Weekly Tax News – 9 September 2019

VAT Gap further decreased in 2017 according to the European Commission

On 5 September, the European Commission has released the 2019 “Study and Reports on the VAT Gap in the EU-28 Member States” which depicts that EU countries have lost €137 billion in Value-Added Tax revenues in 2017 (11.2% of total VAT revenues in the EU). The report defines the VAT Gap as “the difference between the expected and actual VAT revenues and represents more than just fraud and evasion and their associated policy measures. The VAT Gap also covers VAT lost due to, for example, insolvencies, bankruptcies, administrative errors, and tax optimisation”. Positive news comes from the historic trend of the VAT Gap, which is decreasing for the fifth consecutive year: it was €164 billion in 2013. The result of Italy and France is particularly brilliant, showing a decrease of €3,4 and €3,3 billion respectively, while in Germany the VAT Gap grew by €1,4 billion between 2016 and 2017. Romania recorded the largest national VAT Gap with 36% of VAT revenues going missing in 2017, followed by Greece (34%) and Lithuania (25%).

Finland’s Presidency ready to tackle CbCR, VAT and FTT in the Council

On 3 September, Finland's Minister of Justice, Anna-Maja Henriksson, appeared before the European Parliament's Committee on Legal Affairs (JURI) to present the priorities of Finland’s Presidency of the Council of the EU. Amongst others, she highlighted the commitment of her country to move forward on the Country-by-Country Reporting proposal, that would require large multinational companies to publish certain financial data. On 4 September, her colleague Finance Minister, Mika Lintilä, during the hearing before the ECON committee confirmed Finland’s commitment to work for an agreement on the proposals on VAT and excise duties and to see progress in the Council on the long-standing Financial Transaction Tax.

Tax Policy Reforms in OECD countries

On 5 September, the OECD has released its report on Tax Policy Reforms 2019, providing a country-based comparison on tax policy developments. Against the previous years, few countries (e.g. the Netherlands) have undertaken significant tax reform packages, while some important tax changes have been carried out in Italy, Poland, Lithuania and Australia. The report shows that countries with high corporate tax rates are lowering their taxes, leading to a convergence in corporate tax rates across OECD countries. A number of countries are also cutting down personal income taxes with particular reference to low income earners and elderly. From an environmental perspective, the tax reforms have decreased in 2019 compared to previous years: several countries have reduced their energy taxes and weakened their commitment to align taxation with climate costs.

Country-by-Country Reporting OECD peer review

The OECD presented the results of the second phase of Action 13 CbCR peer review on 3 September. The CbCR requires tax administrations to collect and share with tax authorities of other countries, financial information (e.g. revenue, profit before tax, income tax paid, etc) on large multinational companies active in their jurisdiction. It is one of the minimum standards of the BEPS initiatives and all members of the Inclusive Framework on BEPS have committed to implement it. The Director of the OECD Centre for Tax Policy and Administration, Pascal Saint-Amans, acknowledged the outcomes of the peer review, highlighting that the BEPS measures were being implemented “rapidly, consistently and globally”. Indeed, the report shows that over 80 countries have introduced CbCR legislation, covering almost all multinational groups with consolidated group revenue above EUR 750 million. Furthermore, the implementation of the measures is largely consistent with the Action 13 minimum standard and favoured the bilateral relationships for CbCR exchanges currently in place.

First Cum-Ex tax fraud trial in German court

On Wednesday 4 September, two British investment bankers stood trial in front of a court in Bonn, Germany because of their active involvement in the so-called Cum-Ex scams that cost tax authorities across Europe almost €55 billion. The trial is expected to be the most complicated tax case in Germany and will probably last until January 2020, with 32 sitting days. For both, market players and authorities this case is highly anticipated as it will determine the trajectory of other similar cases in the Cum-Ex scandal. The loopholes in the tax systems that have permitted massive tax fraud involving banks and stockbrokers have been discovered first in 2012 even though the full extent and implications of these loopholes were only revealed in 2017 by a group of international journalists. The malpractice was characterized by bankers and other intermediaries trading shares with (‘cum’) and without (‘ex’) dividend rights to conceal the real identity of the actual owner, allowing both parties to claim tax rebates on capital gains tax that had only been paid once. Germany has tried to close those loopholes in 2012 but the amendments didn’t go far enough so that in 2016 the Finance Ministry finally proposed another legislative amendment that made Cum-Ex deals impossible.