Richard Cornelisse

Posts Tagged ‘Value-added tax’

OECD to set out global guidelines on VAT | Economia

In EU development, Indirect Tax Automation, Indirect Tax Strategic Plan on 12/04/2014 at 8:39 am

The Organisation for Economic Co-Operation and Development OECD is to set out its new global standard for international VAT at a global forum in Japan next week

The guidelines will be presented to representatives from over 80 tax authorities at the second meeting of the OECD Global Forum on VAT in Tokyo on the 17 – 18 April, before being officially released on the 18th. “Value Added Tax is a key source of revenue for more than 150 countries worldwide, but the uncoordinated application of national VATs to international trade remains problematic,” the OECD said in a statement.

It said, “Governments are losing out on tax revenues due to under-taxation, while the risk of double taxation poses increasing obstacles to international trade, particularly in the booming international services trade.”

The guidelines are designed to advise of standards on key aspects of international VAT design. They will be based around the principles of neutrality from VAT for businesses both domestically and in an international context, and on ensuring that VAT on international transactions will only be imposed once, on destination.

The new guidelines are the latest in a series of reforms and announcements set out by the organisation to address the issue of international tax and tax avoidance.

In July last year it introduced sweeping tax reforms to stop multinational organisations abusing outdated tax rules.

In February, a global consultation on transfer pricing was launched, with the power to fundamentally change how taxpayers report their international activities.

Ellie Clayton

via OECD to set out global guidelines on VAT | Economia.

Higher up on the agenda of the CFO

In Audit Defense, Business Strategy, Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls, Technology, Uncategorized on 04/04/2014 at 6:10 pm

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Dutch version

While direct tax rates are decreasing everywhere across the world, the rates for indirect tax keep rising. For an average multinational company, a small mistake can make the different between profit and loss.

Despite these significant risks, the control mechanisms for indirect tax remain insufficient.

This conclusion followed from various surveys conducted by the Big4. A multinational company has amounts of over five billion euros of indirect tax flowing through the books and an error of one percent affects the earning per share.

The Global benchmark study on VAT/GST 2013 of KPMG, inter alia, indicates that the majority of multinationals still haven’t developed an effective VAT-management. Thus, control on indirect tax is rather neglected.

Comparable Big4-surveys conclude that due to technological innovations, the Tax Authorities become increasingly better at performing their audit task. The chances for companies of receiving additional tax assessments and fines from the Tax Authorities in the near future increase by the day.

Noteworthy is that companies hardly respond.

CFOs give low priority to indirect tax in deciding over budgets for internal control. Indirect tax traditionally receives less attention and times of crisis most likely won’t change this pattern.

The most important reason for this lack of attention is that VAT is managed completely differently than direct tax. With regard to the control of tax risks, the CFO, incited by the Head of Tax, usually solely focuses on direct tax.

It is often unclear how this can be changed and how indirect tax risks can be moved higher up on the agenda of the CFO. The Head of Tax to whom is reported obtains its information on direct tax mainly from corporate finance and to a lesser extent from within the organization, while that is precisely where indirect tax is administered.

Therefore, it is to him not visible on a daily basis how vulnerable the control on indirect tax actually is. Improvement in collaboration can result in VAT risks being brought more into the spotlight of the CFO.

Perhaps the most peculiar – given the alarm bells rang by the tax consultants in the benchmark studies – is that the accountants rarely point out the significant risks and insufficiently inspect the indirect tax position.

The reason is that tax consultants of the Big4 predominantly work with their own clients, with their own revenue targets and with a higher rate structure.

Moreover, the accountants apply competitive rates that allow for little room for expensive internal working hours spent on control of indirect tax. This means that the CFO cannot readily assume that all knowledge is shared within the walls of the big accountancy and tax consultancy firms.

The CFO thus receives insufficient signals promoting higher priority for indirect tax both from inside and outside the organization.

How can this impasse be broken?

The internal and external stakeholders are all chains in the process and if one isn’t cooperating, change will be difficult to be created.

A first step would be accountants reading the surveys of their own firms, acknowledging the risks and discussing these with the CFO. Optimally, control of indirect tax should be included as a standard part of internal audit, ór the position should be taken not to include it.

If control is necessary, all products and methods of the respective tax consultancy should be deployed in order to assure quality. This reaches the CFO and can subsequently through ‘top down’ influences result in new instructions for internal audit and/or Head of Tax.

Following this path, the indirect tax function can gain the mandate, resources and budget required for proper execution of its functions. It is then up to the indirect tax function to improve the collaboration with the Head of Tax.

By Richard Cornelisse

Toolkit – Roadmap To Indirect Tax Function Effectiveness

In Business Strategy, EU development, Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls on 23/03/2014 at 1:08 am

The first phase should include a zero measurement in which key risks are identified and the follow up includes the implementation of a TCF to mitigate these risks.

Verify indirect tax performance via:

A toolkit should enable to assess and evaluate in an effective and efficient manner the effectiveness of a company’s current control framework, document the ‘as is’ situation, provide a gap analysis and set of solutions to close gaps. A normative VAT Control Framework is used as a yardstick for comparison purposes and will indicate how the steps should be taken in an ideal world (gap analysis).

Trust, but verify is a form of advice given which recommends that while a source of information might be considered reliable, one should perform additional research to verify that such information is accurate, or trustworthy. Ronald Reagan

The deliverables should be supportive and in line with company’s overall Sox objectives and in full scope a project has to deliver:

  • Process Objective Matrix
  • Final VAT Risk Universe
  • Process flows
  • Indirect tax risk & control matrix
  • Preliminary improvement plan
  • Final Tax Control Framework documentation
  • Final Improvement plan and roll out timelines
  • Documentation of company’s Indirect Tax Strategic Plan

More insight about the ‘specific areas of investigation and samples questions’ can be found in attached PowerPoint presentation. This deck provide further insight of our work method and deliverables.

What should be in a toolkit:

  • Indirect Tax Maturity Scan
  • VAT Function Framework
  • Process Objective Matrix
  • Normative VAT Control Framework (Golden Standard)
  • Questionnaires (preferable online) has to be tailored for selective audience (scalable, worldwide operations or for specific function only):
  1. To assess Strategy Risks
  2. To assess Financial Risks
  3. To assess Operational Risks
  4. To assess Compliance Risks

See slides for further insight

Forum

Standard EU VAT Return

In EU development on 09/03/2014 at 8:40 pm

Stephen Smith - The Business Briefing

On 23rd October, 2013 the European Commission proposed that all of the 28 countries in the European Union introduce a standard EU VAT Return from 1st January, 2017.

The overwhelming case for a standard EU VAT Return is that it should simplify the administration of VAT for businesses operating in more than one EU country.  The existing situation where each country has designed its own VAT Return in its local language makes it extremely difficult for a business to perform the necessary VAT administration in each of the countries in which it operates.

The significance of this administrative burden is that it clearly acts as a barrier to trade.  It does not surprise me that only 13% of all VAT taxpayers in the EU submit VAT returns in more than one member state. If we have a truly standard VAT return throughout the EU then a UK company could refer to a version in English and use it as the model when considering completing the same VAT return in the language of another EU country in which it is registered or should be registered.

I asked Professor Rita de la Feria, who is the Chair in Tax Law at Durham Law School and Programme Director at the Oxford University Centre for Business Taxation, about the likelihood of the Commission’s proposals being accepted by the member states and she commented:

“I believe that it is most likely that the Commission’s proposals will succeed.  If they do not gather unanimous support, they might be approved under the “enhanced cooperation” procedure.  I don’t believe opposition will come from member states with high compliance levels, like Germany and the UK, but from countries that at present have been adopting a stronger stance on compliance.  In any event, even if approved only under enhanced cooperation and not applied to all member states, in my opinion this is a very significant and positive step towards facilitating and enhancing intra-EU trade, particularly for SMEs.”

I hope that this simplification will actively encourage businesses in all EU countries to register for VAT in many EU countries leading to a much needed expansion of cross-border trade within the single market.  As a provider of VAT training we have seminars that we could present throughout the EU.  The need to complete non-standard VAT returns in each country’s local language ironically presents us with a problem that restricts us from delivering seminars in other EU countries.

I eagerly await the introduction of a standard EU VAT return.

Stephen Smith

Managing Director

UK Training (Worldwide) Limited

The Business Briefing – UK Training – Standard EU VAT Return.

EU Commission – VAT collection and control procedures report

In Audit Defense, EU development, Indirect Tax Strategic Plan on 28/02/2014 at 3:32 pm

Introduction

  1. In 2011 the total amount of VAT revenue collected in the EU was around € 901 billion, which represented 7.1 per cent of GDP-EU-27 and 18.4 per cent of total tax revenue, including social contributions. The EU VAT system embraced around 26.5 million VAT taxable persons. The VAT-gap, which is the difference between the amount of VAT actually collected and the theoretically collectable amount of VAT, is estimated at 18.4 per cent of GDP-EU.
  2. In 2011, the VAT own resource represented 11 per cent of the EU revenue, being around € 14 billion. For the calculation of the VAT own resource, as a rule, a uniform rate of 0.30% is levied on the harmonised VAT base of each Member State. However, this VAT base is capped at 50% of GNI for each Member State. In addition, for the period 2007- 2013, 4 Member States have reduced VAT call rates: 0.225% for Austria, 0.15% for Germany and 0.10% for the Netherlands and Sweden. Some other corrections exist, in particular the UK rebate. The efficiency of VAT collection and control in the Member States may impact the amount of VAT own resources due by the Member State concerned as well as the relative share in total own resources of other Member States.
  3. Article 12 of Council Regulation 1553/894 on the definitive uniform arrangements for the collection of own resources accruing from VAT requires the Commission to submit a report to Parliament and Council every three years on the procedures applied in the Member States for registering taxable persons and determining and collecting VAT, as well as on the modalities and results of their VAT control systems. This report should enable Member States to assess risks and identify opportunities to improve VAT control and collection systems. Six reports have been made since 1989.
  4. The current report, building on the recommendations of previous reports and taking into account progress already made at EU and national level, aims at measuring improvements in VAT administration in Member States within the framework of Article 12 of the above mentioned Regulation. It takes into account recent developments in tax administration with increased emphasis on preventive measures and promoting voluntary compliance. It aims to identify good practices in the various steps of an effective tax collection, measured against common benchmarks.
  5. In order to prepare this report, a questionnaire on selected issues has been submitted to all Member States to pool the information needed for the report. The data submitted were discussed on several occasions with the Member States. Generally, the data included in the report reflect the situation up to 31 December 2011, unless otherwise indicated. Later developments are covered only if information was made available by a Member State.

Content

II. ANALYSIS
CHAPTER 1: Selected Issues on Organisation of Tax Administrations
CHAPTER 2: VAT Identification, Registration and Deregistration
Threshold and Stratification of VAT Registrations
VAT Registration Procedures
CHAPTER 3: Customs Procedure 42
CHAPTER 4: Submitting VAT Returns (Filing) and Payment
CHAPTER 5: VAT Collection and Recovery
CHAPTER 6: VAT Audit and Investigation
CHAPTER 7: Tax Dispute Resolution System
CHAPTER 8: VAT Compliance
RECOMMENDATIONS

Cutting Red Tape and Boosting Tax Revenues

In EU development, Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls on 26/02/2014 at 11:01 pm

Commissioner Šemeta welcomes European Parliament’s support for the Standard VAT Return

Algirdas Šemeta, EU Commissioner for Taxation, welcomed the European Parliament’s strong support today for a Standard VAT Return (see IP/13/988). The Standard VAT Return is one of the Commission’s key proposals to cut red-tape for business and improve tax compliance in the EU.

Commissioner Šemeta said:

“This proposal is about making life simpler and cheaper for businesses. With the Standard VAT Return, it will be as easy to declare VAT abroad as it is at home.

As such, it will remove a major tax obstacle in our Single Market and cut compliance costs by up to €15bn a year.

Moreover, simpler rules are easier to follow and enforce. So the Standard VAT Return should also boost tax compliance throughout the EU, bringing new revenues to the Member States.

I am very pleased – but not surprised – that the European Parliament has shown such backing for this growth-friendly, business-friendly proposal.

I would like to thank the rapporteur, Ivo Strejček, for his great work on this file.”

via Press release – Cutting Red Tape and Boosting Tax Revenues: Commissioner Šemeta welcomes European Parliament’s support for the Standard VAT Return.

Tax Fraud: Commission looks at how VAT collection and administrative cooperation can be improved

In Audit Defense, EU development, Processes and Controls on 13/02/2014 at 6:05 pm

Tax Fraud: Commission looks at how VAT collection and administrative cooperation can be improved

Today the Commission adopted two reports which shed more light on problems linked to fighting Value Added Tax (VAT) fraud within the EU, and which identify possible remedies.

The first report looks at VAT collection and control procedures across the Member States, within the context of EU own resources. It concludes that Member States need to modernise their VAT administrations in order to reduce the VAT Gap, which was around €193 billion in 2011. (see IP/13/844) Recommendations are addressed to individual Member States on where they could make improvements in their procedures.

The second report looks at how effectively administrative cooperation and other available tools are being used in order to combat VAT Fraud in the EU. It finds that more effort is needed to enhance cross border cooperation, and recommends solutions such as joint audits, administrative cooperation with third countries, more resources for enquiries and controls and automatic exchange of information amongst all Member States on VAT. Both reports are part of the broad Commission Action Plan to fight against tax fraud and evasion (see IP/12/1325), and can be found online on the European Commission’s Taxation and Customs Union website .

  1. Report I from the Commission to the Council and the European Parliament on the application of Council Regulation (EU) no 904/2010 concerning administrative cooperation and combating fraud in the field of value added tax
  2. Report II from the Commission to the Council and the European Parliament. Seventh report under Article 12 of Regulation (EEC, Euratom) n° 1553/89 on VAT collection and control procedures.

via EUROPA – PRESS RELEASES Daily News.

January 2014 International Indirect Tax Updates

In EU development, General, Indirect Tax Automation, Tax News on 08/01/2014 at 1:34 am

January 2014 International Indirect Tax Updates

By Patrycja Wolniczek Mucha On January 2, 2014

Along with released budget measures for year 2014 many countries have passed legislation or announced a number of changes that have an impact on the VAT rates. These changes are a response to economic and budgetary developments in the particular country. We have summarized the upcoming VAT rate changes with the following countries.

The changes will become effective 1 January 2014 unless otherwise noted.

Croatia

In accordance with the Law Amending the Law on Value Added Tax of 4 December 2013, the reduced VAT rate of 10% will increase to 13%.  The government expects that these measures along with excise and income tax changes will reduce the budget deficit by HRK 2 billion or around 0.6% of Gross Domestic Product and by HRK 4 billion or 1.2% of GDP in 2015 and a further 1.7% of GDP in 2016. On 1 July 2013 Croatia became a Member of the European Union.

Cyprus

In year 2012 the Cypriot government has announced a VAT increase in two stages. In accordance with the plan, on 14th January 2013 the standard rate went up by 1% reaching 18%. A further 1% increase will come into effect on 13th January 2014. The new standard rate will be 19% and the reduced rate will increase to 9%. Cyprus’s VAT change is an economic response to the Greek financial crisis. In order to secure beneficial loan terms with Russia, the government had to agree to the VAT changes as part of the bail out by the ‘Troika’ of the European Union, European Central Bank and International Monetary Fund.

Dominican Republic

Under the Law No. 253-12 effective 1 January 2014 the reduced VAT rate of 8% will go up to 11%. The VAT change is part of the 2012 tax reform which included the initial reduced rate increase to 8% in 2013 and the standard rate hike to 18%. According to the law schedule the reduced rate will further increase to 13% in 2015 and to 16% in 2016. The standard rate is planned, however, to go down to 16% in 2015. Subject to the reduced rate increase are most of the basic food commodities.

France

The standard VAT rate will increase to 20% on 1 January 2014. In addition, many basic commodities will become more expensive as the reduced VAT rate will go up from current 7% to 10%. In Corsica the current 8% reduced rate will also go up to 10%. The increase reflects changes included in the Amending Finance Law no. 2012-1510 of 29 December 2012.  Article 68 of the above mentioned law, initially provided for a decrease in the lower reduced VAT rate from 5.5% to 5% as of 1 January 2014. The new Budget Finance Law 2014 draft keeps, however, the 5.5% rate in place for 2014.  With the VAT increase France will be joining most other EU member states which have been shifting the tax burden from business onto consumers in a bid to attract and retain multinational businesses.

Ghana

Following the 2014 Budget, the parliament passed a new VAT Act, which increased the standard VAT rate from 12.5% to 15%. The government justifies the increase with the need of infrastructure investments in accordance with the development agenda.  Currently, Ghana is heavily reliant on deposits of gold. Expanding the revenue basis with higher VAT would help raise €300 million.

Honduras

As published in the Official Gazette of Honduras and in accordance with Decreto No. 278-2013, the standard VAT Rate went up from 12% to 15% and the increased VAT rate went up from 15% to 18% effective 1 January 2014. The increase was included in the package of fiscal measures aiming at preventing the country from a major economic crisis. The economists assess the impact of changes as intense enough to generate, according to estimates of the Ministry of Finance, about three billion Lempiras in inflation by rising prices of basic commodities. The rate change will also contribute to increase the poverty rate among Hondurans.

Source: http://www.laprensa.hn/mobile/minicio/441082-274/las-medidas-tristemente-son-necesarias-cardenal

Japan

In accordance with the new Consumption Tax Act, the consumption tax will increase from 5% to 8% with effect from April 2014. This change is the first of a two-step process which is expected to reach 10% by 2015. The reason for the hike relates to the government’s long-term plan to reduce its primary budget deficit by 2015 and stabilizing its debt burden by 2020. Before a final decision on the 2015 increase, the government will have to further examine economic factors and other conditions.

Mexico

With the economic package, the government repealed the current 11% rate of VAT, as applicable for the border region (the border between Mexico and the United States), and will impose the general VAT rate of 16% as of 1 January 2014. The change will have a negative impact on local business and employment in the border zone.

Portugal Autonomous Regions – Azores

As part of the 2014 budget and in accordance with the budget approving Decree n. º 191/XII, the standard and both reduced VAT rates will go up. As of 1 January 2014 the standard VAT rate will increase from 16% to 18%, the intermediate rate from 9% to 10% and the reduced rate from 4% to 5%.

Serbia

The reduced VAT rate of 8% will become 10%. Serbia’s Finance Minister Lazar Krstic explained the measure as a necessary step to avoid a financial meltdown. The increase will help close the budgetary gaps but will also hit the poorest parts of society hardest.

As a result of economic factors the following initially scheduled VAT rate changes will not be implemented in the upcoming months:

Belarus

According to the Belarusian Deputy Prime Minister Piotr Prokopovich last statement, the current VAT rates will remain unchanged for the year 2014. Earlier this year, the Government announced a plan to increase the standard VAT rate to 22% in 2014.

Poland

The current VAT rates will remain unchanged as a result of the last VAT Act amendment.   The VAT rates were temporarily increased on 1 January 2011 and were scheduled to take effect until 31 December 2013. Effective 1 January 2014 the VAT rates were supposed to return to their previous lower level. Based on the information provided by the Government Information Centre (CIR), the extension of the current higher rates was caused by the need to reduce imbalances in public finances, as well as by a weak demand in major export markets. Both factors are limiting the economic growth.

Ukraine

On 19 December 2013, the parliament adopted amendments to the Tax Code. The initially planned decrease of the VAT standard rate to 17% has been postponed until 2015. In 2014, the VAT standard rate will remain at 20%.  On 31 December 2013 the President Viktor Yanukovych signed the amendments into law.

via January 2014 International Indirect Tax Updates – Thomson Reuters Tax & Accounting.

SAP integrated solution for medium complex business models

In Audit Defense, Business Strategy, Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls on 22/12/2013 at 7:23 pm

Taxmarc™ Basic is a standard package of Taxmarc™ that uses native SAP functionality and contains an integrated VAT Control Framework. Taxmarc™ Basic is specifically useful for companies that run medium complex business models.

Taxmarc™ Basic is a standard package of Taxmarc™ Tax Engine that uses native SAP functionality and contains an integrated Tax control Framework. Taxmarc™ Basic is specifically useful for companies that run medium complex business models.

Taxmarc™ Basic uses assumptions via pre-defined configuration, thus without a real-time reality check performed by Taxmarc™ of such. For those businesses that have a complex business model but do not need the full Taxmarc™ Tax Engine functionality, the Taxmarc™ Basic solution offers a VAT compliant determination solution.

Taxmarc™ Basic does not only address the shortcomings in standard SAP VAT determination, but also ensures control of VAT with the integrated VAT Control Framework in a transparent and easily maintainable way.

Taxmarc™ Basic is built on the proven Taxmarc™ platform and the de-scoped features from the full Taxmarc™ Tax Engine can be added at any point later on when additional budget becomes available or new requirements and controls are needed due to changes in VAT legislation and/or business models.

Introduction

The SAP VAT determination logic was developed a long time ago (1980’s) and except for the “plants abroad” logic SAP’s VAT determination logic has not changed much. This in contrast with the VAT rules and business models as these have changed significantly. A brief overview of some of these changes:

  • the EU VAT laws have been more harmonized (EU VAT directive)
  • substantial increase of cross border transactions,
  • businesses are registered for VAT in multiple countries,
  • businesses are operating more often under complicated principal structures
  • increased number of (integrated) intercompany and supply chain transactions

As a result, there has been a huge increase in the complexity for the SAP system to meet all VAT requirements, which leads to necessary modifications to the standard SAP VAT for many multinational businesses.

Modifications of already very complicated SAP systems create a risk for maintenance and half-hearted solutions. At the same time, tax authorities across the world both sharpen their focus on non-compliant taxpayers and increase their focus on reviewing ERP systems as a source of VAT compliance risks. As a result, businesses have to ensure that the VAT determination logic in the SAP systems is correct, easy to implement and remains VAT compliant.

Taxmarc™

Taxmarc™ Tax Engine integrates tax relevant data from multiple transactional data sources to determine the correct VAT in a consistent way. Taxmarc™ Basic uses assumptions via pre-defined configuration, thus without a real time reality check performed by Taxmarc™ of such.

For those businesses that have a complex business model but do not need the full Taxmarc™ Tax Engine functionality, the Taxmarc™ Basic solution offers a VAT compliant determination solution.

Taxmarc™ Basic does not only address the shortcomings in standard SAP VAT determination, but also ensures control of VAT with the integrated VAT control framework in a transparent and easily maintainable way. Compared to any other solution available in the market the features of Taxmarc™ Basic contribute considerable more in realizing indirect tax objectives.

An additional advantage is that when the proven platform of Taxmarc™ is implemented, the de-scoped features can be added at any point later on when additional budget becomes available or new requirements and controls are needed due to changes in VAT legislation and/or business models.

Taxmarc™ Basic front

Taxmarc™ Basic back

Download Taxmarc™ Basic flyer

Other Taxmarc™ Products

  1. Taxmarc™ Add-on
  2. Taxmarc™ Product Overview Flyer
  3. Taxmarc™ Tax Code Solution

Fighting Tax Evasion and Avoidance: A year of progress

In EU development on 17/12/2013 at 9:47 am

Why has the Commission made fighting tax fraud and evasion a priority?

Every year, billions of euros of public money are lost in the EU due to tax evasion and tax avoidance. As a result, Member States suffer a serious loss of revenue, as well as a dent to the efficiency their tax systems. Businesses find themselves at a competitive disadvantage compared to their counterparts that engage in aggressive tax planning and tax avoidance schemes. And honest citizens carry a heavier burden, in terms of tax hikes and spending cuts, to compensate for the unpaid taxes of evaders. Fighting tax evasion is therefore essential for fairer and more efficient taxation.

The cross-border nature of tax evasion and avoidance, along with Member States’ concerns to maintain competitiveness, make it very difficult for purely national measures to have the full desired effect. Tax evasion is a multi-facetted problem requiring a multi-pronged approach, at national, EU and international level.

EU Member States need to cooperate closely if they are to increase the fairness of their tax systems, secure much needed tax revenues and help to improve the proper functioning of the Single Market. In addition, the “strength in numbers” of the EU acting as a united block helps give more weight in achieving faster and more ambitious progress at international level in the area of tax good governance.

What progress has been made in fighting tax evasion and avoidance at EU level over the past year?

In December 2012, the Commission presented an Action Plan to better tackle tax evasion and corporate tax avoidance (IP/12/1325). This Action Plan kick-started what has become a highly intensive EU campaign to better fight these problems. It was endorsed at the European Council in May, where EU leaders called for effective steps to be taken to combat tax evasion and avoidance.

In the 12 months since the Action Plan was presented, there has been remarkable progress in this area at EU level, and a number of important new initiatives have been put forward by the Commission. Among the actions taken in 2013 were:

  1. Expanding the automatic exchange of information widely within the EU

In June, the Commission proposed extending the automatic exchange of information between EU tax administrations, to cover all forms of financial income and account balances (IP/13/530). This paves the way for the EU to have the most comprehensive system of automatic information exchange in the world. It will also ensure that the EU will well-placed to implement the new global standard (see below) quickly and with minimum disruption to businesses. The proposal could be agreed by Member States in the first half of 2014.

  1. Tightening EU corporate tax rules against aggressive tax planning

In November, the Commission proposed measures to close loopholes in the Parent-Subsidiary Directive and address national mismatches. This will shut off opportunities for a particular type of corporate tax avoidance (IP/13/1149). The proposal should be discussed and possibly agreed by EU Finance Ministers under the Greek Presidency.

  1. Negotiating with neighbouring countries for greater transparency

The Commission was given a mandate to negotiate stronger tax agreements with Switzerland, Andorra, Monaco, San Marino and Liechtenstein (MEMO/12/353) in May. Commissioner Šemeta immediately visited all 5 countries, to give political drive to the talks and underline that the EU was looking for swift and ambitious negotiations. Formal negotiations have begun with the 4 smaller countries and will start with Switzerland as soon as it has its own negotiating mandate (expected before the end of the year).

  1. Establishing a Platform on Tax Good Governance

The Commission established a Platform on Tax Good Governance to discuss the best ways to fight tax evasion and avoidance and monitor progress in this area at both EU and national level (IP/13/351). The Platform has already started work on how best to implement the Commission’s Recommendations on Aggressive Tax Planning and on how to deal with tax havens. Its work programme also includes several other areas of focus, including an EU Taxpayer’s Code, ways to increase transparency of multinationals and looking at the effects of EU tax policy on developing countries.

  1. Launching the debate on Digital Taxation

The Commission established a High Level Expert Group on Taxation of the Digital Economy, chaired by former Portuguese Finance Minister Vitor Gaspar. It will meet for the first time on 12 December (IP/13/983). Corporate tax avoidance is an especially pressing problem in the digital sector. The group will look at the particular challenges in digital taxation and propose solutions in the first half of 2014 to ensure that the digital sector pays its fair share of taxes, while not creating tax obstacles to this pro-growth sector.

  1. Agreeing new instruments to better fight VAT fraud

In June, Member States unanimously agreed on a set of measures to better combat VAT fraud. The Quick Reaction Mechanism and reverse charge mechanism will allow Member States to react more quickly and efficiently to large-scale VAT fraud, thereby reducing substantial losses for public finances. These new instruments will be ready for use from 2014 (IP/12/868).

  1. Proposing new standard VAT form to improve tax compliance

In October, the Commission proposed a simplified, standard VAT form for use by businesses throughout Europe. In addition to easing life for businesses, this standard form will help to improve tax compliance by simplifying the procedure for businesses to declare the VAT they owe (IP/13/988). And greater compliance means greater revenues for national budgets.

  1. Publishing a new report on VAT Gap in EU

The Commission published a study on the VAT Gap in the EU, which amounted to €193 billion in 2011. Prior to this study, the most recent estimates for the VAT Gap dated back to 2006. The new figures help to better understand the recent trends in the EU, to better shape and target policy measures to improve VAT compliance (MEMO/13/800).

  1. Preventing harmful tax competition

The Commission has continued to scrutinise and control state aid granted through tax measures to companies. It has also supported the work of the Code of Conduct Group against harmful tax competition, contributing detailed analyses of many national tax regimes for consideration by the Code Group.

  1. Introducing more corporate transparency

The new Accounting Directive introduces an obligation for large extractive and logging companies to report country-by-country the payments they make to governments, and also on a project-basis. Taxes levied are among the payments to be reported. The revised Capital Requirements Directives (CRDIV) improves transparency in the activities of banks and investment funds in different countries, particularly regarding profits, taxes and subsidies in different jurisdictions (MEMO/13/690). It is hoped that the implementation of the May European Council Conclusions will ensure that all large companies and groups make public how much they pay in tax and in which country, as banks now need to do. Finally, the Commission’s proposal to revise the anti-money laundering legislation includes a specific reference to tax crimes (IP/13/87).

The active work at EU-level was also mirrored in the active role that the EU played in pushing forward international discussions to improve tax good governance worldwide (see below).

Where is there room for greater action at this stage in the fight against tax evasion and avoidance in the EU?

First and foremost, agreement is needed on the Savings Tax Directive (MEMO/12/353) before the end of 2013, as called for by the European Council in May. This is crucial to close loopholes in the Savings Directive, and ensure that it can continue to work well. An EU-wide framework for automatic information exchange will also give banks more legal certainty and clarity about reporting obligations.

Progress on the Common Consolidated Corporate Tax Base (CCCTB) is also very important to better tackle corporate tax avoidance (IP/11/319). In addition to substantially reducing administrative burdens for businesses, the CCCTB has the potential to eliminate many opportunities for profiting by multinational companies. This is recognised in the OECD’s action plan against Base Erosion and Profit Shifting (BEPS), and agreement on the CCCTB would ensure that the EU is the standard setter in this area.

As stated in last year’s Action Plan, the Commission would encourage Member States to make better use of the Code of Conduct on Business Taxation. This can be a highly effective tool for identifying and eliminating harmful tax regimes within the EU. The Commission is currently considering ways of strengthening the Code, for example by extending its scope or amending the Code criteria.

In addition, Member States have been called upon to intensify efforts at national level to tackle tax evasion and avoidance. Country specific recommendations were given to 13 Member States to improve tax compliance at national level. And the 2013 Annual Growth Survey again called on all governments to step up their national campaigns against tax evasion, and strengthen their coordinated action to tackle aggressive tax planning and tax havens.

Meanwhile, the Commission is continuing work on the medium and long-term actions set out in the Action Plan against tax evasion last year. These include a Taxpayers’ Code, an EU Tax Identification Number and possibly common sanctions across the EU for tax offences.

What has been achieved at international level to improve the fight against evasion and avoidance, and what has been the EU’s contribution to this?

In September 2013, G20 leaders agreed on concrete measures to better tackle tax evasion and corporate tax avoidance worldwide. First, they confirmed a move to greater international tax transparency, by agreeing that automatic exchange of information should be the new global standard of cooperation between tax administrations. Second, they endorsed the OECD’s BEPS action plan to curb corporate tax avoidance worldwide. These measures confirm a major improvement in international taxation – one that will make it fairer, more effective and better equipped for the 21st century economy. With the political commitment made, the focus is now on implementing these changes.

With regard to the automatic exchange of information, the EU has drawn on its own experience and expertise in this area to actively contribute to the development of the new global standard. In particular, the Commission has tried to ensure that the global standard takes into account the existing EU automatic information exchange arrangements and is compatible with EU law (e.g. data protection), so as to avoid any unnecessary difficulties for businesses. The latest draft of the global standard appears to meet at least most EU needs, and the OECD intends to present the final version to the G20 Finance Ministers in February for agreement.

Meanwhile, the BEPS Action Plan complements the EU measures to tackle aggressive tax planning, while also addressing issues that can only be effectively dealt with at international level. The BEPS action plan sets out 15 specific actions to re-adjust international standards in taxation so that they are better shaped for the changing global economy. Over the next year, new rules and standards will be developed in areas such as permanent establishment, transfer pricing and digital taxation. The aim is to protect the fairness and integrity of tax systems, and better equip governments in their clamp down on corporate tax avoidance. The EU has already valuable experience in various areas covered by BEPS such as transfer pricing and tackling hybrid mismatches. And the work of the Commission’s expert group on digital taxation will provide input for the OECD digital taskforce. With this input and experience to offer, the EU can continue to play a central role in the work to implement BEPS, particularly if a strong, coordinated position is maintained amongst all Member States.

Annex

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