CFE’s Top Tax 5 – June 2017

        27 June 2017

  1. European Commission published a proposal for Directive on ‘intermediaries’

The European Commission published on 21 June the proposal for a Directive on ‘intermediaries’ that aims to establish an obligation for mandatory disclosure to tax authorities of reportable cross-border arrangements coupled with automatic exchange of information. The proposal of the Commission comes in the form of a 5th amendment to the Directive on mandatory automatic exchange of information in the field of taxation (“DAC”). In order to become European Union law, the Commission proposal needs a unanimous support in the Council of the EU by all member states.

In respect of the scope of the directive, the proposal envisages that the intermediaries bear the burden of disclosure to the tax authorities, if they are involved in the design or promotion of an aggressive tax planning arrangement with cross-border implications. The disclosure obligation does not concern purely internal situations concerning one EU member state, due the internal market component necessary to justify a legislative action at EU level. The disclosed information to the national tax authorities shall be automatically exchangeable by tax authorities of all member states.

Where the obligation to disclose is not enforceable due to absence of intermediary, or due to legal professional privilege, the directive envisages shifting of the disclosure obligation to the taxpayer who is benefiting from the arrangement.

In respect of the timing of disclosure, intermediaries shall disclose reportable arrangements within 5 days beginning on the day after an arrangement becomes available for implementation to the taxpayer. The timing is more lenient in case of disclosure by a taxpayer, with obligation to disclose within 5 days once implementation has commenced.
In respect of the hallmarks, which are the criteria that define what constitutes a reportable cross-border arrangement, the directive places these in an Annex, that could be amended and revised by the European Commission once the directive has been implemented. The directive envisages a main benefit test alongside generic and specific hallmarks. The generic hallmarks include: confidentiality from competitors, confidentiality from the tax authorities, premium fees and off-the-shelve schemes. Specific hallmarks include hallmarks related to the main benefit test, specific hallmarks related to the cross-border transactions, to transfer-pricing and specific hallmarks concerning automatic exchange of information in the European Union.

The proposed rules could enter into force on 1 January 2019, in case of adoption by the Council as per the EU treaties.

  1. OECD releases BEPS discussion drafts on attribution of profits to PEs and profit-splits

The OECD released two discussion drafts inviting comments on the following issues: attribution of profits to permanent establishments, and, revised guidance on profit splits. Comments are welcome until 15 September 2017.

The attribution of profits discussion draft concerns additional guidance that had been mandated by BEPS Action Point 7 (prevention of artificial avoidance of PE status) on how the rules of Article 7 of the OECD Model Tax Convention would apply to PEs resulting from the BEPS changes, in particular for PEs outside the financial sector. This guidance replaces the discussion draft of July 2016, and concern attribution of profits only, and not the definition of permanent establishment.

The discussion draft on profit splits concerns Action point 10 of the BEPS Action Plan in respect of application of the transfer pricing methodology, specifically the transactional profit split method, in the context of global value chains.

  1. Publication of transfer-pricing toolkit for developing countries

The United Nations, World Bank, the OECD and the International Monetary Fund (IMF) published a toolkit to help developing countries to better protect their corporate tax base. The toolkit specifically addresses the lack of comparables for transfer-pricing analyses. Considering the pricing of related party transactions in the extractive industries is an issue of relevance for the developing countries, the toolkit addresses the information gap on minerals sold in an intermediary form.

  1. Third meeting of the BEPS inclusive framework

Over 200 delegates from 83 countries and 12 international and regional organisations met in the Netherlands as part of the Third Meeting of the BEPS Inclusive Framework. Apart from approving the discussion drafts on attribution of profits to PEs and the profit-split transfer-pricing methodology, the BEPS Inclusive Framework welcomed new members and discussed and approved its first monitoring report, to be submitted to G20 leaders for their summit on 7-9 July 2017 in Hamburg, Germany.

  1. OECD appoints new head of transfer-pricing

The OECD has appointed Mr Tomas Balco as Head of its Transfer-Pricing Unit within the Centre for Tax Policy and Administration, taking up his duties on 4 September 2017. A Czech and Slovak national, Mr Balco holds law degrees from the Masaryk University in Brno and the Vienna University of Economics and Business. Mr Balco previously worked for Deloitte and PricewaterhouseCoopers, the tax department of the Czech Government and the European Commission. Mr Balco has also been participant to the work of the UN Committee of Experts in International Taxation.

 

  19 June 2017

Financial Transaction Tax on the Agenda at ECOFIN meeting

The proposal for a financial transaction tax by means of enhanced cooperation was discussed at the recent ECOFIN meeting held in Luxembourg on Friday 16 June. Proposals for an EU-wide directive failed in 2011 and subsequently a procedure for enhanced cooperation was initiated. 10 Member States are proceeding with the proposal. The Member States seeking to introduce the tax are Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.

The proposals seek to ensure that the financial sector pays its fair share of tax; and discourage transactions that do not enhance the efficiency of financial markets. The proposal envisages the introduction of a minimum 0.1% tax for transactions in all types of financial instruments or in the case of derivatives a minimum tax of .01%.

In order for the proposal to be finalised and become a directive unanimous agreement must be reached by the 10 participating countries after consultation with the European Parliament. Whilst it is open to all member states to participate in discussions only the 10 member states outlined above can vote.

More work to be done before agreement can be reached on the temporary reverse charge proposal

European finance ministers failed to reach agreement on allowing certain member states to apply a generalised reverse charge mechanism. The proposal seeks to combat VAT fraud.

The generalised reverse charge proposals follow a request from member states significantly affected by VAT fraud, namely Austria and the Czech Republic.

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 Commission presented an analysis of the possible application of the generalised reverse charge mechanism in Austria and the Czech Republic.

Whilst the finance ministers were positive about the proposals they discussed the potential problems including legal difficulties and disputes arising along with an increase in untaxed goods and services. It was therefore agreed that more work was required before the proposals could be finalised.

VAT on E-books  – Failure to secure approval on the proposed reduction of VAT Rate

A proposal to align the VAT rate on electronic publications with that of traditional publications failed to get unanimous support at the recent ECOFIN meeting. Although the proposal had strong support from many member states the Czech Republic voted against it requesting a wider solution for VAT rates and the digital economy be looked at. The proposal will be discussed again later in the year.

European Parliament’s ECON and JURI committees votes on public country-by country reporting

On 12 June, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) and Committee on Legal Affairs (JURI) approved a proposal requiring multinationals to report details of their activities in every EU country in which they operate. The information to be published will include turnover, profits and taxes paid.

An exemption does exist so that multinationals will not be obliged to publish commercially sensitive information.

Whilst the vote was a step further towards public country-by-country reporting, the Committees failed to reach the qualified majority required to enter into negotiations with the Council. Therefore, the draft report will next be debated in a plenary session of the European Parliament.

                                                                                            

 

  12 June 2017

 OECD Multilateral Instrument signed in Paris

The OECD Multilateral Instrument (“MLI”) was signed by 67 government ministers on 7 June 2017. The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS is intended to transpose results from the OECD BEPS Project into thousands of double taxation conventions worldwide, and is open for signature by any country. Signatories of the MLI may choose which of the existing double tax treaties they would like to modify using the MLI. Once a treaty has been listed by the two parties, it becomes an agreement to be covered by the MLI. The 67 signatories have listed 2,635 treaties to be modified by the MLI.

Substantively, the MLI concerns OECD BEPS treaty-related minimum standards: Action 14 for improvement of dispute resolution, and Action 6 on preventing treaty benefits in inappropriate circumstances (treaty abuse). By its legal nature, the MLI is a multilateral international agreement, that shall be applied alongside existing bilateral double taxation conventions, modifying their application. In this way, bilateral tax treaties can be modified in a synchronised and consistent way in order to swiftly implement tax treaty related anti-BEPS measures. OECD expects that the first modifications shall become effective in 2018, with full scale implementation until 2019.

The explanatory statement accompanying the publication can be found on the following link.

European Economic and Social Committee warns that generalised VAT reverse charge could undermine the common VAT system 

The European Economic and Social Committee, an advisory and consultative body of the European Union, adopted on 31 May 2017 an Opinion related to the proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax as regards the temporary application of a generalised reverse charge mechanism in relation to supplies of goods and services above a certain threshold.

The Committee takes a general view that the reverse charge mechanism that derogates from the common European Value Added Tax System may be a useful tool in countering carousel fraud and VAT evasion. The Committee’s Opinion warns however that the use of the reverse charge mechanism could undermine the European internal market. The Committee has expressed concerns about possible fragmentation of the common VAT system, considering Commission’s plan to apply the derogation only to certain supplies of goods and not to services.

The Committee further recommends focusing on the proportionality principle, as the cost of compliance for small and medium-sized enterprises (SMEs) related to introducing a reverse charge mechanism could be considerable and may have an impact on cash flow with the risk that SMEs in particular may experience liquidity problems induced by the generalised reverse charge mechanism.

The Opinion of the Committee is available in all official European Union languages.

EU Commission adopts ‘Better Regulation’ agenda on improving EU law efficiency

The European Commission’s REFIT Platform, which is composed of internal and external stakeholders tasked to follow-up on Commission President Juncker Better Regulation Agenda met on 7 June to discuss how to improve the functioning of the Union legislation. The Group adopted 13 opinions with specific suggestions on improving the efficacy and efficiency of European Union law. The areas covered include: consumers’ health, food safety, consumer protection, etc. The adopted opinions will feed into the preparations for the 2018 Commission Work Programme, which is scheduled for adoption in October 2017.

European Commission Vice-President Frans Timmermans, who chairs the REFIT Platform, said: “Your work in the REFIT Platform is a great way of turning citizens’ and businesses’ feedback on our laws into concrete solutions. I am deeply committed to this work, and at the end of this Commission’s five-year mandate I want people to see that we have changed the way we work and improved our laws by listening and acting on their suggestions.”

European Commission Conference on tax fairness on 28 & 29 June in Brussels

The European Commission DG TAXUD will host a high level conference on tax fairness, taking place in Brussels on 28 – 29 June. The conference brings together a nazumber of speakers from various profiles, such as policy-makers, politicians, academia, business and NGOs. Follow this link for conference details and registration.

Plenary week of the European Parliament in Strasbourg

The European Parliament will hold a week of plenary sessions in Strasbourg, Monday 12 June – Thursday 15 June. Apart from one item on taxation of ports, tax policy is not on Parliament’s plenary agenda, but climate policy is. The Parliament is scheduled to debate on Thursday 15 June the decision of President Trump to withdraw the United States from the Paris Climate Agreement.  Here is a link to European Parliament’s plenary week agenda.

 

   06 June 2017

1.     OECD BEPS Multilateral Instrument to be signed in Paris

The signing ceremony of the multilateral instrument to modify bilateral tax treaties will take place on 7 June in Paris with more than 70 countries expected to sign the new tax convention multilateral instrument.
The formal adoption of the OECD multilateral instrument took place in November 2016, and follows up on the OECD BEPS Action Point 15. The multilateral instrument is expected to mitigate the problems arising from the alternative – implementation of the OECD BEPS measures by virtue of modifying thousands of bilateral double taxation conventions.

The OECD 2017 Forum and the ministerial meetings to be held in Paris June 6-7 shall also discuss the impacts of globalisation on societies, with central emphasis on the need for global policies that win back the confidence of those who feel left behind globalisation. The OECD Forum topics include discussion on the unprecedented speed of technological developments and their implications, with working title ‘How can we bridge divides to build more inclusive societies?’.

The text of the OECD Multilateral Convention to implement base erosion and profit shifting measures related to tax treaty changes is available here.

2.     Pascal Saint-Amans: Ending secrecy is the new frontier in international tax

The OECD Head of tax policy Pascal Saint-Amans in an interview for Fairfax Media, said that a new ‘battle’ in international tax area will be fought in revelation of the ultimate beneficial ownership and secret identities behind shell companies and opaque trusts.

According to Pascal Saint-Amans, the next step would include access to the beneficial ownership registers, without specifying whether this should include public access to beneficial ownership information: ‘Access to beneficial ownership information is probably the new frontier in fighting tax evasion. It would be fantastic to be able to fly to Mars but let us first fly to the Moon’, OECD Tax Policy director said on the issue of public access to beneficial ownership registers.

The European Union Member States are currently in the process of implementing the 4th EU Anti-Money Laundering Directive, with some member states, including the European Parliament, considering granting public access to beneficial ownership registers.

3.     OECD invites comments on Hard-To-Value Intangibles discussion draft

The OECD published a discussion draft on the implementation of BEPS Action Point 8: Hard-To-Value Intangibles. Public comments on the discussion draft which provides guidance on the OECD approach to transfer-pricing of hard-to-value intangibles (Chapter VI of the OECD Transfer-Pricing Guidelines) are invited by 30 June 2017.

The OECD Final Report on Actions 8/10 of October 2015 (“Aligning Transfer Pricing Outcomes with Value Creation”) mandated development of guidance on the implementation of the recognised approach to transfer-pricing of hard-to-value intangibles.

According to the OECD, the discussion draft does not represent a final position of the Committee on Fiscal Affairs, rather examples illustrating the application of this approach and the interaction between the pricing of hard-to-value intangibles and the MAP procedure under an applicable double tax treaty.

4.     EU and China begin State Aid control dialogue

The European Commission and China have started a dialogue on establishing a mechanism of cooperation between EU and China in the field of State Aid control. This action is part of Commission’s efforts to create a global level playing field where companies compete on basis of their merits, and to prevent public policies that are highly distortive or restrictive of the competition.

EU Commissioner Margrethe Vestager stated: “Decisions by one country to grant a subsidy to a company that operates globally may affect competition elsewhere. The European Commission is pleased to start a discussion with China on how to best handle state intervention in the economy.”

China is the world’s third largest economy and the EU’s second largest trading partner. The EU is China’s biggest trading partner. The control of State Aid is likely to be one of the important topics to be discussed also during the Brexit negotiations between the EU and the United Kingdom.

5.     EU Platform Tax Good Governance Meeting to be held on 15 June

A meeting of the EU Platform Tax Good Governance will take place on 15 June in Brussels. The CFE participates as member of the Platform Tax Good Governance. CFE representatives to the Platform, Stella Raventos (Chairwoman of the Fiscal Committee) and Piergiorgio Valente (CFE President), will coordinate CFE contributions to the Discussion Papers of the meeting.

The Platform for Tax Good Governance assists the European Commission in developing initiatives to promote good governance in tax matters in third countries, to tackle aggressive tax planning and to identify and address double taxation. It brings together expert representatives from business, tax professional and civil society organisations and enables a structured dialogue and exchange of expertise which can feed into a more coordinated and effective EU approach against tax evasion and avoidance.