The Tax World is Flat - the 10 top tax issues of 2018

In the international tax research classes, we address the importance of having a holistic view of taxation and its developments. Keeping track of changes in a digitalised world where data never sleeps is both challenging (if your lack some skills) and overwhelming (if you think you have all the skills). Here is where, having a strong understanding of the principles, foundations and sources of international tax will be the “roots” of your “tree”. Only then you will be able to understand the “truck”, “branch” and “twigs” and hope nobody says that you “can’t see the forest for the trees”. In other words, the big picture that is so important in tax law (due to its interactions with other fields of law, economy and public policy) is something you gain with patience and work.

The myriad of technology tools may help to better grasp the “big picture” by linking elements that perhaps otherwise would not be available. For example, the ability today of having a combination of different type of sources is astonishing from tax podcasts on developments (example), webcasts on several topics (example), tax blogs (example), news bulletins sent to your e-mail (example), YouTube tax lectures (example) to complement with your standard (albeit indispensable) journals and books. Abusing of the title of Thomas L. Freidman famous book, The Tax World is Flat. 

This also links well with yet another sub-topic emphasized in the lectures - the importance of a good grasp of comparative tax law to understand and link foreign developments with your own jurisdiction. There are books that help improve your learning curve (example 1 and 2) but remember that principles, foundations and sources are key. Special mention to the IMF work (even if a bit outdated) Tax Law Design and Drafting, which remains a good companion.

This was an interlude for personal choices of 10 international tax issues of 2018. Here is my selection:

1. The first is the one year of the US tax reform (TCJA). For a non-US tax specialist with limited knowledge of the intricacies of US tax law (Code and Regs), the US tax reform was an opportunity to push the reset button, to try to understand its economic policy and tax policy, the ones that say it deserves credit or its harsh critics. The international components of the US tax reform deserved attention with the anti-abuse tax (BEAT) and the global intangible low-taxed income (GILTI) at the helm (see the two part article of Shaviro). For those reasons, the US tax reform was perhaps the event of 2018, which due to the worldwide implementation challenges, created the need for extra-study.

2. From one legal maze to another, Brexit deserves a mention. In the first place because we were left on a cliff-hanger regarding its outcome. This matrix will get your head spinning. Just an unprecedented situation to raise such interesting tax issues, ranging from impacts on the direct tax directives (dividends, interest and royalties), impact on tax grouping and losses, impact on preferential regimes such as merger reliefs, customs duties and VAT and expatriate tax issues. Fortunately, the availability of information is significant and therefore it is a question of maintaining yourself ready for March 2019 outcome.  

3. The European turns and twists on taxing digital economy comes in third, just because it more or less derailed in the last EU meeting. It had everything to be the top issue of 2018. Again this seems to be the US reform or Brexit polarisation all over again, with avid proponents and fierce critics. To understand the context and both proposed Directives the recent comprehensive works “Taxation of the Digital Economy: A Pragmatic Approach to Short-Term Measures” and “Digital Battlefront in the Tax Wars” provide an idea that the circle is not completed from a technical perspective. 

4. The EU digital novella links well with the slightly wider topic of emergence of “value creation” concept, which bubbled as the “say word” of 2018. The much awaited OECD Tax Challenges Arising from Digitalisation – Interim Report 2018 contributed alone with more than 50 references to value creation. Nothing like the wise words of Vanistendael (my first EU tax law professor at Leuven) to put this new concept in perspective. The big issue using value creation as a proxy for taxation nexus is a hot topic and the recent work on How Data Should (Not) Be Taxed helps understand this. 

5. For some the milestone of the entry into force of the Multilateral BEPS Convention on 1 July should have deserved a higher rank. This is perhaps due to a natural adversity towards complex puzzles and the number of tax treaties impacted by the MLI still being relatively low (17 jurisdictions ratified), although definitely 2019 will mark a significant widespread on the implementation.

6. One of the developments of 2018 was Council Directive (EU) 2018/822 or DAC 6 (the EU mandatory disclosure rules inspired in Action 12 of BEPS Project). The potential impacts are far-reaching, placing taxation more and more as a core issue at boardroom level. Under this new transparent world, companies need to navigate the harsh waters of communication on tax matters from a corporate responsibility, risk management and compliance perspective – as mentioned in earlier articles brace for impact.

7. The unusual suspect in the list is a US Supreme Court decision on a sales tax. Indeed, the decision in the Wayfair case, a 5-4 decision where the Court overturned the prior physical presence nexus standard required in order for a US state to impose a sales or use tax collection responsibility upon a remote seller, was a widespread discussed issue. In a digital world, there was quickly much written and discussed on the potential international ramifications of this decision. The link with the OECD digital debate and for foreign companies demonstrates the potential of this debate.

8. The reluctant State Aid recovery. Apple deposited €14.3 billion into the Escrow Fund representing the full recovery of the alleged State Aid but Ireland continues not to accept the Commission’s analysis and lodged an appeal with the European Court of Justice (Case T-778/16 and Case T-892/16). The Court of Justice started last June hearing the Fiat (Joined Cases T-755/15 and T-759/15), Starbucks (Joined Cases T-760/15 and T-636/16) and Belgian Excess Profits Ruling cases and those are expected to set the scene likely in 2019 for the other pending cases.

9.  We are approaching the end of the list and in the 9th place is the BEPS’s second life or tweet. Will there be BEPS 2.0 in 2019? Will the search for a consensus on digital taxation open the door for a second BEPS life and even more ambitious plan?

10.  Finally, there is no list without a reference to the king of sports - football. There was a famous player who, by moving to Italy, helped to put unintendedly in the limelight the recent Italian non-domiciled tax regime. 

Let see the next chapters on many of this stories.