Tax News, June 2022

The May issue of EY Tax News brings the following developments:

• Amendment of Decree on the fire tax

• The legislative proposal on the agreement on carbon border adjustment mechanism (CBAM) returns to the European Parliament

• VAT Expert Group issues a new opinion on fixed establishments

Amendment of Decree on the fire tax

On the 10th of May 2022, the government of the Republic of Slovenia has accepted an amendment to the Decree on the fire tax. The amendment refers to Article 5 of the Decree on the fire tax in which the current tax of 5 percent is increased to 9 percent of the basis for calculating the fire tax.

The fire tax is paid from the insurance premium paid to the insurance company for insurance against fire risk. This amendment enters into force with 1st of October 2022.

The legislative proposal on the agreement on carbon border adjustment mechanism (CBAM) returns to the European Parliament

As previously reported in the April tax news, the EU is currently in the process of adopting legislation that will introduce a new environmental duty, i.e., Carbon Border Adjustment Mechanism (CBAM). It is a part of European Commission´s package, that is aimed at reducing carbon dioxide emissions by 55% by 2030 and to achieving carbon neutrality by 2050.

On 8th June 2022, the European Parliament rejected the proposal for revision of the EU Emission Trading System (ETS), which also represents the foundation for CBAM. The main reason for this is mostly political, as the current proposal was claimed to lack ambition and be in favor of emission intensive industry. Consequently, there was no vote on the CBAM proposal and thus the legislative proposal is returning to a new round negotiation in the European Parliament before the vote, where the Committee on the Environment, Public Health and Food Safety of the European Parliament (ENVI) will re-design the  proposal.

Next steps

The legislative proposal is returning to the European Parliament for re-design and a new proposal is expected by the end of summer 2022, which will be followed by a vote in the Parliament. Despite the current setback, it is expected that the proposed implementation timetable will not be significantly delayed. The transitional reporting period is still expected to begin in 2023 (most probably in the second half). Companies have thus probably gained a few months to prepare for reporting obligations.  

VAT Expert Group issues a new opinion on fixed establishments

On 2 June 2022, VAT Expert Group (VEG), appointed to advise the EU Commission within the Directorate-General Taxation and Customs Union, issued a new opinion on fixed establishment.

The opinion emphasizes great legal uncertainty, steaming from unresolved fundamental questions regarding fixed establishment as a principle.

Conditions for the existence of fixed establishment are set forth by the Council Implementing Regulation (EU) No. 282/2011 of march 15^th, 2011, which defines Fixed establishment as “any establishment, other than the place of establishment of a business referred to in Article 10 of this Regulation, characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to receive and use the services supplied to it for its own needs”

Over the last years, Court of Justice of the European Union (CJEU) has dealt with questions of existence of fixed establishment in several cases. While judgements did bring some clarity, VEG remains of the opinion that legal uncertainty remains significant and urges the EU Commission to address this topic as a matter of priority. VEG has summarized the key questions in three building blocks:

a) Human and technical presence test

b) Permanence test

c) Legally (in)dependent entity as an FE of another taxable person

At the same time, VEG has presented concrete examples of situations in which existence of FE is currently unclear:

• A rented out building without any human resources as a FE?
  
• Assembly operation / construction site PE as a FE?
• Presence of field service engineers in situ, whereby all technical, planning, consulting and contractual aspects are handled abroad, at place of establishment
• Charging stations (e-mobility)
• A dependent legal entity, performing toll manufacturing services. Can such dependent legal entity form a FE of the principal, even if it cannot itself render the supplies of produced goods?
• A dependent legal entity performing warehousing services. Can such dependent legal entity form a FE of the principal, even if it cannot itself render the supplies of goods from the warehouse to third parties?