CFE’s Tax Top 5 – February 2018

Brussels, 19 February 2018

International Organisations meet at UN in New York to discuss taxation and Sustainable Development Goals

A 3-day event was organised by the Platform for Collaboration on Tax and hosted at the UN headquarters in New York last week with the aim of examining the role of tax in alleviating poverty, protecting the planet and ensuring prosperity for all.

Major international organisations including the IMF, OECD, UN and World Bank Group called on governments to make their tax systems stronger and more effective in order to generate the domestic resources necessary to reach the Sustainable Development Goals and be in a better position to promote inclusive economic growth.

The statement from the meeting highlighted the problems experienced by developing countries in maintaining tax systems, which are capable of funding the necessary public resources such as public infrastructure. It also highlighted the importance of tackling tax evasion and tax avoidance, and the need to pay more attention to the spill overs from tax policies in order to support stronger tax systems internationally.

OECD publishes consultation document on misuse of residence by investment schemes to circumvent the Common Reporting Standard (CRS)

The OECD has launched a consultation document on the misuse of schemes that offer “residence by investment” (RBI) or citizenship by investment (CBI). These schemes offer foreign individuals the opportunity to obtain citizenship or residence rights in return for investment in the local economy.

Whilst users of these schemes have many valid reasons to avail of them, the OECD has obtained information through the OECD’s CRS public disclosure facility that people are misusing the schemes in order to circumvent the CRS.

As part of the OECD CRS loophole strategy, this consultation document will:

  • Assess how these schemes are utilised to circumvent CRS
  • Identify the nature of the schemes that present the most high risk for abuse
  • Remind stakeholders of the importance of the correct application of CRS due diligence in order to prevent abuse and finally
  • Explain the next steps to be taken by the OECD with the assistance of public input.

The Consultation Document is available on the OECD website and comments are invited before the 19 March 2018.

Amazon settles French tax dispute

Amazon has settled with the French tax authorities a long-running tax dispute over a 200 million Euro bill for a period of over five years. In a statement, Amazon has said that they have reached a comprehensive settlement with the French tax administration on past issues, remaining committed to providing the best experience to French customers. Amazon has opened 5,500 permanent jobs in France, and since 2015 operates in France via branch. A branch is considered a permanent establishment (“PE”) under international tax law, therefore of sufficient taxable presence to book profits and sales related to their French operations. Back in November 2012, the French tax administration issued an assessment of 22 million of underreported back taxes to Amazon covering the period between 2011 and 2015.

Similarly, Google is involved in a tax dispute with France after the French government appealed a decision of a Paris court that declared that Google did not have a French permanent establishment. On that basis, the court annulled the tax assessment of the French authorities worth 1.1 billion of back taxes.

Opinion of the Advocate General Sanchez- Bordona in the Case C-650/16 Bevola  (loss relief of non-resident PEs)

The Advocate General Sanchez- Bordona (“AG) issued an Opinion in the Case Bevola, Jens W. Trock ApS v Skatteministeriet (C-650/16). The case concerns the possibility to claim cross-border loss relief regarding losses incurred by non-resident permanent establishments (“PE”), ie. branches in other Member States. Bevola is an important case where the Court of Justice has another opportunity to revisit the Marks & Spencer final losses doctrine, twelve years after this case.

  • Summary

The Advocate General confirms the comparability of the situation of final losses of non-resident and resident PEs, claiming that an obstruction to the Marks & Spencer exception is disproportionate and contrary to Article 49 TFEU, ie. the freedom of establishment. It transpires from AG’s analysis that it would be in breach of EU law if a resident PE could claim cross-border loss relief, but a non-resident PE could not regarding final losses in a comparable situation.

  • Issues

The case considers three important issues:

  1. Whether the Marks and Spencer exception should be retained,
  2. if the exception is retained, whether it should apply to subsidiaries only or equally to losses of (non-resident) PEs
  3. whether the Danish legislation which enables resident companies to deduct losses of non-resident PEs is compatible with EU law.
  • Final losses of non-resident PEs

Regarding the question whether the Marks & Spencer exception should be applicable to this situation on equal footing, the AG recalls that the freedom of establishment should not in principle be restricted by tax measures as per Article 49 TFEU. For tax purposes, where a PE is located in a host state, it may be treated as a separate entity in accordance with Articles 5 and 7 of the OECD Model. Following Lidl Belgium, losses of non-resident PEs may be deducted from the profits of the principal company as per Marks & Spencer para 55. However, after the X-Holding judgment, PEs and non-resident subsidiaries could be considered not to be in a comparable situation with regards to allocation of taxing powers. Similar approach was taken by the Court in Nordea Bank.

On basis of this case-law, the AG claims that there is a confusion as to the criteria to ascertain the comparability of the tax treatment of parent companies, subsidiaries and non-resident PEs.  In light of the uncertainty created by this situation, the AG infers that as a rule, the tax treatment of non-resident PEs and foreign subsidiaries must be equal, as far as the deduction of final losses cannot be used in the PE’s state of origin. Such a tax treatment shall also be in line with the approach taken by ATAD (Directive 2011/96/EU, recital 9).

Considering that the losses in question of Bevola were final losses of a non-resident PE upon winding-up and arising from the closure of business, these could not be transferred to the company to which the PE belongs (the state of origin), and could therefore not be deducted from the basis of assessment in the origin state of the PE. Such a situation concerning final losses of a non-resident PE, according to the AG, could be covered by the Marks & Spencer exception.

On this basis, considering that the Danish legislation includes the revenues of resident and non-resident PEs within its power to tax, Denmark is bound to apply the equal treatment principle to comparable situations, therefore awarding the same tax treatment to loss relief of resident and non-resident PEs.

The Advocate General concluded that the Marks & Spencer exception could indeed be applicable to the dispute in question. If the final losses of a non-resident PE in Denmark cannot be offset in the origin country of the PE, there must be a possibility to claim loss relief in the host state (Denmark), equating the situation of resident and non-resident PEs under such comparable circumstances.

  • Opinion of Advocate General Sanchez- Bordona in the Case Bevola, Jens W. Trock ApS v Skatteministeriet (C-650/16) of 17 January 2018

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The selection of the remitted material has been prepared by

Piergiorgio Valente/ Aleksandar Ivanovski/ Mary Dineen/ Filipa Correia

 

 

Brussels, 12 February 2018

Commissioner Moscovici announces that European Commission will publish proposals on the fair taxation of the digital economy in March

In an interview to a French newspaper, the Commissioner reiterated the need for new proposals to tax large technology companies that are not currently paying their fair share of tax in Europe. He stated that the new proposals would be issued by the Commission in March.

Meanwhile, the Irish Minister for Finance addressed the Irish position on the fair taxation of the digital economy. Mr. O ‘Donoghue stated that in dealing with the tax challenges of the digitalised economy, of key importance is agreeing a definition for a digital transaction. He stated that to speak of “digital companies” or the “digital economy” fails to recognise that these are not external to the economy as a whole and that digital transactions form part of a wide range of business transactions in the modern economy. Therefore, it is essential to agree a definition of a digital transaction.

The Minister also highlighted the importance of taxing where value is created and the necessity to gain global support for any new rules.

EU Parliament agree to establish TAXE 3 investigation to probe tax evasion & avoidance

On 7 February, the European Parliament voted in favour of beginning a new investigation into financial crimes, tax evasion, and tax avoidance. The inquiry will seek to further the work of its predecessor inquiries, TAXE 1 and TAXE 2 and the work carried out by the PANA committee.

According to its the terms of reference, the inquiry, will include a focus on tax avoidance and evasion related to the digital economy, circumvention of VAT, methods used in the EU tax blacklist of third-country tax havens,  EU progress in removing harmful tax regimes, and the impact of bilateral tax treaties.

The OECD announces further developments in BEPS implementation

The OECD Inclusive Framework on BEPS has published additional guidance on country-by-country reporting regarding two specific issues: the definition of total consolidated group revenue and whether non-compliance with the confidentiality, appropriate use and consistency conditions constitutes systemic failure.

In addition, the Inclusive Framework published a document containing the compilation of approaches adopted in jurisdictions in circumstances where the guidance allows for alternative approaches.

The Inclusive Framework has also recently published results in the ongoing monitoring of preferential regimes as part of BEPS Action 5. A regime in Barbados was found to be “potentially harmful” whilst a regime in Canada was found to be “potentially but not actually harmful”. The OECD has updated the table of results from preferential tax regimes.

European Commission releases January Infringements Package – Includes a letter to U.K.  regarding use of the VAT MOSS system

The January infringements package included two cases related to taxation and customs. The Commission sent a letter of formal notice to the UK in relation to the MOSS, and in particular for failing to collect and transmit to other Member States the bank account details for each taxable person registered for MOSS. If the UK fails to act in the next two months, the Commission may send a reasoned opinion to the UK authorities.

The Commission has issued a reasoned opinion to the Italian authorities requesting the removal of a  restriction on the free movement of capital in relation to investment in real estate. The law in question excludes non-Italian EU citizens who do not intend to settle full time in Italy from availing of a reduced rate on the purchase of their first house in Italy.

 

 

Brussels, 05 February 2018

Bulgarian Presidency publishes list of direct tax priorities

The Tax Policy Roadmap of the Bulgarian Presidency of the Council was published on 30 January 2018. The roadmap sets out the future work of the Presidency in the coming 6 months. It cites the achievements of the BEPS roadmap as the basis for its work programme and priorities. The Presidency will take into consideration tax certainty, competitiveness in the area of taxation, digitalisation of economies, and the specific situations of multinationals when carrying out its work.

Short term goals

The Presidency aims to reach agreement on the Mandatory Disclosure Directive (“DAC 6”). The roadmap describes this proposed directive as the “last remaining element of disclosure and transparency that has not been addressed by the EU”. Building on the technical examination which took place under the previous Estonian Presidency, it is hoped that agreement will be reached early on this file.

Medium term goals

  • Digital economy

The Presidency will begin the technical examination of the proposal put forward by the European Commission at the end of the first quarter of 2018.

  • EU list of non-cooperative jurisdictions for tax purposes

The Presidency will carry out further work, including monitoring the implementation of the commitments received and agreeing procedures to carry out future monitoring processes. It will also examine future coordinated defensive measures.

  • Interest & Royalties Directive

Progress on this file has been very slow under previous Presidencies due to failure to reach agreement on alternatives to including a Minimum Effective Taxation clause. The Presidency will devote time to exploring how best to progress this file forward.

  • Common (Consolidated) Corporate Tax Base

The Presidency will begin a debate on how best to move this file forward. In addition to concluding the technical examination commenced under the Estonian Presidency, it will “limit immediate work on defining as broad as possible common corporate tax base at the EU level”.

  • Outbound payments

A preliminary draft of possible guidance on this subject was discussed in May 2017. No agreement was reached but it was decided to wait until new data was available on the effectiveness of anti-abuse measures in EU Directives. The Presidency will revisit this issue in the context of future coordinated defensive measures under the list of non-cooperative jurisdictions for tax purposes.

Bulgarian Presidency work programme for indirect tax outlined

The Tax Policy Roadmap of the Bulgarian Presidency of the Council also outlines the short and medium term priorities at this very important time for indirect taxation in the EU.

Short term priorities

  • As a formality the presidency will arrange for the signature of the EU Agreement on administrative cooperation combating fraud and recovery of claims in the field of VAT.
  • The Presidency will embark on the technical examination and discussion on the proposed Directives and Regulations necessary to implement the definitive VAT regime and reduce VAT fraud as a priority.
  • The Presidency will seek to obtain approval for the introduction of a minimum standard VAT rate of 15%.
  • In particular the Presidency will conduct technical examinations and political discussions on the following proposals:
    • Simplifying certain rules in the value added tax system and introducing the definitive system for the taxation of trade between Member States and changes regarding certain exemptions for intra-Community transactions.
    • Measures to strengthen administrative cooperation in the field of value added tax

Medium term priorities

  • The Presidency will begin the first round of technical examination of the proposals regarding simplification of VAT rates and VAT simplification for SMEs.
  • In addition, it will examine, and seek to reach agreement on a legislative proposal for the prolongation of the sectoral reverse charge, if presented by European Commission within the presidency.

EESC adopts Opinion on ‘Tax Intermediaries Directive” (Mandatory Disclosure rules)

The European Economic and Social Committee has published its Opinion on the Proposal for a Council Directive amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements.

The Opinion welcomes and supports the European Commission’s decision to tackle the problem of intermediaries enabling aggressive tax planning.

The Opinion states that whilst the EESC considers it important to ensure that the directive will be an effective deterrent to aggressive tax planning, in order to prevent over reporting, more precise requirements for qualification of reportable transactions are required.

In addition it states that detailed guidance should be issued in relation to the hallmarks, and draws particular attention to problems arising by virtue of the subjective nature of the hallmark requiring compliance with the arm’s length principle of the OECD transfer pricing guidelines.

Other points raised in the Opinion relate to ensuring the five day notification period is administratively feasible and ensuring that compliance costs for advisers and ultimately taxpayers are minimalised to ensure the proportionality of the Directive.

The European Commission launches website on tax and customs aspects arising from Brexit

The European Commission has launched a website focusing on the withdrawal of the U.K. from the European Union. The U.K. will officially be considered a third country from 30 March 2019. The website contains information about the impact the U.K.’s withdrawal will have on the taxation and customs union.

The launching of the website comes at a time when the EU has published details of measures it may take if the U.K. seeks to undercut the EU economy post Brexit. The publication identifies the clear risks relating to the possibility of the U.K. introducing a low tax rate and also identifies safe guards to ensure a level playing field post Brexit such as the use of tax blacklists.

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The selection of the remitted material has been prepared by

Piergiorgio Valente/ Aleksandar Ivanovski/ Mary Dineen/ Filipa Correia