According to the Guardian, leaked German diplomatic cables reveal the extent to which Luxembourg has been blocking tax cooperation at the EU-level in past years. More specifically, progress in the Council’s Code of Conduct Group on business taxation has been consistently “delayed, diluted or derailed” through the actions of smaller Member States – including Luxembourg – keen to protect their national ‘business models’ based on advantageous tax regimes tailored for multinationals. Of particular concern to the European Commission, the current Commission President Jean-Claude Juncker was Luxembourg’s Prime Minister from 1995 to 2013. The leaked diplomatic cables have already caused outrage amongst several stakeholders and MEPs, many of whom not only question the Juncker Commission’s credibility in tackling ‘aggressive tax planning’ at the EU-level, but are even calling for the President’s resignation and a reform of the Code of Conduct Group – including the removal of unanimity in the Group’s decision-making.
The new rules on the automatic exchange of information on tax rulings between tax authorities have entered into force – a development welcomed by the Commission. The exchange of information will take place through a central depository accessible to all EU Member States. Member States’ tax authorities will submit every six months to the depository a list of all cross-border tax rulings they have issued during the period. Other Member States will then be able to request additional details on a particular ruling that might have an impact on them. The Commission expects the first exchange to take place at latest by 1 September 2017. Starting 1 January 2018, Member States will have to provide the same information for all cross-border rulings issued since early-2012.
The Houses of the parliament of Ireland and the Senate of the Netherlands have published opinions (Irish and Dutch) on the Commission proposals to re-launch the Common Consolidated Corporate Tax Base (CCCTB) in two stages. The opinions of the institutions argue that the Commission proposals go against the principles of proportionality and subsidiarity, and provide arguments to support these claims. Earlier last month the Irish parliament launched the so-called ‘yellow card’ procedure against the proposals (for further details, please refer to Accountancy Europe’s Tax Policy Update from 23 December). The Dutch Senate has followed the example and also initiated the yellow card procedure, whereby the Commission will have to re-consider a proposal if one-third out of all Member States’ national parliaments object. In total, parliaments from six Member States (Denmark, Ireland, Luxembourg, Malta, Sweden and the Netherlands) have issued reasoned opinions that are critical of the Commission proposal, but this will not be enough to force the Commission to re-consider its approach. Therefore, work on the two CCCTB proposals is likely to carry on as planned for the time being.
According to Tax News, the UK HMRC is planning to collect an additional £5 billion per year by 2019-2020 through further action to address tax avoidance and evasion. HMRC has committed, in particular, to making sure that multinationals pay their “fair share” of taxes, and will for example assess the case for public Country by Country Reporting (CBCR). According to the HMRC, the British Government will invest an additional £800 million in it in order to support enforcement work.
According to EU Observer, the Ministry of Finance of Luxembourg has announced that the country will change its company taxation rules and practices in order to make it more difficult for multinationals to engage on tax avoidance practices based on cross-border structures. According to the Ministry, the new law has been drafted following contacts with the European Commission.
According to the Financial Times (article only available to subscribers), a dispute has erupted between German regions on a planned move against a tax avoidance strategy employed by banks whereby foreign investors are able to avoid withholding taxes on dividends – the so-called cum/cum trades. A number of regions led by the Social-Democratic Party are calling for a tougher stance against the banks, whilst other regions notably led by the Conservatives fear the impact that addressing cum/cum trades could have on banks and the economy.
As reported notably by Financial Times (article only available to subscribers) and the Guardian, new rules against tax evasion have entered into force in the UK that will impose stronger penalties against tax advisors involved in assisting tax payers evade taxes. As part of the new rules, tax advisors will be penalised for the amount of tax evaded or a sum of up to £3000 – whichever is higher. The HMRC will, additionally, name and shame the “enablers”. Moreover, the government is also preparing to introduce later this year a new criminal offence for companies that fail to prevent tax evasion. As such, the company could be held liable for the conduct of an employee who facilitates tax evasion.
According to Tax News, Germany has adopted new anti-tax avoidance legislation with the purpose of tackling, specifically, letterbox companies in “tax havens”. The draft legislation includes, amongst other things, heavier reporting and disclosure requirements for taxpayers with foreign (non-EU or -EFTA) financial interests as well as financial institutions that manage offshore structures on behalf of their clients.
According to the Czech daily newspaper Hospodářské noviny, Czech Republic is sceptical about the European Commission’s proposal for a Common Consolidated Corporate Tax Base (CCCTB). The Czech government is concerned that CCCTB would pose a threat to national sovereignty whilst paving the way for tax harmonisation. Unanimity approval by all EU Member States is required in order for the proposal to be adopted.
According to Politico, the federal environment agency of Germany wants to increase the tax rate of certain animal products from the current 7% to 19% for environmental reasons. The purpose of the tax would be to counter the impact of the agricultural industry on climate change. It is estimated that the tax hike would generate an additional annual revenue of €5.2 billion.
According to the Financial Times (article only available to subscribers), the Apple CEO Tim Cook has been accused of “disrespect” towards Ireland after he declined an invitation to attend a hearing at the Irish parliament on the company’s tax arrangements and the €13 billion state aid ruling by the European Commission. Apple maintains in a letter to Irish MPs that given the sensitivity of the case and the risk of a hearing affecting the final outcome of the case (both Ireland and Apple have appealed against the Commission decision), it is not possible for it to accept the invitation.
The European Commission has published the non-confidential version of its decision to open an investigation into GDF Suez’s (now Engie) tax treatment by Luxembourg (for further details on the opening of the investigation, please see Accountancy Europe’s Tax Policy Update from 19 September). The document provides additional details on the Commission’s reasoning and arguments that led to its suspicions and the opening of the investigation in the first place. The company may have to repay Luxembourg up to €300 million in uncollected taxes. The investigation concerns, in particular, Luxembourg’s potential inconsistent treatment of a financial transaction within the GDF Suez group. This may have reduced the group’s taxable base by up to €1 billion. The timing of the publication of the document is politically difficult for the Commission President Jean-Claude Juncker, who is currently under heavy criticism for the role that Luxembourg played in blocking decision-making on taxation in the Code of Conduct Group whilst he was the country’s Prime Minister (see article above).
World Bank has published transfer pricing guidelines tailored for developing economies, in the form of a document titled Transfer Pricing and Developing Economies: A Handbook for Policy Makers and Practitioners. The purpose of the handbook is to provide guidance on how to better understand a country’s potential exposure to “transfer mispricing”, or inappropriate transfer pricing, and main areas to focus on when designing and implementing transfer pricing regimes. The legislative dimension is considered as well, notably the formulation of transfer pricing policies, and the handbook puts forward practical examples from different countries on the application of the arm’s length principle and on most effective transfer pricing audit programmes.
An article in the Financial Times (only available to subscribers) looks into differences of tax treatment between conventional businesses (such as taxis and hotels) and businesses from the so-called collaborative economy (Airbnb, Uber). It maintains that the business models in the collaborative economy are fundamentally different from conventional ones and as such might warrant some differences in their regulatory treatment. However, the article argues that there should be a greater level-playing field when it comes to VAT – currently more favourable to the collaborative economy.
The European Commission has replied to a question asked by the MEP Eva Paunova (EPP/BUL) with regard to the corporate tax base. In her question, Ms. Paunova asks the Commission – with reference to the proposals to re-launch the Common Consolidated Corporate Tax Base (CCCTB) – how it will reduce the risk of income being transferred to subsidiaries outside the EU, how it will minimise additional administrative and financial burdens on Member States, and how it will avoid Member States further adjusting their tax rates as a result of the system. In his reply, Commissioner Moscovici emphasises that with a CCCTB, companies will only have to deal with a single set of rules in the EU, and will decrease transfer pricing as well as double taxation disputes, thereby alleviating the financial and administrative burdens of Member States. Moreover, the regime will still allow Member States to set their own corporate tax rates whilst reducing “unfair tax competition”.
The European Commission has replied to a question asked by the MEP Marian Harkin (ALDE/IRL) with regard to the Common Consolidated Corporate Tax Base (CCCTB). In her question, Ms. Harkin asks the Commission whether the apportionment model will increase of decrease the amount of corporate taxes paid in different Member States, and whether the Commission will conduct an impact assessment on this. In his reply, Commissioner Moscovici states that whether the corporate tax income in any given Member States increases or decreases will depend on several elements, such as the closure of loopholes, new depreciation rules, as well as the formula apportionment. The impact on Member States will depend on the initial situation in each. Finally, the Commissioner points out that an impact assessment has been conducted and published together with the proposals.