Weekly Tax News – 2 September 2019

Taxation of the digital economy: France and US to work together at OECD level

Over the past few weeks, the differences between France and the United States on the French digital tax have finally come to an end. The tax retaliation threatened by the US on French wine have been quietened by the agreement announced on 26 August by President Macron on a refund mechanism for US companies over the French tax. In concrete terms, the digital companies would pay the French digital tax in 2019 and 2020, as planned. However, if an agreement reached at the OECD was applicable in 2021 and the tax rate withheld was lower than that of the French tax, they would de facto be refunded the excess tax paid in 2019 and 2020, via a tax credit system.

The Franco-American cooperation went even further, when on 29 August Angel Gurría (OECD Secretary-General) announced the setting up of a technical working group between France, the United States and the OECD to design a formal proposal on digital taxation by the end of 2019. The French Finance Minister Bruno Le Maire explained that the objective was “to have a formal proposal from the OECD by the end of 2019” in order to reach an international solution on digital taxation in the first half of 2020. According to Le Maire, there were still several major issues to be resolved. First of all, it is necessary to define the link between the company, its presence and its activity in a territory. Furthermore, there is still the need to decide the level of taxation and the companies to be involved. Angel Gurría explained that the crucial point was to put in a single proposal the “nexus” and the imposition of an effective minimum for companies.

The possible tax priorities of the next European Commission

The next European Commission is taking shape day by day with almost all the Member States (except Italy) having appointed their Commissioner-candidates. The next steps are (i) the adoption of the list of candidates by the Council, by common accord with the President-elect von der Leyen, (ii) the participation of each Commissioner-candidate to a hearing before the competent European Parliament’s committee (30 September to 8 October) and (iii) the vote of consent to be expressed by the European Parliament to approve the full college of Commissioners, most likely in its 21-24 October Strasbourg session and the subsequent appointment of the new European Commission by the European Council.

Last week, a document leaked by the European Commission (and promptly denied by the Commission itself) depicted the priorities of the various DG. The chapter of the document that relates to EU Tax Policy includes:

- Modernization of the Energy Taxation Directive, with a legislative proposal ready by the end of 2020 to: (i) review the minimum tax rates covering energy products and electricity; (ii) further promote renewable energy, biofuels and increased energy efficiency; (iii) streamline the wide range of exemptions. The passerelle clauses in the Treaties could apply to move from unanimity to qualified majority voting and the ordinary legislative procedure in taxation. Article 192(2) TFEU includes a passerelle for measures in the environment field when they are primarily of fiscal nature and it requires a Commission proposal for a Council decision (by unanimity) to activate it.

- Creation of a common vision among EU Member States to have the maximum impact on the current global discussion at OECD/G20 level on business taxation. Once the OECD/G20 agreement is finalized (2020), the EU will have to ensure an effective implementation to avoid fragmentation of the single market.

- Design of a Financial Intelligence Unit coordination at EU level. The EU anti-money laundering directives established national Financial Intelligence Units to analyse information received from the financial sector. The insufficient coordinated EU approach makes a case for an EU hub for joint investigative work and coordination.

- Implementation of an EU Single window environment for Customs. The initiative would require providing and maintaining a central electronic system allowing the automated verification by national custom administrations of electronic certificates submitted with the customs declaration for which an EU data base exists.

Luxembourg submits draft law implementing EU ATAD 2 to Parliament

On 8 August, the Luxembourg Government submitted to the Luxembourg Parliament the draft law that would implement Council Directive (EU) 2017/952 as regards hybrid mismatches with third countries (ATAD 2). The draft would apply to tax years beginning January 1, 2020. The bill is now subject to the parliamentary process before being enacted.

OECD releases stage 2 peer review reports on Mutual Agreement Procedure

On 13 August 2019, the OECD has published the first round of stage 2 peer review monitoring reports for Belgium, Canada, the Netherlands, Switzerland, United Kingdom and the United States. The reports evaluate the progresses of these 6 jurisdictions in following-up of any recommendations resulting from the respective stage 1 peer review reports. The reports show the overall positive efforts undertaken by these countries in introducing or clarifying internal guidance, allocating more personnel to the competent authority and decreasing the timeframe to close MAP cases.