CFE’s Tax Top 5 September 2016

26 September 2016

  1. Piergiorgio Valente elected next CFE President – New Board members elected

At the CFE General Assembly on 23 September 2016 in Warsaw, Piergiorgio Valente (Italy) was elected CFE President for a two-year term starting on 1 January 2017. He will succeed Henk Koller (the Netherlands) who has not stood for re-election. As new Vice President, Petra Pospíšilová (Czech Republic) was elected. New Chairwoman of the Fiscal Committee will be Stella Raventós-Calvo (Spain). The CFE Professional Affairs Committee will be chaired by Wim Gohres (the Netherlands). Vice Presidents Bruno Gouthière (France) and Ian Hayes (United Kingdom) as well as Treasurer Branislav Kováč (Slovakia) were re-elected.

  • CFE press release, 26 September 2016: EN
  1. OECD report: Tax Policy Reforms in 2015

On 22 September 2016, the OECD published an overview of the tax reforms implemented, legislated or announced across OECD countries in 2015. The report observes that tax reforms in 2015 were largely focused on boosting growth and were characterised by reductions in labour and corporate income taxes, compared to the post-crisis period, where a stronger focus on fiscal consolidation led governments to increase labour taxes and VAT rates. The report also shows a move in some countries towards higher taxes on personal capital income, but only relatively limited moves toward reform of environmental and property taxes. In these three areas, the OECD has previously identified scope for tax increases.

The OECD believes that many of the reported corporate income tax and VAT reforms reflect the OECD/G20 BEPS Recommendations and the OECD International VAT/GST Guidelines.

Austria, Belgium, Greece, Japan, the Netherlands, Norway and Spain were the countries that undertook the most comprehensive tax reforms.

  • Report : EN
  • Press release : EN (FR available)
  1. EP hearing on Panama Papers

On 27 September 2016, the European Parliament´s “PANA” Committee on money laundering, tax avoidance and tax evasion will host a hearing with some of the journalists involved in the “Panama Papers” revelations as regards their investigative work, conclusions and possible recommendations. The meeting will be livestreamed from 9:00 to 11:30 hrs CET and will probably be available afterwards as a recording.

  • Draft programme: EN
  • Livestream: EN (please check link to see whether interpretation is available)
  1. OECD reports on the Multilateral Instrument and other international tax policy developments

On 22 September 2016, the OECD held a “tax talk” providing an update on the recent OECD and G20 work in international tax policy reform. One chapter is dealing with the planned multilateral legal instrument to modify bilateral tax treaties (BEPS Action 15). The drafting of the Multilateral Instrument will be finalised in September and publication is scheduled for November.

A recording of has been made available.

  • Recording: EN

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

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19 September 2016

  1. Future EU “blacklist”: Commission presents selection of countries to be screened

As a first step towards a common EU list of non-cooperative jurisdictions which the European Commission plans to publish by the end of 2017, the Commission presented, on 14 September 2016, its suggestion to the EU member states as to which countries should be screened first and should be involved in a dialogue on tax good governance issues. This screening and dialogue would be carried out by the Commission and, through the EU Council “Code of Conduct Group”, the member states.

As the Commission explains, its pre-assessment seeks to identify the countries which are  economically relevant for the purpose of the list (taking into account the strength of economic ties with the EU, financial activity in relation to real economic activity, and stability), and countries that present a potential risk for facilitating tax avoidance (taking into account transparency and exchange of information, the existence of preferential tax regimes and the lack of corporate income taxation). 48 “least developed countries” have been excluded from the list and will be considered separately. The member states are not bound to the Commission´s selection when deciding, until the end of this year, which countries should be screened. It will thus be possible that even relevant countries with a high tax avoidance risk are spared from screening if member states cannot agree on including them. The screening criteria have not been agreed either. The Commission suggests that these be (1) tax transparency and exchange of information, (2) fair tax competition, (3) commitment to BEPS implementation and (4) the level of corporate taxation. The OECD is working on a blacklist (only) on tax transparency to be presented in summer 2017.

  • Press release, 15 September 2016: EN (All EU languages)
  • “Scoreboard of indicators”: EN
  • Questions and answers: EN
  1. State aid: Commission opens in-depth investigation into Luxembourg’s tax treatment of GDF Suez/Engie

On 19 September 2016, the European Commission has opened an in-depth investigation into Luxembourg’s tax treatment of the GDF Suez group (now Engie). The Commission has concerns that several tax rulings issued by Luxembourg may have given GDF Suez an unfair advantage over other companies, in breach of EU state aid rules. The Commission will assess in particular whether Luxembourg tax authorities selectively derogated from provisions of national tax law in tax rulings issued to the group. They appear to treat the same financial transaction between companies of GDF Suez in an inconsistent way, both as debt and as equity. After a preliminary assessment, the Commission considers that the treatment resulted in tax benefits in favour of GDF Suez which are not available to other companies subject to the same national taxation rules in Luxembourg.

The opening of an in-depth investigation gives interested third parties and the member states concerned an opportunity to submit comments. It does not prejudge the outcome of the investigation.

  • Press release: EN (FR DE available)
  1. State aid: Commission opens in-depth investigation into Poland’s tax on the retail sector

On 19 September 2016, the European Commission has opened an in-depth investigation into a Polish tax on the retail sector. The Commission has concerns that the progressive rates based on turnover give companies with a low turnover a selective advantage over their competitors in breach of EU state aid rules. The Commission explains that the progressive rate structure has the effect that companies with low turnover either pay no retail tax or pay substantially lower average rates than companies with high turnover. The Commission will now investigate further to determine whether its initial concerns are confirmed. The opening of an in-depth investigation gives interested third parties the opportunity to comment on the measures under assessment. It does not prejudge the outcome of the investigation.

The Commission has also issued an injunction, requiring Poland to suspend the application of the tax until the Commission has concluded its assessment. In July 2016, the Commission had concluded that a progressive turnover-based retail tax in Hungary is in breach of EU state aid rules.

  • Press release: EN (FR DE PL available)
  1. CJEU rules on exclusion of the right to input VAT deduction

On 15 September 2016, the EU Court of Justice (CJEU) delivered its judgment in the German preliminary ruling case (C-400/15) on whether the district of Potsdam-Mittelmark could be refused the right to deduct VAT on machinery it had purchased and mainly used for non-taxable purposes.

A derogation from the VAT Directive authorised Germany to disallow input VAT deduction where goods and services are used more than 90% for the private purposes of the taxable person, or of his employees, or for non-business purposes in general. The CJEU decided that this derogation does not extend to goods or services used, to an extent greater than 90%, for non-economic activities which fall outside the scope of VAT.

  • Judgment: EN (All EU languages)
  1. CJEU decides on retrospective effect of the correction of a VAT invoice

On 15 September 2016, the CJEU decided in the German preliminary ruling case Senatex, C-518/14, that national legislation may not deny retrospective effect of the correction of a detail of an invoice, such as the VAT ID number, so that the deduction VAT on the basis of the corrected invoice would only be possible for the year in which it was corrected.

  • Judgment: EN (All EU languages)
  • Advocate-General opinion: EN (All EU languages)
  1. CJEU: Tax authorities that hold the relevant information may not refuse VAT deduction because supplies are not sufficiently described in the invoice

In another decision relating to the right to VAT deduction taken on 15 September 2016, the CJEU ruled in case C-516/14, Barlis 06, that the description of supplies on a VAT invoice invoices mentioning only ‘legal services rendered from [a date] until the present date’, or ‘legal services rendered until the present date’ do not a priori comply with the EU VAT invoicing requirements. However, national tax authorities may not refuse VAT deduction solely because the services have not properly been described, if they have the necessary information for ascertaining whether the conditions for the right to VAT deduction are satisfied.

  • Judgment: EN (All EU languages)
  • Advocate-General opinion : FR (Available in most EU languages, not EN)
  1. OECD working paper on tax incentives for R&D and innovation

On 13 September 2016, the OECD released a working paper titled “Fiscal incentives for R&D and innovation in a diverse world”. The works looks at different incentives applied across countries and their unintended consequences such as favouring incumbent firms, encouraging small firms to undertake less efficient activities, or creating arbitrage and rent-seeking activity. The paper advocates the “nexus” approach, according to which a taxpayer should benefit from a preferential regime only to the extent that he has incurred the expenditures that have given rise to the income generated by the research and development investment.

  • Working paper: EN (Executive summary available in French)

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

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12 September 2016

  1. G20 ask OECD to present list of non-cooperative jurisdictions by July 2017

On 5 September 2016, the leaders of the G20 countries issued a communiqué concluding their summit in Hangzhou/China. Apart from commitments to implement BEPS actions and tax transparency, the statement endorses the criteria to identify non-cooperative jurisdictions proposed by the OECD and G20 earlier this year: According to these, a country´s assessment would depend on meeting the following benchmarks:

  • A “largely compliant” rating in exchange of information on request,
  • The commitment to start automatic exchange of information as of 2018, and
  • Endorsement of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, or a similar framework providing standards for the former two criteria.

The OECD has been tasked to present by July 2017 a list of jurisdictions that have not sufficiently progressed towards of implementation of the standards. Defensive measures would be considered against these jurisdictions.

The G20 leaders were also provided with a report from the OECD giving an update on the current OECD work in the field of BEPS, tax transparency, tax policy and tax and development, including lists of countries participating in the various initiatives.

  • G20 leaders Hangzhou communiqué, 5 September 2016: EN
  • OECD Report to G20 leaders: EN
  1. Advocate-General: electronic publications may be exempt from reduced VAT rate

On 8 September 2016, EU Court of Justice (CJEU) Advocate-General Kokott has issued her opinion in the preliminary ruling case RPO, C-390/15, brought before the Polish Constitutional Court by the Polish Civic Rights Ombudsman. The Advocate-General concluded that the exclusion of electronically provided books, periodicals and newspapers from the reduced VAT rate does not violate the EU´s principle of equal treatment.

The EU VAT Directive provides that printed publications as well as digital publications on a physical medium may be subject to a reduced VAT rate, but not publications provided purely electronically. According to Ms Kokott, the EU legislator has a certain discretion in this regard, and the fact that purely electronic products have significantly lower distribution costs is a significant difference upon which the different tax treatment may be based.

The provision in question has been under repeated attack lately: Luxembourg and France had disregarded the rule by applying a reduced rate on e-books, and lost before the CJEU in March 2015 (cases C-479 and 502/13). The Commission announced in May 2015 that it would consider abolishing the difference in treatment. Companies selling e-publications have long lobbied against a distinction between physically and electronically provided publications.

  • Press release: EN (available in esde el fr it pl pt sl)
  • Advocate-General Opinion, 8.9.2016: EN (All EU languages available)
  1. Commission estimates: VAT gap decreases only slightly

According to the European Commission´s latest estimates released on 6 September 2016, the VAT gap, i.e. the difference between the VAT that EU member states could have collected and the amount actually collected in 2014, amounted to € 160 bn across the EU, or 14.1%. As in previous years, differences between member states are enormous, ranging from 1.2 % in Sweden to 37.9 % in Romania. The greatest amount of VAT was lost in Italy which accounts for 23% of the EU´s lost VAT. The relative size of the VAT gap decreased for the first time since 2011. However, although two thirds of member states have managed to improve their VAT collection since 2013, the overall decrease in VAT lost (€ 2.5 bn) remains modest. The Commission believes that just over 30% of the VAT gap is due to cross-border VAT fraud. Other factor include legal tax avoidance, insolvencies or miscalculation.

The “policy gap”, meaning the VAT uncollected due to member states´ decision to make use of certain policy options like exemptions or reduced rates, is not included in the figure of € 160 bn. It is about three times higher than the VAT gap. The policy gap is highest in Spain (59%) and lowest in Malta (12.4)

  • Press release: EN (All EU languages)
  • Full report: EN

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

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5 September 2016

  1. Controversy over Commission state aid decision on Apple

On 30 August 2016, the European Commission issued a decision ordering Ireland to claim back € 13 billion in taxes from Apple (€ 14.5 billion including interest), granted by the country in the form of a tax ruling from 1991, being replaced by a similar one in 2007. The rulings endorse an internal split of the profits of “Apple Sales International” and “Apple Operations Europe”, two companies registered in Ireland, resulting in a small portion of their profits being allocated to their Irish branches and taxed in Ireland, and a larger part attributed to stateless and untaxed “head offices” which according to the Commission´s findings were artificial, as they did not have the staff and facilities to actually control the activities on which the profits were based. The Commission maintains that these profits should have been taxed through the Irish branch. Both Irish companies also paid several billions per year to the US parent company Apple Inc. to contribute to the development of IP, as part of a cost-sharing agreement. The claim covers the period from 2003 to 2014. Stateless companies are no longer possible under Irish law.

The Commission also indicated that the amount would be reduced if other national tax authorities (of EU member states or the US) re-assessed Apple´s tax situation based on the newly emerged facts and concluded that Apple should have paid more taxes in their countries, as such increase would reduce the IT company´s tax savings from the Irish ruling.

Apple and the Irish government have announced that they will appeal the decision before the EU General Court. After that, there is a possibility for an appeal to the EU Court of Justice (CJEU). Until the decision is final, Apple will have to place the amount demanded in an escrow account.

To win the support of the independent members of the Irish coalition government, the governing Fine Gael party had to promise a full review of tax arrangements for multinationals in Ireland to be carried out by an independent expert. The Irish Parliament will be asked to endorse the legal challenge on 7 September but the main opposition party Fianna Fáil is reported to be supportive of an appeal.

The Irish government has also promised that the low corporate tax rate of 12.5% would not be increased and that R&D tax credits would be maintained.

The case has also fuelled discussions within the US whether the country should change its policy towards profits of US companies earned abroad, to encourage companies to repatriate profits rather than have them taxed by other countries. According to a study published by the NGO Citizens for Tax Justice in October 2015, Apple has parked about $181 billion outside the US. The total amount piled up abroad by US companies is estimated to exceed € 2 trillion.

  • European Commission press release, 30.8.2016 (full decision not yet available): All EU languages
  • Statement by Commission Vestager, 30.8.2016: EN
  • Irish revenue statement, 30.8.2016: EN
  • Economist article, 3.9.2016: EN
  • EUObserver article on Irish situation, 2.9.2016: EN
  • EurActiv article on Irish situation, 2.9.2016: EN
  • EurActiv article on reactions in the US, 31.8.2016: EN
  • Reuters article with quotes from Commissioner Vestager, 1.9.2016: EN
  • Video of Commissioner Vestager announcing the Apple decision, 30.8.2016: EN

 

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

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