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On 21 October 2015, the European Commission concluded that the tax rulings issued by the Dutch and Luxembourg tax administrations to Fiat Finance and Trade and Starbucks approved transfer prices not reflecting economic reality, endorsed artificial methods to establish the companies´ profits and thereby gave them a selective advantage over competitors, incompatible with the EU state aid rules. Most of the profits of Starbucks’ coffee roasting company have been shifted abroad, where they are also not taxed, and Fiat’s financing company only paid taxes on underestimated profits.
· Due to a number of economically unjustifiable assumptions and downward adjustments, the capital base approximated by the tax ruling is much lower than the company’s actual capital. As a matter of principle, if the taxable profits are calculated based on capital, the level of capitalisation in the company has to be adequate compared to financial industry standards.
· The estimated remuneration applied to this already much lower capital for tax purposes is also much lower compared to market rates.
As a result, Fiat Finance and Trade has only paid taxes on a small portion of its actual accounting capital at a very low remuneration. According to market conditions, the taxable profits declared in Luxembourg would have been 20 times higher.
· Starbucks Manufacturing pays a very substantial royalty to a UK-based group company which is neither liable to pay corporate tax in the UK, nor in the Netherlands, for coffee-roasting know-how.
· It also pays an inflated price for green coffee beans to a Swiss group company.
The Commission explains that other products than coffee roasting represents most of the turnover of Starbucks Manufacturing, and that its profits from coffee roasting resulting from the arrangements are not high enough to pay the royalty to the UK group company that holds the know-how.
The Commission ordered Luxembourg and the Netherlands to end this tax treatment and claim back the advantage granted to the two companies.
In the two investigations, the Commission has for the first time used new information request tools, enabling it, if the information provided by a member state subject to the state aid investigation is not sufficient, to ask any other member state as well as companies (including the company benefitting from the aid measure or its competitors) to provide directly to the Commission all market information necessary to complete the state aid assessment.
The Commission is continuing its inquiry into tax rulings practices in all EU member states, announced in December 2014. There are pending in-depth state aid investigations concerning other tax rulings issued by Belgium (“excess profits tax”), Ireland (Apple) and Luxembourg (Amazon).
On 22 October 2015, the EU Court of Justice (CJEU) decided in the Swedish preliminary ruling case C-264/14, Hedqvist, that no VAT is due on the exchange of a “traditional” currency into the digital currency (and vice versa). This means that Bitcoins get the same VAT treatment as traditional currencies.
On 22 October 2015, the European Commission has asked Poland to change its tax laws which grant tax deductibility of private pension contributions only if these are paid into “Individual Pension Insurance Accounts” (IKZE) opened in Polish financial institutions, but not into similar financial products and institutions established in other EU/EEA states. The Commission’s request takes the form of a reasoned opinion. In the absence of a satisfactory response within two months, the Commission may refer Poland to the CJEU.
On 22 October 2015, the CJEU rendered its judgment in case C-277/14, PPUH Stehcemp, referred to it by the Polish Supreme Administrative Court. The EU Court holds that national law may not refuse the deduction of the VAT due or paid in respect of goods delivered, on the grounds that the invoice was issued by a trader which is to be regarded as non-existent, and that it is impossible to determine the identity of the actual supplier of the goods. This does not apply where it is established on the basis of objective factors that that taxable person knew, or should have known, that the transaction was connected with VAT fraud. When establishing this, the taxable person cannot be required to carry out checks which are not his responsibility.
On 22 October 2015, the CJEU decided in the Lithuanian preliminary ruling case C-126/14, Sveda, that a taxable person has the right to deduct the input VAT paid for materials used for building a recreational path accessible for the public free of charge, if that person intends to attract these visitors to a place where he tries to sell them VAT-taxable goods and services, and this is directly and immediately related to his economic activity.
On 13 October 2015, Ireland announced the planned introduction a reduced corporation tax rate of 6.25% on profits arising from research and development projects relating to certain patents and copyrighted software carried out by an Irish company. While details of the planned tax measure are not yet public, the Irish government aims at proposing an incentive fully compliant with the “modified nexus approach” supported by the EU and the OECD designed to prevent multinationals from shifting their intellectual property to those jurisdictions that give them the most favourable tax treatment, irrespective of any link between that jurisdiction and the generation of the IP rights and their value. Several tax firms that have commented on the measure expect that in most sectors, it will serve indigenous companies more than multinationals. The law is expected to apply to accounting periods beginning on or after 1 January 2016.
Today, the European Commission updated its list of VAT Committee guidelines by including the guidance agreed at the Committee´s 104th meeting of 4/5 June 2015, concerning intra-community transfer of goods and the definition of fixed establishment. The guidelines are not legally binding.
– Selected issues EU countries may face when promoting tax good governance in non-EU countries.
On 15 October 2015, EU Court of Justice (CJEU) Advocate-General Mengozzi issued his opinion on the Dutch preliminary ruling VAT case C-128/14, Het Oudeland Beheer. The case concerns the calculation of a “self-supply” charge applying when a building is taken into use, to make a mixture of taxable and exempt supplies. Unlike the Dutch Revenue, the Advocate-General considers that the future rental payments due over the term of the lease should be included in this charge.
On 6 October 2015, the EU Ecofin Council agreed a change to the EU Directive on Administrative Cooperation, introducing mandatory exchange of information on cross-border tax rulings and advance pricing agreements issued from 2012 onwards. The exchange will be effective as of 2017.
Contrary to the European Commission´s legislative proposal of 18 March 2015, the Commission will not receive the same information as the member states; it will only receive some basic information enabling it to monitor whether the exchange actually takes place and to develop a secure central directory for the data exchanged. Moreover, the information exchange on past rulings will only cover 5, not 10 years, as originally proposed. Rulings and APAs issued, amended or renewed in 2012 and 2013 only have to be communicated if they are still valid on 1 January 2014. Finally, member states agreed an optional exemption of rulings or APAs issued before April 2016 to companies with an annual net group turnover not exceeding € 40 million.
The changes introduced by the Council represent a significant weakening of the original proposal, as they will not allow the Commission to assess the tax rulings from a state aid control point of view and to monitor trends in tax rulings policies.
The Directive will be formally adopted at one of the next Council meetings. The European Parliament´s opinion which is still required but not binding has been scheduled for 26 October 2015.
On 8 October 2015, the G20 finance ministers endorsed the final BEPS Recommendations presented by the OECD on 5 October. The proposed measures will now be forwarded to the heads of G20 states who will meet on 15/16 November 2015 in Antalya. To monitor the implementation of the proposed measures, the development of a monitoring framework open to all countries was agreed.
The final BEPS Recommendations contain no specific recommendations on the digital economy (BEPS 1), as the OECD concludes that its typical BEPS risks (e.g. the question of permanent establishment status of warehouses or transfer pricing related to intangibles) are not specific to the digital sector and should be dealt with in the context of other BEPS actions. The OECD does not propose any of the specific options discussed previously, like a “significant economic presence” as a nexus for taxation of digital businesses, withholding taxes on digital transactions or an equalisation levy. In VAT, the OECD proposes destination-based taxation for B2C-transactions, as applies in the EU.
On hybrid mismatch arrangements (BEPS 2), the OECD proposes changes in national laws that link the domestic tax treatment to the foreign tax treatment. The OECD refrains from commenting on whether countries should introduce CFC (controlled foreign company) rules (BEPS 3) or mandatory reporting rules for certain tax arrangements (BEPS 12), but gives recommendations for countries that decide to do so. Interest deductions (BEPS 4) should be directly linked to income from economic activities of the same entity. On harmful tax practices (BEPS 5), a minimum standard on defining substantial activity in a country offering a preferential regime is proposed and consensus on the “nexus” approach of linking a preferential treatment of IP rights to actual research and development undertaken in the same country has been reached. A newly proposed measure is the mandatory exchange of a defined set of information on certain tax rulings, similar to the exchange just adopted at EU level.
Changes to the OECD Model Convention should establish a minimum standard against tax treaty abuse (BEPS 6) and redefine the concept of permanent establishment (BEPS 7). Changes to transfer pricing rules aim at strengthening the arm´s length principle and include particular consideration on intangibles, risk allocation and service fees.
Transfer pricing documentation should be harmonised using a three-tier standard of master file, local file and country by country reporting template; the latter is meant as a minimum standard and to be exchanged among tax administrations only (BEPS 13).
Noteworthy seems the development of a binding arbitration (BEPS 14) framework agreed by 20 countries, including the largest European economies, Japan and the US, going further than the proposed minimum. Dispute resolution and the changes related to BEPS Actions 2, 6 and 7 should be adopted via a multilateral legal instrument currently developed by about 90 countries which should be ready in 2016.
The press conference and technical presentation of last week are now online.
On 9 October 2015, the European Commission opened a public consultation on the re-launch of the CC(C)TB. In its Corporate Taxation Action Plan of 17 June 2015, the Commission announced its intention to propose, as a first step, a mandatory corporate tax base without consolidation (CCTB), but with a mechanism that would allow for temporary cross-border loss offset. It is on these questions that the Commission asks for feedback; however the questions in the consultation document suggest that the Commission might be even less ambitious by proposing a Directive merely aimed at fighting BEPS at EU level, even before the CCTB proposal.
Another issue addressed is whether a CCTB should be voluntary for smaller cross-border companies and whether companies that do not automatically qualify for a CCTB should have the possibility to opt for it. Further issues relate to the treatment of debt, i.e. how a bias of debt over equity financing could be prevented and how research and development can best be incentivised.
The consultation is open until 8 January 2016.
On 12 October 2015, the European Commission published an update of its list of third country jurisdictions that have been identified by EU member states for tax purposes. The update reflects changes in EU member states’ assessments of third countries’ tax good governance standards, corrections to national lists and Estonia’s decision to withdraw all countries from its national list.
While the Commission´s ultimate goal, to develop a common EU approach to third countries in the promotion tax transparency, good governance and possibly effective taxation standards, is not yet within reach, the Commission is hoping that the list will encourage member states to update their lists more regularly. Annual updates of member states´ lists are planned.
Unlike the list published by the Commission on 17 June 2015, the new list avoids giving the impression of an EU list and specific mention of the most-listed countries. The previous list had been criticised for containing information that would not up-to-date, and for not taking into account the transparency criteria monitored by the OECD Global Forum.
The CFE has contributed to the update process in the Commission´s multi-stakeholder Platform for Tax Good Governance.
On 6 October 2015, the EU Court of Justice (CJEU) decided in the Austrian preliminary ruling case C-66/14, IFN, that a provision of Austrian law which, in the context of the taxation of a group of companies, allows a parent company, in the case of the acquisition of a holding in a resident company which becomes a member of such a group, to depreciate the goodwill up to a maximum of 50% of the purchase price of the holding, while such depreciation is prohibited if a holding in a non-resident company is acquired, violates the EU freedom of establishment.
On 6 October 2015, the CJEU decided in the Romanian preliminary ruling case C-69/14, Târșia, that it is not contrary to EU law that procedural rules for civil proceedings do not offer any opportunity to bring an action for revision of a final judicial decision for a breach of EU law. In the case at issue in which a Romanian vehicle owner claimed back his payment of a tax levied in violation of EU law, the CJEU decision was only issued after the date on which that national court decision became final. The CJEU noted that the case may be different as regards final decisions in administrative proceedings.
Today, the OECD presented its final recommendations on the 15 “Actions” announced in July 2013 to counter tax base erosion and profit shifting (BEPS) by corporates. This was followed by an extensive consultation process.
The recommendations are to be discussed by the G20 Ministers of Finance on 8 October 2015 in Lima and endorsed by the G20 leaders in Antalya on 15/16 November 2015.
The final package of BEPS measures proposes new standards on country-by-country reporting, treaty shopping, harmful tax practices, in particular in the area of intellectual property and automatic exchange of tax rulings, and mutual agreement procedures to prevent double taxation.
The BEPS package also revises the guidance on the application of transfer pricing rules and redefines the concept of Permanent Establishment.
The BEPS package invites governments to change their laws to strengthen controlled foreign corporations rules, adopt a common approach to interest deductibility and new rules on hybrid mismatches.
Work is being pursued on the development of a multilateral instrument capable of incorporating the tax treaty-related BEPS measures into the existing network of bilateral treaties. The OECD expects this instrument to be open for signature by all interested countries in 2016.
The CFE will provide more detailed analysis of the final BEPS Recommendations over the next weeks.
Will new tax transparency rules and the use of IT in tax administration facilitate compliance or will they discourage taxpayers from making full use of their rights? Do taxpayer rights need formal recognition? How will the role of tax advisers change?
Speakers from the OECD, the European Commission, several national tax administrations, academia and tax professionals have been invited to discuss these questions at CFE´s 8th conference on tax advisers´ professional affairs.
On 24 September 2015, the European Commission published the work programme for 2015-2019 of the EU Joint Transfer Pricing Forum (JTPF), an advisory expert group to the Commission to find pragmatic, non-legislative solutions to practical problems posed by transfer pricing practices in the EU. Members of the Forum are representatives of each EU member state and 18 other organisations and businesses.
The work programme includes an increased emphasis on economic analysis in transfer pricing, better use of recent companies’ internal information systems and tools and making accessible the JTPF´s conclusions to a wider public. The latter is a response to public criticism of transfer pricing as a possible tool for profit shifting. For the same reason, the Commission had admitted three NGOs as members to the JTPF earlier this year.
4. Commission launches new initiative on Capital Markets Union / CCTB proposal in Q4/2016?
On 30 September 2015, the European Commission presented an Action Plan on Building a Capital Markets Union, announcing a series of partly tax-related measures until 2018. As the Commission explains, the EU single market for alternative sources of finance other than bank financing for businesses, in particular for start-ups and smaller businesses, is under-developed compared to other major economies. This is due to various restrictions, including different tax incentives for venture capital and business angels and tax discrimination for foreign investment funds, partly due to burdensome withholding tax refund procedures. Apart from providing more diversified sources of cross-border financing and reducing dependence from banks, improving regulatory conditions for equity financing should help reducing businesses` indebtedness.
The Communication also mentions the new CCCTB proposal which should address corporate debt bias and has been scheduled for the last quarter of 2016.
For 2017, the Commission has announced a code of conduct for member states on withholding tax relief principles, to promote systems of relief-at-source and to establish quick and standardised refund procedures.
For the same year, the Commission has planned a study on discriminatory tax obstacles to cross-border investment by life insurance companies and by pension funds and possible infringement procedures in this area.
The Commission has also started three public consultations, (1) on venture capital funds, (2) on covered bonds and (3) a call for evidence on the cumulative impact of financial legislation to prevent overlaps and inconsistencies between various sources of regulation.
The Commission also adopted legislative proposals on securitisation and an amendment to the Solvency II Delegated Act.
On 1 October 2015, EU Court of Justice (CJEU) Advocate-General Cruz Villalón issued his opinion on the German preliminary ruling case X-Steuerberatungsgesellschaft, C-342/14, concerning a tax adviser company established in several other EU member states which provided tax advice to a German client and was refused by a German tax authority when trying to file tax returns, as it is not registered in Germany and is not held and managed by tax advisers, which is a regulated profession requiring a minimum qualification in Germany. As it appears, the services were provided solely through correspondence, without entering German territory.
The Advocate-General concludes that in cases where neither the EU Professional Qualifications Directive nor the EU Services Directive applies, member states may require a certain level of qualification but must take account the knowledge and skills of the professional. The actual provision of German law is considered disproportionate as it is not fully suitable to attain its objective by allowing other organisations and persons to practice tax advisory activities without having to demonstrate knowledge of German tax law.
The CJEU is not bound by the Advocate-General´s opinion. It should also be noted that the facts of the case were not fully clear and there are circumstances suggesting that there may not have been a genuine cross-border situation.
On 17 September 2015, the EU Court of Justice (CJEU) delivered its judgment in the joined Dutch preliminary ruling cases Miljoen and others, C-10, 14 and 17/14. The Court held that member states may not impose a withholding tax on dividends distributed by a resident company both to resident taxpayers and non-resident taxpayers where that tax contains a mechanism for deducting or reimbursing the tax withheld only available for resident taxpayers, while for non-resident taxpayers, both natural persons and companies, the tax withheld is a final tax. This results in the final tax burden of non-residents being greater than that of resident taxpayers.
On 11 September 2015, the EU Ecofin Council reached agreement on the proposal for a Directive introducing mandatory exchange of information on cross-border advance tax rulings and advance pricing agreements, by amending the Directive on Administrative Cooperation in Direct Tax, as proposed by the European Commission on 18 March 2015.
According to a Luxembourg presidency compromise proposal of 1 September 2015, member states have proposed allowing member states to exempt from the information exchange persons or groups of persons with an annual net turnover of less than € 40 million, as well as several changes that would limit their administrative effort: information on the amount of transactions and the validity period of the ruling/APA would only have to be exchanged where specified. Furthermore, member states do not want to report to the European Commission the identities of the parties concerned. Member states suggest that the Directive should be applied 12 months after its entering into force.
The Luxembourg presidency stated that the Directive could be formally adopted as early as 6 October.
Also discussed were rules aimed at ensuring that multinationals´ profits are taxed at a minimum rate before leaving the EU.
On 17 September 2015, the CJEU rendered its judgment in the Austrian preliminary ruling case Familienprivatstiftung Eisenstadt, C-589/13 concerning interim tax charged on capital gains and income from the disposal of holdings of a resident private foundation. The ECJ found that where such foundation has the right to deduct from its taxable amount gifts to beneficiaries who have been subject to a tax on these gifts in the foundation´s member state, the same deduction has to be granted if the beneficiaries reside in another member state and are exempt, on the basis of a double taxation convention, from such tax.
On a publicly accessible website, the firm Deloitte has included scorecards providing summaries of 43 different countries’ perspectives of the BEPS Actions. These contain chapters on BEPS legislation, administration´s assessing practices, current governments´ positions and plans, public perspective and unilateral anti-BEPS action taken.
On 16/17 September 2015, the OECD held its 4th Forum on Tax and Crime and afterwards released its report titled “Improving Co-operation between Tax and Anti-Money Laundering Authorities: Access by tax administrations to information held by financial intelligence units for criminal and civil purposes”. The reports analyses the levels of co-operation between the authorities in one state combatting serious financial crimes and assesses various models for the sharing of suspicious transaction reports. The OECD recommends that tax administration should have the fullest possible access to these reports, to fight illicit financial flows, notably tax evasion, money laundering, bribery and corruption.
“Financial intelligence units” are the bodies to which, according to EU Anti Money Laundering Directive and the FATF Guidelines, suspicious transactions should be reported.
According to the recently adopted 4th EU Anti Money Laundering Directive, member states have to exempt tax advisers from a reporting obligation in the course of ascertaining a client´s legal position or defending or representing him/her in or concerning judicial proceedings.
On 8 September 2015, the EU Court of Justice (CJEU) decided in the Italian preliminary ruling case Taricco, C-105/14, that a too brief limitation period for serious VAT fraud cases prevents effective and dissuasive penalties which affects the EU´s financial interests. In such a case, the Italian court may be obliged not to apply the limitation system in question.
The case concerned criminal proceedings brought in Italy against persons charged with having formed and organised a criminal conspiracy in which they put in place fraudulent ‘VAT carousel’ arrangements. Through the use of shell companies and false documents, they are alleged to have acquired bottles of champagne VAT free, allowing a company to procure those bottles below the market price while deducting the VAT allegedly paid to the shell companies.
Some of the charges are already time-barred, whereas the other charges will be time-barred before a final judgment can be delivered, due to the complexity of the investigation and the duration of the procedure. Italian law allowed an extension of the limitation period by only a quarter of its duration, resulting in individuals suspected of committing large-scale VAT evasion enjoying de facto impunity as a result of the expiration of the limitation period.
In its judgment, the CJEU has pointed out that member states must counter illegal activities affecting the financial interests of the EU through effective deterrent measures, to the same extent as they counter tax fraud affecting their own budgets. As the EU budget is partly financed by member states´ contributions calculated from their VAT assessment basis, the CJEU saw a direct link between the collection of that revenue and the financial interests of the EU. It appears that Italian law does not provide for the same statute of limitation as concerns some taxes that create revenue only for Italy´s state budget. The obligation to give EU law full effect may oblige judges to disapply conflicting national laws.
The decision may also have an impact on the Council negotiations on the proposed Directive on fight against fraud to the EU´s financial interests by means of criminal law. To date, the majority of member states has been in favour of excluding VAT fraud from its scope.
On 4 September 2015, the European Parliament´s ECON Committee presented the draft initiative report by MEPs Anneliese Dodds (Social Democrats, UK) and Luděk Niedermayer (EPP, Czech Republic) containing recommendations to the European Commission “on bringing transparency, coordination and convergence to Corporate Tax policies in the Union”. The draft report demands the Commission to come up with one or several proposals introducing an EU common corporate tax base (CCTB) and adding a consolidation element in a second step (CCCTB). The proposal should contain rules to prevent corporate base erosion and profit shifting (BEPS) such as provisions on hybrid mismatches, an EU-GAAR (general anti avoidance rule), a definition of permanent establishment or rules on the taxation of profits transferred to CFCs (controlled foreign companies) in low- or no-tax countries. The draft also asks for coordinated action to be taken against tax havens, the publication of all (cross-border and domestic) tax rulings in anonymised form, the development of guidance on tax-related state aid, EU transfer pricing guidelines embedding the OECD principles in the EU law context, and a proposal for a voluntary “fair tax payer” label.
The draft report´s broad scope results in overlaps in content with other recent EP decisions or drafts on tax policy, namely the resolution on CBCR of 8 July, the draft ECON report on tax rulings on 14 July and draft TAXE report of 20 July 2015.
Different from the resolution of 8 July, the new draft is not clearly in favour of introducing publication of CBCR tax information for all large EU companies. The draft also relies on new studies quantifying the significance of CIT and the revenue loss due to profit shifting in a more precise way than previous studies cited by the EP and the Commission.
It also contains criticism of unilateral anti-BEPS measures such as the UK´s diverted profits tax. However, it does not support a new instrument for binding dispute resolution.
The report itself is not legally binding. If adopted, it would however indicate to the Commission which measures Parliament would be willing to support. While in taxation, the EP only has consultative powers, its approval is required for introducing CBCR in corporate reporting.
The Commission has just closed a public consultation on this issue and is currently considering a legislative response to demands for further corporate tax transparency. The CFE has taken part in this consultation.
Reportedly, there has been recent progress in EU Ecofin Council negotiations on the Financial Transactions Tax proposal that eleven EU member states are pursuing by way of enhanced cooperation. On Saturday, 12 September 2015, France and Austria mentioned “considerable progress” and an agreement on basic principles, aiming at covering as many transactions as possible at a low rate. It was said that a decisive step would be reached in October. As technical details still need to be worked out, the envisaged starting date of January 2016 is no longer realistic.
On 2 September 2015, the EU Court of Justice (CJEU) decided in the French preliminary ruling case C-386/14, Steria, that a differentiated taxation of dividends received by the parent company of a tax-integrated group depending on where the subsidiaries are established violates the freedom of establishment.
Under French tax law, a tax-integrated parent company is entitled to neutralisation as regards the add-back of a proportion of costs and expenses, while such neutralisation is refused where dividends originate from subsidiaries from another member state, which, had they been resident, would have been eligible for group taxation.
On 3 September 2015, the CJEU delivered its judgment in the Italian preliminary ruling case A2A, C-89/14, concerning the application of compound interest on a state aid recovery claim relating to aids granted before EU law provided that compound interest has to be charged on such claims.
In 2002, the European Commission had decided that several Italian undertakings held mainly by public entities providing public services had received a tax advantage incompatible with EU state aid rules through exemptions from corporation tax and subsidised loans. Italy was ordered to claim back these advantages. At that time, there was no rule in EU law on whether compound interest had to be charged on state aid recovery claims. Such EU rule came into effect only in 2004. Italy only reclaimed the aid in 2009, charging interest and compound interest on the amounts.
The CJEU had to decide whether the charging of compound interest was retroactive application of the law in contradiction to the principles of EU law, which the CJEU denied, arguing that there was no retroactivity as the recovery claim was only made when the EU and national provision allowing for the charging of compound interest had long been in force.
On 4 September 2015, the European Commission published a study on the estimated VAT gap in 26 EU member states in 2013. The VAT gap is the difference between that amount of VAT that should have been collected and the amount actually collected. Accordingly, it is not only due to tax fraud or evasion but also counts revenue lost to tax avoidance and insolvencies.
The study notes a slight increase from 2012 to € 168 billion of lost revenues. Missing trader fraud, according to the Commission´s estimates in another study published in July 2015, accounts for EU-wide revenue losses between € 45 and 53 billion.
2013 saw few changes in VAT rates. While VAT liabilities rose by 1.2%, collected revenues rose slightly less. The gap accounts for an average of 15.2% of the total VAT theoretically collectible in all countries surveyed which is almost no change compared to 2012. The average gap of all countries is 13.9%. While the VAT gap is lowest in Finland (4%), it stands at 41% in Romania.
The study also contains calculations on the “policy gap” which is the portion of theoretically collectible VAT that is uncollected because of national policy decisions, i.e. to apply exemptions and reduced rates. While the amount “lost” to exemptions is typically higher than the amount lost to reduced rates, the study acknowledges that in some areas (e.g. financial services) the introduction of VAT would be difficult. The “actionable” policy gap, meaning the gap member states could realistically reduce by abolishing optional exemptions and reduced rates, is 13.4%. This amount is lowest in Denmark (1.8%) and highest in Spain (22.7%).
On 3 September 2015, the CJEU decided in the Bulgarian preliminary ruling case C-463/14, Asparuhovo Lake Investment, that the term ‘supply of services’ includes subscription contracts for the supply of consulting services to an undertaking, in particular those of a legal, commercial or financial nature, under which a supplier has agreed to be available to the customer during the term of the contract. For such contracts, the chargeable event and the chargeability of the tax occur upon the expiry of the period in respect of which the payment has been agreed, irrespective of whether and how often the customer has actually made use of the supplier’s services.
On 3 September 2015, the CJEU decided in the Lithuanian preliminary ruling case Fast Bunkering Klaipėda, C-526/13, that a VAT exemption for the provision of goods for provisioning and fuelling vessels does not apply, in principle, to supplies of these goods to intermediaries acting in their own name, even if, at the date on which the supply is made the ultimate use of the goods is known and duly established.
On 5 September 2015, the OECD published a report examining the different ways of how tax systems try to support the creation and growth of SMEs in 39 different OECD and G20 countries. The report finds that in many countries, there are tax incentives for SMEs to incorporate and to distribute income in the form of capital. Unsurprisingly, it notes that tax rules that apply to all businesses may disproportionately affect SMEs, particularly SMEs in their first years of operation or that are credit-constrained, and that tax compliance costs are proportionately higher for SMEs than for larger firms. The report also makes recommendations as to the design of tax preferences and simplifications for SMEs.
On 28 August 2015, the European Commission launched a public e-consultation to assess whether some of the rules on excise duty on alcoholic beverages should be changed to fight tax fraud and reduce the sale of counterfeit alcohol. Among the issues under discussion are exemptions and common reduced rates, particularly for small producers and home-brewers. The consultation will be open until 27 November 2015. There are different questionnaires for operators in the sector and for other interested stakeholders.
On 26 August 2015, it emerged that the Danish revenue, since 2012, has lost an estimated € 830 million to tax fraudsters using on-line forms for refund of taxes allegedly paid on dividends from non-existing shareholdings in Danish companies. An estimated 2,000 false requests were made, using falsified documents. Shareholders in Danish companies are subject to a 27% tax on dividends but non-residents, under double taxation agreements, are entitled to a refund of taxes paid. Reportedly, there has been no cross-checking with the companies in which the alleged shares were held. The rapid increase in tax refunds to foreign shareholders had not been left unnoticed by the Danish treasury´s internal audit which already reported this incidence in 2013.
On 11 August 2015, the OECD published an update of its comparative report on tax administration, surveying 56 countries including all OECD, EU and G20 countries. The series identifies fundamental elements of modern tax administration systems and uses data, analyses and examples to identify key performance trends, recent innovations, and examples of good practice.
60% of revenue bodies report staff reductions, especially in the UK, Australia and the US. Administrations have invested significantly in digital on-the-go services with Austria, Finland, Singapore and Norway spending the largest percentage on IT. Although 95% of all revenue bodies offer the opportunity to file returns electronically, and over two thirds achieve usage over 75%, the report finds that more could be done to offer a better integrated digital service. The total tax debt for OECD member countries (two countries left aside) stood at 11.1% of annual net revenue collections, the best performers being Estonia, Ireland, Japan, Korea, Norway, Sweden and Switzerland. Over 85% of revenue bodies have adopted the structured ‘co-operative compliance model’ for managing their largest taxpayers advocated by the OECD. One-third use similar arrangements to manage the tax affairs of high net worth individuals. In VAT, many revenue bodies successfully use systems to process bulk invoice data for compliance risk management and fraud detection.
On 14 August 2015, the European Commission concluded that certain Italian measures reducing company taxes and social security contributions in areas affected by natural disasters also benefitted companies that suffered no damage and overcompensated companies beyond the damage suffered.
While EU state aid rules allow public measures to help companies that have suffered damage from natural disasters, these have to remain proportionate in order not to give a competitive advantage. The case concerns various measures introduced between 2002 and 2011 concerning in particular six disasters between 1990 and 2009. Most of the measures did not require companies to show that they had suffered any damage and to establish the amount of this damage, allowing companies that were registered but not physically present or economically active in the respective areas to receive aid.
As all but one of the disasters at issue occurred more than ten years ago, which exceeds the Italian legal record-keeping obligation, recovery of the state aid is only claimed for the 2009 earthquake in L’Aquila and from companies that had no economic activity in the areas affected by the other disasters. Moreover, recovery is not required if the amount received by a company is too low to be able to distort competition, and if it is not covered by any other approved or exempted state aid measure.
Other Italian compensation schemes during that time had been duly notified and approved and are thus not affected by the Commission´s recent decision.
On 7 August 2015, the OECD has presented the update to its 2010 report on voluntary offshore disclosure programmes. This second edition contains practical experience from 47 countries in relation to their voluntary disclosure programmes.
The OECD expects that the approaching entering into force of the automatic exchange of information according to the Common Reporting Standard (see item 2 in the Report) in 2017 and 2018 (September 2017 in the EU) will trigger a large number of disclosures, as it may be seen by non-compliant taxpayers as the last window of opportunity. The OECD remains supportive of voluntary disclosure programmes.
The report specifically mentions that the updated guidance on the design and implementation of such programmes takes account of the views of private client advisers. The CFE has contributed to the public consultation on this matter in 2014.
On 7 August 2015, the OECD published practical guidance to assist government officials and financial institutions in the implementation of the OECD/G20 “global” Common Reporting Standard (CRS) on Automatic Exchange of Financial Account Information which the OECD had presented in February 2014 (full version in July 2014) and which has been included EU law in January 2015. The Implementation Handbook specifies which of the CRS´s options are granted under the EU Directive and identifies areas for alignment with FATCA. The OECD guidance is not legally binding but could contribute to a more uniform application of the CRS if implemented consistently. It addresses the operational and transitional challenges resulting from the staggered implementation of the Standard. It also contains answers to frequently asked questions from business and governments. As the OECD points out, the Handbook is intended to be a “living” document and will be updated on a regular basis.
Also on 7 August, the OECD published a Model Protocol to Tax Information Exchange Agreements (TIEAs). This report provides the basis for jurisdictions wishing to extend the scope of their existing bilateral TIEAs to also cover the automatic and/or spontaneous exchange of tax information, without accessing the Multilateral Convention.
On 3 August 2015, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes released new compliance ratings for 10 countries. These concern Albania, Burkina Faso, Cameroon, Dominican Republic, Lesotho, Lithuania, Pakistan, Poland, Sint-Maarten and Uganda. Of the European countries, Lithuania was given the overall mark “compliant”, while Poland was found “largely compliant”. Albania has only completed the first phase of the rating process, dealing with the legislative and administrative framework, and will now move to the second phase dealing with the exchange of information in practice. The Global Forum also updated a number of ratings of other countries.
On 20 July 2015, MEPs Elisa Ferreira (Social Democrats, Portugal) and Michael Theurer (Liberals, Germany) from the European Parliament´s Special Committee on Tax Rulings and other Measures similar in Nature or Effect (TAXE) presented the Committee´s draft report. The extensive text is a synopsis of all tax policy topics currently discussed.
As to tax advisers, the rapporteurs are concerned about possible conflicts of interest where tax firms advise both the government and private clients and calls for the development of an EU incompatibility regime and invited the Commission to consider sanctions on firms which engage in aggressive tax planning by refusing them EU funding and advisory roles in EU institutions.
– Cross-border tax rulings should be established jointly with all countries involved. Information exchange should be exchanged on all, not only cross-border, rulings, and the Commission should consider public disclosure of rulings, respecting confidentiality.
– The introduction of a mandatory CCCTB with consolidation in a second step, as announced by the Commission on 17 June. The legislative proposal should clarify the tax treatment of research & development, provide for definitions of permanent establishment and economic substance, and contain minimum and maximum effective tax rates.
– The current reform of the state aid framework should provide further clarification on state-aid through tax measures.
– The Code of Conduct Group on Business Taxation should be reformed and the Arbitration Convention should be reshaped and made more efficient.
– A set of country by country tax information should have to be published and further information should be reported to and exchanged between tax administrations.
– Whistleblowers should be protected.
– For blacklisting and possible measures against tax havens, a genuine EU benchmark containing transparency, fair tax competition and effective taxation criteria, should be developed.
The (non-legislative) report will conclude the work of the TAXE Special Committee. The TAXE vote is scheduled for 15 October, the EP´s plenary vote for 24 November 2015.
2. German government ready to accept Eurozone tax?
On 25 July 2015, the German weekly magazine Der Spiegel reported that German Finance Minister Wolfgang Schäuble is open towards the idea of a Eurozone budget which could be funded by VAT revenues or by a surcharge on other taxes, raised by a Euro Finance Minister. These considerations are based on the “Five Presidents´ Reports” by European Commission President Jean-Claude Juncker, Euro Summit President Donald Tusk, Eurogroup President Jeroen Dijsselbloem, the European Central Bank President Mario Draghi and European Parliament President Martin Schulz, presented on 22 June 2015. The paper foresees the introduction of a Eurozone treasury. The Eurozone reforms should be completed by 2025.
On 22 July 2015, the UK tax administration HMRC has opened a public consultation on imposing sanctions on “serial avoiders” of tax and “serial promoters” of tax avoidance schemes, in case these schemes are defeated by HMRC. A defeated scheme would trigger a warning period during which the taxpayer is under increased scrutiny and reporting obligations. Repeated use by a taxpayer of schemes that are defeated would result in surcharges, refusal of certain reliefs and public naming. Promoters too would become subject to a monitoring period resulting in a conduct notice in cases of repeated promotion or implementation of such schemes.
The document also includes the government´s response to a previous consultation on the same topic.
On 16 July 2015, EU Court of Justice (CJEU) Advocate-General Juliane Kokott delivered her opinion in the Swedish preliminary ruling case David Hedqvist, C-264/14, on the VAT treatment of exchanging Bitcoins into a “traditional”, legal currency. According to the Advocate-General, the exchange of a pure form of payment (in this case, the Bitcoin) for a legal means of payment or vice versa is a supply of a service for consideration that is VAT-exempt. Advocate-General opinions are not binding for the CJEU judges.
On 16 July 2015, the UN member states concluded their 3rd International Conference on Financing for Development in Addis Ababa, Ethiopia. Reportedly, a number of developed countries blocked the setting up of global tax body, leaving the OECD as main tax player in the international arena. This is a disappointment for many developing countries which see the OECD´s policies driven by the interest of its members, developed and emerging economies, despite the OECD´s efforts to consult developing countries in BEPS and other projects. The compromise reached calls for the strengthening of the competences of the UN Committee of Experts on International Cooperation in Tax Matters to improve its effectiveness and operational capacity. The CFE has observer status with that Committee and regularly attends its meetings.
The OECD, together with the United Nations Development Programme, launched the “Tax Inspectors Without Borders” initiative to help the tax administrations of developing countries benefit from the expertise of skilled tax inspectors from developed and emerging economies.
The European Commission has accepted the CFE as a member of the EU VAT Forum for the Forum´s second three-year term starting on 1 October 2015. The EU VAT Forum is a group of 15 organisations representing businesses and tax practitioners that meets with EU member states, moderated by the European Commission, to look for practical solutions to problems in the administration of the current VAT system, dealing e.g. with fraud and ways to improve the use of IT. The CFE representatives will remain Ian Hayes (UK) and Christian Amand (Belgium).
On 16 July 2015, the European Commission has decided to send a reasoned opinion to Belgium, asking the country to treat equally income received from Belgium and from other EU or EEA member states with regard to tax benefits linked to the personal or family situation.
Belgian law provides for such tax benefits on income received in Belgium. For income originating in another state, Belgium applies a rate corresponding to the percentage of the taxpayer’s total income that is accounted for by domestic income. An additional tax reduction is granted if the taxpayer’s personal or family situation has not been taken into account by the tax authorities of other countries. However, no such additional reduction is granted if the state in which the income originates offers the taxpayer the option of receiving these benefits in that state, even if the taxpayer has not exercised this option.
The Belgian authorities have two months to notify the Commission of the measures they intend to take. In the absence of such notification, the Commission may refer Belgium to the EU Court of Justice (CJEU).
On 16 July 2015, the CJEU decided in case C-485/14, Commission v. France, that France, when relieving donations and bequests to public bodies or charitable organisations from gift tax, may not impose the condition that these organisations be established in France or in an EU or EEA member state that has concluded a bilateral agreement with France, as such condition violates the free movement of capital.
On 8 July 2015, the plenary of the European Parliament voted in favour of an amendment to the EU Accounting Directive introducing an obligation of large and public interest companies to publish on a an annual basis, country by country, the profits or losses made and the taxes paid on these; furthermore, large companies should publish a predefined set of “essential elements of and information regarding tax rulings”. This information would also be subject to statutory audit. The text still needs to be adopted by the EU Council with qualified majority. The European Commission is currently consulting on corporate country by country tax reporting.
The European Commission has published a decision of 17 June 2015, extending the mandate of its advisory Platform for Tax Good Governance, Aggressive Tax Planning and Double Taxation until June 2019. The Platform in which CFE is also present was initially set up in June 2013. It includes member states, business organisations, tax professionals, academia and NGOs. The composition of the group will remain unchanged until April 2016 when a new call for applications will be launched. The scope of the group has been widened to include the upcoming CCCTB proposal, measures against non-cooperative jurisdictions, information exchange and publication of tax rulings, country by country publication of tax information, arbitration to solve double taxation and better coordination of tax audits.
The Commission has started work to update its consolidated tax havens list published on 17 June 2015. That list has been criticised by the OECD and others for creating the impression of a common EU blacklist and for relying on partially outdated information. The Commission has asked member states to report, at short notice, any recent changes in national blacklists.
On 7 July 2015, the European Parliament extended the mandate of its Special Committee on tax rulings and other measures similar in nature or effect (TAXE) until the end of November 2015. The Committee has faced delays in its work due to an alleged lack of willingness of multinationals to cooperate with the Committee. On 7 September 2015, the rapporteurs Elisa Ferreira (S&D, Portugal) and Michael Theurer (ALDE, Germany) are due to present their draft report which is scheduled for EP plenary vote in November.
On 13 July 2015, the Commission published a 230page study analysing five policy options for the implementation of a destination-based VAT system across the EU, focusing on the additional compliance costs of businesses that trade cross-border and on VAT fraud.
The OECD will hold a public consultation event on transfer pricing matters at the OECD Conference Centre in Paris, France.
The event will concentrate on matters covered by two recently published discussion drafts on which written comments have been invited and which deal with work in relation to Actions 8, 9, and 10 of the BEPS Action Plan. Specifically the consultation will cover Cost Contribution Arrangements and Hard-to-Value Intangibles, and there will be an update on Chapters I and VI (Risks, non-recognition and intangibles).
On 25 June 2015, EU Court of Justice (CJEU) Advocate-General Jääskinen delivered his opinion in the Portuguese preliminary ruling case C-174/14, Saudaçor on the VAT treatment of a company set up and owned by the Azores Autonomous Region and rendering to that Region advisory services on health system matters. The opinion finds that the sums paid to the company by the Azores Region were consideration for supplies, and the company could not be considered a public body and should therefore be within the scope of VAT rules.
– a renewed mandate for the Platform for Tax Good Governance and the Code of Conduct group.
– reducing corporate debt bias, i.e. the more favourable tax treatment of debt over equity.
Only in a second step, the Commission is planning to allow consolidation and apportionment of the tax revenue between member states, as it has proven to be the most difficult element in Council negotiations. Nevertheless, the Commission intends to propose allowing temporary cross-border loss offset. Losses could be offset against profits in another member state but would “return” to the loss-making entity once it has become profit-making again.
Until the new proposal is presented, work in the Council on the current CCCTB will continue in order to reach as much progress as possible before the new proposal is made. The Commission stresses that harmonisation of tax rates is not envisaged.
Part of the Action Plan is a public online consultation on whether and how corporate tax transparency should be enhanced through mandatory country by country reporting of tax information. Aspects addressed are the types of companies (size thresholds and geographical limitations) concerned, the kind of information to be reported, publication of (part of) this information, anonymity of published data and potential harm from publication of sensitive business information. The questionnaire also addresses reporting requirements for tax advisers, as specifically addressed by the OECD (BEPS Action 12). The deadline is 9 September 2015.
On 17 June 2015, the Commission also published a list of 30 non-EU jurisdictions which figure on black lists of more than 10 member states as non-cooperative jurisdictions, according to those member states´ criteria. The Commission is planning to regularly update this list.
However, as the Commission has admitted, the member states´ blacklisting processes differ greatly in the criteria used and most member states do not provide for periodic updates of their black lists. In its Platform for Tax Good Governance, the Commission has tried, since 2013, to reach agreement among EU countries on a common set of criteria and blacklisting methodology, without success to date.
The Commission will consider coordinated counter measures towards non-cooperative tax jurisdictions in the more distant future.
On 18 June 2015, the European Commission has decided to open an infringement proceeding against Germany over the German fee regulation for tax advisers. German law provides for a minimum and a maximum fee for specific activities reserved to tax advisers and other professions that may give tax advice. Advisers and clients may however agree in writing on fees exceeding the maximum fees, and exceptionally, the tax adviser can be obliged to charge less than the minimum fee. Moreover, there is an overall minimum fee of € 10.
Infringement procedures against restrictions to professional services have also been launched against Austria, Cyprus, Malta, Poland and Spain. They refer to requirements related to shareholding, voting rights or legal seat, restrictions to multidisciplinary activities and activities deemed incompatible, the latter concerns lawyers and litigation agents (procuradores) in Spain. The above-mentioned member states received a Letter of Formal Notice, which is the first of three steps in an infringement procedure and constitutes an official request for information. They have two months to respond.
On 18 June 2015, the European Commission has decided to refer Belgium to the EU Court of Justice (CJEU) because of the different methods in Belgian tax law of assessing income from property located abroad and in Belgium. Income from property abroad is assessed at a higher value than that from comparable property in Belgium, thus favouring investments in certain properties in Belgium over similar property in other EU or EEA member state.
The EU Ecofin Council, on 19 June 2015, discussed the splitting of the European Commission´s proposal of 2011 for a recast of the Interest & Royalties Directive into two elements, to facilitate its adoption. This approach implies, as a first step, the adoption of an anti-abuse clause preventing the granting of the benefits of the Directive for arrangements which are not genuine, i.e. that are not put into place for valid commercial reasons which reflect economic reality. The proposed wording would provide for a minimum harmonisation, leaving member states the possibility to maintain further anti-abuse rules in place. A majority for such approach was reached but not, as required, unanimity.
The European Commission has released a non-confidential version of its letter sent to the Belgian government on 3 February 2015, announcing the opening of in-depth state aid investigations into the Belgian “excess profit tax” rulings practice which, according to the Commission, may have favoured foreign over domestic companies in violation of EU state aid rules, enabling 47 undertakings to exclude up to 87% of their Belgian profits from tax.
On 10 June 2015, the EU Court of Justice (CJEU) decided in the Swedish preliminary ruling case C-686/13, X AB, that Swedish legislation does not have to provide for the possibility of a resident undertaking to deduct from its income tax base a currency loss inherent in a capital loss on its holdings for business purposes in a company resident in another member state, if by the same token, gains from such holdings, in Sweden or another member state, are not included in the tax base. The judgment confirms the opinion of Advocate-General Juliane Kokott.
On 8 June 2015, the European Commission has ordered 15 EU member states to submit a substantial number of individual tax rulings at which the Commission intends to have a closer look to assess whether they respect EU state aid rules. Reportedly, this group includes, among others, Austria, France, Germany, Italy and Spain. This request is based on the information the Commission has received from the 26 member states which responded to its request of December 2014 to submit general information on their tax rulings practices. Estonia and Poland have not yet complied with that request. The Commission ordered these two countries yesterday to submit the missing information within one month.
On 4 June 2015, the EU Court of Justice (CJEU) decided in the infringement case C-161/14 against the UK that the country could not apply a reduced VAT rate to supplies of energy-saving materials and their installation in residential accommodation if there is no social policy purpose, they don´t concern private dwellings or the materials supplied account for a significant part of the value of the services.
On 8 June 2015, the OECD presented its implementation package for its country by country reporting standard (BEPS Action 13) in transfer pricing, issued in September 2014.
The reporting standard will require multinational enterprises to provide aggregate information annually, in each jurisdiction where they do business, relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within their group, as well as information about which entities do business in a particular jurisdiction and the business activities each entity engages in. The new implementation package consists of model legislation requiring the ultimate parent entity of a multinational group to file the country-by-country report in its jurisdiction of residence, including backup filing requirements when that jurisdiction does not require filing. The package also contains three Model Competent Authority Agreements to facilitate the exchange of country-by-country reports among tax administration.
Reporting by companies to tax administrations should start in 2016 and the government-to-government information exchange in 2017.
On 4 June 2015, the OECD opened a public consultation on its new discussion draft on transfer pricing rules or special measures for hard-to-value intangibles, as part of its BEPS Action Plan (Action 8). The discussion draft proposes some revisions of the BEPS Report “Guidance on Transfer Pricing Aspects of Intangibles” of September 2014. The consultation is open until 18 June 2015.
On 27 May 2015, the college of European Commissioners held an orientation debate on corporate taxation, discussing a re-launch of the CCCTB (common consolidated corporate tax base) with a focus on fighting tax avoidance. While no statement was made on whether the element of consolidation should be maintained, it became clear from various comments that the Commission has changed its position on whether the CC(C)TB should be voluntary. Commission Vice President Valdis Dombrovskis said that “it is clear that especially those companies which are engaged in aggressive tax planning are not going to be the ones to voluntarily opt into the CCCTB system”. There was no confirmation on whether the original CCCTB proposal of 2011 will be amended or withdrawn and replaces by a new proposal. It was noted that the Commission did not specifically discuss minimum rates or harmonization of tax rates.
The Commission´s “Action Plan on Corporate Taxation” which is expected to shed more light on the Commission´s plans has been announced for 17 June 2015.
On 27 May 2015, the OECD started its work on developing a multilateral legal instrument to modify bilateral tax treaties (BEPS Action 15) which would become the key tool for implementing into national law the final BEPS recommendations expected in autumn 2015. Over 80 countries (including, i.a., Brazil, China, France, Germany, India, Italy, Japan, Russia, Spain and the UK, but not the US) are participating in this work. However, the substantive work on the instrument is only due to commence in November 2015. A number of international organisations will be invited to participate in the work as observers.
On 27 May 2015, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes published new compliance ratings from the Czech Republic, Kazakhstan and Morocco. The Global Forum´s rating process consists of two phases: phase 1 evaluates the legal and regulatory framework for the information exchange while phase 2 assesses the exchange in practice. For the Czech Republic which received the overall rating “largely compliant”, the process has been completed. Morocco and Kazakhstan finished the phase 1 review. While Morocco will move to phase 2, Kazakhstan is not yet ready for this step, as the legal framework for information exchange is considered insufficient.
On 27 May 2015, EU Commissioner Pierre Moscovici and the Swiss State Secretary for International Financial Matters, Jacques de Watteville, signed an agreement according to which EU member states and Switzerland will automatically exchange information on the financial accounts of each other’s residents from 2018. The set of information to be exchanged is in accordance with the OECD Common Reporting Standard presented in 2014 and transposed into EU law in December 2014. Andorra, Liechtenstein, Monaco and San Marino are expected to sign similar agreements with the EU by the end of this year.
The agreement also contains provisions to limit the possibility to escape from the reporting provisions by shifting assets or investing in products outside the scope of the agreement.
On 8 June 2015, from 17:00 to 18:00 CET, the OECD will give a live update on recent developments in the BEPS project. Previous BEPS webcasts have been made publicly available afterwards.
According to the German newspaper Handelsblatt, the European Commission is considering proposing a minimum corporation tax rate, responding to a request of France and Germany. The college of Commissioners will discuss this topic at a meeting tomorrow, 27 May. The Commission´s “Action Plan on Corporate Taxation” which will also address a possible re-launch of the CCCTB proposal is expected on 17 June 2015.
On 22 May 2015, the OECD published a revised Discussion Draft on preventing treaty abuse (BEPS Action 6), taking into account the comments received during the previous public consultation (November 2014 – January 2015). Part 1 of this new discussion draft reflects the outcome of the discussion on an alternative “simplified” limitation-on-benefits (LOB) rule. Part 2 presents the outcome of the discussion of each of the 20 issues for follow-up work that were identified in the discussion draft of November 2014, including new proposals for treaty rules intended to address concerns related to special tax regimes and to changes to domestic law made after the conclusion of a treaty. Comments can be sent by 17 June 2015.
On 21 May 2015, the EU Court of Justice (CJEU) rendered its judgment in the German preliminary ruling case C-657/13, Verder Labtec, on the taxation of unrealised capital gains from IP rights transferred by a German company to a permanent establishment (PE) in the Netherlands. According to German law, the company was taxed on the profits from this transfer but was allowed to spread that profit equally over 10 years. The Court confirmed that this treatment was in conformity with EU law.
On 21 May 2015, the CJEU decided in the German preliminary ruling case C-560/13, Wagner-Raith, that a provision of German law which provides for flat-rate taxation of the income of holders of units in a “black” investment fund resident in the Cayman Islands that has not fulfilled certain statutory obligations can be justified.
According to the Swiss Sonntagszeitung, the Swiss tax administration has started publishing, in its federal gazette, names, birthdates and nationalities of persons about whom other tax administrations have requested data from their Swiss counterpart. The explanation given was that these persons will be able to seek legal remedy in Switzerland against the formal judicial assistance requests. Often, tax authorities are prohibited from informing directly the persons affected.
According to the Guardian and Süddeutsche Zeitung, as of 1 May 2015, the retailer Amazon has changed its practice of booking its sales to German and UK customers through Luxembourg. These sales will now be booked in Germany and the UK respectively, generating tax revenue in these countries. In the UK, this will prevent profits from falling under the new Diverted Profits Tax, introduced in April 2015.
On 20 May, CJEU Advocate-General Juliane Kokott issued her opinion on the Dutch preliminary ruling case C-595/13, Fiscale Eenheid, on the VAT taxable status of fees for property or asset management services rendered to a collective real estate investment fund. Up to now, such services are considered taxable. The exemption should apply provided the collective investment vehicle is under a national regulatory regime. The CJEU is not bound by the Advocate-General´s opinion.
The European Parliament´s plenary, on 20 May 2015, formally adopted the compromise reached in December 2014 for a new (4th) Anti Money Laundering Directive. The new version obliges member states to keep central registers of information on the ultimate beneficial owners of corporate and other legal entities, as well as trusts. These central registers were not envisaged in the European Commission’s initial proposal, but were included by MEPs in negotiations. As concerns companies, these registers will be de facto public, as it will suffice to demonstrate a “legitimate interest” in the information.
From the tax advisers ́ perspective, the revision strengthens professional secrecy, improving the client ́s access to tax advice and effective defence: Member states will have to exempt tax advisers from the obligation to report indications of money laundering and to lay down the mandate where the tax adviser receives the information from the client in the course of ascertaining the client ́s legal position or defending or representing the client in judicial proceedings, provided that national law allows tax advisers to perform these activities. Under the current version of the Directive, this exemption is only optional.
The EU member states will have to implement the Directive within two years, following the date of publication in the EU Official Journal which is due in the next couple of days.
On 15 May 2015, the OECD released a second discussion draft on preventing the artificial avoidance of permanent establishment (PE) status (BEPS Action 7). Such avoidance often involves “commissionnaire arrangements” between the parent company and local group entities, or artificial fragmentation of operations in order to allow entities to benefit from existing exemptions for preparatory and auxiliary activities. The revised discussion draft takes into account the comments the OECD received in a previous public consultation on the same issue, from October 2014 until January 2015. Rather than presenting a series of alternative options, the revised draft presents one specific preferred proposal with respect to each PE avoidance strategy identified. Reportedly, there will also be updated discussion drafts on tax treaty abuse (BEPS Action 6) and intangibles, to be released later this month.
Comments can be submitted until 12 June 2015.
On 13 May 2015, the European Commission published its annual country-specific recommendations issued in the context of the European Semester. The majority of recommendations includes changes to tax policy, mostly a shift of the tax burden from labour to areas considered less distortive to growth like recurring taxation of property, environmental taxes or consumption taxes (BE, DE, FR, IT, RO i.a.). Too generous tax expenditures have been addressed in the case of BE, DE, FR, IE and IT i.a., and specifically for VAT in IE, IT and PL i.a. Tax compliance was identified as a problem in CZ, IT, RO and SK, i.a., while in CZ and IT, the high costs of tax compliance have been mentioned.
In several countries (AT, BE, DE, FR, IT, ES, i.a.), the Commission criticises a lack of competition and productivity and a high degree of regulation in professional services, citing qualification, ownership and legal form requirements and tariffs as obstacles. None of the recommendations mentions specifically tax advisers but some refer to lawyers.
The Commission will ask the European Council in June to endorse the recommendations.
On 12 May 2015, the EU General Court decided in the case Unión de Almacenistas de Hierros de España (T-623/13) that documents exchanged between the European Commission and a national competition authority in proceedings concerning an infringement of the competition rules are not, in principle, accessible to the public. Disclosure of those documents could undermine the protection of the commercial interests of the undertakings concerned as well as the protection of the purpose of investigations. This limits the right of any EU citizen or legal entity to access to EU documents which is as general rule contained in the Treaty on the Functioning of the EU and set out more in detail in an EU Regulation.
(iv) removing the VAT exemption for the importation of small consignments from suppliers in third countries.
On 7 May 2015, the European Parliament´s Legal Affairs (JURI) Committee voted in favour of an obligation on large undertakings and public-interest entities to publish information, country-by-country, on profit or loss before tax, taxes on profit or loss, and public subsidies received. Companies with more than 500 employees and a balance sheet total of €86 million or a net turnover of €100 million should also disclose information on tax rulings.
Such requirements had not been included in the European Commission´s initial proposal of 2014 to amend the Directive on the exercise of certain rights of shareholders in listed companies, but were introduced by members of the EP earlier this year. Indeed the result of JURI vote is contrary to the European Commission´s announcement in its “Tax Transparency Package” of 18 March 2015 that introducing obligatory country-by-country reporting of tax information should be preceded by a careful impact assessment.
Negotiations will start between members of the JURI Committee with the EU Council with a view to reaching a compromise at first reading. These discussions will not be public.
The voted text is not yet available.
In a speech delivered on 6 May 2015 at an event of the German association of newspaper publishers, European Commission President Jean-Claude Juncker announced that the European Commission will present a proposal including a reduced VAT rate for on-line books and newspapers, saying that the VAT rate should not depend on the technology used. Only in March 2015, Luxembourg and France had lost cases case before the ECJ concerning their introduction of a reduced VAT rate on e-books.
Australia has passed a law according to which the total income, taxable income and income tax payable of companies, certain trusts and limited partnerships whose total income for that year exceeds AUD 100 million (approx. € 71 million) will be made public by the Australian Tax Office. The first data is expected to be released in late 2015, relating to the 2013-2014 financial year. In case of losses incurred, the relevant field would be left blank. Companies will also have the possibility to check upfront the accuracy of the data foreseen for publication. The rules are designed to discourage large corporate entities from engaging in aggressive tax avoidance.
On 29 April 2015, the OECD has opened public consultation on cost contribution arrangements, as part of its BEPS Action Plan (Action 8: Assure that transfer pricing outcomes are in line with value creation: Intangibles). The aim is to develop rules to prevent base erosion and profit shifting by moving intangibles among group members. Deadline for comments is 29 May 2015.

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Neither by application of the doctrine of estoppel, nor by invocation of equitable powers, nor by any other means does a court have the power to confer citizenship in violation of the limitations imposed by Congress in the exercise of its exclusive constitutional authority over naturalization.
Respondents, 16 Filipino nationals who served with the United States Armed Forces during World War II, seek United States citizenship pursuant to §§ 701 through 705 of the Nationality Act of 1940, as amended in 1942. Under § 702 of the Act, the Commissioner of Immigration and Naturalization was authorized to designate representatives to receive petitions, conduct hearings, and grant naturalization outside the United States. In August 1945, the American Vice Consul in Manila was designated pursuant to § 702 to naturalize aliens. The Philippine Government, however, expressed its concern that a mass migration of newly naturalized veterans would drain the soon-to-be independent country's manpower, and so the naturalization officer's authority was revoked for a 9-month period between October, 1945, and August, 1946. Respondents would have been eligible for citizenship under the provisions of the 1940 Act if they had filed naturalization applications before the Act expired on December 31, 1946, but did not do so. More than 30 years later, they petitioned for naturalization, claiming that the 9-month absence of a § 702 naturalization officer violated the 1940 Act and deprived them of rights secured by the Fifth Amendment. The naturalization examiner, in all of the cases consolidated here, recommended against naturalization, and the District Courts rejected the naturalization petitions. On respondents' appeals (some of which were consolidated), heard in two cases by different Ninth Circuit panels, the Court of Appeals ultimately held that the revocation of the Vice Consul's naturalization authority violated what it characterized as the 1940 Act's mandatory language, and that the naturalization of respondents was an appropriate equitable remedy.
1. Neither by application of the doctrine of estoppel, nor by invocation of equitable powers, nor by any other means does a court have the power to confer citizenship in violation of the limitations imposed by Congress in the exercise of its exclusive constitutional authority over naturalization.
Since respondents have no current statutory right to citizenship under the expired provisions of the 1940 Act, the Ninth Circuit lacked authority to grant the petitions for naturalization. The reasoning of INS v. Hibi, 414 U. S. 5 -- which held that the same official acts as those alleged here did not give rise to an estoppel that prevented the Government from invoking the December 31, 1946, cutoff date in the 1940 Act -- suggests the same result as to the "equitable remedy" theory in this case. Even assuming that, in reviewing naturalization petitions, federal courts sit as courts of equity, such courts can no more disregard statutory provisions than can courts of law. Congress has given the power to the federal courts to make someone a citizen as a specific function to be performed in strict compliance with the terms of 8 U.S.C. § 1421(d), which states that a person may be naturalized "in the manner and under the conditions prescribed in this subchapter, and not otherwise." Pp. 486 U. S. 882-885.
2. Assuming that respondents can properly invoke the Constitution's protections, and granting that they had statutory entitlements to naturalization, there is no merit to their contention that the revocation of the Vice Consul's naturalization authority deprived them of their rights under the Due Process Clause of the Fifth Amendment and under its equal protection component. Respondents were not entitled to individualized notice of any statutory rights and to the continuous presence of a naturalization officer in the Philippines from October, 1945, until July, 1946. Moreover, the historical record does not support the contention that the actions at issue here were motivated by any racial animus. Pp. 486 U. S. 885-886.
3. There is no merit to the separate arguments of respondents Litonjua and Manzano, including the argument that the Government did not introduce any evidence in their cases concerning the historical events at issue. It is well settled that the burden is on the alien applicant to establish his eligibility for citizenship. Pp. 486 U. S. 886-887.
SCALIA, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and BRENNAN, WHITE, MARSHALL, STEVENS, and O'CONNOR, JJ., joined. BLACKMUN, J., concurred in the result. KENNEDY, J., took no part in the consideration or decision of the cases.
The respondents, 16 Filipino nationals who served with the United States Armed Forces during World War II, claim they are entitled to apply for and receive American citizenship under a special immigration statute that expired over 40 years ago, §§ 701 to 705 of the Nationality Act of 1940, Ch. 876, 54 Stat. 1137, as amended by the Second War Powers Act of 1942, § 1001, Ch. 199, 56 Stat. 182, 8 U.S.C. §§ 1001 to 1005 (1940 ed., Supp. V) (1940 Act). In the decisions below, [Footnote 1] the Ninth Circuit has, for the third time, ordered naturalization under that expired provision. See Mendoza v. United States, 672 F.2d 1320 (CA9 1982), rev'd, 464 U. S. 154 (1984); INS v. Hibi, 475 F.2d 7 (CA9), rev'd, 414 U. S. 5 (1973). In part because the decision below was in direct conflict with the Second Circuit's decision in Olegario v. United States, 629 F.2d 204 (CA2 1980), cert. denied, 450 U.S. 980 (1981), we granted certiorari.
of that revocation. For the next nine months, no official with § 702 authority to receive and act upon petitions for naturalization was present in the Philippines, the Immigration and Naturalization Service (INS) apparently taking the position that appointment of such an official was authorized, but not mandated. Not until August, 1946, did the INS designate a new § 702 official for the Philippines, who naturalized approximately 4,000 Filipinos before the December 31, 1946, expiration date of the 1940 Act.
and the District Court decided against naturalization, relying on the Second Circuit's decision in Olegario. The naturalization petitions were consolidated for purposes of appeal to the Ninth Circuit.
Respondent Litonjua's petition for naturalization was filed in the United States District Court for the Southern District of California. Litonjua had served as a member of the United States Navy from May, 1941, to April, 1946, but had made no effort to apply for naturalization while on active duty. He made preliminary efforts to obtain citizenship while working as a civilian employee of the United States Army in Seattle, Washington, after his discharge, but he did not complete the petition process before the December 31, 1946, cutoff date. The naturalization examiner recommended against naturalization, and the District Court concurred, for reasons similar to those adopted by the District Court in Pangilinan.
Respondent Manzano also petitioned for naturalization in the Southern District of California. His situation was the same as that of the Pangilinan respondents, except that he claims that, in July, 1946, after completing his military service, he specifically inquired at the American Embassy in the Philippines about the possibility of obtaining citizenship, but was told there was no longer anyone there to assist him. The District Court, following the recommendation of the naturalization examiner, denied the petition for reasons similar to those adopted by the District Courts in Pangilinan and Litonjua.
in Mendoza. INS v. Litonjua, 465 U.S. 1001 (1984), vacating and remanding Barretto v. United States, 694 F.2d 603 (CA9 1982). On remand, the Ninth Circuit held that the revocation of Vice Consul Ennis's naturalization authority violated what it characterized as the mandatory language of §§ 702 and 705 of the 1940 Act, and that the naturalization of the respondents was an appropriate equitable remedy. Pangilinan v. INS, 796 F.2d 1091 (CA9 1986). After this decision was announced, the panel in No. 86-2019 reversed and remanded to the District Court for reconsideration in light of the Pangilinan decision, characterizing the two cases as nearly identical. In 86-1992, the INS's petition for rehearing with suggestion for rehearing en banc was denied, with Judge Kozinski (writing for himself and seven others) dissenting. Pangilinan v. INS, 809 F.2d 1449 (CA9 1987). We granted the INS's petition for a writ of certiorari. 484 U.S. 814 (1987).
26, 1961, will be heard and determined under the 1952 Nationality Act, as amended. See § 310(e), 75 Stat. 656, 8 U.S.C. § 1421(e). Respondents concede that they are not entitled to be naturalized under that law. Brief for Respondent Pangilinan in Opposition 12-13. Since all the petitions for naturalization in this case were filed after December 31, 1946, and even after September 26, 1961, it is incontestable (and uncontested) that respondents have no statutory right to citizenship.
"in enforcing the cutoff date established by Congress, as well as in recognizing claims for the benefits conferred by the Act, [the INS] is enforcing the public policy established by Congress."
Id. at 414 U. S. 8.
Although the Ninth Circuit's holding in the present cases rests upon a somewhat different theory -- not that estoppel eliminates the effectiveness of the December 31, 1946, cutoff, but that equitable authority to craft a remedy enables the conferral of citizenship despite that cutoff -- we think our reasoning in Hibi quite clearly produces the same result. The reason we expressed why estoppel could not be applied, viz., that that doctrine could not override a "public policy established by Congress," surely applies as well to the invocation of equitable remedies. Even assuming the truth of the Ninth Circuit's unsupported assertion that, "[i]n reviewing naturalization petitions, federal courts sit as courts of equity," 796 F.2d at 1102, it is well established that "[c]ourts of equity can no more disregard statutory and constitutional requirements and provisions than can courts of law." Hedges v. Dixon County, 150 U. S. 182, 150 U. S. 192 (1893). "A Court of equity cannot, by avowing that there is a right but no remedy known to the law, create a remedy in violation of law. . . ." Rees v. Watertown, 19 Wall. 107, 86 U. S. 122 (1874). See also e.g., Thompson v. Allen County, 115 U. S. 550, 115 U. S. 555 (1885); 1 J. Story, Equity Jurisprudence § 19 (W. Lyon ed.1918).
the federal courts, like mandamus or injunction, as one of their generally applicable equitable powers. See, e.g., 28 U.S.C. § 1361; 28 U.S.C. § 1651. Rather, it has been given them as a specific function to be performed in strict compliance with the terms of an authorizing statute, which says that "[a] person may be naturalized . . . in the manner and under the conditions prescribed in this subchapter, and not otherwise." 8 U.S.C. § 1421(d) (emphasis added).
"An alien who seeks political rights as a member of this Nation can rightfully obtain them only upon terms and conditions specified by Congress. Courts are without authority to sanction changes or modifications; their duty is rigidly to enforce the legislative will in respect of a matter so vital to the public welfare."
"'Once it has been determined that a person does not qualify for citizenship, . . . the district court has no discretion to ignore the defect and grant citizenship.'"
Fedorenko v. United States, 449 U. S. 490, 449 U. S. 517 (1981) (citation omitted).
under the requirements of the 1952 Act. Neither by application of the doctrine of estoppel, nor by invocation of equitable powers, nor by any other means does a court have the power to confer citizenship in violation of these limitations.
Respondents advance as an alternative ground for affirmance the claim that Attorney General Clark's revocation of Vice Consul Ennis's naturalization authority deprived them of their rights under the Due Process Clause of the Fifth Amendment and under its equal protection component. See Hampton v. Mow Sun Wong, 426 U. S. 88, 426 U. S. 100 (1976). Assuming that these respondents can properly invoke the protections of the United States Constitution, and granting that they are members of a special class that Congress intended to favor with statutory entitlements to naturalization, they were not deprived of those entitlements without due process. First, it did not violate due process for Congress to impose a reasonable limitations period upon the filing of naturalization petitions. Cf. Logan v. Zimmerman Brush Co., 455 U. S. 422, 455 U. S. 437 (1982). Second, even assuming that a reasonable opportunity to file for naturalization was required, respondents were accorded at least that. Unlike noncitizen servicemen in other parts of the world, they had the continuous presence of a § 702 naturalization officer in the Philippines from August, 1945, through October, 1945, and from August, 1946, to the end of that year. In this last period, the officer naturalized approximately 4,000 Filipinos. In addition, approximately another 7,000 Filipinos were naturalized either in this country or by naturalization officers traveling post to post around the world. We do not agree with respondents' contention that, in addition to these ample opportunities, respondents were entitled as a matter of due process to individualized notice of any statutory rights and to the continuous presence of a naturalization officer in the Philippines from October, 1945, until July, 1946.
We also reject the possibility of a violation of the equal protection component of the Fifth Amendment's Due Process Clause. The approximately 7-month presence of a naturalization officer in the Philippines not only met the applicable standard of equal protection, but indeed compared favorably with the merely periodic presence of such officers elsewhere in the world. See generally Fiallo v. Bell, 430 U. S. 787, 430 U. S. 792 (1977); Mathews v. Diaz, 426 U. S. 67, 426 U. S. 79-83 (1976). Moreover, beyond the absence of any unequal treatment, the historical record lends no support whatever to the contention that the actions at issue here were motivated by any racial animus. Indeed, it is fair to assume that the Filipino soldiers who fought so valiantly during the early months of World War II were regarded with especial esteem when this legislation was enacted and implemented. Every court to consider this matter has observed that Attorney General Clark's and Commissioner Carusi's decisions were taken in response to the concerns of Philippine officials that their nation would suffer a manpower drain, and not because of hostility towards Filipinos. See n 5, supra. Thousands of Filipinos were naturalized outside the Philippines during the period in question, and approximately 4,000 more in the Philippines after a successor to Ennis was appointed in August, 1946.
Naturalization of 68 Filipino War Veterans, 406 F.Supp. 931, 937-940 (ND Cal.1975)) whose petitions it has been the policy of the Government not to oppose. That category includes only veterans who had taken some affirmative steps to obtain naturalization both before the December 31, 1946, cutoff date, and while they were still on active duty. Ibid. Litonjua made his first efforts after he was no longer on active duty with the Armed Forces.
We have considered Litonjua's and Manzano's other separate claims, and have found none that is meritorious.
For the reasons stated, the judgments of the Court of Appeals are reversed.
JUSTICE KENNEDY took no part in the consideration or decision of these cases.
The two cases actually involve three lawsuits: two appeals (both part of No. 86-1992) that were consolidated in the Court of Appeals (Pangilinan v. INS and Litonjua v. INS) and a third (INS v. Manzano, No. 86-2019) that was consolidated by this Court with No. 86-1992.
"[A]ny person not a citizen, regardless of age, who has served or hereafter serves honorably in the military or naval forces of the United States during the present war and who, having been lawfully admitted to the United States, including its Territories and possessions, shall have been at the time of his enlistment or induction a resident thereof, may be naturalized upon compliance with all the requirements of the naturalization laws except that (1) no declaration of intention, and no period of residence within the United States or any State shall be required; (2) the petition for naturalization may be filed in any court having naturalization jurisdiction regardless of the residence of the petitioner; (3) the petitioner shall not be required to speak the English language, sign his petition in his own handwriting, or meet any educational test; and (4) no fee shall be charged or collected for making, filing, or docketing the petition for naturalization, or for the final hearing thereon, or for the certification of naturalization, if issued: Provided, however, That . . . the petition shall be filed no later than [December 31, 1946]. . . ."
"During the present war, any person entitled to naturalization under section  of this [Act], who while serving honorably in the military . . . forces of the United States is not within the jurisdiction of any court authorized to naturalize aliens, may be naturalized in accordance with all the applicable provisions of section 701 without appearing before a naturalization court. The petition for naturalization of any petitioner under this section shall be made and sworn to before, and filed with, a representative of the Immigration and Naturalization Service designated by the Commissioner or a Deputy Commissioner, which designated representative is hereby authorized to receive such petition in behalf of the Service, to conduct hearings thereon, to take testimony concerning any matter touching or in any way affecting the admissibility of any such petitioner for naturalization, to call witnesses, to administer oaths, including the oath of the petitioner and his witnesses to the petition for naturalization and the oath of renunciation and allegiance prescribed by section 335 of this Act, and to grant naturalization, and to issue certificates of citizenship. . . ."
"The Philippine Government again has expressed to the Department of State its concern because Filipino members of the armed forces of the United States are being naturalized even though they have always been domiciled in the Philippine Islands. Since the Islands are not embraced within the domain of any naturalization court, naturalization therein may be awarded only by an administrative official designated by me under the authorization of Section 702 of the Nationality Act, 8 U.S.C. § 1002. Mr. George H. Ennis, Vice Consul of the United States at Manila, has been designated to grant naturalizations under Section 702, but I do not believe he has as yet exercised his authority."
"In view of the concern expressed by the Philippine Government, it is my belief that that situation might best be handled by revoking the authority previously granted to Mr. Ennis and by omitting to designate any representative authorized to confer citizenship in the Philippine Islands. This course would eliminate a source of possible embarrassment in our dealings with the Philippine people, who probably will be awarded independence in the near future."
Memorandum to Tom C. Clark, Attorney General, from Ugo Carusi, INS Commissioner, dated September 13, 1945, quoted in Matter of Naturalization of 68 Filipino War Veterans, 406 F.Supp. 931, 936, n. 5 (ND Cal.1975).