Weekly Tax News – 1 April 2019

Brexit: the European Commission’s plan in case of “no deal”

On Monday 25 March, the European Commission has published a press release concerning the preparations of the European Union in case of a “no-deal” Brexit. Following a request by Prime Minister Theresa May, the European Council agreed to extend the UK's departure date to 22 May 2019, provided the Withdrawal Agreement is approved by the House of Commons by 29 March 2019 at the latest. If the Withdrawal Agreement is not approved by the House of Commons by then, the European Council has agreed to an extension until 12 April 2019. In that scenario, the United Kingdom would be expected to indicate a way forward before this date. This means that if the Withdrawal Agreement is not ratified by Friday 29 March, a “no-deal” scenario may occur on 12 April.

In a “no-deal” scenario, the UK will become a third country without any transitionary arrangements. All EU primary and secondary law will cease to apply to the UK from that moment onwards. There will be no transition period. This will obviously cause significant disruption for citizens and businesses. In such a scenario, the UK's relations with the EU would be governed by general international public law, including rules of the World Trade Organisation. The EU will be required to immediately apply its rules and tariffs at its borders with the UK. This includes checks and controls for customs.

Since December 2017, the European Commission has been preparing for a “no-deal” scenario. It has published 90 preparedness notices, 3 Commission Communications, and has made 19 legislative proposals (see link above). A range of material is available for EU businesses on customs and indirect taxation (including a simple 5-step checklist).

The EP plenary approves the TAX3 Report

On Tuesday 26 March, the plenary of the European Parliament adopted the report prepared by the Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3) of the European Parliament. The report represents a detailed roadmap towards fairer and more effective taxation, and tackling financial crimes. The report has been adopted by 505 votes in favour, 63 against and 87 abstentions. The recommendations for the European Commission include a proposal for a European financial police force and an EU financial intelligence unit. Furthermore, seven Member States (Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and The Netherlands) have been indicated as displaying traits of a tax haven and facilitate aggressive tax planning while two of them (Malta and Cyprus) have been singled out for their weak due diligence in providing golden visas and passports. The chair of the special committee, Petr Ježek (ALDE, CZ) stated that there is a lack of political will in Member States to tackle tax evasion/avoidance and financial crime, while the co-rapporteur Jeppe Kofod (S&D, DK) relaunched the idea of a minimum corporate tax rate to end tax competition between Member States.

European Commission’s study on the impact of the CCTB

The European Commission has published a study that evaluates the impact of the introduction of the CCTB draft Council Directive from October 2016 on the effective corporate tax burdens in the 28 EU Member States and assesses the relative importance of single elements of the harmonised tax base. A comparison of certain key elements of the CCTB draft Council Directive and the current tax practice of the Member States identifies the highest need for adjustment in order to comply with the directive with regard to the Notional Interest Deduction/Allowance for Growth (NID/AGI) and Investment, R&D tax incentives, rules for inter-temporal and especially cross-border loss relief as well as the applicable depreciation rates and the use of the pool depreciation method. Overall, the report finds that the re-launch of the CCTB draft Council Directive would have a considerable impact for the majority of Member States mainly due to the AGI and R&D super-deduction as two of the newly introduced tax base elements. Both elements induce a remarkably strong need for adjustment across Member States, either because the element is largely not available in current corporate tax systems (AGI/NID) or because its design varies widely across Member States (R&D tax incentives and – if available – AGI/NID). Furthermore, these provisions have a strong impact on effective tax burdens. Whereas the AGI induces a decrease in the tax burdens for the vast majority of Member States, this effect might be reversed if R&D tax incentives are additionally included.