Three Institutions sign Joint Declaration on the EU’s legislative priorities for 2017 – 13 December
The European Commission, European Parliament and the Council of the EU have signed a Joint Declaration establishing EU’s legislative priorities for 2017. Of interest, the Declaration emphasises the need for further progress on tackling tax fraud, tax evasion and tax avoidance, as well as ensuring a sound and fair tax system. This means that for all intents and purposes, the ongoing political momentum in the area of tax policy will continue next year. To what degree this becomes a reality, however, remains to be seen as some signs of ‘political fatigue’ have already emerged, with several Member States questioning the legal basis for public Country by Country Reporting (CBCR), and Ireland strongly contesting the proposals for a Common Consolidated Corporate Tax Base (CCCTB) – see article below.
Latest VAT Committee Guidelines published – 16 December
The European Commission has published its latest VAT Guidelines. The latest additions derive from the 107th meeting of the VAT Committee, whose actions and recommendations are legally non-binding. The meeting took place on 8 July 2016, and the resulting new Guidelines relate to the VAT treatment of greenhouse gas emission allowances, issues stemming from recent Court of Justice of the EU’s (CJEU) recent jurisprudence, as well as special arrangements for taxable dealers and their supply of works of art.
Commission launches three public consultations on VAT – 20 December
The European Commission has published three VAT-related consultations to prepare its work for the upcoming year. Each of the three consultations relates to a specific set of reforms already announced in the European Commission’s VAT Action Plan earlier this year. The three consultations relate to:
The publication of the consultations as such is no surprise. The Commission is committed to systematically gather stakeholder feedback ahead of policy change proposals, with the dual-purpose of informing its own policy-making process, as well as legitimising its action. The deadline for providing comments to all three consultations is 20 March 2017.
1.) Consultation on the reform of EU VAT rates policy:
With the intended move to a definitive EU VAT regime based on the destination principle, the Commission has assessed it appropriate to grant EU Member States greater freedom in their VAT rates policies. With this regard, the consultation asks the stakeholders views notably on the following:
2.) Consultation on the definitive VAT system for B2B intra-EU transactions on goods:
In its VAT Action Plan, the Commission announced that it would move towards the definitive regime through a step-by-step approach. Introducing the definitive VAT system for B2B intra-EU transactions on goods would be the first step. With this regard, the consultation asks the stakeholders views notably on the following:
3.) Consultation on the special scheme for small enterprises:
In its VAT Action Plan, the Commission committed itself to a comprehensive simplification package for SMEs, which will in particular entail reviewing the special scheme for SMEs. Issues with the current scheme include:
With this regard, the consultation asks the stakeholders views notably on the following:
Commission proposes VAT derogation for the application of a generalised reverse charge mechanism – 21 December
As a follow-up to its commitment to put forward such a proposal by the end of this year, the Commission has proposed to amend the VAT Directive to allow for the possibility for Member States to apply temporarily a generalised reverse charge mechanism in relation to supplies of goods and services above a certain threshold. The proposal was in particular called for by Czech Republic and Austria, both of which have asked for the possibility to use the mechanism to tackle VAT fraud nationally. Czech Republic has been particularly demanding, as it threatened to block an agreement on the Anti-Tax Avoidance Directive (ATAD) had the Commission not made the promise to issue the proposal this year. The Commission and some other Member States, however, have been reluctant to allow for such a derogation to the EU VAT rules, as it would constitute a further fragmentation of the EU VAT area, could increase compliance costs and burdens for taxpayers, and therefore to closely monitor the impact of the reverse charge mechanism on the Single Market. Several business associations have also criticised the measure for the same reasons.
In terms of substance, the conditions proposed by the Commission are particularly strong – something that will undoubtedly not please the Czech government. Firstly, only Member States with a VAT gap that is 5% above the EU median VAT gap may apply the mechanism. Second, carousel fraud would have to represent a minimum of 25% of the whole VAT gap. And third, the Member State will have to demonstrate that conventional means are not able to tackle VAT fraud nationally. Finally, countries can only apply for the reverse charge mechanism until 30 September 2022. The Commission has also reserved for itself the right to revoke the use of the mechanism in a Member State should its application have dire effects on the Single Market.
Commission elaborates on options for three VAT measures – 22 December
The European Commission has published three Roadmaps that elaborate on the policy options that it is considering for three major VAT reforms that it is planning for next year – the same reforms on which it also launched three public consultations (see article above):
The Roadmap on VAT rates elaborates on the Commission’s rationale and objectives behind the measure, highlighting the need to grant greater flexibility for Member States in light of the move to the definitive regime. The Roadmap describes the two already well-known options on the table: (1) maintaining the minimum rate of 15% combined with an extension and regular review of the list of goods and services eligible for reduced rates, and (2) granting greater freedom for Member States in setting rates and abolition of the list of goods and services eligible for reduced rates. The Commission’s own preference appears to be more on the latter, to which it refers to as the “most ambitious” approach. The Commission does not, moreover, exclude the later appearance of intermediate or technical “sub-options” during the course of its analysis.
The Roadmap on the definitive VAT system, for its part, provides background and objectives on the intended move towards the destination principle. The Commission states that it aims to achieve a dual-purpose of reducing administrative burdens and costs for companies whilst better fighting VAT fraud. The Commission will consider a total of five options: (1) improving the current rules without modifying them fundamentally, (2) adapting current rules whilst still following the flow of the goods with the supplier charging the VAT of the Member State of destination, (3) adapting current rules whilst still following the flow of goods with the reverse charge mechanism, (4) aligning with the rules governing the place of supply of services with the reverse charge mechanism, and (5) aligning with the contractual flow with the supplier charging the VAT of the Member State of destination.
And finally, the Roadmap on the special scheme for small enterprises provides further details on planned action. The likely instrument will be a “legislative package” accompanied by soft law instruments such as guidelines. The Commission will consider a total of four options: (1) status quo plus the legislative changes stemming from the proposal on Modernising VAT obligations for cross-border e-commerce (that were already launched on 1 December – please see Accountancy Europe’s Tax Policy Update from 9 December), (2) SME exemption scheme extended to supplies from other Member States and including streamlined simplification and burden reduction measures, (3) option 2 plus mandatory treatment of occasional traders as non-taxable persons, and (4) option 3 plus measures reducing the negative impact of the ‘threshold effect’, i.e. addressing the issue of transition for enterprises when upon increase in their turnover are going from exemption to taxation.
ECOFIN Report to the European Council on tax issues – 12 December
ECOFIN has submitted a report on tax issues to the European Council, i.e. EU Heads of Government. The report provides an overview of the tax work and progress achieved in ECOFIN during the past half a year of Slovak Presidency of the Council of the EU. These include areas such as VAT, hybrid mismatches towards third countries, the re-launched proposals to establish a Common Consolidated Corporate Tax Base (CCCTB), as well as the Financial Transaction Tax (FTT).
Priorities of the Maltese Presidency: CCCTB on the menu – 14 December
The upcoming Maltese Presidency has published an overview of its policy priorities for the next six months to come. In the area of tax, the Presidency will give priority to advancing negotiations on the proposed re-launch of the Common Consolidated Corporate Tax Base (CCCTB). In same breath, however, the Presidency admits that this will be a difficult task given the strong reservations expressed by “some Member States” against the proposal.
Ruling on turnover tax provisions – 14 December
The Third Chamber of the Court of Justice of the EU (CJEU) has issued a ruling on turnover taxes. The case code is C‑378/15. In its ruling, the Court establishes that a taxable person can be required to apply to all goods and services which he has acquired a deductible proportion based on turnover, under certain conditions. Moreover, the taxable person can be required under certain conditions to refer to the composition of his turnover in order to identify transactions which may be classified as ‘incidental’.
The Court confirms that Ireland must recover the sum of €8 per passenger from airlines benefiting from unlawful State aid – 21 December
In July 2009 Ryanair requested the Commission to examine whether the ‘air travel tax’ imposed by Ireland on airlines constitutes illegal state aid in favour of some of its competitors. According to Ryanair, those competitors had inter alia derived a financial advantage from the fact that they operated a significant number of flights to destinations located less than 300 km from Dublin airport for which the tax amounted to €2 per passenger, whereas other flights departing from Ireland were subject to a rate of €10.The European Commission ruled that the application of a lower rate for short-haul flights indeed constituted state aid incompatible with the Internal Market. It therefore ordered the recovery of the aid from the beneficiaries, stipulating that the amount of the aid corresponded to the difference between the lower rate of €2 and the standard rate of €10, i.e. €8. The Court of Justice of the EU (CJEU) has now confirmed the validity of the Commission’s decision.
Commission welcomes Court judgment in Spanish Goodwill cases – 21 December
The European Commission has welcomed the decision of the Court of Justice of the EU (CJEU) to fully uphold two Commission decisions – from October 2009 and January 2011 – regarding the tax amortisation of financial goodwill for foreign shareholding acquisitions in Spain. In its earlier decisions, the Commission concluded that by allowing companies to deduct the financial goodwill arising from shareholdings in foreign companies from their corporate tax base, the Spanish measure gave those companies a selective advantage over their competitors in breach of EU state aid rules. The CJEU decision has now confirmed the Commission’s view.
“UK Publishes Draft Guidance On Hybrid Mismatch Regime” – 13 December
According to Tax News, the UK has published draft guidance on the application of its new legislation concerning hybrid mismatches. The legislation covers a wide range of situations, including deduction or non-inclusion mismatches and double deduction mismatches related to financial instruments, hybrid transfers end entities, companies with permanent establishments, and dual resident companies. The published guidance maintains that the rules should work in situations involving countries that have introduced BEPS Action 2 (hybrid mismatches), even in cases in which only one of the involved countries has done so.
“Hungarian Parliament adopts tax package – 9% flat rate for corporate income tax” – 13 December
According to the International Tax Plaza, the Hungarian parliament has approved the government’s proposed tax package which includes, amongst other elements, the introduction of a flat corporate tax rate of 9%. The current corporate tax regime in the country is progressive, and the rates range from 10% to a maximum of 19%.
“Republicans face corporate tax rebellion” – 14 December
According to Financial Times (article only available to subscribers), a number of businesses notably in the clothing and retail sectors have expressed their disapproval of the President-elect Donald Trump’s potential plans to impose a penalising tax on importers, whilst providing alleviated tax burdens for exporters of US products. Companies have contacted top lobbyists in Washington to urge them to fight against any potential plan to introduce such a tax regime.
Irish parliament launches ‘yellow card’ procedure against the CCCTB – 19 December
The Irish parliament has initiated the so-called ‘yellow card’ procedure against the Commission’s recent proposals on a Common Consolidated Corporate Tax Base (CCCTB). A total of one third out of all votes allocated to national EU parliaments (one vote per chamber granted for bicameral parliaments, two votes for unicameral ones) is needed in order for the Commission to review its proposal. The procedure is usually employed when national parliaments feel that a proposal is not in line with the principle of subsidiarity – a view maintained by the Irish one with regard to the CCCTB. Time will show whether other national parliaments will join the opposition.
OECD holds regional meeting of the Inclusive Framework on BEPS for the Eastern Europe and Central Asia region – 16 December
The OECD has organised the first regional meeting of the Inclusive Framework on BEPS for the Eastern European and Central Asian regions. The purpose of the meeting was to provide the attending countries the opportunity to provide their views and input on the BEPS project. Senior representatives were present from the Finance Ministries and Tax Administrations from Bulgaria, Croatia, Georgia, Hungary, Kazakhstan, Latvia, Lithuania, Montenegro, Poland, Romania, Slovakia, Slovenia, Turkey and Ukraine. Moreover, global companies such as EY, KPMG and PwC were also present.
OECD releases additional guidance on Action 4 of the BEPS Action Plan to curb international tax avoidance – 22 December
The OECD has issued an updated version of the BEPS Action 4 report (interest deductibility limitations) with further guidance on the design and operation of the group ratio rule, and approaches to deal with risks stemming from banking and insurance sectors. With regard to the former, the updated report provides a further layer of technical detail to assist countries in implementing the group ratio rule in line with the common approach. The emphasis is on a consistent approach in providing protection for countries and reducing compliance costs for groups, while including some flexibility for countries to accommodate particularities of their national tax systems. On the latter, for its part, the updated report considers how rules to address such risks may be designed, and includes a summary of selected rules currently applied by countries. In all cases, countries should ensure that the interaction of tax and regulatory rules and the possible impact on groups is fully understood.
Commission publishes non-confidential version of its Apple ruling, Ireland and Apple fight back – 19 December
The European Commission has published the so-called non-confidential version of its Apple Ireland ruling. The document provides additional details on the Commission’s argumentation on the case, based on tax benefits granted by Ireland to Apple since 1991 that in the Commission’s assessment do not reflect economic reality. Apple could divert sales profits generated across Europe to two head-offices existing on paper in Ireland, without them being subject to tax anywhere with the exception of a tiny effective corporate tax rate. In the meanwhile, both Apple and Ireland have re-iterated their criticism of the Commission decision. Apple launched an appeal against the ruling, arguing that the Commission has singled it out for media visibility and stating that its effective tax rate was much larger than what the Commission maintains. The Irish government has also launched an appeal, and argues that the Commission has entered into the territory of national sovereignty and attempts to re-write Ireland’s company taxation regime. The government asserts, for example, that the Commission has misapplied the arm’s length principle, misinterpreted Irish law, has not followed appropriate procedures, and as such has failed to provide good reasons for its decision.
Tackling Taxes – Business Perspectives from across Europe – November
The British ICAEW has published together with the European Contact Group (ECG) a survey of over 170 tax professionals assisting businesses on compliance. According to the survey results, up to 2/3 of tax professionals maintain that companies struggle with VAT compliance, a majority feels that the complexity of the tax systems is the major cause for compliance burdens, and the respondents confirm a growing trend of digitalising tax administrations.
Corrigendum: in the Tax Policy Update of 23 December, it was reported that ICAEW had published a survey of tax compliance professionals in cooperation with the European Contact Group (ECG). However, the cooperating organisation in question was the European Group of International Accountancy Networks and Associations (EGIAN), and not ECG.
Oxfam report: several EU Member States are top global tax havens – 12 December
The civil society organisation Oxfam has published a report on the global impacts of tax competition and “tax havens”. The report points to a global trend of tax avoidance by large multinationals, and focuses specifically on jurisdictions that, through employing a variety of means and policy options, facilitate such activities. It maintains that this kind of tax competition between countries constitutes a race to the bottom that can only be stopped through international cooperation between governments. Of particular interest, the report argues that four EU Member States – Netherlands, Ireland, Luxembourg and Cyprus – are amongst the worst tax havens in the world. The report also puts forward a number of recommendations to address the issue, and notably calls for a clear global list of tax havens with appropriate defensive measures, a global tax authority, and public Country by Country Reporting (CBCR).
“Wake up Wall St: There’s more to Trump’s tax policy than cuts” – 14 December
John Authers has written an article in the Financial Times (only available to subscribers) in which he analyses the potential impacts of the President-elect Donald Trump’s tax policies. He maintains, for example, that the expected cuts in corporate taxes will have an impact on investments. At the same time, Mr. Authers points out that a lot of ambiguity remains about the exact nature of Trump’s intended tax reforms, and emphasises that companies and investors alike should be cautious until more concrete plans have been presented.
“UK tax on sugar aims to reduce number of obese children by 7%” – 16 December
The Financial Times (article only available to subscribers) has reported on new research according to which UK’s future sugar tax regime could reduce obesity amongst children by 7%. The tax was announced in the Budget for this year, and will enter into force in April 2018. The researchers expect that soft-drink companies will notably reduce the sugar content of their products in order to minimise the impact of the tax, thus leading to beneficial public health outcomes. The British Soft Drinks Association maintains, in the meanwhile, that there is a lack of conclusive evidence about the effectiveness of soft-drink taxes in reducing obesity.
“The Australian Tax Office transparency reporting is looking a little opaque” – 12 December
Three academics argue in a Guardian article that the transparency provisions of Australia’s tax transparency legislation are lacking and do not provide stakeholders with all the relevant information that they need in order to properly understand the tax practices of the country’s largest companies. The Australian Taxation Office (ATO) has recently published new figures that include the name of companies, their business ID number, total income, taxable income and tax payable but not for example losses and other tax offsets. Whilst the authors maintain that the transparency law is an important step in the right direction, but fails to give a full, comprehensive picture of companies’ tax affairs.
Apple sanctions for state tax aid – 28 November
The European Commission has replied to a question asked by the MEP Ramón Jáuregui Atondo (S&D/SPA) with regard to Apple sanctions in the Commission’s state aid case. In his question, Mr. Jáuregui Atondo refers to reports according to which a part of the €13 billion tax money that the Commission ordered Apple to pay back to Ireland might, in fact, be payable in Spain. He therefore asks the Commission how much of the sum can be claimed by Spain, and whether it will send relevant details to the Spanish Ministry of Finance. In her reply, Commissioner Vestager re-iterates that other Member States might want to reconsider their tax assessment of Apple’s relevant operations within their territory – thereby reducing the tax income re-payable to Ireland – but does not specify countries or sums.
Ireland’s unpaid taxes and Apple – 2 December
The European Commission has replied to a question asked by the MEP Marian Harkin (ALDE/IRL) with regard to the Apple Ireland state aid case. In her question, Ms. Harkin asks the Commission whether other Member States are also entitled to a share of the €13 billion recoverable amount, and whether non-EU countries such as the US could also have a claim. In her reply, Commissioner Vestager maintains that the Commission cannot advice Member States on how they conduct their tax audits and assessments. However, other Member States might want to reconsider their tax assessment of Apple’s relevant operations within their territory. The recovery amount could also be reduced should the US order larger sums to be paid by Apple’s European subsidiaries to the parent company – as long as this follows the arm’s length principle.
Common Consolidated Corporate Tax Base – 9 December
The European Commission has replied to a question asked by the MEP Nadine Morano (EPP/FRA) with regard to the Common Consolidated Corporate Tax Base (CCCTB). In her question, Ms. Morano refers to the CCCTB as an important means of fighting against intra-European “fiscal dumping”, and asks the Commission what are the main challenges for its introduction. In his reply, Commissioner Moscovici describes the procedure of re-launching the proposal in November 2016, but does not elaborate on the proposal’s potential prospects or the Commission’s expectations.
Harmonisation of European tax systems – 12 December
The European Commission has replied to a question asked by the MEP Jérôme Lavrilleux (EPP/FRA) with regard to tax harmonisation in the EU. In his question, Mr. Lavrilleux points to differences in the European tax systems as root causes behind cases such as the Ireland Apple, and asks the Commission what steps it is taking to further harmonise European tax systems. In his reply, Commissioner Moscovici brings up the Common Consolidated Corporate Tax Base (CCCTB) as a step to that direction, and describes what the Commission has done to render the proposal politically more digestible (e.g. proposing it in two separate parts). In the consolidation-part, the Commissioner states that replacing transfer pricing by the apportionment formula could contribute to a fairer corporate tax system.