- OECD publishes full package of BEPS measures – 5 October
- Council political agreement reached on automatic exchange of information – 6 October
- Commission launches public consultation on CCCTB – 8 October
Commission publishes report on tax reforms in EU Member States – 28 September
The European Commission (EC) has published a report analysing key tax policy challenges, recent reforms undertaken and potential future policy solutions in EU Member States. It is co-authored by DG’s ECFIN and TAXUD, and addresses several areas of great importance for the ongoing tax discussions at EU-level.
With regard to the debt-equity bias, the report lists several threats it poses to economic growth, financial stability and sustainability of companies in Europe. These include higher volatility in the business cycle, detriments for investment, generating tax avoidance opportunities, and increase in the fragility of banks and the likelihood as well as potential costs of future financial shocks. The report contemplates at three policy options to address it, including limiting the deductibility of interest costs, extending the deductibility to include return on equity, as well as a combination of the both. The report more broadly calls for a more coordinated approach at EU-level to address the debt-equity bias. With regard to VAT, the report states that consumption taxes in general tend to be relatively growth-friendly, that reduced rates and exemptions generate economic distortions and compliance costs, and that approximately one-fourth of Member States have particular scope to improve the efficiency of their VAT systems. And finally, the report highlights that recurrent taxes on immovable property, have little detrimental effects to growth and yet they constitute only a small proportion of governments’ total tax revenues. The report consequently argues that by increasing tax revenue in this area, taxes more detrimental to economic growth such as on labour and property transactions may be reduced.
Results of the European Commission’s public consultation on corporate tax transparency – 29 September
The European Commission (EC) has published the results of its public consultation on corporate tax transparency. A total of 282 responses were received. A great majority of respondents maintained that the EU should be in the forefront and possibly go beyond the current initiatives at international level (66,31%), that public disclosure of tax-related information by enterprises (64,54%), and that there are no unintended negative consequences on companies to tax transparency towards the public (59,22%). Based on the results of the consultation, EC will consider any potential follow-up actions to further foster corporate tax transparency in the EU, including the possibility of wider public disclosure of country-by-country information.
Capital Markets Union (CMU) Action Plan – 30 September
In late-September the long-anticipated European Commission (EC) Action Plan for the establishment of a Capital Markets Union (CMU) was published. The Action Plan lists a number of policy initiatives and proposals that the EC is intending to put forward in the next three years with the view of removing still existing obstacles to the free movement of capital, unlocking investment and better connecting investment projects, ensuring a more stable financial system and deepening financial integration, and widening funding sources for companies in Europe with particular emphasis on SMEs.
Of particular interest, the Action Plan lists several proposals with potential direct or indirect implications for the tax policy sector. These include the preparation of a study on tax incentives for venture capital and business angels (2017), addressing the debt-equity bias as part of the legislative proposal on Common Consolidated Corporate Tax Base (Q4 2016), an assessment of the case for a policy framework to establish European personal pensions (Q4 2016), a consultation on the main barriers to the cross-border distribution of investment funds (Q2 2016), reviewing progress in removing remaining Giovannini barriers which may include domestic withholding tax regulations serving to disadvantage foreign intermediaries as well as transaction taxes collected through a functionality integrated into a local settlement system (2017), assessment of best practice and code of conduct for relief-at-source from withholding taxes procedures (2017), and finally a study on discriminatory tax obstacles to cross-border investment by pension funds and life insurers (2017).
Fighting Tax Avoidance: Commissioner Moscovici welcomes final adoption of international tax reform package – 5 October
The Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici has welcomed the publication by OECD of the final package of Base Erosion and Profit Shifting (BEPS) measures. In his statement, Commissioner Moscovici emphasized that the OECD has done “impressive work” in putting forward proposals fostering greater tax transparency and efficiency on a global level. He furthermore states that ensuring a level playing field for all businesses is crucial, something which will require consistent and coherent implementation of the measures by all committed jurisdictions. He refers to an ongoing “revolution in tax transparency” where the EU needs to take the lead, and as a first step the EU agreement on automatic exchange of information on tax rulings on which additional details is available further below.
European Commission launches public consultation on CCCTB – 8 October
The European Commission (EC) has launched a public consultation on the Common Consolidated Corporate Tax Base (CCCTB). The consultation seeks in particular the views of businesses and civil society, and EC is intending to put forward a revised legislative proposal next year (2016). Commissioner Moscovici has stated that the CCCTB is a key initiative in the fight against cross-border tax abuse and fraud, as well as easing the administrative burden on companies.
The consultation will in particular seek views on to what extent the CCCTB could function as an effective tool against “aggressive tax planning”; how to determine which companies should be subject to a mandatory CCCTB; whether or not a two-staged approach should be adopted, i.e. agreeing on the tax base before moving on to consolidation; how to address the debt-equity bias; and whether it would be useful in the short term to establish common rules for implementing certain international BEPS-related aspects of the common tax base until the Commission adopts the new C(C)CTB proposal.
The public consultation was an anticipated step for autumn 2015, given EC’s stated intention to put forward a proposal in 2016. The questions include no particular surprises either, including on debt-equity bias which was mentioned in the recent Capital Markets Union (CMU) Action Plan as an item to be addressed in the context of the CCCTB proposal. In terms of next steps, the deadline for the public consultation is 8 January 2016. Based notably on the feedback received through the consultation, EC will initiate a new legislative process for the establishment of the C(C)CTB in 2016.
ITRE Committee publishes draft report on the Digital Single Market – 22 September
ITRE Committee of the European Parliament (EP) has published its awaited draft own-initiative report titled Towards a Digital Single Market Act, with Kaja Kallas (ALDE/EST) and Evelyne Gebhardt (S&D/GER) as lead rapporteurs. The draft report currently does not have particular emphasis on tax or VAT, beyond taking note of the ECON Committee opinion which brought on the table the issue of reducing VAT-related burdens and obstacles when selling across borders (and also called for country-by-country-reporting, although this is not referred to in the ITRE draft report), and calling for a single digital gateway for filing taxes and a simplified online VAT scheme. In terms of next steps, the Committee vote is scheduled for 10 December, whilst a Plenary sitting is for the time being scheduled for 16 January 2016.
TAXE Committee amendments for tax rulings report – 24 September
A total of 1047 amendments have been tabled by MEPs of the TAXE Committee for the Committee’s special report on tax rulings and measures similar in nature and effect. The particularly high amount of amendments reflects the degree of political sensitivities and interest around the topic. Of particular interest, several amendments notably make further criticism of the profession for its role in the provision of tax advice; name and shame specific firms (notably the Big Four) for their role in the Luxleaks scandal as well as in the provision of tax advice in general; call for stricter sanctions against the tax advisory industry; urge to tackle potential conflicts of interest within tax advice providing firms; re-iterate calls for greater public transparency and disclosure of tax information; express disappointment towards the BEPS Project for arguably lacking sufficient ambition; and call for the establishment of a minimum effective tax rate and a mandatory system of Common Consolidated Corporate Tax Base (CCCTB).
In terms of next steps, MEPs and political groups will discuss the amendments between themselves in an attempt to draft compromise amendments able to accumulate sufficient political support in the Committee. The Committee vote on the report will take place on 15 October, whilst the Plenary vote is scheduled for 24 November.
Dr. Alfred Sant (S&D/MLT): Tax competition compensates disadvantaged small EU countries – 24 September
The MEP Dr. Alfred Sant (S&D/MLT) who is also the Head of Malta’s Labour Delegation, has defended tax competition between Member States as in his view it compensates for competitive disadvantages suffered by peripheral and island states in comparison to others. Consequently, in absence of other compensatory mechanisms to address such structural competitive disadvantages, tax competition remains the key mechanism available for disadvantaged jurisdictions. Dr. Sant was addressing the European Parliament’s (EP) ECON Committee for the occasion of the ECON Committee debate on the report Bringing transparency, coordination and convergence to Corporate Tax policies in the Union which is expected to be approved by the Committee in December and EP Plenary in January.
Merkel and Hollande address the European Parliament – 7 October
The German Chancellor Angela Merkel and President of France Francois Hollande have addressed the European Parliament (EP) Plenary, first time since 25 years that a German and a French head of Government have jointly addressed the institution. As expected, the debate was of great political importance and was held mainly in response to the refugees crisis. Nevertheless, the debate did not bring in any new ideas or plans on behalf of the two leaders but rather highlighted the prospect of re-boosting the “Franco-German” engine against the current crises. In the same spirit, the MEPs chose to stick to their political positions and national interests either by “praising” or attacking the two leaders. With regard to tax policy, no particular references were made to pertinent issues such as the Council agreement on automatic exchange of information. Gianni Pitella (S&D/ITA) brought up tax allocation as one of the ways to counter the current financial crisis, but beyond her intervention tax policy did not receive any particular focus.
MEP Questions & Answers
Question: VAT MOSS centralised collection system – 25 August
In late-August, MEP John Stuart Agnew (EFDD/UK) asked a question from the Commission with regard to the VAT MOSS centralised collection system. In his question, Mr. Agnew argues that many SMEs are struggling with the VAT MOSS scheme. With this in mind, he asks the Commission whether it will commit to putting forward “temporary measures” in order to ease the burden on SMEs and micro-businesses in the immediate term, instead of waiting for a full review of regulation which could take several months. An answer is expected in a few weeks’ time.
Question: New European rules on VAT on e-commerce – 17 September
In mid-September, MEP Pablo Zalba Bidegain (EPP/ESP) asked a question from the Commission with regard to EU VAT rules on e-commerce. In his question, Mr. Zalba Bidegain brings up criticism from “various market players” towards the VAT rules mandating that in e-commerce transactions VAT must be paid in the country of the consumer. The critics argue that this rule causes distortions in the market and could hinder further progress towards the digital single market. The MEP consequently asks the Commission whether it has assessed the impact of this rule change on SMEs operating in the area of e-commerce, and what measures the Commission considers in order to ensure continued progress towards a digital single market. An answer is expected in a few weeks’ time.
Commission reply: The notion of ‘group interest’ and tax avoidance – 24 September
The European Commission (EC) has provided an answer to a question regarding the notion of “group interest” and tax avoidance, asked by MEP Miguel Viegas (GUE-NGL/POR) in late-July. In his question, Mr. Viegas asked whether EC thinks that regulation of the notion of “group interest” might conflict with all the work being done to counter tax fraud, evasion and avoidance. In her joint reply to a number of related MEP questions, Commissioner Vera Jourova (Justice, Consumers and Gender Equality) states that for the time being EC does not plan any specific horizontal action regarding the “group interest”. Moreover, in the financial services sector the notion has already been indirectly recognised. Overall, the Commissioner concludes that any horizontal action concerning the group interest would have to ensure adequate protection of creditors’ interests as well as a “fair balance” of burdens and advantages over time for shareholders.
Question: Commission criteria for identifying unlawful state aid – 25 September
In late-September, MEP Bernd Lucke (ECR/GER) asked a question from the Commission with regard to Commission criteria for identifying unlawful state aid. In his question, Mr. Lucke argues that tax rulings could be interpreted as a form of non-permissible state aid. He points to the paradoxical implications of such a situation, given that tax policy remains a Member State competence whilst the Commission for its part is responsible for the functioning of the single market, including the enforcement of the ban on state aid. With this in mind, he asks the Commission what criteria it is using to assess whether a country is exercising its tax sovereignty or providing potentially unlawful state aid. An answer is expected in a few weeks’ time.
Commission reply: Single Digital Market Strategy — VAT on digital products – 2 October
The European Commission has provided an answer to a question asked by MEP Janice Atkinson (EFDD/UK) in late-May with regard to VAT on digital products. In her question, Ms. Atkinson asked what measures in the Digital Market Strategy aim to protect small businesses from the “financial burden” of the new EU VAT rules to which UK businesses previously exempt from paying VAT had to subscribe from 1 January 2015. In his reply, Commissioner Moscovici confirms that the Commission intends to put forward a proposal in 2016 to “modernise” cross-border e-commerce VAT rules. The proposal will include a VAT exemption threshold for small companies, but the specific type of threshold as well as its level will be determined in an impact assessment.
Political agreement on mandatory automatic exchange of information in the field of taxation– 6 October
On 6 October a political agreement was reached in the Council with regard to the European Commission (EC) proposal on mandatory automatic exchange of information (AEOI) in the field of taxation. Of particular interest, the compromise text reduces the period of retroactivity to five years, as opposed to the initial ten proposed by the Commission. Furthermore, Member States may exclude from the mandatory information exchange scheme “particular persons or group of persons” with a group wide annual turnover of less than €40 million. Moreover, the role of the Commission has been substantially reduced as it is to receive only a limited set of basic information and solely for the purpose of enabling it to monitor whether Member States are complying with the system. A central directory available to all Member States and the Commission should be established by 31 December 2017. According to FEE sources, the question of wider public transparency received little to no consideration, with “at least 24-25” Member States dismissing the issue altogether. In terms of next steps, the European Parliament (EP) must submit its opinion before the new Directive can enter into force. Although this means that the EP enjoys de facto delaying power on the dossier and the Council compromise is a significantly weaker version of AEOI than called for by MEPs, it is according to FEE sources at this stage unlikely that the issue will be further escalated. Thus the ECON Committee is currently scheduled to vote on its draft report on AEOI on 13 October, with a Plenary vote expected for 26 October. The Council is then expected to finalise the agreement in its December meeting. The new AEOI system and related rules will be applicable starting 1 January 2017.
In the context of the political agreement, a public Council meeting between Member States’ Ministers of Finance took place on 6 October. During the meeting, Czech Republic regretted that so far only corporate taxes have been dealt with in the context of tax fraud. The representative therefore called for EU solutions to address VAT fraud, and carousel fraud in particular. Luxembourg, which currently holds the rotating Council Presidency, declared that the issue of VAT fraud will be brought up in the high level working group in October and in ECOFIN later during this year. Commissioner Moscovici for his part stated that the Commission will present new initiatives next year (2016) with the view of establishing a fraud-proof VAT system. He furthermore confirmed that the Commission is currently examining several options, including wider use of the reverse charge mechanism.
OECD publishes full package of BEPS measures – 5 October
As is widely known, OECD has presented its final package of measures to tackle BEPS on a global level. The measures cover a wide range of corporate tax issues, including permanent establishment, country-by-country-reporting (CBCR), transfer pricing and automatic exchange of information on tax rulings. The measures have been heavily criticised by NGOs, notably on the stance regarding CBCR, which they maintain should be subject to public disclosure. In terms of next steps, the package is to be delivered to G20 Leaders during the annual summit on 15-16 November in Antalya, Turkey. The focus will then shift to designing and putting in place a framework for monitoring BEPS and supporting implementation of the measures.
Commission opens investigation into exemptions for transfer and transit passengers from air travel tax in Ireland – 28 September
The European Commission (EC) has initiated an investigation into Ireland’s exemption for airlines from paying air travel tax for transfer and transit passengers. EC’s investigation will in particular assess whether the tax exemption gives certain companies a selective advantage, thereby constituting a breach of EU state aid rules.
http://ec.europa.eu/competition/elojade/isef/index.cfm?clear=1&policy_area_id (case number: SA.29064)
“Six Greek islands lose tax privileges” – 29 September
According to Euractiv, the Greek islands of Rhodes, Santorini, Mykonos, Naxos, Paros and Skiathos have lost their tax privileges as of 1 October. The islands had previously enjoyed a 30% sales tax break. According to the article, the removal of the privilege has been criticised for disregarding structural disadvantages suffered by local communities due to their geographical location.
Euractiv: France tackles tax revenue challenges posed by the shared and digitalised economy – 29 September
According to Euractiv, the digitalisation of the economy and emerging sharing economy represented by companies such as Uber, Airbnb and Blablacar constitute a risk for countries’ tax revenues as an increasing number of consumers turn towards such new service providers at the expense of traditional businesses. According to the article, the finance committee of the French Senate has called for reforms of the national tax regime to address this challenge, including a proposal to pool tax revenues from the shared economy to a centralised “independent platform” which will in turn transfer the revenues to the authorities. Officials from the French ministry of finance have however declared that before a comprehensive reform of the tax system can take place, a clarification of rules concerning commercial activity and personal income must be undertaken, the article states.
16/10/2015, State Aid and Tax Rulings – an appropriate way to tackle aggressive tax planning?, Brussels School of Competition, 08:00-10:00, Brussels.
19/10/2015, ECFIN Annual Tax Workshop: Political economy of tax reforms, European Commission, 08:30-17:00, Brussels.
21/10/2015, Future of VAT Roundtable – Destination: one stop shop?, FEE, 12:30-16:45, Brussels.
05/11/2015, Taxation and EU State Aid Law: Current Practice and Policy Issues, UCL, 09:00-17:00, Brussels.
30/11/2015, The priorities of the Dutch Presidency of the Council, EPC, 08:00-09:30, Brussels.