Weekly Tax News – 14 December 2020

Commission requires Italy and Portugal to stop tax measures contrary to State aid rules

On 4 December, the European Commission asked Italy and Portugal to stop their respective tax regimes that are in breaches of EU state aid rules. In Italy, port authorities are fully exempt from corporate income tax. In January 2019, the Commission invited Italy to adapt its legislation in order to ensure that ports would pay corporate tax on profits in the same way as other companies in Italy, in line with EU State aid rules. In November 2019, the Commission opened an in-depth investigation to assess whether or not its initial concerns as regards the compatibility of the tax exemptions for Italian ports with EU State aid rules were confirmed. As a consequence, Italy has now been required to abolish the corporate tax exemptions granted to its ports. With regard to Portugal, the Commission has found that the implementation of the Madeira Free Zone aid scheme in Portugal is not in line with State aid rules. The aid scheme was meant to contribute to the economic development of the outermost region of Madeira by granting tax reductions to companies creating jobs in Madeira. However, the Commission's investigation has shown that the tax reductions were applied to companies that have made no real contribution to the development of the region, including on jobs created outside Madeira, in breach of the conditions of the decisions and EU State aid rules. Portugal must now recover the incompatible aid, plus interest, from companies that did not meet the conditions.

MEPs push for changing the EU tax blacklist

On 10 December, MEPs of the ECON Committee of the European Parliament have adopted a resolution setting out changes to be made to the system used to draw up the EU list of tax havens. The resolution was prepared by the Subcommittee on Tax Matters (FISC) and adopted by ECON with 43 votes in favour, 6 against and 5 abstentions. The resolution proposes changes that would make the process of listing or delisting a country more transparent, consistent and impartial. It also proposes adding criteria to ensure that more countries are considered a tax haven and prevent countries from being removed from the blacklist too hastily. Finally, the resolution says that EU member states should also be screened to see if they display any characteristics of a tax haven and those falling foul should be regarded as tax havens too. The chair of the FISC subcommittee, Paul Tang (S&D, NL) remarked that “By calling the EU list of tax havens “confusing and inefficient”, the European Parliament tells it like it is. While the list can be a good tool, it is currently lacking an essential element: actual tax havens”.

Advocate General asks CJEU to reassess its decision on Belgian excess profit tax

On 3 December, Advocate General Juliane Kokott proposed to the Court of Justice of the European Union (CJEU) to overturn a General Court decision that assessed the legality of Belgium’s excess profits tax scheme. According to the Advocate General, the Commission was right to consider that the Belgian practice of making downward adjustments to profits of undertakings forming part of multinational groups constituted an aid scheme. The dispute regards a reduction of the tax base of Belgian group members to account for excess profits (e.g economies of scale) resulting from the company being part of a multinational group. The tax benefit was agreed with a tax ruling by the Belgian tax authority. In 2016, the Commission decided that the scheme was illegal state aid but, following a legal controversy, in 2019 the EU General Court annulled the Commission’s decision. The General Court concluded that the Commission failed to prove that the tax authorities used a systematic approach in all the rulings because the Commission only reviewed a sample of the rulings. Advocate General Kokott expressed the view that “the Commission may also use a sample for the purposes of proving a consistent administrative practice” and proposed that the case be referred back to the General Court which must still assess whether the advance tax rulings concerning the downward adjustment of profits constitute State aid and whether the recovery of the alleged aid infringes the principles of legality and of the protection of legitimate expectations.

European Commission welcomes decision on VAT exemption on vaccines and testing kits

On 7 December, the European Commission welcomed the adoption of the new measures which will enable Member States to relieve EU hospitals, medical practitioners and individuals of VAT when acquiring coronavirus vaccines and testing kits. The measures will allow EU countries to put in place a temporary VAT exemption for vaccines and testing kits being sold to hospitals, doctors and individuals, as well as closely related services. Under the amended Directive, Member States will be able to apply either reduced or zero rates to both vaccines and testing kits if they so choose. The rules will apply until the end of 2022, or until an agreement is reached on the Commission's pending proposal for new rules on VAT rates, if the latter occurs earlier.