Weekly Tax News – 30 September 2019

General Court of the EU takes decision on Starbucks and Fiat cases

On 24 September, the General Court of the European Union issued its decisions on two controversial state aid cases regarding Starbucks and Fiat, with opposite results: the judgement of the General Court in the Starbucks case annulled the Commission’s decision that the Advance Price Agreement (APA) between Starbucks Manufacturing EMEA BV (“Starbucks Netherlands”) and the Netherlands Tax Authority constituted aid incompatible with the internal market. In a nutshell, the APA determined the remuneration of Starbucks Netherlands for its production and distribution activities that served to calculate the annual taxable profit of the company. Furthermore, the APA endorsed the amount of royalty paid by Starbucks Netherlands to another entity of the same group for the use of Intangible Property. The Court concluded that the Commission did not demonstrate that the errors identified in the APA conferred an advantage to Starbucks Netherlands.

The judgement of the General Court in the FIAT case confirmed the validity of the Commission’s decision that the tax ruling issued by the Luxembourg Tax Authority in favor of Fiat Chrysler Finance Europe (“FTT” a Fiat company providing treasury and financing services to other group’s companies) constituted State aid under Article 107 of the Treaty of Functioning of the European Union, and therefore was incompatible with the internal market. The tax rulings endorsed a method for determining the remuneration and therefore the taxable profit of “FTT” for the treasury and financing services provided to other companies of the same group. In either case, an appeal limited to points of law only, may be brought before the Court of Justice against the decision of the General Court within two months and ten days. MEPs Jonás Fernández, S&D and Sven Giegold, Greens/EFA have reacted to these judgements by insisting on the need to reform EU tax policy, requesting the EU institutions to move forward with the proposals on CCCTB, public country-by-country reporting and the end of unanimity in the Council for tax matters.

Commissioner-designate Gentiloni to be heard by the ECON Committee

Paolo Gentiloni, Commissioner-designate for Economy, will attend his public hearing before the ECON Committee on 3 October. A former Italian Prime Minister from 2016 to 2018, Gentiloni shall inherit the portfolio of Pierre Moscovici, which included Tax and Customs. In her letter to the Tax Commissioner-designate, President Von der Leyen described the tax priorities of the next European Commission, pointing out the necessary review of the Energy Taxation Directive, the proposal of a Carbon Border Tax and the need for progress on the fight against tax fraud, tax evasion and tax avoidance.

The progress of digitalising tax administrations

On 23 September, the OECD has published the eighth edition of the Tax Administration Series providing comparative data on the performance of advanced and emerging tax administrations. Together, the 58 tax administrations, employ around 1,6 million staff, dealing with the tax affairs of around 810 million personal income tax and corporate taxpayers. They have collected total revenues of €11,4 trillion in 2017, on a combined operational budget of €71 billion (less than 1% of the revenues collected). The study stresses how tax administrations are increasingly using digital technologies such as online filing of tax returns and online payments. On average, e-filing rates for personal income tax are now around 70% and those for corporate income tax are around 85%. Contacting channels are shifting from traditional (in-person contacts are down 15%) to digital (email contacts are up 20%), with more than 40 tax administrations already using or planning to use artificial intelligence.

OECD: “Taxes on polluting fuels are below where they should be”

On 20 September, the OECD has published a preview of the Taxing Energy Use Report 2019, recommending countries to adjust energy taxes in order to encourage a shift to low-carbon energy, transport, industry and agriculture. The report shows that 70% of carbon emissions which come from energy production are entirely untaxed, resulting in little convenience to shift towards cleaner energy. In particular, thought taxes on fuel are relatively high, the ones on coal (which accounts from 50% of CO2 emission) are close to zero in most countries whilst the ones on a cleaner energy, such as natural gas, are often higher. The study indicates that only 4 countries (Denmark, the Netherlands, Norway and Switzerland) of the 44 tax non-road energy above the low-end estimate of the costs to the climate of carbon emissions, while several have lowered energy taxes in recent years.