CFE’s Tax Top 5 – August 2018


EU-Norway VAT Agreement to Enter Into Force

The EU-Norway agreement on VAT administrative cooperation to fight VAT fraud shall enter into force on 1 September 2018. The agreement has been published in the Official Journal of the European Union on the 1 August.

The cooperation Agreement sets out rules and procedures for exchange of information regarding VAT assessments, monitoring the application of VAT and combating VAT fraud. It also lays down rules for the recovery of claims relating to VAT and administrative penalties, fines, fees and surcharges relating to the claims imposed by the tax administrative authorities or judicial bodies at the request of competent administrative authorities, as well as interest and costs relating to such claims.

G20 Confirms the Importance of the Digital Economy

The G20 Digital Economy Ministerial Meeting in Argentina this weekend saw the issuing of a declaration that reflects the G20’s commitment towards promoting “policies and actions that catalyse digital transformations.”

Built upon the consensus achieved under the Chinese and German presidencies, the document acknowledges that digitalisation is a powerful enabler of inclusive economic growth. It encourages G20 countries to better understand new business models in order to accelerate the digital economy in an inclusive, transparent and competitive manner.

HM Treasury: UK GDP 7.7% Lower in ‘No-Deal’ Brexit Scenario

In a letter to the Treasury Committee of the House of Commons, the lower house of Parliament, Chancellor Philip Hammond has set out a provisional estimation that in a no-deal/ WTO Brexit scenario, the UK GDP would be 7.7% lower (range 5.0%-10.3%) relative to a status quo baseline. This represents the potential expected static state around 15 years out from the exit point. The analysis did not estimate the path the economy and different sectors might take under no-deal and the potential for short-term disruption.

The analysis sets out an expectation that the largest negative impacts on the UK economy will be felt in the North East of England and Northern Ireland. Under a no deal/ WTO scenario chemicals, food and drink, clothing, manufacturing, cars, and retail were estimated to be the sectors most affected negatively in the long-run.

Brexit: UK Government Publish ‘No-Deal’ Technical Papers

The UK Government published technical papers that set out guidance for citizens and business in the event of exiting from the European Union on 29 March 2019 without any agreement. The UK Government maintains that a ‘no-deal’ scenario remains unlikely given the mutual interests of the European Union and the United Kingdom in securing a positive outcome in the ongoing negotiations.

VAT: Current system to be maintained

In the area of VAT, the UK will continue maintaining its current VAT system aligned as close as possible to the European system, with expected changes to the VAT rules and procedures that apply to transactions between the UK and EU member states in the event of a ‘no-deal’ Brexit.

This technical notice details the main VAT issues that will affect UK businesses trading with the EU in goods and services, highlighting the changes that companies will need to prepare for when importing goods from the EU, exporting goods and supplying services to the EU, and utilising the EU’s IT systems, such as MOSS.

State Aid: CMA to Take Over EU Commission’s Regulatory & Enforcement Powers

In the State aid area, the technical paper published by the UK Government sets out that the UK intends to transpose existing EU rules into the UK legislation, effectively replicating existing block exemptions as allowed under the current European laws. The UK government maintains that a rigorous State aid control system will continue to provide benefits for consumers, businesses and the society at large.

At present, the regulatory and enforcement role concerning the State aid rules is centralised at EU level and exercised by the European Commission, DG COMP. In a ‘no-deal’ scenario, the Competition and Markets Authority (CMA) will take on the role of enforcement and supervision for the whole of the UK. As of 30 March 2019, any complaints from businesses about unlawful State aid shall be made to the CMA. Further guidance from the CMA is expected to be published in early 2019.

It is not yet clear what role, if any, the jurisprudence of the European Court of Justice (ECJ) shall have in a no-deal scenario, albeit with a full regulatory alignment as set out in the State aid technical guidance.

Macedonia Joins the OECD BEPS Inclusive Framework

Macedonia has joined the OECD BEPS Inclusive Framework becoming the 117th jurisdiction to do so. Members of the Inclusive Framework have the opportunity to work together on an equal footing with other OECD and G20 countries on implementing the BEPS package consistently and on developing further standards to address remaining BEPS issues.

The Inclusive Framework was established in January 2016, following the G20 call for a timely implementation of the BEPS package released in October 2015. The OECD welcomed on 23 August the commitments by the Macedonian government to implement internationally agreed standards to tackle tax evasion and avoidance.

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


Amazon’s State Aid Appeal to EU General Court

The legal grounds forming the basis of Amazon’s application to the General Court of the European Union to have the decision of the European Commission annulled, i.e. the decision that Luxembourg granted illegal State aid by virtue of a tax ruling granted to Amazon in 2003, have now been made available on the Curia website.

Amazon in its application relies on nine pleas in law to support its application to have the Commission decision annulled. In particular, Amazon asserts that the Commission failed to establish an advantage benefiting Amazon, as it improperly ignored direct evidence showing royalties were in keeping with the arm’s length principle, and that the decision accordingly violates the Charter of Fundamental Rights of the EU through the Commission failing to consider all the available evidence.

Amazon also contends that the decision is based on a flawed analysis of the functions of Amazon and LuxOpCo, and fails to establish an advantage under the subsidiary line of reasoning. Further, Amazon pleads that the decision is based on a flawed finding of an advantage premised on an analysis that deviates from the arm’s length principle, and that in any event recovery of aid would now be prevented by the expiration of the applicable limitation period.

EU Commission’s Juncker Plan to Provide €100 Million in Loans to SMEs in Finland

The European Investment Bank (EIB), as part of an agreement concluded under the Juncker Plan’s European Fund for Strategic Investments, will provide access to €100 million in loans for small and medium-sized companies in Finland.

Vice-President of Jobs, Growth, Investment and Competitiveness at the EU Commission, Jyrki Katainen, stated that the Plan “was designed to facilitate small and medium-sized enterprises gain access to finance they need to expand, innovate and create jobs. So far, around 700,000 small businesses across Europe are expected to benefit. I am delighted that, with today’s transaction, the Investment Plan will allow Finnish firms to benefit from €100 million in financing opportunities.”

The Juncker Plan will provide over €7.6 billion in investments in Finland, and €335 billion throughout the EU.

OECD Releases Tax Policy Review on Slovenia

The OECD have released a tax policy review on Slovenia within its Tax Policy Reviews Series, assessing Slovenia’s tax systems as against other OECD member countries’ systems, and setting out recommendations for tax policy reform.

The report covers the topics of taxation of individuals, performance of the labour market, social policy, financing of social security systems, indirect taxes, taxation of capital income and taxation policy.

Booksellers Urge UK to Tax Online Retailers

Following on from Chancellor Philip Hammond recently stating that Britain will consider implementing a unilateral tax for online retail sales to “ensure that taxation is fair between businesses doing business the traditional way and those doing business online…”, the Booksellers Association have implored the UK government to take “decisive action to bolster the declining health of the high street” and to counter the “egregious tactic of transfer pricing by some online giants”.

The comments came after iconic department store House of Fraser went into administration, in a year in which tens of thousands of jobs have been lost following the collapse of many traditional retail businesses, such as Poundworld, Toys R Us, and other retail giants such as Mothercare and Marks & Spencer closing hundreds of stores.

The Austrian Presidency’s Agenda Programme states that taxation of the digital economy is one of the main priorities for the focus of taxation work for the Presidency.

EU Commission Approves State Aid to Denmark for Renewable Energy Production

The Commission has approved State aid for three schemes in Denmark which will support investment in producing electricity using renewable energy sources. Denmark aims to meet 50% of all energy consumption using renewable energy sources by 2050.

The three schemes have a total budget of €144 million, and will concentrate on onshore and offshore wind turbines, as well as solar installations. Tenders will be organised in 2018 and 2019 in order to select beneficiaries for the aid, to be provided to successful applicants for a period of 20 years. The recipients of the funds will sell their electricity to consumers in the market and benefit from top-up payments from the scheme funds.

The Commission approved that the schemes met with State aid rules and were in line with EU environmental objectives.

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


Britain Contemplates Online Retailer Tax

Chancellor Philip Hammond has stated that Britain will consider implementing a unilateral tax for online retail sales. Discussing recent GDP figures, Hammond noted that as the prevalence of online shopping increases and the nature of high street and traditional business models evolve, so too must the means of taxing traditional and digital business.

Hammond said renegotiating international tax treaties was the best means to “ensure that taxation is fair between businesses doing business the traditional way and those doing business online…because many of the big online businesses are international companies”, but that if a consensus cannot be reached at international level then “tax on online platform businesses based on value generated” which could help to “rebalance the playing field” was “certainly something we’d be prepared to consider”.

European Investment Bank Hosts Blockchain Challenge Event

The European Investment Bank (EIB) recently hosted a Blockchain Challenge at its headquarters in Luxembourg on the simplification and streamlining of existing financial processes, attended by treasurers, EIB employees, and representatives from financial institutions.

Coders also in attendance were tasked with using blockchain technology to develop a method to improve the transaction process relating to short-term financing instruments, by collaborating with attendees on the technicalities of the financial processes.

The use of blockchain and virtual currency transactions to perpetrate tax evasion was recently examined in a workshop hosted by the European Parliament’s Committee on financial crimes, tax evasion and tax avoidance (TAX3) and is the subject of an upcoming OECD Forum.

Finland’s Prime Minister Discusses Tax Agenda

At a recent public appearance, the Finnish Prime Minister, Juha Sipilä, discussed the government’s budget proposal and its implications for taxation.

Mr Sipilä reportedly stated that upcoming government budget negotiations would centre around taxation issues, and that his government had decided not to increase personal income taxation in 2019. Low and middle-income earner tax reductions are said to be a priority for the party.
Increased benefit payments and pension payments will also feature in the upcoming discussions, as well as emergency assistance relief for Finnish farmers.

Luxembourg Introduces VAT Grouping Law

A new law as regards VAT grouping has recently entered into force in Luxembourg.

Luxembourg-based entities who share organisational, economic or financial links are now entitled to establish a VAT group. The new rules will provide administrative simplification by enabling the group to file group declarations. Additionally, the new law will potentially enable groups to recover what would previously have been non-deductible input VAT.

The law entered into force on 31 July 2018, and was published on 10 August 2018.

European Commission Fair Taxation Seminars

The European Commission is hosting a series of seminars concerning the issue of fair taxation in the European Union. 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.

The final two seminars in the series will take place on 19 September in Rome, and the final seminar in Dublin has been rescheduled to take place on 26 September, rather than in October. Those wishing to attend the seminars can register for the events via the following link.

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


Apple Makes Part Payment of EU State Aid Recovery Into Escrow

Apple has reported its best June quarterly results ever, in the week when it became the first public company in the world to reach the $1 trillion market valuation. In its third quarter report published on 31 July, Apple has also confirmed that the company had funded into escrow the amount of €4.5 billion by 30 June and had doubled that amount since.

The Irish Department of Finance announced earlier this year that various investment management groups and the asset management division of Goldman Sachs have been appointed to manage the escrow account as per EU Commission’s decision. The establishment of an escrow fund in compliance with all relevant Irish and European Union law has been a unique administrative operation, over which the Commission had taken the Irish government to Court for failure to establish this complex fund according to Commission’s timescale. The European Commission had initially instructed the Irish government that it had until January 2017 to recover the assessed back taxes in the Apple case.

The debate about EU Commission’s State aid approach to advance tax rulings and transfer-pricing continues. The final arbiter in the State aid cases is the European Court of Justice, whose judgments on appeal are expected in due course.

Code of Conduct Group: Austrian Presidency Priorities & Preferential Regimes Update

The EU Code of Conduct Group (Business Taxation) have published an updated overview of all preferential tax regimes examined since its creation in 1998. The Code of Conduct resolution was adopted in December 1997 by the Council with a commitment by Member states’ governments to eradicate harmful tax competition.

Further, the Code of Conduct Group have published its work programme and priorities under the Austrian Council presidency, which include transparency of the group, monitoring of standstill and rollback obligations of Member states, anti-abuse and defensive measures, monitoring the implementation of agreed guidance and revision of the December 1997 mandate.

New Signatories to OECD’s MLI

On 27 July, Antigua and Barbuda became the 124th and 135th jurisdictions to sign the OECD’s BEPS multilateral tax treaty instrument (“MLI”), which entered into force on 1 July 2018 following on from 5 countries having ratified the instrument, namely Austria, the Isle of Man, Jersey, Poland and Slovenia. Serbia, Sweden, New Zealand and the United Kingdom have now also ratified the instrument.

The multilateral tax treaty allows jurisdictions to update their existing double tax treaties and transpose measures agreed in the BEPS project without further need for bilateral negotiations, and aims to increase transparency and further efforts to reduce cross-border tax evasion.

The United Kingdom, Sweden, Serbia and New Zealand all recently deposited their instruments of ratification with the OECD. Further ratifications are expected in the coming months. There are now 83 jurisdictions that are signatories to the treaty.

OECD Blockchain Policy Forum

The OECD will be hosting a Blockchain Policy Forum from 4 – 5 September 2018 in Paris concerning the potential of Blockchain to increase transparency and traceability within markets and individual transactions, subject to policy and regulatory frameworks which foster the use of Blockchain for these purposes.

Topics to be discussed at the conference include implications of Blockchain for privacy and cybersecurity, green growth and sustainability, the global economy, and enforcement practices. Those interested in attending can register here.

Save the Date – 11th European Tax Advisers Professional Affairs Conference, 23 November Madrid

CFE Tax Advisers Europe and the Asociación Española de Asesores Fiscales (AEDAF) are pleased to invite you to the 11th European Conference on Tax Advisers’ Professional Affairs, to be held in Madrid, Spain, on Friday 23 November 2018 from 9am to 3pm on the topic of “Transparency Trends in Taxation: How to Implement New EU & OECD Mandatory Disclosure Rules”. More details are available on the CFE Tax Advisers Europe website.

The selection of the remitted material has been prepared by

Piergiorgio Valente/ Aleksandar Ivanovski/ Brodie McIntosh/ Filipa Correia