BEPS And Digital Taxes Grab The Spotlight...
Kitty Miv, Editor
23 July, 2020
Well, this week's column is certainly not short of tax developments, starting with the news that Apple and the Irish Government have been successful in overturning a European Commission decision that two tax rulings granted to the company by the Irish Government were unlawful.
Following an in-depth state aid investigation launched in June 2014, the European Commission concluded that the tax rulings (issued in 1991 and in 2007) "substantially and artificially lowered the tax paid by Apple in Ireland since 1991." Apple was required to pay back taxes into an escrow account set up by the Irish Government, along with interest, pending the outcome of the Government and Apple's appeal.
The European Commission had argued that Ireland's endorsement of Apple's Irish tax arrangements had enabled Apple to pay less tax than competing companies would be able to pay – that it had granted it a "selective tax advantage", and that the tax rulings issued by Ireland endorsed an artificial internal allocation of profits that had "no factual or economic justification".
It therefore decided that the two tax rulings had granted Apple a selective tax advantage that amounted to illegal state aid.
However, the EU's General Court on July 15 decided that the Commission had not succeeded in showing to the requisite legal standard that there was an advantage. It consequently decided to annul the contested decision.
The EC is expected to appeal the General Court's decision before the European Court of Justice, though, so the fat lady may yet be just warming up her vocal cords in the wings...
The European Commission was on something of a roll this week, going on to recommend that member states should not grant financial support to companies with links to countries that are on the EU's list of non-cooperative tax jurisdictions.
The EU's "blacklist" of non-cooperative tax jurisdictions was first established in December 2017, along with a "grey list" of jurisdictions that are cooperating with the EU to amend their tax systems. Following multiple revisions, the "blacklist" now contains the following jurisdictions: American Samoa, the Cayman Islands, Fiji, Guam, Oman, Palau, Panama, Samoa, Seychelles, Trinidad and Tobago, the US Virgin Islands, and Vanuatu.
The Commission said that companies with links to jurisdictions on the blacklist should not be granted public support. It also recommended that restrictions should apply to companies that have been convicted of serious financial crimes, including financial fraud, corruption, and the non-payment of tax and social security obligations.
Sticking with the subject of BEPS, the OECD has just released a new report including a progress update on its work to help developing countries to implement the minimum standards from the Organisation's base erosion and profit shifting Action Plan.
Among other things, the report looks at the challenges that developing countries are facing and the efforts of the OECD and other international bodies to support them to strengthen their tax systems.
The report notes that, in recent years, the OECD Secretariat has helped to build capacity in 37 developing countries through demand-led bilateral programs to support the implementation of the BEPS Package, and explains that developing countries often face far more fundamental challenges in addressing BEPS risks than developed countries, due to issues such as weak legislation, out-dated tax treaties, and limited capacity in their tax administrations.
The OECD has also been keeping busy with regard to digital tax reform plans, and is expected to submit a "blueprint" for new global digital tax rules at the G20's meeting in October 2020, it emerged in a G20 communique, issued following the group's latest meeting.
Under pillar one of the OECD's current digital tax work, the OECD is formulating new rules that would allocate some taxing rights to market jurisdictions, regardless of whether a taxpayer has a physical presence there. The US has decided to withdraw from these negotiations.
Pillar two involves the development of a coordinated set of rules, including on a minimum effective tax burden for multinationals, to address ongoing BEPS risks from structures that allow MNEs to shift profit to jurisdictions where they are subject to no or very low taxation.
The OECD cautioned G20 members against taking unilateral action in this area, however, arguing in a tax policy recommendation report released to G20 Finance Ministers on July 18 that while tackling the tax challenges from the digitalization of the economy is important: "Policy co-ordination in this area will make reforms more effective, including by fighting tax avoidance and ensuring that tax disputes do not turn into trade wars, which would harm recovery even further."
This would appear to be borne out in the EU, certainly, with Ireland's new Prime Minister reported by the Irish Times as expressing opposition to an EU digital tax, warning of the economic damage it could cause.
Taoiseach Micheal Martin was quoted by the paper as explaining that Ireland would not support an EU-only digital tax because of potential retaliation from countries that may be adversely affected by it, observing that the Republic does not "want to do anything that would create further hits or further unintended consequences."
Until next week!
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