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This week in tax: Ecofin adds Russia to EU tax blacklist

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The Economic and Financial Affairs Council adds Russia to the EU blacklist of tax jurisdictions, while Internal Revenue Service Commissioner nominee Danny Werfel faces a grilling from US senators.

Russia has been added to the EU list of non-cooperative tax jurisdictions after appearing on the grey list in February and October 2022.

The Economic and Financial Affairs Council (Ecofin) updated the EU tax blacklist to include Russia among 16 other jurisdictions on Tuesday, February 14.

South Korea and the UAE have appeared on the list in the past, but no other major economy has been blacklisted. Critics have suggested this is a sign of political bias behind the list. However, the list has encouraged countries like the UAE to adopt OECD standards.

Persistently blacklisted jurisdictions include American Samoa, Guam, Samoa, and Trinidad and Tobago. These jurisdictions have been on the EU blacklist every year since 2017.

Nine jurisdictions were blacklisted in February 2022 and this number increased to 12 by October last year. The jump to 16 jurisdictions makes the latest EU blacklist the longest since December 2017, when 17 jurisdictions found themselves on the list.

IRS Commissioner nominee Werfel faces US Senate questions

Danny Werfel, nominee for commissioner of the Internal Revenue Service, faced questions from the Senate Finance Committee on Wednesday, February 15.

Werfel promised to uphold data security at the IRS and pledged not to expand tax audits on businesses and households making less than $400,000 a year.

The IRS is gaining $80 billion in funds over the next 10 years as part of the Inflation Reduction Act, which was approved in August 2022. This funding has drawn criticism from Republicans who advocate public spending cuts.

The role of IRS commissioner should be non-political and strictly administrative, but the office has been dragged into political rows. President Joe Biden nominated Werfel to take over from IRS Commissioner Charles Rettig.

Werfel was acting commissioner for a brief time – from May to December 2013 – before John Koskinen took over. After leaving the IRS, Werfel joined management consultancy Boston Consulting Group as director of its public sector practice in Washington DC.

Long-time IRS official Doug O’Donnell has served as acting commissioner since Rettig stepped down in November 2022. Werfel is expected to be approved as commissioner, but nothing is certain in US politics.

Sweden, France and Italy ranked worst for production taxes

Sweden, France and Italy are the worst EU jurisdictions for production taxes, according to a survey published on Wednesday, February 15.

The French think tank Institut Montaigne and audit firm Mazars found that taxes on company production processes were highest in the three countries. Production taxes accounted for 9.9% of GDP in Sweden, 3.8% in France and 2.8% in Italy in 2021.

However, the average rate in the EU was 2.5%. The Swedish tax system remains the most burdensome in the EU, while France is moving away from production taxation.

French President Emmanuel Macron has pledged to abolish the contribution on added value (CVAE) in a move to reduce the costs on French manufacturing. The ruling En Marche party secured the end of CVAE in a vote in October 2022.

This year, CVAE rates are being cut in half before the production tax is phased out in 2024. The end of CVAE might save 530,000 businesses an estimated €9.3 billion ($9.9 billion) a year in tax.

India launches tax raid on BBC offices

BBC offices in India were raided by tax officers on Tuesday, February 14, just weeks after the broadcaster released a documentary critical of Prime Minister Narendra Modi.

Tax officers raided the Delhi and Mumbai offices of the BBC seizing documents and phones of journalists, according to the UK broadcasting corporation. The officers told Indian media that the search was part of a tax fraud investigation into the business operations of the BBC in India.

The BBC confirmed the raids and stressed its full cooperation, adding: “We hope to have this situation resolved as soon as possible.”

However, the tax raid comes soon after the BBC released a documentary series, 'India: The Modi Question', exploring the role Modi allegedly played in the 2002 Gujarat riots. Modi was chief minister of Gujarat at the time and more than 1,000 people died in the riots.

The Editors Guild of India described the raid as part of a trend of “using government agencies to intimidate and harass press organisations” that criticise the Modi government.

Next week in ITR

ITR will continue to follow the OECD’s two-pillar solution to the digital economy and EU efforts to implement a minimum corporate tax rate across its member states.

Meanwhile, Josh White will be writing about the US FairTax Act and why this proposal keeps coming back again and again.

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