EU Finance Ministers exchange views on digital taxation while the Commission announces it may introduce a digital levy separate from OECD’s Pillar One

Executive summary

On 16 March 2021, the Council of the European Union (the Council or ECOFIN) held an informal videoconference. During their meeting, the Ministers discussed (pdf) taxation challenges stemming from the digitalization of the economy and issues related to economic recovery. They discussed the recent G20 Finance Ministers and Central Bank Governors meeting and looked forward to upcoming meetings, including the G20 and International Monetary Fund (IMF) spring meetings on 7-10 April 2021.

The discussion on taxation of the digital economy followed the launch by the Commission of a public consultation for the design of a European Union (EU) digital levy, which is open for comments until 12 April 2021.1 In addition to this, the EU has invited public input on the following tax initiatives:

  • Roadmap for the design of Commission Communication on Business taxation for the 21st century – deadline 1 April 2021
  • Public consultation process on the future revision of the Directive on Administrative Cooperation to also address the use of alternative means of payments and investment (DAC8) – deadline 2 June 2021
  • Roadmap for the design of Commission Recommendation on how EU countries can simplify tax obligations and ensure taxpayers’ rights are respected – deadline 2 June 2021

The next ECOFIN is scheduled for 18 May 2021.

Detailed discussion

The informal ECOFIN meeting of 16 March 2021 was held virtually due to the current COVID-19 restrictions. In light of the absence of physical presence, and due to the informal character of the meeting, Ministers could not adopt any conclusions during the videoconference but they did exchange their views.

The Ministers discussed various topics during their videoconference. This Tax Alert summarize the key highlights.

Digital taxation

During the meeting, Ministers had an exchange of views on the state of play and way forward on addressing the tax challenges arising from the digitalization of the economy. The European Commission (Commission) also outlined its plans in this policy field.

During the exchange of views, Ministers underlined their continued support for the ongoing negotiations at the Organisation for Economic Co-operation and Development (OECD)-level. At their meeting on 26 February, the G20 Finance Ministers and Central bank Governors confirmed their commitment "to achieve a global and consensus-based solution by mid-2021".Any agreement reached in the OECD will require implementation at the EU level, which may also result in new legislative proposals by the Commission. Ministers also confirmed their readiness to examine solutions for the EU to address the tax challenges arising from digitalization, should there be no progress in the G20/OECD format.

Meanwhile, in the first semester of 2021, the Commission is expected to table a proposal on a digital levy, as an additional EU own resource. The Commission highlighted during the videoconference that this would be a separate instrument which should not be linked with the corporate tax rules that are being negotiated in the G20/OECD. A public consultation on the design of such digital levy is open for comments until 12 April 2021.

Taxation of the digital economy and minimum effective taxation will also be part of the Communication on business taxation for the 21st century that the Commission is expected to publish during the second quarter of 2021. According to the issued roadmap, which is open for public comments until 1 April 2021, the aim of the Communication is to set out a vision and a medium-term agenda for the Commission’s actions also in this area. The roadmap highlights that the Communication will take stock of discussions at the OECD on the reform of the corporate taxation framework and will take this into account when designing the actions at the EU level.


Ministers exchanged views on the current economic situation and outlook. They also took stock of the implementation of the Recovery and Resilience Facility (RFF), the main instrument of the €750 billion recovery package negotiated by EU leaders at their meeting on 17-21 July.3 According to the agreed RFF timeline, Member States can now officially submit their recovery and resilience plans to the Commission until 30 April 2021. Once a plan has been submitted, the Commission will generally have up to two months to assess it. The Commission assesses the plans based on criteria set out in the adopted regulation, including consideration on whether the reforms identified in the plans:

  • Contribute to effectively addressing the relevant country-specific recommendations.
  • Devote at least 37% of total expenditure on investments and reforms that support climate objectives.
  • Devote at least 20% of total expenditure on the digital transition.

Following the assessment, the Council will have four weeks to adopt its decision on the final approval of the plan and the Commission will then sign grant and loan agreements with the Member States within two months.

As mentioned above, to provide the financial support, Member States would need to commit to implement reforms that will contribute to effectively addressing the relevant country-specific recommendations. As some Member States have received country-specific recommendations to end the facilitation of aggressive tax planning, the Commission is planning to use the RFF as a new tool in the fight against such practices.

In addition to the RFF, EU Tax Commissioner Paolo Gentiloni mentioned during a European Parliament plenary meeting of 10 March 2021 that the Commission is proposing to also address aggressive tax planning through an amendment to the anti-tax-avoidance directive that would tackle challenges linked to the use of shell companies in facilitating tax avoidance (ATAD 3) and by broadening the scope of the Code of Conduct mandate to include proper monitoring and assessment of relevant tax measures in EU Member States. In July’s Communication (pdf) on Tax Good Governance in the EU, the Commission already included proposals for reform of the Code of Conduct.4


While EU Finance Ministers reiterated their support for a global agreement in the OECD/G20 format, the international negotiations have entered a crucial phase with the mid-2021 deadline approaching. The launch of the public consultation on a digital levy shows that the Commission is already working on its own plan to address the challenges arising from digitalization of the economy. The Commission’s statement that such levy may be designed as a measure separate from the Pillar One framework raises concerns over the levels of taxation for digital services in the EU. Policymakers in the EU will have to assess how this would affect the EU digital agenda including their strategy to enable a digital empowered Europe by 2030.5

Also, by making EU recovery funding dependent on country-specific recommendations, the Commission has a new instrument available to influence the (tax) policies of individual Member States. This development will increase the pressure on Member States to start implementing the recommendations made in order to get the financial support, including the recommendations on tax which were made to some countries.

It is important for businesses to follow these developments and evaluate the potential impact. Businesses should also consider engaging with policymakers at the EU and national level to ensure the measures to be introduced are targeted and efficient.

For additional information with respect to this Alert, please contact the following:

EY Société d’Avocats, Paris
  • Jean-Pierre Lieb

Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Munich
  • Klaus von Brocke

Ernst & Young Belastingadviseurs LLP, Rotterdam
  • Marlies de Ruiter

  • Maikel Evers

Ernst & Young Belastingadviseurs LLP, Amsterdam
  • Konstantina Tsilimigka

Ernst & Young LLP (United States), Global Tax Desk Network, New York
  • Jose A. (Jano) Bustos

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.