EU Tax Policy Report

January – June 2018

AUTHORS AleksandarIvanovskiandBrodieMcIntosh

DATE ISSUED 6July2018

ADDRESSAv.deTervueren188-AB-1150Brusselswww.taxadviserseurope.org

CONTACTT:+3227610092+3227610091E:info@taxadviserseurope.org

The European Association of Tax Advisers founded in 1959.

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Foreword

It is with great pleasure that I present this EU Tax Policy Report. The Report provides an overview of the primary tax policy developments in the EU in the first semester of 2018. There is no doubt that it was a particularly busy period as well as a very important one for the future of EU and international taxation.

On 5 June, the EU Directive on tax intermediaries, proposed by the Commission in June 2017, was finally published in Official Journal of the EU. It marks a further step in the fight against tax avoidance and evasion and is expected to increase transparency and enhance tax authorities’ tools to counter such phenomena.

The last six months also saw many adjustments of the EU list of non-cooperative jurisdictions. Such action signifies the progress made in this regard and the commitment of the EU to pursue fair taxation at worldwide level.

Furthermore, on 21 March, the Commission released its long-awaited proposal for the taxation of digital economy in the Single Market. Short and long-term measures have been envisaged in two separate directives to ensure taxation of digital business activities that have a link with Member States’ jurisdictions. Remarkably, these proposals followed unilateral actions of certain Member States as well as OECD’s Interim Report on the Tax Challenges Arising from Digitalisation.

The above EU proposal seems to be quasi-monopolising the interest of policy-makers in the EU and all around the world for two principal reasons:

On the one hand, digital economy is expected to provoke the overhaul of our century-old international tax rules. It has changed and keeps changing the reality underneath the rules. There is a single alternative: rules need to follow reality and they will.

On the other hand, the EU initiative has caused adverse reactions by extra-EU countries. It is alleged to be a unilateral step in an international arena, while EU’s international partners are still considering their moves, as arises from the aforementioned OECD Interim Report. Yet it cannot be denied that digital revolution is a fact.

What comes next shall be undoubtedly particularly interesting to follow. Nevertheless, there are certain conclusions that can be drawn already. International taxation has to change and the EU can drive the change. We must not and cannot be hesitant. There is no time margin any more.

In changing the rules we need to adopt holistic, long-term and internationally agreed views to the maximum extent possible. Digital economy defines a de facto worldwide jurisdiction and cooperation is a pre-requisite to make it work. CFE Tax Advisers Europe commits to follow closely the developments and advocate for the best available solutions.

Piergiorgio Valente

President, CFE Tax Advisers Europe

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The Bulgarian Presidency of the Council has been successful in many respects, with the Mandatory Disclosure Directive (“DAC6”), described in the Roadmap as the “last remaining element of disclosure and transparency that has not been addressed by the EU” entering into force on 25 June 2018. The technical and critical examination of the digital taxation proposals put forward by the European Commission in March did indeed begin (and continue), and the EU list of non-cooperative jurisdictions for tax purposes (“the Blacklist”) was revised on multiple occasions. Progress on other existing direct tax files such as CCTB & CCCTB was more limited, but is ongoing.Whilst discussions are continuing, Germany and France on 19 June published a joint paper concerning the proposals, setting out a common position concerning the scope and general principles, tax base and anti-BEPS measures which they support concerning CCTB

The indirect tax files were partly overshadowed by digital tax and DAC6 developments, however in January the Commission published Directives proposing to give Member States more flexibility to set new VAT rates, and put Member States on more equal footing in terms of derogations. In addition to the proposals on VAT rates, the European Commission also published proposals seeking to simplify VAT rules for small enterprises. Agreement was reached on the directives concerning minimum VAT rates and administrative cooperation on 22 June, however the proposals concerning SME simplification and the common VAT system are still being discussed by Council.

Looking ahead, the Austrian Presidency in its Presidency Programme has resolved to prioritise CCTB and taxation of the digital economy from the direct tax files, as well as progressing the Commission proposals to modernise VAT for the better functioning of the Single Market.

Highlights

CFE’s EU Tax Policy Report provides a detailed analysis of primary tax policy developments at EU level of interest to the European tax advisers. It also includes an overview of selected CJEU case-law and relevant European Commission decisions covering the first semester of 2018.

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Contents

SEC 0 EXECUTIVE SUMMARY 02 SEC 1 TAXATION OF THE DIGITAL ECONOMY 05

SEC 2 TAX INTERMEDIARIES EU MANDATORY DISCLOSURE RULES

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SEC 3 EU POLICY 10

SEC 4 EU POLICY- INDIRECT TAX 16

SEC 5 EU POLICY- BLACKLIST, TAX3 & EU SEMESTER REPORTS 20

SEC 6 INTERNATIONAL POLICY – OECD & UN 24

SEC 7 COMMISSION STATE AID DECISIONS UPDATE 29

SEC 8 CASE-LAW: STATE AID 3227

SEC 9 CASE-LAW: DIRECT TAX 34

SEC 10 ABOUT CFE: INTERVIEW WITH THE CFE PRESIDENT 37

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Taxation of the Digital Economy 01

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The main event: Digital Tax in the EU. On21March2018,theEuropeanCommissionpublishedthelong-anticipatedproposalsontaxationofthedigitaleconomy intheSingleMarket,andaRecommendationonamendingMemberStates’DoubleTaxTreatieswithThirdCountries.TheDirectiveonDigitalServicesTax(“DST”)proposedashortterminterimturnovertaxondigitalbusinesses,whilsttheproposalforanEUDirectiveonsignificantdigitalpresence,i.e.digitalpermanentestablishment(“PE”)seekstointroduceEU-widelong-termmeasuresthatredefinetheconceptsofpermanentestablishmentandprofitallocationtoaccountforusers’contributionasaproxyforvaluecreation.

• InterimMeasures/DirectiveonDST: Thedraft interimmeasureproposesa turnover tax tobeleviedat3%ontheaggregatedgrossrevenueofbusinesseswithglobalrevenueabove€750millionandannualEUrevenueabove€50million.Themeasureisproposedtobeimplementedonaself-reportingbasiswithnodeductionofcosts,toapplytorevenuemadefromtargetedadvertisingbased on user data collection and digital intermediation services of making available digitalmarketplaces.Thetaxisproposedtobecollectedmakinguseofa“one-stop-shop”model.

• Long-termMeasures/DigitalPE:Thelong-termmeasuresproposerevisionofcorporatetaxationconcepts of permanent establishment andprofit allocation to account for digital activities. Thedirective proposes that the definitionof permanent establishment should include a “significantdigitalpresence”.AdigitalPEwillbeestablishedwhenaplatformeitherexceedsanannualturnoverof€7million,orhasmorethan100,000usersinaMemberStateinataxableyear,orhasover3,000contractsfortheprovisionofdigitalservicesinataxableyear,thatwouldamounttoaDigitalPE.

• RecommendationsrelatingtoDoubleTaxTreaties:ThethirdproposalintheEUdigitaltaxationpackagesetsoutrecommendationstoMemberStatestorenegotiateandadapttheirdoubletaxtreatieswith3rd countries(non-EU)bywayofextendingthescopeofthePEconceptto includesignificant digitalpresence (digital PE) throughwhich thebusinessofanenterprise iswhollyorpartlycarriedout.

ReactionstotheconceptofintroducinganinterimDSThavevaried,butcriticismhascentredaroundtheviewthatproblemswithcorporatetaxconceptsofpermanentestablishmentandprofitallocationareissuesthatoughttobeaddressedatgloballevel.Indeed,Finland,NorwayandSwedenpublishedajointstatementsettingouttheirposition thatashift in taxationrightsbasedon thelocationofthedigitaluser invaluecreationisadeviationfromtaxationprinciplesthatneedstobeagreedataninternationallevel.OthercommoncriticismsarethatadigitalservicestaxappliedunilaterallybytheEUonturnoverwithoutregardtoprofitmayharminternationalinvestment,aswellasincreasetheriskofcorrespondingrevenuetaxesbeingintroducedbyothermarketjuridscitions.

CFEpublishedanOpinionStatementontheproposedinterimEUmeasures,arguingthat theEUshouldfocusonlong-termsolutionsthatseektocomplementtheOECDworkonthetaxchallengesofthedigitaleconomy.Thepaperfurthernotesthatanyinterimmeasuresontaxationofthedigitaleconomyneedtobeconsideredwithcaution,weighingtheexpectedrevenuefromthistaxagainstthepotentiallyadverseimpact,ashighlightedinthepositionpaper.

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The OECD Interim Report. Astowhetherasolutiontoaddressproblemswithcorporatetaxconceptsofpermanentestablishmentandprofitallocationcanbeagreed,theOECDon16March2018publisheditsInterimReportonTaxChallengesArising fromDigitalisation. The Interim Report concluded that no agreement canpresently be reachedamongtheInclusiveFrameworkcountriesoneithertheimplementationofshort-terminterimmeasurestotaxthedigitaleconomy,orlongtermmeasuresofidentifyingcharacteristicsofdigitalbusinesses,andtheextenttowhichthosefeaturescontributetovaluecreationandshouldthereforebesubjecttoadigitaltax.However,OECDInclusiveFrameworkmembershaveagreedtoundertakeareviewofthenexusandprofitallocationrulesconcerningallocationoftaxingrightsbetweenjurisdictions,andtheimpactofdigitalisationontheeconomy.Tothisend,withaviewtoimproveinternationaltaxationrulestobebetterfitforpurposeconcerningthetaxationofthedigitaleconomy,theOECDaimstoproduceafinalreportin2020.

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Tax Intermediaries Directive – EU Mandatory Disclosure Rules

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Tax Intermediaries Directive (Mandatory Disclosure Rules) – “DAC6” At the ECOFINmeeting on 25May2018, the Council of the EU formally adopted the Council DirectiveamendingDirective2011/16/EUasregardsmandatoryautomaticexchangeof informationinthefieldoftaxationinrelationthereportablecross-borderarrangements.ThedirectivewaspublishedintheOfficialJournaloftheEUon5June2018.MemberStateswillhaveuntil31December2019toimplementthedirectiveintonationallegislation,anddisclosurerequirementswillapplyfrom1July2020.Intermediarieswhodesignand/orpromotereportabletaxplanningschemeswillberequiredtodisclosethemtotheirnationaltaxadministrations,whowillthenautomatically exchange the information with other Member States through a centralised database.Penaltieswillbeimposedonintermediarieswhodonotcomplywiththenewreportingmeasures.Theinitialautomaticexchangeofinformationbetweenmemberstatesshouldtakeplaceon31October2020.Thedefinitionof an intermediary is ‘a person that is expected to reasonably knowabout a reportablearrangement,onbasisoffactsandcircumstancesandrelevantexpertise’andinformationonareportablearrangementneedstobefiledwithin30daysonthedayaftertheyprovided,‘directlyormeansofotherpersons,aid,assistanceoradvicetootherpersons’.Exemptiontothisfilingobligationexistsonlywithproofthatthesameinformationhasalreadybeendisclosedbyanotherintermediary.Accordingly,intermediariesarenot expected to reportwhere theyholdproof that thesame informationhasbeen filedalready inanotherMemberstate,incasesofmultiplereportingobligations.According to the Directive, eachMember State shall require intermediaries and relevant taxpayers todisclose informationon reportablecross-borderarrangements the first stepofwhichwas implementedbetween25June2018and31December2019,i.e.thedateofapplicationoftheDirective.Intermediariesand relevant taxpayers, where appropriate, must file information on those reportable cross-borderarrangementsby31August2020.Effectively,inspiteofthefactthatthedisclosurerequirementswillapplyfrom1 July 2020,allarrangements thatare inplace from25 June 2018onwardsbecomereportable inaccordancewiththisDirective.The practicalities of implementation of the Mandatory Disclosure Rules DAC6 Directive, as well as ananalysisofpolicyimplications,willbethetopicofthisyear’sCFEProfessionalAffairsCommitteeConferenceon23November, inMadrid,Spainco-organisedby theCFEandAEDAF, theSpanishAssociationofTaxAdvisers.DetailsoftheeventwillbepostedontheCFEwebsiteEventsPageinduecourse.

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EU Policy – The ‘other files’

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5th Anti-Money Laundering Directive Update.TheCounciloftheEUformallyadoptedthe5thEUAnti-MoneyLaundering(“AML”)DirectiveonMonday14May,followingpoliticalagreementbetweenCouncilandParliamentof15December2017.The5thAMLDirective seeks to prevent large scale concealment of funds and to introduce increased corporatetransparencyrules,wherebycorporateandotherlegalentitieswillberequiredbylawtopubliclydiscloseinformationonthebeneficialownership.BackgroundThe5thAMLDirectivestemsfromCommission’sActionPlanofJuly2016forstrengtheningthefightagainstmoney-launderingandterroristfinancing,aimingtopreventillicitmovementoffundsorotherassetsanddisruptingthesourcesofrevenue.On12February2016,theECOFINCouncilcalledontheCommissiontoinitiateamendmentstothe4thAMLDirectiveinthesecondquarterof2016thelatest.TheinformalECOFINCouncilalsocalledforactioninApril2016toenhancethetransparencyofbeneficialownershipregisters,toclarify theregistrationrequirementsfortrusts, to speeduptheinterconnectionofnationalbeneficialownership registers, to promote automatic exchange of information on beneficial ownership, and tostrengthencustomerduediligencerules.TheEU’sAMLrevisedframeworkthatisinforceatpresentwasadoptedon20May2015,consistingofthe4thAMLDirectiveandRegulation(EU)2015/847oninformationaccompanyingtransfersoffunds.Thetranspositiondeadlineforthe4thAMLDirectiveandtheentryintoforceofRegulation(EU)2015/847wassetfor26June2017.TheEU’ssupranationalriskassessmentwasalsopublishedbackinJune2017.On 1 January 2018 new rules became law enabling national tax authorities to have direct access toinformationon thebeneficial owners of companies, trusts and other entities, aswell as customerduediligence records of companies. The new rules are contained in the Directive on Administrative Co-operation(Directive2011/16/EU).TransparencyrequirementsforcorporateentitiesandtrustsUnderthenewrules,memberstatesshallberequiredtoensurecompulsorypublicdisclosureofcertaininformation on beneficial owners in respect of companies and legal entities engaging in profit-makingactivities.Conversely, public access requirements are not put in place in respect of trusts and other legalarrangements. The 5th AML Directive recognises that trusts may also be set up for non-commercialpurposes,suchascharitableaims,useoffamilyassets,andotherpurposesbeneficialtothecommunity/generalpublic.Consideringthatsucharrangementsdonotqualifyasbusinessbenefits,theessentialdataontrusts’beneficialownersshallonlybegrantedtopersonsholdingalegitimateinterest.Similarly,the4thAMLDirectivealreadygrantscompetentauthoritiesaccesstobeneficialownershipoftrustsandotherlegalarrangements,albeitinlimitedcircumstances.

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VirtualcurrenciesandverificationThe 5th AML Directive introduces a requirement for member states to verify beneficial ownershipinformation submitted to their beneficial ownership registers as well as an extension of anti-moneylaunderinglegislationapplicabilitytovirtualcurrencies.Third-countriesWithrespecttotransactionsinvolvingthirdcountries,theobligedentitiesshallapplyenhancedcustomerduediligencemeasuressetoutinthedirective.MemberStateswillintroducesuchrulesasarequirementforalltransactionswithnaturalpersonsorlegalentitiesestablishedinthirdcountriesidentifiedashigh-riskcountriespursuanttoArticle9(2)oftheDirective.Offences&PenaltiesInaddition,theEUParliamentandCouncilhaverecentlyinformallyagreedthescopeofEU-widedefinitionsfor money laundering related offences, and the minimum penalties for these offences, which aim toimproveenforcementandincreasedeterrenceinrelationtothesecriminalactivities.Aminimumoffouryears imprisonment has been agreed for money laundering sentences, as well as additional sanctionsbarringthoseconvictedfromholdingpublicofficeorbeingabletoaccesspublicfunding.Relevantly, the draft definition within the proposed Directive defines “criminal activity” as includingcriminaltaxoffences,bothdirectandindirecttaxes,asdefinedbynationallaw,punishablebydeprivationoflibertyoradetentionorderforamaximumofmorethanoneyear,orforaminimumofmorethansixmonthsinMemberStatesthathaveaminimumthresholdforoffences.

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CCTB or not to CCTB, that is the question…

On15March,followingonfromthe2016EuropeanCommissionpushtofurtherprogressontheissueofCommonConsolidatedCorporateTaxBasebylaunchingtwoseparatelegislativeproposalsontheCommonCorporateTaxBaseandCommonConsolidatedCorporateTaxBase,theEuropeanParliamentapprovedby438votesto145,with69abstaining,theamendmentstotheCommonConsolidatedCorporateTaxBaseproposal.TheParliamentalsoapprovedtheCommonCorporateTaxBasesystemby451votesto141,with59abstentionsfromthatvote. TheproposalscallfortheCommissiontosetbenchmarkstoassistin identifyingthedigitalpresenceofabusinesswithinaEUmemberstate,anddevelopasinglesetoftaxrulesforallmemberstates,withtaxestobemanagedviaa“one-stop-shop”system,suchthatbusinessescancalculatewhatistobepaidtoeachmemberstatebasedonwhereprofitshavebeengenerated.ThenewresolutionsarenowbeingconsideredbytheCouncilandCommission.WhilstdiscussionsareongoingattheCouncilandCommission,GermanyandFranceon19Junepublishedajointpaperconcerningtheproposals,settingoutacommonpositionconcerningthescope,taxbaseandanti-BEPSmeasureswhichtheysupportconcerningCCTB.Thepaperstressesthatthecountriessharetheobjective of theCCTBDirective, and that theCCTBought to be adoptedbyMember States as soon aspossible,inordertoprogressadoptionoftheCCCTBDirective.CFEhaspublishedanOpinionStatementontheCCTB&CCCTBproposals.

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EU-wide protection of whistleblowers. On23April,theEuropeanCommissionpublishedaproposeddirectiveconcerningtheprotectionofthosepersonsreportingonbreachesofEuropeanUnionlaw.ThedirectiveproposesEU-wideprotectiontobeadopted forwhistleblowers reportingonbreachesofEU legislation in the fieldsofpublicprocurement,financialservices,moneylaunderingandterroristfinancing,productsafety,transportsafety,environmentalprotection, nuclear safety, food and feed safety, animal health and welfare, public health, consumerprotection, privacy, data protection and security of network and information systems, breaches of EUcompetitionrules,violationsandabuseofcorporatetaxrules,anddamagetoEUfinancialinterests.

Theproposeddirective requires companieswith eithermore than50 employeesoranannual turnoverexceeding €10 million to set up internal procedures for whistleblower reporting. Regional, state andmunicipalbodieswithover10,000inhabitantswouldalsobesubjecttotheproposeddirective.Thefeaturesoftheprotectionmechanismsproposedunderthedraftmustincludeclearreportingchannelsbothinsideand outside of an organisation and a three-tiered reporting system consisting of: 1) internal reportingchannels; 2) reporting to competent authorities; and 3) public or media reporting. Companies andauthorities would also have feedback obligations, such that they have 3 months to respond towhistleblowerreportsundertheproposal.

Thedirectivealsoincludesprovisionswhichwouldforbidallformsofretaliation,tobeenforcedbymeansofsanctions.Whistleblowersarealsotobeprovidedaccesstofreeadviceandremediesininstanceswhereretaliation isexperienced,withtheburdenofprooftobereversedsuchthattheorganisationorpersonmustprovetheyarenotactinginretaliationagainstthewhistleblower.

CFErespondedbywayofanOpinionStatementtoaCommissionpublicconsultationconductedin2017concerningwhistleblowerprotection,andalsolaterbywayofopenletterclarifyingCFE’spositionontheissue.

Theproposeddirectivewillnowbeconsideredbytheco-legislators,theCouncilandParliament.

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Company law reform proposal package.

On25April,theEuropeanCommissionpublishedtwoproposalstoreformanddigitaliseEUcompanylawinorder tomake it easier forcompanies to reorganise, i.e.merge,divideormovewithin the EUSingleMarket.Further,theproposalsseektopreventtaxavoidancepracticesthatrelyonartificialarrangements.

EUCommissionFirstVice-PresidentFransTimmermansstated:"InourthrivingEUSingleMarket,companieshavethefreedomtomoveandgrow.Butthisneedstohappeninafairway.Today'sproposalputsinplaceclearproceduresforcompanies,withstrongsafeguardstoprotectemployees'rightsand,forthefirsttime,topreventartificialarrangementsaimingattaxavoidanceandotherabuses."

Thepackageiscomprisedoftwoproposals,thefirstofwhichproposestoamendtheexistingrulesonthecross-borderconversions,mergersanddivisions,andthelattertoadaptcompanylawtothedigitalera.

ProposedDirectiveonCross-borderConversions,MergersandDivisions

The proposal envisages common EU rules for cross-border conversions and divisions aiming to updateexisting ones on cross-border mergers. One of Commission’s policy objectives with this proposal is toincreasethecross-borderaccessibilitytocompany-relatedinformationthatwillhelpensurefairtaxationwhereprofitsaregenerated.ThesafeguardsagainstabuseoftheconversionanddivisionprocedurestocreateartificialarrangementsaimedatobtainingunduetaxadvantageswillaimtocomplementEU’srecentanti-taxavoidancedirectives.Further,theproposalsetsoutsafeguardsforemployeerightsincludingtheestablishmentofartificialarrangementsfortaxavoidancepurposes.

ProposedDirectiveontheUseofDigitalToolsandProcessesinCompanyLaw

Theproposalsetsoutsimplerrulesforcompaniestobeabletosetupbranchesandfiledocuments inadigitalformatthroughouttheEuropeanUnion.The‘once-only’principleguaranteesthataccordingtoEUlawcompanieswillnothavetofilethesamedocumentsindifferentEUmemberstates.ThisproposalfordigitalisationofEUcompanylaw,accordingtotheEuropeanCommission,willreduceboththecostandthecomplianceburdenfordoingbusinesstheEU.

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EU Tax Policy –

Indirect Tax04

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VAT reform package. On18January2018,theEuropeanCommissionissuedtwosetsofproposals,oneseekingtoreformVATratesandtheothertolessentheadministrativeburdenforsmallenterprises.Theproposalsaresubsequenttotheearlier proposals on the ‘cornerstones of a new definitive single EU VAT area’ whichwere published inOctober2017.

VATRates

ThenewrulesseektogiveMemberStatesmoreflexibilitytosetnewVATrates,andputMemberStatesonmoreequalfootingintermsofderogations.ThecurrentrulesonlyallowMemberStatestoapplyreducedVATratestotwocategories,andtoapplyspecificderogationstocertainreducedrates.Underthenewrules,asimplifiedlistwillbecreatedshowingtheproductswhichwillalwaysbesubjecttothestandardrate,asopposedtothecurrentlistcontaininglistsofgoodsandservicessubjecttoreducedrates.Thenewproposalsseektoincreaseharmonisationofratesandmakeitalessrestrictivesystem.Memberstateswillbeallowedtoapply:

• Twoseparatereducedratesbelowtheproposedstandardrateof15%to5%atthelowest;

• Onereducedratelowerthantheabovementionedreducedratethatcanbeaslowas0%;

• OneVATexemption(or‘zerorate’).

SimplificationforSMEs

Inadditionto theproposalsonVATrates, theEuropeanCommissionalsopublishedproposalsseekingtosimplifyVATrulesforsmallenterprises.Theproposalsseektointroducenewsimplifiedmeasuresregardinginvoicing,VATregistration,accountingandreturnsforSMEsactingbothinwhollydomesticmarketsandalsocross-borderacrosstheEU.

Under thecurrent rulesanexemptioncanbeappliedtosalesofsmallandmediumenterprises (“SMEs”)underacertainthresholdwhichvariesacrossMemberStates.WhentheSMEexceedsthisthresholdtheyceasetoavailofthesimplificationmeasures.ThecurrentrulesapplyonlytodomesticsalesmadeoftheSME,thiscreatesadistortionagainstSMEsoperatingcross-border.

Undertheproposedrules,whilstMemberStateswillstilldecidethethreshold,alimitof100,000willapply.SMEswouldbeentitledtobenefitfromtheexemptionnotonlyondomesticsalesbutalsooncross-bordersalestootherMemberStates.MemberStateswouldbeallowedtoexemptallsmallbusinessthatqualifyforaVATexemptionfromobligationsrelatingtoidentification,invoicing,accountingorreturns.Inaddition,anewcategorywillbecreated forSMEswithannual turnover inexcessof the100,000eurothresholdbutunder2millioneurounderwhichSMEswouldbenefitfromsimplificationmeasuresregardlessofwhetherornottheyhavealreadybeenexemptedfromVAT.

CFEhaspublishedOpinionStatementsconcerningthecomprehensiveproposal,VATratesproposalandSMEsspecialschemeproposals.

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Additionally,on25May,theEuropeanCommissionpublishedtwofurtherproposalswhichitintroducedas“the final technical measures to create a future fraud-proof EU VAT system” following on from itscomprehensiveproposalof2017andtheinitialintroductionoftheVATActionPlanin2016toimplementthecornerstonesof theproposedPlan.Thetwonewproposeddirectivessetout thetechnicalrevisionsrequiredtoexistingEUVATlegislationinordertogiveeffecttotheproposedcomprehensiverevisions,withtheCommissionstatingthataround200of theexisting408articlesoftheVATDirectivewillneedtobeamended.

Theproposeddirectivesconcernthefollowingmatters:

1. DetailedtechnicalmeasuresfortheoperationofthedefinitiveVATsystemforthetaxationoftradebetweenMemberStates;and

2. theperiodofapplicationoftheoptionalreversechargemechanisminrelationtosuppliesofcertaingoodsandservicessusceptibletofraudandoftheQuickReactionMechanismagainstVATfraud.

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Intermsofprogressonapprovingtheraftofproposalsdetailedabove,theCounciloftheEU,atitsEconomicandFinancialAffairsmeetingon22June,agreedthefollowingVATproposals:

• ProposalforamendingCouncilRegulation(EU)No904/2010asregardsmeasurestostrengthenadministrativecooperationinthefieldofvalueaddedtaxThisregulationformspartofthefairtaxationpackageforthecreationofasingleEUvalueaddedtaxarea,assetoutintheCommissionroadmap.TheregulationprovidesforMemberStatestoincreasethe exchange of information and cooperation between their national tax authorities and lawenforcementinordertotackleVATfraud.More specifically, theRegulationprovides for joint processing and analysis of relevant datawithEurofisc, improving the operational framework for coordinated checks betweenMember States,developingtheexchangeofdatabetweentaxadministrationsandlawenforcementatEUlevel,andtacklingVATfraudinvolvingdualVATregimesbyimprovingaccesstodata.Once the European Parliament has delivered its opinion, the regulationwill be adoptedwithoutfurtherdiscussion.

• ProposaltoamendDirective2006/112/EConthecommonsystemofvalueaddedtaxasregardstheobligationtorespectaminimumstandardrateThisDirectivesetsa15%minimumstandardrateasapermanentfeatureofthenewVATsystem.TheDirectiveisaimedateliminatingdistortivecompetitionthatwouldoccurwithdivergenceinVATratesinMemberStates,andtheimpactthatwouldhaveontradeandcross-bordersupplies.

However,discussionsinCouncilcontinueconcerningreplacingthetransitionalVATsystemwithadefinitivenewVATregimeassetoutintheCommissionproposalspublishedinJanuaryandMay2018.

Progress of VAT proposals in Council.

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EU Policy –

Blacklist, TAX3 & Semester Reports

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EU blacklist of non-cooperative jurisdictions. Sincethebeginningoftheyear,therehavebeenmutliplechangesmadetotheEUListofNon-Cooperative

JurisdictionsinTaxationMatters.FollowingtheJanuaryCounciloftheEuropeanUnionECOFINmeeting,anupdate was published removing eight jurisdictions, namely Barbados, Grenada, the Republic of Korea,MacaoSAR,Mongolia, Panama, Tunisiaand theUAE fromthe list. This followedon fromthe countriesundertakingtoimplementtaxgoodgovernanceprinciplesoftransparency,throughautomaticexchangeofinformation,andbecomingmembersoftheGlobalForumorratifyingtheOECDMultilateralConventiononMutualAdministrativeAssistance.

FollowinganassessmentofcommitmentsmadetoremedyEUconcerns,theECOFINCouncilattheMarchmeetingremovedBahrain,theMarshallIslandsandSaintLuciafromthelist.However,TheBahamas,SaintKittsandNevisandtheUSVirginIslandswerealladdedtothelist,asaresultoffailingtorespondtoletterssentby theCouncil in January2018 requesting thecountriesmakehighpolitical level commitments toremedyspecificEUconcerns.

Inthesamevein,followingtheECOFINCouncilmeetingon25May,TheBahamasandSaintKittsandNeviswere removed from the listSevencountriesnowremainon the list:AmericanSamoa,Guam,Namibia,Palau,Samoa,TrinidadandTobagoandtheUSVirginIslands.

TheCouncilhavestatedthattheywillcarefullymonitortheimplementationoftheundertakings.

“Blacklist”CountermeasureGuidelines

Additionally, on 21 March, the Commission published guidelines identifying countermeasures for themovementof EU funds throughcountries identified asnon-cooperative tax jurisdictions. TheguidelinesdetailtherelevantlegislationconcerningtransfersofEUmoniesinrelationtonon-cooperativejurisdictions,andprovide a framework for assessing the risks of tax avoidance in projects involving entities in thesejurisdictions. The legislation requires that EU funds do not support projects which contribute to taxavoidance,andthatfundingisroutedaccordingtogoodgovernancetaxationstandards.

“The Commission will not allow EU funds to contribute to global tax avoidance. These EU levelcountermeasuresshouldactasawake-upcallforthosejurisdictionsastheyshowtheEUisseriousabouttacklingtaxavoidanceonaglobalscale”,CommissionerPierreMoscovicisaidoftheguidelines.

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“PANA” Inquiry Continued: “TAX3” – The European Parliament Special Inquiry Committee.

On7February, theEuropeanParliament voted in favourofbeginninganew investigation into financialcrimes,taxevasion,andtaxavoidance.Theinquiryaimstofurthertheworkof itspredecessor inquiries,TAXE1andTAXE2andtheworkcarriedoutbythePANAcommittee.Accordingtoitstermsofreference,theinquiry,referredtoas“TAX3”,willincludeafocusontaxavoidanceandevasionrelatedtothedigitaleconomy, circumvention of VAT,methods used in the EU tax blacklist of third-country tax havens, EUprogressinremovingharmfultaxregimes,andtheimpactofdoubletaxtreaties.

TAX3meton22MarchinBrusselsforitsinauguralmeeting.PetrJežek(ALDE/CZ),co-rapporteuronthePANA Committee, was appointed as chair of the TAX3 Committee. To date, TAX3 have held multiplehearings and workshops examining previous investigations’ findings and recommendations, virtualcurrencies,taxationofthedigitaleconomyandnationalaggressivetaxplanningpractices.

TAX3 have agreed to present a report on the inquiry by 1March 2019, effectively by the end of thisParliament,howeveradraftfinalreportwillreportedlybeavailableinNovember2018.

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European Semester Reports. TheEuropeanSemesterReportsandAggressiveTaxPlanningIndicatorsReportwerepublishedinMarch,identifyingMemberStateswhereeconomic indicatorssuggestthatthosecountriesfacilitateharmfultaxpractices.

Indicatorssuchasforeigndirectinvestment,corporaterevenueandnetroyaltypaymentsasapercentageofGDP,bilateral importpriceanomaliesanddividendrepatriationrouteswereexaminedaspartofthereports,torevealpatternsthatsignifytheexistenceofaggressivetaxplanning.ThereportsindicatethatCyprus,Malta,andLuxembourgraisemorecorporatetaxrelativetotheirGDPthanmodelspredict,andforeigndirectiveinvestmentwasseveraltimeshigherthanGDPinCyprus,Ireland,Luxembourg,MaltaandtheNetherlands.IrelandwasreportedashavingthehighestnetroyaltypaymentsasapercentageofGDP.

FollowingtheReportsbeingreleased,theEUEconomicandFinancialAffairsCouncil,atitsmeetingon22June,approveddraftrecommendationsforMemberStates’economicandfiscalpoliciesarisingfromthe2018 European Semester Reports policy monitoring process. Country-specific recommendations andopinions pursuing structural reform and responsible fiscal policieswere approved by the Council, andreferredforendorsementbytheEuropeanCouncilatitsmeetingon28and29June.TheCouncilisexpectedtoadopttherecommendationson13July2018.

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International Policy – OECD & UN 06

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OECD Update. NewCRSImplementationHandbookReleased

In April, the OECD published a second edition of the Common Reporting Standard ImplementationHandbook,togetherwithpracticalguidanceforinstitutionsandgovernmentsconcerningimplementation.The updates are centred around data protection, IT and administrative requirements, as well as theidentificationofControllingPersonsandstandardsrelatedtothatissue.

Alongside this publication, theOECDalsomadeavailableanewsetofbilateral exchange relationships,established under the Common Reporting StandardMultilateral Competent Authority Agreement (CRSMCAA).Therearereportedlynowover2700bilateralrelationshipsestablishedworldwidewhichprovidefortheautomaticexchangeofoffshorefinancialaccountinformation.

The OECD additionally published comments received on the discussion draft that concerns new rulesrequiringdisclosureofCRSavoidancearrangementsandoffshorestructures.Themodelrulesareintendedto target promoters and service providers with a material involvement in the design, marketing orimplementationofCRSavoidancearrangementsoroffshorestructures.Theproposedruleswouldrequiresuch intermediaries to disclose information on the scheme to their national tax authority. The rulescontemplatethat informationon thoseschemes(includingthe identityofanyuserorbeneficialowner)would then be made available to other tax authorities in accordance with the requirements of theapplicableinformationexchangeagreement.

CFE submitted comments to this OECD consultation onbehalf of the Global Tax Advisers’ CooperationForum.

BEPSInclusiveFramework&MultilateralConventiononMutualAdministrativeAssistanceinTaxMatters

SinceJanuary,theOECDInclusiveFrameworkonBEPS,whichbringstogetherjurisdictionstocollaborateontheimplementationoftheOECD/G20BaseErosionandProfitShifting(BEPS)package,hasgrownfrom111to116countries,withSaintLucia,Bahrain,TheUnitedArabEmirates,Anguilla,SerbiaandMongoliajoining the Framework in the past six months. In joining the framework, the countries commit toimplementinganti-BEPSminimumstandardsandpeer reviewprocesses,aspartof theOECDefforts toaddresstaxavoidance.

InasignificantmilestonefortheBEPSproject,theOECD’sBEPSmultilateraltaxtreatyinstrument(“MLI”)enteredintoforceon1July2018.ThisfollowsfromthedepositofthefifthinstrumentofratificationbySlovenia.TheotherratifyingcountriesareAustria, theIsleofMan, JerseyandPoland.The treatyallowsjurisdictionstoupdatetheirexistingdoubletaxtreatiesandtransposemeasuresagreedintheBEPSprojectwithoutfurtherneedforbilateralnegotiations,andaimstoincreasetransparencyandfurthereffortstoreducecross-bordertaxevasion.Todate,therearenow82jurisdictionswhoaresignatoriestothetreaty.

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BEPS&CbCPeerReviewReports

TheOECDhasalsopublishedStage1PeerReviewReportsassessingtaxdisputeresolutionpracticesinCzechRepublic,Denmark,Finland,Korea,Norway,Poland,SingaporeandSpain,examiningcompliancewithbestpracticestandardsestablishedinAction14oftheBEPSplanconcerningresolutionoftaxationdisputes.Thereportscontainover215recommendationsforimplementationforthesecountries.Stage2oftheprocesswillassesscompliancewiththeserecommendationscontainedintheStage1PeerReviewReports.

TheOECDadditionallyreleasedpeerreviewsfromtheCountry-by-Countryreportinginitiativewhichassessthe legal and administrative framework and implementationof theOECD/G20 Base Erosion and ProfitShifting(BEPS)minimumstandardsof95InclusiveFrameworkjurisdictionsasofJanuary2018.TheOECDreports that 60 out of the 95 countries reviewed where MNEs have headquarters have implementedreportingobligationsforMNEsthatareinlinewithrequirementsoftheBEPSminimumstandards.

Country-by-Countryreportingexchangesunder theBEPSminimumstandardsaretobegin in June2018.TheOECDreportstherearemorethan1400bilateralrelationshipstowhichthereportingexchangeswillapply;anumberthatwillcontinuetogrow.

Thisfirstpeerreviewwillbefollowedbytwofurtherannualreviews.ThesecondreviewprocessbeganinApril2018andwillfocusontheexchangeofinformationaspectofCountry-by-Countryreporting.

PreferentialTaxRegimeCompliance

On9May,theOECDreleasedupdatesconcerningreviewsconductedbytheForumonHarmfulTaxPractices(FHTP) in relation to compliance of preferential tax regimes of inclusive framework countries withOECD/G20BEPSstandardstoimprovetheinternationaltaxframework,inaccordancewithBEPSAction5.

Regimes from Lithuania, Luxembourg, Singapore and the Slovak Republic designed to complywith thestandardsweredeterminednot to beharmful andmet the transparency and exchangeof informationcriteria.AfurtherfourregimesfromChile,Malaysia,TurkeyandUruguaywereeitherabolishedorrequireamendment toremoveharmfulfeatures.3additionalregimes,1fromKenyaand2fromVietnam,werefoundnottoposeaBEPSAction5riskandwereaccordinglyheldtobeoutofscope.

The FHTP have considered 175 regimes from over 50 jurisdictions since the Inclusive Framework wasformed.Fromtheseregimesreviewed,4werefoundtohaveharmfulfeatures,31havebeenchanged,81requirelegislativechangesthatarecurrentlyinprogress,47werefoundnottoposeanyBEPSrisk,and12arepresentlyunderreview.

GlobalForumTaxTransparencyUpdate

TheOECD’sGlobalForumonTransparencyandExchangeofInformationforTaxPurposes,haspublished9peer review reports which assess the compliance of a country with international tax transparencystandards. The Global Forum includes 150 members, including all G20 and OECD countries, as well asinternational financial institutions. Estonia, France, Monaco and New Zealand were rated as being“compliant”whichthestandards,whilstTheBahamas,BelgiumandHungaryreceivedaratingof“largelycompliant”,andGhana“partiallycompliant”.AsupplementaryreportwasalsoissuedconcerningJamaica’sprogresswithtaxtransparencystandards,inwhichitwasattributedaratingof“largelycompliant”.

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UN Double Tax Treaty Model Update.InMay,the2017updateoftheUnitedNationsModelDoubleTaxationConventionbetweenDevelopedandDevelopingCountrieswaspublishedonlineontheoccasionofthe16thSessionmeetingoftheCommitteeofExpertsonInternationalCooperationinTaxMattersconvenedinNewYork.TheupdatedModelDoubleTaxationConventionincorporateschangeswhichwereapprovedinApril2017bytheCommittee.The2017update incorporates languagecontainedintheBaseErosionandProfitShiftingProjectoftheOECDandG20,aimedatpreventingimproperlyobtainedtreatybenefits.Inparticular,theupdateincorporatesnewanti-abuserulesandintroducesanarticlewhichpermitstheimpositionofawithholdingtaxrelatingtofeesfortechnicalservices.

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EU State Aid Update & European Commission Decisions

07

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Commission publishes final Amazon ruling. TheEUCommissionpublishedon26February2018thenon-confidentialversionof itsAmazonStateaiddecisionofOctober2017thathadconcludedathree-yearinvestigationintothegroup’staxarrangementsin Luxembourg. The Commission established that the Luxembourg tax administration endorsed amethodologyofcalculationoftaxableprofitsofAmazon’sLuxembourgoperatingcompany(Amazonsprl)thathadineffectreducedAmazon’staxablebasisbypaymentofnon-arm’slengthroyalty.Thetaxrulingwhich approved the transfer-pricing report related to the above methodological parameters and theutilisationofthegroup’sintangibleassetswasdeclaredtobeinbreachoftheStateaidrules.ThedecisionisunderappealattheCourtofJustice,whichpendingtheoutcome,doesnothoweverpreventrecoveryoftheassessedback-taxes.TheTaxStructureUnderScrutiny

TheCommission established thatLuxembourghadgrantedStateaid to theAmazongroup (primarily toAmazonsprl“theoperatingcompany”)byvirtueofataxrulingdated6November2003andextendedin2011.ThistaxrulingallegedlyreducedAmazon’soperatingcompanytaxliabilitybytransferringnon-arm’slengthroyaltytoitsparentAmazonSCSfortheuseofthegroup’sintangibleproperty.Commissionclaimthatthisrulingendorsedamethodofcalculationofannualpaymentsfromtheoperatingcompanytotheholding company for the IP rights to the Amazon, which exceeded, on average, 90% of the operatingcompany'soperatingprofits.Duetothelegalformofthisentity,aLuxembourglimitedpartnershipwithUS-basedpartners, and its look-throughnature for tax purposes, alongside themethodological choicesacceptedinthetransfer-pricingreport,theroyaltypaymenttotheSCSfromAmazonsprlwasassessedasnon-compliantwithamarket-basedoutcomeandconsequentlycontrarytotheStateaidrules.

UnderLuxembourg'staxlaw,theoperatingentityissubjecttocorporatetaxwhilsttheSCSisnotduetothechosenlegalformandamismatchwithUStaxlaw.ThetaxationrightsofSCSpartners’profitsthusbelongtotheUnitedStates,withtheUStaxliabilitysubjecttodeferral.TheCommissionfurtherclaimthattheSCSwasnotactivelyinvolvedinthedevelopmentoftheIPandwasnotengagedinmanagementofrisks,assetsandfunctionsthatwouldjustifythelevelofroyaltyitreceived.Inthisway,threequartersofAmazon'sprofitswereundulyattributedtothepartnership,wheretheyremaineduntaxed.AccordingtotheCommission, therulingthatendorsed themethodsfortaxationofprofitsamountstoselectiveadvantageforAmazonnotavailabletoothercompaniesinacomparablefactualandlegalsituation,anillegalpracticeundertheStateaidrules.Furthersteps

Commissionhavesetoutthemethodologytocalculatethebacktaxesinitiallyestimatedat€250million,plus interest.AnactionforannulmentofaCommissionStateaiddecisiondoesnothaveasuspensoryeffect,obligingtheLuxembourggovernmenttorecovertheassessedtax.UnderEUlaw,assessedbacktaxesunderStateairrulesarenotapenalty,ratheranassessmentthatlevelstheplayingfield,anddoesnotpenalisetheoperatingcompanyasabeneficiaryofStateaid.

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Commission publishes IKEA State aid inquiry letter.TheEUCommissionpublishedtheletterthatsetsoutDGCompetition’sopeningargumentsontheStateaid investigation into IKEA’s tax arrangements in the Netherlands. Commission’s formal investigationprocedure is focused on two tax rulings, granted by the Dutch tax administration in 2006 and 2011respectively. Commission asserts that the profits of IKEA’s Dutch entity were artificially reduced byendorsing amethod for calculationof the annual fees that allows further transfer of IKEA’sworldwidefranchisingfeestoaLuxembourgishentity.

Inter Ikea Holding was part of a special tax scheme in Luxembourg (holding exemption for dividends),effectivelyrelievingprofitsfromcorporatetaxationinLuxembourg.Thisregimewasdeclaredaharmfultaxmeasurewithin themeaningof the EUCodeof Conduct onbusiness taxationon the grounds that theexemptionwas not conditional upon thepayment of a sufficient tax by thedistributing company. Themeasurewassubsequentlyphasedoutattheendof2010atCommission’srequest.

In2011,asecondtaxrulingendorsedapricingmethodologyfor IPacquisitionat the levelof Inter IKEASystems.TherulingfurtherconfirmedthetaxtreatmentofanintercompanyloantotheparentcompanyinLiechtenstein, i.e. the interest deduction fromNetherlands’ profits. TheCommission asserts that theseinterestpaymentswereaprofitshiftingstrategywherethevastmajorityofIKEA’sfranchisingincomeafter2011wasdivertedtotheparentcompanyfortaxreasons.

The Commission’s State aid inquiry will now assess whether the arrangements are at arm’s length, inparticular:

- Whethertheleveloftheannual licencefeepaymentsreflect InterIKEASystems'contributiontothefranchisingbusiness,and,

- Whether the interestdeductions from IKEA’sDutch taxbaseasendorsedby the tax rulingsarecompliantwiththeEUStateaidrules.

Atthisstageoftheinvestigation,theCommissionmayalsorequestinformationfromotherMemberstates,includingmarketinformationfromothercompaniesorassociationofundertakingsinaccordancewiththeProceduralRegulation2015/1589.

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Case Law of the CJEU: State Aid

08

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US intervention in Apple State aid case.

TheCourtof Justiceof the EuropeanUnionhasupheld thedecisionofEuropeanUnionGeneralCourt,determining that the US could not establish the requisite interest needed in order to intervene inproceedingsrelatedtothedecisionoftheEuropeanCommissiontakeninAugust2016thatApple’sIrishentities owed over 13billion Euros in taxes for state aid incorrectly granted to Applewhich artificiallyloweredtheentities’profits.ThedecisioniscurrentlybeingappealedbyAppleentitiesinIreland.TheUSarguedthattaxrevenueswouldbeimpactedbytherecoveryproceedingsinIreland,onthebasisthatforeigntaxcreditswouldlikelyoffsetUStaxcollectedonfuturerepatriationofprofits.However,theCJEUupheldthedecisionoftheGeneralCourtthattheUScouldnotprovethecompanywouldrepatriateprofits,andtherebycouldnotestablishthenecessarydirectinteresttobeabletointerveneinproceedings.Inrelationtotherecoveryoftaxatstakeinthedispute,theIrishFinanceMinisterhasconfirmedthatApplehasnowpaidthefirstinstallmentof1.5billionEurosintotheescrowaccountsetuptoholdthe13billionEurosoftotaldisputedtaxesuntilthedisputeisfinalised.

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Case Law of the CJEU:

Direct Tax 09

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AG Opinion in C-650/16 Bevola.

Advocate General Sanchez- Bordona (“AG) issued an Opinion in the Case Bevola, JensW. Trock ApS vSkatteministeriet(C-650/16).Thecaseconcernsthepossibilitytoclaimcross-borderlossreliefregardinglossesincurredbynon-residentpermanentestablishments(“PE”),i.e.branches inotherMemberStates.Bevola isan importantcasewhere theCourtof Justicehasanotheropportunity to revisit theMarks&Spencerfinallossesdoctrine,twelveyearsafterthiscase.

Summary

The Advocate General confirms the comparability of the situation of final losses of non-resident andresidentPEs,claimingthatoppositiontotheMarks&SpencerexceptionisdisproportionateandcontrarytoArticle49TFEU,ie.thefreedomofestablishment.IttranspiresfromtheAG’sanalysisthatitwouldbeinbreachofEUlawifaresidentPEcouldclaimlossrelief,butanon-residentPEcouldnotbe,inrespectoffinallossesinacomparablesituation.

Issues

Thecaseconsidersthreeimportantissues:

1. whethertheMarks&Spencerexceptionshouldberetained;

2. iftheexceptionisretained,whetheritshouldapplytosubsidiariesonlyorequallytolossesof(non-resident)PEs;

3. whethertheDanishlegislationwhichenablesresidentcompaniestodeductlossesofnon-residentPEsiscompatiblewithEUlaw.

FinalLossesofNon-RsidentPEs

RegardingthequestionwhethertheMarks&Spencerexceptionshouldbeapplicabletothissituationonequalfooting,theAGrecallsthatthefreedomofestablishmentshouldnotinprincipleberestrictedbytaxmeasuresasperArticle49TFEU.Fortaxpurposes,whereaPEislocatedinahoststate,itmaybetreatedasaseparateentityinaccordancewithArticles5and7oftheOECDModel.

Following Lidl Belgium, losses of non-resident PEs may be deducted from the profits of the principalcompanyasperMarks&Spencerpara55.However,aftertheX-Holdingjudgment,PEsandnon-residentsubsidiariescouldbeconsiderednottobeinacomparablesituationwithregardstoallocationoftaxingpowers.AsimilarapproachwastakenbytheCourtinNordeaBank.

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On thebasisof this case-law, theAGclaims that there isa confusionas to thecriteria toascertain thecomparabilityofthetaxtreatmentofparentcompanies,subsidiariesandnon-residentPEs.Inlightoftheuncertaintycreatedbythissituation,theAGinfersthatasarule,thetaxtreatmentofnon-residentPEsandforeignsubsidiariesmustbeequal,asfarasthedeductionoffinallossescannotbeusedinthePE’sstateoforigin.Suchtaxtreatmentmustalsobein linewiththeapproachtakenbyATAD(Directive2011/96/EU,recital9).

ConsideringthatthelossesinquestionofBevolawerefinal lossesofanon-residentPEuponwinding-upandarisingfromtheclosureofbusiness,thesecouldnotbetransferredtothecompanytowhichthePEbelongs(thestateoforigin),andcouldthereforenotbedeductedfromthebasisofassessmentintheoriginstateofthePE.Suchasituationconcerningfinallossesofnon-residentPE,accordingtotheAG,couldbecoveredbytheMarks&Spencerexception.

Onthisbasis,consideringthattheDanishlegislationincludestherevenuesofresidentandnon-residentPEswithinitspowertotax,Denmarkisboundtoapplytheequaltreatmentprincipletocomparablesituations,thereforeawardingthesametaxtreatmenttolossreliefofresidentandnon-residentPEs.

TheAdvocateGeneral concludedthattheMarks&Spencerexceptioncould indeedbeapplicable tothedisputeinquestion.Ifthefinallossesofanon-residentPEinDenmarkcannotbeoffsetintheorigincountryofthePE,theremustbeapossibilitytoclaimlossreliefinthehoststate(Denmark),equatingthesituationofresidentandnon-residentPEsundersuchcomparablecircumstances.

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Selectivity of Tax Measures – AGNED v Asturias – C-2374/16 & C-235/16 TheFirstChamberoftheCourtofJusticeoftheEuropeanUnion(“ECJ”)renderedajudgmenton26April2018ontheinterpretationofArticles49and54,andArticle107(1)oftheTreatyontheFunctioningoftheEuropean Union (“TFEU”), that clarifies the compliance of tax measures with the EU freedom ofestablishment,andtheEUStateaidrules.

Questions

ThejoinedcasesconcernedapreliminaryrulingfromtheSpanishSupremeCourtunderArticle267TFEUseekingtoestablish:

• WhetheraregionaltaxonlargeretailestablishmentsleviedbyaSpanishautonomousregionisinbreachof the freedomof establishment, constituting covert or overt discriminationof foreigncompaniesinahoststatescenario,contrarytothenationaltreatmentprinciple;and,

• Whether the exclusion of small companies from the scope of this tax constitutes selectiveadvantagecontrarytotheStateaidprohibitionofArticle107(1)TFEU.

Judgment

TheCourtconcludedthetaxleviedonlargeretailestablishmentsbytheSpanishAutonomousRegionofAsturias does not constitute a restriction on the freedom of establishment, nor an overt or covertdiscriminationoncross-borderoperatingbusinesses,inlinewithestablishedcase-law(cf.DenkavitandACTIVGroupLitigation).

Regarding theStateaidassessment,theCourtclarifiedthecriterionof ‘selectivity’,establishingthat thenon-taxation of smaller retail establishments did not constitute a selective advantage for theseundertakings,whencomparedwithlargeretailers.Inordertoclassifyataxmeasureasselective,itneedsto differentiate between operators that are in a comparable factual and legal situation in light of theobjectivepursuedbythereferencesysteminquestion,inlinewithrecentcase-law(ie.WorldDutyFreeC-20/15&C-21/15,para57etseq.)

Furthermore,theCourthasclarifiedthatinestablishingmaterialselectivityoftaxmeasures,itisnotalwaysnecessarytoproveaderogationfromthesystemofreference(cf.Adria-WienPipelineC-143/99).UndertheECJ’sinterpretationoftheEUStateaidrules,the“effects”ofataxmeasuretakeprecedenceoverthe“regulatorytechnique”used(cf.BritishAggregatesC-487/06andGibraltarC-106/09&C-107/09).

Theissueofgeographicalselectivitywasnotraised,andwasconsideredacteclair,inlinewiththeAzorescriteria.

ThefirstChamberthusconfirmedtheapproachofAdvocateGeneralKokkottinherOpinionof9November2017inresponsetothepreliminaryrulingrequestbytheSpanishSupremeCourt.

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ABOUT CFE: Interview of CFE President Piergiorgio Valente for the Magazine of the Chamber of Tax Advisers of the Czech Republic (KDPČR) 1.TheCFEhasbroughttogethertaxinstitutesandchambersformorethan50years.HowdoyouseetheroleoftheCFEinrelationtointernationalcooperationoftaxadvisersandwhyisinternationalcooperationsoimportant?

Internationalcooperationisataxadvisers’mostimportanttooltorespondtotheneedsofanever-globalisingeconomy.Nowadays, taxation tends to involvemultiple taxpayers,multinational businesses, and variousjurisdictions.Internationalandsupranationalorganisations,suchastheEUandtheOECD,aremoreandmoreinthelead.Taxadvisersneedtoovercomenationalboundariesiftheyaretomaintaintheirvalue.Thebestwaytodoso isbycooperatingat international level,byactingtogetherforthebenefitofeachoneofusindividuallyaswellasforallofuscollectively.

CFE is committed to promote international cooperation of tax advisers by providing the means to thispurpose.Firstandforemost,weseektocreateopportunitiesfortaxadvisersfromourmemberjurisdictionsandnotonlytoexchangeideasonthemostcurrentissues,toidentifyanddevelopbestpractices,toenhancetheirinternationalskills.

Secondly,weseektoprovidethemeansfordiffusionofinformationontax-relatedmatterssoastoensurethattaxadvisersarealwaysawareofthelatestdevelopmentsnotonlyintheirjurisdictionofmainpracticebutalsoaroundEuropeand,totheextentpossible,aroundtheworld.

Thirdly,weseektoproactivelyidentifyareasofcommoninterest,suchastaxationofdigitaleconomy,wheretaxadvisers’workingtogethercanaddmaximumvalue.Inthesecases,ourgoalistoprovidethemeansforthemostefficientcollaborationinatime-andcost-effectivemanner.

Finally,CFEisproudtohavesettheexamplefortheestablishmentofotherinter-continentalprofessionalassociations of tax advisers, such as Asia-Oceania Tax Consultants’ Association (AOTCA). Thus, CFEcontributed to thepromotionof international cooperationevenbeyond itsareaofprincipal interest, i.e.Europe.

2.What is the roleof theCFE in theEuropean legislativeprocessandhow is the relationshipwith theEuropeanCommission,EuropeanParliamentandotherstakeholders?

HavinganimpactonEuropeanlegislationisoneofCFE’smajorobjectivesinthepursuitoffairtaxationforallandtheprotectionoftaxadvisers’interests.AlthoughCFEisnotpartofthelegislativeprocess,itmakesitspositionsknownto theEuropean institutionsand try toensure thatourcontribution isnot limited tocommenting initiatives under consideration or in progress of implementation but to make structuredproposalsandidentifysolutions.WebelievethatinthiswaywecanbemostusefultotheinstitutionsandtoEuropeantaxpayers.

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Tothisend,CFE:

1.seekstorespondtoallpublicconsultationslaunchedbytheEUCommissioninrelationtomatterswithanimpactontaxation;thusweensurethatourmembers’positionsareheardbytheinstitutionsinthestrongestmanner;

2.participatesinEuropeanCommission’sexpertgroupsincludingtheEUPlatformforTaxGoodGovernance,theEUVATExpertGroupandtheEUVATForum,whereithasthechancetomakeproposalsforfurtherissuesofconsideration;

3. follows thedevelopments in termsof EU legislation andpublishesopinion statements to express in apromptandeffectivemannertaxadvisers’position;whileitalso

4.makesregularpublicationsoncurrenttaxmatterstoreinforceitspositionandsparkthepublicdebatethereon.

To the sameeffect, CFEhas constructed and seeks tomaintain and strengthen its relationswith the EUinstitutionsandinparticulartheCommission.Forthispurpose,wehaveestablishedtheannualCFEdinnerwith Commission’s officers. In addition,we often proceedwith commonpublicationswith Commission’sofficers.Finally,theyareaquasistandardpresenceinourevents,suchastheCFEForum.

In this context, Iwould like tounderlineoneofCFE’smost recentachievements: theamendmentof thecurrentworkprogrammeofthePlatformforTaxGoodGovernancesoastospecificallyincludetaxpayers’rights.

3.Thetaxenvironmentisalwayschanging.CanyougiveexamplesofhowtheCFEpresentstaxadvisersopinionsandputacrosstheirinterests?

Weareexperiencingtheoverhaulofinternationaltaxation.Thisisundeniableandexactlywhatmakesourrole so critical today.What makes the situationmore difficult is the rising distrust of tax professionalsfollowingtherecenttaxscandals. InCFEweconsider itourmissiontoprotectandpromotetaxadvisers’interestsinthistransitionalperiodandtore-gaintrustforthetaxprofession.

Toeffectivelypursuethispurpose,wemonitorthedevelopmentsandemployefficientwaystoconstructandcommunicatepromptlyourpositions. Therefore,CFE is vestedwith specialized internal committeeswithfocus on themost important areas of common interest for ourmembers. Themost significant of thesecommitteesare:

1.theFiscalCommittee(FC),whichkeepsupwithtaxpolicydevelopmentsatEUandinternationallevelandcontributesthereto;

2.theProfessionalAffairsCommittee(PAC)thatfocusesonpolicyinitiativesintheEUandinternationalambitwithimpactontaxadvisers’professionalconduct,e.g.ethics,codesofconduct,mandatoryreporting;

3.theECJTaskForce,whichconsistsofwell-knownacademicsandpractitionersinthetaxareawhofocusonECJcaselaw,formulateandpublishopinionsthereon;

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4. theTaxTechnologyCommittee (underestablishment)whichwill concentrateon thedevelopmentsontaxationofthedigitaleconomysoastoforeseetheimpactontaxadvisersandtoidentifywaysforustopreparetherefor.

TheabovecommitteespublishtheiropinionsintheformofopinionstatementsonCFEwebsiteaswellastheofficialCFEjournal,EuropeanTaxation.Indicatively,in2017,theFCpublishednineOpinionStatements,PACpublishedfiveOpinionStatements,andafurtherOpinionStatementjointlywithFC,andtheECJTaskForcepublishedfourOpinionStatements.

4.HowmanyprofessionalorganizationsandtaxadvisersdoestheCFErepresentandhowcantheCFEbebeneficialforanindividualtaxadviser?

CFE is anumbrella organization for the representationof the tax profession in Europe.As at the endofDecember2017,CFE’smembersincluded30professionalassociationsfrom24Europeancountriesaswellasastandingguest,Uzbekistan.Intermsofindividualtaxprofessionals,thismeansmorethan200,000.ItisourprioritytoexpandourmembershiptoallcountriesinEurope,includingatleastoneprofessionalassociationforeachcountry.

Asalreadymentioned,CFEisdevotedtothepromotionofEuropeantaxadvisers’ interestsinEuropeandinternationally.Onthispremise,ouractionentailsbydefinitionbenefitstoindividualtaxadvisers.Wedefendinterestsofindividualprofessionalsandwetryforabettertaxenvironmentforallofus.Actingtogetherweareheardlouder,thevoiceofeachtaxadviserisheardlouderandcanbemoreeffective.

Inaddition,CFEoffersthefollowingtoindividualtaxprofessionals:

1.asourceofregularlyupdatedinformationonthetaxdevelopmentsatEUandinternationallevel;

2. anextendednetwork for exchangeof knowledgeandexpertise andameetingpoint for dialogueandcommunicationofideas;

3.aninternationalforumforthedevelopmentandadoptionofbestpractices;

4.stimulationforprofessionalexcellence,especiallyforyoungadvisers,throughtheA.Raedleraward.

It goes without saying that we are always ready to consider and implement proposals for action fromindividualtaxadvisersaswellasfromprofessionalassociations.

5.TheCFEisaEuropeanorganisationbuttaxationisbecomingamoreandmoreglobalissue.HowdoestheCFEreflectthissituationandhowdoesitplantodealwiththeseissues?

CFEisandshallremainaEuropeanorganisation.OurprimaryareaoffocusisEuropeandthereisalottobedonetoachieveanoptimaltaxenvironmentinourbroadhomeland.Nevertheless,wearewellawarethatevenEuropeanboundariesare fading inanever-globalisingworld. Inorder tobepreparedandensureastrong position in the international arena, we have established close cooperative relations with otherinternationalprofessionalassociations.

Fromtheoutset,itneedstobeunderlinedthatinternationalisationisayears-oldprojectforCFE.Indicatively,in2013wereleasedtogetherwithAOTCAandSocietyofTrustandEstatePractitioners(STEP)theModel

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TaxpayerCharter.ThisCharterisaninstrumentcompiledonthebasisofasurveyonthestatusoftaxpayers’rightsin37countriesinordertorespondtodeficienciesintheprotectionofsuchrightsidentified.

Furthermore, in 2014, CFE together with AOTCA and theWest African Union of Tax Institutes (WAUTI)establishedaglobalforumforcooperationonspecifictaxissues:GTACF,theGlobalTaxAdvisers’CooperationForum.PrimaryobjectiveofGTACFwas toprovide a global responseof tax advisers to international taxinitiativesbyorganizationssuchastheOECDandtheUN.

InApril2018,itwasjointlydecidedtodevelopGTACFfurtherandseektoexploititsfullpotential.Asafirststep,GTACFshallbechangedtoaplatform,GTAP(GlobalTaxAdvisersPlatform),soastobetterreflectitspurposeandfunction.Aplatformallowsdiscussion,whileitwarrantsequalfootingoftheparties,ensuringregularityofdialogueandcooperation,withoutdefaultengagementsorcosts.Inaddition,aplatformmaybeconsideredmoreinclusivethanaforum,permittingpotentialexpansionofGTAP’sactivitiesinthefuture.Tothesameeffect,actionwillbetakeninfourkeyareas:(i)strategicmarketing,(ii)publicrecognition,(iii)technicalmattersandpolicyand(iv)membership.Weareconvincedthatinthiscontext,CFEaswellastheother international professional associations, will have a real chance to enhance their visibility from aninternationalperspectiveandtoeffectivelypursuetheirgoalsinthechanginginternationaltaxenvironment.

6.WhatinterestingeventsandprojectsareontheCFEagenda?

WhileIhavedisclosedalreadysomeofourplansforthenearfuturewhileansweringthepreviousquestions,Iwillsummarisehereforthesakeofclarityandconvenienceourmostimportantinitiatives.

1.TheGTAPprojectisplannedtobeoneofourmajorprioritiesinthecomingmonths.

2. Another important priority is the establishment of the Tax Technology Committee, i.e. a specialisedinternal CFE committee focusing on the developments regarding taxation of the digital economy, andcommittedtopreparingusforthefutureofthetaxprofession.

3.Inviewofthe60thAnniversaryofCFEin2019,wearepreparinganAnniversarybookwithcontributionsfromrenownedtaxacademicsandprofessionalsonthemostcurrentissuesininternationaltaxation.

4.Asalreadymentioned,wewishtoexpandourmembershiptoallEuropeancountriessoastoensuretherepresentationofalldifferentinterestsandcultures.WearehenceplanningtotakestepsformoreEuropeanprofessionalassociationstojointheCFEinthenextmonths.

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EU Tax Policy Report JANUARY – JUNE 2018

This publication may be not be reproduced withoutpermissionof theCFE.To thebestofourknowledge,theinformationandthelawcitedhereinisaccurateatthe date of publication. CFE does not assume anyliability. The information contained cannot beconsideredadvicefromthetaxadvisersworkingundertheumbrellaoftheCFE.