This week in tax: Opposing EU verdicts in Amazon and Engie cases
The European Commission lost its bid to claim millions in taxes from Amazon, but it won its state aid case against the French utility company Engie.
The European General Court ruled on May 12 that Amazon’s cost-sharing arrangement in Luxembourg did not breach EU competition law. The US company will not be expected to pay €250 million ($303 million) in back taxes.
Meanwhile French utility company Engie lost its appeal against the European Commission over claims that the company gained an unfair advantage from two Luxembourg tax rulings. The multinational company is expected to pay €120 million in back taxes.
The defeat in the Amazon case is a blow to the Commission’s position on state aid and tax planning, and the opposing rulings could spell uncertainty for taxpayers with similar arrangements.
There is still time for yet more appeals to be launched. The Commission could take the decision in the Engie case as a sign that it should risk appealing the Amazon case, while the French company might similarly consider an appeal because Amazon won.
Whatever happens next, businesses are becoming increasingly wary of Luxembourg tax deals. These arrangements used to be common but times have changed since the BEPS agreement was signed in 2015.
ITR headlines this week include:
MNEs struggle in interim between UK and EU VAT reforms
Multilateral Instrument crucial to reduce DST tensions
Pillar two poses incentive dilemma for developing countries
Danish high court rulings influence EU beneficial ownership cases
Australia’s 2021 budget
Australia’s 2021 budget, delivered on May 11 by Treasurer Josh Frydenberg, was designed to reduce tax compliance costs, boost investment in digital operations, build certainty in the tax system, and encourage business investment. The country is able to invest in improvements because its revenue collection is in a healthy position despite the COVID-19 pandemic.
The most significant corporate tax measures for tax directors to note include:
·A patent box regime at a 17% rate for medical and biotechnology patents;
·An additional year of full asset write-offs and loss carry-backs;
·Changes to corporate residency rules to include trusts and corporate limited partnerships;
·A review of tax exemptions and treatments under the Venture Capital Limited Partnerships programme; and
·A delayed start to corporate collective investment vehicles (CCIV).
The Temporary Full Expensing measure, introduced in the 2020 budget that addressed the initial effects of the pandemic, will be extended. The measure allows businesses with an aggregate turnover of under A$5 billion ($3.85 billion) to deduct the cost of depreciating assets that are installed by June 30 2023.
There is also an extension on temporary loss carry-backs for companies with an aggregate turnover of under A$5 billion. Eligible businesses can carry back losses from the 2022-23 income year to offset taxed profits starting from the 2018-19 income year on filing their next tax return.
Brexit hits UK warehousing
The UK is losing its status as a European distribution hub as MNEs reroute their supply chains to avoid double customs duties. The Netherlands is the main destination, but companies should consider the tax risks in whichever country they choose for their warehouses.
Customs warehouses and freeports could help the UK to retain some trade, but the exodus continues.
“The UK has been a distribution hub for the US, China… the curtain is coming down on that,” said Simon Sutcliffe, customs duty partner at Blick Rothenberg.
Cost effectiveness and an easy access to ports were key factors in MNEs choosing the UK for warehouses to distribute goods across Europe. Yet, since the end of the Brexit transition period on December 31 2020, goods moving between the UK and the EU are subject to duties.
Many companies have complex supply chains. Goods could travel from a factory in China to a warehouse in the EU to a distribution hub in the UK and then back to a customer in the EU. As of January 1 2021, the goods are charged import duty when entering the UK and again when they return to Europe.
Tax professionals told ITR that the UK revenue authority, HM Revenue and Customs (HMRC), has been lenient with companies but that customs duties are a difficult area for tax directors. “Customs is quite draconian because it’s one of the oldest types of duty,” said Sutcliffe.
Sutcliffe added that “HMRC’s approach with customs is to bill first, ask questions later”, and this can cause cash-flow problems for businesses. Meanwhile, tax advisors criticised the EU for failing to offer any concessions to companies that are struggling.
Next week in ITR
ITR readers can expect more analysis of tax treaty issues. The US administration and the Russian government have opened renegotiations on a range of tax treaties in 2021. Meanwhile, India’s digital tax threshold will require a treaty renegotiation to make any changes viable.
ITR’s annual Managing Global Tax Disputes Summit will be held on May 18-20. The summit will cover the leading trends in tax controversy and focus on how taxpayers can improve dispute management and prevention.
This is just a sample of stories to come.
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