CFE’s Tax Top 5 – April 2019

 

BRUSSELS 29 APRIL 2019

OECD Publishes Model Tax Convention

The OECD has now published the full version of its 2017 Model Tax Convention on Income and Capital. The model convention is aimed at providing a standard for concluding bilateral tax conventions between countries in order to facilitate economic development, to prevent tax evasion, and to settle circumstances where international double taxation arise. The model stresses the importance for taxpayers of standardising taxation in cross-border trade.

The 2017 model incorporates revisions to treaty-related measures following on from outcomes of the OECD BEPS Project, in particular concerning hybrid mismatches, treaty benefits, permanent establishment and dispute resolution.

EU Commission Proposes VAT Exemption for Defence Supplies

The European Commission has adopted a proposal that an exemption from VAT and excise duties should be included in the VAT Directive concerning supplies made to armed forces, when the forces are deployed in a European defence effort outside their member state.

This proposal is made in line with the EU’s Common Security and Defence Policy, and aims to amend the VAT Directive to include an exemption that would mirror the one currently in place for supplies made to forces engaged in NATO defence efforts. The revision would ensure equal treatment of supplies concerning defence efforts under the NATO and EU frameworks.

The Commission has opened a consultation inviting input concerning the proposed Directive, which will run until 9 June 2019. Further information concerning the consultation is available here.

IFA European Regional Tax Conference in Warsaw, 22-24 May 2019

The IFA European Regional Conference 2019 entitled “Current challenges to income and VAT taxation” will be held in Warsaw, Poland, on 22-24 May 2019. The conference focuses on the recent regulatory developments resulting from BEPS and ATAD implementation as well as local attempts to prevent tax evasion on income and indirect taxation. It will also deal with the practical adoption of the MLI in bilateral double taxation treaties.

The Warsaw Conference has already attracted considerable interest from more than twenty European IFA branches, with a number of relevant authorities and organisations joining the project, including the OECD, the European Commission, the European Association of Tax Law Professors (EATLP), CFE Tax Advisers Europe (CFE) and tax administration representatives. More detail concerning the registration process can be found here.

EU Commission Launches Future of EU Customs Survey

The European Commission has launched a survey seeking input from individuals with in-depth European customs knowledge as part of its “Foresight Process” project on exploration of concepts surrounding the future of the European customs system. The project centres around a series of five workshops aimed at engaging key stakeholders and relevant parties, to examine “how the EU customs ecosystem could look like in 2040 and engage in strategic discussions around future customs policies”.

Those interested in completing the Future of Customs in the EU survey can do so via this link. The survey reportedly takes 30-40 minutes to complete and will be open until 5 May 2019.

CFE Forum 2019 – Registration Reminder

The CFE Tax Advisers Europe has published the final programme concerning its Forum taking place on 6 June 2019 in Brussels this year entitled “Creating Tax Certainty in an Uncertain World: Double Taxation, Tax Rulings & Dispute Resolution Processes”.

The Forum will examine existing MAP mechanisms and the EU Tax Dispute Resolution Mechanisms Directive. The Forum will further discuss means of avoiding tax disputes, such as indirect and cross-border rulings, as well as the State Aid challenges to direct tax rulings- confirmatory rulings and advance pricing agreements (APAs).

Interested attendees from the EU institutions, other public institutions, Member States’ representations to the European Union and journalists can attend free of charge. Please contact the CFE Brussels office for more details at [email protected] More details about the registration process can be found here.

The selection of the remitted material has been prepared by
Piergiorgio Valente/ Aleksandar Ivanovski/ Brodie McIntosh/ Filipa Correia

BRUSSELS 23 APRIL 2019

EU Parliament & UK CMA Recommend Audit Market Reform

The European Parliament, in its TAX3 report, and the UK’s Competition and Markets Authority (“CMA”), in a report concerning issues related to competition in the UK audit industry, have both recommended measures be introduced to ensure greater separation between audit and consultancy operations of the “big four” firms.

In its report, the UK’s CMA recommended that new laws be introduced requiring the consultancy and audit functions of firms to be “operationally” separated, by having separate management teams, staff, accounts and remuneration policies, with the option of breaking up the functions completely to be revisited in the next 5 years. It also recommended a mandatory collaborative audit process be introduced by way of requiring a second auditor to participate in audits.

The EU Parliament recommended, as part of its final TAX3 report, that the Commission address risks stemming from the “provision of legal advice, tax advice and auditing services” by single firms, and that the Commission should introduce rules for mandatory rotation of auditors every seven years. An EU study published recently concerning audit reform found that market concentration on average remained constant notwithstanding audit reform introduced following the financial crisis.

Increased Budget Approved for EU Anti-Tax Fraud Programme

The EU Parliament on 17 April adopted a regulation renewing the EU 2020 Fiscalis programme for cooperation in the field of taxation, with a budget of €339 million foreseen for implementation of the Programme in the period between 2021 and 2027.

The regulation sets out that the Programme should “contribute to: supporting tax policy and the implementation of Union law relating to the field of taxation; preventing and fighting tax fraud, tax evasion, aggressive tax planning and double non-taxation; preventing and reducing unnecessary administrative burden for citizens and businesses in cross-border transactions; supporting fairer and more efficient tax systems; achieving the full potential of the single market and fostering fair competition in the Union; supporting a joint Union approach in international fora and supporting administrative capacity building of tax authorities, including by modernisation of reporting and auditing techniques; as well as supporting training their staff in this regard”.

Cooperation between authorities will therefore be reported on, with an emphasis on structured collaboration between administrations on existing technologies and systems as part of the Fiscalis programme work, and their interoperability with European electronic systems and programmes.

Company Law Proposals Adopted by EU Parliament

Commission proposals published in April 2018 on reforming and digitalising EU company law in order to make it easier for companies to merge, divide or move within the EU Single Market, whilst preventing fraud and abusive behaviour in cross-border operations, have been adopted by the EU Parliament, with 522 votes in favour, 54 opposed and 16 abstentions.

The rules allow companies to register, set up new branches or file documents online. As concerns cross-border conversions, mergers and divisions, the EU rules for cross-border conversions and divisions aim to update existing ones to facilitate reorganisation, provided that the operations are genuine. Companies will be required to inform employees on the legal and economic consequences of a cross-border operation, and to comply with safeguards concerning the prevention of cross-border operations which have abusive, criminal or fraudulent aims.

The new rules must now be voted by the EU Council before being published in the EU Official Journal and will enter into force 20 days thereafter.

EU Parliament Approves EU Whistleblower Rules

On 16 April the EU Parliament voted to adopt news rules providing for EU-wide protection of those people reporting breaches of EU law, including those reporting on issues related to tax fraud and money laundering, with 591 votes in favour of the measures, 29 opposed, and 33 abstentions.

The new law will provide those persons reporting on breaches of EU legislation with internal and external reporting procedures for whistleblowing. The directive also includes provisions which forbid all forms of retaliation, to be enforced by means of sanctions. Whistleblowers are also to be provided with access to free independent information and advice, legal aid and remedies, including financial and psychological support.

The law will now be approved by EU ministers, and Member States will have two years to implement the new rules.

CFE Forum 2019 – Registration Reminder

The CFE Tax Advisers Europe has published the final Forum programme taking place on 6 June 2019 in Brussels this year entitled “Creating Tax Certainty in an Uncertain World: Double Taxation, Tax Rulings & Dispute Resolution Processes”. The Forum will examine existing MAP mechanisms and the EU Tax Dispute Resolution Mechanisms Directive. The Forum will further discuss means of avoiding tax disputes, such as indirect and cross-border rulings, as well as the State Aid challenges to direct tax rulings- confirmatory rulings and advance pricing agreements (APAs).

Interested attendees from the EU institutions, other public institutions, Member States’ representations to the European Union and journalists can attend free of charge. Please contact the CFE Brussels office for more details at [email protected] More details about the registration process can be found here.

The selection of the remitted material has been prepared by
Piergiorgio Valente/ Aleksandar Ivanovski/ Brodie McIntosh/ Filipa Correia

BRUSSELS 15 APRIL 2019

UN Tax Committee to Discuss Amendments to the UN Model Tax Convention

The 18th Session of the Committee of Experts on International Cooperation in Tax Matters (“UN Tax Committee”) will discuss on 23-24 April 2019 the update of the UN Nations Model Double Taxation Convention between Developed and Developing Countries, as well as the next update of the UN Transfer Pricing Manual. Other items on the agenda include the mutual agreement procedure and dispute avoidance and resolution.

The experts, including representatives of CFE Tax Advisers Europe, will address the report of the subcommittee on updating the United Nations Model Double Taxation Convention, including: taxation of royalties; taxation of collective investment vehicles; tax and the Sustainable Development Goals; update of the United Nations Practical Manual on Transfer Pricing for Developing Countries; update of the Handbook on Selected Issues for Taxation of the Extractive Industries by Developing Countries; update of the Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries; environmental tax issues and lastly, the tax consequences of the digitalising economy, with particular focus on issues of relevance for developing countries. The session will be held alongside the ECOSOC Special Meeting on International Cooperation on Tax Matters, taking place on Monday, 29 April 2019.

ECJ Decision in Case C 691/17 PORR on VAT Input Deduction – Reverse Charge

The Court of Justice of the European Union issued a ruling in the Case C-691/17 PORR concerning a tax adjustment imposed on a company on account of a failure to apply the national provisions in relation to reverse charging of Value Added Tax (VAT).

In the case between PORR Építési Kft. and the Hungarian tax authorities, the Court found that the tax administration is allowed to deny VAT input deduction on a supplier invoice issued under the ordinary VAT regime, whereas the relevant transaction fell under the reverse charge mechanism. The Court also concluded that, insofar as the national tax system allows the company to recover the VAT which it unduly paid to the issuers of the invoices in question, the tax authority is not required to ascertain whether those issuers can correct those invoices before rejecting the claim for deduction of VAT.

The case was brought as a reference for preliminary ruling on the interpretation of the EU law principles of fiscal neutrality and effectiveness, in the application of national law that concerns Articles 167, 168, 178, 199(1) and 226 of the VAT Directive (Council Directive Council Directive 2006/112/EC of 28 November 2006 on the common system of Value Added Tax, as amended by Council Directive 2010/45/EU of 13 July 2010).

OECD Invites Public Input on Tax Morale Report

The OECD invites public comments on a draft report which analyses the factors that contribute to the tax morale and the modality to improve the revenue collection mechanisms through voluntary compliance. This report specifically focuses on tax morale in developing countries, using recent data to help identify the drivers of tax morale among individuals and businesses.

Interested parties are invited to send their comments by no later than 10 May 2019, to [email protected] in Word format. All comments submitted should be addressed to the OECD Centre for Tax Policy and Administration.

OECD: Belgium Has Highest Taxes on Labour

According to the latest OECD report Taxing Wages 2019, Belgium has the highest average tax rate on salaries in the world. The OECD highlights that a single worker with no children earning an average national salary would pay the highest average rate of tax in Belgium at 52.7%, followed by Germany, Italy, Austria and France. The lowest average tax rate on salaries is levied in Chile at 7%.

In spite of a recent decrease in the tax rate of 1.09%, Belgium still tops the charts among jurisdictions relying heavily on taxation of work. On average, the OECD reports that income tax and social security contributions declined slightly for the average worker across the OECD in 2018, driven by major reforms in a handful of countries, such as Estonia with a decrease of 2.54 % and the United States with a decrease of 2.19%. The average tax wedge on median workers in 2017 ranged from 52.0% in Belgium to 7% in Chile.

At the last informal ECOFIN Council of EU finance ministers, reforms on addressing excessive taxation of labour in certain Member states were discussed, a topic which is expected to remain on the agenda of the next EU Commission following the EU elections in May.

CFE Forum 2019 – Programme & Registration

The CFE Tax Advisers Europe has published the final Forum programme taking place on 6 June 2019 in Brussels this year entitled “Creating Tax Certainty in an Uncertain World: Double Taxation, Tax Rulings & Dispute Resolution Processes”. The Forum will examine existing MAP mechanisms and the EU Tax Dispute Resolution Mechanisms Directive. The Forum will further discuss means of avoiding tax disputes, such as indirect and cross-border rulings, as well as the State Aid challenges to direct tax rulings- confirmatory rulings and advance pricing agreements (APAs).

Interested attendees from the EU institutions, other public institutions, Member states’ representations to the European Union and journalists can attend free of charge. Please contact the CFE Brussels office for more details at [email protected] More details about the registration process can be found here.

The selection of the remitted material has been prepared by
Piergiorgio Valente/ Aleksandar Ivanovski/ Brodie McIntosh/ Filipa Correia

BRUSSELS 8 APRIL 2019

EU Finance Ministers Informal Meeting & Digital Tax Developments

The Romanian Presidency of the Council of the EU organised an informal ECOFIN (Financial and Economic Affairs Council) in Bucharest on 5-6 April, where ministers discussed the role of taxation in supporting inclusive and sustainable growth, the EU priorities in fighting tax evasion and avoidance and the issues of excessive taxation of labour in certain Member states. At the suggestion of the European Commission, a dedicated debate on the pathway forward regarding the digital tax plans was tabled for the agenda of the 17 May ECOFIN meeting. New specific proposals are expected in due course and a discussion on a coordinated EU position ahead of the G20 Osaka summit scheduled for 28-29 June.

The OECD Secretary-General Ángel Gurría was also in attendance and updated the EU Finance ministers on progress made in finding global solutions to digital taxation. In the interim, the United States representation to the OECD stated that “significant progress” had been made in the OECD BEPS discussions (pillar two proposals) and expressed their hope for an agreement on comprehensive, broad-based solution in the next while. The US assistant secretary for international tax at the US Treasury Lafayette “Chip” Harter warned of the technical complexities on designing a minimum global tax that would be feasible on a global level, in spite of the simplicity of the idea as a political concept.

Earlier today, speaking in Paris before a meeting with senior aids of President Macron, Margrethe Vestager, EU Competition Commissioner and likely EU Commission presidency candidate, expressed her support for Member states’ national digital tax plans. “The best thing at present is a global solution, but if we want solutions in a reasonable time, then Europe must step forward.”, Vestager said. The European Commission plans for gross revenue taxation on digital companies operating in the Single Market failed to gain unanimous support among the EU Member states and came to a grinding halt in March when the Nordic countries and Ireland vetoed the directive at Council level. Several EU Member states including France, United Kingdom, Austria, Italy and Spain have as a result considered or enacted domestic legislation pending a global solution at the OECD level.

EU Commission Publishes “DAC6” Implementing Regulation

The European Commission has published Implementing Regulation (EU) 2019/532 amending Implementing Regulation (EU) 2015/2378 as regards the standard forms, including linguistic arrangements, for the mandatory automatic exchange of information on reportable cross-border arrangements.

The short text of this Implementing Regulation concerning the Directive on Mandatory Disclosure Rules, commonly referred to as DAC6, adds a requirement of including a reference number of the reportable cross-border arrangement to the standardised form for the mandatory automatic exchange of information on reportable cross-border arrangements pursuant to Article 8ab of Directive 2011/16/EU. The Implementing Regulation shall apply from 1 July 2020.

EU Commission Declares Part of UK CFC Rules in Breach of EU State Aid Law

The European Commission concluded on 2 April an investigation into the compliance of UK’s Controlled Foreign Company (CFC) legislation with the EU State aid rules, declaring that the application of the Group Financing Exemption contained in the Finance Act 2012 partly constitutes unlawful State aid to certain multinational companies. The Commission also stated that the present UK CFC regime, introduced with ATAD as of 1 January 2019, no longer gave rise to any State concerns.

Between 2013 and end-2018, the UK CFC rules included a Group Financing Exemption that allowed multinational companies to benefit from a full or partial exemption on interest payments from loans, i.e. on payments related to certain financing income. According to the European Commission, the exemption is compliant with the State aid rules where the financing income is derived from non-UK activities. Conversely, the Group Financing Exemption on financing income derived from UK activities was considered to be in breach of the State aid rules. As a consequence, the Commission concludes, the beneficiaries of the measure received an undue advantage over UK competitors who were not able to rely on such exemption and were subject to the headline corporate tax rate. Further technical detail of Commission’s reasoning will become available in due course with publication of the decision in the Official Journal of the European Union.

It is not yet clear how the HMRC will enforce this EU decision against the companies identified as tax exemption beneficiaries, considering the Brexit uncertainty. The EU has stated that the State aid rules continue to apply to the United Kingdom until it has formally left the EU, whereas the UK Government has indicated a close regulatory alignment of UK’s post-Brexit State aid regime with the European, as set out in the draft UK State Aid (EU Exit) 2019 Regulations.

European Parliament Tax Inquiry Report Published

European Parliament adopted the final report on financial crimes, tax evasion and tax avoidance setting out the recommendations following TAX3 Committee inquiry and hearings concerning anti-money laundering and aggressive tax planning. The Plenary adopted the report on 26 March by 505 in favour / 63 against / 87 abstentions following a discussion of the 1284 amendments tabled by members at the Committee level.

Key findings and recommendations in the Report are that the Commission and Council adopt a comprehensive definition of aggressive tax planning, commence work immediately on establishing European financial police force, an EU financial intelligence unit, and an EU anti-money laundering supranational watchdog. The European Parliament, which represents EU citizens through directly elected Members, but with consultative role on matters of taxation, noted the lack of political will in EU Member states to address tax evasion, tax avoidance and financial crime. Seven EU countries (Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands) have been criticised by the Commission for shortcomings in their tax systems that facilitate aggressive tax planning. The European Parliament also expressed regret that Denmark, Finland, Ireland and Sweden continue to maintain their opposition to EU digital tax proposals.

It is widely expected that the newly elected Parliament will establish a permanent tax inquiry committee following the EU elections in May.

EU Transfer-Pricing Forum Publishes Profit-Splits Report

The EU Transfer Pricing Forum published a Report on the application of the profit split method, clarifying key concepts in the application of this transfer-pricing method in an EU context. The report addresses issues such as in which circumstances it may be considered the most appropriate transfer pricing method and how to split the profits based on the concepts described in the revised OECD Guidelines as well as by providing an inventory of recurrent splitting factors. The report is complementary to the text of the OECD Revised Guidelines on the application of the Transactional Profit Split Method issued in June 2018.

The selection of the remitted material has been prepared by
Piergiorgio Valente/ Aleksandar Ivanovski/ Brodie McIntosh/ Filipa Correia

BRUSSELS 1 APRIL 2019

CFE Forum 2019 – Final Programme Published

The CFE Tax Advisers Europe has published the final programme for the Forum 2019 on 6 June 2019, in Brussels this year entitled “Creating Tax Certainty in an Uncertain World: Double Taxation, Tax Rulings & Dispute Resolution Processes”. The Forum will examine existing MAP mechanisms and the EU Tax Dispute Resolution Mechanisms Directive. The Forum will further discuss means of avoiding tax disputes, such as indirect and cross-border rulings, as well as the State Aid challenges to direct tax rulings- confirmatory rulings and advance pricing agreements (APAs). More details about the registration process can be found here.

The Netherlands and Germany Agree to Cooperate on Global Minimum Tax

The Dutch Government supports the global efforts to introduce further measures to address the residual BEPS issues by ensuring a minimum level of taxation globally. Speaking in Berlin following a meeting with the German Finance Minister Scholz, the Dutch Secretary of State for Finance Snel stated that the Netherlands is ready to raise the issue jointly with Germany at international fora.

In spite of the optimistic statement, a subsequent press-release (Dutch and English) by the Dutch Ministry of Finance clarified that the Netherlands recognises the necessity of introducing further measures to combat BEPS, including the OECD global base eroding tax discussions, subject to the proposals addressing the issue of double taxation and other unintended administrative compliance issues. The Dutch government also highlighted that although Germany, France and the Netherlands agreed a principled position that ensuring minimum taxation is an important means to addressing the remaining BEPS risks, there might be different pathways on the way forward.

Practically, the Dutch government committed to introducing a conditional withholding tax on payments to low tax jurisdictions. As of 2021, companies established in countries with corporation tax of less than 9%, or countries on the EU ‘blacklist’ of non-cooperative jurisdictions for tax purposes, will be subject to a Dutch withholding tax of 20,5% on interest and royalties.

In a statement published as part of the OECD consultation process, CFE warned that the pillar two proposals are likely to continue to put pressure on the existing transfer-pricing framework: any disparity in the implementation of minimum tax rate proposals is inevitably going to lead to double taxation, in instances where countries fail to take into account tax already paid under such regimes (under CFC rules or under the GILTI regime in the US). Further, the outcomes of a global minimum tax rate will differ significantly depending on the technical solution: jurisdiction-by-jurisdiction approach vs. an average rate approach (like GILTI). The complexities in designing a minimum tax rate in a global context will be technically challenging and, as such, will require efforts by the OECD and the Inclusive Framework jurisdictions to ensure close international coordination, CFE’s statement concludes.

Tax Administrations Agree Global Action on Delivering Tax Certainty

The OECD’s Forum on Tax Administration (FTA) met in Chile on 26-28 March and agreed an ambitious agenda focused on tax certainty, enhanced tax co-operation and the collective challenges of digital transformation. This year’s plenary session focused on delivering on BEPS and tax certainty, improving tax co-operation, supporting the continued digitalisation of tax administrations and building capacity for developing countries.

Significantly, the OECD FTA recognised that a successful delivery on the wider tax certainty agenda is conditional upon a comprehensive and interlinked agenda focused on dispute resolution and prevention. To that end, the OECD continues to prioritise implementation of the OECD/G20 international tax agenda, with notable progress in the implementation of Country-by-Country reporting (CbC), the Mutual Agreement Procedure (MAP) and the exchange of rulings.

Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, said of the developments: “There is a huge international agenda to ensure fair and effective taxation of multinationals and individuals operating across borders, while delivering enhanced tax certainty to promote growth and investment. Tax administrations sit at the heart of this. The Plenary demonstrated the FTA’s resolve to take concrete actions to support the international agenda and to deliver on the high public expectations.”

The European Union Wins US Boeing Tax Incentives Case On 28 March, the Appellate Body of the World Trade Organisation (WTO) rendered a ruling in the long running dispute between the EU and the US over the alleged tax incentives to Boeing. The ruling confirms that the United States has failed to remove the trade-distorting subsidies granted to the aircraft manufacturer and dismissed all of the US appeal points.

Commenting the EU Trade Commissioner Cecilia Malmström said: “Today’s ruling is a welcome one for the EU, its aircraft-producing industry and workers across EU Member States in this strategic sector. The Appellate Body has now settled this case definitively, confirming our view the US has continued to subsidise Boeing despite WTO rulings to the contrary. We will continue to defend a level-playing field for our industry. European companies must be able to compete on fair and equal terms and today’s ruling is important in this respect.”

ITI Global Tax Policy Conference is Association with the Harvard Kennedy School

The Irish Tax Institute (ITI), a member organisation of CFE Tax Advisers Europe, organises a global tax policy conference with distinguished speakers from the EU and the OECD, practice, business and academia. The conference is an excellent opportunity to listen to and engage with international colleagues who are at the frontier of global tax policy. Insightful commentary and open discussions will provide you with the latest news on the future of tax, both in Ireland and internationally. To view the programme and register please visit the ITI website.

The selection of the remitted material has been prepared by
Piergiorgio Valente/ Aleksandar Ivanovski/ Brodie McIntosh/ Filipa Correia