The Social Democratic Party (SPD), the Green Party, and the Free Democratic Party (FDP) agreed on November 24 to forge a coalition government. The deal includes a proposal to prevent carbon prices in Germany from falling below €60 ($68) per tonne.
The ‘traffic light’ coalition, so named because of the red, yellow, and green colours of the parties, plans to wean the German economy off coal power by 2030, eight years ahead of schedule.
The EU’s benchmark carbon price under the Emissions Trading System (ETS) reached a record high of €73 per tonne of carbon after Germany’s announcement, as the market reacted. However, analysts say the proposal is unlikely to have any long-term effect on ETS prices, because prices are already averaging significantly above the proposed minimum of €60 per tonne.
Former Finance Minister Olaf Scholz is set to succeed long-time Chancellor Angela Merkel in December. The SPD-Green-FDP coalition is the first of its kind and the first SPD-led coalition since Gerhard Schröder left office in 2005.
The German economy has bounced back from the shock of COVID-19. The federal government can expect tax revenues for 2021 to 2025 to come in €71.7 billion ($80.9 billion) above previous projections as the economy rebounds.
“This gives the SPD, Greens and FDP a little more financial leeway in their coalition talks, but is by far not enough to resolve the conflicts between them on fiscal policy,” said Ralph Solveen, an economist at Commerzbank.
These conditions may grant the ‘traffic light’ coalition a lot of “leeway”, but the SPD and the Greens will have to compromise with the FDP on social spending. Observers can expect the coalition to govern from the centre as a result.
ITR headlines this week include:
Fund managers find the administration of DAC6 outweighs reporting problems
Fair Tax Mark goes global with a new standard
Greater tax transparency on the agenda after COVID-19
AEOI proves effective at mobilising domestic revenue
Fair Tax Mark goes global with new standard
Multinational enterprises (MNEs) headquartered outside the UK will be eligible for accreditation for the first time under the Global Multinational Business Standard.
The Fair Tax Foundation’s global standard, launched on November 25, will allow businesses headquartered around the world to access the accreditation. The addition to the Foundation’s UK-only standard was driven by demand from MNEs keen to demonstrate their tax morality.
“The internationalisation of the Fair Tax Mark has been driven by approaches from businesses across the world who are seeking accreditation and to stand up for responsible tax conduct,” said Paul Monaghan, chief executive of the Fair Tax Foundation.
Businesses are increasingly seeking to enhance and prove their tax policies as the tax morality landscape shifts and MNEs face higher expectations from stakeholders. A combination of tax scandals such as the Pandora Papers, legislative changes in tax transparency, and a growing appetite for ethical investment options is increasing the pressure on companies to adhere to responsible tax policies.
The first company to be accredited under the Foundation’s global standard is the Swedish renewable energy MNE Vattenfall. The company’s Chief Financial Officer (CFO) Kerstin Ahlfont said that accreditation can confirm what tax teams are doing right, as well as suggest areas for improvement.
“We believe that this is one additional step towards increased tax transparency,” said Ahlfont. “The accreditation process has given us confirmation that we have much of the required information and processes in place but also that we can further improve in some areas.”
Monaghan said that there could be a short time lag before other MNEs follow Vattenfall, as businesses ensure that internal communications and politics are in line with public country-by-country reporting (CbCR).
Greater tax transparency on the agenda after COVID-19
Tax transparency is high up on the agenda of governments around the world as the OECD pushes for multilateral cooperation to reduce the gap in domestic revenues.
The implementation of directives has enabled jurisdictions to better promote tax transparency on a global scale, said panellists at the OECD’s 14thplenary meeting. Tax scandals, including the Pandora Papers, have also reinforced the need for multilateral cooperation to be strengthened as tax regimes differ from one to another, creating a gap in revenue.
“The inability to collect tax is due to many factors: government problems, corruption, but also because it is easy for an economic entity to escape a certain jurisdiction and join others that are providing a regime such as lower corporate tax.”
“This is going to be water in a pot – it can easily leak and it is not good for the global economy. International and global cooperation is going to be very critical,” said Sri Mulyani Indrawati, Minister of Finance, Republic of Indonesia.
So far 98 jurisdictions have put in place the automatic exchange of information (AEOI) framework established by the OECD. More than 75 million bank information accounts are a part of the global data exchange. Certain regions have also endorsed their own regulations to combat tax avoidance and evasion.
Next week in ITR
ITR will be analysing the implications of Brazilian tax disputes, particularly the Superior Court decision that ICMS credit is not liable for PIS and COFINS. The Brazilian courts continue to set precedents for tax policy that will have far-reaching implications for businesses.
Following on from COP26, ITR will be looking at hiring trends in the tax industry and how companies are hiring in preparation for meeting their environmental obligations. Businesses are going to face more regulatory and fiscal pressures to adopt cleaner and greener policies in the near future.
Readers can expect these stories and plenty more next week. Don’t miss out on the key developments. Sign up for a free trial to ITR.
