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EU Advances On Trade And Tax

Kitty Miv, Editor
19 February, 2021

Having looked last week at the various tax reforms underway across the globe, in this column, we will be focusing on the European Union and its efforts in the area of tax.

Traditionally one of the key engines of reform, both on an institutional level and as a driver of national change, the EU has recently had a doozy of a reform on its plate, namely Brexit. With that in mind, it is no surprise that the body has been mulling over the anticipated economic impact of the split.

Releasing its Winter 2021 Economic Forecast, the EU suggested that Brexit will dent UK economic growth considerably, more than for the European Union, despite the new free trade deal between the two parties.

The free trade deal between the UK and the EU provides for zero tariffs and zero quotas on all goods trade that complies with the appropriate rules of origin. However, the report highlights that non-tariff barriers have increased substantially for both imports and exports from and to the UK.

"...[W]hile the FTA improves the situation as compared to an outcome with no trade agreement between the EU and the UK, it cannot come close to matching the benefits of the trading relations provided by EU membership," the report observed.

It estimated that, for the EU, on average, the exit of the UK from the European Union under the FTA will generate a loss of GDP of 0.5 percent by 2022. The UK, meanwhile, will see a 2.25 percent drop in GDP over the same period. However, it went on to suggest that, compared to a scenario where the EU and the UK had failed to agree an FTA, the FTA has cut the negative economic impact on the EU by about a third and for the UK by about a quarter.

Still on the subject of trade matters, and it was recently announced by the European Commission that new EU trade enforcement rules have entered into force, which will enable the EU to take action before the WTO has concluded its dispute resolution procedures, and will "further strengthen the EU's toolbox in defending its interests."

In a statement, the EC explained that:

"The EU has amended its Enforcement Regulation, which provides a basis under EU law for the adoption of trade countermeasures. The changes have been made in response to ongoing issues with the WTO's Appellate Body."

"The Regulation previously required that a trade dispute went all the way through the WTO's dispute resolution procedures, including the appeal stage, before the EU could react. The revised Regulation enables the EU to react even in cases where the WTO has not delivered a final ruling because the other WTO member concerned has blocked the dispute procedure by appealing to the non-functioning Appellate Body and not agreed to alternative arbitration under the WTO's Dispute Settlement Agreement."

And finally, looking to the future (well, the near future at least...), the Union's Code of Conduct Group (Business Taxation) has set out how it will support EU efforts to tackle tax base erosion and profit shifting during the first half of 2021.

The Group has released its work program for the Portuguese Presidency of the EU, which runs from January to June 2021.

The work program says the Group will continue its work on the EU list of non-cooperative jurisdictions, including potentially changing the criteria for inclusion, and revealed that the list of jurisdictions will be updated in February 2021, to take into account those jurisdictions that have made advances based on commitments given to the EU and those that have yet to fulfil their commitments.

Until next week!


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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