The Expert Notes

Welcome to the new edition of the weekly " Expert Notes". In this edition, we explore the continuous advancement of digitalization and its effects on tax and customs practices, the enactment of novel environmental taxes, the integration of artificial intelligence in compliance procedures, and the resultant challenges faced by businesses.

And this week we start again with Sven Sistig, Vice President Tax Compliance:

From Plastic Tax to Data-Driven Compliance: Insight into the Changing Landscape of Tax and Customs.

The plastic tax is coming - manufacturers are to pay for plastic packaging!

The German government and the Federal Ministry of Finance announced their measures yesterday to help plug the "17 billion budget hole". Among other things, a "new" tax is to be introduced - the hashtag#plastic tax. However, this does not come as a complete surprise—an overview.

The EU has been levying a plastic tax on member states since 1 January 2021. This is intended to reduce the spread of non-recycled plastic waste. Until now, these levies have been paid from general funds, supported by the EWKFondsG assets from 1 January 2025. Now, an additional (further) tax is to be introduced.

The city of Tübingen is a national pioneer in this regard. It already levies a packaging tax.

However, one flavour remains. The idea behind the plastic tax, designed as an environmental and consumption tax, is to steer consumption in favour of the environment and consumption. So far, so good and justified.

However, at best, such a tax reduces consumption to zero (everyone will probably remember the alcopop tax). At the same time, however, a budget shortfall is now to be plugged with these revenues, among other things. Therefore, producing less plastic waste also means that tax revenues will fall. So, it is only a temporary benefit.?

Either way. The environment will thank us. Perhaps not quite so temporary after all.

Meanwhile, Ole Zimmer, Head of Customs, highlights a pivotal development in customs and tax administration: the shift towards more stringent compliance and the accompanying processes.

Extremely interesting development. Putting a higher focus on compliance and compliance related processes. (as with most decisions, with this one as well, the devil will be in the details what will be possible going forward and what needs changing) In a more general note, I feel that this is a growing conundrum of our times:

? As increasingly (customs)- authorities use AI and machine learning themselves for their work (crunching the ever-growing ocean of data collected by them).

? Companies struggling to fulfill bureaucratic burdens, which leverage the same technics, are suddenly in the spotlight for doing so.

? A case of "do as I say and not as I do" ?

Our Head of Data Science Felix Lamp, however, expresses that digitization is blurring the lines between service and manufacturing sectors, leading to a consumer market focused on need fulfillment over traditional product purchases, and driving firms to adapt by offering cost-effective, digitized services:

I find it fascinating that digitization is driving service firms like the?#Big4?wanting to produce products and manufacturing firms such as traditional car manufacturers wanting to offer services.

A book on Sales that I came across recently reminded me that consumers do not just buy products. They buy need fulfillment. Unless you buy a?#Hilti?drilling machine (where you also buy the sound of the machine and the joy of controlling something powerful), you buy a hole in the wall and not a drilling machine.

Similarly, when people buy cars they buy impressing their neighbor, relaxed family travel, the joy of speed etc. ? Most need fulfillments that I can think of are much closer to services than to products. So why do I buy products in the first place? Simple, they are much cheaper - I would prefer a personal driver to my car but I cannot afford him. ? Digitization makes the services that can be bought much cheaper (hopefully I have my autonomous driver soon).

These services are rendered by software products (autonomous driving, getting tax advice, navigating). Classical manufacturing firms fear of losing out to companies that offer services that fulfill needs better than their products. Service firms fear of losing out to companies that have software products that render their services more cheaply. That's the reason why service firms and manufacturers are moving closer to each other.

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And Monika Hagmann, our Tax Expert, delves into Part 3 of the ongoing analysis of the Draft French Finance Bill for 2024, highlighting its proposed expansion of data collection capabilities for tax and customs administrations to combat fraud. She reflects on the effectiveness and potential privacy implications of these extended measures:

?? Another Year, Another French Finance Bill – Part 3 ?

For 2024, the Draft French Finance Bill, released on September 27, 2023, provides some changes to the VAT legislation. ?

?? As stated in my last post, among others, Article 19 of the Draft Bill proposes to extend the experimentation provided in Article 154 of the French Finance Bill for 2020. ? In brief, this provision authorizes the Tax and Customs administrations to detect tax fraud through the collection and exploitation of certain data held by online platforms. ? Results derived from this approach are promising so far, hence the scope of this provision is also enlarged. ? Scope of application: ?

Who? Tax or Customs administration. ?What actions? Collect and use data by means of computerized and automated processing that does not use a facial recognition system. ? What data? Content that is freely accessible, and that is clearly made public by their users. ? What platforms? Websites of the online platform operators mentioned in 2° of I of Article L. 111-7 of the French Consumer Code. The definition of such operators is quite wide: “any natural or legal person offering, on a professional basis, against payment or not, an online public communication service based on […] bringing together parties in the aim to sell goods, provide a service or to exchange or share content, goods or services. ? For what reasons? Also quite extensive: “For the purposes of investigating tax and customs breaches and infringements”. ?

More concretely, concerned breaches are failure or delay to file a tax return despite formal notice or in the event of the discovery of a so-called hidden activity, or insufficiencies in a tax return as a result of a breach regarding tax domiciliation provisions, and the illicit manufacture, possession, sale or transport of tobacco. ?

?? This was censored by the French Constitutional Court since a formal notice supposes necessarily that the tax authorities had prior knowledge of the failure/late filing of the return. Hence, why would they need to collect data to find out whether such a return should have been filed… ? Infringements are fraudulent practices involving alcohol, tobacco and precious metals, and customs smuggling, the import and export of undeclared goods, and money laundering of financial proceeds from customs or narcotics offences. ?

?? ?Extension by Draft Bill 2024: The period of this provision shall be extended by two years. Furthermore, the scope of application shall be widened even more (!) and include (i) further breaches and infringements as well as (ii) further data. It will be interesting to see whether the French Constitutional Court agrees with these measures in view of the?fundamental rights and freedoms (respect of privacy and freedom to express and communicate) #VAT?#EUVAT?#FrenchFinanceBill?#FrenchDraftFinanceBill?#PLF2024?#Projetdeloidefinances?#eClear?#TaxExpertise?#CrossBorderCommerce

That concludes our current issue. In the coming weeks and months, we will continue to delve into these topics, providing you with in-depth insights and discussions on potential amendments. Stay tuned for enlightening analyses and expert commentary on these significant matters. Subscribe now!