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November 10, 2022

EU Finance Ministers agree on Code of Conduct mandate reform

  • European Union Finance Ministers have agreed on revisions of the mandate of the Code of Conduct for Business Taxation.

  • The revisions will apply to tax features which are introduced or modified on or after 1 January 2023 and create opportunities for double non-taxation or that can lead to the double or multiple use of tax benefits for the same amount of income.

  • Businesses should closely monitor the work of the COCG and assess the impact of the revised mandate.

Executive summary

On 8 November 2022, European Union (EU) Finance Ministers agreed on revisions of the mandate of the Code of Conduct for Business Taxation (the Code) during the Economic and Financial Affairs (ECOFIN) Council meeting. As of 1 January 2023, the revised Code will replace the one established in 1997, expanding the scope of the Code from preferential measures (such as special regimes or exemptions from the general taxation system) to cover tax features of general application. This will apply to tax features which are introduced or modified on or after 1 January 2023 and create opportunities for double non-taxation or that can lead to the double or multiple use of tax benefits for the same amount of income.

Detailed discussion


On 1 December 1997, the Council of the EU and representatives of the governments of the EU Member States adopted a resolution on a Code of Conduct for business taxation, with the objective of curbing harmful tax competition. The Code constitutes a political commitment by the Member States, and it has non-binding legal nature.

As provided by the resolution, a Code of Conduct Group (the COCG) was set up within the framework of the Council by the ECOFIN on 9 March 1998. The role of the COCG is to review whether countries are meeting the standards set by the EU on harmful tax competition.

The original Code of Conduct was targeted at EU Member States and their dependencies and used primarily to identify and assess preferential tax measures within the EU that could possibly be harmful. This meant that the Code was initially only used against regimes that provided for a lower level of taxation than was generally applicable and that met certain conditions relating to for example ring fencing and non-transparency.

Following the introduction of the Organisation for Economic Co-operation and Development/G20 Base Erosion and Profit Shifting (BEPS) Project outcomes in the EU in 2016, the EU expanded the review to more jurisdictions. Not meeting the minimum standards on BEPS and tax transparency result in jurisdictions being included on the EU list of non-cooperative jurisdictions, which may subject them to defensive measures by EU Member States.1

In the context of the extension to non-EU jurisdictions, the EU applied the Code to wider situations than originally envisaged. This included countries with a nil or near nil rate of tax – under criterion 2.2. of the review framework agreed in 2016, such non-EU jurisdictions “should not facilitate offshore structures or arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction.” This led to the criticism, including by the European Parliament, that the EU Member States were subject to more lenient norms when it comes to harmful tax practices than non-EU Member States.

On 26 November 2021, the Slovenian Council Presidency published a draft resolution on a revised mandate for the Code of Conduct which would also expand the scope of the assessments of EU Member States tax regimes to general features of their tax systems. The change was endorsed by the majority of the Member States during the ECOFIN meeting on 7 December 2021. However, Hungary and Estonia blocked the agreement as they disagreed with the revisions.

Revisions to the Code adopted

On 8 November 2022, Hungary and Estonia changed their positions and the EU Finance Ministers agreed unanimously on a revised Code of Conduct for Business Taxation. This is the first revision since the establishment of the Code in 1997.

The revision will bring greater clarity as to the scope of the Code by expanding it to cover tax features of general application which create opportunities for double non-taxation or that can lead to the double or multiple use of tax benefits for the same amount of income. Previously, the Code only addressed preferential measures such as special regimes or exemptions from the general taxation system. This gave rise to disagreements over whether a feature was a measure (and hence covered by the Code) or merely an inherent part of the tax regime (and hence outside the Code).

As an illustrative example, a general feature of a Member State’s tax regime might be the transfer pricing legislation allowing for taxation that is not in line with the arm’s-length principle. This feature may lead to double non-taxation. The Member State may contend this is not a preferential regime but rather a general feature of the tax system. The 8 November revision brings such general features in scope of the Code.

Under the revised Code, to assess if a tax feature of general application is harmful, the following cumulative criteria would need to be assessed:

  • If it is accompanied by appropriate anti-abuse provisions or other adequate safeguards.
  • If it affects in a significant way the location of business activity in the EU. When evaluating this criterion, the COCG should take into account the fact that the location of business activity can also be influenced by circumstances other than tax features.

The revisions also provide that the COCG could submit to the Council for approval proposals for general guidance within the scope of the mandate, to the extent that it is not already covered by EU legislation. In particular, the COCG will submit for approval by Council proposals for guidance on specific tax features of general application.

In addition, the revised Code further clarifies the review process in the COCG and the administration of the Code.

Next steps

The revised Code will apply as of 1 January 2023. The expanded scope will apply from 1 January 2024 and will only cover general features introduced/amended after 1 January 2023.

The revised mandate also provides that the Council and the EU Member States will review the provisions of the Code of Conduct, when appropriate, especially when there is a new international consensus on relevant issues.


Despite the fact that it started outside the EU legal infrastructure as a political commitment, and has no legally binding consequences, the Code continues to play an increasingly important role in the EU and wider tax community. The Code of Conduct has been driving the compliance of jurisdictions with the BEPS and tax transparency standards by requiring membership of the Inclusive Framework on BEPS and the Global Forum on Transparency and Exchange of Information for Tax Purposes and participation in relevant legal instruments, in order to prevent being included on the EU list of non-cooperative jurisdictions.

EU Member States will now be subject to assessments as to whether general features of their tax systems enacted or modified on or after 1 January 2023 lead to double non-taxation or multiple use of tax benefits. This can be expected to trigger more change and to impose greater constraints on the policy options of Member States.

Businesses should closely monitor the work of the COCG and assess the impact of the revised mandate. Also, businesses with operations in any of the jurisdictions remaining on the EU list of non-cooperative jurisdictions for tax purposes should consider what implications the application of defensive measures by Member States may have on their operations, both now and in the future.


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

Ernst & Young Belastingadviseurs LLP, Rotterdam

Ernst & Young Belastingadviseurs LLP, Amsterdam

Ernst & Young LLP (United Kingdom), London

Ernst & Young LLP (United States), Global Tax Desk Network, New York



  1. See EY Global Tax Alert, European Commission adopts first counter-measures on listed non-cooperative tax jurisdictions, dated 22 March 2018.

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