Recently in European Community Category

An EU-wide study by KPMG has found substantial support for the European Community's proposed Common Consolidated Corporate Tax Base (CCCTB). The study sought the views of tax professionals in over 400 companies across the European Community, and 78 per cent of respondents approved of the CCCTB.

The rationale behind the CCCTB is to provide a consolidated tax base for companies in their activities across the European Union. If it all works as intended, a company in a member state would not need to feel its way around the different company tax regimes in all the countries of the European Community in which it does business. Instead, the CCCTB will provide a uniform formula according to which the company's profits should be calculated. The profits so determined will be allocated to the countries where that company does business, and taxed in those countries using their tax rates.

Therefore what is being proposed is not a uniform rate, rather it is a uniform way of determining profits, and allocating them back to the relevant countries.

To read the KPMG press release, click here.

I must say, I was surprised by the high percentage of respondents in support of the proposal. I suppose, the bigger the company, the more desirable a uniform system could be. A company operating in many countries in the EU could be spared a lot of uncertainty by having just one set of rules to consider. A smaller company, on the other hand, with operations in perhaps one other country, may not be that concerned, particularly if that other country is one with which it has had so many dealings, to the point that it is well acquainted with its rules.

The proposals should reduce, to some extent, the power of national governments to use tax policy to influence matters at home. For instance, a Government may wish to give incentives by allowing certain allowances or deductions in determining profits. To what extent will this power be reduced? We already have State Aid rules to deal with some of these issues, but I suppose this goes one step further.

I have many questions about how the CCCTB will work in practice. The proposals will be published next year, making things a lot clearer then.

Judgement has been given in the case brought by the Federation of Tour Operators (FTO), in which they sought judicial review of Gordon Brown's decision to increase air passenger duty. I blogged about it here.

As well as opposing the increase, the FTO also argued that air passenger duty was itself an unlawful tax.

Unfortunately for the FTO, the judge disagreed with them on both grounds.

The judge held that:

• the imposition of air passenger duty, and its increase, were not prohibited by the 1944 Chicago Convention on International Civil Aviation;
• the measure also did not breach article 49 of the EC Treaty (which prohibits restrictions on freedom to provide services within the EC).

The judge also held that, even if the measure had breached art 49 of the EC Treaty, it would still have been OK because it satisfied the 'proportionality' requirement.

Bad news for the FTO. I wonder what, if any, action they will take next.

Click here to read the judgment. I am reading it now, and will provide some analysis later.

UK mobile phone companies have failed in their bid before the European Court of Justice (ECJ) to recover VAT on payments for 3G licences.

The affected companies are Hutchison 3G UK Ltd, mmO2 plc, Orange 3G Ltd, T-Mobile (UK) Ltd and Vodafone Group Services Ltd. They were allocated licences to provide so-called third generation (3G) mobile phone services, such as video and internet services. The companies paid sums totalling around £22.5bn to the UK government for the 3G licences.

They then sought to claim VAT (of around £3bn) on the payments, on the ground that the allocation of the licences was subject to VAT.

As a principle, a transaction is subject to VAT if it constitutes an 'economic activity'. So the question was, did the allocation of licences by the Government qualify as economic activity?

The ECJ thought not. It held that the allocation of rights by the Agency constituted 'a necessary precondition for the access of economic operators to the mobile telecommunications market.' Such an activity by a national authority could not constitute participation in the market. The Court therefore held that the allocation did not constitute economic activity, and was therefore not subject to VAT. The mobile phone companies were therefore not entitled to claim VAT on the amounts they had paid.

To read the ECJ press release click here.

For the full judgment, click here.

Note. A similar case concerning Austrian mobile phone network providers was also being heard by the ECJ at the same time as the above case. To read that judgment, click here.

Photo credit: © Photographer: Dawn Hudson | Agency: Dreamstime.com.

With effect from tomorrow, 15 June, a new EU law on the declaration of cash by travellers, comes into force.

The aim of the European Parliament and Council Regulation (EC) No 1889/2005 is to target money laundering. If you are travelling to the UK from outside the EU, or travelling from the UK to anywhere outside the EU, then you could be affected by the law.

If you are making either of the above journeys, and are carrying cash of 10,000 or more euros, or the equivalent, you will be required to declare the cash to the taxman. Failure to do so will lead to a fine of up to £5,000.

'Cash' doesn't cover just banknotes and coins, but extends to bank drafts and cheques.

The declaration must contain the following information:

• the declarant, including full name, date and place of birth and nationality;
• the owner of the cash;
• the intended recipient of the cash;
• the amount and nature of the cash;
• the provenance and intended use of the cash;
• the transport route;
• the means of transport.

Any information obtained under the declaration may be shared with the authorities responsible for dealing with  money laundering, as provided under art 6 of the EEC Council Directive 91/308 (on prevention of the use of the financial system for the purpose of money laundering).  On close reading of the new regulation, it appears that even where a declaration has been made, and accepted as legit, this information can still be shared.

Cash that has been properly declared may be seized by the taxman, under the Proceeds of Crime Act 2002, if he has reasonable suspicion that it has come from dodgy dealings. So is it then up to the traveller to prove that the money is legit?

Also, if a traveller is carrying cash below the 10,000 euros mark, and there are indications to suspect that the money is linked to illegality, those indications, together with the traveller's name, date and place of birth, nationality, and means of transport, may be recorded and processed, and shared with the authorities responsible for dealing with  money laundering.

The declaration form should be up on the HMRC website from tomorrow. I will add a link to this post when I find the form.

eBay is moving its tax base from the UK to Luxembourg.

Reason? Cheaper VAT rates. The Luxembourg standard VAT rate is 15 per cent, while the UK's is 17.5 per cent.

Not much, perhaps, but who can blame them?

The Fisherman believes that we are only at the beginning of a tax exodus, with Luxembourg benefiting at the UK's expense. We have highlighted this before.

Someone else (ie, apart from Uncle Gordon) has embraced the 'Tax will save the environment' doctrine.

Yes, it's our old friend, the European Commission. Word is that they are planning a few 'green taxes' of their own, which they intend to  introduce to member states.

Not many details yet; in any case, the taxes are not intended to take effect before 2009.

Something tells me Uncle Gordon won't take this lying down. The way he sees it, if anyone is to introduce taxes in this country, surely it should be he, and no-one else.

If all goes well, 'booze cruises' may soon become a thing of the past. The European Court of Justice (ECJ) is set to rule next week that goods which we buy elsewhere in the EU without setting foot outside the country will only attract duty in the country of origin. No need therefore to traipse across the Channel for booze and fags. We can just order them over the internet, pay the much lower duty charged in that country, and have them delivered here free of UK-duty. This is a big tax saving, as we all know the hefty duty payable on these goods if we buy them in the UK.

Who will suffer? Small businesses in the UK, of course. UK duty is one of the highest in the EU. It therefore makes sense to buy the goods from a country with a lower duty. Who is going to want to buy 200 cigarettes from the local off licence for almost £50, when with a click of the mouse, same cigarettes can be bought from Riga for a little over £7? Uncle Gordon will also suffer as this will lead to a drop in the £15bn he rakes in every year from both tobacco and alcohol duty.