Update

14 November 2016

FEE Tax Policy Update 31 October – 14 November

Highlights

  • Global Forum makes advances on the international tax transparency agenda – 2/4 November
  • EU Finance Ministers discuss CCCTB and agree on criteria for non-cooperative jurisdictions, access to AML information by tax authorities – 8 November
  • EU Finance Ministers agree on improvements to EU VAT rules – 8 November
  • European Commission launches public consultation on tax advisors – 10 November

European Commission

Summary Report Responses received on the Commission’s consultation on reduced VAT rates for electronically supplied publications – 4 November

The European Commission has published the summary of responses to its consultation on reduced VAT rates for electronically supplied publications (see FEE Tax Policy Update from 5 August for further details). 94% of the respondents agree that Member States should be allowed to apply a reduced VAT rate to e-books, whilst 88% of the respondents agree that Member States should be allowed to apply a reduced VAT rate to e-newspapers and e-periodicals as well. Most (50%) of the respondents were readers, followed by companies (16%).

European Commission launches public consultation on tax advisors – 10 November

The European Commission has published its long-anticipated public consultation on tax advisors. The consultation is titled Disincentives for advisors and intermediaries for potentially aggressive tax planning schemes, and addresses both illegal as well as formally legal tax planning schemes. It will eventually feed into some form of EU-level action to address the role of tax advisors. The Commission emphasises the need to ensure a level playing field between different service providers operating in different Member States and under different legal frameworks. Moreover, the Commission’s emphasis is on disclosure rules inspired broadly by the OECD BEPS Action 12. The policy options proposed in the consultation range from no EU-level action to various disclosure schemes and a EU Code of Conduct. The deadline for providing comments on the consultation is 16 February 2017. In terms of background, the European Parliament has been consistently calling for EU-level action to address the role of tax advisors and other intermediaries in ATP, notably through its work in ECON, TAXE and TAXE II Committees. At the OECD level, the BEPS Action 12 calls for a mandatory disclosure regime for certain tax planning strategies. Finally, the Council also recently called on the Commission to look into the possibility of “disincentives” against ATP, inspired by BEPS Action 12.

“Moscovici: Trump’s US could be tax haven blacklisted” – 10 November

Commissioner Moscovici has stated in an Euractiv interview that he does not rule out the possibility of the US ending up on the EU’s blacklist of non-cooperative jurisdictions, scheduled to be finalised by the end of 2017. In the same interview, he elaborates on the potential consequences for third jurisdictions that end up on the EU black list, talks about the Commission’s priorities in the area of taxation overall, and re-iterates his strong commitment for public Country by Country Reporting (CBCR).

http://www.euractiv.com/section/euro-finance/interview/trumps-us-could-be-tax-haven-blacklisted-says-tax-commissioner/

European Parliament

Irish Finance Minister speaks at ECON Committee – 8 November

The Minister of Finance of Ireland, Michael Noonan, has attended a hearing of the ECON Committee of the European Parliament. During the hearing, the Minister maintained that Ireland will closely examine the Commission proposals for re-launching the Common Consolidated Corporate Tax Base (CCCTB), and maintained that Ireland is a strong partner in international cooperation on tax, including as a contributor and committing country to the OECD BEPS project. Finally, the Minister re-iterated that Ireland will appeal against the Commission decision concerning Apple Ireland. He blamed the US corporate tax system as the root of the issue (under the US system, tax liability of foreign-source income turns into actual tax paid only after its repatriation to the US parent company), implying that much of the €13 billion that the Commission has ordered Ireland to recover would in fact belong to the US. Mr. Noonan concluded that he cannot function as a “global tax collector”.

New research shows chemical giant BASF uses toxic tax tricks to avoid €923 million in tax – 8 November

The Greens-EFA Group of the European Parliament has published a report on the tax avoidance practices of the German chemical company BASF. The report argues that the company used tax planning strategies to avoid €923 million in tax between 2010 and 2014, and in particular in Belgium, Malta, the Netherlands and Switzerland. In terms of recommendations, the report calls for mandatory public tax transparency, a harmonised tax base in Europe, as well as minimum EU corporate tax rate.

ECON Committee adopts draft opinion on access to AML information by tax administrations – 10 November

The ECON Committee of the European Parliament has voted on a draft report on the Commission proposal concerning access to anti-money laundering (AML) information by tax authorities (for further details, please see FEE Tax Policy Update from 8 July). The dossier is led by the MEP Emmanuel Maurel (S&D/BEL). In the draft report, the MEPs are calling for beneficial ownership information to be accessible for the Commission as well, and the introduction of automatic exchange of the AML information between tax authorities. However, the European Parliament can only issue a non-binding opinion on this matter, as taxation remains a competence of Member States. The final vote in Plenary is currently scheduled for 22 November.

Council

Netherlands announces its support for public CBCR – 19 October

In a letter to the Dutch Parliament dated for 19 October, the Dutch Government expresses its support for a EU-level public Country-by-Country Reporting (CBCR) framework. The letter emphasises the importance of transparency in issues such as anti-corruption and restoring trust in tax systems. The letter does, however, express concerns about the legal applicability of the provisions requiring EU-based subsidiaries of multinationals to extract CBCR data from their non-EU headquarters, and proposes a ‘comply or explain’ approach for such subsidiaries instead.

Council publishes document outlining state of play of FTT discussions – 28 October

The Council has published a document providing an overview of the state of play of the Financial Transaction Tax (FTT). The note includes summaries of recent discussions and progress on issues such as the “core engine” of the FTT as well as the heated topic of cost-efficiency of FTT collection. The document states that since progress has been reached at technical-level negotiations, it is now appropriate to take the dossier to Minister-level discussions for further guidance on how to proceed. With regard to the cost-efficiency of collection, it appears that financial institutions will be facing significant compliance costs and burdens.

Council report on patent box reform in the EU, Member States unconvinced by French system – 3 November

The Council has published a report on the state of patent box reforms across the EU. The report maintains that all Member States with a patent box scheme in place, and with the exception of France, have notified the Code of Conduct Group on Business Taxation on the steps taken to comply with their commitments (i.e. to make their patent box systems compatible with the modified nexus approach). The document concludes that the French IP regime tax rate (15%) is significantly lower than the general tax rate in France (33.3%), and the Code of Conduct Group therefore maintains that France is in breach of Member States’ patent box commitments.

EU Finance Ministers discuss CCCTB and agree on criteria for non-cooperative jurisdictions, access to AML information by tax authorities – 8 November

At the ECOFIN meeting of EU Finance Ministers in November, the Commission proposal for relaunching the Common Consolidated Corporate Tax Base (CCCTB) as well as the criteria for establishing a EU-list of “non-cooperative jurisdictions” were discussed. With regard to CCCTB, a public session took place during which the Ministers of several Member States expressed their initial feelings on the controversial proposal. Denmark, Ireland, Romania and Spain stated their concerns that a CCCTB would risk undermining their national tax bases. Belgium is also rumoured to have certain reservations in this regard, but its Finance Minister did not take the floor during the session. A number of Member States, moreover, emphasised that they have not yet had sufficient time to properly study the Commission proposal. The two-staged approach received wide-spread support from several delegates, and Luxembourg thanked the Commission’s proposed measures aimed at SMEs. A number of Member States, moreover, thanked the Commission proposals regarding tax dispute resolution and amending the Anti-Tax Avoidance Directive (ATAD) in order to include in its hybrid mismatches with third countries (see FEE Tax Policy Update from 28 October for further details). The Slovak Presidency has decided to prioritise the ATAD amendment on hybrid mismatches, and is aiming for a political agreement by the end of this year.

 

EU Finance Ministers additionally reached an agreement on criteria for the screening of third-country jurisdictions with the view of finalising a common EU-list of non-cooperative jurisdictions by the end of 2017. Third countries must comply with tax transparency criteria, fair taxation criteria as well as the OECD BEPS recommendations. With regard to the transparency criteria, the EU Member States established that until 30 June 2019 a third country would only have to comply with two out of three transparency criteria: implementation of the Automatic Exchange of Information (AEOI) standard, implementation of the Exchange of Information on Request (EOIR) standard and joining the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The Commission in its initial proposal had proposed the requirement to comply with all three, but some Member States, the UK in particular, were concerned that the US (or some of its States, such as Delaware) might end up on the EU-list as a consequence. Another main difference with the Commission’s initial proposal included the application of a nominal corporate tax equal to or almost zero, which the Member States rejected in their compromise text. Instead, third jurisdictions should refrain from facilitating “offshore structures or arrangements aimed at attracting profits” that do not reflect real economic activity. Having said that, the text also establishes that Council’s Code of Conduct Group on Business Taxation will in the future evaluate the possibility of having the zero or almost zero nominal corporate tax rate as an indicator. The UK was reportedly amongst the leading opponents for having the zero rate as a criterion, together with a number of other Member States such as Malta, Ireland, Luxembourg, and the Netherlands. In terms of next steps, the jurisdictions to be screened should be chosen by January 2017, and the screening process should be finalised by September 2017. At the end of the screening process, those third jurisdictions that have failed to accommodate EU’s concerns will end up on the common EU-list.

And finally, the Finance Ministers reached an agreement on the Commission proposal for access to anti-money laundering (AML) information by tax authorities, to enter into force in 2018. In terms of next steps, the European Parliament will need to finalise its non-binding opinion before the proposal can become EU law. A vote in the ECON Committee took place on 10 November (see article above), whilst a Plenary vote on the opinion is currently scheduled for 22 November. 

EU Finance Ministers agree on improvements to EU VAT rules – 8 November

At the same ECOFIN meeting of EU Finance Ministers in November, Member States agreed on guiding conclusions for their preferred approach to improving the current EU VAT rules for cross-border transactions. These conclusions are a reaction to the European Commission’s VAT Action Plan published earlier this year, and the imminent Commission proposals (30 November) to improve the VAT dimension of cross-border operation of businesses within the Single Market. The Council conclusions establish, in particular, the following:

  • the VAT identification number as an additional condition for application of an exemption in respect of an intra-EU supply
  • in order to better tackle VAT fraud, improving the quality and reliability of data used in the EU’s VAT information exchange system
  • determining “uniform criteria” for the VAT treatment of the transaction chain, including ‘triangular transactions‘ (where goods are shipped from a member state other than that of the supplier and the customer)
  • simplifying rules for call-off stock (where goods are sent to a customer’s storage facility in another member state)
  • work concerning the exemption from VAT of intra-EU supplies, and in particular for the exploration of possibilities for a common framework of recommended criteria for the documentary evidence required to claim an exemption for intra-EU supplies

The Member States call on the Commission to come up with studies and legislative proposals on these items.

“Malta to push for VAT agenda” – 8 November

According to Tax News, Malta will give particular priority for the Commission’s VAT reform agenda during its Presidency, which begins in January 2017. The Maltese concerns relate, in particular, to changes brought about e-commerce as well as the need to ensure that smaller businesses are not subject to undue compliance burdens and to tackle VAT fraud more effectively. Commission is expected to propose a major VAT simplification package for e-commerce on 30 November, together with measures to improve cooperation between tax administrations and to evaluate the Directive on the mutual assistance for the recovery of tax debts.

Court of Justice of the EU

The Court confirms that the financing of the Spanish public television system (RTVE) is compatible with the EU rules regarding State aid – 10 November

The First Chamber of the Court of Justice of the EU (CJEU) has issued a ruling on the financing of Spain’s public television system. The case code is C‑449/14 P. The case relates to a dual-funding scheme enjoyed by the Spanish public radio and television broadcaster RTVE until 2009. Under the scheme, RTVE was financed, on the one hand, by revenue from its commercial activities (e.g. advertising income) and, on the other, by payments from the Spanish state as compensation for the fulfillment of its public service mandate. From 2009 onwards, due to cuts in RTVE’s funding several fiscal measures were introduced, including a new tax on the revenues of pay-television operators established in Spain, in order to contribute to RTVE’s budget. A private Spanish broadcasting company issued a complaint about the state aid legality of this scheme, but the CJEU through its ruling dismissed the case in favour of the European Commission’s earlier decision that had found the funding scheme not to be in breach of EU state aid law.

Court ruling on the VAT rules governing the supply of horses to horse race organisers – 10 November

The Fourth Chamber of the Court of Justice of the EU (CJEU) has issued a ruling on the VAT rules governing the supply of horses to horse race organisers. The case code is C‑432/15. In its ruling, the Court establishes a number of clarifying decisions on the VAT treatment of transactions related to the supply of horses to horse races, with regard in particular to reduced rates and deductions.

International

“Panama Papers: 22 people face tax evasion investigations in UK” – 8 November

According to the Guardian, up to 22 individuals are facing civil and criminal investigations in suspected tax evasion cases revealed by the Panama Papers leaks. Moreover, a further 43 “wealthy individuals” are under review due to their links to offshore files. The comments were provided by the UK Chancellor Philip Hammond in his written comments submitted to the UK House of Commons.

“The Tax Plans Of President-Elect Trump” – 9 November

Tax News has prepared a summary of the measures that the US president-elect Donald Trump could introduce in order to change the US tax system. With regard to company taxation, Trump could cut the federal corporate tax from 35% to 15%. Moreover, a one-time repatriation tax of 10% would be applied on currently untaxed earnings held abroad by US multinational companies. With regard to personal income tax, the current seven brackets would be cut down to three, with tax levels set at 12%, 25% and 33%.

“Swedish Financial Activities Tax Proposed” – 11 November

According to Tax News, an advisory Commission of the Swedish Government has proposed a 15% “financial activities tax” on the financial services industry. The tax would be based on the wages based by banks and other financial institutions starting January 2018. The Commission predicts that the tax could raise between €370-713 million.

OECD

Global Forum makes advances on the international tax transparency agenda – 2/4 November

The Global Forum on Transparency and Exchange of Information for Tax Purposes has held its annual meeting in Tbilisi, Georgia. The meeting brought together 220 representatives from 84 jurisdictions and 12 international organisations to discuss commons goals for improving tax transparency and the level playing field. During the conference, many jurisdictions that have fallen behind in compliance with the international standard for exchange of information on request announced measures already or about to be taken in order to address implementation limitations.

State Aid

State aid: Commission finds Hungarian advertisement tax in breach of EU rules – 4 November

The European Commission has ruled that an advertisement tax in place in Hungary is in breach of EU state aid provisions as the progressive tax rates grant a selective advantage to certain companies, not available to others. Moreover, the Commission argues that the tax unduly favours those companies that did not make a profit in 2013 by allowing them to pay less tax. The Hungarian law from 2014 established that companies should be taxed at a rate depending on their advertisement turnover. This meant that companies with a higher advertisement turnover would be subject to higher progressive tax rates.

Other News

“Aggressive tax avoidance raises risks for investors” – 28 October

Aliya Ram has written an article on Financial Times (only available to subscribers) on the risks that tax avoidance poses on investors. Although formally legal tax planning has been defended on grounds of legality and obligations towards investors, action from regulators and the European Commission (such as, most recently, the Apple Ireland ruling) causes new risks for investors that companies cannot ignore. Nordea Asset Management has already circulated letters to several companies, warning them of the increased risk for investors posed by regulatory oversight.

EESC opinion on access to anti-money-laundering information by tax authorities – 31 October

The European Economic and Social Committee (EESC) has published its opinion on the Commission proposal concerning access to anti-money laundering (AML) information by tax authorities (for further details, please see FEE Tax Policy Update from 8 July). In its opinion, the EESC notably endorses the proposed amendments to the Directive on Administrative Cooperation, and calls for information on beneficiaries of financial transactions to be included in the information exchange between Member States’ tax administrations, and calls on the Member States to ensure that their tax administrations have the human, financial and logistical resources needed to successfully implement the new rules.

FRC thematic review welcomes improved transparency of tax reporting and encourages greater clarity around the reporting of tax uncertainties – 31 October

The UK Financial Reporting Council (FRC) has issued a thematic review on certain aspects of tax reporting in company reports and accounts. In the review, FRC found evidence of improvements in tax transparency disclosures included in strategic reports and effective tax rate reconciliations. Companies should, however, better express hot they will account for tax uncertainties.

 

UK tax bodies issue updated guidance for tax advisers – 3 November

Seven British tax and accountancy organisations have issued updated guidance for tax advisors. The guidance itself has existed for almost 20 years, but is updated on a regular basis with the purpose of establishing ethical standards for tax professionals to follow in their day-to-day work. The principles underpinning the guidance (integrity, objectivity, professional competence and due care, confidentiality, professional behaviour) have been further strengthened through the addition of five new standards that for example limit the provision of advice on tax planning that sets out to “achieve results that are contrary to the clear intention of Parliament” and are “highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation”.

“The secret life of a tax adviser: it’s not about devising fancy avoidance schemes” – 7 November

An anonymous tax advisor has written an article in the Guardian on the reality of tax consulting work. The tax advisor maintains that the work of a tax consultant involves mainly compliance work rather than actual tax planning, and argues that company tax avoidance is the largest factor behind the tax gap. He actively discourages his clients from using  describes in greater detail the type of work he conducts, and his experiences within his profession.

https://www.theguardian.com/commentisfree/2016/nov/07/secret-life-tax-adviser-sifting-nonsense-keep-family-secrets

PwC survey: UK Business not calling for cuts to corporation tax – 7 November

A survey conducted by PricewaterhouseCoopers (PwC) demonstrates that a majority (71%) of surveyed UK businesses are not calling for a reduced corporate tax, and the currently planned reduction to 17% by 2020 would only have a limited impact whilst further eroding the public’s trust in the tax system. The survey, moreover, gathered businesses’ views on how to improve trust in tax systems, including the possibility of greater tax transparency.

Report: Common Consolidated Corporate Tax Base one of the possible alternatives for future EU funding – 8 November

The FairTax project – a tax research network between several European universities – has published a report on the potential of the Common Consolidated Corporate Tax Base (CCCTB) for constituting a solution to EU funding. In particular, the report maintains that both a CCCTB- as well as a CCTB- (without ‘consolidation’) based own resource could be able to fully replace the current VAT-based own resource of the EU. Moreover, the report argues that CCCTB could make tax competition more just, and through tackling base erosion and profit shifting it could create space for decreasing the tax burden on labour. A CCCTB could, moreover, help facilitate tax compliance and make the fight against tax evasion and tax fraud more effective

“Companies should be forced to say how much tax they pay and where” – 11 November

Sasja Beslik, Head of sustainable finance at Nordea, has written an opinion piece for the Guardian in which she calls for mandatory public Country by Country Reporting (CBCR) for multinational companies. She maintains that a “global tax regulation” might be the best solution to effectively tackle tax avoidance by multinationals, but that in the short term public CBCR offers a more immediate solution. Moreover, banks are increasingly interested in their clients’ corporate responsibility, including in the area of tax.

MEP Questions & Answers

Tax evasion: relationship between Juncker and Amazon – 24 October

The European Commission has replied to a question asked by the MEP Hugues Bayet (S&D/BEL) with regard to the relationship between Commission President Juncker and Amazon. In his question, Mr. Bayet argues that Amazon has avoided paying taxes in the EU for the past 20 years, in part thanks to arrangements it has made with Luxembourg – including during President Juncker’s Prime Ministership of the country. He therefore asks the Commission how far its investigations into Amazon’s tax rulings are, what sanctions it will impose on the political decision-makers and the senior executives of the firms implicated in the case, and asks whether the European tax system should be “properly harmonised”. In her reply, Commissioner Vestager maintains that it is still too early to speculate on the possible outcome of the ongoing Amazon investigation. She refers to Commission’s recent initiatives, such as the Anti-Tax Avoidance Directive (ATAD) and the re-launch of the Common Consolidated Corporate Tax Base (CCCTB) as examples of the EU taking serious action against corporate tax avoidance.

Property taxation in Europe – 3 November

The European Commission has replied to a question asked by the MEP Theodoros Zagorakis (EPP/GRE) with regard to property taxation in Europe. In his question, Mr. Zagorakis asks the Commission whether it can provide information on property taxation in Member States, and whether it has comparative data on the taxation of income from property, tax on property, tax on transfers, VAT, tax on increased property value, inheritance tax and objective property values. In his reply, Commissioner Moscovici states that the Commission provides information about national taxes in the ‘Taxes in Europe’ database (TEDB). For property taxes that fall under the scope of the TEDB, the information is collected in the TEDB and can be found on the Commission website. Moreover, data on all relevant taxes are published in the Taxation Trends Report. The new report will be published in mid-November 2016. Provisional data are, however, already available on the Commission website.

Events

  • 07/12/2016, Morning Exchange Live event, featuring Olivier Guersent, Politico, Brussels. Source: N/A

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