The new edition of the EU Tax Alert is available. With this publication we would like to keep you informed of the latest developments on EU tax law.


Commission proposes transformation of EU economy and society to meet climate ambitions and postpones digital levy

Fit for 55 package

In EU Tax Alert 189 (July 2021) it was mentioned that the Commission had issued a communication on business taxation for the 21st century and the announcements made in this communication are expected to translate into actual legislative proposals in the next three years. With respect to the measures in this communication that seek to increase 'green taxation' the Commission has now adopted a package of proposals (the so-called 'Fit for 55 package') to make, among others, the EU's taxation policy fit for reducing net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. The measures contain, among others, a reform of the EU Energy Taxation directive, introducing a carbon border adjustment mechanism (CBAM) (to prevent dumping from businesses established in countries with laxer rules against pollution) and revising the EU emission trading system (EU ETS) to increase the price of carbon emission rights and further incentivise businesses to upgrade their production processes in a more environment-friendly manner. The latter two measures, CBAM and EU ETS, would raise own resources for the EU.

Digital levy postponed

In the communication for the 21st century, the Commission stated that the proposal for the EU Digital Levy would be released in July 2021. The Commission confirmed that it will prioritize the completion of a global tax accord before reassessing the EU Digital Levy. The proposal is now scheduled for October 2021.

General Court opening decision in NIKE investigation stands

Nike and Converce filed an appeal with the General Court to have the Commission's decision to open a formal state aid investigations into some of their rulings annulled. On 14 July 2021 (case T-648/19), the General Court held that there was sufficient reason for the Commission to open a formal investigation to gather more information to address certain doubts it had. The Court also underlined that NIKE's claim of being treated unfairly as being singled out from a larger group of ruling recipients was not relevant, as the Commission has discretion to select the cases it pursues regardless of whether a body of 98 advance pricing agreements (APAs) issues by the tax authorities constituted an aid scheme as such, as NIKE argued.

CJ rules on VAT treatment of services provided by insurance intermediary (Radio Popular)

On 8 July 2021, the CJ delivered its judgment in the case Rádio Popular – Electrodomésticos SA (C-695/19).

Rádio Popular – Electrodomésticos SA ('Radio') is a supplier of consumer electronics. Radio also acts as an insurance intermediary for consumers wishing to extend the warranty on purchased products. The insurance contract will be concluded directly between a third-party insurer and the consumer. In return for its brokerage services, Radio charged a brokerage fee to the consumers. Radio did not take the brokerage fees into account when calculating the VAT recovery on general costs, because it argued that the brokerage services were incidental financial transactions. The Portuguese tax  authority argued that the brokerage services did not qualify as incidental financial transactions, resulting in a lower VAT recovery right for Radio with regard to general costs.

In its judgment, the CJ first assessed whether the brokerage services are VAT exempt under the insurance exemption. The insurance exemption applies to insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents. The CJ considered that the brokerage services rendered by Radio fulfilled the essential aspects of the work of an insurance agent (such as the finding of prospective clients and their introduction to the insurer, with the view of concluding insurance contracts). Because of this, the CJ ruled that Radio's brokerage services were VAT exempt. Due to the VAT exempt brokerage turnover, Radio will in principle be limited in its right to recover VAT on general costs.

When calculating the VAT recovery ratio for general costs, the turnover realized in connection with 'incidental financial transactions' does not have to be taken into account based on the EU VAT Directive. Radio argued that the brokerage services qualified as incidental financial transactions. The CJ did not follow this line of reasoning because 'insurance transactions' are not synonymous with 'financial transactions'. Because of this, the CJ ruled that the VAT exempt brokerage turnover should be taken into account by Radio for the computation of the VAT recovery ratio relating to general costs.

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