CFE’s Tax Top 5 – April 2018

 

 

Brussels, 30 April 2018

EU Finance Ministers Discuss Corporate Tax Reform in Sofia

The Bulgarian EU presidency organised an informal meeting in Sofia on 27 and 28 April, where the EU finance ministers discussed a renewed approach for corporate taxation in the Single Market and the tax challenges of the digital economy. At the Working Session III, the Presidency set out the perspective for reform of EU’s corporate tax system in light of the recent shifts in the international tax landscape, in particular the US tax reform. Ministers considered corporate tax policy reform that will ensure competitiveness, firmness and sustainable revenue streams for the EU member states.

As a corollary, the Bulgarian EU Presidency set out a plan to evaluate the impact of the proposals for CCTB on Member states’ tax revenues. The impact evaluation will be performed in the course of 2018 with assistance from Commission’s technical services.

With regard to the digital tax proposals, the Presidency will establish a roadmap for further technical work at Council working party group, aiming to revisit the issue at high political level in June 2018 after the setback of this weekend.

Following the meetings in Sofia, the UK Chancellor of the Exchequer Philip Hammond stated that the United Kingdom favours a globally accepted solution for the tax challenges of the digital economy agreed at OECD level— rather than an interim EU tax. The new German finance minister has also expressed reservations on going forward with taxation of turnover rather than tax on profits as a matter of principle. The UK and Germany have thus joined countries like Ireland and Luxembourg who have expressed doubts about EU Commission proposals of last month fearing retaliation from the United States.

Ireland and Apple set up State Aid Recovery Fund

The Irish Finance Minister Paschal Donohoe has confirmed that the Escrow Framework Deed was signed by Ireland and Apple on Tuesday the 24th May. The deed sets out the detailed legal agreement regarding the recovery of €13bn of assessed back taxes by the European Commission in its State aid decision of August 2016. The signing of the Escrow Framework Deed activates the recovery process and, as a consequence, the assessed back taxes will be paid in tranches into the Escrow Fund, with full recovery expected to be effectuated by September 2018.

This is the largest ever fund to be established in the European Union for purposes of recovery of State aid as assessed back taxes by the European Commission. The London branch of Bank of New York Mellon was selected as provider of escrow agency and custodian services whilst Amundi, BlackRock Investment Management (UK) Limited and Goldman Sachs Asset Management International for the investment management services. The funds will be invested by these international asset managers to ensure a financial return for Apple in the event of successful outcome of the EU court litigation.

The case is under appeal at the General Court from both the Irish Government as addressee of the Commission decision, and Apple, as alleged State aid beneficiary. A telephone conversation also took place last week between Margrethe Vestager, the EU Competition Commissioner who is responsible for the Apple case at political level, and the Irish Finance minister.

EU Commission Publishes Company Law Reform Proposals

The European Commission published proposals on reforming and digitalising EU company law in order to make it easier for companies to reorganise – merge, divide or move within the EU Single Market. Further, the proposals seek to prevent tax avoidance practices that rely on artificial arrangements.

EU Commission First Vice-President Frans Timmermans stated: “In our thriving EU Single Market, companies have the freedom to move and grow. But this needs to happen in a fair way. Today’s proposal puts in place clear procedures for companies, with strong safeguards to protect employees’ rights and, for the first time, to prevent artificial arrangements aiming at tax avoidance and other abuses.”

The package comprises of two proposals, amending the existing rules on the cross-border conversions, mergers and divisions, and the latter adapting company law to the digital era.

  • Proposed Directive on cross-border conversions, mergers and divisions

 

The proposal envisages common EU rules for cross-border conversions and divisions aiming to update existing ones on cross-border mergers. One of Commission’s policy objectives with this proposal is to increase the cross-border accessibility to company-related information that will help ensuring fair taxation where profits are generated. The safeguards against abuse of the conversion and division procedures to create artificial arrangements aimed at obtaining undue tax advantages will aim to complement EU’s recent anti-tax avoidance directives. Further, the proposal sets out safeguards for employee rights including the establishment of artificial arrangements for tax avoidance purposes.

  • Proposed Directive on the use of digital tools and processes in company law

 

The proposal sets out simpler rules for companies to be able to set up branches and file documents in a digital format throughout the European Union. The ‘once-only’ principle guarantees that according to EU law companies will not have to file the same documents in different EU member states. This proposal for digitalisation of EU company law, according to the European Commission, will reduce both the cost and the compliance burden for doing business the EU.

OECD Publishes Annual Tax Wedge Data

The OECD published on 26 April the annual flagship publication on taxes paid on salaries in the OECD countries. The report analyses the personal income taxes and social security contributions paid by employees, social security contributions and payroll taxes paid by employers.

The publication illustrates the average and marginal effective tax rates on labour costs for eight different household types, which vary by income level and household composition (single persons, single parents, one or two earner couples with or without children). The average tax rates measure the part of gross wage earnings or labour costs taken in tax and social security contributions, both before and after cash benefits, and the marginal tax rates the part of a small increase of gross earnings or labour costs that is paid in these levies.

CFE Forum Recap: Fair Taxation of the Digital Economy 19 April 2018

CFE Tax Advisers Europe held its flagship international tax conference, the annual Forum in Brussels on 19 April 2019, this year entitled ‘Fair Taxation of the Digital Economy.’ The conference day kicked-off with a German view on digital taxation presented by Lutz Lienenkämper MdL, the Finance Minister of the State of North-Rhine Westphalia.

Three expert panels with speakers from the EU Commission, OECD, academia, practice and business analysed and debated the issue of fair taxation of the digital economy. The Forum discussions focussed in particular on the European Commission proposals for taxation of the digital economy in the Single Market and Recommendation on amending Member States’ double tax treaties with third countries. The Forum speakers also evaluated the OECD’s Interim Report on the Taxation of the Digital Economy, and the implications of taxing the digital economy from both a direct and indirect tax perspective.

Please follow this LINK for a recap of the conference day.

 

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The selection of the remitted material has been prepared by

Piergiorgio Valente/ Aleksandar Ivanovski/ Brodie McIntosh/ Filipa Correia

 

Brussels, 23 April 2018

EU Commission Publishes Proposed Whistleblower Directive

The European Commission has today published a proposed directive concerning the protection of those persons reporting on breaches of European Union law. The directive proposes EU-wide protection to be adopted for whistleblowers reporting on breaches of EU legislation in the fields of public procurement, financial services, money laundering and terrorist financing, product safety, transport safety, environmental protection, nuclear safety, food and feed safety, animal health and welfare, public health, consumer protection, privacy, data protection and security of network and information systems, breaches of EU competition rules, violations and abuse of corporate tax rules, and damage to EU financial interests.

The proposed directive would require companies with either more than 50 employees or an annual turnover exceeding €10 million to set up internal procedures for whistleblower reporting. Regional, state and municipal bodies with over 10,000 inhabitants would also be subject to the proposed directive. The features of the protection mechanisms proposed under the draft must include clear reporting channels, both inside and outside of an organisation, and a three tiered reporting system consisting of: 1) internal reporting channels; 2) reporting to competent authorities; and 3) public or media reporting. Companies and authorities would also have feedback obligations, such that they have 3 months to respond to whistleblower reports under the proposal.

The directive also includes provisions which would forbid all forms of retaliation, to be enforced by means of sanctions. Whistleblowers are also to be provided access to free advice and remedies in instances where retaliation is experienced, with the burden of proof to be reversed such that the organisation or person must prove they are not acting in retaliation against the whistleblower.

The proposed directive will now be consider by the EU Parliament.

EU Commission Fair Taxation Seminars

The European Commission has commenced a series of seminars concerning the issue of fair taxation in the European Union. The first event was held in Riga, Latvia, on 19 April, and in particular covered issues concerning tax avoidance and tax evasion. The Commission has organised the events to facilitate engagement with policy makers, business representatives, academics and interested citizens to increase tax transparency and remedy tax abuse issues.

Future seminars in the series will take place on 17 May in Vienna, Austria, on 8 June in Paris, France, on 19 September in Rome, Italy, and on 9 October in Dublin, Ireland. Those wishing to attend the seminars can register for the events using the following link.

OECD Report on Taxing Wages 2018

On 26 April the OECD will make public its annual flagship report on the rates of tax levied in OECD countries on the wages and salaries of citizens. The report will examine rates of taxation and compare, as a percentage share of gross salary, income tax and social security contributions made by employees, social security contributions and payroll taxes paid by employers, as well as taxes on any cash benefits received.

In addition, the report will examine taxes at a household level, comparing rates of taxes across different pay levels and amongst different family configurations, such as families with and without children, and across those households with either single or multiple incomes.

Those wishing to read the report following its publication will be able to access it using this link.

OECD: MLI

The United Kingdom has announced proposed changes to remedy omissions or errors contained on the list of reservations and notifications made by the UK when it signed the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).

It proposes to add to its list of countries with treaties to be modified the Faroe Islands, Kyrgyzstan, the United Arab Emirates and Ukraine. It has also proposed to remove Germany from the list, on the basis that the countries have since implemented BEPS provisions by means of bilateral agreement.

In addition, Montenegro has stated in a press release on 13 April that it intends to join the MLI. The MLI will enter into force on 1 July 2018 on the basis of it having now been ratified by 5 of the signatory countries.

Finland to Terminate Tax Treaty with Portugal

The Finnish Ministry of Finance has stated it will advise its Parliament to terminate its existing tax treaty with Portugal as of 1 January 2019, irrespective of a replacement treaty being agreed by that date. The existing treaty was adopted in 1970 by both countries, and the Ministry of Finance of Finland asserts that the treaty restricts its right to tax pension and income from rent or sale of residential property in Finland.

A new treaty addressing these issues was signed in 2016 but has yet to been approved by the Portugese Parliament. The new treaty must be adopted 30 days prior to the end of the 2018 calendar year in order to enter into force from 1 January 2019. Should the treaty not be adopted, domestic law will apply and will likely lead to issues of double taxation.

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The selection of the remitted material has been prepared by

Piergiorgio Valente/ Aleksandar Ivanovski/ Brodie McIntosh/ Filipa Correia

Brussels, 16 April 2018

EU Commission Fiscalis 2020 Survey

The Directorate-General for Taxation and Customs Union of the European Commission (DG TAXUD) have compiled a survey in order to evaluate the progress of the Fiscalis 2020 programme. The Fiscalis programme aims to tackle tax fraud, evasion and aggressive tax planning, reduce administrative burden and compliance costs for tax authorities and taxpayers, and ensuring effective implementation of EU tax legislation.

The survey calls for input on the programme’s implementation, and is being conducted to obtain evidence to inform Commission’s future planning. The survey will be open until 20 April, and can be accessed via this link.

OECD Publishes New Transfer Pricing Country Profiles

The OECD has published 14 transfer pricing country profiles, setting out current transfer pricing practices within each of those countries. The profiles are created using information provided by the nations themselves in responses to questionnaires, focussing on current legislation in that country concerning transfer pricing principles, and whether or not the country follows the OECD Transfer Pricing Guidelines. Concepts such as the arm’s length principle, transfer pricing methods and documentation are the particular focus of the profiles.

Profiles were published concerning Australia, China, Estonia, France, Georgia, Hungary, India, Israel, Liechtenstein, Norway, Poland, Portugal, Sweden and Uruguay respectively, and the profiles for both Belgium and the Russian Federation were updated. Profiles are now available for 44 countries.

UK Consultation on Legislation Aimed at Closing Down Tax Avoidance

The UK tax authority, HMRC, has begun a consultation process concerning a proposal to introduce legislation to address and counteract profit shifting arrangements that aim to fragment profits and render them outside the scope of taxation in the UK.

The aim of the proposed legislation is to ensure that the amount of profit that relates to UK business activity is taxed in the UK, targeting in particular those types of businesses that may not have been within the scope of existing legislation due to threshold considerations, such as SMEs. The proposed legislation will also include provisions requiring HMRC be notified of relevant arrangements. The legislation is proposed to enter into force in April 2019.

The consultation process will run until 8 June.

OECD Reports on Taxation of Personal Savings and Wealth

The OECD have now made public reports on The Taxation of Personal Savings, and The Role and Design of New Wealth Taxes.

The first report reviewed taxation policy in over 35 OECD countries in relation to savings vehicles, such as bank accounts, shares, pensions and housing. The analysis demonstrated that differences in tax treatment for these vehicles often favour wealthier taxpayers, who largely hold their wealth in those vehicles with lower tax rates, such as investment or pension funds and shares, whereas less wealthy taxpayers often hold their savings in highly taxed bank accounts. The report supports the argument for preferential tax treatment for retirements savings, given aging population issues facing most nations, and the potential impact this will have upon social benefits.

The second report concerning net wealth taxes concluded that where a country has appropriate personal income taxes, capital gains taxes, inheritance or gift taxes there is little indication that a wealth tax is required. However, where inheritance tax is not levied and capital income taxation is low, there may be scope for such a tax.

Austria and Sweden Introduce Legislation Implementing EU Anti-Tax Avoidance Directive

Over the past weeks, both Austria and Sweden have introduced draft legislation that will implement the EU anti-tax avoidance directive (ATAD) into domestic law. The Swedish draft legislation will amend corporate tax rules concerning anti-hybrid mismatches, and interest expense limitation rules. The draft legislation is proposed to enter into force from 1 January 2019.

The Austrian draft legislation will implement controlled foreign corporation rules for the first time. Income of low-taxed subsidiaries will be allocated to the Austrian parent company, to be subject to taxation at 25%. The rules will apply to corporations who have a controlling interest in the subsidy, or where the passive income of the subsidiary amounts to more than 1/3 of the company’s total income, and is subject to an effective tax rate of 12.5% or less. The new provisions will apply to all financial years commencing after 30 September 2018.

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The selection of the remitted material has been prepared by

Piergiorgio Valente/ Aleksandar Ivanovski/ Brodie McIntosh/ Filipa Correia

Brussels, 9 April 2018

CFE Tax Advisers Europe Rebranding & New Website Launch

In order to increase the public outreach and to better reflect the work of our organisation, CFE has recently undergone a rebranding and will be known as CFE Tax Advisers Europe. The rebranding initiative is part of our strategy to increase visibility, to modernise and be more relevant to stakeholders: CFE Tax Advisers Europe, a name which is instantly recognisable and representative of nature of the organisation.

Alongside the rebranding, CFE has developed a new website, which will be the focal communication tool fit for purpose in today’s digital era. The website reflects CFE’s new visual identity and will serve as a focal communication tool for our members, partners and stakeholders. The website offers increased functionality and enhanced access to information regarding our organisation, news and events for the general public.

Further, we have completely redeveloped the European Register of Tax Advisers, which is maintained via CFE, to contain more specific information on individual advisers and their area of expertise. This will allow for enhanced visibility for tax advisers, in a modern and updated format that is far more searchable for members of the public. Tax advisers who are not registered should consider signing up to benefit from the widening of their professional network.

 

OECD: Global Forum Tax Transparency Update

The Global Forum on Transparency and Exchange of Information for Tax Purposes, has published 9 peer review reports which assess the compliance of a country with international tax transparency standards. The Global Forum includes 150 members, including all G20 and OECD countries, as well as international financial institutions. Estonia, France, Monaco and New Zealand were rated as being “compliant” which the standards, whilst The Bahamas, Belgium and Hungary received a rating of “largely compliant”, and Ghana “partially compliant”. A supplementary report was also issued concerning Jamaica’s progress with tax transparency standards, in which it was attributed a rating of “largely compliant”.

New CRS Implementation Handbook Released by OECD

The OECD has published a second edition of the Common Reporting Standard Implementation Handbook, which contains an overview of the Common Reporting Standards framework, aimed at members of the public and the financial sector, together with practical guidance for institutions and governments concerning implementation. The updates are centred around data protection, IT and administrative requirements, as well as concerning the identification of Controlling Persons and standards related to that issue.

Alongside this publication, the OECD has also made available a new set of bilateral exchange relationships, which have been established under the Common Reporting Standard Multilateral Competent Authority Agreement (CRS MCAA). There are reportedly now over 2700 bilateral relationships established worldwide which provide for the automatic exchange of offshore financial account information.

OECD Reports on Taxation of Personal Savings and Wealth

On 12 April the OECD will make public two reports: one on The Taxation of Personal Savings, and the second on The Role and Design of New Wealth Taxes. The first report will review taxation policy in OECD countries and key partner countries for savings vehicles, such as bank accounts, shares, pensions and housing, and present the effective tax rates of these vehicles, and the impact of these measures on savings behaviour. The second report will examine the use of wealth taxes within OECD countries and the implications of a net wealth tax on reducing inequality and revenue raising.

The release of the report will be followed by a webinar on the same day, 12 April, discussing the findings of the reports, which will be held at 14:00 GMT by David Bradbury, the head of Tax Policy and Statistics at the OECD. You can register for the webinar here.

 

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The selection of the remitted material has been prepared by

Piergiorgio Valente/ Aleksandar Ivanovski/ Brodie McIntosh/ Filipa Correia

 

 

Brussels, 3 April 2018

TAX3 Inquiry Committee on Financial Crimes, Tax Evasion and Tax Avoidance

The European Parliament Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3) met on 22 March in Brussels for its inaugural meeting, after members were elected by Parliament on 14 March. Petr Ježek (ALDE/ CZ), co-rapporteur on the PANA Committee, was appointed as chair of the TAX3 Committee. Following the approval of TAX3 Committee’s mandate, the Members agreed to present a report on the inquiry by 1 March 2019, effectively by the end of this Parliament.

At a joint session of the ECON and TAX3 Committees on 27 March, Commissioner Moscovici discussed EU’s tax policy agenda, including tax transparency and the PANA Committee inquiry recommendations. The TAX3 Committee will meet on 16 April in Strasbourg.  

EU Commission published the IKEA State aid investigation letter to the Netherlands

EU Commission has published the letter that sets out DG Competition’s opening arguments into the inquiry on IKEA’s tax arrangements in the Netherlands. Commission’s formal investigation procedure is focused on two tax rulings, granted by the Dutch tax administration in 2006 and 2011 respectively. Commission asserts that the profits of IKEA’s Dutch entity were artificially reduced by endorsing a method for calculation of the annual fees that allows further transfer of IKEA’s worldwide franchising fees to a Luxembourgish entity.

Inter Ikea Holding was part of a special tax scheme in Luxembourg (holding exemption for dividends), effectively relieving profits from corporate taxation in Luxembourg. This regime was declared harmful tax measure within the meaning of the EU Code of Conduct on business taxation on the grounds that the exemption was not conditional upon the payment of a sufficient tax by the distributing company. The measure was subsequently phased out at the end of 2010 at Commission’s request.

In 2011, a second tax ruling endorsed a pricing methodology for IP acquisition at the level of Inter IKEA Systems. The ruling further confirmed the tax treatment of an intercompany loan to the parent company in Liechtenstein, i.e. the interest deduction from Netherlands’ profits. The Commission asserts that these interest payments were a profit shifting strategy where the vast majority of IKEA’s franchising income after 2011 was diverted to the parent company for tax reasons.

The Commission’s State aid inquiry will now assess whether the arrangements are at arm’s length, in particular:

  • Whether the level of the annual licence fee payments reflect Inter IKEA Systems’ contribution to the franchising business, and,
  • Whether the interest deductions from IKEA’s Dutch tax base as endorsed by the tax rulings are compliant with the EU State aid rules.

At this stage of the investigation, the Commission may also request information from other Member states, including market information from other companies or association of undertakings in accordance with the Procedural Regulation 2015/1589.

European Council leaders discuss Digital Taxation

At the Spring meeting held over 22 and 23 March, the European Council discussed issues in corporate taxation facing the European Union. An agenda note published by the Council noted that the leaders discussed how taxation systems should be adapted to encompass new digital business models in the short and medium term, what more could be done to fight tax avoidance and evasion, and how to ensure synergy of efforts at the EU and international level. It was noted there would be no written output following the debate at the March meeting, but that the Council will revisit the issue at the June meeting.

US to amend Country-by-Country reporting regulations

The US have announced that guidance concerning country-by-country reporting obligations for large multinationals will be amended on grounds of national security. The current US regulations, which implement the OECD BEPS transfer pricing tax avoidance action plan, previously set out that reporting requirements apply to multinational groups headquartered in the US, with annual revenues of US $850 million or more. Effective immediately, multinational groups where 50% or more of revenue is derived from contracts with the US government intelligence or security agencies or the Department of Defence can identify in their reporting that they are a specified national security contractor. On that basis, those multinationals are only required to provide information in the reporting schedules concerning the parent entity company, with no other information required to be reported.

CFE Forum “Fair Taxation of the Digital Economy” in Brussels on 19 April

CFE Tax Advisers Europe’s Annual Forum will take place in Brussels on 19 April. The forum will focus on aspects of direct and indirect taxation of the digital economy, outlining and discussing EU Commission’s proposal and the OECD Interim Report on the Taxation of the Digital Economy. Technical aspects of the recent EU proposals will be discussed by Maria Elena Scoppio, Head of VAT Unit and Bert Zuijdendorp, Head of Company Taxation Initiatives Unit, DG Taxation and Customs Union, European Commission. Register here!

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The selection of the remitted material has been prepared by

Piergiorgio Valente/ Aleksandar Ivanovski/ Brodie McIntosh/ Filipa Correia