December 2024

EU tax, regulatory and policy developments

EU Parliament College of Commissioners

The European Parliament voted on the College of Commissioners on 27 November. All candidates were approved for the period from 1 December 2024 to 31 October 2029.

Ursula von der Leyen secured 370 votes for her investiture, narrowly surpassing the required majority of 361 but falling short of the expected 420. This marks the weakest parliamentary support ever for a European Commission president, largely due to tensions and compromises among pro-European majority groups. French MEPs predominantly opposed her, reflecting mistrust within the European Parliament.

Despite the weak majority, this outcome strengthens von der Leyen's authority over her team, as the Commission's structure is functional, with fewer dominant personalities. However, the effectiveness of her leadership depends on political will from member states, particularly France and Germany, whose declining influence poses a risk to the Commission's cohesion.

Wopke Hoekstra (Climate, Net Zero and Clean Growth) and Valdis Dombrovskis (Economy and Productivity, and Implementation and Simplification) were approved as responsible for tax matters. Maria Luís Albuquerque was approved for DG FISMA. 

IOSCO consultations on liquidity risk management 
 

1. Revised Recommendations for Liquidity Risk Management for Collective Investment Schemes (“CIS”) (the “Revised LRM Recommendations”), especially for open-ended funds.
2. Guidance for Open-ended Funds for Effective Implementation of the Recommendations for Liquidity Risk Management (“Implementation Guidance”).

Deadline for providing feedback: 11 February 2025

The IOSCO revised LRM Recommendations take into consideration the FSB’s revised Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds (“Revised FSB Recommendations”) from December 2023, as well as recent market events such as COVID-induced market volatility and volatility following the war in Ukraine.

The proposals consist of 17 recommendations organised into six sections, namely the CIS Design Process, Liquidity Management Tools and Measures, Day-to-Day Liquidity Management Practices, Stress Testing, Governance and Disclosures to Investors and Authorities. The key proposed revisions to the LRM Recommendations correspond to the targeted revisions from the Revised FSB Recommendations and can be grouped into four main areas:

• Categorising open-ended funds (OEFs) based on the liquidity of their assets.
• Encouraging investment managers to implement a broad set of liquidity management tools (LMTs) and other liquidity management measures.
• Emphasising the importance of anti-dilution LMTs to mitigate material investor dilution and the potential first-mover advantage arising from structural liquidity mismatch in OEFs.
• Incorporating new guidance on quantity-based LMTs and other liquidity management measures.

The accompanying Implementation Guidance sets out technical elements focusing on open-ended funds, such as the determination of asset and portfolio liquidity and considerations relating to the calibration and activation of LMTs and other liquidity management measures.

ESMA and NCAs data collection exercise on costs linked to investments in AIFs and UCITS

ESMA, together with the NCAs, designed a two-stage data collection process involving both manufacturers and distributors of investment funds: 

• Information requested from manufacturers will provide an indication on the different costs charged for the management of the investment funds. 
• Information requested from distributors (i.e., investment firms, independent financial advisors, neo-brokers) will inform on the fees paid directly by investors to distributors.

This initiative contributes to shedding light on pricing practices in a key part of the EU financial markets, information that has until now not been accessible to retail investors and supervisory authorities. Greater transparency will allow investors to know more about the features of the products that are offered to them and will further support the development of a competitive market for UCITS and AIFs. The data collection follows the Level 1 mandate received from the European Commission under the UCITSD/AIFMD review. Report expected in October 2025.

ESMA response to EC consultation on Non-Bank Financial Intermediation (NBFI)

On 22 November, ESMA filed its response to the European Commission consultation on Non-Bank Financial Intermediation (NFBI). Among other issues, ESMA made suggestions in liquidity management, supervision and data and coordination.

Liquidity Management: ESMA recognises the progress made with the revised UCITS and the AIFM Directives. This is especially the case with the provisions on liquidity management tools. 
ESMA, however, still considers that there is a need to address some remaining issues concerning liquidity mismatches in open-ended funds (OEFs). In particular, competent authorities could require funds that invest in assets that are not liquid to be structured as closed-ended funds. This is why ESMA fully supports the Recommendation of the Financial Stability Board related to the classification of OEFs based on asset liquidity and calls for appropriate efforts to ensure the convergent and consistent application of these recommendations in the EU. 

Supervision and Data: ESMA proposes to progress towards data-driven supervision, first by harmonising the framework to analyse risks posed by investment funds (especially regarding liquidity risks), and second by developing an EU system-wide stress test across NBFI and the banking sector. These proposals imply having comprehensive and good quality data to assess financial stability risks. Supervisors also need enhanced data sharing, ensuring that ESMA and other authorities have all required information and avoiding unnecessary burden on reporting market participants.  

Coordination: ESMA suggests enhancing coordination between competent authorities by creating a formal reciprocation mechanism for leverage limits under the AIFMD. This mechanism would make national measures more effective by guarding against the potential for regulatory fragmentation or arbitrage across the EU. In addition, ESMA calls for the EC to consider granting ESMA the formal power to request the implementation of stricter macroprudential requirements by one or multiple national competent authorities, in order to address risks at the EU-level.

To consult INREV’s response to NBFI consultation visit: here.

Court of Auditors' special report on the EU's efforts to combat harmful taxregimes and corporate tax avoidance

The Court of Auditors' report, published on 28 November, highlights the key measures introduced by the EU, such as the Anti-Tax AvoidanceDirective (ATAD), the Directive on Administrative Cooperation in the field of taxation(DAC 6), and the Tax Dispute Resolution MechanismsDirective (TDRD). 

Key findings of the report:

• The EU's taxframework has contributed to a more transparent and fairer taxenvironment in the EU.
• The ATAD, DAC 6, and TDRD have been effective in tackling tax avoidanceand aggressive tax planning.
• The Code of Conduct Group has been instrumental in promoting fair taxcompetition and addressing harmful taxregimes within the EU.
• A common EU performance monitoring framework is needed to assess the effectiveness of the EU's taxpolicies.

Following the report, the Commission stated it would continue to identify areas for improvement and noted that it is currently undertaking two extensive evaluations on the application of the ATAD and DAC.
 

Unshell Directive

(from the draft Ecofin report to the European Council, 4 December)

The Hungarian Presidency turned a new approach on the directive from June into concrete drafting suggestions on scope, hallmarks, reporting obligation and exchange of information, and administrative actions. On 26 November 2024, the Working Party on Tax Questions (WPTQ) discussed these drafting suggestions, the practical implications of the new approach and the areas which would need further attention. Some delegations considered clarifying the relationship with the Directive on administrative cooperation (DAC) important. It was stressed that possible next steps should not lead to excessive administrative burden for businesses and tax authorities.

Several members are taking preparatory steps and perform risk analysis in relation to Unshell, e.g. the beneficial ownership and substance reviews as well as operational implications analyses are performed.

Faster and Safer Relief of Excess Withholding Taxes Initiative (FASTER) 

(based on the results of the Council meeting on 10 December)

Following the European Parliament opinion and legal-linguistic revision, the Council adopted the proposed Directive on faster and safer relief of excess withholding taxes on 10 December.

BEFIT (Business in Europe: Framework for Income Taxation) and TP (transfer pricing) rules proposals 

(from the draft Ecofin report to the European Council, 4 December)

BEFIT: During the term of the Hungarian Presidency, analysis of the Commission proposal continued, with specific focus on rules on tax depreciation (Article 19, 22-28 and 35), timing and quantification (Article 29 to 33), aggregation and allocation of the BEFIT tax base (Chapter III), the “traffic light” system (Chapter IV), as well as several provisions on administration and procedure (Chapter V). 

It was noted that some member states would welcome a political discussion on BEFIT. Technical analysis of the Commission proposal should be continued with the objective of preparing a discussion on the policy choices.

TP: Discussions at the WPTQ level continued to show that this legislative proposal is not gathering sufficient support from member states. Most member states see no possibility in making further progress on the Commission proposal in its current form. Only a few member states believe technical discussions could continue to determine if there are any procedural aspects related to transfer pricing rules, which could be harmonised by a Council Directive.

OECD report proposes measures for international tax transparency on real estate 

(from PWC tax policy alert)

The OECD published a report, Strengthening International Tax Transparency on Real Estate - From Concept to Reality, on 25 July 2024. The report proposes measures for international exchange of information and due diligence regarding foreign-owned real estate, noting the current state of play and potential challenges for enhancing international tax cooperation in this area. It aims to build a framework for improving international collaboration and reliable data sharing among tax administrations with respect to cross-border real estate (beneficial) ownership.

ESG

Commission provides further clarifications on the EU taxonomy for sustainable economic activities 

On 28 November, the Commission published a set of frequently asked questions (FAQs) to support stakeholders in the implementation of the EU Taxonomy, a classification system for sustainable economic activities. The publication, which aims to make the Taxonomy easier to use, is part of the Commission's simplification agenda and its effort to reduce the administrative burden on companies applying the EU sustainable financeframework. 

The FAQs provide technical clarifications regarding various elements of the EU Taxonomy. Among other things, they cover the application of general Taxonomy requirements and technical screening criteria for specific activities included in the Taxonomy Climate and Environmental Delegated Acts. They also address the generic “do no significant harm” (DNSH) criteria that ensure that economic activities contributing to one of the environmental objectives set out in the Taxonomy Regulation do not cause significant harm to any of the other environmental objectives. Moreover, the FAQs clarify the reporting obligations for activities covered by the Climate Delegated Act and the Environmental Delegated Act.

‘Omnibus’ Legislation (EU Taxonomy, CSRD and CS3D)

The European Commission is considering an “Omnibus” which is a comprehensive text intended to revise several already adopted regulations. In theory, this new legislation could only address formal aspects, but under the pressure of lobbies, there is fear that it would undermine certain key substantive provisions essential for upholding human rights and environmental protection. 
During a press conference on November 8th, the President of the European Commission, Ursula von der Leyen, discussed various strategies aimed at reducing the “bureaucracy” supposedly weighing on European companies. She announced her intention to review “the triangle of Taxonomy, CSRD, and CS3D”.

• Recording of the press conference where Ursula von der Leyenmentions the Omnibus regulation and the EU Taxonomy, CSRD & CS3D triangle (Response to the question starts at 26min 30 sec.): https://www.youtube.com/watch?v=UudMBhJIL_E 

Country specific updates

UK

Consultation on value and use cases for a UK green taxonomy (open for comment until 6 February 2025): On 14 November, HM Treasury launched a consultation seeking views on the value case for a UK Green Taxonomy as part of the UK’s wider sustainable finance framework. 

The purpose of implementing a green taxonomy is to support investment into activities aligned with sustainability goals and to mitigate greenwashing. However, the government knows that taxonomies can be complex in practice, and feedback on their value is mixed.

This consultation is therefore seeking views on whether a UK Green Taxonomy would be additional and complementary to existing sustainable finance policies, including in supporting market participants to make sustainable investment decisions and the specific market and regulatory use cases which facilitate this. This will inform an assessment of the value of implementing a UK Taxonomy, and exactly how it could be targeted to ensure it is as effective as possible.

A working group has been created to develop a model response for the first half of January.

Policy paper on reforming UK MiFID II: HM Treasury is advancing reforms to the Markets in Financial Instruments Directive (MiFID II) to enhance competitiveness while maintaining high regulatory standards. These efforts build on outcomes from the Wholesale Markets Review (WMR) and are supported by the Financial Services and Markets Act (FSMA) 2023.

Other than the Commodity Derivatives Transparency, key updates include the revocation of transaction reporting requirements under MiFIR, delegating the creation of a streamlined reporting regime to the FCA. This reform aims to address inefficiencies highlighted during the Wholesale Markets Review, reducing costs for businesses while maintaining robust regulatory oversight of the UK’s capital markets.

In addition, HM Treasury will revoke firm-facing regulations within MiFID and replace them with provisions in the FCA handbook. This shift will allow regulators to draw on their practical experience supervising financial firms, ensuring regulatory standards are adaptable to emerging market trends and risks.

HM Treasury Open Call for Evidence – Financial Services Growth and Competitiveness Strategy: The UK government launched a call for evidence to inform the development of the Financial Services Growth & Competitiveness Strategy, part of its Invest 2035 Modern Industrial Strategy, to be published in Spring 2025. This Call for Evidence will support the development of the financial services sector plan, referred to as the Financial Services Growth & Competitiveness Strategy.

To consult INREV response to the call for evidence, visit: here. 

Netherlands

The treatment foreign partnerships under Dutch tax rules: The fund qualification rules precede the partnership qualification rules. This may lead to entities being opaque when fund qualification rules are applied and transparent on the partnership rules test. The guidance on the issue is vague.  
A case study of German investment fund, known as Sondervermögen was discussed.

Updates to Interest Deduction Rules (EBITDA Threshold): The discussions are ongoing on the interest deduction rules. The current proposal increases the EBITDA threshold for interest deductions from 20% to 24.5%, providing more tax relief. Moreover, real estate companies would still benefit from a €1 million threshold, which allowed separate Dutch entities (BVs) to each claim deductions. 

Luxembourg 

Tax rate decrease: The government aims to decrease the tax rate by 1% next year.

Germany

Annual tax law: The German Bundesrat recently approved the annual tax law, clarifying e.g. real estate allocation to entities and other measures.

CFC rules: The German Ministry of Finance's proposal to amend the CFC rules. The amendment would eliminate the requirement for German investors to report certain passive low-tax income from investments they do not control, citing misalignment with the German minimum taxation rule and excessive administrative burdens. The proposed change, retroactive to fiscal year 2022, would aim to ease reporting obligations. However, scepticism remains regarding its sustainability under a future government.