This Week in Taxation: EU Officials Consider Minimum Tax Loopholes


According to Commission officials, the European Commission may not need to impose qualified majority voting to reach an agreement on the overall minimum corporate tax rate thanks to legal loopholes.

Paolo Gentiloni, Commissioner for the Economy, underlined the importance of reaching a comprehensive agreement so as not to leave aside the interests of small countries during the meeting of the Parliament’s Sub-Committee on Tax Matters (FISC) on June 27.

“When working on a problem, it is not wise to approach a potential plan B,” Gentiloni said, regarding the use of EU legal provisions to force a majority vote and limit the right of veto in the Council.

Still, Gentiloni suggested that two articles of the Treaty on the Functioning of the European Union could be used as legal alternatives to force a majority among EU member states. These protocols include Article 116, to combat aggressive tax planning, and Article 329, to allow for enhanced cooperation.

These options would allow the European Commission to move the EU towards a global minimum tax rate without the unanimous support of Member States, although the Commission would need the support of the Council of the EU and the European Parliament to pursue the either of the legal channels.

French Finance Minister Bruno Le Maire said he has been working with Gentiloni and MEPs on alternative solutions to implement the minimum tax since Hungary rejected the plan.

The OECD second pillar minimum tax rate is unlikely to remain a viable global solution without the first pillar profit reallocation mechanism. Gentiloni noted that if the first pillar rules are not implemented, unilateral measures will be back on the agenda.

Many EU countries have introduced Digital Services Tax (DST) schemes and this wave of DSTs has led to trade tensions with the United States. The OECD has attempted to address this problem by seeking a multilateral solution through the Inclusive Framework.

In the meantime, the presidency of the European Council is changing hands. The Czech Republic takes over today, July 1, but Commission officials are still hopeful the Council will reach an agreement on the minimum tax rate.

However, Council deliberations repeatedly delayed minimum corporate taxation and Hungary’s veto in June brought the issue back to the fore. The Commission may therefore have to opt for its plan B.

Shareholders pressure Cisco Systems and Microsoft to improve tax transparency

US tech companies Cisco Systems and Microsoft are facing pressure from investors to adopt the Global Reporting Initiative and make their country-by-country reports publicly available.

Cisco and Microsoft may have to hold votes on whether to adopt the GRI standard after some of their shareholders called for greater tax transparency on Tuesday, June 28.

“Shareholders request that the board of directors issue a fiscal transparency report to shareholders at a reasonable expense and excluding confidential information,” the resolution to Microsoft reads.

Investors managing more than $350 billion in assets are demanding that Microsoft publish more transparent tax information. Nordea Bank, AkademikerPension and Greater Manchester Pension Fund supported the shareholder resolution.

Cisco is providing a global tax strategy document to its shareholders, but the investor group supporting the resolution says that document does not provide enough information from a risk perspective. This group includes the Etica Fund and the Missionary Oblates.

The GRI Standard is a voluntary reporting framework that discloses a company’s tax revenues to shareholders in all countries where that company operates. This would effectively make the CbCR public on a voluntary basis.

Companies that have implemented the GRI standard include Allianz, BP, Ørsted, Philips and Newmont. The list is growing, but some of the biggest companies in the world have yet to sign up.

Earlier this year, Amazon faced the same request from a group of shareholders managing $3.6 trillion in assets. Nevertheless, the shareholders’ resolution did not get enough support at the company’s annual general meeting on May 25.

Although the resolution was defeated, 21% of independent shareholders voted for the public CbCR proposal. It was the first time that such a resolution had such success with investors. As a result, this precedent has emboldened others who want greater transparency.

While it’s unclear whether Cisco and Microsoft will reject the proposals, it’s likely that more companies will face such demands in the near future.

Brazilian tax authority unveils game-changing TP plan

As RTI reported this week, the Brazilian tax administration unveiled a proposal for a transfer pricing regime on June 29, aimed at aligning with OECD standards to attract more foreign investment, increase tax certainty and prevent double taxation.

“TP’s Brazilian model is not based on the arm’s length principle (ALP), it is based on fixed margins,” said Victor Kampel, tax partner at law firm Campos Mello Advogados (in cooperation with DLA Piper), based in Sao Paulo.

The new regime will allow the use of a comparability analysis to assess an arm’s length price in transactions. This is a major change for the country’s TP system, which previously relied on fixed margin rates.

Companies operating in Brazil and tax authorities will experience a significant mindset shift as comparability becomes a cornerstone of the country’s transfer pricing regime.

Other changes are also offered in the new system, including functional analysis, TP methodologies, and documentation requirements.

Aligning tax administration with global standards is an essential step in attracting foreign investment, as well as future tax treaties with the United States.

Cristiane Drumond, international tax consultant at Drumond Vitae in São Paulo, warned that potential obstacles could appear during the initial implementation period.

“Alignment with the OECD standard, which is more sophisticated and encompasses a much wider diversity of cross-border transactions, is expected – at least during the initial stages – to increase the complexity and costs of tax compliance for taxpayers and the control of the tax authorities. ,” she says.

Extensive training will be required for tax professionals to avoid potential disputes.

Despite some expected difficulties, the proposals presented by the tax administration should benefit Brazil in the long term, which could be a good time for the country’s weak economic prospects.

Read the full article here

E-Invoicing Compliance Demands Business Attention: Tax Experts

Also in RTI news this week, tax professionals urged businesses to take urgent action to meet e-invoicing compliance goals and avoid costly errors and fines.

Tax directors have raised concerns about companies’ lack of progress in meeting e-invoicing implementation targets. This is part of a global campaign by tax authorities to digitize VAT returns and close the VAT gap.

Richard Asquith, CEO of VAT Calc, an international VAT/GST reporting and calculation company in the UK, said businesses are in dire straits when it comes to e-invoicing compliance.

He said he was concerned that businesses would give themselves enough time to prepare for EU e-invoicing legislation due in 2024.

“It’s in two years, but the cycle [of compliance] for these, because it is such a [big] investment, is 18 months,” Asquith said.

Multinational companies are also concerned that EU member states could undermine the bloc’s efforts to harmonize e-invoicing standards by introducing their own country-specific requirements.

This lack of harmonization makes it difficult for companies to find synergies and invest in scalable technology solutions.

As the European Commission consults on the best way forward on the matter, companies are urged not to sit idly by. They are encouraged to talk to their peers and potential suppliers about the most appropriate solutions for their business to avoid costly mistakes and fines for non-compliance.

Read the full article here

Other RTI this week’s headlines include:

McDonald’s court settlement argues for TP exams

Experts say UK online sales tax would stifle businesses

HMRC reports £32billion tax gap for 2020-21 financial year

EY’s ‘Project Everest’ could boost business, but not the brand

Businesses call on G7 leaders to introduce meaningful carbon taxes

Following Microsoft’s shareholder resolution, RTI will look at the rise of tax investor activism and the benefits companies can derive from adopting the GRI Standard.

In other news, RTI will focus on how companies approach the challenge of in-house versus outsourced tax management. We’ll talk to tax managers about the strategies they use to achieve efficiencies and improve business performance.

RTI will also analyze China’s TP updates as a result of collaboration between Shenzhen customs and tax authorities.

The team will cover plans by the German Ministry of Finance to remove withholding tax (WHT) on intellectual property registered in the country. Indeed, the characteristics of the WHT overlap with the tax regimes of digital services.

Readers can expect these stories and more next week. Don’t miss the main developments. Sign up for a free trial for RTI.


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