Weekly Tax News – 23 September 2019

Key decisions of the ECON Committee: a new chair and the permanent TAX subcommittee

On 16 September, in Strasbourg, the Members of the Economic and Monetary Affairs (ECON) Committee of the European Parliament elected by acclamation Irene Tinagli (S&D, Italy) as Chair of the Committee. Ms Tinagli is an academic with a PhD in public policy and administration from the Carnegie Mellon University in Pittsburgh and further specialization in economic development and innovation. A member of the Italian Parliament since 2013, she was elected as Member of the European Parliament in 2019.

The MEPs of the ECON Committee also reached an agreement in principle on the creation of a permanent sub-committee on taxation. There is still uncertainty on the mandate of the sub-committee, with the Greens/EFA Group pushing for focussing on fighting tax evasion, financial crime and money laundering, while other political groups are considering the possibility for the subcommittee to issue opinions on legislative texts. The discussions on the mandate and the composition will probably take up to two weeks before the political groups come back to the Conference of Presidents for final approval.

Commission’s evaluation on administrative cooperation in the field of taxation

On 16 September, the European Commission has released an Evaluation of the Council Directive 2011/16/EU on administrative cooperation in the field of taxation. The evaluation highlights that the rules on the automatic exchange of information between Member States are useful, though clarifying that not all Member States are exploiting the tools in the same way. In particular, EU countries are now receiving much more information that can contribute to the fight against tax fraud and evasion. In 2017, for example, Member States exchanged information on almost 18,000 advanced tax decisions concerning multinationals. Therefore, the Commission encourages the Member States to keep working together and to use the information they exchanged in a more efficient way. Finally, the Commission urges the Member States to collect better quantitative evidence of the costs and benefits of the intervention, in order to concur to deeper future evaluation of the implementation of the Directive.

Tax rulings of 39 Belgian companies screened by the European Commission

On Monday 16 September, the European Commission has opened in-depth investigations to determine whether the tax rulings on excess profit granted by the Belgian tax authority to 39 multinational companies between 2005 and 2014 have given them an unfair advantage. The investigations follow the General Court's February 2019 annulment of the Commission’s decision concluding that the same tax rulings formed a part of a Belgian aid scheme that was illegal under EU state aid rules. The General Court decided that the Commission wrongly assessed that the Belgian excess profit rules of multinational companies constituted an aid scheme. The excess profit tax scheme reduced the taxable profit of companies by discounting for the so-called “excess profit” that allegedly results from being part of a multinational group. The excess profit is determined by (i) estimating the “average profit” of a standalone company carrying out comparable activities on the basis of a transfer pricing methodology; (ii) decreasing the profit actually recorded by the Belgian entity by that “average profit”. This is based on the premise that multinational companies make “excess profit” taking advantage from being part of a multinational group (e.g., due to synergies, economies of scale, reputation, client and supplier networks, access to new markets). In practice, the rulings resulted in more than 50% and in some cases up to 90% of those companies' accounting profit being exempt from taxation.

German Finance Minister relaunches public Country-by-Country Reporting

On 13 September, German Finance Minister Olaf Scholz announced on Twitter that he had agreed with the other SPD Ministers to support the proposal for public Country-by-Country Reporting (CbCR). Based on Action 13 of the OECD BEPS project, CbCR was implemented in Germany in 2016 also defining channels to share the reports with the tax authority and between German and other national tax authorities. The question of whether the reports should be made available to the public remains controversial, with the European Commission and the European Parliament in favor, while the German government has so far been against it. The Finnish Presidency of the European Council has committed itself to trying to move this matter forward.

A snapshot on the OECD Mutual Agreement Procedure (MAP) statistics

On 16 September, the OECD released its 2018 Mutual Agreement Procedure (MAP) statistics covering 89 jurisdictions and almost all MAP cases worldwide. The statistics show that the global inventory continues to rise in particular due to the rising of transfer pricing cases, where the number of cases closed increases at a slower pace than the number of cases started. Furthermore, the transfer pricing cases tend to take more time (an average of 33 months in 2018) than other cases (14 months), while the average time for resolving a case varies significantly on a country basis, from 2 to 66 months. The analysis also points out that in 2018, the majority of the closed cases resulted in an agreement fully eliminating double taxation.