A European perspective on the US plans for a destination based cash flow tax

The Republican majority in the US House of Representatives is considering the introduction of a destination based cash flow tax (DBCFT). While its global implementation has the potential of substantially increasing welfare, a unilateral introduction of such a tax system raises a range of questions due to the co-existence with source based taxation systems abroad. We consider the US tax plans from an EU perspective. We show that European exporters may suffer, but European firms with affiliation in the US may benefit from a switch to the DBCFT. American multinational firms with affiliates in the EU will be the likely losers of this policy – a surprising finding given President Trump’s “America first!” rhetoric. Finally, tax competition over profits, IP location and investment will further intensify, which will require policy reactions by the EU and its member countries far beyond the implementation of the OECD BEPS project. We will therefore also discuss the legal and economic implications of possible adjustments in EU tax systems

Deutsche Unternehmenssteuerbelastung im internationalen Steuerwettbewerb

Deutschland befindet sich inmitten einer intensiven Debatte über die Unternehmensbesteuerung, deren treibende Kraft der internationale Steuerwettbewerb ist. Sind die Unternehmenssteuern in Deutschland tatsächlich zu hoch? Wie sollte eine Reform der Unternehmensbesteuerung ausgestaltet sein? --

Anspruch auf Rücknahme gemeinschaftsrechtswidrig belastender Verwaltungsakte nach Eintritt der Bestandskraft?

In principle, European Community Member States enjoy procedural autonomy regarding the administration of Community law. However, this principle often clashes with the fundamental requirements of uniform application and full effect of Community law. In particular, conflicts arise when administrative acts violate primary or secondary EC law but are not susceptible to challenge any more if national rules governing their annulment are respected. The focus of the European Court of Justice (ECJ) to date in this regard has been on government subsidies granted contrary to Art. 87 et seq. of the EC Treaty. But a similar problem occurs when national administrative law precludes an appeal or court action against unfavourable acts, such as the levying of fiscal duties after the expiry of certain time limits. In Germany, authorities generally have discretion as to whether to rescind such a final act if it is unlawful. They are not even obliged to consider doing so unless the administrative decision is ‘manifestly incompatible‘ with the requirements of statutory or constitutional law or if the legal situation has subsequently changed. This article demonstrates that a subsequent ruling of the ECJ clarifying the interpretation of a Community law provision is not tantamount to a change of the legal situation. A final administrative act which turns out to have been issued contrary to EC law may also not be disregarded in reliance on the ECJ's Ciola judgment since the conflict cannot be resolved by simply resorting to the concept of primacy of EC law. Rather, the principle of legality and the legal objectives sought to be achieved must be weighed and balanced against the principle of legal certainty within the framework of Community loyalty enshrined in Art. 10 of the EC Treaty. As has been pointed out recently in the i-21 Germany case, a discretionary determination guided by these considerations does not render the exercise of rights conferred by the Community legal order excessively difficult if it ultimately gives precedence to legal certainty. EC law must respect disparities in the importance attributed to legal certainty in national legal orders. According to the principle of equivalence, however, German authorities must seriously consider rescinding an administrative decision if it is manifestly incompatible with Community law

EU perspective on VAT exemptions

As VAT becomes an increasingly important source of tax revenue world-wide, tax policy makers should be well aware of its strengths and weaknesses. In academia, there is strong consensus that tax exemptions rank among the most problematic features of VAT. The very concept of exemption is already a misrepresentation, because it normally entails the loss of entitlement to an input VAT credit; exempt supplies are therefore actually “input-taxed”. It is generally accepted that this particular form of occult taxation detrimentally affects economic efficiency and increases administrative complexity. Moreover, VAT as an indirect and impersonal tax on consumption is intended to be borne by final consumers but it is imposed on business. It will therefore often be questionable who really benefits from the intended relief, and whether there are superior alternatives to VAT exemptions to attain their underlying policy objectives. Even where they can be defended, exemptions are often implemented in an inconsistent fashion. All of these aspects are particularly troublesome in the EU VAT system that suffers from legislative eurosclerosis. The present paper discusses these topics with special emphasis on the EU constitutional and institutional framework. It offers an overview of the current array of exemptions and lays out the relevant economic and legal benchmark for their critical assessment. The paper identifies eight main rationales for tax exemptions and analyzes their merits in the light of those benchmarks. Particular attention is given to considerations of tax equity and social policy, and to exemptions of so-called “hard to tax”-supplies. In a separate section, the paper discusses the detrimental effects of the corresponding denial of input VAT deduction and its eventual justifications. Policy makers are thus provided with clear legal guidance as to which exemptions are required, which are tolerable, and which should be abolished within the framework of EU VAT, and how the defendable ones should be amended.

National measures to counter tax avoidance under the Merger Directive

Taxation inevitably gives rise to tax planning. In the era of globalization, multinationals in particular may not only try to exploit options, inconsistencies and gaps in domestic tax legislation, but they will also (re-)organize their business so as to make an optimal use of international tax sheltering opportunities. In order to curb ‘aggressive’ tax arbitrage, all developed jurisdictions rely on targeted anti-avoidance provisions. In addition, most tax systems will have recourse to a statutory general anti-avoidance rule (GAAR) or judge-made anti-avoidance doctrine to that effect; by contrast, the UK tax system relies on extensive purposive construction to thwart tax saving schemes that are based on an overly literal or technical interpretation of the tax statues. Under either approach, the most difficult task for tax administrations and courts is to draw as bright a line as possible between legitimate tax mitigation and unacceptable tax avoidance schemes. In areas of taxation that are harmonized by EU law, the issue becomes even more complex due to the influence of the ECJ doctrine of prohibition of abuse of (tax) law. This working paper deals with the anti-avoidance clause of Art. 15 of the EU Merger Directive, which is considered to be the most refined reflection of that doctrine in direct tax law. The paper first examines the Union law concept of tax avoidance in general, and under the Merger Directive in particular. The corresponding sections critically analyze the doctrinal approach of the ECJ; they also discuss key criteria and structural features that are relevant in the context of any kind of GAAR in order to distinguish it from mere purposive construction and to establish a dividing line to acceptable tax planning. Second, the paper highlights the implications of Art. 15 Merger Directive with respect to national anti-avoidance rules or doctrines that apply to cross-border reorganizational operations. A possible direct effect and mandatory nature of these and other ‘anti-tax abuse’-provisions of EU law will be discussed, as well as questions of burden of proof and the admissibility of legal presumptions of tax avoidance.