Weekly Tax News – 29 April 2019

VAT exemption for supplies to armed forces proposed by the European Commission

On Wednesday 24 April, the European Commission adopted a proposal for a Council Directive to exempt supplies to armed forces from excise duties and VAT when these forces are deployed outside their own Member State and take part in a European defence effort. The exemptions include the supply of goods (food, fuel, pharmaceutical products, water and gas) and services (communication, repairs and transport). By aligning the indirect tax treatment, the initiative acknowledges the growing importance of the Common Security and Defence Policy and military mobility. The Commission estimates a possible VAT loss connected with this proposal of about EUR 80 million for all Member States (assuming an average VAT rate of 18%). With regard to excise duties, it believes that energy products and electricity should be the main category of exempt products and they estimate that around 10% of these costs could be exempt from excise duty in the future. With regard to excise duties, energy products (e.g. fuel) and electricity should be the main product category subject to exemption. As with VAT, it can be assumed that around 10% of such costs would become exempt from excise duty in the future.

Tax guide on automobile taxation in Europe

On Wednesday 24 April, the European Automobile Manufacturers’ Association published the “ACEA Tax Guide 2019”, presenting a comprehensive overview of specific taxes that are levied on motor vehicles in Europe. According to the report, the VAT on acquisition vary a significantly among the EU Member States, from 17% in Luxembourg to 27% in Hungary. Excise duties differ considerably as well, from €363/1000 litres (Bulgaria) to €778/1000 litres (Netherlands). Finally, tax on ownership of passenger cars also varies, with some Member States that takes as a basis CO2 emissions and cylinder capacity (or fiscal power), such as Belgium, Germany, France and Romania, others that also consider fuel type (like Italy) and Estonia, Lithuania, Poland and Slovenia with no taxes at all.

Focus on: the CCCTB proposal of the European Commission

The European Commission is expected to relaunch, in the course of the next mandate, its proposal for a Common Consolidated Corporate Tax Base (CCCTB). The CCCTB is part of the Action Plan for fair and efficient corporate taxation in the EU adopted by the Commission in 2015. In particular, the CCCTB is a single set of rules to calculate companies' taxable profits in the EU. The CCCTB is planned to be implemented in two steps. In the first step, a Common Corporate Tax Base (CCTB) would be established. Consolidation (CCCTB) would be put in place swiftly afterwards. With the CCCTB, cross-border companies will only have to comply with one, single EU system for computing their taxable income, rather than many different national rulebooks. The CCCTB proposal includes an R&D tax incentive and a measure to address the debt bias. Companies can file one tax return for all of their EU activities, and offset losses in one Member State against profits in another. Corporate tax rates are not covered by the CCCTB, they will remain an area of national sovereignty. The consolidated taxable profits would be shared between the Member States in which the group is active, using an apportionment formula. The consolidated tax base would be apportioned on the basis of a fixed formula comprising three equally weighted factors: sales (by destination), labour and assets. Each Member State would apply its own tax rate to the share of the tax base apportioned through the formula. Only the calculation and apportionment of the tax base would be harmonised. Member States would retain the power to set their own tax rates. Member States are currently discussing the Commission proposal in Council.