CFE’s Top Tax 5 – July 2017

       31 July 2017

OECD publishes report on neutralising the effects of branch mismatch arrangements (BEPS Action 2)

A branch mismatches occurs where two jurisdictions apply different classifications to the allocation of income or expenditure  between, the branch in head office of the same taxpayer.

In 2015 as part of the BEPS Project, the OECD released a report entitled Neutralising the effects of Hybrid Mismatch Arrangements. This report focused on mismatches resulting from differences in the tax treatment or characterisation of hybrid entities. However, It did not directly consider similar issues that can arise through the use of branch structures, although such structures can pose and create similar problems for domestic tax systems. The 2015 Report contained recommendations for changes to domestic laws that can mitigate the use of hybrid entities to generate multiple deductions for a single expense or deductions without corresponding taxation of the same payment. This latest Report seeks to set out similar recommendations to bring the treatment of these branch mismatch structures into line with outcomes described in the 2015 Report.

The 2015 BEPS Action 2 Final Report on Neutralising the effects of Hybrid Mismatch Arrangements is available here.

The 2017 OECD Report on Neutralising the effects of branch mismatch arrangements is available here.

Advocate General Kokott issues Opinion in A Oy case (C-292/16)

In her Opinion published on 13 July 2017, AG Kokott held that Finnish legislation relating to the implementation of Article 10 of the Mergers Directive (90/434 / EEC of 23 July 1990) and the transfer by a resident company of a foreign PE to a foreign company contravenes the freedom of establishment (Article 49 TFEU).

The case concerned the transfer of an Austrian PE by its Finnish Head Office to an Austrian resident company in exchange for shares in the Austrian company.

The legislation in question imposes an immediate charge to taxation in the year of the transfer of the assets in a PE when a Finnish resident company disposes of the assets in that PE for the purposes of transferring the business to a foreign company. The disparity arises by virtue of the fact that if the PE is transferred to another Finnish company the charge to tax may be deferred so as not to arise until the year of realisation.

AG Kokott held that this disparity in treatment contravened the Freedom of Establishment and was not justified by the principal of fiscal territoriality.

The Opinion is as yet not available in English, but is available in French, German and other languages at this link: Opinion of AG Kokott in A Oy case (C-292/16) 13 July 2017

BRICS Countries sign a mutual Memorandum of Understanding for dealing with G20 Tax Work

On 28 July 2017, the five BRICS countries (Brazil, Russia, India, China and South Africa) signed a memorandum of understanding pursuant to which they will enhance their cooperation on international tax matters including coordinating responses to the G20 tax initiatives, such as the BEPS Project. In addition, the five countries agreed to share knowledge and their experience on the implementation of the OECD BEPS measures and also in relation to the standard for the automatic exchange of information.

Senior Republican politicians abandon U.S. border tax proposals

In a Joint Statement on Tax Reform from Speaker of the House of Representatives, Paul Ryan, and other senior Republican lawmakers, they stated that the proposed border tax would be shelved in favour of achieving broader and more far reaching tax reform, “there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform”. The statement identifies, simplifying the tax code, and lowering tax rates for businesses and American families as priorities for reform.

 

         24 July 2017        

Irish Government launches procurement procedure for custodian to manage State aid recovery fund

Notwithstanding the appeal against the EU Commission decision and the Irish Government’s vehement denial that state aid was granted to Apple, the Government is ensuring the recovery of the alleged state aid sum is completed.

The state aid recovery amount will be paid into an escrow account with final release when there has been a final decision in the European Courts as to whether to uphold the European Commission Decision.

The fund will amount to approximately 15 billion euro. The next step in the process will be to appoint a financier to manage the fund once an escrow agent/custodian has been appointed. A separate procurement process will be commence in due course in this regard.

The press release highlighted that “Commencement of this procurement process represents a significant milestone and follows months of intensive discussion between Ireland, apple and the European Commission on the recovery process”

The Irish Department of Finance issued a Press Release on the procurement process on 22 July.

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

The Inclusive framework on BEPS has released further guidance on country-by-country reporting. It is hoped the additional guidance will provide clarity and assistance to both the tax authorities and multinationals on how best to implement the new rules.

Two specific issues are addressed in the additional guidance:

  • How to treat an entity owned / or operated by two or more unrelated MNE Groups; and
  • Whether aggregated data or consolidated data for each jurisdiction is to be reported in Table 1 of the report.

The Additional Guidance Document released on July 18th also contains all previous guidance released by the OECD on country by country reporting.

European Commission launches consultation on exchange of customs related information with third countries

The European Commission has published a survey to obtain views from interested parties on the exchange of customs related information with third countries.

The Press Release states that “The consultation aims to gather views from stakeholders on the need for EU action aimed at introducing an effective tool to allow for systematic exchange of customs related information with third countries and in case there is, on how this tool could be designed and its scope”

The closing date for submissions is 16 October 2017. All submissions will be published by the Commission.

The Survey is available here.

European Commission publishes Taxation Trends Report 2017

The Taxation Trends Report contains a detailed statistical and economic analysis of the tax systems of the 28 Member States of the European Union, along with the members of the European Economic Area, Iceland and Norway.

The Report examines the taxation trends on a European-wide basis but also contains a detailed analysis of the individual tax systems of the 30 countries. The analysis contains various key tax indicators on tax revenues as a percentage of GDP on an annual basis from 2003-2015.  In addition, the Report contains tables with the latest tax reforms in each country.

The Taxation Trends Report 2017 is available here.

 

17 July 2017

OECD publishes update to the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations

The updated 2017 Transfer Pricing guidelines incorporate a consolidation of the changes made as part of the OECD BEPS project. In particular it takes account of the substantial changes made pursuant to BEPS Action 8-10, Aligning Transfer Pricing outcomes with Value Creation and Action 13, Transfer Pricing Documentation.

The updated 2017 edition consolidates the following revisions of the 2010 edition into a single publication:

  • The substantial revisions introduced by the 2015 BEPS Reports on Actions 8-10 Aligning Transfer Pricing Outcomes with Value Creation and Action 13 Transfer Pricing Documentation and Country-by-Country Reporting. These changes were approved and incorporated in May 2016. Chapters I, II, V, VI, VII and VIII were amended.
  • The revisions introduced by BEPS Actions 8-10 and Action 13 relating to business restructurings which amended the guidance in Chapter IX and were approved in April 2017;
  • The revised guidance on safe harbours in Chapter IV. These changes were approved by the OECD Council in May 2013; and
  • In order to accurately finalise the consolidated version changes were made throughout the text for consistency.  These consistency changes were approved by the OECD’ on 19 May 2017.

In addition, the 2017 edition of the Transfer Pricing Guidelines includes the revised Recommendation of the OECD Council on the Determination of Transfer Pricing between Associated Enterprises The revised Recommendation reflects the relevance to tackle BEPS and the establishments of the Inclusive Framework on BEPS. It also strengthens the impact and relevance of the Guidelines beyond the OECD by inviting non-OECD members to adhere to the Recommendation. Finally, it includes a delegation by the OECD Council to the Committee on Fiscal Affairs of the authority to approve by consensus future amendments to the Guidelines which are essentially of a technical nature.

The updated and consolidated 2017 OECD Transfer pricing Guidelines are available here.

OECD preliminary database containing modifications made by Multilateral Instrument (MLI) on bilateral tax treaties is now online

The OECD database known as the “matching database” as gone live. The matching database makes projections on how the MLI modifies a specific tax treaty covered by the MLI by matching information from Signatories’ MLI Positions and highlighting elections made.

The OECD highlight that this is a preliminary version and will be improved over time. The OECD is welcoming any comments users may have on the matching database.

The OECD MLI Matching Database is accessible here.

OECD releases the draft contents of the 2017 update to the OECD Model Tax Convention

The OECD Working Part 1 has released draft contents of the 2017 update to the OECD Model Tax Convention prepared. It has not yet been approved by the OCED Committee on fiscal affairs so is not a final version. The OECD have released it to garner opinion and comments on certain proposed changes.

These changes are as follows:

  • Changes to paragraph 13 of the Commentary on Article 4 related to the issue whether a house rented to an unrelated person can be considered to be a “permanent home available to” the landlord for purposes of the tie-breaker rule in Article 4(2) a).
  • Changes to paragraphs 17 and 19 of, and the addition of new paragraph 19.1 to, the Commentary on Article 4. These changes are intended to clarify the meaning of “habitual abode” in the tie-breaker rule in Article 4(2) c).
  • The addition of new paragraph 1.1 to the Commentary on Article 5. That paragraph indicates that registration for the purposes of a value added tax or goods and services tax is, by itself, irrelevant for the purposes of the application and interpretation of the permanent establishment definition.
  • Deletion of the parenthetical reference “(other than a partnership)” from subparagraph 2 a) of Article 10, which is intended to ensure that the reduced rate of source taxation on dividends provided by that subparagraph is applicable in the case where new Article 1(2) would have the effect that a dividend paid to a transparent entity would be considered to be income of a resident of a Contracting State because it is taxed either in the hands of the entity or in the hands of the members of that entity. That deletion is accompanied by new paragraphs 11 and 11.1 of the Commentary on Article 10.

G20 Summit in Hamburg – Tax Highlights

The G20 issued its communique on July 7th. Regarding tax matters the leaders focused on the upcoming exchange of information of financial account information under the Common Reporting Standard which is due to take place for the first time in September. Countries are encouraged however to begin the process by August at the latest.

In addition the communique highlighted the commitment to business friendly tax initiatives whilst also reiterating the commitment to the OECD BEPS process. In terms of pro-business policies it highlighted the work being done in the areas of tax certainty and addressing the tax challenges raised by digitalisation. It also reaffirmed its commitment to assisting developing countries.

In regard to the topic of tax transparency the G20 refer to the next updated list of countries which have failed to reach a satisfactory level of implementation of transparency standards. It highlighted that defensive measures will be considered against jurisdictions which remain on the list.

A copy of the Communique is available at this link – G20 Communique

French Court holds that Google’s European Headquarters does not have a PE in France

Google Ireland Limited has successfully won a challenge against a French tax assessment for 1.3 billion euro in relation to an alleged permanent establishment in France from 2005 to 2010. The French tax administration alleged that Google exploited loopholes in tax legislation and routed sales from France through the Dublin based EU headquarters. The French Administrative Court however held that on the basis that all decisions in France had to be approved and finalised in Ireland Google France lacked the requisite autonomy to establish a taxable base in France.

 

 10 July 2017

EU Parliament Committee of Inquiry calls for regulation of tax intermediaries

The European Parliament Committee of Inquiry into contraventions of EU law arising from the Panama Papers revelations called for ‘regulation of tax intermediaries, regretting that intermediaries are currently regulated in non-harmonious manner across the EU’. The draft Report of the Committee of Inquiry published on 28 June is accompanied by draft parliamentary resolution with Recommendations for the European Commission and the Council of the EU. The Parliament urges for a shift from self-regulation to ‘appropriate supervision and state-controlled regulation’ for currently self-regulated professionals by way of a separate and independent national regulatory bodies. Additionally, the draft report calls for ‘stronger sanctions’ against intermediaries including ‘naming and shaming’. Creation of EU-wide framework for compulsory codes of conduct for the intermediaries was also recommended, with the draft Recommendations urging the European Commission to clarify what is legal, illegal and immoral in the context of tax evasion and tax avoidance practices. The draft- Recommendations urged the Council to ‘solve the transfer-pricing issue’ by adopting the CCCTB proposals ‘rapidly’ and to put forward proposal for a European FATCA, thus ensuring reciprocity regarding exchange of information.

The European Parliament is scheduled to vote on the draft report today.

MNEs to publicly disclose CbCR data for each country they operate, MEPs vote

The European Parliament Committees voted on 4 July to amend the original Commission proposal on public country-by-country reporting (“CbCR”). Under the proposed changes, multinational companies with a global turnover above €750 million per year or more will publish CbCR data in each country they operate in the world, and not only for EU countries and tax havens as indicated in the original European Commission proposal. Under the voted text, the income tax information of multinational companies will be available publicly on a standardised template, stored in a registry which is to be maintained by the European Commission.   In a compromise among the various political groups in the European Parliament, MEPs voted to protect commercially sensitive information by allowing Member states to grant exemptions from the public CbCR requirements. Data shall still be confidentially submitted from the Member state to the European Commission.

After approving the report by 534 to 98 votes with 62 abstentions, the report is sent back to the Committees (ECON, JURI and DEVE) to commence negotiations with Council in first reading on the basis of a plenary mandate.

Estonia sets out EU presidency priorities in respect of taxation

Estonia took over the next six months presidency of the European Union from Malta on 1 July 2017, setting out the presidency priorities in its Working programme. In respect of tax, the Estonian EU presidency plans to ‘address the issues of tax evasion and tax avoidance, that undermine the work and competitiveness of the honest operators.’

Estonia intends to relaunch negotiations on the VAT modernisation in relation to cross-border e-commerce, combating VAT fraud and to conclude discussions on VAT rates for e-books and e-publications.

The Estonian presidency confirmed that the EU shall work towards agreement in the Council of the European Union on a common EU list of non-cooperative jurisdictions for tax purposes, and  launch Council discussions on the mandatory disclosure rules of aggressive tax avoidance schemes.

European Commission to present ‘intermediaries’ proposal to the Council

The Council of the EU sitting as ECOFIN will hear today the proposal from the European Commission on a directive on intermediaries, establishing mandatory disclosure rules at EU level.

According to the background brief, Member states find it increasingly difficult to protect their tax bases from erosion, as tax planning structures become ever more sophisticated. The proposal gathers from media revelations such as the April 2016 ‘Panama Papers’ that have exposed how some intermediaries actively assist companies and individuals to escape taxation, often through complex cross-border schemes. The proposal is aimed at preventing such planning by increased scrutiny of their activities.

Under the directive, certain types of cross-border tax planning schemes would have to be reported to the tax authorities before being used. Member states would be required to automatically exchange the information they receive through a centralised database. This would enable an early warning on new risks of tax avoidance and for measures to be taken to block harmful arrangements. Member states would be obliged to impose penalties on those companies that do not comply with the transparency measures, thereby creating a deterrent. Under the proposal, the reporting requirements would enter into force on 1 January 2019. Member states would be obliged to exchange information every three months thereafter. To adopt the directive the Council requires unanimous agreement of the Member states, after consulting the European Parliament.

 

03 July 2017

 

As the 4th Anti-Money Laundering Directive becomes fully effective, European Commission publishes supranational risk report

The European Commission published on 26 June the Supranational Risk Report pursuant to the Fourth Anti-Money Laundering Directive, which is now fully effective. The Fourth Anti-Money Laundering Directive reinforces existing EU rules on the risk assessment obligations for professionals, setting clear transparency requirements about the beneficial ownership of companies. The Directive also aims to facilitate information exchange between Financial Intelligence Units in identifying and following suspicious transactions.

The Supranational Risk Assessment report that was due pursuant to the Directive will support member states in addressing money-laundering risks in practice. The Report includes mapping of risks per relevant area, recommendation for member states how to identify and address the risks accordingly with focus on the supervisory activities.

The European Parliament and the Council are already at advanced stage of discussions on new measures that reinforce the Directive.

Vera Jourova, Commissioner for Justice, Consumers and Gender Equality said: “Terrorists and criminals still find ways to finance their activities and to launder illicit gains back into the economy. The new rules as of today are crucial to closing further loopholes. I urge all Member States to put them in place without delay: lower standards in one country will weaken the fight against money laundering and terrorist financing across the EU. I also call for quick agreement on the further revisions proposed by the Commission following the “Panama Papers” to increase transparency of beneficial ownership.”

Trinidad and Tobago listed by OECD as the only jurisdiction failing to make sufficient progress towards satisfactory implementation of the tax transparency standards

The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes has released its list of non-cooperative jurisdictions in the run-up to the meeting of G20 leaders in Hamburg on 7 and 8 July.

As part of an initial review, 15 countries were listed as having less than satisfactory ratings. The Global Forum established a fast-track review process to evaluate the progress of these countries prior to the G20 summit. Following this procedure, 13 countries were upgraded to being fully compliant with international tax transparency standards, 1 country was upgraded but classified as only being partially compliant. However, the OECD listed Trinidad and Tobago as being less than compliant and therefore on the so-called “blacklist” or “tax havens”.

The OECD has been criticised by NGOs such as Oxfam on the grounds that it implies that only 1 country in the world is a “tax haven” or is failing to be fully transparent on tax matters.

EU Commission hosts two-day conference on tax fairness – Estonia highlights need for conversation on taxation and digitalisation

The two-day conference discussed topics such as how taxation policies and tax fairness can and should go hand in hand. Panellists from civil society organisations, academia and business groups discussed and debated topics such as how best to apply the principle of fairness to tax policy making’ and the importance of the stakeholder’s role in shaping taxation policies.

The keynote address was given by Commissioner Pierre Moscovici. The Commissioner stated that he believed a competitive and fairer Europe are two sides of the same coin. He highlighted the many EU initiates in the taxation field that have recently been implemented and proposed to tackle tax evasion and fraud with the aim of increasing fairness in the taxation system. He outlined the Commission’s plans to publish a new VAT package in Autumn to overall the outdated and unduly burdensome current VAT regime, which was initially intended to only be transitional.

The issue of the digital economy and the unique tax consequences resulting from increased digitalisation was highlighted numerous times throughout the conference. A representative from the Estonian Finance Ministry stated that it would be a top taxation priority of the Estonian Presidency to encourage a conversation about how best to deal with the digital economy and in particular how best to tackle the difficult and complex question of permanent establishments in the digital market.

New compromise text on public country-by-country reporting released

On 22 June 2017, the Council of the European Union issued a compromise text for the proposal for a Directive on public country-by-country reporting. The Presidency compromise document highlights the changes compared to the Commission’s original proposal.

The European Parliament will be voting on public country-by-country reporting this week in order be able to enter into dialogue with the Council on this issue.

The two institutions have opposing positions on some central elements of the proposals including the threshold multinationals must reach to come within the proposals – with the Parliament proposing a 40 million euro threshold as opposed to the much higher 750 million euro threshold being proposed by the Council. In addition, the latest compromise text sees the introduction of a safeguard clause whereby multinationals will not be obliged to publish information which would be seriously prejudicial to the commercial position of the undertakings to which it relates.

A copy of the compromise text is available here