Richard Cornelisse

The European Parliament – tax avoidance and tax evasion as challenges for governance

In Indirect Tax Strategic Plan on 01/08/2015 at 10:04 pm

The European Parliament adopted by 50 votes to 57, with 23 abstentions, a resolution on tax avoidance and tax evasion as challenges for governance, social protection and development in developing countries.

Parliament recalled that tax evasion and avoidance have been identified as major obstacles to the mobilisation of domestic revenue for development by all major international texts and conferences on financing for development. It called on the Commission promptly to put forward an ambitious action plan, in the form of a communication, to support developing countries fighting tax evasion and tax avoidance.

Members insisted that effective mobilisation of domestic resources and a strengthening of tax systems will be an indispensable factor in achieving the post-2015 framework that will replace the Millennium Development Goals (MDGs). It expressed as well concerns about the level of corruption and non-transparent public administration that hinder tax revenues from being invested in state-building, public services or public infrastructure.

According to Parliament, tax resources remain low as a proportion of GDP in most developing countries, making them particularly vulnerable to the tax evasion and avoidance activities of individual taxpayers and companies. This represents a considerable financial loss for developing countries which needs to be addressed.

Action plan to combat tax avoidance and tax evasion in developing countries: the Commission is urged to take concrete and effective measures to support developing countries and regional tax administration frameworks, such as the African Tax Administration Forum and the Inter-American Centre of Tax Administrations, in the fight against tax evasion and tax avoidance, in developing fair, well-balanced, efficient and transparent tax policies.

Parliament asked the Commission to give good governance in tax matters, and fair, well-balanced, efficient and transparent tax collection, a high place on the agenda in its policy dialogue (political, development and trade), and in all development cooperation agreements, with partner countries. It also called for information on beneficial ownership of companies, trusts and other institutions to be made publicly available in open-data formats in order to prevent anonymous shell companies and comparable legal entities from being used to launder money, finance illegal or terrorist activities, conceal the identity of corrupt and criminal individuals, and hide the theft of public funds and profits from illegal traffic and illegal tax evasion.

It believes, furthermore, that all countries should at minimum adopt and fully implement the Financial Action Task Force’s (FAFT) anti-money laundering recommendations.

Publication of tax information: Parliament invited the European Union and its Member States to enforce the principle that listed or unlisted multinational companies of all countries and sectors, and especially those companies extracting natural resources, must adopt country-by-country reporting (CBCR) as a standard, requiring them to publish, as part of their annual reporting and on a country-by-country basis for each territory in which they operate, the names of all subsidiaries and their respective financial performance, relevant tax information, assets and number of employees, and to ensure that this information is made publicly available, while minimising administrative burdens by excluding micro-enterprises. The Commission is called upon to put forward a legislative proposal to amend the Accounting Directive accordingly.

Parliament recalled that public transparency is a vital step towards fixing the current tax system and building public trust. It underlined that tax exemptions and advantages granted to foreign investors through bilateral tax treaties provide MNCs with an unfair competitive advantage relative to domestic firms, especially SMEs. It also called for the fiscal conditions and regulations under which extractive industries operate to be revised.

Parliament called for the establishment, by the end of 2015, of an internationally agreed definition of tax havens, of penalties for operators making use of them and of a blacklist of countries, including those in the EU, that do not combat tax evasion or that accept it. It called on the EU to support the economic reconversion of those developing countries that serve as tax havens.

It also urged:

  • Member States with dependencies and territories that are not part of the Union to work with the administrations of these areas towards the adoption of the principles of tax transparency and to ensure that none serve as tax havens;
  • that, when negotiating tax and investment treaties with developing countries, income or profits resulting from cross-border activities should be taxed in the source country where value is extracted or created;
  • that impact assessments of European tax policies on developing countries be conducted (Parliament welcomed the Commission’s revised Action Plan on tax evasion and tax avoidance, to be presented in 2015);
  • the Member States to agree swiftly on a Common Consolidated Corporate Tax Base;
  • for sanctions to be considered both for non-cooperative jurisdictions and for financial institutions that operate within tax havens;
  • the Commission and the Council, and on partner governments, to ensure that tax incentives do not constitute additional options for tax avoidance;
  • the EIB and the EBRD, and on Member States’ development finance institutions, to monitor and ensure that companies or other legal entities that receive support do not participate in tax evasion and avoidance.

2015/2058(INI) – 08/07/2015 Text adopted by Parliament, single reading.

Implementing the ‘destination principle’ to intra-EU B2B supplies of goods

In Indirect Tax Strategic Plan on 29/07/2015 at 12:12 am

Feasibility and economic evaluation study Final Report – 30 June 2015

The European Commission published a study prepared by EY that is titled “Implementing the destination principle to intra-EU B2B supplies of goods”.

The feasibility study examines issues of the current VAT model in force and the level of EU VAT fraud. It as well also takes into consideration the compliance costs by taxable persons, especially those who conduct cross-border transactions versus domestic.

In this report, administrative costs for a Member State Tax Authority will include costs relating to the following activities: processing VAT registrations, undertaking VAT audits, reviewing VAT returns, reviewing EC Sales Lists (recapitulative statements), helpline and written query handling, and the implementation of new legislation.

The European Commission has identified two fundamental issues with the current model of taxation: namely the additional compliance costs borne by businesses that conduct cross-border trade when compared to those businesses that only trade domestically and the occurrence of VAT fraud.

The European Commission has commissioned EY to conduct a study of five policy options designed to enable the implementation of a destination based VAT system across the EU that to some extent addresses these issues.

Option 1: ‘Limited improvement of current rules’

This involves improving the current rules without modifying them fundamentally. This option seeks to reduce the compliance obligations and costs for businesses engaged in particular cross-border transaction types, namely call-off and consignment stock transactions and chain transactions, as well as extending the use of a range of simplifications already contained within the legislation.

It seeks to address VAT fraud by clarifying the documentary evidence required to support the exemption of an intra-community supply. In addition, it also considers implementing a requirement for the customer to sign a document declaring receipt of the goods in the Member State of delivery.

Option 2: ‘Taxation following the flow of the goods’

This involves adapting current rules whilst still following the flow of the goods with the supplier charging the VAT of the Member State of destination.

This option aims to reduce compliance obligations and costs for businesses engaged in cross-border trade by utilising a single One-Stop Shop (OSS) return through which the supplier can not only account for VAT due on sale, but also offset against this VAT incurred on purchases in other Member States.

It also seeks to address levels of VAT fraud by making VAT accountable on the dispatch of the goods, rather than the self-accounting that currently occurs on the
receipt.

Option 3: ‘Reverse charge following the flow of goods’

This involves adapting current rules whilst still following the flow of goods with the customer applying the reverse charge mechanism in the Member State of destination.

This option aims to reduce compliance obligations and costs for businesses engaged in cross-border trade by harmonising the terminology associated with transactions and the method through which VAT is accounted for. No additional measures against VAT fraud are considered under this option.

Option 4: ‘Alignment with the place of supply of services’

This option aims to reduce compliance obligations and costs for businesses engaged in cross-border trade by harmonising the place of supply for services and goods.The customer will apply the reverse charge in its Member State of establishment.

Various anti-fraud measures may be implemented under this option. For example, there may need to be specific mention on the invoices and/or on the recapitulative statement about the location of the goods.

Furthermore, the treatment of the sale as B2B may become exclusively dependent on the provision of a valid VAT number by the customer to the supplier.

Option 5: ‘Taxation following the contractual flow’

This involves alignment with the contractual flow, with the supplier charging VAT of the Member State where the customer is established.

This option aims to reduce compliance obligations and costs for businesses engaged in cross-border trade by utilising a single One-Stop Shop (OSS) return through which the supplier can not only account for VAT due on sale, but also offset against this VAT incurred on purchases in other Member States.

It also seeks to address levels of VAT fraud by making VAT accountable on the dispatch of the goods, rather than the selfaccounting that currently occurs on the receipt.

As part of the study, EY has gathered information from businesses, tax experts, Member States’ Tax Authorities and additional sources in order to make a comparison against the current “As Is” taxation model and also determine the impact of the implementation of each of the five proposed policy options.

This information aims to assess the impact of the five policy options from both a qualitative and quantitative perspective.

To this end, information has been obtained on business compliance costs, tax administration costs, cash flow costs, VAT fraud implications, legislative implications and aspects of practical implementation for each of the five proposed policies.

In addition to the collection and analysis of this information, EY has provided a conclusion as to whether the policy options have a potential to address the two fundamental issues and what (if any) impact there will be on the European economy as a whole.

Schermafbeelding 2015-07-29 om 01.10.36

Press release – Commission modernises EU customs procedures

In Audit Defense, Indirect Tax Strategic Plan on 28/07/2015 at 2:19 pm

The European Commission has adopted today a legal act to create a simpler, more modern and integrated EU customs system to support cross-border trade and provide for more EU-wide cooperation in customs matters. It builds on the Union Customs Code adopted in 2013, which sets out detailed rules for twenty-first century customs processes.

Customs services play a central role in policing the EU’s external borders and in facilitating trade. The customs union is the operational arm of much of the EU’s commercial policy measures. In addition, a growing range of government agencies call on customs to enforce their policies at the border. EU customs handle 16% of world trade, or over two billion tonnes of goods a year with a value of EUR 3,400 billion.

Pierre Moscovici, EU Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “A modern and cost-effective customs system facilitates international trade and is conducive to growth. It also plays a vital role in defending the safety and security of European citizens and in protecting Member States’ interests.”

The Commission has been working for several years on a major overhaul of customs rules in the EU. The basic regulations were changed in 2013. Detailed acts must subsequently be adopted so that the new rules can be applied as of 1 May 2016.

Today’s decision takes the form of a delegated act. This kind of legal act, introduced by the Treaty of Lisbon in 2010, gives the Commission power to adopt the technical, non-essential elements of an existing legislation, in this case of the Union Customs Code.

The act adopted today covers a wide area of customs activity, including:

  • Simplifications of the customs procedure inward processing which allows the processing of non-Union goods without payment of import duty and other charges to support creation of added value in the EU;
  • Clearer rules to ensure equal treatment of economic operators in the EU;
  • Wide-ranging provisions which will allow customs decisions and authorisations to be valid across the EU in the future;
  • Establishing common data requirements as the basis for new IT systems linking Member States’ customs administrations to ensure a seamless exchange of information;
  • Improvements in risk management to reinforce the fight against trade in illicit and prohibited goods, terrorism and other criminal activities.

The delegated act will now be considered by the European Parliament and the Council. In accordance with Article 290 TFEU, both can raise their objections within two months. This period of scrutiny can be extended by a further two months.

One minute in the life of the EU Customs Union

via European Commission – PRESS RELEASES – Press release – Commission modernises EU customs procedures.

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