CFE’s Tax Top 5 – October 2018

BRUSSELS 29 OCTOBER 2018

TAX3 & ECON Hold Joint Hearing on Digital Tax

At a joint sitting of the Economic & Monetary Affairs Committee (“ECON”) and the Special Committee on Tax Evasion, Tax Avoidance & Money Laundering (“TAX3”), French Finance Minister Bruno Le Maire urged MEPs to “stop the existing situation where digital giants pay 14 percentage points less in tax than other companies”. Le Maire conceded that Member States were not able to agree the proposed tax at present, but urged MEPs that the EU should lead the way when it comes to taxation of the digital economy.

However, there have been multiple reports over the past week concerning a letter allegedly sent by the US Senate Finance Committee to European Commission President Jean-Claude Juncker and European Council President Donald Tusk urging the EU not to progress the current interim digital tax proposal any further. The letter allegedly raises concerns relating to double taxation and discrimination against US tech companies, and urges the EU to instead focus efforts on reaching consensus at OECD level.

In other digital tax developments, the UK budget will be released this week, which many anticipate will contain a proposal for digital tax to be implemented in the UK in 2019. The UK’s Chartered Institute of Taxation (“CIOT”) has published a press release ahead of the budget being released, stating that any interim digital tax carries many inherent risks and would be counter-productive to agreeing an international solution at OECD level. CIOT in its statement opines that any interim tax would be difficult to apply due to the complexities of calculating user value, which will lead to increased disputes. CIOT also set out their view that unilateral measures will lead to disharmony between Member States as to what activities are subject to digital tax, and that any interim tax imposed will likely be borne by the end consumer.

European Economic & Social Committee Publish Opinion Statement on EU Excise Duties Proposals

The European Economic & Social Committee have published an opinion statement concerning the EU proposals to reform current excise duties. The EU Commission has proposed a new EU-wide certification for small and artisan alcohol producers, to allow access to lower duty rates across the EU. The proposals seek to establish a uniform certification system confirming independent small producers’ status throughout the European Union and reduce IT compliance standards, thereby reducing administrative and compliance costs for SMEs. In addition, the proposals would also clarify manufacturing processes for alcohol in the EU and increase the threshold for lower strength beer that can benefit from reduced rates from 2.8% to 3.5%.

The ESSC statement sets out that the Committee is largely supportive of the proposals, opining that the measures will provide much needed clarity and will assist to streamline systems by reducing administrative burdens for SMEs.

The ESSC opined that the proposals provide for the widest possible discretion for Member States to adapt excise tax to national objectives, whilst providing much needed clarity and consistency in the administration and IT systems for cross-border trade. The ESSC also supported the proposal to increase the threshold for lower strength beer that can benefit from reduce rates from 2.8% to 3.5%, noting that it would be at the discretion of Member States to implement the proposed increase, but called for an impact assessment review to take place within five years in Member States where the proposal is implemented.

Spanish Council Approves Budget Introducing Minimum Corporate Tax Rate & Digital Tax in 2019

The Spanish Council of Ministers last week reportedly approved a 2019 Budget Plan which proposes to implement both a minimum corporate tax and a digital tax from 2019 onwards.

A minimum effective corporate tax rate of 15% has been proposed to apply to large taxpayers, defined as taxpayers whose annual net turnover is equal to or greater than 20 million Euros. In addition, the Budget proposes to implement a digital service tax on digital activities, including online advertising, sales of data and brokerage services, to be applied at a rate of 3% on the income of taxpayers who have a net turnover of 750 million Euros and where more than 3 million Euros of the annual net turnover is specifically derived from digital activities in the past calendar year.

The Budget Plan has been submitted to the European Commission for approval, and will thereafter need to be implemented via Spanish parliamentary procedure.

G7 Calls on OECD to Consider CFC Rules

The Group of Seven have called on the OECD to produce a policy paper setting out a proposed system of how multinational Controlled Foreign Corporations (“CFCs”) ought to be taxed, Bloomberg reports. The policy paper would further develop work carried out by the OECD as part of the Base Erosion and Profit Shifting project.

The G7 reportedly are concerned with ensuring that a minimum level of tax is paid by multinational CFCs, and ensuring companies are prevented from “forum shopping” in order to artificially shift profits to low tax jurisdictions, potentially by having jurisdictions agree a global minimum corporate tax rate.

US Deputy Assistant Secretary of International Tax Affairs at the US Treasury’s Office of Tax Policy, Chip Harter, reportedly indicated it is possible that the US would be supportive of such a policy, given there are now CFC rules incorporated in the new US global intangible low-taxed income (GILTI) rules. Any OECD policy that is eventually adopted is also likely to extend the EU’s current CFC rules.

Harter reportedly stated that discussions concerned the proposed policy paper are in the very preliminary stages.

Final Reminder: CFE & AEDAF Mandatory Disclosure Rules Conference – 23 November 2018

CFE Tax Advisers Europe and the Asociación Española de Asesores Fiscales (AEDAF) will host the 11th European Conference on Tax Advisers’ Professional Affairs, 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”.

Two panels of expert speakers from the EU & OECD, Members of Parliament and officials from the Ministry of Finance of the Kingdom of Spain as well as prominent practitioners will discuss the implications of the OECD and EU’s initiatives on Mandatory Disclosure Rules. The panels will address issues such as how tax administrations and advisers will face the challenging task of implementing this directive and the merits of these policy initiatives for stakeholders across the board. Register now to avoid disappointment!

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

 

BRUSSELS  22 OCTOBER 2018

Digital Tax: OECD Update & Global Minimum Corporate Tax Rate Proposals

In an article published in Welt am Sonntag, the German Finance Minister Olaf Scholz (SPD) set out a proposal for a global minimum corporate tax rate to be applicable to multinational companies to address the tax challenges of the digital economy. According to these sources, Mr Scholz was considering these proposals jointly with France, with the main point of contention being whether such a tax would supplement or replace the Digital Services Tax imposed on revenues of digital businesses as discussed at present in the Council of the EU.

Fearing retaliation from the United States, Germany has so far opposed the Digital Services Tax. The new proposals that have been set out by Germany are seen as more generic and complementary to the ongoing OECD discussions on how to address the tax challenges of the digital economy. Whilst Germany sees the introduction of a minimum corporate tax rate as an alternative to the DST, France is reportedly seeking to supplement the introduction of DST with a minimum tax rate. It is not yet clear how the new proposal ties in with the CCTB/ CCCTB proposals of the European Commission.

The Austrian EU presidency has recently reported progress on the Digital Services Tax file and states consensus is achievable by Christmas. In reality, EU countries continue to disagree on the viability of such a proposal in a particularly contentious environment and given the US opposition to the proposals.

At last week’s OECD tax update, Pascal Saint-Amans, the Director of OECD’s Centre for Tax Policy and Administration, confirmed that the OECD is supportive of the German – French proposals, but countries still fundamentally disagree on how to address specific digitalisation challenges. Reportedly, the United States favours more comprehensive reform of international tax rules that would not ring-fence the digital economy for tax purposes but would reconsider taxation powers of market jurisdictions, whilst countries like the United Kingdom consider that international tax reform should remain limited in scope and address the user value contribution in the digital economy.

EU Joint Transfer Pricing Forum Update

An EU joint transfer pricing forum meeting will take place this Wednesday 24 October. On the agenda is the topic of joint audits for better transfer pricing control. The current work programme of the Joint Transfer Pricing Forum includes summarising Member States’ practices and experiences in the context of joint controls and audits, as well as providing practical guidance on how to cooperate both in the bilateral and multilateral context of transfer pricing inspections. More detail is available in the European Commission Report.

OECD: Austria and U.K. ‘largely compliant’ on Transparency Ratings

The Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) published seven peer review reports assessing compliance with the international standard on transparency and exchange of information on request (EOIR). Bahrain and Singapore received an overall rating of “Compliant”, whilst five other jurisdictions, Austria, Aruba, Brazil, Saint Kitts and Nevis and the United Kingdom, were rated “Largely Compliant”.

These reports assess jurisdictions against the updated standard which incorporates beneficial ownership information of all relevant legal entities and arrangements, in line with the definition used by the Financial Action Task Force Recommendation (FATF).

EU Commission Withdraws Apple Court Action against Ireland

Following confirmation by Ireland that the full recovery of the illegal State aid granted to Apple has been finalised, the Commission has decided to withdraw its Court action against Ireland. On 30 August 2016, the Commission adopted a State aid decision finding that Ireland had granted undue tax benefits of up to €13 billion to Apple. The Commission concluded that these tax benefits were illegal under EU State aid rules as they allowed Apple to pay substantially less tax on profits recorded in Ireland than other companies subject to same national taxation laws, and ordered Ireland to recover the amount of taxes that should have been paid by Apple. Both Ireland and Apple have appealed the Commission decision. Pending a General Court ruling, the State aid must be fully recovered from the alleged aid recipient.

Reminder: CFE & AEDAF Mandatory Disclosure Rules Conference – 23 November 2018

CFE Tax Advisers Europe and the Asociación Española de Asesores Fiscales (AEDAF) will host the 11th European Conference on Tax Advisers’ Professional Affairs, 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”.

Two panels of expert speakers from the EU & OECD, Members of Parliament and officials from the Ministry of Finance of the Kingdom of Spain as well as prominent practitioners will discuss the implications of the OECD and EU’s initiatives on Mandatory Disclosure Rules. The panels will address issues such as how tax administrations and advisers will face the challenging task of implementing this directive and the merits of these policy initiatives for stakeholders across the board. Register now to avoid disappointment!

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

 

BRUSSELS 15 OCTOBER 2018

OECD Releases 2017 Mutual Assistance Procedure Statistics

The OECD has released the annual Mutual Assistance Procedure (“MAP”) Statistics for 2017. Members of the Inclusive Framework on BEPS provide annual reports of statistics concerning the resolution of disputes, in accordance with an agreed reporting framework.

2017 MAP statistics are now available for 85 jurisdictions, and set out detailed information for each jurisdiction, as well as aggregated information concerning all jurisdictions. The information sets out the number of existing cases, the number of new cases, the number of existing cases resolved, and the average duration of those cases. The outcomes of cases are also detailed in the statistics.

The number of transfer pricing disputes increased in 2017 by 25%, and the number of outstanding and new disputes increased significantly. This was despite the fact that the statistics demonstrate that more disputes were resolved in 2017 than in 2016.

EU Approves Extension of State Aid in Danish Tax Scheme

The European Commission has approved the extension of the current Danish tonnage tax scheme under State aid rules to include additional types of vessels, a step that aims to ensure the competitiveness of the sector without distorting competition.

The Commission has approved the extension of the Danish tonnage tax scheme to cover guard vessels, vessels for servicing off-shore installations, vessels for repairing and dismantling windmills, pipeline and cable-laying vessels, as well as ice management and accommodation vessels. Under the scheme, companies pay tax on the ship tonnage of their fleet in place of actual profits. The scheme is intended to improve the economic viability of shipping companies in order to prevent them relocating to low tax countries outside the EU.

Commissioner Margrethe Vestager said of the decision: “Denmark’s revised tonnage tax scheme will help the shipping industry remain competitive on the global market. It will preserve jobs and promote high environmental standards in the maritime transport sector. The scheme complies with the Commission’s State aid guidelines and contains new safeguards to ensure equal treatment of European shipping companies and avoid distortions of competition.”

CIOT Conference in Milan on 19 October 2018
The Chartered Institute of Taxation (“CIOT”), Member Organisation of the CFE from the UK, is holding a European Branch Conference this Friday, 19 October 2018, in Milan. The conference will cover topics related to tax and tax policy, in particular taxation in the digital economy, geopolitics and taxation, and fiscal state aid.

Those wishing to attend can register here.

EU Contemplates Extending Blacklist Screening Process to Member States
The Austrian Presidency of the EU is reportedly reviewing whether Member States ought to be subject to the review process conducted by the Code of Conduct Group on Business Taxation for the purpose of compiling the List of Non-Cooperative Jurisdictions for Tax Purposes.

The so-called “Blacklist” was compiled following a screening process undertaken by the Code of Conduct Group in 2017 in order to identify jurisdictions whose tax practices did not conform to EU standards. The screening process initially excluded the European Union Member States, a decision that was widely criticised. The Presidency is now examining the mandate of the Code of Conduct Group. The Head of the Group, Fabrizia Lapecorella, stated that “screening the EU member states with the same criteria is under discussion in the context of the revision of the mandate of the code of conduct group”.

The jurisdictions that remain on the EU Blacklist are: American Samoa, Guam, Namibia, Samoa, Trinidad and Tobago and the U.S. Virgin Islands.

Reminder: CFE & AEDAF Mandatory Disclosure Rules Conference – 23 November 2018
CFE Tax Advisers Europe and the Asociación Española de Asesores Fiscales (AEDAF) will host the 11th European Conference on Tax Advisers’ Professional Affairs, 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”.

Two panels of expert speakers from the EU & OECD, Members of Parliament and officials from the Ministry of Finance of the Kingdom of Spain as well as prominent practitioners will discuss the implications of the OECD and EU’s initiatives on Mandatory Disclosure Rules. The panels will address issues such as how tax administrations and advisers will face the challenging task of implementing this directive and the merits of these policy initiatives for stakeholders across the board. Register now to avoid disappointment!

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

BRUSSELS 8 OCTOBER 2018

ECJ: France in breach of EU law concerning Dividend Taxation

The Court of Justice of the European Union (“ECJ”) has rendered a judgment on 4 October in Case C-416/17 Commission v France, on an action for infringement of EU law initiated by the European Commission against the French Republic. The case concerns discriminatory tax treatment of parent companies which receive dividends from foreign subsidiaries with regard to the right to reimbursement of tax levied in breach of EU law, as interpreted by ECJ in its ruling C-310/09 Accor.

Regarding the French tax rules that seek to prevent the economic double taxation of distributed profits, the Court reiterated that settled ECJ case-law requires from a Member State, which has a system for relief of double economic taxation as regards dividends, to treat dividends paid to residents by resident companies in the same way as dividends paid to residents by non-resident companies, in a situation where comparability has been established (national or equal treatment principle). ECJ found that France was required, in order to bring an end to the discriminatory treatment in the application of the tax mechanism seeking to avoid the economic double taxation of distributed dividends, to take into account the taxation levied earlier on the distributed profits resulting from the exercise of the taxation powers of the Member State in which the dividends originated, within the limits of its own powers of taxation. Such treatment is required irrespective of the level of the chain on which that tax was levied, a subsidiary or a sub-subsidiary. By failing to bring an end to such discriminatory tax treatment of dividends France was in breach of the freedom of establishment and the freedom of movement of capital, as set out in Articles 49 and 63 of the Treaty.

ECJ also established in C-416/17 Commission v France that the French Supreme Court for administrative matters, Conseil d’État was legally required under EU law to submit a preliminary question to ECJ in absence of established acte clair case-law, in order to prevent incorrect interpretation of EU law (cf. CILFIT-ruling criteria establishing duty to refer a preliminary question to ECJ). Since the Conseil d’État failed to make such a reference in a situation where the appropriate application of EU law could not be established as a matter of certainty, ECJ found that France was in breach of its obligations under EU law (Article 267 of the Treaty).

ECOFIN Approves VAT quick-fixes, Reverse Charge and E-Publication Regulation

At a meeting of the Council of the EU (ECOFIN) in Luxembourg last week, agreement was reached on a number of issues in relation to the day-to-day running of an EU VAT system. The measures agreed included: VAT quick-fixes, generalised reverse charge and e-publication Regulation.

• VAT Quick-Fixes

The VAT “quick-fixes” are designed to address specific issues with the EU VAT rules, pending the introduction of a definitive EU VAT Regime, as follows:

– Call-off stock arrangements – simplification and harmonisation of rules regarding call-off stock arrangements, where a vendor transfers stock to a warehouse at the disposal of a known acquirer in another member state;
– VAT identification number – introduction of an identification number for a customer as an additional condition for VAT exemption for intra-EU supplies of goods;
– Chain transactions – simplification and harmonisation of rules regarding chain transactions; and
– Proof of intra-EU supply – introduction of a common framework of criteria of documentary evidence required to claim a VAT exemption for intra-EU supplies.

• Reverse-Charge

The Council reached political agreement on the proposal to allow Member states facing endemic carousel fraud to apply a generalised reversal of payment of VAT liability from supplier to customer. The reverse charge may only be used by a Member state which meets certain eligibility criteria and has been authorised by the Council to use the reverse charge mechanism.

• E- Publications

In addition, the Council adopted the proposed measures to strengthen administrative cooperation providing for the exchange and analysis of information between Member States in order to better prevent VAT fraud, as well as a VAT proposal allowing member states to apply reduced, super-reduced or even zero VAT rates to electronic publications to align rules for electronic and physical publications, and to reflect the EU’s “digital single market” plan.

Switzerland Commences with Exchange of Financial Account Information

The Swiss Federal Tax Administration (FTA) announced on 5 October 2018 that Switzerland has commenced with exchanging financial account information within the framework of the global standard on the automatic exchange of information (AEOI). The exchange of information shall allow the tax authorities to verify whether taxpayers have correctly declared their financial accounts abroad in their tax returns. Two million financial accounts are reportedly part of the automatic exchange of information, which includes the name, address, state of residence and tax identification number, as well as information concerning the reporting financial institution, account balance and capital income.

The automatic exchange of information is taking place between partner countries of the European Union (excluding Romania and Cyprus), and, Australia, Canada, Guernsey, Iceland, Isle of Man, Japan, Jersey, Norway, South Korea. The Swiss financial information was first exchanged at the end of September 2018.

Tax Inspectors Without Borders Report Significant Progress in Developing Countries

Tax Inspectors Without Borders, a joint initiative of the OECD and the UNDP has reported significant improvements in the tax inspection capacities of developing countries in its Annual Report. Increased tax revenues directly attributable to this programme are estimated at 414 million US dollars. This innovative international co-operation initiative deploys qualified experts in developing countries to strengthen their ability to effectively tax multinational enterprises. The Tax Inspectors Without Borders Annual Report covers the activities from May 2017 to April 2018, effectively the second full year of operations under the OECD/ UNDP partnership arrangements.

New CFE Executive Board Appointed by General Assembly in London

CFE Tax Advisers Europe elected a new Executive Board for the calendar years 2019-2020 at the General Assembly held in London on 28 September 2018. The new Executive Board will take up their duties on 1 January 2019.

CFE President Piergiorgio Valente said of the appointments, “we are delighted with the election of the new Executive Board. The policy priorities of the new Board remain closely related to our vision of drawing EU Member states’ attention to taxpayers’ rights and advancing the rights of tax advisers throughout our Member organisations.”

Full details of the newly appointed Members of the Executive Board are available here.

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

BRUSSELS I 1 OCTOBER 2018

VAT “Quick-Fixes” & Reverse Charge Mechanism to be Voted at ECOFIN Meeting Tomorrow

Ministers attending the Council of EU’s Economic and Financial Affairs Council meeting on 2 October 2018 will vote on proposed Commission measures to introduce VAT “quick-fixes” and a Reverse Charge Mechanism. The VAT “quick-fixes” are designed to address specific problems with EU VAT rules, pending the introduction of a definitive EU VAT Regime, as follows:

• Call-off stock arrangements – simplification and harmonisation of rules regarding call-off stock arrangements, where a vendor transfers stock to a warehouse at the disposal of a known acquirer in another member state;
• VAT identification number – introduction of an identification number for a customer as an additional condition for VAT exemption for intra-EU supplies of goods;
• Chain transactions – simplification and harmonisation of rules regarding chain transactions; and
• Proof of intra-EU supply – introduction of a common framework of criteria of documentary evidence required to claim a VAT exemption for intra-EU supplies.

There is reportedly broad agreement within the Council on the proposed text concerning the issues. A copy of the proposed Council compromise text has also been published.

The Council will also vote on the proposal to allow member states facing endemic carousel fraud to apply a generalised reversal of payment of VAT liability from supplier to customer. The reversal may only be used by a member state which meets certain eligibility criteria and has been authorised by the Council to use the reverse charge mechanism. A copy of the proposed Council compromise text on the reverse charge mechanism has been published.

In addition, the Council is expected to adopt the proposed measure to strengthen administrative cooperation providing for the exchange and analysis of information between Member States in order to better prevent VAT fraud, as well as a VAT proposal allowing member states to apply reduced, super-reduced or even zero VAT rates to electronic publications to align rules for electronic and physical publications, and to reflect the EU’s “digital single market” plan. A copy of the proposed Council compromise text concerning the proposed directive on e-publications has now been published.

EU List of Non-Cooperative Jurisdictions for Tax Purposes to be Updated

It is expected that agreement will be reached at tomorrow’s ECOFIN meeting to update the list of non-cooperative tax jurisdictions for tax purposes, i.e. the “Blacklist”.

A report published on 27 September 2018 by the Code of Conduct Group (Business Taxation) recommended moving Palau from the blacklist to the grey list of countries to be monitored, following high-level commitments made to remedy EU concerns. The report also recommended that Liechtenstein and Peru be removed from the grey list, following positive assessments of reforms having been implemented by the jurisdictions.

Additionally, the ECOFIN will examine the outcomes of the 2018 Semester Reports and methods of improving implementation of country-specific recommendations contained in the reports, as well as how to develop a common understanding concerning recommended proposals.

Further Countries to Ratify OECD’s BEPS MLI

Australia, France, Japan and the Slovak Republic have now deposited their instruments of ratification for the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS MLI).

The MLI entered into force in July 2018, after being concluded in 2016. The MLI implements tax treaty measures which update international tax rules and aims to restrict opportunity for tax avoidance by implementing minimum tax standards and improving dispute resolution mechanisms.

EU Commission Approves Belgian State Aid of €3.5 Billion for Offshore Windfarms

The Commission has found that Belgian plans to provide €3.5 billion in financial assistance to offshore windfarms do not fall foul of EU State aid rules.

Belgium will provide funding for the Mermaid, Seastar and Northwester2 windfarm projects, up to a maximum amount of €3.5 billion, all of which are located in Belgian territorial waters in the North Sea.

The Commission assessed the proposed funding against the Guidelines on State aid for environmental protection and energy, and held that projects will promote the integration of renewable energy in the market, will assist Belgium in increasing its electricity produced by renewable sources and will aid in meeting renewable energy targets set for 2020, in line with the Commission’s Energy Union Strategy.

The Commission approved that the plans met with State aid rules and would assist in achieving EU environmental objectives without unduly distorting competition.

New CFE Executive Board Appointed by General Assembly in London

CFE Tax Advisers Europe elected a new Executive Board for the calendar years 2019-2020 at its General Assembly meeting held in London on 28 September 2018. The new Executive Board will take up their duties as of 1 January 2019.

CFE President Piergiorgio Valente said of the appointments, “we are delighted with the election of the new Executive Board. The policy priorities of the new Board remain closely related to our vision of drawing EU Member states’ attention to taxpayers’ rights and advancing the rights of tax advisers throughout our Member organisations.”

Full details of the newly appointed Members of the Executive Board are available here.

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