CFE’s Tax Top 5 – May 2017

        29 May 2017

1.  ECOFIN reaches agreement on Directive to improve Dispute Resolution Mechanisms

As a meeting of the Council of the European Union (ECOFIN) on 23 May 2017 European finance ministers agreed on a final text for the proposed Directive on Double Taxation Dispute Resolution Mechanisms (the “Proposed Directive”).

The proposal seeks to improve the dispute resolution mechanisms available within the EU in the case of double taxation disputes. It will build on the existing Union arbitration Convention. A critical feature of the new proposals is the extension of the scope beyond purely transfer pricing disputes to all taxpayers that are subject to taxes on income and capital covered by bilateral tax treaties and Union Arbitration Convention.

The Proposed Directive seeks to increase the taxpayer’s role in the process and implement more efficient and timely procedures. In this regard, it is a crucial development that the Proposed Directive prescribes mandatory binding arbitration within specified time limits.

The final text agreed by the Council contained the following final compromises made on the following issues:

  • The Council agreed on a broad scope but with the possibility, on a case-by-case basis, of excluding disputes that do not involve double taxation;
  • In relation to ‘independent persons of standing’, who can be appointed as arbitrators,  it was agreed that arbitrators must not be employees of tax advice companies or have given tax advice on a professional basis, this is to ensure the independence of the process. Unless agreed otherwise, the panel chair must be a judge;
  • The possibility of setting up a permanent structure to deal with dispute resolution cases if member states so agree.

Member States will have until 30 June 2019 to transpose the Proposed Directive which will apply to tax years beginning on or after 1 January 2018 (or earlier if Member States wish).

The Council will formally adopt the Directive once the European Parliament has given its opinion.

The final text of the Proposed Directive is available here –  Directive on the Resolution of Double Taxation Disputes (May 2017 text)

For CFE’s position please see CFE’s Opinion Statement FC 4/2017

  1. Common Corporate Tax Base (“CCTB”) discussed at ECOFIN

CCTB was also on the agenda at ECOFIN with Ministers putting forward their country’s positions in relation to the new proposals.

The Maltese presidency confirmed its intention to continue discussions on new elements of the proposal, and that an appropriate degree of flexibility should be provided for. It was also reaffirmed that the separate proposal on tax consolidation (CCCTB) will be considered without delay once the CCTB rulebook has been agreed.

  1. European Court of Justice finds French legislation incompatible with Parent-Subsidiary Directive (Case C-365/16)

The proceedings related to French tax legislation, which imposes a contribution in addition to corporation tax on amounts redistributed by a recipient of dividends from a subsidiary. A group of French companies challenged the constitutionality of this additional contribution and claimed it impugned Article 4 of the Parent-Subsidiary Directive (the “Directive”). The ECJ ruled that this was incompatible with Article 4 of the Parent-Subsidiary Directive.

It ruled that the objective of the Directive was eliminating double taxation of profits distributed by a subsidiary to its parent company at the level of that parent.

Rejecting the argument of the French and Belgian Governments, the Court held that whether the tax applies to the distribution or the redistribution is irrelevant on the basis that article 4 stipulates that Member States of the parent company or permanent establishment are to “refrain from taxing such profits”.

Furthermore, regardless of the form or classification it takes (whether it is called corporation tax or not), any measure which is in effect a taxation of profits in excess of 5% is contrary to the Directive.

For a copy of the text of the decision please see Case C – 365/16

  1. European Court of Justice rules that Belgium’s Fairness tax is incompatible with the Parent-Subsidiary Directive   (Case C 68/15)

In a similar vein to the French case, the ECJ issued a ruling on the same day against Belgian tax legislation known as the ‘fairness tax’ on the grounds it contravened the Parent-Subsidiary Directive (the “Directive”).

The legislation at issue is not classified as corporate tax but a separate tax assessment of 5.15%, which is levied on a dividend distribution when distributed profits (or part thereof) have not been subject to tax under the ordinary Belgian corporate income tax rate.

The tax may arise when in the same taxable period, dividends are declared but the taxable basis is reduced by the application of the notional interest deduction or tax losses carried forward so that the taxable profits are wholly or partly reduced. The legislation aims to subject such income falling with the Belgian tax jurisdiction to this tax.

The fairness tax was challenged on the basis that it constituted:

  • a restriction on the freedom of establishment therefore violating Article 49 TFEU;
  • a withholding tax and violated Article 5 of the Directive;
  • a contravention of Article 4 of the Directive

The ECJ held that the ‘Fairness Tax’ is contrary to Article 4 of the Directive on the grounds that the effect of the legislation was to impose a tax in excess of 5% limit prescribed by Article 4 and also on the grounds that it results in double taxation contrary to the Directive.

The other two grounds were not successful. The Court held that it did not constitute a withholding tax and therefore did not violate Article 5 of the Directive. In reaching this conclusion, the Court held that the tax did not satisfy the three criteria to constitute a withholding under Article 5 of the Directive. In addition, it found that the tax was levied on the distributing company and not the holder of the shares and could not violate Article 5.

The Court held that the freedom of establishment does not preclude such legislation. This is on the basis that pursuant to such legislation both a non-resident company conducting an economic activity in that Member State through a permanent establishment and a resident company (including a subsidiary of a non-resident company) are equally subject to a tax such as the ‘fairness tax’ on the distribution of dividends which are not ultimately included in the taxable profits due to use of deductions.

For a copy of the text of the decision please see Case C 68/15

  1. Dates for the diary:

EU Commission Conference on Tax Fairness – 28 & 29 June, Brussels

The European Commission is hosting a conference on tax fairness in Brussels on 28 and 29 June. The conference is part of the new training launched by the Commission in 2017 for civil society on international and EU corporate tax issues.

Register at the following link

International Tax Conference “Growth and Taxes” – 30 June, Munich

In cooperation with ICC, BIAC and BusinessEurope, speakers will discuss tax policy issues, which would help facilitate cross border trade by reducing double taxation, simplify tax rules, strengthen tax payers´ rights, foster a growth oriented tax policy and increase tax certainty.

CFE President, Prof. Piergiorgio Valente will be speaking at the event on the Charter of Taxpayers Rights.

Register at the following link

                                                                                            

 

   22 May 2017

  1. ECOFIN Meeting expected to agree proposed Directive on Dispute Resolution Mechanism

The next ECOFIN meeting of European Finance ministers will take place in Brussels on Tuesday 23 May. The top priority will be finalising the work done in the area of dispute resolution with, agreement anticipated on the proposal for Directive on Double Taxation Dispute Resolution Mechanisms.

CCCTB will also be in the agenda. The Council will be briefed on the progress achieved in the technical examination of the proposal for a Council directive to introduce a common corporate tax base in the EU. Ministers will be asked to provide guidance for future work on the proposal.

  1. G7 Finance Ministers issue communique on tackling tax challenges & encouraging implementation of BEPS measures and signing of the Multilateral Instrument

At a recent meeting in Italy, the G7 Ministers emphasised the importance of implementing the BEPS package to achieve a globally fair and modern tax system.  They encouraged all jurisdictions to sign the Multilateral Instrument and to ratify the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

They emphasised the need for all jurisdictions including financial centres to commit to implementing the Common Reporting Standard (CRS) on automatic exchange of financial account information, which will commence in September 2017 encouraging jurisdictions to put in place the necessary legislation to enable exchanges under the CRS by September 2018 at the latest.

The communique acknowledges the work done by the OECD and IMF on tax certainty and addresses the potential tax challenges of an increasingly digitalised economy stating that subject to the conclusions of the report being prepared by OECD Task Force on the Digital Economy will develop policy options to address these tax challenges in a consistent manner.

Finally, the communique speaks of the OECD’s preparation of a list of non-cooperative jurisdictions with respect of tax transparency, which will guide future work on defensive measures against listed jurisdictions.

Follow this link for a copy of the G7 Communique

  1. EU Parliament again rejects as inadequate the blacklist of states at risk of money laundering

MEPs rejected as inadequate what they believe to be an overly narrow list of countries at risk of money laundering.

Earlier this year, Parliament vetoed a similar list drawn up by the Commission, of countries thought to be at risk of money laundering, financing terrorism or promoting tax evasion. A resolution voted on Wednesday says the EU should have an independent, autonomous process for judging whether countries pose a threat of financial criminality rather than relying on the judgement of an external body.

  1. Important Taxpayer rights Judgment delivered by ECJ ( Case C-682/15 Berlioz Investment Find S.A.) – Taxpayers have the right to challenge a tax information exchange order

The case concerned the right of the taxpayer to challenge a request for information issued by a Member State’s administration pursuant to Directive 2011/16 on administrative cooperation in the field of taxation (the “Directive”).

Berlioz was the subject of a request for information from the French tax authorities to their Luxembourg counterparts concerning dividends received by Berlioz from its French subsidiary Cofima. Berlioz objected to providing information relating to shareholders names and individual percentage shareholdings because it lacked ‘foreseeable relevance’.  Berlioz was subject to a pecuniary penalty for failure to comply. Berlioz appealed to the Administrative Court in Luxembourg alleging a breach of Article 6 of the European Convention on Human Rights and Fundamental Freedoms. The Court filed a preliminary reference to the Court of Justice of the EU adding also reference to Article 47 of the EU Charter of Fundamental Rights guaranteeing ‘right of effective remedy and to a fair trial’.

In relation to the ‘foreseeably relevant’ criterion, the ECJ held that pursuant to Article 1(1) and Article 5 of the Directive the information requested must be ‘foreseeably relevant’ in order for the recipient Member State to be obliged to comply with the information request.

In relation Article 47 of the EU Charter of Fundamental Rights the Court held that it must be interpreted as meaning that a relevant person on whom a pecuniary penalty has been imposed for failure to comply with an ‘information order’ is entitled to challenge the legality of that decision to issue an ‘information order’.  As part of that challenge under judicial review, the Court must have access to the document containing the request for information. However, it should otherwise remain a secret document in accordance with the Directive and the taxpayer should not have sight of the whole of the document.

The Court also held that the Charter of Fundamental Rights of the European Union is applicable to situations involving information requests when the national legislation contains pecuniary penalties for failure to comply by the taxpayer with an information request between tax authorities, particularly in the context of the Directive on.

Finally, the Court also held that the national court has authority to vary the pecuniary penalty imposed for failure to comply with an information order but also has the jurisdiction to review the legality of the information order. In this regard, the Court must focus on whether the requested information has ‘foreseeable relevance’.

Follow this link to a copy of the DECISION .

  1. Dates for the diary:

EU Commission Conference on Tax Fairness – 28 & 29 June, Brussels

The European Commission is hosting a conference on tax fairness in Brussels on 28 and 29 June. The conference is part of the new training launched by the Commission in 2017 for civil society on international and EU corporate tax issues.

Register at the following link

Accountancy Europe Tax Day – 20 May, Brussels

Accountancy Europe’s Tax Day 2017 will take place in Brussels on 30 May. It will discuss international tax cooperation and global efforts to combat tax avoidance and evasion with particular focus on technology and increasingly digitalised economies. It will also look at political developments in the EU and beyond, including anticipated US tax reforms.

Register at the following link

International Tax Conference “Growth and Taxes” – 30 June, Munich

In cooperation with ICC, BIAC and BusinessEurope, speakers will discuss tax policy issues, which would help facilitate cross border trade by reducing double taxation, simplify tax rules, strengthen tax payers´ rights, foster a growth oriented tax policy and increase tax certainty.

CFE President, Prof. Piergiorgio Valente will be speaking at the event on the Charter of Taxpayers Rights.

 

15 May 2017

  1. CJEU rules Luxembourg legislation regarding the application of the VAT cost-sharing exemption  is too broad in Case C-274/15

The CJEU has held that Luxembourg’s implementation of the VAT exemption for supplies involving cost sharing groups (CSGs) and their members is incompatible with the VAT Directive (2006/112/EC).

The following aspects of the CSE in Luxembourg legislation have been found to be contrary to the VAT Directive:

  • The CSE applies to services provided by an independent group to its members whose taxable activities amount to 30% of their annual turnover; it is not confined to independent groups whose members exclusively deal in VAT exempt activities. This has been found to be contrary to Article 2(1)(c) and Article 132(1)(f) of the VAT Directive.
  • Members of the CSG can deduct from the VAT which there are liable to pay the VAT due or paid in respect of goods and services supplied to the CSG.
  • When members of the CSG incur expenses in their own name but on behalf of the group and subsequently allocate those expenses to the CSG the legislation deems it outside the scope of VAT. This has been found to be contrary to Article 14(2)(c) and Article 28 of the VAT Directive.  
  1. MEPS vote in favour of EU Commission proposal to reduce VAT on e-books

The EU Commission proposal to reduce the VAT rate on e-books has been approved by the majority of the members of the Economic and Monetary Affairs Committee of the EU Parliament. The proposal seeks to align the rate of VAT charged on e-books to that reduced rate which applies to traditional hard-copy books. Currently, e-books are subject to VAT at the standard rate.

The standard VAT rate will continue to apply to music and videos and publications predominantly consisting of music and video content. The proposal is pending to be voted on by the parliament as a whole on 31 May or 1 June 2017.

  1. EU Joint Transfer Pricing Forum publishes summary of its 49th meeting

The European Joint Transfer Pricing Forum (JTPF) has published the summary 49th meeting held in Brussels on 9 March 2017. The meeting, as always, was held in private.

The main objective of the meeting was to discuss the JTPF Report on the Use of Economic Valuation Techniques in Transfer Pricing. The summary states that significant progress was made, and it is anticipated that it will be finalised at the next meeting to be held on 22 June. The general approach was agreed upon; it was agreed that the objective was not to create new concepts but rather to provide a common understanding and develop recommendation on how to use the valuation techniques in the specific context of transfer pricing.

On a separate subject, the JTPF Report on the Use of Comparables in the EU was adopted at the meeting. The report establishes best practices and solutions through various recommendations for both taxpayers and tax administrations within the EU. It aims at increasing the objectivity and transparency of comparable searches for transfer pricing in practice.

  1. Parliament Report addresses proposals for CCCTB

The ECON Committee has issued its first edition briefing on the proposed legislation to implement at common consolidated corporate tax base in Europe. It contains a summary of the proposal and outlines the legislative history of the proposals. No opinions on the proposals are contained in the briefing.

Please follow this link to see the Briefing.

  1. Bloomberg reports on confidential Presidency compromise text on public country-by-country reporting. 

The Maltese Presidency has drafted a compromise text regarding public country-by-country reporting which is due to be discussed on Wednesday 17 May.

Bloomberg has reported on the contents of the confidential compromise document. Under the current proposal an MNE whose turnover exceeds 750 million for 2 consecutive years will be obliged to comply with the public county-by-county reporting obligations. The compromise text would give companies a reprieve from public country-by-country reporting if their net turnover dipped below 750 million euros for a year.

The compromise proposal also inserts language that would mean only multinational companies “operating” in the EU would be covered by the public country-by-country reporting proposal.

Bloomberg reports that overall, the Maltese compromise text maintains many of the key features of the original proposal.

Dates for the diary:

EU Commission Conference on Tax Fairness – 28 & 29 June

The European Commission is hosting a conference on tax fairness in Brussels on 28 and 29 June. The conference is part of the new training launched by the Commission in 2017 for civil society on international and EU corporate tax issues.

Register at the following link

Accountancy Europe Tax Day – 20 May

Accountancy Europe’s Tax Day 2017 will take place in Brussels on 30 May. It will discuss international tax cooperation and global efforts to combat tax avoidance and evasion with particular focus on technology and increasingly digitalised economies. It will also look at political developments in the EU and beyond, including anticipated US tax reforms.

Register at the following link

International Tax Conference “Growth and Taxes” – 30 June, Munich

In cooperation with ICC, BIAC and BusinessEurope, speakers will discuss tax policy issues, which would help facilitate cross border trade by reducing double taxation, simplify tax rules, strengthen tax payers´ rights, foster a growth oriented tax policy and increase tax certainty.

CFE President, Prof. Piergiorgio Valente will be speaking at the event on the Charter of Taxpayers Rights.

 

  08 May 2017

  1. Commissioner Moscovici confirms details of upcoming EU proposal on ‘intermediaries’

The European Parliament “PANA” Committee of Inquiry held on Thursday 4 May a public hearing with Pierre Moscovici, EU Commissioner for Economic and Financial Affairs, Taxation and Customs Union. EU Commissioner Moscovici discussed the details of the upcoming EU legislative proposal on disincentives for intermediaries of aggressive tax planning schemes, the forthcoming EU blacklist of non-cooperative jurisdictions for tax purposes and the recent exchanges between the European Commission and the administration of President Trump.

Speaking to the Members of the European Parliament and the Committee of Inquiry, Commissionaire Moscovici said that he expects the legislative proposal from the Commission by June, with measures that would be ‘wide-ranging and tough’. Mr Moscovici also confirmed that the Commission is considering a legislative proposal, rather than a ‘soft-law’ instrument such as Code of conduct, which would include ‘all intermediaries, and would cover all harmful practices and all jurisdictions’.  On a question from the French MEP Eva Joly regarding the possibility of including criminal sanctions in the forthcoming European Commission proposal, Commissioner Moscovici did not confirm if the legislative proposal would entail sanctions. In respect of this policy initiative of the European Commission, CFE adopted an Opinion Statement PAC/FC 1/2017.

The next public hearing of the ‘PANA’ Committee of Inquiry is scheduled for Tuesday 9 May on the cooperation in tax matters with European jurisdictions, with representatives of the Channel islands, Gibraltar and Madeira discussing their tax regimes and their commitments in the fight against money laundering, tax evasion and tax avoidance.

  1. EU to extend Code of Conduct group harmful tax competition criteria

As reported by Bloomberg, the European Union is moving to close down special tax incentives zones within the EU, with the Code of Conduct Group on Business Taxation tasked to implement the harmful tax competition criteria. The document leaked from the Maltese presidency of the Council of the EU, and cited by Bloomberg, follows on the November 2016 Council compromise on the blacklist of non-cooperative jurisdictions for tax purposes. The final blacklist should be established by the end of year, according to the European Commission.

According to the Bloomberg report, the criteria that the Maltese Council presidency listed to initiate an inquiry for harmful tax competition by the Code of Conduct group include: tax benefits for companies in an economic zone that favour dealings with non-resident entities, regulations that do not require ‘real and substantial’ activity or substantial economic presence, tax benefits for highly mobile income, such as income from intra-group services, as well as activities limited to holding of equity participation or earning divides or capital gains. Bloomberg also cites reports that the European Commission will proceed with guidelines based on EU State aid law in case the Member states fail to end the ‘abuse’ of tax privileges in the free economic zones.

  1. European Commission publishes monthly EU law infringements package

The European Commission published its monthly infringements package, which summaries the legal actions taken by the European Commission against Member states that fail to comply with their obligations under European Union law. In April, the European Commission adopted 4 letters of formal notice, 45 reasoned opinions, 11 referrals to the Court of Justice of the European Union, and 2 closures. In respect of the tax infringement cases, the Commission referred Italy to the Court of Justice of the EU for failing to apply the national excise duty on petrol and diesel purchased by residents of the Friuli Venezia Giulia Region. The reduced rate currently operated by Italy for the Venezia Region residents  is considered by the Commission to be infringing the proper functioning of the EU internal market. These regional reductions, which according to the Commission have led to ‘fuel tourism’ are considered to be in breach of the EU Energy Taxation Directive/ Council Directive 2003/96/EC.

  1. OECD launches disclosure facility for CRS avoidance schemes

The OECD launched on 5 May a facility to disclose reportable tax avoidance schemes under the Common Reporting Standards (‘CRS’). According to the OECD, the disclosure facility is part of a wider three step process that the OECD has implemented to deal with reportable schemes under the CRS. The scope of the facility is wide, and covers financial institutions, the information to be reported and the scope of the account holders subject to reporting. The disclosure facility also requires jurisdictions to implement anti-abuse rules to prevent any practices that may circumvent the reporting the due diligence process. The disclosure facility is launched on the OECD Automatic Exchange Portal and allows interested parties to report potential schemes that circumvent the CRS. The disclosure facility can be accessed at the OECD CRS portal.

  1. OECD releases CbC reporting implementation status

With regards to the BEPS Action Point 13 (Country-by-Country Reporting), the OECD reported on 4 May that another step was taken in the implementation of the CbC minimum standard through activation of the automatic exchange relationships under the Multilateral Competent Authority Agreement on the Exchange of Reports. At the moment, more than 700 automatic exchange relationships have been established, including those between EU member states under the Council Directive 2016/881/EU. The OECD will publish regular updates on exchange relationships on their website to provide clarity for MNE groups and tax authorities.

 

  2 May 2017

  1. EU Commission launches public consultation on harmonising and simplifying the general arrangements for customs rules

Based on the results of two external evaluation studies carried out in 2014 and 2016 of Council Directive 2008/118/EC the Commission believes there may be scope to improve the functioning of the directive, particularly in relation to the reduction of administrative burden for all stakeholders and the reduction of distortions in the internal market. On 23 March 2017 the European Commission published an Inception Impact Assessment providing the background and a first description of the problems and possible policy options under analysis

The Directive contains the general procedures for the holding and movement of excise goods (alcohols and alcoholic beverages, manufactured tobacco products, energy products) in the EU. In addition, it contains explanations of the procedures for deferring payment of excise duty available to authorised traders who hold or move excise goods.

The aim of the consultation is to obtain views from a variety of interested stakeholders with the aim of improving the rules contained in Council Directive 2008/118/EC.

  1. UN releases revised United Nations Practical Manual on Transfer Pricing for Developing Countries

Following the meeting held in early April of the UN’s Committee of Experts on International Cooperation in Tax Matters the UN has released the 2017 edition of the UN Transfer Pricing Manual.

The 2017 edition of the Manual includes additional chapters dealing with specific items such as intragroup services, intangibles, cost sharing agreements and business restructuring. It also contains a new chapter on intangibles containing principles that are in line with the OECD BEPS Reports on the topic.

The 2017 edition contains four sections; the first provides the economic context of transfer pricing, the second contains detailed substantive discussion on the arm’s length principle, the third covers administrative issues and the fourth and final section explains country specific practices such as those in India, Brazil and China.

  1. EU’s proposals for hybrid mismatches with third countries moves closer to conclusion

On 27 April, the European Parliament adopted a Legislative Resolution on a proposal for a Council directive amending the Anti-Tax Avoidance Directive 2016/1164 (2016) to address hybrid mismatches involving third countries (ATAD 2). Concluding this text is a priority of the Maltese Presidency.

The report will now be considered for final approval by the European Council at the next meeting of ECOFIN to be held on 23 May.

  1. OECD – United Arab Emirates becomes 109th signatory to the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters

The United Arab Emirates signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in Paris on 21 April 2017. The Convention provides for all forms of administrative assistance in tax matters: exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection. It guarantees extensive safeguards for the protection of taxpayers’ rights.

  1. S. News – White House announces its tax reform proposals

In international news this week, the top story in tax came from the U.S. where the White House unveiled its tax reform proposals to reform and reduce both personal and corporate tax rates.

The three primary changes proposed in the area of business taxation are the following:

  • A reduction in the corporate federal tax rate from 35% to 15%;
  • A one-time tax on the repatriation of foreign earnings of US companies (no rate is mentioned in the plan);
  • Changing the existing worldwide tax system to a territorial system excluding foreign dividends (after the imposition of the one-time tax on earnings and deemed repatriated mentioned above).

Although the introduction of a Border Adjustment measures received much attention in recent months such a measure is not included in the proposals.