According to Politico (article only available to Politico Pro subscribers), the European Commission will address – in a way or another – the taxation of the sharing economy during 2018 (Uber, AirBnB et al.). The Commission issued guidance to Member States on the matter in June 2016 already, but is reportedly preparing something more concrete for next year (for further details on the Guidance, please refer to Accountancy Europe’s Tax Policy Update from 10 June 2016).
In its latest monthly infringements package, the Commission announced that it has called on Spain to ensure that its rules on foreign-held assets are “proportionate”. The Commission argues that the fines charged for failure to comply with a request to provide additional information on certain assets held abroad are too high. In such circumstances, the fines are higher than in purely national situations. Consequently, the Commission is concerned that this discrepancy might discourage businesses and private individuals from investing or moving cross-border within the Single Market. If Spain fails to provide the Commission with a “satisfactory” reply within two months, the Commission may refer the case to the Court of Justice of the EU (CJEU).
The dispute over the responsibility of Member States to assist the PANA Committee in its investigations goes on. Member States and the Commission have allegedly failed to provide the Committee with all requested documents. In latest developments, a Council Legal Service document argues that Member States have no legal obligation to cooperate with the Committee. The Legal Service argues that the “unspecific and generic character of the facts and of the law on which the parliament decision is based does not allow neither member states nor the council to assess their obligation to participate in the works of the committee of inquiry”.
The European Parliament has published its draft report on the Commission’s proposed amendments to the Anti-Tax Avoidance Directive (ATAD II) in order to provide for hybrid mismatches involving non-EU jurisdictions. The dossier is led by the MEP Olle Ludvigsson (S&D/SWE). Mr. Ludvigsson calls on the Commission to cover additional types of mismatches, provides changes to as well as new definitions, and removes a number of exemptions included in the initial Commission proposal. As taxation is an area of competence reserved for Member States, the European Parliament will not have a say on the contents of the proposal. The European Parliament’s opinion is needed before the proposal can become EU law, but the Council or the Commission have no obligation to include the Parliament’s recommendations into the final text.
The PANA Committee held the second hearing with intermediaries suspected of promoting and setting up offshore structures and accounts as revealed by the Panama Papers scandal. The hearing brought together representatives from the International Consortium of Investigative Journalists (ICIJ), from Berenberg and Nordea banks, as well as whistleblowers. Many of the same themes from the first hearing re-appeared (for more details on the first hearing, please refer to Accountancy Europe’s Tax Policy Update from 3 February), including failures by banks to properly implement relevant legislation and standards on money-laundering, the effectiveness of self-regulation and professional codes of conduct, and possible solutions for preventing the establishment of secretive offshore structures, accounts and money transfers. Of additional interest, the role of auditors was also mentioned, as a few MEPs inquired whether the auditors of banks should have detected the dubious practices that the banks were involved in.
Later during the same week and as reported by Bloomberg, several members of the European Parliament’s PANA Committee travelled to London for a fact-finding mission, as a part of which they met in “secret” with British accountancy (ICAEW) and lawyers’ organisations, academics, civil society organisations as well as representatives from HSBC. The meetings focused on possible solutions to fix gaps in tax legislation and the international tax system, on better enforcement of existing rules, as well as on the role of the various intermediaries.
The European Parliament draft report on public Country by Country Reporting (CBCR) has been published. The leading MEPs (rapporteurs) on the dossier are Evelyn Regner (S&D/AUT) and Hugues Bayet (S&D/BEL). There are no surprises in relation to what was already reported in the latest Accountancy Europe’s Tax Policy Update. ECON and JURI (legal affairs) Committees will work on the file together. The lead rapporteurs are calling for the scope to be extended to multinationals with a consolidated turnover of €40 million, information to be disclosed on a country by country basis for the whole world, additional disclosure requirements, and a standard format for the reports.
In more detail, the report proposes the following key changes to the Commission’s proposal:
Readers will recall that the Commission proposed public CBCR as an amendment to the Accounting Directive, rather than as part of a tax proposal. This means that the European Parliament will have an equal say to that of the Member States on the dossier. Although the European Parliament is taking its work on the file forward, the Council Legal Service opinion argued earlier that the proper legal basis would be tax (i.e. unanimity of all Member States needed, no involvement of the European Parliament). The Commission and the Parliament have argued against the Council Legal Service, whilst up to 12 Member States agree that tax should be the basis for the file. A unanimous decision of all Member States would be required for the legal basis to be changed.
In terms of next steps, the deadline for amendments is 15 March, a vote in the ECON/JURI joint-Committee scheduled for 30 May, and Plenary vote is expected for July. In parallel, Member States will discuss their approach to public CBCR on 29 March.
EU Member States are considering proposals to grant VAT Directive derogations for Luxembourg and Estonia. In the text on Luxembourg, it is proposed that the country may grant a VAT exemption to taxable persons with an annual turnover of maximum €30,000 for the period of January 2017 to December 2019. In the case of Estonia, the VAT exemption is proposed to be allowed for taxable persons with an annual turnover not exceeding €40,000, the period covering January 2018 to December 2020.
The Maltese Presidency has published its BEPS Roadmap outlining the key direct tax dossiers that the Presidency intends to take forward during its term. The Presidency will aim for quick wins on hybrids towards third countries, the dispute resolution proposal and taking work forward on the EU list of non-cooperative jurisdictions. The Presidency is less ambitious when it comes to the CCTB – a testament to the political difficulties lying ahead for the dossier. The Presidency will, however, push Member States for initial discussions on mandatory disclosure rules applicable to tax advisors and other enablers of tax evasion and avoidance.
On 21 February, the EU Ministers of Finance will gather together for the ECOFIN meeting. On the menu, notably the finalization of the revision of the Anti-Tax Avoidance Directive (ATAD II) in order to provide for the inclusion of hybrid mismatches with third countries, as well as an update on the work to establish a common EU list of non-cooperative jurisdictions.
With regard to ATAD II, EU Member States’ diplomats achieved progress on a number of issues during their meeting on 15 February. France and the UK have reached a preliminary agreement on a possible exemption granted to the banking sector, possible until December 2022 although the exact date is still to be discussed. The Commission, moreover, is called on to assess the impact of the exemption. With regard to implementation dates, these are now set as 2020 for the proposal as a whole (2019 originally) and 2022 for reverse hybrids specifically. As a reminder, the Netherlands initially called for extending the date of implementation all the way until 2024 – a proposal criticized by a number of other Member States. It is, at this stage, impossible to predict whether the Finance Ministers will reach an agreement on the basis of the compromise text currently on the table. This will be seen on 21 February ECOFIN.
Regarding the list of non-cooperative jurisdictions, the Finance Ministers will receive an update on progress so far and aim to reach an agreement on certain points of contention. It appears that further progress has been achieved on whether or not to have zero or close to zero tax rate as one of the criteria for defining a non-cooperative jurisdiction. Member States are expected to agree that this should not constitute a criterion in itself but rather to be considered together with other criteria, such as a jurisdiction’s support for offshore structures.
According to Tax News, a new Chair has been appointed to the Council’s Code of Conduct Group on Business Taxation. The person in question is Fabrizia Lapecorella, the Director-General for Finance from the Ministry of Finance of Italy.
The First Chamber of the Court of Justice of the EU (CJEU) has issued a ruling on the tax treatment of EU nationals living in another Member States. The case code is C‑283/15. In its ruling, the Court notably establishes that a Member State in which tax legislation permits the deduction of “negative income” relating to a dwelling may not refuse the benefit of that deduction to a self-employed non-resident where that person receives, within that Member State, 60% of his total income and does not receive, within the Member State where his dwelling is located, income that enables him to qualify for an equivalent right to deduct.
The Ninth Chamber of the Court of Justice of the EU (CJEU) has issued a ruling on the preconditions for the exemption of an intra-Community supply. The case code is C‑21/16. In its ruling, the Court establishes that it is not allowed for the tax authority of a Member State to refuse the exemption of an intra-Community supply from VAT only on the grounds that at the time of the supply, the purchaser domiciled in the territory of the Member State of destination and who was in possession of a valid VAT ID number in that Member State is neither registered in the VAT Information Exchange System nor comes under a system of taxation on intra-Community acquisitions of goods, where there is no sound evidence pointing to the existence of fraud and it is established that the basic conditions of the exemption are fulfilled. The VAT Directive also precludes such a refusal where the vendor was aware of the circumstances of the situation of the purchaser with regard to the application of VAT and was convinced that subsequently the purchaser would be registered as an intra-Community operator with retroactive effect.
The Fourth Chamber of the Court of Justice of the EU (CJEU) has issued a ruling on VAT exemptions granted for certain cultural products. The case code is C‑592/15. In its ruling, the Court clarifies the applicability of the Sixth Council Directive 77/388/EEC and, in particular, the section concerning exemptions granted to “certain cultural products”. The Court argues that in the absence of transposition of that provision, it may not be relied on directly by a body governed by public law or other cultural body recognised by the Member State concerned supplying cultural services.
According to Taxamo, Serbia is the latest country that has introduced a VAT on foreign-supplied digital services. The national VAT legislation is scheduled to change in April this year, and will introduce a requirement for foreign suppliers of goods and services – including digital services – to register for Serbian VAT and appoint a VAT representative there. The amendment will align Serbia’s VAT legislation with the EU’s.
According to the Financial Times (article only available to subscribers), Luxembourg is expecting to see a rise in the number of companies de-localising their headquarters out of the country. The Finance Minister of Luxembourg, Pierre Gramegna, argues that this is due to the country complying with the international requirements – stemming from the OECD, G20 as well as the EU – to render the international tax system more resilient against tax evasion and avoidance. However, the Minister remains optimistic in tone and emphasized that those companies which do stay are bound to generate significant and substantive added value for Luxembourg.
According to Financial Times (article only available to subscribers), several former senior officials from past Republican US administrations have expressed their support for a carbon tax. The revenues would be spent by paying hundreds of dollars to all US citizens annually. This would incentivise both businesses and consumers to keep carbon emissions to a minimum.
According to Tax News, the Competition Commission of Sweden has announced its opposition to the planned Financial Transaction Tax (FTT). The Commission argues that the tax would harm the competitiveness of the Swedish financial system. It fears, in particular, that a prospective FTT would lead to distortions of competition between large and small financial services companies and lead to higher prices for consumers. The Commission, however, stated that such a tax could be considered if introduced at EU level.
Swiss voters have rejected in a referendum a proposal to reform the country’s corporate tax system in order to bring it in line with EU and OECD standards. The reforms would have abolished the current practice whereby certain foreign companies would be subject to a lower tax rate than domestic ones – by lowering cantonal taxes on domestic businesses rather than increasing rates for foreign multinationals. The European Commission has already expressed its disappointment at the results, and considering follow-up action. Some speculation has already even emerged as to what would be Switzerland’s status in the process of identifying non-cooperative jurisdictions for a common EU list.
According to the Guardian, the Government of Australia has opened a public consultation on a planned public register that would reveal the beneficial owners of shell companies. The consultation focuses, in particular, on how to set up and maintain such a register. “UAE Confirms Details For VAT From January 2018” – 13 February
According to Tax News, UAE has published additional details on its plan to introduce a 5% VAT rate starting January 2018. As part of the VAT rules, most registered companies will have to report every three months on their business activities and transactions. UAE’s move comes in line with the commitments made by the Gulf Cooperation Council (GCC) member countries, which included the establishment of harmonized excise duties from January 2017, on top of a common GCC VAT framework.
The Managing Director of the International Monetary Fund (IMF) Christine Lagarde has called for wide-ranging changes in the countries’ tax systems, according to Public Finance International. She maintains that what and who is taxed should go hand in hand with how countries collect taxes. Ms. Lagarde called, in particular, for simplifying tax codes and legislation in areas such as tax rates, laws specifying the powers of tax authorities, taxpayers’ rights and upgrading people’s skills and technical resources. Moreover, the potential of digitalization should be harnessed, and countries should “leapfrog” into the digital era. The collection and dissemination of good quality data as well as greater “fiscal transparency” are also priorities, according to Ms. Lagarde.
Financial Times continues its regular coverage of the prospective US tax reforms under the new Trump administration (article only available to subscribers). This time, FT is focusing on the negative impact that the proposal for a 20% import tax may have on certain US importers. The plans are causing friction within the US business community – with some businesses bound to be hurt more than others – as well as within the Republican Party. The Republican camp has been sending mixed messages on the timeline as well, with Paul Ryan stating that new corporate tax legislation would be prepared by August, whilst President Donald Trump has been referring to the end of the years as a deadline.
Tax experts, for their part, believe that the upcoming US tax reforms will have a steep impact on the international economic and fiscal system. The changes would remove many incentives for US businesses to shift profits and relocate their headquarters abroad. Consequently, the expectation is that EU Member States such as Ireland, the Netherlands and Luxembourg will suffer in particular, as their national business models have relied on attracting US businesses. In parallel, the European Commission has already stated that it is prepared to retaliate against a possible US tax on imports due to it constituting a potential breach of the World Trade Organisation’s (WTO) rules.
The Irish Minister of Finance, Michael Noonan, has updated the Irish Parliament on the state of play of the Apple state aid case, as reported by Tax News. During the Parliamentary hearing, the Minister argued that the European Commission has painted a misleading picture of the country’s tax system. The Minister also defended his government’s decision to appeal against the Commission’s decision, maintained that most of Apple’s profits are not subject to Irish tax, and blamed the Commission for generating uncertainties for businesses through its state aid tax decisions.
According to the International Tax Plaza, the members of the Accounting Standards Advisory Forum (ASAF) are not overly enthusiastic about the possible inclusion of Country by Country Reporting (CBCR) in financial statements. This emerged during the most recent meeting of the group, whose members felt that CBCR is not necessary to meet the objective of general purpose financial statements. The attendees did, however, acknowledge the possibility of doing more, “in due course”, to improve the quality of disclosures on income taxes, possibly through the Disclosure Initiative or through education. ASAF is an advisory body of the International Financial Reporting Standards Foundation (IFRSF).
According to a New York Times article, Watson will be assisting up to 70,000 tax professionals in the US for the tax filing of 11 million citizens this year. Watson is an artificial intelligence (AI) developed by IBM already experimented in areas such as cancer diagnosis. Now its programmers have provided it with thousands of pages of US tax law as well as tax-related questions derived from decades of tax return preparations. It has now been tested in 100 offices, and notably tasked with assisting tax professionals to increase refunds and decrease the tax liabilities of clients. Watson’s contribution had a visible impact – in average, 75% of Americans who file taxes get some of the money back. In the cases handled by Watson, the percentage was 85%.
The UK House of Commons has published a briefing paper on the potential implications of Brexit for the applicability of EU tax rules in the UK. The paper outlines that although in the area of direct taxation the impact of Brexit will be more limited, VAT will be an issue due to its more harmonized nature. The paper also attempts to speculate what might be the UK government’s approach to tax during the Brexit negotiations.
As reported notably by the Guardian and the Independent, the UK-based Institute for Fiscal Studies (IFS) has warned that the overall tax burden in the UK risks to rise to a 30-year high as the result of additional spending cuts and tax increases introduced by the government to tackle the public deficit. IFS assesses that an additional £34 billion in tax income will be needed in order for the government to reach its deficit targets.
Paul Monaghan, the Director of the civil society organization Fair Tax Mark, has argued in the Guardian that companies involved in ‘tax dodging’ should lose access to local council contracts and tenders. Mr. Monaghan applauds the UK Government’s guidance to local councils, which calls on councils to inquire from companies interested in public contracts or tenders on their history of tax avoidance and evasion. However, he is worried that the implementation of the guidance at council-level will be incomplete and ineffective, and calls for a close monitoring of the implementation and functioning of the guidance across the country.
The Brussels-based think-tank, Bruegel, is criticising the prospective US proposal for a so-called ‘border adjustment tax’ which would increase the tax burden on imports, referring to it as potentially “dangerous” and in breach of the World Trade Organisation’s (WTO) rules. The article also argues against a number of arguments advanced in favour of the tax, such as the claim that the US dollar would appreciate to offset the effects of the tax on US trade flows, thereby having a smaller than expected impact on international trade.
The Guardian has reported on a new report by the Australia Institute – a think-tank based in Australia – which argues that there is weak evidence that cutting the tax burden on businesses would lead to growth and increased employment. The report argues, in particular, that under market conditions where a few big companies dominate, these companies have weaker incentives to transform any tax cuts into new investments and innovation.
Principles for Responsible Investment (PRI), an investors’ association dedicated to providing guidance on good investment practices, has published a new set of recommendations aimed to improve investors’ engagement on tax matters. PRI highlights that “aggressive tax planning” by multinationals is now under the loop of policy-makers and civil society, and therefore calls on companies to provide investors with information that will enable them to appropriately assess tax risks in their portfolios. The recommendations of the PRI report include:
According to Tax News, the Australian Institute of Public Accountants (IPA) has called for reducing the tax burden on income (corporate and labour). IPA is concerned that the current tax regime is potentially harmful for economic growth and burdensome, and have put forward a number of recommendations to improve the status quo.
Accountancy Europe has published its formal response to the Commission consultation on tax intermediaries. The response consists of a filled-in consultation document, as well as a cover letter further elaborating Accountancy Europe’s thinking on the issues covered. The main arguments put forward by Accountancy Europe are the following:
The civil society organization Fair Tax has published a so-called “Fair Tax Map”. The map is marked with all businesses in any given area that comply with the principles of ‘fair taxation’ as prepared by the organization. The criteria include following the spirit and not the letter of the law, voluntary public Country by Country Reporting (CBCR) as well as committing to “responsible tax practices”. Further details on the programme and the criteria used is available on the Fair Tax website, the hyperlink to which can be found above.
The European Commission has replied to a question asked by the MEP Christel Schaldemose (S&D/DEN) with regard to e-commerce and VAT. In her question, Ms. Schaldemose refers to last year’s Commission proposal to reform VAT for e-commerce, and asks the Commission detailed questions on the implications of some of the proposal’s provisions:
In his reply, Vice-President Ansip answers the following:
The European Commission has replied to a question asked by the MEP Marina Albiol Guzmán (GUE-NGL/SPA) with regard to the right to report tax evasion and avoidance by footballers. In her question, Ms. Guzmán states that a Spanish judge has banned 12 European media companies from reporting the so-called ‘football leaks’, which revealed tax evasion and avoidance practices of several professional footballers. She asks the Commission whether the judge’s decision is a breach of EU law and what it will do to remedy the situation, and whether the Commission will take “tangible steps” to protect whistleblowers. In her reply, Commissioner Jourová maintains that it is up to Member States to determine how they reconcile the right to data protection with the freedom of expression and information. Moreover, she confirms that the Commission is currently assessing the scope for horizontal or further sectoral EU-level action to protect whistleblowers.