Weekly Tax News – 6 April 2021

European Commission launches public consultation on excise duties for manufactured tobacco products

On 30 March, the European Commission has published a public consultation regarding the review of EU taxation rules for tobacco products. The EU tax law on tobacco defines and classifies tobacco products and lay down minimum tax rates applied to manufactured tobacco. According to the Commission, minimum tax rates have lost their effect and divergences in the rates among Member States lead to excessive cross border purchases and to an incentive for some individuals and criminal organisations to engage in fraudulent activity. Furthermore, the current rules are not aligned to address market developments and the entry into the market of new products, such as e-cigarettes or heated tobacco. The deadline for responding to the questionnaire is 22 June 2021.

Digital Services Tax: USTR closes proceedings against EU and Czechia but considers further tariff actions against Italy, Spain and Austria

On 26 March, the United States Trade Representative (USTR) announced the next steps in its Section 301 investigations of Digital Service Taxes (DSTs) adopted or under consideration by ten U.S. trading partners. The investigations on the European Union, Czech Republic, Indonesia and Brasil have been terminated without further proceedings because these jurisdictions have not adopted or implemented the DSTs under consideration. On the other hand, the DSTs adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom the were subject to action under Section 301. USTR is proceeding with the public notice and comment process on possible trade actions to preserve procedural options before the conclusion of the statutory one-year time period for completing the investigations. The USTR estimates that the value of DST payable by U.S.-based company groups to the three EU Member States would be $155 million per year in Spain, $140 million in Italy and $45 million in Austria. The proposed tariff actions against such EU Member States regard the application of additional tariffs of up to 25 percent on certain goods. The Ambassador Katherine Tai has confirmed that “The United States is committed to working with its trading partners to resolve its concerns with digital services taxes” and she highlighted that “the US is committed to reach an international consensus through the OECD process on international tax issues.  However, until such a consensus is reached, we will maintain our options under the Section 301 process, including, if necessary, the imposition of tariffs”.

European Parliament unsatisfied of the tax provisions of the EU-UK agreement on financial services

On 26 March, the HM Treasury confirmed that the EU and the UK have concluded technical discussions on the text of the agreement, known as a memorandum of understanding, on financial services. According to several sources, though the EU wanted to include cooperation in the field of taxation among the topics of the agreement, only a reference to money laundering was included in the final text. The MEP Eero Heinäluoma (S&D, Finland) expressed his dissatisfaction regarding the absence of a reference to taxation. He pointed out the risk of having a neighbor country outside the EU with a relaxed attitude on tackling international tax evasion and he remarked the role played by the overseas territories and crown dependencies such as Jersey, Guernsey and the Isle of Man. The comments of Mr Heinäluoma echo the ones already expressed in the past by the Greens/EFA group regarding the possibility of London to become a “Singapore-on-Thames” on the EU’s doorstep.

President Biden targets fair taxation of large corporations

On 31 March, the US government released a corporate tax plan named “The made in America tax plan” included in a broader jobs plan. The tax plan aims at stopping “unfair and wasteful profit shifting to tax havens, and ensures that large corporations are paying their fair share”. The US should increase the corporate tax rate at 28% and discourage offshoring by strengthening the global minimum tax for US multinational enterprises. According to President Biden’s projects the US should also lead the world to end the race to the bottom on corporate tax rates and should terminate tax preferences for fossil fuels in line with the commitment to put the country on a path to net-zero emissions by 2050.