This week in tax: EU VAT, Glencore and Making Tax Digital
Taxpayers continue to face mounting uncertainty over the coming break between the EU and the UK tax systems, while the Glencore case offers some reassurance to multinationals with similar arrangements.
As the UK moves ahead with Brexit, businesses across the EU are trying to overcome the difficulties of complying with EU tax law and the increasing likelihood of UK tax law breaking with those same standards.
Some multinational enterprises (MNEs) face an increased compliance burden from the EU’s VAT e-commerce package, writes Mattias Cruz Cano. Meanwhile these companies also have to manage the impact of the UK’s withdrawal from the EUand the economic fallout from COVID-19.
The European Commission published the VAT ecommerce package explanatory noteson September 30, which serve as guidance but are not legally binding and some questions remains unanswered for businesses while the postponed deadline of July 1 2021 draws ever closer.
“Some problems persist such as uncertainty as to which rules will be binding after Brexit, if the countries will adopt the rules at all in 2021, bearing in mind the coronavirus,” said one head of tax at an e-commerce company.
Meanwhile, transfer pricing (TP) disputes may be set to increase in Central and South America as tax authorities chase revenue and adopt new tax reporting standards in line with OECD guidelines, writes Alice Jones.
Taxpayers operating in many Latin American countries – particularly OECD members Chile, Colombia and Mexico – are accustomed to using standard TP methods to apply the arm’s-length principle.
Nonetheless, tax authorities across the region are stepping up requirements. The pandemic has catalysed this trend as countries chase revenue to replace losses due to COVID-19.
Glencore’s partial victory over the ATO
Commodities group Glencore won a partial victory against the ATO in a landmark case. It looks like this case might finally be over after many years in the courts.
The Full Federal Court of Australia has ruled in favour of the taxpayer in the caseafter the ATO waged its appeal. The commodities group won the case on all but one of the issues under dispute. This is a serious blow to the ATO.
Not only did the Court favour Glencore, the court has made a comment about how to conduct TP cases that points towards a more pragmatic approach towards taxpayers.
“The Court must take care not to make the task of compliance with Australia’s transfer pricing laws an impossible burden when a revenue authority may, years after the controlled transaction was struck, find someone, somewhere, to disagree with a taxpayer’s attempt to pay or receive arm’s length consideration,” said the judgment.
The impact of the Glencore case might see the ATO moderate its approach to the TP system and particularly how it deals with multinational groups with similar practices. However, many tax professionals think the tax authority may have been prepared to take a defeat on this case. So businesses operating in Australia will be relieved at this news.
Making corporate tax digital?
The UK government is embarking on the next phase of its Making Tax Digital (MTD) project to digitise corporate tax reporting. And there are plenty of sceptics since it was hard enough to take the VAT regime digital.
The UK’s tax authority HM Revenue and Customs (HMRC) released a consultation document on November 12 about expanding the MTD regime to include corporate tax reporting, and it is seeking comment from taxpayers on details about cost, penalties, scope, and accounting changes related to this proposed expansion.
However, many taxpayers still consider digitalising corporation tax a long-term prospect because it’s challenging to shift to real-time reporting when corporation tax is repeatedly evolving under local and international developments, including court decisions.
“There is a lot of judgement that goes into corporate tax while VAT involves far less judgement in my opinion,” said one head of tax at a multinational mid- and downstream oil company.
“There is bound to be some grey area with every tax position you have to make in corporate tax,” they added. “You cannot embed that into the process.”
The deadline to comment is March 5 2021.
Next week at ITR
Since ITR has dedicated the last cover story to tax and the environment, we will be looking at the implications of plastics taxes and how such measures might open up the space for yet more litigation.
We will also be returning to the topic of digital tax and its impact on financial services. Financial institutions are concerned that the OECD’s digital tax proposals could raise compliance pressures on them.
At the same time, the EU’s blacklist of non-compliant tax jurisdictions is facing renewed scrutiny and tax campaigners are calling for much tougher measures against corporate tax avoidance. This comes as several countries have adopted the blacklist to deny certain companies relief during the COVID-19 pandemic.
These are just some of the stories ITR will be covering next week.