SMEs in Europe: expected changes and reforms

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The EU institutions, mainly the Commission, are taking resolute steps and planning numerous initiatives to facilitate the work of small and medium enterprises (SMEs) in the member states. Main attention is devoted to reducing red tapes, optimizing taxation and facilitating business on sustainable paths. 

    European 24 million small and medium-sized enterprises, SMEs represent 99% of all businesses and two thirds of private sector jobs in the EU-27. They are central to European socio-economic development, to driving the EU-wide green and digital transitions and supporting member states’ long-term prosperity. They create 2 out of 3 jobs, generate more than half of value added in the non-financial business sector and they contribute to local economies with 42% of SMEs located in small towns and/or villages.
Besides, SMES are at the center of the EU’s innovative and sustainable economy: 34% of all start-ups have introduced social innovations, 89% of SMEs are taking action to be more resource efficient.
More on SMEs in Europe can be seen in:

https://single-market-economy.ec.europa.eu/system/files/2023-09/SOTEU_factsheet_2023_SME%20Relief%20Package_V10.pdf

    More than €200 billion is foreseen for SMEs under different EU funding programs until 2027 and the support for SMEs is central across key EU policy areas: it is central to numeral EU programs like Next Generation EU and the Recovery and Resilience Facility (€45.2 billion) dedicated to direct and indirect measures in support of SMEs, helping them become more resilient, sustainable and digital.
Besides, there are the EU Chips Act, the Digital Services Act and the Digital Markets Act, as well as the Cohesion policy funds, etc. Substantial amounts of support are under the EU’s Cohesion Funds (€€65 billion); the latest review of the General Block Exemption Regulation (GBER) eases SMEs accesses to national public funding.

    Source: Publications Office of the European Union (2023). ISBN 978-92-68-07410-7 doi: 10.2873/212707 ET-07-23-375-EN-C.

Reforming business taxation
The current systems of business taxation in the EU give rise to a significant degree of complexity. This translates into businesses facing high compliance costs, barriers to cross-border operations, risks of double and/or over-taxation leading to tax uncertainty and frequent, time-consuming legal disputes. These setbacks constitute a proportionately higher burden for SMEs than they do for large groups of companies. SMEs spend approximately 2.5% of their turnover on compliance with their tax obligations (e.g. corporate income tax, CIT, VAT, and income taxes) while large enterprises spend 0.7%, as the latter are able to leverage economies of scale.
In case the SMEs wish to operate cross-border, they become taxable in more than one EU state as soon as their activity abroad creates a permanent establishment (PE).
Compliance with those obligations comes with fixed costs, which creates a barrier that can prevent SMEs from developing their business cross-border. This is specifically the case at the inception stage of expansion, when the extent of activities carried out abroad would mainly be ancillary to the primary business operations in the state of origin.

Reference to: European Commission (2022). Tax compliance costs for SMEs; an update and a complement; final report in: https://op.europa.eu/en/publication-detail/-/publication/70a486a9-b61d-11ec-b6f4-01aa75ed71a1.

Commission’s intentions
In mid-September 2023, the European Commission published an annual “burden survey”, which reflects the EU-wide actions to simplify and modernise rules for corporate entities. The survey reveals progress and shows concrete examples of the numerous Commissions’ efforts including e.g. Regulatory Fitness and Performance program, REFIT with the follow-up recommendations prepared by the Fit for Future Platform high-level expert group and reinforced by additional efforts outlined in the SME Relief Package. This package delivers much-needed support for the European SMEs to facilitate financial resourses, simplifying investments and secure grow.

    More in the Council Directive proposal on reforming tax system for micro, small and medium sized enterprises: https://taxation-customs.ec.europa.eu/system/files/2023-09/COM_2023_528_1_EN_ACT_part1_v4.pdf

    In 2020, the Commission launched an SME Strategy for a sustainable and digital Europe, which put forward actions based on three pillars: a) capacity-building and support for the transition to sustainability and digitalisation; b) reducing regulatory burden and improving market access; and c) improving access to financing.

More in: Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, An SME Strategy for a sustainable and digital Europe, COM/2020/103 final.

    In order to allow SMEs directly enjoy the benefits of the internal market without incurring an unnecessary additional administrative burden, Regulation 2018/1724 of the European Parliament and the Council established the Single Digital Gateway, which provided for general rules concerning the online provision of information, procedures and assistance services relevant to the functioning of the internal market.

   On Regulation adopted by the European Parliament and of the Council (2 October 2018) establishing a single digital gateway to provide access to information, to procedures and to assistance and problem-solving services and amending Regulation 1024/2012 (OJ L 295, 21.11.2018, p. 1).

Exchange of information among tax authorities in the EU is provided for in the Directive on administrative cooperation in the field of taxation (art. 11 and 14); existing framework is aimed at providing answers to SMEs and simplifying information’s exchange.

More in the Directive: Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC.
General reference: https://ec.europa.eu/commission/presscorner/detail/en/IP_23_4409

     Before the end of 2023, the Commission will appoint an EU SME envoy reporting directly to the President; the idea is to take into consideration the challenges the SMEs are facing every day. Besides, for every new piece of corporate legislation the Commission will conduct by an independent board a competitiveness check; then, in October the Commission will make the first legislative proposals towards reducing reporting obligations at the EU-wide level by 25%.

 

 

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