CFE’s Tax Top 5 – October 2017

Brussels, 30 October 2017

  1. European Parliament calls for EU-wide protection of whistle-blowers

The European Parliament adopted on 24 October a non-legislative resolution calling for a European Commission proposal by the end of the year for EU- wide horizontal rules for protection of whistle-blowers. The non-legislative resolution was passed by 399 votes to 101, with 166 abstentions. The MEPs emphasised that European citizens and journalists are being subject to prosecution rather than legal protection when disclosing information in the public interest, including information on suspected misconduct, wrongdoing, fraud or illegal activity, particularly when it comes to conduct violating ‘fundamental principles of the EU, such as tax avoidance, tax evasion and money laundering’.

In relation to taxation, the resolution draws from the conclusions of the TAXE and TAX2 Committees which have already called for better protection of whistle-blowers across the EU. Furthermore, the European Parliament called on the Commission to look into possibilities that international agreements that concern taxation, competition and financial services to include provisions on the protection of whistle-blowers.

The Parliament calls on the EU member states to introduce reporting mechanisms that facilitate internal whistle-blowing and allow whistle-blowers to report to NGOs or the press, including the possibility of anonymous reporting, protection against retaliation, and sanctions against those attempting to prevent whistle-blowers from speaking out. The resolution further calls on measures to discourage the retaliatory actions, allowing supporting measures, such as legal and financial aid, psychological support and compensation for damage suffered by whistle-blowers in the event of civil proceedings, and national independent bodies, responsible for reports, verifying their credibility and guiding whistle-blowers and an EU level authority, to facilitate coordination in cross-border cases.

The adopted non-legislative resolution concerning whistle-blowers’ protection is available in all EU languages.

  1. 2. EU Commission open State aid investigation into UK’s CFC rules

The European Commission Directorate General for Competition have opened an investigation into UK’s Controlled Foreign Company (CFC) legislation compatibility with the EU State aid rules. Specifically, the Commission are looking into UK’s group financing exemption for certain financing income (ie. loan interest payments) that are exempt from the remit of the CFC rules.

CFC Rules

CFC rules are an anti-tax avoidance measure that aims to tax profits of parent company that are artificially shifted to offshore low-taxed or no-tax subsidiary for tax purposes. CFC rules operate by providing legal powers to a national tax authority to catch such artificially shifted profits of the off-shore shell back to the parent’s jurisdiction where these will be subject to tax.

UK Group Financing Exemption

The Commission is investigating a legislative scheme, the UK’s Finance Act 2012 which introduced a Group Financing Exemption, effective from 1 January 2013. This scheme exempts from UK corporate taxation financing income received by an off-shore subsidiary from another foreign group company, which allows a UK based multinational company to provide for financing to a CFC group member via an offshore shell without taxing this income. In the absence of the Group Financing Exemption, interest income paid on loans to subsidiaries when that interest is paid into an off-shore jurisdiction would have been subject to tax.

The UK would ordinarily be able to tax such interest income, as the CFC rules would catch it by disregarding the offshore company and allocating such income to the UK parent. This possibility provided with the UK Group Financing Exemption, according to the EU Commission, is providing for selective advantage to multinational group companies when compared with other UK resident entities that do not operate cross-border. According to ECJ settled case-law, national anti-abuse provisions must not be selective and must be compliant with the State aid rules still. The Commission rely on the interpretation of the UK general corporate tax as reference system, under which standalone and multinational group companies are in a comparable factual and legal situation for purposes of corporate tax as per the Paint-Graphos case-law.

ATAD

In accordance with the EU Anti-Tax Avoidance Directive, as of 1 January 2019, all Member states must introduce CFC legislation, albeit with the caveat that the ATAD does not intend a group financing exemption such as the one under Commission’s State aid investigation.

Interested third parties can now submit comments without prejudice of the outcome of this case.

  1. EESC calls for tax good governance clauses in international agreements

The EESC published an Opinion on the EU development partnerships and the challenge posed by international tax agreements. EESC welcomed the EU efforts to address the weaknesses of the international tax systems calling for tax policy to play a more important role in the European development policy. The EESC argues that EU Member States need to align their international taxation policies with the objectives of development policies in order to avoid conflicts between individual countries’ taxation policies and joint development priorities. Furthermore, the Committee called on including tax good governance clauses in all relevant agreements between the EU and third countries and regions in order to promote sustainable development.  EU international tax transparency measures and the BEPS Action Plan will also have an impact on developing countries. The EESC welcomed the fact that the European Parliament and the European Commission have already issued their views on the points where tax and development policies intersect, ie. toolbox presented on the platform as a Staff Working Document on the “spillover” effects of DTCs.

  1. 4. OECD published VAT effective cross-border collection implementation guidance

The implementation guidance responds to the request from the Fourth Meeting of the OECD Global Forum on VAT  supporting the implementation of the International VAT/GST Guidelines, including a first package on the implementation of mechanisms for the collection of VAT on internet sales. It focuses on the implementation of the recommended approaches included in the 2015 Final Report on Action 1 “Addressing the Tax Challenges of the Digital Economy” of the BEPS project. These recommended approaches, which are also included in the International VAT/GST Guidelines, have already been implemented by a large number of countries. The implementation guidance builds on good practice approaches deployed by jurisdictions when they require foreign suppliers to register and collect VAT on cross-border B2C sales in application of the solutions recommended in the BEPS Action 1 report.

  1. November tax events and seminars update

CFE Professional Affairs Conference on 24 November in Prague, Czech Republic

CFE and the Czech Chamber of Tax Advisers (KDPCR) are delighted to invite you to the 10th Professional Affairs Conference ‘Tax is Going Digital – Are Tax Advisers Ready?’ We hope that you will join us on 24 November 2017 in Prague, the Czech Republic as we discuss digitalisation of tax services, opportunities for the tax profession arising therefrom and the evolution of artificial intelligence.

Please follow this link for further information on the programme, registration, accommodation and social programme details.

Accountancy Europe is hosting ATO seminar on GST (VAT) on 13 November

Accountancy Europe is hosting on 13 November in Brussels the Australian Tax Office (ATO) information seminar on the goods and services tax (GST) law changes that apply from 1 July 2018 to low value imported goods sold to consumers in Australia.  The Australian Taxation Office (ATO) is organising a series of business information seminars in key locations around the world. The international sessions are designed for online marketplaces, merchants and re-deliverers that supply these goods, and also for advisers and tax professionals.

Please follow this link for registration and further information on this seminar.

 

Brussels, 23 October 2017

  1. EU leaders discuss taxation & digital economy at EU Summit

On Thursday 19 October EU leaders discussed the proposals to more effectively tax the digital economy in Europe. In Council Conclusions the leaders encouraged the Council to “pursue its examination of the Commission communication on this issue” and concluded by stating that it “looks forward to appropriate Commission proposals by early 2018”. It is reported that Ireland and Luxembourg expressed strong objections to EU measures, advocating instead for a global uniform approach to be adopted at OECD level.

The discussion follows intense focus on the digital economy in recent time with the publication of a letter by France, Germany Italy and Spain and subsequently signed by 6 more EU Member States calling on the European Commission to explore options and “propose any effective solutions based on the concept of establishing a so-called “equalisation tax” on the turnover generated in Europe by the digital companies,”

In addition, the European Commission recently issued a publication with proposals of certain short and long term measures to more effectively tax the digital economy. The European Commission published its communication to the European Parliament and Council entitled, ‘A fair and Efficient tax System in the European Union for the Digital Single Market’.

The Communication provides detailed analysis of the digitalisation, its growing impact on the economy, and new business models emerging in the digital economy.

The Communication identifies two main long-term policy challenges when seeking to tax the digital economy, and also proposes three short-term solutions.

  1. Pascal Saint-Amans confirms expected publication of interim report on tax challenges of digitalised economy for April 2018 whilst confirming focus of OECD still on long-term solutions

Mr. Sant-Amans stated that there has been no fundamental change in the attitude of OECD members on this topic and the position remains that the OECD taskforce on digital economy should focus on the long-term solution beginning with an identification and examination of the business models and an analysis of the implications of the existing framework on these models.  In particular, the analysis will examine the fundamental question as to where value is created, what should be taxed where should it be taxed. He identified this as the fundamental work stream which may drive countries to agree long-term solutions.

He reiterated that there remains agreement that short-term solutions are not necessarily good ideas but acknowledged that certain countries are under significant pressure to be seen to be acting. He stated that on 1 November the digital taskforce will have to explore these proposed short-term actions and conclude on how best to design such solutions by way of presenting what should not be done. It is hoped that this approach will limit disruptions as much as possible in the event some countries do act unilaterally.

  1. OECD Publishes BEPS Action 5 2017 Progress Reports on preferential tax regimes

The OECD has recently published an update of the progress on the peer reviews being carried out pursuant to BEPS Action 5 Report. The report contains consolidated results of an examination of 164 preferential tax regimes which have been reviewed since the 2015 BEPS Action 5 Report was published.

BEPS Action 5 contains two elements – firstly preferential tax regimes and secondly the spontaneous exchange of information on certain tax rulings. All 102 members of the BEPS Inclusive Framework have committed to ensuring that any regimes offered satisfy the criteria that have been agreed as part of BEPS Action 5. Many of the IP regimes now satisfy the nexus approach; only 1 regime remains unreformed although found to be “actually harmful”.

Of the 164 regimes subject to review in the past 12 months the report identifies:

  • 99 regimes require action
  • Out of these 99 regimes, 93 have initiated or competed the required changes
  • 56 regimes do not pose a BEPS risk; and
  • 9 regimes are still under review due to the extenuating circumstances in the Caribbean region as a result of hurricanes.

Jurisdictions that have been found to have regimes containing harmful features must make the necessary adjustments as soon as possible or by October 2018 at the latest. The governments of each identified country has pledged to carry out the necessary amendments, except for France and Italy.

  1. PANA Inquiry approves final report

The Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA) approved its final report by 47 votes to 2 with 6 abstentions on Wednesday. The report is a result of an 18-month investigation into breaches of EU law in relation to money laundering, tax avoidance and evasion.

As part of the investigation, the PANA Committee held a series of public hearings and evidence gathering sessions in first half of the year. As a round-up of the work already done, the Committee published a draft Report in June 2017alongside draft Recommendations to Council and the Commission, drafted by MEPs Jeppe Kofod and Petr Ježek.

The Report identifies potential contraventions to EU law stemming from various revelations, in particular concerning offshore structures, non-cooperative jurisdictions, money-laundering, intermediaries, banks, trusts and cooperation of third countries with Brussels for tax transparency purposes.

The Report calls on the Council and Commission to design new rules that will regulate intermediaries comprehensively across the EU, with a shift from self-regulation to independent national regulator. A shift to regulation, according to the draft-report, will incentivise the tax intermediaries to refrain from engaging in a tax evasion and tax avoidance, and shielding beneficial owners. MEPs also called for sanctions and compulsory Codes of Conduct for intermediaries

  1. OECD Updated Model Convention & Commentary expected to be available online before end of the year

The 2017 update of the Model Tax Convention is expected to be published online before the end of the year, with paper publication due in early 2018. The 2017 update will include all treaty-related BEOS measures to both the Model treaty and the associated commentary. It will also include several changes to the Commentary relating to the new definition of permanent establishment and the tiebreaker rule.

                                                                                                                                         

Brussels, 16 October 2017

 

  1. Council adopted the EU Double Taxation Dispute Resolution Directive

The Council of the European Union (ECOFIN) adopted last week a directive introducing a new system for resolving double taxation disputes between member states. The directive strengthens the mechanisms for resolving disputes among member states that arise from the interpretation of double taxation conventions. The directive follows on an agreement in Council on 23 May 2017.

The CFE welcomed the Commission’s proposals to expand and improve the mechanisms available to Member States to resolve double taxation disputes with the introduction of a Council Directive. The CFE has also commented on this matter in the context of the OECD BEPS consultation process, in January 2015 and April 20162 and in response to the 2016 EU Commission Public Consultation entitled “Consultation on Improving Double Taxation Dispute Resolution Mechanisms”.

Taxation of the ‘digital economy’

The EU Commission presented a communication on taxation of the ‘digital economy’ at the last ECOFIN Council meeting of the EU finance ministers. The Estonian presidency also reported on an EU summit on digital issues held in Tallinn on 29 September 2017, and presented next steps regarding taxation of the digital economy, following a discussion by finance ministers on 16 September 2017 at an informal meeting in Tallinn. Conclusions will be prepared for the Council’s meeting on 5 December 2017 as an input for discussions by the OECD and the spring 2018 G20 finance ministers meeting. These are expected to reflect the member states’ views on how to ensure fair taxation of the digital economy.

  1. EESC urges for cautious approach on CCCTB

The European Economic and Social Committee, a consultative body of the European Union which links the EU institutions and civil society, adopted an Opinion on the European Commission Proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB) and the Proposal for a Council Directive on a Common Corporate Tax Base.

The EESC endorsed Commission’s proposals and recommended taking into account country-specific sensitivities in line with the principles of subsidiarity and state sovereignty. The Committee urges a fast introduction of stage two, once an agreement on the issue of common base has been reached, as companies will benefit the most from consolidation as soon as this has been achieved. Commission’s proposal aims at a two-speed approach, with consolidation (CCCTB) coming in stage two of the process. The Committee further underlined that taxation by way of a formulary apportionment would achieve objectives of the EU Single Market and will more effectively tackle aggressive tax planning, by way of allocating income where value is created.

The Committee’s Opinion recommends that Commission and Member states re-evaluate the exclusion of intellectual property (IP) from the formulary apportionment, effectively re-examining the apportionment formula under the CCCTB proposal. According to the Committee, the debt-equity bias is properly addressed under the proposal. Conversely, the Committee expressed concerns that the operation of the proposed sales key will result in smaller exporting Member States losing taxable income to the larger and more consuming Member States. The Committed opined that the proposal should aim for an equitable formula that avoids systematically unbalanced effect. Finally, the Committee urged the Commission to address the need for flexibility for Member states and companies and to ensure all are able to respond to changing economic circumstances.

  1. BEPS Action 13: Further steps in CbCR implementation

Progress has been noted by the OECD in the implementation of the BEPS Action 13: Country-by-Country Reporting, which was agreed as a minimum standard. Further steps in the CbCR implementation were achieved through activation of automatic exchange relationships under the Multilateral Competent Authority Agreement on the Exchange of CbC Reports. According to the OECD, as of October 2017 over 1000 automatic exchange relationships have now been established among jurisdictions committed to exchanging CbC Reports as of mid-2018, including those between EU Member States under the EU Directive 2016/881/EU. It is expected that more jurisdictions will nominate partners with which they will undertake the automatic exchange of CbC Reports under the CbC MCAA in the coming weeks. In addition, the United States has now signed 27 bilateral competent authority agreements for the exchange of CbC Reports under Double Tax Conventions or Tax Information Exchange Agreements, with more under negotiation.

For the all bilateral exchange relationships that are currently in place for the automatic exchange of CbC reports please refer to the following link.

  1. VAT E-Learning modules available on the European Commission website

In order to help tax officials in EU countries and others with a particular interest in VAT get a more in-depth knowledge of the VAT rules, the European Commission, DG Taxation and Customs Union published E-Learning courses on VAT. The VAT E-Learning programme consists of 12 individual courses, which are available in 15 European languages in addition to English: Bulgarian, Dutch, German, Greek, Italian, Hungarian, Latvian, Lithuanian, Macedonian, Polish, Romanian, Slovenian, Spanish and Swedish.

The European Commission published last week a comprehensive proposal aimed at adopting a definitive VAT system for intra-EU cross border trade based on the “destination principle”, i.e. taxation in the Member State of destination of the goods. The definitive VAT system shall replace the transitional VAT system of 1993, which is no longer fit for purpose in today’s more dynamic and highly digitalised economy. The VAT package was presented at the agenda of the last ECOFIN Council meeting

The change to a destination-principled VAT system will substantially impact all businesses trading in the EU Single Market. The Commission have now proposed the first step in implementing the definitive VAT system. Under a destination-based VAT system, the supplier shall be liable for VAT at a rate applicable in the Member state of destination. Goods traded cross-border will be taxed in the country where they are consumed (the destination country) and at the destination country’s tax rate, rather than where they are produced (the origin country). Under the proposal, the supplier will be obliged to account for VAT at the rate applicable in the destination Member State.

The suppliers will not be required to register in the destination Member State for purposes of VAT, but can avail of the ‘one-stop-shop’ digital portal. By means of the ‘one-stop-shop’ portal businesses will be able to file declarations and declare VAT on cross-border transactions in a single return and the same rules and the language of their state of establishment. Member states will accordingly settle their VAT that is due directly.

Under the current rules, B2B cross-border supply of goods is exempt from VAT, in the sense that the transaction is split between an exempt intra-EU supply of goods in the Member state of origin, and, a taxable intra-EU acquisition in the Member state of destination. This design of the VAT system amounted to substantial revenue losses, with the VAT gap estimated at cca 50 billion per year. The Commission thus propose introduction of a single taxable supply in the member state of destination.

  1. EU and UK engage with the WTO on certain post-Brexit trade terms

The European Union and the United Kingdom sent a joint letter to the members of the World Trade Organisation (WTO), setting out their intended approach to WTO trade-related issues arising from the United Kingdom’s withdrawal from the European Union. According to the European Commission, the joint letter results from the constructive dialogue between the UK and the EU over the past months, covering issues such as trade in goods, services and government procurement.

The negotiations, as outlined in the Council’s negotiating directives, aim to ensure that the UK honours its international obligations in respect of the WTO trade while a member of the EU, and to secure an orderly withdrawal from the organisation.

In accordance with the WTO rules, once the UK has left the EU, the country will have a separate schedules of commitments that indicate the maximum tariff rates applied to each specific type of imported product. Additionally, the schedules set the quantities of each product that can be imported in the UK duty-free or with a duty discount, known as tariff-rate quotas. The dialogue addresses both the EU’s and the UK’s commitments regarding these quotas. The letter states that both the UK and the EU aim to ensure that following UK’s departure, WTO members retain the same level of access as they enjoy now, whilst following a common approach regarding the ceilings on domestic subsidies.

Brussels, 9 October 2017

  1. EU Commission propose comprehensive reform of EU VAT rules

 

Following up on the VAT Action Plan of April 2016, the European Commission published a comprehensive proposal aimed at adopting a definitive VAT system for intra-EU cross border trade based on the “destination principle”, i.e. taxation in the Member State of destination of the goods. The definitive VAT system shall replace the transitional VAT system of 1993, which is no longer fit for purpose in today’s more dynamic and highly digitalised economy. In its present form of operation, the VAT system is fragmented, susceptible to fraud and disrupts the cross-border operations of digital businesses and SMEs.

 

Destination principle/ One-stop-shop

The change to a destination-principled VAT system will substantially impact all businesses trading in the EU Single Market. The Commission have now proposed the first step in implementing the definitive VAT system. Under a destination-based VAT system, the supplier shall be liable for VAT at a rate applicable in the Member state of destination. Goods traded cross-border will be taxed in the country where they are consumed (the destination country) and at the destination country’s tax rate, rather than where they are produced (the origin country). Under the proposal, the supplier will be obliged to account for VAT at the rate applicable in the destination Member State.

 

The suppliers will not be required to register in the destination Member State for purposes of VAT, but can avail of the ‘one-stop-shop’ digital portal. By means of the ‘one-stop-shop’ portal businesses will be able to file declarations and declare VAT on cross-border transactions in a single return and the same rules and the language of their state of establishment. Member states will accordingly settle their VAT that is due directly.

 

Cross- border B2B transactions

Under the current rules, B2B cross-border supply of goods is exempt from VAT, in the sense that the transaction is split between an exempt intra-EU supply of goods in the Member state of origin, and, a taxable intra-EU acquisition in the Member state of destination. This design of the VAT system amounted to substantial revenue losses, with the VAT gap estimated at cca 50 billion per year. The Commission thus propose introduction of a single taxable supply in the member state of destination.

 

Certified taxable person

The Commission propose a new Council regulation for a certified taxable person. This is one of the steps towards a full destination based VAT system. Under this concept, certain simplification rules, which could be fraud-sensitive, will apply only where a certified taxable person is involved in the relevant transaction. In this sense, only where a business is certified, it could apply the EU reverse charge mechanism on intra-EU supplies. On basis of this concept, no fraud should occur as a result of VAT not being charged on intra-Union supplies made for a certified taxable person, as the certified taxable person by definition is a reliable taxpayer. A Council Implementing Regulation will need to be adopted on basis of Article 397 of the VAT Directive to ensure that the authorisation procedure for certified taxable person status is sufficiently harmonised throughout the EU.

 

Quick fixes

On basis of a Council mandate to introduce certain ‘quick fixes’, the Commission is proposing the following three quick reforms: simplification and harmonisation of rules regarding call-off stock arrangement; recognition of the VAT identification number of the customer as a substantive condition in order to exempt from VAT an intra-Community supply of goods; and simplification of rules in order to ensure legal certainty regarding chain transactions. This proposal introduces additional, fourth ‘quick fix’ required by the Council, namely, the harmonisation and simplification of rules on the proof of the intra-Community transport of the goods in order to be exempt from VAT an intra-Community supply of goods. This simplification would also be available for certified taxable persons only.  The “quick fixes” shall only be available to certified taxable persons, except for the VAT number quick fix which cannot be restrictive.

 

Timeline

A modernisation of the existing VAT system shall be made operational in phases:

  1. a) A legislative package on the definitive VAT system for intra-Union business-to-business (B2B) trade (the ‘definitive VAT system’), proposed on 4 October 2017;
  2. b) A proposal on the reform of the VAT rates (forthcoming in 2017);
  3. c) A proposal to reinforce the existing instruments for VAT Administrative Cooperation (forthcoming in 2017);
  4. d) A proposal to simplify the VAT rules for SMEs (forthcoming in 2017).

 

The first part of the Commission proposal (under “a”) is at the agenda of tomorrow’s ECOFIN Council meeting. The Council shall discuss the 4 October 2017 Commission proposal on the definitive VAT system (the destination principle and introduction of one-stop-shop), a proposal for Council regulation on certified taxable persons, proposal for Council implementing regulation regarding certain exemptions, the proposal on the follow-up VAT action plan.

 

The three other aspects (under “b”, “c” and “d”) are yet to be proposed by the end of 2017. This plan will be followed by a comprehensive VAT Directive forthcoming in 2018, which sets the detailed technical guidance for operation of the definitive VAT system.

 

  1. ECOFIN 10 October Council of EU meeting in Luxembourg

 

The Council of the European Union sitting as ECOFIN shall meet on 10 October in Luxembourg. EU finance ministers are expected to approve the new system for resolving of double taxation disputes. The directive aims to strengthen dispute resolution on double taxation between member states that arise from the interpretation of double tax treaties. Agreement on the directive was reached at the Council’s meeting on 23 May 2017. As with all tax files, Council requires unanimity (all member states must agree) to adopt the directive under Article 115 of the Treaty on the Functioning of the European Union. Directives then require further national implementation into domestic legislation.

 

Council is also expected to adopt conclusions on the financing aspects of climate change, ahead of a UN conference in November 2017. Under ‘other business’ Council will discuss Commission’s proposed VAT reform and the proposed strategy for digital taxation, aimed at closing off loopholes that leave digital companies’ largely untaxed.

 

  1. Amazon State aid ruling issued and Ireland referred to Court concerning Apple

Continuing their investigation into potential corporate tax ‘sweetheart deals’ with EU governments, the EU Commission’s competition enforcement arm, DG Competition adopted a decision establishing a tax liability for Amazon in Luxembourg of €250 million on basis of the EU State Aid rules. The Commission also initiated an enforcement action at the European Court of Justice against Ireland for failure to comply with a Commission decision on recovery of assessed back taxes from Apple’s Irish entities amounting to €13 billion.

 

Commission’s Amazon State aid inquiry focused on a tax ruling issued to Amazon in 2003 and extended in 2011. Commission claim that this ruling endorsed a method of calculation of annual payments from the operating company to the holding company for the rights to the Amazon intellectual property, which exceeded, on average, 90% of the operating company’s operating profits. Commission say that the profits were significantly higher than what the holding company was due to pay to Amazon US under the terms of the cost-sharing agreement.

Under Luxembourg’s tax law, the operating entity is subject to corporate tax whilst the holding company is not due to the chosen legal form – a limited partnership with US partners. The taxation rights to the partners’ profits thus belong to the United States, with the US tax liability being consistently deferred. Under the tax ruling, the holding company was a shell company that passed on intellectual property rights to the operating company. The Commission further claim that the holding company was not actively involved in the development the IP and did not perform any activities that would justify the level of royalty it received. In this way, three quarters of Amazon’s profits were unduly attributed to the holding company, where they remained untaxed. This tax structure was endorsed by a tax ruling issued by the Luxembourg government, which amounted to selective advantage for Amazon. The Commission does not challenge the structure itself, rather the tax ruling that endorsed artificial methods for taxation of profits that amounted to selective advantage for Amazon. Such advantage was not available for other companies which are in a comparable factual and legal situation, an illegal practice under the State aid rules.

 

Commission have set out the methodology to calculate the back taxes initially estimated at €250 million, plus interest. An action for annulment of a Commission State aid decision does not have a suspensory effect, thus the Luxembourg government is obliged to recover the assessed tax.  Under EU law, assessed back taxes under State air rules are not a penalty, rather an assessment that levels the playing field, and does not penalise the operating company beneficiary of the State aid.

 

Currently DG Competition is looking into the more tax rulings from Luxembourg, as regards the corporate tax treatment of McDonald’s and GDF Suez (now Engie).

 

  1. Germany and Hungary requested to align national VAT rules with EU law

 

The Commission sent a letter of notice to Germany and Hungary for breach of EU rules on VAT refunds. Under national rules, a taxable person established in Germany applying for a VAT refund from another Member State using a German web portal can lose the right to a refund. In the case of Hungary, companies are obliged to provide the Hungarian tax authorities with detailed information for VAT purposes on certain business-owned transport that use public roads. This requirement infringes the VAT Directive as it primarily affects cross-border EU transactions and introduces administrative formalities connected with the crossing of borders. The Commission may send a reasoned opinion to the German and Hungarian authorities if they do not comply with the letters of formal notice.

 

  1. Belgium’s national taxation rules on bonds’ interest income in breach of free movement of capital

 

As part of the October infringements package, the Commission sent a reasoned opinion to Belgium on the taxation of interest income from bonds for infringing EU law under Article 63 of the TFEU and Article 40 of the EEA Agreement. Belgium accords a different treatment of interests depending on the origin of the bonds, allegedly treating interest from Belgian Bonds more favourably. Such a difference in the treatment of interest income amounts to an obstacle to the cross-border freedom of movement of capital, which is in breach of Article 63 TFEU and Article 40 of the EEA.

 

Brussels, 2 October 2017

Meeting of the OECD Forum on Tax Administration in Oslo

The 11th Plenary meeting of the OECD Forum on Tax Administration took place in Oslo on 29 September 2017. The Forum on Tax Administration brought together tax commissioners of the most advanced tax administrations worldwide, including OECD and G20 countries, to work collaboratively on global tax administration challenges.

On BEPS, the Forum welcomed the release of the first six MAP peer review reports under BEPS Action 14 last week. Forum members have further driven forward work under BEPS Action 13 and are preparing for the first exchanges of CbC reports in June of next year. In this context, the OECD released two handbooks containing practical guidance on how to implement Country-by-County Reporting (CbC) and how to make effective use of the information for high level risk assessment purposes, including detailed examples. On the tax certainty agenda the Forum is moving forward with dispute prevention and dispute resolution, supplementing the ongoing work on MAP and CbC, and including a new international compliance assurance programme. This pilot program uses CbC Reports and other information to facilitate multilateral engagements between MNE groups and participating tax administrations, including improved risk assessment based on fully informed and targeted use of CbCR information.

The Forum also discussed the priorities of the incoming G20 Presidency, in particular effective implementation of the BEPS outcomes, the Common Reporting Standard for exchange of information on offshore accounts and actions to enhance tax certainty, including the above new pilot on joint risk assessment of multinationals.

 

European Commission study: We lost €152 billion in 2015 due to VAT gap

EU Member states lost €152 billion in Value-Added Tax (VAT) revenues in 2015, according to a new study by the European Commission. The ‘VAT Gap’, which is the overall difference between the expected VAT revenue and the amount actually collected. This October, the European Commission will set out proposals for the most far-reaching update to the EU’s VAT rules in 25 years. Recent media reports have also linked large-scale VAT fraud with organised crime including terrorism, and the Commission aims to tackle this problem by incentivising Member States to working together. The reform of the current VAT system should also help the development of the digital single market and complement the agenda set by the Commission to achieve a fairer and more efficient tax system in the EU.

The Commission will table legislative proposals this month to re-establish the principle of charging VAT on cross-border trade within the EU. The Commission also hopes for agreement by Member States on new rules to improve VAT for e-commerce, proposed in 2016. As with all initiatives in the area of taxation, unanimous agreement between Member States will be necessary before the proposed changes can come into effect.

 

OECD Report: The Changing Tax Compliance Environment and the Role of Audit

The OECD published a report that examines how tax compliance strategies are evolving in light of new technologies, data sources and tools. The report also looks at how these changes might affect the role of audit and auditors in the future.

The OECD report points out to the changed environment in which tax administrations operate, which allows them to rethink how to best achieve their objectives, such as high-level taxpayer compliance and satisfaction. More emphasis is being put on cooperative compliance practices, such as the horizontal monitoring, and other proactive approaches. Tax administrations report that rethinking the approach would allow them to focus on high-risk taxpayers as well as combating money laundering and tax fraud.

The report sets out how compliance strategies are evolving and can be expected to evolve in light of new technologies and tools, including new data sources and advance analytics.

 

European Parliament Legal Committee to vote today on the whistleblowers’ report

The European Parliament Committee of Legal Affairs ‘JURI’ is scheduled to vote today on a report on the measures required to protect whistleblowers acting in the public interest.

The MEP rapporteur Virginie Roziere from the Group of the Progressive Alliance of Socialists and Democrats points out that the EU should take action by means of a horizontal legislative instrument, in accordance with its objectives regarding democracy, pluralism of opinions and freedom of expression. The report explores the different legal bases available to the Commission to propose such an instrument and calls on the Commission to take a route as soon as possible. The definition of whistleblower should be broad enough to cover as many scenarios as possible and thus protect private- and public-sector employees, consultants and the self-employed.

The report further states that the protection should not be limited to reports on unlawful acts, but should also cover disclosures of a breach of the public interest. Clear reporting mechanisms should be introduced in organisations to facilitate internal whistleblowing and whistleblowing to an independent institution or to the public. The report calls for establishment of an EU agency specifically dedicated to advice, guidance and collection of reports.

AGENDA of the JURI Committee Meeting of 2 October 2017.

 

European Parliament ‘PANA’ Committee of Inquiry set to discuss draft Report

The draft ‘PANA’ inquiry Report and the draft recommendations of the PANA Committee drafted by the co-rapporteurs Jeppe Kofod (S&D) and Petr Jezek (ALDE) will be discussed at the Committee meeting

on 12 October. The draft Report and opinion were published on 30 June, and were discussed at the Committee meeting on 10 July 2017. The deadline for amendments was set on 5 September. The co-rapporteurs are now working on the compromise amendments. 667 amendments were tabled for the draft inquiry report, and in respect of the draft recommendations the secretariat received 783 amendments.

The draft inquiry Report presents the Committee’s findings on discrepancies between the practices revealed in the Panama Papers and EU law, notably the Directives on Anti-money Laundering (AMLD) and on Administrative Cooperation in the field of Taxation (DAC). This report includes a factual part collecting and analysing the evidence taken into account by the Committee to arrive at its findings as well as the conclusions identifying contraventions of EU law and instances of maladministration.

The draft motion for Parliament recommendation to the Council and the Commission contain the co-rapporteurs’ recommendations on how to improve the EU framework regarding, inter alia, Anti-money laundering and administrative cooperation in the area of taxation.