Update

28 October 2016

FEE Tax Policy Update 17 – 28 October

 

Highlights

 

  • OECD launches business survey on tax certainty to support G20 tax agenda – 18 October
  • European Commission publishes Working Programme for 2017 – 25 October
  • Commission launches major corporate tax package, including CCCTB – 25 October

 

European Commission

 

Commission proposes to approve Polish request for VAT derogation – 20 October

The European Commission has published a proposal to the Council on a VAT derogation for Poland. The initial derogation was granted back in 2009, and enables Poland to grant a VAT exemption to taxable persons with an annual turnover below €30,000 applicable until 31 December 2018. Poland has now requested for the threshold to be raised to €40,000. The unanimous agreement of all EU Member States is necessary for any derogations to EU VAT rules.

 

European Commission publishes Working Programme for 2017 – 25 October

The European Commission has published its Work Program 2017. The Commission has grouped its work in 21 new initiatives which fall under the 10 priorities (see also 2017 EC Infographic). The set out priorities are mostly based on the Commission’s previous work as well as the current political and financial crises that need to be tackled. It appears that the Commission has strategically prepared the working program in joint meetings with the Council and the European Parliament to avoid unpleasant surprises. Overall, there are on big surprises on the proposals. In the area of taxation, a fair and efficient tax system remains a priority. The Commission will continue working on key taxation issues such as the list of non-cooperative jurisdictions, tackling tax fraud and evasion, and addressing VAT cross-border fraud.

 

Commission launches major corporate tax package, including CCCTB – 25 October

The European Commission has published its long-awaited corporate tax package which, amongst other things, entails the re-launch of the Common Consolidated Corporate Tax Base (CCCTB) proposal in two separate Directives. The Commission aims, in its own words, for the establishment of a “fair, competitive and stable corporate tax system for the EU”. The package consists of five documents (four of which actual legislative proposals):

  • A Chapeau Communication that explains the political rationale and context behind the package;
  • Directive on CCCTB;
  • Directive on CCTB (i.e. without ‘consolidation’);
  • Directive to improve tax dispute resolution in the EU;
  • Amendments to the Anti-Tax Avoidance Directive (ATAD).

It is interesting to note that the Commission has moved from a mere tax avoidance and transparency rhetoric to questions of tax certainty, stability and competitiveness. This is also in line with the messages received in past weeks and months from the OECD and G20, which are increasingly considering tax certainty as a major issue.

Direct taxation does not fall under the areas of competence of the EU. Consequently, for all four legislative proposals listed above, the unanimity rule between Member States will apply, whereas the European Parliament may only provide its non-binding opinion.

With its amending ATAD proposal, the Commission is following up on Member States’ request for further changes to the Directive. To address the request, the new ATAD amendments proposes to introduce rules against hybrid mismatches involving third countries. In the initial ATAD, only hybrid mismatches between EU Member States were covered. The transposition date is 2019.

The Commission’s proposal for a EU tax dispute resolution mechanism does not propose a comprehensive new EU legal instrument for dispute resolution, but rather strengthens already existing tools – the Mutual Agreement Procedures (MAPs) deriving from Double Taxation Conventions (DTCs) between Member States, and the EU’s Arbitration Convention. The Commission is, for example, proposing an explicit and enforceable requirement to eliminate double taxation for businesses in all cases (as opposed to previously weak enforcement and obligation in only some cases); taxpayers may appeal to national courts in order to unblock procedures; and there will be clearly defined and enforceable timelines, with for example a maximum period of 15 months for the arbitration phase. The transposition date is 31 December 2017.

Finally, CCCTB was proposed in two separate Directives. The Commission’s intention is to push for an agreement on the ‘common’ element first, and only then address ‘consolidation’. This approach is the outcome of feedback that the Commission received from a number of Member States with regard to the initial 2011 proposal – i.e. that there was, simply, too much to digest at one time. This is also a pragmatic solution after a number of Member States expressed their strong objection to the proposal, especially the consolidation element. The other main elements of interest include, for example, the mandatory threshold of €750 million; research and development (R&D) deductions tailored for smaller start-up firms; a number of anti-abuse measures which reflect the ATAD’s provisions to large degrees, but with occasional differences as well; and addressing the debt-equity bias through a so-called Allowance for Growth and Investment (AGI) which enables to deduct notional interest corresponding to the cost of equity.

 

European Parliament

 

MEPs welcome Commission’s corporate tax proposals – 26 October

MEPs have welcomed the Commission proposals to re-launch the Common Consolidated Corporate Tax Base (CCCTB). The general feeling in the European Parliament is that the proposal is an improvement to the current tax system in the EU, although the €750 million threshold received criticism from some representatives, as did the lack of a minimum tax rate in the proposal.

 

Court of Justice of the EU

 

Ruling on transfer of goods within the EU – 20 October

The Fourth Chamber of the Court of Justice of the EU (CJEU) has issued a ruling on the transfer of goods in the EU and turnover taxes. The case code is C‑24/15. In its ruling, the Court establishes that the tax authority of a Member State of origin cannot refuse to exempt an intra-Community transfer from VAT on the grounds that the taxable person has failed to provide a VAT ID number issued by the Member State of destination. This applies in situations where there is no specific evidence of tax evasion, the goods have been moved to another Member States and other tax exemption conditions are met.

 

Ruling on insolvency and property tax – 26 October

The Fifth Chamber of the Court of Justice of the EU (CJEU) has issued a ruling on insolvency procedures and property taxation. The case code is C‑195/15. In its ruling, the Court establishes that according to EU legislation on insolvency proceedings, security created through national legislation by which the real property of a person owing real property taxes is subject to a public charge and the owner must accept enforcement of the decision recording that tax debt against the property concerned, constitutes a “right in rem”.

 

International

 

2016 International Tax Competitiveness Index – 5 October

The Washington-based think tank, Tax Foundation, has published its annual tax competitiveness index for 2016. The Tax Foundation has compared the structure, complexity and rates of countries’ tax systems, and ranked them by their performance. According to the results, Estonia has the most competitive and best performing tax system in the world, followed by New Zealand and Latvia.

 

 “UK Tax Advisers Concerned About New HMRC Powers” – 14 October

According to Tax News, the UK Chartered Institute of Taxation (CIOT) has issued strong criticism against the government’s proposals to sanction tax advisors. CIOT argues that the scope of enablers in the plans is so wide that many ordinary businesses would be impacted. Consequently, if implemented, the measures could make it more difficult for businesses to get compliance advice on complex tax matters, with ensuing harmful impact on investment into the UK.

 

“Italian Police Breaks Up Europe-Wide VAT Fraud Ring” – 14 October

According to Tax News, Italian authorities have broken up a VAT fraud ring responsible for stealing €130 million in VAT and operating through 180 companies in 15 EU Member States. The ring employed numerous forms of carousel fraud. Out of the 180 companies involved, 145 were Italian and only 54 were real operations.

 

Italian tax gap at 34.2%, corporate tax rate to fall in 2017 – 17/18 October

According to Tax News, Italy’s tax gap amounts to 34,2% for the period of 2010-2014. This represents an average of €108,7 billion, of which €88,1 billion is attributed to tax evasion and the rest due to errors or overdue tax debts. Unpaid VAT represented approximately 1/3 of all unpaid taxes, or €40,2 billion and 2% of the Italian GDP. In other news, the Italian Government has announced that the country’s corporate tax will fall from 27,5% to 24% in 2017. This will cost around €15 billion.

 

“Collecting transaction tax in Germany could cost 8 million euros – study” – 19 October

According to Reuters, a document compiled by the European Commission asserts that the implementation costs of a Financial Transaction Tax (FTT) could amount up to €8 million in Germany, but to fall in subsequent years. Italy and France have already introduced a FTT, with collection costs amounting to €250,000 and €210,000, respectively. For Slovenia, the estimation of implementation cost falls between €1,5 and €2 million. In other news, Wolfgang Schäuble has announced that he is expecting an agreement on the FTT between the 10 participating EU Member States by the end of 2016. The Commission will table a proposal on the basis of the compromise.

 

“Portugal Proposes ‘Wealth Tax’ On Property” – 19 October

According to Tax News, Portugal will propose a new real estate tax on high-value properties. The 0,3% tax will apply on properties with a value exceeding €600,000, and is expected to raise an additional €160 million to the public coffers. The tax measures for 2017 will include additional changes to the current rules, such as a rise in the tax on income from letting properties to tourists, from 15% to 35% (including online platforms such as Airbnb).

 

 

“U.K. to Extend Securitization Tax Treatment” – 19 October

According to Bloomberg, the UK’s HMRC will extend the tax treatment of securitisation companies for two decades. The rationale behind the measure is to foster the competitiveness of the country’s financial sector (possibly as a reaction to recent political developments). Under the special scheme, securitisation companies are exempt from international accounting standards and may use UK’s local GAAP instead. The scheme was supposed to expire in 2017, but will thus potentially apply until 2037 instead.

 

“Experts dismiss HMRC’s shrinking tax gap estimate” – 20 October

According to the Guardian, critics have warned the UK’s HMRC that its estimations on the country’s tax gap are underestimated. HMRC has estimated the British tax gap to stand at £36 billion, a figure which apparently does not include the tax planning practices employed by certain multinationals. According to some estimations, the actual tax gap could amount to £119 billion.

 

“Pakistan Targeting Panama, Bahamas Leaks Taxpayers” – 20 October

According to Tax News, Pakistan has requested its tax authority, the Federal Board of Revenue (FBR), to contact the tax administrations of nine other jurisdictions for further information on Panama Papers and Bahama leaks. The nine jurisdictions in question are Anguilla, the Bahamas, the British Virgin Islands, Jersey, Mauritius, Niue, Panama, Samoa, and Seychelles. The information to be requested concerns bank accounts, business assets, investments by Pakistani multinationals as well as specific entities whose names emerged during the leaks.

 

OECD

 

OECD launches business survey on tax certainty to support G20 tax agenda – 18 October

The OECD has launched a business survey with the view of gathering stakeholder input on tax certainty. The survey is, in particular, looking for input from senior tax experts from businesses. The deadline for providing feedback is 16 December 2016. The survey is also an opportunity to identify specific tax policy issues for the future G20 ta agenda, and to propose practical and concrete solutions for a predictable and consistent tax system. The launch of the survey is in line with the emerging global focus on tax certainty for businesses – a visible element also in the European Commission’s tax package that it launched on 26 October (see article above).

 

G20/OECD BEPS Project advances tax certainty agenda with the launch of global review of MAP programmes – 20 October

The OECD has published a set of documents that will form the basis of the Mutual Agreement Procedure (MAP) peer review and monitoring process, under BEPS Action 14 (dispute resolution). The publication of the documents is in line with the emerging global focus on tax certainty for businesses – a visible element also in the European Commission’s tax package that it launched on 26 October (see article above). The compilation consists, notably, of Terms of Reference whose purpose is to translate the minimum standard in BEPS Action 14 into a basis for peer review; the Assessment Methodology for the peer review and monitoring processes; as well as the MAP statistics reporting framework which will ensure transparency of statistical information, the types and outcomes of MAP cases, as well as Guidance on the type of information and documents required for a MAP request.

 

Network of over 1 000 relationships in place to automatically exchange information between tax authorities, OECD launches web portal – 20 October

The first series of bilateral automatic exchange relationships have been established between the first batch of jurisdictions that are committed to automatic exchange of information starting 2017. The OECD has launched a web portal which includes the full list of such relationships, most of which are based on the Common Reporting Standard (CRS) Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (MCAA).

 

Five new jurisdictions commit to automatic sharing of country-by-country information – 21 October

Five new jurisdictions (Brazil, Guernsey, Jersey, the Isle of Man and Latvia) have signed the Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of Country-by-Country reports (CBCR), bringing the total number of signatories to 49. The MCAA will enable “consistent and swift implementation” of the transfer pricing reporting standards developed under BEPS Action 13.

 

OECD publishes brochure on its tax related work – 26 October

The OECD has published a brochure providing an overview of the tax-related work conducted by the organisation. The comprehensive document goes through OECD’s work streams, efforts and priorities in a number of relevant tax areas where it is active, ranging from key tax instruments and transparency to strengthening tax administrations as well as tax and the environment.

 

Panama, Cook Islands join international efforts against tax evasion and avoidance – 27/28 October

Panama has signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, thus becoming the 105th jurisdiction to commit to it. The OECD describes the Convention as “the world’s leading instrument for boosting transparency and combating cross-border tax evasion”. Panama’s commitment to the instrument has particular significance, both in real and symbolic terms, given the historic Panama Papers revelations earlier this year. In the meanwhile, the Cook Islands has also committed to the Convention, thus becoming the 106th jurisdiction to do so.

 

Other News

 

Cities and regions welcome modernisation and simplification of VAT rules – 12 October

The Committee of the Regions (CoR) has published its non-binding opinion on the Commission’s planned VAT reforms as outlined in the VAT Action Plan earlier this year. The opinion expresses concern over the significant VAT gap in the EU, and calls on regional leaders to do more in terms of monitoring the activities of companies, the use of IT tools, and expresses concerns over giving Member States too much freedom on VAT rates and instead proposes to extend the list of goods eligible for reduced rates.

 

Trade unions argue McDonald’s avoided over €1,5 billion in EU taxes – 18 October

Three European trade union organisations have published additional findings concerning the tax planning practices of McDonald’s in Europe. The organisations in question are the European Federation of Public Service Unions (EPSU), the European Federation of Food, Agriculture and Tourism Trade Unions (EFFAT), and the Service Employees International Union (SEIU). These findings complement a report by the organisations on the same topic, from February 2015. According to the latest findings, the company has avoided €1,5 billion in taxes, and its effective tax rate was a mere 0,7% in 2015. The trade union organisations hope that their findings and observations will feed into the European Commission’s ongoing investigation into McDonald’s tax practices in the EU (for further details, please see FEE Tax Policy Update from 4 December).

 

World Bank publishes “Doing Business” 2017 report – 20 October

The World Bank (WB) has published its annual “Doing Business” report. The report measures regulations affecting 11 areas of the life of a business, including in the area of taxation. Of particular interest, this year’s findings indicate that tax reforms were the second most common type of reform undertaken by the sampled countries. The report, moreover, expands the paying taxes topic set to cover post-filing processes such as tax refunds, tax audits and administrative tax appeals.

 

UEAPME comments on the VAT Action Plan – 21 October

The European Association of Craft, Small and Medium-sized Enterprises (UEAPME) has published a position paper on the European Commission’s VAT Action Plan. In the position paper, UEAPME endorses Commission plans to simplify the EU VAT system as well as the VAT simplification package tailored for SMEs. Of additional interest, UEAPME is against a temporal reverse charge derogation as such a scheme could pose additional burdens for SMEs. On granting Member States greater freedom over their VAT rates, UEAPME states its support in principle supposing that this does not cause distortions to competition. And finally, UEAPME calls on the Commission to conduct a “broad impact assessment” on the different options for a definitive VAT regime.

 

MEP Questions & Answers

 

Progress made by committee tasked with ‘Panama Papers’ probe – 19 October

The European Commission has replied to a question asked by the MEP Stelios Kouloglou (GUE-NGL/GRE) with regard to the Panama Papers committee. In his question, Mr. Kouloglou refers to the Panaman government’s efforts to conceal the findings of an international inquiry committee investigating Panama’s tax practices and financial system. He asks the Commission what measures it will take to ensure that the Panaman government cooperates with international efforts to resolve the Panama papers scandal. In his reply, Commissioner Moscovici lists measures that the Commission has already undertaken to address Panama Papers related challenges. These include the External Strategy, and the Commission’s aim to establish a common EU list of non-cooperative jurisdictions.

 

Investigating Irish multinational tax deals – 19 October

The European Commission has replied to a question asked by the MEP Liadh Ní Riada (GUE-NGL/IRL) with regard to investigations into tax deals of Irish multinationals. In her question, Ms. Riada refers to the Apple case and asks the Commission whether it is investigating other tax deals granted by the Irish government to multinationals. In her reply, Commissioner Vestager confirms that the Commission has received information on other tax rulings granted by Ireland to multinational companies. She points out, however, that each tax ruling is different and every case must be assessed on the basis of its particular facts and merits. The Commission cannot say anything about potential further investigations into other Irish tax rulings.

 

Tax competition in the EU – 27 October

The European Commission has replied to a question asked by the MEP Stelios Kouloglou (GUE-NGL/GRE) with regard to tax competition in the EU. In his question, Mr. Kouloglou asks the Commission whether it will propose a EU “tax framework” to address multinationals’ tax planning and to tackle “harmful tax competition”. In his reply, Commissioner Moscovici lists measures that the Commission has taken in past years to address tax avoidance and tax competition, including its work on tax transparency, the Anti-Tax Avoidance Directive (ATAD), as well as the Common Consolidated Corporate Tax Base.

 

Intellectual property tax regimes in the EU – 27 October

The European Commission has replied to a question asked by the MEP Luděk Niedermayer (EPP/CZE) with regard to IP tax regimes in the EU. In his question, Mr. Niedermayer refers to Commission’s commitments to issue a proposal on patent boxes if Member States fail to change them in line with the so-called modified nexus approach. He therefore asks the Commission whether it has been closely monitoring Member States, whether it will publish the results of such monitoring, and whether the Commission has investigated Ireland’s Knowledge Development Box (for further details, please see FEE Tax Policy Update 23 October), which grants an effective tax rate of 6,25% applicable to certain patent and copyright incomes. In his reply, Commissioner Moscovici confirms that the Commission has been monitoring Member States’ work in this area and with the exception of the case of France, which is yet to demonstrate that its patent box system is in line with the required standards, the Commission is happy with progress made. In parallel, Member States such as Ireland, which have already introduced new patent boxes will be examined once the ongoing work on interpretation guidelines of the nexus approach has been agreed in the Code of Conduct Group.

 

Events

 

10/11/2016, International conference on responsible taxation in development finance, Eurodad, Oxfam, Brussels.

15/11/2016, C(C)CTB: Is the path clear?, Federation of European Accountants (FEE), Brussels.

17-18/11/2016, Taxation, investment and innovation: a triptych for balanced growth, European Commission, IMF, Brussels.

21-22/11/2016, Tax Audit Forum, International Tax Center, Munich.

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