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On September 7, 2017 on the website of the Court of Justice of the European Union (CJEU) the opinion of Advocate General Bobek in the Case C-305/16, Avon Cosmetics Ltd versus The Commissioners for Her Majesty’s Revenue and Customs (ECLI:EU:C:2017:651) was published.
Avon Cosmetics Limited (‘Avon’) sells its beauty products in the United Kingdom to representatives, known colloquially as ‘Avon Ladies’, who in turn make retail sales to their customers (‘direct selling model’). Many of the Avon Ladies are not registered for VAT. As a result, their profit margins would not normally be subject to VAT.
That problem of ‘lost VAT’ or ‘VAT avoidance’ at the last stage of the supply chain is typical of direct selling models. In order to deal with that problem, the United Kingdom sought and obtained a derogation from the standard rule that VAT is charged on the actual sales price. In Avon’s case, that derogation essentially allowed the United Kingdom’s tax authority, Her Majesty’s Revenue and Customs (‘HMRC’), to charge Avon VAT, not on thewholesale price paid by the unregistered Avon Ladies, but instead on the retail price at which the Avon Ladies would go on to sell the products to the final consumer.
However, the way the derogation is applied does not take into account the costs incurred by the unregistered representatives in their retail selling activities, and the input tax that they would normally have been able to deduct had they been VAT registered (‘notional input tax’). In particular, where Avon Ladies buy products for demonstration purposes (not to resell but to use as a selling aid) they cannot deduct VAT on those purchases as input tax.
The result is that the disregarded notional input tax in relation to such costs ‘sticks’ in the supply chain and increases the overall VAT charged on the direct selling model over that charged on sales through ordinary retail outlets.
In the context of a challenge by Avon of its VAT assessment, the referring court asks a number of questions concerning the interpretation and validity of the Derogation. In particular, the referring court asks: (i) whether there is an obligation to take into account the notional input tax of direct resellers such as the Avon Ladies, (ii) whether there was an obligation for the United Kingdom to bring the issue of notional input tax to the European Commission’s attention when it requested the Derogation, and (iii) what would be/what are the consequences of failing to comply with either of those obligations.
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On September 7, 2017 the Japanese Ministry of Finance issued a press release announcing that on that same date the Government of Japan and the Government of the Russian Federation signed a Convention for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance (Hereafter: the new DTA).
Although the DTA has been signed, it has not entered into force yet. For the new DTA to enter into force, the respective ratification procedures have to have been finalized in both countries. The Convention between the Government of Japan and the Government of the Union of Soviet Socialist Republics for the Avoidance of Double Taxation with respect to Taxes on Income, with Protocol, signed at Tokyo on 18 January, 1986 shall between Japan and Russia cease to be applicable from the date upon which the new DTA applies in respect of the taxes to which the new DTA applies in accordance with the provisions of Article 29, Paragraph 2 of the new DTA (“ENTRY INTO FORCE”).
Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.
Read more: Japan and the Russian Federation conclude a new DTA
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On September 7, 2017 the Court of Justice of the European Union (CJEU) judged in Case C-6/16, Eqiom SAS, formerly Holcim France SAS, Enka SA versus Ministre des Finances et des Comptes publics (ECLI:EU:C:2017:641).
This reference for a preliminary ruling concerns the interpretation of Articles 49 and 63 TFEU, and of Article 1(2) of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (OJ 1990 L 225, p. 6), as amended by Council Directive 2003/123/EC of 22 December 2003 (OJ 2004 L 7, p. 41) (‘the Parent-Subsidiary Directive’).
The request has been made in proceedings between Eqiom SAS, formerly Holcim France SAS, successor in law to Euro Stockage, and Enka SA, on the one hand, and the French tax authorities, on the other hand, concerning the refusal of the latter to exempt from withholding tax dividends distributed by Euro Stockage to Enka, the parent company of Euro Stockage.
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On September 6, 2017, the Swiss Federal Council opened a consultation on tax proposal 17. The Swiss Federal Council started the project “Tax proposal 17” after the failure of the third series of corporate tax reforms. The purpose of the proposal is to make a significant contribution to Switzerland remaining an appealing location and thus to added value, jobs and tax receipts.
The consultation will run for three months and ends on December 6, 2017. In a press release it is stated that the Federal Department of Finance (FDF) is planning to submit the dispatch for Parliament to the Federal Council in the spring of 2018. Consequently, the earliest that tax proposal 17 can enter into force is 2020.
Read more: The Swiss Federal Council opens a public consultation on tax proposal 17
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On September 6, 2017 the OECD released an update of its Guidance on the Implementation of Country-by-Country Reporting.
The additional guidance addresses a.o. the following issues:
· the definition of revenues;
· the treatment of MNE groups with a short accounting period; and
· the treatment of the amount of income tax accrued and income tax paid.
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