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KPMG’s EU Tax Centre helps you understand the complexities of EU tax law and how this can impact your business, enabling you to better predict how rules will develop and how to leverage opportunities and minimize risks arising from EU tax law.
E-News provides you with EU tax news that is current and relevant to your business. KPMG's EU Tax Centre compiles a regular update of EU tax developments that can have both a domestic and a cross-border impact. CJEU cases can have implications for your country.
CJEU decision in the joined cases of Autogrill and Banco Santander (C-20/15 P and C-21/15 P)
On December 21, 2016 the CJEU rendered its decision in the joined cases Commission and World Duty Free Group, formerly Autogrill España, and Commission and Banco Santander and Santusa. The cases address whether the Spanish provisions allowing Spanish tax resident companies to amortize the goodwill resulting from the acquisition of foreign holdings (as opposed to Spanish holdings) are in breach of EU State aid rules. The CJEU concluded that this measure could be selective even if the tax benefit was not limited to a particular category of undertakings. The CJEU referred the case back to the General Court for further consideration of the selectivity criterion as well as certain submissions that the General Court had failed to consider.
For more information, please refer to KPMG's Euro Tax Flash 311.
CJEU decision in the joined cases of Aer Lingus and Ryanair (C-164/15 P and C-165/15 P)
On December 21, 2016 the CJEU rendered its decision in the joined cases Commission v Aer Lingus and Commission v Ryanair. These cases concerned the Irish air travel tax (ATT), an excise duty on air passenger transport, which was applied at different rates depending on the distance between the departure and the arrival airports, and its compatibility with EU State aid rules. This case provides important guidance on the recovery of State aid granted in the form of a tax advantage, with the Court stating that recovery entails the restitution of the advantage procured for the beneficiary, not the restitution of any economic benefit it may have enjoyed as a result of exploiting the advantage. Accordingly, the CJEU held that the notion of ‘economic passing on’ is of no relevance to the recovery of State aid. The unlawful aid consisted in the application of a lower rate of ATT, being an advantage borne by the airlines not the customers, and therefore the recovery of that aid entails the repayment of the difference between the two rates by the airlines to balance out the advantage.
For more information, please refer to KPMG’s Euro Tax Flash 308.
CJEU decision in the case of Masco Denmark and Damixa (C-593/14)
On December 21, 2016 the CJEU rendered its decision on the questions referred in the Masco Denmark ApS and Damixa ApS v Skatteministeriet case, which concerns a difference in the Danish tax treatment of domestic and foreign interest income. Under the Danish rules, a tax exemption on interest income derived on loans provided by a Danish resident company to Danish affiliated companies is allowed to the extent that the corresponding interest expenditure deduction is denied at the level of the debtor due to thin capitalization rules. This tax exemption is excluded, however, where the affiliated debtor is resident in another Member State. Contrary to the Opinion issued by Advocate General (AG) Kokott, the Court concluded that this difference in treatment constitutes an unjustified restriction on the freedom of establishment.
For more information, please refer to KPMG’s Euro Tax Flash 309.
CJEU decision in the case of Commission v Portugal (C-503/14)
On December 21, 2016 the CJEU rendered its decision in the Commission v Portugal case. The case concerns the compatibility with EU law of Portuguese legislation imposing an exit tax on individuals. The CJEU concluded that the contested measures infringe the free movement of persons and the freedom of establishment, and are not justified.
For more information, please refer to KPMG’s Euro Tax Flash 310.
CJEU decision in the case of X v Staatssecretaris van Financien (C-317/15)
On February 15, 2017 the CJEU rendered its decision in the X v Staatssecretaris van Financien case. The case concerns the applicability of the standstill clause in Article 64(1) TFEU to the extended period under Dutch legislation for recovering tax in respect of undisclosed income from a third country securities account. The CJEU concluded that Article 64(1) applies insofar as the provision in question involves capital movements having a sufficiently close link with the situations referred to under the standstill clause, i.e. direct investment, establishment, the provision of financial services or the admission of securities to capital markets.
For more information, please refer to KPMG’s Euro Tax Flash 316.
Advocate General’s Opinion in the case of Trustees of the BT Pension Scheme (C-628/15)
On December 21, 2016 AG Wathelet rendered his Opinion on the questions referred in the Trustees of the BT Pension Scheme v Commissioners for Her Majesty’s Revenue and Customs case. The case concerns a claim for tax credits by UK-resident shareholders. The AG opined that the inability of the shareholders to claim a tax credit infringed the free movement of capital given that no such restriction applied to dividends paid out of local source dividends.
Advocate General’s Opinion in the case of Trustees of the P Panayi Accumulation & Maintenance Settlements v HMRC (C-646/15)
On December 21, 2016 AG Kokott rendered her Opinion on the questions referred in the Trustees of the Panayi Settlements case. This case concerns a UK exit tax imposed in connection with a transfer of residence of trustees, and the question whether this is compatible with the EU fundamental freedoms. The key question addressed by the AG was whether the trust could rely on the fundamental freedoms to challenge the exit tax. The AG opined that the trust could so rely if it carried on an economic activity in the new Member State of residence of the trustees.
For more information, please refer to KPMG’s Euro Tax Flash 310.
Advocate General’s Opinion in the case of Eqiom SAS, previously Holcim France SAS, & Enka SA v Ministre des finances et des comptes publics (C-6/16)
On January 19, 2017 AG Kokott issued her Opinion in the Eqiom & Enka case, concluding that the EU Parent-Subsidiary Directive and the freedom of establishment preclude a Member State from requiring a non-resident company controlled directly or indirectly by persons resident in a non-member State from proving, for the granting of a withholding tax exemption under the Parent-Subsidiary Directive, that the reasons for the structuring of the chain of interests are not tax-based, without the authorities being obliged to provide sufficient indications of wholly artificial arrangements which do not reflect economic reality and whose purpose is to obtain a tax advantage.
For more information, please refer to KPMG’s Euro Tax Flash 312.
Advocate General’s Opinion in the case of Berlioz Investment Fund S.A. v Directeur de l’administration des Contributions directes (C-682/15)
On January 10, 2017 AG Kokott issued her Opinion in the Berlioz Investment Fund case in the context of Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation. In this case the French tax authority asked for exchange of information on the Luxembourgish parent company of the French Cofima SAS, but the company refused to provide all the requested information and therefore was charged a penalty in Luxembourg. In essence the questions referred to the CJEU query whether a corporate taxpayer who refuses to provide information in the context of an exchange of information has a right to a fair hearing in terms of the EU Charter of fundamental rights (‘Charter’). In her opinion, the AG said that when imposing penalty in such a case, the Member State implements EU law, which entails the application of the Charter.
Advocate General’s Opinion - Congregación de Escuelas Pías Provincia Betania case (C-74/16)
On February 16, 2017, AG Kokott issued her opinion in the case of Congregación de Escuelas Pías Provincia Betania v. Ayuntamiento de Getafe in which the CJEU was asked whether a tax exemption to a religious community, even in respect of activities which have no strictly religious purpose, amounted to State aid. The AG concluded that if the entrepreneurial activity of the Congregación, in comparison with its social, cultural and educational activities, is not conducted on any significant scale, but is entirely ancillary, then it would be justifiable overall to regard the Congregación as generally not carrying out economic activities. The presumption of an economic activity would arise where said activity amounts to 10% or more of the activity of the Congregación. If it does, the tax exemption would be deemed pro rata to be a possible benefit which would fall to be assessed in the light of the prohibition on State aid under Article 107(1) TFEU.
Referrals to CJEU
On September 23, 2016, reference was made to the CJEU for a preliminary ruling in the Deister Holding AG case (C-504/16). The German Finanzgericht Köln asked the CJEU whether the freedom of establishment and the Parent-Subsidiary Directive preclude national tax provisions denying relief from investment income tax on distributions of profits made to a non-resident parent company whose sole shareholder is resident within the country, whereas resident parent companies are granted relief from investment income tax without the necessity of complying with additional conditions.
On January 13, 2017, the applicant in the case Celio International v Commission lodged an action (T-832/16) before the CJEU. Celio International SA requested the Court to annul the decision by the Commission that selective tax advantages granted by Belgium under its "excess profit" tax scheme constituted illegal state aid under EU state aid rules, arguing a manifest error of assessment and failure to provide adequate reasons in relation to the existence of an incompatible aid scheme.
For more information, please refer to KPMG’s Euro Tax Flash 271.
Preliminary reference by Bulgaria
On October 4, 2016 reference was made to the CJEU by Bulgaria for a preliminary ruling in the ZPT AD v. Narodno sabranie na Republika Bulgaria, Varhoven administrativen sad, Natsionalna agentsia za prihodite case (C-518/16). The questions referred to the CJEU relate to de minimis aid and whether fiscal aid invested in assets used for the manufacture of products constitutes compatible State aid. In essence, the CJEU was asked whether the manufacture of products for export through the use of assets obtained by means of State aid come within the scope of activity directly linked to the quantities exported within the meaning of the De Minimis Aid Regulation.
Action by Gibraltar to annul Commission decision
On November 9, 2016 an action was made to the General Court in the Government of Gibraltar v. European Commission case (T-783/16). Gibraltar asked the court to annul the European Commission decision of October 1, 2014 on the Gibraltar Corporate Income Tax Regime.
Preliminary reference by Portugal
On December 9, 2016, a request for a preliminary ruling from the Tribunal Administrativo e Fiscal de Coimbra (Portugal) was made to the CJEU in the Superfoz, Supermecados Lda v Fazenda Publica case (C-519/16) as to whether EU law precludes the introduction of a tax to fund official controls related to food safety, which tax would be paid by the owners of large food or mixed retail outlets only. The CJEU was asked whether it makes any difference if the tax corresponds to any specific official control that has been caused by, or that is for the benefit of, those taxpayers. It also asked whether the CJEU’s reply would be different if the proposed tax would be replaced by a financial contribution in favor of a public body, although with the sole aim of extending the responsibility for funding such controls to all operators in the food chain.
Action by Apple to annul Commission decision; Appeal published
On December 19, 2016, Apple Sales International and Apple Operations Europe lodged an action for annulment with the General Court against the decision by the Commission (T-892/16). The Commission had decided that the tax rulings issued by Ireland to Apple Sales International and Apple Operations Europe, determining the method to allocate profit to their respective Irish branches and enabling the companies to determine their tax liability in Ireland on a yearly basis, constituted illegal State aid.
In the meantime, the appeal brought by Ireland on November 9, 2016 (Case T-778/16) against the Commission has been published.
For more information, please refer to KPMG’s Euro Tax Flash 307.
Additional entities may intervene in Spanish Tax Lease System appeal
On December 21, 2016 the CJEU issued an order enabling a number of other parties to intervene in the appeal case brought before the CJEU (C-128/16 P) by the Commission against the Spain and Others v Commission decision (T-515/13 and T-719/13). In the contested decision, the General Court had ruled that the Commission was wrong to identify the existence of a selective advantage in connection with a tax scheme applicable to certain finance lease agreements, also known as the Spanish Tax Lease System.
Publication of GDF Suez Group Commission decision
On January 5, 2017, the Commission published a non-confidential version of its decision (PDF 1.40 MB) to initiate an in-depth investigation into the tax rulings issued by Luxembourg in favor of the GDF Suez Group. The decision was made further to concerns the Commission had that said tax rulings may have given GDF Suez an unfair advantage, unavailable to other companies subject to the same national taxation rules in Luxembourg, in breach of EU State aid rules.
For more information, please refer to KPMG's Euro Tax Flash 302.
EFTA guidelines on the notion of State aid
The EFTA Surveillance Authority issued guidelines and clarifications on the key concepts relating to the notion of State aid as referred to in Article 61(1) of the Agreement on the European Economic Area, with a view to contributing to an easier, more transparent and more consistent application of the notion across the European Economic Area.
A Council directive amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries was agreed to by the ECOFIN on February 21, 2017.
For more information, please refer to KPMG's Euro Tax Flash 314.
Council Directive ’DAC5’ published
The Council Directive amending Directive 2011/16/EU on Administrative Cooperation as regards access to anti-money-laundering information by tax authorities (DAC5) was published in the Official Gazette on December 16, 2016. DAC5 must be implemented by the Member States by the end of 2017 and will enable EU tax authorities to automatically share information such as bank account balances, interest income and dividends.
For more information, please please refer to KPMG's Euro Tax Flash 306.
ECOFIN Report to the European Council on tax issues
On December 12, 2016, the ECOFIN endorsed a report, which provided an overview of the progress achieved at the Council during the term of the Slovak Presidency.
State of play of proposed public CBCR Directive
The Council issued a report on December 19, 2016 on the state of play of the Proposal for a Directive amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches (public CBCR).
For more information, please visit the KPMG’s EU Tax Centre website.
Financial Transaction Tax meeting postponed again
The meeting of the Finance Ministers of the 10 Member States cooperating on FTT scheduled for January 26 was postponed again. Estonia left the original group of eleven States last year, and the commitment of Belgium, Slovenia and Slovakia is wavering.
For more information on FTT, please please refer to KPMG's Euro Tax Flash 306.
Further Presidency compromise texts on AMLD5
On December 13 and December 19, 2016 the Council issued further Presidency compromise texts and its negotiating mandate on the proposed fifth Anti-Money Laundering Directive which amends the fourth Anti-Money Laundering Directive. On December 20, 2016 the Permanent Representatives Committee, on behalf of the Council, asked the incoming presidency to start talks with the European Parliament.
For more information, please refer to KPMG's Euro Tax Flash 304.
EU blacklist of non-cooperative third countries - 92 jurisdictions are to be screened
On February 1, 2017 ninety-two jurisdictions, including the United States of America, received letters from the Commission informing them that their tax systems will be screened. Although work on the criteria against which to determine whether said systems are to be considered non-cooperative has been finalized by the Code of Conduct Group (Business Taxation) and was discussed at the February ECOFIN meeting. The zero-rate criterion is still being debated. The Commission intends to finalize the screening by the end of 2017.
For more information, please refer to KPMG's Euro Tax Flash 314.
Commission receives reasoned opinions on C(C)CTB
Seven Member States have issued Reasoned Opinions on the principles of subsidiarity and proportionality with regard to the Proposal for a Council Directive on a C(C)CTB. The Dutch Senate and the Swedish Parliament have also submitted Reasoned Opinions on the Proposal for ATAD II. The States are Malta, United Kingdom (late), Ireland, the Netherlands, Denmark, Luxembourg and Sweden (CCCTB and CCTB). The deadline for submitting such opinions having passed without sufficient votes that would have required the Commission to reconsider the CCCTB (PDF 136 KB) and CCTB proposals, work on the proposals continues as planned.
Commission welcomes exchange of tax rulings
In a press release issued by the Commission on January 3, 2017 the Commission announced the entry into force, on January 1, 2017, of the automatic exchange of information of all cross-border tax rulings issued by Member States. By January 1, 2018, Member States will, save some exceptions, also have to provide the same information for all cross-border rulings issued since the beginning of 2012.
For more information, please refer to KPMG's Euro Tax Flash 258.
PANA Committee’s investigations – state of play
The European Parliament Committee of Inquiry to investigate alleged contraventions and maladministration in the application of Union law in relation to money laundering, tax avoidance and tax evasion (‘PANA Committee’) has held three hearings since January 24, 2017. During these hearings, bank and intermediary representatives were questioned on their tax due diligence and anti-money laundering practices. The Committee is intent on making an impact on tax planning and anti-money laundering practices throughout the EU.
The Committee has also sent delegations to the United Kingdom, Malta and Luxembourg. The purpose of the fact-finding missions is to discuss and scrutinize the effective implementation and enforcement of EU law as specified in the PANA Committee's mandate. The Committee is planning to be in the U.S. between the March, 21 and 24 to discuss the state of play and future perspectives for transatlantic cooperation in the fight against money laundering, tax evasion and tax avoidance.
Opinion on legal basis of the adoption of the public CBCR proposal
On January 10, 2017, the European Commission’s Committee on Legal Affairs provided an opinion as to whether the legal basis proposed by the Commission constitutes the correct legal basis of the proposal for a directive amending Directive 2013/34/EU as regards public disclosure of income tax information by certain undertakings and branches. It concluded that Article 50(1) TFEU constitutes the appropriate legal basis and accordingly the proposal is currently following the ‘ordinary’ legislative procedure.
In February, the Economic and Monetary Affairs Committee (ECON) and the Legal Affairs Committee (JURI) of the European Parliament (EP) issued a joint draft report which will be voted on by the Committees, scheduled for May 29 and 30. Their report will then be submitted to the full EP for a final vote (not yet scheduled).
The Council’s legal service disagrees and concluded that since both the aim and the content of the proposal relate to "fiscal provisions", the proposal must be based on Article 115 TFEU, i.e. it must be subject to a unanimity procedure.
European Parliament rejects Commission’s blacklist of states at risk of money laundering
MEPs have voted to return to the EU Commission its blacklist of countries deemed to be at risk of money laundering and terrorist financing (see Euro Tax Flash 304). In its view the list is too limited and should be expanded, e.g. to include territories that facilitate tax crimes. Following the vote, an existing inventory of third countries thought to fall short in the area of anti-money laundering and terrorism finance will remain in force while the Commission considers any revisions.
Final report on approaches to address BEPS Action 4 involving interest in the banking and insurance sectors
On December 22, 2016, the OECD released an updated version of the BEPS Action 4 Report, addressing BEPS involving interest in the banking and insurance sectors and on the group ratio rule. This version does not change the conclusions in the Action 4 final report on the matter but provides more detailed technical considerations.
Further to its final report on transfer pricing outcomes with value creation under Actions 8 to 10, the OECD announced that further work will be undertaken on the transfer pricing aspects of financial transactions.
Additional signatories to Country by Country Reporting Multilateral Competent Authority Agreement (CBCR MCAA) (BEPS Action 13)
Hungary, Lithuania, Malta, the Russian Federation, Gabon, Indonesia and Mauritius have also signed the Multilateral Competent Authority Agreement for Country-by-Country Reporting (CBCR MCAA). At present the CBCR MCAA has a total of 57 signatories (PDF 207 KB).
For more information, please refer to KPMG’s country matrix (PDF 1,239 KB).
Peer review documents released
On February 1, 2017, the OECD released documents to form a basis of two of the four BEPS minimum standards for peer review, namely the BEPS Action 13 standard on country-by-country reporting and the BEPS Action 5 standard for the compulsory spontaneous exchange of information on tax rulings (the "transparency framework").
Publication of guidelines on AEOI-CRS
On December 21, 2016, the Austrian Ministry of Finance published (PDF 862 KB) automatic exchange of information – common reporting standard guidelines on due diligence, notification obligations and penalties. The guidelines are based on the Council Directive amending Directive 2011/16/EU on Administrative Cooperation as regards access to anti-money-laundering information by tax authorities (DAC5), the OECD Standard for Automatic Exchange of Financial Account Information in Tax Matters and the Council of Europe - OECD Mutual Assistance Treaty.
Transitional measures for the abolition of the 80% patent income deduction
On December 8, 2016, the Belgian tax administration published a Circular announcing the implementation of a transitional regime for the abolition of the 80% patent income deduction as of July 1, 2016.
For more information, please refer to KPMG's TaxNewsFlash.
Draft bill to combat tax fraud
On December 9, 2016, the Belgian Council of Ministers approved a draft bill introducing measures to ensure that Belgium complies with international rules to combat tax fraud.
Decree adopting BEPS country-by-country reporting
On December 30, 2016, the Cypriot Ministry of Finance issued a decree to align provisions of Cypriot tax law with the requirements of Council Directive (EU) 2016/881 of May 25, 2016 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation (DAC4) adopting the recommendations of the OECD BEPS Action Plan 13 on CBCR.
Start-up and innovative companies tax incentives package in force
A tax incentive package providing for tax relief for investors in qualifying small and medium-sized start-up and innovative companies, which was approved by the Cypriot parliament in December 2016, entered into force on January 1, 2017.
For more information, please refer to KPMG's TaxNewsFlash.
Tax administration opinion on judgment regarding withholding tax on dividends paid to Luxembourg resident company
On January 25, 2017 the Finnish tax administration issued its opinion on a judgment delivered by the Finnish Supreme Administrative Court in May 2016. The Court ruled that the free movement of capital and article 40 of the EEA Agreement preclude Finland from imposing a withholding tax on dividends paid to a life insurance company resident in Luxembourg when the dividends are added to the company's technical provisions. The tax administration opined that the ruling applies only to life insurance companies that receive dividends on shares based on investment-linked insurance.
Implementation of Directive on automatic exchange of advance tax rulings
On December 29, 2016, Finland enacted the law implementing Council Directive 2015/2376 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation (DAC3), which entered into force on January 1, 2017.
New access conditions for public trust register
On December 2, 2016, Ordinance No. 2016-1635 was published in the Official Journal, which aims to improve measures that combat money-laundering. Pursuant to a Constitutional Court decision on October 21, 2016, as of December 3, 2016 access to the public register of trusts became limited to a number of competent authorities and subject persons.
Details of content of rulings exchanged under mandatory automatic exchange of information
On December 6, 2016, the French tax administration announced that in exchanging information under Council Directive 2015/2376 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation (DAC3), France would not share the tax assessments giving rise to the rulings and would simply include a description thereof.
Amending Finance Bill for 2016
On December 7, 2016 the Lower House completed the first round of discussions on the Amending Finance Bill for 2016. The additions relate to proof by a taxpayer that distributions of dividends to a resident of a non-cooperative state neither seek nor allow the abusive shifting of profits in said state, the taxation of profits on futures where the accounts-keeping financial institution is located in a non-cooperative state, the taxation on the sale or provision of audiovisual content and the disclosure by online peer-to-peer platforms of realized income per user. The bill will subsequently be discussed in the Senate (upper house).
For more information, please refer to KPMG's E-news 63.
Amended administrative guidelines on dividend withholding tax exemption on paid to foreign investment funds
On December 7, 2016, the French tax administration amended its guidelines on the withholding tax exemption applicable to dividends paid to foreign collective investment undertakings similar to the EU equivalents. The amendments set out a timeline whereby a refund decision taken by the French tax administration may justify the withholding tax exemption until December 31 of the second year following said decision.
Public CBCR is contrary to French Constitution (Sapin 2)
In December 2016, the French Constitutional Court decided that public country-by-country reporting adopted under the Sapin 2 Law on November 8, 2016 is unconstitutional as it disproportionately violates the liberté d'entreprendre in its requirement for businesses to disclose their business strategy.
The contentious public CBCR was repealed from the law, with non-public reporting remaining applicable. A number of amendments include changes to the date of enforcement of anti-abuse measures applicable upon additions to and removals from the list of non-cooperative states and the introduction of disclosure by companies of their ultimate beneficial owners, which information will be partly available to the public on the register of companies.
Please refer to the Local Courts section below for further detail on the Court’s decision.
Adoption of 2017 Finance Law
On December 20, 2016, the French Parliament adopted the Loi de finances pour 2017. The adopted measures include, inter alia, the entry into force of the extension of the financial transaction tax to intraday transactions as of January 1, 2018 and the amendment of the definition of permanent establishment to enable compatibility with transfer pricing rules and tax treaties principles.
For more information, please refer to KPMG's TaxNewsFlash.
Turnover threshold for exceptional surcharge purposes on CIT
The French Conseil d’Etat agreed with the tax administration and decided, on December 9, 2016, that the EUR 250,000,000 turnover threshold above which a company is subject to the exceptional surcharge on corporate income tax should be determined with regard to the worldwide turnover of the company, as in its view such interpretation is compatible with EU law.
List of companies to be subject to financial transaction tax updated
On December 20, 2016, the French tax authorities published a list of the 140 French companies the market capitalization of which exceeded EUR 1 billion on December 1, 2016. The companies in this list would be subject to a financial transaction tax amounting to 0.2% of the acquisition price. The rate has been increased to 0.3% by the 2017 Finance Bill.
Draft bill on BEPS measures in force
On December 16, 2016, the Federal Council (Bundesrat) approved the draft bill on the implementation of Council Directive 2015/2376 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation (DAC3) and other measures against base erosion and profit shifting (Entwurf eines Gesetzes zur Umsetzung der Änderungen der EU-Amtshilferichtline und von weiteren Massnahmen gegen Gewinnkürzungen und -verlagerungen). The bill entered into force from January 1, 2017.
Draft bill on deductibility of preferentially taxed intragroup royalties
On December 20, 2016, the Ministry of Finance published a draft bill on the partial or full non-deductibility for intragroup royalties taxed under non-OECD compliant patent boxes and other preferential intellectual property regimes (Entwurf eines Gesetzes gegen schädliche Steuerpraktiken im Zusammenhang mit Rechteüberlassungen). The bill envisages the denial of the deduction of royalties in the event that a country continues to offer non-compliant patent boxes and will apply to payments made after December 31, 2017.
Parliament and the Federal Council approve the draft bill amending the change-in-ownership rules
Both the lower house of the parliament (Bundestag) and the Federal Council (Bundesrat) approved the draft bill on amendments to the change-in-ownership rules (Entwurf eines Gesetzes zur Weiterentwicklung der steuerlichen Verlustverrechnung bei Körperschaften). The bill entered into force following its publication in the Official Gazette. The bill provides for an exception to the application of the change-in-ownership rules in cases where the loss-making company's business operations are continued unchanged from the time of incorporation, or at least during the three fiscal years prior to the change in ownership. If the conditions are met, taxpayers may avoid the application of the change-in-ownership rules and subsequent forfeiture of loss carry-forward by filing a respective application with the tax authorities.
Finance Ministry ordinance on application of AOA to PEs
On December 21, 2016, the German Ministry of Finance issued an ordinance providing detailed guidance on the application of the Authorized OECD Approach. The ordinance sets out the profit allocation between headquarters and their permanent establishments, in both domestic and treaty situations, with the objective of consistently applying internationally recognized principles to the taxation of permanent establishments.
Federal Cabinet approves draft bill on combat of tax avoidance
On December 21, 2016, the Federal Cabinet (Bundesregierung) approved the draft bill on the combat of tax avoidance (Entwurf eines Gesetzes zur Bekämpfung der Steuerumgehung und zur Änderung weiterer steuerlicher Vorschriften, Steuerumgehungsbekämpfungsgesetz).
Gibraltar implementation of the Directive on automatic exchange of information regarding advance tax rulings
On January 1, 2017, the Income Tax Act 2010 (Amendment) Regulations 2016 came into effect implementing into Gibraltar law the Council Directive 2015/2376 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation (DAC3) with respect to advance tax rulings.
Circular clarifying Parent-Subsidiary Directive amendments
On December 6, 2016, the Greek Public Revenue Authority issued Circular 1181/2016 providing clarifications on the application of the provisions implementing the amendments to the EU Parent-Subsidiary Directive, including the anti-hybrid and general anti-avoidance rules, clarifying that the latter will apply in the application of the Directive. Said amendments apply to income derived and payments made from January 1, 2016.
Parliament approves tax law amendments
On December 5 and 12, 2016 a number of tax amendments were submitted to the Hungarian parliament. Both proposals were accepted by the parliament and are effective as of January 1, 2017. The key tax measures include the replacement of the progressive corporate income tax rate with a flat 9% and the consequent reduction of the effective rate applicable to controlled foreign companies to 9%. In addition, the first automatic exchange of information is due by September 30, 2017.
Clarifying resolution on the indirect credit for foreign taxes paid by a CFC
On November 24, 2016, the Italian Tax Authorities clarified, by means of Resolution No. 108/E, the application of the indirect tax credit for foreign taxes paid by a CFC available to certain resident companies. Setting out the facts of a case, the Resolution clarified that an Italian resident company may benefit from an indirect tax credit for foreign taxes paid by a controlled company resident in a low-tax jurisdiction carrying out a business activity in Italy if the income is fully allocated to the Italian company and taxed in Italy, even therefore if the dividends were not directly distributed to the Italian parent company.
2017 Budget and relative tax law amendments
The Latvian parliament adopted the 2017 Budget and a number of amendments to Latvian tax laws. The amendments largely entered into force on January 1, 2017 and include a restriction to the indefinite carry forward of tax losses to disable set-off when said losses exceed 75% of the taxable income for a tax period.
Disclosure of suspicious tax-related transactions
With effect from January 1, 2017, a wider range of persons have become obliged to report suspicious tax-related transactions entered into by Latvian residents to the tax authorities. Whereas the Law on the Prevention of Money Laundering and Terrorism Financing applied only to credit institutions and payment service providers, the reporting obligation has been extended to include tax consultants, accountants, civil-law notaries, lawyers and financial institutions.
Law on non-public CBCR transposed
The law on non-public country-by-country reporting transposing Council Directive 2015/2376 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation (DAC3) into Luxembourg domestic law was adopted by Parliament and the Luxembourg tax authorities issued guidance summarizing the main provisions of the new law. The law applies from January 1, 2017.
Circular on group financing activities
A Circular defining group-financing activities and related companies was published further to the codification of the arm's length principle in the Income Tax Act by the 2017 Budget Law. It sets out the application of the arm's length principle to intra-group financing activities. With this new circular, Luxembourg is adapting its legal framework to take the latest international and European developments into account.
For further information, read a December 2016 report prepared by the KPMG member firm in Luxembourg.
Implementation of tax measures
Further to our report in E-News 63, on December 15, 2016 the Spanish parliament adopted Royal Decree Law 3/2016 implementing a number of tax measures. The Decree removes some deductions, introduces a limitation on the deductibility of losses and domestic and international tax credits, extends the application of the capital tax to 2017 and tightens the postponement or installment of tax payments.
Guidance on rules for automatic exchange of information reporting
On November 30, 2016, the Swiss Federal Tax Administration published guidance clarifying that the EU - Switzerland Savings Directive Agreement applies from January 1, 2017, also with respect to data submitted on or after January 1, 2017 concerning business transactions before said date.
Entry into force of automatic exchange of information agreements
On January 1, 2017, the multilateral OECD Automatic Exchange of Information Agreement entered into force in respect of Switzerland and a number of agreements in the form of exchanges of notes on automatic exchange of information on the basis of such Agreement also entered into force. The counterparties include Australia, Guernsey, Iceland, the Isle of Man, Jersey, the Republic of Korea and Norway.
New ‘failure to prevent’ tax evasion offence
A new offence,(PDF 516 KB) that of failing to prevent the facilitation of tax evasion, is expected to come into force by means of an amendments to the Criminal Finances Bill, by September 2017. A new requirement to declare evaded taxes is also expected to be introduced by September 2018.
For more information, please refer to KPMG’s TaxNewsFlash.
Proposed corporate tax measures
Further to our report in E-News 63 following the Autumn Statement, background documents were published on December 5, 2016 containing details of proposed tax measures. HMRC published several policy papers including on the tax deductibility of corporate interest expense, on Patent Box cost sharing arrangements, on the re-scoping of the bank levy, on the reform of substantial shareholdings exemption and on tackling offshore tax evasion.
Consultation on OECD BEPS Action 2
On December 9, 2016 HMRC launched a consultation on the application of the hybrids mismatch legislation which took effect from January 1, 2017. The consultation largely reflects the examples contained in the OECD BEPS Action 2 Report, adding some examples of hybrid transfers and permanent establishments. The consultation ran to March 10, 2017.
Penalty for persons facilitating tax evasion
As of January 1, 2017, a penalty is payable by any person who encourages, assists or otherwise facilitates conduct by another person which constitutes offshore tax evasion or non-compliance.
European Union (Notification of Withdrawal) Bill 2016-17
On February 8, 2017, the House of Commons passed the European Union (Notification of Withdrawal) Bill 2016-17. The anti-tax haven proposed amendment, which would have required the preservation of all existing EU tax avoidance and evasion measures and compliance with the EU Code of Conduct on Business Taxation post-Brexit, was defeated. The EU (Notification of Withdrawal) Bill has since completed its journey through the Houses of Parliament, with Royal Assent scheduled for March 16, 2017.
With respect to Brexit, the chancellor Philip Hammond said that the United Kingdom may retaliate with tax haven regimes if it is given the cold shoulder by the EU. In response, the Netherlands indicated that it would block any EU trade deal with the UK if it does not include anti-tax avoidance measures.
United States of America
Format for international FATCA data exchange updated
On January 12, 2017, the US Internal Revenue Service (IRS) issued a FATCA News & Information Bulletin (Issue Number 2017-4) to announce that, as of January 16, 2017, all FATCA Reports must be created using the FATCA XML Schema v2.0.
National Tax Tribunal treats anti-arm’s length transaction as taxable hidden dividend distributions
On December 22, 2016 the Danish Customs and Tax Administration published a ruling of the National Tax Tribunal (Landsskatteretten) of November 16, 2016 on a company selling real property to a shareholder in exchange for a note. The ruling found that the company was not dealing at arm's length and in the ordinary course of business and consequently decided that the distribution should be treated as a hidden dividend distribution subject to tax.
Public CBCR unconstitutional
As reported above in the Local Law and Regulations section, the Constitutional Court found that insofar as it compels companies to disclose their business strategy, public country-by-country reporting introduced by the law on transparency, fight against corruption and modernization of the business life (the "Sapin 2" Law) was unconstitutional, and repealed article 137 from the Law. The Court held that the obligation to make public economic and fiscal data available on a country-by-country basis will enable competitors operating in the same market to identify key elements of their industrial and commercial strategy. This would disproportionally affect the business freedom of a company as compared to the objective of the public country-by-country reporting.
For more information, please refer to KPMG's TaxNewsFlash.
Federal Financial Court renders follow-up decision to ECJ decision in Feilen (Case C-123/15)
The decision of the Federal Financial Court (Bundesfinanzhof) further to the CJEU’s decision in the Feilen case (C-123/15), rendered on September 27, 2016, was published on December 21, 2016. The German court followed the CJEU’s decision and held that the taxpayer is not entitled to a further reduction of German inheritance tax, besides the deduction of the inheritance tax paid in Austria, from the basis of assessment in Germany.
Violation of human rights found in the case of Lindstrand Partners Advokatbyrå AB v. Sweden
A Swedish law firm underwent a search on its premises by the Tax Agency in the course of audits. Relying on the right to respect for private and family life, the firm argued that its rights were infringed by the fact that the Tax Agency had been given access to search its premises and to seize data drives allegedly belonging to the firm. Relying on the right to an effective remedy, the firm also argued that it was denied administrative appeal proceedings and that a request for certain documents to be exempted from the audit had been refused. The Court, on December 20, 2016, agreed with the firm and found a violation of the European Convention on human rights.
Robert van der Jagt
Chairman, KPMG’s EU Tax Centre and
Partner, Meijburg & Co