Weekly Tax News – 17 February 2020

Tax on used cars: European Commission refers Portugal to the Court of Justice of the EU

On 12 February, the European Commission has referred Portugal to the Court of Justice of the European Union for applying higher tax rates on used cars imported from other Member States than those bought on the Portuguese market. According to the Commission, the Portuguese regulation is not compatible with Article 110 of the Treaty on the Functioning of the European Union. The Commission’s decision to refer the matter to the Court of Justice follows a letter of formal notice on 24 January 2019 and a reasoned opinion on 27 November 2019.

Taxation on tobacco has lost effectiveness on reducing consumption

On 10 February, the European Commission has published its evaluation of the functioning of Directive 2011/64/EU examining the impact of excise duty rates applied to manufactured tobacco. The evaluation concludes that the legislation has worked well in terms of predictability and stability of fiscal revenues for Member States. However, the development and emergence of new products, such as e-cigarettes or heated tobacco products illustrate the limits of the current legal framework. As a result, according to this assessment, the impact of the tobacco taxation on public health has been moderate.

OECD estimates 100$ billion tax revenues yearly from international tax reform

On 13 February, the OECD has released an economic analysis highlighting that the reform of international taxation currently proposed at OECD level would generate up to 4% additional global corporate income tax revenues, or $100 billion per year. The economic analysis considers the combined effect of Pillar 1 (allocating new taxing rights to market jurisdictions, regardless of physical presence) and Pillar 2 (setting a minimum level of tax for international businesses). It covers data from over 200 jurisdictions and 27.000 multinational groups. The analysis shows that the Pillar 1 reform would bring small tax revenue gains to most jurisdictions. The gains would be relatively more relevant for low and middle-income economies than for advanced economies.

OECD publishes Transfer Pricing Guidelines on Financial Transactions

On 11 February, the OECD has released the report Transfer Pricing Guidance on Financial Transactions: Inclusive Framework on BEPS: Actions 4, 8-10. The objective of the report is to enhance consistency in the interpretation of the arm’s length principle and help avoid transfer pricing disputes and double taxation when it comes to financial transactions. It also includes examples to illustrate the principles discussed in the report. The report is important because it is the first time the OECD Transfer Pricing Guidelines include guidance on the transfer pricing aspects of financial transactions. Indeed, Sections A to E of this report are included in the OECD Transfer Pricing Guidelines as Chapter X. Section F is added to Section D.1.2.1 in Chapter I of the Guidelines, immediately following paragraph 1.106.