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E-News from KPMG's EU Tax Centre

E-News from KPMG's EU Tax Centre

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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.

Latest CJEU, EFTA and ECHR

CJEU decision in the Argenta Spaarbank case on the application of the EU Parent Subsidiary Directive (C-39/16)

On October 26, 2017, the Court of Justice of the European Union (CJEU) rendered its decision in the Argenta Spaarbank NV v Belgische Staat case (C-39/16). The case concerns the compatibility with the EU Parent-Subsidiary-Directive (90/435/EEC) and Belgian rules where the deduction of interest payments was disallowed to the extent that in the same tax year the taxpayer had received exempt dividends from shares held for less than one year, irrespective of whether the interest payments were relating to the holding.

For more information, please refer to Euro Tax Flash 340.

Advocate General's Opinion in the X cases on Dutch fiscal unity regime (C-398/16 and C-399/16)

On October 25, 2017, Advocate General (AG) Campos Sánchez-Bordona of the CJEU published his Opinion in two corporate income tax cases referred to the CJEU by the Dutch Supreme Court (C-398/16 and C-399/16). The cases were dealt with jointly as they have a common factor, i.e. the Dutch parent company considers that the costs incurred from its relationship with its foreign subsidiaries, which cannot be deducted for corporate tax purposes, would have been deductible if it were allowed to form an integrated group with those non-resident subsidiaries. However, a tax integration scheme only applies to group companies resident in the Netherlands.

In essence, the CJEU was asked to decide whether taxpayers, despite being unable to enter into a fiscal unity with subsidiaries established elsewhere in the EU, are nevertheless eligible for benefits from separate elements of the fiscal unity regime as if a fiscal unity with foreign subsidiaries can be entered into (also referred to as the ‘per element’ approach).

In the first case, the AG concluded that the Dutch interest deduction limitation is contrary to the freedom of establishment. In the second case, which deals with the deduction of foreign exchange losses on EU participations, the AG concluded that there is no violation of EU law.
For more information, please refer to Euro Tax Flash 341.

CJEU decision in the Polbud case on transfer of registered office to another EU State (C-106/16)

On October 25, 2017, the CJEU published a judgment concluding that EU Member States cannot impose mandatory liquidation on companies that seek to transfer their registered office to another EU Member State. The CJEU found that the transfer of the registered office of a Polish company to Luxembourg, when there is no change in the location of its real head office, falls within the scope of the freedom of establishment.

Further details on this can be found on a related CJEU release and on KPMG’s Tax News Flash.

CJEU order in the Fisher case on status of Gibraltar (C-192/16)

On October 12, 2017, the CJEU issued an order in the Peter Fisher, Stephen Fisher, Anne Fisher v. Commissioners for Her Majesty's Revenue & Customs case (C-192/16). The CJEU confirmed that the exercise of the freedom of establishment or of free movement of capital by British nationals between the United Kingdom and Gibraltar constitutes, as a matter of EU law, a situation confined in all respects within a single Member State.

Infringement procedures & referrals to CJEU

Referrals to CJEU

France

On September 20, 2017, the French Supreme Court decided to refer several questions to the CJEU (C-575/17) in order to clarify whether the French withholding tax (WHT) levied on dividends paid by French companies to Belgian loss-making companies breaches the free movement of capital. In the case at hand, the French-sourced dividends received by the Belgian companies were not eligible for participation exemption and were subject to a 15 % WHT in France by application of the France–Belgium double tax treaty. By contrast, resident companies were only taxed when they recovered a profit-making situation. The French Supreme Tax Court requested a preliminary ruling from the CJEU on whether the resulting cash flow disadvantage constitutes a restriction of the free movement of capital, and whether it can be justified. It further requested clarifications on the compatibility with EU law of the French rules, in case the non-resident shareholder terminates its activity without recovering a profit-making position, while a resident company in the same situation would not be on the amount of such dividends. Finally, the French Court asked whether the impossibility for non-residents to deduct expenses directly linked to the collection of dividends may be justified by the difference in tax rates between income tax paid by residents and the WHT levied on the dividends paid to non-residents, when the difference in tax rate compensates the difference in the taxable basis.

Germany

On July 20, 2017, the Financial Court of Cologne decided to refer several question to the CJEU (C-440/17) regarding the compatibility with EU law of German anti-treaty shopping rules, according to which a tax relief on dividend distributions to a non-resident parent company is denied, in so far as its shareholders would not be entitled to a refund or exemption if they earned the income directly, and the company does not fulfill certain substance requirements. In this respect, the Court raised the questions whether such provisions constitute a restriction of the freedom of establishment, as well as their compatibility with Article 1(2) of the Parent-Subsidiary Directive (2011/96/EU).

State Aid

European Commission approves continuation of Belgian tonnage tax

On November 6, 2017, the European Commission approved continuation of Belgian tonnage tax until the end of 2022.

For further information, please refer to the Commission’s press release.

European Commission opens an in-depth investigation into UK tax scheme for multinationals with specific types of financing income.

On October 26, 2017, the EU Commission announced it was opening an in-depth investigation into the UK Group Financing Exemption scheme, which allows certain transactions by multinational groups to be exempt from the otherwise applicable rules on Controlled Foreign Corporations (CFC) that target tax avoidance (see the EU Commission’s Press Release and opening decision). The EU Commission has decided to initiate a formal investigation procedure because it believes this special exemption may be in violation of EU State aid rules by providing an unfair tax advantage to certain UK resident companies. The EU Commission will reach a final decision at the end of the formal investigation.

For further information, please refer to Euro Tax Flash 342.

EU Institutions

COUNCIL OF THE EUROPEAN UNION

ECOFIN formally adopts Directive on tax dispute resolution mechanisms

On October 10, 2017, the ECOFIN formally adopted Directive 2017/1852 on tax dispute resolution mechanisms in the European Union. The Directive which builds on the EU Arbitration convention (90/436/EEC) aims at strengthening the mechanisms used to resolve disputes that arise from the interpretation of agreements on the elimination of double taxation within the European Union. Agreement on the directive was reached at the ECOFIN’s meeting on May 23, 2017.

For further information, please refer to Euro Tax Flash 326.

EUROPEAN COMMISSION

Public consultation on the taxation of digital economy

On October 26, 2017, the EU Commission launched a public consultation initiative to determine how the EU can ensure an efficient, fair and growth-friendly taxation of the digital economy. Specifically, the Commission is trying to identify the main issues that arise in relation to taxing the digital economy, as well as potential short and long term solutions. The public consultation ends on January 3, 2018, and will be used to compile proposals to be presented in early 2018.

More information can be found here.

New measures for more efficient cross-border tax recovery

On October 28, 2017, the European Commission published a new measure to enhance the efficiency of using precautionary measures to enable the recovery of tax debts in cross border situations. The measure is an amendment to Regulation 1189/2011, which lays down detailed rules concerning the communication of tax recovery assistance requests, the follow-up of those requests, the use of standard forms between Member States‘ authorities and the transfer of recovered amounts in relation to certain mutual assistance provisions of Directive 2010/24/EU. The amendments will enter into force on November 17, 2017.

For further information, please refer to the Implementing Regulation (EU) 2017/1966.

EUROPEAN PARLIAMENT

Plenary Session on methods to safeguard whistle-blowers acting in public interest

The European Parliament held a Plenary session in Strasbourg on October 23 and 24, 2017 to discuss the Legal Affairs Committee’s non-legislative Report on the methods to safeguard whistle-blowers who act in the public interest by disclosing private material of companies and public bodies. The “EU-wide protection needed for whistle-blowers” press release is located here. Also, the European Commission and European Parliament’s respective positions are delineated in “At a glance: Protection of whistle-blowers at EU level”, which is located here.

PANA Final Report issued in anticipation of Plenary session in December.

On November 11, 2017, the European Parliament issued its final report on the inquiry into money laundering, tax avoidance and tax evasion, as adopted on October 18, 2017. The Committee concluded that, inter alia, common definitions of tax havens are needed, as well as more sanctions against banks and intermediaries who knowingly aid in illegal tax schemes or money laundering.

For further information, please refer to the final report and draft recommendations.

EUROPEAN ECONOMIC AND SOCIAL COMMITTEE

Opinion on the taxation of the collaborative economy

On November 6, 2017, the European Economic and Social Committee (EESC) published its Opinion on the taxation of the collaborative economy. In this report, the EESC distinguishes clearly between the collaborative economy, the digital economy and the platform economy and calls for the rapid construction of a uniform, integrated system that ensures common rules within the EU, while complying with the principle of neutrality. Although the EESC concludes that it is not necessary to implement a specific tax system, improved cross-border cooperation and coordination will be essential. The EESC also provides specific insight regarding the VAT treatment of the collaborative economy.

For further information, please refer to the EESC’s Opinion.

Opinion on C(C)CTB proposals

On September 20, 2017, the EESC delivered its opinion on the CC(C)TB proposals. While endorsing the aims pursued by the proposals, the EESC maintains that consolidation should remain the primary focus. Nevertheless, the EESC recommends a re-examination of the apportionment formula, as the current proposal could significantly change where profits are accrued for tax purposes. The EESC concerns are founded upon: (1) the inclusion of a ‘sales by destination’ key; (2) the proposition to exclude intellectual property from the asset key; (3) the requisite need to align CC(C)TB calculations with international accounting standards; and (4) the obligation to clearly describe key definitions of the directive and their respective elements. Additionally, the EESC identified other specific issues, such as the potential conflicts of interest between tax authorities, CFC legislation, Transfer Pricing issues, and GAAR (General Anti-Avoidance Rules).

For further information, please refer to the EESC’s Opinion.

OECD

Public consultation on transfer pricing matters held on November 6 and 7, 2017

On November 6 and 7, 2017, the OECD held two public consultations on transfer pricing matters in Paris, France. The events were focused on the Revised Guidance on Profit Splits and the Attribution of Profits to Permanent Establishments.

The OECD updated the Transfer Pricing Country Profiles

On November 6, 2017, the OECD published an updated version of the Transfer Pricing Country Profiles to highlight the current transfer pricing legislation and practices of the participating countries. The country profiles focus on certain domestic legislation for key transfer pricing principles, including: the arm's length principle, transfer pricing methods, comparability analysis, intangible property, intra-group services, cost contribution agreements, transfer pricing documentation, administrative approaches to avoiding and resolving disputes, safe harbors and other implementation measures.

For further information, please refer to the Country Profiles.

Reporting obligation for non-compliant countries – list updated

During a meeting of the Global Forum in Transparency and Exchange of Information for Tax Purposes on November 4, 2017, non-compliant countries were allowed to demonstrate their progress made in adopting the international standard for exchange of information. Subsequently, Guatemala, the Marshall Islands, Micronesia and Panama were removed from the list of the non-compliant countries. Trinidad and Tobago is still on the list.

Public consultation on digital taxation

On November 1, 2017, the OECD held a public consultation via the Task Force on the Digital Economy at the University of California, Berkley to discuss the tax challenges of digitalization. The OECD based the discussion on public comments received on the tax challenges of digitalization.

For further information, please refer to the video of the sessions

Regional meeting held between OECD and the tax administrations of Eastern Europe and Central Asia countries to discuss BEPS implementation

On October 18 – 20, 2017, a regional meeting took place in Bratislava, Slovak Republic, between the OECD and the tax administrations of Eastern Europe and Central Asia countries, to discuss BEPS implementation. This meeting, coming after the third plenary meeting of the Inclusive Framework held in the Netherlands on June 21 and 22, 2017, is part of a new series of regional events intended to gather views and input about the Inclusive Framework on BEPS from a regional perspective. Participants discussed the steps and actions undertaken in their respective jurisdictions regarding BEPS’ implementation measures, focusing on the peer-review mechanisms and timelines for implementation of the minimum standards.

Progress report on dismantling preferential tax regimes as part of BEPS

On October 16, 2017, the OECD published its 2017 Progress Report on Preferential Regimes, which updates the 2015 BEPS Action 5 report. According to the document, the OECD/G20 BEPS standards have provided governments with the opportunity to dismantle or amend nearly 100 preferential tax regimes, In particular, the 100 jurisdictions that contribute to the OECD Inclusive Framework on BEPS reported peer reviews undertaken for over 164 preferential tax regimes.

For further information, please refer to the 2017 OECD Progress Report.

Update on exchange relationships and implementation of country-by-country reporting released

On October 11, 2017, the OECD released an inclusive list of automatic exchange of information relationships currently in place. The list is accompanied by an update on the Country-Specific Information on Country-by-Country Reporting Implementation for reporting developed via Action 13 of the OECD/G20 Action Plan on BEPS.

For further information, please refer to the list and updated country specific information.

Local Law and Regulations

Austria

Austria deposits its instrument of ratification for the MLI

On 22 September 2017, Austria became the first country to deposit its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). Austria submitted its reservations and notifications at the time of signature, including the thirty-eight tax treaties that it wishes to be covered.

Belgium

Reporting obligations for non-compliant countries updated

On October 28, 2017, the Belgian administration published an updated list of jurisdictions that have a reporting obligation for payments of more than EUR 100,000. The reporting obligation remains in force for Trinidad and Tobago, still on the OECD list of non-compliant countries for exchange of information, as well as for the Marshall Islands and Micronesia (which are removed from the OECD list, but considered as tax havens) but no longer apply for Guatemala and Panama.

Corporate Income Tax reform

On October 27, 2017, the Belgian government published a notice of corporate income tax (CIT) reform. The reform is planned to be in place by the end of 2017 and includes, among others, a progressive reduction of the CIT rate from 33 % to 25 % by 2020. Other changes affect group taxation provisions and specific incentives for corporate shareholders.

For more information, please refer to KPMG's Tax NewsFlash.

Bulgaria

Details on Country-by-country reporting published by tax authorities

The Bulgarian National Revenue Agency published details on the electronic submission of country-by-country reports and notifications, which should become accessible on December 1, 2017, at the latest.
For more information, please refer to KPMG’s Tax NewsFlash.

Cyprus

Country by Country reporting notification procedure initiated

On October 9, 2017, the Cypriot Tax Department announced the submission of notification of country-by-country (CbC) reporting for the year 2016 had started. The deadline for reporting a submission of notification of CbC reporting for 2016 is November 20, 2017, which was extended from October 20, 2017.

Czech Republic

Regulation introducing country-by-country reporting template

On September 20, 2017, Regulation No.306/2017 regarding the country-by-country (CbC) reporting was published in the Official Gazette. The regulation contains the CbC template, as well as instructions for completing the CbC template.

For more information, please refer to KPMG’s Tax NewsFlash.

Research and development tax deduction: guidelines and legal requirements

The Czech tax authority issued guidelines summarizing court decisions that address research and development projects, as well as claims for the research and development tax deduction.

The guidance sets out the criteria for a successful claim for the research and development tax deduction.

For more information, please refer to KPMG's Tax NewsFlash.

Denmark

Tax Board ruling on granting of tax treaty benefits to foreign pass-through entities

On November 6, 2017, the Danish tax administration published a Tax Board binding answer on the granting of tax treaty benefits to two UK limited liability companies established as authorized contractual schemes (ACS). The Tax board held that an ACS would not be regarded as a legal entity under Danish law and therefore considered that for tax treaty purposes shares in the Danish company are directly held by the foreign investors in the ACS. Dividends received are covered by the tax treaty between Denmark and the investors’ state of residence.

Tax Board ruling on transparency of a Delaware trust

On October 31, 2017, the Danish tax administration published a Tax Board binding answer on the tax treatment of a Delaware trust for gift tax purposes. The Tax Board considered that the trust was not effectively separated from the founder's wealth, as the latter had retained the power to appoint and revoke the trustee and exercised extensive control over the administrator. As a consequence, the Board classified the trust as a transparent vehicle.

Tax Board ruling on transfer of registered office and management

On October 11, 2017, the Danish tax administration published a Tax Board binding answer that elaborates upon how a Danish company whose registered office and management has relocated from Denmark, to another country, will no longer have unlimited tax liability in Denmark, even though one of the company’s managers is still a resident of Denmark.

Tax Administration publishes updated guidance on reporting dividend income

On October 11, 2017, the Danish tax administration updated guidance for reporting dividend income in 2017. Where a dual resident company makes a dividend distribution, only the Danish tax on the dividends needs to be reported in addition to the gross amount of dividends.

France

Corporate tax “exceptional surcharges” proposed for largest companies

On November 2, 2017, the French government announced details of proposed “exceptional surcharges” to corporate income tax, intended to partly offset an estimated €10 billion in lost revenue due to a decision of the French Constitutional Court, which held the 3% tax on distributions was unconstitutional. The proposed surcharges would apply to French companies (and French branches of foreign companies) with gross revenue exceeding €1 billion. For French corporate tax groups, the €1 billion threshold would be applied at the level of the group.

For more information, please refer to KPMG's Tax NewsFlash.

Germany

Guidance issued on the tax obligations of non-resident providers of software

On November 2, 2017, the German Ministry of Finance published guidance, on the tax liability of non-residents providing software or access to databases to German resident clients and their withholding obligations. The guidance considers the treatment of various scenarios through examples and will be applicable to all pending cases.

Greece

Tax authorities’ reaction to the Paradise Papers

On November 7, 2017, it was reported that the Greek tax administration will investigate Greek-related cases included in the Paradise Papers and should proceed with any necessary audits.

Draft bill on automatic exchange of financial information adopted by parliament

On 26 October 2017, the Greek Parliament adopted a draft bill on the automatic exchange of financial information and the Mutual Assistance Procedure. The proposal set the fines applicable to Greek financial institutions within the automatic exchange of financial information regime and broadens the scope of the Mutual Assistance Procedure.

Hungary

Hungarian Parliament approves new transfer pricing decree

On October 18, 2017, the government issued a decree on amended transfer pricing documentation requirements, which will enter into force 30 days after its expected date of publication in the Official Gazette on November 18, 2017. The new documentation requirements generally are in line with the recommendations from the OECD and the European Union, and require a Master file and a Local file. The new rules also set forth conditions and methodologies for determining the arm’s length price, and extend the transfer pricing requirements to transactions between a foreign entity and its Hungarian permanent establishment.

For more information, please refer to KPMG’s Tax NewsFlash.

Ireland

Details of the 2017 Finance Bill

On October 19, 2017, the Finance Bill for 2017 was published, which includes several additional measures that had not been previously presented by the Ministry of Finance:

  • Numerous changes are presented to meet OECD standards on tax transparency and exchange of information.
  • The Finance Bill 2017 will ratify the OECD Multilateral Convention into Irish law.
  • A series of anti-avoidance provisions (relating to non-resident trusts, and family companies) will be amended to be brought in line with EU law.
  • Anti-avoidance measures introduced by Finance Bill 2015 will be amended to prevent the use of non-cash financial assets to circumvent them.
  • Restrictions on the amount of loss relief that can be carried forward will be introduced with respect to the knowledge development box.
  • The capital gains tax group relief will be extended to companies resident in countries with which Ireland has a tax treaty, thus legislating existing administrative practice.
  • Interest-free loans will be qualified as preferential loans liable to benefit-in-kind taxation to limit avoidance schemes.
  • With respect to mergers and divisions, referencing in the Tax Act will be aligned with the Companies Act 2014.

For more information on the initial Budget presented, please refer to KPMG’s Tax NewsFlash

Italy

European Delegation Law 2016-2017 published

On November 6, 2017, the European Delegation Law 2016-2017 was officially gazetted and will enter into force on November 21, 2017. The law authorizes the government to implement, by decree a number of EU Directives, including Directive (EU) 2016/881 on automatic exchange of country-by-country reports, the Anti-Tax Avoidance Directive ((EU) 2016/1164) and Directive (EU) 2016/2258 on access to anti-money-laundering information by tax authorities.

Jersey

Government’s statement following the Paradise Papers

On November 7, 2017, the government issued a statement in response to allegations made following the Appleby data breach, and announced in particular that it will review how to strengthen its arrangements, if necessary by introducing a substance test.

For more information, please refer to the full statement.

Latvia

Updated blacklist of tax havens

On November 7, 2017, the government approved new regulations shortening Latvia’s list of jurisdictions considered as tax havens. As a party to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, Latvia will no longer include in this blacklist jurisdictions with which the exchange of information is ensured. In this respect, the Ministry of Finance of Liechtenstein announced on October 27, 2017 that the principality has been removed from the list. The regulations will enter into force on 1 January 2018.

Lithuania

2018 Budget

On October 17, 2017, the Budget proposal for 2018 was presented to the parliament. The proposed amendments would enter into force on 1 January 2018 and include inter alia:

  • The introduction of a knowledge box regime, under which income from the use of intangible assets resulting from R&D activities would be subject to a reduced tax rate of 5%, subject to certain conditions.
  • The introduction of the concepts of collective investment vehicles, and risk and private equity vehicles,
  • The adjustment to the definition of taxable persons to include collective investment vehicles, as well as a corporate income tax exemption of all income received by collective investment vehicles, and risk and private equity vehicles, unless received from blacklisted jurisdictions.
  • The broadening of the list of activities eligible for the free economic zone incentive, and
  • The end of the tax exemption for income received from seaport and airport charges

The Netherlands

Update on dividend withholding tax proposal on holding cooperatives and the expansion of the withholding exemption

On November 6, 2017, the Deputy Minister of Finance addressed concerns of certain members of the Dutch Parliament about a dividend withholding tax proposal. If enacted, the bill concerning the withholding tax obligation of holding cooperatives and for the expansion of the withholding exemption would, among others, align the anti-abuse rules in the Dutch corporate income tax law and the Dutch dividend withholding tax law with EU law (the general anti-abuse rule in the EU Parent-Subsidiary Directive) and treaty anti-abuse provisions (notably the principal purpose test).

For more information, please refer to KPMG's Tax NewsFlash and Meijburg News.

Tax plan 2018 amending initial bill presented to Parliament

On November 3, 2017, amendments to the Tax Plan 2018 were presented by the Dutch government to the parliament, including inter alia an increase in the effective tax rate of the innovation box regime, from 5% to 7%, as of 1 January 1, 2018.

Emergency cabinet response on CJEU opinion on corporate fiscal unity

On October 25, 2017, in reaction to the Advocate General’s Opinion in the X cases on the Dutch fiscal unity regime, the Dutch Cabinet announced emergency remedial measures. These measures effectively provide, if the judgment by the CJEU has an undesirable budgetary impact for the Netherlands, some corporate income tax and dividend withholding tax rules—also in domestic corporate relationships—would be applied as if there is no fiscal unity.

For more information, please refer to KPMG's Tax NewsFlash.

State Secretary of Finance responds to inquiries on European quasi-legislation for tax evasion.

On October 24, 2017, the Secretary of State identified how the European Code of Conduct on Tax Crimes should follow the guidelines and conditions set forth by the ECOFIN Council on December 6, 2016. Moreover, the Secretary indicated how the Netherlands is already in compliance with many of those guidelines. The Netherlands requested that the definition of 'rulings' be linked to the descriptions used in the Directive on Automatic Exchange of Information on rulings (Council Directive 2015/2376 of December 8, 2015). Additionally, the Netherlands asked the Commission to explain the relationship between the guidelines on the exchange of information and the requirements for spontaneous automatic exchange of information under the EU directives

Norway

Withholding tax on dividends; changes to rules effective from 2018

New rules in Norway, effective in 2018, concern the documentation requirements and approval processes for obtaining partial relief or a full exemption “at source” for the withholding tax on dividends.

For further information, please refer to KPMG’s TaxNewsFlash.

Cross-border group relief available; loss carryforwards

New rules proposed in the 2018 budget would allow taxpayers that are residents of the European Economic Area (EEA) to carry forward losses incurred in Norway indefinitely, even if the taxable activity in Norway has ceased. Such losses could then be used by other Norwegian group companies through group contributions.

For further information, please refer to KPMG’s TaxNewsFlash.

Poland

Multilateral Instrument ratified by Poland

On November 8, 2017, the President of Poland signed the law ratifying the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI), after it had been approved by the Polish Senate on October 19, 2017. Moreover, Poland submitted reservations and notifications by identifying seventy-eight tax treaties it wishes to be covered by the MLI.

Country by Country reporting form published

On October 12, 2017, the Polish Minister of Finance published a model of the CbC report, which is required to be submitted by members of a multinational group.

For more information, please refer to KPMG’s Tax NewsFlash.

Poland appeals European Commission's State aid decision on retail sector tax

On September 13, 2017, the Polish government filed an appeal with the EU General Court (Case T-624/17) against the European Commission’s decision that the Polish tax on the retail sector was in breach of EU State aid rules.

Portugal

2018 Budget

On October 13, 2017, the Minister of Finance presented the Assembly of the Republic with the Budget for 2018. Some of the proposed measures include:

  • Taxable income of a foreign Permanent Establishments (PE): Taxpayers must adopt satisfactory proportional attribution standards for losses, expenses, and negative capital discrepancies that arise from transactions involving foreign PEs and taxpayers.
  • Tax havens: the deadline for notification of amounts transferred to entities located in jurisdictions with a more favorable tax regime is moved from July to March.
  • Share Transfers: a taxpayer will be subject to corporate income tax when there is a gain from the transfer of shares or rights of non-Portuguese entities where more than 50% of the value is related to Portuguese immovable property.
  • Tax benefits: on July 1, 2018, the exemption of swaps and loans for non-resident financial institutions will expire, unless a proposal for extension is presented within 180 days after the Budget enters into force.

Romania

Tax Code amendments announced

On October 26, 2017, the Romanian Ministry of Finance published a draft decree on amending the Tax Code. In this context, new provisions under the Anti-Tax-Avoidance Directive (EU) 2016/1164 regarding the interest limitation rule, the exit tax rule, the general anti avoidance rule and the controlled foreign company rule will be transposed into national law. The measures are scheduled to start on January 1, 2018.

Slovak Republic

Implementation of Anti-Tax Avoidance Directive (ATAD)

On August 16, 2017, the government approved a bill implementing the EU Anti-Tax Avoidance Directive I ((EU) 2016/1164). In particular, the bill introduces new exit taxation rules, new CFC rules, and implement partially the hybrid mismatches rules as foreseen by the Directive (further amendments are expected in this respect). The bill does not contain the interest limitation rules as a similar rule, based on fixed ratio, is already in force since 2015 (thin capitalization rules) and does not contain the general anti-abuse provision provided by article 6 of the ATAD.

Sweden

Clarification of loss carry-forward rules following change in ownership under a group taxation regime

On October 2, 2017, the Tax Agency published Document 202 392964-17/111 to clarify loss carry-forward rules following a change in ownership under a group taxation regime. Under Swedish law, a loss-making company may not set off losses against group contributions received from another group company during the first five years following a change of ownership. Contrary to their initial interpretation of the law, the Swedish tax authorities recently changed their view, to consider that such loss carry forward may be applied after year five, in order to bring their practice in line with several decisions issued by the Swedish Supreme Court in 2014.

Updated guidance on Country-by-Country reporting

On October 19, 2017, the Swedish tax authorities provided additional guidance on CbC reporting for the following matters: 1) the CbC requirements apply to special types of income and the gains on investments, and 2) how to treat minority interests and joint ventures within group obligations of reporting. Moreover, the companies in the group and their respective incomes must be identified via accounting principles to determine whether they are worthy of inclusion.

Switzerland

Decision on entry into force of Federal Act on the International Automatic Exchange of Country-by-Country Reports of Multinationals

On October 18, 2017, the Swiss Federal Council decided to bring into force the Federal Act on the International Automatic Exchange of Country-by-Country Reports of Multinationals on December 1, 2017. In addition, the Federal Council determined the countries with which country-by-country reports are to be exchanged and adopted a declaration on the administrative assistance convention.

United Kingdom

Consultation on Finance Bill (No. 2) 2017: Penalties for enablers of tax avoidance schemes

On October 20, 2017, HMRC released draft guidance on penalties for enablers of tax avoidance schemes. The consultation period is from October 20, 2017 – November 30, 2017.

More information is available here.

Brexit: Sanctions and Anti-Money Laundering Bill

On October 18, 2017, the Sanctions and Anti-Money Laundering (AML) Bill was introduced in response to the AML consultation in April 2017. The AML Bill provides the United Kingdom with legal authority to continuously apply sanctions, post-Brexit, against other states and terrorist organizations. Furthermore, the AML Bill will allow the United Kingdom to impose existing sanctions regimes already established through EU law

Draft Corporation Tax Group Relief Regulations 2017 under consultation

On October 16, 2017, HMRC published the Draft Corporation Tax Group Relief Regulations for consultation, as well as the accompanying draft explanatory memorandum. The draft would allow companies to enter into simplified arrangements to claim and surrender group relief for carry-forward losses.

For more information on the reform, please refer to KPMG’Tax NewsFlash.

Update on the proposed corporate interest restriction rules

Corporate interest restriction measures were included in the Finance Bill 2017, published on September 8, 2017. The proposed corporate interest restriction rules were removed from Finance Bill 2017, but were reintroduced in the legislation published on November 3, 2017.

For more information please refer to KPMG's Tax NewsFlash.

Local Courts

Netherlands

Lower court rejects transfer pricing adjustment in restructuring case

On September 19, 2017, the Lower Court Zeeland West Brabant rendered its decision in the case of X BV v. the tax administration. In the case at hand, a Dutch parent company was providing support services to its foreign subsidiary on a cost-plus basis and received a compensation fee following the transfer of the group’s headquarters and strategic functions to Switzerland. The Dutch tax authorities took the view that this compensation was insufficient, and that the Dutch company was still performing strategic functions for the group, and adjusted its taxable profit accordingly. The Court ruled that the tax authorities did not provide convincing arguments to support the revaluation performed and held that they cannot disregard a properly documented valuation, by providing alternative analyses.

Norway

Rejection of transfer pricing adjustment for share transfer due to the lack of comparables

On October 24, 2017, the Appeal Board published its decision No. 71/2017 regarding a price adjustment on a share transfer between Norwegian related companies. In the case at hand, a Norwegian company first acquired shares from a non-resident unrelated party, before transferring those shares to a domestic subsidiary and further selling them on to another unrelated party. The first intra-group transfer occurred at the same price as the original acquisition, while the price of the final sale was almost six times higher. The Norwegian tax authorities adjusted the price of the original intra-group transfer, as no evidence was presented to justify such increase. The Appeal Board ruled that the transfer price could not be adjusted without comparable(s) and that the domestic transfer pricing rules were not applicable, due to a lack of financial documentation to support a valuation method. However, in the absence of satisfactory explanations on the increase in the value of the shares, the Board concluded that a reliable valuation could be based on the assumption of linear appreciation in the shares’ value.

United Kingdom

Court of Appeal dismisses request for judicial review in the context of Diverted Profit Tax

On 2 November 2017, the UK Court of Appeal (Civil Division) rendered its decision in the Glencore case ([2017] EWCA Civ 1716). In the context of the diverted profits tax (DPT), specific provisions apply regarding the possibility to review the charge to DPT and appeal a reassessment notice issued by HMRC. The Court of Appeal unanimously dismissed the taxpayer's application for judicial review because "a suitable alternative remedy is available in the form of the review under section 101 FA 2015 in conjunction with the right of appeal to the FTT under section 102 FA 2015".

For more information, please refer to the court’s decision.

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