Weekly Tax News – 3 February 2020

The case for a Carbon Border Tax as EU budget own resource

The EU’s Carbon Border Tax plan is still to be announced, but according to several rumors it might be introduced as a new Own Resource for the EU budget. The purpose of the Carbon Border Tax (or “carbon border adjustment mechanism”) would be to shield EU companies against cheaper imports from countries with weaker climate policies. It would probably take the form of a tax on imported goods based on the carbon content of such goods. One of the biggest issues would be the complexity of measuring the carbon content of assembled products which components come from many countries with diverse climate policies. Furthermore, the levy must be compatible with World Trade Organization rules.

On 14 November 2018, the European Parliament had already invited the Commission to extend the list of potential new Own Resources for the EU budget to include a carbon border adjustment mechanism. With its resolution of 10 October 2019 on the 2021-2027 multiannual financial framework, the European Parliament has relaunched its demand to the new Commission.

Germany proposes new transfer pricing rules

On 10 December 2019, Germany’s Ministry of Finance has proposed a draft law that would introduce substantial changes to the German transfer pricing regulation, aligning it with the OECD standard. The draft legislation proposes to abolish the hierarchy of transfer pricing methods and clarifies that the most appropriate method for each specific case should be adopted. It also introduces the concept of analyzing the development, enhancement, maintenance, protection, and exploitation (DEMPE) of intangible assets into the German transfer pricing regulatory framework. Other proposed changes relate to regulations for intercompany financing and to the determination of transfer prices for hard-to-value-intangibles.

Beyond the EU: the digital tax in Norway and Japan

On 13 January, Norway’s Finance Minister Siv Jensen released an interview confirming that the government is ready to introduce its own digital tax immediately, if the OECD fails to find a global solution on the matter. Though Mr. Jensen did not provide any detail on the form of the possible Norwegian digital tax, he said that they have a good understanding of the issue and the implementation of such levy would not be too difficult.

Quite the opposite, in a document released in December, the Japan’s ruling coalition stated that the Japanese government should play a leading role in building global consensus around new international tax rules proposed by the OECD. According to the statement, the Japan’s ruling parties expect the creation of a stable and predictable investment environment for companies. It means also that any new rule should avoid excessive administrative burden on taxpayers and avoid double taxation. The document highlights the need for stopping uncoordinated unilateral tax measures that would increase uncertainty for cross-border expansion of businesses.