Weekly Tax News – 21 January 2019

European Commission’s plan to shift away from unanimity principle in tax

On 15 January 2019, the European Commission has published a Communication proposing a plan to shift away from unanimity principle in tax. The Communication points out that taxation is one of the last area where decision-making exclusively relies on unanimity and highlights the very high cost of non-action in EU tax policy (e.g. the Commission assessed EUR 50 billion per year due to VAT frauds). The Commission suggests to use the passerelle clauses of article 48 (7) of the Treaty on European Union (designed for general topics, including taxation) and of article 192 (2) of the Treaty of Functioning of the European Union (specifically designed for measures in the environmental field). The way forward proposed by the Commission includes a four-step progression towards decision-making based on Qualified Majority Voting (QMV):

  • In Step 1, Member States would agree to move to QMV decision-making for measures that have no direct impact on Member States’ taxing rights, bases or rates but are critical for combatting tax fraud, evasion and avoidance. This includes measures to improve administrative cooperation between Member States, the conclusion of international agreements between the EU and third countries and initiatives primarily designed to facilitate tax compliance for businesses in the Single Market (such as harmonized reporting obligations);
  • Step 2 would introduce QMV in measures of a fiscal nature designed to support other policy goals (fight against climate change, protecting the environment or improving public health or transport policy).
  • In Step 3 QMV would be introduced in areas of taxation that are already largely harmonized, such as VAT and excise duties.
  • Step 4 provides for the introduction of QMV on other initiatives in the taxation area which are necessary for the Single Market, such as CCCTB and the taxation of the Digital Economy.

The Communication suggests that Member States should decide swiftly to converge on a decision to develop Steps 1 and 2, while considering to introduce Steps 3 and 4 by the end of 2025.

“No-Deal” Brexit: possible impacts on VAT

With the decision regarding Brexit at a deadlock, the UK government is planning a contingency plan in case of a “no-deal” scenario. Recently HM Revenue & Customs (HMRC) has issued a “Partnership pack: preparing for changes at the UK border after a ‘no deal’ EU Exit” depicting the potential impact of a “no deal” exit in various sectors of the British economy. With specific reference to VAT, the document states that the UK will continue to have a VAT system after it leaves the EU, keeping the VAT procedures as close as possible to what they are now in order to provide continuity and certainty for businesses. However, there will be specific changes to the VAT rules and procedures applying to transactions between the UK and EU countries. In order to mitigate the impacts of these changes, the government will introduce a postponed accounting for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries.

European Parliament approves report on gender equality and tax policies

On Tuesday 15 January 2019, MEPs approved in Strasbourg, the draft report on gender equality and tax policies in the European Union by MEPs Marisa Matias (GUE/NGL, Portugal) and Ernest Urtasun (Greens/EFA, Spain). The report calls on the Commission to support gender equality in all tax policies, pointing out the tax-related gender biases created by VAT due to women’s consumption patterns, that are more oriented to goods and services promoting health, education and nutrition than the ones of men. The MEPs therefore push Member States to plan for VAT exemptions, lower VAT rates and zero VAT rates for products and services with positive social, health or environmental effects. Finally, the plenary vote session backed upheld the MEPs' request that female hygiene products and care products for children, the elderly or people with disabilities be considered as basic items in all Member States and that a 0% VAT rate be applied to them.

Member States support the Whistleblower Directive

On Wednesday 16 January, during a meeting of the Permanent Representatives Committee, Member States have shown their support to the horizontal approach proposed by the Commission as opposite to dividing the proposed Directive into 5 different pieces of legislation as suggested by the legal service of the Council. Furthermore, Member States seem favouring to keep tax matters within the framework of the same Directive. In particular, Italy, Germany, Croatia, Spain, France, the Netherlands and Greece clearly expressed their support of a single instrument requiring a qualified majority, while Hungary and Ireland are still supporting the approach taken by the legal service of the Council.

Rule of law protecting the EU budget extended to tax evasion and tax fraud

On 17 January 2019, the Plenary of the European Parliament endorsed the proposal to protect the budget in the event of a general failure of the rule of law in a Member State. The European Commission would be tasked with establishing “generalised deficiencies as regards the rule of law” and decide on measures that could include suspending EU budget payments or reducing pre-financing. Amongst the circumstances according to which the European Commission may establish that the rule of law is under threat, there are the undermining of: (i) proper investigation of tax fraud and (ii) measures preventing and penalising tax evasion and tax competition.

Fiscalis programme adopted by the European Parliament

On 17 January 2019, in Strasbourg, MEPs have approved by a large majority the report on the Fiscalis programme for the period 2021-2027, drafted by Sven Giegold (Green/EFA, Germany). The programme aims at supporting the administrative cooperation in tax between Member States and the approved report highlights the necessity to strengthen the capacity of Member States to combat tax fraud, corruption, tax evasion and aggressive tax planning, including through provision of technical assistance for human resources training and improvement of administrative structures.