Weekly Tax News – 6 June 2019

European Elections: status of the negotiation for the Presidency of the Commission

The European elections on 26 May did not define a clear political majority in the European Parliament to elect the person who will chair the European Commission. At least three political groups need to agree on the political personality that will succeed Jean Claude Juncker: the Christian Democratic (EPP), Social Democratic (S&D) and Liberal (ALDE) groups. A majority of EPP, S&D and Greens/EFA is also possible to reach. The issue of climate change could keep the Greens/EFA group in the loop of the alliance, though the formation of a progressive alliance (with S&D, ALDE, Greens and GUE/NGL, excluding EPP) does not look numerically possible, amounting to “only” 363 seats. In the meantime, Pascal Canfin, number 2 of Macron’s list, insisted that Manfred Weber (EPP Spitzenkandidat) does not represent the broad coalition his party is willing to form.

Competitiveness Council raised the question of fair taxation

On 27 May, the Ministers from EU Member States showed their division on the need for fiscal convergence at a debate on the future of the EU internal market. In particular, Spain, Portugal, Germany and France were in favour of including a direct reference to taxation in the draft conclusions presented by the Romanian Presidency. The French Secretary of State expressed his criticism towards the tax dumping measures put in place by certain EU Member States, that result in a sophisticated way of providing state aid to companies. On the other hand, the UK, Ireland, Malta and Cyprus strongly opposed to the inclusion of a reference to tax in the conclusions. The compromise found in the Conclusions on "A new level of ambition for a competitive Single Market" resulted in calling “for further deepening the Capital Markets Union and ensuring fair and effective taxation”.

OECD Inclusive Framework’s work plan on the taxation of digital economy

On 31 May, the OECD published its roadmap for resolving the tax challenges arising from the digitalisation of the economy. The Programme of Work was adopted by the 129 members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). It depicts the process to reach an agreement at global level to define new rules for taxing multinational enterprises. The report explores the two pillars that should solve the technical issues of the current international tax framework. The first pillar addresses the issues of “nexus” (where tax should be paid and on what basis) and “profit allocation” (how to determine the portion of profit to be taxed in the jurisdiction where the clients/users are located). The second pillar explores the design of a system that ensures that MNEs pay a minimum level of tax. The document will be presented to G20 Finance Ministers during the meeting on 8-9 June in Japan.

The U.S. to provide clarity on the taxation of cryptocurrencies

On 16 May, a letter of the Internal Revenue Services (IRS) of the United States addressed to Tom Emmer (Member of the U.S. House of Representatives) shows that the IRS is working on a tax guidance for cryptocurrencies. According to the letter, the issue of guidance to provide clarity on the taxation of virtual currency transactions is now a priority of the IRS, that is currently working on guidance for addressing specific aspects of the tax treatment of these assets (e.g. acceptable methods for calculating cost basis acceptable methods of cost basis assignment, and the tax treatment of forks).

New R&D tax incentives to be introduced in Germany

On Wednesday 22 May, the German cabinet approved a bill that introduces new tax incentives for Research and Development (R&D). The tax allowance should be applicable from 2021 onwards, for R&D expenditures incurred since 2020 and it should regard all companies, no matter the size. The subsidy is capped to EUR 500.000 per company per year. The measure is subject to the assessment and approval by the EU Commission for state aid reasons.