This week in taxation: the EU is concerned about the second pillar vote
EU Economics Commissioner Paolo Gentiloni gave details of the tax reform to parliament this week, including plans to enact the OECD’s two-pillar solution by “any means necessary”.
Members of the European Parliament at the Economic and Monetary Affairs Committee meeting with Gentiloni on September 26 expressed concerns about the unanimity requirements to enact the second pillar.
“We have to overcome this veto,” Gentiloni said, regarding Hungary’s reluctance to agree to the compromise text of the minimum tax directive in July.
“We have to do it with all the legal and political means at our disposal… We are not lagging behind globally because we were very quick to make the proposal,” he said.
“We are in the lead and to stay in the lead we have to overcome this veto, and I repeat this with all the political and legal means at our disposal,” he added.
The European Commission has certain tools to adopt fiscal policy by qualified majority in the Council through the Passerelle Clause under Article 47(7) of the Treaty on the Functioning of the EU (TFEU), Article 116 TFEU, and enhanced cooperation in Articles 326-334 TFEU.
RTI reported earlier this week that political support for qualified majority voting is at its peak as unanimity rules continue to prevent the European Council from adopting a second pillar directive.
Czech Finance Minister Zbyněk Stanjura told the ECON committee in July that his Council presidency will aim for an agreement on the second pillar directive by the end of October. However, MEPs present at the committee meeting are now suggesting that the Economic and Financial Affairs Council (Ecofin) is wasting political momentum in favor of taxation.
“Parliament and the Commission should be more vocal in pushing Ecofin to unlock all these problems that we need to solve in just over a year,” said Ernest Uratsun MEP from Spain.
Although there is great interest in using qualified majority to enact the second pillar, the next Ecofin Council meeting in October does not have the directive on the agenda.
Protests erupt against Colombia’s tax reform
President Petro Gustavo is facing protests over his plans to reform the tax system, including higher rates and new levies, to fund his social programs.
Thousands of people marched in Bogotá against plans by the Colombian government to raise taxes on Monday, September 26. Demonstrations also took place in Cali and Medellín, as well as in smaller towns.
The Gustavo plan will remove corporate tax exemptions to boost income, extend VAT to business income from digital sales, and increase the rate of capital gains tax from 10% to 30%.
Other plans include a wealth tax on any net worth over COP$3.3 billion ($750,000). Taxes on occasional taxable profits – covering everything from inheritance and life insurance to lottery winnings – would rise from 10% to 35%.
However, indirect tax measures could be the cause of the protests. The plan will introduce a surcharge of COP$200 per gallon of gasoline as a starting point – the tax will increase over time.
The Gustavo government wants to put in place special taxes on sugary drinks, processed foods and single-use plastics to discourage their use. These taxes would be proportional to the percentage of sugar and the weight of plastic.
It’s not the first time this has happened. Gustavo’s predecessor, President Iván Duque, faced protests that turned into civil unrest over his tax reform. Duque was trying to recoup billions in lost revenue due to tax exemptions, particularly loopholes in the VAT regime.
The big difference was that Duque’s reforms were seen as very regressive compared to Gustavo’s plan. It could be history repeating itself, but the protests against these reforms are much smaller.
Global TP Forum Europe: tax leaders demand a “simplified” first pillar
Moreover, the OECD’s first pillar has been criticized for its complexity and scope by tax professionals, including a European Commission specialist in transfer pricing ITR TP Europe World Forum on September 28.
Speakers said that the transfer pricing rules linked to the first pillar were too complex and called for their scope to be widened.
“We think it’s really important to have a simplification of the TP rules,” said Mauro Faggion, TP expert at the European Commission.
These views were shared by other panelists. They explained that ignoring the complexity of the rules risked jeopardizing the success of the OECD project, especially if the multinationals continued to show such reluctance.
Tax directors have urged policymakers to widen the net to capture a wider mix of companies.
“Neutrality is also about ensuring that the system applies as broadly as possible,” said Vikram Chand, a law professor at the University of Lausanne in Switzerland.
“From this point of view, it can be said that many multinational companies are not covered by these rules.”
But not everyone was convinced, with some worried that digital taxes were already targeting businesses that aren’t entirely tech-focused. Broadening the scope of the rules could increase the risk of double taxation.
Read the full article here
Tax Dispute Management Summit: Inconsistencies in TP’s Global Audits Exposed
Taxpayers still face lengthy TP audits by aggressive tax authorities despite having strong transfer pricing documentation in place, such as RTI report of the Managing Tax Disputes Forum in Amsterdam on September 27.
Speakers expressed concern over the prolonged audits, with Spain criticized for taking an average of 27 months to complete investigations.
“It’s common, especially in public works, that they [tax authorities] open for three years and closed for adjustment,” said Carolina del Campo, partner in TP and tax governance at Cuatrecasas law firm in Madrid.
Spanish law obliges taxpayers to prepare TP documentation, including the main file and the local file. Meanwhile, large groups must also comply with country-by-country reporting requirements.
Challenges were also highlighted with the Canada Revenue Agency’s (CRA) aggressive approach to corporate TP documents.
Brad Rolph, partner and national TP leader at consultancy Grant Thornton in Canada, said Canadian TP laws lack specific regulations.
Although the CRA recognized the OECD guidelines, the statutes did not specifically incorporate the guidelines.
Unlike the CRA, the lack of adequate resources at the U.S. Internal Revenue Service to pursue small businesses over TP audits meant businesses of this scope were less likely to be targeted.
Read the full article here
Other headlines from ITR this week include:
Q&A: Lupine India Tax SVP talks about TP and tax morality
New Zealand seeks to impose GST on gig economy
First Pillar Safe Harbor Falls Short of Industry Expectations
EU lawmakers decide to end unanimous tax vote
RTI speaks to New Zealand tax experts about the Inland Revenue’s stricter emphasis on tax governance compliance and the uncertainty this has caused for some businesses.
The tax team will also cover the financial fallout from the UK government’s ‘mini budget’, in particular the loss of IR35 regulations after businesses invested in expensive compliance tools and legal advice.
RTI will examine the fiscal impact of the Brazilian presidential election, in particular the implications for transfer pricing reform in the country. It looks like tax reform will be on the cards no matter who wins.
Readers can expect these stories and more next week. Don’t miss the main developments. Sign up for a free trial for RTI.