Weekly Tax News – 10 December 2018

Digital services tax rejected by ECOFIN - France and Germany push for compromise

On Tuesday 4 December, the ECOFIN council has basically rejected the proposals of the European Commission to tax the digital economy, due to a lack of agreement among the Member States. Nevertheless, France and Germany have relaunched the idea of a minimum taxation involving only the revenue from online advertising. France and Germany have asked the Commission to deeply modify the proposal according to this new compromise and urged the Council to adopt it before March 2019. This compromise is also based on a reverse sunset clause, meaning that the directive to be drafted should enter into force on 1 January 2021, if no international solution has been agreed upon at OECD level. Afterwards, the French Minister Bruno Le Maire announced that if the European States do not take responsibility, France would tax the digital giants as early as 2019.

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ECON approved the two reports on the taxation of the digital economy

On Monday 3 December, the two reports on the Digital Services Tax by Paul Tang and on the Significant Digital Presence by Dariusz Rosati, have been approved within the ECON committee of the European Parliament. Compared to the original proposal from the Commission, the Tang report includes an extension of the scope to include the provision of video, audio, games or text using a digital interface (covering in particular Netflix and YouTube), a sunset clause (linked to CCTB/CCCTB or to an international agreement at OECD/United Nations) and a revision clause to assess certain elements two years after the entry into force of the Directive. The report of Rosati was approved with minor amendments including a clear link of the text with CCTB/CCCTB and an assessment on the administrative burden for SMEs to be undertaken three years after the Directive enters into force. It is worth reminding that, as far as taxation is concerned, the Parliament is only consulted and that the final decisions are taken by the Council (see above for further details).


Financial Transaction Tax relaunched by Franco-German agreement

On Monday 3 December, the Finance Ministers of 10 countries (France, Germany, Belgium, Portugal, Austria, Slovenia, Greece, Spain, Italy and Slovakia) have discussed in a meeting the relaunch of the project of a financial transaction tax. The tax should be based on the French model (0,2% on purchases of shares of listed companies with a market capitalization of more than 1 billion) and it is under discussion whether the revenue resulting from this tax would be allocated to the budget of the 27 Member States or only to the euro area budget. France and Germany are expected to submit a formal proposal for a legal text in January 2019.

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ECOFIN adopts short-term fixes to current EU system

On Tuesday 4 December, the Council adopted three legislative acts to fix four issues pending the introduction of a new VAT system. The agreement on the four quick fixes relates to call-off stock, the VAT identification number, chain transactions and proof of intra-EU supply. These adjustments will be applicable from 1 January 2020.

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JURI committee approved the report on cross-border mobility of companies

On Thursday 6 December, European Parliament's Legal Affairs Committee (JURI) approved the draft report on the 'mobility' aspect of the legislative package on company law (rapporteur Evelyn Regner, S&D, Austria). The Commission’s original proposal includes the obligation for the company’s Member State of departure to block the process if it considers it to be an "artificial arrangement” aimed at obtaining undue tax benefits or if it should infringe upon employees' rights. The Parliamentary text has maintained this provision and further specifies that "Member States are also required to ensure that cross-border conversion corresponds to the actual pursuit of a genuine economic activity, including those taking place within the digital sector, by means of being permanently established in the Member State of destination for an indefinite period”, in order to avoid the creation of "letterbox companies".