CFE’s Tax Top 5 – July 2018

BRUSSELS 30 JULY 2018

OECD Invites Input on Dispute Resolution Peer Reviews

As a follow-up of BEPS Action 14, the OECD invites taxpayers’ input to inform and improve the tax treaty dispute resolution process, as a priority of the BEPS project. The OECD is gathering contributions from taxpayers on specific issues relating to access to MAP, clarity and availability of MAP guidance and the timely implementation of MAP agreements using the taxpayer input questionnaire. This particular stage concerns the following jurisdictions: Argentina, Chile, Colombia, Croatia, India, Latvia, Lithuania and South Africa. OECD encourages taxpayers as key benefiters from the MAP process to fill in the questionnaire and submit it to fta.map@oecd.org (in Word format) by 24 August 2018 at the latest.

ECJ Judgment on Irrecoverable Default Interest Related to Cross-Border Withholding Tax in Case C-553/16

The Seventh Chamber of the Court of Justice delivered a judgment on 25 July 2018 in the case C-553/16 TTL, which concerns a restriction of the freedom to provide services by the Bulgarian tax legislation concerning the tax treatment of irrecoverable default interest related to cross-border withholding tax which is ultimately not due.

Restriction to the Freedom to Provide Services
The dispute in the main proceedings concerns interpretation of the Bulgarian corporate income tax legislation and Tax Procedural Code that stipulates that a resident company which pays out income to a non-resident one must pay default interest in the event of non-payment of withholding tax. Such an irrecoverable default interest payment, which may ultimately not be due, due to applicability of a Double Tax Treaty, is applicable only in the event of cross-border transactions. In such a situation, it is contrary to the freedom to provide service to treat a cross-border situation less favourably than a national one, effectively discouraging resident companies from using services of companies established in other member states.

Proportionality

The Court established that the applicable Bulgarian tax legislation amounts to a restriction to the freedom of provision of services, which is capable of being justified by effective fiscal

supervision and the effective collection of tax. The imposition of penalties such as irrecoverable interest however was found to be disproportionate and therefore a hindrance to the cross-border provision of services.

In spite of such a restriction being capable of justification under the effectiveness of fiscal supervision and the need to ensure effective collection of taxes, the measure were found to be disproportionate.

The Court held that the imposition of penalties, including criminal penalties, may be considered to be necessary in order to ensure compliance with national rules, subject, however, to the condition that the nature and amount of the penalty imposed is in each individual case proportionate to the gravity of the infringement which it is designed to penalise (NN International, C 48/15, paragraph 59 and the case-law cited).

ECJ Judgment in Spanish Tax Lease State Aid Case C-128/16P Commission v Spain

The Second Chamber of the Court of Justice set aside on 25 July a General Court judgment that had annulled a Commission decision that had originally assessed the Spanish tax lease system as incompatible State aid.

Facts

The Spanish scheme was a structure organised by a bank, which acted as an intermediary between a shipping company (buyer) and a shipyard (seller), interposing a leasing company and an economic interest company (EIG) set up by the bank. The aim of the arrangement was to generate tax advantages for the investors in the EIG and to transfer part of those advantages to the shipping company in the form of a rebate on the price of the vessel, with the investors retaining the other advantages as a return on their investment. The Commission established that three of the five fiscal measures under examination constituted illegal State aid to the EIGs and their investors and had been unlawfully implemented by Spain since 1 January 2002.

Effects of a Tax Measure v Regulatory Technique

The ECJ found that the General Court incorrectly applied Article 107(1) TFEU on what constitutes State aid. The General Court concluded that the EIGs could not be the beneficiaries of State aid solely on basis of the tax transparency of those groupings. The General Court, in holding that the EIGs could not be the beneficiaries of State aid solely because of their legal form, erred by not taking into account settled case-law that the classification of a measure as State aid depends on the effects of the measure, which takes precedence over the legal status of the undertaking or the regulatory techniques used.

Selectivity– Error in Law by the General Court

As a consequence of this error of law, the General court incorrectly assessed the criterion of ‘selectively’ by reference to the investors rather than the EIG as a beneficiary of the aid, which is a crucial element of the State aid analysis in accordance with EU law. In relation to selectivity, the Court of Justice decided that the General Court incorrectly relied on its judgments in World Duty Free and Autogrill Espana, which have subsequently been annulled by the Court of Justice.

IMF Working Paper on International Tax Avoidance

The International Monetary Fund (IMF) has published on 23 July a working paper that reviews the channels, scope and blind spots of international corporate tax avoidance. It is based on a survey of empirical literature on international tax avoidance, that is defined as profit shifting by a multinational company in response to disparities among tax jurisdictions in order to minimise their taxation burden.

The working paper assesses the overall magnitude of profit shifting and includes transfer pricing, strategic location of intellectual property (IP), international debt shifting, and treaty shopping. It also discusses tax avoidance devices that are unique to worldwide taxation systems, such as corporate inversions, headquarter relocation, and tax deferral.

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

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

Register now to secure your place at the Conference!

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

BRUSSELS 23 JULY 2018

G20 Communiqué Reaffirms OECD’s Tax Agenda

G20 finance ministers reiterated their support for the OECD tax agenda at this weekend’s meeting in Buenos Aires, Argentina. The final Communiqué urges a consensus-based solution to the tax challenges of the digital economy as well as stricter criteria to identify non-cooperative jurisdictions for tax purposes.

The finance ministers and central bank governors of the G20 countries held a meeting on 21-22 July in Buenos Aires, Argentina. The final Communiqué identifies the main risks to global economic growth and recommends the best policy tools to sustain a sustainable and balanced growth of the world economy, in light of the rapid technological transformation and the volatility of financial markets and capital flows.

The G20 reaffirmed the backing for full implementation of the BEPS package and the importance of seeking a consensus-based approach to the tax challenges of the digital economy by 2020, with an interim update in 2019. The Communiqué sets out ministers’ expectations that automatic exchange of financial account information for tax purposes in 2018 will commence as planned, calling on all jurisdictions to sign and ratify the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

The Communiqué reiterated the call for the Platform for Collaboration on Tax to develop its work plan by 2019, following up on the commitments by the IMF and World Bank annual meeting.

OECD Secretary-General Report & OECD BEPS Inclusive Framework Update

The OECD has published a report of the Secretary-General on the activities and achievements of OECD’s tax agenda, accompanying the G20 Communique of finance ministers and central bank governors. Secretary-General Report looks back at the achievements and further progress needed on international tax policy, as well as the progress achieved by the Global Forum on Transparency and Exchange of Information for Tax Purposes.

In respect of progress of the BEPS project, the report sets out key updates in relation to BEPS Action 5 (Harmful Tax Practices). The report also includes a Country-by-Country reporting update in light of the second annual peer review, which will cover all members of the OECD/G20 Inclusive Framework. The outcomes will be released in 2019.

Regarding the tax challenges of the digital economy, an Interim Report is expected to be published in June 2019 whilst the 2020 Report is still planned pending agreement of a common position among the members of the inclusive framework. The report sets out an expectation that different perspectives will be taken into account, with a view of agreeing a common position on the revised transfer-pricing rules, the minimum standard approach and the merits of a user-contribution approach.

The Secretary-General reported to the G20 ministers that members had all recognised the need for a long-term solution and had also further refined their positions in an effort to bridge gaps since the last meeting of the OECD Task Force on the Digital Economy of 11 July.

The BEPS Inclusive Framework progress report update highlights the commitment to a globally fair and modern international tax system and the implementation of the BEPS project. The report provides a more detailed analysis of the interim achievements of the BEPS project and the first peer reviews of the BEPS minimum standards, in particular the updates on Action 5 (Preferential Tax Regimes and Tax Rulings), Action 13 (Country-by-Country Reporting) and Action 14 (MAP).

IMF/ OECD Tax Certainty Report

The IMF/ OECD Tax Certainty Report provides a follow-up on a first report presented in March 2017, which identified the main sources of uncertainty in tax matters. This update identifies approaches to improve tax certainty, reporting progress on the implementation of the OECD/G20 BEPS Project in relation to dispute resolution, such as mutual agreement procedures (MAP) and arbitration, the OECD initiatives to mitigate uncertainty in tax treaties, the IMF initiative to address international taxation issues, developments in on treaty relief, and the Forum on Tax Administration initiative to improve risk assessment and audit processes.

Finally, some initiatives are discussed that were not explicitly mentioned in the 2017 report, but which do matter for tax certainty, such as exchange of information, Country-by-Country reporting and OECD International VAT/ GST Guidelines.

EU Commission Fines Google for Abuse of Dominance

The EU Commission has fined Google with €4.34 billion for breach of EU’s competition rules in respect of the utilisation of the Android operating system as a vehicle for abuse of dominance in the Single Market and the European Economic Area. The European Commission published the decision on 18 July after an in-depth investigation found Google had required smartphone operators to pre-install Google’s search and browser apps or lose access to the Google Play store and streaming services. The decision announced by Commissioner Vestager has increased the transatlantic tensions, with President Donald Trump accusing the EU of “taking advantage of US companies, but not for long.”

Commissioner Vestager on behalf of the EU Commission stated: “In Europe, we congratulate all companies for the success they achieve through innovation and developing products that consumers value. That is why market dominance is, as such, not a problem under EU antitrust rules. But with market dominance comes responsibility –because, when one company dominates a marketplace, competition is already weakened. So, EU antitrust rules put special responsibilities on dominant companies. They must not deny other companies the chance to compete on the merits, to the detriment of further innovation and European consumers.”

Google issued a public statement that they will appeal the Commission decision: “Android has created more choice for everyone, not less. A vibrant ecosystem, rapid innovation and lower prices are classic hallmarks of robust competition. We will appeal the Commission’s decision.”

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

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

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

BRUSSELS  16 JULY 2018

5th Anti-Money Laundering Directive Enters Into Force

On 9 July, the 5th Anti-Money Laundering Directive entered into force, following publication in the EU Official Journal. Member States now have to implement these new rules into their national legislation before 10 January 2020.

The Directive introduces increased transparency requirements, such as enhanced levels of access to beneficial ownership registers concerning both companies and trusts, and measures to limit anonymous payments through pre-paid cards and virtual currency platforms. The Directive also introduces increased customer verification processes and checks for transactions involving third countries, as well as an increased exchange of information.

Speaking about the Directive, Věra Jourová, Commissioner for Justice, Consumers and Gender Equality said “This is another important step to strengthen the EU framework to combat financial crime and terrorist financing. The 5th Anti-Money laundering directive will make the fight against money laundering more efficient.”.

Netherlands Issues Statement Concerning Starbucks State Aid Case

The Netherlands recently published a statement setting out its position in relation to the European Commission decision that the Netherlands had provided illegal state aid to Starbucks Manufacturing B.V.

The Netherlands assert that the Commission failed to carry out a proper analysis based on the arm’s length principle as contained in Dutch national law and regulations, and note that Member States have autonomy as concerns direct taxation. It further states that the Netherlands is of the view that the Commission is attempting to impose its own interpretation of the arm’s length principle, which is not supported by Article 107 of the Treaty.

The Netherlands has appealed against the ruling of the Commission, and a hearing concerning the case took place in the General Court of the European Union on 2 July 2018. The Netherlands note in its statement that the decision of the General Court can be appealed further to the Court of Justice of the European Union, indicating that it will likely appeal any adverse decision of the General Court.

Commission Releases Clarification Document on EU DAC6 Mandatory Disclosure Rules Hallmarks

Ernst and Young have published a document provided by the European Commission which was compiled by the Taxation and Customs Union Department in response to requests by Member States for clarification concerning the hallmarks contained within the Mandatory Disclosure DAC6 Directive.

It should be noted that the document was prepared prior to the final version of the Directive being agreed, and that the terms of the hallmarks have changed since it was produced. However, the document sets out in detail the origins of hallmark texts, and the types of tax avoidance targeted by each of the hallmarks. In 2020, intermediaries and relevant taxpayers will be required to disclose information on reportable cross-border arrangements the first step of which was implemented after 25 June 2018, i.e. the date of application of the Directive.

The practicalities of implementation of the Mandatory Disclosure Rules DAC6 Directive, as well as an analysis of policy implications, will be the topic of this year’s CFE Professional Affairs Committee Conference on 23 November, in Madrid, Spain co-organised by the CFE and AEDAF, the Spanish Association of Tax Advisers. Details of the event will be posted on the CFE website Events Page in due course.

EU Commission Releases 2017 Annual Report on National Implementation of EU Law

The European Commission has published its 2017 report which monitors the annual implementation and compliance of Members States with EU law.

The 2017 report demonstrates that there has been a decrease of 5.91% of open infringement cases as compared with 2016, and a significant decrease of 34% in the number of new infringement cases being opened against Member States. The report concludes that Member States have improved in the transposition of Single Market-related rules, although there has been an increased number of observed problems in relation to openness to cross-border trade in goods and services.

These trends were reflected in the taxation field, where the number of new infringement cases opened had also decreased since 2016. Implementation issues earmarked as the focus for further work in 2018 included: assessing conformity of rules on the mandatory automatic exchange of information on taxation, following up on the application of Court judgments, and the monitoring of cases affecting the economic situation of business, such as VAT refunds.

OECD Publishes Tax Transparency Compliance Ratings

The OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes, has published 7 peer review reports which assess the compliance of jurisdictions with international tax transparency standards. The Global Forum includes 150 members, including all G20 and OECD countries, as well as international financial institutions.

Guernsey and San Marino were rated as being “compliant” with the standards, whilst Indonesia, Japan, the Philippines and the United States received a rating of “largely compliant”. Kazakhstan was rated as “partially compliant”.

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

BRUSSELS I 9 JULY 2018

ECOFIN Agenda & Tax Policy Progress Report

The Council of the EU will discuss the working programme of the Austrian EU presidency at the next ECOFIN meeting scheduled for 13 July. Ministers are also expected to discuss the progress on the VAT reverse charge mechanism.

The Council of EU has also published the Tax Policy progress report, which provides a round-up of the tax policy achievements under the Bulgarian EU presidency, focusing in particular on the Directive on Mandatory Disclosure Rules (DAC6), taxation of the digital economy and the VAT reform.

EU State Aid Investigation Into Madeira Tax Exemptions

The European Commission has opened an investigation regarding the compliance with the European State aid rules of a Portuguese tax exemption scheme for the region of Madeira. Portugal has granted tax exemptions to companies operating in Madeira to remedy the higher costs of doing business in this underdeveloped region of the European Union.

Under EU law, in particular the General Block Exemption Regulation (GBER) and the Regional Aid Guidelines, Member states are permitted to do so, under certain conditions. The Commission investigation shall now focus on verifying that the operating aid in the form a tax exemption granted to these companies complies with the EU law on State aid, and in particular earlier European Commission decisions, which did not raise objections to this type of tax exemption.

EU Commissioner Margrethe Vestager, responsible for competition policy, said: “Our regional aid rules are particularly flexible when it comes to supporting the EU’s outermost regions, including Madeira. Under these rules, fiscal aid can only be granted if it contributes to the creation of real economic activity and jobs in the assisted region. We will now investigate whether the Zona Franca Madeira fiscal aid scheme approved by the Commission in the past has been applied correctly by Portugal.”

OECD Seeks Input on Intra-Group Transfer-Pricing Rules

The OECD has published on 3 July a discussion draft on financial transactions, that provides guidance on transfer-pricing with respect to intra-group loans and intra-group financial transactions. This discussion draft has been produced as a follow-up to the work already undertaken under Actions 8-10 of the BEPS Action Plan (“Aligning Transfer Pricing Outcomes with Value Creation”) by OECD’s Working Party No. 6.

The first part of the discussion draft provides guidance on the application of the principles contained in Chapter I of the Transfer Pricing Guidelines to financial transactions. The second part of the discussion draft addresses specific issues related to the pricing of financial transactions such as treasury function, intra-group loans, cash pooling, hedging, guarantees and captive insurance. The discussion draft also includes a number of questions to commentators on which inputs from stakeholders will be particularly relevant to Working Party 6 to complement its work and prepare another discussion draft after considering the input received.

The OECD invites interested parties to submit comments on this discussion draft by 7 September 2018.

UK Businesses Disclose Financing Structures in Scope of EU State Aid Investigation

Bloomberg has reported that the UK businesses affected by the EU State aid investigation into the UK CFC rules group financing exemption, have disclosed their financing structures. In regulatory filings, both FTSE 100 telecommunications business Vodafone Group Plc and media company Daily Mail have identified Luxembourg as location of their inter-group financing structures affected by the European Commission’s State aid tax investigation.

Since October 2017, the European Commission has been investigating the features of the UK CFC rules, in particular the Group Financing Exemption, a legislative scheme that exempts from UK corporate taxation certain group financing income. This possibility provided with the Group Financing Exemption, according to the EU Commission, amounts to a selective advantage for multinational group companies when compared with other UK resident entities that do not operate cross-border. According to ECJ settled case-law, national anti-abuse provisions must not be selective. The Commission rely on interpretation of the UK general corporate tax as reference system, under which standalone and multinational group companies are deemed in a comparable factual and legal situation for purposes of State aid tax scrutiny, as per ECJ case-law.

EU’s Anti-Tax Avoidance Directive (ATAD), as of 1 January 2019, will require from EU Member states to introduce some form of CFC rules, albeit with the caveat that the ATAD does not intend a group financing exemption such as the one under Commission’s State aid investigation.

Croatian Chamber of Tax Advisers Tax Summer School in Dubrovnik

The Croatian Chamber of Tax Advisers (HKPS) is organising its first tax summer school in Dubrovnik, Croatia, entitled ‘Trends in International Taxation’. The summer school will take place from 10 – 14 September at the University of Dubrovnik, and is designed for tax advisors and professionals from accounting companies, business and tax administrations, young practitioners and academic.

Full-time students and students engaged as teaching or research assistants at universities may apply for a fee waiver.

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

 

BRUSSELS 2 JULY 2018

Council of EU Publishes ECOFIN Taxation Report

Following the Council of the European Union meetings that took place over 28 and 29 June in Brussels, the Council has now released the ECOFIN report to the European Council on taxation issues, which provides a detailed background and summary of developments that occurred during the Bulgarian Presidency on tax files. Many of the summaries concerning the files, including CCTB, CCCTB, digital tax and the definitive VAT regime, state that the issues will be the subject of further work and discussions within the Council. Following the June Council meetings, the issue of digital tax in particular was singled out as a file for further discussion.

The Austrian Presidency has also recently published its Presidency Agenda Programme, in which taxation of the digital economy, CCTB and the EU’s definitive VAT regime proposals are set out as priorities for the focus of the taxation work of the Presidency.

OECD Launches Tax Revenue Database

At the 5th plenary meeting of the Inclusive Framework on BEPS, the OECD announced the launch of a new database which will provide detailed comparable taxation revenue information concerning 80 jurisdictions, and will increase to cover 90 jurisdictions by the end of 2018.

The database will be known as the Global Revenue Statistics Database, and will include country-specific indicators concerning tax structures and tax rates with a view to enable necessary tax policy reforms to sufficiently fund public services. A working paper compiled using information from the database sets out that tax revenues have increased since 2000.

Pascal Saint-Amans, Director of the OECD stated that the Global Revenue Statistics Database “sets the global standard for robust and comparable tax revenue data” and is a “vital foundation for tax policy reform”.

EU Council Authorises WTO Negotiations

The Council of the European Union, ahead of the United Kingdom’s withdraw from the EU, has authorised the Commission to begin formal negotiations with the World Trade Organisation concerning EU tariff rate quotas, and how these should be divided between the UK and remaining 27 EU Member States after Brexit. In particular, quantitative rate quotas concerning agricultural, fishing and industrial products will require adjustment.

In addition, the European Commission has proposed a Regulation which would enable the EU to apportion the quotas unilaterally, and amend EU provisions as required on the basis of those apportionments. The proposal will follow the ordinary legislative process.

OECD’s MLI Enters Into Force

The BEPS multilateral tax treaty instrument (“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 82 jurisdictions that are signatories to the treaty.

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. OECD Director for Tax Policy and Administration, Pascal Saint-Amans, stated that the “entry into force of this landmark agreement underlines governments’ commitment to update the international tax rules and ensure they are fit for purpose in the 21st Century”.

Last week, ahead of the treaty entering into force, Kazakhstan, Peru, the United Arab Emirates and Estonia became signatories to the BEPS Multilateral Convention, and the United Kingdom, Sweden, Serbia and New Zealand all deposited their instruments of ratification with the OECD. Further ratifications are expected in the coming months.

EU Submits Comment on US Import Investigation
The European Union has submitted formal comments to the US Department of Commerce concerning an investigation currently being carried out by the Department as to the impact of automotive imports on US national security by way of their economic impact.

The EU has stated that as with the investigation carried out concerning steel and aluminium imports which led to the imposition of new tariffs on imports to the US, this new investigation similarly lacks any proper factual basis and violates international trade rules. The EU stated that any measures imposed on the basis of national security will be strongly opposed.

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