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This week in tax: EU divided over energy windfall tax


This week the European Commission is facing opposition over its windfall tax proposal, while Tesla is considering moving production to the US over tax breaks.

Poland, Portugal, and Spain have expressed deep reservations about the EU’s proposal to impose an energy windfall tax on power companies in response to the bloc’s energy crisis.

The European Commission announced its plans on Tuesday, September 13, to raise approximately €140 billion ($139.6 billion) from energy suppliers. This would involve applying a levy on non-gas electricity producers and a separate tax on oil, gas and coal businesses.

It would also apply to low-carbon energy suppliers. Non-gas electricity suppliers reporting revenues above a threshold of €180 per MWh would face the levy. Meanwhile, spot prices in Germany are trading at more than €450 per MWh.

The windfall levy would distribute the excess profits of low-carbon energy suppliers, including wind, solar and nuclear, to vulnerable businesses and households in Europe. However, the proposal has divided opinion among some EU member states.

“We will be against it…we filed an official motion for unanimity; different countries have different approaches here,” said Anna Moskwa, Polish climate minster, on Polish commercial station Radio ZET.

“Many countries do not agree to such solutions,” she added.

As the European Commission requires unanimous approval by all 27 EU member states for bloc-wide changes to tax legislation, the windfall tax may be the next political battle ahead.

Fernando Medina, Portugal’s finance minister, said that he saw no immediate need to apply a windfall levy as the country was already taking measures to redistribute the energy sector’s bumper earnings, according to Reuters.

“We are already reducing profits from the electricity sector and transferring them to consumers…and we’ll do the same with the gas sector,” said Medina during a parliamentary committee in Portugal.

The Spanish government has criticised the proposal for not addressing the costs of production in renewable energy. Spain is one of Europe’s biggest renewable energy-producing nations.

Teresa Ribera, Spain’s energy and environment minister, told the Financial Times that the plans did not correspond to the real costs of production, nor did they help with electrification and the deployment of renewables.

EU energy ministers are scheduled to meet on September 30 for further talks on the deepening energy crisis.

Tesla considers production move over US tax credits

Electric vehicle company Tesla may be about to move battery production from Germany to the US over tax breaks offered by the Inflation Reduction Act.

The possible move was reported by The Wall Street Journal on Wednesday, September 14. Tesla could qualify for production tax credits by moving its EV battery plants to the US.

The Inflation Reduction Act was designed to increase the supply of EV parts in a bid to reduce carbon emissions. Its provisions offer manufacturing companies tax credits to partially offset the cost of EV battery packs. This could amount to a 40% reduction in production costs in some cases.

Other companies are already opening battery production operations in the US. General Motors has just started production in Ohio, whereas Ford is planning two battery factories in Kentucky and Tennessee. Meanwhile, Honda has plans for a $4.4 billion battery factory in the US.

According to The Wall Street Journal, Tesla has not denied or confirmed the claims. However, the company has told Texas officials that it is considering sites in the US state for a lithium refinery plant. This is a crucial component for battery production.

US President Joe Biden signed the Inflation Reduction Act into law in August, yet it looks like it may already be influencing business decisions around the world.

Companies urged to align indirect tax and transfer pricing policies

In other news, multinational companies need to implement robust transfer pricing policies that align with indirect tax functions to avoid costly errors, ITR sources have said.

Tax leaders have called on businesses to review how well their indirect tax and transfer pricing policies align to improve compliance.

Businesses are facing a rise in non-compliance risks associated with an increased share of global GDP stemming from multinationals, which now makes up 60% of overall trade, according to the OECD.

This surge in globalisation and international transactions between related parties has made it more urgent for businesses to align their indirect tax functions with TP policies.

Indy Paddan, group head of tax at private members’ club group Soho House in London, said that although TP is not new, what has changed is more stringent enforcement of regulations by tax authorities.

“It’s the need to have documentation, proper policy agreements in place – as well as attitudes in the business that are changing,” said Paddan.

Read the full article here

IFA 2022: EU seeks common digital reporting requirements

As ITR also reported, panellists at the IFA Congress in Berlin said a standardised reporting system in the EU would reduce administrative costs for businesses and ameliorate audits.

EU businesses demand a harmonisation of digital reporting requirements as they encounter a significant administrative burden when operating across borders, according to speakers at the IFA Congress, held in Berlin last week.

“There are two issues that we are facing: excessive fragmentation and high administrative burden for businesses operating cross-border,” said Charlène Herbain, official in the VAT unit of DG TAXUD at the European Commission in Luxembourg.

Members states that have introduced reporting requirements are successful in tackling fraud, but there remains a lack of simplicity – causing an additional cost for corporations.

A new reporting system could resolve issues related to sub-optimal collection and control of VAT and remove the excessive administrative burden and compliance costs. It would unlock opportunities provided by technology, promote convergence, and reduce burdens.

This could have positive consequences for market participants. For example, a new system would provide further certainty and be environmentally friendly through the reduction of paper usage. It would also drive business automation.

Read the full article here

Other ITR headlines include:

Companies must embrace tax automation to become more efficient

Five EU finance ministers promise to enact pillar two alone

Sources: Inflation Reduction Act a mixed bag on tax policy

IFA 2022: Shell’s EVP tax and controller on tax morality

Next week in ITR

Next week ITR will be speaking to businesses about the steps taken by some Southeast Asian tax authorities, including those in Indonesia, Malaysia and Singapore, to prevent tax leakage and close loopholes on digitally supplied cross-border transactions.

ITR will also be holding its US Transfer Pricing Forum in New York City on Wednesday, September 21. The conference will look at the TP implications of economic turmoil, as well as ESG strategy and digital tax.

Readers can expect these stories and plenty more next week. Don’t miss out on the key developments. Sign up for a free trial to ITR.

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