CFE’s Tax Top 5 – September 2018


EU Commission Clears Luxembourg of McDonalds’s State Aid Allegations

The European Commission has formally closed a three-year long investigation that aimed to establish that the Luxembourgish tax treatment of McDonald’s amounted to State aid. The case was of paramount importance for the Commission aiming to showcase that double-non taxation can amount to State aid by virtue of a tax-ruling based favourable interpretation of a Double Taxation Treaty provision. It transpires that by not pursuing the McDonald’s line of inquiry further, the Commission has by its own motion set a limit to the State aid tax investigations: disparities among tax systems and arbitrage resulting from divergent interpretation of conflicting taxation laws could not be addressed by the EU State aid rules.

EU Commissioner Vestager said: “The Commission investigation has shown that the reason for double non-taxation in this case is a mismatch between Luxembourg and US tax laws, and not a special treatment by Luxembourg. Therefore, Luxembourg did not break EU State aid rules. Of course, the fact remains that McDonald’s did not pay any taxes on these profits – and this is not how it should be from a tax fairness point of view. That’s why I very much welcome that the Luxembourg Government is taking legislative steps to address the issue that arose in this case and avoid such situations in the future.”

Apple State Aid Case: Commission to Close Infringement Action against Ireland

EU Commissioner Vestager announced that Ireland has recovered from Apple the full amount of assessed back taxes pursuant to a Commission decision establishing illegal State aid from Apple. As a result, Vestager confirmed, the European Commission will proceed with closing the infringement procedure against Ireland for failure to implement a Commission decision. Ireland was referred by the Commission to the European Court of Justice in October 2017 for failure to recover the State aid within four months of notification of the Commission decision. The full recovery of the assessed back taxes is a significant milestone in line with the commitment given earlier in the year by the Irish Government that the alleged State Aid would be recovered by end Q3 2018. The Irish government have expressed that they do not accept the Commission analysis and fundamentally disagree with it, but remain committed to comply with their EU law obligations pending outcome of the Court case.

OECD: Carbon Taxation Does Not Meet Climate Change Targets

A New OECD Report into the pricing and taxation of carbon emissions suggests that governments need to step up their policy efforts to meet climate change needs. The report sets out an estimation that pricing of carbon needs to increase to meet Paris Agreement commitments on cutting emissions and slowing the pace of climate change.

The effective carbon rate, a sum of taxes and tradeable permits that put a price on carbon emissions across 42 OECD and G20 countries is decreasing, but at a slow pace of change which is deemed insufficient to reverse the climate change trends. Need for urgent climate change action was highlighted, not least by incentivising companies to innovate and bring about a low-carbon economy and to stimulate households to adopt low-carbon lifestyles.

EU Commission: EU-Canada Free Trade Agreement Delivers Positive Result

At the occasion of the first anniversary of the entry into force of the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada, the European Commission has stated that the agreement is beneficial for the EU exports to Canada. Speaking in Brussels, EU Trade Commissioner Cecilia Malmström said: “The EU-Canada trade agreement has now been in action for a year and I’m pleased with the progress made so far. The preliminary data shows there is plenty to celebrate, even at this stage. Exports are up overall and many sectors have seen impressive increases. Our partnership with Canada is stronger than ever – strategically as well as economically. Together, we are standing up for an open and rules-based international trading order. CETA is a clear demonstration of that.”

According to Commission’s statistics, EU exports to Canada increased by over 7% since last October, with machinery, mechanical appliances, chocolate and sparkling wine generating the largest export increase from the EU to Canada.

CFE & AEDAF Mandatory Disclosure Rules Conference Programme: 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 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, Member or Parliament and officials from the Ministry of Finance of the Kingdom of Spain as well as distinct 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.

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


European Commission to Propose Qualified Majority Voting for Taxation Files

In his 2018 State of the Union address speech, Commission President Jean-Claude Juncker announced that “the Commission is proposing to move to qualified majority voting in specific areas…we should be able to decide on certain tax matters by qualified majority.”

The Commission’s Letter of Intent further sets out the initiatives that the Commission proposes take in order to realise its priorities. In relation to its priority of achieving a deeper and fairer internal market, the Commission sets out that it intends to issue a communication identifying areas for a move to qualified majority voting in the field of taxation by January or February 2019.

Any amendments to the voting process must be agreed unanimously by Member States.

OECD Publishes Feedback on Transfer Pricing Consultation

The OECD has published feedback received concerning a discussion draft on financial transactions that provides guidance on transfer-pricing with respect to intra-group loans and intra-group financial transactions. The draft was produced as a follow-up to the work undertaken under Actions 8-10 of the BEPS Action Plan (“Aligning Transfer Pricing Outcomes with Value Creation”) by OECD’s Working Party No. 6.

The first part of the discussion draft provides guidance on the application of the principles contained in Chapter I of the Transfer Pricing Guidelines to financial transactions. The second part of the discussion draft addresses specific issues related to the pricing of financial transactions such as treasury function, intra-group loans, cash pooling, hedging, guarantees and captive insurance.

The discussion draft also included a number of questions to commentators concerning which input from stakeholders was particularly sought by Working Party 6 to complement its work. A further discussion draft will be produced after considering the input received.

France Contemplates Introducing Unilateral Digital Tax

A paper presented last week to the French National Assembly’s Finance Committee reportedly recommended that a national measure be introduced to impose a levy on diverted profits, and introduce an appropriate nexus in order to tax digital business, should Member States fail to agree to the current EU proposal to introduce an interim EU-wide digital services tax.

This follows from reports that during the informal ECOFIN meeting that took place in Vienna from 7 to 8 September, French Finance Minister Bruno Le Maire proposed that a sunset clause could be introduced in relation to the interim tax, and that Member States which would be most adversely affected by the introduction of the tax could be allocated more of the revenue from the interim tax.

The Austrian Presidency’s Agenda Programme states that taxation of the digital economy is one of the main priorities for the focus of taxation work for the Presidency.

BEPS Inclusive Framework Releases Guidance on Country-by-Country Reporting

The OECD’s Inclusive Framework on BEPS has released further interpretative guidance aimed at providing tax administrations and MNEs with certainty concerning the implementation of Country-by-Country Reporting under BEPS Action 13.

The guidance covers the treatment of dividends, reporting requirements in relation to the number of employees to report where a MNE uses proportional consolidation in financial statements, as well as a summary of guidance to be applied in cases of mergers, demergers and acquisitions.

All existing guidance issued to date has been included in the document, and the guidance will continue to be updated in the future.

Global Tax Advisers Platform (‘GTAP’) Issues Declaration Establishing Key Priorities

On 12 September 2018, GTAP issued the Ulaanbaatar Declaration, establishing 10 key priorities for GTAP in pursuing international cooperation among tax advisers and optimisation of the national and international taxation framework.

GTAP was established by CFE, AOTCA and WAUTI, who collectively represent more than 500,000 tax advisers in Europe, Asia and Africa. GTAP is an international platform that seeks to bring together national and international organisations of tax professionals from all around the world.

The Ulaanbaatar Declaration sets out common key priorities for the collective promotion of an optimal tax framework worldwide. A copy of the Declaration can be viewed here.

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


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