Update

6 March 2017

Tax Policy 20 February - 3 March

HIGHLIGHTS

  • Council: Member States agree on ATAD II, criteria for non-cooperative jurisdictions, work on FTT to continue – 21 February
  • Other news: Business Europe, Insurance Europe publish positions on CCCTB – 20/22 February
  • European Parliament: first hearing of joint ECON-JURI Committee on public CBCR – 27 February
  • European Commission: new consultation on fight against VAT fraud – 2 March

 

European Commission

European Commission launches public consultation on the fight against VAT fraud – 2 March

The European Commission has launched a public consultation on the fight against VAT fraud and administrative cooperation in the area of VAT. The consultation stems directly from the Commission’s VAT Action Plan, in which addressing the VAT gap and tackling VAT fraud received prominent attention. This consultation aims, in particular, to gather views from stakeholders about their experience of the current rules governing administrative cooperation and fight against cross-border fraud in the field of VAT; to bring new insights for the on-going evaluation of Regulation (EU) 904/2010 (administrative cooperation on VAT); to provide information about possible improvements including ‘VIES on-the-web’; and to collect quantitative data on possible reduction or increase of regulatory costs/benefits (administrative burden and/or compliance costs) for businesses (in particular SMEs). The deadline for providing responses is 31 May.

 

European Parliament

First hearing of the joint ECON-JURI Committee on public CBCR – 27 February

The joint ECON-JURI Committee of the European Parliament has held its first discussion on the draft report on public Country by Country Reporting (CBCR). The hearing, overall went as expected, with S&D and the Greens speaking in favour of the stronger requirements demanded by the leading MEPs – Hugues Bayet (S&D/BEL) and Evelyn Regner (S&D/AUT) – and the centre-Right EPP calling for sticking with international standards and coordination. For further details on the draft report and what differences it proposes to the initial Commission proposal, please refer to the Tax Policy Update from 17 February.

The question of legal basis also emerged during the hearing, but nothing new was said on that front. Interestingly, a representative from the European Commission confirmed that already nine technical level meetings have taken place in the Council to work on the dossier and that technical work is more or less done – meaning that the only (and largest) obstacle on the Member States’ side remains the political dimension.

The Commission representative, moreover, urged for the European Parliament to support the Commission in arguing for the legal basis to be maintained in corporate reporting. With this regard, he called for patience and expressed concern that some amendments proposed by the two leading MEPs risk giving ammunition for those Member States arguing that the legal basis should be on taxation. He referred, in particular, to amendments that might hint towards the goal of the proposal being the enforcement of tax rules (in which case the correct base is tax), rather than increasing accountability and transparency as the Commission argues. He gave Amendment 1 as an example.

The overall hearing highlights included the following:

  • Hugues Bayet (S&D/BEL): emphasised that three key points in the proposal are the scope, which should be reduced from €750 million to €40 million in order to align it with the Accounting Directive; for the proposal to call for CBC reporting in all countries where a multinational operates, as opposed to EU Member States and “non-cooperative jurisdictions” only; and expanding the disclosable information so as to promote better tax compliance
  • Evelyn Regner (S&D/AUT): companies have a social responsibility towards societies, and public CBCR is a step to that direction. The most important issue is whether or not the data should be aggregated for third countries – which Ms. Regner maintains should not be the case
  • Burkhard Balz (EPP/GER), speaking on behalf of Dariusz Rosati (EPP/POL): EPP wants to address public expectations in the fight against “aggressive tax planning”, but this should be balanced with the need to protect the competitiveness of EU businesses. Working at an international level and in line with BEPS Action 13 should be the basis. The threshold should be kept at the proposed level. The expanded categories of information – as proposed by the two leading MEPs – would mean that the public has access to even more information than tax authorities do under BEPS Action 13
  • Rosa Estaràs (EPP/SPA): what the Commission is proposing in terms of threshold is too high, but would still capture 90% of companies’ turnover in Europe. A good balance must be found between the Commission’s proposal and the draft report’s proposed threshold
  • Pirkko Ruohonen-Lerner (ECR/FIN): with regard to the call for public subsidies to be disclosed, more clarity is needed. Would this include e.g. certain tax breaks too?
  • Pervenche Beres (S&D/FRA): referred to the French Constitutional Court’s ruling which declared that a national law for public CBCR is unconstitutional (see Tax Policy Update from 9 December for more details on this). Ms. Beres argued, however, that the ruling would not preclude an EU-level proposal adhered to by all Member States
  • European Commission:
    • The €750 million threshold is appropriate as this would cover most of company turnover in the EU with over 6000 multinationals falling within its scope – there is no need to go for lower
    • The proposal must be proportionate and in line with OECD BEPS
    • All companies currently under tax-related state aid investigation by the Commission would fit the proposed scope
    • The Commission does not want to propose extending the CBC reporting requirement to all countries since this would hurt the competitiveness of EU businesses and expose their commercial strategies to competitors in third countries
    • On the legal basis, both the Commission and the European Parliament agree. But the Parliament should be careful with introducing amendments that could give support to those arguing that the legal basis should be on tax. The purpose of the proposal is to increase transparency and accountability, not to enforce tax legislation. For example Amendment 1 is problematic
    • 9 Council Working Party meetings have already taken place, and technical work in the Council is more or less completed

 

Council

Council reaches preliminary agreement on third country hybrids, agree on criteria for identifying non-cooperative jurisdictions – 21 February

The February meeting of EU Finance Ministers (ECOFIN) saw important progress in the area of taxation. First of all, Member States reached an agreement on their position to the Commission’s proposed revisions to the Anti-Tax Avoidance Directive (ATAD II) in order to accommodate hybrid mismatches with third countries. As a reminded, there were two major issues on the table. First, the UK has been asking for exemptions for the financial sector, arguing that the proposed rules are not fit for purpose and do not take into account the particularities of that sector. France, for its part, opposed the UK’s claims. The countries agreed on a so-called ‘sunset clause’, whereby Member States will be given the option of exempting the financial sector from certain provisions of ATAD II, but only until 31 December 2022. Moreover, the European Commission will be tasked with assessing the impact of the exemption, and is expected to report on these to the Council in due time. Moreover, the Netherlands had requested for the date of implementation to be postponed. The compromise document now states that the rules governing reverse hybrids will be applicable from 1 January 2022 onwards only, whilst the other provisions will enter into force in 2020. Finally, during the meeting the Finance Minister from Luxembourg and Belgium expressed concerns over the Commission going too far and beyond mere BEPS implementation, and called on the EU to keep pace with its international partners in this regard.

Progress was reached, moreover, on the criteria to identify potential non-cooperative jurisdictions as a part of the ongoing screening exercise whereby Member States in the Code of Conduct Group are assessing which third jurisdictions to potentially include on a final EU-list, scheduled to be finalised by the end of the year. A point of contention had been to what degree a zero or near-zero corporate tax rate should constitute a criterion in its own right, in the category of facilitating offshore tax structures (criterion 2.2). The UK has been particularly critical about giving too much weight to a low- or no-tax regime. The agreed criteria now state that if a third jurisdiction fails with another criterion – on harmful tax measures (criterion 2.1) solely due to a low- or no-tax system, that jurisdiction will be judged by a separate set of criteria developed by the Code of Conduct Group. As a side-note, this compromise means that for example the British Channel Islands would not be judged on the basis of their tax rate systems since they already comply with the Code criteria, although other criteria of the blacklisting process will, of course, apply.

Work on FTT takes a small step forward, discussions to continue – 21 February

In the context of the February ECOFIN (see article above), the Finance Ministers of the 10 Member States working on a Financial Transactions Tax (FTT) agreed to continue the discussions in March. Belgium and Slovakia have been vocally calling for an exemption on the tax for the pension funds – whilst some of the other eight Member States and France in particular disagree. Ahead of the meeting in February, France proposed a compromise which would de facto provide compensation for FTT’s impact on pension funds. Belgium has stated that exempting pension funds is a red line. In the area of FTT’s potential impact on the real economy, the Ministers are closing in on an agreement. This means that, against certain expectations, work on the dossier will continue. On the one hand, FTT is a popular measure bound to inspire public opinion, but on the other and especially due to the number of key elections taking place this year, there may be little appetite to push for further integration in the area of taxation; at least until elections are over. In any case, the participating Member States will conduct further impact assessments on FTT’s effects on both pension funds and the real economy, and will discuss the dossier further, in all likelihood, in late-March.

 

International

Trump: tax reform bill to come only after Obamacare has been repealed – 22 February

According to Tax News, the US President Donald Trump has stated that a tax reform bill will be introduced only after Obamacare and the taxes associated to it have been repealed. In the same context, Trump elaborated that around mid-March “something” will be proposed to reform the US healthcare system. As a reminder, the Trump Administration is considering major tax reforms that could cut the US corporate tax by 20%, introduce a one-off 10% tax on repatriated income to incentivise offshore-held capital to return to the US, as well as establish a 20% ‘border tax’ on imports.

 

OECD

OECD Forum on VAT meeting in April – February

The next meeting of the OECD Global Forum on VAT will take place on 12-14 April in Paris. This time, the discussions will focus on the policy and operational challenges faced by tax authorities in the era of digital globalisation, and on the implementation of the standards and mechanisms for addressing recommended by the International VAT/GST Guidelines to address digitalisation. This will include, notably, discussions on the collection of VAT/GST on online sales by offshore vendors; the role of digital platforms in the collection of VAT/GST on online sales and the use of technology to support the effectiveness of VAT/GST collection. The meeting will also look at recent and ongoing VAT/GST reforms around the world and examine the outcomes of recent VAT/GST policy research and analysis in a range of areas. The meeting will also analyse and share experiences in the area VAT/GST fraud detection and effective countermeasures; on VAT/GST refunds policy and management; on digitalisation of tax administrations and on improving VAT/GST compliance through incentives. This will be the fourth meeting of the Forum, which brings together senior tax officials, representatives of international organisations as well as delegations of academics and business representatives.

 

State aid

Commission publishes appeals of Apple Ireland and the Irish Government against the €13 billion ruling – 6/21 February

The European Commission has published the appeals launched by Apple and Ireland against the Commission decision ordering the former to pay the latter €13 billion in uncollected taxes. Apple’s appeal consists of 14 pleas, which notably argue that the Commission has erred in its interpretation of Irish tax law; that the Commission has made “fundamental errors” on Apple’s activities outside of Ireland; that that the Commission has violated the principles of legal certainty and non-retroactivity; and that the Commission is exceeding its competence areas. The Irish appeal, for its part, consists of 9 pleas which maintain, for example, that the Commission has misinterpreted the arm’s length principle; that the Commission has violated legal certainty; and that the Commission is violating Ireland’s fiscal autonomy. The pleas have been made towards the Court of Justice of the EU (CJEU), which will have to rule on the fate of the Commission decision. Ireland has previously argued that the €13 billion does not belong to it but, rather, to the US and as such it cannot tax it.

 

Other news

Bill Gates proposes a tax on robots, sparks discussion and criticism – 17 February

Bill Gates has called for a tax on robots to address the issue of job losses as a consequence of automatization. His proposal calls for a tax that corresponds to taxes paid by a human labourer that the robot is replacing. The tax would be imposed on the owners or makers of the robot, and its objective would be to fund retraining of human workers that have been replaced.

The proposal has already sparked a lot of discussion and debate. The Economist criticises the proposal, arguing that taxation to deter investment will make people poorer without raising more tax income. Moreover, investment in robotisation could make human labour more productive, rather than making it fully redundant, and most workers would benefit from the ensuing decrease in consumers’ prices. Finally, the Economist maintains that currently automatization is occurring too slow, rather than too rapidly, and any measures to further slow this progress down is harmful.

Richard Waters has also criticised Mr. Gates’ proposal in a Financial Times article (only available to subscribers), questioning the logic behind delaying “technologies that could bring sweeping benefits”. He points to practical difficulties, such as actually identifying what constitutes a robot and distinguishing between those forms of automatization that destroy old jobs and those that would bring about the jobs of the future.

Business Europe and Insurance Europe publish position papers on CCCTB – 20/22 February

Business Europe and Insurance Europe have published their positions on the European Commission’s proposals to establish a Common Consolidated Corporate Tax Base (CCCTB). In its position paper, Business Europe states that the CCCTB has potential to make it easier and cheaper for cross-border companies to expand, and promote investment and jobs. It would, moreover, eliminate transfer pricing within the EU and reduce the risk of double taxation. However, such benefits would not exist without consolidation and would not bring benefits that would sufficiently compensate for an assumed reduction of competitiveness and increase in administrative costs. Business Europe calls for major improvements on the common base proposal, in order to make it more competitive vis-a-vis the world. These include the depreciation rules, the switch-over rule, CFC rules and specific limitations on deductibility of legitimate business costs and final losses. The initial loss offset proposed in the CCTB stage is, furthermore, not sufficiently comprehensive to replace full consolidation. Moreover, both the allocation key and the investment allowances should recognise intangible investment, whilst the allowance for growth and investment (AGI) risks punishing companies during economic downturns, Business Europe argues. Moreover, “many businesses” see a need to make the proposed CCCTB optional for all firms, but this does not appear to be a comprehensive full position of Business Europe as a whole.

Insurance Europe, for its part, agrees that only with consolidation the full benefits of a CCCTB can be sufficiently harnessed to justify the reform. Moreover, Insurance Europe also calls for rendering the system optional for companies. It moreover proposes changes to the formula apportionment as proposed by the Commission, and in particular calls for global coordination in this regard.

 

Events

  • 29/03/2017, Digital Day, Accountancy Europe, Brussels. Source
  • 30/03/2017, Do you have a taxable presence in a country? – The new reality Permanent and Fixed (VAT) Establishments in the post-BEPS world, CFE, Brussels. Source
  • 11/04/2017, Reforming European VAT: Boosting Trade and Achieving Modernisation, Public Policy Exchange, Brussels. Source
  • 30/05/2017, Tax Day 2017, Accountancy Europe, Brussels. Source
  • June, Conference on fair taxation, European Commission, Brussels. Further details tbc

 

Related content

UpdateTax Policy

19 September 2017

UpdateTechnology

11 September 2017

UpdateCapital Markets Union

4 September 2017

UpdateTax Policy

4 September 2017

UpdateTax Policy

22 August 2017

UpdateTechnology

25 July 2017

UpdateTax Policy

25 July 2017

VlogAccountancy Europe CEO introduces our work on taxation

20 July 2017

PublicationThe role of professional accountants in tax

20 July 2017

Consultation responseEuropean Commission proposal on tax intermediaries

19 July 2017

NewsTax Policy

12 July 2017

UpdateCapital Markets Union

11 July 2017

UpdateTax Policy

28 June 2017

UpdateTechnology

26 June 2017

EventEU Business Insolvency: How to contribute?

26 June 2017

UpdateSME Highlights

25 June 2017

In the mediaAccountancy Europe CEO in Finnish national TV debate on tax

22 June 2017

In the mediaPress release – Accountancy Europe says EC tax intermediary proposal can support better tax transparency,...

22 June 2017

UpdateTax Policy

12 June 2017

In the mediaAccountancy Europe Tax Day: reform at full speed

9 June 2017

Sign up for our newsletter