CFE’s Tax Top 5 March 2016

 

29 March 2016

 

1.      OECD issues standardised electronic format for the exchange of BEPS country-by-country reports

On 22 March 2016, the OECD released a standardised electronic format for the exchange of country-by-country (CbC) reports between jurisdictions as well as a user guide. This CbC XML scheme is part of the OECD’s work to ensure the swift and efficient implementation of the BEPS measures. CbC reports should be electronically transmitted between the competent authorities.

The move is expected to help tax administrations obtain a complete understanding of the way in which multinational enterprises (MNEs) structure their operations.

Exchanges of CbC reports will start in 2018 containing information on the year 2016. The country-by-country reporting template applies to groups with an annual consolidated revenue in the immediately preceding fiscal year of at least EUR 750 million.

–        OECD Press release: EN

2.      European Parliament publishes ambitious draft report on ATAD

The European Parliament has tabled a draft report on the Anti-Tax Avoidance Directive (ATAD) in response to the European Commission’s proposal. The EC proposal on the ATAD is subject to unanimity in the EU Council, while the EP´s opinion has only consultative character. The Council is hence not bound by the Parliament’s position.

Rapporteur MEP Hugues Bayet (S&D/Belgium) suggests including further topics such as a definition of permanent establishment (relying on concepts such as “significant digital presence” discarded by the OECD), rules on transfer pricing and a legislative framework for patent box regimes. The EP should even be given the right to call for an investigation if it is of the view that abuse takes place.

Concerning measures included in the Commission´s proposal, the draft suggest stricter rules, among other:

–         For the interest limitation rule, the EU should allow the deduction of exceeding borrowing costs only up to a maximum of 10% of the taxpayer´s earnings (EBITDA), instead of 30%, limiting also the carry-forward of unused EBITDA.

–         For the switch-over clause, the draft proposes including foreign low-taxed income also from other EU member states (not only third countries), and applying an effective corporate tax rate threshold of 25% (instead of 40% of the taxpayer´s country tax rate) to define such low-taxed income.

–         A 25% effective tax rate threshold is also suggested for the application of the CFC (controlled foreign companies) rule.

–         Rules on hybrid mismatches should extent to third countries.

EU member states should inform also the European Parliament on the implementation of the ATAD.

The ECON committee in the European Parliament will vote on the report on 23 May; the plenary vote is scheduled for 7 June 2016.

–         EP draft report: All EU languages

3.      Leaked information on upcoming EC proposal on CBCR

On 12 April 2016, the European Commission is expected to table its proposal for public country-by country reporting. According to press reports, the proposal would require large businesses with a revenue exceeding EUR 750 million to publish information on tax payments in the EU. The rules would target companies with headquarters or subsidiaries in the EU.  The proposal would go beyond the OECD framework to the extent that the information will have to be published, but lags behind to the extent that it only concerns tax payments within the EU, and thus does not include most jurisdictions considered tax havens and developing countries, two points of great importance to tax justice campaigners.

–         European Commission meetings timetable: EN

4.      OECD consults on tax treaty entitlement of non-CIV funds

On 24 March 2016, the OECD issued a public consultation on treaty benefits for non-CIV (collective investment vehicle) funds as part of the OECD’s follow-up work to Action 6 of the BEPS project. Replies to the consultation should be sent until 22 April 2016.

Questions relate to specific concerns identified in previous comments on the BEPS Action 6 Report. The consultation document and the responses received will be discussed at the May 2016 meeting of Working Party 1 of the OECD Committee on Fiscal Affairs.

–         OECD press release: EN

5.      EC launches public consultation on common insolvency framework

Since 23 March 2016, the European Commission consults on the establishment of an EU-wide insolvency framework, following the publication of an initial inquiry into insolvency law harmonisation earlier this month. The European Commission aims to support businesses in financial difficulties while at the same time maximising the value received by creditors, shareholders, employees, investors, tax authorities, and other parties concerned. The Commission intends to present a legislative proposal on insolvency by the end of 2016. Overall efficiency and effectiveness of insolvency frameworks should be increased while also building on national regimes.

Closing date is 14 June 2016.

–         Dedicated Commission website: EN (DE/FR available; the Commission announced that the questionnaire will be made available in other EU languages during the following weeks)

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

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 21 March 2016

1.    UK successful in pushing for a VAT zero rate for sanitary products – VAT Action plan to be unveiled soon

On 17 March 2016, the European Council, composed of heads of EU states and governments, took note that the European Commission will shortly table a communication on an VAT action plan. EU leaders welcomed the Commission’s intention to propose increased flexibility for Member States with respect to reduced rates of VAT.

In this context, the European Council conclusions also made a specific reference to sanitary products, on which the UK had been pressing the European Commission to allow member states the option of applying a zero rate.

–        EU Council Conclusions (see item 15 for VAT): EN

2.    EP TAXE2 committee questions multinationals and announces recommendations

On 15 March 2016, the special Committee on tax rulings and other measures similar in nature or effect in the European Parliament (TAXE2) met with multinational corporations on corporate taxation. Topics addressed included the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan, the European Commission’s Anti-Tax Avoidance Package and the re-launch of the Common Consolidated Corporate Tax Base (CCCTB). Members of the European Parliament also raised questions on the requirement for country-by-country reporting of profits, taxes and subsidies, and discussed whether such information should be made public. Google, Apple, Inter-IKEA Group and McDonald’s stated that they would welcome more clarity and certainty about their tax liabilities in the EU. Administrative compliance costs are however eyed critically as well as the stance to make tax data public. Following this meeting, the TAXE Committee announced that it will table recommendations to the Commission and the Council.

On 21 March 2016, TAXE2 will hold another meeting with representatives of European banks to hear their views on structured finance products and advisory services provided by the banks to their clients for tax optimisation purposes.

The NGO Oxfam has accused the largest French banks of generating one third of their international profits in offshore tax havens where they have subsidiaries with no employees.

–        European Parliament press release: EN (FR available)

–        Oxfam report on Tax Justice Network website: Press release in EN / Report in FR

3. Consultation on benefits of a new EU VAT portal

The European Commission’s Directorate-General in charge of tax policy, DG Taxud, has commissioned Deloitte to study the feasibility of developing, implementing and maintaining an EU VAT web portal. This web portal would provide a single access point for consulting VAT rules and procedures that apply in and across the different EU member states. The survey asks potential users about the requirements/prioritisation of information points and functionalities.

Participation in this study should help to tailor the site to users’ needs. Completing the questionnaire (which takes about 15 minutes) is possible at below address before 31 March 2016.

–         Link to survey: EN

4.    CJEU: outsourced insurance claims handling is not VAT-exempt

On 17 March 2016, the EU Court of Justice (CJEU) decided in the Polish preliminary ruling case Aspiro (C-40/15) that the handling and assessment of insurance claims by an outsourced provider who is not an insurance agent or broker does not benefit from the VAT exemption of insurance or related services, following the opinion of Advocate-General Juliane Kokott.

–         Judgment: EN (all EU languages)

–        Opinion: EN (all EU languages)

5.      OECD Global Forum publishes 10 new peer reviews

On 14 March 2016, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes published ten new country peer reviews assessing the legal framework and practical functioning of tax information exchange. Croatia and Tunisia were found to have sufficient legal frameworks in place  to move to phase 2 dealing with the practical functioning of the exchange. For Georgia and seven non-European countries including Kenya, Nigeria and Saudi-Arabia, the phase 2 reviews were completed, bringing the number of jurisdictions that have passed both phases to 94, with 28 jurisdictions only having completed phase 1. So far, 132 countries have become members of the Global Forum. Peer reviews are carried out irrespectively of whether a country is a member.

–        All ratings issued to date: EN

–         Press release, 14 March 2016: EN (FR available)

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

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14 March 2016

0.      CFE Annual Report 2015 published

Click here to read the Report on the CFE website.

1.      EU Council reaches agreement on country-by-country reporting of multinationals

EU ministers reached a political agreement at the ECOFIN Council on 8 March 2016 on mandatory filing of country-by-country reports (CbCR) by multinational companies to tax administrations and exchange of this information among these. The deal is still subject to parliamentary scrutiny in the UK.

The new rules will address multinational companies which operate across EU member states. They will have to provide certain, tax-related information on an annual basis for each tax jurisdiction in which they do business.  Once the automatic information exchange will be operational after a 12 months period, it should facilitate the application of taxation to companies where they make their profits.

The agreement of Ministers follows a proposal by the European Commission as part of its Anti-Tax Avoidance Package adopted on 28 January 2016. It goes along with recent moves on transparency in corporate taxation at global level. In particular, they will add to the implementation of OECD guidelines on Base Erosion and Profit Shifting (BEPS).

On the separate, but linked issue of public CbCR, the European Commission is currently finalising its impact assessment and will present a proposal in April.

 

Press release: E

2.      Call for reinforcing the Code of Conduct on business taxation

On 8 March 2016, the Council of EU finance ministers adopted conclusions on the future of the working group overseeing the implementation of the Code of Conduct on business taxation. The Group is called on to speed up its decision-making process and become more transparent. The Council conclusions foresee an enhancement of the group’s governance, transparency and working methods. Its efficiency should be improved by speeding up the assessment of potentially harmful tax regimes, with an earlier and more frequent involvement of the Council. Information to the public on the group’s ongoing and past work should be enhanced. A decision on the revision of the group’s mandate should be taken by the end of June 2016.

These plans to beef up the Code of Conduct Group follow-up on the Lux Leaks controversy and the Commission’s state aid probes into the tax affairs of Apple and Amazon. The plans have been criticised as unambitious and disappointing by German Green MEP Sven Giegold, who stressed that they lack an obligation of the group´s chair to appear before the European Parliament.

The Code of Conduct Group on business taxation dealing with harmful tax competition was set up by EU ministers in 1998. It represents a forum where EU member countries exchange and discuss their tax affairs, in particular tax rulings granted to multinationals.

– Council conclusions, 8 March 2016: EN

3.      Commission expected to propose increased flexibility for national VAT rules

The European Commission is expected to propose an overhaul of the EU VAT regime at the next meeting of the Commissioners. The Financial Times reported about plans of the Commission calling for a reform of existing rules on the application of lower-than-normal rates of VAT in member states. So far, VAT rates of less than 15 per cent can only be applied to a list of products and services which has been little changed over the last forty years.

According to the Financial Times, the paper sets out two options: either a list of goods and services eligible for reduced rates would be retained, but expanded and kept under regular review; the second more radical option would replace the list with “rules framing the cases when reduced rates can be applied”. This approach would mean scrapping the standard 15 per cent VAT rate altogether.

–       Financial Times article: EN (paying subscribers only)

4.      Commission proposes equal pay for posted workers, but tax differentials remain

On 8 March 2016, the European Commission tabled its long-expected proposal for a revision of the rules on posting of workers. The initiative aims at ensuring fair wage conditions and a level playing field between posting and local companies in the host country. The targeted revision will introduce changes in three areas: remuneration of posted workers, rules on temporary work agencies, and long-term posting.

The proposal foresees that posted workers are subject to equal pay and working conditions as local workers. Currently, posted workers are already subject to the same rules as host member state employees in certain fields, such as health and safety. However, the employer is not obliged to pay a posted worker more than the minimum rate of pay set by the host country.

According to the Directive proposal, all the rules on remuneration that are applied generally to local workers will also have to be granted to posted workers. Remuneration will also include other elements such as bonuses or allowances where applicable. Taxes and social contributions of the posted workers will still have to be paid in their home countries, according to those countries´ laws. To that extent, there will remain some level of differences in wages costs for employers.

–        Press release: EN (DE FR available)

–        Directive proposal COM(2016)128: All EU languages

–        Impact assessment: EN

5.      OECD:  Patent boxes provide less incentives than expected

According to the Irish Times, the head of the OECD’s centre for tax policy, Pascal Saint-Amans, warned at a conference organised by the Irish Tax Institute in Dublin on Thursday that the introduction of tax measures such as so-called knowledge or patent boxes was not a good way to foster the creation of intellectual property (IP).

Ireland introduced an OECD-compliant Knowledge Development Box in its Finance Bill, which results in a reduced corporation tax rate of 6.25 per cent for eligible technology and software firms, as part of the new corporate tax scheme. the outcome of the OECD’s Base Erosion and Profit Shifting (BEPS) project also includes recommendations on patent or knowledge boxes (as part of Action 5).

–        The Irish Times article: EN

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

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7 March 2016

1.      Public consultation on OECD draft addressing treaty residence of pension funds

The OECD invited stakeholders to comment on draft proposals changing the rules for ‘treaty residence’ of pension funds in the OECD model tax treaty. The issue of whether a pension fund should be treated as a resident for treaty purposes was included in the OECD’s Base Erosion and Profit Shifting (BEPS) Project.

In line with the BEPS Action plan, a pension fund is considered to be a resident of the State in which it is constituted for the purposes of tax treaties regardless of whether that pension fund benefits from a limited or complete exemption from taxation in that State. This principle will now be elaborated in the tax treaty model.

Comments should be submitted by 1 April 2016.

–        Press release: EN (FR available)

2.    European Court of Auditors tables report on how to tackle intra-community VAT fraud

The European Court of Auditors (ECA) calls for tougher measures against intra-Community VAT fraud in a report released on 3 March 2016. The European Court of Auditors has no judicial power but audits the accounts of EU institutions.

The ECA report reveals significant weakness of the current system and calls on the European Commission to put in place a common system to estimate the scale of intra-Community VAT fraud. The report’s analysis was carried out at both the Commission and Member State level. Five EU Member States were reviewed, namely Germany, Italy, Hungary, Latvia and the United Kingdom.

According to ECA, the European Commission should propose amendments to the VAT directive to further harmonise the state requirements on VAT reporting for intra-Community supplies of goods and services and encourage EU Member States to step up their coordination of reverse-charge policies. The European Commission is expected to unveil a new action plan on a definitive VAT regime on 16 March.

–        Press release: EN (all EU languages available here)

3.      European Commission’s expert group releases two reports on cross border tax problems

On 3 March 2016, the findings of the Expert Group assisting the European Commission on practical ways to remove tax problems faced by individuals who move across the EU have been published in two reports:

One report covers tax problems affecting citizens who work or invest in other EU Member States including measures already in place in certain Member States to facilitate tax compliance. The other report focuses on problems related to inheritance taxation.

The CFE has taken part in the work of this Expert Group through its representatives Volker Heydt and Isabelle Richelle.

–        Background information: EN

–        Report on cross-border tax obstacles: EN

–        Report on inheritance tax problems : EN

4.      EP publishes draft report on including country by country reporting in Administrative Cooperation Directive

The European Parliament´s ECON Committee has published its draft report on the European Commission´s directive proposal of 28 January 2016 on including country by country reporting (CBCR) in the Directive on Administrative Cooperation, in line with the OECD´s (BEPS 13) Recommendation. According to that Recommendation, the country by country information would be exchanged among governments, but not be made public. The rapporteur, Polish conservative MEP Dariusz Rosati, proposes to make these reports available to the European Commission, to enable it to better detect possible violation of the state aid rules. The draft report does not favour publication of country by country reports in a first step. However, it is likely that such amendments will be proposed by other EP members. Reportedly, other likely amendment proposals include a lowering of the OECD threshold (group revenue of € 750 million). The EP is aiming at adopting the report by 10 May 2016. The EP´s opinion on this proposal is not legally binding, but it could block progress in other dossiers under the ordinary legislative procedure, such as the Directive on shareholder rights, if its views on public CBCR were completely disregarded.

The EU Council will try to reach agreement on a general approach at the draft Directive at the Ecofin meeting on 8 March 2016.

–        Draft report dated 23 February 2016: EN

5.      ECJ Advocate-General issues opinion on VAT on deemed supply of a building partly used for business

On 3 March 2016, Advocate-General Julianne Kokott at the EU Court of Justice has delivered her opinion in the Polish C-229/15, Jan Mateusiak, on whether VAT has to be paid on a deemed supply of a building used only partly for business purposes. Mr Mateusiak purchased a building he used partly as his private residence and partly as his office as a notary. He deducted VAT on the part of the costs of the building that corresponded to its professional use but refused to repay that part when he ceased working and started using the house exclusively for private purposes, arguing that the 10-year period in Polish law for subsequent adjustment of the deduction had expired and therefore, such correction should not be made indirectly by taxing the part of the building in question on cessation of the activity.

Like the Polish tax authority, the Advocate-General did not agree with that interpretation.

–        Opinion: EN (all EU languages available)

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

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