An Inharmonious Congress
Kitty Miv, Editor
11 January, 2019
It's the start of a new working year, and in the field of taxation it's very much business as usual. In the United States, taxpayers and their advisers are no doubt still busy poring over the details of reams of proposed new tax regulations which have been issued in recent weeks. And looking ahead, they will also need to get to grips with a new package of technical corrections to the TJCA, as well as to existing tax law.
As has become almost customary, the political climate in Washington is unlikely to help matters, though. We now have a split Congress and a Democrat-controlled House of Representatives that is likely to oppose President Donald Trump at every turn, just as the Republican Congress did in the final years of President Obama's premiership. A hint of the bipartisan politics to come was provided by the handover of the House Ways and Means Committee chairmanship from previous steward Kevin Brady (R-TX) to new incumbent Richard Neal (D-MA). The release of the draft technical corrections bill on January 2 was likely to have been Brady's last act as committee chair. Look at the Ways and Means website now and it's as if the Texas republican never existed. It's not promising to be a harmonious 116th Congress.
Consensus is unlikely to break out any time soon over critical multilateral tax issues either, especially with regards the thorny issue of tax rules for digital business models. Barring an unlikely change of position on the matter by the US Government, Washington will continue to insist that any new rules be negotiated through the forum of the OECD, and not implemented unilaterally. The European Union will probably do the opposite, and make another ill-fated attempt to forge an agreement among member states for an EU digital tax, somewhere along the lines of those proposed by the European Commission last year. Meanwhile, some member states will continue to advance their own plans for taxes on digital companies, knowing full well that a unanimous agreement in the Council is going to be next to impossible to reach now.
However, on the digital tax issue, don't write off the EU's chances just yet. Even though it appears to be losing badly under the current rules of the game, it could always just change the rules. Indeed, it's already thinking about doing so. On December 20, 2018, the Commission issued a call for feedback on a proposal to "explore how EU decision-making on certain tax issues could be streamlined." In other words, it wants to scrap the need for unanimous agreements on tax issues and instead decide such matters under a procedure known as qualified majority voting. And to cut a long story short, this would effectively bypass member states' effective power of veto.
There's one flaw in this plan though. As I understand it, a proposal to move from unanimity to QMV on tax matters would require an amendment to the Lisbon Treaty, which itself would have to be approved unanimously. Ireland – almost perpetually under pressure from the EU to relinquish its tax advantages – must now be mightily relieved that its voters eventually made the "right" call by voting for the Lisbon Treaty in a second referendum 10 years ago! Still, I imagine that Commission officials are at this moment busy concocting a legal work-around. It certainly hasn't given this one up yet.
As I noted previously, all in all, 2019 could be quite a challenging year for taxpayers everywhere, with so many changes coming through the pipeline. As has been the case in recent years, taxpayers with cross-border tax affairs, in particular multinational companies, are going to have to be extra vigilant.
In the European Union, the Anti-Tax Avoidance Directive – the bloc's response to BEPS – entered into force on January 1, 2019, providing for the introduction of new controlled foreign company rules, interest limitation rules, and a general anti-abuse rule in EU states.
On a global level, countries will be attempting to stay in step with the BEPS Multinational Instrument. And for taxpayers, this is one instrument that is unlikely to accompanied by soothing music.
True, the agreement of the MLI by the international community has prevented the truly horrific prospect that governments would attempt to renegotiate up to 3,000 tax treaties of their own accord. But upcoming treaty amendments are still going to be extensive, and the MLI provides jurisdictions with plenty of latitude to change their approaches to the Instrument at any time. This flexibility is helpful for governments. But a pretty daunting prospect for taxpayers trying to make sense of it all. In 2019, where tax is concerned, multinationals and individuals with complex cross-border affairs will need eyes in the backs of their heads!
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