Weekly Tax News - Monday 27 November 2023

November 27, 2023

On Wednesday 22 November, the United Nations (UN) General Assembly’s Economic and Financial Committee adopted a resolution, setting the basis for a legally binding UN framework convention on international tax cooperation. The OECD has led international tax discussions for decades but it has increasingly faced criticism from developing countries, which argue it is not inclusive enough and favour the richer economies that make up its membership. In total, 125 countries, including Brazil, Russia, India, China and the Africa Group – who drafted the resolution -, voted in favour of the resolution, 48 countries against and 9 countries abstained. It calls for the establishment of a Member State-led, open-ended ad hoc intergovernmental committee for the purpose of drafting terms of reference for a United Nations framework convention on international tax cooperation by August 2024. The resolution also asks the committee to prepare a progress report for the UN General Assembly to consider at its 79th session in September 2024. Contrary to a previous version of the resolution, the final text does not contain any target date for the finalization of the convention itself. All EU Member States, as well as the US and the UK, voted against the resolution. Following the vote, the OECD Secretary General, Mathias Cormann, issued a statement, where he said that OECD remains committed to completing the work under the Two-Pillar solution and to ensuring the broad and effective implementation of this agreement.

MEPs urge the EU to step up its AML rules following the Cyprus confidential investigation

Following the “Cyprus confidential” investigation by the International Consortium of Investigative Journalists (ICIJ), MEPs debated in plenary session, on Wednesday 22 November, with the European Commission and the Council of the EU, the need to step up the EU anti-money laundering (AML) rules. In particular, many MEPs asked the Spanish Presidency of the Council of the EU to prioritise finalising the AML package, calling for a high level of ambition. Moreover, several MEPs also called for better harmonisation of sanctions across Europe when it came to those who breached AML rules and for golden passports schemes to be banned throughout Europe. During the debate, Dubravka Šuica, Vice-President of the European Commission for Democracy and Demography, explained that the European Commission opened an infringement procedure against Cyprus last July as the Commission believed the 5th AML Directive had not been fully implemented, with specific reference to the beneficial ownership register. Such a register could help identify the true owners of complex corporate structures and thus is essential, she said. Spain’s State Secretary for Foreign and Global Affairs Ángeles Moreno Bau, hoped that a deal on the anti-money laundering (AML) legislative package could be found before the end of this parliamentary mandate, which would greatly strengthen the EU AML rules.

EP adopts its opinion on the ViDA package

On Wednesday 22 November, the European Parliament adopted in plenary session its opinions on the “VAT in the digital age” package (ViDA). The most important piece of legislation updates the EU’s VAT regime (Directive 2006/112/EC on the common system of value added tax), making it more in line with the realities of the current digital era. While broadly supporting the Commission’s proposal, MEPs proposed a one-year delay to most of the elements put forward by the Commission to allow businesses to have time to prepare in full knowledge of the rules that they will need to comply with. MEPs also introduced some changes to the Commission’s proposals regarding the obligations of online platforms, notably those active in the area of short-term accommodation. MEPs adopted a second report, fully endorsing the Commission proposal, which makes changes to Directive 2006/112/EC regarding VAT rules for taxable persons who facilitate distance sales of imported goods. In another piece of legislation which updates the Regulation on administrative cooperation and combating fraud in the field of VAT, MEPs called for improved cooperation between all actors involved in the fight against VAT fraud, in particular EPPO, EUROFISC, EUROPOL and EUROJUST. They also say that the performance of the VAT Information Exchange System (VIES) VAT number validation functionality should be improved.

EP draft opinion on HOT published

The European Parliament has started to work on the proposal for a directive establishing the Head Office Tax System for micro, small and medium sized enterprises (HOT). HOT's purpose is to reduce the tax related administrative burden SMEs face when they open permanent establishments in other Member States. The rapporteur on this file, MEP Lídia Pereira (EPP, Portugal), recently published her draft report for opinion, where she aims at increasing the ambition of the proposal “while safeguarding the feasibility of this new system”. She notably proposes to shorten by one year (to 2025 instead of 2026) the deadline for the transposition of the Directive arguing that the European businesses need a strong signal of support from the EU in the complex and volatile context of today. She also suggests limiting the eligibility requirements with a view to widen the access to the system while maintaining the scope and guarantee an indefinite duration for the application of the rules (instead of a limitation of 5 fiscal years). Finally, Ms Pereira also proposes to shorten the deadlines for applications from SMEs and for national authorities to exchange information. The text still needs to be approved in the ECON committee.

MNEs continue reporting low-taxed profit, the OECD Corporate Tax Statistics find

Multinational companies continue to report low-taxed profits, even in jurisdictions with high corporate tax rates, according to the OECD’s latest Corporate Tax Statistics report published on Tuesday 21 November. The report shows a continued misalignment of MNE profits and real economic activity in markets worldwide. The median value of MNE revenues per employee in investment hubs is USD 1 710 000, as compared to USD 290 000 for all other jurisdictions. While these effects could reflect some commercial considerations, they likely also indicate the existence of base erosion and profit shifting (BEPS) practices, further highlighting the importance of implementing the global tax agreement, the OECD said. On the same day, the OECD also published a new accompanying working paper entitled “Effective Tax Rates of MNEs: New evidence on global low-taxed profit”. The working paper shows that an estimated 37.1% (USD 2 411 billion) of global net profits (totalling USD 6 503 billion) are taxed at effective tax rates below 15%. It is even in high-tax jurisdictions that more than 20% of very low-taxed profits—i.e., those subject to an effective tax rate below 5%—are made. This is likely the result of granting tax incentives and other targeted concessions, according to the OECD.

The Financial Action Task Force (FATF) and the Organisation for Economic Cooperation and Development (OECD) jointly published on Wednesday 22 November a report exploring the money laundering and financial crime risks associated with citizenship and residency by investment (CBI/RBI) programmes, including risks related to foreign bribery, fraud and corruption, and their impact on public integrity, tax and migration. The report highlights how CBI programmes can allow criminals more global mobility and help them hide their identity and criminal activities behind shell companies in other jurisdictions. It highlights the vulnerabilities of these complex and international investment migration programmes, including the frequent use of intermediaries, involvement of multiple government agencies, abuse by professional enablers and lack of proper governance of the CBI/RBI programmes.  The report proposes measures and cites examples of good practice that can help policy makers and those responsible for managing the investment migration programmes to address these risks. It also highlights how Governments can incorporate risk mitigation measures, such as multi-layered due diligence, in the design of their investment migration programmes.

On Monday 20 November 2023, Azerbaijan signed the Multilateral Convention on the Implementation of Tax Treaty Measures to Prevent Base Erosion and Profit Shifting (BEPS Convention), the OECD announced. The measures included in the BEPS Convention relate to treaty abuses, strategies to avoid the creation of a 'permanent establishment' and hybrid mismatch arrangements. The BEPS Convention also improves the dispute resolution mechanism, in particular by adding an optional provision on mandatory and binding arbitration. To date, more than 1 200 treaties concluded between the 85 jurisdictions that have ratified, accepted or approved the BEPS Convention have already been amended by the BEPS Convention. A further 700 or so treaties will be amended once the BEPS Convention has been ratified by all signatories, according to the OECD.

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Register here: https://sweapevent.com/etafconferenceontheoecdtwopillarsolution

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