CFE Tax Advisers Europe - 2017 EU & Global Tax Policy Developments

CFE Tax Advisers Europe Compilation of 2017 EU & Global Tax Policy Developments

CFE E- Publications 2017 TAX TOP 5 The “Tax Top 5� is a weekly e-publication containing the most relevant tax news and tax policy developments from the EU institutions, EU courts and OECD from the previous week. The weekly updates are a great success and the Tax Top 5 is now perceived as one of the most reliable and cohesive tax policy update e-publications in Brussels.

GLOBAL TAX TOP 5 In 2017, the Global Tax Top 5 had its first edition containing a round-up of international tax policy news of wider relevance for tax advisers. The publication was developed in response to the great success of the Tax Top 5, with a view to provide a succinct report on the most impactful tax policy and legislative developments that have taken place around the globe each month.

The publication builds on a long-standing tax technical and policy cooperation between CFE, AOTCA (Asia-Oceania Tax Consultants Association) and WAUTI (West African Union of Tax Institutes), which are the leading tax professionals' organisations of the Asian- Oceanic and West African regions.

EU TAX POLICY REPORT The EU Tax Policy Report is a journal style publication, issued bi-annually, that provides a detailed analysis of significant primary law and tax policy developments at both EU and international level which would be of interest to European tax advisers which have taken place in the previous six months. It also includes an overview of selected CJEU case-law and relevant European Commission decisions.

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10 January 2017

European Commission published the opening decision in the case of potential state aid by Luxembourg to GDF Suez (Engie) Continuing its inquiries into tax rulings practices by EU member states the European Commission opened on 19 September 2016 an investigation into the Luxembourg tax treatment of the GDF Suez group (now Engie). The opening decision was published on 5 January 2017. This particular case concerns discretionary double nontaxation of interest i.e. tax treatment of debt and equity in relation to zero-interest loans. The tax rulings that the Commission looks into allegedly treated two financial transactions as both debt and equity, which is inconsistent with the tax treatment of the said transactions. Such a treatment gave rise to double non-taxation, as the borrowers could significantly reduce their tax liability in Luxembourg by deducting deemed interest payments as expenses. Under the terms of convertible zero-interest coupon the borrower can record a provision for deemed interest payment without an interest payment actually taking place. Had the lender actually received interest payments it would have been subject to corporation tax, whilst the interest payments are tax deductible at the level of the borrower. This discretionary treatment of the deemed interest payments gave rise to double nontaxation, endorsed with tax rulings approved by the Luxembourg tax administration.

With this case, the European Commission addresses the cases of inconsistent application of national tax law that gives rise to discretionary double-non taxation.

In similar vein, the Commission is already looking into McDonald’s arrangements in Luxembourg, where the group’s income was exempt from taxation on basis of confirmatory ruling that accepts existence of permanent establishment in the US, where the profits would have been subject to tax, in spite of the fact that they were in fact not taxed in the US. ECJ annulled General Court judgments in the cases Commission v World Duty Free and Commission v Banco Santander, and in Commission v Air Lingus, Ryanair The week before Christmas saw European Commission winning two cases on appeal at the Court of Justice of the EU (CJEU). This line of case-law provides for important clarification concerning the criterion of selectivity in tax related State aid cases.

The case C-20/15 concerned a Spanish tax scheme where undertakings taxable in Spain that acquired a foreign shareholding could deduct the resulting goodwill through amortisation from its basis of assessment. European Commission investigation concluded that the scheme was selective, with General court later annulling two Commission decisions considering that the selectivity of the scheme had not been established.

Court of Justice annulled the General Court judgments establishing there was error in law in annulling Commission decisions on the ground that the Commission had not established a particular category of undertakings that was favoured by the Spanish tax scheme.

Consequently, the requirement of the General Court to identify ex ante an exclusive category of undertakings that benefit from the measure in order to establish its selectivity was dismissed by the CJEU. The judgment

accepts an earlier Opinion of Advocate General Wathelet who recommended annulment of the General Court judgment.

In Commission v Ryanair, Air Lingus, the Court of Justice set aside part of the General Court judgment that had required from the Commission to examine whether and to what extent the State aid beneficiaries enjoyed an economic advantage arising from the application of lower rate of passenger air tax. Thus, CJEU dismissed actions brought by Ryanair and Air Lingus and confirmed Ireland’s obligation to recover 8 Euro per passenger from the airlines benefiting from state aid.

Judgment Joined Cases C-20/15P and C-21/15P Commission v World Duty Free Group and Banco Santander European Commission published the decision regarding potential State aid by Ireland to Apple- Ireland its arguments The long awaited decision related to the alleged State aid granted by Ireland to Apple was finally published by the European Commission in December. CFE published an extensive note summarising Commission’s main arguments of 130 pages long ruling, which we summarise in the points below: The European Commission decision states that Ireland granted Apple illegal State aid by virtue of the terms of two Advanced Pricing Arrangements (APAs) with two Apple entities in 1991 and 2007. The APAs were granted in relation to two subsidiaries of Apple Inc., Apple Sales International (“ASI”) and Apple Operations Europe(“AOE”) which were not tax resident in Ireland but operated through a branch in Ireland. The Commission issued its preliminary decision on 30 August 2016 after a three-year long investigation into Apple’s tax arrangements in Ireland following comments made by Apple executives before a Senate Committee hearing in Washington in 2013. Ireland has appealed the decision and Apple has indicated its intention to appeal the decision. As a preemptive move Ireland published an outline of its appeal prior to the publication of the Commission decision.

It is available here.

Profit allocation methods were challenged by the Commission. The Commission found that the Irish Revenue i.e.

Ireland’s tax authorities granted Apple a “selective advantage” in contravention of EU State aid law because it did not employ appropriate profit allocation methods to calculate the Irish source income of the Irish branches.

The Commission essentially disagrees with the methodologies employed by Apple and accepted by the Irish tax authorities, and in particular disagrees with: The use of a one sided functional analysis as opposed to a two-sided functional analysis assessing the resources of the head office in reality. Ireland should not have accepted the “unsubstantiated assumption” that the Apple IP licenses held by the relevant entities should be allocated outside of Ireland in circumstances where the reality of the situation is that there were no employees or personnel to conceivably carry out the functions assigned to the head offices based outside Ireland, and the Board minutes of the Head Office indicate the directors played an insufficient “active and critical role” in the control and management of the relevant Apple licenses. The use of operating expenses as the profit level indicator instead of sales in the case of ASI and total costs for AOE; the acceptance of a low rate of returns, as well as the comparables used in the analysis, were too challenged by the Commission.

Finally, the Commission is of an opinion that in accepting the one-sided profit allocation method endorsed by the tax rulings endorsed State aid for Apple in breach of Article 107 of Treaty on the Function of the EU. Save the date- CFE’s Forum 2017, our International Tax Conference will take place on 30 March 2017 in Brussels This year’s CFE Forum brings together prominent speakers revisiting the concept of permanent establishment post-BEPS, with specific focus on fixed establishment for VAT purposes.

Watch this space for more details. In the meantime, take a look at the tentative agenda.

Overview of the activities of CFE’s Fiscal Committee for 2016

Please follow the link below for overview of the main activities and publications of CFE’s Fiscal Committee for 2016.

CFE Fiscal Committee overview of activities and publications: LINK

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The selection of the remitted material has been prepared by Piergiorgio Valente / Filipa Correia / Aleksandar Ivanovski / Mary Dineen Follow CFE on Linked in

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16 January 2017

AG Wathelet issues opinion in C-682/15 Berlioz, supports questioning ‘foreseeable relevance’ of tax authorities’ information exchange requests

The case C-682/15 Berlioz Investment Fund S.A., lodged on 19 December 2015, concerns the application of EU law in relation to administrative penalties for holders of information questioning the foreseeable relevance of information to be transferred to third countries.

Advocate General Wathelet in the Opinion issued on 10 january 2017 confirmed that the taxpayer has the right to challenge a request for information issued by Luxembourg pursuant to Directive 2011/16, on request from the French competent authority.

Berlioz Investment SA had to deal with a request for information sent to Luxembourg by the French competent authority in relation to dividends received from Cofima, Luxembourg subsidiary of Berlioz.

Berlioz had requested exemption from withholding taxes related to the inbound dividends received from Cofima, whilst the French tax authorities wanted to ascertain whether relevant conditions of French law have been fulfilled. The requested information from Luxembourg on behalf of the French authorities concerned in particular whether the company has place of effective management in Luxembourg, list of employees with link to company’s registered office in Luxembourg, contractual relations between Berlioz and Cofima with any supporting documentation, information on shareholdings, amount of capital held by participants with percentage of capital held by each member etc. Berlioz objected to providing the latter information based on it lacking ‘foreseeable relevance’.

As part of the domestic litigation in Luxembourg, Berlioz brought an appeal to the Administrative court in Luxembourg alleging breach of Article 6 ECHR. The Administrative court filed a preliminary ruling to CJEU bringing in by its own motion Article 47 of the EU Charter of Fundamental Rights, which as binding EU law guaranteeing the ‘right of effective remedy and to a fair trial’.

Advocate General Wathelet is of the opinion that the requested authority must be in a position to determine whether the requested information is foreseeably relevant, i.e. whether a nexus exists between the request for information and the factual situation of a particular taxpayer. There must be a possibility for judicial review of the legality of the information on which the fine was based, in order to comply with Article 47 of the Charter. This needs to be balanced with the legitimate objective of combating tax evasion and tax avoidance pursued by the Directive, so the deficiency must be manifest.

This type of review according to the Advocate General complies with Article 47 of the Charter and the principle of proportionality.

The concept of foreseeable relevance, as a ‘yardstick’ to judge the legality of information requests, prevents tax authorities from ‘fishing expeditions’, i.e. making requests that have no apparent nexus to an open inquiry or tax investigation with a particular taxpayer. According to AG Wathelet, this approach is also supported by Article 26 OECD Model Tax Convention, by which this EU legislation was inspired.

It remains to be seen whether the legal reasoning by the Advocate General will eventually be upheld by the Court of Justice.

European Commission presented the Services Package European Commission presented on 10 January 2017 a proposal aimed at reform of the provision of professional services in the European single market with four legislative and non-legislative proposals.

The proposal includes four steps:  New EU Services card: Regulation introducing a European services e-card and related administrative facilities: simplified electronic procedure for providers of business services (IT companies, engineering firm) where they engage with simple contact in the host member state only;  New proportionality test directive for regulated professions: EU law will now require that Member states need to prove that new national regulatory requirements for access to a profession are proportionate, necessary and balanced. Before amending national rules related to regulated professions, Member states must satisfy conditions of Article 6 of the Proportionality Test Directive. The criteria will be non-retroactive and will concern new or amended national rules of professional regulation;  Communication (non-binding instrument) which identifies means for reforming regulated professions across EU member states, European Commission proposes appropriate measures to tackle remaining barriers to cross-border provision of services; Non-binding guidelines for national reforms in regulation of professions;  Improvement in the notification of draft national laws on service: EU law (Services Directive) already requires from member states to notify any changes to domestic rules concerning services to the European Commission. The envisaged changes would make this procedure ‘more efficient and transparent’.

The Services Package is part of European Commission’s Single Market strategy which aims to make the cross-border provision of services in the EU easier and to enable services providers to navigate through administrative formalities.

In relation to this subject matter, CFE has issued Opinion Statement PAC 4/2016 on the regulation of cross-border professional services.

OECD invites comments on BEPS Actions 6 and treaty-entitlements of funds which are not collective investment vehicles by 3 February 2017 OECD is inviting comments on three drafts before 3 February 2017 related to OECD’s work under Action 6 - preventing granting of treaty benefits in inappropriate circumstances and the treaty entitlements of finds which are not collective investment vehicles (CIV).

Comments on BEPS action 6 discussion draft on non-CIV funds should be sent by 3 February 2017 at the latest by email to taxtreaties@oecd.org in Word format.

Save the date- CFE’s Forum 2017, our International Tax Conference will take place on 30 March 2017 in Brussels This year’s CFE Forum brings together prominent speakers revisiting the concept of permanent establishment post-BEPS, with specific focus on fixed establishment for VAT purposes. Watch this space for more details. In the meantime, take a look at the tentative agenda.

Overview of the activities of CFE’s Fiscal Committee for 2016 Please follow the link below for overview of the main activities and publications of CFE’s Fiscal Committee for 2016.

CFE Fiscal Committee overview of activities and publications: LINK

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The selection of the remitted material has been prepared by Piergiorgio Valente / Filipa Correia / Aleksandar Ivanovski / Mary Dineen Follow CFE on Linked in

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23 January 2017 Temporary general reverse charge in VAT on the EU agenda EU finance ministers are expected to discuss on Friday 27 January the December 2016 proposal from the European Commission to amend the VAT Directive with a temporary generalised reverse charge mechanism for all domestic supplies above an invoice threshold of 10.000 Euro.

The Proposal for a Directive amending Directive 2006/112/EC on the common system of value added tax as regards the temporary application of a generalised reverse charge mechanism in relation to supplies of goods and services above a certain threshold came from the European Commission on 22 December 2016. The proposal would allow EU Member states to derogate from the standard VAT system on a voluntary basis and apply a general reverse charge on all domestic supplies above the invoice threshold of 10.000 Euro, effectively shifting the VAT payment liability from the supplier to the customer.

The amendments come after requests by a number of Member states with significant revenue losses due to VAT fraud. The EU-wide VAT tax gap is estimated at alarming level of EUR 160 billion, according to the Case Study and Reports on the VAT Gap in the EU-28 Member States 2016 Final Report.

The Commission proposes the general reverse charge to be in force until 30 June 2022, until when the ongoing comprehensive reform of the EU VAT system is completed, the cornerstone of which is the ‘destination’ principle.

EU Financial Transaction Tax proposal ‘ready by mid-2017’ Marianne Thyssen, the EU Commissioner for Employment, Social Affairs, Skills and Labour Mobility confirmed during a debate at the European Parliament on 18 January 2017 that the draft-text for EU financial transaction tax could be ready by mid-2017.

Commissioner Thyssen speaking to the MEPs confirmed that the tax is ‘supporting the real economy’, and that it would strengthen the EU Single market by ‘reducing divisions between Member states’ approach to financial taxes’. According to the Commissioner, the financial sector would then need to make a fair and substantial contribution to the public purse.

MEPs supporting the proposal highlighted that the tax would serve redistributive purposes and would enhance social justice. Many MEPs rejected the idea as ‘thoroughly bad’ and destined to create more costs than revenue.

Speaking on behalf of the Council of the EU, Ian Borg, minister in the Government of Malta, echoed the remarks by Commissioner Thyssen, confirming a legislative proposal is forthcoming in the months ahead.

ECOFIN Council scheduled for 27 January 2017 in Brussels The Council of the EU, sitting as Economic and Financial Affairs Council (ECOFIN), will discuss the priorities of the Maltese EU presidency and present its working programme in the area of taxation and finance.

The Council is expected to adopt recommendations for the economic and monetary policy of the Euro zone. Also, the Council is set to adopt the annual EU growth survey for 2017 as well as the alert mechanism report related to the macroeconomic imbalance procedure.

In respect of the banking sector and the Basel Committee reform agenda, the Council will be briefed by the European Commission on the progress made in the banking post-crisis reform and developments in relation to banking supervision.

European Parliament rejects European Commission anti-money laundering ‘blacklist’ proposal The European Parliament has rejected the proposal from the European Commission on a list of jurisdictions that are considered to be at risk of money laundering and terrorism financing, on grounds that the list is too limited.

European Parliament’s resolution of 19 January 2017 was passed with 393 to 67 votes, with 210 abstentions. MEPs requested from the Commission to expand the proposal with jurisdictions that facilitate tax crimes. During the discussion, the MEP rapporteur insisted that the proposal from the Commission is ‘inadequate’ and that the revised proposal from the Commission needs to be ‘more ambitious’ and ‘fit-for-purpose’.

The purpose of the ‘blacklist’ is to allow for heightened scrutiny for people and business from these jurisdictions when doing business with the EU. Bosnia and Herzegovina, Iraq, Afghanistan and Syria were originally listed by the Commission, to name but a few.

Following this vote, the existing European Commission list of countries with deficiencies in the area of anti-money laundering and terrorism financing remains in force.

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06 February 2017 1. Maltese Presidency – tax policy priorities The Maltese Presidency presented its work programme, including its tax priorities for the coming 6 months at the recent ECOFIN meeting that took place in Brussels on 27 January 2017. Malta will hold the Presidency until June 2017. The priorities are as follows:  Reaching final agreement on the text of the amendment to the Anti-Tax Avoidance Directive relating to hybrid mismatches with third countries. 

This is presently at an advanced stage as broad agreement was reached at the December ECOFIN Meeting. However, agreement failed to be reached on some outstanding issues such as the implementation date and measures relating to certain types of financial instruments.

 The re-launch of the Common Consolidated Corporate Tax Base; 

At a recent public hearing of the European Economic and Social Committee (EESC) on the CCCTB, Mr. Anthony Vella Laurenti from the Maltese Ministry of Finance outlined that the Presidency would focus on the tax technical elements of the proposals, particularly in relation to the “Super Deduction” for R&D, the allowance for growth and investment and the temporary cross-border loss relief.

 Reaching agreement on the proposed Directive on Double Taxation Dispute Resolution Mechanisms in the EU. Mr. Vella emphasised at the EESC meeting that this is a top priority of the Presidency.  Proposals on e-commerce and the reduced rates on e-publications, in the area of indirect taxation.

2. Application made to ECJ in response to EU Commission Decision in Belgian Excess Profits Scheme – (Case T-832/16 Celio International v Commission) The applicant in the case Celio International v Commission lodged an Action before the ECJ. The case concerns a finding by the Commission that selective tax advantages granted by Belgium under its "excess profit" tax scheme constituted illegal state aid under EU state aid rules. The scheme has benefitted at least 35 multinationals mainly from the EU. The Action brought by Celio International SA requests the following of the Court: 

To annul the Commission’s decision of 11 January 2016

 

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Alternatively, to annul certain elements of the Commission Decision (namely Articles 2-4 of the Commission Decision); or Alternatively to annual those paragraphs in so far as they:  require the recovery from entities other than the entities that have been issued an ‘excess profit ruling’ as defined in the Decision; and  require the recovery of an amount equal to the beneficiary’s tax savings, without allowing Belgium to take into account an actual upwards adjustment by another tax administration.

The Commission pay the costs of the proceedings.

The applicant’s main legal arguments to ground the above pleas include, manifest error of assessment, and failure to provide adequate reasons in relation to the existence of an aid scheme, that the scheme gives rise to an advantage or that the scheme grants a selective advantage.

3. Apple lodges official appeal with ECJ Two Irish Apple companies, Apple Sales International and Apple Operations Europe have lodged an appeal to the European Court of Justice against the decision by the European Commission that Ireland granted illegal state aid to the companies.

It comes as, Margrethe Vestager, EU Commissioner for Competition, appeared before an Irish Parliamentary Committee on Tuesday 31 January. The Commissioner reiterated the basis for the Commission’s Decision that two tax rulings granted by the Irish tax authorities to Apple constituted illegal state aid. Ms Vestager had stated previously that other European countries could seek to claim a portion of the 13 Billion. However, last week she stated that tax authorities in other Member States must be able to prove Apple generated taxable profit in their countries to be in a position to put in a claim.

4. New EU Transparency rules on Tax Rulings has entered into force The EU’s new transparency rules, requiring Member States to automatically exchange data on tax rulings and advance pricing agreements (APAs) entered into force on 1 January 2017. The first exchanges of information are dues to take place in September this year. Member States are required to provide information on all cross-border rulings issued since 2012 by 1 January 2018.

The new rules require Member States to send an electronic report listing all cross-border tax rulings and APAs issued by that Member State. The reports will be filed through a central depository system from which Member States can view the rulings and if necessary request more information on a particular ruling. The reports must be filed every six months.

5. OECD releases Peer Review Documents for assessments for two BEPS Minimum Standards On 1 February the OECD published key documents which will form the basis of the peer review of two of the BEPS Minimum Standards; Action 13 on Country-by-Country reporting and Action 5 dealing with the Transparency Framework. Each of the four BEPS minimum standards is subject to peer review in order to ensure timely and accurate implementation.

The documents include the Terms of Reference for assessing the implementation of the minimum standard, and the procedures by which jurisdictions will complete the peer review, including the process for collecting the relevant data, the preparation and approval of reports, the outputs of the review and the follow-up process.

The documents are available at the following links: BEPS Action 5 BEPS Action 13 *****

The selection of the remitted material has been prepared by Aleksandar Ivanovski / Mary Dineen/ Piergiorgio Valente / Filipa Correia / Follow CFE on Linked in

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13 February 2017 1. GDF Suez – Luxembourg: Fiscal State Aid Until 3 March, the European Commission will be receiving comments on the fiscal state aid alleged to have been provided by Luxembourg to GDF Suez (Case No. SA 44888/2016).

In this case, the Commission is challenging 2 tax rulings issued by the Luxembourgish tax authorities to GDF Suez Group (currently Engie) in 2008 and 2010.

Both rulings concern tax treatment of intra-group interest-free mandatorily convertible loans, i.e. loans allowing the lender to become shareholder of the borrower upon conversion.

According to the rulings in question, the borrowing companies were taxed on fixed margin while the difference between their profits and the fixed margin were considered deductible expense. The Commission is challenging such deductibility, highlighting that the aforementioned loans are equity rather than debt instruments. Furthermore it is challenging the agreed non-taxation of the deductible amounts at ultimate owner level.

The relevant announcement of the European Commission may be found in this Link.

2. C-283/15: X vs Netherlands – Tax Allowance for Personal and Family Circumstances The case concerned the applicability of Schumacker case (C-279/93) in a new situation.

The facts involved a taxpayer receiving income from two states, at a proportion 60% - 40%, while being tax resident in third state. Such taxpayer’s income in the state of tax residence was so low that did not permit such state to take into account his personal and family circumstances.

The ECJ ruled that the fact that the taxpayer received the major part of his income within several states (instead of one) other than that of tax residence does not affect application of the Schumacker principles. The decisive criterion is whether it is impossible for the state of residence to take into account for tax purposes the personal and family circumstances of the relevant taxpayer, due to absence of sufficient taxable income therein.

The ECJ also clarified that the injunction applies to any state of activity of the taxpayer, in proportion to the income earned within its jurisdiction, irrespective of whether the remaining part of the income is earned in a member state or in a non-EU country.

The ECJ ruling may be found in this Link.

3. C-21/16: Euro Tyre BV — Sucursal em Portugal vs Portugal – VAT Exemption of Intracommunity Supplies of Goods The case concerned the refusal of Portuguese tax authorities to exempt from VAT sales effected by branch of Dutch company and classified thereby as intra-community supplies.

The argument forwarded was that at the time of the transaction the purchaser was neither registered for intra-community in its state of residence nor registered in the VIES system.

The ECJ stressed that the above registration requirements are formalities which may not undermine the seller’s right to VAT exemption where the substantive conditions for intra-community supply are

fulfilled. Substantially, it is required that goods are dispatched or transported to an EU destination outside the Member State of origin, by/on behalf of the seller or the purchaser, for another taxable person (or non-taxable legal person) acting as such in a Member State different from the Member State of origin of the goods (art. 138(1) of VAT Directive).

The ECJ ruling may be found in this Link.

4. AMCHAM in Support of Ireland’s Appeal on Apple State Aid Case The American Chamber of Commerce (AMCHAM) of Ireland declared its full support to Ireland’s decision to submit an appeal to the General Court of the EU against the European Commission’s decision condemning Apple to pay € 13 billion as illegal state aid.

The relevant (opening) statement (to the Oireachtas Finance Committee on EU State Aid Investigation) may be found in this Link.

5. OECD DD Guidance for Meaningful Stakeholder Engagement in the Extractive Sector The OECD published guidance to address challenges in relation to engagement with stakeholders in the mining, oil and gas sector, in recognition of the important social and environmental implications connected with extractive operations. Such guidance is relevant to responsible business conduct, as per the OECD Guidelines for MNEs. OECD’s initiative aims at assisting relevant companies with the identification and management of risks related to stakeholder engagement and subsequently with avoiding relevant adverse impact, e.g. human rights infringements or economic setbacks.

The relevant announcement of the OECD may be found in this Link.

In addition, of cross-border interest are:  In Australia, the consultation regarding the potential impact of the country becoming a party to the Multilateral Instrument closed on 6 February 2017.

The relevant announcement by the Australian government may be found in this Link. *****

The selection of the remitted material has been prepared by Piergiorgio Valente / Filipa Correia / Anna Manitara / Karima Baakil Follow CFE on Linked in

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20 February 2017 1. C-592/15: BFI vs. UK – VAT Exemption for Cultural Services The case concerned the correct interpretation of art. 13A para. 1(n) of the 6th Directive 77/388/EEC, i.e. whether this provision is sufficiently precise for the respective VAT exemption of cultural services to apply directly to Member States or allows discretion as to the way of application. The ECJ stressed that since the provision refers to “certain cultural services”, it leaves it to Member States to define which cultural services shall fall under the scope of the VAT exemption. Hence, the Directive prerequires transposition to apply in a Member State.

The ECJ ruling may be found in this Link.

2. European Commission refers Greece to ECJ for reduced rate of excise duty applied to specific alcoholic beverages The Commission challenges (i) the reduced rate of excise duty (50%) applied to Tsipouro and Tsikoudia and (ii) the super-reduced rate (6%) applied in case of production of the same by small producers.

Greece is alleged to violate – in favor of local spirits - the rule requiring all ethyl alcohol used in the production of alcoholic beverages to be subject to the same excise duty rates. Such treatment infringes the principle prohibiting internal taxation which affords indirect protection to domestic products or imposition on products of other Member States of internal taxation exceeding that imposed on similar domestic products.

The relevant press release may be found in this Link.

3. France releases format for CbCR The French CbCR format is incorporated in form 2258, which is in line with OECD guidelines, as per BEPS Action 13. The filing of the form shall be submitted online in English, for tax years starting from 2016.

Form 2258 may be found in this Link.

4. UK: New tax avoidance schemes in the spotlight HMRC updated the list of tax avoidance schemes of which it is aware, including two additions:  Disguised remuneration: tax avoidance using annuities (spotlight 35);  Disguised remuneration: schemes claiming to avoid the new loan charge (spotlight 36).

Further information may be found on HMRC website, in this Link.

5. CFE Forum 2017: Do you have a taxable presence in a country? The New Reality Permanent and Fixed (VAT) Establishments In the Post-BEPS World The Forum will take place on 30 March 2017 from 9:00 to 16:30 hrs at the Representation of North Rhine-Westphalia to the European Union (rue Montoyer 47, 1000 Brussels).

The Programme may be found in this Link and further information on the CFE website. ***** The selection of the remitted material has been prepared by Piergiorgio Valente / Filipa Correia / Anna Manitara/ Karima Baakil Follow CFE on Linked in

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27 February 2017 1. Council of the EU reaches deal on ATAD2, European Commission welcomes agreement that fights BEPS (hybrid mismatches) involving non-EU countries On 21 February 2017, the Council of the EU reached agreement on the finalised text of the Directive extending the scope of the original Anti-Tax Avoidance Directive (“ATAD”). The “ATAD 2” Directive will extend the scope of the ATAD to include hybrid mismatches involving third countries (non-EU Member States) and will tackle specific hybrid scenarios, for example those relating to permanent establishments (“PE”), dual resident entities and hybrid financial instruments. The ATAD has an implementation deadline of 31 December 2018 whereas ATAD 2 will for the most part have a deadline of 31 December 2019, and up until 21 December 2021 for certain aspects (i.e. reverse hybrids). The European Parliament must now issue an Opinion after which the Council of the EU will adopt the Directive.

Pursuant to the finalised text, a hybrid mismatch will not arise where the payer jurisdiction under an “on-market hybrid transfer” requires a financial trader to include all amounts received under the transferred financial instrument as income. Therefore, a hybrid mismatch will only arise to the extent that the payer jurisdiction allows the deduction to be set-off against an amount that is not dual-inclusion income. Finally, payments made by a financial trader will not be considered to be hybrid payments under the Directive unless they arise in the context of associated enterprises, between a taxpayer and an associated enterprise, between the head office and PE, between two or more PEs of the same entity, or under a structured agreement. In the context of reverse hybrid mismatches which arise when the hybrid entity is located in a Member State, the reverse hybrid entity will be regarded as tax resident in that Member State and taxed on the income that is not otherwise subject to tax. The reverse hybrid provisions will not apply to recognised collective investment vehicles.

In order to avoid any unintended consequences between the hybrid financial instrument and the loss-absorbing requirements imposed on banks, Member States will be allowed to provide an exemption for intra-group instruments that have been issued with the sole purpose of meeting the issuer’s loss-absorbing capacity requirements. The carve-out will not apply if it arises under a structured arrangement or is done for the purpose of avoiding tax. This carve-out will be limited in time until 31 December 2022 and the Commission will present a report assessing the consequences.

2. Council of the EU to finalise by end of year the ‘blacklist’ of non-cooperative jurisdictions for tax purposes The Council of EU sitting as ECOFIN also discussed on 21 February 2017 the EU list of non-cooperative jurisdictions for tax purposes. The Council agreed to establish a final list of non-cooperative jurisdictions by the end of 2017. An agreement has also been reached on the scope of the application of the Criterion 2.2., as established by the Council in its criteria and process leading to the establishment of the EU list of 8 November 2016. Criterion 2.2. establishes that “a jurisdiction should not facilitate offshore structures or arrangements aimed at attracting profits which do not reflect economic activity in the jurisdiction.” The 8 November 2016 Council conclusions lay down the tax good governance criteria that should be used to screen jurisdictions, and, establish guidelines for the screening. The established criteria are related to tax transparency, fair taxation and implementation of anti-BEPS measures. The establishment of EU ‘blacklist’ of non-cooperative jurisdictions is a follow-up of the Panama Papers revelations. European Union’s actions are taken in line with the OECD work in the Global Forum on tax transparency and exchange of information for tax purposes.

The Council also discussed the work of the Code of Conduct group responsible for implementation of the EU Code of conduct on business taxation, and a body that shall oversee the screening process leading to establishment of the EU ‘blacklist’ of non-cooperative jurisdictions for tax purposes.

3. European Parliament proposes extended scope of EU’s public country-by-country reporting Under the draft Report of the European Parliament on the Directive 2013/34/EU on public by country reporting, the threshold for the multinational companies caught under these proposed EU rules would be set at EUR 40 million as opposed to the originally envisaged threshold of EUR 750 million consolidated net turnover.

The European Parliament’s draft Report of its Committees on Economic and Monetary Affairs (‘ECON’) and Committee of Legal Affairs aims to require from multinational corporations to disclose relevant information for all countries worldwide in which they operate, so that taxes would be paid where the profits are generated.

According to the draft Report, the proposal of non-aggregated data to be disclosed is in line with the EU’s policy at helping developing countries to consolidate their tax revenues. Under the proposed amendments, the EU Member States shall require subsidiaries incorporated in EU Member states and controlled by an ultimate parent undertaking which has a consolidated net turnover exceeding EUR 40 000 000 (which is not governed by the law of an EU Member State), to publish the report on income tax information of that ultimate parent undertaking on an annual basis.

The Parliament’s Report proposes that the corporate tax information is published in a common template available in an open data format and made accessible to the public on the website of the subsidiary undertaking or on the website of an affiliated undertaking in at least one of the official languages of the Union. On the same date, the company should also file the report in a public registry managed by the European Commission.

These amendments come in a form of draft European Parliament legislative resolution (first reading- ordinary legislative procedure), on the proposal for a directive of the European Parliament and of the Council amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches.

4. Court of Justice of the EU published ‘Apple’ appeal in the Ireland State aid case The Court of Justice of the European Union (“CJEU”) published the main arguments and pleas in law of Apple’s action for annulment of European Commission Decision of 30 August 2016 on State aid to Apple [Apple Sales International (“ASI”) and Apple Operations Europe (“AOE”), herein forth “Apple” or the applicant] implemented

by Ireland. Apple’s main arguments are based on maintaining error in law by the European Commission in the interpretation of Irish tax law and EU State aid rules.

At the outset, Apple claims that there is no legal requirement under Section 25 Taxes Consolidated Act (“TCA 1997”) that profit allocation to branches is compliant with the arm’s length principle (‘ALP’). Such a requirement does not exist under European law either, the applicant claims, adding that the ALP is not applicable standard of assessment under Article 107(1) TFEU, the relevant provision of EU law that prohibits unauthorised State aid.

In relation to the development and commercial utilisation of Apple’s intellectual property rights (“IP”), Apple claims that the European Commission disregard the fact the Apple’s IP is developed, controlled and managed in California, United States, and not in Ireland. IP related profits should therefore be subject to tax in the United States. Apples further argues that the Commission failed to accept that the branches in Ireland performed routine operations only and therefore were limited in its activates and commercial utilisation of IP. The applicant points to Commission’s alleged misunderstanding of the fact that the Irish branches did not play significant part in the critical profit making activities of the group.

The applicant claims that the European Commission failed to establish ‘selectivity’, which is a decisive State aid criterion. Apple was treated by the Irish Revenue in the same way as the other non-resident entities for tax purposes, and the Commission wrongly assumed that Apple is an Irish resident entity for tax purposes. In

respect of the transfer-pricing methodology involved, Apple claims that the Commission erred in law and fact by the choice and application of the Transactional Net Margin Method (“TNMM”). TNMM is a transfer pricing method that compares the net profit margin arising from a non-arm's length transaction with the net profit margins reached in similar arm's length transactions, and, then examines the net profit margin relative to an appropriate base such as costs, sales or assets. According to Apple, the subsidiary line of the Commission fails to articulate a correct profit attribution analysis.

Finally, Apple claims that the European Commission breached the principles of legal certainty and nonretroactivity by demanding recovery of the State aid, and that the European Commission decision exceeds Commission’s competence under Article 107(1) TFEU. 5. CFE Forum 2017: “Do you have a taxable presence in a country? The New Reality Permanent and Fixed (VAT) Establishments in the Post-BEPS World” CFE Forum 2017, our annual international tax conference, will take place on 30 March 2017, 9:00 to 16:30, in Brussels (Rue Montoyer 47, B- 1000 Brussels). For programme and registration details, please follow the links below: Programme: Link Further information: CFE website. ***** The selection of the remitted material has been prepared by Piergiorgio Valente / Aleksandar Ivanovski / Mary Dineen / Filipa Correia Follow CFE on LinkedIn

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06 March 2017

1) European Parliament votes to amend the EU Anti-Money Laundering Directive (“AMLD”) The European Parliament’s Economic and Monetary Affairs (ECON) and Civil Liberties Committees have voted to amend the EU Anti-Money Laundering Directive (“AMLD”) to allow access of EU citizens to the beneficial ownership registers. The vote today was passed by 89 to 1, with 4 abstentions. Under the present rules, the access to the AML beneficial ownership registers was limited to official authorities. The compromise solution would allow European citizens to access beneficial ownership registers without having to demonstrate a legitimate interest in the information.

AML Directive (EU) 2015/849 amendments shall enter into force when adopted at plenary at the European Parliament (probably at the March plenary session), and then continue with trilateral negotiations with the Council and the Commission.

The scope of the AMLD has also been expanded to cover trusts and other types of legal arrangements having a structure or functions similar to trusts, which were previously excluded from the scope of AMLD on privacy grounds. Trusts would now have to meet full transparency requirements including the need to identify beneficial owners.

Under the amendments, virtual currency platforms would also be within the scope of the AML directive, having the same customer identification obligations as banks. This includes verifying identity details and monitoring their financial transactions, to reduce the risk of virtual currencies being used for money laundering purposes.

2) ECJ Advocate General's Opinion published in the VAT case Compass Contract Services (Case C-38/16) On 2 March 2017, Advocate General Campos Sánchez-Bordona gave his Opinion in the case of Compass Contract Services Limited v. Commissioners for Her Majesty's Revenue & Customs. The case concerned the adjustment of output and input VAT and the applicable limitation periods. The question was whether it is acceptable under EU law to apply different limitation periods to claims for repayment of VAT paid but not due to differ from those applicable to claims for deduction of VAT, in respect of the date on which they were brought into force?

The Reference to the ECJ was made by the First-tier Tribunal (Tax Chamber) of the U.K. on 25 January 2016.

The Advocate General proposed that the ECJ answer the questions as follows: 1. It is not contrary to EU law for a national measure, like that at issue in the main proceedings, in laying down a transitional period for the introduction of reduced limitation periods applicable both to claims for repayment of overpaid VAT and to claims for deduction of input VAT, to provide that the new limitation period should start to run, for the latter, from a later date than the date fixed for it to start running for the former 2. In the alternative, were the Court to give an affirmative answer to the first question, the national court would have to draw the appropriate conclusions from infringement of the principle of equal treatment, in accordance with the rules of national law relating to temporal effects, in such a way that the remedies it grants are not contrary to EU law The Opinion is available at the following link: Opinion of Advocate General Campos Sánchez-Bordona in the case of Compass Contract Services (Case C-38/16) 3) European Commission launches public consultation on the functioning of the administrative cooperation and fight against fraud in the field of VAT In addition to the three ongoing VAT consultations, the EU Commission launched this new consultation on 2 March 2017. It will run until 31 May 2017.

The Commission aims to update the rules governing the administrative cooperation and the fight against cross- border VAT fraud with the aim of improving the functioning of the single market and tackling the heavy losses suffered by both the Member States and EU revenue. Council Regulation (EU) No 904/2010 of 7 October 2010 is the current legislation applicable to administrative cooperation assistance in VAT. The aim of the consultation is: 

  

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; 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 consultation is available at the following link:

EU public consultation on the functioning of the administrative cooperation and fight against fraud in the field of VAT 4) French Constitutional Court rules on CFC rules for individuals On 1 March 2017, the French Constitutional Court (Conseil constitutionnel) handed down its decision in relation to the constitutionality of CFC legislation (Article 123 bis of the General Tax Code) w.

The impugned legislation provides that resident individuals will be subject to French tax on the income of the foreign entity regardless of whether it is distributed. Tax is levied in proportion to the percentage participation of the individual in the foreign entity.

The conditions for the imposition of the tax are as follows: • The individual directly or indirectly owns 10% or more of the share capital (or financial or voting rights) in a foreign entity; • that foreign entity is established in a low-tax jurisdiction; • the assets of the foreign entity are mainly financial assets; If the entity is located in a ‘non-cooperative state or territory’ (NCST) or in a jurisdiction which did not conclude any administrative assistance treaty with France, resident individuals are taxed on a minimum deemed income.

In order to comply with EU law the relevant piece of legislation provides for a safe harbour under which the controlled foreign company (CFC) rules may not apply with respect to foreign entities that are located in an EU Member State, unless the participation is part of an artificial arrangement aimed at circumventing French legislation.

The Court found that the different treatment between entities located in a Member State and those outside the EU is contrary to the constitutional principle of equality before public expenditures.

Therefore, the Court held that the safe harbour provisions must apply to all entities The Court upheld the aforementioned provision in relation to a minimum deemed income for resident individuals.

The Decision is available in French and other languages at this LINK. 5) CFE Forum 2017: “Do you have a taxable presence in a country? The New Reality Permanent and Fixed (VAT) Establishments in the Post-BEPS World” The annual CFE Forum will take place on 30 March 2017. Given the huge focus currently on the attribution of profits to PEs in a direct tax context and the interaction between the direct and indirect concepts it proves to be a very interesting day of lively discussion and

***** The selection of the remitted material has been prepared by Piergiorgio Valente / Aleksandar Ivanovski / Mary Dineen / Filipa Correia Follow CFE on LinkedIn

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13 March 2016

1. European Economic and Social Committee supports Double Taxation Dispute Resolution proposal The European Economic and Social Committee (EESC) unanimously supported the European Commission proposal for Council Directive to improve double taxation dispute resolution mechanisms in the EU. The Committee agreed with the European Commission that double taxation is one of the biggest tax obstacles to the EU Single Market. According to the EESC, the approval of this opinion sends a strong signal to stakeholders and governments to act, considering the urgent need for mechanisms ensuring that cases of double taxation are resolved more quickly and more decisively when they arise between Member States. The EESC also supported the European Commission initiative to extend its monitoring of countries' performance in all cases of double taxation disputes in cross-border situations on a yearly basis, in order to assess whether the objectives of the directive are met.

According to the proposal, where Member States do not automatically start the arbitration procedure, the taxpayer can ask a national court to take the necessary steps for setting up an arbitration committee to deliver a final, binding decision on the case within a fixed timeframe. The EESC opinion was adopted at the 523rd plenary session, held on 22 and 23 February 2017. 

Opinion of the EESC available in all official EU languages

2. Reference for preliminary ruling on the interpretation of ‘beneficial owner’ in context of the EU Interest and Royalties Directive On 6 March 2017, the Danish court Vestre Landsret filed a reference for preliminary ruling in the case of the applicant BEI ApS versus the defendant Skatteministeriet, the Danish Ministry of Taxation (Case C-682/16).

The referring court seeks interpretation of the Directive 2003/49/EC in case of a company resident in a Member State that is covered by Article 3 of the Directive. The referring court asks if a resident company receives interest from a subsidiary in another Member State, whether it is the ‘beneficial owner’ of that interest for the purposes of the Directive, and whether the concept ‘beneficial owner’ in Article 1(1) of the Directive 2003/49/EC, should be interpreted in accordance with the corresponding concept in Article 11 of the OECD 1977 Model Tax Convention.

The Danish court further asks for clarification whether the concept has a static or dynamic meaning. I.e., whether the ‘beneficial owner’ concept should be interpreted in the light of the commentary on Article 11 of the 1977 Model Tax Convention (paragraph 8), or can subsequent commentaries be incorporated into the interpretation, including the additions made in 2003 regarding ‘conduit companies’, and the additions made in 2014 regarding ‘contractual or legal obligations’.

Among other questions referred, the Danish court is also seeking clarification on the interpretation of the relationship between anti-abuse provisions covered by Article 5 of the Directive that Member states have implemented in domestic law, and the provisions of double taxation treaties entered between EU member states under which taxation of interest is conditional on whether the interest recipient is the beneficial owner of the interest.

The EU Interest and Royalties Directive was enacted in 2003 to eliminate withholding taxes in the area of cross-border interest and royalty payments within a group of companies by abolishing withholding taxes on royalty payments arising in a Member State, and withholding taxes on interest payments arising in a Member State. 

Reference for preliminary ruling C-682/16 available in all EU languages

3. European Commission appoints new Director for Indirect Taxation and Tax Administration The European Commission decided on Wednesday 8 March to appoint Maria Teresa Fabregas Fernandez to the position of Director for Indirect Taxation and Tax Administration in the Directorate General for Taxation and Customs Union (DG TAXUD). Fabregas Fernandez joined the European Commission in 1997. Her career at the Commission focused on financial services and capital markets whilst also covering a variety of other topics, including industrial goods and services, better regulation, enterprise policy and inter-institutional relations as well as trade facilitation. In 2012, Fabregas Fernandez became Head of Unit for the Securities Markets in its department for Financial Stability, Financial Services and Capital Markets Union (DG FISMA).

Since 2015, Fabregas Fernandez is Head of Unit for Financial Markets in this department. The appointment as Commission Director will take effect on 16 March 2017.

4. UK Chancellor of Exchequer announced penalties for enablers of tax avoidance The UK Chancellor of Exchequer Philip Hammond announced in the Spring Budget on 8 March new financial sanctions for professional enablers and facilitators of tax avoidance arrangements that are later defeated by the HMRC, the UK tax authority. The measure, originally planned in the Autumn Statement, will be introduced in July 2017. The British government expects the new penalty regime to raise at £10m in the coming tax year, rising to £50m in 2018-2019.

The Chancellor also plans to remove the defence of having relied on non-independent advice as taking reasonable care when considering penalties for companies that engage in such activities.

The new measure would not be relevant to tax professionals who are already subject to professional codes of conduct.  

The Guardian: Tough Penalties for Enablers of Tax Avoidance (8 March 2017) HMRC Public Consultation “Strengthening tax avoidance sanctions and deterrents: Summary of Responses”

5. Heading for Brussels end of March to attend the CFE Forum?

It is not too late to register. This year’s Forum brings a prominent line-up of speakers to discuss the topic: “Do you have a taxable presence in a country? The New Reality Permanent and Fixed (VAT) Establishments in the Post-BEPS World”. The CFE Forum will take place on 30 March 2017, 9:00 to 16:30, at the Representation of Nord-Rheine Westphalia to the European Union (Rue Montoyer 47, B- 1000 Brussels). 

Programme and registration details available here ***** The selection of the remitted material has been prepared by Piergiorgio Valente / Aleksandar Ivanovski / Mary Dineen / Filipa Correia Follow CFE on LinkedIn

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20 March 2016

ECOFIN Council Meeting to discuss generalised reverse charge in VAT The Council of the European Union sitting as ECOFIN shall discuss tomorrow the proposals to establish a generalised reverse charge mechanism in VAT alongside proposals that would reduce the VAT rates for electronic publications. The generalised reverse charge mechanism in VAT follows up on a request from Member states significantly affected by VAT fraud. The proposed directive offers a solution to the so-called ‘missing trader’ or ‘carousel’ fraud, where supplies are traded several times without payment of VAT due on the transactions. Under present rules, reverse charge can be applied as temporary measure only, whereas the proposed directive would established a generalised system applicable on a voluntary basis until 30 June 2022.

The reduction of VAT rates for electronic publications concerns amendment of Directive 2006/112/EC to allow for ‘super-reduced’ rates for e-publications that would go down to zero. The proposal is part of European Commission’s Digital Single Market plan.

Both directives require unanimity in the Council vote on the basis of Article 113 on the Treaty of the Functioning of the European Union. 

Economic and Financial Affairs Council Meeting website, available in all EU languages

European Commission announced anonymous whistleblower instrument The European Commission announced on 16 March a new whistleblower service that would allow for individuals or business entities to files anonymous reports about wrongful business practices that might be in violation of EU competition law.

The tool will primarily serve as instrument to provide the European Commission with information on anti-competitive practices such as antitrust violations, existences of secret cartels, price fixing and fixing of procurement procedures. The tool is envisaged to enhance Commission’s lenience programme, under which entities can report their own involvement in cartels in exchange for reduction of fine.

According to EU Commissioner Margrethe Vestager: "If people are concerned by business practices that they think are wrong, they can help put things right. Inside knowledge can be a powerful tool to help the Commission uncover cartels and other anti-competitive practices. With our new tool it is possible to provide information, while maintaining anonymity. Information can contribute to the

success of our investigations quickly and more efficiently to the benefit of consumers and the EU's economy as a whole" The new anonymous whistleblower service can be accessed at the following LINK. Germany published Administrative Practice on Profit Attribution to Permanent Establishments The German Federal Ministry of Finance published the final version of its Administrative Practice for profit attribution to permanent establishments (PEs), which is based on an earlier version of the document published on 18 March 2016. This Administrative Practice is not binding law, rather a detailed explanation of the law that reflects the interpretation of the German tax administration. The Practice puts into effect the authorised approach concerning the application of the OECD applicable principles, as required by German law. The applicable German legislation for attribution of profits to permanent establishments consists of the Section 1 of the Foreign Tax Act and the Regulation for profit attribution to permanent establishments. This Administrative practice is to be read in light of the OECD BEPS Action Point 7. The Practice explains in particular the application of the arm’s length principle to PEs treated as fully separate entities, requiring functional and risk analysis for the business activities of the PE. Considering the separate entity approach of German tax law, the PE from a legal perspective cannot enter into contractual relationship with the head office. For fiscal purposes, dealings between a head office and a PE are considered assumed contractual relationships.

In respect of the transfer-pricing documentation requirements, entities which operate a permanent establishment in Germany are required to substantiate the profit attribution to the PE, also documenting the internal dealings, i.e. assumed contractual relationships. Such a documentation would need to filed in case of a tax inspection or audit.

The issue of profit attribution to permanent establishments is the very topic of CFE’s Forum 2017.

Would like to hear more about profit attribution to PEs? Register for CFE’s Forum 2017.

This year’s Forum brings a prominent line-up of speakers to discuss the topic “Do you have a taxable presence in a country? The New Reality Permanent and Fixed (VAT) Establishments in the Post-BEPS World”. The CFE Forum will take place on 30 March 2017, 9:00 to 16:30, at the Representation of Nord-Rheine Westphalia to the European Union (Rue Montoyer 47, B- 1000 Brussels). 

Programme and registration details available here ***** The selection of the remitted material has been prepared by Piergiorgio Valente / Aleksandar Ivanovski / Mary Dineen / Filipa Correia Follow CFE on LinkedIn

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27 March 2017 1. Meeting of G20 Finance Ministers takes place in Baden Baden Germany The G20 Ministers for Finance and Heads of the Central Banks met in Baden Baden in Germany on 18 March 2017. A communique outlining their position on the ongoing work priorities, including taxation matters was subsequently published.

The OECD Secretary-General presented a Report outlining the progress being made on key policy areas. The 4 key policy areas outlined in the OECD Report are: i. ii. iii. iv.

Tax Certainty BEPS Implementation Tax transparency Tax & Development

In response to the OECD Update Report, the G20 Communique states that the G20: 

Remains committed to the timely, consistent and widespread implementation of the BEPS project, including the growing membership of the Inclusive Framework on BEPS.



Awaits the reports of the OECD in relation to the progress of the implementation of the four minimum standards, due to be presented in July 2017 July.

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Welcomes the signing of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS on 7 June 2017.

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Welcomes the first automatic exchange of financial account information under the OECD Common Reporting Standard (CRS), which will commence in September 2017.



Are awaiting the OECD list to be prepared at the Leaders’ Summit in July 2017 setting out those jurisdictions that have not yet sufficiently progressed towards a satisfactory level of implementation of the agreed international standards on tax transparency.

Crucially, it states that defensive measures will be considered against jurisdictions on the list.

Particular mention is given to the digital economy and the discussions taking place on the implications of the digitalisation of taxation in the OECD Taskforce on the Digital Economy (TFDE). It highlights that the TFDE will carry out further work on this issue with an interim report to be published from the IMF and WBG to be presented in Spring 2018.

Finally, the G20 focuses on the advancement of transparency of legal persons and legal arrangements via the effective implementation of international standards and the availability of beneficial

ownership information in domestic and cross-border context. A progress report will be issued by the OECD on its work in relation to complementary tax areas relating to beneficial ownership for the Leaders’ Summit in July 2017.

The communique also gives special attention to the current OECD priority of tax certainty, discussed in more detail below.

Please follow this link for The full transcript of the G20 Communiqué Please follow this link for the full OECD SECRETARY-GENERAL REPORT TO G20 FINANCE MINISTERS 2. Tax Certainty – OECD/IMF Report submitted to G20 Finance ministers Following on from a public consultation with stakeholders and Civil Society at the end of 2016 (which CFE submitted a response to), the OECD has published its report on tax certainty.

The main points highlighted in the Report are as follows: 

The tax system is an important factor influencing investment and location decisions, but it is not the only or most important factor.



In particular, uncertainty around corporate income tax and VAT is considered very or extremely important in affecting investment and location decisions for more than 50% of survey respondents.



The sources of uncertainty are varied, from tax policy and tax administration through to Taxpayer behaviour.



The major drivers of uncertainty appear to stem from issues in connection with tax administration (including inconsistent and unpredictable implementation and administration of the tax law) and international taxation (such as ineffective dispute resolution mechanisms to resolve issues of double taxation and inconsistent approaches to the application of international tax standards).

The Report makes recommendations on some practical actions that would support greater tax certainty in the OECD and G20 countries. These actions include the following: 

Reducing complexity and improving clarity through improved tax policy design.



Improving tax dispute prevention and resolution, at the domestic and international level, through mechanisms which are fair and independent, accessible to taxpayers and provide timely resolution.



At the international level specifically, improvements to dispute resolution mechanisms including both Mutual Agreement Procedures and arbitration.



Application of other, innovative tools to enhance certainty in tax administration, including

cooperative compliance programmes, advance pricing agreements, as well as simultaneous and joint audits.

Overall, the report recognises that effective and appropriate measures to enhance tax certainty will differ between countries. Further, the specific environments and challenges of developing countries with respect to tax certainty could be explored, and there is also an opportunity to undertake more detailed work to understand the impact of tax uncertainty on trade and investment.

Please follow this link for a copy of the final IMF/OECD Report on Tax Certainty 3. OECD Webinar Tax Talks on Tuesday 28 March

If you want to hear more on the above topics, and on the work priorities of the OECD the OECD tax policy centre will be hosting its online Webinar “Tax Talks “on Tuesday 28 March at 15:00 (CET).

The talk will summarise the OECD’s progress on its primary work streams, including tax certainty, the Multi Lateral Instrument and the future work programme.

To register please follow this LINK. 4. ECOFIN Meeting in Brussels on 21 March 2017 The Council of the European Union sitting as ECOFIN discussed the following proposals in relation to VAT:  The establishment of a generalised reverse charge mechanism in VAT The proposal for a generalised reverse charge mechanism in VAT follows up on a request from Member states significantly affected by VAT fraud. The proposed directive offers a solution to the so-called ‘missing trader’ or ‘carousel fraud’, whereby supplies are traded several times without payment of VAT due on the transactions. Under the present rules, the reverse charge can be applied as a temporary measure only, whereas the proposed directive seeks to establish a generalised system applicable on a voluntary basis until 30 June 2022. The debate focused on the scope of the proposed directive, the criteria for obtaining a derogation, the procedures for repealing a derogation and the duration of the derogation. 

The reduction reduce the VAT rates for electronic publications.

The reduction of VAT rates for electronic publications concerns amendment of Directive 2006/112/EC to allow for ‘super-reduced’ rates for e-publications that would go down to zero. The proposal is part of European Commission’s Digital Single Market plan.

The discussion focused on the possibility of applying not just ‘reduced’ VAT rates but also a ‘superreduced’ VAT rate and ‘zero’ VAT rates. Such treatment would bring the VAT rates associated with electronic publications in line with traditional ‘hard copy’ publications.

Both directives require unanimity in the Council vote on the basis of Article 113 on the Treaty of the Functioning of the European Union.

5. CFE’s annual Forum promises to be a day of topical discussion and debate on Permanent and Fixed Establishments Expert panels, with highly accomplished speakers from a mix of the OECD, academia and industry will be discussing the highly topical issue of PE status and also the new profit attribution rules in a post BEPS era.

We consider the new rules for determining whether a business has sufficient commercial activities in a particular country to acquire a PE status and the profit attribution rules associated with this.

An expert panel will also tackle the subject from the indirect tax perspective, examining the VAT concept of fixed establishments and the difficulties encountered when determining whether a supplier or customer has a Fixed Establishment in a particular country, and also the practical problems caused for business in a VAT context from the classification of PE status.

***** The selection of the remitted material has been prepared by Piergiorgio Valente / Aleksandar Ivanovski / Mary Dineen / Filipa Correia Follow CFE on LinkedIn

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3 April 2017

European Commission confirms upgrade of its Task Force Tax Planning Practices The European Commission has upgraded the Task Force Tax Planning Practices into a new Unit within the Directorate General Competition, the deputy Director General for State aid Gert-Jan Koopman confirmed for Bloomberg. European Commission’s Task Force led by Max Lienemeyer is responsible for the State aid investigations into tax rulings and aggressive tax planning practices that might be in contravention to European Union law. The Commission has to date adopted decisions for recovery of tax in the cases of Apple (Ireland), Starbucks (The Netherlands), Fiat Finance (Luxembourg) and the Belgian Excess Profit ruling scheme. These decisions are under appeal at the Court of Justice of the European Union as final arbiter on the legality of European Commission’s decisions, which does not however prevent recovery of the assessed tax. Cases in the pipeline include Amazon, McDonald’s, and the most recent one - Engie (GDF Suez).

Gert-Jan Koopman speaking in Paris confirmed that the Task Force Tax Planning Practices set up in 2013 is now a permanent Unit within the Directorate General for Competition. Koopman also held that the team of case-handlers is being assisted by a second Unit on fiscal State aid, which is also looking into the tax cases from a State aid perspective. The deputy Director General said that the European Union investigations into multinational companies’ tax planning arrangements have been a reason for ‘rude awakening’ for tax and transfer- pricing specialists. Koopman also pointed out that the European Commission has since provided guidance to governments and companies as to the State aid compliance of the transfer-pricing arrangements and tax rulings in general.

The European Commission published in June 2016 a Working Paper on the applicability of Article 107(1) of the Treaty on the Functioning of the European Union to tax ruling practices. Specifically, the paper provides for clarification as to the applicability of the ‘arm’s length principle’ to tax rulings from a State aid perspective.

CJEU Forthcoming: AG Wathelet Opinion in C-616/15 Commission v Germany (VAT) According to the judicial calendar of the Court of Justice of the EU, Advocate General Wathelet will issue on Wednesday 5 April 2017 an Opinion in the case C-616/15 European Commission v Germany.

This VAT case concerns restriction on VAT exemption for certain groups of professions (notably reserved for certain professions only in Germany), which according to the European Commission is in breach of Article 132(1)(f) of the Directive 2006/112/EC (‘VAT Directive’). The Commission maintains that there is no justification for these restrictions; therefore the exemption from VAT should apply to all groups of professions provided they exercise tax-exempted activities.

The European Parliament sits in Strasbourg this week The European Parliament is holding the next plenary session in Strasbourg. The agenda includes a meeting on Thursday 6 April 2017 of the European Parliament ‘PANA’ Committee of Inquiry into contraventions in EU law and tax evasion and avoidance practices stemming from the Panama Papers revelations.

OECD published report on technology tools to tackle evasion and fraud The OECD published on 31 March the Technology Tools to Tackle Evasion and Tax Fraud report. The report, presented in Paris by Grace Perez-Navarro, deputy Director of the OECD’s Centre for Tax Policy and Administration, demonstrates the possibilities in which technology can be used by governments in the fight to prevent and identify tax fraud and evasion.

According to the OECD, the solutions offer win-win scenario: better detection of crime, higher revenue contributions, and synergies that make tax compliance easier for business and tax administrations.

Further reduction in corporation tax comes into effect in the UK Her Majesty’s Treasury, the United Kingdom Finance Ministry, announced that their plan to reduce UK corporation tax to 19% comes into effect from 1 April 2017. According to the UK Government, the UK plans to reduce the corporation tax rate further to 17% by 2020, which will then be the lowest tax rate among the G20 countries. The new reduction amounts to £9 billion cut in overall burden for businesses.

***** The selection of the remitted material has been prepared by Piergiorgio Valente / Aleksandar Ivanovski / Mary Dineen / Filipa Correia Follow CFE on LinkedIn

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10 April 2017

OECD issues guidance on BEPS Action 13 (Country-by-Country Reporting) The OECD issued guidance on the interpretation and application of the Country-by-Country reporting model legislation of October 2016 BEPS Action Point 13 Final Report. The guidance aims to facilitate the implementation of the Country-by-Country reporting standard into national legislation, and to help jurisdictions in introducing consistent domestic rules.

The Country-by-Country implementing package includes model legislation that could be adopted by jurisdictions to require the parent company of a multinational group to submit a report in its country of residence. The package comprises a model Competent Authority Agreement that would help in implementation of the exchange of information, based on the Multilateral Convention on Administrative Assistance in Tax Matters; Double Taxation Conventions, and Tax Information Exchange Agreements.

The guidance addresses five specific issues: definition of revenues, standard to determine membership of a group company, definition of consolidated group revenue, treatment of shareholdings and definition of related party.

The BEPS Action 13 October 2016 Report envisages Country-By-Country Reporting as minimum standard, containing a three-tiered standardised approach to transfer-pricing documentation. The minimum standard reflects a commitment to consistent implementation of the Country-by-Country Reporting.

European Parliament “PANA” Committee of Inquiry update A session of the European Parliament “PANA” Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion took place on Thursday 6 April in Strasbourg. The Committee of Inquiry held a public hearing on the impact of the schemes revealed by the Panama Papers on developing countries. Alvin Mosioma, Tax Justice Network Africa, Will Fitzgibbon, International Consortium of Investigative Journalists and Nuhu Ribadu, Government of Nigeria, were among the invitees who gave evidence to the Committee on the impact of money-laundering and tax evasion on developing countries, with a focus on the cooperation between the EU and African authorities and the deficiencies in the existing legal framework in respect of EU law. The next session of the “PANA” Committee of Inquiry is scheduled for 27 April in Brussels.

Public Access to Beneficial Ownership Register voted by the Germany’s Bundesrat The Upper House of the German Federal Parliament (‘Bundesrat’) voted to allow access of the general public to the beneficial ownership registers. The original German Cabinet proposal that effectively implements the 4th EU Anti-Money Laundering Directive (Directive 2015/849/EU) requires establishment of electronic registry of owners and operators of businesses (beneficial ownership), in an attempt for increased transparency and limiting the possibilities for money-laundering and terrorism financing.

The changes to the original EU law implementing act voted by the Bundesrat raise privacy concerns related to access to sensitive information belonging to mid-sized companies. To adopt the legislation, both Houses of German Parliament need to consent, and pass the legislation implementing the Directive by end of June, in order to comply with EU law.

UN Tax Committee Meetings held in New York The 14th Session of the UN Committee of Experts on International Cooperation in Tax Matters was held between 3 -6 April 2017 in New York. The meeting was held back-to-back with the ECOSOC special meeting on the international cooperation in tax matters, in order to facilitate a dialogue and encourage intergovernmental cooperation.

The UN Committee discussed modifications to the United Nations Model Double Taxation Convention between developed and developing countries, specifically regarding articles 1, 5 and 8; articles 9, 12 and 13; and articles 23 and 26.

According to the Reports from the UN Secretariat, the UN Committee is recommending adopting a limitation of benefits clause (LoB) in the UN Model, following up on the OECD BEPS Recommendations of October 2016, as well as changes to the UN Model dispute resolution procedure to require countries to resolve disputes through the mutual agreement procedure. This would incorporate OECD BEPS Action 14 into the UN Model Tax Convention.

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18 April 2017

1. OECD VAT Global Forum meeting - VAT/GST Guidelines released The week before Easter representatives of governments, international organisations, academia and the business community attended the OECD Global VAT Forum, held in Paris on 12 -14 April. The OECD Global Forum VAT meeting was an opportunity for representatives from around the world to touch base and discuss various aspects of the design and operation of VAT and GST systems, as well as related common challenges.

The OECD’s Deputy-Secretary General Rintaro Tamaki announced the release of the OECD Recommendations of the Council on the application of the Value Added Tax/ Goods and Services Tax to the international trade in services and intangibles. According to the OECD, these Recommendations are first in the area of VAT and they incorporate the VAT/GST Guidelines, open for non-OECD countries too.

The International VAT/GST Recommendations are intended as recommended approach to both OECD and non-OECD countries. Texts are available in English, German and French.

2. OECD publishes comments received on treaty entitlement of Non-CIV funds consultation Following on the public consultation on the OECD BEPS Action 6 Public Discussion Draft on non-CIV examples, the OECD published last week the responses to the consultation. Please follow this link for the comments received by the OECD on the matter.

CFE responded to this public consultation on 2 February 2017, and issued an Opinion Statement FC 2/2017 on the draft examples with regard to treaty entitlement of non-CIV funds when applying the principle purpose test as described in the OECD BEPS Action Point 6 Final Report of October 2015.

3. Germany published progress report on its Anti-Tax Avoidance Plan The Federal Ministry of Finance of Germany published an update of its 10-points based plan of 2016 related to fighting tax evasion, tax avoidance and anti-money laundering. The original Anti-Tax Avoidance 10-point plan envisaged addressing the issues of the Panama Papers cooperation, harmonising the blacklists of non-cooperative tax jurisdictions, creating global

register for beneficial ownership registers, elimination of statute of limitations for crossborder tax offences, to name but a few.

The progress report on the implementation of these measures notes that the European Union list of non-cooperative jurisdictions for tax purposes is due by the end of year. In respect of the automatic exchange of information, the German Finance Ministry recalls the mandate of the OECD Global Forum for Tax Transparency, which is now responsible for implementation of the common reporting standard by virtue of peer-review process. The update also takes note of the domestic implementation in Germany of the 4th EU Anti-Money Laundering Directive.

Finally, the update takes into account the process of introduction of mandatory disclosure rules in Germany, where both federal and state bodies were invited for input and evaluation.

4. EU plans radical VAT rules overhaul in September 2017 The European Commission is planning to propose an important overhaul of the EU VAT rules in September 2017, Commissioner Moscovici confirmed in a statement of 12 April 2017. The European Commission published in its Sixth Progress Report on 12 April, which concerns the European Union security agenda, that the European Commission is planning to move on to a single VAT area in order to reduce weaknesses of the present system and to tackle crossborder VAT abuse, notably ‘Missing Trader Intra-Community Fraud’ or ‘Carousel Fraud’.

5. Opinion in C-39/16 Argenta Spaarbank v Belgium concerning interpretation of the Parent-Subsidiary Directive due next week According to the judicial calendar of the Court of Justice of the European Union, the Opinion of Advocate General Kokkot is due for 27 April 2017 in the case C-39/16 Argenta Spaarbank NV v Belgium.

The questions referred to the Court of Justice concern interpretation of Article 1(2) of the Parent-Subsidiary Directive (Council Directive 90/435/EEC) and the compatibility of the Belgian Income Tax Code with the provisions of the Directive in relation to disallowing treatment of interest as business expense up to an amount corresponding to qualifying dividends, and, the proportionality of such measures.

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24 April 2017

European Commission publishes report on tax uncertainty On 7 April 2017 the European Commission published a report on tax certainty entitled “Tax uncertainty: Economic Evidence & Policy Responses”. The Report comes at a time when tax uncertainty is gaining increasing prevalence on the international stage, with it being a priority of the G20 and OECD. There has been concern that the myriad of corporate tax policy initiates to combat aggressive tax planning at OECD and EU level is contributing to an increased tax uncertainty. At a recent informal ECOFIN meeting in Malta, tax certainty was on the agenda; Malta’s Minister for Finance, and head of ECOFIN emphasised the importance of tax certainty and the need for the EU to enhance tax certainty so that multinationals can understand ahead of time how their EU investments will be treated. He dismissed any suggestions that encouraging tax certainty in any way conflicts with implementing proposals to combat tax avoidance.

The Commission Report concludes that tax uncertainty derives from many national and international sources but weaknesses if the institutional framework of tax policy is the primary cause. At a domestic level the report cites typical sources of uncertainty as being the lack of precision of the tax code and frequent tax changes. An additional source of tax uncertainty stems from the overall political and administrative process of pursuing a tax reform: from the announcement and preparation, to the implementation and the following fine-tuning.

At the international level, the lack of tax coordination/cooperation between countries, as well as the globalization and the emergence of new business models, are the main reasons of increased tax uncertainty regarding the tax treatment of cross-border investment.

The Report identifies the simplification of the tax system as the main remedy to tax uncertainty and opines that the BEPS initiative and the EU agenda to fight aggressive tax planning are promoting more coordination among governments should result in greater tax certainty.

The EU Commission Report is available at this link: Taxation Paper 67 – Tax uncertainty: Economic Evidence & Policy Responses ECJ VAT Case – C-493/15 (Identi), interaction with bankruptcy laws and ability of tax authorities to collect VAT thereafter.

The case concerned a VAT assessment raised by the Italian tax authorities on a general partner of an insolvent company who had recently been declared bankrupt by the Italian courts. The first-tier Italian

Tax Tribunal found the assessment to be unlawful, a decision which was upheld on appeal. The Italian tax authorities sought to have this decision set aside by the Supreme Court of Cassation in Italy.

The question arose as to whether the bankruptcy proceedings are in contravention of EU law and state aid rules on the basis that it precludes recovery of settled VAT debts due by a bankrupt person being recoverable by tax authorities.

The ECJ assessed whether it contravened the principle that Member States are obliged to ensure collection of all the VAT due on their territory as well as the effective collection of the EU’s own resources.

The Court held that strict conditions applied to the bankruptcy procedures to ensure the procedures were used only in good faith, including that the creditors in the proceedings have been partly satisfied in part. Furthermore, it was concluded that the bankruptcy proceedings are not of general application and does not constitute a general and indiscriminate waiver of collecting VAT. It is therefore not contrary to the obligation of Member States to ensure effective collection of VAT due in their territory.

On the issue of whether the rules on the discharge from bankruptcy State aid it was held that it does not meet the requirements for the classification of state aid and therefore does not constitute state aid.

Please follow the link for Case C- 493/15 Starbucks State Aid Commission Decision published in Official Journal The non-confidential version of the European Commission decision EU/2017/502 on the alleged State aid awarded by the Netherlands to Starbucks was published in the Official Journal of the European Union L83/38 of 29.3.2017 in all official EU languages.

The European Commission adopted the Starbucks decision in October 2015 establishing that the Netherlands had awarded unlawful State aid to Starbucks by virtue of an Advance Pricing Agreement (APA) that allowed for artificial reduction of the company’s taxable base, compared to entities in similar legal and factual situation. In a nutshell, the European Commission claimed that Strabucks’ transfer-pricing arrangements were in breach of Article 107(1) TFEU, which resulted in unduly reduced taxable base involving intra-group transactions that had not reflected market reality, rather ‘economically unjustifiable assumptions’. The European Commission investigation further established that the Netherlands had allowed Starbucks a choice of transfer-pricing methodology that is not appropriate for calculation of taxable profits under market conditions. The Government of Netherlands is obliged to recover the assessed tax under European Union law, subject to a different ruling of the EU courts.

Both the Government of Netherlands and Starbucks as State aid beneficiary appealed the Commission decision citing ‘unprecedented criteria in establishing State aid’. The pending cases are registered under T-760/15 Netherlands v Commission, and T-636/16 Starbucks BV and Starbucks Manufacturing EMEA v Commission.

European Parliament PANA Committee of Inquiry to discuss studies in tax evasion

The European Parliament PANA Committee of Inquiry into tax evasion and tax avoidance practices that might be in contravention of EU law will hear on Thursday 27 April the findings of three studies that the European Parliament had commissioned. The Committee will sit in two panels which are scheduled to discuss, respectively, the impact of the offshore money-laundering and tax evasion practices on EU Member states’ exchequers and public finances, and, the assessment on the performance of Member states’ taxation and judicial administrations in addressing the issues stemming from the tax evasion, tax avoidance and money laundering practices.

The Report titled ‘The Impact of Schemes revealed by Panama Papers on the Economy and Finances of a Sample of Member States’ can be accessed here, while the report on the administrative cooperation titled ‘Fighting Tax Crimes- Cooperation between Financial Intelligence Units- Ex Post Impact Assessment’ can be read here.

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02 May 2017

1. EU Commission launches public consultation on harmonising and simplifying the general arrangements for customs rules Based on the results of two external evaluation studies carried out in 2014 and 2016 of Council Directive 2008/118/EC the Commission believes there may be scope to improve the functioning of the directive, particularly in relation to the reduction of administrative burden for all stakeholders and the reduction of distortions in the internal market. On 23 March 2017 the European Commission published an Inception Impact Assessment providing the background and a first description of the problems and possible policy options under analysis The Directive contains the general procedures for the holding and movement of excise goods (alcohols and alcoholic beverages, manufactured tobacco products, energy products) in the EU. In addition, it contains explanations of the procedures for deferring payment of excise duty available to authorised traders who hold or move excise goods.

The aim of the consultation is to obtain views from a variety of interested stakeholders with the aim of improving the rules contained in Council Directive 2008/118/EC. 2. UN releases revised United Nations Practical Manual on Transfer Pricing for Developing Countries Following the meeting held in early April of the UN’s Committee of Experts on International Cooperation in Tax Matters the UN has released the 2017 edition of the UN Transfer Pricing Manual.

The 2017 edition of the Manual includes additional chapters dealing with specific items such as intragroup services, intangibles, cost sharing agreements and business restructuring. It also contains a new chapter on intangibles containing principles that are in line with the OECD BEPS Reports on the topic.

The 2017 edition contains four sections; the first provides the economic context of transfer pricing, the second contains detailed substantive discussion on the arm’s length principle, the third covers administrative issues and the fourth and final section explains country specific practices such as those in India, Brazil and China.

3. EU’s proposals for hybrid mismatches with third countries moves closer to conclusion On 27 April, the European Parliament adopted a Legislative Resolution on a proposal for a Council directive amending the Anti-Tax Avoidance Directive 2016/1164 (2016) to address hybrid mismatches involving third countries (ATAD 2). Concluding this text is a priority of the Maltese Presidency.

The report will now be considered for final approval by the European Council at the next meeting of ECOFIN to be held on 23 May. 4. OECD – United Arab Emirates becomes 109th signatory to the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters The United Arab Emirates signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in Paris on 21 April 2017. The Convention provides for all forms of administrative assistance in tax matters: exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection.

It guarantees extensive safeguards for the protection of taxpayers' rights.

5. U.S. News – White House announces its tax reform proposals In international news this week, the top story in tax came from the U.S. where the White House unveiled its tax reform proposals to reform and reduce both personal and corporate tax rates.

The three primary changes proposed in the area of business taxation are the following:   

A reduction in the corporate federal tax rate from 35% to 15%; A one-time tax on the repatriation of foreign earnings of US companies (no rate is mentioned in the plan); Changing the existing worldwide tax system to a territorial system excluding foreign dividends (after the imposition of the one-time tax on earnings and deemed repatriated mentioned above).

Although the introduction of a Border Adjustment measures received much attention in recent months such a measure is not included in the proposals.

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08 May 2017

1. Commissioner Moscovici confirms details of upcoming EU proposal on ‘intermediaries’ The European Parliament “PANA” Committee of Inquiry held on Thursday 4 May a public hearing with Pierre Moscovici, EU Commissioner for Economic and Financial Affairs, Taxation and Customs Union.

EU Commissioner Moscovici discussed the details of the upcoming EU legislative proposal on disincentives for intermediaries of aggressive tax planning schemes, the forthcoming EU blacklist of non-cooperative jurisdictions for tax purposes and the recent exchanges between the European Commission and the administration of President Trump.

Speaking to the Members of the European Parliament and the Committee of Inquiry, Commissionaire Moscovici said that he expects the legislative proposal from the Commission by June, with measures that would be ‘wide-ranging and tough’. Mr Moscovici also confirmed that the Commission is considering a legislative proposal, rather than a ‘soft-law’ instrument such as Code of conduct, which would include ‘all intermediaries, and would cover all harmful practices and all jurisdictions’. On a question from the French MEP Eva Joly regarding the possibility of including criminal sanctions in the forthcoming European Commission proposal, Commissioner Moscovici denied that the legislative proposal would entail criminal sanctions. In respect of this policy initiative of the European Commission, CFE adopted an Opinion Statement PAC/FC 1/2017.

The next public hearing of the ‘PANA’ Committee of Inquiry is scheduled for Tuesday 9 May on the cooperation in tax matters with European jurisdictions, with representatives of the Channel islands, Gibraltar and Madeira discussing their tax regimes and their commitments in the fight against money laundering, tax evasion and tax avoidance.

2. EU to extend Code of Conduct group harmful tax competition criteria As reported by Bloomberg, the European Union is moving to close down special tax incentives zones within the EU, with the Code of Conduct Group on Business Taxation tasked to implement the harmful tax competition criteria. The document leaked from the Maltese presidency of the Council of the EU, and cited by Bloomberg, follows on the November 2016 Council compromise on the blacklist of noncooperative jurisdictions for tax purposes. The final blacklist should be established by the end of year, according to the European Commission.

According to the Bloomberg report, the criteria that the Maltese Council presidency listed to initiate an inquiry for harmful tax competition by the Code of Conduct group include: tax benefits for companies in an economic zone that favour dealings with non-resident entities, regulations that do not require ‘real and substantial’ activity or substantial economic presence, tax benefits for highly mobile income, such as income from intra-group services, as well as activities limited to holding of equity participation or earning divides or capital gains. Bloomberg also cites reports that the European

Commission will proceed with guidelines based on EU State aid law in case the Member states fail to end the ‘abuse’ of tax privileges in the free economic zones.

3. European Commission publishes monthly EU law infringements package The European Commission published its monthly infringements package, which summaries the legal actions taken by the European Commission against Member states that fail to comply with their obligations under European Union law. In April, the European Commission adopted 4 letters of formal notice, 45 reasoned opinions, 11 referrals to the Court of Justice of the European Union, and 2 closures. In respect of the tax infringement cases, the Commission referred Italy to the Court of Justice of the EU for failing to apply the national excise duty on petrol and diesel purchased by residents of the Friuli Venezia Giulia Region. The reduced rate currently operated by Italy for the Venezia Region residents is considered by the Commission to be infringing the proper functioning of the EU internal market. These regional reductions, which according to the Commission have led to ‘fuel tourism’ are considered to be in breach of the EU Energy Taxation Directive/ Council Directive 2003/96/EC. 4. OECD launches disclosure facility for CRS avoidance schemes The OECD launched on 5 May a facility to disclose reportable tax avoidance schemes under the Common Reporting Standards (‘CRS’). According to the OECD, the disclosure facility is part of a wider three step process that the OECD has implemented to deal with reportable schemes under the CRS. The scope of the facility is wide, and covers financial institutions, the information to be reported and the scope of the account holders subject to reporting. The disclosure facility also requires jurisdictions to implement anti-abuse rules to prevent any practices that may circumvent the reporting the due diligence process. The disclosure facility is launched on the OECD Automatic Exchange Portal and allows interested parties to report potential schemes that circumvent the CRS. The disclosure facility can be accessed at the OECD CRS portal.

5. OECD releases CbC reporting implementation status With regards to the BEPS Action Point 13 (Country-by-Country Reporting), the OECD reported on 4 May that another step was taken in the implementation of the CbC minimum standard through activation of the automatic exchange relationships under the Multilateral Competent Authority Agreement on the Exchange of Reports. At the moment, more than 700 automatic exchange relationships have been established, including those between EU member states under the Council Directive 2016/881/EU. The OECD will publish regular updates on exchange relationships on their website to provide clarity for MNE groups and tax authorities. ***** The selection of the remitted material has been prepared by Piergiorgio Valente / Aleksandar Ivanovski / Mary Dineen / Filipa Correia Follow CFE on LinkedIn

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15 May 2017

1. CJEU rules Luxembourg legislation regarding the application of the VAT cost-sharing exemption is too broad in Case C-274/15 The CJEU has held that Luxembourg's implementation of the VAT exemption for supplies involving cost sharing groups (CSGs) and their members is incompatible with the VAT Directive (2006/112/EC).

The following aspects of the CSE in Luxembourg legislation have been found to be contrary to the VAT Directive: •

• •

The CSE applies to services provided by an independent group to its members whose taxable activities amount to 30% of their annual turnover; it is not confined to independent groups whose members exclusively deal in VAT exempt activities. This has been found to be contrary to Article 2(1)(c) and Article 132(1)(f) of the VAT Directive.

Members of the CSG can deduct from the VAT which there are liable to pay the VAT due or paid in respect of goods and services supplied to the CSG. When members of the CSG incur expenses in their own name but on behalf of the group and subsequently allocate those expenses to the CSG the legislation deems it outside the scope of VAT. This has been found to be contrary to Article 14(2)(c) and Article 28 of the VAT Directive.

2. MEPS vote in favour of EU Commission proposal to reduce VAT on e-books The EU Commission proposal to reduce the VAT rate on e-books has been approved by the majority of the members of the Economic and Monetary Affairs Committee of the EU Parliament. The proposal seeks to align the rate of VAT charged on e-books to that reduced rate which applies to traditional hard-copy books. Currently, e-books are subject to VAT at the standard rate.

The standard VAT rate will continue to apply to music and videos and publications predominantly consisting of music and video content. The proposal is pending to be voted on by the parliament as a whole on 31 May or 1 June 2017.

3. EU Joint Transfer Pricing Forum publishes summary of its 49th meeting The European Joint Transfer Pricing Forum (JTPF) has published the summary 49th meeting held in Brussels on 9 March 2017. The meeting, as always, was held in private.

The main objective of the meeting was to discuss the JTPF Report on the Use of Economic Valuation Techniques in Transfer Pricing. The summary states that significant progress was made, and it is anticipated that it will be finalised at the next meeting to be held on 22 June. The general approach was agreed upon; it was agreed that the objective was not to create new concepts but rather to

provide a common understanding and develop recommendation on how to use the valuation techniques in the specific context of transfer pricing.

On a separate subject, the JTPF Report on the Use of Comparables in the EU was adopted at the meeting. The report establishes best practices and solutions through various recommendations for both taxpayers and tax administrations within the EU. It aims at increasing the objectivity and transparency of comparable searches for transfer pricing in practice.

4. Parliament Report addresses proposals for CCCTB The ECON Committee has issued its first edition briefing on the proposed legislation to implement at common consolidated corporate tax base in Europe. It contains a summary of the proposal and outlines the legislative history of the proposals. No opinions on the proposals are contained in the briefing.

Please follow this link to see the Briefing.

5. Bloomberg reports on confidential Presidency compromise text on public country-by-country reporting.

The Maltese Presidency has drafted a compromise text regarding public country-by-country reporting which is due to be discussed on Wednesday 17 May. Bloomberg has reported on the contents of the confidential compromise document. Under the current proposal an MNE whose turnover exceeds 750 million for 2 consecutive years will be obliged to comply with the public county-by-county reporting obligations. The compromise text would give companies a reprieve from public country-by-country reporting if their net turnover dipped below 750 million euros for a year.

The compromise proposal also inserts language that would mean only multinational companies “operating� in the EU would be covered by the public country-by-country reporting proposal.

Bloomberg reports that overall, the Maltese compromise text maintains many of the key features of the original proposal.

Dates for the diary: EU Commission Conference on Tax Fairness – 28 & 29 June, Brussels The European Commission is hosting a conference on tax fairness in Brussels on 28 and 29 June. The conference is part of the new training launched by the Commission in 2017 for civil society on international and EU corporate tax issues.

Register at the following link

Accountancy Europe Tax Day – 20 May, Brussels Accountancy Europe’s Tax Day 2017 will take place in Brussels on 30 May. It will discuss international tax cooperation and global efforts to combat tax avoidance and evasion with particular focus on technology and increasingly digitalised economies. It will also look at political developments in the EU and beyond, including anticipated US tax reforms.

Register at the following link International Tax Conference “Growth and Taxes” – 30 June, Munich In cooperation with ICC, BIAC and BusinessEurope, speakers will discuss tax policy issues, which would help facilitate cross border trade by reducing double taxation, simplify tax rules, strengthen tax payers´ rights, foster a growth oriented tax policy and increase tax certainty.

CFE President, Prof. Piergiorgio Valente will be speaking at the event on the Charter of Taxpayers Rights.

Register at the following link

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22 May 2017

1. ECOFIN Meeting expected to agree proposed Directive on Dispute Resolution Mechanism The next ECOFIN meeting of European Finance ministers will take place in Brussels on Tuesday 23 May. The top priority will be finalising the work done in the area of dispute resolution with, agreement anticipated on the proposal for Directive on Double Taxation Dispute Resolution Mechanisms.

CCCTB will also be in the agenda. The Council will be briefed on the progress achieved in the technical examination of the proposal for a Council directive to introduce a common corporate tax base in the EU. Ministers will be asked to provide guidance for future work on the proposal.

2. G7 Finance Ministers issue communique on tackling tax challenges & encouraging implementation of BEPS measures and signing of the Multilateral Instrument At a recent meeting in Italy, the G7 Ministers emphasised the importance of implementing the BEPS package to achieve a globally fair and modern tax system. They encouraged all jurisdictions to sign the Multilateral Instrument and to ratify the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

They emphasised the need for all jurisdictions including financial centres to commit to implementing the Common Reporting Standard (CRS) on automatic exchange of financial account information, which will commence in September 2017 encouraging jurisdictions to put in place the necessary legislation to enable exchanges under the CRS by September 2018 at the latest.

The communique acknowledges the work done by the OECD and IMF on tax certainty and addresses the potential tax challenges of an increasingly digitalised economy stating that subject to the conclusions of the report being prepared by OECD Task Force on the Digital Economy will develop policy options to address these tax challenges in a consistent manner.

Finally, the communique speaks of the OECD’s preparation of a list of non-cooperative jurisdictions with respect of tax transparency, which will guide future work on defensive measures against listed jurisdictions.

Follow this link for a copy of the G7 Communique

3. EU Parliament again rejects as inadequate the blacklist of states at risk of money laundering

MEPs rejected as inadequate what they believe to be an overly narrow list of countries at risk of money laundering.

Earlier this year, Parliament vetoed a similar list drawn up by the Commission, of countries thought to be at risk of money laundering, financing terrorism or promoting tax evasion. A resolution voted on Wednesday says the EU should have an independent, autonomous process for judging whether countries pose a threat of financial criminality rather than relying on the judgement of an external body.

4. Important Taxpayer rights Judgment delivered by ECJ ( Case C-682/15 Berlioz Investment Find S.A.) – Taxpayers have the right to challenge a tax information exchange order The case concerned the right of the taxpayer to challenge a request for information issued by a Member State’s administration pursuant to Directive 2011/16 on administrative cooperation in the field of taxation (the “Directive”).

Berlioz was the subject of a request for information from the French tax authorities to their Luxembourg counterparts concerning dividends received by Berlioz from its French subsidiary Cofima.

Berlioz objected to providing information relating to shareholders names and individual percentage shareholdings because it lacked ‘foreseeable relevance’. Berlioz was subject to a pecuniary penalty for failure to comply. Berlioz appealed to the Administrative Court in Luxembourg alleging a breach of Article 6 of the European Convention on Human Rights and Fundamental Freedoms. The Court filed a preliminary reference to the Court of Justice of the EU adding also reference to Article 47 of the EU Charter of Fundamental Rights guaranteeing ‘right of effective remedy and to a fair trial’.

In relation to the ‘foreseeably relevant’ criterion, the ECJ held that pursuant to Article 1(1) and Article 5 of the Directive the information requested must be ‘foreseeably relevant’ in order for the recipient Member State to be obliged to comply with the information request.

In relation Article 47 of the EU Charter of Fundamental Rights the Court held that it must be interpreted as meaning that a relevant person on whom a pecuniary penalty has been imposed for failure to comply with an ‘information order’ is entitled to challenge the legality of that decision to issue an ‘information order’. As part of that challenge under judicial review, the Court must have access to the document containing the request for information. However, it should otherwise remain a secret document in accordance with the Directive and the taxpayer should not have sight of the whole of the document.

The Court also held that the Charter of Fundamental Rights of the European Union is applicable to situations involving information requests when the national legislation contains pecuniary penalties for failure to comply by the taxpayer with an information request between tax authorities, particularly in the context of the Directive on.

Finally, the Court also held that the national court has authority to vary the pecuniary penalty imposed for failure to comply with an information order but also has the jurisdiction to review the legality of the information order. In this regard, the Court must focus on whether the requested information has ‘foreseeable relevance’.

Follow this link to a copy of the DECISION .

5. Dates for the diary: EU Commission Conference on Tax Fairness – 28 & 29 June, Brussels The European Commission is hosting a conference on tax fairness in Brussels on 28 and 29 June. The conference is part of the new training launched by the Commission in 2017 for civil society on international and EU corporate tax issues.

Register at the following link Accountancy Europe Tax Day – 20 May, Brussels Accountancy Europe’s Tax Day 2017 will take place in Brussels on 30 May. It will discuss international tax cooperation and global efforts to combat tax avoidance and evasion with particular focus on technology and increasingly digitalised economies. It will also look at political developments in the EU and beyond, including anticipated US tax reforms.

Register at the following link International Tax Conference “Growth and Taxes” – 30 June, Munich In cooperation with ICC, BIAC and BusinessEurope, speakers will discuss tax policy issues, which would help facilitate cross border trade by reducing double taxation, simplify tax rules, strengthen tax payers´ rights, foster a growth oriented tax policy and increase tax certainty.

CFE President, Prof. Piergiorgio Valente will be speaking at the event on the Charter of Taxpayers Rights.

Register at the following link

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06 June 2017

1. OECD BEPS Multilateral Instrument to be signed in Paris

The signing ceremony of the multilateral instrument to modify bilateral tax treaties will take place on 7 June in Paris with more than 70 countries expected to sign the new tax convention multilateral instrument.

The formal adoption of the OECD multilateral instrument took place in November 2016, and follows up on the OECD BEPS Action Point 15. The multilateral instrument is expected to mitigate the problems arising from the alternative - implementation of the OECD BEPS measures by virtue of modifying thousands of bilateral double taxation conventions.

The OECD 2017 Forum and the ministerial meetings to be held in Paris June 6-7 shall also discuss the impacts of globalisation on societies, with central emphasis on the need for global policies that win back the confidence of those who feel left behind globalisation. The OECD Forum topics include discussion on the unprecedented speed of technological developments and their implications, with working title ‘How can we bridge divides to build more inclusive societies?’.

The text of the OECD Multilateral Convention to implement base erosion and profit shifting measures related to tax treaty changes is available here.

2. Pascal Saint-Amans: Ending secrecy is the new frontier in international tax

The OECD Head of tax policy Pascal Saint-Amans in an interview for Fairfax Media, said that a new ‘battle’ in international tax area will be fought in revelation of the ultimate beneficial ownership and secret identities behind shell companies and opaque trusts.

According to Pascal Saint-Amans, the next step would include access to the beneficial ownership registers, without specifying whether this should include public access to beneficial ownership information: ‘Access to beneficial ownership information is probably the new frontier in fighting tax evasion. It would be fantastic to be able to fly to Mars but let us first fly to the Moon’, OECD Tax Policy director said on the issue of public access to beneficial ownership registers.

The European Union Member States are currently in the process of implementing the 4th EU Anti-Money Laundering Directive, with some member states, including the European Parliament, considering granting public access to beneficial ownership registers.

3. OECD invites comments on Hard-To-Value Intangibles discussion draft

The OECD published a discussion draft on the implementation of BEPS Action Point 8: HardTo-Value Intangibles. Public comments on the discussion draft which provides guidance on the OECD approach to transfer-pricing of hard-to-value intangibles (Chapter VI of the OECD Transfer-Pricing Guidelines) are invited by 30 June 2017.

The OECD Final Report on Actions 8/10 of October 2015 (“Aligning Transfer Pricing Outcomes with Value Creation”) mandated development of guidance on the implementation of the recognised approach to transfer-pricing of hard-to-value intangibles.

According to the OECD, the discussion draft does not represent a final position of the Committee on Fiscal Affairs, rather examples illustrating the application of this approach and the interaction between the pricing of hard-to-value intangibles and the MAP procedure under an applicable double tax treaty.

4. EU and China begin State Aid control dialogue

The European Commission and China have started a dialogue on establishing a mechanism of cooperation between EU and China in the field of State Aid control. This action is part of Commission’s efforts to create a global level playing field where companies compete on basis of their merits, and to prevent public policies that are highly distortive or restrictive of the competition.

EU Commissioner Margrethe Vestager stated: "Decisions by one country to grant a subsidy to a company that operates globally may affect competition elsewhere. The European Commission is pleased to start a discussion with China on how to best handle state intervention in the economy."

China is the world's third largest economy and the EU's second largest trading partner. The EU is China's biggest trading partner. The control of State Aid is likely to be one of the important topics to be discussed also during the Brexit negotiations between the EU and the United Kingdom.

5. EU Platform Tax Good Governance Meeting to be held on 15 June

A meeting of the EU Platform Tax Good Governance will take place on 15 June in Brussels.

The CFE participates as member of the Platform Tax Good Governance. CFE representatives

to the Platform, Stella Raventos (Chairwoman of the Fiscal Committee) and Piergiorgio Valente (CFE President), will coordinate CFE contributions to the Discussion Papers of the meeting.

The Platform for Tax Good Governance assists the European Commission in developing initiatives to promote good governance in tax matters in third countries, to tackle aggressive tax planning and to identify and address double taxation. It brings together expert representatives from business, tax professional and civil society organisations and enables a structured dialogue and exchange of expertise which can feed into a more coordinated and effective EU approach against tax evasion and avoidance.

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12 June 2017

OECD Multilateral Instrument signed in Paris The OECD Multilateral Instrument (“MLI”) was signed by 67 government ministers on 7 June 2017. The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS is intended to transpose results from the OECD BEPS Project into thousands of double taxation conventions worldwide, and is open for signature by any country. Signatories of the MLI may choose which of the existing double tax treaties they would like to modify using the MLI. Once a treaty has been listed by the two parties, it becomes an agreement to be covered by the MLI. The 67 signatories have listed 2,635 treaties to be modified by the MLI. Substantively, the MLI concerns OECD BEPS treaty-related minimum standards: Action 14 for improvement of dispute resolution, and Action 6 on preventing treaty benefits in inappropriate circumstances (treaty abuse). By its legal nature, the MLI is a multilateral international agreement, that shall be applied alongside existing bilateral double taxation conventions, modifying their application. In this way, bilateral tax treaties can be modified in a synchronised and consistent way in order to swiftly implement tax treaty related anti-BEPS measures. OECD expects that the first modifications shall become effective in 2018, with full scale implementation until 2019.

The explanatory statement accompanying the publication can be found on the following link.

European Economic and Social Committee warns that generalised VAT reverse charge could undermine the common VAT system The European Economic and Social Committee, an advisory and consultative body of the European Union, adopted on 31 May 2017 an Opinion related to the proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax as regards the temporary application of a generalised reverse charge mechanism in relation to supplies of goods and services above a certain threshold.

The Committee takes a general view that the reverse charge mechanism that derogates from the common European Value Added Tax System may be a useful tool in countering carousel fraud and VAT evasion. The Committee’s Opinion warns however that the use of the reverse charge mechanism could undermine the European internal market. The Committee has expressed concerns about possible fragmentation of the common VAT system, considering Commission’s plan to apply the derogation only to certain supplies of goods and not to services.

The Committee further recommends focusing on the proportionality principle, as the cost of compliance for small and medium-sized enterprises (SMEs) related to introducing a reverse charge mechanism could be considerable and may have an impact on cash flow with the risk that SMEs in particular may experience liquidity problems induced by the generalised reverse charge mechanism.

The Opinion of the Committee is available in all official European Union languages.

EU Commission adopts ‘Better Regulation’ agenda on improving EU law efficiency The European Commission’s REFIT Platform, which is composed of internal and external stakeholders tasked to follow-up on Commission President Juncker Better Regulation Agenda met on 7 June to discuss how to improve the functioning of the Union legislation. The Group adopted 13 opinions with specific suggestions on improving the efficacy and efficiency of European Union law. The areas covered include: consumers’ health, food safety, consumer protection, etc. The adopted opinions will feed into the preparations for the 2018 Commission Work Programme, which is scheduled for adoption in October 2017.

European Commission Vice-President Frans Timmermans, who chairs the REFIT Platform, said: "Your work in the REFIT Platform is a great way of turning citizens' and businesses' feedback on our laws into concrete solutions. I am deeply committed to this work, and at the end of this Commission's fiveyear mandate I want people to see that we have changed the way we work and improved our laws by listening and acting on their suggestions."

European Commission Conference on tax fairness on 28 & 29 June in Brussels The European Commission DG TAXUD will host a high level conference on tax fairness, taking place in Brussels on 28 – 29 June. The conference brings together a nazumber of speakers from various profiles, such as policy-makers, politicians, academia, business and NGOs. Follow this link for conference details and registration.

Plenary week of the European Parliament in Strasbourg The European Parliament will hold a week of plenary sessions in Strasbourg, Monday 12 June – Thursday 15 June. Apart from one item on taxation of ports, tax policy is not on Parliament’s plenary agenda, but climate policy is. The Parliament is scheduled to debate on Thursday 15 June the decision of President Trump to withdraw the United States from the Paris Climate Agreement. Here is a link to European Parliament’s plenary week agenda. ***** The selection of the remitted material has been prepared by Piergiorgio Valente / Aleksandar Ivanovski / Mary Dineen / Filipa Correia Follow CFE on LinkedIn

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19 June 2017

Financial Transaction Tax on the Agenda at ECOFIN meeting The proposal for a financial transaction tax by means of enhanced cooperation was discussed at the recent ECOFIN meeting held in Luxembourg on Friday 16 June. Proposals for an EUwide directive failed in 2011 and subsequently a procedure for enhanced cooperation was initiated. 10 Member States are proceeding with the proposal. The Member States seeking to introduce the tax are Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.

The proposals seek to ensure that the financial sector pays its fair share of tax; and discourage transactions that do not enhance the efficiency of financial markets. The proposal envisages the introduction of a minimum 0.1% tax for transactions in all types of financial instruments or in the case of derivatives a minimum tax of .01%.

In order for the proposal to be finalised and become a directive unanimous agreement must be reached by the 10 participating countries after consultation with the European Parliament. Whilst it is open to all member states to participate in discussions only the 10 member states outlined above can vote.

More work to be done before agreement can be reached on the temporary reverse charge proposal European finance ministers failed to reach agreement on allowing certain member states to apply a generalised reverse charge mechanism. The proposal seeks to combat VAT fraud.

The generalised reverse charge proposals follow a request from member states significantly affected by VAT fraud, namely Austria and the Czech Republic.

The proposed directive offers a solution to the so-called ‘missing trader’ or ‘carousel’ fraud, where supplies are traded several times without payment of VAT due on the transactions.

Under present rules, reverse charge can be applied as temporary measure only, whereas the proposed directive would established a generalised system applicable on a voluntary basis until 30 June 2022.

The Commission presented an analysis of the possible application of the generalised reverse charge mechanism in Austria and the Czech Republic.

Whilst the finance ministers were positive about the proposals they discussed the potential problems including legal difficulties and disputes arising along with an increase in untaxed

goods and services. It was therefore agreed that more work was required before the proposals could be finalised.

VAT on E-books - Failure to secure approval on the proposed reduction of VAT rate A proposal to align the VAT rate on electronic publications with that of traditional publications failed to get unanimous support at the recent ECOFIN meeting. Although the proposal had strong support from many member states the Czech Republic voted against it requesting a wider solution for VAT rates and the digital economy be looked at. The proposal will be discussed again later in the year.

European Parliament’s ECON and JURI committees votes on public country-by country reporting On 12 June, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) and Committee on Legal Affairs (JURI) approved a proposal requiring multinationals to report details of their activities in every EU country in which they operate. The information to be published will include turnover, profits and taxes paid.

An exemption does exist so that multinationals will not be obliged to publish commercially sensitive information.

Whislt the vote was a step further towards public country-by-country reporting, the Committees failed to reach the qualified majority required to enter into negotiations with the Council. Therefore, the draft report will next be debated in a plenary session of the European Parliament.

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27 June 2017 1. European Commission published a proposal for Directive on ‘intermediaries’ The European Commission published on 21 June the proposal for a Directive on ‘intermediaries’ that aims to establish an obligation for mandatory disclosure to tax authorities of reportable cross-border arrangements coupled with automatic exchange of information. The proposal of the Commission comes in the form of a 5th amendment to the Directive on mandatory automatic exchange of information in the field of taxation (“DAC”). In order to become European Union law, the Commission proposal needs a unanimous support in the Council of the EU by all member states.

In respect of the scope of the directive, the proposal envisages that the intermediaries bear the burden of disclosure to the tax authorities, if they are involved in the design or promotion of an aggressive tax planning arrangement with cross-border implications. The disclosure obligation does not concern purely internal situations concerning one EU member state, due the internal market component necessary to justify a legislative action at EU level. The disclosed information to the national tax authorities shall be automatically exchangeable by tax authorities of all member states.

Where the obligation to disclose is not enforceable due to absence of intermediary, or due to legal professional privilege, the directive envisages shifting of the disclosure obligation to the taxpayer who is benefiting from the arrangement.

In respect of the timing of disclosure, intermediaries shall disclose reportable arrangements within 5 days beginning on the day after an arrangement becomes available for implementation to the taxpayer. The timing is more lenient in case of disclosure by a taxpayer, with obligation to disclose within 5 days once implementation has commenced.

In respect of the hallmarks, which are the criteria that define what constitutes a reportable crossborder arrangement, the directive places these in an Annex, that could be amended and revised by the European Commission once the directive has been implemented. The directive envisages a main benefit test alongside generic and specific hallmarks. The generic hallmarks include: confidentiality from competitors, confidentiality from the tax authorities, premium fees and off-the-shelve schemes.

Specific hallmarks include hallmarks related to the main benefit test, specific hallmarks related to the cross-border transactions, to transfer-pricing and specific hallmarks concerning automatic exchange of information in the European Union.

The proposed rules could enter into force on 1 January 2019, in case of adoption by the Council as per the EU treaties.

2. OECD releases BEPS discussion drafts on attribution of profits to PEs and profit-splits The OECD released two discussion drafts inviting comments on the following issues: attribution of profits to permanent establishments, and, revised guidance on profit splits. Comments are welcome until 15 September 2017.

The attribution of profits discussion draft concerns additional guidance that had been mandated by BEPS Action Point 7 (prevention of artificial avoidance of PE status) on how the rules of Article 7 of the OECD Model Tax Convention would apply to PEs resulting from the BEPS changes, in particular for PEs outside the financial sector. This guidance replaces the discussion draft of July 2016, and concern attribution of profits only, and not the definition of permanent establishment.

The discussion draft on profit splits concerns Action point 10 of the BEPS Action Plan in respect of application of the transfer pricing methodology, specifically the transactional profit split method, in the context of global value chains.

3. Publication of transfer-pricing toolkit for developing countries The United Nations, World Bank, the OECD and the International Monetary Fund (IMF) published a toolkit to help developing countries to better protect their corporate tax base. The toolkit specifically addresses the lack of comparables for transfer-pricing analyses. Considering the pricing of related party transactions in the extractive industries is an issue of relevance for the developing countries, the toolkit addresses the information gap on minerals sold in an intermediary form.

4. Third meeting of the BEPS inclusive framework Over 200 delegates from 83 countries and 12 international and regional organisations met in the Netherlands as part of the Third Meeting of the BEPS Inclusive Framework. Apart from approving the discussion drafts on attribution of profits to PEs and the profit-split transfer-pricing methodology, the BEPS Inclusive Framework welcomed new members and discussed and approved its first monitoring report, to be submitted to G20 leaders for their summit on 7-9 July 2017 in Hamburg, Germany.

5. OECD appoints new head of transfer-pricing The OECD has appointed Mr Tomas Balco as Head of its Transfer-Pricing Unit within the Centre for Tax Policy and Administration, taking up his duties on 4 September 2017. A Czech and Slovak national, Mr Balco holds law degrees from the Masaryk University in Brno and the Vienna University of Economics and Business. Mr Balco previously worked for Deloitte and PricewaterhouseCoopers, the tax department of the Czech Government and the European Commission. Mr Balco has also been participant to the work of the UN Committee of Experts in International Taxation. ***** The selection of the remitted material has been prepared by Piergiorgio Valente / Aleksandar Ivanovski / Mary Dineen / Filipa Correia Follow CFE on LinkedIn

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03 July 2017 As the 4th Anti-Money Laundering Directive becomes fully effective, European Commission publishes supranational risk report The European Commission published on 26 June the Supranational Risk Report pursuant to the Fourth Anti-Money Laundering Directive, which is now fully effective. The Fourth AntiMoney Laundering Directive reinforces existing EU rules on the risk assessment obligations for professionals, setting clear transparency requirements about the beneficial ownership of companies. The Directive also aims to facilitate information exchange between Financial Intelligence Units in identifying and following suspicious transactions.

The Supranational Risk Assessment report that was due pursuant to the Directive will support member states in addressing money-laundering risks in practice. The Report includes mapping of risks per relevant area, recommendation for member states how to identify and address the risks accordingly with focus on the supervisory activities.

The European Parliament and the Council are already at advanced stage of discussions on new measures that reinforce the Directive.

Vera Jourova, Commissioner for Justice, Consumers and Gender Equality said: “Terrorists and criminals still find ways to finance their activities and to launder illicit gains back into the economy. The new rules as of today are crucial to closing further loopholes. I urge all Member States to put them in place without delay: lower standards in one country will weaken the fight against money laundering and terrorist financing across the EU. I also call for quick agreement on the further revisions proposed by the Commission following the "Panama Papers" to increase transparency of beneficial ownership."

Trinidad and Tobago listed by OECD as the only jurisdiction failing to make sufficient progress towards satisfactory implementation of the tax transparency standards The OECD The OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes has released its list of non-cooperative jurisdictions in the run-up to the meeting of G20 leaders in Hamburg on 7 and 8 July.

Under an initial review, 15 countries were listed as having less than satisfactory rating. The Global Forum established a fast-track review process to evaluate the progress of these countries prior to the G20 summit. Following this procedure, 13 countries were upgraded to being fully compliant with international tax transparency standards, 1 country was upgraded

but only being partially compliant. However, the OECD listed Trinidad and Tobago as being less than compliant and therefore on the so-called “blacklist” or “tax havens”.

The OECD has been criticised by NGOs on the grounds that it implies that only 1 country in the world is a “tax haven” or is failing to be fully transparent on tax matters”.

EU Commission hosts two-day conference on tax fairness – Estonia highlights need for conversation on taxation and digitalisation.

The two-day conference discussed topics such as how taxation policies and tax fairness can and should go hand in hand. Panellists from civil society organisations, academia and business groups discussed and debated topics such as how best to apply the principle of fairness to tax policy making’ and the importance of the stakeholder’s role in shaping taxation policies.

The keynote address was given by Commissioner Pierre Moscovici. The Commissioner stated that he believed competitive and fairer Europe are two sides of the same coin. He highlighted the many EU initiates in the tax field that have been recently implemented and proposed to tackle tax evasion and fraud with the aim of increasing fairness in the tax system. He outlined the Commission’s plans to publish a new VAT package in Autumn to overall the outdated and unduly burdensome current VAT regime, which was initially intended to only be transitional.

The issue of the digital economy and the unique tax consequences resulting from increased digitalisation was highlighted at numerous times throughout the conference. The Estonian Finance Ministry stated that it would be a top taxation priority of the Estonian Presidency to encourage a conversation about how best to deal with the digital economy and in particular how best to tackle the difficult and complex question of how best to deal with permanent establishments in the digital market.

New compromise text on public country-by-country reporting released On 22 June 2017, the Council of the European Union issued a compromise text for the proposal for a Directive of the European Parliament and the Council on public country-bycountry reporting. The Presidency compromise document highlights the changes compared to the Commission’s original proposal.

The European Parliament will be voting on public country-by-country reporting this week in order be able to enter into dialogue with the Council on this issue.

The two institutions have opposing positions on some central elements of the proposals including the threshold multinationals must reach to come within the proposals – with the Parliament proposing a 40 million euro threshold as opposed to the much higher 750 million euro threshold being proposed by the Council. In addition, the latest compromise text sees

the introduction of measures such as an exception whereby multinationals will not be obliged to publish information which would be seriously prejudicial to the commercial position of the undertakings to which it relates.

A copy of the compromise text is available here ***** The selection of the remitted material has been prepared by Piergiorgio Valente / Aleksandar Ivanovski / Mary Dineen / Filipa Correia Follow CFE on LinkedIn

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10 July 2017 EU Parliament Committee of Inquiry calls for regulation of tax intermediaries The European Parliament Committee of Inquiry into contraventions of EU law arising from the Panama Papers revelations called for ‘regulation of tax intermediaries, regretting that intermediaries are currently regulated in non-harmonious manner across the EU’. The draft Report of the Committee of Inquiry published on 28 June is accompanied by draft parliamentary resolution with Recommendations for the European Commission and the Council of the EU. The Parliament urges for a shift from self-regulation to ‘appropriate supervision and state-controlled regulation’ for currently self-regulated professionals by way of a separate and independent national regulatory bodies.

Additionally, the draft report calls for ‘stronger sanctions’ against intermediaries including ‘naming and shaming’. Creation of EU-wide framework for compulsory codes of conduct for the intermediaries was also recommended, with the draft Recommendations urging the European Commission to clarify what is legal, illegal and immoral in the context of tax evasion and tax avoidance practices. The draftRecommendations urged the Council to ‘solve the transfer-pricing issue’ by adopting the CCCTB proposals ‘rapidly’ and to put forward proposal for a European FATCA, thus ensuring reciprocity regarding exchange of information.

The European Parliament is scheduled to vote on the draft report today.

MNEs to publicly disclose CbCR data for each country they operate, MEPs vote The European Parliament Committees voted on 4 July to amend the original Commission proposal on public country-by-country reporting (“CbCR”). Under the proposed changes, multinational companies with a global turnover above €750 million per year or more will publish CbCR data in each country they operate in the world, and not only for EU countries and tax havens as indicated in the original European Commission proposal. Under the voted text, the income tax information of multinational companies will be available publicly on a standardised template, stored in a registry which is to be maintained by the European Commission. In a compromise among the various political groups in the European Parliament, MEPs voted to protect commercially sensitive information by allowing Member states to grant exemptions from the public CbCR requirements. Data shall still be confidentially submitted from the Member state to the European Commission.

After approving the report by 534 to 98 votes with 62 abstentions, the report is sent back to the Committees (ECON, JURI and DEVE) to commence negotiations with Council in first reading on the basis of a plenary mandate.

Estonia sets out EU presidency priorities in respect of taxation Estonia took over the next six months presidency of the European Union from Malta on 1 July 2017, setting out the presidency priorities in its Working programme. In respect of tax, the Estonian EU presidency plans to ‘address the issues of tax evasion and tax avoidance, that undermine the work and competitiveness of the honest operators.’

Estonia intends to relaunch negotiations on the VAT modernisation in relation to cross-border ecommerce, combating VAT fraud and to conclude discussions on VAT rates for e-books and epublications.

The Estonian presidency confirmed that the EU shall work towards agreement in the Council of the European Union on a common EU list of non-cooperative jurisdictions for tax purposes, and launch Council discussions on the mandatory disclosure rules of aggressive tax avoidance schemes.

European Commission to present ‘intermediaries’ proposal to the Council The Council of the EU sitting as ECOFIN will hear today the proposal from the European Commission on a directive on intermediaries, establishing mandatory disclosure rules at EU level.

According to the background brief, Member states find it increasingly difficult to protect their tax bases from erosion, as tax planning structures become ever more sophisticated. The proposal gathers from media revelations such as the April 2016 'Panama Papers' that have exposed how some intermediaries actively assist companies and individuals to escape taxation, often through complex cross-border schemes. The proposal is aimed at preventing such planning by increased scrutiny of their activities.

Under the directive, certain types of cross-border tax planning schemes would have to be reported to the tax authorities before being used. Member states would be required to automatically exchange the information they receive through a centralised database. This would enable an early warning on new risks of tax avoidance and for measures to be taken to block harmful arrangements. Member states would be obliged to impose penalties on those companies that do not comply with the transparency measures, thereby creating a deterrent. Under the proposal, the reporting requirements would enter into force on 1 January 2019. Member states would be obliged to exchange information every three months thereafter. To adopt the directive the Council requires unanimous agreement of the Member states, after consulting the European Parliament.

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17 July 2017

OECD publishes update to the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations The updated 2017 Transfer Pricing guidelines incorporate a consolidation of the changes made as part of the OECD BEPS project. In particular it takes account of the substantial changes made pursuant to BEPS Action 8-10, Aligning Transfer Pricing outcomes with Value Creation and Action 13, Transfer Pricing Documentation.

The updated 2017 edition consolidates the following revisions of the 2010 edition into a single publication: 

The substantial revisions introduced by the 2015 BEPS Reports on Actions 8-10 Aligning Transfer Pricing Outcomes with Value Creation and Action 13 Transfer Pricing Documentation and Country-by-Country Reporting. These changes were approved and incorporated in May 2016. Chapters I, II, V, VI, VII and VIII were amended.



The revisions introduced by BEPS Actions 8-10 and Action 13 relating to business restructurings which amended the guidance in Chapter IX and were approved in April 2017;



The revised guidance on safe harbours in Chapter IV. These changes were approved by the OECD Council in May 2013; and



In order to accurately finalise the consolidated version changes were made throughout the text for consistency. These consistency changes were approved by the OECD' on 19 May 2017.

In addition, the 2017 edition of the Transfer Pricing Guidelines includes the revised Recommendation of the OECD Council on the Determination of Transfer Pricing between Associated Enterprises The revised Recommendation reflects the relevance to tackle BEPS and the establishments of the Inclusive Framework on BEPS. It also strengthens the impact and relevance of the Guidelines beyond the OECD by inviting non-OECD members to adhere to the Recommendation. Finally, it includes a delegation by the OECD Council to the Committee on Fiscal Affairs of the authority to approve by consensus future amendments to the Guidelines which are essentially of a technical nature.

The updated and consolidated 2017 OECD Transfer pricing Guidelines are available here.

OECD preliminary database containing modifications made by Multilateral Instrument (MLI) on bilateral tax treaties is now online The OECD database known as the “matching database” as gone live. The matching database makes projections on how the MLI modifies a specific tax treaty covered by the MLI by matching information from Signatories’ MLI Positions and highlighting elections made.

The OECD highlight that this is a preliminary version and will be improved over time. The OECD is welcoming any comments users may have on the matching database.

The OECD MLI Matching Database is accessible here.

OECD releases the draft contents of the 2017 update to the OECD Model Tax Convention The OECD Working Part 1 has released draft contents of the 2017 update to the OECD Model Tax Convention prepared. It has not yet been approved by the OCED Committee on fiscal affairs so is not a final version. The OECD have released it to garner opinion and comments on certain proposed changes.

These changes are as follows: 

Changes to paragraph 13 of the Commentary on Article 4 related to the issue whether a house rented to an unrelated person can be considered to be a “permanent home available to” the landlord for purposes of the tie-breaker rule in Article 4(2) a).



Changes to paragraphs 17 and 19 of, and the addition of new paragraph 19.1 to, the Commentary on Article 4. These changes are intended to clarify the meaning of “habitual abode” in the tie-breaker rule in Article 4(2) c).

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The addition of new paragraph 1.1 to the Commentary on Article 5. That paragraph indicates that registration for the purposes of a value added tax or goods and services tax is, by itself, irrelevant for the purposes of the application and interpretation of the permanent establishment definition.



Deletion of the parenthetical reference “(other than a partnership)” from subparagraph 2 a) of Article 10, which is intended to ensure that the reduced rate of source taxation on dividends provided by that subparagraph is applicable in the case where new Article 1(2) would have the effect that a dividend paid to a transparent entity would be considered to be income of a resident of a Contracting State because it is taxed either in the hands of the entity or in the hands of the members of that entity. That deletion is accompanied by new paragraphs 11 and 11.1 of the Commentary on Article 10.

G20 Summit in Hamburg – Tax Highlights The G20 issued its communique on July 7th. Regarding tax matters the leaders focused on the upcoming exchange of information of financial account information under the Common

Reporting Standard which is due to take place for the first time in September. Countries are encouraged however to begin the process by August at the latest.

In addition the communique highlighted the commitment to business friendly tax initiatives whilst also reiterating the commitment to the OECD BEPS process. In terms of pro-business policies it highlighted the work being done in the areas of tax certainty and addressing the tax challenges raised by digitalisation. It also reaffirmed its commitment to assisting developing countries.

In regard to the topic of tax transparency the G20 refer to the next updated list of countries which have failed to reach a satisfactory level of implementation of transparency standards. It highlighted that defensive measures will be considered against jurisdictions which remain on the list.

A copy of the Communique is available at this link – G20 Communique

French Court holds that Google’s European Headquarters does not have a PE in France Google Ireland Limited has successfully won a challenge against a French tax assessment for 1.3 billion euro in relation to an alleged permanent establishment in France from 2005 to 2010. The French tax administration alleged that Google exploited loopholes in tax legislation and routed sales from France through the Dublin based EU headquarters. The French Administrative Court however held that on the basis that all decisions in France had to be approved and finalised in Ireland Google France lacked the requisite autonomy to establish a taxable base in France. ***** The selection of the remitted material has been prepared by Piergiorgio Valente / Aleksandar Ivanovski / Mary Dineen / Filipa Correia Follow CFE on LinkedIn

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24 July 2017

Irish Government launches procurement procedure for custodian to manage State aid recovery fund Notwithstanding the appeal against the EU Commission decision and the Irish Government’s vehement denial that state aid was granted to Apple, the Government is ensuring the recovery of the alleged state aid sum is completed.

The state aid recovery amount will be paid into an escrow account with final release when there has been a final decision in the European Courts as to whether to uphold the European Commission Decision.

The fund will amount to approximately 15 billion euro. The next step in the process will be to appoint a financier to manage the fund once an escrow agent/custodian has been appointed. A separate procurement process will be commence in due course in this regard.

The press release highlighted that “Commencement of this procurement process represents a significant milestone and follows months of intensive discussion between Ireland, apple and the European Commission on the recovery process” The Irish Department of Finance issued a Press Release on the procurement process on 22 July.

OECD publishes further guidance on Country-by-Country Reporting (BEPS Action 13) The Inclusive framework on BEPS has released further guidance on country-by-country reporting. It is hoped the additional guidance will provide clarity and assistance to both the tax authorities and multinationals on how best to implement the new rules.

Two specific issues are addressed in the additional guidance:  

How to treat an entity owned / or operated by two or more unrelated MNE Groups; and Whether aggregated data or consolidated data for each jurisdiction is to be reported in Table 1 of the report.

The Additional Guidance Document released on July 18th also contains all previous guidance released by the OECD on country by country reporting.

European Commission launches consultation on exchange of customs related information with third countries The European Commission has published a survey to obtain views from interested parties on the exchange of customs related information with third countries.

The Press Release states that “The consultation aims to gather views from stakeholders on the need for EU action aimed at introducing an effective tool to allow for systematic exchange of customs related information with third countries and in case there is, on how this tool could be designed and its scope�

The closing date for submissions is 16 October 2017. All submissions will be published by the Commission.

The Survey is available here.

European Commission publishes Taxation Trends Report 2017 The Taxation Trends Report contains a detailed statistical and economic analysis of the tax systems of the 28 Member States of the European Union, along with the members of the European Economic Area, Iceland and Norway.

The Report examines the taxation trends on a European-wide basis but also contains a detailed analysis of the individual tax systems of the 30 countries. The analysis contains various key tax indicators on tax revenues as a percentage of GDP on an annual basis from 2003-2015. In addition, the Report contains tables with the latest tax reforms in each country.

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31 July 2017

OECD publishes report on neutralising the effects of branch mismatch arrangements (BEPS Action 2) A branch mismatches occurs where two jurisdictions apply different classifications to the allocation of income or expenditure between, the branch in head office of the same taxpayer.

In 2015 as part of the BEPS Project, the OECD released a report entitled Neutralising the effects of Hybrid Mismatch Arrangements. This report focused on mismatches resulting from differences in the tax treatment or characterisation of hybrid entities. However, It did not directly consider similar issues that can arise through the use of branch structures, although such structures can pose and create similar problems for domestic tax systems. The 2015 Report contained recommendations for changes to domestic laws that can mitigate the use of hybrid entities to generate multiple deductions for a single expense or deductions without corresponding taxation of the same payment. This latest Report seeks to set out similar recommendations to bring the treatment of these branch mismatch structures into line with outcomes described in the 2015 Report.

The 2015 BEPS Action 2 Final Report on Neutralising the effects of Hybrid Mismatch Arrangements is available here.

The 2017 OECD Report on Neutralising the effects of branch mismatch arrangements is available here.

Advocate General Kokott issues Opinion in A Oy case (C-292/16) In her Opinion published on 13 July 2017, AG Kokott held that Finnish legislation relating to the implementation of Article 10 of the Mergers Directive (90/434 / EEC of 23 July 1990) and the transfer by a resident company of a foreign PE to a foreign company contravenes the freedom of establishment (Article 49 TFEU).

The case concerned the transfer of an Austrian PE by its Finnish Head Office to an Austrian resident company in exchange for shares in the Austrian company.

The legislation in question imposes an immediate charge to taxation in the year of the transfer of the assets in a PE when a Finnish resident company disposes of the assets in that

PE for the purposes of transferring the business to a foreign company. The disparity arises by virtue of the fact that if the PE is transferred to another Finnish company the charge to tax may be deferred so as not to arise until the year of realisation.

AG Kokott held that this disparity in treatment contravened the Freedom of Establishment and was not justified by the principal of fiscal territoriality.

The Opinion is as yet not available in English, but is available in French, German and other languages at this link: Opinion of AG Kokott in A Oy case (C-292/16) 13 July 2017

BRICS Countries sign a mutual Memorandum of Understanding for dealing with G20 Tax Work On 28 July 2017, the five BRICS countries (Brazil, Russia, India, China and South Africa) signed a memorandum of understanding pursuant to which they will enhance their cooperation on international tax matters including coordinating responses to the G20 tax initiatives, such as the BEPS Project. In addition, the five countries agreed to share knowledge and their experience on the implementation of the OECD BEPS measures and also in relation to the standard for the automatic exchange of information.

Senior Republican politicians abandon U.S. border tax proposals In a Joint Statement on Tax Reform from Speaker of the House of Representatives, Paul Ryan, and other senior Republican lawmakers, they stated that the proposed border tax would be shelved in favour of achieving broader and more far reaching tax reform, “there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform�. The statement identifies, simplifying the tax code, and lowering tax rates for businesses and American families as priorities for reform.

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7 August 2017

Platform for Tax Collaboration invites comments on draft toolkit on the taxation of offshore assets The Platform for Tax Collaboration, a joint initiative of the United Nations, the World Bank Group, the IMF and the OECD invites comments on a draft toolkit designed to help developing countries in the taxation of offshore indirect transfer of assets. With an aim of releasing the final toolkit by the end of 2017, the Platform expects comments and public feedback from interested stakeholder by 25 September 2017, by email to taxcollaborationplatform@worldbank.org.

The draft toolkit ‘Taxation of Offshore Indirect Assets Transfers’ identifies the principles that guide the taxation of sales of entities located in one country that owns immovable property located in another. The taxation of these transactions is of particular importance for developing countries but it was not addressed with the OECD Base Erosion and Profit Shifting Project. The toolkit addresses in particular the taxation of the underlying assets in relation to the extracting industries in developing countries, and the current standards under the OECD and the UN Model Tax Conventions, as well as the new Multilateral instrument. The work complements projects that have already been undertaken in increasing the capacity of developing countries to design their tax policies and to apply the OECD/ G20 BEPS principles.

EU Commissioner Vestager welcomes legislative changes on tax treatment of financing companies EU Commissioner responsible for Competition Margrethe Vestager welcomed changes introduced by the Cypriot government for more stringent tax treatment of financing companies. The Commission has expressed concerns that Member states’ tax ruling practices for financing companies endorse very low margins and artificially lowered taxable bases, which is in breach of the EU State aid rules.

The changes made by the Cypriot government follow similar changes introduced by Luxembourg in January 2017, also welcomed by the European Commission earlier this year.

The changes to the Luxembourg legislation (Circulaire 164/2 bis) and article 56bis of the Luxembourg Income Tax Act reshape the transfer-pricing framework for companies carrying out financing activities in Luxembourg. The Circulaire provides for additional guidance in terms of substance and incorporation of the arm’s length principle for intra-group financing activities in line with the OECD Transfer-Pricing Guidelines.

On the same subject matter, the Commission has already closed the case of Fiat Finance and Trade, where it established that Fiat Finance paid tax on a portion of its actual accounting capital at a low remuneration. The Commission's assessment showed that in the case of Fiat Finance and Trade, if the applied estimations of capital and remuneration had corresponded to market conditions, the taxable profits declared in Luxembourg would have been 20 times higher. The case is under appeal at the Court of Justice of the EU.

Commission requires Belgium and France to abolish corporate tax exemption for ports The European Commission decided that corporate tax exemptions granted to Belgian and French ports provide them with a selective advantage, in breach of the EU state aid rules. In particular, the tax exemptions do not pursue a clear objective of public interest, such as the promotion of mobility.

The tax savings generated this way by the port operators may be used to fund any type of activity or to subsidise the prices charged by the ports to customers, to the detriment of competitors and fair competition.

The two European Commission decisions make clear that if port operators generate profits from economic activities these should be taxed under the corporate tax law provisions to avoid distortions of competition.

Since the corporate tax exemption for ports already existed before the accession of France and Belgium to the EU, these measures are considered as "existing State aid" and the European Commission cannot ask Belgium and France to recover the aid already granted. Belgium and France now have until the end of 2017 to take the necessary steps to remove the tax exemption in order to ensure that, from 1 January 2018, all ports are subject to the same corporate taxation rules as other companies.

The non-confidential versions of these decisions will be made available under the case numbers SA.38393 (Belgian ports) and SA.38398 (French ports) once any confidentiality issues have been resolved.

UK will not be a tax haven after Brexit, says Chancellor of the Exchequer In an interview with Le Monde published last weekend, Philip Hammond, the UK Chancellor of the Exchequer, denied claims that the UK Government plans a ‘race a to the bottom’ with corporation tax rates with the rest of the EU. The UK does not plan to change the economic model as part of government’s Brexit policy, rather a very close trade relationship with the EU, avoiding any unnecessary disturbances. Mr Hammond also suggested a transitional period after 2019, which will be ‘off-the-shelf’ model creating predictable regulatory environment in the transitional period after the UK has formally left the EU. ‘I often hear it said that the UK is considering participating in unfair competition in regulation and tax.

That is neither our plan nor our vision for the future. I would expect us to remain a country with social, economic and cultural model that is recognisably European’, Mr Hammond said for Le Monde.

Philip Hammond added that the amount of taxes that the government raises as a percentage of the GDP puts the UK in the middle of the pack and the UK does not plan to change that even after the country has left the European Union.

UK’s tax take as a share of GDP is the 15th highest of the 28 EU Member states, according to Eurostat. ***** The selection of the remitted material has been prepared by Piergiorgio Valente / Aleksandar Ivanovski / Mary Dineen / Filipa Correia Follow CFE on LinkedIn

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14 August 2017

EU Court of Justice ruling in C-386/16 Toridas on VAT zero-rated intra-EU supply of goods The Court of Justice of the EU (“CJEU�) on 26 July 2017 rendered a judgment in the VAT case C386/16 Toridas where it established that the zero rating for intra-EU supplies of goods in a chain which involves intra-EU movement applies only to the supply to which the transport of the goods can be attributed to.

This preliminary ruling from the Lithuanian Court concerned interpretation of Articles 138(1), 140(a) and 141 of the VAT Directive. In particular, the referring Court inquired whether the supply of goods by a taxable person who is established in one Member State must be exempt under those provisions in the case where, before that supply transaction is entered into, the purchaser (a person identified as being a taxable person in a second Member State) expresses an intention to resell the goods immediately, before transporting them from the first Member State, to a taxable person established in a third Member State, for whom those goods are transported (dispatched) to that third Member State. The referring Court sought to establish, in particular, whether this type of supplies of goods may be zero-rated pursuant to the provisions of the VAT Directive applicable to intra-EU transactions.

Interpreting Article 138 (1) of the VAT Directive, CJEU ascertained that a supply of goods by a taxable person established in a first Member State is not exempt from VAT under that provision where, prior to entering into that supply transaction, the person acquiring the goods, who is identified for VAT purposes in a second Member State, informs the supplier that the goods will be resold immediately to a taxable person established in a third Member State, before he takes them out of the first Member State and transports them to that third taxable person, provided that that second supply has in fact been carried out and the goods have then been transported from the first Member State to the Member State of the third taxable person. The fact that the first person acquiring the goods is identified for VAT purposes in a Member State other than that of the place of the first supply or that of the place of the final acquisition is not a criterion for classification of an intra-Community transaction or, in itself, evidence sufficient to show that a transaction is an intra-Community one.

CJEU also noted that Article 138(1) of the VAT Directive obliges the Member States to exempt supplies of goods meeting the substantive conditions which are listed there exhaustively in C-21/16 Euro Tyre, para 29. The processing of the supplied goods does not form part of the substantive conditions laid down by that article. As regards a chain of two supplies such as those at issue in the main proceedings, the first supplies cannot be classified as intra-EU supplies since no intra-EU transport could be ascribed to them. Therefore, processing of the goods, in the course of a chain of two successive supplies, such as that at issue in the main proceedings, carried out on the instructions of the middleman acquiring the goods and before the goods are transported to

the Member State of the person finally acquiring them, has no effect on the conditions for any exemption of the first supply where that processing takes place after the first supply.

New Luxembourg IP taxation legislation published The amended Luxembourgish Act on Taxation of Intellectual Property (“IP”) published on 7 August reflects the efforts of the Luxembourg government to promote R&D activities in the country within the compliance framework set by OECD BEPS Action 5, which requires substantial activity for preferential IP regimes. Under the proposal, capital gains and income from IP assets shall be exempt from corporate taxation and municipal tax up to 80%, and fully exempt from net wealth tax. Eligible IP includes patents, software protected by copyrights, utility models etc., whilst eligible costs include any costs related to R&D directly to development of an eligible asset. The new legislation is set to become effective on 1 January 2018.

Belgium: Corporate Tax Rate to be reduced to 25% by 2020 Under the proposed Belgian tax reform, which is subject to parliamentary discussion and approval, the corporate income tax rate is set to gradually decrease from 34% to 25% in 2020. SMEs will benefit from a reduced rate of 20.4% under certain circumstances. The Belgian tax legislation reform proposal envisages implementation of the EU Anti-Tax Avoidance Directives, introduction of CFC legislation, reform of the notional interest deduction, tax consolidation allowing Belgian group entity’s losses to be offset against profits of another Belgian group in a fiscal year, and, reform of the holding regime by extending the minimal participation value for eligible participation exemption, amongst other issues. The measures are likely to enter into force on 1 January 2018, subject to parliamentary approval.

Conference ‘Current Issues in European Tax Law’ in Tallinn on 7 September The Estonian Ministry of Finance, supported by IBFD, is organising a tax conference on 7 September 2017. The conference aims to address the recent EU initiatives in tax, such as the dispute resolution directive and the proposal on tax intermediaries and mandatory disclosure rules.

For more details on the conference and registration please see the following link at the website of the Estonian EU presidency. ***** The selection of the remitted material has been prepared by Piergiorgio Valente / Aleksandar Ivanovski / Mary Dineen / Filipa Correia Follow CFE on LinkedIn

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21 August 2017

Publication of comments received on the OECD Model Tax Convention 2017 Update

The OECD published the comments received on the 2017 update on the Model Tax Convention (“MTC”). Draft contents was released on 11 July 2017 with respect to the changes in relation to paragraph 13 of the Commentary on Article 4 MTC (tie-breaker rule for Article 4(2)c MTC; changes to paragraphs 17 and 19 (regarding the meaning of ‘habitual abode’); the addition of new paragraph 1.1 to the Commentary on Article 5 MTC (relevant for interpretation of the ‘permanent establishment’ definition); and, the deletion of parenthetical reference from subparagraph 2a) of Article 10.

The public comments received by the OECD on the above changes to the Model Tax Convention are available to download at the following link.

OECD plans to approve and publish the full contents of the OECD Model 2017 Update at the end of year.

Estonian EU presidency to focus on digital economy tax issues

The Estonian government, currently presiding with the Council of the European Union, will focus its efforts on finding a European solution for taxation of the digital economy and the US-tech companies with taxable presence in Europe. Solutions are likely to be discussed at an informal meeting of European finance ministers to be held 15 – 16 September in Tallinn.

A spokesperson for the Estonian EU presidency speaking for Bloomberg said that the EU looks into possibilities to come up with new tax rules that will prevent the non-taxation of profits for technology companies.

Dmitri Jegorov, the Estonian Finance Ministry Undersecretary for Tax and Customs Policy confirmed for Bloomberg that attention of the Estonian Presidency will be directed towards a separate agreement on the terms of what constitutes a permanent establishment. The presidency conclusions will feed into the OECD’s next proposals expected in 2018.

France and Germany to propose CCTB solution

The upcoming September meeting in Tallinn will likely see the EU finance ministers discussing a new CCTB proposal of the French and German government. The French Finance Minister Bruno Le Maire said that President Macron is in favour of simpler rules for corporate taxation which will serve European economic interests much firmly.

During the summer months, France has been working with the German government to come up with a simplified bilateral CCTB proposal no later than 2018 that should serve as basis for tax (rates) harmonisation within the Eurozone. A multilateral agreement is possible within the EU, with a possibility for other EU member countries to join at a later stage. Under the so-called ‘enhanced cooperation’ procedure at least nine EU member states can do so, with voluntary participation of other EU countries.

Earlier this year, the European Commission proposed introducing a type of formulary apportionment in the EU in a form of CCCTB proposal, accompanied by a CCTB proposed directive.

The next formal ECOFIN meeting is scheduled for 10 October in Luxembourg.

White House focuses on tax reform

President Trump’s administration will concentrate its efforts on securing a tax reform working with Congress Republicans, focusing on the international tax side of the reform. According to FT and Bloomberg, a shift to territorial tax system and deemed repatriation are key elements with wider support. Measures are also considered in BEPS context, with minimum tax on income from intangible property and exemption of 95 percent from US tax on foreign earnings that have been subject to tax in another jurisdiction and would allow repatriation at a reduced rate.

Senate majority leader Mitch McConnell confirmed the projected timeline for tax reform last week. In the meantime, a letter from Democratic Senators to President Trump followed outlining the conditions for bipartisan support of tax reform.

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4 September 2017

EU wins WTO dispute with Brazil over tax subsidies The World Trade Organisation dispute settlement panel issued a ruling in the case of Brazilian tax subsidies, in one of the most comprehensive disputes launched by the European Union. WTO panel found that Brazilian tax subsidy schemes are illegal under the World Trade Organisation rules. The ruling states that the tax subsidy programmes discriminate against EU automotive, ICT and electronic products and grant prohibited import and export subsidies to Brazilian companies. The dispute also covered fiscal incentives contingent on Brazilian firms meeting certain export performance requirements.

The European Union filed the complaint in 2013, in respect of certain measures concerning taxation and charges in the automotive sector, the electronics and technology industry, goods produced in Free Trade Zones, and tax advantages for exporters. The European Union claimed that the measures are inconsistent with the GATT 1994, SCM Agreement and Articles 2.1. and 2.2. of the TRIMs Agreement.

The parties have 30 days to appeal the decision. Otherwise, Brazil will be required to remove its illegal tax subsidy programmes without delay.

PANA Committee of Inquiry publishes study on Panama Papers follow-up in EU member states The European Parliament PANA Committee of Inquiry into tax avoidance, tax evasion and money laundering published a study that analyses the national capacity to fight tax crimes and the follow-through of the Panama Papers investigations. The study investigates national administrative capacity to combat tax avoidance and tax evasion, money laundering laws and the enforcement capacity. The aim of the analysis was to evaluate whether the legal framework and the institutional arrangements in place are adequate, what are the deficiencies and how they could be addressed.

The study concludes that all Member states have a functioning legal framework to fight tax avoidance, tax evasion and money laundering but different national tax-collection set-ups and approaches to fraud. Despite similarities in the key institutional actors involved in this process, significant differences exist in the way they operate and how they share information and cooperate with one another.

Almost all Member States mentioned the practical action they have taken in reaction to the Panama Papers. Some EU Member States identified more than 3 000 EU-based taxpayers and

companies linked to the Panama Papers, and have collectively launched at least 1 300 inquiries, audits and investigations into Panama Papers revelations.

In most countries it is too early to report on fines and convictions relating to the Panama Papers data.

OECD considering expanding the Permanent Establishment definition The OECD Tax Policy director Pascal Saint-Amans said that the OECD is considering expanding the PE definition as part of the efforts to tax the digital economy. Speaking at a tax panel at the International Fiscal Association Congress in Rio de Janeiro, Saint-Amans confirmed for Bloomberg that the OECD would also look at profit attribution rules and possible interim measures such as an alternative tax on e-sales. He suggested “ALES” as a potential acronym for the alternative tax.

“That’s what we’re working on, with the idea of further expanding the PE definition that includes something that would track the digital presence of a company,”, Pascal Saint-Amans said, as reported by Bloomberg.

CFE General Assembly, Committee Meetings and Events in Bratislava 21 – 23 September 2017 With summer holidays now behind us, CFE and the Slovak Chambers of Tax Advisers (SKDP) are ready to host the delegates who registered to attend CFE’s autumn meetings and events in Bratislava from 21 – 23 September. The Professional Affairs Committee and the Executive Board meet on 21 September, the Fiscal Committee meetings take place on 21 and 22 September and the General Assembly on 22 September. Further information for delegates is available on the following link.

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4 September 2017

EU wins WTO dispute with Brazil over tax subsidies The World Trade Organisation dispute settlement panel issued a ruling in the case of Brazilian tax subsidies, in one of the most comprehensive disputes launched by the European Union. WTO panel found that Brazilian tax subsidy schemes are illegal under the World Trade Organisation rules. The ruling states that the tax subsidy programmes discriminate against EU automotive, ICT and electronic products and grant prohibited import and export subsidies to Brazilian companies. The dispute also covered fiscal incentives contingent on Brazilian firms meeting certain export performance requirements.

The European Union filed the complaint in 2013, in respect of certain measures concerning taxation and charges in the automotive sector, the electronics and technology industry, goods produced in Free Trade Zones, and tax advantages for exporters. The European Union claimed that the measures are inconsistent with the GATT 1994, SCM Agreement and Articles 2.1. and 2.2. of the TRIMs Agreement.

The parties have 30 days to appeal the decision. Otherwise, Brazil will be required to remove its illegal tax subsidy programmes without delay.

PANA Committee of Inquiry publishes study on Panama Papers follow-up in EU member states The European Parliament PANA Committee of Inquiry into tax avoidance, tax evasion and money laundering published a study that analyses the national capacity to fight tax crimes and the follow-through of the Panama Papers investigations. The study investigates national administrative capacity to combat tax avoidance and tax evasion, money laundering laws and the enforcement capacity. The aim of the analysis was to evaluate whether the legal framework and the institutional arrangements in place are adequate, what are the deficiencies and how they could be addressed.

The study concludes that all Member states have a functioning legal framework to fight tax avoidance, tax evasion and money laundering but different national tax-collection set-ups and approaches to fraud. Despite similarities in the key institutional actors involved in this process, significant differences exist in the way they operate and how they share information and cooperate with one another.

Almost all Member States mentioned the practical action they have taken in reaction to the Panama Papers. Some EU Member States identified more than 3 000 EU-based taxpayers and

companies linked to the Panama Papers, and have collectively launched at least 1 300 inquiries, audits and investigations into Panama Papers revelations.

In most countries it is too early to report on fines and convictions relating to the Panama Papers data.

OECD considering expanding the Permanent Establishment definition The OECD Tax Policy director Pascal Saint-Amans said that the OECD is considering expanding the PE definition as part of the efforts to tax the digital economy. Speaking at a tax panel at the International Fiscal Association Congress in Rio de Janeiro, Saint-Amans confirmed for Bloomberg that the OECD would also look at profit attribution rules and possible interim measures such as an alternative tax on e-sales. He suggested “ALES” as a potential acronym for the alternative tax.

“That’s what we’re working on, with the idea of further expanding the PE definition that includes something that would track the digital presence of a company,”, Pascal Saint-Amans said, as reported by Bloomberg.

CFE General Assembly, Committee Meetings and Events in Bratislava 21 – 23 September 2017 With summer holidays now behind us, CFE and the Slovak Chambers of Tax Advisers (SKDP) are ready to host the delegates who registered to attend CFE’s autumn meetings and events in Bratislava from 21 – 23 September. The Professional Affairs Committee and the Executive Board meet on 21 September, the Fiscal Committee meetings take place on 21 and 22 September and the General Assembly on 22 September. Further information for delegates is available on the following link.

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Brussels, 11 September 2017

Estonian presidency to propose EU rules for a ‘virtual Permanent Establishment’ The Estonian presidency of the Council of the European Union will propose fundamental reform of international tax rules to amend the definition and concept of Permanent Establishment (‘PE’).

The document that had been leaked and was reported by Reuters should be discussed at the informal meeting of the European finance ministers on 15 – 16 September in Tallinn, Estonia.

Under the Estonian presidency proposal, the income of multinational companies shall be taxed in the countries where the value is created, rather than on basis of tax residency rules. The concept of ‘virtual’ PE would establish taxable presence for multinational companies in the countries in which they operate. Virtual PE would be considered a sufficient taxable presence in a jurisdiction for the purposes of levying corporate income tax.

This EU proposal comes in time where the OECD too announced that the PE definition in the context of BEPS Action 1 and the taxation of tech groups is open for discussion. This proposal is coupled with the recent EU initiatives to revive the CCTB/ CCCTB proposals for corporate taxation based on formulary apportionment in Europe.

The Estonian presidency is mindful of the ambitious nature of this proposal and will therefore approach other EU member states informally next weekend. In case of common agreement, the proposal could be formalised at the ECOFIN Council meeting in December.

EU to consider taxing US tech groups on basis of turnover The agenda of the informal EU finance ministers meeting in Estonia is likely to see another ambitious proposal for corporate taxation of US tech groups in the European Union, according to the Financial Times. The proposal initiated by the French side considers taxation of tech companies in Europe on basis of their turnover in a particular EU jurisdiction. The so-called ‘equalisation tax’ for tech companies would mean significant change to present rules, where companies are taxed based on profits, rather than revenue or turnover.

The outline drafted by France and Germany further reads: ‘The amounts raised would aim to reflect some of what these companies should be paying in terms of corporate tax.” Financial Times reports French official claiming that such a turnover tax, even levied at low percentage, has the potential to raise revenues of magnitude much higher than any EU government has been able to levy so far on basis of corporation tax.

OECD issued updated Guidance on BEPS Action 13: Country-by-Country Reporting OECD has updated its Guidance on the implementation of BEPS Action 13: Country-by-Country Reporting. The update from the BEPS inclusive framework includes the issues relating to the definition of items reported in the template for the Country-by-Country Report (‘CbC Report’), ie. the definition of revenues, issues related to the amount of income tax accrued and income tax paid, and, issues relating to the filing obligation for the CbC Report in respect of short accounting periods.

By way of background, OECD BEPS Action 13 Report introduced a three-tiered approach to transfer pricing documentation, consisting of a master file containing standardised information relevant for all members of a multinational group; a local file referring specifically to material transactions of the local taxpayer; and a CbC Report containing certain information relating to the global allocation of the group's income and taxes, together with indicators of the location of economic activity within the group. Where CbC Reporting applies, the ultimate parent entity of a group with annual consolidated group revenue equal to or higher than EUR 750 million (or near equivalent in domestic currency as of January 2015) in the preceding fiscal year is required to file a CbC Report on behalf of the group with its local tax authority. The deadline for filing the CbC Report is by no later than 12 months after the last day of the group's reporting fiscal year. The tax authority with which the CbC Report is filed will exchange the CbC Report with the tax authority in other jurisdictions where the group has operations, under bilateral or multilateral tax treaties or tax information exchange agreements (TIEAs) that permit the automatic exchange of information.

Countries have now moved to implementation phase.

OECD to publish the 2017 Tax Policy Report on 13 September Pascal Saint-Amans, the OECD Director of the Centre for Tax Policy and Administration, will present the key findings of the OECD 2017 Tax Policy Report on Wednesday 13 September. The presentation will be available live at 15,00 on the following link.

The new Tax Policy Reforms 2017 – OECD and Selected Partner Economies provides comparative analysis on the tax reforms that were implemented, legislated or announced in 2016 in the 35 OECD countries, as well as in Argentina and South Africa. It follows reforms concerning personal income tax, social security contributions, corporate income tax, value-added tax and general sales tax, excise duties, environmental taxes and property taxes across countries and also tracks tax policy trends in these areas over time.

EU loses Boeing tax subsidies WTO case The United States has won a tax subsidies dispute with the European Union, as the dispute settlement panel reverses a previous decision that declared US tax subsidies to Boeing illegal under the WTO rules. The 13-year dispute concerns allegedly illegal State aid provided by the US state of Washington to Boeing for the manufacturing of Boeing’s newest airplane Boeing 777X. Under the ruling, the previous decision of the dispute settlement panel that prohibits certain subsidised was now reclassified from the previous designation of ‘prohibited subsidies’. The WTO judges ruled last year that the $ 1 billion State aid from the state of Washington for a factory that will build world’s largest carbon fibre wings for the 777X aircraft was illegal. This decision has now

been reversed with the dispute settlement panel deciding that the State aid cannot be classified as prohibited aid as it did not explicitly affect targeted trade flows under the WTO trade rules.

If the obliged parties do not comply with the WTO panel decisions, the other party can impose counter-measures. The litigation is likely to continue until both parties decide to settle.

CFE General Assembly, Committee Meetings and Events in Bratislava 21 – 23 September 2017 With summer holidays now behind us, CFE and the Slovak Chambers of Tax Advisers (SKDP) are ready to host the delegates who registered to attend CFE’s autumn meetings and events in Bratislava from 21 – 23 September. The Professional Affairs Committee and the Executive Board meet on 21 September, the Fiscal Committee meetings take place on 21 and 22 September and the General Assembly on 22 September. Further information for delegates is available on the following link.

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Brussels, 18 September 2017 1. Digital Economy – focus of informal ECOFIN over weekend.

Estonian Presidency position The challenges posed by the digital economy to fair taxation in the EU took centre stage at the informal ECOFIN meeting in Estonia on 15 & 16 September.

The Estonian Presidency highlighted that the current tax rules are out of date and in need of reform to aptly deal with the digital economy. In this regard whilst stating that a global resolution is the best solution in the long term, a common solution encompassing all the Member States in Europe is very important in the short to medium term, suggesting that the EU model could mould the global solution in the future “If we can agree on the approach inside the European Union, then we can also affect the global rules in a way that is favourable to us”.

Changes to definition of permanent establishment In terms of a solution, the Estonian Presidency proposes changes to the definition of permanent establishment so as to “Abandon the requirement that companies have to be physically present in a country or own assets there, and replace this with the concept of a virtual permanent establishment. A precondition for this is a more precise agreement on the virtual taxpayers who have to start paying taxes.”

After the meeting the Estonian Finance Minister stated that more than half of the Member States are in favour of the changes to rules on permanent establishment.

Proposed Equalisation Tax In addition to changes to permanent establishment rules, the proposed equalisation tax was also discussed at the meeting. The equalisation tax will seek to tax turnover of companies rather than profit as is traditionally the case. It is being proposed as a stop-gap measure which would be removed once a comprehensive international solution is finalised to ensure fair taxation of such multinational entities.

Finance Ministers from Austria, Bulgaria, Greece, Romania, Slovenia, and Portugal have added their names to the letter signed by the G4 countries last week calling for discussion on an equalisation tax. It is reported that whilst the Netherlands and Belgium are publicly supporting the initiative, Ireland, Malta, Cyprus are the strongest opponents with Denmark, and Luxembourg expressing strong reservations.

Use of Enhanced Cooperation

The Presidency accepted that there may be obstacles to finding unanimous agreement and in such circumstances the proposals would proceed by means of enhanced cooperation. Nine Member States are needed to agree to begin proceedures by way of enhanced cooperation.

The Letter of the G4 proposing the introduction of an Equalisation Tax The Estonian Presidency Press Release for the Informal ECOFIN Meeting 2. EU Commission due to publish proposals on fair taxation of the digital economy this week On foot of the discussions at Council on the digital economy, the European Commission is expected to publish a policy paper which will set out the low tax contribution of large technology companies and the manner in which their activities can elude traditional systems of taxation.

The proposals are due to be published this week, and will contain suggested solutions before the next formal ECOFIN meeting of Council on 29 September 2017.

It is hoped that agreement will be reached by Council regarding the Commission proposals at the December ECOFIN meeting of Council but as set out above, the Estonian Presidency has indicated that it is willing to proceed by enhanced coo-operation if a unanimous position is not reached.

3. Pascal Saint-Amans addresses proposed ‘Equalisation Tax’ on OECD Webinar The Director of the OECD Centre for Tax Policy, Pascal Saint-Amans, said he would not criticise the proposed Equalisation Tax initiative being spear headed by France, Germany, Italy and Spain and now supported by 10 EU Member States.

Speaking on an OECD Webinar, he stated that other countries such as India have already taken action to tackle problems with fair taxation of the digital economy, with Indonesia and Malaysia considering measures.

On the topic of an international solution, he stated that given the complexity of the topic, any broad international solution will require time. In addition, he highlighted the need for all countries to cooperate and be willing to negotiate.

He highlighted changes to the definition of permanent establishment and the transfer pricing rules relating the allocation of profits to PE as areas in need of examination and modernisation.

4. EU Commission President, Jean-Claude Juncker issues State of the Union On 18 September the EU Commission President issued his State of the Union Address. From a tax perspective the two salient points which arose were: 

An EU Minister of Economy & Finance; and



Removing the unanimity requirement for decisions on taxation matters, in favour of a qualified majority. Mr. Juncker blames the veto power in tax matters for blocking necessary overhauls of tax legislation in order to tackle abusive tax practices. At present Member States have the power to veto proposed tax legislation in keeping with the

sovereign nature of taxation. The Irish Minister for Finance has responded by stating that Ireland will resist any such proposal to allow for a qualified majority in tax matters.

5. CFE General Assembly, Committee Meetings and Events in Bratislava 21 – 23 September 2017 This week the CFE and the Slovak Chambers of Tax Advisers (SKDP) will host CFE’s autumn meetings and events in Bratislava from 21 – 23 September.

The Professional Affairs Committee and the Executive Board meet on 21 September, the Fiscal Committee meetings take place on 21 and 22 September and the General Assembly on 22 September. Further information for delegates is available on the following link.

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Brussels, 25 September 2017

1. Fair taxation of the Digital Economy – European Commission publishes communication to the European parliament and Council Days after taxing the digital economy took centre stage at the informal ECOFIN meeting in Estonia, the European Commission published its communication to the European Parliament and Council entitled, ‘A fair and Efficient tax System in the European Union for the Digital Single Market’.

The Communication provides detailed analysis of the digitalisation, its growing impact on the economy, and new business models emerging in the digital economy. It highlights the effective average tax rates paid by traditional business models versus the newer digital business model.

The Communication identifies two main policy challenges when seeking to tax the digital economy, nexus and value creation, i.e. where to tax and how best to tax.

The Commission Press Release focuses attention on the CCCTB framework as the optimal means by which to address the tax challenges that arise from the digital economy in the context of the revised permanent establishment rules and the use of formulary apportionment for allocating the profit of large multinational groups. In addition, the Communication states that “There is scope within the current CCCTB proposal to examine further enhancements to ensure that it effectively captures digital activities”.

The Communication outlines 3 options which should be considered as short-term solutions.

1. Equalisation tax on turnover of digitalised companies This is envisaged to be a tax on all untaxed or insufficiently taxed income generated from all internet-based business activities, including business – to - business and business-toconsumer, creditable against the corporate income tax or as a separate tax.

2. Withholding tax on digital transaction The communication states that this would constitute a standalone gross-basis final withholding tax on certain payments made to non-resident providers of goods and services ordered alone.

3. Levy on revenues generated from the provision of digital services or advertising activity The possibility of applying a separate levy to all transactions concluded remotely with incountry customers where a non-resident entity has a significant economic presence.

The Estonian Presidency is pursuing an ambitious timeline for conclusion, with the Finance Minister stating that they are aiming for agreement to be reached by the December ECOFIN meeting.

2. OECD announces public consultation on taxation of the digital economy On 22 September the OECD announced a public consultation to obtain input on the tax challenges of digitalisation and the potential options to address these challenges.

The input will inform the work of the OECD for the interim report on the implications for taxation of digitalisation to be published in April 2018 with a final report due in 2020.

The request for input outlines the outcomes of the OECD BEPS Action 1 Final Report which concluded that the digital economy could not be ‘ring-fenced’ and that BEPS Action 3, 6, 7, and 8-10 would substantially address the BEPS issues exacerbated by digitalisation. The Request for input reiterated that the Final Report acknowledged that specific problems still arise in the context of digitalisation namely, nexus, debate, and characterisation for direct tax purposes and outlines the possible solutions (not recommendations) listed in the Final Report, namely, a new tax nexus concept of “significant economic presence”, the use of a withholding tax on certain types of digital transactions, and a “digital equalisation levy”.

The request for input comes at a time where an increasing number of countries are taking or considering taking unilateral action in this regard.

The request for input relates to 

Digitalisation, business models and value creation



Challenges and opportunities of tax systems



Implementation of the BEPS package



Options to address the broader direct tax policy challenges; and



Other comments not raised in the request.

The closing date for submissions is 13 October 2017.

The consultation is available here: OECD Request for input on work regarding the tax challenges of the digitalised economy

3. VAT & Cost Sharing Exemption – European Court of Justice issues decision The European Court of Justice issued its eagerly awaited judgment in the joint cases of DNB Banka (Case C-326/15), Aviva (Case C-605 /15) and Commission v Germany (Case C- 616/15).

The cases concerned the cost-sharing VAT exemption (“CSE”) contained in Article 132(1) (f) of the Council Directive 2006/112/EC (the VAT Directive”). The cases concern various aspects of the exemption and its applicability to the financial and insurance sectors.

The Court ruled that it was implicit that the VAT exemption for cost sharing groups did not apply to bodies making supplies of insurance and financial services. The decision eliminates the use of the cost-sharing VAT Exemption in the financial services industry. This is counter to the prevailing practice in many Member States. It is important to note that the Court has clearly indicated that the decision should not be applied retrospectively by Member States.

A detailed case summary and analysis will be included in the next CFE EU & Tax Policy Report Judgment of the Court (Fourth Chamber) 21 September 2017 Case C-605/15

4. CJEU upholds its jurisdiction to rule in a dispute regarding terms of the double tax treaty between Austria & Germany The decision of the European Court of Justice in Republic of Austria v Federal Republic of Germany (Case C-648/15) was issued on 12 September 2017. The case concerned the interpretation of a clause in the double tax convention between Germany and Austria regarding the taxation of financial instruments and more precisely the interpretation of the phrase contained Article 11(2) of the Convention ‘income from debt-claims with participation in profits’.

Having accepted jurisdiction to hear the dispute the CJEU held that the particular criterion in the certificate which makes the payment of interest in a given year dependent on the existence of profit does not render those certificates as granting a right to share in the profits.

Detailed Summary The facts of the case involve an Austrian company purchasing registered certificates from a German bank. These certificates confer an entitlement to an annual payment at a fixed percentage of their nominal value, however, if the payment is likely to result in an accounting loss the amount of the payment is reduced or suspended to the degree necessary to avoid this loss. This suspended payment becomes payable in subsequent years when the debtor realises sufficient profit.

Whilst both Member States agreed on the legal classification of the income under the Convention, and that the taxing rights should be allocated to the state of residence of the beneficial owner – in this case Austria, a dispute arose in relation to an exception. The exception allows for ‘income from rights or debt-claims with participation in profits’ to be taxed also in the state in which the income arises. Austria argued that the exemption must be interpreted narrowly.

On a procedural point the ECJ ruled that it had jurisdiction to rule on this case pursuant to Article 273 TFEU which grants jurisdiction to the CJEU in disputes between Member States which relate

to the subject matter of the Treaties and are submitted by special agreement of the parties concerned. The Court held that the conditions were satisfied on the basis that: 

there was clearly a dispute between the parties,



the dispute “related to” (interpreted by the Court as ‘linked to’) the subject matter of the Treaty,



the referral was not based on the arbitration clause relating to this dispute specifically but rather under the general terms of Article 25 (5) of the Convention. The Court therefore accepted jurisdiction.

On the substantive issue before the Court, it was held that the phrase must be interpreted in line with international law and the terms of the Vienna Convention which requires phrases be given their everyday meaning where possible. The Court observed that it is clear the instrument may be regarded as a particular class of debt but it need to be ascertained whether the form of remuneration of those certificates may be regarded as characteristic of ‘participation in profit’.

The Court held that the particular criterion in the certificate which makes the payment of interest in a given year dependent on the existence of profit does not render those certificates as granting a right to share in the profits.

Judgment of the Court (Grand Chamber) 12 September Case C-648/15

5. OECD publishes Report on the three dimensions of business taxation The Taxation Paper, entitled ‘Legal tax liability, legal remittance responsibility and tax incidence’ examines the role of business in the tax system, in particular the role of business in the capacity of a withholding tax agent and remitters of tax on behalf of others. The paper demonstrates that businesses play an important role in the tax system not only as a tax payer but also as a remitter of tax. The paper seeks to demonstrate that the economic incidence, or burden of a tax is not necessarily borne by the person on whom the tax is imposed but in many instances is passed onto be borne by other economic actors.

OECD Taxation Working papers No. 32 ***** The selection of the remitted material has been prepared by Aleksandar Ivanovski / Mary Dineen / Filipa Correia / Piergiorgio Valente Follow CFE on LinkedIn

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Brussels, 2 October 2017

Meeting of the OECD Forum on Tax Administration in Oslo The 11th Plenary meeting of the OECD Forum on Tax Administration took place in Oslo on 29 September 2017. The Forum on Tax Administration brought together tax commissioners of the most advanced tax administrations worldwide, including OECD and G20 countries, to work collaboratively on global tax administration challenges.

On BEPS, the Forum welcomed the release of the first six MAP peer review reports under BEPS Action 14 last week. Forum members have further driven forward work under BEPS Action 13 and are preparing for the first exchanges of CbC reports in June of next year. In this context, the OECD released two handbooks containing practical guidance on how to implement Country-by-County Reporting (CbC) and how to make effective use of the information for high level risk assessment purposes, including detailed examples. On the tax certainty agenda the Forum is moving forward with dispute prevention and dispute resolution, supplementing the ongoing work on MAP and CbC, and including a new international compliance assurance programme. This pilot program uses CbC Reports and other information to facilitate multilateral engagements between MNE groups and participating tax administrations, including improved risk assessment based on fully informed and targeted use of CbCR information.

The Forum also discussed the priorities of the incoming G20 Presidency, in particular effective implementation of the BEPS outcomes, the Common Reporting Standard for exchange of information on offshore accounts and actions to enhance tax certainty, including the above new pilot on joint risk assessment of multinationals.

European Commission study: We lost â‚Ź152 billion in 2015 due to VAT gap EU Member states lost â‚Ź152 billion in Value-Added Tax (VAT) revenues in 2015, according to a new study by the European Commission. The 'VAT Gap', which is the overall difference between the expected VAT revenue and the amount actually collected. This October, the European Commission will set out proposals for the most far-reaching update to the EU's VAT rules in 25 years. Recent media reports have also linked large-scale VAT fraud with organised crime including terrorism, and the Commission aims to tackle this problem by incentivising Member States to working together. The reform of the current VAT system should also help the development of the digital single market and complement the agenda set by the Commission to achieve a fairer and more efficient tax system in the EU.

The Commission will table legislative proposals this month to re-establish the principle of charging VAT on cross-border trade within the EU. The Commission also hopes for agreement by Member States on new rules to improve VAT for e-commerce, proposed in 2016. As with all initiatives in the area of taxation, unanimous agreement between Member States will be necessary before the proposed changes can come into effect.

OECD Report: The Changing Tax Compliance Environment and the Role of Audit The OECD published a report that examines how tax compliance strategies are evolving in light of new technologies, data sources and tools. The report also looks at how these changes might affect the role of audit and auditors in the future.

The OECD report points out to the changed environment in which tax administrations operate, which allows them to rethink how to best achieve their objectives, such as high-level taxpayer compliance and satisfaction. More emphasis is being put on cooperative compliance practices, such as the horizontal monitoring, and other proactive approaches. Tax administrations report that rethinking the approach would allow them to focus on high-risk taxpayers as well as combating money laundering and tax fraud.

The report sets out how compliance strategies are evolving and can be expected to evolve in light of new technologies and tools, including new data sources and advance analytics.

European Parliament Legal Committee to vote today on the whistleblowers’ report The European Parliament Committee of Legal Affairs ‘JURI’ is scheduled to vote today on a report on the measures required to protect whistleblowers acting in the public interest.

The MEP rapporteur Virginie Roziere from the Group of the Progressive Alliance of Socialists and Democrats points out that the EU should take action by means of a horizontal legislative instrument, in accordance with its objectives regarding democracy, pluralism of opinions and freedom of expression. The report explores the different legal bases available to the Commission to propose such an instrument and calls on the Commission to take a route as soon as possible.

The definition of whistleblower should be broad enough to cover as many scenarios as possible and thus protect private- and public-sector employees, consultants and the self-employed.

The report further states that the protection should not be limited to reports on unlawful acts, but should also cover disclosures of a breach of the public interest. Clear reporting mechanisms should be introduced in organisations to facilitate internal whistleblowing and whistleblowing to an independent institution or to the public. The report calls for establishment of an EU agency specifically dedicated to advice, guidance and collection of reports.

AGENDA of the JURI Committee Meeting of 2 October 2017.

European Parliament ‘PANA’ Committee of Inquiry set to discuss draft Report The draft ‘PANA’ inquiry Report and the draft recommendations of the PANA Committee drafted by the co-rapporteurs Jeppe Kofod (S&D) and Petr Jezek (ALDE) will be discussed at the Committee meeting on 12 October. The draft Report and opinion were published on 30 June, and were discussed at the Committee meeting on 10 July 2017. The deadline for amendments was set on 5 September.

The co-rapporteurs are now working on the compromise amendments. 667 amendments were tabled for the draft inquiry report, and in respect of the draft recommendations the secretariat received 783 amendments.

The draft inquiry Report presents the Committee's findings on discrepancies between the practices revealed in the Panama Papers and EU law, notably the Directives on Anti-money Laundering (AMLD) and on Administrative Cooperation in the field of Taxation (DAC). This report includes a factual part collecting and analysing the evidence taken into account by the Committee to arrive at its findings as well as the conclusions identifying contraventions of EU law and instances of maladministration.

The draft motion for Parliament recommendation to the Council and the Commission contain the co-rapporteurs' recommendations on how to improve the EU framework regarding, inter alia, Anti-money laundering and administrative cooperation in the area of taxation. ***** The selection of the remitted material has been prepared by Mary Dineen / Aleksandar Ivanovski/ Filipa Correia / Piergiorgio Valente Follow CFE on LinkedIn

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Brussels, 9 October 2017

1. EU Commission propose comprehensive reform of EU VAT rules Following up on the VAT Action Plan of April 2016, the European Commission published a comprehensive proposal aimed at adopting a definitive VAT system for intra-EU cross border trade based on the “destination principle”, ie. taxation in the Member State of destination of the goods.

The definitive VAT system shall replace the transitional VAT system of 1993, which is no longer fit for purpose in today’s more dynamic and highly digitalised economy. In its present form of operation, the VAT system is fragmented, susceptible to fraud and disrupts the cross-border operations of digital businesses and SMEs. Destination principle/ One-stop-shop The change to a destination-principled VAT system will substantially impact all businesses trading in the EU Single Market. The Commission have now proposed the first step in implementing the definitive VAT system. Under a destination-based VAT system, the supplier shall be liable for VAT at a rate applicable in the Member state of destination. Goods traded cross-border will be taxed in the country where they are consumed (the destination country) and at the destination country’s tax rate, rather than where they are produced (the origin country). Under the proposal, the supplier will be obliged to account for VAT at the rate applicable in the destination Member State.

The suppliers will not be required to register in the destination Member State for purposes of VAT, but can avail of the ‘one-stop-shop’ digital portal. By means of the ‘one-stop-shop’ portal businesses will be able to file declarations and declare VAT on cross-border transactions in a single return and the same rules and the language of their state of establishment. Member states will accordingly settle their VAT that is due directly.

Cross- border B2B transactions Under the current rules, B2B cross-border supply of goods is exempt from VAT, in the sense that the transaction is split between an exempt intra-EU supply of goods in the Member state of origin, and, a taxable intra-EU acquisition in the Member state of destination. This design of the VAT system amounted to substantial revenue losses, with the VAT gap estimated at cca 50 billion per year. The Commission thus propose introduction of a single taxable supply in the member state of destination.

Certified taxable person The Commission propose a new Council regulation for a certified taxable person. This is one of the steps towards a full destination based VAT system. Under this concept, certain simplification rules, which could be fraud-sensitive, will apply only where a certified taxable person is involved in the relevant transaction. In this sense, only where a business is certified, it could apply the EU reverse charge mechanism on intra-EU supplies. On basis of this concept, no fraud should occur as a result of VAT not being charged on intra-Union supplies made for a certified taxable person, as the

certified taxable person by definition is a reliable taxpayer. A Council Implementing Regulation will need to be adopted on basis of Article 397 of the VAT Directive to ensure that the authorisation procedure for certified taxable person status is sufficiently harmonised throughout the EU. Quick fixes On basis of a Council mandate to introduce certain ‘quick fixes’, the Commission is proposing the following three quick reforms: simplification and harmonisation of rules regarding call-off stock arrangement; recognition of the VAT identification number of the customer as a substantive condition in order to exempt from VAT an intra-Community supply of goods; and simplification of rules in order to ensure legal certainty regarding chain transactions. This proposal introduces additional, fourth ‘quick fix’ required by the Council, namely, the harmonisation and simplification of rules on the proof of the intra-Community transport of the goods in order to be exempt from VAT an intra-Community supply of goods. This simplification would also be available for certified taxable persons only. The "quick fixes" shall only be available to certified taxable persons, except for the VAT number quick fix which cannot be restrictive.

Timeline A modernisation of the existing VAT system shall be made operational in phases: a) A legislative package on the definitive VAT system for intra-Union business-to-business (B2B) trade (the 'definitive VAT system'), proposed on 4 October 2017; b) A proposal on the reform of the VAT rates (forthcoming in 2017); c) A proposal to reinforce the existing instruments for VAT Administrative Cooperation (forthcoming in 2017); d) A proposal to simplify the VAT rules for SMEs (forthcoming in 2017).

The first part of the Commission proposal (under “a”) is at the agenda of tomorrow’s ECOFIN Council meeting. The Council shall discuss the 4 October 2017 Commission proposal on the definitive VAT system (the destination principle and introduction of one-stop-shop), a proposal for Council regulation on certified taxable persons, proposal for Council implementing regulation regarding certain exemptions, the proposal on the follow-up VAT action plan.

The three other aspects (under “b”, “c” and “d”) are yet to be proposed by the end of 2017. This plan will be followed by a comprehensive VAT Directive forthcoming in 2018, which sets the detailed technical guidance for operation of the definitive VAT system.

2. ECOFIN 10 October Council of EU meeting in Luxembourg The Council of the European Union sitting as ECOFIN shall meet on 10 October in Luxembourg. EU finance ministers are expected to approve the new system for resolving of double taxation disputes. The directive aims to strengthen dispute resolution on double taxation between member states that arise from the interpretation of double tax treaties. Agreement on the directive was reached at the Council's meeting on 23 May 2017. As with all tax files, Council requires unanimity (all member states must agree) to adopt the directive under Article 115 of the Treaty on the Functioning of the European Union. Directives then require further national implementation into domestic legislation.

Council is also expected to adopt conclusions on the financing aspects of climate change, ahead of a UN conference in November 2017. Under ‘other business’ Council will discuss Commission’s proposed VAT reform and the proposed strategy for digital taxation, aimed at closing off loopholes that leave digital companies’ largely untaxed.

3. Amazon State aid ruling issued and Ireland referred to Court concerning Apple Continuing their investigation into potential corporate tax ‘sweetheart deals’ with EU governments, the EU Commission’s competition enforcement arm, DG Competition adopted a decision establishing a tax liability for Amazon in Luxembourg of €250 million on basis of the EU State Aid rules. The Commission also initiated an enforcement action at the European Court of Justice against Ireland for failure to comply with a Commission decision on recovery of assessed back taxes from Apple’s Irish entities amounting to €13 billion.

Commission's Amazon State aid inquiry focused on a tax ruling issued to Amazon in 2003 and extended in 2011. Commission claim that this ruling endorsed a method of calculation of annual payments from the operating company to the holding company for the rights to the Amazon intellectual property, which exceeded, on average, 90% of the operating company's operating profits. Commission say that the profits were significantly higher than what the holding company was due to pay to Amazon US under the terms of the cost-sharing agreement.

Under Luxembourg's tax law, the operating entity is subject to corporate tax whilst the holding company is not due to the chosen legal form - a limited partnership with US partners. The taxation rights to the partners’ profits thus belong to the United States, with the US tax liability being consistently deferred. Under the tax ruling, the holding company was a shell company that passed on intellectual property rights to the operating company. The Commission further claim that the holding company was not actively involved in the development the IP and did not perform any activities that would justify the level of royalty it received. In this way, three quarters of Amazon's profits were unduly attributed to the holding company, where they remained untaxed. This tax structure was endorsed by a tax ruling issued by the Luxembourg government, which amounted to selective advantage for Amazon. The Commissin does not challenged the structure itself, rather the tax ruling that endorsed artificial methods for taxation of profits that amounted to selective advantage for Amazon. Such advantage was not available for other companies which are in a comparable factual and legal situation, an illegal practice under the State aid rules.

Commission have set out the methodology to calculate the back taxes initially estimated at €250 million, plus interest. An action for annulment of a Commission State aid decision does not have a suspensory effect, thus the Luxembourg government is obliged to recover the assessed tax.

Under EU law, assessed back taxes under State air rules are not a penalty, rather an assessment that levels the playing field, and does not penalise the operating company beneficiary of the State aid.

Currently DG Competition is looking into the more tax rulings from Luxembourg, as regards the corporate tax treatment of McDonald's and GDF Suez (now Engie).

4. Germany and Hungary requested to align national VAT rules with EU law The Commission sent a letter of notice to Germany and Hungary for breach of EU rules on VAT refunds. Under national rules, a taxable person established in Germany applying for a VAT refund from another Member State using a German web portal can lose the right to a refund. In the case of Hungary, companies are obliged to provide the Hungarian tax authorities with detailed information for VAT purposes on certain business-owned transport that use public roads. This requirement infringes the VAT Directive as it primarily affects cross-border EU transactions and introduces administrative formalities connected with the crossing of borders. The Commission may send a reasoned opinion to the German and Hungarian authorities if they do not comply with the letters of formal notice.

5. Belgium’s national taxation rules on bonds’ interest income in breach of free movement of capital As part of the October infringements package, the Commission sent a reasoned opinion to Belgium on the taxation of interest income from bonds for infringing EU law under Article 63 of the TFEU and Article 40 of the EEA Agreement. Belgium accords a different treatment of interests depending on the origin of the bonds, allegedly treating interest from Belgian Bonds more favourably. Such a difference in the treatment of interest income amounts to an obstacle to the cross-border freedom of movement of capital, which is in breach of Article 63 TFEU and Article 40 of the EEA.

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Brussels, 16 October 2017

1. Council adopted the EU Double Taxation Dispute Resolution Directive The Council of the European Union (ECOFIN) adopted last week a directive introducing a new system for resolving double taxation disputes between member states. The directive strengthens the mechanisms for resolving disputes among member states that arise from the interpretation of double taxation conventions. The directive follows on an agreement in Council on 23 May 2017.

CFE welcomed the Commission’s proposals to expand and improve the mechanisms available to Member States to resolve double taxation disputes with the introduction of a Council Directive. The CFE has also commented on this matter in the context of the OECD BEPS consultation process, in January 2015 and April 20162 and in response to the 2016 EU Commission Public Consultation entitled “Consultation on Improving Double Taxation Dispute Resolution Mechanisms”.

Taxation of the ‘digital economy’ The EU Commission presented a communication on taxation of the 'digital economy' at the last ECOFIN Council meeting of the EU finance ministers. The Estonian presidency also reported on an EU summit on digital issues held in Tallinn on 29 September 2017, and presented next steps regarding taxation of the digital economy, following a discussion by finance ministers on 16 September 2017 at an informal meeting in Tallinn. Conclusions will be prepared for the Council's meeting on 5 December 2017 as an input for discussions by the OECD and the spring 2018 G20 finance ministers meeting. These are expected to reflect the member states' views on how to ensure fair taxation of the digital economy.

2. EESC urges for cautious approach towards CCCTB The European Economic and Social Committee, a consultative body of the European Union which links the EU institutions and the civil society, adopted an Opinion on the European Commission Proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB) and the Proposal for a Council Directive on a Common Corporate Tax Base.

The EESC endorsed Commission’s proposals and recommended taking into account country-specific sensitivities in line with the principles of subsidiarity and state sovereignty. The Committee urges a fast introduction of stage two, once an agreement on

the issue of common base has been reached, as companies will benefit once consolidation has been achieved. Commission’s proposal aims at two-speed approach, with consolidation (CCCTB) coming in stage two of the process. The Committee further underlined that taxation by way of formulary apportionment would achieve the objectives of the EU Single Market and will more effectively tackle aggressive tax planning, by way of allocating income where value is created.

The Committee’s Opinion recommends that Commission and Member states re-evaluate the exclusion of intellectual property (IP) from the formulary apportionment, effectively re-examining the apportionment formula under the CCCTB proposal. According to the Committee, the debt-equity bias is properly addressed under the proposal. Conversely, the Committee expressed concerns that the operation of the proposed sales key will result in smaller exporting Member States losing taxable income to the larger consuming Member States. The Committed opined that the proposal should aim for an equitable formula that avoids systematically unbalanced effect. Finally, the Committee urged the Commission to address the need for flexibility for Member states and companies and to ensure they are able to respond to changing economic circumstances.

3. BEPS Action 13: Further steps in CbCR implementation Progress has been noted by the OECD in the implementation of the BEPS Action 13: Country-by-Country Reporting, which was agreed as a minimum standard. Further steps in the CbCR implementation were achieved through activation of automatic exchange relationships under the Multilateral Competent Authority Agreement on the Exchange of CbC Reports. According to the OECD, as of October 2017 over 1000 automatic exchange relationships have now been established among jurisdictions committed to exchanging CbC Reports as of mid-2018, including those between EU Member States under the EU Directive 2016/881/EU. It is expected that more jurisdictions will nominate partners with which they will undertake the automatic exchange of CbC Reports under the CbC MCAA in the coming weeks. In addition, the United States has now signed 27 bilateral competent authority agreements for the exchange of CbC Reports under Double Tax Conventions or Tax Information Exchange Agreements, with more under negotiation.

For the all bilateral exchange relationships that are currently in place for the automatic exchange of CbC reports please refer to the following link.

4. VAT E-Learning modules available on the European Commission website In order to help tax officials in EU countries and others with a particular interest in VAT get a more in-depth knowledge of the VAT rules, the European Commission, DG Taxation and Customs Union published E-Learning courses on VAT. The VAT E-Learning programme consists of 12 individual courses, which are available in 15 European languages in addition

to English: Bulgarian, Dutch, German, Greek, Italian, Hungarian, Latvian, Lithuanian, Macedonian, Polish, Romanian, Slovenian, Spanish and Swedish.

The European Commission published last week a comprehensive proposal aimed at adopting a definitive VAT system for intra-EU cross border trade based on the “destination principle”, i.e. taxation in the Member State of destination of the goods. The definitive VAT system shall replace the transitional VAT system of 1993, which is no longer fit for purpose in today’s more dynamic and highly digitalised economy. The VAT package was presented at the agenda of the last ECOFIN Council meeting The change to a destination-principled VAT system will substantially impact all businesses trading in the EU Single Market. The Commission have now proposed the first step in implementing the definitive VAT system. Under a destination-based VAT system, the supplier shall be liable for VAT at a rate applicable in the Member state of destination.

Goods traded cross-border will be taxed in the country where they are consumed (the destination country) and at the destination country’s tax rate, rather than where they are produced (the origin country). Under the proposal, the supplier will be obliged to account for VAT at the rate applicable in the destination Member State.

The suppliers will not be required to register in the destination Member State for purposes of VAT, but can avail of the ‘one-stop-shop’ digital portal. By means of the ‘one-stop-shop’ portal businesses will be able to file declarations and declare VAT on cross-border transactions in a single return and the same rules and the language of their state of establishment. Member states will accordingly settle their VAT that is due directly.

Under the current rules, B2B cross-border supply of goods is exempt from VAT, in the sense that the transaction is split between an exempt intra-EU supply of goods in the Member state of origin, and, a taxable intra-EU acquisition in the Member state of destination. This design of the VAT system amounted to substantial revenue losses, with the VAT gap estimated at cca 50 billion per year. The Commission thus propose introduction of a single taxable supply in the member state of destination.

5. EU and UK engage with the WTO on certain post-Brexit trade terms The European Union and the United Kingdom sent a joint letter to the members of the World Trade Organisation (WTO), setting out their intended approach to WTO traderelated issues arising from the United Kingdom’s withdrawal from the European Union.

According to the European Commission, the joint letter results from the constructive dialogue between the UK and the EU over the past months, covering issues such as trade in goods, services and government procurement.

The negotiations, as outlined in the Council's negotiating directives, aim to ensure that the UK honours its international obligations in respect of the WTO trade while a member of the EU, and to secure an orderly withdrawal from the organisation.

In accordance with the WTO rules, once the UK has left the EU, the country will have a separate schedules of commitments that indicate the maximum tariff rates applied to each specific type of imported product. Additionally, the schedules set the quantities of each product that can be imported in the UK duty-free or with a duty discount, known as tariff-rate quotas. The dialogue addresses both the EU's and the UK's commitments regarding these quotas. The letter states that both the UK and the EU aim to ensure that following UK's departure, WTO members retain the same level of access as they enjoy now, whilst following a common approach regarding the ceilings on domestic subsidies.

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Brussels, 23 October 2017 1. EU leaders discuss taxation & digital economy at EU Summit On Thursday 19 October EU leaders discussed the proposals to more effectively tax the digital economy in Europe. In Council Conclusions the leaders encouraged the Council to “pursue its examination of the Commission communication on this issue” and concluded by stating that it “looks forward to appropriate Commission proposals by early 2018”. It is reported that Ireland and Luxembourg expressed strong objections to EU measures, advocating instead for a global uniform approach to be adopted at OECD level.

The discussion follows intense focus on the digital economy in recent time with the publication of a letter by France, Germany Italy and Spain and subsequently signed by 6 more EU Member States calling on the European Commission to explore options and “propose any effective solutions based on the concept of establishing a so-called “equalisation tax” on the turnover generated in Europe by the digital companies,” In addition, the European Commission recently issued a publication with proposals of certain short and long term measures to more effectively tax the digital economy. The European Commission published its communication to the European Parliament and Council entitled, ‘A fair and Efficient tax System in the European Union for the Digital Single Market’.

The Communication provides detailed analysis of the digitalisation, its growing impact on the economy, and new business models emerging in the digital economy.

The Communication identifies two main long-term policy challenges when seeking to tax the digital economy, and also proposes three short-term solutions.

2. Pascal Saint-Amans confirms expected publication of interim report on tax challenges of digitalised economy for April 2018 whilst confirming focus of OECD still on long-term solutions Mr. Sant-Amans stated that there has been no fundamental change in the attitude of OECD members on this topic and the position remains that the OECD taskforce on digital economy should focus on the long-term solution beginning with an identification and examination of the business models and an analysis of the implications of the existing framework on these models.

In particular, the analysis will examine the fundamental question as to where value is created, what should be taxed where should it be taxed. He identified this as the fundamental work stream which may drive countries to agree long-term solutions.

He reiterated that there remains agreement that short-term solutions are not necessarily good ideas but acknowledged that certain countries are under significant pressure to be seen to be

acting. He stated that on 1 November the digital taskforce will have to explore these proposed short-term actions and conclude on how best to design such solutions by way of presenting what should not be done. It is hoped that this approach will limit disruptions as much as possible in the event some countries do act unilaterally.

3. OECD Publishes BEPS Action 5 2017 Progress Reports on preferential tax regimes The OECD has recently published an update of the progress on the peer reviews being carried out pursuant to BEPS Action 5 Report. The report contains consolidated results of an examination of 164 preferential tax regimes which have been reviewed since the 2015 BEPS Action 5 Report was published.

BEPS Action 5 contains two elements – firstly preferential tax regimes and secondly the spontaneous exchange of information on certain tax rulings. All 102 members of the BEPS Inclusive Framework have committed to ensuring that any regimes offered satisfy the criteria that have been agreed as part of BEPS Action 5. Many of the IP regimes now satisfy the nexus approach; only 1 regime remains unreformed although found to be “actually harmful”.

Of the 164 regimes subject to review in the past 12 months the report identifies:    

99 regimes require action Out of these 99 regimes, 93 have initiated or competed the required changes 56 regimes do not pose a BEPS risk; and 9 regimes are still under review due to the extenuating circumstances in the Caribbean region as a result of hurricanes.

Jurisdictions that have been found to have regimes containing harmful features must make the necessary adjustments as soon as possible or by October 2018 at the latest. The governments of each identified country has pledged to carry out the necessary amendments, except for France and Italy.

4. PANA Inquiry approves final report The Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA) approved its final report by 47 votes to 2 with 6 abstentions on Wednesday. The report is a result of an 18-month investigation into breaches of EU law in relation to money laundering, tax avoidance and evasion.

As part of the investigation, the PANA Committee held a series of public hearings and evidence gathering sessions in first half of the year. As a round-up of the work already done, the Committee published a draft Report in June 2017alongside draft Recommendations to Council and the Commission, drafted by MEPs Jeppe Kofod and Petr Ježek.

The Report identifies potential contraventions to EU law stemming from various revelations, in particular concerning offshore structures, non-cooperative jurisdictions, money-laundering, intermediaries, banks, trusts and cooperation of third countries with Brussels for tax transparency purposes.

The Report calls on the Council and Commission to design new rules that will regulate intermediaries comprehensively across the EU, with a shift from self-regulation to independent national regulator. A shift to regulation, according to the draft-report, will incentivise the tax intermediaries to refrain from engaging in a tax evasion and tax avoidance, and shielding beneficial owners. MEPs also called for sanctions and compulsory Codes of Conduct for intermediaries 5. OECD Updated Model Convention & Commentary expected to be available online before end of the year The 2017 update of the Model Tax Convention is expected to be published online before the end of the year, with paper publication due in early 2018. The 2017 update will include all treatyrelated BEOS measures to both the Model treaty and the associated commentary. It will also include several changes to the Commentary relating to the new definition of permanent establishment and the tiebreaker rule.

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Brussels, 30 October 2017 1. European Parliament calls for EU-wide protection of whistle-blowers The European Parliament adopted on 24 October a non-legislative resolution calling for a European Commission proposal by the end of the year for EU- wide horizontal rules for protection of whistle-blowers. The non-legislative resolution was passed by 399 votes to 101, with 166 abstentions. The MEPs emphasised that European citizens and journalists are being subject to prosecution rather than legal protection when disclosing information in the public interest, including information on suspected misconduct, wrongdoing, fraud or illegal activity, particularly when it comes to conduct violating ‘fundamental principles of the EU, such as tax avoidance, tax evasion and money laundering’.

In relation to taxation, the resolution draws from the conclusions of the TAXE and TAX2 Committees which have already called for better protection of whistle-blowers across the EU. Furthermore, the European Parliament called on the Commission to look into possibilities that international agreements that concern taxation, competition and financial services to include provisions on the protection of whistle-blowers.

The Parliament calls on the EU member states to introduce reporting mechanisms that facilitate internal whistle-blowing and allow whistle-blowers to report to NGOs or the press, including the possibility of anonymous reporting, protection against retaliation, and sanctions against those attempting to prevent whistle-blowers from speaking out. The resolution further calls on measures to discourage the retaliatory actions, allowing supporting measures, such as legal and financial aid, psychological support and compensation for damage suffered by whistle-blowers in the event of civil proceedings, and national independent bodies, responsible for reports, verifying their credibility and guiding whistle-blowers and an EU level authority, to facilitate coordination in cross-border cases.

The adopted non-legislative resolution concerning whistle-blowers’ protection is available in all EU languages.

2. EU Commission open State aid investigation into UK’s CFC rules The European Commission Directorate General for Competition have opened an investigation on UK’s Controlled Foreign Company (CFC) legislation compliance with the EU State aid rules.

Specifically, the Commission are looking into UK’s group financing exemption for certain financing income (ie. loan interest payments) that are exempt from the remit of the CFC rules.

CFC Rules CFC rules are an anti-tax avoidance measure that aims to tax profits of parent company that are artificially shifted to offshore low-taxed or no-tax subsidiary for tax purposes. CFC rules operate by providing legal powers to a national tax authority to catch such artificially shifted profits of the off-shore shell back to the parent’s jurisdiction where these will be subject to tax.

UK Group Financing Exemption The Commission is investigating a legislative scheme, the UK’s Finance Act 2012 which introduced a Group Financing Exemption, effective from 1 January 2013. This scheme exempts from UK corporate taxation financing income received by an off-shore subsidiary from another foreign group company, which allows a UK based multinational company to provide for financing to a CFC group member via an offshore shell without taxing this income. In the absence of the Group Financing Exemption, interest income paid on loans to subsidiaries when that interest is paid into an off-shore jurisdiction would have been subject to tax.

The UK would ordinarily be able to tax such interest income, as the CFC rules would catch it by disregarding the offshore company and allocating such income to the UK parent. This possibility provided with the UK Group Financing Exemption, according to the EU Commission, is providing for selective advantage to multinational group companies when compared with other UK resident entities that do not operate cross-border. According to ECJ settled case-law, national anti-abuse provisions must not be selective and must be compliant with the State aid rules still. The Commission rely on the interpretation of the UK general corporate tax as reference system, under which standalone and multinational group companies are in a comparable factual and legal situation for purposes of corporate tax as per the Paint-Graphos case-law.

ATAD In accordance with the EU Anti-Tax Avoidance Directive, as of 1 January 2019, all Member states must introduce CFC legislation, albeit with the caveat that the ATAD does not intend a group financing exemption such as the one under Commission’s State aid investigation.

Interested third parties can now submit comments without prejudice of the outcome of this case.

3. EESC calls for tax good governance clauses in international agreements The EESC published an Opinion on the EU development partnerships and the challenge posed by international tax agreements. EESC welcomed the EU efforts to address the weaknesses of the international tax systems calling for tax policy to play a more important role in the European development policy. The EESC argues that EU Member States need to align their international taxation policies with the objectives of development policies in order to avoid conflicts between individual countries' taxation policies and joint development priorities. Furthermore, the Committee called on including tax good governance clauses in all relevant agreements between the EU and third countries and regions in order to promote sustainable development. EU international tax transparency measures and the BEPS Action Plan will also have an impact on developing countries. The EESC welcomed the fact that the European Parliament and the European Commission have already issued their views on the points where tax and development

policies intersect, ie. toolbox presented on the platform as a Staff Working Document on the "spillover" effects of DTCs. 4. OECD published VAT effective cross-border collection implementation guidance The implementation guidance responds to the request from the Fourth Meeting of the OECD Global Forum on VAT supporting the implementation of the International VAT/GST Guidelines, including a first package on the implementation of mechanisms for the collection of VAT on internet sales. It focuses on the implementation of the recommended approaches included in the 2015 Final Report on Action 1 "Addressing the Tax Challenges of the Digital Economy" of the BEPS project. These recommended approaches, which are also included in the International VAT/GST Guidelines, have already been implemented by a large number of countries. The implementation guidance builds on good practice approaches deployed by jurisdictions when they require foreign suppliers to register and collect VAT on cross-border B2C sales in application of the solutions recommended in the BEPS Action 1 report.

5. November tax events and seminars CFE Professional Affairs Conference on 24 November in Prague, Czech Republic CFE, the European association of tax advisers, and the Czech Chamber of Tax Advisers (KDPCR) are delighted to invite you to the 10th Professional Affairs Conference ‘Tax is Going Digital – Are Tax Advisers Ready?’ We hope that you will join us on 24 November 2017 in Prague, the Czech Republic as we discuss digitalisation of tax services, opportunities for the tax profession arising therefrom and the evolution of artificial intelligence.

Please follow this link for further information on the programme, registration, accommodation and social programme details.

Accountancy Europe is hosting ATO seminar on GST on 13 November Accountancy Europe is hosting on 13 November in Brussels the Australian Tax Office (ATO) information seminar on the goods and services tax (GST) law changes that apply from 1 July 2018 to low value imported goods sold to consumers in Australia. The Australian Taxation Office (ATO) is organising a series of business information seminars in key locations around the world. The international sessions are designed for online marketplaces, merchants and re-deliverers that supply these goods, and also for advisers and tax professionals.

Please follow this link for registration and further information on this information seminar.

***** The selection of the remitted material has been prepared by Aleksandar Ivanovski/ Mary Dineen/ Filipa Correia / Piergiorgio Valente Follow CFE on LinkedIn

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Brussels, 6 November 2017 1. EU Commission launches public consultation on fair taxation of the digital economy

On 26 October 2017 the European Commission published a Questionnaire on the fair taxation of the digital economy. The objective of the questionnaire is to obtain input from interested stakeholders on how best to define an approach to the taxation of the digital economy, which is based on fairer and more effective taxation and create a level playing field across businesses.

The Questionnaire follows the publication of the Communication on “A Fair and Efficient Tax System in the European Union for the Digital Single Market” on 21 September containing proposed short-term solutions for more effective taxation of the digital economy.

2. OECD publishes responses received to public consultation the challenges of the digitalised economy The OECD has published the responses received to the public consultation of the challenges of the digitalised economy. As part of the ongoing work being carried out by the OECD Taskforce on the Digital Economy a public consultation was held on 1 November at University of California, Berkeley. The public discussion examined in particular: Digitalisation, Business Models & Value Creation  This session discussed the impact of digitalisation on business models with a particular focus on structures of business models, data collection and analysis and the role of userengagement and customer participation.

BEPS Implementation  This panel discussed the implementation of BEPS and specifically the impact of BEPS measures on highly digitalised business models.  It also discussed the implementation and impact of new guidance and mechanisms to apply VAT/GST on foreign suppliers of intangible services.

Policy Challenges and Tax options  Discussed the range of potential tax options available to deal with the direct tax challenges of the digital economy.

The Discussions are available online at this LINK

3. Paradise Papers

The International Consortium of Investigative Journalists ("ICIJ") published a fresh batch of leaked documents related to off-shore activities of individuals and companies named "Paradise Leaks".

The disclosures reportedly contain information related to tax avoidance schemes employed by Apple, Nike and Facebook, fund flows into off-shore structures, use of off-shore trusts for tax avoidance purposes, companies incorporated in secrecy jurisdictions, entities that hold assets and investments in shares and stocks as well as private individuals shielding their identity. 14.4 million files were obtained by the German newspaper Süddeutsche Zeitung, and subsequently shared with ICIJ. The ‘Paradise Papers’ leaks come as world’s second biggest data leak with 1.4 TB of data, preceded only by the “Panama Papers” in 2016 amounting to 2.6 TB. The Lux Leaks files of 2014 amounted to 4.4 GB of tax rulings from Luxembourg.

The data reveal investment payments from the private estate of Queen Elizabeth II into a Cayman Islands fund, off-shore dealings of President Donald Trump cabinet members and donors, Russian portfolio investments in Facebook, Twitter and tech start-ups by individuals close to President Vladimir Putin, as well as a tax avoiding Cayman Islands trust managed by an aide to the Canadian Prime Minister Justin Trudeau.

Following the publications of previous leaked documents, new transparency initiatives at global and EU level have been pursued, including formation of EU Parliament's Committees of Inquiry, new beneficial ownership transparency requirements. Additionally, at EU level, the EU Commission commenced State aid investigations into multinational companies’ tax arrangements with EU governments on basis of ‘market information’ contained in the LuxLeaks revelations.

4. ECOFIN Meeting 7 November EU Finance Ministers will meet in Brussels tomorrow, 7 November. Top of the tax agenda is a discussion on the new EU proposals to reform the EU VAT system published by the European Commission in October. It is hoped that agreement can be reached on these proposals.

As a result of the so-called Paradise Papers the Ministers will now also discuss the proposed EU Blacklist of non-cooperative jurisdictions.

5. November tax events and seminars CFE Professional Affairs Conference on 24 November in Prague, Czech Republic CFE, the European association of tax advisers, and the Czech Chamber of Tax Advisers (KDPCR) are delighted to invite you to the 10th Professional Affairs Conference ‘Tax is Going Digital – Are Tax Advisers Ready?’ We hope that you will join us on 24 November 2017 in Prague, the Czech Republic as we discuss digitalisation of tax services, opportunities for the tax profession arising therefrom and the evolution of artificial intelligence.

Please follow this link for further information on the programme, registration, accommodation and social programme details.

Accountancy Europe is hosting ATO seminar on GST on 13 November

Accountancy Europe is hosting on 13 November in Brussels the Australian Tax Office (ATO) information seminar on the goods and services tax (GST) law changes that apply from 1 July 2018 to low value imported goods sold to consumers in Australia. The Australian Taxation Office (ATO) is organising a series of business information seminars in key locations around the world. The international sessions are designed for online marketplaces, merchants and re-deliverers that supply these goods, and also for advisers and tax professionals.

Please follow this link for registration and further information on this information seminar.

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Brussels, 13 November 2017 1. ECOFIN Council Conclusions of 7 November- no agreement on VAT collection on digital services The Council of the EU sitting as ECOFIN discussed proposals aimed at improving the VAT collection on digital services and facilitating conduct of electronic commerce and online businesses, but failed to reach agreement on the proposals. The Estonian EU presidency confirmed that the issue would be revisited in December.

EU finance ministers adopted conclusions on EU’s financial commitments to climate change, allocating EUR 20.2 billion from Member states to help developing countries reduce their greenhouse emissions and cope with the impact of climate change.

2. EU blacklist to include 53 non-cooperative jurisdictions The EU blacklist of non-cooperative jurisdictions for tax purposes will include 53 jurisdictions (countries and territories) that could be subject to sanctions if they did not cooperate with the European Commission in changing their tax rules. The European Commission sent inquiry letters to 92 jurisdictions earlier this year, on basis of criteria set out by the Council of EU back in November 2016. These criteria centre on the notion of fairness of tax rules: countries and territories should refrain from offering preferential tax measures and arrangements that facilitate offshore profit shifting for tax avoidance purposes. The EU blacklist is forthcoming this December.

EU Commissioner Moscovici expects the European list of non-cooperative jurisdictions to be more ambitious than the existing one drawn by the OECD, which includes one country: Trinidad and Tobago.

3. EESC published Opinion on the taxation of the collaborative economy The European Economic and Social Committee (“EESC”) published an analysis of the various tax policy choices that are incumbent on the growth of the collaborative economy. This Opinion (available in all EU languages) was commissioned by the Estonian EU presidency.

At the outset, the Opinion clearly distinguishes between the digitalised economy, the collaborative (‘gig’) economy and the platform economy on basis of their differing scope and degree of inclusiveness. The EESC considers important to assess the policy choices related to the taxation of the collaborative economy in its entirety, rather than aligning such policy options fully with the ones made about the taxation of the digitalised economy.

It is suggested in this Opinion that the European Union must not miss out on an opportunity provided by the collaborative economy to bring and facilitate innovation. The EESC stresses the extent to which such policy choices bear on the systemic relations between business, investment and markets. It is further suggested that the collaborative economy should not be ring-fenced from the rest of the economy. Albeit calling for a unified European approach regarding the taxation of the digital economy in general, the EESC Opinion stresses that the existing framework of tax rules and principles should be adapted to new situations arising in the collaborative economy, in order to ensure consistent treatment of all economic operators, irrespective of the format of their activities, digital or traditional. Finally, the Commission and Member States are urged to work together in case of adoption of overall legal framework for the collaborative economy in order to achieve adaptation and standardisation of the tax rules that apply to these new forms of economic activity.

4. New EU measures published for more efficient cross-border tax debts recovery The European Commission published in Official Journal of the EU the technical modifications to Regulation 1189/2011 which aim to facilitate cross-border recovery of tax debts.

On 16 March 2010 the Council of the EU adopted Directive 2010/24/EU concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures. Subsequently, on 18 November 2011, the EU Commission adopted implementing Regulation 1189/2011 laying down detailed rules in relation to certain provisions of this Directive.

Practical arrangements for the implementation of the EU Council Directive on tax recovery assistance (Directive 2010/24/EU) are laid down in Commission Implementing Regulation (EU) No 1189/2011 of 18 November 2011. This implementing Regulation of 2011 has been amended by Commission implementing Regulation 2017/1966 of 27 October 2017.

5. CFE Conference ‘Tax is Going Digital- Are Tax Advisers Ready?’ on 24 November in Prague, Czech Republic CFE, the European association of tax advisers, and the Czech Chamber of Tax Advisers (KDPČR) are delighted to invite you to the 10th Professional Affairs Conference ‘Tax is Going Digital – Are Tax Advisers Ready?’.

We hope that you will join us on 24 November 2017 in Prague, the Czech Republic as we discuss digitalisation of tax services, opportunities for the tax profession arising therefrom and the evolution of artificial intelligence. Please follow this link for further information on the programme, registration, accommodation and social programme details. ***** The selection of the remitted material has been prepared by Aleksandar Ivanovski/ Mary Dineen/ Filipa Correia / Piergiorgio Valente Follow CFE on LinkedIn

and Twitter

Brussels, 20 November 2017 1. European Commission publishes preliminary State Aid decision on U.K. CFC regime.

The European Commission published its Preliminary State Aid Decision as part of the investigation into the U.K.’s Controlled Foreign Company (CFC) legislation and whether it is in contravention of EU state aid rules. The investigation was announced on 26 October 2017.

Specifically, the European Commission is looking into UK’s group financing exemption for certain financing income (i.e. loan interest payments) that are exempt from the remit of the CFC rules.

The Commission investigation focuses on a legislative scheme regarding a Group Financing Exemption introduced by the UK’s Finance Act 2012 and effective from 1 January 2013. This scheme exempts from UK corporate taxation financing income received by an off-shore subsidiary from another foreign group company, which allows a UK based multinational company to provide for financing to a CFC group member via an offshore shell without taxing this income. In the absence of the Group Financing Exemption, interest income paid on loans to subsidiaries when that interest is paid into an off-shore jurisdiction would have been subject to tax.

The UK would ordinarily be able to tax such interest income, as the CFC rules would catch it by disregarding the offshore company and allocating such income to the UK parent. This possibility provided with the UK Group Financing Exemption, according to the EU Commission, is providing for selective advantage to multinational group companies when compared with other UK resident entities that do not operate cross-border. According to ECJ settled case-law, national anti-abuse provisions must not be selective and must be compliant with the State aid rules still. The Commission rely on the interpretation of the UK general corporate tax as reference system, under which standalone and multinational group companies are in a comparable factual and legal situation for purposes of corporate tax as per the Paint-Graphos case-law.

2. The 10th Meeting of the OECD Global Forum on Transparency & Exchange of Information for tax purposes takes place in Cameroon The Global Forum, which now has 147 members adopted the first report on the status of implementation of the AEOI Standard. The Report follows the beginning of exchanges of information between 50 jurisdictions under the new standard on automatic exchange of information, with a further 53 countries set to commence exchanges in September 2018. The principle of annual implementation reports and peer reviews were agreed at the meeting to ensure effective implementation and a level playing field.

Peer reviews of Curaco, Denmark, India, Isle of Man, Italy and Jersey were also published at the meeting, bringing to 16 the number of second round peer reviews carried out by the Forum

based on its international standard of transparency and exchange of financial account information on request.

3. Commissioner Pierre Moscovici addresses European Parliament Commissioner Moscovici addressed the plenary hearing of the European Parliament on 14 November at Strasburg to address the information on tax avoidance schemes which has recently come to light as part of the so-called ‘Paradise Papers’. In his address he highlighted a number of legislation initiatives of the European Commission aimed at clamping down on aggressive tax planning practices. Commission Moscovici identified the following legislative initiatives as being imperative in this regard:   

The Tax Intermediaries Directive, which he hopes will be adopted within 6 months; The EU Blacklist of tax havens, which he urged Member States to agree at the next meeting of ECOFIN on 5 December; The CCCTB proposals which would ensure a convergence of tax rules limiting opportunity for aggressive tax planning practices. He urged for more speedy discussions in relation to this and encouraged agreement in 2018.

The Commissioner also urged for progress on the Commission’s proposals to publicly disclose beneficial ownership of companies under the Money Laundering Directive and for mandatory country-by-country public reporting.

4. Jersey assessing introduction of a substance rule in light of Paradise Papers investigation On November 8, following the release of the Paradise Papers, the government of Jersey stated that it intended to consider the introduction of a “substance test” in the context of foreign registered companies claiming tax residency in the State. It further stated that it does not want abusive tax avoidance schemes operating in Jersey.

5. CFE Conference ‘Tax is Going Digital- Are Tax Advisers Ready?’ on 24 November in Prague, Czech Republic CFE, the European association of tax advisers, and the Czech Chamber of Tax Advisers (KDPČR) are delighted to invite you to the 10th Professional Affairs Conference ‘Tax is Going Digital – Are Tax Advisers Ready?’.

We hope that you will join us on 24 November 2017 in Prague, the Czech Republic as we discuss digitalisation of tax services, opportunities for the tax profession arising therefrom and the evolution of artificial intelligence. Please follow this link for further information on the programme, registration, accommodation and social programme details. ***** The selection of the remitted material has been prepared by Aleksandar Ivanovski/ Mary Dineen/ Filipa Correia / Piergiorgio Valente Follow CFE on LinkedIn

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Brussels, 27 November 2017

OECD approved the 2017 update to the Model Tax Convention On 21 November 2017, the OECD Council approved the contents of the 2017 Update to the OECD Model Tax Convention. The 2017 OECD Model Tax Convention (“MTC”) update incorporates changes to the MTC arising from the BEPS project. The approved changes concern amendments to the Commentary on Article 1 (Persons covered) on “Improper use of the Convention”, and a new Article 29 (Entitlement to Benefits), which includes a limitation-on-benefits (LOB) rule, an anti-abuse rule for PEs situated in third countries, and a principal purposes test (PPT) rule. These changes were contained in the Action 6 Report (preventing granting treaty benefits in inappropriate circumstances).

Further changes include Article 5 (Permanent establishment) and the Commentary resulting from the follow-up work on Action 7; changes to Article 25 (Mutual agreement procedure) and to the Commentaries on Articles 2, 7, 9 and 25 contained in Action 14. Also, changes related to the OECD MTC MAP arbitration provision and its Commentary are intended to reflect the MAP arbitration provision developed in the negotiation of the MLI adopted earlier this year.

The 2017 Update, which was previously approved by the Committee on Fiscal Affairs on 28 September 2017, will be incorporated in a revised version of the OECD MTC that will be published in the next few months.

Vestager: EU will act on digital taxation if OECD fails to do so The European Union will take measures on the taxation of the technology companies in absence of a coordinated international response by spring next year, EU Competition Commissioner Margrethe Vestager said on 21 November, as reported by Euractive.

Last month, the European Commission launched a public consultation on the taxation of the digital economy. According to Vestager, the Commission would use the results of this consultation in negotiations being held under the auspices of the OECD. Vestager warned that “if there’s no international answer to this issue by spring next year, we will produce our own proposal for new EU rules to make sure tech companies are taxed fairly.”

The European Economic and Social Committee (“EESC”) published recently an analysis (available in all EU languages) of the various tax policy choices in relation to the taxation of the collaborative economy.

The Opinion clearly distinguishes between the digitalised economy, the collaborative (‘gig’) economy

and the platform economy on basis of their differing scope and degree of inclusiveness. The EESC considers important to assess the policy choices related to the taxation of the collaborative economy in its entirety, rather than aligning such policy options fully with the ones made about the taxation of the digitalised economy. It is suggested in this Opinion that the European Union must not miss out on an opportunity provided by the collaborative economy to bring and facilitate innovation. The EESC stresses the extent to which such policy choices bear on the systemic relations between business, investment and markets. It is further suggested that the collaborative economy should not be ringfenced from the rest of the economy. Albeit calling for a unified European approach regarding the taxation of the digital economy in general, the EESC Opinion stresses that the existing framework of tax rules and principles should be adapted to new situations arising in the collaborative economy, in order to ensure consistent treatment of all economic operators, irrespective of the format of their activities, digital or traditional.

Discussions on the taxation of the digitalised economy within the EU are expected at the forthcoming ECOFIN Council meeting on 5 December.

UK Government set out details of tax policy in Autumn Budget The Chancellor of Exchequer Philip Hammond announced the Autumn Budget 2017, alongside an overview of tax legislation and rates, a document that sets out the details of the tax policy measures of the Autumn Budget.

In respect of corporate taxation, the Budget announcement includes changes related to taxation of capital gains and royalties, hybrid mismatches and the corporate indexation allowance. The UK plans to amend the Substantial Shareholding Exemption legislation and the Share Reconstruction rules, in order to avoid unintended chargeable gains being triggered where a UK company incorporates foreign branch assets in exchange for shares in an overseas company.

With effect from April 2019, withholding tax obligations will be extended to royalty payments, and payments for certain other rights, made to low or no tax jurisdictions in connection with sales to UK customers. The rules will apply regardless of where the payer is located. Some aspects of the corporation tax rules which apply to arrangements involving hybrid structures and instruments, the mismatch arising from differences in tax treatment between two jurisdictions, will be amended to clarify how and when the rules apply, and to ensure that the rules operate as intended.

With respect to corporate taxation and the digital economy, alongside Budget, the UK government has published a position paper discussing the challenges posed by the digital economy for the international corporate tax framework and its proposed approach for addressing those challenges.

The UK government will push for reforms to the international tax framework, to ensure that the value created by the participation of users in certain digital businesses is recognised in determining where those businesses' profits are subject to tax. However, the UK is ready to take unilateral action in the absence of sufficient progress on multilateral solutions, by exploring interim options to raise revenue

from digital businesses that generate value from UK users, such as a tax on revenues that these businesses derive from the UK market.

The Finance Bill 2017-18 will be published on 1 December 2017.

OECD published MAP statistics for 2016 As part of the efforts to enhance tax certainty and to improve the effectiveness of the dispute resolution mechanisms, BEPS Action 14 required from jurisdictions to seek to resolve mutual agreement procedure ("MAP") cases within 24 months, as a minimum standard. To monitor compliance with this obligation, members of the Inclusive Framework on BEPS have committed to report their MAP statistics pursuant to an agreed reporting framework, as a tangible measure of the effects of the collective implementation of some elements of the Action 14 minimum standard and now includes data from over 65 jurisdictions.

To this end, the OECD has made available the MAP statistics for the 2016 reporting period.

European Commission launches Taxlandia, tax educational portal for youngsters The European Commission has launched a new education portal for young people that is aiming to teach them about tax in a fun and interactive way. TaxEdu is a digital resource to educate children about the purpose of taxes and how they affect their daily life. It also gives information on tax compliance and the negative effects of tax fraud on society. The portal is full of multilingual e-learning tools for different age groups, games, videos and educational material for teachers to use in schools.

***** The selection of the remitted material has been prepared by Aleksandar Ivanovski/ Mary Dineen/ Filipa Correia / Piergiorgio Valente Follow CFE on LinkedIn

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Brussels, 4 December 2017 1. European Commission publishes new rules to improve the VAT System by making it more resilient to fraud and closing loopholes which create VAT fraud.

On 30 November, the European Commission published a draft Regulation to strengthen administrative cooperation between the tax authorities of Member States. It seeks to amend Regulation (904/2010) regarding measures to strengthen administrative co-operation in the field of VAT. The legislative initiative seeks to swiftly improve how tax authorities cooperate not only with each other but also with other law enforcement bodies across the EU. It comes in preparation for the full implementation of the definitive VAT regime and follows on from the proposal of fundamental cornerstones of the new system as published in October.

The primary elements of the proposal seek to : Strengthen cooperation between Member States by putting in place an online system for information sharing within 'Eurofisc', the EU's existing network of anti-fraud experts. The system would enable Member States to process, analyse and audit data on cross-border activity to make sure that risk can be assessed as quickly and accurately as possible. To boost the capacity of Member States to check cross-border supplies, joint audits would allow officials from two or more national tax authorities to form a single audit team to combat fraud - especially important for cases of fraud in the e-commerce sector. New powers would also be given to Eurofisc to coordinate cross-border investigations.

Increase interaction with other law enforcement bodies by opening new lines of communication and data exchange between tax authorities and European law enforcement bodies on cross-border activities suspected of leading to VAT fraud: OLAF, Europol and the newly created European Public Prosecutor Office (EPPO). Cooperation with European bodies would allow for the national information to be cross-checked with criminal records, databases and other information held by Europol and OLAF, in order to identify the real perpetrators of fraud and their networks.

Share key information on imports from outside the EU by further improvng information sharing between tax and customs authorities for certain customs procedures which are currently open to VAT fraud. Under a special procedure, goods that arrive from outside the EU with a final destination of one Member State can arrive into the EU via another Member State and transit onwards VAT-free. VAT is then only charged when the goods reach their final destination. This feature of the EU's VAT system aims to facilitate trade for honest companies, but can be abused to divert goods to the black market and circumvent the payment of VAT altogether. Under the

new rules information on incoming goods would be shared and cooperation strengthened between tax and customs authorities in all Member States.

Share information on moter vehicles In order to tackle fraud, in relaiton to trading in cars new measures will seek to allow Eurofisc officials access to car registration data from other Member States.

The Proposed Regulation is available here.

2. European list of non-cooperative jurisdictions to be approved by European Finance Ministers this week.

Approval is expected to be reached at tomorrow’s ECOFIN meeting on the list being prepared of non-cooperative tax jurisdictions. The list is being compiled in parallel with the OECD global forum on transparency and exchange of information for tax purposes. The list has been prepared by the Working Group responsible for implementing the EU code of conduct on business taxation.

ECOFIN previously agreed on the process for making the list in November 2016, setting end of 2017 as the deadline for the conclusion of the list. The list will be formulated based on criteria:   

that a jurisdiction should fulfil to be considered compliant on tax transparency; that a jurisdiction should fulfil to be considered compliant on fair taxation; and related to the implementation of anti-BEPS measures agreed by the OECD.

3. ECOFIN Meeting to take place Tuesday 5 December – EU Blacklist, Digital tax and VAT on the Agenda A very important ECOFIN will take place tomorrow, Tuesday 5 December. As outlined above it is expected that the EU blacklist of non-cooperative tax jurisdictions will be agreed upon.

In addition, from a digital tax perspective, it is hoped to agree Council Conclusions on an approach to the taxation of the digital economy with a view to discussions at an international level. An OECD interim report on the taxation of the Digital Economy is due to be published in Spring, but the European Commission is also currently conducting its own public consultation on the fair taxation of digital economy, in addition to the publication of a paper outline possible legislative solutions and proposing possible legislative intervention in Spring 2018.

Finally, in the field of VAT, it is expected that proposals in the area of e-commerce will be passed enabling SMEs to more easily comply with their VAT obligations. The proposals were agreed by all Member States apart from one at the previous ECOFIN meeting. This issue with one Member State has now been resolved and therefore agreement is expected without any discussion at tomorrow’s meeting.

The new rules extend an existing EU-wide portal (mini 'one-stop shop') for the VAT registration of distance sales and for distance sales from third countries with a value under €150. VAT will be paid in the Member State of the consumer, ensuring a fairer distribution of tax revenues. In

addition, the European Commission will present the proposals outlined above for tackling VAT fraud by increasing administrative cooperation between Member States.

4. The OECD publishes further guidance on country-by-country reporting The OECD has published more detailed guidance on the implementation of country-by-country reporting in order to increase certainty for both tax administrations and MNE groups. The additional guidance addresses a number of specific issues: 

how to report amounts taken from financial statements prepared using fair value accounting;



how to treat a negative figure for accumulated earnings in Table 1;



how to treat mergers/acquisitions/de-mergers;



how to treat short accounting periods; and



how to treat the definition of total consolidated group revenue.

The additional guidance is available here.

5. The OECD publishes first peer reviews on BEPS Action 5 on spontaneous exchange of tax rulings.

The OECD has released the first peer reviews of progress made by individual countries in spontaneously exchanging information on tax rulings in accordance with BEPS Action 5. The first reports evaluates 44 countries, including all OECD members and the G20 countries.

The Report is available here.

DATE FOR THE DIARY 26 January – VAT FORUM – University of Economics Prague. ***** The selection of the remitted material has been prepared by Aleksandar Ivanovski/ Mary Dineen/ Filipa Correia / Piergiorgio Valente Follow CFE on LinkedIn

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Brussels, 11 December 2017 1. EU list of non-cooperative jurisdictions adopted by EU finance ministers The Council of the EU sitting as ECOFIN (Economic and Financial Affairs Council) has approved Commission’s list of non-cooperative jurisdiction for tax purposes. The list includes 17 countries that are failing to meet European tax good governance standards: American Samoa, Bahrain, Barbados, Grenada, Guam, Korea (Republic of), Macao, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and the United Arab Emirates.

The first European list is part of the EU’s efforts to promote tax good governance, to dissuade external threats to EU Member states’ tax bases and to address standards of third countries that refuse to cooperate in tax matters.

The EU listing criteria included transparency, BEPS implementation and commitment to fair tax competition. In addition, 47 countries have been ‘grey’ listed, and have committed to addressing the deficiencies in their tax systems and to meet the required criteria, following a dialogue with the EU. Work on the list started in July 2016 within the Council's working group responsible for implementing the EU Code of Conduct on business taxation. In November 2016 the Council reached conclusions on the process to be followed, setting the end of 2017 as a deadline for finalising the list. Since then, the working group has overseen a screening that included a technical dialogue with a number of third country jurisdictions.

Compliance In order to ensure compliance with the EU measures, the EU has designed defensive measures in tax area could be taken by the Member States. Non-tax measures taken by the EU are also envisaged to effectively discourage non-cooperative practices in the jurisdictions placed on the list. Without prejudice to the competence of Member States to apply additional measures, the actions include:        

Non-deductibility of costs; CFC rules; Withholding tax; Limitation of participation exemption; Switch-over rule; Reversal of the burden of proof; Special documentation requirements; Mandatory disclosure of specific tax schemes with respect to cross-border arrangements.

The EU listing process will continue in 2018. As a first step, letters will be sent to all the blacklisted jurisdictions explaining the decision and the action required to be removed from the list. The Commission and the Code of Conduct Group for business taxation will continue to monitor the implementation of the criteria, with the first interim report expected mid-2018.

2. Council conclusions reached on taxation of the digital economy The ECOFIN Council reached conclusions which highlight the urgency in agreeing globally accepted and tax policy response to the taxation of the digital economy. The adopted Council conclusions suggest revision of international tax rules, including appropriate nexus in the form of a virtual permanent establishment.

Revisiting the transfer-pricing and profit allocation rules in line with the arm’s length principle forms part of the Council conclusions. The Council takes the view that the appropriate nexus in the form of a virtual permanent establishment, alongside any changes to the transfer pricing and profit-allocation rules should take into account how value is created within various business models. Furthermore, the Council urged the OECD to come up with appropriate solutions for the network of double tax treaties that are fit for purpose for the global challenges related to taxation of the digital economy. The Council conclusions also reiterate that unilateral solutions in the absence of international consensus can lead to double taxation disputes between Member states that could undermine the Single Market.

The Estonian presidency initiated a high-level discussion at EU level in July 2017. In September, ministers discussed the issue at an informal meeting in Tallinn. The Commission subsequently issued a communication in September 2017 outlining the challenges and possible solutions.

The EU finance ministers agreed that the EU should closely follow international response in particular at OECD level and consider appropriate responses. The OECD is expected to publish its report on the taxation of the digital economy in April 2018. The Bulgarian EU presidency intends to follow-up with an EU legislative proposal in spring 2018.

3. OECD seeks input on disclosure of CRS avoidance arrangements and offshore structures Today the OECD published a consultation document inviting input on model mandatory disclosure rules. The model rules are intended to target promoters and intermediaries involved in the design, marketing or implementation of the common reporting standards (CRS) avoidance arrangements or offshore structures. The proposed rules would require the intermediaries to disclose information on the scheme to their national tax authority. The rules contemplate that information on those schemes (including the identity of any user or beneficial owner) would then be made available to other tax authorities in accordance with the requirements of the applicable information exchange agreement.

This consultation follows on the BEPS Action 12, which envisaged establishment of mandatory disclosure rules, albeit not as a minimum standard. Public input is sought on all aspects of these model rules. Interested parties are invited to send their comments by 15 January 2018 at the latest by email to MandatoryDisclosure@oecd.org in Word format. They should be addressed to the International Co-operation and Tax Administration Division, OECD/CTPA. 4. Commission announced Code of Conduct on withholding taxes The EU Commission has today announced new guidelines on withholding taxes (WHT) to help Member States reduce costs and simplify procedures for cross-border investors in the EU. Today's recommendations, developed alongside national experts, form part of the EU’ Capital Markets

Union plan and should improve the system for investors and Member States alike. In particular, the Code of Conduct aims to reduce the challenges faced by smaller investors when doing business cross-border. It should result in quick, simplified and standardised procedures for refunding withholding taxes where appropriate.

The Code is a non-binding document which calls for voluntary commitments by Member States and should be considered as a compilation of approaches to improve the efficiency of current withholding WHT procedures, in particular for refunds of WHT to which Member States can add or adapt elements to meet national needs or contexts.

5. Apple has paid the State aid recovery assessment to Ireland Media reports last week indicated that Apple had paid the amount of 13 billion EUR to Ireland in an escrow account, pending resolution of the appeal filed at the EU courts. The Irish government said in a statement that an agreement had been reached for the Apple recovery in the framework of the principles that govern the escrow arrangements.

The European Commission decided in October to refer Ireland to the ECJ in accordance with Article 108(2) of the Treaty on the Functioning of the European Union (TFEU) for failing to recover the assessed back taxes worth up to â‚Ź13 billion. The recovery was required by a Commission decision of 30 August 2016, which concluded that Ireland's tax rulings issued to Apple were illegal under the EU State aid rules. The deadline for Ireland to implement the Commission's decision on Apple's tax treatment was 3 January 2017.

Ireland has appealed the Commission's decision to the Court of Justice, which does not suspend the recovery but allows for the recovered amount to be placed in an escrow account, pending the outcome of the EU court proceedings. **** The selection of the remitted material has been prepared by Aleksandar Ivanovski/ Mary Dineen/ Filipa Correia / Piergiorgio Valente Follow CFE on LinkedIn

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Brussels, 18 December 2017

1. EU agreement reached on the 5th Anti-Money Laundering Directive The Council of EU and the European Parliament reached a political agreement on 15 December on the EU Commission's proposal to amend the Fourth Anti-Money Laundering Directive. The amended directive (‘5th AMLD’) seeks to prevent large scale concealment of funds and to introduce increased corporate transparency rules, whereby corporate and other legal entities will be required by law to publicly disclose information on the beneficial ownership. 

Transparency requirements for corporate entities and trusts

Under the new rules, member states shall be required to ensure compulsory public disclosure of certain information on beneficial owners in respect of companies and legal entities engaging in profit-making activities as per Article 54 TFEU. Conversely, public access requirements are not put in place in respect of trusts and other legal arrangements. The 5th AMLD recognises that trusts may also be set up for non-commercial purposes, such as charitable aims, use of family assets, and other purposes beneficial to the community/ general public. Considering that such arrangements do not qualify as business benefits, the essential data on trusts’ beneficial owners shall only be granted to persons holding a legitimate interest. Similarly, the 4th AMLD already grants competent authorities access to beneficial ownership of trusts and other legal arrangements, albeit in limited circumstances. 

Virtual currencies and verification

The 5th AMLD introduces a requirement for member states to verify beneficial ownership information submitted to their beneficial ownership registers as well as an extension of antimoney laundering legislation applicability to virtual currencies. 

Third-countries

With respect to transactions involving third countries, the obliged entities shall apply enhanced customer due diligence measures set out in the directive. Member States will introduce such rules as a requirement for all transactions with natural persons or legal entities established in third countries identified as high-risk countries pursuant to Article 9 (2) of the Directive. 

Timeline and background

This directive stems from Commission’s Action Plan of July 2016 for strengthening the fight against money-laundering and terrorist financing, aiming to prevent illicit movement of funds or other assets and disrupting the sources of revenue. On 12 February 2016, the ECOFIN Council (EU finance ministers) called on the Commission to initiate amendments to the 4th AMLD in the second

quarter of 2016 the latest. The informal ECOFIN Council also called for action in April 2016 to enhance the transparency of beneficial ownership registers, to clarify the registration requirements for trusts, to speed up the interconnection of national beneficial ownership registers, to promote automatic exchange of information on beneficial ownership, and to strengthen customer due diligence rules.

The EU’s current AML revised framework was adopted on 20 May 2015, consisting of the 4th AMLD and Regulation (EU) 2015/847 on information accompanying transfers of funds. The transposition deadline for the 4AMLD and the entry into force of Regulation (EU) 2015/847 was set for 26 June 2017. The EU’s supranational risk assessment was also published in June 2017. Following the political agreement between the co-legislators, EU member states will have until mid-2019 to implement the 5th AMLD into national legislation.

2. EU Commission opens State Aid investigation into IKEA’s tax arrangements in the Netherlands EU Commission’s Directorate General for Competition has announced a fresh State aid investigation into IKEA’s tax arrangements in the Netherlands. The Commission is looking into IKEA’s franchising model, which allows all the revenue from IKEA franchise fees worldwide to be recorded in Inter IKEA Systems in the Netherlands. Commission’s preliminary inquiry indicates that two tax rulings, granted by the Netherlands tax administration in 2006 and 2011 respectively have unduly reduced Inter IKEA Systems' taxable profits in the Netherlands.

The Commission asserts that the Dutch entity’s profits were reduced by endorsing a method for calculation of the annual fees that further transfers vast amount of IKEA’s worldwide franchising fees to a Luxembourgish entity, I.I. Holding. I.I. Holding was part of a special tax scheme in Luxembourg (exempt holdings’ exemption for dividends), effectively relieving all profits from corporate taxation in Luxembourg. This regime was declared harmful tax measure within the meaning of the EU Code of Conduct on business taxation on the grounds that the exemption was not conditional upon the payment of a sufficient tax by the distributing company, and was subequently phased out at the end of 2010 at Commission’s reques. IKEA would not have payed tax in Luxembourg on this basis in any event.

In 2011, a second tax ruling was issued by the Netherlands, which endorsed a methodology for intellectual property acquisition pricing at the level of Inter IKEA Systems. The ruling further confirmed the interest tax treatment of an intercompany loan to the parent company in Liechtenstein, i.e. the interest deduction from IKEA’s taxable profits in the Netherlands. The Commission asserts that these interest payments were a profit shifting strategy where the vast majority of IKEA’s franchising income after 2011 was shifted to the Liechtenstein parent company.

On this basis, the Commission will now assess if the level of the annual licence fee payments reflect Inter IKEA Systems' contribution to the franchise business in an arm’s length scenario, and, whether the viability of the interest deductions from IKEA’s Dutch taxable base as endorsed by the Dutch tax rulings is compliant with the EU State aid rules. The Netherlands confirmed that they cooperate with the European Commission in respect of IKEA’s investigation.

3. European Parliaments adopts ‘PANA’ inquiry final report The European Parliament adopted the Committee of Inquiry into Money Laundering, Tax Avoidance and Evasion (‘PANA’) final report and recommendations to the Council and the Commission. The 211 recommendations were approved at Parliament’s plenary on 13 December in Strasbourg, by 492 votes to 50 with 136 abstentions. PANA recommendations include the formation of a Permanent Committee of Inquiry on taxation, modeled on basis of the US Congress committees during the next Parliament (2019 -2024). In the meantime, a Special Committee to follow up on the recommendations would continue the investigative work through the mandate of this Parliament, until May 2019. The PANA Committee of Inquiry held the last session on the Paradise Papers before its mandate expired on 8 December 2017, followed by an address from Commissioner Moscovici who provided a round-up on the EU anti-tax avoidance initiatives.

The final recommendations include unrestricted public access to beneficial ownership registers and stricter regulation, sanctions for tax intermediaries aiding aggressive tax planning, then better regulation for protection of whistleblowers and a common international definition of what constitutes tax haven, offshore financial centre, non-cooperative tax jurisdiction and a high-risk country. MEPs called for more transparency in the Code of Conduct Group on business taxation and radical overhaul of its governance and modus operandi. The European Parliament also supported shift from unanimity to qualified majority voting in Council regarding taxation.

4. OECD releases further BEPS peer-reviews on dispute resolution The OECD has released the OECD second round of analyses of individual country efforts to improve dispute resolution mechanisms. These seven peer review reports come as a second round of initial evaluations of how countries are implementing the minimum standards agreed under BEPS Action 14.

These seven reports include over 170 recommendations relating to the minimum standard. In stage two of the peer review process, each jurisdiction’s efforts to address any shortcomings identified in its initial peer review report will be monitored. The reports relate to implementation

by Austria, France (also available in French), Germany, Italy, Liechtenstein, Luxembourg (also available in French) and Sweden.

5. VAT Forum in Prague on 26 January CFE’s member organisation the Chamber of Tax Advisers of the Czech Republic is organising a VAT Forum on the 26 January 2018 in Prague. The VAT Forum is an excellent opportunity for practitioners and policy-makers alike to discuss the impact of new EU VAT regime with keynote speakers Luděk Niedermayer, Member of the European Parliament and Maria-Elena Scoppio of the European Commission. **** The selection of the remitted material has been prepared by Aleksandar Ivanovski/ Mary Dineen/ Filipa Correia / Piergiorgio Valente Follow CFE on LinkedIn

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1. Global tax transparency developments: ‘Paradise Papers’ Back in November 2017 the International Consortium of Investigative Journalists ("ICIJ") revealed documents related to off-shore activities of individuals and companies named "Paradise Leaks".

The disclosures contained information related to tax avoidance schemes employed by multinational companies such as Apple, Nike and Facebook. Irrespective of the legality of the revealed tax optimisation strategies, the general public was yet again informed about fund flows into off-shore structures, use of off-shore trusts for tax planning purposes, companies incorporated in secrecy jurisdictions, entities that hold assets and investments in shares and stocks as well as private individuals shielding their identity. 14.4 million files were obtained by the German newspaper Süddeutsche Zeitung, and subsequently shared with ICIJ, BBC and the Guardian. The ‘Paradise Papers’ leaks came as world’s second biggest data leak with 1.4 TB of data, preceded only by the “Panama Papers” in 2016 amounting to 2.6 TB. The “LuxLeaks” files of 2014 amounted to 4.4 GB of tax rulings from Luxembourg.

Simultaneously with these public disclosures, new transparency initiatives at global and EU level have emerged, including an EU Parliament’s Committee of Inquiry of contraventions to EU law, new beneficial ownership transparency requirements, as well as policy initiatives for mandatory disclosure of aggressive tax avoidance schemes at both EU and OECD level. The Bulgarian EU presidency is expected to prioritise the EU directive on mandatory disclosure of cross-border aggressive tax planning schemes in the second quarter of 2018.

2. OECD & EU move-forward on mandatory disclosure rules The OECD on the other hand is seeking input on a consultation document concerning model mandatory disclosure rules. This consultation follows on the OECD BEPS Action 12, which indeed envisaged introduction of mandatory disclosure rules, albeit not as a minimum standard. The model rules are supposedly intended to target promoters and intermediaries involved in the design, marketing or implementation of the common reporting standards (CRS) avoidance arrangements or offshore structures. The proposed rules contemplate that information on those schemes (including the identity of any user or beneficial owner) would then be made available to the domestic and other tax authorities in accordance with the requirements of the applicable information exchange agreements.

3. EU: From State Aid Investigations to global tax good governance standards Global tax certainty challenges for international businesses include the EU’s competition regulator & enforcement body (DG Competition) State aid investigations into multinational companies’ tax arrangements with EU governments. The inquiry into tax rulings was at least partly initiated on basis of ‘market information’ contained in the “LuxLeaks” revelations. Ireland recouped the assessed back taxes worth €13 billion in an escrow account, under threat of litigation at the EU courts for non-compliance with EU ruling. Other open investigations at the moment include IKEA,

Amazon and McDonald’s. It will up to the EU Courts to confirm the viability of EU’s interpretation of international tax concepts, such as the ‘arm’s length principle’.

With an aim to promote fair tax competition and global tax transparency standards, the EU approved a list of non-cooperative jurisdiction for tax purposes this December. The list includes 17 countries that are failing to meet European tax good governance standards: American Samoa, Bahrain, Barbados, Grenada, Guam, Korea (Republic of), Macao, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and the United Arab Emirates. The first European list is part of the EU’s efforts to promote tax good governance, to dissuade external threats to EU Member states’ tax bases and to address standards of third countries that refuse to cooperate in tax matters.

The EU listing criteria included transparency, BEPS implementation and commitment to fair tax competition. In addition, 47 countries have been ‘grey’ listed, and have committed to addressing the deficiencies in their tax systems and to meet the required criteria, following a dialogue with the EU. In order to ensure compliance with the EU measures, the EU has designed defensive measures in tax area could be taken by the Member States. Such actions include:        

Non-deductibility of costs; CFC rules; Withholding tax; Limitation of participation exemption; Switch-over rule; Reversal of the burden of proof; Special documentation requirements; Mandatory disclosure of specific tax schemes with respect to cross-border arrangements.

In reaction to the EU ‘blacklist’, the governments of South Korea, Macau, Mongolia, Tunisia, Namibia and Panama condemned this EU action. Panama recalled its ambassador to the EU, whilst other countries denounced the EU measures as “unfair, arbitrary and discriminatory”. In this global display of divergent understanding of tax transparency, Korea’s finance ministry added that the European Union is not in a position to impose its tax standards on countries like South Korea.

4. US Tax Reform Bill (Tax Cuts & Jobs Act) The highly controversial US Tax Reform Bill has been passed by both the Congress and the Senate in the United States. Two separate versions of the Bill were passed previously so work has been carried out on merging and consolidating the text of the Bill.

The Bill will cut the headline corporation tax rate in the U.S. from 35 to 21% and see the U.S. move to a territorial tax system. This transition to a territorial system will be facilitated by a full dividend exemption for dividends of non-US companies (with a 10% holding requirement). As part of the transition to the territorial system a once off deemed repatriation tax will be imposed on existing earnings held outside the U.S. The once-off levy will be imposed at a rate of 15.5% on cash and 8% for non-cash assets.

Other fundamental changes include the introduction of the following concepts:

   

“Global Intangible Low Taxed Income” (GILTI)– This effectively constitutes a minimum tax being imposed on the certain foreign earnings of US multinationals in excess of a specified amount based on the standard rate of return of the foreign company’s assets.

Foreign – derived intangible income (FDII) – This is akin to a patent box.

Base Erosion Anti-Abuse Tax (BEAT) – This will impose an alternative effective minimum tax targeting excessive intra-group payments to off-shore group companies, such as excessive royalty payments.

New rules on the treatment of hybrids.

It is anticipated that the new corporation tax rate will be applicable from 1 January 2018.

5. OECD Publishes Updated Edition of the Model Tax Convention On 18 December, the OECD published the latest edition of the OECD Model Tax Convention. The updated version incorporates the changes from the various BEPS Reports by consolidating the work done on the following actions:    

Action 2 – Neutralising the effects of hybrid mismatch arrangements Action 6 – Preventing the granting of Treaty Benefits in inappropriate circumstances Action 7 – Preventing the artificial avoidance of PE status Action 14 – Making Dispute Resolution more effective.

The publication is used by countries concluding bilateral tax conventions as the basis for negotiation. **** CFE’s Global Tax Top 5 is edited by Piergiorgio Valente The selection of the remitted material is prepared by Aleksandar Ivanovski/ Mary Dineen/ Filipa Correia / Piergiorgio Valente/ Stella Raventós-Calvo / Wim Gohres Follow CFE on LinkedIn

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CONTACT

Av.de Tervuren 188-A B-1150 Brussels www.cfe-eutax.org

T: + 32 2 761 00 92 + 32 2 761 00 91 E : brusselsoffice@cfe-eutax.org

EU and Tax Policy Report

CONFÉDÉRATION FISCALE EUROPÉENNE

CFE is the leading European association of tax advisers

AUTHORS Mary Dineen and Aleksandar Ivanovski

DATE CREATED 15 May 2017

DATE ISSUED 17 May 2017

EU AND TAX POLICY REPORT - CONFÉDÉRATION FISCALE EUROPÉENNE

CFE’s EU and Tax Policy Report provides a detailed analysis of key tax and

other policy issues at EU level of interest to the European tax advisers. It also includes an overview of selected CJEU case-law and relevant European

Commission decisions covering the period January through May 2017.

Highlights

The Maltese Presidency will end in June and be succeeded by Estonia. Over the past six months, significant progress has been made in the areas of improving dispute resolution mechanisms for double taxation disputes and reaching agreement on the ATAD 2. Progress has been slower in relation the recast Interest and Royalty’s Directive and the proposals for a relaunch of the common consolidated corporate tax base. Finally, the proposals on public country-bycountry reporting suffered a setback but are subject of discussions on 17 May so it will be interesting to see what direction this file takes.

On the indirect taxation front, the last 6 months has seen four Commission public consultations being carried out, and in a statement on 12 April, Commissioner Moscovici confirmed that the European Commission is planning to propose an important overhaul of the EU VAT rules in September 2017. VAT practitioners have been closely monitoring the Opinions of the Advocate Generals in recent months where divergent views have been espoused in relation to the application of the VAT exemption for the cost-sharing associations in the financial services sector.

Commissioner Moscovici confirmed earlier in May speaking to the European Parliament ‘PANA’ Committee that a legislative proposal on the ‘intermediaries’ can be expected by the summer. Mr Moscovici also highlighted that the European Commission is working with the Council on establishment of ‘blacklist’ of non-cooperative jurisdictions for tax purposes by end of year.

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Contents

SEC 0

EXECUTIVE SUMMARY

02

EU POLICY- DISINCENTIVES

04

SEC 2

EU PARLIAMENT

06

SEC 3

EU POLICY- DIRECT TAX

08

SEC 4

EU POLICY- INDIRECT TAX

14

SEC 5

EU POLICY- AML

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WHISTLEBLOWERS

19

CASE-LAW: STATE AID

22

SEC 1

SEC 6

SEC 7

SEC 8

TAXPAYERS’ RIGHTS CASE

SEC 9

CASE-LAW: INDIRECT TAX

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Effective Disincentives for Intermediaries

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Moscovici confirms details on the ‘intermediaries’

On Thursday 4 May the European Parliament “PANA” Committee of Inquiry held a public hearing with EU

Commissioner Pierre Moscovici. Commissioner Moscovici discussed the details of the upcoming EU legislative proposal on disincentives for intermediaries of aggressive tax planning schemes, the forthcoming

EU blacklist of non-cooperative jurisdictions for tax purposes and the recent exchanges between the European Commission and the US. Speaking to MEPs, the Commissioner said that he expects the legislative

proposal from the Commission by June. Mr Moscovici also confirmed that the Commission is considering a

legislative proposal, rather than a ‘soft-law’ instrument such as Code of conduct, which would include ‘all intermediaries, and would cover all harmful practices and all jurisdictions’.

In respect of this policy initiative of the European Commission, CFE adopted an Opinion Statement PAC/FC 1/2017. Below is the Executive Summary:

● CFE highlights the positive role of the tax advisers in Europe and their contribution to the rule of law- tax advisers play a fundamental role in making complex tax systems work;

● Considering the intrinsic complexity of tax systems, any envisaged disclosure regime must not

undermine the ability of taxpayers to seek advice and tax advisers to provide it; ● CFE supports Commission’s efforts for improved tax transparency – by doing so, the EU should seek

to implement OECD recommendations, in particular Action Point 12, in a coordinated way to ensure level-playing field within the EU;

● In respect of the objectives of this policy initiative, CFE believes that the EU should continue to

facilitate administrative cooperation between Member states to tackle cross-border abuse and to improve voluntary compliance of taxpayers by introducing reassurances on the fairness of the tax

system; ● While mandatory disclosure regime could be a useful instrument for provision to the tax authorities of information about tax arrangements that might undermine the integrity of the tax system, CFE

believes that the European Commission should take into account the principle of subsidiarity and the need for intervention at EU level, considering that several EU Member states have already

introduced mandatory disclosure regimes; ● Any disclosure obligations should take into account the right against self-incrimination; any upcoming proposal should include exemption for tax advisers similar to the one laid down in Article

34(2) of the Anti-Money Laundering Directive; ● The country-specific scope of the right of non-disclosure and confidentiality, as well as professional

privilege, need to be respected in any future proposal in light of the diverse regulatory ambient for the tax profession in Europe;

● Excessively burdensome mandatory disclosure rules at EU level could potentially decrease the attractiveness of the EU Internal market, which could run affront to the efforts of making the EU the most dynamic and innovative market in the world.

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European Parliament Developments

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European Parliament ‘PANA’ Committee of Inquiry Update

The more assertive European Parliament has had quite a prominent role in driving forward or influencing the EU tax policy agenda in the past months. The Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion ‘PANA’ held a series of public hearings and evidence gathering sessions in the first half of the year.

The PANA Committee adopted a preliminary report Working Document of 15 December 2016 which discussed the scope of the Panama revelations, main offshore constructions and the degree of opacity identified from such structures, as well as contraventions to EU law stemming from the revelations. The Working Document pointed to the significant role played by the intermediaries in setting up schemes to hide the identity of the ultimate beneficial owner (“UBO”) in respect of off-shore structures.

One of the aims of the European Parliament’s PANA inquiry process, according to the Working Document, is to have a clear assessment, by the end of the process, of the extent to which the professionals such as lawyers, accountants or advisers are regulated or self-regulated, and whether their conduct rules are adhered to in practice. In respect of tax advisers, consultants, lawyers and auditors, the MEPs used the evidence hearings to familiarise themselves with the different codes of conduct that are in place, and their modus operandi in relation to identification of suspicious transactions.

This process was followed by a series of public hearings, where representatives of different interest groups were invited to give evidence to the PANA Committee of Inquiry. Some of the discussants at the January 2016 public hearing (ie. Ronan Palan, Tax Justice Network, Brooke Harrington, Copenhagen Business School) pointed to the role of intermediaries in facilitation of structures that are in contravention to the spirit of the law. The follow-up session of the public hearing ‘The Role of Lawyers, Accountants and Bankers in Panama Papers’ was mainly devoted to the banking sector inquiry, banks’ transparency and compliance practices, as imposed by the EU anti-money laundering legislation and FATF standards, as well as the role of intermediaries in facilitation of tax evasion and tax avoidance. Specific focus of the public hearing were the German and Scandinavian banking operations (Berenberg bank, Association of German banks, Nordea etc.). During these discussions, the MEPs called for crackdown on secrecy and establishment of more transparent tax systems and, strengthened the cooperation between the tax authorities across the European Union.

The Committee of Inquiry discussed in April and May 2017 the findings of three studies that the European Parliament had commissioned on the impact of the offshore money-laundering and tax evasion practices on EU Member States’ exchequers and public finances, and, the assessment on the performance of Member States’ taxation and judicial administrations in addressing the issues stemming from the tax evasion, tax avoidance and money laundering practices.

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EU Tax Policy –

Direct Tax

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Agreement reached at ECOFIN on the “ATAD 2”

On Tuesday 21 February, the Council of the European Union (“the Council”) reached agreement on the finalised text of the Directive extending the scope of the original Anti-Tax Avoidance Directive (the “ATAD”). The “ATAD 2” will extend the scope of the ATAD to include hybrid mismatches involving non-EU Member States and will tackle specific hybrid scenarios, for example those relating to permanent establishments, dual-resident entities and hybrid financial instruments.

Although broad consensus was reached at the December meeting of the Council, contention still existed over two carve-outs and the implementation deadline. The ATAD has an implementation deadline of 31 December 2018 whereas ATAD 2 will for the most part have a deadline of 31 December 2019 as part of the final compromise.

The European Parliament adopted its Opinion on 27 April 2017. The Parliament’s Opinion will be sent back to the Council for final approval. The Rapporteur has stated that the “proposed directive is a fundamental step in to counter hybrid mismatches involving third countries in order to neutralize hybrid mismatch arrangements”.

In the context of reverse hybrid mismatches which arise when the hybrid entity is located in a Member State, it was agreed that the reverse hybrid entity will be regarded as tax resident in that Member State and taxed on the income that is not otherwise subject to tax. The reverse hybrid provisions will not apply to recognised collective investment vehicles.

The two carve-outs related to hybrid regulatory capital and financial traders were also agreed. In relation to hybrid regulatory capital a carve-out will exist until 31 December 2022 whereby Member States can provide an exemption for intra-group instruments that have been issued with the sole purpose of meeting the issuer’s loss-absorbing capacity requirements whereby it is not done in pursuance of avoiding tax or under a structured arrangement. The compromise text approach to financial traders bring it more in line with BEPS Action 2 and is focused more on a delimited approach rather than retaining a specific exemption.

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Country-by-Country Reporting Update

In stark contrast to the progress being made on finalising the work on hybrid mismatches, the proposals on public country-by-country reporting (“CbCR”) came to a grinding halt when the Opinion of the Legal Service of the Council issued at the end of 2016. The Opinion concluded that public county-by-country reporting was a taxation matter and not a matter falling within the ambit of the Accounting Directive, as was initially found by Commission legal services. The Opinion is based on the premise that the purpose of the proposals is the protection of the functioning of the internal market and prevention of tax avoidance rather that the protection of shareholders and the public under Article 50 TFEU. In order for the public CbCR proposals to be characterised a “tax file” by the EU Commission, Member States must unanimously request that the Commission do so, therefore the Legal Opinion alone has limited practical consequences without subsequent action. No action has been taken and Member States are still assessing the situation and the Maltese Presidency is taking a “wait and see” approach.

At Council level, Germany is the main detractor behind the scenes, with France the main proponent of the proposals. This is interesting in light of the decision (Decision 2016-741) of the French constitutional court, which found that public country-by-country reporting was contrary to the constitution. The decision related to the legislation enacted in France to introduce public country-by-country reporting. Whilst the Court recognised that the purpose of public country-by-country reporting obligations is tackling fiscal fraud and tax avoidance, it concluded that the legislation was contrary to the principles of proportionality, going beyond what was necessary to achieve the aim of the legislation.

The European Parliament appears to be maintaining its steadfast support and went a step further in its Opinion. The Rapporteurs propose the reduction of the 750 million euro threshold to 40 million and extending the scope of the publication of the information beyond that relating to EU countries to every country in which they operate.

The next Working Party Meeting is scheduled for 17 May, where a new Malteese presidency compromise text will be discussed.

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Recast Interest & Royalties Directive

The Maltese presidency took up the baton to progress work on a recast of the Interest and Royalties Directive. The proposals date back to 2011 but were stalled in Council in 2012. The main point of contention is the proposal to introduce a minimum effective taxation clause, which seven Member States opposed in 2012.

Malta has drafted compromise texts in order to alleviate concerns of those Member States in an attempt progress the issue. The compromise text proposed an amendment that would allow the source member state to exclude the provisions of the directive when the payment relates to a preferential tax regime. In this regard, an issue of particular concern is the inclusion of patent boxes under preferential regimes. It is reported that the Netherlands proposed removing patent boxes that comply with the modified nexus approach of the OECD. Bloomberg reported (Article May 9 2017) that the compromise text also includes the insertion of a subjectto-tax clause and a targeted anti-abuse rule similar to that contained in the EU parent-Subsidiary Directive.

Some Member States believe that any concerns can be met by the new anti-abuse provisions being introduced pursuant to the Anti-Tax Avoidance Directive, which include provisions to limit interest on deductions, as well as CFC rules.

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Tax Certainty – Attracting Attention at EU Level

Tax certainty was identified as a priority of the G20 back in July 2016. Consequently, the OECD/IMF presented a Report on Tax Certainty in March 2017 to the G20. The topic has more recently reached the EU Agenda, with an EU Commission Taxation Paper published on tax uncertainty in April 2017. The topic came to the forefront of the Maltese Presidency when an internal document seeking to compel a discussion on the subject at the informal ECOFIN meeting on 7 and 8 April was published in some media outlets, and attracted criticism. In the internal working document, the Maltase Presidency stated the downside of such major and rapid changes is that taxpayers and tax administrations may experience uncertainty. It also states, “The rapid introduction of numerous process of tax legislation in quick succession could introduce elements of legal uncertainty in their interpretation implementation and application.”

Malta’s Minister for Finance, and head of ECOFIN emphasised the importance of tax certainty and the need for the EU to enhance tax certainty so that multinationals can understand ahead of time how their EU investments will be treated. He dismissed any suggestions that encouraging tax certainty in any way conflicts with implementing proposals to combat tax avoidance.

The Commission Taxation Paper concludes that tax uncertainty derives from many national and international sources but weaknesses in the institutional framework of tax policy is the primary cause. At a domestic level, the report cites typical sources of uncertainty as being the lack of precision of the tax code and frequent tax changes. An additional source of tax uncertainty stems from the overall political and administrative process of pursuing a tax reform: from the announcement and preparation, to the implementation and the following fine-tuning.

At the international level, the lack of tax coordination/cooperation between countries, as well as the globalization and the emergence of new business models, are the main reasons of increased tax uncertainty regarding the tax treatment of cross-border investment.

The Paper identifies the simplification of the tax system as the main remedy to tax uncertainty and opines that the BEPS initiative and the EU agenda to fight aggressive tax planning are promoting more coordination among governments should result in greater tax certainty.

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Dispute Resolution Mechnisms

The progression of the proposed Directive on Double Taxation Dispute Resolution Mechanisms (the

“Proposed Directive”) in the EU has been a top priority of the Maltese Presidency, with a major push to see a finalised text issue by the end of May. There is consensus amongst stakeholders that the existing mechanisms are insufficient to satisfy the needs of taxpayers. It has become a major tax obstacle to crossborder investment and a contributing factor to increased tax uncertainty. This is evidenced by the Commission indication that there are currently around 900 double taxation disputes in the EU with EUR 10.5 billion at stake. The Parliament is in favour of the Proposed Directive but suggest going further in come aspects. In the Draft Opinion of ECON presented to the Parliament in March 2017, further steps were encouraged such as acceleration of some time limits and the employment of the necessary resources by Member States to effectively implement the changes. In addition, the report recommends that the Commission review the functioning of the new rules within five years and then assess the possibility of extending its scope to cover other areas of taxation, such as indirect taxes, personal income taxes, or inheritance taxes.

The Proposed Directive will build upon the existing mechanisms provided under the Union Arbitration Convention broadening the scope, streamlining the process and ensuring effective resolution for business in order to facilitate tax and legal certainty in the Union. In addition, measures to improve tax certainty, such as the publication of decisions (subject to taxpayer approval) is included. The Draft Opinion of ECON suggests the creation of a centrally managed website containing all published decisions.

Under the Proposed Directive the scope will be increased to include all cross-border issues in the context of business profits. Resolution of disputes will be mandatory and subject to strict and enforceable timelines.

The Draft Opinion of ECON goes further on the proposed time limits and encourages shorter time periods for some of the procedural stages. One of the salient improvements under the Proposed Directive is the inclusion of an additional layer of protection in the form of an automatic and mandatory arbitration procedure to be completed within fifteen months in the event that the Member States fail to reach a conclusion to the initial MAP phase.

The proposed Directive seeks to empower the taxpayer and strengthen their role in the process. Taxpayers have always had the right to institute proceedings. However, the Proposed Directive seeks to empower the taxpayer during the process, for example, by notifying them of the terms of reference of the dispute, the proposed timeframe for completion and the terms of conditions of taxpayers’ or a third parties involvement.

The text is anticipated to be finalised by the Council at the ECOFIN meeting on 23 May. In addition, a vote is scheduled in Parliament on adopting the draft Report as an Opinion of the Parliament for 8 June. As this is a taxation matter, sole competence rests with the Council and the Parliament Opinion will not be binding.

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EU Tax Policy – Indirect Tax

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VAT Public Consultations

The European Commission has launched numerous public consultations in 2017 with a view to reforming and modernising the VAT system in the EU. The consultations deal with the definitive VAT regime, reform of VAT rates, and special rules for small enterprises (SMEs). On 2 March a consultation was launched on the functioning of the administrative cooperation and fight against fraud in the field of VAT. In a statement on 12 April, Commissioner Moscovici confirmed that the European Commission is planning to propose an important overhaul of the EU VAT rules in September 2017. It is outlined in the Sixth Progress Report on 12 April,, that the European Commission is planning to move on to a single VAT area in order to reduce weaknesses of the present system and to tackle cross-border VAT abuse, notably ‘Missing Trader Intra-Community Fraud’ or ‘Carousel Fraud’.

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EU Policy – Anti- Money Laundering

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Public Access to Beneficial Ownership Registers?

Anti-Money Laundering remained in the spotlight of the EU policy developments for much of the past months. After the Council had adopted a Presidency Compromise text on the amendments to the 4th AntiMoney Laundering Directive (EU) 2015/849 in December 2016, the European Parliament’s Committee on Economic and Monetary Affairs Committee (‘ECON’) and the Committee on Civil Liberties, Justice and Home Affairs had voted in March 2017 to amend the proposal to allow access of the general public to the beneficial ownership register. Under the present rules, the access to the AML beneficial ownership registers was limited to official authorities. The European Parliament’s proposed solution would allow European citizens to access beneficial ownership registers without having to demonstrate a legitimate interest in the information.

The trilateral negotiations on the amendments between the Council, the European Commission and the European Parliament continued in May. The Parliamentarians voted (see the Report of 9 March 2017 to extend the scope of the 4th Anti-Money Laundering Directive to cover trusts and other types of legal arrangements having a structure or functions similar to trusts, which were previously excluded from the scope of the Anti-Money Laundering Directive on privacy grounds. Under the amendments, virtual currency platforms would also be within the scope of the EU Anti-Money Laundering Directive, having the same customer identification obligations as banks.

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EU Supranational Risk Assessment

Simultaneously with the developments related to the legislative changes to the European Union AntiMoney Laundering legislation, the European Commission continued into the first-half of 2017 with the implementation of the 4th Anti-Money Laundering Directive. Pursuant to the mandate given by Article 6 of the Directive (EU) 2015/849, the European Commission is finalising the supranational risk assessment for legal professionals, tax advisers, accountants, high value good dealers and real estate agents. The European Commission shall draw up report identifying, analysing and evaluating the risks at European Union level.

This report would imply measures at national or EU level.

The European Commission presented on 14 March 2017 a draft preliminary analysis, which was provided to relevant stakeholders, including the CFE. This private sector consultation meeting concerned the European Commission preliminary analysis on the risk scenario at EU level, as well as the mitigating measures prior to the European Commission drawing up a report which identifies and evaluates the risks at EU level pursuant to Article 6 of the 4th Anti-Money Laundering Directive, based on Article 114 of the TFEU. The European Commission involved stakeholders from private sector and professional associations in order to gather feedback and raise awareness of the sector concerning the money laundering and terrorism financing risks. CFE submitted comments to the European Commission on the preliminary results of the Supranational Risk Assessment in October 2016, and additional remarks in March 2016 on the possible mitigating measures. According to the Roadmap published by the European Commission in February 2017, the Supranational Risk Assessment of legal professionals, TCPS, high value good dealers and real estate was part of an assessment based on risk approach which aims to ensure that resources and measures to prevent or mitigate money laundering and terrorism financing are appropriate to the identified risks. This analysis by the Commission was conducted based on the criteria of the methodology, i.e. on the threat component regarding the intent and capability for criminal organisations to use such scenarios, and on the vulnerability component regarding the risk exposure, the risk awareness, and the legal framework as well as controls put in place.

In respect of the possible measures that will mitigate the risks, CFE expressed in its submission to the European Commission support for the baseline scenario that would entail full implementation of the 4th AML Directive and welcomed proposals that guarantee proper enforcement of the legal provisions in force.

The European Commission Supranational Risk Assessment report pursuant to the 4th Anti-Money Laundering Directive is due for 26 June 2017.

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EU Policy – Whistleblowers &

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EU ‘Blacklist’

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Public Consultation on whistleblowers

In February 2017, the European Parliament adopted a resolution calling for an “effective and comprehensive European whistleblower protection programme” to be proposed “immediately” by the Commission. MEPs “deplored Commission’s failure” to deliver a legislative proposal that establishes a minimum level of protection for whistleblowers who help to protect the EU’s financial interests”.

As a follow-up to European Parliament’s report, the Commission published in January 2017 an inception impact assessment, on the possibility to introduce horizontal or further sectoral EU measures on whistleblowers’ protection. The inception impact assessment was followed by a public consultation, running until 29 May 2017. A targeted consultation with the most relevant stakeholder will follow in addition to the ongoing public consultation.

EU Whistleblower service for wrongful business practices

The European Commission announced on 16 March 2017 a whistleblower service that would allow for individuals or business entities to files anonymous reports about wrongful business practices that might be in violation of EU competition law. The tool will primarily serve as instrument to provide the European Commission with information on anti-competitive practices such as antitrust violations, existences of secret cartels, price fixing and fixing of procurement procedures. The tool is envisaged to enhance Commission’s lenience programme, under which entities can report their own involvement in cartels in exchange for reduction of fine.

According to EU Competition Commissioner Margrethe Vestager: "If people are concerned by business practices that they think are wrong, they can help put things right. Inside knowledge can be a powerful tool to help the Commission uncover cartels and other anti-competitive practices. With our new tool it is possible to provide information, while maintaining anonymity. Information can contribute to the success of our investigations quickly and more efficiently to the benefit of consumers and the EU's economy as a whole".

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EU ‘blacklist’ of noncooperative jurisdictions for tax purposes by end of year

The Council of EU agreed on the need to establish an EU list of non-cooperative jurisdictions for tax purposes by the end of this year, based on the Council conclusions adopted in November 2016. The 8 November 2016 Council conclusions laid down the tax good governance criteria that should be used to screen jurisdictions, and, established guidelines for the screening. The established criteria are related to tax transparency, fair taxation and implementation of anti-BEPS measures. The Council of the EU (ECOFIN) also reached agreement on the scope of the application of the Criterion 2.2., as established by the Council in its criteria and process leading to the establishment of the EU list. Criterion 2.2. establishes that “a jurisdiction should not facilitate offshore structures or arrangements aimed at attracting profits which do not reflect economic activity in the jurisdiction.”

The establishment of EU ‘blacklist’ of non-cooperative jurisdictions could be seen as a follow-up of the Panama Papers revelations. European Union’s actions are taken in line with the OECD work in the Global Forum on tax transparency and exchange of information for tax purposes.

The EU Code of Conduct group, a body which was initially tasked with implementation of the EU Code of conduct on business taxation, is now responsible to oversee the screening process leading to establishment of the EU ‘blacklist’ of non-cooperative jurisdictions for tax purposes.

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EU State Aid Update & European Commission Decisions/ Direct Tax

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Gert - Jan Koopman confirmed upgrade of EU’s Task Force Tax Planning Practices

The European Commission deputy Director General for State Aid, Gert-Jan Koopman, confirmed that the Task Force Tax Planning Practices had been upgraded into a new Unit within European Commission Directorate General for Competition. The Task Force Tax Planning Practices led by Max Lienemeyer is responsible for the State aid investigations into tax rulings and aggressive tax planning practices that might be in contravention to European Union law. The Commission has to date adopted decisions for recovery of tax in the cases of Apple (Ireland), Starbucks (The Netherlands), Fiat Finance (Luxembourg) and the Belgian Excess Profit ruling scheme. These decisions are under appeal at the Court of Justice of the European Union as final arbiter on the legality of European Commission’s decisions, which does not however prevent recovery of the assessed tax. Cases in the pipeline include Amazon, McDonald’s, and the most recent one - Engie (GDF Suez).

The European Commission published in June 2016 a Working Paper on the applicability of Article 107(1) of the Treaty on the Functioning of the European Union to tax ruling practices providing some guidance on for governments and practitioners. Specifically, the paper provides for clarification as to the applicability of the ‘arm’s length principle’ to tax rulings from a State aid perspective.

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Cases: GDF Suez (Engie) Discretionary Double-Non Taxation of Interest

Continuing its inquiries into tax rulings practices by EU member states the European Commission is still looking into Luxembourg’s tax treatment of the GDF Suez group (Engie). The opening decision of the Commission was published on 5 January 2017.

The case concerns discretionary double non taxation of interest i.e. tax treatment of debt and equity in relation to zero-interest loans. The tax rulings that the Commission looks into allegedly treated two financial transactions as both debt and equity, which is inconsistent with the tax treatment of the said transactions.

Such a treatment gave rise to double non-taxation, as the borrowers could significantly reduce their tax liability in Luxembourg by deducting deemed interest payments as expenses. Under the terms of convertible zero-interest coupon the borrower can record a provision for deemed interest payment without an interest payment actually taking place. Had the lender actually received interest payments it would have been subject to corporation tax, whilst the interest payments are tax deductible at the level of the borrower. This discretionary treatment of the deemed interest payments gave rise to double non-taxation, endorsed with tax rulings approved by the Luxembourg tax administration. With this case, the European Commission addresses the cases of inconsistent application of national tax law that gives rise to discretionary double-non taxation.

In similar vein, the Commission is already looking into McDonald’s arrangements in Luxembourg, where the group’s income was exempt from taxation on basis of confirmatory ruling that accepts existence of permanent establishment in the US, where the profits should have been subject to tax, in spite of the fact that they were reportedly not subject to tax in the US.

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Apple: Arguments of the Commission and Ireland

The non-confidential version of European Commission decision related to the alleged State aid granted by Ireland to Apple was published in the Official Journal of the EU in March 2017. The European Commission decision states that Ireland granted Apple illegal State aid by virtue of the terms of two Advanced Pricing Arrangements (APAs) with two Apple entities in 1991 and 2007. The APAs were granted in relation to two subsidiaries of Apple Inc., Apple Sales International (“ASI”) and Apple Operations Europe (“AOE”) which were not tax resident in Ireland but operated through a branch in Ireland. The Commission issued its preliminary decision on 30 August 2016 after a three-year long investigation into Apple’s tax arrangements in Ireland following comments made by Apple executives before a Senate Committee hearing in Washington in 2013. Ireland has appealed the decision and Apple has indicated its intention to appeal the decision. As a preemptive move Ireland published an outline of its appeal prior to the publication of the Commission decision. It is available here.

CFE published an extensive note summarising Commission’s main arguments of 130 pages long ruling, which we summarise in the points below: The European Commission decision states that Ireland granted Apple illegal State aid by virtue of the terms of two Advanced Pricing Arrangements (APAs) with two Apple entities in 1991 and 2007. The APAs were granted in relation to two subsidiaries of Apple Inc., Apple Sales International (“ASI”) and Apple Operations Europe(“AOE”) which were not tax resident in Ireland but operated through a branch in Ireland. The Commission issued its preliminary decision on 30 August 2016 after a three-year long investigation into Apple’s tax arrangements in Ireland following comments made by Apple executives before a Senate Committee hearing in Washington in 2013. Ireland has appealed the decision and Apple has indicated its intention to appeal the decision. As a preemptive move Ireland published an outline of its appeal prior to the publication of the Commission decision. It is available here.

Profit allocation methods were challenged by the Commission. The Commission found that the Irish Revenue i.e. Ireland’s tax authorities granted Apple a “selective advantage” in contravention of EU State aid law because it did not employ appropriate profit allocation methods to calculate the Irish source income of the Irish branches. The Commission essentially disagrees with the methodologies employed by Apple and accepted by the Irish tax authorities, and in particular disagrees with: The use of a one sided functional analysis as opposed to a two-sided functional analysis assessing the resources of the head office in reality.

Ireland should not have accepted the “unsubstantiated assumption” that the Apple IP licenses held by the relevant entities should be allocated outside of Ireland in circumstances where the reality of the situation is that there were no employees or personnel to conceivably carry out the functions assigned to the head offices based outside Ireland, and the Board minutes of the Head Office indicate the directors played an insufficient “active and critical role” in the control and management of the relevant Apple licenses. The use of operating expenses as the profit level indicator instead of sales in the case of ASI and total costs for AOE; the acceptance of a low rate of returns, as well as the comparables used in the analysis, were too challenged by the Commission. Finally, the Commission is of an opinion that in accepting the one-sided profit allocation method endorsed by the tax rulings endorsed State aid for Apple in breach of Article 107 of Treaty on the Functioning of the EU.

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… and the arguments of Apple

Apple’s main arguments [Apple Sales International (“ASI”) and Apple Operations Europe (“AOE”), herein forth “Apple” or the applicant] are based on maintaining error in law by the European Commission in the interpretation of Irish tax law and EU State aid rules. At the outset, Apple claims that there is no legal requirement under Section 25 Taxes Consolidated Act (“TCA 1997”) that profit allocation to branches is compliant with the arm’s length principle (‘ALP’). Such a requirement does not exist under European law either, the applicant claims, adding that the ALP is not applicable standard of assessment under Article 107(1) TFEU, the relevant provision of EU law that prohibits unauthorised State aid. In relation to the development and commercial utilisation of Apple’s intellectual property rights (“IP”), Apple claims that the European Commission disregard the fact the Apple’s IP is developed, controlled and managed in California, United States, and not in Ireland. IP related profits should therefore be subject to tax in the United States.

Apple further argues that the Commission failed to accept the branches in Ireland performed routine operations only and therefore were limited in its activates and commercial utilisation of IP. The applicant points to Commission’s alleged misunderstanding of the fact that the Irish branches did not play significant part in the critical profit making activities of the group. The applicant claims that the European Commission failed to establish ‘selectivity’, which is a decisive State aid criterion. Apple was treated by the Irish Revenue in the same way as the other non-resident entities for tax purposes, and the Commission wrongly assumed that Apple is an Irish resident entity for tax purposes. In respect of the transfer-pricing methodology involved, Apple claims that the Commission erred in law and fact by the choice and application of the Transactional Net Margin Method (“TNMM”). TNMM is a transfer pricing method that compares the net profit margin arising from a non-arm's length transaction with the net profit margins reached in similar arm's length transactions, and, then examines the net profit margin relative to an appropriate base such as costs, sales or assets. According to Apple, the subsidiary line of the Commission fails to articulate a correct profit attribution analysis. Finally, Apple claims that the European Commission breached the principles of legal certainty and non retroactivity by demanding recovery of the State aid, and that the European Commission decision exceeds Commission’s competence under Article 107(1) TFEU.

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Case Law of the CJEU: Taxpayers’ Rights

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AG Wathelet’s Opinion in C-682/15 Berlioz

The case C-682/15 Berlioz Investment Fund S.A., concerns the application of EU law in relation to administrative penalties for holders of information questioning the foreseeable relevance of information to be transferred to third countries (tax authorities’ information exchange requests). Advocate General Wathelet in the Opinion issued on 10 January 2017 confirmed that the taxpayer has the right to challenge

a request for information issued by a Member state’s administration pursuant to Directive 2011/16, on request from a competent authority from another Member state.

Berlioz Investment SA was confronted with a request for information sent to Luxembourg by the French competent authority in relation to dividends received from Cofima, Luxembourg subsidiary of Berlioz. Berlioz had requested exemption from withholding taxes related to the inbound dividends received from Cofima, whilst the French tax authorities wanted to ascertain whether relevant conditions of French law have been fulfilled. The requested information from Luxembourg on behalf of the French authorities concerned in particular whether the company has place of effective management in Luxembourg, list of employees with link to company’s registered office in Luxembourg, contractual relations between Berlioz and Cofima with any supporting documentation, information on shareholdings, amount of capital held by participants with percentage of capital held by each member etc.

Berlioz objected to providing the latter information based on it lacking ‘foreseeable relevance’. As part of the domestic litigation in Luxembourg, Berlioz brought an appeal to the Administrative court in Luxembourg alleging breach of Article 6 of the European Convention on Human Rights and Fundamental Freedoms. The Administrative court filed a preliminary ruling to the Court of Justice of the EU bringing in by its own motion Article 47 of the EU Charter of Fundamental Rights, which is binding European Union law that guarantees the ‘right of effective remedy and to a fair trial’. Advocate General Wathelet is of the opinion that the requested authority must be in a position to determine whether the requested information is foreseeably relevant, i.e. whether a nexus exists between the request for information and the factual situation of a particular taxpayer. There must be a possibility for judicial review of the legality of the information on which the fine was based, in order to comply with Article 47 of the Charter. This needs to be balanced with the legitimate objective of combating tax evasion and tax avoidance pursued by the Directive, so the deficiency must be manifest. This type of review according to the Advocate General complies with Article 47 of the Charter and the principle of proportionality.

The concept of foreseeable relevance, as a ‘yardstick’ to judge the legality of information requests, prevents tax authorities from ‘fishing expeditions’, i.e. making requests that have no apparent nexus to an open inquiry or tax investigation with a particular taxpayer. According to AG Wathelet, this approach is also supported by Article 26 OECD Model Tax Convention, by which this EU legislation was inspired. The Court of Justice was scheduled to deliver judgment in this case on 16 May 2017.

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Case Law of the CJEU: Indirect Tax

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Application of the Costsharing exemption to financial services

Much of the attention in the area of indirect tax case law has focused on the cost-sharing VAT exemption (“CSE”) contained in Article 132(1) (f) of the Council Directive 2006/112/EC (the VAT Directive”). There are currently four cases pending before the ECJ concerning various aspects of the exemption and its applicability to the financial and insurance sectors.

AG Kokott issued two Opinions in March advocating a restrictive approach to the application of the CSE whereby it would not apply to the insurance sector or in cross-border situations. On the other hand, AG Wathelet issued an opposing view in April, opining that the exemption should apply to the banking and insurance sector.

If the CJEU follows the Opinions of Kokott it will have far-reaching implications for the financial services, and insurance sectors which would no longer be able to avail of the cost-sharing exemption.

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One end of the spectrum: AG Kokott’s Opinion in C-605/15 Aviva

The Aviva case concerned the material scope of the exemption and whether it extended to insurance undertakings and in cross-border situations. The distortion of competition criterion was also examined. The case concerned the insurance group Aviva (the “Group”) which operates in the fund management and insurance market throughout the EU. The group sought to establish a series of shared-service centres in 12 member states to supply the necessary services to the members of the Group. The services included H.R., I.T., Financial and accounting services. The Polish Administrative ourts on foot of a dispute between the Polish tax authorities and Aviva regarding the applicability of the CSE to the shared-service centres. Prior to establishing the shared-services centre in Poland, Aviva sought confirmation from the Polish tax authority that the Group members established in Poland would be able to avail of the CSE. The Polish tax authorities refused to confirm this position.

In response to the questions referred, AG Kokott focused on three points: whether a group of insurance companies falls within the material scope of the exemption; whether the exemption can apply to cross— border provision of services by members of the group to the members; and, how the “distortion of competition” criterion should be interpreted.

In answering these questions, AG Kokott concluded the following: · The CSE does not apply to financial services. In reaching this conclusion much emphasis was placed on the schematic position; the exemption must be interpreted strictly as it is derived from the public interest exemptions rather than the general exemptions and therefore cannot not apply to financial services. This view differs significantly from that espoused by AG Wathelet in Commission v Germany. · The CSE does not apply to the cross-border provision of services. Once again, she emphasised the need for a strict interpretation of exemptions concluding that the CSE should only apply within one territory. The application of the fundamental freedoms does not alter this conclusion, as any restriction can be justified by the need to provide fiscal supervision. She opined that if the CSE operated cross-border it would be “likely to jeopardise the principles of fiscal neutrality and legal certainty” and would make it very difficult for tax authorities to assess whether any distortions of competition are resulting. She also opined that Member States are obliged to ensure the effective and straightforward application of exemptions under the VAT Directive and if a single tax authority were obliged to evaluate the presence of any distortions of competition across the EU this would be impossible. · Finally, in relation to the “distortion of competition” criterion, AG Kokott found that an implementing provision of national legislation will not be incompatible with EU law principles on the basis that it does not expand upon the list of criteria to be applied in assessing the distortion of competition. Nor will it be incompatible with principles of legal certainty, effectiveness and protection of legitimate expectations.

CFE has issued an Opinion Statement on the Opinion of AG Kokott.

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AG Kokott’s Opinion in C-326/15 DNB Banka

AG Kokott issued another Opinion on the subject in the DNB Banka Case (Case C-326/15). The case concerned the DNB Banka AS, a member of the DNB Banka group, which operated in Latvia. It provided various financial services assumed to be exempt from VAT and received various administrative services from other members of the group. The dispute in question related to I.T. services provided by the Danish sister company and the transmission of costs to the ultimate Norwegian parent company. The question arose as to whether the services were exempt from VAT by virtue of the CSE. The referral from the Latvian court asked whether: · An independent group of persons within the meaning of the CSE requires the existence of separate legal entities or whether it includes groups of related undertakings whose companies provide each other services. ·

The CSE applies to cross-border situation; and

·

The CSE can apply when a cost- plus price has been imposed.

AG Kokott reiterated the emphasis on the strict interpretation of the exemption. The Following were her conclusions: · The CSE may apply to services provided by the group as a unit but not to services supplied intra-group, as the supplies intra-group are not taxable services. She clarified that the CSE provider does not have to be a legal person, but must be taxable person acting in that capacity and a group of related companies does not satisfy this requirement. · The CSE relates only to groups of taxable persons that provide services which are exempt from VAT by virtue of being listed in Article 132(1) of the VAT Directive (in the public interest); financial services undertakings do not fall within this category of services and therefore cannot avail of the CSE. · Based on her reasoning in the Aviva case she also reiterated that the CSE could not operate cross-border. · The CSE does not apply when a mark-up applies to the costs of the services (in this case a 5% mark-up).

She reasons that Article 132(1)(f) of the VAT Directive states that the exemption applies only on the grounds that the members claim “an exact reimbursement of their share of the joint expenses” and the application of transfer pricing means it is not an exact reimbursement.

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The other end of the spectrum: Commission v Germany (Case C-616/15)

A different approach was adopted by AG Wathelet. He concluded that the CSE is not confined solely to activities carried out by independent groups of persons whose members operate in the public interest but that it may also apply to the financial services industry.

The case arose from infringement proceedings taken by the European Commission against German legislation, which confines the applicability of the CSE to specific groups of professionals, namely those providing hospital and medical care and assistance.

In reaching the conclusion that the CSE can extend to the financial services sector AG Wathelet placed less emphasis than AG Kokott on the legislative intent, and the position of the exemption in the VAT Directive, which he believed could be explained simply by bad drafting or through the legislative history. He held that neither the wording of the exemption nor the CJEU case law would indicate that the CSE must be limited to specific professions or exempt activities.

He opined that it is immaterial whether or not the service provider is a taxable person; the CSE does not stipulate a taxable status of the group but rather establishes a single requirement that the members of the group are carrying out an activity which is exempt from VAT or an activity for which they are not taxable persons.

He argues that the supply of services by independent groups of persons to their members is correctly to be considered transactions outside the scope of VAT rather than VAT exempt activities.

In his schematic interpretation of the legislation, he reasoned that the objective of the exemption is to ensure that VAT exempt entities should not have to pay VAT that they cannot subsequently deduct on the basis that they are VAT exempt. Due to this rationale, it must be concluded that the exemption should apply to all entities in groups that are exempt from VAT or are not taxable persons and not just those providing services in the public interest. Therefore, the exemption should apply to the financial and insurance industries.

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CJEU Judgment in Commission v Luxembourg C-274/15

The ECJ has held that Luxembourg's implementation of the VAT exemption for supplies involving cost sharing groups (CSGs) and their members is incompatible with the VAT Directive.

The following aspects of the CSE in Luxembourg legislation have been found to be contrary to the VAT Directive: · The CSE applies to services provided by an independent group to its members whose taxable activities amount to 30% of their annual turnover; it is not confined to independent groups whose members exclusively deal in VAT exempt activities. This has been found to be contrary to Article 2(1)(c) and Article 132(1)(f) of the VAT Directive. · Members of the CSG can deduct from the VAT which there are liable to pay the VAT due or paid in respect of goods and services supplied to the CSG. · When members of the CSG incur expenses in their own name but on behalf of the group and subsequently allocate those expenses to the CSG the legislation deems it outside the scope of VAT. This has been found to be contrary to Article 14(2)(c) and Article 28 of the VAT Directive.

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EU and Tax Policy Report

JANUARY – MAY 2017

This publication may be not be reproduced without permission of the CFE. To the best of our knowledge, the information and the law cited herein is accurate at the date of publication. CFE does not assume any liability. The information contained cannot be considered advice from the tax advisers working under the umbrella of the CFE.

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EU Tax Policy Report

CFE TAX ADVISERS EUROPE

The European Association of Tax Advisers founded in 1959.

AUTHORS

DATE CREATED

DATE ISSUED

Aleksandar Ivanovski and Mary Dineen

21 December 2017

22 December 2017

CFE TAX ADVISERS EUROPE - EU TAX POLICY REPORT 2/2017

CFE’s EU Tax Policy Report provides an analysis of key tax and other policy issues at EU level of interest to the European tax advisers covering the period July through December 2017.

Highlights

The Estonian Presidency set out a number of priorities however, in reality the last 6 months has been all about the big proposals and less about the existing files. On the direct tax side, the fair taxation of the digital economy has been in the spotlight whilst on the indirect tax side, the European Commission published long awaited proposals for a move toward a destination-based definitive VAT regime.

Back in November 2017 the International Consortium of Investigative Journalists ("ICIJ") revealed documents related to off-shore activities of individuals and companies named "Paradise Leaks".

Simultaneously with these public disclosures, the last six months has seen the results of many transparency initiatives, including the final report and recommendations of EU Parliament’s ‘PANA’ Committee of Inquiry, new beneficial ownership transparency requirements in context of the politicial agreement on the 5th EU Anti-Money Launderign Directive, as well as policy initiatives for mandatory disclosure of aggressive tax avoidance schemes at both EU (The ‘Tax Intermediaries’ Directive) and OECD level (model mandatory disclosure rules).

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Contents

SEC 0

HIGHLIGHTS

02

TAX INTERMEDIARIES DIRECTIVE

04

SEC 2

DIRECT TAX - #DIGITAX

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SEC 3

DIRECT TAX – ‘THE OTHER FILES’

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SEC 4

INDIRECT TAX – ‘THE MAIN EVENT’

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SEC 5

EU POLICY- AML

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EU ‘BLACKLIST’, ‘PANA’ & #STATEAID

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SEC 1

SEC 6

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Tax Intermediaries Directive

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EU Commission’s ‘Tax Intermediaries’ proposal…

Renewed anti-tax avoidance efforts

Back in May 2016, the ECOFIN Council of EU finance ministers invited the Commission to consider legislative

initiatives on mandatory disclosure rules inspired by OECD BEPS Action 12 in order to introduce effective disincentives for intermediaries who assist in tax evasion or avoidance schemes. The European Commission

proposal arrived mid-2017 as a directive on mandatory disclosure of reportable cross-border schemes coupled with automatic exchange of information among Member states. Commission had in mind

transparency rules for tax intermediaries that develop, market, sell and assist in tax avoidance schemes.

Pressure to introduce mandatory disclosure rules at EU level came from the European Parliament with the

resolution of 6 July 2016 on tax rulings and other measures similar in nature or effect.

Technical aspects of the proposed directive

The proposal foresees that intermediaries bear the burden of disclosure to tax authorities, if they are involved in the design or promotion of an aggressive tax planning arrangement with cross-border

implications. The disclosed information to national tax authorities shall be automatically exchangeable by tax authorities of all member states. Where the obligation to disclose is not enforceable due to absence of

an intermediary, or due to legal professional privilege, the directive defaults the disclosure obligation to a taxpayer who is benefiting from the arrangement.

On basis of the proposal, intermediaries shall disclose reportable arrangements within 5 days beginning on

the day after an arrangement becomes available for implementation to the taxpayer. With taxpayers, the

obligation to disclose is within 5 days once implementation has commenced.

In respect of hallmarks, the proposed directive operates with a main benefits test alongside generic and specific hallmarks. The generic

hallmarks include: confidentiality from competitors, confidentiality from the tax authorities, premium fees and ‘off-the-shelf’ schemes. Specific hallmarks include hallmarks related to the main benefit test, specific

hallmarks related to cross-border transactions, to transfer-pricing and specific hallmarks concerning automatic exchange of information.

The Commission proposal comes in the form of a 5 amendment to the Directive on mandatory automatic

exchange of information in the field of taxation (“DAC”). As with all tax files, per Article 115 of the Treaty on the functioning of the European Union, this Commission proposal requires a unanimous support in Council by all member states, following an opinion from the European Parliament. th

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…and European tax advisers’ position.

CFE Tax Advisers Europe welcomed Commission’s policy direction on increased tax transparency, but urged a cautious approach and technical refininement of the proposal before adoption.

The European tax advisers welcomed EU’s policy direction for increased transparency and efforts to strengthen the integrity of the tax systems, in particular the renewed efforts for increased tax certainty.

CFE opined that the design of certain aspects of the proposal had nevertheless left scope for uncertainty and could face the challenge of divergent implementation in member states.

A technical refinement of the proposal necessitates clear and concise definitions. Rules that are too widely drawn are overly burdensome for taxpayers and unhelpful for tax authorities, which stand to receive massive numbers of disclosures but very little useful information.

CFE argued that the proposal could benefit from including a requirement for member states’ tax administrations to issue implementation guidance, providing clarity in relation to determining what is required to be disclosed. CFE further advocated adherence to the OECD BEPS 12 principles, whereby the member states define country specific hallmarks together with a list of excluded tax regimes and outcomes that are not required to be disclosed.

Bearing in mind that hallmarks define what constitutes a reportable cross-border arrangement, these essential features should be well-defined, clear and concise. CFE argued that the ‘main benefits test’ needs to be applicable to all hallmarks in order to ensure that the reporting obligation is limited to relevant arrangements only. The directive should specify a range of penalties applicable to infringement of national provisions adopted pursuant to the directive concerning Article 8aa) and Article 8aaa). Conversely, penalties that are ‘effective, proportionate and dissuasive’ could be subject to different interpretation by member states.

CFE welcomed the professional privilege waiver of the proposal, however remarked that a clear distinction needs to be acknowledged between ordinary tax advice (as it is provided by the vast majority of tax advisers) and marketed, ‘off-the-shelf’ schemes (provided by a small minority).

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Direct Tax

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Taxation of the digital economy.

The last 6 months has seen the EU, OECD and national governments intensively focusing on the fair taxation of the digital economy – and in particular ensuring that the large U.S. tech giants pay a “fair share” of tax in Europe, where these companies have thriving consumer markets. The following is a summary of the main developments across the different institutions.

Priority of Estonian Presidency & European Commission letter of intent.

The Estonian Presidency highlighted that the taxation of the digital economy would be a priority and followed through by initiating a high-level discussion in July 2017. The Estonian position was bolstered with a letter to the Presidency on 13 September from President Juncker indicating the European Commission’s intent that a legislative proposal would be published in spring 2018 establishing EU rules for the fair taxation of profits generated by digitalised MNEs in Europe.

This was followed by technical work being carried out and discussed at the informal ECOFIN in Estonia on 15 and 16 September. Finance ministers discussed the proposals for a fundamental reform of the international tax rules to amend the definition of the concept of permanent establishment, with the introduction of the concept of ‘virtual’ PE, whereby a taxable presence for multinational companies would be considered sufficient to have a taxable presence. Technical discussion also examined the specifics of the sharing economy and the valuation of data for tax purposes.

France, Germany, Spain & Italy put the pressure on tech giants….

Concurrently, the domestic political establishments of France and Germany began an initiative to tax large U.S. Tech companies operating in their markets. The French Tax authorities had recently suffered defeat in the French Supreme Court and failed in their attempt to establish the existence of a PE by Google’s Irish entity (Google Ireland Limited) in France and consequently levy 1.2 billion euro in tax. France, Germany Italy and Spain issued a letter calling on the European Commission to explore options and “propose any effective solutions based on the concept of establishing a so-called “equalisation tax” on the turnover generated in Europe by the digital companies”. The letter further stated that ‘The amounts raised would aim to reflect some of what these companies should be paying in terms of corporate tax.” The letter was subsequently signed by 6 other Member States.

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European Commission’s #DigiTax proposal.

The proposal came at a time when the OECD was also indicating its openness to examining the definition of PE in the context of the taxation of the digital economy. The OECD released a public consultation for input on the tax challenges of the digitalised economy in October 2017. The consultation formed part of the work being carried out by the OECD Taskforce for the Digital Economy’s. An interim report is expected in 2018 with a final report due in 2020. CFE submitted an Opinion Statement in response to this consultation.

On 21 September 2018, days after taxing the digital economy took centre stage at the informal ECOFIN meeting in Estonia, the European Commission published its communication to the European Parliament and Council entitled, ‘A fair and efficient tax System in the European Union for the Digital Single Market’ (the “Commission Communication”). The accompanying Commission Press Release stated that the Commission was pursuing an ambitious EU agenda on the fair taxation of the digital economy in order to ensure a “common EU approach to influence the international discussion”, in order to create “meaningful solutions” at international level by Spring 2018. At this point the press release indicated that the Commission wished to utilise the existing CCCTB framework as the optimal means by which to address the tax challenges that arise from the digital economy in the context of the revised permanent establishment rules and the use of formulary apportionment for allocating the profit of large multinational groups. In addition, the Communication stated that “There is scope within the current CCCTB proposal to examine further enhancements to ensure that it effectively captures digital activities”.

The Commission Communication contained a detailed analysis of digitalisation and its growing impact on the economy. New business models emerging in the digital economy were also examined. It highlighted the effective average tax rates paid by traditional business models versus the newer digital business models – with traditional international business model paying an average effective tax rate of 23.2% compared to a digital B2C model paying 10.1% and digital B2B 8.9%.

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The Communication identified two main policy challenges when seeking to tax the digital economy: nexus and value creation, i.e. where to tax and how best to tax. It acknowledged that “the ideal approach would be to find multilateral, international solutions to taxing the digital economy given the global nature of this challenge” but highlighted the lack on international momentum or consensus at that point in time. It was proposed that the EU would be in a much stronger position to lead the international debate if a common position within the EU could be reached.

The Communication outlined three options which should be considered as short-term solutions.

•

Equalisation tax on turnover of digitalised companies

This is envisaged to be a tax on all untaxed or insufficiently taxed income generated from all internet-based business activities, including business – to - business and business-to-consumer, creditable against the corporate income tax or as a separate tax.

•

Withholding tax on digital transaction

The communication states that this would constitute a standalone gross-basis final withholding tax on certain payments made to non-resident providers of goods and services ordered alone.

•

Levy on revenues generated from the provision of digital services or advertising activity

The possibility of applying a separate levy to all transactions concluded remotely with in-country customers where a non-resident entity has a significant economic presence.

The Communication was followed with the publication of a Public Consultation with stakeholders on 26 October seeking input on the shortcomings of the current international taxation framework and possible solutions – both long and short-term to address those shortcomings.

CFE submitted both a response and an Opinion Statement in relation to the Commission Consultation.

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What was agreed at the December ECOFIN…

The December ECOFIN Council Conclusions (the “Conclusions”) will form the input for discussions at international level on 'digital taxation'. The Conclusions will also serve as a reference for further work at EU level, including with a view to Commission legislative proposals expected in spring 2018. The Conclusions highlight the urgent need to reach a globally accepted tax policy response to the taxation of the digital economy. Whilst accepting that the implementation of the OECD BEPS action items should substantially address the BEPS issues exacerbated by the digital economy, it highlights the need to address the remaining challenge of ensuring that international tax rules are modernised and made suitable for both the digital and traditions sectors of the economy. In this regard it identifies the concept of permanent establishment, together with transfer pricing and profit allocation rules as the essential principles for the global allocation of taxing rights on profits.

The concept of a virtual PE is addressed along with revisiting the transfer-pricing and profit allocation rules in line with the arm’s length principle. The Conclusions express the view that the appropriate nexus in the form of a virtual permanent establishment, alongside any changes to the transfer pricing and profitallocation rules should take into account how value is created within various business models. Furthermore, the Conclusions urge the OECD to come up with appropriate solutions for the network of double tax treaties that are fit for purpose for the global challenges related to taxation of the digital economy. They also reiterate that unilateral solutions in the absence of international consensus can lead to double taxation disputes between Member states that could undermine the Single Market. Finally, the Conclusions state that the EU should closely follow the international response in particular at OECD level and consider appropriate responses. The OECD is expected to publish its report on the taxation of the digital economy in April 2018. The Bulgarian EU presidency intends to follow-up with an EU legislative proposal in spring 2018.

Meanwhile at the OECD. The proposal came at a time when the OECD was also indicating its openness to examining the definition of PE in the context of the taxation of the digital economy. The OECD released a public consultation for input on the tax challenges of the digitalised economy in October 2017. The consultation formed part of the work being carried out by the OECD Taskforce for the Digital Economy’s. An interim report is expected in 2018 with a final report due in 2020. CFE submitted an Opinion Statement in response to this consultation.

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Direct Tax – The ‘Other Files’

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CCTB/CCCTB.

During the summer months the French Government worked with the German government to formulate a simplified bilateral CCTB proposal no later than 2018 that they believe should serve as basis for tax (rates) harmonisation within the Eurozone. A multilateral agreement known as ‘enhanced coopoeration’ is possible within the EU, with a possibility for other EU member states to join at a later stage. Under the socalled ‘enhanced cooperation’ procedure at least nine EU member states can do so, with voluntary participation of other EU countries. The CCCTB was discussed also in the context of the digital economy as an effective long term means of taxing the digital economy. The European Commission Public Consultation on the Fair taxation of the Digital Economy listed it as a possible long term solution by implementing new permanent establishment and profit attribution rules through modifications to the existing CCCTB proposal.

Two draft reports were published in the European Parliament in July. The following is a summary of the main points contained in the Report regarding CCTB: •

Alignment with CCCTB (Cannot exist without CCCTB, therefore link must be strengthened; Propose aligning implementation date of 2 directives (2020) Temporary provisions (crossborder loss relief) should be excluded

•

Digital PE (Inclusion of factors to define digital presence in terms of establishment of a permanent establishment, Definition should also address “situations in which companies which engage in fully dematerialised digital activities are considered to have a permanent establishment in a Member State if they maintain a significant present in the economy of that country” (Amendment 19)

•

Lower Threshold (Reduction of 750 million euro to 40 million euro, Minimum Rate of Taxation, Propose introduction of a minimum rate of taxation in order to level the playing field between MNEs and SMEs)

The following are some of the main points made in the Report concerning the consolidation aspect, the CCCTB: Flexible mechanisms are necessary to adjust to BREXIT and expected overhaul of the U.S corporate tax system; The specifics of the Digital Economy must be captured; Commercial value of personal data must be taken into consideration. More specifically it was proposed that within formulary apportionment a fourth factor should be included – personal data collection and exploitation for commercial purposes.

Finally, it was proposed that implementation of the consolidation element must be aligned with the CCTB. A debate of the European Parliament on 30 August 2017 exposed the divergences of opinion held by MEPS on these Reports. A final plenary vote is scheduled for 18 January 2018. However, it should be noted that the Parliament is only empowered to issue a non-binding opinion in relation to this and other tax files.

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Country-by-Country Reporting.

The summer months saw a number of developments in the path towards public country-by country reporting.

European Parliament On 12 June, two committees of the European Parliament, the Committee on Economic and Monetary Affairs (ECON) and the Committee on Legal Affairs (JURI) approved a proposal requiring MNCs to report details of their activities in every EU country in which they operate. The information to be published will include turnover, profits and taxes paid. A carve-out was included in the proposal whereby MNCs will not be obliged to publish commercially sensitive information. The Committees failed to reach the qualified majority required to enter into negotiations with the Council. Therefore, the draft report was sent to the fully constituted Parliament to be debated in a plenary session.

On 4 July the Parliament debated the proposals and took a vote to amend the original Commission proposal on public CbCR. Under the proposed changes, MNCs with a global turnover above €750 million per year or more will publish CbCR data in each country they operate in the world, and not only for EU countries and tax havens as indicated in the original Commission proposal. Under the voted text, the income tax information of MNCs will be available publicly on a standardised template, stored in a registry which is to be maintained by the Commission. In a compromise among the various political groups in the European Parliament, MEPs voted to protect commercially sensitive information by allowing MS to grant exemptions from the public CbCR requirements. Data shall still be confidentially submitted from the MS to the Commission. After approving the report by 534 to 98 votes with 62 abstentions, the report was sent back to the Committees (ECON, JURI and DEVE) to commence negotiations with Council in first reading on the basis of a plenary mandate.

Council On 22 June 2017, the Council issued a proposed Directve compromise text. The Presidency compromise document highlights the changes compared to the Commission’s original proposal. The Parliament and the Council have opposing positions on some central elements of the proposals including the threshold MNCs must reach to come within the proposals – with the Parliament proposing a 40 million threshold as opposed to the much higher 750 million threshold being proposed by the Council. In addition, the latest compromise text sees the introduction of measures such as an exception whereby MNCs will not be obliged to publish information which would be seriously prejudicial to the commercial position of the undertakings to which it relates.

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ATAD Implementation & Agreement on ATAD2.

Member States are in the process of drafting the necessary legislation to implement the Anti-Tax Avoidance Directive measures. Some Member States are engaging stakeholders and having consultations whilst others are not. Member States are required to have the ATAD 1 measures adopted by 1 January 2019, and the exit tax provisions adopted by 1 January 2020. The ATAD 2 was agreed in May of the year (discussed in the May edition of the EU & Tax Policy Report) with implementation due for 1 January 2020 and 1 January 2022 for reverse hybrid mismatches.

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Dispute Resolution.

In May 2017, The Council of the European Union (ECOFIN) agreed the Directive introducing a new system for resolving double taxation disputes between member states. The Directive was adopted in October. The directive strengthens the mechanisms for resolving disputes among member states that arise from the interpretation of double taxation conventions. The provisions will apply from 1 January 2019.

CFE welcomed the Commission’s proposals to expand and improve the mechanisms available to Member States to resolve double taxation disputes with the introduction of a Council Directive.

In particular, CFE welcomed the following salient improvements:

• Extension of the scope: A crucial element of the Proposed Directive is the extension of the scope of relevant disputes beyond just transfer pricing to include all taxpayers that are subject to taxes on income and capital under bilateral tax treaties and the Convention.

• Increased effectiveness & efficiency in the process: In order to increase effectiveness the Proposed Directive introduces a stipulation for the mandatory resolution of disputes subject to strict and enforceable timelines, this is a positive development for taxpayers and for tax certainty generally.

• Taxpayers’ role and rights: The Proposed Directive seeks to empower the taxpayer and strengthen their role in the process. Taxpayers have always had the right to institute proceedings. However, the Proposed Directive seeks to empower the taxpayer during the process, for example, by notifying them of the terms of reference of the dispute, the proposed timeframe for completion and the terms of conditions of taxpayers’ or a third parties involvement. CFE welcomes these proposals and believes such measures will increase tax certainty and reduce administrative burden for taxpayers. CFE believes that the proposal allowing the taxpayer recourse to the national courts to ensure compliance in the event that the appropriate mechanisms are not applied is essential to a successful system of dispute resolution. In addition, the incorporation of an independent advisory council to make assessments at different stages, for example, if a taxpayer’s complaint is rejected, or in the event that the two Member States fail to reach agreement to eliminate double taxation pursuant to the MAP procedure will be an invaluable development from the perspective of ensuring taxpayers’ right are protected.

• Alternative dispute resolution mechanisms: One of the salient improvements under the Directive is the inclusion of an additional layer of protection in the form of an automatic and mandatory arbitration procedure to be completed within fifteen months in the event that the Member States fail to reach a conclusion to the initial MAP phase. CFE welcomes the proposal to have an option between an Advisory Commission and an Alternative Dispute Resolution Commission. In particular, CFE believes the broader and more flexible approach to the form of alternative resolution procedure, which can be applied, will greatly improve the process for both the competent authorities and the taxpayer.

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Indirect Tax ‘The Main Event’

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Commission’s VAT proposal.

On 4 October the European Commission published a comprehensive proposal to completely overhaul the current system of VAT in the EU, replacing the transitional system with the definitive system of VAT. The proposals follow the European Commission’s VAT Action Plan of April 2016. The current system was intended to be only a transitional system but has lasted 25 years – the new proposals for what is known as the definitive VAT system have therefore been a long time goal of the Commission.

The Commission believe the transitional VAT system is no longer fit for purpose in today’s more dynamic and highly digitalised economy. In its present form of operation, the VAT system is fragmented, disrupts the cross-border operations of digital businesses and SMEs and most importantly highly susceptible to fraud. The Commission aim to have a robust simple system which is resilient to fraud and lowers the compliance burden.

The proposals outline the cornerstones of the new system and seek to establish a so-called definitive VAT system for intra-EU cross-border trade based on the “destination principle”. The destination principle seeks to ensure that the final amount of VAT is paid in the final consumer’s Member State at the rate applicable in that Member State.

The Cornerstones: Destination based principle

The change to a destination-principled VAT system will substantially impact all businesses trading in the EU Single Market. Under a destination-based VAT system, the supplier shall be liable for VAT at a rate applicable in the Member State of destination. Goods traded cross-border will be taxed in the country where they are consumed (the destination country) and at the destination country’s tax rate, rather than where they are produced (the origin country). Under the proposal, the supplier will be obliged to account for VAT at the rate applicable in the destination Member State. Whilst tax will be collected by the country of origin it will ultimately be transferred to the destination country. The mechanism for allowing this new destination system to operate is known as the One Stop Shop.

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One Stop Shop (“OSS”)

The suppliers will not be required to register in the destination Member State for VAT purposes, but can avail of the ‘one-stop-shop’ digital portal. By means of the ‘one-stop-shop’ businesses will be able to file declarations and declare VAT on cross-border transactions in a single return with the same rules and the language of their state of establishment. Member states will accordingly settle their VAT that is due directly.

Cross- border B2B transactions

Under the current rules, B2B cross-border supplies of goods are exempt from VAT, in the sense that the transaction is split between an exempt intra-EU supply of goods in the Member state of origin, and, a taxable intra-EU acquisition in the Member state of destination. This design of the VAT system amounted to substantial revenue losses, with the VAT gap estimated at circa 50 billion euro per year. The Commission thus propose the introduction of a single taxable supply in the member state of destination.

Simplification of VAT invoicing rules

This would allow sellers to prepare invoices in accordance to the rules applicable in their own Member State. There will also be an end to the necessity to complete recapitulative statements (list of cross-border transactions for the tax authority).

Certified Taxable Person – a new concept in VAT

The proposed new concept of a certified taxable person (”CTP”) is a key element of the new proposals regarding a definitive VAT regime. The CTP is analogous to the Authorised Economic Operator (“AEO”) number in the customs context (although the AEO contains 5 eligibility criteria). A business with this certification will be considered a reliable VAT taxpayer throughout the EU and therefore be subject to lesser administrative constraints and eligible to apply some of the so-called quick fixes. In order to receive the classification, businesses must apply to the national tax authority of the Member State of establishment and demonstrate that they have satisfied the 3 criteria contained in the proposed Article 13a (2) of Directive 2006/112/EC. The 3 criteria focus on compliance record, procedures and financial solvency.

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Quick Fixes & Implementation.

Quick Fixes • • • •

Call-Off stock arrangements - Simplification and harmonisation of rules regarding call-off stock arrangements VAT identification number – recognition of VAT identification number of the customer as a substantive condition in order to exempt from VAT an intra-Community supply of goods; Chain transactions - Simplification of rules in order to ensure legal certainty regarding chain transactions Proof of intra-Community supply – Common frame work of recommended criteria for the documentary evidence required to claim an exemption for intra-Community supplies

Steps to implementation The full modernisation of the exiting VAT System will be carried out in via numerous legislative proposals.

In addition to the primary legislative proposals in relation to the definitive VAT regime outlined below the following legislative proposals will also be made: • Reform of VAT rates • Simplification of VAT rules for SMEs and • Reinforcing the existing instruments for VAT Administrative Cooperation (discussed further below) The definitive VAT regime will be implemented in 2 steps.

The new VAT system will initially apply only to B2B supply of goods; After 5 years of monitoring by the European Commission the new system would be expanded in scope to apply also to services.

The implementation of phase 1 will in turn be split into 2 parts: • •

•

•

Implementation of temporary measures known as the 4 Quick Fixes to address some of the problems in the existing system. Identify the cornerstones of the new system and reach agreement on these principles.

The specific technical provisions of the corner stones will be published in 2018.

The CFE has issued an initial Opinion Statement on the Commission Proposals and will be following up with subsequent Opinion Statements as more details are published.

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Other VAT developments:

Strenghtning administrative cooperation On 30 November, the European Commission published a draft Regulation to strengthen administrative cooperation between the tax authorities of Member States. It seeks to amend Regulation (904/2010) regarding measures to strengthen administrative co-operation in the field of VAT. The legislative initiative seeks to swiftly improve how tax authorities cooperate not only with each other but also with other law enforcement bodies across the EU. It comes in preparation for the full implementation of the definitive VAT regime and follows on from the proposal of fundamental cornerstones of the new system as published in October.

The primary elements of the proposal seek to: Strengthen cooperation between Member States by putting in place an online system for information sharing within 'Eurofisc', the EU's existing network of anti-fraud experts. The system would enable Member States to process, analyse and audit data on cross-border activity to make sure that risk can be assessed as quickly and accurately as possible. To boost the capacity of Member States to check cross-border supplies, joint audits would allow officials from two or more national tax authorities to form a single audit team to combat fraud - especially important for cases of fraud in the e-commerce sector. New powers would also be given to Eurofisc to coordinate cross-border investigations.

Increase interaction with other law enforcement bodies by opening new lines of communication and data exchange between tax authorities and European law enforcement bodies on cross-border activities suspected of leading to VAT fraud: OLAF, Europol and the newly created European Public Prosecutor Office (EPPO). Cooperation with European bodies would allow for the national information to be cross-checked with criminal records, databases and other information held by Europol and OLAF, in order to identify the real perpetrators of fraud and their networks.

Share key information on imports from outside the EU by further improvng information sharing between tax and customs authorities for certain customs procedures which are currently open to VAT fraud. Under a special procedure, goods that arrive from outside the EU with a final destination of one Member State can arrive into the EU via another Member State and transit onwards VAT-free. VAT is then only charged when the goods reach their final destination. This feature of the EU's VAT system aims to facilitate trade for honest companies, but can be abused to divert goods to the black market and circumvent the payment of VAT altogether. Under the new rules information on incoming goods would be shared and cooperation strengthened between tax and customs authorities in all Member States. The Proposed Regulation is available here.

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Temporary reverse charge.

European finance ministers failed to reach agreement on allowing certain member states to apply a generalised reverse charge mechanism. The proposal seeks to combat VAT fraud. The generalised reverse charge proposals follow a request from member states significantly affected by VAT fraud, namely Austria and the Czech Republic.

The proposed directive offers a solution to the so-called ‘missing trader’ or ‘carousel’ fraud, where supplies are traded several times without payment of VAT due on the transactions. Under present rules, reverse charge can be applied as temporary measure only, whereas the proposed directive would establish a generalised system applicable on a voluntary basis until 30 June 2022. The Commission presented an analysis of the possible application of the generalised reverse charge mechanism in Austria and the Czech Republic. Whilst the finance ministers were positive about the proposals at the June ECOFIN meeting, potential problems were also discussed, including legal difficulties and disputes arising along with an increase in untaxed goods and services. The initiative did not reach conclusion during the Estonian Presidency, and negotiations are ongoing with no conclusions reached. It remains to be seen if it will be a priority of the Bulgarian Presidency.

VAT on E-Books.

A proposal to align the VAT rate on electronic publications with that of traditional publications had a difficult road to conclusion with failure to get unanimous support at the June ECOFIN meeting. Although the proposal had strong support from many member states the Czech Republic voted against it requesting a wider solution for VAT rates and the digital economy be looked at. This was widely seen as a negotiation tactic in the battle on the other proposal for a temporary reverse charge mechanism discussed above.

However, agreement was reached between France and the Czech Republic and the proposal on EBooks was approved without debate at the December ECOFIN meeting.

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EU Policy – Anti- Money Laundering

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Agreement on the 5th AMLD.

The Council of EU and the European Parliament reached a political agreement on 15 December on the EU

Commission's proposal to amend the Fourth Anti-Money Laundering Directive. The amended directive (‘5 AMLD’) seeks to prevent large scale concealment of funds and to introduce increased corporate

transparency rules, whereby corporate and other legal entities will be required by law to publicly disclose information on the beneficial ownership. th

Transparency requirements for corporate entities and trusts Under the new rules, member states shall be required to ensure compulsory public disclosure of certain information on beneficial owners in respect of companies and legal entities engaging in profit-making activities as per Article 54 TFEU. Conversely, public access requirements are not put in place in respect of trusts and other legal arrangements. The 5th AMLD recognises that trusts may also be set up for noncommercial purposes, such as charitable aims, use of family assets, and other purposes beneficial to the community/ general public. Considering that such arrangements do not qualify as business benefits, the essential data on trusts’ beneficial owners shall only be granted to persons holding a legitimate interest.

Similarly, the 4 AMLD already grants competent authorities access to beneficial ownership of trusts and other legal arrangements, albeit in limited circumstances. th

Virtual currencies and verification The 5 AMLD introduces a requirement for member states to verify beneficial ownership information submitted to their beneficial ownership registers as well as an extension of anti-money laundering legislation applicability to virtual currencies. th

Third-countries With respect to transactions involving third countries, the obliged entities shall apply enhanced customer due diligence measures set out in the directive. Member States will introduce such rules as a requirement for all transactions with natural persons or legal entities established in third countries identified as high-risk countries pursuant to Article 9 (2) of the Directive.

Timeline and background On 12 February 2016, the ECOFIN Council (EU finance ministers) called on the Commission to initiate amendments to the 4 AMLD in the second quarter of 2016 the latest. The informal ECOFIN Council also called for action in April 2016 to enhance the transparency of beneficial ownership registers, to clarify the registration requirements for trusts, to speed up the interconnection of national beneficial ownership registers, to promote automatic exchange of information on beneficial ownership, and to strengthen customer due diligence rules. th

The EU’s current AML revised framework was adopted on 20 May 2015, consisting of the 4 AMLD and Regulation (EU) 2015/847 on information accompanying transfers of funds. The transposition deadline for the 4th AMLD and the entry into force of Regulation (EU) 2015/847 was set for 26 June 2017. The EU’s supranational risk assessment was also published in June 2017. Following the political agreement between the co-legislators and subsequent adoption of the directive, EU member states will have 18 months to implement the 5 AMLD into national legislation. th

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AML Supranational Risk Assessment Report.

Simultaneously with the policy developments related to the 5th European Union Anti-Money Laundering directive, the European Commission continued with steps on implementation of the 4th Anti-Money Laundering Directive. Pursuant to the mandate of Article 6 of the Directive (EU) 2015/849, before the summer holidays the European Commission finalised the supranational risk assessment report. The Report includes mapping of risks per relevant area, recommendation for member states how to identify and address the risks accordingly with focus on the supervisory activities.

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PANA Committee of Inquiry, EU ‘Blacklist’ & #StateAid Update 26

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European Parliament Inquiry Report & Recommendations.

European Parliament’s prominent and assertive role in the area of tax has been visible throughout the second half of the year. Following the publication of the PANA Committee Draft Report on the inquiry on money laundering, tax avoidance and tax evasion and Draft Recommendations to the European Commission and the Council of EU of 28 June 2017, 667 amendments to the Draft Report and 783 amendments to the Draft Recommendations were tabled.

With relevance for the tax advisory profession, the Draft inquiry recommendations called for a shift from self-regulation to appropriate supervision and state controlled regulation for currently self-regulated professions via a separate and independent national regulator/supervisor. The Committee further recommended for regulation of tax intermediaries with incentives to refrain from engaging in tax evasion and tax avoidance and shielding beneficial owners, as well as creation of an EU legal framework for compulsory codes of conduct for tax intermediaries. Finally, an EU certification of intermediaries to practice as tax professionals was recommended with calls to withdraw licences from tax professionals where they are engaged in enabling tax evasion, aggressive tax planning and money laundering. The Committee also called on the Commission to propose EU-wide legislation on the protection of whistleblowers with a horizontal legislation covering both the public and private sectors.

The Report and the 211 recommendations to Council and Commission were approved at Parliament’s plenary mid-December in Strasbourg, by 492 votes to 50 with 136 abstentions. The recommendations include formation during the next Parliament (2019 -2024) of a Permanent Committee of Inquiry on taxation, modelled on basis of the US congressional committees. In the meantime, a Special Committee to follow up on the recommendations would continue the investigative work through the mandate of this Parliament, until May 2019. The PANA Committee of Inquiry held the last session on the Paradise Papers before its mandate expired on 8 December 2017, followed by an address from Commissioner Moscovici who provided a round-up on the EU anti-tax avoidance initiatives.

The final recommendations include unrestricted public access to beneficial ownership registers and stricter regulation, sanctions for tax intermediaries aiding aggressive tax planning, then better regulation for protection of whistleblowers and a common international definition of what constitutes tax haven, offshore financial centre, non-cooperative tax jurisdiction and a high-risk country. MEPs called for more transparency in the Code of Conduct Group on business taxation and radical overhaul of its governance and modus operandi.

The European Parliament also supported shift from unanimity to qualified majority voting in Council regarding taxation.

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EU ‘blacklist’ of noncooperative jurisdictions.

Aiming to encourage fair tax competition and global tax transparency standards, the EU approved a list of non-cooperative jurisdiction for tax purposes this December. The list includes 17 countries that are failing to meet European tax good governance standards: American Samoa, Bahrain, Barbados, Grenada, Guam, Korea (Republic of), Macao, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and the United Arab Emirates. The first European list is part of the EU’s efforts to promote tax good governance, to dissuade external threats to EU Member states’ tax bases and to address standards of third countries that refuse to cooperate in tax matters.

The EU listing criteria included transparency, BEPS implementation and commitment to fair tax competition. In addition, 47 countries have been ‘grey’ listed, and have committed to addressing the deficiencies in their tax systems and to meet the required criteria, following a dialogue with the EU. In order to ensure compliance with the EU measures, the EU has designed defensive measures in tax area could be taken by the Member States. Such actions include: •

Non-deductibility of costs;

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CFC rules;

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Withholding tax;

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Limitation of participation exemption;

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Switch-over rule;

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Reversal of the burden of proof;

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Special documentation requirements;

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Mandatory disclosure of specific tax schemes with respect to cross-border arrangements.

In reaction to the EU ‘blacklist’, the governments of South Korea, Macau, Mongolia, Tunisia, Namibia and Panama condemned this EU action. Panama recalled its ambassador to the EU, whilst other countries denounced the EU measures as “unfair, arbitrary and discriminatory”. In this global display of divergent understanding of tax transparency, Korea’s finance ministry added that the European Union is not in a position to impose its tax standards on countries like South Korea.

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#StateAid: EU Commission looks into U.K. CFC rules.

The European Commission published its Preliminary State Aid Decision as part of the investigation into the U.K.’s Controlled Foreign Company (CFC) legislation and whether it is in contravention of EU state aid rules.

The investigation was announced on 26 October 2017. Specifically, the European Commission is looking into U.K.’s group financing exemption for certain financing income (i.e. loan interest payments) that are exempt from the remit of the CFC rules.

U.K. Group Financing Exemption

The Commission is investigating a legislative ‘scheme’, the UK’s Finance Act 2012 which introduced a Group Financing Exemption, effective from 1 January 2013. This ‘scheme’ exempts from UK corporate taxation financing income received by an off-shore subsidiary from another foreign group company, which allows a UK based multinational company to provide for financing to a CFC group member via an offshore shell without taxing this income. In the absence of the Group Financing Exemption, interest income paid on loans to subsidiaries when that interest is paid into an off-shore jurisdiction would have been subject to tax.

In accordance with the EU Anti-Tax Avoidance Directive, as of 1 January 2019, all Member states must introduce CFC legislation, albeit with a caveat that the ATAD does not intend a group financing exemption such as the one under Commission’s State aid investigation. The Commission investigation focuses on a legislative scheme regarding a Group Financing Exemption introduced by the UK’s Finance Act 2012 and effective from 1 January 2013. The UK Group Financing Exemption, according to the EU Commission, is providing for selective advantage to multinational group companies when compared with other UK resident entities that do not operate cross-border. According to ECJ settled case-law, national anti-abuse provisions must not be selective and must be compliant with the State aid rules still.

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#StateAid: The Amazon ruling.

Continuing their investigation into potential corporate tax ‘sweetheart deals’ with EU governments, the EU Commission adopted a decision establishing a tax liability for Amazon in Luxembourg of €250 million on basis of the EU State Aid rules.

Commission's Amazon State aid inquiry focused on a tax ruling issued to Amazon in 2003 and extended in 2011. The Commission claim that this ruling endorsed a method of calculation of annual payments from the operating company to the holding company for the rights to the Amazon intellectual property, which exceeded, on average, 90% of the operating company's operating profits. Commission say that the profits were significantly higher than what the holding company was due to pay to Amazon US under the terms of the cost-sharing agreement.

Under Luxembourg's tax law, the operating entity is subject to corporate tax whilst the holding company is not due to the chosen legal form - a limited partnership with US partners. The taxation rights to the partners’ profits thus belong to the United States, with the US tax liability being consistently deferred.

Under the tax ruling, the holding company was a shell company that passed on intellectual property rights to the operating company. The Commission further claim that the holding company was not actively involved in the development the IP and did not perform any activities that would justify the level of royalty it received. In this way, three quarters of Amazon's profits were unduly attributed to the holding company, where they remained untaxed. This tax structure was endorsed by a tax ruling issued by the Luxembourg government, which amounted to selective advantage for Amazon. The Commission does not challenge the structure itself, rather the tax ruling that endorsed artificial methods for taxation of profits that amounted to selective advantage for Amazon.

Commission have set out the methodology to calculate the back taxes initially estimated at €250 million, plus interest. An action for annulment of a Commission State aid decision does not have a suspensory effect, thus the Luxembourg government is obliged to recover the assessed tax. Under EU law, assessed back taxes under State air rules are not a penalty, rather an assessment that levels the playing field, and does not penalise the operating company beneficiary of the State aid.

Currently, DG Competition is looking into the more tax rulings from Luxembourg, as regards the corporate tax treatment of IKEA, McDonald’s and GDF Suez (now Engie).

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EU Tax Policy Report

DECEMBER 2017

This publication may be not be reproduced without permission of the CFE Tax Advisers Europe. To the best of our knowledge, the information and the law cited herein is accurate at the date of publication. CFE Tax Advisers Europe does not assume any liability. The information contained cannot be considered advice from the tax advisers working under the umbrella of the CFE.

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