Weekly Tax News – 9 March 2020

Gentiloni sets up the Commission's Tax priorities

On 5 March, the Tax Commissioner Paolo Gentiloni held a speech setting up the Commission’s priorities for EU Tax policy. Regarding the tax tools to be used to support the European Green Deal, Mr Gentiloni has stressed the need for a modernized Energy Tax Directive (ETD). He suggested removing the implicit subsidies for fossil fuels, along with the tax exemptions for aviation and maritime industries. This measure should be complemented by a Carbon Border Adjustment Mechanism to address the risk of carbon leakage, putting a carbon price on imports to deter polluting processes from shifting elsewhere. To get these proposals through, the Commissioner is ready to use the provisions in the EU treaties that allow tax legislation to be adopted by qualified majority rather than by unanimity.

With regard to the digital taxation, Mr Gentiloni repeated that the target is to reach a global solution at OECD/G20 level. However, the Commissioner remarked that if global consensus could not be reached by the end of 2020, the Commission will be ready to propose an EU vision for business taxation rapidly, including a relaunch of the proposals to create a Common Consolidated Corporate Tax Base (CCCTB).

In the course of his speech, Mr Gentiloni also mentioned that EU transparency rules must cover the rapidly growing platform economy. He confirmed that the Commission will be making a proposal to that effect this summer, which is linked to the current public consultation on strengthening the exchange of information framework in the field of taxation.

Coming to the topic of tax competition, the Commissioner spoke in favour of the idea of minimum effective taxation. Furthermore, he stated that the Commission is planning to update the Code of Conduct on Business Taxation.

Finally, he mentioned that the Commission is working on a set of proposals to be launched next year to reduce double taxation, prevent and resolve administrative disputes, enhance cooperation between authorities and taxpayers across Europe, and simplify EU VAT compliance. At the end of his speech, Mr Gentiloni revealed that in June the Commission will finalise an Action Plan to fight tax evasion and ensuring compliance.

DG TAXUD asks for feedbacks on energy tax and simplification of tax system

On 4 March, the European Commission has launched three requests for feedbacks to from citizens and stakeholders on the possible evolution of the EU energy tax framework and on how to make tax compliance easier and fraud-proof. The inception impact assessment on the revision of the Energy Tax Directive (ETD) aims at bringing the ETD back in line with the EU policy objectives by tackling the persistence of fossil fuels subsidies. The inception impact assessment on a Carbon Border Adjustment Mechanism targets a reduction of the risk of carbon leakage by putting a carbon price on imports. These initiatives will be followed by two public consultations and proposals for Directive in the first half of 2021.

The third initiative is a Roadmap for an Action Plan to fight tax fraud and simplify the tax system, which should be launched in June 2020. The Action Plan will take the form of a communication and will be accompanied by a proposal to amend the Directive 2011/16/EU to strengthen the exchange of information which shall enable a flow of data from digital platforms to tax authorities.

CJEU ruled against the penalty system of the Hungarian advertising tax

On 3 March, the Grand Chamber of the Court of Justice of the European Union (CJEU) has stated that the penalty system imposed by the Hungarian advertising tax is in breach of the freedom to provide services established by Article 56 of the Treaty on the Functioning of the European Union (TFEU). In the case judged by the CJEU, Google Ireland failed to comply with its obligation to submit a tax declaration in respect of the Hungarian tax on advertising. Pursuant to the system of penalties relating to that tax, Google Ireland was initially fined €31.000 and after a few days received an additional fine of around €3.100.000. According to the finding of the CJEU, the system of penalties under the tax of advertisements enables significantly higher fines than the ones for infringement by a supplier of advertising services established in Hungary (which would be subject to the general provisions of the national tax legislation). Therefore, the Court concluded that that difference in treatment constitutes a restriction on the freedom to provide services prohibited under Article 56 TFEU.

Hungarian tax on turnover of telecommunications and retail trade sectors are compatible with EU law

On 3 March, the CJEU held that the special taxes levied in Hungary on the turnover of telecommunications operators (Vodafone case) and of undertakings active in the retail trade sector (Tesco case) are compatible with the principle of freedom of establishment and with the VAT Directive. The Court determined that since all the undertakings active in Hungary in the sectors concerned are liable to pay the taxes at issue, the Hungarian legislation does not establish a direct discrimination against undertakings owned by persons of other Member States. The Court analysed the fact that taxable persons falling within the higher tax bands were predominantly of other Member States. In this regard, the Court found that special taxes being (steeply) progressive does not, inherently, create any discrimination based on where companies have their registered office. Finally, in relation to the Vodafone case, the Court held that the tax imposed does not have the characteristics of VAT and consequently does not jeopardise the functioning of the VAT system of the EU and, therefore, is compatible with the VAT Directive.