CFE’s Tax Top 5 – March 2017

     27 March 2017

  1. Meeting of G20 Finance Ministers takes place in Baden Baden Germany

The G20 Ministers for Finance and Heads of the Central Banks met in Baden Baden in Germany on 18 March 2017. A communique outlining their position on the ongoing work priorities, including taxation matters was subsequently published.

The OECD Secretary-General presented a Report outlining the progress being made on key policy areas. The 4 key policy areas outlined in the OECD Report are:

  1. Tax Certainty
  2. BEPS Implementation
  • Tax transparency
  1. Tax & Development

In response to the OECD Update Report, the G20 Communique states that the G20:

  • Remains committed to the timely, consistent and widespread implementation of the BEPS project, including the growing membership of the Inclusive Framework on BEPS.
  • Awaits the reports of the OECD in relation to the progress of the implementation of the four minimum standards, due to be presented in July 2017 July.
  • Welcomes the signing of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS on 7 June 2017.
  • Welcomes the first automatic exchange of financial account information under the OECD Common Reporting Standard (CRS), which will commence in September 2017.
  • Are awaiting the OECD list to be prepared at the Leaders’ Summit in July 2017 setting out those jurisdictions that have not yet sufficiently progressed towards a satisfactory level of implementation of the agreed international standards on tax transparency. Crucially, it states that defensive measures will be considered against jurisdictions on the list.

Particular mention is given to the digital economy and  the discussions taking place on the implications of the digitalisation of taxation in the OECD Taskforce on the Digital Economy (TFDE). It highlights that the TFDE will carry out further work on this issue  with an interim report to be published from the IMF and WBG to be presented in Spring 2018.

Finally, the G20 focuses on the advancement of transparency of legal persons and legal arrangements via the effective implementation of international standards and the availability of beneficial ownership information in domestic and cross-border context. A progress report will be issued by the OECD on its work in relation to complementary tax areas relating to beneficial ownership for the Leaders’ Summit in July 2017.

The communique also gives special attention to the current OECD priority of tax certainty, discussed in more detail below.

Please follow this link for The full transcript of the G20 Communiqué

Please follow this link for the full OECD SECRETARY-GENERAL REPORT TO G20 FINANCE

MINISTERS

  1. Tax Certainty – OECD/IMF Report submitted to G20 Finance ministers

Following on from a public consultation with stakeholders and Civil Society at the end of 2016 (which CFE submitted a response to), the OECD has published its report on tax certainty.

The main points highlighted in the Report are as follows:

  • The tax system is an important factor influencing investment and location decisions, but it is not the only or most important factor.
  • In particular, uncertainty around corporate income tax and VAT is considered very or

extremely important in affecting investment and location decisions for more than 50% of

survey respondents.

  • The sources of uncertainty are varied, from tax policy and tax administration through to

Taxpayer behaviour.

  • The major drivers of uncertainty appear to stem from issues in connection with tax administration (including inconsistent and unpredictable implementation and administration of the tax law) and international taxation (such as

ineffective dispute resolution mechanisms to resolve issues of double taxation and

inconsistent approaches to the application of international tax standards).

The Report makes recommendations on some practical actions that would support greater tax certainty in the OECD and G20 countries. These actions include the following:

  • Reducing complexity and improving clarity through improved tax policy design.
  • Improving tax dispute prevention and resolution, at the domestic and international level,

through mechanisms which are fair and independent, accessible to taxpayers and provide

timely resolution.

  • At the international level specifically, improvements to dispute resolution mechanisms

including both Mutual Agreement Procedures and arbitration.

  • Application of other, innovative tools to enhance certainty in tax administration, including

cooperative compliance programmes, advance pricing agreements, as well as simultaneous

and joint audits.

Overall, the report recognises that effective and appropriate measures to enhance tax certainty will differ between countries. Further, the specific environments and challenges of developing countries with respect to tax certainty could be explored, and there is also an opportunity to undertake more detailed work to understand the impact of tax uncertainty on trade and investment.

Please follow this link for a copy of the final IMF/OECD Report on Tax Certainty

  1. OECD Webinar Tax Talks on Tuesday 28 March 2017

If you want to hear more on the above topics, and on the work priorities of the OECD the OECD tax policy centre will be hosting its online Webinar “Tax Talks “on Tuesday 28 March at 15:00 (CET).

The talk will summarise the OECD’s progress on its primary work streams, including tax certainty, the Multi Lateral Instrument and the future work programme.

To register please follow this LINK.

  1. ECOFIN Meeting in Brussels on 21 March 2017

The Council of the European Union sitting as ECOFIN discussed the following proposals in relation to VAT:

  • The establishment of a generalised reverse charge mechanism in VAT

The proposal for a generalised reverse charge mechanism in VAT follows up on a request from Member states significantly affected by VAT fraud.  The proposed directive offers a solution to the so-called ‘missing trader’ or ‘carousel fraud’, whereby supplies are traded several times without payment of VAT due on the transactions. Under the present rules, the reverse charge can be applied as a temporary measure only, whereas the proposed directive seeks to establish a generalised system applicable on a voluntary basis until 30 June 2022. The debate focused on the scope of the proposed directive, the criteria for obtaining a derogation, the procedures for repealing a derogation and the duration of the derogation.

  • The reduction reduce the VAT rates for electronic publications.

The reduction of VAT rates for electronic publications concerns amendment of Directive 2006/112/EC to allow for ‘super-reduced’ rates for e-publications that would go down to zero. The proposal is part of European Commission’s Digital Single Market plan.

The discussion focused on the possibility of applying not just ‘reduced’ VAT rates but also a ‘super-reduced’ VAT rate and ‘zero’ VAT rates. Such treatment would bring the VAT rates associated with electronic publications in line with traditional ‘hard copy’ publications.

Both directives require unanimity in the Council vote on the basis of Article 113 on the Treaty of the Functioning of the European Union. 

  1. CFE’s annual Forum promises to be a day of topical discussion and debate on Permanent and Fixed Establishments

Expert panels, with highly accomplished speakers from a mix of the OECD, academia and industry will be discussing the highly topical issue of PE status and also the new profit attribution rules in a post BEPS era.

We consider the new rules for determining whether a business has sufficient commercial activities in a particular country to acquire a PE status and the profit attribution rules associated with this.

An expert panel will also tackle the subject from the indirect tax perspective, examining the VAT concept of fixed establishments and the difficulties encountered when determining whether a supplier or customer has a Fixed Establishment in a particular country, and also the practical problems caused for business in a VAT context from the classification of PE status.

                                                                                                                

 

     20 March 2017

ECOFIN Council Meeting to discuss generalised reverse charge in VAT

The Council of the European Union sitting as ECOFIN shall discuss tomorrow the proposals to establish a generalised reverse charge mechanism in VAT alongside proposals that would reduce the VAT rates for electronic publications.  The generalised reverse charge mechanism in VAT follows up on a request from Member states significantly affected by VAT fraud.  The proposed directive offers a solution to the so-called ‘missing trader’ or ‘carousel’ fraud, where supplies are traded several times without payment of VAT due on the transactions. Under present rules, reverse charge can be applied as temporary measure only, whereas the proposed directive would established a generalised system applicable on a voluntary basis until 30 June 2022.

The reduction of VAT rates for electronic publications concerns amendment of Directive 2006/112/EC to allow for ‘super-reduced’ rates for e-publications that would go down to zero. The proposal is part of European Commission’s Digital Single Market plan.

Both directives require unanimity in the Council vote on the basis of Article 113 on the Treaty of the Functioning of the European Union.

  • Economic and Financial Affairs Council Meeting website, available in all EU languages

European Commission announced anonymous whistleblower instrument

The European Commission announced on 16 March a new whistleblower service that would allow for individuals or business entities to files anonymous reports about wrongful business practices that might be in violation of EU competition law.

The tool will primarily serve as instrument to provide the European Commission with information on anti-competitive practices such as antitrust violations, existences of secret cartels, price fixing and fixing of procurement procedures. The tool is envisaged to enhance Commission’s lenience programme, under which entities can report their own involvement in cartels in exchange for reduction of fine

According to EU Commissioner Margrethe Vestager: “If people are concerned by business practices that they think are wrong, they can help put things right. Inside knowledge can be a powerful tool to help the Commission uncover cartels and other anti-competitive practices. With our new tool it is possible to provide information, while maintaining anonymity. Information can contribute to the success of our investigations quickly and more efficiently to the benefit of consumers and the EU’s economy as a whole”

The new anonymous whistleblower service can be accessed at the following LINK.

Germany published Administrative Practice on Profit Attribution to Permanent Establishments

The German Federal Ministry of Finance published the final version of its Administrative Practice for profit attribution to permanent establishments (PEs), which is based on an earlier version of the document published on 18 March 2016. This Administrative Practice is not binding law, rather a detailed explanation of the law that reflects the interpretation of the German tax administration. The Practice puts into effect the authorised approach concerning the application of the OECD applicable principles, as required by German law. The applicable German legislation for attribution of profits to permanent establishments consists of the Section 1 of the Foreign Tax Act and the Regulation for profit attribution to permanent establishments. This Administrative practice is to be read in light of the OECD BEPS Action Point 7. The Practice explains in particular the application of the arm’s length principle to PEs treated as fully separate entities, requiring functional and risk analysis for the business activities of the PE. Considering the separate entity approach of German tax law, the PE from a legal perspective cannot enter into contractual relationship with the head office. For fiscal purposes, dealings between a head office and a PE are considered assumed contractual relationships.

In respect of the transfer-pricing documentation requirements, entities which operate a permanent establishment in Germany are required to substantiate the profit attribution to the PE, also documenting the internal dealings, i.e. assumed contractual relationships. Such a documentation would need to filed in case of a tax inspection or audit.

The issue of profit attribution to permanent establishments is the very topic of CFE’s Forum 2017.

Would like to hear more about profit attribution to PEs? Register for CFE’s Forum 2017.

This year’s Forum brings a prominent line-up of speakers to discuss the topic “Do you have a taxable presence in a country? The New Reality Permanent and Fixed (VAT) Establishments in the Post-BEPS World”. The CFE Forum will take place on 30 March 2017, 9:00 to 16:30, at the Representation of Nord-Rheine Westphalia to the European Union (Rue Montoyer 47, B- 1000 Brussels).

 

13 March 2017

  1. European Economic and Social Committee supports Double Taxation Dispute Resolution proposal

The European Economic and Social Committee (EESC) unanimously supported the European Commission proposal for Council Directive to improve double taxation dispute resolution mechanisms in the EU. The Committee agreed with the European Commission that double taxation is one of the biggest tax obstacles to the EU Single Market. According to the EESC, the approval of this opinion sends a strong signal to stakeholders and governments to act, considering the urgent need for mechanisms ensuring that cases of double taxation are resolved more quickly and more decisively when they arise between Member States. The EESC also supported the European Commission initiative to extend its monitoring of countries’ performance in all cases of double taxation disputes in cross-border situations on a yearly basis, in order to assess whether the objectives of the directive are met.

According to the proposal, where Member States do not automatically start the arbitration procedure, the taxpayer can ask a national court to take the necessary steps for setting up an arbitration committee to deliver a final, binding decision on the case within a fixed timeframe. The EESC opinion was adopted at the 523rd plenary session, held on 22 and 23 February 2017.

  1. Reference for preliminary ruling on the interpretation of ‘beneficial owner’ in context of the EU Interest and Royalties Directive

On 6 March 2017, the Danish court Vestre Landsret filed a reference for preliminary ruling in the case of the applicant BEI ApS versus the defendant Skatteministeriet, the Danish Ministry of Taxation (Case C-682/16).

The referring court seeks interpretation of the Directive 2003/49/EC in case of a company resident in a Member State that is covered by Article 3 of the Directive. The referring court asks if a resident company receives interest from a subsidiary in another Member State, whether it is the ‘beneficial owner’ of that interest for the purposes of the Directive, and whether the concept ‘beneficial owner’ in Article 1(1) of the Directive 2003/49/EC, should be interpreted in accordance with the corresponding concept in Article 11 of the OECD 1977 Model Tax Convention.

The Danish court further asks for clarification whether the concept has a static or dynamic meaning. I.e., whether the ‘beneficial owner’ concept should be interpreted in the light of the commentary on Article 11 of the 1977 Model Tax Convention (paragraph 8), or can subsequent commentaries be incorporated into the interpretation, including the additions made in 2003 regarding ‘conduit companies’, and the additions made in 2014 regarding ‘contractual or legal obligations’.

Among other questions referred, the Danish court is also seeking clarification on the interpretation of the relationship between anti-abuse provisions covered by Article 5 of the Directive that Member states have implemented in domestic law, and the provisions of double taxation treaties entered between EU member states under which taxation of interest is conditional on whether the interest recipient is the beneficial owner of the interest.

The EU Interest and Royalties Directive was enacted in 2003 to eliminate withholding taxes in the area of cross-border interest and royalty payments within a group of companies by abolishing withholding taxes on royalty payments arising in a Member State, and withholding taxes on interest payments arising in a Member State.

  1. European Commission appoints new Director for Indirect Taxation and Tax Administration

The European Commission decided on Wednesday 8 March to appoint Maria Teresa Fabregas Fernandez to the position of Director for Indirect Taxation and Tax Administration in the Directorate General for Taxation and Customs Union (DG TAXUD). Fabregas Fernandez joined the European Commission in 1997. Her career at the Commission focused on financial services and capital markets whilst also covering a variety of other topics, including industrial goods and services, better regulation, enterprise policy and inter-institutional relations as well as trade facilitation. In 2012, Fabregas Fernandez became Head of Unit for the Securities Markets in its department for Financial Stability, Financial Services and Capital Markets Union (DG FISMA).

Since 2015, Fabregas Fernandez is Head of Unit for Financial Markets in this department. The appointment as Commission Director will take effect on 16 March 2017.

  1. UK Chancellor of Exchequer announced penalties for enablers of tax avoidance

The UK Chancellor of Exchequer Philip Hammond announced in the Spring Budget on 8 March new financial sanctions for professional enablers and facilitators of tax avoidance arrangements that are later defeated by the HMRC, the UK tax authority. The measure, originally planned in the Autumn Statement, will be introduced in July 2017. The British government expects the new penalty regime to raise at £10m in the coming tax year, rising to £50m in 2018-2019.

The Chancellor also plans to remove the defence of having relied on non-independent advice as taking reasonable care when considering penalties for companies that engage in such activities.

The new measure would not be relevant to tax professionals who are already subject to professional codes of conduct.

  1. Heading for Brussels end of March to attend the CFE Forum?

It is not too late to register. This year’s Forum brings a prominent line-up of speakers to discuss the topic: “Do you have a taxable presence in a country? The New Reality Permanent and Fixed (VAT) Establishments in the Post-BEPS World”. The CFE Forum will take place on 30 March 2017, 9:00 to 16:30, at the Representation of Nord-Rheine Westphalia to the European Union (Rue Montoyer 47, B- 1000 Brussels).

  • Programme and registration details available here

06 March 2017

  • European Parliament votes to amend the EU Anti-Money Laundering Directive (“AMLD”)

The European Parliament’s Economic and Monetary Affairs (ECON) and Civil Liberties Committees have voted to amend the EU Anti-Money Laundering Directive (“AMLD”) to allow access of EU citizens to the beneficial ownership registers. The vote today was passed by 89 to 1, with 4 abstentions. Under the present rules, the access to the AML beneficial ownership registers was limited to official authorities. The compromise solution would allow European citizens to access beneficial ownership registers without having to demonstrate a legitimate interest in the information.

AML Directive (EU) 2015/849 amendments shall enter into force when adopted at plenary at the European Parliament (probably at the March plenary session), and then continue with trilateral negotiations with the Council and the Commission.

The scope of the AMLD has also been expanded to cover trusts and other types of legal arrangements having a structure or functions similar to trusts, which were previously excluded from the scope of AMLD on privacy grounds. Trusts would now have to meet full transparency requirements including the need to identify beneficial owners.

Under the amendments, virtual currency platforms would also be within the scope of the AML directive, having the same customer identification obligations as banks. This includes verifying identity details and monitoring their financial transactions, to reduce the risk of virtual currencies being used for money laundering purposes.

  • ECJ Advocate General’s Opinion published in the VAT case Compass Contract Services (Case C-38/16)

On 2 March 2017, Advocate General Campos Sánchez-Bordona gave his Opinion in the case of Compass Contract Services Limited v. Commissioners for Her Majesty’s Revenue & Customs. The case concerned the adjustment of output and input VAT and the applicable limitation periods. The question was whether it is acceptable under EU law to apply different limitation periods to claims for repayment of VAT paid but not due to differ from those applicable to claims for deduction of VAT, in respect of the date on which they were brought into force?

The Reference to the ECJ was made by the  First-tier Tribunal (Tax Chamber) of the U.K. on 25 January 2016.

The Advocate General proposed that the ECJ answer the questions as follows:

  1. It is not contrary to EU law for a national measure, like that at issue in the main proceedings, in laying down a transitional period for the introduction of reduced limitation periods applicable both to claims for repayment of overpaid VAT and to claims for deduction of input VAT, to provide that the new limitation period should start to run, for the latter, from a later date than the date fixed for it to start running for the former
  1. In the alternative, were the Court to give an affirmative answer to the first question, the national court would have to draw the appropriate conclusions from infringement of the principle of equal treatment, in accordance with the rules of national law relating to temporal effects, in such a way that the remedies it grants are not contrary to EU law

The Opinion is available at the following link:

Opinion of Advocate General Campos Sánchez-Bordona in the case of Compass Contract Services (Case C-38/16)

  • European Commission launches public consultation on the functioning of the administrative cooperation and fight against fraud in the field of VAT

In addition to the three ongoing VAT consultations, the EU Commission launched this new consultation on 2 March 2017. It will run until 31 May 2017.

The Commission aims to update the rules governing the administrative cooperation and the fight against cross- border VAT fraud with the aim of improving the functioning of the single market and tackling the heavy losses suffered by both the Member States and EU revenue. Council Regulation (EU) No 904/2010 of 7 October 2010 is the current legislation applicable to administrative cooperation assistance in VAT. The aim of the consultation is:

  • to gather views from stakeholders about their experience of the current rules governing administrative cooperation and fight against cross-border fraud in the field of VAT;
  • to bring new insights for the on-going evaluation of Regulation (EU) 904/2010;
  • to provide information about possible improvements including ‘VIES on-the-web’; and
  • to collect quantitative data on possible reduction or increase of regulatory costs/benefits (administrative burden and/or compliance costs) for businesses (in particular SMEs).

The consultation is available at the following link:

EU public consultation on the functioning of the administrative cooperation and fight against fraud in the field of VAT

  • French Constitutional Court rules on CFC rules for individuals

On 1 March 2017, the French Constitutional Court (Conseil constitutionnel) handed down its decision in relation to the constitutionality of CFC legislation (Article 123 bis of the General Tax Code) w.

The impugned legislation provides that resident individuals will be subject to French tax on the income of the foreign entity regardless of whether it is distributed. Tax is levied in proportion to the percentage participation of the individual in the foreign entity.

The conditions for the imposition of the tax are as follows:

  • The individual directly or indirectly owns 10% or more of the share capital (or financial or voting rights) in a foreign entity;
  • that foreign entity is established in a low-tax jurisdiction;
  • the assets of the foreign entity are mainly financial assets;

If the entity is located in a ‘non-cooperative state or territory’ (NCST) or in a jurisdiction which did not conclude any administrative assistance treaty with France, resident individuals are taxed on a minimum deemed income.

In order to comply with EU law the relevant piece of legislation provides for a safe harbour under which the controlled foreign company (CFC) rules may not apply with respect to foreign entities that are located in an EU Member State, unless the participation is part of an artificial arrangement aimed at circumventing French legislation.

The Court found that the different treatment between entities located in a Member State and those outside the EU is contrary to the constitutional principle of equality before public expenditures. Therefore, the Court held that the safe harbour provisions must apply to all entities

The Court upheld the aforementioned provision in relation to a minimum deemed income for resident individuals.

The Decision is available in French and other languages at this LINK.

  • CFE Forum 2017: “Do you have a taxable presence in a country? The New Reality Permanent and Fixed (VAT) Establishments in the Post-BEPS World”

The annual CFE Forum will take place on 30 March 2017.  Given the huge focus currently on the attribution of profits to PEs in a direct tax context and the interaction between the direct and indirect concepts it proves to be a very interesting day of lively discussion and debate.

For programme and registration details, please follow the links below:

Programme: Link 

Further information: CFE website.