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This week in tax: EU appeals Apple state aid case

This week the European Commission confirmed it will appeal the Apple state aid case, while new OECD pillar one and pillar two blueprints were leaked ahead of the October meetings.

The European Commission (EC) had until the end of September 25 to file an appeal against the General Court’s ruling in the Apple state aid case (cases T-778/16 and T-892/16). On deadline day, Executive Vice-President Margrethe Vestager announced that the “Commission has decided to appeal before the European Court of Justice”.

In a press statement, Vestager said: “The General Court judgment raises important legal issues that are of relevance to the Commission in its application of state aid rules to tax planning cases.”

“The Commission also respectfully considers that in its judgment the General Court has made a number of errors of law,” said Vestager. “For this reason, the Commission is bringing this matter before the European Court of Justice.”

Vestager went on to say multinationals cannot get away with uncompetitive tax benefits from member states and getting all companies to “pay their fair share of tax remains a top priority for the Commission”.

Separately, in another state aid case, the General Court ruled that a Spanish tax scheme for finance lease agreements for investments in shipyards was unlawful state aid (joint cases T-515/13 and T-719/13).

The court said that the Commission was right to recover the state aid from the beneficiaries, who were the investors and members of economic interest groups, although part of the tax benefits had been transferred to the shipping companies.

Also, if you missed it, McGill Professor Allison Christians shared new leaked reports on the pillar one and pillar two blueprints on her blog this week. Dated September 16, the latest documents will be used in the October 8-9 Inclusive Framework meetings and should then be published officially by the OECD.

Digital services under attack

Cash-strapped governments are desperate for tax revenues, which is translating into a higher tax burden and more audit risks for digital and multinational businesses.

Mexico threatened to block foreign digital players over VAT non-compliance this week in what ITR Senior Reporter Mattias Cruz described as a “warning shot” for affected businesses.

At the same time, details on Argentina’s foreign exchange (FX) restrictions emerged that mean companies can reduce their tax liabilities by billing in Argentine pesos rather than US dollars. The move could save a company like Netflix several layers of tax charged on top of a subscription.

For digital service providers operating across Asia, more care needs to be taken on understanding how governments are applying digital services taxes (DSTs). Some countries across Asia are levying DSTs in the form of both direct taxes and indirect taxes, which is creating confusion and greater risks of double taxation and compliance pitfalls.

Businesses operating in the Asia-Pacific (APAC) region should also future-proof their compliance systems ahead of the adoption of real-time reporting, particularly in a post-COVID context.

Further east, New Zealand’s general election is approaching on October 17 2020. The Labour Party has promised to introduce a DST if international consensus is not reached. Although details are scarce, it is understood the DST rate would be around 3% based on previous documents published.

Back in Asia, the launch of ITR’s Indonesia Special Focus included a range of articles from tax experts on how taxpayers can manage the difficulties of understanding the country’s complex tax laws and aggressive tax authority. One such article assesses how the country has reacted to the growing digitalisation of its economy and outlines the international challenges that lay ahead.

Meanwhile, Kenya has published its draft regulations on its proposed digital services tax that would enter into force on January 1 2021.

Educating in times of uncertainty

During ITR’s Women in in Tax Forum Europe last week, the EU Directive on Administrative Cooperation (DAC6) was a hot topic. Speakers told delegates that tax directors should educate their colleagues and external partners, as well as any additional intermediaries, for DAC6 success. Tax professionals said this will help avoid disagreements that increase the risk of non-compliance.

On transfer pricing, in-house tax directors speaking at the event also said tax certainty is lacking because relief from tax residence and permanent establishment (PE) issues is only temporary amid the COVID-19 pandemic. The hesitation among countries to implement legislative changes to limit PE and residency concerns is causing frustration and worry of more audit challenges being likely in 2021.

As a follow up to these concerns, speakers at this week’s Digital Economy Summit said data quality is an important factor to get right to manage the risks of tax policy – even more so following the coronavirus pandemic.

Tax departments are in the midst of a digital transformation that has been accelerated by the pandemic. The role of data is critical to a successful transition to new systems to support transfer pricing (TP) policy and tax professionals expect this trend of digital transformation to continue. 

Country updates

In Oman, the excise tax on sweetened drinks will be extended to apply on a wider range of items from October 1 to boost tax revenues. Oman also recently announced a number of income tax amendments earlier in September.

When the excise tax was introduced on June 15 2019, it covered only carbonated drinks, energy drinks, tobacco products, pork and alcohol. As of October, the 50% tax will apply to beverages containing added sugar or sweeteners that are ready-to-drink, concentrates, gels, powders, extracts, or any form that can be converted into a sugar-sweetened beverage. Canned coffee and tea products are also included in the scope.

In India, the Taxation and Other Laws (Relaxations and Amendments of certain Provisions) Bill 2020 (Taxation Bill 2020) was passed by the upper house of Parliament (Rajya Sabha) on September 22. The bill extends a number a filing deadlines, waives certain penalties and amends the time limits for filing and resolving disputes under the country’s vivad se vishwas scheme. The legislation also provides some welcome clarifications and further details on faceless assessments.

In Japan, a new agreement for the avoidance of double taxation entered into force between Uzbekistan and Japan as of September 25. The treaty can be found here in English.

In the UK, it has now been confirmed that there will be no autumn 2020 budget statement by the government because of COVID-19. Instead, the government is introducing more measures to ease the economic impact of the pandemic.

This week, on September 24, the Chancellor of the Exchequer Rishi Sunak announced a job support scheme for individuals and companies, as well as financial reliefs for small businesses.

The impact of COVID-19 also continues to impact taxation in the US, where the Internal Revenue Service deferred the start date of foreign currency tax regulations once again. The regulations will now apply to taxable years beginning after December 7 2021, according to Notice 2020-73.

In other news, Australian regulators are considering the application of legal professional privilege and the implications of a ruling regarding the double tax treaty between Brazil and France is causing some concern.

Americas Tax Awards 2020: The winners

To lift spirits and have a reason to celebrate this September, the winners of the ITR Americas Tax Awards were announced on September 22 through a webinar presentation, which included acceptance speeches from a range of firms.

Key winners included Skadden Arps Slate Meagher & Flom, which won the Americas Tax Firm of the Year award, and Deloitte that won the award for Americas Transfer Pricing Firm of the Year.

A number of awards also went to tax directors and their teams. For his work as the head of tax of a leading multinational and for his voice on digital tax reforms, Francois Chadwick from Uber won the editor’s choice award. Falabella Group, Louis Dreyfus, Diageo, iFood, IBM Brazil and The HEINEKEN Company all left the virtual ceremony with trophies.

Next week in ITR

Next week, ITR will publish its follow-up coverage to the Women in Tax Forums that took place in the US and Europe, as well as all the details from the Digital Economy Summit.

We will also be focusing on transfer pricing as we host our annual two day forum on the topic on September 29 and 30. Topics such as the future of the arm’s–length principle, the OECD’s proposed profit allocation rules and financial transactions are on the agenda.

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