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CFE's Global Tax Top 5 N°2





CFE Tax Top 5 - 2018




Issue 2 2018 - Brussels, 28 February 2018

US - Digital Economy Does Not Warrant Special Tax Regime


Chip Harter, Deputy Assistant Secretary (International Tax Affairs) at the US Department of the Treasury, set out the US position concerning proposals to tax the digital economy at a Tax Council Policy Institute conference held in Washington over 15 to 16 February. Mr Harter stated that the US does not believe digital business is so inherently different such that it warrants separate treatment by way of the creation of a special tax regime.


Harter stated the US is open to discussions as to whether benchmarks concerning permanent establishment and profit attribution should be revised on a broader basis, but not as part of a special regime which is specific only to digital business.


These comments come ahead of the interim report concerning the implications of digital taxation that the Task Force on the Digital Economy (TFDE), a subsidiary of the CFA, is preparing to deliver to G20 Finance Ministers at the April 2018 meeting. Harter indicated that a consensus cannot be reached and that this will be reflected in the report.


OECD Updates


On 8 February the OECD issued additional guidance concerning the implementation of country-by-country reporting (CbCR) in accordance with Action 13 of the BEPS Project. The guidance states that total consolidated group revenue should be calculated on the basis of the same accounting standards used to identify the existence of a group for the purposes of CbCR. In addition, the guidance includes clarification concerning situations in which the non-compliance of a jurisdiction with the conditions of confidentiality, appropriate use or consistency with respect to CbCR may be considered a systemic failure of the jurisdiction to fulfil its obligations under an international agreement for the automatic exchange of CbCR.


The Global Tax Advisers’ Cooperation Forum submitted an opinion statement in January concerning the OECD consultation draft regarding proposed Mandatory Disclosure Rules requiring disclosure of avoidance arrangements and offshore structures.


Additionally, the OECD announced this month that Serbia has joined the Inclusive Framework on BEPS, bringing the total number of countries who have committed to work together to prevent multinational group tax avoidance and improve cross-border tax disputes to 112.


Nigeria, having ratified the Multilateral Component Authority Agreement on the Exchange of Country-by-Country Reporting Reports (CbC MCAA) in August 2016, has this month enacted Income Tax (Country-by-Country) Reporting Regulations 2018. These Regulations indicate compliance with Action 13 of the implementation plan of the OECD Base Erosion and Profit Shifting (BEPS) project.


Australia Proposes Draft Legislation Extending Multinational Anti-Avoidance Law


The Australian government has issued draft legislation which proposes to extend current anti-avoidance law, by preventing taxpayers from using foreign trusts or partnerships in corporate structures to evade the current legislative application.


The current legislation was enacted in 2016, and was designed to prevent multinational entities with annual global income of AUD $1 billion or more, or that are a part of a group of entities that have annual global income of AUD $1 billion or more, from avoiding paying tax within Australia by constructing artificial arrangements with the aim of avoiding having a taxable presence in Australia.


The Australian Government in its explanatory memorandum indicated that the proposed legislation would ensure the current anti-avoidance legislation operates as intended.


Revision of the UK Intangible Fixed Assets Regime


The UK regime on corporate intangible fixed assets (IFA regime) is being revisited. The scope of the regime includes assets such as copyright, patents and trademarks as well as goodwill. It was first established in 2002 to equate tax and accounting treatment of such assets. In essence, it introduced relief for amortisation or impairment of the aforementioned assets. The revision is aimed at enhancing the efficiency and attractiveness of the regime. Concrete proposals concerning the revisions are expected in late 2018.


Digital Services Tax & Carbon Tax Introduced in Singapore’s 2018 Budget


In its 2018 budget, the Singapore government has announced that a goods and services tax will be imposed on digital services from 2020 onwards, with plans to raise the current rate of the GST to 9%, a 2% increase, between 2021 and 2025. This announcement reflects current ongoing international dialogue concerning using destination principles for the taxation of digital services. B2B services are to be taxed by a reverse charge mechanism, with B2C services to be taxed via overseas vendor registration, which will be compulsory for overseas suppliers of digital services to Singapore.


The government also announced a new carbon tax in the budget for those entities producing 25,000 tonnes or above of greenhouse gases annually, to apply from 2019. The proposed tax rate is S$5 per tonne of emissions, to increase to S$10 or S$15 per tonne by 2030. The tax will take the form of a fixed-price credits-based mechanism.


The budget did not introduce any proposed changes for Singapore’s corporate income tax rates.


The selection of the remitted material has been prepared by
Piergiorgio Valente/ Aleksandar Ivanovski/ Brodie McIntosh/ Filipa Correia




According to media reports, the European Commission is about to issue a decision that the rulings of the Irish tax administration on the tax treatment of two subsidiaries of Apple, Apple Sales International und Apple Operations Europe, were illegal state aid. The decisive element in distinguishing state aid from tax is the question whether the advantageous treatment of an undertaking or group of undertakings has been selective. State aid affecting trade between member states is in principle incompatible with the EU single market, subject to a limited number of exceptions and to notification to the European Commission which, in the case of Apple, has not taken place. If the aid is found to be illegal, Ireland will have to claim back billions of unpaid tax from Apple. There are two similar cases pending, concerning Starbucks in the Netherlands and Fiat Finance and Trade in Luxembourg.


- European Commission press release of 11 July 2014 (opening of investigations)



2. Germany referred to Court over VAT refund rules for non-EU operators


On 25 September 2014, the European Commission decided to refer Germany to the EU Court of Justice regarding its rules on VAT refund which discriminate against non-EU operators. Under German legislation, operators established in another EU member state can authorise a third person to sign or submit their refund form to recover VAT, but taxable persons established outside the EU must personally sign the application form. The Commission considers that this requirement for third country operators goes against the EU law principles of effectiveness, proportionality and equivalence. There is no provision in EU law which requires VAT refund forms to be personally signed.


- Press release of 25 September 2014



3. Commission asks Italy to amend inheritance tax law


On 25 September 2014, the European Commission has requested Italy to amend its inheritance tax legislation which discriminates against bequests to non-profit organisations in another EU or EEA country. Under Italian law, legacies to non-profit organisations pursuing public and social goals are exempt from tax. However, if these are established elsewhere in the EU/EEA, an exemption is only granted if there is reciprocity from that member state, otherwise, the legacy is taxed at 8% of its value. In addition, Italian legislation excludes Italian bonds and public securities from the inheritance estate, while bonds and public securities issued by other EU and EEA states are not allowed this exclusion. The requests take the form of two reasoned opinions, giving Italy two months to react.


- September infringement package



4. CJEU rules on VAT on services supplied by a non-EU main company to its EU branch


On 17 September 2014, the Court of Justice of the EU (CJEU) has rendered its judgment on the case Skandia (C-7/13) concerning the question whether services supplied by a main company with its seat in a third country to its branch belonging to a VAT group within an EU member state are taxable. The Court confirmed this where the branch belongs to a group of persons whom it is possible to regard as a single taxable person for VAT purposes.


- Judgment



5. Commission refers the Netherlands to CJEU over VAT treatment of water sport activities


On 25 September 2014, the European Commission has decided to refer the Netherlands to the EU Court of Justice for failing to fully comply with EU rules on VAT exemptions for water sports activities. According to the Commission, Dutch legislation is too strict to the extent that it exempts sport or physical education services by non-profit organisations from VAT only if these services are provided by volunteers, and too wide to the extent that they exempt the letting of berths and moorings for vessels provided by these water sport organisations even when it is not linked to sport activities.


- Press release


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