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.
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:
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.
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.
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.
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.
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.
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 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.