International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

This week in tax: EU appeals Amazon decision

Tax professionals call for EU harmonisation and proportionate data use

The European Commission is appealing the General Court decision in the Amazon state aid case. The Commission hopes to force Luxembourg to claim €250 million ($294 million) in tax from the US technology company.

Amazon can expect to go another round in court, but victory is far from certain. The Commission is continuing its fight to win this case against the company from a defensive position.

The Commission did not prove that Amazon had secured an “undue reduction” in its tax base, according to a May 12 ruling by the European General Court. As a result, the court found that there was “no selective advantage” in favour of Amazon’s Luxembourg-based subsidiary.

The court, which is a constituent court of the European Court of Justice (CJEU), said the Commission’s 2017 findings on the case were “incorrect in several respects”. This was a serious blow to the Commission’s efforts to curtail what it sees as abusive tax structures perpetrated by multinational enterprises (MNEs) such as Apple.

The stakes are much greater than the sum of €250 million since many multinational companies have had similar arrangements in Luxembourg. Tax disputes can set powerful precedents for tax strategy.

Colombian protests lead to corporate tax hike

The Colombian government has been forced to abandon its VAT reform in favour of a corporate tax hike. This is after weeks of mass demonstrations against plans to close $20 billion worth of loopholes in the VAT system.

The government is planning to raise the corporate tax rate from 31% to 35%, which makes it an international outlier. Most countries have corporate tax rates of below 30% and some below 25%. This will raise $4 billion, but the government will need to find more revenue somewhere to keep its credit rating.

Colombian President Iván Duque pursued VAT reform to secure Colombia’s investment grade amid the dire impact of the COVID-19 pandemic. The country still faces a ballooning deficit and a contracting economy.

With the government facing an economic crisis and damaged reputation, a lack of tax reform could see Colombia sink to junk status among credit agencies such as Fitch Ratings and Moody’s.

Double taxation still needs to be addressed following G20 meeting

Tax authorities have many questions to settle in negotiations to tackle the risk of double taxation across jurisdictions when implementing the OECD’s two-pillar tax framework.

The July G20 meeting marked the endorsement of the OECD’s two-pillar solution, but with over 130 jurisdictions joining the agreement, settling some of the key details remains a challenge for global tax policymakers ahead of the next G20 meeting in October 2021.

Adopting the two-pillar tax framework will require a significant level of collaboration from tax authorities to mitigate the risk of a double taxation.

“It is one thing to agree a headline approach to change the international tax regime, but a very different thing to achieve consensus on methods of calculation, apportionment, exclusions, and the like,” said Matt Stringer, head of international tax at Grant Thornton.

To this date, members of the Inclusive Framework (IF) have agreed to adopt pillar one – which aims at reallocating profits of multinational enterprises (MNEs) with a global turnover over €20 billion ($23.6 billion) – and pillar two, set to impose a global minimum tax rate of at least 15% on multinationals within the €750 million threshold.

Tax policymakers are yet expected to deliver further details around the agreement, which could be critical for the final implementation of the tax framework.

Read the full article here

UK audit review

The UK audit industry has undergone its annual review. Big Four firm KPMG and mid-tier firms BDO and Mazars are facing criticism from the Financial Reporting Council (FRC) for “unacceptable” audit standards.

The FRC found that 29% of 103 audits carried out by KPMG needed ‘improvement’ or ‘significant improvement’. This is slightly better than the 2020 review when 33% of the audits reviewed needed improvement.

The audit watchdog found that more than half of BDO’s sample of audits needed improvement, while three out of seven of Mazars’ audits reviewed needed ‘improvement’ or ‘significant improvement’.

By contrast, Deloitte and EY each got a positive audit score of 79% whereas PwC got a positive score of 80%. However, it was Grant Thornton that received the highest score – 86% – out of the top seven audit firms.

These results follow the FRC investigation into the collapse of Greensill Capital and the role of its audit firm Saffrey Champness. Critics will continue to call for audit reform, but, in the meantime, the market will be left to raise its own standards.

Tax advisors expect more joint audits as reporting troubles grow

The use of joint audits is increasing to mitigate cross-border issues from the expansion of tax transparency under Directive 2011/16/EU (DAC), especially as over-reporting with Directive 2018/822 (DAC6) continues to persist.

Taxpayers are still struggling to manage tax uncertainty risks, including digital audits, coming from an increase in global tax transparency, particularly after tax authorities started data sharing under DAC6 in 2020. Advisors are highlighting an increased use of joint audits to mitigate cross-border challenges and potential litigation issues in a more data-driven international tax environment.

Many taxpayers continue to take a blanket approach in reporting their cross-border arrangements and relevant transactions under DAC6 to avoid non-compliance penalties. As a result, some are also avoiding creating any more structures that could lead to a DAC6 reporting obligation because of the reputational risks associated with falling within scope of the regime regardless of the nature of the transactions, according to tax experts attending ITR’s Women in Tax (WiT) – Europe forum.

“In certain jurisdictions there is a perception that things may be tainted if they [taxpayers] must report, and therefore they try to mitigate any reporting obligation,” said Marie-Theres Rämer, partner at DLA Piper in Germany.

“However, there are fairly standard transactions that need to be reported too, and clients cannot really mitigate that over fears of getting branded as aggressive,” she said.

The DAC6 regime’s broad hallmarks put a number of standard structures under scrutiny, including those in the funds industry, where tax receipts for transactions of insurance companies and pension funds were not intended to be included but ended up within scope of the legislation anyway.

Read the full article here

Next week in ITR

Readers can expect an update on the international tax crackdown on cryptocurrencies. This time the Indian government is going after foreign cryptocurrency exchanges and aims to extend 18% GST to the sector.

The OECD will be releasing its corporate tax statistics and ITR will be providing its analysis of the figures and what they say about corporate tax policies worldwide.

Likewise, ITR will be taking an in-depth look at the Singaporean government’s transfer pricing guidelines and what they mean for multinational companies.

Don’t miss out on the key developments each week. Sign up for a free trial to ITR.

more across site & bottom lb ros

More from across our site

ITR’s latest quarterly PDF is going live today, leading on the EU’s BEFIT initiative and wider tax reforms in the bloc.
COVID-19 and an overworked HMRC may have created the ‘perfect storm’ for reduced prosecutions, according to tax professionals.
Participants in the consultation on the UN secretary-general’s report into international tax cooperation are divided – some believe UN-led structures are the way forward, while others want to improve existing ones. Ralph Cunningham reports.
The German government unveils plans to implement pillar two, while EY is reportedly still divided over ‘Project Everest’.
With the M&A market booming, ITR has partnered with correspondents from firms around the globe to provide a guide to the deal structures being employed and tax authorities' responses.
Xing Hu, partner at Hui Ye Law Firm in Shanghai, looks at the implications of the US Uyghur Forced Labor Protection Act for TP comparability analysis of China.
Karl Berlin talks to Josh White about meeting the Fair Tax standard, the changing burden of country-by-country reporting, and how windfall taxes may hit renewable energy.
Sandy Markwick, head of the Tax Director Network (TDN) at Winmark, looks at the challenges of global mobility for tax management.
Taxpayers should look beyond the headline criteria of the simplification regime to ensure that their arrangements meet the arm’s-length standard, say Alejandro Ces and Mark Seddon of the EY New Zealand transfer pricing team.
In a recent webinar hosted by law firms Greenberg Traurig and Clayton Utz, officials at the IRS and ATO outlined their visions for 2023.