Tax Policy Update

Highlights

• European Commission responds to European Parliament’s tax recommendations
• Finland begins Council Presidency, outlines its tax priorities
• G20 considers defensive measures against ‘tax havens’
• European Parliament working on a joint work programme

EU Developments

European Commission

Commission proposes to grant Czechia the right to apply temporary generalised reverse charge mechanism

The European Commission has proposed to grant Czechia the permission to apply a generalised reverse charge mechanism (GRCM), as a derogation from the VAT Directive.

The Commission assesses that Czechia fulfils the criteria for applying a GRCM that were established in a relevant amendment to the VAT Directive. This amendment was approved by the Council on 20 December 2018.

The other EU member states will now have to approve Czechia’s request by unanimity.

As a reminder, Czechia blocked for two years EU’s progress on another proposal, on reduced VAT rates for e-publications, because other EU member states led by France were not in favour of the proposed GRCM Read more

Commission responds to European Parliament’s tax reform calls

The European Commission has sent a formal response to the recommendations of the European Parliament’s TAX3 Committee.

TAX3’s recommendations are legally non-binding, but the Commission’s point-by-point response to them gives interesting indications to its future plans on tax.

The Commission’s reply is fairly generic overall, but a few interesting elements stand out, such as:

• The Commission hints that it is reviewing its public tendering rules to see whether they are robust enough against potential ‘conflicts of interest’
• The results of the Commission’s evaluation of the Directive on Administrative Cooperation (DAC) would be ready in autumn 2019, on the basis of which possible follow-up would be considered
• The Commission will work on identifying and addressing remaining cross-border tax obstacles within the Single Market

Either way, it will be up to the next Commission – starting in November this year – to decide the direction of its tax work.

Commission publishes latest taxation trends report: environmental tax revenues remain stable

The European Commission has published its latest Taxation trends report. The report provides a set of interesting key statistics and developments from the EU’s tax system, such as:

• Environmental and energy taxes remained stable in the EU over last decade, with revenue from them representing 2,4% of GDP
• In 2017 EU tax revenues were 39% of GDP – an almost 2% increase from 2009
• Statutory and effective corporate tax rates have decreased since 2005 but revenues are in slow increase since 2009
• Labour taxes increased slightly 2012-2017

Read more

EU’s new tax dispute resolution system enters into force

On 1 July, the EU’s new tax dispute resolution system came into force. The new mechanism aims to ensure quicker and more effective resolution of tax disputes between Member States.

The mechanism notably introduces a mutual agreement procedure (MAP) initiated by a taxpayer, under which Member States must aim to resolve the dispute amicably within two years.

The Directive was adopted by the Council in July 2017. Read more

European Parliament

European Parliament political Groups discussing joint work programme

The four largest political Groups in the European Parliament are currently negotiating on their common work programme and priorities.

The negotiations are taking place between the centre-Right EPP, centre-Left S&D, liberal RE and the Greens.

This work takes place in thematic working groups. On financial affairs, a major point of contention is whether or not to include a call for a minimum effective tax rate in Europe. Moreover, the Groups are discussing whether to include a call on the Commission to review the Audit Directive to address potential conflicts of interest stemming from the same firms providing both audit and tax services to their clients.

Reportedly, the Groups are aiming for an agreement around 12 July, but right now it is unclear whether this is feasible.

Council

Dutch request the Commission to legislate on aviation taxes

On 20-21 June, the Netherlands organised a conference The Hague to build support for a common European framework for aviation taxes. As a follow-up, the Dutch government reportedly now intends to prepare a letter to the European Commission, calling on it to put forward a legislative proposal on the topic.

The Dutch will attempt to get as many other EU member states as possible to co-sign its letter. It can expect support, at least, from Luxembourg, France and Belgium.

Any subsequent proposal from the European Commission will have to wait until the new Commission starts its term in November 2019. Read more

Finnish Presidency of the Council publishes its priorities for the next six months

On 1 July Finland took up the rotating Council presidency and announced its policy priorities for the next six months. The programme includes a few tax priorities too.

In a generically worded work programme, the Finnish presidency commits to continue working on digital tax reform at the OECD level (Finland was one of the few EU countries opposed to unilateral EU work on this), and work against ‘harmful tax competition’, tax evasion and avoidance. Moreover, Finnish officials have stated separately that they would seek to find an agreement on the Commission proposal on VAT simplifications for SMEs. Read more

CJEU – rulings

Case T‑20/17: Court annuls Commission decision that claimed Hungarian advertisement tax to be incompatible with EU law. Read the analysis.

C‑316/18: Input VAT deduction and management costs of an endowment fund

International Developments

IFAC calls on G20 leaders to prioritise international tax cooperation

The International Federation of Accountants (IFAC) has called on G20 leaders to consider international tax cooperation as one of their priorities.

IFAC bolsters its call for action with a survey of G20 citizens’ views on tax cooperation, according to which between over 80% and over 50% (depending on the country) of G20 citizens see international tax cooperation as either very important or important. Read more

G20 considers defensive measures against ‘tax havens’ and endorses international tax reform work plan

On 28-29 June, G20 leaders met in Osaka to agree on the way forward on, among other things, the international tax agenda.

In a post-summit communique, the G20 leaders endorse the international tax work plan as proposed by the OECD’s Inclusive Framework. The G20 leaders also commit to considering defensive measures against jurisdictions that have failed to implement internationally agreed tax transparency standards. Read more