CFE’s Tax Top 5 February 2016

29 February 2016

1.      Monaco and EU sign information exchange agreement

On 22 February 2016, as the last in a group of several non-EU European countries including also Switzerland, Andorra, Liechtenstein and San Marino, Monaco has initialled a tax information exchange agreement with the EU in accordance with the OECD/G20 Common Reporting Standard which has also been endorsed in EU law. The agreement which still requires formal approval by the EU Council provides for automatic exchange between Monaco and EU member states of the names, addresses, tax identification numbers and dates of birth of their residents with accounts in the other country, as well as certain other financial information, including account balances. The first exchange will take place in 2018. The information will start being collected from 1 January 2017.

–         Press release, 22.2.2016: EN (DE FR available)

2.    OECD invites all countries to join anti-BEPS effort

On the occasion of the G20 Finance Ministers´ meeting on 27-28 February 2016, the OECD invited all countries worldwide to participate in the OECD/G20 work on fighting corporate tax base erosion and profit shifting (BEPS). Non- OECD or G20 members will be able to participate as “BEPS Associates” in an extension of the OECD’s Committee on Fiscal Affairs.

Under-representation of developing and emerging economies is a frequently-expressed criticism of the OECD´s BEPS work.

As the OECD notes, focus will be on the review of implementation of the four BEPS minimum standards, in the areas of harmful tax practices (Action 5), tax treaty abuse (Action 6), country-by-country reporting requirements for transfer pricing (Action 13) and improvements in cross-border tax dispute resolution (Action 14). They will also be involved in data gathering on the tax challenges in the digital economy and measuring the impact of BEPS, as well as monitoring implementation of the remainder of the BEPS package and finalising the remaining BEPS standard-setting work, notably as concerns work on tax treaties and transfer pricing.

–        Press release: EN (FR available)

3.      EP invites tax havens and (again) multinationals to hearing

The European Parliament´s TAX2 Special Committee, the successor of the TAXE Committee on tax rulings and other measures similar in nature or effect, has invited a number of multinationals involved in recent, current or possible future EU state aid investigations to a hearing on 15 March 2016. Apple, Google and Ikea had confirmed by 29 February. Responses of Fiat Chrysler and Mc Donald´s are pending, while Starbucks declined the invitation because it is planning to appeal the European Commission´s state aid decision of October 2015, however adding that the company believes that it complied with all OECD BEPS measures. TAX2 also invited a number of small country jurisdictions frequently considered tax havens. A hearing with national parliaments and the European Commission is planned for 18 April 2016.

–         Invited multinationals: EN

–         Other invitations : EN

4.      Press: Googles to face € 1.6 billion back taxes in France

According to press reports of 24 February 2016 citing an anonymous French government source, Google is to face € 1.6 billion in back taxes in France. French tax authorities refused to reach as tax settlement with the multinational, as the UK tax administration did.

–         Reuters article, 24.2.2016: EN

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The selection of the remitted material has been prepared by Piergiorgio Valente / Filipa Correia / Rudolf Reibel

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22 February 2016

1.      CFE Forum 2016: “Rebuilding the international tax system: How to square the circle?” on 21 April

The finalisation of the BEPS project has provided governments with materials, tools and blueprints for reapplying the basic principles of international taxation like economic substance, permanent establishment and value creation. Yet it is far from clear how this large-scale project should be implemented: how to shape the new provisions so that they are fit for purpose? How can the implementation effort be coordinated internationally and achieve its political objectives? And how can one assure that the reconstruction does not lose sight of the taxpayers who are going to be subject to this new regime?

It will be crucial for both companies and tax authorities to clearly understand the concepts, and how they interact, in order to ensure that reasonable transactions are not deemed to be abusive.

Where traditional concepts are revised and tax rulings are under pressure, new ways of creating legal certainty and ensuring confidentiality must be explored.

–         Programme and registration: EN

2.      Improving double taxation dispute resolution mechanisms: Commission opens consultation

On 16 February 2016, the European Commission has opened a public consultation on improving double taxation dispute resolution mechanisms. The consultation takes the form of an electronic multiple choice questionnaire with very limited possibilities to add comments, but there is a possibility to attach position papers.

Key question is question 4.2 where the Commission explains four possible options:

–         a soft law mechanism to encourage member states to revise their treaties to include a dispute resolution mechanism in the light of the experience from the Arbitration Convention and the BEPS 14 recommendations, including an arbitration clause;

–         a soft law mechanism to encourage member states to introduce in their treaties a provision that gives the EU Court of Justice jurisdiction to decide on a double tax case, after lapse of a specified time period;

–         a binding measure obliging member states to provide access to binding arbitration or mediation by another body, after lapse of a specified time period, e.g. two years;

–         a comprehensive EU law instrument providing for elimination of double taxation and a dispute resolution mechanism.

Deadline for responses is 10 May 2016.

–         Consultation website: EN (DE FR available)

3.      Advocate General: Corrections to VAT invoices should have retrospective effect

On 17 February 2016, EU Court of Justice Advocate General Yves Bot delivered his opinion in the German preliminary ruling case C-518/14, Senatex, about the effect of corrections to VAT invoices.

The case concerns a company that reclaimed VAT on commission statements from its sales representatives and other invoices, but the claims had not been based on valid VAT invoices. Tax authorities found that the original claims were invalid and input tax could only be reinstated once the corrected invoices were made available. The Advocate-General suggested that the correction should retrospectively validate the original claims, arguing that the invalidity of the original claims resulting in the imposition of interest, as in the case at issue, was disproportionate. This however should not prevent tax authorities from penalising non-compliance with VAT invoicing requirements.

– Advocate-General Opinion, 17.2.2016 : EN (All EU languages)

4.      EU Council discussions: Anti-Tax Avoidance proposal and Interest & Royalties Directive

Reportedly, German Minister of Finance Wolfgang Schäuble suggested that the EU Anti-Tax Avoidance Directive proposal of 28 January 2016 should be split into one part limited to implementing the OECD´s BEPS recommendations, as they have already been endorsed at OECD/G20 level, and a second covering the remaining issues, namely content that was previously part of the CCCTB discussions like the GAAR, the switchover clause and the exit taxation provision, to ensure a swift adoption of the BEPS-related matters.

As to the Interest & Royalties Directive, it has been reported that the Dutch Council presidency which aims at advancing the revision of the Directive has proposed in the Council that the minimum effective taxation in the country of the beneficiary of a payment should be at an effective rate of 10%, irrespective of what the rate in the source country is.

5.    OECD conducts business survey on cost of irrecoverable VAT

The OECD has opened a survey to assess how VAT/GST refund procedures work in practice, i.e. where laws on VAT/GST recovery in jurisdictions where a business is not established do not work as they should and what the magnitude of costs of irrecoverable VAT/GST is. Deadline for responses is 15 March 2016.

–        Link to the survey: EN

6.      US Treasury publishes revised US Model Tax Convention

On 17 February 2016, the US Treasury Department issued a newly revised US Model Income Tax Convention which is the baseline text the Treasury Department uses when it negotiates tax treaties.

As the Treasury explained, the 2016 Model includes a number of provisions intended to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance.

For example, the 2016 Model does not reduce withholding taxes on payments of highly mobile income such as royalties and interest that are made to related persons that enjoy low or no taxation with respect to that income under a preferential tax regime. In addition, a new article obligates the treaty partners to consult with a view to amending the treaty as necessary when changes in the domestic law of a treaty partner draw into question the treaty’s original balance of negotiated benefits and the need for the treaty to reduce double taxation. The 2016 Model also includes measures to reduce the tax benefits of corporate inversions. Specifically, it denies reduced withholding taxes on U.S. source payments made by companies that engage in inversions to related foreign persons.

The 2016 Model also contains rules requiring that tax treaty disputes be resolved through mandatory binding arbitration, taking the “last best offer” approach.

A detailed technical explanation of the 2016 Model is planned in spring 2016.

–         US Model Convention 2016: EN

–         Press release, 17.2.2016 : EN

7.      Commission updates list of VAT cross-border rulings

On 16 February 2016, the European Commission has updated its list of (to date 17) VAT cross-border rulings resulting from the project the Commission started with member states in 2013 and that is currently scheduled to last until September 2018. To date, 18 EU member states (Belgium, Denmark, Ireland, Estonia, Spain, France, Italy, Cyprus, Latvia, Lithuania, Malta, Hungary, Netherlands, Portugal, Slovenia, Finland, Sweden and the United Kingdom) have agreed to take part in the project.

–         Updated VAT cross-border rulings list (until January 2016): EN

–         Information notice with list of member states participating: All EU languages

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The selection of the remitted material has been prepared by Piergiorgio Valente / Filipa Correia / Rudolf Reibel

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15 February 2016

1.      Commission to propose making country by country tax information public in April?

The Guardian has reported that the European Commission is planning to propose, on 12 April 2016, public country by country reporting (CBCR) of tax information by multinationals. This would not come as a surprise given statements by Jean-Claude Juncker and Tax Commissioner Pierre Moscovici that they would be in favour of public CBCR and European Parliament´s repeatedly declared determination to include public CBCR in EU law. The Commission is currently finalising an impact assessment on this matter. Reportedly, the to-be-proposed measure would aim at all large multinationals, not only EU-based companies.

As the Commission has repeatedly voiced concerns over EU companies´ competitiveness it may well propose higher thresholds than favoured by Parliament (more than 500 employees and balance sheet total of € 86m or net turnover of € 100m) or applied in the EU Accounting Directive to define large undertakings (250 employees, € 20m balance sheet total and/or € 40m net turnover).

–         The Guardian article, 7.2.2016: EN

2.    Commission agrees to give Parliament access to confidential documents

On 1 February 2016, the European Commission agreed to grant the European Parliament access to about 5500 confidential documents of the EU Council´s “Code of Conduct Group” on business taxation. which was set up in 1997 to identify and eliminate examples of unfair tax competition among EU member states. The Group whose work is taking place behind closed doors has been criticised for having become ineffective.

As the letter of Jean-Claude Juncker explains, documents or parts thereof which relate to issues which are still under discussion in the Group will only be made available in camera.

Prior to the Commission´s move, German far-left MEP Fabio de Masi had filed a legal action against the Commission before the European Court.

–         Politico article, 8.2.2016: EN

–         Der Spiegel article, 9.2.2016: DE

–         Letter by Jean-Claude Juncker to Martin Schulz: EN

3.      Council envisages agreement on Tax Avoidance Directive before June

On 12 February 2016, the European Commission presented its proposals of 28 January 2016 for an Anti Tax Avoidance Directive and for CBCR to tax authorities to the EU Ecofin Council. The Dutch Council presidency declared its intention to reach political agreement on the CBCR proposal already in March 2016 and on the Anti Tax Avoidance proposal before June 2016.

– Council press release, 12.2.2016 (see page 5) : EN

4.      Andorra signs tax information exchange deal with EU

On 12 February 2016, The EU and Andorra signed a tax transparency agreement according to which Andorra and EU member states will, as of 2018, automatically exchange information on the financial accounts of one another’s residents. EU countries will receive the names, addresses, tax identification numbers and dates of birth of their residents with accounts in Andorra, as well as other financial and account balance information. The exchange is in line with the OECD/G20 Common Reporting Standard implemented in EU law in January 2015. The EU has already signed similar agreements in 2015 with Switzerland, Liechtenstein and San Marino; negotiations are currently being finalised with Monaco.

–         Press release: EN (DE/ES/FR available)

–         Council press release, 12.2.2016 (see page 14): EN

5.      IKEA accused of having avoided more than € 1 billion in taxes

On 12 February 2016, the Green Party in the European Parliament published a report explaining how IKEA has avoided more than € 1 billion in taxes in six years due to an arrangement involving subsidiaries in Belgium and Luxembourg and a Liechtenstein foundation.

–         The Greens/EFA website including short film and infographics: EN (infographics also in FR, DE, ES, CAT, SV, FI, NL)

–         Full report: EN

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The selection of the remitted material has been prepared by Piergiorgio Valente / Filipa Correia / Rudolf Reibel

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8 February 2016

1.      Guidance on VAT place of supply for works on immovable property

On 4 February 2016, the European Commission published an explanatory note on the EU VAT place of supply rules on services connected with immovable property that will enter into force on 1 January 2017. These services should be taxed at the presumed place of consumption of the service, meaning at the place where the property is located. As the Commission explains, this cannot be circumvented through contractual arrangements. The notes are not legally binding and are to be considered a work in progress.

–        Explanatory notes: EN

2.      Commission updates VAT e-learning course

On 4 February 2015, the European Commission has updated its free on-line VAT e-learning course. The 12 modules available in English have an estimated duration between 20 and 65 minutes.

–        All modules: EN

3.      EP rapporteur supportive of Commission proposal to extend VAT minimum rate

On 14 December 2016, the European Commission proposed a Directive extending the transitional EU minimum VAT rate of 15 %, applying since 1993, by another two years until the end of 2017. The Commission will present its ideas on a definitive VAT system probably on 8 March 2016. The possibility of greater national autonomy in setting rates and the future of temporary derogations allowing for exemptions, zero rates and super-reduced rates will be part of the announced review.

8 March 2016 is also the indicative date for the European Parliament´s plenary vote. The rapporteur on this file, MEP Peter Simon (Germany, S&D), has presented his draft report on 4 February 2016, supporting the Commission´s proposal. The Parliament only has consultative powers on this matter; the EU Council will have to vote with unanimity. The changes will not force any EU member state to change its standards VAT rate, as all member states currently operate standard VAT rates above 15%, the lowest being Luxembourg with 17%.

– Commission proposal, 14.12.2016 : EN

– Draft report, 4.2.2016 : EN

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The selection of the remitted material has been prepared by Piergiorgio Valente / Filipa Correia / Rudolf Reibel

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1 February 2016

1.      “Anti-BEPS” – CBCR –tax havens: The EU Anti Tax Avoidance Package in detail

On 28 January 2016, the European Commission presented its “Anti Tax Avoidance Package”, consisting of four instruments designed at limiting tax avoidance by multinational companies:

1.      A proposal for a Directive against tax avoidance practices (also referred to as BEPS- or Anti-BEPS Directive), containing anti-avoidance elements partly known from the CCCTB proposal and reflecting the OECD BEPS Recommendations. The main elements of this proposal are:

–        an interest limitation rule;

–        exit taxation of assets leaving the country, in line with the CJEU case law on cases such as Verder Labtech;

–        a switch-over from tax exemption to tax credit for low-taxed profit distributions from third countries;

–        an EU general anti-abuse rule (GAAR);

–        a rule on income shifted to controlled foreign companies (CFC);

–        a rule on the treatment of hybrid entities and hybrid instruments.

The proposal provides for minimum harmonisation only, allowing member states to adopt or leave in place stricter measures.

2.      Another Directive proposal, introducing mandatory country by country reporting (CBCR) of a template of financial and tax information by large multinationals (revenues > € 750m annually) to tax administrations and exchange of this information among these, according to recommended BEPS Action 13. Legislation on public CBCR has been announced for March 2016.

3.      A Communication on an “External strategy for effective taxation” covering aspects relating to third countries: In particular, this includes the planned development of common EU transparency and fair tax competition criteria, and the setting up of a screening process that will result in a listing of countries that do not comply with these criteria. Possible counter-measures against listed jurisdictions such as withholding taxes or non-deductibility of transactions through these jurisdictions should be determined by member states and published by the end of 2016.

Other measures with regard to third countries include:

–        the inclusion of updated tax good governance criteria and state aid clauses in trade agreements concluded by the Commission;

–        assistance to developing countries in domestic revenue mobilisation;

–        changes to the EU Regulation on investment of EU funds.

The Commission would like to see this external strategy endorsed by the EU Council and Parliament. It has updated once more its overview on member states´ tax havens blacklists.

4.      A Recommendation on “measures against tax treaty abuse”: Where member states include a “principle purpose tests” in their tax treaties to prevent treaty shopping, they should use a modified version of the OECD Model provision, to ensure that such clause respects the EU freedoms. The Recommendation also refers to the OECD definition of permanent establishment in their post-BEPS shape.

The CCCTB proposal is now scheduled for autumn 2016. In summer 2016, the Commission intends to issue a proposal on enhancing double tax dispute resolution.

These measures are explained in the Communication “Next steps towards delivering effective taxation and greater tax transparency in the EU”, dubbed “Chapeau Communication” which adds the wider political context and seeks to address subsidiarity concerns. A staff working paper and a study on tax avoidance carried out by a contractor add further detail to the package.

European Commission documents (28 January 2016):

–        Press release: All EU languages

–        “Chapeau” Communication: All EU languages

–        Anti Tax Avoidance Package, dedicated EU Commission webpage: EN (DE FR available)

–        Anti Tax Avoidance Directive proposal: EN (DE FR available)

–        Administrative Cooperation Directive amendment proposal (“BEPS 13”): EN (DE FR available)

–        Recommendation on tax treaty abuse : EN/DE/FR

–        Communication “External strategy for effective taxation”: All EU languages

–        Staff working document to “Chapeau” Communication: EN

–        Study on Aggressive tax planning and indicators: EN

–        Questions and answers: EN (FR available)

–        Updated overview on EU tax havens lists (as of 31 December 2015): EN

 

2.      Country-by-country reporting: 31 countries sign agreement at OECD

On 27 January 2016, 31 countries have signed a “Multilateral Competent Authority Agreement (MCAA)” detailing the technicalities for the implementation of the planned automatic exchange of country by country information according to the OECD BEPS 13 Recommendation. Information on the allocation of income and taxes paid and on the economic activity of the entities within a multinational group will be collected by the country of residence of the multinational, and then be exchanged with the other countries part to the agreement. First exchanges will start in 2017-2018, concerning information for 2016. The initiative is legally independent of the parallel EU proposal based on the Directive on administrative cooperation.

This MCAA is to be distinguished from the MCAA relating to the automatic exchange of financial account information (OECD Common Reporting Standard); on 27 January 2016, 79 countries have declared to take part in the latter exchange.

–        Press release, CBCR: EN FR

–        List of signatories, CBCR: EN

–        Press release: Common Reporting Standard: EN

3.      Google´s new UK tax deal faces criticism

On Friday, 22 January 2016, Google and the UK tax administration agreed a settlement according to which the multinational will pay GBP 130m in back taxes for the past ten years and slightly higher taxes for the future, while allowing Google to continue routing £4.6bn of UK sales via an Irish company that pays no tax in the UK. The deal which follows a 2009 investigation into Google´s tax affairs has faced strong public criticism suggesting that it has not been in line with the recent OECD principles and amounts to another favourable tax treatment of a multinational.

The French tax administration has been challenging since 2011 Google´s view that its French sales can be booked in Ireland and claims € 500m in back taxes.

Apple reportedly has recently agreed to pay back € 318m in taxes in Italy.

–        Politico article, 23/27 January 2016: EN

–        The Guardian article, 27 January 2016: EN

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The selection of the remitted material has been prepared by Piergiorgio Valente / Filipa Correia / Rudolf Reibel

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