The OECD has published a text of the multilateral convention (MLC) related to implementation of Amount A of Pillar One, agreed by the IF’s Task Force on the Digital Economy and not yet open for signature. According to the OECD, the text of the MLC reflects the consensus achieved to date, with different views among countries on a “handful of items in footnotes by a small number of jurisdictions”. The text “moves the international community a step closer towards finalisation of the Two-Pillar Solution to address the tax challenges arising from the digitalisation and globalisation of the economy”, the OECD stated.
However, the U.S. Treasury Secretary Janet Yellen speaking to reporters in Luxembourg said the United States will not be ready to sign the treaty by the end of this year. “The U.S. will conduct a consultation on the multilateral treaty with all relevant stakeholders for two months. It is critically important for a treaty of this level of importance and complexity to be shown to the American public, and for Congress and the business community to hear what their reactions are and to ensure that we have public support.”, Ms Yellen said. Missing the end of year deadline could mean introduction of further national digital services taxes that would effectively tax the U.S. tech companies in market jurisdictions. The U.S. Congress recently warned Canada of “significant consequences” should it proceed with unilateral taxation of US tech companies with introduction of a digital services tax on 1 January 2024.
Global South jurisdictions such as India, Brazil, Nigeria and Colombia also maintain reservations about the complexity and/or their capacity and ability to effectively raise taxes under such rules. The African Tax Administration Forum (ATAF) stated that some members have expressed concern about “continued loss of revenue from non-taxation of the digital economy and the length and complexity of the Amount A rules as the published MLC and Explanatory statement text is 850 pages long.” The ATAF Executive Secretary, Logan Wort said of the developments: “It is vital that African countries effectively tax highly digitalised businesses, which is not possible under the current global tax rules. As indicated by our membership, Amount A is not only complex but more concerning is the uncertainty of when it will be implemented, meaning a continued lack of opportunity to tax the growing digital economy.”, Mr Wort said.
For the MLC to enter into force, it needs to be ratified by at least 30 jurisdictions including the headquarters jurisdictions of at least 60% of MNEs currently expected to be within Amount A’s scope. The Explanatory Statement (ES) which accompanies the MLC forms part of the context per customary international law for interpretation purposes. The MLC is also accompanied by an Understanding on the Application of Certainty (UAC) which contains further details on how aspects of the Amount A tax certainty framework will operate in practice. The OECD also provided updated estimates of the economic and revenue impacts of Amount A.
EU Set to Adopt e-Assets Tax Reporting Rules & Update EU Blacklist
The European Union finance ministers are expected to adopt DAC8, new transparency and reporting framework related to crypto-assets and electronic money, at today’s meeting in Luxembourg. The ECOFIN Council will adopt the revisions to the Directive on Administrative Cooperation, on basis of the European Commission proposal of 8 December 2022 related to the Council directive amending Directive 2011/16/EU on Administrative Cooperation in the field of taxation (DAC8). The European Parliament adopted an opinion on 13 September 2023 under the EU legislative consultation procedure, whereas the Council of Ministers on 16 May 2023 reached a political agreement, adding requirements for exchange of information on advance tax rulings for wealthy individuals. The final outcome of this legislative process is decided by EU Member states in the Council, by unanimity.
The Directive sets out new reporting requirements related to the Crypto-Asset Reporting Framework (CARF) and amendments to the Common Reporting Standard (CRS). The G20 endorsed the CARF and the amendments to CRS, both of which it considers to be integral additions to the global standards for automatic exchange of information. The Directive also extends the scope of the current rules on exchange of tax-relevant information by including provisions on exchange of advance cross-border rulings concerning high-net-worth individuals, as well as provisions on automatic exchange of information on noncustodial dividends and similar revenues, in order to reduce the risks of tax evasion, tax avoidance and tax fraud, as the current provisions of DAC do not cover this type of income.
It is also expected that the EU finance ministers will adopt a revised list of non-cooperative jurisdictions for taxation purposes. The Spanish Presidency of the EU organised a High-Level Working Party on Tax Questions in Madrid on 21 and 22 September, to celebrate the 25th Anniversary of the work the Code of Conduct Group, currently chaired by Ms María José Garde of the Spanish Ministry of Finance. The latest jurisdictions that the EU added to the ‘blacklist’ in February 2023 include Russia, the British Virgin Islands (BVI), Costa Rica and Marshall Islands.
As a consequence of the listing process, EU Member states can apply the following measure to the listed jurisdictions: non-deductibility of costs, CFE charge per ATAD, apply withholding tax at a higher rate on interest, royalties, service fees or remuneration, when these payments are treated as received in listed jurisdictions, or place limitations of participation exemption on profit distributions, where Member states apply such rules. Member states are also allowed to apply non-tax defensive measures, taking into account EU’s foreign policy objectives.
CFE Statement on Interest Payable on Overpayment of Taxes in Breach of EU Law (Case C-322/22 E v Dyrektor Izby Administracji Skarbowej we Wroclawiu)
CFE Tax Advisers Europe has issued an Opinion Statement prepared by the ECJ Task Force on the CJEU’s decision of 8 June 2023 in case C-322/22, E. v Dyrektor Izby Administracji Skarbowej we Wrocławiu, concerning the right to be paid interest on overpayment of taxes in breach of EU Law. CFE welcomes the decision of the Court as it reinforces the taxpayers’ right to interest on refunds in cases where a tax is imposed in breach of EU law. CFE also acknowledges that the Court has limited competence to ensure the enforcement of EU law at this level. Therefore, additional action seems to be necessary to establish a common normative framework for the reimbursement of unduly paid taxes and its corresponding right to interest. Currently, there is a margin of discretion in the regulation by the Member States (in what concerns both the exercise of the rights and their content), which may lead to unwanted asymmetries in the levels of protection of the same EU rights in the different Member States. Such diversity is not welcomed in view of strengthening the internal market. Cases such as the one at hand urge reflection on whether the EU institutions could start taking a different approach. This is particularly true in the case of the European Commission, which, as “guardian of the Treaties”, is responsible for ensuring that EU law is timely interpreted and applied. This includes extracting adequate conclusions from CJEU’s rulings. Several actions could be considered.
First, the EU Commission could engage in constructive dialogue with the Member States, actively asking whether they consider legislative action necessary to ensure full compliance with EU law in the aftermath of a Court case considering certain tax provisions as inadmissible.
Second, the EU Commission could lead the efforts in assessing whether further action (by that Member State or by any other Member State) is required to ensure compliance with EU law. This could be ensured with the following initiatives:
- Public consultations, inviting all stakeholders to provide input on the amendments needed;
- By public tenders, commissioning studies to expert organisations on the amendments needed;
- By asking the EU tax observatory, financed by the European Commission, to include such assessments in their activities.
Third, the Commission could consider, as a priority, the assessment of domestic tax systems whenever the same provision or the same point of law is referred for the second time to the CJEU.
CFE would welcome actions by EU institutions (and particularly by the European Commission) towards ensuring effective protection of the right to interest on refunds in cases where a tax is imposed in breach of EU law. Such actions would not only be adequate but also needed and could include soft law (such as a Communication regarding the implementation of such rights in accordance with the case law) and/or hard law (namely, a directive laying down the adequate normative framework for the implementation of such rights).
United Nations (UN) Tax Committee Meeting on 17-20 October in Geneva
The 27th session of the United Nations (UN) Committee of Experts on International Cooperation in Tax Matters will take place at the Palais des Nations in Geneva, Switzerland, from 17 to 20 October 2023. The Committee will focus on advancing the implementation of its work plan, adopted for the 2021-2025 period. The UN Tax Committee agenda, as approved by ECOSOC, comprises the following items: (b) Taxation and the Sustainable Development Goals; (c) Issues related to the United Nations Model Double Taxation Convention between Developed and Developing Countries; (d) Update of the United Nations Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries; (e) Transfer pricing; (f) Taxation of the extractive industries; (g) Environmental taxation; (h) Dispute avoidance and resolution; (i) Taxation issues related to the digitalised and globalised economy; (j) Taxation of crypto-assets; (k) Digitalisation and other opportunities to improve tax administration; (l) Increasing tax transparency; (m) Wealth and solidarity taxes; (n) Indirect taxes; (o) Health taxes; (p) Relationship of tax, trade and investment agreements; (q) Capacity-building.
A recent UN report sought to reinforce United Nations’ role in international tax matters, stating that “enhancing the UN’s role in setting and shaping global tax rules appears the most viable path for making international tax co-operation fully inclusive and more effective.” The UN noted that the substantive rules developed through the OECD initiatives often do not adequately address the needs and priorities of the Global South countries, are not sufficiently reflected in the OECD agenda and/ or are beyond their capacities to implement.
CFE Tax Advisers Europe is represented at the United Nations Committee in Tax Matters by Chair of the Direct Taxes Subcommittee, Mr Jos Goubert.
“Abuse of Law in European Taxation” Conference in Brussels: 21/22 November 2023
The PwC Chair in Tax Law of the Catholic University of Louvain, the Max Planck Institute of Tax Law and Public Finance, the Tax Institute of the University of Liège with the support of the International Fiscal Association Belgian Branch are co-hosting a conference on the topic of “Abuse of Law in European Taxation: Divergence or Convergence of Concepts & Policites?” on 21 and 22 November 2023 in Brussels.
The fight against tax fraud and avoidance has become one of the main drivers of EU legislation and continues to influence the shaping of the case-law of the European Court of Justice in tax matters. The concept of abuse plays a key role in the interpretation of EU primary and secondary law and is even referred to in a number of provisions of EU tax legislation (harmonization directives, administrative cooperation and exchange of information). However, after almost 25 years of application by European and domestic courts and tax authorities, this apparently unifying function of the concept of abuse in tax matters raises a number of unresolved issues, creating significant legal uncertainty for taxpayers.
The conference will gather together academics, public officials and practitioners to discuss the most recent issues concerning the prohibition of abuse in tax matters, as regards the application of fundamental freedoms, the EU corporate tax directives, including the recent Pillar 2 directive and the Unshell directive proposal, VAT and customs, exchange of information,. The conference will also address the latest implications of the notion of abuse of law on corporate tax planning and tax competition among Member States in the context of the international initiatives aiming at curbing base erosion and profit shifting (BEPS) and improving global tax transparency (exchange of information).
Registration for the conference is possible here.
The selection of the remitted material has been prepared by:
Aleksandar Ivanovski & Brodie McIntosh