions laid down in the applicable bilateral convention for the avoidance of double taxation between the host and head office Member States. After the attribution of profits to the permanent establishment has been revised and communicated to the filing authority in accordance with Article 8ae of Directive 2011/16/EU, the filing authority shall re-compute the taxable result in accordance with the taxation rules of the head office Member State, and a revised tax assessment shall be issued by this Member State. The taxpayer shall be entitled to appeal against this revised tax assessment before the courts of the head office Member State. Any dispute concerning the amount of profits attributable to the permanent establishment shall be settled in accordance with the applicable bilateral convention for the avoidance of double taxation, or the provisions set out in Council Directive (EU) 2017/1852 of 10 October 2017 17 .

8. 9.Where, under the tax rules of the host Member State, certain expenses associated with the employees of the permanent establishment are deductible for tax purposes insofar as the respective amounts are taxed at the level of the employee or are subject to social security charges, and there is no similar tax treatment in the head office Member State allowing for such deduction, the head office and host Member States shall take appropriate measures to prevent possible mismatches.

Article 12 - Collection of tax due by the permanent establishment(s) in the host Member State(s)

1. The head office shall settle, through the filing authority, the income tax liabilities with regard to both its taxable result and the taxable result of its permanent establishment(s) in the host Member State(s).

2. The filing authority shall collect the tax corresponding to the tax liability of each permanent establishment of the head office in the Union, apply the tax rate the respective host Member State and transfer the relevant amount to the competent authority of the respective host Member State. 

3. The Commission shall, by means of implementing acts, lay down the practical arrangements necessary to ensure the collection and transfer of the tax corresponding to the tax liability of the permanent establishment(s) from the head office Member State to the host Member State. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 15.

Article 13 - Audits, legal remedies and dispute resolution

1. Unless specified otherwise, the rules of this Directive shall not affect the national rules of Member States that govern local tax audits, legal remedies and proceedings, or the dispute resolution mechanisms available at the level of the Union or provided for in the applicable bilateral tax conventions on the avoidance of double taxation.

2. The tax authority of the host Member State may request that an audit be carried out jointly with the filing authority covering the computation of the taxable result of the permanent establishment in accordance with the head office taxation rules, the attribution of profits to the permanent establishment and/or the applicable tax rate. Joint audits shall be conducted in accordance with Council Directive 2011/16/EU 18 . Notwithstanding the provisions in the aforementioned Directive, the requested competent authority shall accept such request by the authorities of the host Member State.

Article 14 - Amendments to Directive 2011/16/EU 

1. Directive 2011/16/EU of 15 February 2011 19 is amended as follows: 

(1) in Article 3, point (9) is amended as follows: 

(a)point (a) is replaced by the following: ‘(a) for the purposes of Article 8(1) and Articles 8a to 8ae, the systematic communication of predefined information to another Member State, without prior request, at pre-established regular intervals. For the purposes of Article 8(1), reference to available information relates to information in the tax files of the Member State communicating the information, which is retrievable in accordance with the procedures for gathering and processing information in that Member State.’; 

(b)point (c) is replaced by the following: ‘(c) for the purposes of provisions of this Directive other than Article 8(1) and (3a) and Articles 8a to 8ae, the systematic communication of predefined information provided in points (a) and (b).’; 

(2) The following Article 8ae is added:

‘Article 8ae 

Scope and conditions of mandatory automatic exchange of information on election following the option to apply head office taxation rules, Head office taxation tax returns and draft tax assessments 

1. If a head office as defined in Article 3, point (2), of Directive on establishing a Head Office taxation rules for micro, small and medium sized enterprises 20 , which opts to apply the head office taxation rules to its permanent establishment(s) in accordance with Article 6 of that, meets the eligibility requirements for applying such rules, the competent authority of the Member State of the head office shall by means of automatic exchange of information communicate to the competent authority of the Member State of the permanent establishment that the taxable result of the relevant permanent establishment is to be computed in accordance with the head office taxation rules. Such communication shall take place within two months from the notification by the Head Office of its option to apply head office taxation rules.

2. The competent authority of the Member State of the permanent establishment shall communicate to the competent authority of the Member State of the head office the tax rate applicable for the purpose of determining the tax liability of the permanent establishment(s) situated on its territory, within three months from the notification by the competent authority of the Member State of the head office of the decision on the application of the head office taxation rules. 

3. The competent authority of the Member State of the head office shall by means of automatic exchange of information communicate the information specified in paragraph 2 of this Article to the competent authority(ies) of the Member State(s) of the permanent establishment(s) in accordance with the practical arrangements adopted pursuant to Article 21. 

4. The information to be communicated by the competent authority of a Member State under paragraph 1 shall contain the following:

(i)the Head office taxation tax return; 

(ii) copies of the financial accounting statements and of any other relevant documents, as were required and prepared under the law of the head office state; 

(iii)a draft tax assessment notice for the relevant permanent establishment(s); 

(iv)where necessary, any other information to allow the assessment of additional national or regional non-profit or profit-based taxes or surcharges or other inter-related features of personal income tax, in accordance with the tax rules of the host Member State. 

5. The exchange of information shall take place immediately after the issuance of the draft tax assessment, and no later than one month following such issuance. 

6. Where the tax authority of the Member State of the permanent establishment(s) revises the draft tax assessment notice in connection with the attribution of profits to the permanent establishment in accordance with the provisions laid down in the applicable bilateral convention for the avoidance of double taxation between the host and head office Member States, after rejection of the draft tax assessment notice issued by the head office Member State, the competent authority of the Member State of the permanent establishment(s) shall communicate such revised tax assessment notice to the competent authority of the Member State of the head office, within one month from its issuance, for the purpose of re-computing the taxable result of the permanent establishment, issuance of a revised tax assessment and collecting the tax.

7. The Commission shall, by means of implementing acts, lay down the practical arrangements necessary to determine the form, content and language requirements of the communication referred to this Article 8. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 26(2).

].

2. In article 20, paragraph 4 is replaced by the following:

4. The automatic exchange of information pursuant to Articles 8, 8ac and 8ae shall be carried out using a standard computerised format aimed at facilitating such automatic exchange, adopted by the Commission in accordance with the procedure referred to in Article 26(2).’

CHAPTER II - I

FINAL PROVISIONS

Article 15 - Committee procedure

1. The Commission shall be assisted by a committee. That committee shall be a committee within the meaning of Regulation (EU No 182/2011 21 .

2. Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply.

Article 16 - Exercise of the delegation

1. The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article.

2. The power to adopt delegated acts referred to in Article 2(2) shall be conferred on the Commission for an indeterminate period of time from [the date of entry into force of this Directive].

3. The delegation of power referred to in Article 2(2) may be revoked at any time by the Council. A decision to revoke shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force.

4. Before adopting a delegated act, the Commission shall consult experts designated by each Member State in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making.

5. As soon as it adopts a delegated act, the Commission shall notify it to the Council.

6. A delegated act pursuant to Article 2(2) shall enter into force only if no objection has been expressed by the Council within a period of two months of notification of that act to the Council or if, before the expiry of that period, the Council has informed the Commission that it will not object. That period shall be extended by two months at the initiative of the Council.

Article 17 - Informing the European Parliament

The European Parliament shall be informed by the Commission of the adoption of delegated acts, of any objection formulated to them, and of the revocation of the delegation of powers by the Council.

Article 18 - Data Protection

1. The Member States may process personal data under this Directive for the purpose of verifying the eligibility requirements or to determine the tax liability as referred to in Articles 4, 9 and 11 of this Directive. When processing personal data, for the purpose of verifying the eligibility requirements or to determine the tax liability in accordance with this Directive, the competent authorities of Member States shall be considered as controllers, in the meaning of Article 4, paragraph 7 of Regulation (EU) 2016/679, within the scope of their respective activities under this Directive.

2. Information, including personal data, processed in accordance with this Directive shall be retained only as long as necessary to achieve the purposes of this Directive, in particular, verification of eligibility requirements and determination of the tax liability of the taxpayers, in accordance with each data controller’s domestic rules on the statute of limitations, but in any case no longer than ten years.

Article 19 - Review by the Commission of the operation of this Directive

1. Five years after this Directive starts to apply, the Commission shall examine and evaluate its functioning and report to the European Parliament and the Council to that effect. The report shall, where appropriate, be accompanied by a proposal to amend this Directive.

2. Member States shall communicate to the Commission relevant information for the evaluation of the Directive, in accordance with paragraph 3, including aggregated data regarding the number of eligible SMEs compared to SMEs that opted in, their turnover and compliance costs relative to turnover; data on the number of SMEs that expanded cross-border by setting up a permanent establishment and the number of SMEs that disqualified due to creating a subsidiary, or the compliance costs for SMEs that apply the option.

3. The Commission shall, by means of implementing acts, specify the information to be provided by Member States for the purposes of evaluation, as referred to in paragraph 2, as well as the format and the conditions for the communication of such information.

4. Information communicated to the Commission in accordance with paragraph 2 shall be kept confidential by the Commission in accordance with the provisions applicable to Union institutions and Article 18 of this Directive.

5. Information communicated to the Commission by a Member State under paragraph 2, as well as any report or document produced by the Commission using such information, may be transmitted to other Member States. The transmitted information shall be covered by the obligation of official secrecy, as laid down regarding similar information in the national law of the Member State(s) which received it.

Article 20 - Transposition

1. By 31.12.2025, the Member States shall adopt and publish the measures necessary to comply with this Directive. They shall immediately inform the Commission thereof.

They shall apply those measures from 1.1.2026.

When the Member States adopt those measures, they shall include a reference to this Directive or accompany them with such a reference on the occasion of their official publication. The methods of making such reference shall be laid down by Member States.

2. As soon as this Directive has entered into force, Member States shall ensure that the Commission is informed, in sufficient time for it to submit its comments on any draft laws, regulations or administrative provisions which they intend to adopt in the field covered by this Directive.

Article 21 - Entry into force

This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

Article 22 - Addressees

This Directive is addressed to the Member States.