O. Reg. 456 18 S. 1 (2)
Yvone Samiento
On June 4, 2020 the CJEU issued its judgement in case C-456/18 P, Hungary v Commission concerning a suspension injunction in respect of alleged State aid measures. Based EU law, where the Commission initiates a formal State aid investigation procedure, the Member State concerned is required to suspend implementation of the measure under investigation. Under Article 11 of Regulation No 659/199, where the European Commission is investigating whether a measure implemented by a Member State is compatible with EU State aid rules, it may adopt a decision requiring that Member State to suspend any unlawful aid until the Commission has taken a decision on the compatibility of the aid with the internal market. A suspension injunction may be adopted after the initiation of the formal investigation procedure where the Member State concerned did not, when that procedure was initiated, suspend implementation of the measure under investigation. A suspension injunction may also be adopted at the same time as the decision to initiate the formal investigation procedure, where there is sufficient evidence for the Commission to presume that the Member State concerned does not have the intention of suspending implementation of the measure under investigation. Non-compliance with a suspension injunction enables the Commission to bring an action for a declaration of failure to fulfil obligations directly before the Court. In Hungary v Commission, the Court ruled that suspension injunctions can only be imposed by the European Commission in case the Commission provides sufficient statement of reasons why it is taking the view that the Member State concerned was not planning to suspend the aid at issue.
On June 4, 2020 the CJEU issued its judgement in case C-430/19 concerning the rights of the defense in tax litigations. The Court ruled that the general EU Law principle of respecting the rule to defense must be interpreted as meaning that, if during a tax audit, a taxpayer did not have the possibility to access information included in their administrative file, and this information was taken into account for making an administrative decision imposing additional tax liabilities, the decision has to be cancelled, if the national court concludes that, absent this breach, the audit would have had a different outcome . In addition, the Court ruled that the principles governing the application of the common VAT system by Member States, in particular the principles of tax neutrality and legal certainty, must be interpreted as opposing that national tax authorities refuse the right to deduct VAT based on unsubstantiated presumptions with regard to the economic operations that gave rise to the issuance of the tax invoice, where the taxpayer is unable to provide any other evidence of the reality of the economic operations carried out, besides the invoice.
The European Commission is inviting Member States and other stakeholders to comment on its updated proposal to exempt from prior Commission scrutiny under EU State aid rules, aid granted through national funds for projects supported under certain EU centrally managed programmes. More information is provided in the press release
It is noted that the funds raised will need to be repaid through future EU budgets - not before 2028 and not after 2058. The Commission will therefore propose a number of new own resources, which could include:
Accountancy Europe reports that the European Commission has altered the timeline and content of its upcoming tax initiatives, initially expected on June 10, 2020. The Commission now intends to launch three initiatives on July 15:
On May 15, 2020, the decision of the European Commission to approve the extension of the Croatian tonnage tax regime was published in the Official Journal. The extension, which applies from January 1, 2021 until December 31, 2024, includes the following:
On June 3, 2020, Member State representatives on Coreper (the Permanent Representatives Committee) reached political agreement on an optional six-month deferral of reporting deadlines under the EU Mandatory Disclosure Rules (DAC6), as well as a three-month deferral for the communication of information under the EU common reporting standard (CRS) for reporting financial institutions (DAC2). The conclusion of negotiations in Council was further confirmed in the ECOFIN Report to the European Council on tax issues (see below).
In order for the deferral to become applicable, formal unanimous agreement in the Council is required. According to the ECOFIN Report, Coreper authorized the use of the written procedure for adoption of the amendment, which is expected before July 1, 2020. In addition, an opinion is required from the European Parliament, which is expected by the end of the month. It will then be up to each Member State to opt for and communicate the deferral. For further details, please refer to Euro Tax Flash issue 430.
On June 5, 2020 the Council (ECOFIN) issued its Report to the European Council on tax issues, (PDF 439 KB) which presents an overview of the progress achieved in the Council during the term of the Croatian Presidency, as well as an overview of the state of play of the most important tax files under negotiations, including:
On June 2, 2020 the Council approved conclusions (PDF 225 KB) setting out political guidance and priorities in view of further reform of administrative cooperation in the EU. The conclusions stress that efforts to improve administrative cooperation to fight tax fraud and tax evasion are particularly relevant in the context of the need for recovery from the crisis caused by the COVID-19 pandemic.
On June 4, 2020, the Platform for Collaboration of Tax (PCT) released a Toolkit on the taxation of offshore indirect transfers (OIT) providing guidance on the design and implementation issues when one country seeks to tax gains on the sale of interests in an entity owning assets located in that country by an entity which is a tax resident in another country. The toolkit addresses a concern of particular significance to developing country, primarily from the perspective of natural resource rich country.
On May 26, 2020, a report was released by the OECD on how tax administrations can prepare for the potentially prolonged, uncertain and complex recovery period from the COVID-19 crisis. The report highlights that even during the immediate crisis period, there will be significant benefits from early business restoration planning to help identify the main challenges and opportunities for both tax administrations and taxpayers.
An additional report published on the same day highlights the increased security risks and greater opportunities for errors, misconduct and fraud in the current environment, including as a result of remote working. The report provides examples of these high-level risks and identifies some mitigation actions that tax authorities may wish to take.
The OECD has announced that it plans to reach a political decision on a multilateral solution to address the tax challenges arising from digitalization of the economy in October (date to be determined), rather than the initially planned July deadline. The aim remains to reach a multilateral, consensus-based solution -by the end of 2020. For more information, please refer to the press release.
On June 1, 2020, the Multilateral Convention entered into force in respect of Portugal. Portugal signed the convention on June 7, 2017 and deposited its final MLI position on February 28, 2020, including the 79 tax treaties it wishes to be covered by the MLI.
The explanatory notes to the bill state that Germany plans a double-stage process. The first step is the underlying draft bill concerning the ratification of the MLI, which also includes the list of covered tax agreements and the Reservations and Notifications made by Germany. In a second step, there will be separate application laws regarding each covered tax agreement between Germany and a given other contracting state including all modifications to the application of the covered tax agreements due to the MLI.
Germany will make use of the reservation provided for in Article 35(7) of the MLI, according to which the entry into effect of the provisions of the MLI with respect to a specific covered tax agreement depends on the condition that Germany has completed its internal ratification procedures, instead of a specific date after the MLI has entered into force for each of the contracting states to a covered tax agreement. The draft bill is still subject to approval by both the lower house of the German parliament (Bundestag) and the Federal Council (Bundesrat).
On May 27, 2020, the OECD announced that Switzerland had confirmed the completion of its internal procedures for the entry into effect of the provisions of the MLI for its tax treaty with Luxembourg (1993). Similarly to Germany, Switzerland has opted to makes use of Article 35(7) of the MLI and therefore must complete the relevant internal procedures for the remaining 11 treaties it has notified (PDF 1.11 MB) at Covered Tax Agreements.
On June 3, 2020 the Belgian Federal Tax Authorities issued a communication announcing that administrative deferral of six months is granted for the reporting obligations under Belgian legislation transposing DAC6. The following deadlines therefore apply in Belgium:
The government has reached an agreement with the Danish financial sector regarding a new dividend withholding tax procedure. The new procedure obliges foreign shareholders of Danish companies to register themselves with the Danish tax authorities before any dividends are paid by Danish companies (and their Danish bank accounts). The agreement was reached on May 18, 2020 with the aim to ensure that the correct amount of dividend withholding tax is levied before the dividend is paid.
This means that, for example, the withholding tax rate under an applicable tax treaty is applied at source, which should eliminate the need for a refund procedure. If it is subsequently concluded that not enough withholding tax was levied, the tax authorities can, in principle, collect the underpaid tax from the Danish banks instead of trying to recover the unpaid tax from abroad. Details of the new procedure and its implementation are to be determined.
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