CFE’s Global Tax Top 10 – September 2023




European Commission Public Consultation on BEFIT (Business in Europe: Framework for Income Taxation)

The European Commission has opened a public consultation on the BEFIT (Business in Europe: Framework for Income Taxation), a proposal on the new corporate income taxation framework for Europe. BEFIT aims to replace and thus repeal the 2011 and 2016 Commission proposals for a common consolidated corporate tax base (CCCTB), and replace the current 27 national corporate tax systems for MNE groups with combined revenue exceeding EUR 750 million. The approval of the proposal requires unanimity, given the shared competence in corporate taxation between the Union and its Member states. 

BEFIT establishes a common set of rules to determine the tax base of companies that are part of a group which prepares consolidated financial statements and which are subject to corporate income taxation in an EU Member State. The proposal does not contain sector-specific exclusions from its scope.

The consultation will run until 20 November 2023 (although this date will continue to be extended until the proposal has been made available in all official EU languages). Input can be submitted via the Have Your Say website.

United Nations Assert Greater Role in International Tax Affairs  

The Secretary General of the United Nations (UN), Antonio Guterres, has called for a greater role of the UN in setting the international tax affairs in order to achieve a “fully inclusive” international tax agenda. In a report published by the UN entitled “Promotion of inclusive and effective international tax cooperation at the United Nations – Report of the Secretary-General”, Mr Guterres contends that enhancing of the UN role in tax-norm shaping and rule setting, taking into account existing multilateral and international arrangements, will make international tax cooperation “fully inclusive and more effective”. The Report also notes that the rules developed at the OECD do not adequately address the needs and priorities of developing countries and/or are beyond their capacities to implement.

The Secretary-General Report follows on from the Resolution of the UN General Assembly requesting intergovernmental discussions at the United Nations on ways to strengthen the inclusiveness and effectiveness of international tax cooperation, through the evaluation of additional options, including the possibility of a framework or instrument developed and agreed upon through a UN intergovernmental process.

Manal Corwin, Director of the OECD Centre for Tax Policy and Administration, speaking for the FT, said it was “disappointing that the United Nations had chosen to ignore the positive impact of the most significant changes and concrete results that have been delivered over the last two decades”. Ms Corwin contended the UN Report contained “a number of inaccuracies and misleading statements.”

OECD Secretary-General Tax Report to G20 Leaders

The OECD has published its Secretary-General Tax Report presented to the G20 leaders at the G20 Summit which took place in New Delhi in India from 9 – 10 September 2023. 

With respect to international taxation, G20 leaders welcomed the progress on Pillar 1 and 2 at OECD level, calling for coordinated efforts towards capacity building to implement the two-pillar package effectively and, in particular, a plan for additional support and technical assistance for developing countries, as set out in the G20 New Delhi Leaders’ Declaration.

State Aid & Transfer Pricing: General Court Declares Belgian Excess Profit Scheme Unlawful

The General Court of the EU has confirmed the European Commission’s assessment of its Decision in 2016 on the excess profit exemption State Aid scheme implemented by Belgium, where the Commission declared Belgium’s excess profit exemption scheme illegal and ordered recovery of around 700 million EUR from 35 multinational companies. Subsequently, the Court received 30 applications seeking annulment of the Commission’s findings (from Belgium and the aid beneficiaries). With a judgment of 14 February 2019 in cases T-131/16 and T-263/16, the General Court initially annulled the contested Commission decision. However, the Court of Justice of the EU (CJEU) set aside the General Court original judgment and referred the case back to the General Court with its judgment of 16 September 2021, Commission v. Belgium and Magnetrol (C-337/19 P). On 20 September 2023, following the CJEU judgment, the General Court dismissed the actions seeking annulment of the Commission decision on the excess profit rulings scheme and issued 10 judgments in 30 cases, confirming that the European Commission rightly concluded that excess profit rulings were illegal under EU law, and therefore declared State aid. 

The General Court, in the judgment pronounced by Judge Vesna Tomljenović (rapporteur), concluded that the European Commission did not err in stating that the excess profit exemption scheme derogated from ordinary Belgium corporate income tax system. Such a scheme was not available to all entities in a similar and factual situation in the light of the objective of the Belgian corporate income tax system, which was to tax the profits of all companies subject to tax in Belgium, the Court said. Furthermore, the Court did not find it necessary to examine the merits of Belgium’s arguments against the subsidiary line of reasoning regarding selectivity, namely that the tax rulings on excess profit rulings constitute a misapplication of the Arm’s Length Principle (ALP) and thus a deviation from the said principle, which forms a part of the Belgium reference system. 

Belgium, the aid beneficiaries, and Ireland as an intervening Member state in support of Belgium, have the right to appeal the judgment to the Court of Justice.

BEPS Action 13 Country-by-Country Reporting Update 

The OECD has published the latest update concerning the BEPS Action 13 minimum standard on Country-by-Country reporting on the transparency of global operations of large MNEs. The collected information includes the amount of revenue reported, profit before income tax, income tax paid and accrued, as well as the stated capital, accumulated earnings, number of employees and tangible assets, broken down by jurisdiction.

The OECD sets out that:

The sixth annual peer review of BEPS Action 13 considers implementation of the CbC reporting minimum standard by jurisdictions as of April 2023 and covers 136 Inclusive Framework members. Highlights include:

  • Over 110 jurisdictions have already introduced legislation to impose a filing obligation on MNE groups, covering practically all MNE Groups with consolidated group revenue at or above the threshold of EUR 750 million. Remaining Inclusive Framework members are working towards finalising their domestic legal frameworks with the support of the OECD.
  • Where legislation is in place, the implementation of CbC reporting has been found largely consistent with the Action 13 minimum standard.
  • A large number of recommendations made in the first five peer review phases have now been addressed and these recommendations have been removed.
  • More than 3 000 bilateral relationships for the exchange of CbC reports are now in place.

The BEPS Action 13 peer review is an annual process and the next peer review report will be released in the third quarter of 2024.

CFE Opinion Statement on the EU Commission FASTER Withholding Tax Proposal

CFE Tax Advisers Europe has published an Opinion Statement concerning the EU Commission’s withholding tax proposal to introduce legislation on a new EU system for the avoidance of double taxation and prevention of tax abuse: Faster and Safer Relief of Excess Withholding Taxes.

In June 2022, CFE Tax Advisers Europe submitted representations to the European Commission’s consultation concerning its public consultation on the planned proposal. As CFE set out in its initial representations, CFE is supportive of the initiative to introduce an EU-wide system for relief at source of withholding tax on dividend, interest, royalty payments and service fees, and for exchange of information and cooperation between tax authorities under the system. We are not seeking in this Statement to repeat all those points which we continue to endorse from our previous statement. However, we believe there is merit in making some observations concerning issues identified with the current legislative proposal.

Firstly, CFE believes that a tax residence certificate should be issued in a harmonized format within the EU, both in the local language and in English. Furthermore, it should certify the residence of the taxpayer under the applicable domestic law and not for the purposes of particular tax treaties.

Secondly, CFE is of the view that the scope of the currently proposed directive is much too restricted, given the extremely limited application to only publicly traded bonds and shares which is much narrower than was originally envisaged at the time of the EU Commission’s consultation process in 2022. CFE is disappointed that the proposed directive is limited in scope and does not address further issues which allow for relief of double taxation not addressed by the mechanism.  CFE is of the view that relief at source via a digital certificate mechanism should be applicable to all types of dividend, interest and royalty payments and to service fees.

Thirdly, while obviously recognizing that Member States should effectively fight tax fraud and abuse, CFE believes that the right that they have in this respect should be exercised “after-the-facts” and not before.  For that reason, CFE Tax Advisers Europe is of the view that a taxpayer should not have to provide information on the purposes of the certificate (this refers to Article 4(2)(g) of the Proposal) and that the financial intermediary should not be required to verify that information including undertaking a “risk assessment that takes into account the credit risk and fraud risk” as is notably provided by Article 10(1)(b) of the Proposal.  More generally, the role of financial intermediaries should be revisited as set forth in section 4 of our Statement.

Finally, CFE observes that the currently proposed directive will not enter into force until January 2027, which is a relatively long transition period as compared with other direct tax proposals, for what would seemingly be a less complicated implementation.

We invite you to read our Opinion Statement and remain available for any queries you may have.

OECD Publishes Input Received Concerning Consultation on Amount B, Pillar 1 on Transfer Pricing

Following publication of the agreed Outcome Statement in mid-July 2023, the OECD sought public comments on Amount B under Pillar One concerning the application of the arm’s length principle to in-country baseline marketing and distribution activities. The public consultation document outlined the design elements of Amount B and was released in order to obtain inputs from stakeholders on the technical aspects of Amount B.

The public comments received have now been published by the OECD.

Further work will be undertaken on the following aspects:

  • Ensuring an appropriate balance between a quantitative and qualitative approach in identifying baseline distribution activities;
  • The appropriateness of:
    • the pricing framework, including in light of the final agreement on scope;
    • the application of the framework to the wholesale distribution of digital goods;
    • country uplifts within geographic markets; and
    • the criteria to apply Amount B utilising a local database in certain jurisdictions.

African Leaders Propose Global Carbon Tax

African leaders have proposed the introduction of a global carbon tax to fight climate change. In the Nairobi Declaration, agreed this month after a three-day Africa Climate Summit in Kenya’s capital, the leaders of the African nations demanded that major polluters commit more resources to help developing countries. Kenya’s President William Ruto referred to to the EU proposals for a financial transaction tax, that could serve to achieve these goals. 

The Declaration calls for investment to promote the sustainable use of Africa’s natural assets for the continent’s transition to low carbon development and contribution to global decarbonization. “We call for a comprehensive and systemic response to the incipient debt crisis outside default frameworks to create the fiscal space that all developing countries need to finance development and climate action,” African leaders said in the Nairobi Declaration.

Tax Administration 2023 Report Published

The OECD has published the Tax Administration 2023 Report, setting out comparative information on the tax systems and administration of the OECD and other advanced and emerging economies.  

The OECD sets out that the report: “provides internationally comparative data on aspects of tax systems and their administration in 58 advanced and emerging economies. The report is intended to inform and inspire tax administrations as they consider their future operations, as well as to provide information on global tax administration trends and performance for stakeholders and policy makers. The report is structured around nine chapters that examine the performance of tax administration systems, using an extensive data set and a variety of examples to highlight recent innovations and successful practices. This edition also contains an additional chapter that explores progress on the digital transformation of tax administrations. The underlying data for this report comes from the International Survey on Revenue Administration and the Inventory of Tax Technology Initiatives”.

WU Global Tax Policy Centre Surveys on Multilateral Cooperative Compliance & Tax Control Frameworks

The Global Tax Policy Center at the Institute of Austrian and International Tax Law of WU, Vienna’s University of Economics and Business, chaired by Jeffrey Owens, are conducting two surveys of business and government in the context of the work they are doing on cooperative compliance. To gain a better understanding of the expectations, experiences and best practices of tax administrations and taxpayers in different countries, surveys are being developed in the areas of tax control frameworks, multilateral cooperative compliance and costs & benefits of cooperative compliance. The results of the surveys, combined with additional research, will form the basis for providing practical guidance in these areas for the benefit of tax administrations, taxpayers and society.

The first survey is on the use and design of Tax Control Frameworks by MNEs, aimed at governments with experience regarding tax control frameworks, companies that have implemented a tax control framework and academic institutions. The second is on views on a multilateral project related approach to cooperative compliance, aimed at governments with experience in national cooperative compliance and governments that are considering introducing cross-border dispute prevention and resolution programmes, companies that have experience in or are considering participating in national cooperative compliance programmes and cross-border dispute prevention programmes, as well as academic institutions. Input is welcomed by the Global Tax Policy Centre. Each survey takes about 30 minutes.

The selection of the remitted material has been prepared by:
Aleksandar Ivanovski & Brodie McIntosh