CFE’s Tax Top 5 – February 2019

 

BRUSSELS  25 FEBRUARY 2019

OECD Extends Digital Tax Consultation Deadline

The OECD has extended the deadline for the public consultation concerning potential solutions to issues surrounding taxation of the digital economy. The public consultation will now run until Wednesday, 6 March 2019. Thereafter, the Inclusive Framework will hold a public consultation on 13 and 14 March 2019 in Paris as part of the meeting of the Task Force on the Digital Economy.

The consultation was launched following publication of a Policy Note identifying that discussions at OECD level will be based around two pillars. The first pillar will focus on how the existing rules that divide the right to tax the income of multinational enterprises among jurisdictions could be modified to take into account the changes that digitalisation has brought to the world economy. The second pillar aims to resolve remaining BEPS issues and will explore two sets of interlocking rules designed to give jurisdictions a remedy in cases where income is subject to no or only very low taxation.

The consultation document invites input concerning a number of technical and policy matters, in order to assist the Inclusive Framework with its task of developing a solution for inclusion in its final report to the G20, due in 2020. Comments should be addressed to the Tax Policy and Statistics Division, Centre for Tax Policy and Administration, and should be submitted in Word format via e-mail to [email protected] All comments submitted will be made publicly available by the OECD in due course.

European Commission Launches Brexit Customs Preparedness Information Webpage for SMEs

The European Commission has launched a webpage providing information for SME businesses on customs preparedness in the event of a “no deal” Brexit when the United Kingdom withdraws from the European Union on 29 March 2019.

The webpage details that customs formalities will apply from 30 March onwards for businesses trading with the United Kingdom, including requirements concerning custom declarations, import/exporting licenses, and the payment of duties on imports. In addition, the website notes that VAT will be due on importation, and that rules concerning cross-border refunds will change.
The page provides links to a Brexit factsheet, a checklist for traders, as well as notices concerning specific topics and contact numbers for the customs authorities in each Member State.

EU Parliament’s TAX3 Final Report to be Voted

On 27 February, the final report of the European Parliament’s Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3) will be voted.

The report presents the findings and recommendations of the rapporteurs following eight months of hearings by the Committee concerning anti-money laundering and aggressive tax planning. In addition, the vote on the final report will be broadcast live and can be viewed via the following link.

In the lead up to the vote on the final report, the TAX3 Committee has held meetings exchanging views with National Parliaments concerning anti-money laundering and taxation of the digital economy, and with Competition Commissioner, Margrethe Vestager, concerning recommendations of TAX3 and Parliament concerning fiscal state aid investigations.

Key recommendations in the report of co-rapporteurs Luděk Niedermayer and Jeppe Kofod are that the Commission and Council adopt a comprehensive definition of aggressive tax planning, as well as a definition of permanent establishment, economic activity requirements and expenditure tests to avoid companies having an artificial taxable presence in a Member State.

The rapporteurs Committee further recommends that EU efforts to fight corporate aggressive tax planning are strengthened, that the BEPS action plan is supplemented, and that Member States’ tax systems are scrutinised. They also calls on the Council to adopt the proposals on CCTB and CCTB as well as the digital tax package proposals.

The Committee calls for a broader scope for the exchange of tax rulings and for broader access by the Commission to those rulings, and guidance concerning what constitutes tax-related State aid and appropriate transfer pricing. The rapporteurs welcome the VAT action plan, but express regret that no safeguards were adopted concerning the Certified Taxable Person proposal.

OECD Invites Peer Review Report Input on Mutual Assistance Procedures

The OECD has now invited public input on the 8th batch of taxpayer questionnaires for Stage One Peer Reviews in the jurisdictions of Brunei Darussalam, Curaçao, Guernsey, Isle of Man, Jersey, Monaco, San Marino and Serbia.

The questionnaires are being undertaken as part of the peer review process under Action 14 of the BEPS Action Plan concerning taxation dispute resolution and the Mutual Agreement Procedure (MAP), aimed at making dispute resolution mechanisms more effective. To date, the results of five rounds of Stage 1 Peer Reviews have been released.

In particular, taxpayers are requested to provide input on issues concerning the access to MAP, the clarity of MAP guidance and implementation of MAP agreements concerning the jurisdictions. Taxpayers and business and industry associations are requested to complete the questionnaire by 19 March 2019.

Save the Date: CFE Tax Advisers Europe Forum 2019

Save the date for the CFE Tax Advisers Europe Forum 2019, to be held in Brussels on Thursday, 6 June 2019, on the topic of “Creating Tax Certainty in an Uncertain World: Double Taxation, Tax Rulings & Dispute Resolution Processes”.

The CFE Tax Advisers Europe Forum 2019 will examine existing co-operative compliance under Action 14 of the BEPS Action Plan and Mutual Agreement Procedure, as well as the EU Dispute Resolution Mechanisms Directive. The Forum will further discuss means of avoiding disputes, such as confirmatory tax rulings, State Aid challenges to advance transfer pricing agreements (APAs) and exchange of information. The Forum will also question the impact of potential further revisions of international taxation principles and corporate taxation reform contained in the EU anti-tax avoidance directives on tax certainty. More details about the programme and line-up of speakers will be available in due course.

Register now to benefit from early-bird registration prices and to secure your spot!

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

BRUSSELS 18 FEBRUARY 2019

OECD Launches Public Consultation on Taxation Challenges of Digitalisation

The OECD has published a public consultation document inviting comments on potential solutions to issues surrounding taxation of the digital economy, reflecting the high-level discussions held at Inclusive Framework meetings. This follows from a Policy Note released after the Inclusive Framework’s meeting in late January, identifying that discussions to reach a solution will be based around two pillars.
The first pillar will focus on how the existing rules that divide the right to tax the income of multinational enterprises among jurisdictions could be modified to take into account the changes that digitalisation has brought to the world economy. The second pillar aims to resolve remaining BEPS issues and will explore two sets of interlocking rules designed to give jurisdictions a remedy in cases where income is subject to no or only very low taxation.

The consultation document invites input sought concerning a number of technical and policy matters concerning the two pillars, in order to assist the Inclusive Framework in its task of developing a solution for inclusion in its final report to the G20, due in 2020.

The consultation document sets out that the Inclusive Framework are considering three “solutions” to the question of how to tax the digital economy, namely:

1. The “user participation” proposal – this proposal concerns engagement and active participation of users resulting in profit generation, such as from social platforms, search engines and online marketplaces. The proposal seeks to “revise profit allocation rules to accommodate the value creating activities of an active and engaged user base. In addition, the nexus rules would be revised so that the user jurisdictions would have the right to tax the additional profit allocable to them.” The proposal sets out that profit concerning user participation could be calculated through non-routine or a residual profit split approach.

2. The “marketing intangibles” proposal – this proposal is envisaged to change profit allocation and nexus rules, applying not only to user participation but also to businesses which are able to either remotely or through a limited local presence create a customer base. The proposal would accordingly “modify current transfer pricing and treaty rules to require marketing intangibles and risks associated with such intangibles to be allocated to the market jurisdiction. The proposal considers that the market jurisdiction would be entitled to tax some or all of the non-routine income properly associated with such intangibles and their attendant risks, while all other income would be allocated among members of the group based on existing transfer pricing principles.”

3. The “significant economic presence proposal” – This proposal envisages that a taxable presence in a jurisdiction would be dependent on a company meeting certain criteria that would establish “purposeful and sustained interaction with a jurisdiction” sufficient to amount to a significant economic presence”, including: “(1) the existence of a user base and the associated data input; (2) the volume of digital content derived from the jurisdiction; (3) billing and collection in local currency or with a local form of payment; (4) the maintenance of a website in a local language; (5) responsibility for the final delivery of goods to customers or the provision by the enterprise of other support services such as after-sales service or repairs and maintenance; or (6) sustained marketing and sales promotion activities, either online or otherwise, to attract customers”. Allocation of profit under this proposal would be based on a fractional apportionment method.

The public consultation will run until Friday, 1 March 2019. Thereafter, the Inclusive Framework will hold a public consultation on 13 and 14 March 2019 in Paris as part of the meeting of the Task Force on the Digital Economy. Comments should be addressed to the Tax Policy and Statistics Division, Centre for Tax Policy and Administration, and should be submitted in Word format via e-mail to [email protected] All comments submitted will be made publicly available by the OECD in due course.

European Commission Adopts List of High Risk Third Countries for Anti-Money Laundering Directive

The European Commission has adopted a Delegated Regulation identifying a list of high-risk third countries with deficiencies in their anti-money laundering and counter terrorist financing regimes, in compliance with obligations under the 4th and 5th Anti-Money Laundering Directives.

The list was prepared following an analysis of 54 jurisdictions publicly identified to be assessed as a matter of priority for the purposes of compiling the list, on the basis that they either had strong economic relevance or ties with the EU, had been reviewed by the IMF as offshore financial centres or had systemic impact on the integrity of the EU financial system.

The jurisdictions included on the Delegated Regulation are: Afghanistan, American Samoa, The Bahamas, Botswana, Democratic People’s Republic of Korea, Ethiopia, Ghana, Guam, Iran, Iraq, Libya, Nigeria, Pakistan, Panama, Puerto Rico, Samoa, Saudi Arabia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia, US Virgin Islands and Yemen.

The Commission will engage with the countries identified in the Delegated Regulation concerning delisting criteria and securing undertakings to remedy deficiencies identified, so that the jurisdictions can possibly be delisted. The Commission will follow up on those undertakings and update the list accordingly.

The Delegated Regulation will now be submitted to Parliament and Council for approval. Following approval, it will thereafter be published in the Official Journal and enter into force 20 days thereafter.

General Court Annuls Commission’s State Aid Decision in Belgian ‘Excess Profit’ Scheme

The General Court annulled the Commission tax related State aid decision in the Belgian excess profit rulings cases (Cases T-131/16 and T-263/16 Kingdom of Belgium v European Commission). This was a highly anticipated decision considering that the Court for the first time had an opportunity to interpret the Commission’s understanding of the arm’s length principle under EU State aid law and the competence of the Commission to assess individual tax rulings. It transpires that the decision did not invalidate Commission’s substantive interpretation of the State aid rules, but challenged the methodology of assessment and the classification of the aid as a “scheme”. Further clarity on the matter will be offered on potential appeal and in highly anticipated rulings in the cases like Apple, Starbucks and Fiat.

The original Commission decision established that the Belgian “excess profit” tax scheme had allowed multiple European MNEs in Belgium to benefit from a corporate tax base reduction for the generated excess profits. Commission’s State aid investigation found that Belgium had established an “aid scheme”, derogating from Belgian tax law and the “arm’s length principle” as interpreted by the European Commission. The “excess profit” scheme was marketed by the Belgian government under the strapline “Only in Belgium”.

The alleged error in law brought up by the Belgian government and the beneficiaries amounted to competence issues and methodology- related arguments. Belgium challenged European Commission competence to assess the State aid compliance of administrative measures in the direct tax area (tax rulings), invoking national sovereignty prerogative and methodological arguments related to the assessment of the alleged aid as an “aid scheme”. The General Court dismissed the first plea, reaffirming Commission’s competence to assess the State aid compliance of national direct tax measures, including administrative decisions such as tax rulings. The Court noted that while direct taxation, as EU law currently stands, falls within the competence of the Member States, they must nonetheless exercise that competence consistently with EU law, in particular primary EU law (fundamental freedoms and State aid rules). Accepting the second plea, the Court disagreed with the Commission’s assessment that the tax rulings constituted an “aid scheme”. Significantly, the Belgian tax authorities had influence over the essential elements of the tax rulings system, which precludes the existence of an aid scheme. Further, it was established that the Procedural Regulation (EU/2015/1589) defines aid beneficiaries “in a general and abstract manner” for an infinite period of time, which was not the case with the Belgian “excess profit” rulings.

Commenting, Ricardo Cardoso, European Commission DG COMP spokesperson, said: “The Commission took note of the ruling and will now carefully consider the decision and possible further steps. However, at the moment, I cannot speculate on whether there will be an appeal or not”.

OECD Publishes Peer Review Reports On Tax Dispute Resolution and Treaty Shopping

The OECD has released Peer Review Reports on Action 6, concerning the prevention of granting treaty benefits in inappropriate circumstances, and Action 14, concerning making dispute resolution mechanisms more effective.

The report concerning Action 6 sets out that the majority of the Inclusive Framework jurisdictions are in the process of modifying treaties in order to comply with their commitments made concerning treaty shopping, demonstrating the effectiveness of the BEPS MLI.

Peer review reports concerning Action 14’s tax dispute resolution in the jurisdictions of Estonia, Greece, Hungary, Iceland, Romania, Slovak Republic, Slovenia and Turkey set out more than 200 recommendations for improving tax dispute resolutions. Notwithstanding this, the OECD states “these stage 1 peer review reports continue to demonstrate that countries remain dedicated to turning the political commitments made by members of the OECD/G20 Inclusive Framework on BEPS into measureable, tangible progress. Countries from previous batches are already working to address deficiencies identified in their respective peer review reports”.

EU Parliament Adopts Resolution on Technical Measures to Introduce Definitive VAT Regime

The European Parliament at its plenary session on 12 February voted and adopted a legislative resolution setting out its opinion on recommended amendments to the EU Commission proposal for a Council directive as regards the introduction of the detailed technical measures for the operation of the definitive VAT regime system for the taxation of trade between Member States.

Parliament calls on the Commission to establish strict harmonised criteria and guidelines through which enterprises can benefit from being categorised as a certified taxable person, with common rules and provisions concerning fines and penalties for non-compliance. Further, Parliament calls on the Commission to analyse whether the temporary application of the reverse charge mechanism ought to be repealed following implementation of the definitive VAT regime. As concerns SMEs, the Parliament recommends a web information portal be accessible for businesses providing up-to-date information about VAT rates for goods and services in different Member States, as well as a tailored procedure for SMEs. Parliament also calls on the Commission to guarantee the transparency of the definitive VAT regime system, and to publish annual reports concerning VAT fraud.

Discussions between Members States at the EU Council concerning the proposed Directive are ongoing.

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

 

BRUSSELS  11 FEBRUARY 2019

UK Simplifies “No-Deal” Brexit Transitional Customs Arrangements

The UK revenue authority, HMRC, has written to almost 150,000 VAT-registered businesses detailing simplified transitional procedures that will come into effect in the instance of a “no-deal” Brexit.

Businesses established in the UK which import goods from the EU into the UK that register to be subject to transitional simplified procedures will be entitled to transport and import goods without the need for making customs declaration duties at the border. They will also be entitled to delay payment of import duties, if so desired.

Treasury Minister, Mel Stride MP, the Financial Secretary to the Treasury, stated “leaving the EU with a deal remains the government’s top priority. This has not changed. However, a responsible government must plan for every eventuality, including a no deal scenario. Businesses and citizens should ensure they are similarly prepared for leaving the EU.”

EU Code of Conduct Group Publishes Work Programme

The Code of Conduct Group (Business Taxation) of the Council of the European Union has published its Work Programme under the Bulgarian Council Presidency.

Areas of priority for the Code of Conduct Group include:
• Developing guidance on coordinating implementation of OECD BEPS conclusions on Actions 8-9-10, concerning aligning transfer pricing outcomes with value creation, and Action 13, concerning transfer pricing documentation;
• Developing guidance on notional interest deduction regimes;
• Reviewing the list of non-cooperative jurisdictions for tax purposes; and
• Developing draft guidance concerning coordinated defensive measures against non-cooperative jurisdictions.

The Group will also assess Member States’ compliance with Guidance issued in 2000 on rollback and standstill concerning finance branches, holding companies and headquarter companies.

In addition, the Group has now appointed a new chairperson, Lyudmila Petkova from Bulgaria, who will serve in the role for the following two years. She replaces Fabrizia Lapecorella, from Italy, who chaired the group from 2017 until 2019.

Company Law Package Agreed by Parliament and Council

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 have been provisionally agreed by Parliament and Member States. The rules provisionally agreed allow companies to register, set up new branches or file documents online. The other part of the package concerns cross-border conversions, mergers and divisions, and envisages common EU rules for cross-border conversions and divisions aiming to update existing ones to facilitate reorganisation, provided that the operations are genuine. Parliament and Council are yet to agree this part of the package.

First Vice-President Frans Timmermans and Commissioner for Justice, Consumers and Gender Equality, Věra Jourová stated of the provisional agreement: “The digitalisation of company law will help entrepreneurs create and run companies more easily, especially when they want to operate in different EU countries. By using digital tools, companies will save time and money when they launch a new business or branch and update information available on business registers. Strong safeguards and the exchange of information between Member States will prevent fraud. It is now essential that discussions with the Parliament and Council progress quickly on the other part of our Company Law package – the proposal on company mobility – so that it can be adopted before the European elections. It will provide for clear procedures for companies who want to move and grow in the Single Market, with strong safeguards to protect employees and prevent abuses, including for tax purposes.”

Italian Digital Services Tax Published in Official Gazette

The Italian budget for 2019 which introduces a digital services tax has been published in the Official Gazette. The tax will apply to digital services of: advertising provided by way of interface, digital platform interface services and collection of user data, at a rate of 3% on net revenues over €750 million, if the annual revenues from digital services in Italy exceeds €5.5 million.

Provided the Italian Ministry of Finance issues an implementing decree by 30 April 2019, the digital services tax will apply from 60 days after publication of that decree in the Official Gazette. It is also anticipated that the Italian revenue will issue guidance on the application of the digital tax.

EU Parliament’s Tax Inquiry Committee to Vote on Final Report

European Parliament’s Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance, (“TAX3”) will meet on 27 February to vote on the draft Report setting out the recommendations of the Committee following hearings concerning anti-money laundering and aggressive tax planning.

Key recommendations in the report are that the Commission and Council adopt a comprehensive definition of aggressive tax planning, as well as a definition of permanent establishment, economic activity requirements and expenditure tests to avoid companies having an artificial taxable presence in a Member State. The rapporteurs further recommend that EU efforts to fight corporate aggressive tax planning are strengthened, that the BEPS Action Plan is supplemented, and that Member States’ tax systems are scrutinised. They also call on the Council to adopt proposals on CCCTB and CCTB, as well as the digital tax package proposals. The Committee calls for a broader scope for the exchange of tax rulings and for broader access by the Commission to those rulings, as well as guidance concerning what constitutes tax-related State aid and appropriate transfer pricing.

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

BRUSSELS 4 FEBRUARY 2019

OECD Inclusive Framework Makes Important Progress on Digital Taxation

On 23-24 January, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) met, bringing together 264 delegates from 95 member jurisdictions and 12 observer organisations. The jurisdictions agreed to step up efforts toward reaching a global solution on how to best tax multinational enterprises in a rapidly digitalising economy.

It was further agreed at the meeting that future discussions to reach a solution will be based around two pillars, identified in a new Policy Note released after the Inclusive Framework’s meeting. The first pillar will focus on how the existing rules that divide the right to tax the income of multinational enterprises among jurisdictions could be modified to take into account the changes that digitalisation has brought to the world economy. The second pillar aims to resolve remaining BEPS issues and will explore two sets of interlocking rules designed to give jurisdictions a remedy in cases where income is subject to no or only very low taxation.

Given the significance of the new proposals for the international tax system, the Inclusive Framework will issue a consultation document that describes the two pillars in more detail, and a public consultation will be held on 13 and 14 March 2019 in Paris as part of the meeting of the Task Force on the Digital Economy.

US Treasury Deputy Assistant Secretary for International Tax Affairs, Lafayette G. “Chip” Harter III, said of the developments “I was encouraged by the pragmatism that I was seeing around the room…There simply is no mechanism that offers the capabilities of the OECD to try to broker a new multilateral agreement on allocating taxing jurisdiction. I think there is some hope that we can push this through successfully.”

EU Council’s Code of Conduct Group Publish Letters Seeking Commitments on Tax Regimes

On 1 February, the Code of Conduct Group (Business Taxation) of the Council of the European Union for transparency reasons published letters seeking commitments from the jurisdictions of Barbados, Belize, Curaçao, Mauritius, Saint Lucia and Seychelles to replace harmful preferential tax regimes with alternative measures.

The letters identify preferential tax regimes which have been introduced in the jurisdictions which exempt foreign income from taxation, and ask that the jurisdictions abolish the regimes by the end of 2019 without any grandfathering mechanisms being introduced.

The letters indicate that should the regimes not be abolished, the Code of Conduct Group will revisit its recommendations to the Council of the EU as to whether the jurisdictions ought to be included on the List of Non-cooperative Jurisdictions for Tax Purposes.

ECOFIN Ministers to Address Commission’s Qualified Majority Voting Roadmap

Ministers attending the ECOFIN meeting scheduled to take place on 12 February 2019 will discuss in detail the European Commission Roadmap which sets out a 4-step plan as to how decision making on tax matters could be modified to take place by way of qualified majority voting. It proposes to utilise the passerelle clauses contained in Article 48(7) and Article 192(2) of the Treaty on European Union to produce initiatives changing the scope of decision-making procedures.

The Commission has called for the European Council, European Parliament and all stakeholders to launch an open debate on QMV in EU tax policy, and has invited leaders to endorse its Roadmap, particularly as concerns the use of the passerelle clause for Step 1 and 2 of its Roadmap, and consider the use of the passerelle clause in Step 3 and Step 4.

OECD Publishes 2018 Harmful Tax Practice Progress Report

The OECD has released a new publication, called Harmful Tax Practices – 2018 Progress Report on Preferential Regimes, with results demonstrating that jurisdictions have delivered on their commitment to comply with the standard on harmful tax practices, including ensuring that preferential regimes align taxation with substance.

The report also delivers on the Action 5 mandate for considering revisions or additions to the FHTP framework, including updating the criteria and guidance used in assessing preferential regimes and the resumption of application of the substantial activities factor to no or only nominal tax jurisdictions. The report concludes in setting out the next key steps for the FHTP in continuing to address harmful tax practices.

Ireland Ratifies OECD’s MLI

Ireland has now ratified the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. 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.

The MLI 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. There are now 87 jurisdictions that are signatories to the treaty.

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