E-News from the EU Tax Centre

E-News from the EU Tax Centre

Issue 58

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Latest CJEU, EFTA and ECHR

Belgium – Argenta Spaarbank (C-578/14)

On June 4, 2015 the CJEU issued an order in the Argenta Spaarbank (C-578/14) case, adopting the view that the case was inadmissible. The referred question concerned the compatibility of the non-deductibility of interest under Belgian rules with the Parent-Subsidiary Directive. Pursuant to these rules, interest is nondeductibleup to the amount of exempt dividends under the participation exemption regime. The Court held that the Belgian court’s decision to refer the question to the CJEU failed to specify, to a sufficient degree, the factual context of the case and the relevant national legal framework. Finally, the CJEU held that the referring court did not establish in its decision a relevant link between the provisions of the Directive and the national legislation applicable in the matter and, in particular, didnot provide any elements to identify legal persons that would qualify as "parent company" or "subsidiary” under Article 3 of the Directive.

Germany – Bukovansky (C-241/14)

On November 19, 2015 the CJEU ruled in the Bukovansky case (C-241/14) that the German-Swiss Double Taxation Convention does not infringe the principle of the free movement of persons. In the case at hand, the Convention grants the right to tax the employment income of a worker who is not a Swiss national, has transferred his residence from Germany to Switzerland, and who, since moving to Switzerland, has been a reverse frontier worker, to Germany where the income originated. However, in the case of a Swiss national in an analogous situation, the power to tax such employment income is vested in the new state of residence, i.e. Switzerland. The CJEU stated that such unequal treatment, between a Swiss national and a German national, results from the allocation of fiscal sovereignty between Germany and Switzerland in the Double Taxation Convention and that the choice of different connecting factors, as regards allocating fiscal sovereignty between them, is not of a discriminatory nature. Since Mr. Bukovansky is not disadvantaged compared to a taxable person resident in Germany, there is no infringement to the free movement of persons.

Sweden – Hirvonen (C-632/13)

On November 19, 2015 the CJEU rendered its decision in case C-632/13 concerning a possible infringement of the freedom of movement for workers. Under Swedish legislation, non-resident taxpayers, who obtain the majority of their income in Sweden and opt for the source taxation regime, are denied the deduction of personal expenses which are deductible for residents under the ordinary income tax regime. Non-resident taxpayers can choose between the Swedish source taxation system, which provides for a lower tax rate and does not allow the deduction of expenses, and the Swedish ordinary income tax regime, under which higher tax rates apply and expenses can be deducted. Ms. Hirvonen, whose income was taxable only in Sweden due to the Swedish-Finnish Double Taxation Convention, did not opt for the ordinary income tax regime since it would have resulted in a higher tax burden than the source taxation regime. This would have also been the case when taking into account the interest expenses Ms. Hirvonen declared in Finland and which she was not able to set off in Finland since she did not earn any income there. Ms. Hirvonen claimed a deduction ofthe interest expenses in Sweden also under the source taxation regime. The CJEU ruled that the refusal to grant non-resident taxpayers, who have chosen the source taxation regime, the same personal deductions as those granted to resident taxpayers under the ordinary income tax regime, does not infringe the free movement of workers where the overall tax burden of the non-resident taxpayer is not greater than that of a resident taxpayer.

Germany – Sparkasse Allgäu (C-522/14)

On November 26, 2015 the Advocate General rendered its opinion in the Sparkasse Allgäu case (C-522/14). This case concerned whether the disclosure duty of a German bank in respect of the assets of a deceased German client that were held by an Austrian branch constitutes an infringement of the freedom of establishment, where there is no such disclosure duty in Austria. Credit institutions in Austria are subject to Austrian banking secrecy and any breach of this secrecy constitutes a criminal offence. The AG concluded that the German rules do not infringe the freedom of establishment if the information requested from the foreign branch is limited to what is necessary for guaranteeing effective fiscal control in Germany. Since this conclusion would result in criminal offences as Austrian branches would be required to breach the Austrian banking secrecy,the AG took the view that, on the basis of the principles of sincere cooperation and the primacy of EU law, Austria has to interpret or limit the application of the banking secrecy in a way that allows branches of German credit institutions operating within Austria to transmit information, but to limit this to the bare minimum.

Germany – Timac Agro (C-388/14)

On December 17, 2015 the CJEU rendered its decision in the Timac Agro case (C-388/14) concerning the recognition of losses of a foreign permanent establishment (PE). The first question referred tothe CJEU sought clarification on whether the German rules requiring a resident company to recapture previously deducted losses of an Austrian permanent establishment (PE) for which Germany has no power to tax, in the event of the sale of the PE, are contrary to the freedom of establishment. After the conclusion that the permission to deduct foreign PE losses put domestic and foreign PEs in regard to the treatment of losses in comparable situations which were treated differently (only foreign losses were recaptured), the CJEU found that this restriction was justified by the principle of a balanced allocation of the power to impose taxes between Member States, as well as the coherence of the German tax system and the prevention of tax avoidance. It was regarded proportional to incorporate the previously deducted foreign losses into the taxable profits of the transferring company, since the losses could not be offset against profits of the PE for which Germany had no power to tax. However, if such losses were of a definitive nature (“Marks & Spencer losses”) such incorporation would be contrary to the freedom of establishment.



The second question related to years for which German provisions no longer allowed the recognition of foreign PE losses. In this respect, the referring court asked whether the non-recognition oflosses of a transferred foreign PE, where the exclusive power to tax the profits of the PE is with Austria due to the double taxation convention, is contrary to the freedom of establishment. The CJEU rejected this question on the basis of non-comparable situations. Since Germany no longer allowed the deduction of losses of a foreign PE, and had no powers to tax its profits, the situation of the Austrian PE and a domestic PE were not regarded to be comparable in relation to measures laid down in order to prevent or mitigate thedouble taxation of a resident company’s profits.

Spain – Commission v Spain (T-515/13)

On December 17, 2015 the General Court of the European Union (EGC) rendered its decision in joined cases T-515/13 and T-719/13 concerning Spain’s and certain shipbuilding operators’ application to annul the European Commission’s decision of July 17, 2013 where a Spanish scheme providing tax relief for the purchase of ships underleasing and financing arrangements was found partly incompatible with EU rules on State Aid (see Press Release). The scheme provided tax relief by early depreciation of assets and the application of the tonnage tax regime, for example. The EGC held that the Commission’s conclusions on the selectivity of the advantage in question were erroneous, and that the justifications for the decision were insufficient in light of the requirements set in the Treaty of the Functioning of the EU and the EU Charter of Fundamental Rights. On this basis, the EGC annulled the contested decision.

Infringement procedures & Referrals to CJEU

Infringement procedures – Closed

Romania

On November 26, 2015 the European Commission (EC) announced that the infringement procedure against Romania regarding its discriminatory tax treatment of foreign legal entities (see E-News 50) was closed, because Romania had amended its legislation in line with EU law.

Infringement procedures – Letter of formal notice

Spain

On November 24, 2015 the EC sent a letter of formal notice to the Spanish government, regarding information reporting measures that require Spanish individual taxpayers to file a form and report their foreign assets and rights. The EC considers these rules to becontrary to EU law.For more information, see TaxNewsFlash-Europe.

Infringement procedures – Reasoned Opinion

Germany
On November 19, 2015 the EC announced that it had requested Germany to amend its inheritance tax rules on special maintenance allowances. German legislation allows tax authorities to grant a special maintenance allowance to surviving spouses or registered partners of a deceased individual only if one or both of them are tax residents in Germany. The allowance is not available to surviving spouses or registered partners when they inherit an estate or an investment located in Germany but the deceased and the heir are tax resident in another EU Member State. The Commission regards this as an unjustified restriction on the free movement of capital. The request was sent in the form of a reasoned opinion and may be followed by a referral to the CJEU if Germany fails to notify the EC about sufficient measures taken for a correct application of EU law within two months. For more information, see Press Release.

Iceland
On November 11, 2015 the EFTA Surveillance Authority announced that it had requested Iceland to amend its exit tax rules. The request was issued in the form of a reasoned opinion. The current exit tax rules provide for immediate taxation if a company transfers its registered seat from Iceland to another EEA state, or transfers assets to be used outside Iceland. The Surveillance Authority regards such immediate recovery of an exit tax, without the possibility of a deferral, as a restriction on the freedom of establishment and the free movement of capital, as provided under the EEA Agreement. Furthermore, the Surveillance Authority takes the view that Iceland acts contrary to the freedom of establishment by requiring guarantees for cross-border mergers where the amount of the deferred tax exceeds ISK 50 million, without performing any prior assessment of the risk of non-recovery. On November 12, 2015 the Icelandic Ministry of Finance announced its proposal for amendments to the exit tax rules. According to the Ministry, the proposed amendments would ensure that Iceland no longer requires a bank guarantee for deferring the exit tax liability (subject to the conclusion of a treaty providing for an information exchange framework with the other contracting country), and that it no longer imposes an immediate exit tax when companies transfer their registered seat to another EEA state or transfer assets to be used outside Iceland. For more information, see Press Release.

The Netherlands
On November 19, 2015 the EC asked the Netherlands to amend the Limitation on Benefits (LOB) clause in the Dutch-Japanese tax treaty. The EC is of the view that, on the basis of previous CJEU case law, a Member State concluding a treaty with a third country cannot agree better treatment for companies held by shareholders resident in its own territory, than for comparable companies held by shareholders resident in the EU/EEA. However, under the current terms of the LOB clause, some entities are excluded from the benefits of the tax treaty. This means that they suffer higher withholding taxes on dividends, interest and royalties received from Japan than similar companies with Dutch shareholders or whose shares are listed and traded on “recognized stock exchanges”, which include certain EU and even third-country stock exchanges. The request takes the form of a reasoned opinion and may be followed by a referral to the CJEU if the Netherlands fails to notify the EC about sufficient measures taken for a correct application of EU law within two months.

For more information, see Press Release

Spain
On November 10, 2015 the EC asked Spain to amend its rules on the taxation of certain income obtained by foreign non-profit entities and of certain contributions to such entities. Pursuant to current rules, Spanish non-profit entities can benefit from certain tax exemptions. Taxpayers who contribute financially to those entities may also benefit from several tax incentives in respect of their contributions. However, the same rules do not apply to foreign non-profit entities that derive comparable income from Spain, but which are established in another EU/EEA Member State without a Spanish branch. The EC regards this as a restriction on the free movement of capital. The request takes the form of a reasoned opinion. In the absence of a satisfactory response within two months, the EC may refer Spain to the CJEU. For more information, see Press Release.

State Aid

EU Commission approves two tax incentives aimed at encouraging investment in innovative SMEs

On November 5, 2015 the European Commission decided that two French measures aimed at facilitating investment in innovative smalland medium-sized enterprises (SMEs) − the ISF wealth tax-SME scheme and the scheme for exceptional depreciation of investment by businesses in SMEs − are in line with EU rules on state aid. The first scheme entails a reduction in wealth tax for individuals who subscribe to the capital of innovative SMEs by way of mutual funds for innovation or local investment funds. The latter scheme, supplementing the first one, enables undertakings to spread the depreciation of investments in SMEs over a period of five years. The Commission holds the view that both measures compensate for a real market gap without unduly affecting competition within the Single Market.



For more information, see the Commission press release.

The Netherlands will appeal the EU Commission’s State Aid decision

On November 27, 2015 the government of the Netherlands announced that it will appeal the EU Commission’s decision of October 21, 2015 (see Euro Tax Flash 262), according to which the Advance Pricing Agreement concluded between a Dutch company in the Starbucks group and the Dutch tax authorities results in a selective and unfair competitive tax advantage and thus qualifies as unlawful state aid. The main reason given for the appeal is the fact that the Dutch tax authorities have consistently applied internationally accepted transfer pricing methods and that the Commission’s approach also raises many questions.



For more information, see Tax News by Meijburg & Co in the Netherlands.

Commission opens state aid investigations into tax rulings granted to McDonald’s by Luxembourg

On December 3, 2015 the European Commission announced it was opening in-depth investigations into tax rulings granted toMcDonald’s by Luxembourg. This is the result of allegations made inthe media in the summer of 2014 that McDonald’s was receiving advantageous tax treatment in Luxembourg. Following these allegations, the Commission asked McDonald’s to provide information on their Luxembourg tax rulings and found that these rulings might have given an unfair advantage to McDonald’s in violation of EU state aid rules. In order to validate its initial view, the Commission decided to initiate a formal investigation procedure. On the day the investigation was announced, the Luxembourg Ministry of Finance published a press release in response to the Commission’s announcement. Luxembourg believes that neither special tax treatment nor a selective advantage have been granted to McDonald's.



For more information, see Euro Tax Flash.

Luxembourg will appeal against the EU Commission’s state aid decision

On December 4, 2015 the Luxembourg government announced that it will appeal against the EU Commission’s decision of October 21,2015 (see Euro Tax Flash 262), according to which the transfer pricing ruling issued to a Luxembourg company in the Fiat Finance and Trade group by the Luxembourg tax authorities results in a selective and unfair competitive tax advantage and thus qualifies asunlawful state aid. The main reason given for the appeal is to obtain legal clarity and certainty on the practice of tax rulings. The Luxembourg government argues that the Commission has used unprecedented criteria in its analysis of whether the ruling constitutes unlawful state aid, which puts the principle of legal certainty into jeopardy. In particular, the government observes that the Commission has not established that Fiat received selective advantages.



For more information, see the Luxembourg government press release

EFTA Surveillance Authority to investigate Norway's social security contributions scheme

On December 9, 2015 the EFTA Surveillance Authority announced that it was opening a formal investigation into an exemption rule for the Norwegian differentiated social security contributions scheme.The scheme grants employers in certain remote areas a reduction oftheir compulsory social security contributions. Employers are generally entitled to a reduction only if they are registered in some ofthe qualifying areas. Pursuant to the exemption rule, however, employers registered outside these areas have also been granted reductions if their employees have carried out work in a qualifying area. Only the part relating to the latter rule is subject to the Authority's formal investigation. Norway's system of regionally differentiated social security contributions was fully approved by the EFTA Surveillance Authority in June 2014, but the EFTA Court later cancelled the approval given for that rule when it issued its decision in the Kimek Offshore AS (E-23/14) case.

EU Institutions

EU and Andorra finalize negotiations on Savings Agreement

On November 4, 2015 the EU and Andorra initialed the text of a new agreement under which Andorra and the EU Member States will automatically exchange information on the financial accounts of one another's residents as of 2018. The new agreement should beformally signed in early 2016, following authorization by the Council ofthe EU and the Andorran government.



For more information, see the EU Commission press release.

EU Savings Directive repealed

On November 10, 2015 the Council of the EU announced that the EU Savings Directive (2003/48/EC) had been repealed with effect from January 1, 2016 (January 1, 2017 for Austria). However, certain obligations provided for in the Savings Directive will continue to apply until the end of a transitional period.The repeal of the Directive follows a tightening of measures to prevent tax evasion, for which a significant overlap had developed with other legislation in the same field, particularly with the EU Directive on Administrative Co-operation (DAC), which was revised in December 2014 to include provisions on the mandatory automatic exchange ofinformation between tax administrations. The revised Directive will take effect on January 1, 2016 (for Austria on January 1, 2017).



For more information, see the Council press release

TAXE Committee mandate extended

On December 2, 2015 the European Parliament (EP) decided that the work of its Special Committee on Tax Rulings (TAXE I Committee) should be continued under a new mandate for six months. The TAXE I Committee was initially set up by the EP in February 2015. The structure of the TAXE II Committee is the same as that of the TAXE I Committee and will build on the work of its predecessor.



For more information, see Euro Tax Flash and the EP press release.

ECOFIN meeting on corporate tax – FTT, CCCTB, BEPS and Savings Agreements with Switzerland, Liechtenstein and San Marino

On December 8, 2015 the Council of the EU (ECOFIN) met to discuss recent corporate taxation initiatives launched by the European Commission and supported by the European Parliament. The ECOFIN discussed the status of the proposals for (1) a Directive on a Financial Transaction Tax (FTT; see also Euro Tax Flash 267) and (2) a Directive on a Common Consolidated Corporate Tax Base (CCCTB), taking into account the Commission’s work on a potential anti-BEPS Directive (see also Euro Tax Flash 269). The ECOFIN also formally adopted the Directive amending the existing Directive on Administrative co-operation in the field of direct taxation (2011/16/EU) on automatic exchange of information on tax rulings. Finally, the ECOFIN formally adopted agreements with Liechtenstein,San Marino (approved for signing) and Switzerland on the automatic exchange of financial account information. The agreements with Switzerland and Liechtenstein, signed in May and October 2015, respectively, have now been approved by the local parliaments, the EU Parliament and the ECOFIN. For Liechtenstein, the exchange ofinformation will start in 2017 (for information collected in 2016), and for Switzerland in 2018 (for information collected in 2017). The agreement with San Marino was signed directly after the ECOFIN meeting and must now be ratified or approved by both parties in time to enable its entry into force. Provisional application is scheduled for January 1, 2016.

For more information, see Euro Tax Flash and the ECOFIN meeting webpage.


10 EU Member States agree on some principles for FTT


On December 8, 2015 the ECOFIN discussed the current state of affairs with regard to the proposal of a number of EU Member States to introduce a financial transaction tax (FTT). In the context of this discussion, 10 of the original 11 Member States issued a statement setting out areas where agreement had been reached as well as areas that were still open. Estonia has indicated that it no longer supports the proposal. The statement indicates that a decision on the open issues should be made by the end of June 2016.

For more information, see Euro Tax Flash.

European Parliament issues recommendations to combat aggressive corporate tax planning and tax evasion

On December 16, 2015 the European Parliament (EP) plenary session adopted the Economic and Monetary Affairs (ECON) Committee’s report entitled “Bringing transparency, coordination and convergence to Corporate Tax policies in the Union”. The report had previously been approved by the ECON Committee in a vote on December 1, 2015 (see Euro Tax Flash 265 and Euro Tax Flash 263). The report contains a number of recommendations to the European Commission, which are built on the work of the TAXE Committee whose recommendations were approved by the EP on November 26, 2015 (see Announcement by KPMG’s EU Tax Centre). As opposed to the non-binding recommendations in the TAXE Committee’s report,the EC will have to respond to the ECON Committee’s report by taking legislative action or providing reasons for not doing so.The ECON Committee report contains a large number of recommendations to the EC on topics such as Country-by-Country reporting, protection of whistleblowers and CCCTB.



For more information, see Euro Tax Flash

Eurostat and TAXUD: Report on taxation trends in the EU

The statistical office of the EU (Eurostat), and the EU Commission's Directorate-General for Taxation and Customs Union (TAXUD) have published the 2015 edition of their report on taxation trends in the EU. The report provides an economic analysis of the tax systems of the EU Member States, Iceland and Norway and an overview of the maintrends in taxation for each of these countries.



For more information, see the report.

OECD

KPMG’s new Global Transfer Pricing Review

KPMG’s Global Transfer Pricing Services (GTPS) network is pleased to announce that our new Global Transfer Pricing Review is now available.The Organisation for Economic Co-operation and Development (OECD) and its Base Erosion and Profit Shifting (BEPS) 15 Point Action Plan is a primary focus of tax authorities around the world and businesses with global operations. Transfer pricing is of the utmost importance and central to not only the BEPS Action Plan but many other changes in international tax rules. KPMG’s Global Transfer Pricing Review provides a wealth of transfer pricing information from nearly 100 countries, including documentation requirements, deadlines, transfer pricing methods, penalties, special considerations, advance pricing agreements, and competent authority matters.



All country PDFs are now available here.

BEPS-related meetings by several OECD bodies

On November 6, 2015 the OECD provided an update of the discussions that took place during the first week of November concerning the BEPS project. There were meetings on, for example, a task force on tax and development, an advisory group for cooperation, a global forum on tax treaties, and the inaugural meeting on the BEPS multilateral instrument to incorporate the tax treaty-related BEPS measures into the existing network of bilateral treaties.

For more information, see TaxNewsFlash-BEPS and the OECD-webpage.

G20 leaders endorse BEPS at Antalya Summit

At their Summit in Antalya, Turkey on November 15 and 16, 2015 the G20 leaders committed to the implementation of the OECD’s Base Erosion and Profit Shifting (BEPS) project. The G20 leaders called on the OECD to monitor progress and to develop a framework for this by early 2016, including the participation of developing economies. The G20 leaders also welcomed the progress that had been made on boosting transparency and fairness in the global tax system, and reaffirmed their commitment to ımplementing an automatic exchange of information system as early as 2017, but no later than 2018. Before the Summit, the President of the European Commission, Jean-Claude Juncker, and the President of the European Council, Donald Tusk, who were to represent the EU at the Summit, set out the EU's agenda for it, requesting that the G20 show political leadership on the issues of harmful tax competition and the exchange of information on cross-border tax rulings in order to enhance transparency.



For more information, see TaxNewsFlash-BEPS, the OECD webpage and the EC press release.

Regional BEPS meeting in Costa Rica

On November 17 and 18, 2015 a regional meeting and a governmental workshop on BEPS was held for the Latin America and the Caribbean region to discuss the outcomes of the BEPS Project and the ways in which these countries can be involved in the implementation and the monitoring phase of the adopted measures. Discussions focused on the options for an inclusive framework to implement BEPS measures and beyond, as well as on the development of toolkits that meet the specific needs of developing countries.



For more information, see the OECD webpage.

OECD to publish 2014 MAP statistics

The OECD has published annual statistics, for the 2014 reporting period, on the Mutual Agreement Procedure (MAP) caseloads of all its member countries and of non-OECD economies that agree to provide such statistics. Improving the effectiveness of dispute resolution mechanisms was an integral component of the BEPS project and the aim of its Action 14. One of the principal outcomes of the Action is the commitment by OECD and G20 countries to a minimum standard in respect of the resolution of treaty-related disputes. As part of this minimum standard, countries have agreed to report MAP statistics.



For more information, see TaxNewsFlash-BEPS and the OECD webpage.

Local Law and Regulations

Austria

Amendments to exit tax rules

On November 24, 2015 the Austrian government approved a draft bill providing for an amendment to the current Austrian exit tax rules and submitted it for parliamentary debate.



Austrian legislation currently provides for an exit tax on hidden reserves where Austria's right to tax taxpayers' assets is lost or restricted due to a change of residence. However, if taxpayers change their residence to another EU Member State, or to an EEA State with which Austria has entered into a comprehensive information exchange and enforcement agreement, they may file a request for tax deferral with the tax authorities. If taxpayers move outside the EU/EEA, Austrian income tax is levied retroactively provided a 10-year statute of limitations has not expired at that time. Pursuant to the draft bill, the option for a tax deferral will be replaced, for certain asset classes, by an option for the payment of installments. This option will be available in cases where a tax payer transfers assets to another business of the same taxpayer or transfers an entire business. If assets are sold or transferred outside the EU/EEA, and the option for payment in installments had been exercised for these assets, the outstanding tax amount will become due in full.



Recognition of unrealized capital gains

Recent changes in Austrian GAAP will apply to all businesses as of January 1, 2015. One major change concerns unrealized capital gains. The new rules provide for an obligation to recognize anappreciation, which is generally fully taxable (subject to conditions), for all types of fixed and current assets. This may result in taxing unrealized profits. Pursuant to a transitional rule, unrealized capital gains incurred until December 31, 2015 only have to be taxed upon realization or at the time an extraordinary depreciation is recognized. For more information, see TaxNews by KPMG in Austria.



Belgium

Amendments to exit tax rules

On December 4, 2015 the federal government presented to parliament amendments to the withholding tax treatment of portfolio dividends paid by Belgian companies to foreign parent companies (see E-News 57). The amendments are in response to the CJEU decision in the Tate & Lyle Investments case (C-384/11). 



As a result of the CJEU decision in the Commission v Belgium case (C-296/12) (see E-News 40 and E-News 57), the draft bill also extends the scope of tax benefits for supplementary pension savings to cover payments made with an institution established in the EEA.



Bulgaria

Tax law amendments gazetted

On December 8, 2015 the amendments to the Corporate Income Tax Act, concerning most notably the implementation of the anti-hybrid rule in the Parent-Subsidiary Directive and a new definition of jurisdictions with preferential tax regimes, were published in the State Gazette. The amendments will take effect as of January 1, 2016.



For more information on the new rules, see E-News 57.



Czech Republic

Implementation of AEOI and CRS

On November 10, 2015 the Czech government submitted to parliament a bill proposing amendments to the law on international cooperation in tax administration. The bill implements the provisions concerning the automatic exchange of information (AEOI) developed by the OECD and the EU and, in particular, the Common Reporting Standard (CRS) in line with the FATCA agreement.The bill will apply from January 1, 2016 but the application of the CRS is anticipated not to take effect until January 1, 2017.



Conference on countering tax evasion

On November 18, 2015 the Czech Ministry of Finance held a conference on tax evasion and combatting tax evasion. It was observed that tax evasion occurs especially through transfer pricing (e.g. profits being shifted to tax havens), non-declaration of income and VAT (e.g. carousel fraud and fictitious invoices). Several current and planned counter-measures were considered to be effective, most notably intensified transfer pricing audits of corporate taxpayers belonging to multinational groups and different measures aimed at increasing VAT compliance.



France

Finance Bill 2016 – end of first discussion round: Country-by-Country Reporting

On November 17, 2015 the Lower House of the French parliament ended the first debates on the 2016 Finance Bill. In addition to the measures proposed by the government, some measures were added to the Bill during the discussions. The most notable measure concerns Country-by-Country (CbC) reporting requirements. The proposed requirements generally reflect the OECD base erosion and profit shifting (BEPS) recommendations. Parent companies of multinational groups with annual revenue exceeding EUR 750 million would be required to file a CbC report annually (non-compliance would be subject to a penalty). The requirement would also apply to French subsidiaries of multinational groups whose head company is established in a country that does not transmit CbC reports to France. The reporting obligation would apply to fiscal years beginning after December 31, 2015 with the first reports to be filed by the end of 2017. Amendments allowing CbC reports to be made public were also proposed by MPs, against the government's wishes, and were finally adopted by the Lower House in a vote on December 4, 2015. The Bill will now be discussed in the Senate (Upper House), which may adopt, reject or amend the proposed measures, before the second reading in the Lower House.



For more information, see TaxNewsFlash-Europe and Tax Research UK



Taxation of intragroup dividends between EU entities amended

On December 2, 2015 the Lower House of the French parliament adopted a legislative amendment on the taxation of intragroup dividends. The amendment follows the recent CJEU decision in the Groupe Steria case (C-386/14, see Euro Tax Flash 255), in which the Court ruled that the French rules, which grant a French parent company a full exemption in respect of dividends received from domestic subsidiaries under a group taxation regime, but effectively tax (up to) 5% of the dividends received from shareholdings in EU subsidiaries, are contrary to the freedom of establishment. Under the adopted amendment, a fixed amount of 1% (instead of the current 5%) of the dividends received by a company belonging to a French tax group from an EU or EEA resident company will remain taxable; the 1% representing the charges incurred in relation to the holding in the subsidiary. An additional requirement is that the distributing company, had it been French, would have met the conditions to be a member of the tax group. The 1% add-back will equally apply to dividends received from another (French) company of the tax group (instead of the current full exemption). The amendment will become effective as from January 1, 2016.



For more information, see TaxNewsFlash-Europe.



Italy


Patent box regime – clarifications and model published

On December 1, 2015 the Italian tax authorities issued a circular (no. 36/E) providing clarification on the patent box regime previously introduced by the Stability Law 2015 (see E-News 57), as well as a protocol providing detailed instructions on the tax ruling procedure for the patent box regime. The publication of the circular was preceded by a protocol, issued by the tax authorities on November 10, 2015, approving the model to be used by qualifying taxpayers in order to opt for the application of the regime.



Luxembourg


Draft bill on alternative investment funds

On November 27, 2015 the Luxembourg Council of Ministers adopted a draft bill on alternative investment funds with the aim of creating a new investment fund type (an alternative reserve investment fund, FIAR). The FIAR will not be subject to the approval and supervision of the Luxembourg Financial Supervision Authority. However, it will benefit from all the structural flexibilities which collective investment schemes, specialized investment funds (FIS)and investment companies on risk capital (SICAR) benefit from. Only experienced institutional and professional investors, investing at least EUR 125,000, may participate in the FIAR.



Luxembourg in favor of CbC reporting


On December 11, 2015 the Minister of Finance stated that Luxembourg is in favor of the Country-by-Country (CbC) reporting as set out in Action 13 of the OECD Action Plan on Base Erosion and Profit Shifting (BEPS). Luxembourg is, however, against making private rulings public.



The Netherlands

Decree on adjustment period for advance tax rulings

By decree dated November 3, 2015 (published on November 11,2015) the Deputy Minister of Finance followed up on the previously announced approval given for the period within which advanced tax rulings (ATRs) can be modified due to the fact that, as a result of expected implementation of the revised Parent-Subsidiary Directiveat the national level, the ATRs would lose their validity. If the substance requirements provided in the revised Directive and implementing legislation are not met on January 1, 2016 and the implementation is carried out as planned, the ATRs will immediately and fully cease to apply. The decree of November 3, 2015 grants, for reasons of efficiency, approval to extend the validity of the ATRs under certain conditions.



For more information, see Tax News by KPMG Meijburg & Co. in the Netherlands.



Slovenia

Amendments to CIT law – goodwill amortization, R&D allowance

On November 10, 2015 the Ministry of Finance proposed amendments to the Corporate Income Tax (CIT) law. The key amendments include abolishing the amortization of goodwill for tax purposes and the decrease of the research and development (R&D) tax allowance from 100% to 50% of the invested amount.



Amendments to Tax Procedure Act – APAs, AEOI


On November 30, 2015 certain amendments to the Slovenian Tax Procedure Act were gazetted, including the introduction of a new procedure to request a unilateral, bilateral or multilateral advance pricing agreement (APA) from the tax authorities. The amendments also implement the 2014 revisions of the EU Mutual Assistance Directive (2011/16/EU), concerning automatic exchange of financial account information, into national law, and provide changes to, for example, the statute of limitations for serious tax offences.



Spain

Amendments to CIT law – goodwill amortization, R&D allowance

Details of the 2016 Budget, gazetted on October 30, 2015, became available at the beginning of November 2015. Budgetary corporate income tax measures include major changes to the Spanish patent box regime, following the publication of the OECD BEPS Action 5 on harmful tax practices and the transitional rules with respect to abolishing existing intellectual property regimes that are deemed harmful. 

Under the current Spanish rules, an exemption is applied to 60% of the net earnings accrued from the assignment of a right to use qualifying intangible fixed assets (subject to conditions). Under the new rules, the 60% exemption will remain applicable for companies that have created the IP, but will be proportionally reduced for companies that have not created the IP.



Sweden

Implementation of amendments to Parent-Subsidiary Directive approved

Following the anti-avoidance additions to the Parent-Subsidiary Directive, the Swedish Parliament recently adopted new rules implementing the revised Directive into the national legislation (see also E-News 57). In line with the revised Directive’s ‘anti-hybrid rule’, the Swedish participation exemption regime for dividends was amended so that dividends received will not be tax exempt to the extent the distributing subsidiary has been allowed to deduct the distributed dividend. The existing anti-avoidance provision in the Withholding Tax Act will explicitly have precedence over the withholding tax exemptions, and the tax authorities should more easily be able to target structures set up to avoid withholding tax on dividends by using intermediate companies. No amendment is introduced as a result of the revised Directive’s general anti avoidance rule, as abusive situations targeted by the Directive should already be covered by the current provisions of the Swedish Tax Avoidance Act. The amended legislation also enables the request of advance rulings on withholding tax treatment from the Swedish tax authorities. The amendments will enter into force on January 1, 2016.



For more information, see TaxNewsFlash-Europe.



Switzerland


Dutch group request for administrative assistance approved by Swiss federal tax administration

The Swiss federal tax administration recently approved a Dutch group request for administrative assistance, affecting Dutch individual taxpayers that held a bank account at the relevant Swiss bank between February 1, 2013 and December 31, 2014 (subject to certain conditions). It is expected that the Netherlands will soon also target other Swiss banks’ clients, and that other countries will follow this approach. The approval of the request shows that even before the relevant automatic exchange of information (AEOI) measures become effective in Switzerland as of 2017, those with undeclared assets should consider making a voluntary disclosure.



For more information, see TaxNewsFlash-Europe 



UK

CIT rate in Northern Ireland lowered

On November 18, 2015 the Northern Ireland Executive announced plans to lower the corporate income tax (CIT) rate to 12.5% with effect from April 2018.



For more information, see the Stormont Agreement and Implementation Plan.



Autumn Statement – countermeasures to tax avoidance and tax evasion


On November 25, 2015 the Autumn Statement was presented to Parliament. The background documents to the Statement contain several proposed tax measures against tax avoidance and tax evasion, in particular:

  • a civil penalty for those who deliberately assist in offshore tax evasion, including public naming of those who have deliberately enabled the evasion;

  • a penalty of 60% of tax due to be charged in all cases successfully tackled by the general anti-avoidance rule;

  • anti-avoidance measures for those who persistently enter into tax avoidance schemes that are defeated by the tax authorities;

  • a criminal offence that removes the need to prove intent for the most serious cases of failing to declare offshore income and gains;

  • legislation to implement, with effect from 1 January 2017, the agreed OECD rules for addressing hybrid mismatch arrangements; and

  • special measures regime to tackle businesses that persistently engage in aggressive tax planning.


Draft legislation covering the measures proposed in the Autumn Statement was published on December 9, 2015, at the same time as the outcome of the December 2014 public consultation on hybrid mismatch arrangements.



For more information, see KPMG TaxNewsFlashes on the Autumn Statement and on the draft legislation.


Updated guidance on diverted profits tax

On November 30, 2015 HMRC issued updated Diverted Profits Tax (DPT) guidance to replace all previously published guidance on the matter.



For more information, see TaxNewsFlash-Europe.



Draft legislation on revised patent box regime

On December 9, 2015 HMRC published draft legislation to amend the UK patent box regime, in order to make it compliant with the new international framework for preferential tax regimes in the field of intellectual property, as provided especially by the OECD.



For more information, see TaxNewsFlash-Europe.

Local Courts

Austria

Austrian profits of foreign tax group members

Pursuant to the Austrian group taxation rules, a tax group can include both domestic and foreign companies as group members. Tax losses incurred by a foreign group company can therefore be considered in the calculation of the Austrian tax group’s income (subject to restrictions). Previously, it was unclear how Austrian taxable profits derived by a foreign group member (e.g. via an Austrian permanent establishment) were to be treated in terms of group taxation.The Austrian Administrative Supreme Court recently clarified this question by deciding that domestic (Austrian) profits derived by a foreign group member of an Austrian tax group can be considered in the calculation of the tax group’s income.



For more information, see TaxNews by KPMG in Austria.



France

Two decisions on foreign pension funds’ entitlement to tax treaty benefits

The French Administrative Supreme Court (Conseil d'État) recently issued two decisions (no. 370054 and no. 371132), the first one on the status of a German pension fund and the second one on that of a Spanish pension fund. The Court ruled that the pension funds were not residents of a contracting state under the applicable double tax treaties. This was due to the fact that the pension funds at issue were both exempt from tax in Germany and Spain, respectively, since their status or activity could not be considered liable to taxation within the meaning of these treaties. The pension funds had received French-sourced dividends subject to a 25% withholding tax under French domestic law. In both cases, the fund in question claimed the benefit of the 15% withholding tax limit provided by both the German-French and the Spanish-French double tax treaty. Moreover, the Spanish pension fund claimed the benefit of the exemption applicable to French pension funds on the basis of the EU free movement of capital, but the Court concluded that the fund would not have fulfilled the conditions required for such exemption had it been French. Consequently, all of these claims were rejected by the Court.



Netherlands

Supreme Court rules in the Kieback case

On November 13, 2015 the Dutch Supreme Court (Hoge Raad) gave its follow-up decision in the Kieback (C-9/14) case (see E-News 54), concerning the refusal of the Dutch tax authorities to allow the deduction of loan expenses on the dwelling located in Germany, for the purposes of determining the income received in the Netherlands. The CJEU previously ruled that the refusal did not infringe EU law, as the income of the entire financial year must be assessed and the income received in the state of employment must form a major part of that overall income in order for a tax advantage to be granted. In line with the CJEU decision, the Supreme Court ruled that, for the determination whether the income derived in the Netherlands forms a major part of the non-resident's taxable income, the income of the entire year must be taken into account (i.e. not only the income that accrued during the non-resident’s employment in the Netherlands). The case was referred to the Court of Appeal to decide on that point.



AG: “Crisis levy” against the ECHR

On November 17, 2015 Advocate General (AG) Wattel of the Supreme Court gave his opinion of the compatibility of the “crisislevy” with the European Convention of Human Rights (ECHR). The crisis levy was imposed as a one-time employer-level assessment on salaries and wages exceeding EUR 150,000 paid for 2012 and 2013. Many employers filed objections against the crisis levy, and these are being litigated as test cases. Additionally, there are certain individual cases also pending on the same question. According to the AG, the crisis levy violated the right to property thatis protected under the ECHR. The Advocate General concluded that the retroactive effect of the crisis levy could not be justified.



For more information, see TaxNewsFlash-Europe and Tax News by KPMG Meijburg & Co. in the Netherlands.

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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