Vestager delivers two speeches on fair taxation – 2/9 September
Commissioner Vestager has delivered two speeches focusing on fair taxation during her visit to Denmark. In her speeches, Commissioner Vestager elaborates on and defends the Commission decision on Apple Ireland. Of particular interest, she reveals that a separate investigation by the US on Apple’s tax practices tipped the Commission off that the company might have received unlawful state aid. Commissioner Vestager argues that overall it was greater transparency and in particular by the US that has enabled the Commission to undertake tax state aid investigations like the ones in past months. She moreover maintains that the recent tax state aid investigations as such are nothing new under the sun, and expresses support for the Commission proposal on public Country by Country Reporting (CBCR).
VAT Gap: Nearly €160 billion lost in uncollected revenues in the EU in 2014 – 6 September
The European Commission has published VAT gap statistics for the year 2014. According to the figures, the total EU VAT gap amounted to €159.5 billion. Significant disparities, however, exist between Member States. In Sweden for example, only 1,2% of VAT was uncollected whilst in Romania the same figure was 37,9%. In absolute terms, the amount of uncollected VAT was lowest in Luxembourg, with €147 million, whilst Italy had the largest amount of VAT uncollected – €36.9 billion.
“Commission to cut VAT on e-books” – 10 September
According to the Financial Times (article only available to subscribers), the Commission will amend the VAT Directive in order to provide for reduced rates currently applicable to paper-based publications for e-publications as well. The measure was already announced in the VAT Action Plan earlier this year but according to the article, Commissioner Moscovici stated that the proposal should be expected for “the weeks to come”. The date of 30 November has been circulating around.
President Juncker delivers State of the Union speech – 14 September
The Commission President Jean-Claude Juncker has delivered his annual State of the Union speech. As in the similar practice by Presidents of the US, the purpose of the State of the Union speech is to elaborate on Commission’s priorities and plans to address crises and priority issues. With regard to taxation, President Juncker re-iterated the Commissions stance that all companies regardless of their size must pay their taxes where profits are generated. With direct reference to the Apple case, President Juncker stated that the Commission does not accept “powerful companies getting illegal backroom deals on their taxes”. He referred to the tax agenda, and the state aid investigations in particular, as a question fairness and social justice.
Commission publishes new CMU Communication to accelerate progress – 14 September
The European Commission has published a new Communication on Capital Markets Union (CMU), titled Accelerating Reform. The Communication does not announce new major initiatives but rather – and as the name implies – attempts to harness further political momentum to speed up the implementation of the various measures and objectives announced in the CMU Action Plan last year. Moreover, areas for further work are identified, including sustainable finance, technology (FinTech), further removing cross-border barriers, and bringing about more efficient and coordinated supervision. From the tax perspective, the Communication announces action to encourage Member States to simplify and coordinate their withholding tax procedures. A Code of Conduct on this is expected for 2017. Moreover, the Commission will seek to encourage “best tax practices” in promoting venture capital and business angel investment into start-ups and other “innovative companies”, and to address the debt-equity bias – expected in the context of the re-launch of the C(C)CTB package currently anticipated for 9 November.
Commission publishes scoreboard of third countries for tax purposes – 15 September
The European Commission has published its initial list of third countries for tax purposes – the so-called scoreboard of indicators. This move was already announced in the Commission’s External Strategy on taxation, published in January, and aims for the establishment of a common EU-list of non-cooperative jurisdictions (or ‘tax havens’). The purpose of the scoreboard was to rank relevant third countries (chosen, for example, on the basis of their economic ties with the EU) using a set of criteria, including transparency and exchange of information, the existence of preferential tax regimes, as well as no or zero corporation tax. The scoreboard list is comprehensive and includes the US as well – a particularly interesting detail given the current context of tax tension between it and the EU due to the Apple state aid ruling. Having said that, the scoreboard as such does not constitute a final list or judgment on the countries included on it. As a next step, the Member States will choose during the autumn which of the countries from the scoreboard will be selected for more detailed screening. As a final stage, only those third countries from the screening list refusing to cooperate with the EU will be included on the final list of non-cooperative jurisdictions. The current aim is to establish a final list during 2017.
Markus Ferber: “Attracting investment by granting tax deals is illegal in the EU” – 6 September
The MEP Markus Ferber (EPP/GER) has provided his views on the Apple state aid case. He agrees with the Commission’s interpretation of EU state aid law, and maintains that selective tax advantages are illegal. He emphasises that the Commission is not chasing the companies themselves, but rather investigating Member States’ practices. He, furthermore, does not see such state aid decisions as undermining legal certainty, and maintains that the EU is one of the most legally developed markets in the world. Mr. Ferber is a Vice-Chair of the ECON Committee, and is an influential and respected MEP on tax affairs.
108 MEPs demand investigation on Luxembourg tax affairs and the PwC – 8 September
108 MEPs mainly from the left side of the political spectrum have written a letter of support to the two “whistleblowers” accused of being responsible for the Luxleaks scandal – Antoine Deltour and Raphaël Halet. In the letter, the MEPs express their solidarity with the two, call for EU legislation to protect whistleblowers, and urge the EU to investigate tax ruling practices between Luxembourg and “corporations like” PwC “by all possible means”.
“Talks begin for left-wing ‘grand coalition’ in EU Parliament” – 12 September
According to Euractiv, the centre-left S&D Group is seeking allies amongst the Greens and the far-left for a left-wing grand coalition at the European Parliament in order to push for an alternative agenda for the EU. Currently, the Parliament’s second-largest S&D group cooperates with the largest EPP group (centre-right) at the expense of the smaller political groups. Some MEPs especially from Eastern Europe, however, remain hesitant on cooperating with smaller left-wing groups. Should such a left-wing grand coalition become reality, it would undoubtedly have an impact on the Parliament’s positioning on tax as well.
European Parliament hearing on Apple tax ruling – 14 September
The European Parliament has held a public hearing with Commissioner Vestager on the Apple Ireland state aid case. During the hearing, Commissioner Vestager further elaborated on the Commission’s rationale behind the decision, and re-iterated her support for public Country by Country Reporting (CBCR). Practically all MEPs, with only a few exceptions, expressed their support for the Commission decision. Pablo Zalba Bidegain (EPP/SPA) stated that “the party is over” for large multinationals seeking tax advantages, Pervenche Beres (S&D/FRA) called for a decision regarding McDonald’s, and Sander Loones (ECR/BEL) criticised selective tax advantages granted to specific companies. Cora van Nieuwenhuizen (ALDE/NLD), for her part, emphasised that tax systems must become simpler and more transparent, but the ALDE Group has yet to make up its mind on the Commission proposal. More critical voices emerged from amongst the Irish MEPs. Marian Harkin (ALDE/IRL) emphasised the need for tax certainty and clarity of legislation, and maintained that it is up to the EU Court of Justice to provide this certainty. Sean Kelly (EPP/IRL), for his part, was consistent with the position of the Irish government and questioned the Commission’s decision. Commissioner Vestager responded to the criticism, emphasising that the decision is based on legal criteria and not political considerations. She moreover confirmed that the Commission is working on tax state aid guidance for Member States and companies in order to foster legal certainty.
Letterbox practices – 6 September
The European Commission has replied to a question asked by the MEP Liadh Ní Riada (GUE-NGL/IRL) with regard to letterbox practices. In her question, Ms. Ní Riada refers to a study by the European Trade Union Confederation (ETUC) which demonstrates the scale of the use of letterbox companies notably for tax optimisation purposes. She therefore asks the Commission whether it will open an investigation into the prevalence of such practices in all Member States, whether it will tackle the use of letterbox companies, and to provide specific details on the case of Ireland. In her reply, Commissioner Thyssen (employment and social affairs) confirms that the Commission is aware of the study and will consider its findings. Other than that, she lists measures and initiatives already in place aimed to fight against the use of letterbox companies.
Tax havens and free trade agreement – 9 September
The European Commission has replied to a question asked by a group of ENF MEPs with regard to tax havens and free trade agreements. In their question, the MEPs criticise the ongoing TTIP negotiations between the EU and the US, which hosts a number of states suspected of being “tax havens”. The MEPs therefore ask the Commission what conditions it will impose on the US before signing the TTIP, and what other measures the Commission is taking in this regard. In her reply, Commissioner Malmström (trade) lists the numerous well-known measures that the Commission has taken in past months to address tax avoidance and evasion. On top of this, she confirms that the Commission will explore the possibility of a “structured dialogue” with the US on key tax questions.
Combating tax evasion and a plan for poverty – 9 September
The European Commission has replied to a question asked by the MEP Enrico Gasbarra (S&D/ITA) with regard to tax evasion and poverty reduction plans. In his question, Mr. Gasbarra refers to a “European corporation tax” (probably with reference to the C(C)CTB) and asks the Commission whether the revenues from such a tax will be used for poverty alleviation. In his reply, Commissioner Moscovici points out that the upcoming C(C)CTB re-launch does not involve any tax income being collected by or ending up with the EU. The EU has, however, a number of programmes already in place to assist Member States in poverty reduction.
EU 27 finance ministers discuss tax in informal Bratislava Summit – 10 September
The finance ministers of 27 EU Member States (UK not present) have held an informal Summit in Bratislava, Slovakia, to discuss major challenges faced by the EU, including the Brexit, migration and terrorism. The ministers also focused on taxation. According to a supplementary note posted for the ministers’ meeting, the tax discussion focused on how to improve tax certainty for companies notably through cooperative compliance, the effectiveness of tax administrations, improved exchange of information between tax authorities as well as tax authorities and other administrations, as well as the expected consultation on possible disclosure requirements for tax advisors (possibly as part of the Directive on Administrative Cooperation).
“Schaeuble Goes Global to Salvage Financial Transaction Tax” – 12 September
As reported notably by Bloomberg, the German finance minister Wolfgang Schäuble has brought up the prospect of a global Financial Transaction Tax (FTT). His comments come in a time where negotiations at EU-level are stalling, with a deal in October as the aim for a compromise between the 10 Member States currently working on the project. As a reminder, G20 leaders rejected the idea of a global FTT back in 2011 due to a lack of sufficient consensus.
Opinion of Advocate-General: exclusion of e-publications from reduced VAT is compatible with the principle of equal treatment
The Advocate-General of the Court of Justice of the EU (CJEU), Juliane Kokott, has issued an opinion arguing that the different VAT treatment of paper and e-publications is in line with the principle of equal treatment. The Advocate-General maintains that it may not be possible to compare the two types of publications, and there are for example different distribution costs and support needs involved for both. This interpretation is opposite to that of many stakeholders who argue that the different tax treatment of the two types of publications is a violation of the equal treatment principle, since these products are in competition with each other. The Commission, for its part, is expected to put forward a legislative proposal to ensure that e-publications are treated similarly to paper publications for VAT purposes on 30 November.
Ruling on turnover taxes – 15 September
The eighth chamber of the Court of Justice of the EU (CJEU) has issued a ruling on turnover taxes. The case code is C‑400/15. In its ruling, the Court establishes that an earlier derogation to EU rules regarding turnover taxes, from 2004, does not apply under conditions in which the goods or services acquired by an undertaking are mainly used for non-economic activities falling outside the scope of VAT.
Ruling on details required in invoices – 15 September
The fourth chamber of the Court of Justice of the EU (CJEU) has issued a ruling on details required in invoices for VAT purposes. The case code is C-516/14. In its ruling, the Court notably establishes that national tax authorities are not allowed to refuse VAT deductions only because the taxable person’s invoice does not satisfy certain specific requirements of the VAT Directive, even if the authorities have all the necessary information for ascertaining whether the substantive conditions for the exercise of that right are satisfied.
Ruling on input tax deductions – 15 September
The fourth chamber of the Court of Justice of the EU (CJEU) has issued a ruling on input tax deductions. The case code is C‑518/14. In its ruling, the Court establishes that Member States are not allowed to have legislation under which the correction of an invoice in relation to a detail which must be mentioned (such as the VAT identification number) does not have retroactive effect, so that the right to deduct VAT exercised on the basis of the corrected invoice relates not to the year in which the invoice was originally drawn up, but to the year in which it was corrected.
G20 Leaders’ Communique Hangzhou Summit – 5 September
The G20 leaders have published a Communique as a conclusion of their summit in Hangzhou, China, earlier this month. Of particular interest, the Communique’s Paragraph 19 calls on further progress on the adoption and implementation of relevant OECD frameworks on transparency and exchange of information, for the drawing up of an international list of non-cooperative jurisdictions that have refused to commit to tax transparency and with sanctions by July 2017, and for China to establish an international tax policy research centre for “international tax policy design and research”. With regard to the international list of jurisdictions in particular, it will be interesting to see how it will play out with the Commission’s own project for a EU list. The EU list would be based on wider criteria than mere tax transparency, and for example the OECD has called on the European Commission to stay on course with international coordination, rather than initiating unilateral action.
“Multinationals to publicly declare country-by-country profits and tax” – 6 September
As reported notably by the Guardian, the British government has approved a legal amendment to the finance bill that might lead to the establishment of a public Country by Country Reporting (CBCR) obligation in the UK. However, and as pointed out notably by the NGO Tax Justice, the wording of the amendment merely states that “the Treasury may” establish a CBCR requirement – in other words, the amendment in itself does not commit the government to any particular action.
“Panama Papers: Denmark buys leaked data to use in tax evasion inquiries” – 7 September
As reported notably by the Guardian, Denmark has paid an unknown source in order to gain access to additional details on the Panama Papers leaks – the first country to do so. The government has assessed the information to be both valid and useful. The exact amount to be paid has not been disclosed, but according to the article is in the “single digit million”.
“Panama Takes Further Action On Fiscal Transparency” – 13 September
According to Tax News, the government of Panama has endorsed new legislation aimed for compliance with relevant international tax transparency frameworks. The information would be submitted by the country’s financial institutions, and will improve tax transparency in private as well as public sectors. The new legislation would, for example, improve the collection of relevant information by the Ministry of Economy and Finance for the purpose of information exchanges with other countries, as well as oversight over company reporting. Panama’s National Assembly will consider the proposal by the end of the year.
Swiss Federal Court: administrative assistance on tax matters is permissible in the case of a group request without names – 12 September
The Federal Court of Switzerland has issued a press release according to which the exchange of tax information with the Netherlands is permitted when a group request without names is submitted, as long as the request contains sufficient other information to identify the concerned persons. The full judgment itself has not been published yet.
OECD Secretary-General’s tax report to G20 leaders – 5 September
The OECD has published its Secretary General’s tax report to the G20 leaders for their summit in Hangzhou, China (see article above for further details). The first part of the report provides an update on the BEPS project, tax transparency, tax policy tools for sustainable and inclusive growth, and tax and development. The second part provides a progress report by the Global Forum on Transparency and Exchange of Information for Tax Purposes.
Public comments received on the BEPS discussion drafts on the Attribution of Profits to Permanent Establishments and the Revised Guidance on Profit Splits – 8 September
The OECD has published the public comments it has received on its discussion drafts on the Attribution of Profits to Permanent Establishments and the Revised Guidance on Profit Splits. For both discussion drafts, well over 400 pages of comments from relevant stakeholders were received. As a follow-up, the OECD will launch a public consultation on the discussion drafts on 11-12 October in Paris.
OECD report: Fiscal incentives for R&D and innovation in a diverse world – 13 September
The OECD has published a report on the use of fiscal and tax incentives for boosting R&D and innovation. The report argues that such incentives should be targeted to specific barriers or synergies in order to facilitate the desired amounts of R&D and innovation investment. There is a risk that such policies, if poorly designed, lead to various unintended consequences. Countries must for example consider any tax incentives for R&D in the context of their general tax policies, broader innovation policy mix and other R&D support mechanisms. Moreover, the report points out that increased R&D activity in a country does not necessarily signify an increase in global innovation, it the R&D activity is simply shifted from one country to another.
Pakistan joins the Multilateral Convention on tax – 14 September
Pakistan has become the 104th jurisdiction to join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The OECD describes the Convention as “the most powerful instrument for international tax cooperation”. It provides for administrative assistance in tax matters, such as exchange of information on request, spontaneously and automatically, tax examinations abroad, and assistance in tax collection.
“OECD Pushes For More Certainty In International Tax Rules” – 14 September
According to Tax News, the OECD Secretary General Angel Gurria has emphasised the need for a certain and stable tax environment for businesses and investment. He expressed his views at the informal meeting of EU Finance Ministers, where he maintained that governments should design tax policies that minimise tax uncertainty for companies, including a better tax dispute resolution mechanism. He moreover confirmed that the OECD will begin work around tax certainty as a response to G20 discussions on the matter. With regard to the EU state aid investigations, Mr. Gurria emphasised the need to “stick to the agreed rules on transfer pricing”.
Public comments received on the discussion draft on approaches to address BEPS involving interest in the banking and insurance sectors under Action 4 – 15 September
The OECD has published the received comments to its discussion draft on approaches to address BEPS involving interest in the banking and insurance sectors under Action 4 (interest deductions and other financial payments). A total of 27 comments were received, from major companies and industry organisations from the financial sector.
“Apple tax: Irish cabinet to appeal against EU ruling” – 2/9 September
As reported notably by BBC, the Irish government has decided to appeal against the Commission’s decision to order Apple to retroactively pay Ireland back up to €13 billion in unpaid tax income. The government is confident that the appeal will overturn the Commission decision, argues that the decision is politically motivated, and maintains that this is fundamentally a question of national sovereignty. In the meanwhile, as notably reported by EU Observer, the decision of the Irish government has sparked angry criticism from civil society,
“EU Finance Ministers Line Up Behind Tax Ruling Against Apple” – 10 September
As reported notably by Politico and the New York Times, some EU Finance Ministers have expressed interest in claiming their share of the €13 billion of tax income that the Commission ordered Apple to pay to Ireland. At least Germany, Italy, France and Austria are looking into whether they have a claim, and have requested the Commission to provide additional details on the matter. In the meanwhile, another New York Times article, written by Mark Scott, describes sentiments of the Irish public towards their government’s decision to appeal against the Commission decision (see article above). Many in Ireland feel that the recovered tax income could contribute significantly to the recovery of the local economy, alleviate the dire effects of austerity, and provide an opportunity to re-think the country’s ‘business model’.
“EU probes €1bn ‘tax dodge’ by Ikea” – 15 September
As reported notably by EU Observer, Commissioner Vestager has confirmed that the Commission is looking into the findings of the European Parliament’s Greens-EFA Group regarding IKEA’s tax practices over the past six years. The report argues, notably, that IKEA dodged at least €1 billion during that time period (for additional details on the report, please see FEE Tax Policy Update from 19 February). The Commissioner, however, maintained that the investigation is in still in its very early stages. In the meanwhile, IKEA has denied allegations of aggressive tax planning, maintaining that its effective corporate tax amounts to slightly below 20%.
“US firms unite against EU on Apple tax” – 17 September
According to EU Observer, 185 US firms have called on EU Member States to oppose the earlier Commission state aid ruling ordering Ireland to recover up to €13 billion in tax income from Apple. The companies call for respecting the “rule of law”. Overall, the critics of the Commission’s tax state aid decisions have consistently maintained that retroactive recovery of tax income endangers legal certainty.
Commission opens in-depth investigation into Luxembourg’s tax treatment of Engie (previously GDF Suez) – 19 September
The European Commission has opened an in-depth investigation into Luxembourg’s tax treatment of the GDF Suez (now Engie). The Commission is in particular concerned about whether several tax rulings issued by Luxembourg have given the company an unfair advantage over its competitors. This would make the scheme a violation of EU state aid rules. The Commission’s investigation will in particular assess whether Luxembourg has made a selective exception to the application of its national tax law. The rulings appear to treat same financial transaction between companies of the GDF Suez group as both debt and equity.
Commission opens in-depth investigation into Poland’s tax on the retail sector – 19 September
The European Commission has opened an in-depth investigation into a Polish tax on the retail sector. The Commission will look in particular into whether the progressive tax rates based on turnover give companies with a lower turnover a selective advantage over their competitors. This could make the system unlawful from the perspective of EU state aid rules. The Commission has, moreover, requested Poland to suspend the application of the tax until the Commission investigation is finalised.
New report: lack of tax transparency puts investors at risk – 13 September
A new report by the Financial Accountability and Corporate Transparency Coalition (FACT Coalition) argues that a lack of transparency in companies’ tax affairs may cause risks to investors. The report maintains that tax liabilities “can have a significant impact on company valuations”, and that without appropriate information on assets located offshore investors cannot make reasoned investment decisions, and provides case studies in which non-transparent tax practices by certain multinationals put shareholder value at risk. As a remedy, the report calls on the Securities and Exchange Commission (SEC) to introduce public Country by Country Reporting (CBCR), as well as other tax disclosures that might be relevant from investors’ point of view.
21/09/2016, A transatlantic Citizen’s Dialogue on tax avoidance and privacy in the digital age, Columbia University/European Commission, New York.
27/09/2016, Morning Exchange Live with Pierre Moscovici, Politico, Brussels.
28/09/2016, From tax transparency to responsible tax behaviour, CSR Europe, Brussels.
13/10/2016, EPC 20th Anniversary Conference, EPC, Brussels.
18/10/2016, Tax transparency: Do new global standards really provide a level playing field?, Euractiv.
20/10/2016, Public Country-by-Country Reporting: Tax disclosures in the spotlight, Federation of European Accountants (FEE), Brussels.
10/11/2016, International conference on responsible taxation in development finance, Eurodad, Oxfam, Brussels.
21-22/11/2016, Tax Audit Forum, International Tax Center, Munich.