Weekly Tax News – 14 January 2019

January 14, 2019

European Commission is working to shift away from unanimity principle in tax

After presenting a Roadmap in late December 2018, the European Commission is currently working on a Communication to be presented on Tuesday 15 January to propose to the Member States that decisions on certain legislative tax matters can be taken with a qualified majority in the EU Council. The proposal should be based on article 48 of the Treaty on the Functioning of the EU (TFEU) that permits to the European Council to unanimously decide to authorize the EU Council to decide by qualified majority on certain matters provided that no national parliament objects to the European Council's decision. However, it is to be noted that some Member States like Ireland would be difficult to convince.

European Commission Taxation Trends Report 2018

On 18 December 2018, the European Commission has published its Report on Taxation Trends in the European Union presenting taxation data and information for the twenty-eight Member States, Iceland and Norway. The Report shows that tax revenues rose in 19 Member States as a percentage of GDP in 2016. However, the level of taxation in EU Member States differs greatly. The report also shows that the share of labour taxes in total tax revenues shrank progressively from 2010 to 2016 when it accounted for 49.8% - similar to its pre-crisis level. Corporate income tax revenues, on the other hand rose to 2.7% of GDP in 2016 compared with 2.6% in 2015, continuing their gentle increase since the crisis though not yet at pre-crisis levels. The report offers a breakdown of comparative tax levels in the EU and of tax revenues raised from consumption, labour and capital. It also contains data on energy, environmental and property taxation, plus rates for personal and corporate income taxes.

Directive on whistleblower protection to be redesigned

On 12 December 2018, the Council's Legal Service made an oral presentation to Member States on a proposal to divide the directive to protect whistleblowers into five pieces of legislation. One of the directives would be on the protection of whistleblowers in the field of taxation. The directive on taxation would have a new legal basis, namely Article 115 of the Treaty on the Functioning of the European Union (TFEU), which has the particular feature of providing for a unanimous decision in the Council.

State aid cases in Italy, Spain, United Kingdom and the Netherlands

On 8 January 2019, the European Commission has issued two separate decision, proposing that Italy and Spain align their taxation of ports with State aid rules. Ports carry out both non-economic and economic activities. State aid rules applies to this latter case and a corporate tax exemption for ports that earn profits from economic activities can provide them with a competitive advantage on the internal market and therefore involves State aid, which may not be compatible with EU rules. In Spain, ports are exempt from corporate income tax on their main sources of revenue (such as fees or income from rental or concession contracts) whilst in In Italy, ports are fully exempt from corporate income tax. The Commission has invited Italy and Spain to adapt their legislation in order to ensure that ports, as from 1 January 2020, will pay corporate tax in the same way as other companies. On 10 January, the Commission has opened an in-depth investigation into tax treatment of Nike in the Netherlands, in particular looking at two companies: Nike European Operations Netherlands BV and Converse Netherlands BV. The Commission is concerned that the royalty payments endorsed by the tax rulings granted by the Netherlands may not reflect economic reality, giving to the company an unfair advantage over its competitors, in breach of EU State aid rules. Furthermore, on 19 December 2018, the Commission found that a corporate tax exemption scheme and five tax rulings in force in Gibraltar were incompatible with EU State Aid rules  and called on the UK authorities to recover around 100 million euros in this respect.

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