CFE’s Tax Top 5 – April 2017

  24 April 2017

European Commission publishes report on tax uncertainty

On 7 April 2017 the European Commission published a report on tax certainty entitled “Tax uncertainty: Economic Evidence & Policy Responses”. The Report comes at a time when tax uncertainty is gaining increasing prevalence on the international stage, with it being a priority of the G20 and OECD. There has been concern that the myriad of corporate tax policy initiates to combat aggressive tax planning at OECD and EU level is contributing to an increased tax uncertainty. At a recent informal ECOFIN meeting in Malta, tax certainty was on the agenda; Malta’s Minister for Finance, and head of ECOFIN emphasised the importance of tax certainty and the need for the EU to enhance tax certainty so that multinationals can understand ahead of time how their EU investments will be treated. He dismissed any suggestions that encouraging tax certainty in any way conflicts with implementing proposals to combat tax avoidance.

The Commission Report concludes that tax uncertainty derives from many national and international sources but weaknesses if the institutional framework of tax policy is the primary cause. At a domestic level the report cites typical sources of uncertainty as being the lack of precision of the tax code and frequent tax changes. An additional source of tax uncertainty stems from the overall political and administrative process of pursuing a tax reform: from the announcement and preparation, to the implementation and the following fine-tuning.

At the international level, the lack of tax coordination/cooperation between countries,

as well as the globalization and the emergence of new business models, are the main reasons of

increased tax uncertainty regarding the tax treatment of cross-border investment.

The Report identifies the simplification of the tax system as the main remedy to tax uncertainty and opines that the BEPS initiative and the EU agenda to fight aggressive tax planning are promoting more coordination among governments should result in greater tax certainty.

The EU Commission Report is available at this link: Taxation Paper 67 – Tax uncertainty: Economic Evidence & Policy Responses

ECJ VAT Case – C-493/15 (Identi), interaction with bankruptcy laws and ability of tax authorities to collect VAT due.

The case concerned a VAT assessment raised by the Italian tax authorities on a general partner of an insolvent company who had recently been declared bankrupt by the Italian courts. The first-tier Italian Tax Tribunal found the assessment to be unlawful, a decision which was upheld on appeal. The Italian tax authorities sought to have this decision set aside by the Supreme Court of Cassation in Italy.

The question arose as to whether the bankruptcy proceedings are in contravention of EU law and state aid rules on the basis that it precludes recovery of settled VAT debts due by a bankrupt person being recoverable by tax authorities.

The ECJ assessed whether it contravened the principle that Member States are obliged to ensure collection of all the VAT due on their territory as well as the effective collection of the EU’s own resources.

The Court held that strict conditions applied to the bankruptcy procedures to ensure the procedures were used only in good faith, including that the creditors in the proceedings have been partly satisfied in part. Furthermore, it was concluded that the bankruptcy proceedings are not of general application and does not constitute a general and indiscriminate waiver of collecting VAT. It is therefore not contrary to the obligation of Member States to ensure effective collection of VAT due in their territory.

On the issue of whether the rules on the discharge from bankruptcy State aid it was held that it does not meet the requirements for the classification of state aid and therefore does not constitute state aid.

Please follow the link for Case C- 493/15

Starbucks State Aid Commission Decision published in Official Journal

The non-confidential version of the European Commission decision EU/2017/502 on the alleged State aid awarded by the Netherlands to Starbucks was published in the Official Journal of the European Union L83/38 of 29.3.2017 in all official EU languages.

The European Commission adopted the Starbucks decision in October 2015 establishing that the Netherlands had awarded unlawful State aid to Starbucks by virtue of an Advance Pricing Agreement (APA) that allowed for artificial reduction of the company’s taxable base, compared to entities in similar legal and factual situation. In a nutshell, the European Commission claimed that Strabucks’ transfer-pricing arrangements were in breach of Article 107(1) TFEU, which resulted in unduly reduced taxable base involving intra-group transactions that had not reflected market reality, rather ‘economically unjustifiable assumptions’. The European Commission investigation further established that the Netherlands had allowed Starbucks a choice of transfer-pricing methodology that is not appropriate for calculation of taxable profits under market conditions. The Government of Netherlands is obliged to recover the assessed tax under European Union law, subject to a different ruling of the EU courts.

Both the Government of Netherlands and Starbucks as State aid beneficiary appealed the Commission decision citing ‘unprecedented criteria in establishing State aid’. The pending cases are registered under T-760/15 Netherlands v Commission, and T-636/16 Starbucks BV and Starbucks Manufacturing EMEA v Commission.

European Parliament PANA Committee of Inquiry to discuss studies in tax evasion

The European Parliament PANA Committee of Inquiry into tax evasion and tax avoidance practices that might be in contravention of EU law will hear on Thursday 27 April the findings of three studies that the European Parliament had commissioned. The Committee will sit in two panels which are scheduled to discuss, respectively, the impact of the offshore money-laundering and tax evasion practices on EU Member states’ exchequers and public finances, and, the assessment on the performance of Member states’ taxation and judicial administrations in addressing the issues stemming from the tax evasion, tax avoidance and money laundering practices.

The Report titled ‘The Impact of Schemes revealed by Panama Papers on the Economy and Finances of a Sample of Member States’ can be accessed here, while the report on the administrative cooperation titled ‘Fighting Tax Crimes- Cooperation between Financial Intelligence Units- Ex Post Impact Assessment’ can be read here.

 

     18 April 2017

  1. OECD VAT Global Forum meeting – VAT/GST Guidelines released

The week before Easter representatives of governments, international organisations, academia and the business community attended the OECD Global VAT Forum, held in Paris on 12 -14 April.  The OECD Global Forum VAT meeting was an opportunity for representatives from around the world to touch base and discuss various aspects of the design and operation of VAT and GST systems, as well as related common challenges.

The OECD’s Deputy-Secretary General Rintaro Tamaki announced the release of the OECD Recommendations of the Council on the application of the Value Added Tax/ Goods and Services Tax to the international trade in services and intangibles. According to the OECD, these Recommendations are first in the area of VAT and they incorporate the VAT/GST Guidelines, open for non-OECD countries too.

The International VAT/GST Recommendations are intended as recommended approach to both OECD and non-OECD countries. Texts are available in English, German and French.

  1. OECD publishes comments received on treaty entitlement of Non-CIV funds consultation

Following on the public consultation on the OECD BEPS Action 6 Public Discussion Draft on non-CIV examples, the OECD published last week the responses to the consultation. Please follow this link for the comments received by the OECD on the matter.

CFE responded to this public consultation on 2 February 2017, and issued an Opinion Statement FC 2/2017 on the draft examples with regard to treaty entitlement of non-CIV funds when applying the principle purpose test as described in the OECD BEPS Action Point 6 Final Report of October 2015.

  1. Germany published progress report on its Anti-Tax Avoidance Plan

The Federal Ministry of Finance of Germany published an update of its 10-points based plan of 2016 related to fighting tax evasion, tax avoidance and anti-money laundering. The original Anti-Tax Avoidance 10-point plan envisaged addressing the issues of the Panama Papers cooperation, harmonising the blacklists of non-cooperative tax jurisdictions, creating global register for beneficial ownership registers, elimination of statute of limitations for cross-border tax offences, to name but a few.

The progress report on the implementation of these measures notes that the European Union list of non-cooperative jurisdictions for tax purposes is due by the end of year. In respect of the automatic exchange of information, the German Finance Ministry recalls the mandate of the OECD Global Forum for Tax Transparency, which is now responsible for implementation of the common reporting standard by virtue of peer-review process. The update also takes note of the domestic implementation in Germany of the 4th EU Anti-Money Laundering Directive.

Finally, the update takes into account the process of introduction of mandatory disclosure rules in Germany, where both federal and state bodies were invited for input and evaluation.

  1. EU plans radical VAT overhaul for September 2017

The European Commission is planning to propose an important overhaul of the EU VAT rules in September 2017, Commissioner Moscovici confirmed in a statement of 12 April 2017. The European Commission published in its Sixth Progress Report on 12 April, which concerns the European Union security agenda, that the European Commission is planning to move on to a single VAT area in order to reduce weaknesses of the present system and to tackle cross-border VAT abuse, notably ‘Missing Trader Intra-Community Fraud’ or ‘Carousel Fraud’.

  1. Opinion in C-39/16 Argenta Spaarbank v Belgium concerning interpretation of the Parent-Subsidiary Directive due next week

According to the judicial calendar of the Court of Justice of the European Union, the Opinion of Advocate General Kokkot is due for 27 April 2017 in the case C-39/16 Argenta Spaarbank NV v Belgium.

The questions referred to the Court of Justice concern interpretation of Article 1(2) of the Parent-Subsidiary Directive (Council Directive 90/435/EEC) and the compatibility of the Belgian Income Tax Code with the provisions of the Directive in relation to disallowing treatment of interest as business expense up to an amount corresponding to qualifying dividends, and, the proportionality of such measures.

 

10 April 2017

OECD issues guidance on BEPS Action 13 (Country-by-Country Reporting)

The OECD issued guidance on the interpretation and application of the Country-by-Country reporting model legislation of October 2016 BEPS Action Point 13 Final Report. The guidance aims to facilitate the implementation of the Country-by-Country reporting standard into national legislation, and to help jurisdictions in introducing consistent domestic rules.

The Country-by-Country implementing package includes model legislation that could be adopted by jurisdictions to require the parent company of a multinational group to submit a report in its country of residence. The package comprises a model Competent Authority Agreement that would help in implementation of the exchange of information, based on the Multilateral Convention on Administrative Assistance in Tax Matters; Double Taxation Conventions, and Tax Information Exchange Agreements.

The guidance addresses five specific issues: definition of revenues, standard to determine membership of a group company, definition of consolidated group revenue, treatment of shareholdings and definition of related party.

The BEPS Action 13 October 2016 Report envisages Country-By-Country Reporting as minimum standard, containing a three-tiered standardised approach to transfer-pricing documentation. The minimum standard reflects a commitment to consistent implementation of the Country-by-Country Reporting.

European Parliament “PANA” Committee of Inquiry update

A session of the European Parliament “PANA” Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion took place on Thursday 6 April in Strasbourg. The Committee of Inquiry held a public hearing on the impact of the schemes revealed by the Panama Papers on developing countries. Alvin Mosioma, Tax Justice Network Africa, Will Fitzgibbon, International Consortium of Investigative Journalists and Nuhu Ribadu, Government of Nigeria, were among the invitees who gave evidence to the Committee on the impact of money-laundering and tax evasion on developing countries, with a focus on the cooperation between the EU and African authorities and the deficiencies in the existing legal framework in respect of EU law. The next session of the “PANA” Committee of Inquiry is scheduled for 27 April in Brussels.

Public Access to Beneficial Ownership Register voted by the Germany’s Bundesrat

The Upper House of the German Federal Parliament (‘Bundesrat’) voted to allow access of the general public to the beneficial ownership registers. The original German Cabinet proposal that effectively implements the 4th EU Anti-Money Laundering Directive (Directive 2015/849/EU) requires establishment of electronic registry of owners and operators of businesses (beneficial ownership), in an attempt for increased transparency and limiting the possibilities for money-laundering and terrorism financing.

The changes to the original EU law implementing act voted by the Bundesrat  raise privacy concerns related to access to sensitive information belonging to mid-sized companies. To adopt the legislation, both Houses of German Parliament need to consent, and pass the legislation implementing the Directive by end of June, in order to comply with EU law.

UN Tax Committee Meetings held in New York

The 14th Session of the UN Committee of Experts on International Cooperation in Tax Matters was held between 3 -6 April 2017 in New York. The meeting was held back-to-back with the ECOSOC special meeting on the international cooperation in tax matters, in order to facilitate a dialogue and encourage intergovernmental cooperation.

The UN Committee discussed modifications to the United Nations Model Double Taxation Convention between developed and developing countries, specifically regarding articles 1, 5 and 8; articles 9, 12 and 13; and articles 23 and 26.

According to the Reports from the UN Secretariat, the UN Committee is recommending adopting a limitation of benefits clause (LoB) in the UN Model, following up on the OECD BEPS Recommendations of October 2016, as well as changes to the UN Model dispute resolution procedure to require countries to resolve disputes through the mutual agreement procedure. This would incorporate OECD BEPS Action 14 into the UN Model Tax Convention.

 

  03 April 2017

 

European Commission confirms upgrade of its Task Force Tax Planning Practices

The European Commission has upgraded the Task Force Tax Planning Practices into a new Unit within the Directorate General Competition, the deputy Director General for State aid Gert-Jan Koopman confirmed for Bloomberg. European Commission’s Task Force led by Max Lienemeyer is responsible for the State aid investigations into tax rulings and aggressive tax planning practices that might be in contravention to European Union law. The Commission has to date adopted decisions for recovery of tax in the cases of Apple (Ireland), Starbucks (The Netherlands), Fiat Finance (Luxembourg) and the Belgian Excess Profit ruling scheme. These decisions are under appeal at the Court of Justice of the European Union as final arbiter on the legality of European Commission’s decisions, which does not however prevent recovery of the assessed tax. Cases in the pipeline include Amazon, McDonald’s, and the most recent one – Engie (GDF Suez).

Gert-Jan Koopman speaking in Paris confirmed that the Task Force Tax Planning Practices set up in 2013 is now a permanent Unit within the Directorate General for Competition. Koopman also held that the team of case-handlers is being assisted by a second Unit on fiscal State aid, which is also looking into the tax cases from a State aid perspective. The deputy Director General said that the European Union investigations into multinational companies’ tax planning arrangements have been a reason for ‘rude awakening’ for tax and transfer- pricing specialists. Koopman also pointed out that the European Commission has since provided guidance to governments and companies as to the State aid compliance of the transfer-pricing arrangements and tax rulings in general.

The European Commission published in June 2016 a Working Paper on the applicability of Article 107(1) of the Treaty on the Functioning of the European Union to tax ruling practices. Specifically, the paper provides for clarification as to the applicability of the ‘arm’s length principle’ to tax rulings from a State aid perspective.

CJEU Forthcoming: AG Wathelet Opinion in C-616/15 Commission v Germany (VAT)

According to the judicial calendar of the Court of Justice of the EU, Advocate General Wathelet will issue on Wednesday 5 April 2017 an Opinion in the case C-616/15 European Commission v Germany. This VAT case concerns restriction on VAT exemption for certain groups of professions (notably reserved for certain professions only in Germany), which according to the European Commission is in breach of Article 132(1)(f) of the Directive 2006/112/EC (‘VAT Directive’). The Commission maintains that there is no justification for these restrictions; therefore the exemption from VAT should apply to all groups of professions provided they exercise tax-exempted activities.

The European Parliament sits in Strasbourg this week

The European Parliament is holding the next plenary session in Strasbourg. The agenda includes a meeting on Thursday 6 April 2017 of the European Parliament ‘PANA’ Committee of Inquiry into contraventions in EU law and tax evasion and avoidance practices stemming from the Panama Papers revelations.

OECD published report on technology tools to tackle evasion and fraud

The OECD published on 31 March the Technology Tools to Tackle Evasion and Tax Fraud report. The report, presented in Paris by Grace Perez-Navarro, deputy Director of the OECD’s Centre for Tax Policy and Administration, demonstrates the possibilities in which technology can be used by governments in the fight to prevent and identify tax fraud and evasion.

According to the OECD, the solutions offer win-win scenario: better detection of crime, higher revenue contributions, and synergies that make tax compliance easier for business and tax administrations.

Further reduction in corporation tax comes into effect in the UK

Her Majesty’s Treasury, the United Kingdom Finance Ministry, announced that their plan to reduce UK corporation tax to 19% comes into effect from 1 April 2017. According to the UK Government, the UK plans to reduce the corporation tax rate further to 17% by 2020, which will then be the lowest tax rate among the G20 countries. The new reduction amounts to £9 billion cut in overall burden for businesses.