Accountancy Europe | Tax Policy Update – 30 September – 14 October 2019
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OECD publishes proposals for international tax reform
The OECD has published its long-awaited proposals for reforming the international tax system, ahead of the G20 meeting on 17 October.
The proposals reflect the views of the OECD secretariat, not necessarily those of the negotiating OECD member countries although France has already expressed its satisfaction with the proposals.
Stakeholders are invited to provide by 12 November their views on the proposals, which only cover Pillar 1. Pillar 2 (minimum tax) proposals will be published in early-November. Read more
Main features of the proposals
The proposals essentially unify the user participation and marketing intangibles approach presented in an earlier OECD consultation. The scope is limited to digitalised and largely consumer facing businesses, with a possible threshold to be determined at a later stage.
The OECD proposes a new nexus based on sales, not physical presence. The proposed profit allocation rules go beyond the arm’s length principle but is still consistent with and builds on existing transfer pricing rules, rather than replacing them.
The new profit allocation mechanism is based on three different tiers: so-called Amounts A, B and C. Amount A is the share of deemed residual profit allocated to market jurisdictions using a formulaic approach (effectively, capturing user participation and sales). Amount B is for baseline marketing intangibles using a fixed percentage, and Amount C any additional return in jurisdictions where more than baseline marketing activities occur, using arm’s length principle calculations.
Following the publication of the Pillar 1 proposals, the OECD will organise a conference in Paris on 21-22 November.
The Pillar 2 proposals (minimum tax) will be published in early-November, followed by another Paris conference in December.
In January 2020, the OECD Inclusive Framework’s over 130 member countries will discuss the proposals at a technical level.
Future Commissioners grilled by European Parliament
The European Parliament has held several hearings with Commissioner nominees before deciding on 23 October whether or not to approve the new Commission, led by Ursula von der Leyen.
During several of these hearings, MEPs grilled the nominees notably about taxation and the nominees, in return, elaborated on their priorities in this area.
Below are high-level overviews of the most tax-relevant hearings.
Gentiloni re-iterates his tax priorities
The future Commissioner for taxation, Paolo Gentiloni, confirmed during the hearing that his priorities would be CCTB, digital taxation and carbon taxes. He would also maintain the fight against tax evasion and avoidance high on the agenda.
Gentiloni specified on international tax reform that the EU would resume work on a unilateral digital tax solution in Q3 2020 if there is no OECD agreement by then.
In reply to a question from Ludek Niedermayer (EPP/Czech Republic), Gentiloni also re-iterated the importance of continuing VAT reforms in the upcoming term.
He further elaborates on his tax programme in his letter to MEPs.
Vestager to continue focus on tax state aid
In her letter to MEPs, the future Vice-President Margrethe Vestager (in charge of competition and digitalisation) announced her commitment to continue the tax state aid investigations that she has been leading on in the past term.
This means that the Commission will continue to question selective national tax rulings granted to multinationals, despite tax formally being a sovereignty area exclusive to the member states.
At her hearing with MEPs on 8 October, Vestager applauded the current Commission’s track record on tax, having passed 14 pieces of tax legislation since 2014.
However, she also highlighted that the Commission’s tax state aid investigations cannot solve problems in Europe’s tax system; this needs legislation. She specified, in particular, the need for public country by country reporting (CBCR), minimum taxation, C(C)CTB and removing unanimity in tax decision-making.
Dombrovskis underlines fight against tax avoidance and evasion
At his hearing on 8 October, future Vice-President Valdis Dombrovskis (finance) insisted on the need for tax fairness and promised to keep the fight against tax avoidance as a priority.
On tax havens, he stated that even higher standards should be applied in the EU than towards third countries. He also believes that the C(C)CTB would be helpful.
His letter to MEPs elaborates further on his tax and other priorities.
Timmermans wants green tax system
And finally, at his hearing with MEPs on 8 October future Vice-President Frans Timmermans (European Green Deal) underlined that tax measures are essential in the fight against climate change. Today, the wrong things are being taxed he declared.
Timmermans said that the carbon border tax is an area where the EU could lead by example. If third countries do not come along with EU on green measures, the EU will impose a carbon border tax that could be WTO compatible. However, this will have to be further looked into.
He also agreed with moving to qualified majority voting (QMV) in order to ensure that taxation helps in the green transition.
For a full list of Timmermans’ priorities, see his letter to MEPs.
Simplified procedure proposed to speed up adoption of VAT distance sales of goods proposals
On 7 October, ECON MEPs met to discuss MEP Ondrej Kovarik’s (RE/Czech Republic) draft report on the Commission’s proposal on VAT for distance sales of goods.
At the meeting, Mr. Kovarik underlined the urgency for the Parliament to adopt its opinion as the Council already approved its own position earlier this year. He proposed, therefore, to adopt the opinion through a speedier simplified procedure. This would mean that the opinion is automatically adopted in ECON if no objections are raised by 18 October, and the Plenary can then directly adopt it in early-November.
At the 7 October hearing, MEPs across political Groups supported the proposed use of the simplified procedure.
See the last Tax Policy Update for further information on Mr. Kovarik’s draft report.
European Parliament publishes draft position on VAT for defence sector
The European Parliament has published its draft position on the Commission’s proposal for VAT and excise exemptions for the defence sector. The draft position was prepared by the MEP Paul Tang.
Overall, Mr. Tang supports the Commission’s proposal but he proposes to amend the definition of defence effort within the EU framework to expand the scope of the proposal’s provisions.
ECON Committee will vote on Mr. Tang’s draft position in the upcoming weeks, which will be followed by a final confirmatory vote in the Parliament’s Plenary. The European Parliament has no decision-making powers on the file as it is tax related, but must submit an opinion.
MEP QUESTIONS & ANSWERS
Research activities should in principle be subject to VAT
- Question by MEP Joao Ferreira (GUE-NGL/Portugal)
- Reply by Commissioner Moscovici
Commission cannot publish too detailed data on tax information exchange
- Question by MEP Sven Giegold (Greens-EFA/Germany)
- Reply by Commissioner Moscovici
Tax measures applicable to all corporate taxpayers is in principle not selective state aid
- Question by MEP Matt Carthy (GUE-NGL/Ireland)
- Reply by Commissioner Vestager
Group of EU member states calls for harmonised withholding tax procedures
A group of EU member states, led by France, Germany and the Netherlands, are calling for a harmonised EU framework for withholding tax (WHT) repayments.
This harmonized procedure would be based on just one form used by all EU member states and a maximum period in which a decision on a request for WHT repayment must be made. The member states also propose that the Commission could be asked to study the technical viability of WHT procedures based on blockchain technology.
The recommendation is a part of a wider set of proposals from the countries to reform the EU’s Capital Markets Union (CMU) project and foster cross-border investment in Europe. Read more
EU Auditors scrutinise exchange of tax information between Member States
The European Court of Auditors (ECA) is conducting an audit to assess the effectiveness of the exchange of tax information in the EU.
In particular, ECA will review the system in place and assess how the European Commission supports its implementation and monitors its performance. They will also examine how EU member states exchange information, and whether they make the best use of the data they receive. Read more
Platform for Collaboration on Tax invites comments on a draft toolkit designed to help developing countries with the implementation of transfer pricing documentation requirements
EESC supports QMV for tax policy making with certain caveats
Canada’s Trudeau Proposes French-Style Digital Services Tax
EU Inches Toward Blockchain in Fight Against VAT Fraud
Corporation tax receipts continue to rise in the UK as a result of reforms
Montenegro signs OECD multilateral Convention on Mutual Assistance in Tax Matters
Italy to Investigate Netflix for Failing to File Tax Return
IKEA may face EU order to pay Dutch back taxes, according to sources
Ireland sees increased corporate tax revenues
Code of Conduct Group publishes update report on EU tax havens list
Tax Justice Network study: OECD tax reform plans could make inequality worse
EU finance ministers remove UAE and the Marshall Islands from tax haven list
OECD Secretary-General submits tax progress report to G20 finance ministers
Lithuania plans bank tax
IMF calls for higher carbon taxes to tackle climate crisis
Future dynamics of EU tax policy. By ETAF
Tax Day 2020 – save the date. By Accountancy Europe