CFE’s Tax Top 5 – September 2018


Austrian Presidency: Progress on EU Digital Services Tax
The informal ECOFIN Council meeting of this weekend saw progress in the discussions on EU proposals for fair taxation of the digital economy. The Austrian Finance Minister, Hartwig Löger, at present holding the EU presidency of the Council, said that it was realistic to reach an agreement by the end of this year. Speaking at the end of the second day of the informal ECOFIN in Vienna, the Austrian Finance minister confirmed that France and Germany have both accepted that the EU Commission proposal needs to include a ‘sunset clause’, under which a digital services tax would be a temporary levy valid until an agreement has been reached at international level.

“There was broad support in the Council especially for preparing further measures against no-tax and low-tax systems. We want to make sure that the profit of big companies is taxed in a fair way and that there is an increase in the resulting revenue”, said Mr Löger. The Austrian Finance Minister confirmed that the EU Member states will seek to arrive at a position which is aligned with the OECD proposals on the matter.

EU Commission Publish ENGIE State Aid Tax Decision

The EU Commission published on 4 September the non-confidential version of the final decision adopted on 20 June 2018 concluding that Luxembourg granted tax benefits to Engie of around €120 million, contrary to the EU State aid rules.

In this case, the EU Commission is challenging two tax rulings issued by the Luxembourg tax authorities to GDF Suez Group (currently Engie) in 2008 and 2010. Both rulings concern tax treatment of intra-group interest-free mandatorily convertible loans, i.e. loans allowing the lender to become shareholder of the borrower upon conversion. According to the rulings in question, the borrowing companies were taxed on a fixed margin while the difference between their profits and the fixed margin were considered deductible expense.

The Commission is challenging such deductibility, highlighting that the aforementioned loans are equity rather than debt instruments. Furthermore it is challenging the agreed non-taxation of the deductible amounts at ultimate owner level.

OECD: Average CIT rate has dropped from 32.5% in 2000 to 23.9% in 2018

The OECD has published the third edition of its ‘Tax Policy Reforms 2018’ publication, which covers the latest tax policy reforms in all OECD countries, as well as in Argentina, Indonesia and South Africa. The report highlights the trend toward reduction of corporate income tax rate (CIT), which, according to the OECD, has been largely driven by “reforms in a number of large countries with traditionally high corporate tax rates”. The average corporate income tax rate across the OECD has dropped from 32.5% in 2000 to 23.9% in 2018.

“Among the countries that introduced significant corporate tax reforms were a number with high corporate tax rates, where tax reform was long overdue,” said Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration. “While these corporate tax cuts have created some concerns of a ‘race to the bottom,’ most of these countries appear to be engaged in a ‘race to the average,’ with their recent corporate tax rate cuts now placing them in the middle of the pack”.

Austria: EU’s Financial Transaction Tax on Wrong Track

Speaking for Bloomberg, Austria’s Finance Minister said that the EU financial transaction tax plans are “headed in the wrong direction and need to change course or be scrapped”.

The EU Commission proposal on Financial Transactions Tax came about in 2010, largely seen as an industry contribution related to the financial crisis of 2009. Faced with opposition, a group of Member states led by Germany and France continued with the proposal under the enhanced cooperation procedure, effectively bypassing the EU unanimity requirement for legislating in taxation matters.

The Austrian Presidency remains sceptical: “During years of debate, the scope of the proposed levy has been scaled back so much that it isn’t worth the effort anymore”, Mr Löger said. “The broad tax base we had initially was repeatedly reduced in the course of the debate.”, said the Austrian Finance Minister.

OECD and Norway Agree Developing Countries Partnership

OECD and the Norwegian Ministry of International Development have agreed a package of NOK 45 million (approximately EUR 4.6 million) over 4 years, starting in 2019 aimed at helping developing countries address their taxation challenges. The package will focus on implementing BEPS-related agreed outcomes, exchange of information on tax fraud and financial crimes and administrative cooperation.

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



EU Parliament Digital Tax Debate
The European Parliament Committee on Economic and Monetary Policy (ECON) held a meeting on 29 August to discuss the EU Commission proposals on fair taxation of the digital economy in the Single Market. The European Parliament rapporteurs Paul Tang (S&D, The Netherlands) and Dariusz Rosati (EPP, Poland) highlighted that the threshold proposed by the Commission for a ‘significant digital presence’ may need to be revised to consider EU’s smaller economies’ perspective. Another interesting element from the parliamentary debate was the call for a higher rate of taxation concerning the Digital Services Tax, which under Commission’s proposal is set at 3% of revenue. MEPs, quoting factors like fairness and efficiency, asked for a scope for increase of the 3% rate by individual Member states. The rapporteurs also indicated that a more precise definition of digital services should be sought. Parliament is only consulted on these two directives considering the tax sovereignty of Member states and the Treaty requirement of unanimity to legislate on tax matters.

On a visit to Latvia last week, members of the European Parliament TAX3 Inquiry Committee held meetings with political counterparts, civil society and experts, indicating that smaller EU Member state are very vulnerable to money-laundering risks. Jeppe Kofod MEP (S&D, Denmark) stated: “As in numerous other countries, the enforcement of money laundering rules has been weak in Latvia. Our visit has allowed us to witness efforts which go in the right direction but it is equally true that serious challenges need to be overcome before Latvia can be considered to be in a situation to be seriously fighting money laundering. At the same time it is important not to make the mistake of looking at deficiencies in combating money laundering on a country by country basis only – money laundering is a systemic phenomenon that needs to be tackled across the EU as a matter of priority.”

US Considering Withdrawal From the WTO

President Trump stated that the US is considering pulling out of the World Trade Organisation, labelling the WTO “the worst trade deal ever made”. WTO has been considered a cornerstone of the international post-World War II trade system built under the auspices of the United States. US withdrawal from the WTO is potentially the most significant trade policy step considered to date by the Trump administration.

President Trump previously stated that the US is considering 25% tax on car imports from the European Union, claiming that what had been offered in the negotiations with the European Commission was not enough. Trump’s comments came after EU Commissioner Cecilia Malmstrom spoke in European Parliament saying that the EU is “willing to bring down even our car tariffs to zero, all tariffs to zero, if the US does the same.”

OECD Publish Tax Policy Review on Slovenia

The OECD published a Tax Policy Review of Slovenia, providing a comprehensive tax policy assessment of Slovenia’s tax system as well as tax reform recommendations.

The OCED Policy Reviews are intended to provide independent, comprehensive and comparative assessments of OECD member and non-member countries’ tax systems as well as concrete recommendations for tax policy reform. By identifying tailored tax policy reform options, the objective of the Reviews is to enhance the design of existing tax policies and to support the adoption of new reforms.

OECD Blockchain Policy Forum

The OECD will be organising a Blockchain Policy Forum this week (4 – 5 September 2018) in Paris concerning the potential of Blockchain to increase transparency and traceability within markets and individual transactions, subject to policy and regulatory frameworks which foster the use of Blockchain for these purposes. Topics to be discussed at the conference include implications of Blockchain for privacy and cybersecurity, green growth and sustainability, the global economy, and enforcement practices. The event will be broadcast live at 09:30 CET on 4 September.

CFE Events: “Transparency Trends in Taxation: How to Implement New EU & OECD Mandatory Disclosure Rules”, Madrid 23 November 2018

CFE Tax Advisers Europe and the Asociación Española de Asesores Fiscales (AEDAF) are pleased to invite you to the 11th European Conference on Tax Advisers’ Professional Affairs, to be held in Madrid, Spain, on Friday 23 November 2018 on the topic of “Transparency Trends in Taxation: How to Implement New EU & OECD Mandatory Disclosure Rules”. Register now to benefit from an Early Bird fee until 10 September. More details are available on the CFE Tax Advisers Europe website.

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