Weekly Tax News – 22 July 2019

European Court of Auditors points out VAT evasion in e-commerce transactions

On Tuesday 16 July the European Court of Auditors published a new report which points out that e-commerce is still vulnerable to VAT and customs duties evasion. In the report, the auditors recognise that the controls for collection of VAT carried out by the national tax authorities are weak and that the monitoring carried out by the Commission is insufficient. The EU is unable to prevent abuses such as the deliberate undervaluation of goods below the ceilings, in order to benefit from VAT or customs duty exemption. To remedy this, the report recommends that the Commission monitor the extent to which non-Member States respond to requests from Member States in accordance with mutual administrative assistance agreements between them. The report also suggests exploring the possibility of using “technology-based” collection systems, including the use of digital currencies, to tackle VAT fraud in the field of e-commerce.

Commission considers extension of tax derogation for rum from French outermost regions

On Monday 8 July, the European Commission launched its evaluation process to decide whether or not to allow France the continued application of a reduced rate of certain indirect taxes to rum known as “traditional” which is produced in Guadeloupe, French Guiana, Martinique and Réunion after 2020. The Council Decision of 20 February 2014 authorises this tax derogation until 31 December 2020. In accordance with this decision, the Commission must therefore assess, before the end of 2020, whether the reasons that originally justified this derogation still exist. If the assessment confirms that it is still justified for France to continue to apply reduced rates of excise duty on rum imported into metropolitan France after 2020, the Commission will propose an authorisation decision, replacing the 2014 authorisation decision, during the fourth quarter of 2019. The feedback period for this initiative is open until 5 August 2019.

Council adopts country specific recommendations for 2019

The Council issued its 2019 recommendations and opinions to Member States on their economic, employment and fiscal policies, thereby concluding this year's European Semester exercise. The recommendations were previously discussed by the European Council in June and approved by the EPSCO Council in July. Despite global uncertainties and less favourable conditions, all Member States' economies are projected to grow in 2020 and the level of unemployment is at a record low. In this context, the country specific recommendations focus on implementing effective structural reforms, boosting investment strategies and encouraging responsible fiscal policies.

G7 agrees in principle on effective minimum company taxation

Finance ministers and central bank governors of the G7 countries (France, Germany, Italy, the United Kingdom, Canada, the United States and Japan) made real progress on international tax reform on Wednesday 17 July in Chantilly. The discussions took place on the basis of the OECD work programme agreed by the G20 at the Osaka Summit in June which is based on a two-pillar approach. 

As for pillar one, which focuses on how to reform international tax rules to determine where tax should be paid, on what basis and how to allocate taxable profits between jurisdictions in the digital age, one source expressed a “real sense of urgency and willingness to do so”. However, the source also noted that there were still discussions on specific criteria and, in particular, how to take into account different business models. On the second pillar of the reform, the introduction of an effective minimum corporate taxation, there would have been a very broad consensus on the principle at the meeting. “The principle of minimum taxation has taken root for the first time”, a source from the French G7 Presidency welcomed. As anticipated, however, the ministers were unable to agree on the definition of a rate or a rate corridor.

Ursula von der Leyen elected President of the European Commission 

German Christian Democrat Ursula von der Leyen was elected President of the European Commission for 5 years. The President-elect obtained 383 votes in favour during the plenary session in Strasbourg on Tuesday, 16 July. The ‘von der Leyen’ Commission will take office on 1 November. In the meantime, the President-elect will have to constitute the College of 28 Commissioners on the basis of proposals from each Member State. The Commissioners-designate will be heard by the relevant Parliament committees before a green light is given in plenary session to the entire future Commission.