On June 9, 2021 the key decisions of the European Commission’s June infringements package were published. With respect to Taxation and Customs Union the Commission decided to send reasoned opinions to Germany and Malta as well as an additional letter of formal notice to Sweden and letters of formal notice to Greece and Bulgaria.
Germany – Communication with the European Commission
On June 9, 2021 the Commission decided to send a reasoned opinion to Germany for failure to communicate all required national measures fully implementing the exit tax rules in Article 5 of Council Directive (EU) 2016/1164 of 12 July 2016, laying down rules against tax avoidance practices that directly affect the functioning of the Single Market (ATAD1). Germany also failed to communicate all required national measures implementing Council Directive (EU) 2017/952 of 29 May 2017 amending Directive 2016/1164 (ATAD1) as regards hybrid mismatches with third countries (ATAD2). The deadline for the communication of the measures was 31 December 2019. In the absence of full communication of all national implementing measures, the Commission may decide to refer the case to the Court of Justice.
Malta - Car taxation
On June 9, 2021 the Commission decided to send a reasoned opinion to Malta for failing to amend its rules on car taxation. The Commission considers that Maltese legislation is not compatible with Article 110 of TFEU prohibiting discrimination against imported products since cars imported from other Member States are taxed more heavily compared to domestic cars. Under the national provisions currently in force, cars first registered in Malta from 1st January 2009 are subject to a generally higher annual circulation tax than those registered before that date, due to a difference in the way the tax is calculated. The Maltese car taxation system does not take into account the date of first registration of the vehicle, where registration took place in another Member State. Consequently, the Maltese car taxation system has a discriminatory effect with respect to motor vehicles coming from other Member States. If Malta does not act within the next two months, the Commission may decide to refer the case to the Court of Justice.
Sweden - Rules limiting tax deductibility of interest paid to affiliated companies established in other EU/EEA States
On June 9, 2021 the Commission decided to send a complementary letter of formal notice to Sweden, drawing its attention to the incompatibility of its legislation limiting tax deductibility of cross-border intra-group interest payments with Union law. Under this scheme, interest deductibility is denied in relation to loan arrangements between affiliated companies established within the EU/EEA, irrespective of whether the terms and conditions of those arrangements remain at arm's length or not. In its ruling of 20 January 2021 in case C-484/19 Lexel, the Court of Justice held that the scheme amounts to an unjustifiable restriction on the freedom of establishment set out in Article 49 TFEU. While Sweden introduced some modifications to the rules in question as of 2019, their general design remains unchanged and the infringement is yet to be remedied. The Commission had sent a letter of formal notice in 2014. Sweden has two months to address the shortcomings identified by the Commission, after which the Commission may decide to send a reasoned opinion.
Greece - Failure to comply with EU VAT rules on postal services
The European Commission has decided to send a letter of formal notice to Greece for its failure to properly apply EU rules regarding the VAT exemption of postal services. According to the Court of Justice, the exemption provided for in the VAT Directive (Article 132(1)(a) of Council Directive 2006/112/EC) is intended to encourage specific activities in the public interest. This general objective takes the form, in the postal sector, of offering postal services that meet the essential needs of the population at a reduced cost. It follows that postal services provided by the Universal Service Provider, the Hellenic Post (‘ΕΛΤΑ') for which the terms have been individually negotiated (such as bulk mail, special discounts, commercial agreements with specific organisations), and other services which are not part of the universal postal service,) do not constitute activities of public interest since those services, by their very nature, meet the special needs of the users concerned. The Court of Justice has clearly ruled that the option to negotiate contracts with customers individually does not correspond, in principle, with the concept of universal service provision. Therefore, such services do not qualify for the VAT exemption. In consequence, by exempting all postal services provided by the Hellenic Post (including those not meeting the essential needs of the users concerned), Greece has failed to fulfil its obligations under Council Directive 2006/112/EC of 28 November 2006 on the common system of VAT. Greece has two months to address the shortcomings identified in this letter of formal notice. If Greece does not act within the next two months, the Commission may decide to send a reasoned opinion.
Bulgaria – The Commission requests BULGARIA to abolish exemption for undertaxed subsidiaries
The Commission has today decided to send a letter of formal notice to Bulgaria drawing its attention to the tax treatment of undertaxed subsidiaries. The taxation of such companies is required under Council Directive (EU) 2016/1164. The anti-avoidance rules allow the Member State where a parent company is based to tax not only the profits of that parent company, but also the profits of its subsidiaries that do not pay sufficient corporate tax (or no tax) in their jurisdiction of residence. The current legislation transposing this Directive in Bulgaria includes an undue exemption for subsidiaries (also known as controlled foreign companies), which are subject to “alternative forms of taxation”. Such an exemption is not allowed by the Directive. The Commission therefore considers that the undue exemption of subsidiaries that are subject to “alternative forms of taxation” constitutes an infringement to the Anti-Tax Avoidance Directive. Bulgaria has two months to address the shortcomings identified by the Commission after which the Commission may decide to send a reasoned opinion.
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