Weekly Tax News – 9 May 2022

European Commission proposes a 6th package of sanctions against Russia

On Wednesday 4 May, the President of the European Commission, Ursula von der Leyen, presented a sixth package of sanctions against Russia in retaliation for the war in Ukraine. In front of the European Parliament, Ms von der Leyen proposed an import ban on Russian crude oil within six months and on refined products by the end of the year. The President of the European Commission also announced that three major Russian banks (Sberbank, Moscow Credit Bank and the Russian Agricultural Bank) could be excluded from the Swift system. As part of the package, the Commission is also proposing to ban the provision of European accounting, consultancy and communications services to Russian companies. The package is still being discussed by Member States before its formal adoption.


OECD consults on the regulated financial services exclusion under Pillar I

The OECD opened on Friday 6 May a public consultation on the regulated financial services exclusion under Amount A of Pillar I (reallocation of taxing rights). According to the draft rules, the revenues and profits from regulated financial institutions will be excluded from the scope of Amount A. “The defining character of this sector is that it is subject to a unique form of regulation, in the form of capital adequacy requirements, that reflect the risks taken on and borne by the firm. The scope of the exclusion derives from that requirement, meaning that entities that are subject to specific capital measures (and only those) are excluded from Amount A”, the OECD explained in a press release. Interested parties have until 20 May 2022 to send their written comments by email to the OECD.


EP gives its greenlight to the extension of the Reverse Charge Mechanism

By adopting on Tuesday 3 May the report drafted by MEP Markus Ferber (EPP, Germany), the European Parliament gave its greenlight to the extension of the period of application of the optional Reverse Charge Mechanism to combat existing fraud in supplies of goods and services and of the Quick Reaction Mechanism. The latter allows Member States to initiate, under certain strict conditions, an accelerated procedure to put in place the Reverse Charge Mechanism and thus respond more adequately and effectively to sudden and massive fraud. These mechanisms were due to expire on 30 June 2022 and the Commission proposed to extend them until the end of 2025.


New study on the offshore real estate in Dubai

In a new study published on Tuesday 3 May, the EU Tax Observatory analysed foreign investments in Dubai real estate in the light of long concerns that real estate is used for money laundering and hiding wealth from tax authorities. It found that offshore real estate in Dubai is large - at least USD 146 billion in 2020. About half of the offshore Dubai real estate is owned by nationals of India, the United Kingdom, Pakistan, Saudi Arabia, and Iran. Other large investors in absolute terms include Canada, Russia, and the United States. By matching properties owned by Norwegians to administrative tax records in Norway (a country that taxes wealth), researchers found that the probability to own offshore real estate rises sharply with wealth, including within the very top of the wealth distribution. At least 70% of Dubai properties owned by Norwegian taxpayers were not reported for tax purposes in 2020. According to the EU Tax Observatory, this finding illustrates the limitation of the current forms of international information exchange and suggests that additional policies - such as information sharing on the owners of real estate - may be required to create transparency and curb tax evasion through offshore financial centres.


ETAF responds to the European Commission consultation on VAT in the digital age

On Wednesday 4 May, the European Tax Adviser Federation (ETAF) responded to the European Commission public consultation on VAT in the digital age. In its response, ETAF welcomed the intention of the European Commission to introduce EU digital reporting requirements for data transmission within the EU. However, ETAF also pointed out the necessity to take into account the fact that Member States have different levels of implementation or planning for the introduction of digital reporting obligations and e-invoicing. ETAF added that it would be supportive of a staged approach, with first the introduction of EU digital reporting requirements for cross-border transactions only and, in a second stage and after a careful evaluation of the functioning of the new rules, an extension to domestic transactions.