Weekly Tax News – 4 May 2020

European Commission to propose a tax package in summer

On 29 April, the Directorate General for Taxation and Customs Union (DG TAXUD) announced via Twitter that this summer the European Commission will launch a tax package. There is not much news about the content of the package, which should include three initiatives: the Action Plan to fight tax evasion and make taxation simple and easy, a Communication on tax good governance and potentially a new proposal for a Directive on Administrative Cooperation in the field of taxation.

Germany puts Financial Transaction Tax back on the table

The German semester will start in July and the attention will be focused on the EU response to COVID-19 economic crisis. However, the Financial Transaction Tax (FTT) will be one of the main tax topics of the German Presidency. The German Finance Minister Olaf Scholz considers that an agreement can be concluded in the near future, thanks to the progress made in the negotiations between the ten countries participating in the enhanced cooperation (Germany, France, Belgium, Portugal, Austria, Slovenia, Greece, Spain, Italy and Slovakia). A new version of the compromised text was leaked last week. It includes a possible exemption from the tax for pension funds and employee shareholding plans which seems to meet a request from Belgium and Slovakia.

Italian-Portuguese double tax convention does not infringe EU freedom of movement principle

On 30 April, the Court of Justice of the European Union (CJEU) confirmed that the Italian-Portuguese double taxation convention does not infringe the principles of freedom of movement and non-discrimination. The case concerns two former Italian public sector employees receiving a retirement pension. After transferring their residence to Portugal, they requested the Italian National Social Security Institute (INPS) to receive the gross amount of their pension without deduction of tax at source by Italy, so as to be able to benefit from the tax advantages offered by Portugal. The INPS rejected those requests taking the view that those rules apply only to Italian private-sector pensioners. The two pensioners brought actions before the Italian Court of Auditors, that asked the CJEU whether the Italian tax system – as it results from the convention constitutes – an obstacle to the freedom of movement of Italian public sector pensioners and discrimination on grounds of nationality. The Court answers both questions in the negative. It recalls that Member States are free, within the framework of double taxation conventions, to lay down the criteria for the allocation of tax jurisdiction between them, and such conventions are not intended to ensure that taxation is equal in the two contracting States. The difference in treatment which the pensioners claim to have suffered arises from the allocation of the power to impose taxes between Italy and Portugal and from the disparities existing between the tax systems of those Member States. In these circumstances, according to the Court there can be no question of prohibited discrimination.

European Commission extends the investigation into Dutch tax rulings of IKEA

On 30 April, the European Commission has extended the scope of its in-depth investigation into the Netherlands' tax treatment of IKEA. In particular, the Commission is investigating two Dutch tax rulings (2006 and 2011) that may have allowed IKEA to pay less taxes and given them an unfair advantage over other companies, in breach of EU State aid rules. The Commission is assessing whether the annual licence fee paid by the Dutch subsidiary Inter IKEA Systems to the Luxembourg subsidiary I.I. Holding, endorsed in the 2006 tax ruling, reflects economic reality (i.e. the contribution of Inter IKEA System to the franchise business). Furthermore, the Commission is analysing if the price Inter IKEA Systems agreed for the acquisition of the intellectual property rights and consequently the interest paid for the intercompany loan, endorsed in a 2011 tax ruling, reflect economic reality.