Weekly Tax News – 21 October 2019

The role of VAT in the Brexit deal

On Thursday 17 October, negotiators from the European Union and the United Kingdom reached a new agreement for the withdrawal of the UK from the EU which was approved by the 27 Member States in the evening of the same day. The discussions of the last weeks were focused on the relationship between Ireland and Northern Ireland and one of the last outstanding issues was the application of VAT in Northern Ireland after Brexit. The agreed draft of Protocol on Ireland/Northern Ireland states that the EU VAT rules will apply in Northern Ireland, with the UK responsible for the collection of the tax. Furthermore, the UK will retain the revenues from taxable transactions in Northern Ireland. Finally, the United Kingdom may apply VAT exemptions and reduced rates that are applicable in Ireland to supplies of goods taxable in Northern Ireland. On Saturday 19 October, the Members of the British Parliament have approved an amendment obliging the UK government to require a Brexit delay to the EU until all the legislation required to leave has been ratified. On the same day, the formal letter requiring an extension until 31 January 2020 was sent to the President of the EU Council Donald Tusk, who has started the consultations with the ambassadors of the 27 EU Member States.

The European Commission’s assessment of international tax evasion by individuals

On 11 October, the European Commission released its Taxation Paper on Estimating International Tax Evasion by Individuals. The study only focuses on international tax evasion by individuals, without taking into account tax evasion or avoidance by corporations. In particular, the study is based on estimates that include tax evasion on capital income, on the stock of wealth and on the original unreported income. The study assesses that between 2001 and 2016, the 28 EU Member States have suffered a revenue loss of EUR 46 billion (or 0,5% of GDP) due to international tax evasion. Based on the report, France is the EU country that lost the most revenues over the period, with an average of EUR 10,74 billion per year (0,7% of GDP). France, Germany and the United Kingdom together account for more than 55% of total EU-28 revenue lost to tax evasion.

Taxation of climate polluters is gaining momentum at EU level

According to a news report, EU Member States have agreed on spending 25% of the EU budget on climate policy. This decision was based on a proposal of the Commission and the Finnish presidency managed to get Member States to agree. Even though the European Parliament wants to see the EU’s climate spending to be increased to at least 30% for many Member States 25% is already the maximum they want to spend.

A new EU-wide plastic tax proposal has found many supporters in the Council and is estimated to bring in € 6,6 billion a year. The proposed tax should apply on weight of unrecycled plastic packaging. The plastic tax could satisfy the demands of the European Parliament in the short term.

Meanwhile, Bruno Le Maire, French Minister of Finance, has proposed to tax fuel for aircrafts and boats in Europe. If the goal is to achieve a carbon-free economy by 2050, this tax should be introduced on European level, he claimed. 

Tax measures of Luxembourg and Ireland budget bills

On 14 October, Luxembourg has published its 2020 draft budget law. The main tax measure of the bill regards the expiration of the tax rulings at the end of 2019 (advance price agreements and other advance tax confirmations) issued by the Luxembourg Tax Authority before 1 January 2015.

On 17 October, Ireland issued its 2020 budget law, reaffirming its commitment to a 12,5% corporate tax rate on profits. Furthermore, Ireland will implement the EU Anti-Tax Avoidance Directive (ATAD) and modernize its transfer pricing rules to align with the OECD (also increasing transfer pricing documentation requirements). Other changes included in the finance bill regard the areas of property taxation and indirect tax.