Two new reports of the OECD are available from October 2020; the first one refers to tax challenges arising from the digitalisation of the economy, the second one to taxation of virtual currencies. The Danish government introduced tax legislative changes for parliamentary year 2020/21. The CJEU ruled that Romania’s TP adjustment does not infringe TFEU. The latest changes on the EU list of non-cooperative jurisdictions were published on 6 October 2020. The loss carry-forward regime will be limited in the Netherlands. The distribution tax and tax-free investment reserve regime was introduced by the Polish government. In addition, also other topics are summarized in the regular overview from International Taxation.
OECD’s publications of October 2020
On 12 October 2020, the OECD announced the publication of a statement on the international tax negotiations regarding a multilateral, consensus-based solution to the tax challenges arising from the digitalisation of the economy, indicating that the international community is committed to working toward an agreement by mid-2021.
On 12 October 2020, the OECD announced the release of Taxing Virtual Currencies: An Overview of Tax Treatments and Emerging Tax Policy Issues, a report prepared for presentation to the October 2020 meeting of the G20 Finance Ministers and Central Bank Governors. The report aims to help policymakers wishing to improve their tax policy frameworks in relation to virtual currencies, and includes key insights and relevant considerations. The report was prepared with the participation of more than 50 jurisdictions and is “the first comprehensive analysis of the approaches and policy gaps across the main tax types (income, consumption and property taxes) for such a large group of countries.” It also addresses the tax implications of emerging issues relating to stablecoins, “central bank digital currencies,” the consensus mechanisms used to maintain blockchain networks, and decentralised finance.
Denmark’s tax proposals for 2020/21
The Denmark government has presented the legislative programme for the coming parliamentary year 2020/21. The proposed legislative changes also include a temporary increase in research and development deductions to 130 % for 2020 and 2021. The amendment of the definition of a “permanent establishment” aligned with the PE definition in the OECD Model (2017) and the adjustment of CFC rules in order to implement article 7 of ATAD. In line with the case law (ECJ and Danish Supreme Court), the provisions allowing Danish companies to deduct final losses from foreign subsidiaries and provisions giving the right to the tax authorities to make income adjustments if transfer pricing documentation has not been submitted on time have been clarified.
CJEU rules Romanian TP law
On 8 October 2020, the Court of Justice of the European Union (CJEU) issued its decision in case C-558/19 that Romania’s domestic tax rules allowing the Romanian tax authorities to adjust the understated profits of a Romanian branch of a non-resident company in respect of transactions between the branch and the company’s head office do not infringe the principle of freedom of establishment of the Treaty on the Functioning of the European Union (TFEU). The CJEU ruled that Romania’s domestic tax rules are justifiable due to need to maintain the system of balanced allocation of taxing powers between EU member states, since the Romanian transfer pricing rules are intended to prevent the taxable profits of a Romanian branch from being understated on account of transactions between a branch and its head office established in another member state that are not in line with market conditions.
October 2020 amendment of the EU list of non-cooperative jurisdictions
On 6 October 2020, the European Council published changes to the EU list of non-cooperative jurisdictions for tax purposes. Anguilla and Barbados are added to the list, whilst the Cayman Islands and Oman are removed from the list, having passed the necessary reforms to improve their tax policy framework. Twelve jurisdictions now remain on the “black list”: American Samoa, Anguilla, Barbados, Fiji, Guam, Palau, Panama, Samoa, Seychelles, Trinidad and Tobago, the US Virgin Islands, and Vanuatu. The Council also decided to remove Bosnia and Herzegovina and Mongolia from the “grey list” after those countries deposited the instruments of ratification of the OECD Convention on Mutual Administrative Assistance in Tax Matters.
Netherlands’ amendments to 2021 tax plan
On 5 October 2020, the government submitted to parliament proposed amendments to the 2021 tax plan that would limit the amount of losses that may be carried forward and set off in a particular year and introduce an employment-related investment incentive.
Polish government submits distribution tax bill to parliament
On 30 September 2020, the government submitted to the parliament a bill stipulating the introduction of distribution tax and a tax-free investment reserve for corporate income taxpayers. Some aspects of the proposals have been amended following a public consultation. The bill also would impose corporate income tax on limited partnerships and certain general partnerships. Once the bill is enacted and signed by the president, the proposed measures will come into force as of 1 January 2021.
CJEU AG opines that EU state aid rules do not preclude taxation of turnover at a progressive rate
In two opinions issued on 15 October 2020, Advocate General (AG) Kokott to the Court of Justice of the European Union (CJEU) found that neither the Polish retail turnover tax nor the Hungarian advertisement tax violate EU state aid rules. She suggested that the CJEU dismiss the European Commission’s appeals and uphold the General Court’s judgments in both cases. The AG refers to the recent case-law of the Court of Justice (C-75/18 and C-323/18) in the context of the fundamental freedoms, according to which progressive tax may be based on turnover since, first, the amount of turnover constitutes a criterion of differentiation that is neutral and, second, turnover constitutes a relevant indicator of a taxable person’s ability to pay.
The violation of EU law by French withholding tax on sale of a substantial participation
On 14 October 2020, the Supreme Administrative Court ruled that the withholding tax applicable to non-residents on the sale of a substantial participation in a French company is contrary to EU law in certain cases. In such cases, the full amount of the tax must be refunded and not just the fraction exceeding the amount that would have been paid by a resident taxpayer. Based on this decision, EU companies that have paid French capital gains taxes relating to substantial participation in a French company held for at least two years are entitled to claim a refund of the entire amount of taxes withheld.
Clarification of patent box regime by the Italian tax authorities
On 29 October 2020 the Italian tax authorities clarified aspects of the recently amended patent box regime and the option to directly calculate the relevant benefit without being required to file a tax ruling application, also taking into account the comments received during the public consultation launched in February 2020.