Weekly Tax News – 5 October 2020

Commission’s explanatory notes on VAT e-commerce rules

On 30 September, the European Commission has published the Explanatory Notes on the new VAT e-commerce rules containing extensive explanations on the new rules including practical examples on how to apply them if you are a supplier or an electronic interface (e.g. marketplace, platform) involved in e-commerce transactions. These explanatory notes are meant to help online businesses and in particular SMEs to understand their VAT obligations arising from cross-border supplies to consumers in the EU. Due to the difficulties created by the coronavirus pandemic, the application of the new VAT e-commerce rules is postponed by six months (1 July 2021 instead of 1 January 2021). The European Commission aims at simplifying VAT obligations for companies carrying out cross-border sales of goods or services to final consumers and to ensure that VAT is paid correctly to the Member State in which the supply takes place. These Explanatory Notes will be soon translated in all official EU languages.

Commission to propose harmonized withholding tax relief

On 24 September, the European Commission adopted its new Action Plan for the Capital Market Union. Action 10 of the plan states that the Commission will propose “a common, standardised, EU-wide system for withholding tax relief at source”. The target of the Commission is to alleviate the burden caused by divergent, lengthy and fraud-prone refund procedures for tax withheld in case of cross-border investments.

European Commission Action Plan on Customs Union

On 28 September, the European Commission has presented its Action Plan on Customs Union. The measures included in the Action Plan have the objective of strengthening the Customs Union focussing on four areas: risk management, e-commerce, compliance and custom authorities. Regarding risk management, the plan seeks to ensure greater availability of data and data analysis for customs purposes. On e-commerce, the Commission will strengthen obligations on payment service providers and online sales platforms. A “Single Window” initiative will make it easier to be compliant with border formalities in one single portal. Finally, the Action Plan details the roll-out of modern customs equipment under the next EU budget.

Commissioner-designated McGuinness remarks her support to fair taxation

On 2 October, the Irish Commissioner-designate Mairead Mc Guiness held her hearing before the European Parliament’s Committee on Economic and Monetary Affairs (ECON). During the hearing, MEPs expressed some concerns about the Irish position on the taxation of multinationals and about the fact that the President of the Eurogroup, the ECB’s chief economist and the Commissioner for Financial Services will be Irish. Ms McGuinness confirmed that as a Commissioner she would support all Commission initiatives for a fairer and more efficient taxation. She also remarked her support to the Financial Transaction Tax and recognized that the digital giants should pay their fair share of taxes.

Cayman Island and Oman to be removed from the EU tax blacklist

On 30 September, EU Member States’ ambassadors to the EU approved the revision of the EU list of non-cooperative jurisdictions for tax purposes. According to a draft text, the Cayman Islands, which were included to the list in February are expected to be removed because they have improved their tax framework. The same for Oman, that has ratified the OECD Convention on Mutual Administrative Assistance in Tax Matters and has implemented automatic exchange of information with EU Member States. For two countries that leave the list, two others will join it, namely Barbados (that according to the OECD is only partially compliant with the global standard for the exchange of information) and Anguilla (which was found non-compliant).

Spanish tax lease scheme is considered State aid by the General Court of the EU

On 23 September, the General Court of the European Union ruled in favour of the Commission in the case of the Spanish tax lease scheme that had been referred back from the European Court of Justice in 2018. In 2013, the Commission found that the Spanish tax lease scheme constituted state aid in the form of a selective advantage partially incompatible with the internal market. However, in 2015, the General Court of the European Union annulled the Commission’s decision, after an action brought by a Spanish company. In 2018, the Court of Justice, hearing an appeal brought by the Commission, set aside the judgement of the General Court. The Court of Justice referred the case back to the General Court for its final ruling of 23 September 2020 that dismissed the actions brought by the Spanish company. In particular, the General Court assessed that the benefit of the tax regime was granted in the context of a system of prior authorisation “on the basis of vague criteria requiring an interpretation exercise for which no provision was made”. According to the General Court, the discretionary aspects “favoured the beneficiaries over other taxpayers in a comparable factual and legal situation”. The Court concluded that the Commission had not erred in considering that the system was selective.  

Belgium to introduce digital tax from 2023

Belgium joins the list of EU Member States ready to introduce a form of taxation of the digital economy if the negotiations at OECD level should fail. A draft of coalition agreement by the new government chaired by Alexander De Croo includes a paragraph highlighting that the advanced digitalisation of the economy has shown that the traditional international tax rules are not aligned with the digital economy. Though the document remarks that Belgium would prefer an international agreement, it remarks that the government is ready to impose a digital service tax by 2023 if such international deal can not be reached.