CFE’s Tax Top 5 – January 2019

BRUSSELS 28 JANUARY 2019

EU Endorses Europe-wide Protection of Whistleblowers

On Friday 25 January the EU Council, at the Committee of Permanent Representatives (COREPER) to the EU, reached agreement at ambassadors’ level on its position on the Commission proposal establishing EU-wide protection of whistleblowers, including those reporting on issues related to tax matters. Negotiations with EU Parliament will now commence, with the aim of reaching agreement before the end of the current EU parliamentary term. The Council is also required to formally adopt the directive.

Progress related to whistleblowers’ protection at EU level came close to a halt when the opinion of the Legal Service of the Council of the EU was presented to a Working Group on 17 December. The opinion divided Member States, considering the recommendation to split the original “horizontal- protection” single EU directive into separate pieces of legislation. As such, the opinion would necessitate that tax whistleblowers are protected under separate legislation (requiring unanimity), which is difficult to obtain in any event.

A game changer, reportedly, was the COREPER meeting of 16 January (Brussels jargon for the Member States’ permanent representatives – ambassadors or their deputies accredited to the EU), when the majority of Member States decided to overrule the advice. Member States agreed that protection to whistleblowers, including those that report on tax evasion, should be covered under one piece of legislation, as originally proposed by the European Commission.

The text agreed by COREPER has introduced various provisions, including a requirement to follow internal reporting processes save for in circumstances where public reporting is required on the basis of imminent danger. The agreed text also introduces an article setting out certain criteria that need to be satisfied in order to benefit from protection in the instance of public reporting. Feedback obligations for authorities and companies have also been included. However, COREPER did not make substantial revisions to the range of persons to be protected by the Directive.

In July, the CFE issued an Opinion Statement on the EU Commission proposal, which set out CFE’s support for proposals that seek to establish horizontal rules for protection of whistleblowers, as well as their role in advancing public policy interests, specifically reporting tax fraud, corruption, abusive and illegal practices. The Opinion Statement highlighted certain aspects of the Commission proposal in relation to taxation that in our members’ view merit further technical refinement, in particular the broad wording of Article 1(1)d. The Council’s position retains the wide scope of application, as proposed by Commission.

BIAC Sets Out Businesses Views on Taxation of the Digital Economy

BIAC, the voice of business at the OECD representing over 7 million companies, has set out policy recommendations on the reform principles related to the taxation of the digital economy. BIAC endorses the OECD Interim Report of March 2018 and welcomes the process within the OECD Inclusive Framework, as the most appropriate platform to address the tax challenges of the Digital Economy.

Commission Publishes January Infringement Package

The European Commission has published its January infringement package setting out the legal action being pursued against various Member States by the Commission for non-compliance with obligations under EU law.

In State aid matters, the Commission has issued a letter of non-compliance to Greece for not having implemented the ruling of the Court of the Sixth Chamber in Case C-481/16, European Commission v Hellenic Republic, concerning its failure to recover aid granted to LARCO in the amount of 135.8 million Euros, held to be illegal and incompatible by the Commission in its decision dated 27 March 2014.

The Commission referred to the Court of Justice Germany for failure to align national legislation with EU rules in relation to VAT refunds, Italy for failure to align national legislation to provide citizens who live abroad with a reduced tax rate on purchases of property in Italy and to the UK for extending the VAT derogation concerning transactions carried out on certain commodities markets.

The Commission also sent letters of formal notice to Hungary for failing to align its minimum tax rates on cigarettes with EU standards, and for infringing tax rules by introducing administrative formality for border crossings through requiring companies provide VAT information on business-owned transport using public roads. Poland was sent a formal notice requesting it bring into line VAT rules concerning goods facilitated by consignees, to Romania to align customs debt legislation and to Spain concerning unduly restrictive conditions being imposed on tax deferrals for divisions of companies that are contrary to the Merger Directive. In addition, infringement proceedings were commenced against Portugal for non-alignment of registration tax on used cars.

The Commission discontinued infringement cases opened in 2018 against the Czech Republic, Poland and Greece for failing to implement into national legislation Council Directive 2016/2258 concerning the mandatory automatic exchange of information in the field of taxation as regards Member States’ access to anti-money laundering information, following those countries having now successfully implemented the Directive.

OECD Tax Talks

The OECD will be hosting a Tax Talk webcast on 29 January 2019 at 15:00 to 16:00 CET. The webcast will cover the topics of tax and digitalisation, BEPS implementation and the new OECD Corporate Tax Statistics. Those interested in participating in the webcast can register here.

ICAEW Publishes Digitalisation of Tax – International Perspectives

The ICAEW, the Institute of Chartered Accountants in England and Wales, a Member of CFE Tax Advisers Europe, has published a 2019 edition of its Digitalisation of Tax – International Perspectives publication. The publication is intended as a guide to trends in digital tax administration, and to that end reviews the current practices in 12 countries, including Australia, Brazil, Canada, China, the Czech Republic, Estonia, Italy, Nigeria, Singapore, the UK and the USA.

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

BRUSSELS 21 JANUARY 2019

EU Commission Publish 4-Step Plan to Implement Qualified Majority Voting in Taxation Matters

On 15 January, the European Commission published a communication 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. The Commission proposes that the European Council could utilise the passerelle clauses contained in Article 48(7) and Article 192(2) of the Treaty on European Union to produce initiatives indicating the scope of change in the decision-making procedure, and notify National Parliaments. If not opposed within 6 months, the European Council can then adopt the decision by unanimity, after obtaining the consent of European Parliament.

The Commission in its communication states that unanimity in decision making in tax matters has hampered progress on important tax initiatives, needed to strengthen the Single Market and boost EU competitiveness, and identifies the “cost” of non-action in EU Tax Policy as failure to progress the VAT definitive regime, CCCTB, financial transactions tax and digital services tax proposals. The communication proposes a 4-step process to modify the way the EU exercises its competences in taxation as follows:

Part 1 – Employ QMV for measures that have no impact on Member States’ taxing rights, bases or rates, but are critical to combat tax fraud, evasion and avoidance and in facilitating tax compliance in the Single Market.

• Aimed at measures such as administrative cooperation and mutual assistance, legislating BEPS actions and reporting obligations.
• Suggested timeframe of Commission: “decision to be taken swiftly”.

Part 2 – Employ QMV for measures of a fiscal nature designed to support other policy goals.

• Aimed at measures that support EU policy goals such as measures concerning climate change, environmental protection, public health or transport policy.
• Suggested timeframe: “decision to be taken swiftly”.

Part 3 – Introduce QMV in areas that are largely harmonized but which must evolve and adapt to new circumstances.

• Aimed at measures relating to VAT and excise duties.
• Suggested timeframe for implementation: by 2025.

Part 4 – Introduce QMV for other initiatives in the taxation area necessary for the Single Market and for fair and competitive taxation in Europe.

• Aimed at initiatives/measures such as CCCTB, taxation of the digital economy etc.
• Suggested timeframe: by 2025.

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.

Public Country-by-Country Reporting Back on Council Agenda

Ahead of the Council of EU Company Law Working Party group meeting scheduled for 24 January 2019, the Romanian EU Presidency published a presidency compromise text of the revised proposal for public country-by-country reporting (CbCR) in the EU. The proposal does not introduce significant amendments compared to the compromise reached earlier in negotiations.

Considering that no significant action has been taken on the issue since the EU Parliament vote in 2017, the Member States are still assessing the situation. Whilst previous Council Presidencies were taking a “wait and see” approach, the Romanian presidency is keen on re-examining the proposal.

Progress on public CbCR came to a halt when the Council Legal Service issued its Opinion in November 2016. The Opinion concluded that public CbCR was a taxation matter and did not fall within the ambit of the Accounting Directive, contrary to what was found by Commission Legal Services. The Opinion is based on the premise that the purpose of the proposals is the protection of the functioning of the internal market and prevention of tax avoidance rather that the protection of shareholders and the public interest under Article 50 TFEU.

In order for the public CbCR proposals to be characterised a “tax file” by the EU Commission, Member States must unanimously request that the Commission do so, therefore the legal Opinion alone has limited practical consequences without subsequent action. Some Member States still challenge the proposed legal basis of the original proposal, suggesting that it relates to taxation matters therefore falls within the ambit of Article 115 TFEU.

The European Parliament appears to be maintaining its steadfast support and went a step further in its initial opinion. The parliamentary Rapporteurs originally proposed the reduction of the 750 million euro threshold to 40 million and to extend the scope of the publication of the information beyond that relating to EU countries to every country in which they operate. The question of the legal basis was also assessed.

After the vote on the report in a joint committee meeting on 12 June 2017, the amendments were adopted by Plenary on 4 July 2017 (including a compromise on the 750 million euro threshold) and the file was referred back for inter-institutional negotiations.

UK’s HMRC Launches “Profit Diversion Compliance Facility”

The UK’s revenue authority, HM Revenue and Customs, has launched an online facility enabling MNEs to make disclosures and remedy compliance in relation to any arrangements they have in place which may not be in line with the OECD Transfer Pricing Guidelines and UK Diverted Profits Tax (“DPT”) rules. The facility also provides MNEs with the opportunity to submit proposals concerning payment of any tax, interest or penalties that may be due in relation to arrangements that are not compliant with UK DPT.

Significantly, HMRC will treat disclosures made through the Facility as ‘unprompted’ for the purposes of calculating penalties, and will not charge penalties for inaccuracies in returns or for failures to notify of any diverted profits if reasonable care has been taken or a reasonable excuse can be demonstrated, provided that registration takes places before 31 December 2019 and the requirements of the facility are met. Additionally, if a MNE complies with the terms of the facility, HMRC will not publish details of the entity as would otherwise occur.

Gary Ashford, Vice-President of CFE Tax Advisers Europe, discussed the facility in a recent interview, noting that “The timing of this new facility is particularly interesting, at the same time as many jurisdictions, including the UK Crown Dependencies and Overseas Territories, introduce legislation on substance requirements to address the concerns of the international community, including the EU, in relation to their code of conduct on business taxation.”

Faroe Islands & Greenland Join OECD BEPS Inclusive Framework
The Faroe Islands and Greenland have now joined the OECD’s BEPS Inclusive Framework. 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. There are now 127 jurisdictions that are participating in the project.

In addition, Belize has now become the 86th jurisdiction to sign the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. Monaco also deposited its instrument of ratification concerning the convention. 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.

CFE 2018 Technical & Policy Publications

2018 was a significant year for tax policy, both within Europe and across the world, and CFE’s technical output concerning the many important tax policy developments was a crucial means of exchanging information and contributing to the discussion concerning the development of tax law in Europe.

The CFE 2018 Technical & Policy Publications is a collection of all CFE Tax Advisers Europe position papers released in 2018. We invite you to read the publications and remain at your disposal for any questions you may have.

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

BRUSSELS 14 JANUARY 2019

EU Commission Consultation on Moving to Qualified Majority Voting in Taxation Matters

The European Commission has invited public feedback concerning a roadmap which proposes decision making on tax matters could take place by way of qualified majority voting, rather than by unanimous agreement. The Commission’s roadmap states “progress in EU tax policy is severely hampered by the unanimity requirement and important projects for the Single Market, EU growth and competitiveness as well as fiscal fairness have been blocked as a result. To keep pace with rapid economic, societal and technological developments, the European Union needs to be equipped with efficient decision-making tools that enable to act in a timely and effective manner”.

The roadmap sets out that the communication will explore the possibility contained in Article 48(7) of the TEU, which allows the Council to change decision making from unanimity to qualified majority voting, whereby legislative proposals can become EU law if supported by a minimum number of EU countries, representing a minimum share of the EU population. The consultation will run until 17 January 2019.

EU Commission Announces State Aid Investigation into Netherlands’ Tax Rulings to Nike

The European Commission has opened an in-depth investigation into tax rulings made by the Netherlands concerning two Nike companies established in the Netherlands, and whether through those rulings they gave the companies an unfair advantage over their competitors. The Commission will investigate whether the accepted transfer pricing method used to establish royalty payments made by two operating companies to the Dutch partnerships which owned the IP rights of the products sold by the entities were in keeping with the arm’s length principle. The partnership entities were not taxed in the Netherlands.

Speaking in relation to the investigation, Commissioner Vestager stated “Member States should not allow companies to set up complex structures that unduly reduce their taxable profits and give them an unfair advantage over competitors. The Commission will investigate carefully the tax treatment of Nike in the Netherlands, to assess whether it is in line with EU State aid rules. At the same time, I welcome the actions taken by the Netherlands to reform their corporate taxation rules and to help ensure that companies will operate on a level playing field in the EU.”

The Commission’s interpretation of the arm’s length principle is currently being examined by the Court of Justice of the European Union in relation to other recent Commission State aid cases, including Starbucks, Apple and Amazon.

France and Austria to Introduce Unilateral Digital Tax Measures in 2019

The Council of the European Union sitting as ECOFIN (Economic and Financial Affairs Council) have to date failed to reach agreement on European Commission proposals for a digital services tax in the EU. At the December ECOFIN a Franco-German ‘sunrise clause’ proposal was put forward, wherein it was suggested that the Commission and Council should amend the proposed digital services tax such that it would be a 3% turnover tax to apply to digital advertisement services to enter into force on 1st January 2021, if no international solution has been agreed upon by that date, and expire by 2025. In the instance an international solution has been agreed and translated into EU law before the proposed implementation date, France and Germany proposed that the directive could then be withdrawn by majority vote.

However, since the December ECOFIN, both France and Austria have stated they will introduce unilateral national taxes on digital services. French Economic Minister Bruno Le Maire stated to France 2 that “I am giving myself until March to reach a deal on a European tax on the digital giants. If the European states do not take their responsibilities on taxing the GAFA, we will do it at a national level in 2019.”

Additionally, Austrian Chancellor Sebastian Kurz released a statement in late December setting out that Austria, “In addition to the European plan … will take a national step. We will introduce a digital tax in Austria. The aim is clear: taxation of companies that make large profits online but barely pay taxes – such as Facebook and Amazon.” Details of the tax are expected to be announced at a Cabinet meeting this month.

Netherlands Compiles Low-Tax Jurisdiction List for Anti-Tax Avoidance Measures

The Netherlands has issued a publication containing a list of “low tax” jurisdictions, i.e. jurisdictions with a corporate tax rate which is lower than 9%, that will be subject to new national anti-tax avoidance measures. The jurisdictions on the list include the countries currently remaining on the EU List of Non-Compliant Jurisdictions for Tax Purposes, namely Guam, Samoa, Trinidad and Tobago and the US Virgin Islands. In addition, Anguilla, the Bahamas, Bahrain, Belize, Bermuda, the British Virgin Islands, Guernsey, the Isle of Man, Jersey, the Cayman Islands, Kuwait, Qatar, Saudi Arabia, the Turks and Caicos Islands, Vanuatu and the United Arab Emirates are included on the list.

Countries on the list will be subject to measures aimed at combatting tax avoidance. These include a measure concerning controlled foreign companies aiming to prevent companies moving assets to low-tax jurisdictions and a measure to introduce a conditional withholding tax on interest and royalties from 1 January 2021, whereby companies registered in jurisdictions on the list will be subject to pay a 20.5% tax on interest and royalties received from the Netherlands. Additionally, any companies with headquarters in the jurisdictions on the list will no longer receive rulings from the Dutch Tax and Customs Administration.

CFE Biannual Publications Report 2017 – 2018

In its role as interlocutor in dialogue with EU institutions on tax technical and tax policy matters, CFE Tax Advisers Europe published various opinion statements throughout 2017 and 2018. The publications are also a key tool for informing internal and external stakeholders of relevant developments.

For your convenience, please find a report compiling the technical output of CFE for 2017 and 2018, with links to the publications contained in the report. We invite you to read the publications and remain at your disposal for any questions you may have.

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

BRUSSELS 7 JANUARY 2019

ATAD Provisions Apply From 1 January 2019

The provisions of the EU Anti-Tax Avoidance Directive (ATAD) became applicable on 1 January 2019, which was the implementation deadline for national transposition legislation. The Directive contains five legally binding anti-abuse measures, which all Member States should apply against common forms of aggressive tax planning. The anti-abuse measures, apart from hybrid mismatches, include: CFC rules, switchover rule, exit tax rules, GAAR and interest limitation rules.

Article 4 ATAD requires from EU Member States to introduce interest limitation rules before 1 January 2019. According to Article 11(6) ATAD, Member States which have existing national rules for preventing BEPS risks at 8 August 2016, which are equally effective to the interest limitation rule set out in the ATAD, may apply these targeted rules until 1 January 2024, in line with the OECD minimum standard regarding BEPS Action 4.

On 7 December 2018, the European Commission published in Official Journal a Notice on national interest limitation measures considered equally effective to Article 4 of the Anti-Tax Avoidance Directive. The measures include: Spain — Articles 16 and 63 of ‘Ley 27/2014, Del Impuesto Sobre Sociedades (territorio comun)’ and Article 24 of ‘Ley Foral 26/2016, Del Impuesto Sobre Sociedades (Navarra); France — Article 212 bis of ‘Code général des impôts (“rabot”)’; Slovakia — Section 21a of Act No 595/2003 Coll; Slovenia — Article 32 of ‘Zakon o davku od dohodkov pravnih oseb’ (ZDDPO-2); and, Greece — Article 49 of Law 4172/2013.

EU DAC Implementation Report Published

The European Commission published the first report on the implementation of the Directive on Administrative Cooperation (“DAC”). The report highlights EU’s improved tax transparency record due to the DAC implementation and the automatic exchange of information (“AEOI”). Notably, only in 2017 Member states have exchanged information on almost 9 million financial accounts with a total balance of nearly €3 trillion. The report also indicates that Member states were able to use such data to increase their tax base due to awareness of potentially taxable foreign income and capital of their tax residents.

By way of conclusions, the report identifies that tax authorities mainly use the AEOI for risk assessment and personal income tax assessment. However, several Member States still make very limited use of the information they receive. The main benefits of AEOI lie in the increased tax compliance and in the deterrent effect for taxpayers. Member States often send information that does not include all necessary identification elements, which would permit an automated matching of this information with the one available nationally. As a way forward, two areas of improvement were identified: enhanced quality of information and better use of data received via AEOI. Such support mechanisms already exist within the FISCALIS programme of the European Union.

EU 2018 Tax Policy Survey

The “Tax Policies in the EU survey” for 2018 was published by the European Commission on 19 December. The report found that the European Union continues to make progress towards a sustainable recovery, with a return to robust economic growth and employment rates reaching record highs in some Member States.

Further, the report highlights that the headline corporate income tax rates continue their downward trend in 2018, but fewer measures are taken to compensate those cuts by tax base broadening measures. After years of major changes, only few reforms in personal income taxation took place in 2018. Similarly, changes to consumption taxes were generally minor.
New elements of this year’s edition include a summary of important business taxation reforms in third countries, an analysis on taxation as an environmental policy instrument, a focus on the implications of new forms of work for labour taxation, an analysis of the influence of the overall tax mix on progressivity, and an overview of recent EU tax initiatives. The annual survey examines how Member States’ tax systems help to promote investment and employment, how they are working to reduce tax fraud, evasion and avoidance, and how tax systems help to address income inequalities and ensure social fairness.

EU Commission: Gibraltar Tax Rules Contrary to State Aid Law

European Commission investigation has concluded that Gibraltar’s corporate tax exemption regime for interest and royalties, as well as five individual tax rulings, provide selective tax advantage and are therefore illegal under EU State aid rules. The beneficiaries have to repay back taxes of around €100 million. The EU Commission stated that during the investigation, Gibraltar amended its tax rules to enhance its tax ruling procedure. Further, Gibraltar reinforced its transfer pricing rules, enhanced taxpayers’ obligations and improved transparency on how it implements its territorial taxation system. These amendments entered into force in October 2018.
Gibraltar is part of the United Kingdom, but follows separate tax rules. The EU State aid rules continue to apply to the UK until it has left the EU. After 29 March the application of EU State aid rules in the UK will be regulated by the Withdrawal Agreement, subject to ratification by the EU and the UK.

CFE Annual Report 2018

At the end of last year, CFE Tax Advisers Europe, in cooperation with IBFD, published the Annual Report for 2018. We invite you to read the publication if you did not have the opportunity to do so during the holidays. A very happy New Year from all of us at CFE!

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