Weekly Tax News – 22 February 2021

EU tax blacklist: the exclusion of Turkey ignites the Parliament

On 15 February, the national experts in the Council have reached an agreement on the destiny of Turkey with regard to the EU list of non-cooperative jurisdiction in the field of tax. Ankara has obtained 4 additional months of time to solve the issues with its system of automatic exchange of information on bank accounts, which is the main problem that is bringing Turkey towards the blacklist. In case of failure to meet the deadline, Turkey will be included to the blacklist during the next revision in October 2021. However, many Members of the European Parliament were not satisfied with this outcome. Markus Ferber (EPP, Germany) and Sven Giegold (Greens/EFA, Germany) voiced their concern about the extension provided to Turkey that risks of further weakening the EU tax haven list. Other changes to the EU lists relates to the addition of Dominica to the blacklist and the transfer of Barbados to the grey list.

February infringement package: letters of formal notice to France and Sweden

On 18 February, the European Commission has published its February 2021 infringements package. In the area of taxation, the EC has sent letters of formal notice to France and Sweden, both with regard to a possible infringement of the free movement of capital (Article 63(1) of the TFEU and Article 40 of the European Economic Area Agreement). The EC asked France to change its withholding tax rules on dividends paid to “Unit Linked Insurance” (ULI) companies established in other European Economic Area (EEA) Member States. ULI is a live insurance scheme where the premiums paid by the policy-holder are used to purchase units in investment funds selected by that person, and where the dividends paid out by the funds are passed on by the insurer to the policy-holder. ULI companies established in EEA Member States are required to pay a final withholding tax on French dividends received. However, ULI companies established in France either pay no withholding tax on these dividends, or can credit the withholding tax paid against French corporation tax, which amounts to zero. The Commission deems that these rules infringe the free movement of capital. The letter sent to Sweden asks Stockholm to amend its rules on taxation of dividends to non-resident public pension institutions. Swedish public pension funds are entirely exempt from tax liability, while dividends paid to equivalent non-resident public pension institutions are subject to a withholding tax, commonly at a reduced rate of 15%. The different treatment may infringe the free movement of capital. Sweden and France have two months to reply to the arguments raised by the Commission after which the Commission may decide to send a reasoned opinion.

France deferral of tax payment for airlines is consistent with EU law

On 17 February, the General Court of the European Union confirmed that the deferral of the payment of taxes introduced by France to support airlines which hold a French licence amid the COVID-19 pandemic is consistent with EU law. In March 2020, France notified the European Commission of an aid measure in the form of a deferral of the payment of civil aviation tax and solidarity tax on airline tickets due on a monthly basis during the period from March to December 2020. The Commission classified the deferral of the payment of the taxes as State aid compatible with the internal market, in accordance with Article107(2)(b) TFEU. The airline Ryanair brought an action for the annulment of that decision. The General Court confirmed that the Covid-19 pandemic and the travel restrictions and lockdown measures adopted by France to deal with it, taken together, constitute an exceptional occurrence within the meaning of Article107(2)(b) TFEU, which has caused economic damage to the airlines operating in France. The General Court also found that limiting the deferral of the payment of the taxes to airlines possessing a French licence is appropriate for achieving the objective of making good the damage caused by the exceptional occurrence in question. On these bases, the General Court confirmed that the objective of the deferral of tax payments satisfies the requirements of the derogation laid down in Article107(2)(b) TFEU and that the conditions for granting that aid do not go beyond what is necessary to achieve that objective.

EC public consultation on implementing rules for VAT e-commerce trade

On 18 February, the European Commission has published a feedback request on the proposal of EC implementing regulation as regards the control of transactions made by taxable persons supplying services to non-taxable persons, making distance sales of goods and certain domestic supplies of goods. The proposal seeks to clarify the rules and standardize the documents applicable to the control of transactions recorded under the special VAT e-commerce scheme. The special arrangements allow taxable persons to declare and pay VAT on certain supplies of goods and services in the Member State where they are established instead of each one where goods/services are supplied. The Member State of establishment is then responsible to exchange VAT returns and payments with the Member State of consumption. In order to facilitate the exchange of information, the Commission proposes that the taxable persons should use a standardized form which include certain data (names of taxable person and intermediary, VAT identification number, tax periods covered and type of registrations requested). Stakeholders are invited to comment on the proposal until 18 March 2021.

France to search tax evaders on social media

On 13 February, France has published a law decree setting up the procedure for the French tax authority to collect and use data from social media platforms to find evidence of tax frauds. The measure concerns the users of digital platforms such as Airbnb, Facebook, YouTube, BlaBlaCar, etc. Only information "deliberately" disclosed are covered by the decree which also sets out the terms and conditions for implementing computerized and automated processing enabling the tax authority to process such content. It also specifies the conditions to ensure that the process is proportionate to the purpose and how that the personal data processed are adequate, relevant and limited to what is strictly necessary.