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Belgium – NN (L) (C-48/15)
On January 21, 2016 the Advocate General (AG) Bobek rendered its opinion in the NN (L) International case (C-48/15), concluding that the Belgian Net Asset Tax applying to foreign investment funds (UCIs) marketing their units in Belgium is compatible with EU law. The AG first considered that neither the Directive on indirect taxes on the raising of capital (different scope) nor the UCITS Directive (no tax provision) preclude the levying of the Belgian tax. With respect to a potential infringement to the free movement of capital, he concluded that non-resident and resident UCIs are in a comparable situation and that the disadvantage arises from the parallel exercise of taxing powers of the Member States which does not constitute a discrimination. The last question referred to concerned the sanction for foreign UCIs failing to submit their tax returns within the prescribed period or to pay the annual tax. This sanction (i.e. prohibition to market units in Belgium) was considered to be an unjustified discrimination.
Finland – C (C-122/15)
On January 28, 2016, AG Kokott rendered her opinion in the C case (C-122/15) regarding the applicability of the EU-law prohibition of age discrimination to the income tax legislation of the Member States. The AG concluded that national legislation which lays down the rate of tax applicable to income from a retirement pension does not fall within the scope of either Directive 2000/78 on equal treatment in employment and occupation or of the Charter of Fundamental Rights of the EU.
Germany – Hünnebeck (C-479/14)
On February 18, 2016 AG Wathelet issued his opinion in the Hünnebeck case (C-479/14). The AG concluded that the German legislation introducing an option for EU/EEA resident taxpayers to apply for unlimited tax liability in order to benefit from a higher tax allowance (which would be applicable to residents) when donating a German piece of land is contrary to the free movement of capital. Based on the CJEU consistent case law on this matter, the AG reiterated that providing a choice to non-residents to be treated similar to residents does not remedy the discriminatory effect, as long as the mechanism that applies automatically is the one incompatible with EU Law. He also added that denying this option to third country residents is contrary to the free movement of capital.
Italy – Baudinet and Others (C-194/15)
On February 4, 2016, the CJEU gave an order in the case Baudinet and Others (C-194/15) on whether the fundamental freedoms preclude the legislation of a Member State under which, when a resident shareholder in an EU company receives dividends taxed in both States, such double taxation is not remedied by the grant in the state of residence of a tax credit at least equal to the amount of withholding tax paid in the state of the distributing company. The CJEU concluded that the Italian legislation does not infringe EU law.
Luxembourg - Kohll (C-300/15)
On February 16, 2016, AG Campos Sánchez-Bordona rendered his opinion in the Kohll case (C-300/15) on whether a domestic provision, which restricts the eligibility for a tax credit for pensioners to persons in possession of a tax deduction form restricts the free movement of workers. The AG concluded that pensioners receiving a pension from a Luxembourg or a foreign pension fund are in a comparable situation and that the difference in treatment (i.e. the tax credit is not granted in the case of foreign pension funds) constitutes a restriction to the free movement of workers. The AG further rejected the justifications put forward by Luxembourg (i.e. disproportionate administrative consequences, coherence of the tax system, balance allocation of powers to tax, and social policy arguments).
Portugal – SECIL (C-464/14)
On January 27, 2016 AG Wathelet gave his opinion in the SECIL case (C-464/14). The AG first examined the applicable freedom and considered that the free movement of capital (as opposed to the freedom of establishment) as defined in the Euro-Mediterranean Agreements with Tunisia (Article 34) and the Lebanon (Articles 31 and 33) is directly applicable. He then concluded that it is against such Agreements to restrict the right to a full or partial elimination of economic double taxation of profit distributions to cases where the distributing company is resident within the EU/EEA. Finally, the AG confirmed the applicability of the free movement of capital under the TFEU to the case at hand and applied the same analysis as under the Euro-Mediterranean Agreements.
Romania – Câmpean (C-200/14) and Ciup (C-288/14)
On February 18, 2016 the AG Szpunar rendered a joint opinion in the separate cases Câmpean (C-200/14) and Ciup (C-288/14) concerning procedural rules governing the refund of Romanian tax levied in breach of EU law. The AG reviewed these provisions under the principles of equivalence and effectiveness, and concluded that (1) it is up to the Romanian courts to assess in regard to the principle of equivalence whether the rules under review are less favorable than the rules on refunding tax levied in breach of national law, and that (2) most of the features of the Romanian procedural rules (e.g. payment in installments over five years) are not in line with EU law as regards the principle of effectiveness.
Austria v Germany
On December 3, 2015 Austria filed an action against Germany (C-648/15) asking the CJEU to hold that income from profit-participation certificates (Genussscheine) should not be characterized as ‘profit participation claims’ within the meaning of Article 11 (2) of the German-Austrian Double Taxation Convention and order Germany to refrain from taxing this income, as well as to reimburse the taxes already levied. While Austria argues that the certificates correspond to fixed-interest negotiable instruments to which a certain risk of loss is attached, Germany takes the view that since the income is dependent on the realization of an adequate level of profit, the instrument falls within the definition of ‘profit participation claims’ for which Germany is allowed to exercise its right of taxation.
On October 23, 2015 the European Commission referred Ireland to the CJEU (case C-552/15) considering that the Irish rules on vehicle registration tax infringe the freedom of services. The Commission considers that by requiring the discharge, upon registration, of the entire tax applicable for permanent registration, Ireland's system for taxing the registration of motor vehicles imposes a disproportionate cash-flow and financial burden on Irish residents seeking to import hired or leased cars for pre-determined limited periods of time.
On February 9, 2016, the EFTA Surveillance Authority announced its decision to refer Norway again to the EFTA Court for failing to fully implement anti-money laundering and anti-terrorist financing regulations. The EFTA Court had already ordered Norway in December 2013 (case E-13/13) to bring its legislation in compliance with EEA law.
For more information see EFTA Surveillance Authority’s press release
Referrals to the CJEU
On November 8, 2015 a Belgian first-tier court referred the case Van der Weegen and Pot (C-580/15) to the CJEU, asking whether provisions of the Belgian Income Tax Code infringe EU Law, inasmuch as, although applicable without distinction to domestic and foreign service providers, they require compliance with conditions which are de facto specific to the Belgian market and consequently amount to a serious obstacle to foreign service providers offering their services in Belgium.
On January 6, 2016 the French Supreme Tax Court lodged a request for a preliminary ruling in the case Holcim France and Enka (C-6/16) concerning the French anti-abuse clause according to which dividends paid to an EU parent company that is controlled by companies located in a third country are not exempt from withholding tax unless the shareholding chain is justified, i.e. does not have a tax advantage as principal objective. The French court asked (1) whether a national provision adopted pursuant to Article 1 of the Parent-Subsidiary Directive must be assessed under primary EU law, and if so what is the relevant freedom and whether the French anti-abuse clause is in line with this and (2) whether the anti-abuse clause is in line with the Parent-Subsidiary Directive.
On January 11, 2016 the French Supreme Tax Court referred two questions to the CJEU concerning the case Euro Park Service (C-14/16) which deals with the implementation into French law of the anti-abuse clause provided for in the Merger Directive. Based on Article 11 of this Directive, France has implemented a provision which subordinates benefits of the special merger regime to a prior approval procedure applicable only to contributions made to foreign legal entities. The French court asked (1) whether a national provision adopted on the basis of Article 11 of the Merger Directive, must be controlled under primary EU law and (2) if so whether the provision at hand infringes the freedom of establishment.
On September 22, 2015 the Higher Social Court (Landessozial-gericht) Rheinland-Pfalz, Mainz in Germany lodged a request for a preliminary ruling in the case Eschenbrenner (C-496/15) concerning a person pursuing an occupational activity in Germany, but residing in another Member State and not being subject to German income tax liability. The court asked whether the free movement of workers is restricted where, upon the employer’s insolvency, Germany subjects the employment remuneration used to calculate the employee’s insolvency benefit to a notional tax that would be deducted from the remuneration in case the employee would be subject to German income tax liability, if the possibility of asserting a claim against the employer for the residual gross remuneration no longer exists.
On September 8, 2016 the Fiscal Court (Finanzgericht) of Baden-Württemberg requested the CJEU to answer a question in the case Radgen (C-478/15). The court asked whether the EU-Switzerland Agreement on the free movement of persons allow a Member State to deny the deduction of a tax-free allowance for a part-time teaching activity to a citizen with unlimited tax liability in that Member State, on the grounds that the activity is not carried out for or on behalf of a public-law legal person established in the EU/EEA but for a public-law legal person established in Switzerland.
On January 15, 2016 the Federal Fiscal Court (Bundesfinanzhof) submitted a reference to the CJEU for a preliminary ruling in case Bechtel and Bechtel (C-20/16) dealing with the progression clause in double tax treaties (DTTs) and its compatibility with EU law. The referring court asked whether a German provision that does not allow a German resident working in France to deduct the contributions to the French social security system – unlike contributions to the German social security system - for the purposes of calculating the German income tax rate, is contrary to EU law, where the employment income is tax exempt under the German-French double taxation treaty and only increases the income used to calculate the German tax rate (progression clause). The court also asked if the first question is answered in the affirmative even when the social security contributions were deducted or deductible in France.
On October 21, 2015 the Supreme Court of the Netherlands (Hoge Raad der Nederlanden) lodged a request for a preliminary ruling in the case de Lange (C-548/15) concerning the deductibility of study costs and training expenditure. The Court asked, whether the principles of equal treatment in employment and occupation and non-discrimination on the grounds of age (provided by Directive 2000/78/EC) are met by tax legislation which allows, under certain conditions, the deduction of study (respectively training) costs, from the taxable income, even when that concession falls outside the material scope of Directive 2000/78/EC and when that arrangement does not implement EU law. In the case of the latter questions, the Court asked whether differences in treatment which are contrary to the principle on non-discrimination on the grounds of age can be justified.
On November 13, 2015 the High Court of Justice referred a question to the CJEU in the case The Gibraltar Betting and Gaming Association Limited (C-591/15) questioning the constitutional status of Gibraltar and the UK for the purposes of EU law. The Court first asked whether UK and Gibraltar are to be treated as if they were part of a single Member State, or separate territories within the EU such that the provision of services between Gibraltar and the UK is to be treated as intra-EU trade for the purposes of Article 56 TFEU. The Court then requested clarifications as to whether the gambling tax regime introduced in the UK legislation (requiring operators offering services in the UK to pay UK tax regardless of their location), constitutes a restriction to the free movement of services.
On November 24, 2015 a UK Court of Appeal referred questions in the case The Trustees of the BT Pension Scheme (C-628/15) to the CJEU. The questions relate to the CJEU’s decision in the case Test Claimants in the FII Group Litigation (C446/04) where the CJEU found that Articles 49 and 63 TFEU preclude legislation of a Member State which does not allow a resident shareholder receiving dividends from resident companies (having their origin in foreign-sourced dividends received by the resident company) a tax credit for the corporate tax already paid by the non-resident company distributing the dividends in the first instance, whereas those shareholders would have received such a tax credit if the dividends paid by a resident company would have been nationally-sourced. In the current case the referring court asked whether there are any rights under EU law conferred on those shareholders or whether they are entitled to rely on any infringement of rights under Article 49 or Article 63 TFEU of the company, and if so, whether EU law imposes any requirements as to the remedy to be provided to the shareholder under domestic law.
On December 3, 2015 a UK first-tier court referred several questions to the CJEU in the case Trustees of the P Panayi Accumulation & Maintenance Settlements (C-646/15) as regards the exit taxation of unrealized gains on assets held by a trust should the trustees cease to be resident in that Member State. The court generally asked whether such legislation infringes the fundamental freedoms and if so, whether it can be justified by the balanced allocation of the power to tax and whether it is proportionate considering on the one hand the legislation at stake and on the other hand, the specific circumstances of the case under review.
Information on Contingent Convertibles (CoCos) requested from the Netherlands
On November 9, 2015 the European Commission requested information on contingent convertibles (CoCos), a hybrid form of capital which can be converted from debt into equity if a pre-specified triggering event occurs. The question was raised whether the deductibility of the coupon on the CoCos should be regarded as State aid. The Commission clarified by letter of December 18, 2015 that the request for information does not prejudge that a formal investigation will be launched.
For more information, see FS Tax Newsletter.
Commission considers Belgian “excess profit” tax ruling system to be unlawful State aid
On January 11, 2016 the European Commission issued its final decision on the Belgian “excess profit” tax ruling system and concluded that the selective tax advantages granted by Belgium to 35 multinationals are illegal under EU state aid rules. On this basis, the Commission estimated that the amount to be recovered could amount to as much as EUR 700 million. Belgium’s finance minister, Johan Van Overtveldt, announced on February 12, 2016 that Belgium is considering whether to appeal the decision and intends to open negotiations with the Commission about the amounts to be recovered.
For more information see the Euro Tax Flash 271, the Commission Press Release and the Belgian Finance Minister’s statement.
Commission opens an in-depth investigation into measures granted to the publicly-owned Spanish postal operator Correos
On February 11, 2016 the European Commission announced that it will assess whether the public funding, tax exemptions, capital increases and compensation for the distribution of electoral material granted by Spain to Correos overcompensated the company for carrying out its public service obligation and constitute an undue advantage incompatible with EU State aid rules. Subject to certain criteria, EU State aid rules allow the compensation for extra costs accruing in relation to providing public services. However, according to the Commission’s preliminary view, the profitability levels achieved by Correos between 2004 and 2010 seem to exceed the reasonable profits allowed under EU State aid rules on public service compensation.
For more information see Commission Press Release.
Commission requests the Netherlands, Belgium and France to abolish exemptions from corporate tax for ports
On January 21, 2016 the European Commission adopted three decisions requiring the Netherlands, Belgium and France to align their taxation of ports with EU State aid rules. After the Commission opened an in-depth investigation into Dutch tax exemptions for certain public companies in June 2015, the Netherlands amended its legislation by making public companies, except for six seaports, subject to corporate tax as of January 1, 2016. The Commission has now required the Netherlands to also remove the exemption for the six seaports within two months. With regard to Belgium and France, the Commission has adopted preliminary views that the existing taxation of ports – Belgium applies a different tax regime and France fully exempts 11 ports from corporate tax – confers selective advantages which may not be in line with State aid rules. The Commission further proposed measures to ensure that public and private port operators, generating profits from economic activities, are taxed in the same way as other companies in both countries.
For more information see the TaxNewsFlash-Europe and the Commission Press Release.
Appeals filed by Luxembourg and Fiat against the Commission’s decision on State aid
Fiat Chrysler Finance Europe (T-759/15, December 29, 2015), as well as Luxembourg (T-755/15, December 30, 2015), filed an action for annulment of the European Commission’s decision from October 21, 2015 on fiscal aid granted by Luxembourg to Fiat. According to a Communication from the Ministry of Finance, Luxembourg decided to appeal before the General Court of the European Union in order to obtain legal clarity and predictability on the practice of tax rulings.
Appeal filed by Netherlands against the Commission’s decision on State aid
In December, 2015 the Netherlands filed an action for annulment of the European Commission’s decision on fiscal aid granted to Starbucks (T-760/15, December 23, 2015). The appeal was previously announced by the Netherlands government in October 2015 (see E-news 58).
Commission requests Greece to amend legislation dealing with state support to the maritime sector
On December 21, 2015 the European Commission issued its decision on the Greek “tonnage tax” and related support measures in which it took the initial view that current provisions allowing shareholders of shipping companies as well as maritime sector intermediaries and operators of ships to benefit from favorable tax treatments may be in breach of EU State aid rules. The Commission expressed concerns that the Greek tonnage tax is not well targeted and grants tax advantages beyond what is allowed under the Maritime Guidelines. Hence, the Commission proposed to exclude certain ships from the preferential regime, as well as certain maritime intermediaries and shipping companies’ shareholders, since they do not conduct genuine maritime transport activities. Greece has two months to inform the Commission whether it agrees to the measures proposed.
For more information see Commission Press Release.
General Court rules on German scheme dealing with loss-carry-forwards in the case of restructuring companies in difficulty
On February 4, 2016 the General Court (EGC) rendered its decisions in the cases Heitkamp BauHolding (T-287/11), SinnLeffers (T-621/11) and GFKL Financial Services (T-620/11). The legislation in question restricts the carry-forward of tax losses in circumstances where there is a change in ownership of an entity. However, the carry-forward of tax losses is effectively allowed in certain cases dealing with acquisitions of companies in difficulty, in view of their restructuring. The Commission took the view that - because German corporate tax law does not generally allow for losses to be offset when there has been a significant change in the ownership structure - this gives a clear financial advantage to ailing firms and possibly their acquirers. The EGC upheld the Commission’s conclusions that the provision in question was selective and could not be justified. It confirmed that the system of reference is the German corporate income tax system, in particular the rules on the fiscal loss carry-forward for companies subject to change in their shareholdings, and that these companies are in a comparable factual and legal situation, irrespective of their financial situation.
EFTA Surveillance Authority closes its State Aid investigations into Iceland's, Liechtenstein's and Norway's tax ruling practices
On 24 February 2016, the EFTA Surveillance Authority announced that it had closed its investigations into the tax ruling practices of the three EEA States without finding any evidence of state aid infringements.
For more information see the press release.
Moscovici presented the Commission’s working programme on corporate tax for 2016
On January 11, 2016 a first exchange of views in the field of corporate taxation was made when Commissioner Moscovici addressed the Economic and Monetary Affairs Committee (ECON) and the TAXE II Committee of the European Parliament in a joint meeting. Moscovici presented the working programme for 2016 on corporate tax and stressed the strong political commitment and the important role of the Commission in the fight against tax avoidance. In his speech the Commissioner announced the new Anti-Tax Avoidance Package (see below) and underlined that work is progressing on CCCTB, Transfer Pricing and the Interest and Royalties Directive. Regarding CCCTB, Moscovici repeated that the project will be relaunched in 2016 and that proposals will be presented implementing a two-step approach. Furthermore, he stated that impact assessments in the case of public country-by-country reporting and the implementation of a Fair Taxpayer Label should be finalized by the Commission’s services by the end of March 2016.
For more information, see Euro Tax Flash 272.
European Parliament approved resolution on compensation for countries that suffered from base erosion
On January 19, 2016 the European Parliament (EP) approved a non-legislative resolution by 500 votes to 137, with 73 abstentions, calling for the money recovered under State aid rules to be paid to the Member States that suffered an erosion of their tax base instead of the Member State that granted the aid. This resolution is part of a report that sets out general recommendations to improve competition and ensure fair taxation. MEPs also called on the Commission to speed up work on the Google case.
For more information see EP Press Release.
EU and San Marino and Switzerland: Implementation process of the new tax transparency agreement
On January 22, 2016 San Marino ratified the amending protocol, signed on December 8, 2015, to the EU – San Marino Savings Directive Agreement and on January 26, 2016 the Swiss parliament approved the amending protocol to the EU – Switzerland Savings Agreement.
Commission presented new Anti-Tax Avoidance Package
On January 28, 2016 the European Commission unveiled its new Anti-Tax Avoidance Package. The package consists of two legislative proposals, the first addressing six anti-BEPS issues in the so-called Anti-Tax Avoidance Directive, and the second proposing the introduction of non-public country-by-country reporting, on the basis of Action 13 of the OECD Action Plan, in the form of an amendment of the current EU Directive on Administrative Cooperation (DAC) in the field of direct taxation (2011/16/EU). The Anti-Tax Avoidance Directive covers rules on the interest deduction limitation, exit taxation, a switch-over clause, a general anti-avoidance rule, controlled foreign company legislation and hybrid mismatches. In addition to the legislative proposals, the Commission presented a communication on an external strategy for effective taxation, dealing with a common approach to tax good governance towards third countries, and a recommendation to combat tax treaty abuse, which is intended to reflect the OECD work on BEPS Action 6 (Treaty Abuse) and 7 (Artificial Avoidance of PE Status).
For more information, see Euro Tax Flash 273.
EU Commission issues Taxation Paper on aggressive tax planning structures and indicators
On January 28, 2016, the European Commission published Taxation Paper No. 61 entitled Study on Structures of Aggressive Tax Planning and Indicators. Final report, which aims to (1) identify aggressive tax planning model structures and indicators and (2) review the corporate income tax systems of the EU Member States in that respect.
For more information, see EU Commission’s Taxation Paper No. 61.
For more information, see EU Commission’s Taxation Paper No. 61.EU and Andorra sign deal on automatic exchange of tax data
On February 12, 2016, the European Union and Andorra signed an agreement on automatic exchange of information on financial accounts. The agreement upgrades a 2004 agreement which ensured that Andorra applied measures equivalent to those in the EU Savings Directive (2003/48/EC).The agreement, which also complies with the OECD Common Reporting Standard, must now be ratified by both parties, to enable its entry into force on January 1, 2017. The EU signed similar agreements with Switzerland on May 27, 2015, Liechtenstein on October 28, 2015, and San Marino on December 8, 2015.
For more information see the EU Council’s press release.
EU Commission issues Taxation Paper on Financial Transaction Taxes in the European Union
On February 12, 2016, the European Commission published Taxation Paper No. 62 entitled Financial Transaction Taxes in the European Union, which includes (1) a discussion on the recent economic literature on the effects of a financial transaction tax (FTT), (2) detailed explanations on the 2011 and 2013 proposals for introducing a FTT in the European Union and the discussions on its design; and (3) a description of the two recent introductions of FTT in France and Italy.
For more information, see EU Commission’s Taxation Paper No. 62.
EU Commission launches public consultation on Double Taxation Dispute Resolution Mechanisms
On February 16, 2015 the EU Commission launched a public consultation to help identify ways to facilitate dispute resolution for businesses experiencing problems with double taxation in the EU. The consultation will close on May 10, 2016 and details are available on the EU Commission Website.
For more information, see Euro Tax Flash 274.
The Netherlands Presidency issues roadmap on future work on BEPS
On February 19, 2016, the Dutch Presidency issued the final version of its roadmap, setting out future work on BEPS in the Council during the coming months. Short-term work will focus on the Interest & Royalties Directive, the Commission’s proposal for an Anti-Tax Avoidance Directive, the Commission’s proposal for non-public country-by-country reporting, the reform of the Code of Conduct Group, and Hybrid mismatches. Discussions will also continue on patent boxes, the Commission’s suggested approach to good governance in tax matters with third countries, and the OECD BEPS issues in Double Taxation Agreements. Medium-term work will include discussions in the Code of Conduct Group regarding updated guidance on transfer pricing, issues arising from outbound payments to third countries, and disclosure of aggressive tax planning. Potential access for domestic tax authorities to the EU register on beneficial ownership of non-transparent entities and guidance for the issuance of tax rulings will also be addressed.
For more information, see the Presidency Roadmap.
EU and Monaco initial new tax transparency agreement
On February 22, 2016, the EU and Monaco initialed a new tax transparency agreement, providing for Monaco and EU Member States to automatically exchange information on the financial accounts of each other's residents from 2018. The information will start being collected from January 1, 2017. The formal signing of the new agreement is to take place before summer 2016, as soon as the Council has authorized the Commission's proposal.
For more information, see the EU Commission press release.
31 countries signed tax cooperation agreement on automatic exchange of Country-by-Country (CbC) reports
On January 27, 2016, 31 countries signed the Multilateral Competent Authority Agreement on the automatic exchange of CbC reports, which will enable swift implementation of the new OECD standards under BEPS Action 13.
For more information, see the OECD webpage.
Invitation to all jurisdictions to participate in the BEPS project
On 23 February 2016, the OECD agreed a new framework to broaden participation in the BEPS Project. The new forum will provide for all interested countries and jurisdictions to participate as BEPS Associates in an extension of the OECD’s Committee on Fiscal Affairs. As such, they will work on an equal footing with the OECD and G20 members on the remaining standard-setting under the BEPS Project, as well as the review and monitoring of the implementation of the BEPS package. If endorsed by the G20 on February 26-27, 2016 in Shanghai, the new forum will hold its first meeting in June 2016.
For more information, see the OECD press release.
Amendments to exit tax rules
The Tax Law Amendment Act 2015 amending Austrian exit tax rules entered into force on December 29, 2015. According to the new rules, the option for a tax deferral will be replaced, for certain asset classes, by an option for the payment of installments.
For more information, see E-news 58.
Updated list of states with which Austria has concluded a mutual administrative assistance agreement
On December 18, 2015, the Austrian Ministry of Finance issued an updated list of states and territories with which Austria has concluded a mutual administrative assistance agreement, effective as of January 1, 2016. The existence of such an agreement is especially relevant within the framework of the Austrian tax group regime.
Royal Decree on entities not subject to Cayman tax published
A Royal Decree on entities not subject to the Cayman tax was published in the Official Gazette of December 29, 2015. It follows the introduction as of January 1, 2015 of a look-through taxation principle (“Cayman tax”) allowing the Belgian tax authorities to directly tax founders and third-party beneficiaries of certain offshore structures subject to an effective tax rate of less than 15%.
For more information, see E-news 54.
Law implementing the CJEU decision in the Tate & Lyle Investments case published
The law implementing into Belgian tax law the CJEU decision in the Tate & Lyle Investments case was published in the Official Gazette on December 28, 2015. The Belgian income tax law has been changed to comply with the CJEU judgment that addressed the different treatment allowing resident companies to claim a deduction of the dividends received and to credit the withholding tax on dividends from participations below 10%, but above EUR 1.2 million (at that time, currently EUR 2.5 million) against Belgian corporate income tax, but not allowing a non-resident company to claim the same treatment.
For more information, see TaxNewsFlash-Europe
Belgium opposes latest FTT proposal
According to several press reports, the Belgium finance minister, Johan Van Overtveldt, announced on January 24, 2016, that Belgium will not endorse the latest proposal for a Financial Transaction Tax presented at the ECOFIN meeting of December 8, 2015. The potential negative effects of the tax on the Belgian economy were the main reasons invoked.
Explanations on the implementation of automatic exchange of information published
The Belgian Ministry of Finance published a press release on January 29, 2016, detailing the implementation of the new international standards for automatic exchange of information (i.e. FATCA agreement, Common Reporting Standard, and automatic exchange of financial information within the European Union).
For more information see the press release (in French only).
Withholding tax on dividends distributed to institutional real estate companies abolished
Following the official publication of the Bill of December 18, 2015, an exemption from withholding tax on dividends will be available for institutional investors investing in real estate as of January 7, 2016. This is to align the treatment of regulated real estate investment companies and institutional investors.
Interest limitation rules: amended related party interest rates
On December 23, 2015 the Croatian Minister of Finance announced that the maximum interest rate deductible for corporate income tax purposes on loans between related parties will be increased to 5.14% per annum, effective as of January 1, 2016.
For more information see TaxNewsFlash-Europe
Intensification of tax audits focusing on transactions with non-cooperative tax jurisdictions
The Croatian tax authorities recently announced that in 2015 an additional corporate income tax amounting to CZK 50 million had been assessed further to several tax audits on transactions with tax havens. Similar audits will be launched in 2016, taking into account tax treaties, TIEAs and multilateral conventions.
Implementation of OECD and EU information exchange standards
Further to the implementation of Directive 2014/107/EU on automatic exchange of financial information in October 2015, the Cypriot Ministry of Finance recently announced the future publication of a decree implementing the Common Reporting Standard (CRS). The information exchange will start as of September 2017 and will cover information gathered in 2016.
Country-by-country reporting obligations
In December 2015, the Danish Parliament has passed legislation that adopts country-by-country reporting. The new requirements are expected to be implemented by means of a change to the Danish executive order concerning documentation relating to the pricing of controlled transactions, with effect from January 1, 2016.
For more information see TaxNewsFlash-Europe
Appointment of a task force dedicated to the negotiation of tax treaties
On January 13, 2016 the Danish tax authorities announced the appointment of dedicated task force for the negotiation and conclusion of new tax treaties, which should act as a cooperation forum between the Danish administration and certain business organizations.
Country-by-country reporting obligations
On December 21, 2015 the Ministry of Finance released for public comment a proposal to revise the transfer pricing documentation rules and introduce country-by-country reporting. The proposal, released as a draft bill, includes country-by-country reporting, master file and local file requirements, as well as penalty provisions, and generally follows the recommendations of the OECD’s recommendations on BEPS Action 13. The Ministry of Finance has requested comments to be submitted by January 25, 2016 and the government intends the provisions to be enacted and effective by the beginning of 2017.
For more information see TaxNewsFlash-Europe.
Finnish tax authorities issue opinion on the applicability to Finnish Transfer Pricing rules of OECD recommendations under BEPS Actions 8-10
On February 22, 2016, the Finnish tax authorities issued an opinion (A177/200/2015) as to how the recommended amendments made to the OECD Transfer Pricing Guidelines under BEPS Actions 8-10 will impact the interpretation of the arm’s length principle under Finnish law. The tax authorities consider that such amendments should be applicable immediately but will not have a retroactive effect, if they do not comply with existing case law and/or administrative practice.
Implementation of automatic exchange of financial account information
On December 31, 2015, the law implementing Directive 2014/107/EU on automatic exchange of financial information was published in the Official Gazette. The law entered into force on January 1, 2016.
Amendments to the Parent-Subsidiary Directive implemented
On December 31, 2015, the law implementing the amendments made to the EU Parent-Subsidiary Directive into domestic law was published in the Official Gazette.
For more information, see E-news 57.
Summary of new corporate tax law provisions for 2016
Several pieces of legislation (the Finance Act for 2016, the Amended Finance Act for 2015, and the Social Security Financing Act for 2016) including amendments to the parent-subsidiary regime, the taxation of revenue distributed to foreign companies in liquidation, the implementation of country-by-country reporting, and a transfer pricing declaration have been published in the Official Journal.
For more information see TaxNewsFlash-Europe
Draft investment bill published
On December 18, 2015, the Federal Ministry of Finance proposed legislative changes that would reform the taxation of investment income, including the introduction of a 15% capital gains tax for certain types of funds and provisions to close loopholes allowing the avoidance of dividend withholding tax, via ex-dividend transactions. Certain measures would be effective beginning in 2016, and others in 2018.
For more information see TaxNewsFlash-Europe
Council Directive repealing EU Savings Directive implemented
On January 1, 2016, the Taxation (Savings Income) (Repeal) Regulations 2015 implementing the repeal of the EU Savings Directive came into effect. The EU savings taxation directive (Directive 2003/48/EC), that allowed tax administrations to have access to information about “private savers,” was repealed on November 10, 2015 by the European Council.
Automatic exchange of financial information– regulations published
The International Co-operation (Improvement of International Tax Compliance) Regulations 2015, implementing Directive 2014/107/EU on automatic exchange of financial information came into effect on January 1, 2016. The regulations provide inter alia for detailed measures on reportable accounts, due diligence requirements, reporting obligations of qualifying financial institutions and applicable penalties.
For more information see the report prepared by KPMG member firm in Gibraltar
List of preferential tax regimes published
On December 29, 2015, the Greek tax authorities published a circular listing the countries and territories having preferential tax regimes (i.e. in which the applicable corporate income tax rate is less than 50% of the Greek rate) for the fiscal year 2015.
Guidelines on the repeal of the EU Savings Directive published
On December 22, 2015 the Irish Revenue published eBrief No. 118/15 on the practical implications of the repeal of the EU Savings Directive (2003/48/EC). The eBrief specifies that the repeal applies from January 1, 2016 and that the last report under the EUSD is due by March 31, 2016 for payments made in 2015. For payments made in 2016, reporting will be due under the Directive on administrative cooperation (2011/16/EU). Financial information regarding third countries will be exchanged under the OECD Common Reporting Standard.
For more information see eBrief No. 118/15.
Country-by-Country reporting endorsed by Finance Act 2015
On December 21, 2015 the president of Ireland signed the Finance Act 2015, including provisions on country-by-country reporting which reflect the OECD’s recommended model legislation.
For more information, see TaxNewsFlash-BEPS.
Taxes (Country-by-Country Reporting) Regulations 2015
On January 5, 2016 the Taxes (Country-by-Country Reporting) Regulations 2015 was published by the Irish Revenue, specifying inter alia, notification obligations or requirements for Irish tax resident entities, other than the ultimate parent company of a multinational group, to provide country-by-country reports.
For more information, see the Taxes (Country-by-Country Reporting) Regulations 2015.
Mandatory Automatic Exchange of Information in the Field of Taxation Regulations 2015
On January 4, 2016, the Irish Revenue published the Mandatory Automatic Exchange of Information in the Field of Taxation Regulations 2015. The Regulations apply from December 31, 2015 and clarify procedural aspects of the implementation of the automatic exchange of financial account information under the Directive on administrative cooperation (2011/16/EU). According to the new Regulations, reports must be provided to the Irish Revenue by June 30 of each year. Furthermore, the Regulations regulate the information on account holders that must be reported and due diligence procedures for financial institutions.
For more information, see the Mandatory Automatic Exchange of Information in the Field of Taxation Regulations 2015.
Irish tax authorities launch a web portal dedicated to tax avoidance
The new website contains a definition of what tax avoidance is and provides guidance on the various legislative tools available to the Irish tax authorities to detect and tackle it, as well as potential penalties and time limitations.
For more information see the Irish revenue dedicated website.
Stability Law 2016
On December 30, 2015 the Stability Law 2016 (Law No. 208 of December 28, 2015) was published in the Official Gazette, following the Italian Parliament’s approval on December 22, 2015. The Law foresees inter alia that:
For more information on CbC reporting, see TaxNewsFlash-BEPS
Tax ruling procedures amended
On January 4, 2016 the Italian Tax Authorities enacted implementing rules regarding tax ruling procedures, according to which requests need to be submitted to the competent regional office (Direzione Regionale), which depends on the tax residence of the taxpayer. With respect to non-residents, qualifying large taxpayers or public institutions must submit their requests to the central revenue department.
Ministerial Decree on automatic exchange of information published
On December 31, 2015 a Ministerial Decree was issued implementing rules regarding automatic exchange of financial account information, as required under the Directive on administrative cooperation (2011/16/EU) and the Italian Law No. 95 of June 28, 2015, implementing the Italy-US FATCA Model 1A Agreement. The Decree addresses specific measures and definitions, reporting obligations of financial institutions and due diligence procedures.
Clarifications on the Italian patent box regime
On December 22, 2015 the Italian tax authorities issued a press release providing further guidelines on the patent box regime introduced in December 2014. The guidelines include clarifications on the application process for tax rulings as part of the patent box regime, especially regarding the information and documentation that has to be submitted. In derogation from the general process, simplified procedures are available to qualifying small and medium-sized companies.
For more information see TaxNewsFlash-Europe
Consultation on country-by-country reporting launched
On January, 22 2016 the government launched a public consultation on implementing country-by-country reporting. The consultation especially invites comments on the UK’s draft regulations on country-by-country reporting, as Jersey’s regulations may closely follow the UK (and OECD model) legislation. The responses should be submitted by the interested parties no later than April 22, 2016.
For more information, see the public consultation webpage
Council Directive repealing EU Savings Directive implemented
In January 2016 provisions repealing the EU Savings Directive have been implemented in the Jersey’s internal legislation.
Implementation of automatic exchange of financial account information adopted by parliament
On February 4, 2016, the amendments to the Corporate Income tax Law, implementing the Council Directive 2014/107/EU on automatic exchange of financial information was adopted by the Latvian parliament. Qualifying financial institutions will be required to provide information, together with the annual corporate income tax return, about payments to non-residents as of January 1, 2017.
Protocol to EU savings agreement entered into force
The protocol amending the EU savings agreement, aligning it with the EU and international developments, entered into force on January 1, 2016.
Internal law on reporting standards amended
In January 2016, additional reporting obligations were introduced for taxpayers acting in the financial market. Information regarding the accounts held by Lithuanian resident individuals, as well as the interest paid related to housing market, life insurance premiums and contributions made to Lithuanian pension funds, will have to be reported to the local tax authorities. The regulation also provides the related reporting deadlines.
Amendments to the internal legislation to comply with EU law
On 17 December 2015, the Luxembourg Parliament voted on a set of tax measures, aimed at ensuring compliance of the Luxembourg legislation with EU law. The enacted measures include the implementation into Luxembourg law of the new Parent-Subsidiary Directive’s general anti-abuse and anti-hybrid rules, as well as changes to the Luxembourg fiscal unity regime and the repeal of the current Luxembourg patent box regime. The minimum corporate income tax, which was found to be incompatible with EU law by the EU Commission, is also replaced by a minimum new wealth tax.
For more information, see Luxembourg Tax News 2015-31
Draft Bill creating the Reserved Alternative Investment Fund (RAIF) submitted to the Luxembourg Parliament
In December 2015, the draft bill creating a new Luxembourg fund structure called the Reserved Alternative Investment Fund (RAIF) was submitted to the Luxembourg Parliament. The bill will add a new fund vehicle, qualifying as an Alternative Investment Fund (AIF), to Luxembourg’s fund structuring toolbox.
For more information, see the article prepared by the KPMG member firm in Luxembourg
Automatic exchange of financial account information enacted
The law implementing the common reporting standard (CRS) in Luxembourg law has been enacted. The law was published on December 24, 2015. Accordingly, the CRS measures for the automatic exchange of financial account information in the field of taxation are enacted as of the end of 2015.
For more information, see TaxNewsflash-Europe
Guidelines on implementation of Common Reporting Standard – published
In December 2015, guidelines on the implementation of the common reporting standard for automatic exchange of information have been published. The document sets general reporting and due diligence requirements and provides guidance on the treatment of trusts.
For more information, see the Inland Revenue publication
Tax plan for 2016 adopted by Upper House
The Dutch Upper House adopted the tax plan for 2016 at the end of December 2015. The law includes the implementation of several EU law provisions (e.g. Parent-Subsidiary Directive amendments, country-by-country reporting and transfer pricing documentation, automatic exchange of information under the common reporting standard), as well as a wage reduction for R&D activities and changes to the tax law applicable to state-owned companies.
Consultation on simplification of tax system launched
The Dutch Ministry of Finance announced in February 2016 that for the 2017 tax plan input from the public on how to simplify the current Dutch tax system would be taken into account. The consultation ended on February 15, 2016.
New transfer pricing documentation rules enacted; country-by-country reporting
Legislation amending the rules governing transfer pricing documentation, to include country-by-country reporting, as well as master file and local file provisions, has been enacted, with effective date as of January 1, 2016. The legislation adds new standardized documentation requirements to the Dutch corporate tax law and implements the recommendations from the OECD BEPS Action 13.
For more information, see TaxNewsflash-Europe
Administrative penalties for FATCA and CRS reporting amended
In December 2015 two types of new penalties have been included in the Dutch legislation. These penalties apply if a taxpayer fails to meet the obligations pursuant to FATCA or CRS.
Interest deduction limitations for acquisition financing, private equity investments
The Dutch Cabinet on December 21, 2015 sent a letter to the Lower House that responds to an “initiative memorandum” that proposes changes to the tax treatment of private equity. The “initiative memorandum” includes proposals to amend both tax law and the civil and business law relating to private equity investment. In its letter, the Cabinet indicated that the interest deduction limitation for acquisition financing will be tightened, at the earliest in the 2017 tax plan. The Cabinet also reported that research will be performed regarding the effects of private equity investment in the Netherlands.
For more information, see TaxNewsflash-Europe
Technical guidelines related to FATCA and CRS reporting
In January 2016 the Netherlands published guidelines and technical clarifications related to the reporting and due diligence obligations under the FATCA agreement concluded with the US and on the CRS legislation.
Common Reporting Standards (CRS) - list of countries published
In January 2016 the Netherlands published the list of countries for which the obligation of the financial institutions coming under EU CRS to identify the underlying beneficial owner(s) of the foreign account holder investment vehicle would not apply. The list includes the countries that signed the OECD Automatic Exchange of Information Agreement (2014).
Anti-abuse and hybrid instruments measures implemented
On December 30, 2015 the Bill implementing the changes to the Parent-Subsidiary Directive regarding hybrid instruments and anti-abuse provisions was published in the Dutch Official Gazette.
Inscription of Dutch holding companies on Brazilian list of Privileged Tax Regimes
Further to the update of the Brazilian list of jurisdictions considered as a tax haven in December 2015, Dutch holding companies that do not have substantial economic activities have been re-inserted into the list of “Privileged Tax Regime”. According to Brazilian tax legislation, this is particularly relevant for the implementation of the Brazilian transfer pricing legislation, thin capitalization rules and the identification of certain deductible expenses.
For more information see report prepared by KPMG member firm in Brazil.
Ministry of Finance releases assessment of the Dutch patent box regime
On February 19, 2016, the Ministry of Finance sent an evaluation of the innovation box regime for the years 2010-2012 to the Dutch Parliament. The report mainly underlines that (1) the number of beneficiaries has significantly increased since the introduction of the regime on January 1, 2010, (2) for most of them, the financial advantage resulting from other R&D incentives (e.g. reduction in wage tax) was more important than the one derived from the innovation box regime, and (3) a majority of taxpayers benefited from this regime by way of an R&D certificate (as opposed to a patent). The letter to the Parliament also mentions that an internet consultation will take place in the second quarter of 2016 regarding the implementation of the OECD modified nexus approach.
Report on country-by-country reporting published
On February 1, 2016, the Norwegian government issued a report detailing potential amendments to the Securities Trading Act in order to implement recent EU directives on trading markets. The report also includes comments on legislation implementing country-by-country reporting based on the OECD BEPS Action 13 (the Norwegian Ministry of Finance had launched a public consultation paper on this topic in January 2016).
For more information on the consultation, see TaxNewsflash-Europe
Tax on financial, lending institutions and insurance companies
A new law effective February 1, 2016 provides for a tax on banks, lending institutions, and insurance companies. Because of the expanded scope of the legislation, certain entities that conduct lending activities, even to a marginal degree, will be subject to the financial institutions tax, which will be non-deductible for corporate tax purposes.
For more information, see TaxNewsflash-Europe
Measures to improve tax collection announced
On February 4,2016, the Polish Ministry of Finance announced its intention to implement several measures aimed at improving the collection of tax, including the introduction of a general anti-abuse clause.
GAAR measures implemented in national legislation
In December 2015 the draft law implementing the anti-abuse measures of the Parent-Subsidiary Directive has been published. The measures would only apply to transactions involving dividends and not to the participation exemption for capital gains.
Additional measures announced for Budget 2016
Additional budget measures were announced on February 5, 2016, including inter alia:
Important changes to the transfer pricing legislation
In February 2016, the Romanian tax administration published new regulations regarding the preparation of a transfer pricing file, which will be applicable to administrative procedures initiated after January 1, 2016. The guidelines include provisions related to the value of transactions, the preparation deadlines, the content and the conditions under which a transfer pricing documentation file may be requested and the procedure for adjusting/estimating transfer prices.
For more information, see the report prepared by KPMG member firm in Romania
Proposal to set-up a committee on international tax fraud
On February 10, 2016, the Spanish Parliament announced the creation of a committee on international tax fraud and tax havens, which will be in charge of reviewing the final OECD reports on BEPS as well as the proposals included in the European Commission’s Anti-Tax Avoidance Package. The committee’s scope of work will also cover transfer pricing, and measures on tax evasion and tax avoidance by multinational companies.
2016 Tax Control Plan published
The resolution approving the 2016 tax control plan was published in the Official Gazette on February 23, 2016. The plan, which sets out the main steps to be implemented by the Spanish tax authorities in the 2016 financial year, provides for an intensification of the fight against the black economy in general and an improvement of the controls over international tax planning structures, especially with respect to the use of data reported under the Code of Good Tax Practices or collected through the automatic exchange of financial information with other jurisdictions, the use of hybrid instruments, the existence of permanent establishments, and the review of transfer pricing documentation.
Transfer pricing guidance updated with BEPS
In December 2015 the Swedish tax authorities published updated transfer pricing guidance, implementing OECD recommendations under BEPS Action 8-10.
Memorandum on anti-money laundering and anti-terrorism financing published
On February 1, 2016, the Swedish government issued a report on anti-money laundering and anti-terrorism financing, together with recommendations on the transposition of the fourth Anti-Money Laundering Directive into Swedish law and other amendments to be introduced into domestic law.
Decrees on automatic exchange of information on financial accounts
On January 20, 2015 the Swedish tax authorities published decrees introducing measures to comply with the automatic exchange of information on financial accounts. The decrees include information related to the identification of reportable accounts and the contributing jurisdictions and will enter into force on January 1, 2016.
Interest limitation rules: safe haven interest rates for 2016 published
On 23 and 24 February 2016, the Swiss tax administration published two circulars providing for the new interest rates applicable to shareholder and related-party loans in 2016.
Hybrid and other mismatches: HMRC examples published
On December 22, 2015 HMRC published a number of draft examples illustrating the application of the new rules counteracting tax avoidance through hybrid mismatch arrangements. The examples are based upon a selection of those contained within the OECD’s final report on “Neutralizing the Effects of Hybrid Mismatch Arrangements” and are designed to illustrate how the draft UK legislation is intended to apply to a range of hybrid mismatch arrangements.
For more information, see TaxNewsflash-Europe
Public consultation on BEPS Action 4
On January 6, 2016, HMRC launched a consultation seeking views from interested parties on the tax deductibility of corporate interest (BEPS Action 4). Questions focused on the practical actions to address the interest deductibility issue without distorting competitiveness within the UK tax system. A response was submitted by the KPMG member firm in the UK supporting the current UK interest deductibility system and stressing that, as a new regime might be detrimental to the UK’s competitiveness and attractiveness, full and proper consultation will be critical to its eventual success in meeting the dual objectives of promoting investment whilst challenging BEPS type activity. The results of the consultation are being considered and we expect an update either on Budget Day (16 March 2016) or in the development of the business tax roadmap to be published in April 2016.
For more information, see HMRC’s public consultation
New taxation rules applicable to financial instruments
On January 1, 2016 the regulations amending the Taxation of Regulatory Capital Securities Regulations entered into force. The provisions introduce specific taxation rules for new types of financial instrument issued by insurance companies to meet regulatory requirements. They also update the taxation rules applicable to derivative contracts and corporate debt.
For more information, see the Policy paper published by HMRC
Inquiry into the effect of the recent UK tax measures on tax avoidance and collection of tax launched
In January 2016 the UK Treasury Committee launched a survey on UK tax policy and tax base. One of the topics evaluated is whether the recent tax initiatives, such as the Anti-Tax Avoidance Rules, accelerated payments regimes and the Disclosure of Tax Avoidance Schemes, have been effective in addressing tax avoidance. In addition, they ask for the public’s opinion on the effect of the OECD’s BEPS project and Common Reporting Standards on the collection of tax.
For more information, see TaxNewsflash-Europe
HMRC issues additional analyses on tax avoidance
On 19 February 2016, the UK tax administration issued two additional publications on tax avoidance:
Amendments to the Tax Avoidance Schemes regime
In February 2016 HMRC published a draft legislation amending the hallmarks in the Disclosure of Tax Avoidance Schemes regime. The new provisions introduce a new financial products hallmark and extend the confidentiality and premium fee hallmarks to include inheritance tax. Some aspects of the standardized tax product and loss schemes hallmarks have also been amended. The hallmark changes come into effect from February 23, 2016.
For more information, see TaxNewsflash-Europe
Factsheet on HMRC and multinational corporations published
Further to the media coverage of the tax affairs of multinational groups, and particularly on the conclusion of HMRC’s enquiry into the Google case, the British tax authorities issued a factsheet on February 9, 2016, detailing recent statistics on compliance activity, as well as legislative changes and the tax administration approach to multinationals.
For more information see the HMRC factsheet
Proposed regulations on country-by-country reporting published
In December 2015 proposed regulations requiring the US entity’s ultimate parents of a multinational enterprise (MNE) group to file country-by-country (CBC) reporting reports were published in the US Federal Register. The regulations generally follow the OECD recommendations under BEPS Action 13, except for certain aspects of the regime, e.g. the USD 850 million reporting threshold for a MNE group (EUR 750 million under the OCED recommendations).
For more information, see the report prepared by the KPMG member firm in the US
Changes to internal FATCA and withholding tax regulations
The IRS Internal revenue Bulletin dated February 8, 2016 included the amendments to certain FATCA and withholding tax regulations proposed by the US Treasury Department and the IRS.
For more information, see the article prepared by the KPMG member firm in the US.
List of boycott countries reissued
On January 26, 2016 the US Treasury Department published its quarterly list (identical to the previous ones) of boycotted countries, according to which US taxpayers involved in transactions with residents of Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, the United Arab Emirates, or the Republic of Yemen would not be able to benefit from certain US tax benefits.
For more information, see TaxNewsFlash-United States
Belgian non-deductibility clause and reporting requirements on payments to tax havens deemed constitutional
According to Belgian law, substantial payments to blacklisted countries have to be reported to the tax authorities and may be deducted only if the payer proves that they cover real services. In the case at hand, the claimant, a Belgian company having failed to report payment made to a company established in the British Virgin Islands and remunerating services rendered by a Russian company was denied the deduction of this fee for corporate tax purposes. The company claimed that even if such payment had not been reported, it should be given the possibility to prove that it does not involve tax avoidance. In January 2016 the Belgium Constitutional Court concluded that such option would not encourage cooperation between taxpayers and tax authorities and that it would be very difficult to evaluate whether the taxpayer acted in good faith. It added that, even if the Belgian company would have reported the payment, it is likely that the tax authorities would still have denied its deduction, as the British Virgin Islands company was probably an artificial structure set up to avoid Russian tax.
Antwerp Court of Appeal rules that notional interest deduction does not require substance
The Belgian legislation on notional interest deduction incorporates a specific anti-abuse clause, which limits the amounts deductible in the case of profits resulting from "abnormal or benevolent advantages" received from a related party. In the case at hand, the Belgian tax authorities refused the deduction of notional interest to a Belgian finance company, whose economic activity was limited to the holding and management of a single loan. The Antwerp Court of Appeal ruled that the Belgian legislation is not conditional upon having a certain level of substance and that the interposition of a Belgian finance company is not abnormal as such, since it clearly performs an economic activity.
CFC harbor clause applies where no tax avoidance is sought
On 30 December 2015, the French Administrative Supreme Court ruled that the controlled foreign company (CFC) safe harbor clause applies to French companies setting up foreign entities meant to manage the Asian currencies for the group members (in Hong Kong) and respectively to develop the private banking activity for clients (in Guernsey). The French bank, BNP Paribas, provided sufficient evidence to the Court that the purpose for establishing foreign entities in low tax jurisdictions was not tax avoidance, but the impossibility to perform Asian currency management in France on one hand and the attractiveness of the Guernsey market on the other. The Court mentioned that, in both cases, the existence of French clients or of funds raised in France is not important when determining the applicability of the safe harbor clause, as (1) they would not challenge the market functioning reasons for setting up a Hong-Kong entity and (2) the CFC rules are aimed to prevent tax avoidance and not to prevent the investment of individual savings in a low-tax jurisdiction (such as Guernsey).
A tax benefit granted under a tax treaty may only be claimed by a third-country resident if this advantage goes beyond such a treaty
Following the CJEU decision in the ACT Test Claimants case (C-374/04), the French Administrative Supreme Court decided that a tax advantage given under the provisions of a Double Tax Treaty (DTT) may not be claimed by the resident of a third country, except to the extent that such benefit goes beyond the provisions of said DTT. Therefore, a Dutch company is not entitled to claim the tax credit granted to an Italian parent company for the tax paid in France on its French source dividends, as long as that benefit is expressly included in the France-Italy DTT.
80% penalty for non-disclosing a French PE not applicable if the failure to disclose was unintentional and related tax has been paid in another jurisdiction
In December 2015 the French Administrative Supreme Court decided that the 80% penalty for failing to disclose a French permanent establishment (PE) is not applicable if there is proof that this non-disclosure was unintentional. The Court analyzed the case of a Spanish taxpayer that did not file any French tax return or pay any French tax related to its PE in France. The Spanish company fulfilled all the related tax requirements in Spain, however. The Court’s decision stated that, as long as the taxpayer may prove that all tax requirements have been fulfilled in a jurisdiction that exchanges information with France and has a comparable level of taxation, the abovementioned penalty may not apply, as this case would not qualify as tax evasion.
Transfer pricing adjustments between a French PE and its Belgium head office do not violate the EU freedoms
In November 2015, the French Administrative Supreme Court rendered its decision on the above case. The Court first analyzed the transfer pricing provisions included in the French legislation, the applicable Double Tax Treaty and EU law and then concluded that a cash benefit granted by a French PE to its Belgian head office must be accompanied by interest. The Court further confirmed that even if French entities granting benefits to non-resident affiliates are treated less favorably than the ones granting benefits to French affiliates, such a restriction is necessary to maintain a balanced allocation of the power to tax between Member States, and is justified by the need to prevent tax evasion.
Borrowing costs of shares from which dividends are derived should be deducted when determining the tax credit limit applicable to the foreign WHT
The French Administrative Supreme Court ruled that the direct costs related to dividend income received from Italy have to be taken into account when determining the limit applicable to the foreign tax credit. The case dealt with a French bank that borrowed shares in an Italian company from a UK-based entity. The bank received Italian dividends taxed at source (in Italy) and subsequently paid the UK entity the gross amount of dividends. When the bank asked for a tax credit equal to the tax withheld in Italy, the French tax authorities argued that the amount paid to the UK entity for borrowing the shares should be deducted from the gross dividend when determining the tax due in France. As a consequence, the French tax attributable to the dividends was nil and the bank was not allowed to a tax credit. The Supreme Court agreed with the approach undertaken by the tax authorities and ruled that any direct costs related to the purchase, holding or disposal of shares must be deducted from the dividends received when determining the limit to the foreign tax credit. The case has been sent back to the Administrative Court of Appeal in order to analyze the outcome from an EU tax perspective.
Parent-Subsidiary Directive general anti-abuse rules ruled compatible with the French Constitution.
In December 2015 the French Constitutional Court declared that the general anti-abuse rules provided by the Directive 2015/121 regarding the participation exemption transposed in the national legislation are compatible with the French Constitution.
For more information, see the French decision here.
Reverse discrimination in the application of the participation exemption regime ruled unconstitutional
In November 2015, the French Supreme Administrative Court ruled that denying the application of the French participation exemption regime to holding shares with no voting rights is contrary to the Parent Subsidiary Directive. The application of this decision resulted in reverse discrimination whereby a French company is treated less favorably if it receives dividends on shares with no voting rights from a French subsidiary than from an EU subsidiary. The French Constitutional Court ruled on 3 February 2016 that this is contrary to the principle of equality before the law and equality before taxes.
German Supreme Administrative Court doubts constitutionality of interest deduction limitation rules
On October 14, 2015, the German Supreme Administrative Court ruled that the German interest deduction limitation rules for group companies may infringe the constitutional principle of ability to pay. As a consequence, it decided to refer the question to the German Constitutional Court. In the case at hand, a German resident company was denied the deduction of certain interest expenses, which could not be carried forward due to a group’s restructuring. As this was a purely domestic situation, the Court questioned whether the limitation rule could be justified by the need to counter abusive structures. In a 2013 decision (I B 85/13), the Court had already expressed similar concerns and had argued that serious doubts as regards the constitutionality of the interest deduction limitation rules were sufficient to justify a suspension of the execution of the assessment.
German Supreme Administrative Court rules on taxation of foreign investment funds
On November 17, 2015, the German Supreme Administrative Court ruled that, when assessing the tax due on the income derived by a German resident taxpayer through a US (or another third country resident) investment fund, the German tax authorities must give the investor the possibility to provide evidence of the actual income earned (and thus avoid a flat-rate taxation) to the extent that such information can be verified, e.g. via the use of information exchange clauses in tax treaties. The ruling, which refers to the CJEU decision in the Van Caster case (C-326/12) (see Euro Tax Flash 236), is not in line with the guidelines issued by the German Ministry of Finance, according to which taxpayers may be granted such opportunity (to provide evidence of the actual income earned) only if they invested in EU/EEA funds.
Dutch Supreme Court rules on the conditions to benefit from a 30% tax deduction on Belgium income under the applicable tax treaty
On January 29, 2016, the Dutch Supreme Court ruled that a Dutch resident earning income in Belgium may only benefit from a 30% tax deduction on this income (pursuant to Dutch law and the applicable tax treaty) to the extent that he had previously agreed with his employer to obtain compensation for the extraterritorial costs incurred in Belgium.
Dutch Supreme Court rules on what constitutes a request for exchange of information under the Mutual Assistance Directive
On February 5, 2016, the Dutch Supreme Court decided that expressing interest in a potential case of tax abuse does not constitute a request for exchange of information under the Mutual Assistance Directive. In the case at hand, the Court found that the interest expressed by the Dutch tax authorities in obtaining information, from the German tax administration, regarding the participation of Dutch residents in a Liechtenstein foundation was not a request for exchange of information within the meaning of the directive and that the information received thus constituted a spontaneous exchange of information.
Advocate General of the Dutch Supreme Court considers that capital taxation under the Box 3 regime violates ECHR
On February 4, 2016, the AG of the Dutch Supreme Court rendered his opinion on whether the Dutch Box 3 regime (i.e. taxation at a 30% flat rate of income from savings and investments on a deemed yield of 4% per year) is compatible with the European Convention on Human Rights. The AG considered that such a regime may result in arbitrary taxation and therefore violates the principle of ability to pay. Considering the potential confiscatory nature of the tax, taking into account the unpredictability of macroeconomic developments, the AG concluded that the tax constitutes a disproportionate infringement of a person’s right to enjoy property. On February 16, 2016, the Dutch Ministry of Finance issued a press release stating that it disagrees with this opinion.
Capital gains derived by a former Swedish resident from the sale of Danish shares are taxable in Sweden according to the 10-year rule
In February 2016, the Swedish Supreme Administrative Court issued an advance ruling on the conditions under which capital gains derived by a Danish national resident in Sweden from the sale of shares are taxable in Sweden under the 10-year rule (i.e. the taxpayer was resident in Sweden when the shares were acquired and at the time or during the 10 years preceding the sale). The Court analyzed two different scenarios involving selling the shares after their transfer to a new Danish company and concluded that, even if the time of acquisition of the new shares is different from a fiscal perspective, in both scenarios, when acquiring the new shares, the taxpayer was subject to unlimited tax liability in Sweden, and is therefore liable to pay capital gains tax in Sweden.
Appeal requesting withholding tax refund rejected on the grounds of beneficial ownership clause
The Swiss Federal Supreme Court rejected the appeal submitted by a Luxembourgish limited liability company (“LuxCo”) requesting the refund of the tax withheld on dividends by a Swiss company on the grounds that LuxCo was not the beneficial owner of these dividends (LuxCo had no personnel, no infrastructure and full financial control was exercised by US-based stockholders). When LuxCo argued than the Double Tax Treaty (“DTT”) concluded between the two countries did not include a “beneficial ownership” clause, the Court responded that such provision should be implicitly considered, even if it is not expressly included in the DTT.
Summary judgment on claims for restitution of ACT granted to seven multinationals
The England and Wales High Court of Justice granted seven multinational companies enrolled in FII Group Litigation a summary judgment on their claims for restitution of advance corporation tax paid on foreign income dividends during July 1994 and April 1999. As the arguments used were similar to the ones raised in previous FII group litigations, the Court confirmed that the claims for summary judgment succeeded. However, no summary was granted with respect to claims for restitution in the form of compound interest for the period after utilization or repayment of the ACT. The answer which will be given by the Supreme Court to the pending application submitted by HMRC including such a question was mentioned as being relevant in this case.
For more information, see the Evonik Degussa UK Holdings Ltd & Ors v Revenue And Customs decision
Challenge under EU law and ECHR of the 45% tax on restitution interest denied by UK High Court
In February 2016 the England and Wales High Court of Justice rejected the application of Six Continents asking to amend their claim for an interim payment under the FII Group Litigation Order. The company sought to challenge the lawfulness under EU law and the European Convention on Human Rights of "the Restitution Interest Tax Provisions" introduced in the UK tax law with effect from October 26, 2015. According to this provision, HMRC would apply a 45% corporate tax rate to restitution interest recovered by companies in claims addressing unlawful collection of tax or a mistake of law.
For more information, see the Weekly Tax Matters article prepared by the KPMG member firm in the UK
Administrative Court confirms that the UK amendments to Liechtenstein Disclosure Facility are lawful
The Liechtenstein Disclosure Facility concluded between the UK and Lichtenstein offers a voluntary disclosure facility to all taxpayers that regularize their outstanding UK tax affairs, provided that they possess or acquire certain financial assets in Lichtenstein. In August 2014, HMRC restricted the group of taxpayers that may use these facilities. In January 2016 the England and Wales High Court of Justice rejected the application of nine companies operating Employee Benefit Trust schemes, which challenged these amendments arguing that they were unfair and gave rise to an abuse of power on the part of HMRC. The Court concluded that the different treatment applied by the HMRC to this category of companies is justified, as HMRC took account of all relevant considerations, and balanced the various public interest and private factors. The Court also dismissed the application for judicial review.
For more information, see City Shoes Wholesale Ltd,R v. HMRC decision