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EU Artificial Intelligence Regulation: how will it affect the tech sector?

The European Commission presented on 21 April its Proposal for a Regulation on a European Approach for Artificial Intelligence. This EU Artificial Intelligence Regulation, a key element of the 2020 Strategy on Europe’s Digital Future, aims at creating the first-ever legal framework for artificial intelligence, fostering innovation, and maximizing the societal benefits of AI while ensuring the safety of EU citizens by guaranteeing the trustworthiness of AI systems. This article briefly presents measures included in the proposal and provides Dr2 Consultants’ analysis of the potential impact on the tech sector.

Ensuring the safety and trustworthiness of artificial intelligence systems

To ensure the safety and trustworthiness of artificial intelligence systems and applications put on the European market, the European Commission adopted a risk-based approach in its proposal. Depending on the risk posed by a system or its application, different conditions will apply.

Unacceptable risk

The proposal for an EU Artificial Intelligence Regulation lists a number of AI systems or applications that pose an unacceptable risk to the safety, livelihood and rights of people, and that are banned altogether from being commercialized in the EU. Those notably include AI systems or applications manipulating human behavior to circumvent users’ free will, but the wording used by the Commission seems vague and it is unclear how systems will be assessed to determine whether they fall into the banned category.

It also concerns AI systems or applications allowing social scoring by governments (directly targeting systems already introduced in China), and real-time biometric recognition systems used by law enforcement, unless their use is necessary in certain specific cases (such kidnapping, terrorist attack or criminal search).

EU Artificial Intelligence Regulation - Unacceptable Risk

High-Risk

One step down on the risk scale, the proposal lists artificial intelligence systems with “high-risk” use, which are systems with a variety of sensitive applications, from transport (such as self-driving vehicles), to essential private and public services (such as credit scoring) to education (e.g. exam scoring). The proposal also targets public applications of AI, especially in the fields of law enforcement, migration and border control management, and administration of justice.

High-risk systems will be allowed to be commercialized and used in the EU only after complying with conformity assessment procedures, to ensure that the systems or their application respect the EU standards. Although the proposal plans for national authorities to conduct checks to ensure that systems are compliant, the text still intends for many applications to be evaluated through self-assessment, meaning that the AI providers will assess themselves if they meet the conformity criteria set by the EU. Those criteria notably include: having in place adequate risk assessment and mitigation systems, using high quality datasets to avoid algorithmic bias, and ensuring appropriate human oversight. This flexibility is likely to be positively welcomed by the tech industry, but MEPs have already warned that they would support stricter compliance rules.

EU-Artificial-Intelligence-Regulation-High-Risk

Limited and minimal risk

Systems that do not fall under the “unacceptable” or “high-risk” categories are considered of limited or minimal risk, which covers the majority of artificial intelligence systems widely used in the EU at the moment. AI systems of limited risk will need to respect transparency obligations, meaning that users must be informed that they are interacting with an AI system. Systems posing minimal risks, such as spam filters or AI-enabled video games, can be commercialized and used freely.

The application of the EU Artificial Intelligence Regulation will be overseen by a newly-created body, the European Artificial Intelligence Board.

Download AI Regulation Infographic

Fostering European excellence in artificial intelligence

Next to measures to secure AI systems, the proposal also includes a few measures to promote innovation in AI in the EU. The Artificial Intelligence Regulation notably includes an update of the 2018 Coordinated Plan on AI, which sets out a series of actions to be taken by EU Member States and provides funding instruments, financed by the Digital Europe, Horizon Europe and Cohesion programmes, to accelerate investments in AI.

The proposal also targets SMEs to facilitate their access to testing and experimentation facilities as well as digital innovation hubs.

Next steps for the EU Artificial Intelligence Regulation and potential impact on the tech sector

The European Parliament and the Council of the EU, representing Member States, will now both study the proposal and adopt their respective positions, before entering into negotiations. The negotiations are likely to be stormy, considering their diverging positions. Indeed, MEPs support even stricter rules, notably promoting additional applications to fall under the banned category. On the other hand, it can be expected that Member States will adopt a position demanding more leeway on security and law enforcement applications, especially considering that national security remains a national prerogative of Member States.

As the proposal is likely to be reworded and amended during the negotiation process, the impact it will have on the tech sector is not easy to evaluate. However, if the proposal were to be accepted as is, the first impact for the tech sector would be that companies commercializing banned AI systems, or putting on the market high-risk systems that have not gone through the conformity assessment procedure, could be subject to financial penalties of 6% of the company’s total annual turnover. Considering the vague wording used by the Commission, it is difficult to understand how this law will be practically enforced.

There is also a worry from the industry side that this regulation will overburden a sector composed mainly of SMEs and start-ups, without a sufficient support framework to create balance, considering that measures included in the proposal to support innovation remain limited.

There is a strong interest of big tech companies in AI technologies and systems developed by small startups. In the past five years, big tech companies have purchased over 60 AI startups creating systems that can improve products created by the tech giants.

It remains to be seen how this new Artificial Intelligence Regulation introduced by the EU will affect the AI landscape. Will the measures to foster innovation and support SMEs lead to a multiplication of actors or will the additional regulatory burdens created by the regulation burden startups too much, leaving room only for bigger companies?

Moreover, a risk exists that, as it happened with the General Data Protection Regulation (2016), the implementation and enforcement of the European Artificial Intelligence Regulation at national level will be fragmented, leaving the industry to deal with disparities between Member States and an uncertain legal framework that would hamper the EU Single Market and the economy.

Dr2 Consultants continuously monitors the developments in the discussion on artificial intelligence and supports its clients on these matters. Should you be interested in further information on the AI Regulation and how it could impact your business, you can reach out to Dr2 Consultants at info@dr2consultants.eu or find more information on our website.

EU road safety policy: state of play and vision for 2030

On 20 April, the EU Road Safety Results Conference took place, during which the newest traffic fatalities numbers from the EU Member States were presented. In 2020, almost 19.000 people lost their lives on European roads, which is a 17% reduction compared to 2019. This was not entirely in line with the decrease in traffic due to the pandemic. Between 2010 and 2020 fatalities fell by 36% across the EU, meaning that European roads are still the safest in the world, with 42 road deaths per 1 million inhabitants.

However, progress has been slowing down for several years now, and the road safety numbers are nowhere near the desired targets for 2030 and 2050. Additionally, the disparity in road injuries and deaths between EU Member States remains big. Where the roads of Scandinavian countries such as Sweden and Denmark are among the safest on the continent, countries like Romania, Slovakia or Slovenia still bear a higher share of road fatalities.

These developments raise the question if current EU road safety policy measures are sufficient and effective. What initiatives are currently in the EU pipeline to bring the number of serious traffic accidents down, and what are the different aspects influencing the number of injuries and deaths? Dr2 Consultants’ Transport Team outlines what legislative initiatives relevant for companies and end-users in the road transport sector the EU is expected to table. Innovative solutions will be needed to further bring down the number of fatalities on European roads, which will both put additional responsibilities on both road users as well as providers of transport services.

Looking ahead: “Vision Zero”

Currently, the European institutions are working together with several international organizations to achieve ‘Vision Zero’. Vision Zero is a strategy to eliminate all traffic fatalities and severe injuries, while increasing safe, healthy and equitable mobility for all by 2050 inter alia through policies that stimulate the use of new technologies that enhance road safety.

To combat the stagnation of the reduction of the number of road deaths, and ensure that the EU maintains its leading position in the world in terms of road safety, Commissioner for Transport, Adina Vălean, highlighted several areas of attention during the Road Safety Results Conference:

  • Considering an urban mobility initiative which includes safety at all stages of mobility and urban planning. This initiative should also address the fast roll-out of micro-mobility devices throughout European cities, leading to road safety challenges;
  • Taking action to reduce speeding and alcohol consumption through further use of EU recommendations;
  • Developing and stimulating the uptake of innovative solutions, for example systems detecting weaker road users and advanced driver-assistance systems.

More will become known on these initiatives in the coming months, of which Dr2 Consultants is expecting it will influence road transport for years to come. Therefore, it is essential to gather the latest information through contact with EU institutions in Brussels. Learn more about how our monitoring services can help you stay up to date on relevant EU legislative initiatives here.

Adina Ioana Vălean - European Commissioner for Transport
Adina Ioana Vălean | European Commissioner for Transport   © European Union, 2019

One of the most prominent pieces of EU legislation safeguarding road safety, also mentioned by Commissioner Vălean during her conference keynote, is the Directive on Driving Licenses. The Directive, laying down specifications for mandatory theory tests, medical tests for professional drivers, and qualification and training of driving examiners, will be subject to a revision process starting end of this year with an eventual proposal expected by the end of 2022. Moreover, the Commission will revise the Directive on cross-border enforcement of traffic rules, come up with new guidance on blood alcohol content and the potential use of alcohol interlocks, and adapt the eCall Framework to new technologies (expected at the end of 2021, or early 2022).

In 2020, the transport committee (TRAN) of the European Parliament also started working on its own recommendations to further improve EU road safety, tackling the number of fatalities on European roads. In its draft report, the committee states inter alia that Member States and cities should consider bringing down speed limits from 50km/h to 30km/h, making EU funding available to increase road safety in countries such as Romania and Slovakia, and further incorporating (digital) advanced safety features such as intelligent speed assistance and emergency lane keeping systems as mandatory instruments in new vehicles. Apart from the increased safety that could be achieved for individual drivers, road transport companies and manufacturers of heavy-duty vehicles will have to look out for additional obligations to improve road safety in the upcoming years.

However, as traffic management and road safety are still Member State competences, it is questionable if the European Parliament and European Commission can realistically achieve Vision Zero by 2050. In the coming years both EU institutions will aim to integrate road safety in all of their proposed legislation, including the latest trends in mobility (new forms of mobility, driver-assistance systems, etc.), but ultimately the responsibility and initiative will be with the Member States to make a dent in the traffic fatality numbers.

For stakeholders it will be crucial to remain in an open dialogue with both EU institutions as well as Member States. Providers of innovative solutions for transport will have to ensure that the costs of conforming to EU policy do not weigh a too heavy burden on the business model. On the other hand, EU Member States remain strongly in the lead in the national implementation of policy for all modes of transport.

What can Dr2 Consultants do for you?

Over the last years, Dr2 Consultants has built up a track record in advising a broad range of transport clients in navigating the EU ecosystem. Feel free to reach out to discuss opportunities and threats in the upcoming legislation related to EU road safety for your company or organization with us over a virtual coffee. Visit our transport sector webpage for more information.

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Green recovery in the Benelux: can it lead the way in Europe?

The Benelux, once laying the foundation of the European Union as we know it today, still endeavors to be a frontrunner in European cooperation, also in the context of contemporary challenges such as the energy transition through the green recovery from the COVID-19 crisis and digitization. In January of this year, the Benelux Union presented its Joint Work Program for 2021-2024, as well as this year’s priorities under Belgian Presidency of the Benelux Union. As the Benelux Treaty lays down one of its main objectives to be ‘a living laboratory for Europe’, the cross-border cooperation plans for the upcoming years echo this ambition to show the added value that regional cooperation can have for European integration. Consequently, this also offers new opportunities for businesses.

Not surprisingly considering the prominent role of the Green Deal at the EU level, the transition to a more sustainable economy will be one of the three main priorities for the upcoming year under the Belgian Presidency of the Benelux. As Belgium, the Netherlands and Luxembourg consider sustainability to be at the core of their unique economic model, the Benelux will this year launch the ‘Benelux Green Deal’. With the Benelux aiming to inspire the EU in implementing the Green Deal through the introduction of cross-border pilot projects in the field of energy and sustainable mobility, Dr2 Consultants will explore in this article to what extent the Benelux will be able to lead the way in Europe’s green recovery from COVID-19.

Regional cooperation to pave the way to integrated EU energy market

The Benelux Union Annual Plan 2021 details how the ‘Benelux Green Deal’ should become a model to mimic at EU-wide scale. The plan states that the Benelux countries will seek cooperation in their national energy and climate plans (NCEPs) that lay out an energy transition roadmap towards 2030 as mandated by the EU’s Governance of the Energy Union Regulation. More specifically, the Benelux will explore how the NCEPs can feed into the national COVID-19 recovery plans, which should be submitted to the European Commission by 30 April (some Member States announced delays) and should emphasize green recovery.

Hydrogen ambition

The hydrogen market, which has been assigned a central role in the energy transition through the EU Hydrogen Strategy of July last year, is an example of a domain in which the Benelux countries can be a frontrunner. Nowhere else in the EU are countries so physically connected via energy pipelines and is the concentration of energy and carbon-intensive industry so high. Therefore, there are great opportunities in the Benelux to change production processes and energy supply on a relevant scale to decarbonize the energy system.

To exploit the potential and momentum for hydrogen, the Benelux countries signed a ‘Pentalateral’ declaration with Austria, Germany, France and Switzerland in June last year to commit to a joint rollout of hydrogen, with a focus on infrastructure, certification, and common definitions and classification. With the European Commission eyeing an integrated EU energy market through the published EU Energy System Integration Strategy and revision of the TEN-E Regulation, as well as the upcoming revision Renewable Energy Directive II, the Benelux could lead the way in this respect through its planned cooperation in the field of implementing energy integration and offshore renewable energy policies. On top of that, the Benelux countries will strive for a common position for the review of the EU’s Third Energy Package at the end of 2021, in which gaseous energy carriers are expected to become regulated. Together with frontrunner companies the Benelux Union must take the lead and become the starting point of a broader EU rollout.

Subregional integration as blueprint for EU

Without needing the name of ‘enhanced cooperation’ or a ‘multi-speed Europe’, the Benelux Union is acknowledged by the EU treaties as subregional integration, allowing to deepen European integration in some fields. This gives the potential to the three countries to further exploit integration initiatives without ‘competing’ with the EU. On the contrary, as this paragraph shows, the unique position of the Benelux cooperation can serve as a regional blueprint for how a European internal energy market could take shape in the upcoming decades. Investments from the recovery fund into concrete projects for a green recovery could be a start of this deepened Benelux energy cooperation.

Sustainable and smart mobility to connect Benelux border regions

Zero-emission mobility infrastructure

The Benelux Annual Plan also considers sustainable mobility an important element of green recovery, with several sustainable and smart mobility projects connecting the Benelux border regions all the way into North-Rhine Westphalia. These mobility projects could lay the foundation for EU mobility of the future as portrayed in the European Commission’s recently published Sustainable and Smart Mobility Strategy. For example, the Benelux will this year establish a common Benelux-service for the registration of charging point operators for electric vehicles, which fits in the EU’s green ambition to roll out an infrastructure for alternative fuels throughout the EU, amongst others through the upcoming revision of the Alternative Fuels Infrastructure Directive (AFID).

Moreover, the Benelux will act as a living lab for mobility by stimulating cross-border infrastructure for zero-emission trucks such as hydrogen-trucks or e-trucks, by starting a pilot project for cross-border hydrogen vessels, and by facilitating applications of the EU’s Intelligent Transport System (ITS) through cross-border smart shipping projects on the inland waterways of the Benelux. In this regard, the Benelux Union could push for more legislative harmonization and become an example of legislative best practice. Involvement in this early stage of policy formulation can offer ample opportunity for companies.

Mobility as a Service

Apart from these green mobility projects, the Benelux can more indirectly contribute to sustainable and smart mobility through multimodality projects such as Mobility-as-a-Service (MaaS), for which the Benelux envisages to be an experimental hub through simulations of the MaaS ecosystem, testing appropriate language, standards, data exchange and payment applications. These cross-border simulations can be a lesson for the EU on how cooperation between transport operators and appropriate policies can ensure MaaS’ rollout throughout the EU, as envisioned in the Commission’s Sustainable and Smart Mobility Strategy.

Vision of Dr2 Consultants

At Dr2 Consultants we welcome the ambitious plans of the Benelux Union as we have endeavored in recent years to support businesses in Belgium, the Netherlands and Luxembourg to become European frontrunners in the fields of sustainability and mobility. We believe that the above-mentioned examples of Benelux projects in the field of energy and sustainable mobility do not necessarily display a higher level of ambition than other EU countries, but the Benelux can, through its regional and cross-border cooperation, effectively showcase how the extremely high European climate ambitions can be effectively implemented in the green recovery of the economy. This makes the Benelux a testing ground for EU policy in the area of sustainability, which can certainly serve as an important steppingstone for an EU-wide implementation of the ambitions from the European Green Deal in the upcoming decades.

If your organization would like to explore what opportunities regional and cross-border cooperation within the Benelux could offer, feel free to contact Dr2 Consultants for advice or visit our Belgian Public Affairs webpage to learn more.

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Data Governance Act: main elements and business implications

Executive Vice-President, Margrethe Vestager, presented, on 25 November 2020, the European Commission’s new Data Governance Act (PDF), the first proposal to come out of its 2020 European Data Strategy. The Act was postponed several times since September, with a working draft leaked by several news outlets early November receiving serious criticism. The official document, published in November, has been adjusted and seems to have taken on board some of the concerns expressed. In this blog post, Dr2 Consultants explains the main elements of this Act and its business implications.

Main elements of the proposed Data Governance Act

The European Commission decided to opt for a regulation as the legal instrument for its Data Governance Act due to the predominance of elements that require a uniform application which would not leave margins of implementation to the Member States, in order to create a fully horizontal EU framework. These are the key elements of the draft regulation:

Re-use of data produced by the public sector

The Data Governance Act proposal aims to increase the amount of data available for re-use within the EU by allowing public sector data to be used for purposes different than the ones for which the data was originally collected. The type of data targeted by the Act are, for example, data generated by GPS, or healthcare data, which if put to productive use, could contribute to improving the quality of services. The data collected could be re-used for commercial or non-commercial activities and the Commission estimates that the implementation of the measures proposed could increase the economic value of data by up to €11 billion by 2028.

Data intermediaries

The Commission believes that, in order to incentivize individuals to share their data, they should trust the process by which those data are handled. To this end, it proposes to create “data intermediaries”, which will handle the sharing of data by individuals, public bodies and private companies. These data sharing service providers will come as a European alternative to the existing major tech platforms.

To uphold trust in said intermediaries, the Commission proposes to put in place several protective measures. First, intermediaries will have to notify public authorities of their intention to provide data-sharing services. Second, they will have to commit to the protection of sensitive and confidential data. Finally, the Commission will impose strict requirements to ensure the intermediaries’ neutrality. These providers will have to distinguish their data sharing services from other commercial operations, and are prohibited from using the data exchanged for any other purposes. Certain services that have been excluded from becoming new data intermediaries as part of the regulation include cloud service providers and data advertising brokers, data consultancies, or providers of data products.

Dr2 Academy Trainings - 22 September and 18 November 2021

The early draft of the Data Governance Act, leaked in November, had caused controversy with regards to these intermediaries, as it required that they be legally established in the EU or EEA. This approach was strongly defended by Internal Market Commissioner, Thierry Breton, who has long been a champion of “data sovereignty”. The leaked proposal highlighted that this requirement was to facilitate the supervision of intermediaries’ compliance with the requirements of the Act.

However, several experts criticized the measures, saying that they would discriminate against foreign companies and therefore, violate the EU engagements as part of the World Trade Organization (WTO). The WTO forbids countries to require providers of data sharing services from abroad to be legally based within their own country.

Many businesses had also reacted with worry to the leaked document, claiming that the restriction of data flows could result in a loss of billions of euros in digital trade.

Despite Commissioner Breton’s strong defense of the so-called “data localization” aspect, other Commissioners, including Vice-President Vestager herself, were less favorable towards this approach, resulting in the Commission’s backtracking on this aspect in the final proposal. As it stands, the Data Governance Act only requires intermediaries to either have a place of establishment in the EU, or to designate a representative in Europe.

However, restrictions on the transfer of sensitive data to third countries remain in the final proposal.

Sector-specific data spaces

The proposed Act also aims at creating sector-specific data spaces to enable the sharing of data within a specific sector. For example, the Act plans for the creation of data spaces for transport, health, energy or agriculture.

Data altruism

The Data Governance Act also aims at creating favorable conditions for “data altruism”, meaning encouraging individuals to voluntarily donate personal data to serve the general interest. To do so, “personal data spaces” will be created to ensure that the data shared will only be used for purposes that individuals who donated it agreed to, such as, for example, medical research. Non-for-profit organizations will have the opportunity to sign up into a public register of “data altruism organization”.

European Data Innovation Board

Finally, the draft Data Governance Act plans for the creation of a European Data Innovation Board. Its missions would be to oversee the data sharing service providers (the data intermediaries) and provide advice on best practices for data sharing.

The Member of the European Parliament Miapetra Kumpula-Natri (S&D, Finland), who is the rapporteur for the Industry, Research and Energy Committee’s (ITRE) draft initiative report on the Data Strategy, welcomed the “ambitious” proposal. She called the Commission’s decision to leave it to national bodies to protect sensitive data “fair enough as compromise, but not good for the single market and harmonization”. The deadline for amendments of the draft report ended on 12 November and the final Committee vote is expected in January 2021.

European Parliament and Council review of Data Governance Act

The Data Governance Act is currently being reviewed by the Council of the EU and the European Parliament.

The Presidency of the Council of the EU presented a first compromise text of Data Governance Act on 22 February 2021.  The compromise text notably focuses on better aligning the proposal  with the GDPR, specifically with regards to the definition of certain concepts, such as ‘data sharing service provider’ or ‘data altruism’. The compromise text also amends the proposal to include obligations to ensure interoperability between data sharing services, or obligations for data altruism organizations to provide easy withdrawal mechanisms and high level of security for the storage and processing of data collected based on data altruism.

Within the European Parliament, the Industry, Research and Energy Committee (ITRE) is responsible for the Data Governance Act. It held a first exchange of views with the Commission on 18 March. Generally, MEPs welcomed the proposal, but joined the Council’s position in stressing the importance of guaranteeing the consistency of the DGA with existing Data legislation, such as the GDPR, ePrivacy Directive or Open Data Directive. MEPs also underlined the need to facilitate access to data-sharing for SMEs, and called for better clarification of the role of data intermediaries. Those concerns are transcribed in the amendments proposed in the ITRE Committee’s Draft Report on the file, presented by rapporteur Angelika Niebler (EPP, Germany) on 26 March 2021.

Next steps

The Council of the EU, through the Working Party on Telecommunications and Information Society, is continuing its work towards the adoption of a Council position. Within the European Parliament, committees for opinion (Committee on Internal Market and Consumer Protection and Committee on Civil Liberties, Justice and Home Affairs) will vote on the Data Governance Act on 21 June and 1 July, respectively, followed by ITRE Committee on 15 July. The vote in plenary is planned for the September plenary session (13-16 September).

Data Governance Act’s potential implications for businesses and next steps

In terms of potential implications for businesses, some industry representatives have already raised concerns about the extra barriers to data flows that the draft Act risks creating through the assessment provision of third countries’ data protection regimes, with the option of blocking the transfer of highly sensitive data, the definition of which is, so far, unclear. An additional issue that has been also highlighted is that the Act could allow for discrimination on the basis of a quasi-licensing scheme it would set up, requiring companies to notify the authorities if they want to become service providers. Given the vague wording of the proposal, it could allow for selective revocation of said licenses, giving authorities the power to remove certain providers from the list.

In the third quarter of 2021, the Commission is also expected to present the Data Act, attempting to create an environment conducive to increased data sharing among businesses and governments.

Dr2 Consultants continuously monitors the developments around the EU Data Strategy. Should you be interested in further information on the Data Governance Act proposal and how it could impact your organization, you can reach out to Dr2 Consultants at info@dr2consultants.eu or find more information on our website.

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New European Bauhaus: how will it contribute to the EU’s future construction policies

The New European Bauhaus: what is it and how does it work?

The year 2021 has started with the launch of a new promising initiative from the European Commission: the New European Bauhaus initiative. With the overall objective of helping deliver the European Green Deal, this initiative is a contest financed by EU funds at national and regional level. The award goes to concrete and practical projects that achieve the targets of the Circular Economy Action Plan and the Renovation Wave Strategy.

The aim of those projects is to ensure inclusiveness, design and accessibility of investments at the benefit of the larger community. By means of an open and public platform, everyone can input their own ideas for future ways of living. In an open prize ceremony in Summer 2021, the Commission will award prizes to existing examples that represent the integration of the key values of the initiative, and that may inspire future EU building and construction policies. The five winning projects will be delivered starting from September 2021 and then disseminated from January 2023 onwards to spread the ideas and concepts defining the New European Bauhaus via new projects, networking and sharing of knowledge, in Europe and beyond.

The Circular Economy as the backbone of the New European Bauhaus

The synergy with the Circular Economy Action Plan (March 2020) and the Renovation Wave (October 2020) lays in the design of the new building projects that will be submitted to the New European Bauhaus contest. Those projects can easily bring new business opportunities for the wider range of stakeholders engaged in sustainable construction policies. Dr2 Consultants is of course perfectly placed to assist companies to identify these opportunities.

For instance, the New European Bauhaus will help promote the circularity principles throughout the whole lifecycle of buildings that will be put forward by the new Strategy for a Sustainable Built Environment, expected in 2021. This strategy is entailed in the Circular Economy Action Plan, which envisages to focus on the sectors that use most resources and where the potential for circularity is particularly high, including the construction and buildings sector. Therefore, the Bauhaus Initiative will provide companies with very concrete opportunities to pitch their sustainable ideas at EU level.

“Many architects and other partners in the construction chain have been working for years, with a lot of creativity and innovation power, on ideas and concepts that can increase sustainability and circularity in construction. They do this on the one hand because there is a sore need, and on the other hand because they want to take responsibility. The fact that the New European Bauhaus will now provide a platform to these efforts will mean an extra stimulus. But that alone is not enough. Clients who are very aware of solutions and possibilities – which there are plenty of – often need some extra encouragement to make the right decisions. This could be subsidy, in any shape or form, but at the same time we should not shy away from tightening requirements and regulations.”

Joost Ector
Architect and Managing Partner of Ector Hoogstad Architecten

Concrete examples and opportunities for future policy framing

The European Bauhaus Initiative provides a concrete testing area for new approaches to existing construction and building concepts. Several of the identified projects provide a glimpse into future housing techniques and serve as an impulse to the European Commission for future construction policies. Dr2 Consultants can assist companies in setting standards for future European policies through the Bauhaus Initiative.

Listed below are a few projects submitted to the New European Bauhaus that integrate sustainability with inclusive and better-quality ideas in the building sector. These projects provide great examples of new ideas that will shape the future of European construction policies.

Circular and sustainable housing – A best practice of circular economy and buildings’ energy performance is the creation of a new Slovenian facility hosting offices and laboratories totally made of timber and steel. This facility is equipped with a smart management system that will produce data on the way wood ages in buildings and performs over time. The facility’s highly digitalized and efficient system shows how the construction sector can be concretely innovated, meeting the energy technology targets and zero emission goals of the Renovation Wave strategy as well as the transition to more smart buildings in the EU.

Facility in Slovenia made of timber and steel

New Slovenian facility hosting offices and laboratories totally made of timber and steel.

📸 The Institute / © Source: #nnoRenew CoE

Environmentally friendly and flexible buildings – Another example of how to achieve the EU building performance goals is provided by a project experimented in Bordeaux, where a 100% locally-sourced timber prefabricated construction has showcased the highly technological, social and environmental impact of sustainable and renovation methods. The construction can be transported, mounted and adapted to different sizes. By ensuring an environmentally friendly footprint and a high recyclability of the materials, this solution simultaneously meets two criteria as defined in the New European Bauhaus: the building’s energy performance targets of the Renovation Wave as well as the circularity and recycling goals of the Circular Economy Action Plan.

Proto Habitat – a 1.1 prototype of new and sustainable forms of housing.

📸 Proto-Habitat / © Flavien Menu, Wald.City

From vehicles’ waste into a social benefit – When it comes to end-of-life waste, the automotive sector offers valuable solutions of circularity and energy efficiency. This is the case of an old bus being transformed into a mobile youth centre by the Young Dragons, a public network of youth centres. By recycling waste and at the same time creating a benefit for the social community, this project meets the target of recycling efficiency of end-of-life vehicles that has been set out in the Circular Economy Action Plan.

An upcycled old city bus turned into a mobile youth centre.

📸 Ljuba in Drago / © Ksenja Perko

What can Dr2 Consultants do for you?

Over the last years, Dr2 Consultants has built up a track record in advising a broad range of sustainability clients in navigating the EU ecosystem and identifying the right opportunities for boosting the renovation and technological update of the building sector. Would you like to know more about how your organization can make the most out of the upcoming regulations included in the New European Bauhaus initiative, as well as the Circular Economy Action Plan and Renovation Wave? Feel free to reach out and discuss opportunities with us.

If you are interested in more than just building policies, then check out our European Green Deal Impact Scan.

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Digital euro: its arrival and the impact on the FinTech industry

The European Commission, as part of its ambition to digitalize society, is powering a movement for the digitalisation of finance. With this goal in mind, the European Commission, together with the European Central Bank (ECB), is studying the question of issuing a digital euro. In this article, Dr2 Consultants shares some insights into the background of the digital euro plans and the potential impact on the FinTech industry.

As part of the EU’s efforts towards accelerating the development of a strong European digital finance sector, and taking into account digitalization, emerging innovations in payments provided by the FinTech sector, and the growth of crypto-assets, the European Commission is evaluating, together with the European Central Bank (ECB), the need for and feasibility of issuing a digital euro. Their decision will also be informed by the 8.000 responses to the public consultation that ran between October and January 2021.

The official decision whether to pursue this project will come mid-2021, but its uptake seems inevitable, considering the support for the project at the Commission and at the national level, and in the context of Central Banks from third countries which are also starting to issue their own digital currencies.

Why a digital euro?

The need for a digital euro comes from the increasing digitalization of financial services and is made even more pressing by the rise of crypto-currencies offered by private foreign actors, combined with the COVID-19 pandemic which has accelerated the shift away from cash.

A digital euro would be considered a safer alternative to crypto currencies, such as Bitcoin or Ethereum. The European Commission and the ECB have expressed their concerns regarding crypto-currencies because of the volatile aspect of their price, since their value is not intrinsic but based on demand, and because they are mostly issued by foreign actors. On the contrary, the digital euro would be backed by the ECB and by national central banks of Member States, combining the efficiency of a digital payment instrument with the safety of central bank money.

The digital euro would be equivalent to the banknotes and coins we know today, but in a digital form. It would be an electronic form of payment, coming as an additional means to pay next to cash as we know today, and issued and guaranteed by the European Central Bank and national central banks.

What are the key challenges?

The issuing of a digital euro is however not without challenges. The main challenge will be to prevent people from completely abandoning traditional savings accounts in favor of digital wallets, weakening traditional commercial banks of the eurozone. To mitigate this risk, the ECB wants the digital euro to be only a means of payment, and not a form of investment that could compete with other financial instruments. There are also concerns with regards to privacy and security. If the ECB and the Commission decide to go through with the project, the regulatory framework surrounding the digital euro will need to include measures to mitigate those risks. Further consultation with stakeholders will most likely have to take place to further assess the risks and continue to define the various use-cases.

Next steps

Although the decision to pursue a digital euro is not yet official, Dr2 Consultants’ digital team is keeping a close eye on the developments as the EU is already paving the way for it, especially as it tries to regulate and limit the use of crypto currencies within the Single Market. The Commission proposal for a regulatory framework for crypto assets, published in September 2020, puts all significant crypto currencies under the supervision of the European Banking Authority. The ECB is also calling for higher regulation of crypto currencies, and especially of stablecoins (crypto currencies whose value is tied to an outside asset, such a national currency or  gold), as Big Tech such as Facebook aim to launch their own digital coins.

Lear more about our policy monitoring services here.

Potential impact on the FinTech Sector

The digitalization of finance is intrinsically linked to the FinTech sector. The term, a combination of “financial” and “technology”, refers to the use of digital and new technologies to ease or fasten financial operations. Most FinTech firms are start-up firms that have managed to enter a previously closed financial ecosystem. The FinTech industry has been growing rapidly, mainly thanks to an increased need for on-demand and digital finance but also regulatory changes such as the Payment Services Directive 2.

FinTech firms have created and brought on the market a variety of new means of payments and financial services. These innovations are slowly being regulated, either directly through financial policy, but also through policy developments targeting what fuels these innovations (e.g. regulating AI technologies or the way we access and share data). The European Commission will continue down that path through its Digital Finance Strategy, and by supporting new large-scale project such as the digital euro.

As explained by Mr. Fabio Panetta, Member of the Executive Board of the ECB, the key feature for success will be to make the digital euro interoperable with private payment solutions, making it possible for all market participants to offer products to European users. Dr2 Consultants expects that the uptake of the digital euro would create commercial opportunities for FinTech companies, but also likely attract new players to the market, creating more competition for existing firms. Especially, traditional banks could be inclined to up their digital capacities and services further, through innovation or acquisition.

Dr2 Consultants continuously monitors the developments in the discussion on digital finance and supports its clients on these matters. Should you be interested in further information on the digital euro and how it could impact your business, you can reach out to Dr2 Consultants at info@dr2consultants.eu or find more information on our website.

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EU Trade Policy: business opportunities and way forward

Open, sustainable and assertive. These are the three keywords of the new EU Trade Policy that the Executive Vice-President and Trade Commissioner, Valdis Dombrovskis, outlined in his speech at the opening of the EU Industry Days on 26 February.

The Industry Days are at their 4th edition and aim to gather policymakers, industry representatives and stakeholders to reflect together on the challenges ahead and the best practices put forward by the European business community. During this 4-day celebration at the end of February, the EU Executive Agency for Small and Medium-sized Enterprises (EASME) showcased 31 projects funded by the European Commission which targeted the digitalization, climate-neutrality and competitiveness of the post-COVID European economy.

EU trade policy tailored to the EU’s twin transition

It is in this context that Executive VP Dombrovskis, in his opening speech, addressed the participants of the first day with an explicit reference to open trade, sustainable growth and assertive leadership. The way forward for the EU in the post-COVID era is marked by a renewed stimulus to the green and digital transitions in order to build a competitive advantage for European companies on global markets. EU trade policy plays a pivotal role in leveraging on the EU leadership in green technologies, but at the backbone of the strengthened trade policy is the industrial policy. The acknowledgement of the twin transition also in the EU’s external trade policy once again highlights the opportunities for innovative European companies to take a leading role not only on the European, but also the global stage.

European exports count for 35 million jobs and a 12% wage premium due to trade-induced competitiveness. However, the EU Industrial Strategy, which has been put forward one year ago, needs to be updated to take into account the reality of the post-COVID world. To do so, what is required is the reestablishment of the fully functioning Single Market and the recovery of national economies through the NextGenerationEU package, which is financed by the EU budget and which the Member States should use not only to build back from the crisis, but also to invest in the long-term competitiveness of the industry. The NextGenerationEU package provides tangible funding opportunities for sustainable and digital projects through the Recovery and Resilience Facility.

The twin transition of digital and sustainable policies, and the acceleration of the transformation and recovery, is achieved by delivering on the European Green Deal. The fostered digitalization of the economy will trigger further structural changes and increase productivity and trade. The business opportunities unleashed by the twin transition will touch upon different sectors of the economy, including the transport and logistical sectors.

Automotive sector and SMEs as case examples

For example, the automotive value chain is indeed one of the main sectors where the adoption of new technologies, combined with the use of specific raw materials to be imported through trade, can provide a tangible benefit to our industry. The production of batteries and semi-conductors is just an example of how this uptake could be capitalized on for our economy, and they denote a sector where the EU can easily boost its strategic capacity through public and private partnership. As such, EU trade policy will present the European automotive sector with a crucial boost to ensure its global competitiveness.

Therefore, the European Union needs to remove the barriers to the uptake of the new technologies, especially for SMEs. Likewise, a lack of digital skills is to be addressed, in order to further upskill our workforce and increase our trade surplus. A greater role for the EU sustainability agenda and support for the Paris Climate ambitions is therefore envisaged for the next years. Learn more about our sustainability sector here.

Open strategic autonomy at global level

However, the EU efforts in increasing the sustainability of the industry and avoiding carbon leakage may not be sufficient if they do not take place in a framework of concertation and close cooperation with other global actors. To do so, the EU is ready to take the lead and be recognized a benchmark of the economic benefit of sustainable policies applied to the industrial system.

It is for this reason that the EU trade policy must work in synergy with other key players, including industrial policy. The assertive approach of the EU trade policy will help protect the European businesses against the abuse and the unfair trading practices of those countries that will not abide by the sustainable vows. Concretely, new legislative proposals on the screening of foreign subsidies in the Single Market will aim to support European companies. Additionally, a new anti-coercion instrument is in the making, which will enable the EU to act fast when its openness is abused.

Open strategic autonomy is the key concept to lead the way forward for the EU, which can be achieved through a close cooperation between trade and industry, a liberalization of trade in environmental goods and services, a boost to e-commerce and, last but not least, an increased green and digital transformations of our economy.

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Sustainable Products Initiative: more than just Ecodesign

As announced in its Circular Economy Action Plan (CEAP) almost a year ago (March 2020), the European Commission aims to make products fit for a climate-neutral, resource-efficient and circular economy through a Sustainable Products Initiative (SPI). The SPI will serve as the main instrument in a renewed European approach towards product policy. Due to its broad scope and huge impact on many sectors, Dr2 Consultants guides you through the main issues companies will have to contend with when the SPI is published, its relationship to other policies as well as further opportunities to engage with policymakers.

The European Parliament, in its Non-Legislative Own-Initiative Report on the Circular Economy Action Plan from February 2021, emphasizes the need to turn the linear “take-make-dispose” economy to a truly circular economy. It also underlines the frontrunner role it expects European companies to play in a global market. The SPI thus also presents plenty of opportunities for innovative players in the circular economy.

Sustainable Products Initiative: a broad review of the Ecodesign Directive

The Sustainable Products Initiative will revise the Ecodesign Directive (2009) and make products placed on the EU market more sustainable. The SPI is expected to move beyond the narrow scope of the Ecodesign Directive – exclusively aimed at products, such as household appliances, information and communication technologies or engineering – and set sustainability criteria based on harmonized indicators and life-cycle assessments such as environmental footprints, to the broadest range of products such as:

  • Electronics & ICT equipment;
  • Textiles;
  • Furniture;
  • Steel, cement & chemicals.

Taking into account the broadening of the scope, the European Parliament in its Non-Legislative Own-Initiative Report on the Circular Economy Action Plan similarly actively calls for the establishment of common life cycle assessment methodologies and improved data collection. Such methodologies need to take into account the full life cycle of a product, from-cradle-to grave, and the impact of sourcing, semi-finished products, spare parts and by-products throughout the value chain. The close involvement of stakeholders in defining these methodologies in an open, transparent, and science-based process is crucial. The European Parliament explicitly opens the door here for input by relevant stakeholders.

The broad review of the Ecodesign Directive also means that the Sustainable Products Initiative will be developed in close coordination with other initiatives announced in the CEAP, in particular the initiative on empowering consumers for the green transition and the initiative on the substantiation of environmental claims, both of which are expected to be announced in the second quarter of 2021.

Widened scope brings opportunities and threats

On a general level, the Sustainable Products Initiative is expected to set sustainability principles and specific requirements linked to environmental aspects of products. However, producers of priority product groups such as electronics, ICT and textiles as well as furniture and high impact intermediate products such as steel, cement and chemicals will be made responsible for providing more circular products and intervening before products can become waste (for example providing products as a service, providing repair service or ensuring spare parts availability). The impact of such far-reaching principles on producers cannot be underestimated and Dr2 Consultants can support your organization in identifying the specific aspects within the Sustainable Products Initiative which are expected to affect your business. You can learn more about our sustainability sector here.

On another note, the Commission is determined to set EU rules for mandatory sustainability labelling and/or disclosure of information to market actors along value chains in the form of a digital product passport. Such passports will foster the availability of data related to product’s content and carbon footprint and recyclability. The exact scope of such a digital passport will of course have to be determined in close cooperation with the industry, which is why Dr2 Consultants highly advises companies to actively engage with policymakers.

When it comes to a ‘right to repair’, the European Commission will most likely take heed of the encouraging language of the European Parliament in its Non-Legislative Own-Initiative Report on the Circular Economy Action Plan. Producers, not only of electronic products, will need to be able to provide free-of-charge access to necessary repair and maintenance information, including information on spare parts and software updates, to all market participants.

Finally, the Sustainable Products Initiative is most definitely expected to set more elaborate rules on the inclusion of recycled content in products, for example in packaging. In doing so, the Commission also wants to ensure that hazardous substances in production processes are tracked more thoroughly. The impact of more stringent rules can of course not be underestimated, with a potential impact on the whole packaging and recycling sector.

Final consultation period to open shortly

Having run an initial consultation from September to November 2020, the European Commission is expected to open the public consultation shortly, open for a standard 12 weeks. This phase of the consultation process provides stakeholders with a direct line to the policymakers before the Commission is expected to publish a proposal on the Sustainable Products Initiative by the end of 2021.

Dr2 Consultants’ expertise in this area means that our international team can support you not only in engaging with policymakers during, but also after, this public consultation process. Companies should also already keep an eye out on the position of the European Parliament and Council of the EU on this topic, as evidenced by their own reports on the Circular Economy Action Plan.

Feel free to get in touch with us for more information.

Inland waterways: untapping their potential

In order to accelerate the shift to sustainable and smart mobility, multimodal transport needs a strong boost. In its recent strategies, including the European Green Deal and the EU’s strategy for sustainable and smart mobility, the Commission acknowledges the potential of inland waterways as enabler of the green transition, especially for last-mile connections in urban supply chains. To untap the potential of inland waterways, the current legislative framework will have to be modernized. Dr2 Consultants’ transport team analyzes the key trends for inland waterways and the impact on the sector.

1. Enhancing the robustness of hinterland connections

The Commission calls for an increase of transport activities via inland waterways by 25% by 2030 and 50% by 2050. However, climate-related problems are hampering these objectives. The sector is facing severe challenges related to drought and changing water levels across the Rhine, Danube and Elbe rivers. Because of these changing conditions, the hinterland corridors are facing capacity constraints as waterways are not deep enough or bridges are not high enough. Ultimately, this results in disrupted supply chains and rising transportation costs.

The Commission is expected to tackle climate-related issues in the inland waterways in its upcoming Climate Adaptation Strategy (late February). The upcoming NAIADES action plan, as well as the revision of the TEN-T Regulation (respectively scheduled for April and September 2021), will address infrastructural bottlenecks, and aim to upgrade the network’s capacity. In addition, the European Parliament will soon start its work on a resolution for futureproof inland waterways.

These legislative and non-legislative initiatives will dominate the policy agenda for the coming months and will shape the future of a robust transport network. Dr2 Consultants advises companies active in the inland waterways sector to engage with EU policymakers and share their views on these initiatives, for example by submitting their input to the TEN-T public consultation.

2. Boosting sustainable inland waterways fleets

As for many modes of transport, the current fleet of inland waterways vessels is still heavily dependent on fossil fuels. In order to accelerate the uptake of low-emission fuels in the sector, the Commission will consider binding targets on the deployment of alternative fuels infrastructure through the revision of the Alternative Infrastructure Fuels Directive this summer, and unlock funding opportunities through the Connecting Europe Facility, the Innovation Fund and EIB loans to stimulate green investments.

As each TEN-T corridor has different market characteristics and subsequent fuel demands, it remains to be seen whether the Commission will differentiate the targets between the corridors. In addition to the infrastructure component, the Commission will revise the current energy taxation rules in June 2021 to offer tax redundancies for sustainable alternatives or apply higher tax rates for polluting fuels. Last but not least, the Commission is expected to re-align the renewable energy framework with the increased climate ambitions by June 2021.

Dr2 Consultants recommends companies active in the inland waterways sector to closely follow these developments. The legislative framework for the uptake of low-emission fuels and subsequent funding opportunities are expected to provide clarity to investors, thereby facilitating investment decisions aimed at greening the sector.

3. Inland waterways as a solution for efficient multimodal city logistics

The Commission is expected to start engaging with major European cities to come up with sustainable urban mobility plans for 2030 in order to green urban supply chains. As urban areas are increasingly faced with challenges related to congestion and air pollution, inland waterways have the potential to create sustainable last-mile connections into cities and boost multimodal logistics. Through new rules on electronic transport documentation and traffic management, smart river management and the exchange of data across the supply chain should facilitate efficient multimodal city logistics.

Dr2 Consultants advises cities’ representatives and companies active in the inland waterways sector to explore the role of inland waterways in the urban mobility plans and integrate initiatives that have the potential to contribute to green urban supply chains.

What can Dr2 Consultants do for you?

Over the last years, Dr2 Consultants has built up a track record in advising a broad range of transport clients in navigating the EU ecosystem. Would you like to know more about how your organization could make the most out of the transformation of inland waterways transport? Feel free to reach out and discuss opportunities over a virtual coffee.

Visit our Transport Sector webpage.

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Digital tax: insights into the latest global and EU developments

The rise of digitalisation and the dynamic technological advancements continue to influence the way we work, travel and communicate. In the past year, Dr2 Consultants has analyzed the impact of the COVID-19 pandemic for several of its clients. What clearly stems from the various analysis performed is that the Coronavirus has acted as a catalyst for a global transition towards a more digital world, resulting in behavioral changes with lasting effects. Against this backdrop of a rapidly growing digital economy, there is a need for a modern, stable regulatory and tax framework to address the technological developments and challenges. Over the past few years, there have been European and global initiatives regarding a reform on the international corporate tax framework and the implementation of digital taxes. While digitalization is encouraged and promoted as it can benefit the economy and society, digital companies have also been urged by lawmakers across the world to contribute their fair share to society.

On the EU level, in the context of the EU’s recovery from the pandemic, the European Council has tasked the European Commission to put forward proposals for additional EU own resources, one of which is a proposal for a digital levy. On the international level, the Organisation for Economic Co-operation and Development (OECD) has been working on a global solution regarding digital taxation by facilitating the negotiations between more than 100 countries over the past two years.

This Dr2 Consultants’ blog post presents the latest developments on digital taxation on both global and European level and provides a brief analysis of the potential impact of the future initiatives on businesses.

Background of digital taxation

In the past few years, the international community has been trying to reform the international tax system to address the digitalization of the global economy. The OECD has been tasked with designing a global compromise solution, with 137 countries participating in the negotiations. The new global digital tax regime, if adopted, will have an impact on various digital companies. Specifically, the main issue at stake has been the question of where multinational companies should pay taxes: in the country where they are headquartered or in countries where their customers reside. Since May 2019, the OECD has been hosting public consultations and negotiations to address the tax challenges of the digitalization of the economy (Pillar 1) and to address tax avoidance through a global minimum tax (Pillar 2). In particular, pillar one has been quite contentious, with strong disagreements between the United States and several EU countries.

The lack of agreement on digital taxation either on OECD or EU level could result in legal fragmentation and add a substantial burden to businesses around the world.

Besides the OECD’s efforts to reach a global solution, a group of EU Member States and the UK have proceeded with the implementation of national digital taxes to remain in force (at least) until an international agreement is reached. In 2019, France started applying a 3% digital services tax on big tech companies with revenue of more than €750 million of which at least €25 million generated in France. Italy and Austria have been applying their own digital levies of 3% and 5% respectively, since January 2020. Also the UK approved a 2% tax, applied from April 2020. Spain and the Czech Republic are currently in the process of discussing such taxes and the Belgian government has announced it will start work on a national digital levy in 2023 in case there has been no progress on OECD or EU level beforehand. The growing number of countries imposing national digital taxes makes the OECD negotiations and the EU’s upcoming proposal more and more pertinent. In fact, the lack of agreement on either level could result in legal fragmentation and add a substantial burden to businesses around the world.

Recent OECD developments

After failing to reach an agreement in 2020, the negotiating countries at the OECD level have set a new deadline to agree on a global compromise solution – end of June 2021. Between 27 and 29 January, the OECD held the 11th meeting of the OECD/G20 Inclusive Framework, to take stock of the state of play of the negotiations up to that point. Finance ministers from several countries, such as the UK, Italy, Germany and Canada, have expressed hopes that a global digital tax deal could be reached by the summer. They cautioned, however, that there was still outstanding work, specifically on Pillar 1. The demonstrated optimism has been confirmed by the newly appointed U.S. Secretary of Treasury, Janet Yellen, who has started bilateral talks with some of her European counterparts, showing commitment to continue the talks on a global tax agreement.

However, the change of the U.S. administration is not necessarily a sign for a complete reversal of the U.S. position on a global digital tax. While the new Biden administration is expected to remove the controversial proposal for the inclusion of a provision regarding “safe harbours”, allowing U.S. tech giants to opt out of the new regime, Secretary Yellen has stated in her Senate Confirmation Hearing that in case no deal is reached, the U.S.A. will consider the application of retaliatory tariffs. For the moment, the U.S. Trade Representative (USTR) has criticized the adoption of national digital taxes, but has refrained from imposing tariffs, while the OECD negotiations continue.

Recent EU developments

On 14 and 18 January, the European Commission launched, respectively, a roadmap and a public consultation on ‘a fair & competitive digital economy – digital levy.’ The initiatives aim to gather stakeholders’ feedback and views on the introduction of a digital tax to address the issue of fair taxation of the digital economy. The new initiative, according to the roadmap, is to be designed in a way that is compatible with the international agreement to be reached in the Organisation for Economic Co-operation and Development (OECD) as well as broader international obligations. The new EU digital levy initiative could potentially include a corporate income tax top-up to be applied to all companies conducting certain digital activities in the EU, a tax on revenues created by certain digital activities conducted in the EU, and/or a tax on digital transactions conducted business-to-business in the EU.

Potential implications of digital taxation for businesses

Dr2 Consultants expects the new initiative regarding EU digital taxation by the European Commission to have an impact on businesses engaging and operating in the digital economy, including foreign businesses operating in the EU. In addition, it will also affect tax compliance costs, tax revenues, competitiveness of EU digital companies, and ultimately consumers. While stating that the Commission proposal is not supposed to interfere with the OECD negotiations, and previously committing to withdrawing its proposal in case of an agreement at the OECD level, the European Commission has recently confirmed that it will move forward with publishing a proposal on an EU digital levy in June 2021, regardless of the outcome of the global negotiations.

While the digital tax measures are generally supposed to target large digital companies, their effects are likely to have a wider impact.

The upcoming Commission proposal is likely to use an eventual OECD agreement as a basis and add additional requirements for businesses operating within the EU, the details of which remain unclear for the moment. However, such approach could pose a risk of legal fragmentation and might encourage more EU Member States to adopt national digital tax measures in the meantime. Furthermore, businesses are fearing unilateral measures, national or European, as they might lead to double taxation, market distortion and retaliation from other countries. Both the EU and the OECD initiatives will likely target automated digital services and consumer-facing businesses, such as search engines, social media platforms, online marketplaces and businesses selling goods and services to consumers online. It has been clarified that intermediate products and components for consumer products would be out of scope, with some of them remaining subject to possible exceptions. In terms of thresholds, companies falling under the scope of the initiatives will have revenues of at least €750 million, with sales in each country reaching a specific revenue threshold. However, the details of the scope of the future initiative are still a subject of debate at the OECD negotiations. Similarly, as the EU proposal is in a very early stage, one might infer that the OECD requirements will translate as minimum requirements in the EU proposal.

While the digital tax measures are generally supposed to target large digital companies, their effects are likely to have a wider impact. When being confronted with a new digital tax, there are various ways in which companies can integrate it into their business model. As can already be seen from the introduction of unilateral digital taxes in some European countries, some companies might decide to absorb the additional costs themselves, while others might decide to pass on the extra costs to their business customers or users via price increases.

Next steps

Dr2 Consultants advises businesses to pay close attention to these developments in the coming months. In particular, on the OECD level, leaders are expected to continue with the negotiations regarding a global digital tax regime, and potentially reach an agreement by the end of June 2021. According to Pascal Saint-Amans, Head of taxation at the OECD, the best-case scenario would be reaching a high-level agreement on taxation by June, and then clarifying the details of the agreement during the Indonesia Presidency of the G20 in 2022. Furthermore, even when a full agreement is reached, given the fact that 137 countries participate in the negotiations, the implementation of the new rules will be a time-consuming endeavour.

On the EU side, the Commission proposal on an EU digital levy is expected in June 2021, after which the discussions will continue in the Council of the EU, as taxation matters are decided by unanimity. Although the European Parliament does not have a definitive say on tax matters, the EU Parliament’s Economic Affairs’ Committee (ECON) has already released a draft report, calling for an EU solution on digital tax and stressing the importance of a level playing field for providers of traditional services and digital services in the EU.

Dr2 Consultants continuously monitors the developments of the discussion on the new global, EU and national tax regimes, and supports its clients on these matters accordingly. Should you be interested in further information on digital taxation and how it could impact your business, you can reach out to Dr2 Consultants at info@dr2consultants.eu or find more information on our website.

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