Author Archives: Jeroen Lammers

Denmark proposes number of tax changes through new labour market plan

On 7 September the Danish government has presented a plan to increase the number of people that are active on the labour market. This plan also has a number of tax proposals in order to finance the plan, as well as position Denmark to become more prosperous, greener and more skilled.

The tax proposals include:

  1. To support innovation the temporary superdeduction of 130% for R&D expenses by business will be made permanent. The superdeduction will be capped at a tax value of the deduction of DKK 50 million.
  2. To support the energy transition, the government proposes to reduce the general electricity tax gradually by 23 øre/kWh by 2030. This reduces the tax from 90 øre/kWh in 2021 to about 57 øre/kWh by 2030. The new reduction will be phased in from 2022.
  3. The so-called green cheque will be abolished. The green cheque was introduced in 2010 as a blanket compensation for raising environmental taxes. The proposal will leave the green cheque for pensioners and the supplemental green cheque for children of 240 DKK in place.
  4. the government proposed that the highest tax rate for share income should be raised from 42 to 45 percent. In addition, the ceiling that ensures that the tax on positive net capital income cannot exceed 42 percent will also be raised to 45 percent.

It is expected that these proposals will be sent to parliament soon. The government’s plan can be found here. https://fm.dk/media/25134/danmark-kan-mere-1_web.pdf

 

Jeroen Lammers joins Dr2 Consultants Brussels as Associated Partner

Dr2 Consultants Copenhagen is pleased to announce that Jeroen Lammers will from now on also join the Dr2 Consultants team in Brussels as associated partner.

Jeroen will also continue to manage the Dr2 Consultants Copenhagen office in Denmark. He will share his international experience in public affairs in the EU, the OECD, the Netherlands and Denmark and his international network with the clients of the Dr2 network in Brussels.

The importance of global public affairs is growing, as policy areas and companies extend across borders and become more and more interconnected. The closer cooperation between the Dr2 Consultants offices in Brussels and Copenhagen underlines this and contributes to further increase the impact of the global Dr2 network with offices in The Hague, Shanghai, New York, Copenhagen and Brussels.

Public consultation on simplifications of transfer pricing documentation

On 23 June the Danish ministry of Taxation opened a public consultation to simplify transfer pricing documentation. The current rules require transfer documentation for all intra-group transactions, also between purely domestic situations.

The government proposes that the obligation to document applies only in situations where there is an actual risk that tax avoidance and tax arbitration may occur. This means that the requirement will be relaxed for transaction between Danish companies in the same group that are both subject to Danish corporate income tax.

The details of the consultation can be found here https://hoeringsportalen.dk/Hearing/Details/65287 . The proposal is expected to enter into force on 1 January 2022.

“Business Taxation for the 21st Century” communication and its impact on businesses

On 18 May, the European Commission published a new communication titled “Business Taxation for the 21st Century”. With this, the Commission presented its EU tax agenda for the short and long term, following the ambitious roadmap set out in the Tax Action Plan of the Fair and Simple Taxation Package, presented last summer.

This agenda builds on the current discussions on tax policy at the Organization for Economic Cooperation and Development (OECD) level, but also goes a lot further. The Commission announced no less than seven new legislative proposals that will have a big impact on companies that are active in the EU, especially with regards to compliance requirements. Most of these proposals are expected to be published in the second half of 2021. In this blog post, Dr2 Consultants will provide you with an overview of the most relevant initiatives of the communication and will highlight how they will impact your business.

EU Digital Levy

On 14 July 2021, the Commission will publish its proposal for a European Digital Levy. There are indications that the Commission will propose a 0.3 to 0.5% tax on turnover from digital services that are provided by companies with a turnover of €250 million. The EU Digital Levy could therefore impact a lot more businesses than only the U.S. big tech companies. It is therefore likely that the proposal will affect tax compliance costs, tax revenues and the competitiveness of EU digital companies, and ultimately consumers. Read more on this topic here.

To learn more about this topic, we invite you to attend this Digital Tax Virtual Roundtable on 22 June 2021 from 10h30 to 11h30 AM CEST.

Directives following the OECD discussions on business taxation

Since 2019, the OECD has been discussing how to address the tax challenges of the digitalization of the economy (Pillar 1) and how to combat tax avoidance through a global minimum tax (Pillar 2). The G7 finance ministers agreed on 5 June 2021 that market jurisdictions should get a bigger share of the corporate income tax revenue and that there should be a global minimum tax rate of 15%. This deal in the G7 brings the agreement in the G20/OECD discussions on tax reform much closer. It is expected that a high-level political agreement in the G20/OECD could already be achieved in the beginning of July 2021, thus clarifying the details of the agreement during the Indonesia Presidency of the G20 in 2022.

Directly following this agreement in July 2021, the Commission will publish (consultations on) proposals for two new directives to ensure uniform implementation of the OECD proposals in the EU. Even though there might be some push back from Member States with regards to a minimum tax rate of 15%, it is likely that these proposed directives will be adopted quickly. These proposals will lead to higher compliance costs as the impacted companies will have to calculate if and which portion of their profits should be taxable where their customers are located.

Fighting tax avoidance (ATAD 3)

To further support its work on business taxation, in Q4 of 2021 the Commission will present a proposal to prevent the misuse of companies with very little substance and without real economic activity (so-called shell companies). By means of this proposal, EU companies will be subject to new compliance requirements, as this will lead to more reporting to the tax administration on the presence of real economic activity in companies in the corporate structure. Particularly with regards to intermediary holdings this proposal could mean much higher reporting requirements to safeguard access to the benefits of tax treaties.

The Commission will also present a proposal in Q4 that will limit the deduction of royalty and interest payments to companies that are located outside of the EU. The aim is to prevent that these types of payments are used to avoid paying tax in the EU. The consequence of these proposals, however, is that much more information will have to be provided to the tax authorities with regards to these payments to safeguard deduction where there are valid business reasons.

Increasing transparency in business taxation

In the first half of 2022 the Commission will publish a proposal for a directive that requires big companies to publish the effective tax rate they pay over their profits. It is likely that these effective tax rates will need to be published on a country-by-country basis. In addition, it is still unclear if this requirement will only apply to companies with a worldwide turnover of more than €750 million (following from the G20/OECD discussions) or that the EU would put the revenue threshold on €250 million, as they plan to do with the Digital Levy.

Encouraging equity over debt financing

In Q1 of 2022, a proposal for a directive is expected that will make it more attractive to finance investments with equity in order to discourage that companies take on too much debt. The proposal most likely will involve an allowance for equity (ACE). However, the possibility to deduct a percentage of (the mutation of) a company’s equity also comes with new reporting requirements. For instance, it would make it necessary to perform all sorts of corrections to the fiscal equity as it shows on the balance sheet to ensure that the equity cannot be artificially inflated to increase the deduction.

A new framework for business taxation

Finally, the Commission announced a new framework for business taxation in the EU to be published in 2023. The “Business in Europe: Framework for Income Taxation” (BEFIT) will build on the existing proposal for Common Consolidated Corporate Tax Base (CCCTB) that has been pending since 2011. If adopted, BEFIT will make it possible for companies to file their tax assessment for all their EU activities in one Member State. This one-stop-shop approach should mean a reduction in the administrative burden that companies now have to deal with when filing separate tax assessments in all the Member States where they are active. The experience with the CCCTB so far, however, shows that it is not easy for all the Member States to quickly align on this proposal.

What can Dr2 Consultants do for you?

Dr2 Consultants continuously monitors the developments of the discussion on the new global, EU and national tax regimes, so we can help you keep well-apprised of the relevant developments in the coming months. Should you be interested in further information on any of the EU Commission’s business taxation proposals and how these could specifically impact your business, you can reach out to Dr2 Consultants at jla@dr2consultants.dk . Also, find out how our monitoring services can help your business here.

 

 

 

 

 

Digital Service Tax can help to create real jobs

Digital Service Taxes: people either seem to love ‘em or hate ‘em.

Proponents want DSTs to right the wrong that some companies pay very little corporate income tax in markets where they sell a lot but do not have ‘a physical presence’. Countries that host these companies see nothing in terms of ‘compensation’ for the benefits they provide them. So, the current (proposals for) DSTs aim to do one thing: create revenue in the market jurisdictions.

Opponents do not like the DST for that exact same reason: markets are just making a grab for tax revenue. As DSTs tax on gross basis, companies will have to pay twice; on their turnover and on their profit. This will – possibly even more so than double taxation on a net basis – have a host of deadweight loss effects in terms of loss of innovation, loss of jobs, loss of wealth etc.. For, introducing such an extra tax burden will influence behaviour.

Good tax policy produces a tax system that is efficient, equitable and administrable. The current system probably has been a little too efficient, in the sense that companies were able to organise much of their tax burden – and thus the accompanying distortions – away. This feature makes for a very poor score on the equity scale.

However, you can’t fix this problem just by saying: “Here’s some extra revenue!”. For the international tax system to be sustainable, the whole system needs to be fair by design, all parts need to fit together, and all elements need to be based on general principles. Otherwise, you might fix the equity problem on the short-term, but not without wreaking structural havoc on the efficiency part (and as far as the OECD proposals go, also on the administrability part).

You can overcome this improving the design of DSTs so they become an integral part of the international profit tax system. That way you can also really use DSTs to make the whole system work better. How? By fashioning a docking station for DSTs to properly connect to the profit tax system. And you can do that with only a minor adjustment: the country that collects the DST should introduce a CIT tax credit. So, the DST paid in year x can be off-set against the corporate income tax due over that same year. This is helpful in two ways:

  1.  It ensures that companies can choose to avoid the extra tax burden of the DST, thus eliminating the deadweight loss. The only thing they need to do is make sure there is enough taxable profit in the country that levies the DST – and that requires putting real investments there, real people, real jobs.
  2. Pushing profits (back) towards where the market is, automatically means that corporate income tax revenue is more evenly distributed over the world.

So, no transfer pricing antics are needed. The arm’s length principle can stay intact. And market jurisdiction (including developing countries) can take their place in the driver’s seat. All that countries need is a national tax credit. And Pillar 1? We can all quickly forget about that plan. Who needs all that complexity in order to bend economic reality to some imagined shape, if you can just use market forces to incentivise companies to willingly change their global value chains back to a more decentralised model? Isn’t that much more efficient, equitable, administrable and fair?