CFE’s Tax Top 5 June 2016

 

     27 June 2016

  1. CJEU rules on input VAT deduction for constructing a building only partly used for economic activities after having been sold

On 22 June 2016, the the EU Court of Justice (CJEU) ruled in the Dutch preliminary ruling case Gemeente Woerden (C-267/15) that where a taxable person has had a building constructed and has sold that building at a loss, this person may deduct all of the VAT paid in respect of the construction of that building, and not only a part of that tax in proportion to the parts of the building which its purchaser uses for economic activities. The fact that that purchaser allows the building at issue to be used without charge is of no importance in that regard.

  • Judgment: EN
  1. CJEU: VAT does not apply on broadcasting license fee

On 22 June 2016, the CJEU decided in the Czech preliminary ruling case C-11/15, Odvolací, that public broadcasting activities funded by a compulsory statutory charge are not a supply of services for consideration within the meaning of the VAT Directive.

  • Judgment: EN
  • Advocate-General opinion: EN
  1. EP appoints members to “Panama” inquiry Committee

On 23 June 2016, the European Parliament appointed the 65 members of the “Committee on Money Laundering, Tax Avoidance and Tax Evasion” (PANA). The list of names features many MEPs previously involved in tax policy matters such as, i.a., TAXE 2 Chairman Alain Lamassoure, Luděk Niedermayer, Hugues Bayet, Anneliese Dodds, Jeppe Kofod, Michael Theurer, Cora van Nieuwenhuizen, Fabio de Masi and Sven Giegold. The chair and vice chairs will be appointed at the first meeting.

  • PANA section on EP website: EN
  • List of PANA members: EN
  1. TAXE 2 Committee votes on report and publishes studies on tax rulings and transparency

On 21 June 2016, the European Parliament´s TAXE 2 Committee adopted its non-legislative report on a number of tax policy matters, including an EU public register of beneficial owners of companies, a tax havens blacklist, sanctions against non-cooperative tax jurisdictions, action against abuse of “patent box” regimes, tax good governance rules in all EU trade agreements, and a withholding tax on profits leaving the EU. For advisers, the report asks for the introduction of European rules preventing tax advisers from advising both private clients and the public sector, and asks for sanctions with regard to dealings in tax havens. The plenary vote is scheduled for 7 July 2016.

The TAXE 2 Committee has also published three studies on tax transparency, titled “Are we moving in the right direction? Public disclosure of tax information and other EC/EP proposals to reduce aggressive tax planning”, “The future of tax rulings in the EU: Evaluation, confrontation and recommendations”, and “EU state aid law and national tax rulings: 2015-2016 update”.

  • Press release: EN (FR available)
  • Procedural file; TAXE 2 voted version will be made available at the bottom of the page: EN
  • TAXE 2 studies: EN
  1. Ecofin Report on tax issues

The Ecofin Council has published its biannual “Report on tax issues” providing an overview of progress achieved in the Ecofin Council, its sub-groups and the Code of Conduct Group since the beginning of 2016. Largely unnoticed, the Council reached political agreement on the VAT treatment of vouchers in May 2016, after four years of work on the proposal. The formal adoption will take place at one of the next Council meetings. In contrast, no agreement appears to be in sight on the revision of the Interest & Royalties Directive which the Dutch Council presidency had hoped to complete by June. Member states remain divided on the introduction and the scope of a minimum effective taxation clause. Also the Financial Transaction Tax (FTT) by a group of 10 member states will require further work.

  • Report on tax issues 2016/1, 23 June 2016: EN
  • VAT treatment of vouchers, agreed changes to the VAT Directive, 10 June 2016: EN
  • Report on FTT state of play, 3 June 2016: EN

 

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The selection of the remitted material has been prepared by Piergiorgio Valente / Filipa Correia / Rudolf Reibel

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21 June 2016

1.      EU member states agree on Tax Avoidance Directive

 

The political agreement on the EU Anti-Tax Avoidance Directive (ATAD) reached between all EU member states at the Ecofin meeting on 17 June 2016 has lasted until the end of the silence period in which member states could raise objections, on 20 June at midnight, and is now effective.

The compromise adopted is a watered-down version of the Commission´s original proposal of 28 January 2016. Most of its provisions will have to be applied as of 1 January 2019. Among the amendments made, the following points appear noteworthy:

–         The idea of a switchover clause enabling the member state of a parent company to tax untaxed or low-taxed revenues from other countries has been dropped;

–         The interest deductibility limitation (“Zinsschranke”) is more generous than in the original proposal to the extent that it allows member states to maintain a threshold of € 3 million, compared to € 1 million in the Commission proposal. A grandfathering clause for existing loans as well as an exemption for public infrastructure projects has been included. Member states that have equally effective interest limitation rules in place may delay the introduction of the new rules until the end of 2023;

–         For determining the application of CFC (Controlled Foreign Company) rules, the threshold relating to the effective tax rate in the country of the controlled entity (40% of the parent country rate) has been replaced by the criterion that the tax actually paid in that country is less than half of what would have had to be paid in the parent country;

–         On exit taxation, the final version contains clarifications to avoid double taxation, stating that exit tax would only apply in so far as the member state loses the right to tax the transferred assets in the future; the new exit tax rules will have to be applied as of 2020;

–         Where hybrid mismatches lead to double deduction, only the source state shall grant the deduction; where they lead to deduction without inclusion, the state of the payer shall deny the deduction; according to the initial proposal, the legal characterisation given by the source member state should decide.

Like the original proposal, the final ATAD will include a General Anti Abuse Rule allowing member states to enact stricter anti abuse provisions.

As the European Parliament has already given its approval (having suggested a much stronger focus on anti-avoidance) on 8 June, the ATAD can be adopted at one of the forthcoming Council meetings.

–         Compromise proposal, 17 June 2016: EN

–         Reuters article, 17 June 2016: EN

–         Council press release (see page 4), 17 June 2016: EN

–         Commission press release, 21 June 2016: EN (FR available)

 

2.      Commission to allow member states to introduce VAT reverse charge in political trade-off

On 17 June 2016, the European Commission has committed to presenting, by the end of 2016, a legislative proposal allowing member states to apply a general VAT reverse charge mechanism to domestic supplies above a defined threshold. Reportedly, this commitment is the result of a political trade-off against the Czech Republic´s agreement to the Anti-Tax Avoidance Directive. Together with Austria, the country has been seeking to allow this derogation from the common VAT system which has been criticised by VAT experts as disruptive.

 

3.      OECD to set up BEPS monitoring process

The OECD has announced on 16 June 2016 that a monitoring process is being developed to ensure that the minimum standards included in the final BEPS reports are implemented. Countries will have to report publicly on their implementation status. This concerns the measures against harmful tax practices including IP regimes and exchange of rulings (BEPS Action 5), preventing tax treaty abuse (Action 6), transfer pricing documentation and exchange of country by country reports (Action 13) and dispute resolution (Action 14).

 

4.      Code of Conduct Group issues guidance on hybrid PEs involving third countries

 

On 17 June 2016, the EU Ecofin Council received a report of the Code of Conduct Group on Business Taxation of the progress achieved in the first half of 2016. The Report includes newly developed guidance on hybrid permanent establishments involving third countries, which was welcomed by the Ecofin.

–         Report of Code of Conduct Group (p. 13 ff: Guidance on hybrid PEs), 13 June 2016: EN

5.      CJEU rules on deemed supply of a part of a building used for professional purposes after cessation of the activity

The CJEU, on 16 June 2016, confirmed the opinion of Advocate-General Juliane Kokott in the Polish case Jan Mateusiak, C-229/15, about a notary who had deducted input VAT on those parts of his private residence which he had used for professional purposes, and had retained those parts after ceasing his business. The Court ruled that this can be treated as a supply of goods for consideration subject to VAT, also after the 10-year adjustment period has passed.

–       Judgment: EN (all EU languages)

–       Advocate-General opinion: EN (all EU languages)

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The selection of the remitted material has been prepared by Piergiorgio Valente / Filipa Correia / Rudolf Reibel

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13 June 2016

  1. CJEU decides on tax free-allowances for non-residents in German gift tax case

On 8 June 2016, the EU Court of Justice (CJEU) decided in the German preliminary ruling case C-479/14, Hünnebeck, that where national law provides for a certain tax-free allowance, this allowance must be granted irrespective of whether at least one of the parties is a resident, and may not require a non-resident beneficiary to make a specific request. Moreover, a member state may not calculate the gift tax of the non-resident beneficiary on the basis of aggregating all the gifts received by the beneficiary from the same person over the course of the 10 years preceding and the 10 years following that gift, if only the first 10 years are taken into account where at least one of the parties is a resident.

  • Judgment: EN (all EU languages)
  • Advocate-General opinion: EN (all EU languages)
  1. CJEU rules on calculation of input VAT for mixed-use services related to a building

On 9 June 2016, the CJEU decided in the German preliminary ruling case C-332/14, Rey, on the calculation of the deductible input VAT for goods and services used for both taxable and exempt transactions related to a building. A value-based apportionment as used by the taxpayer had not been accepted by the tax authority which considered that an apportionment based on the respective areas of the building was more accurate.

The Court ruled that member states are not required to prescribe that the input goods and services used for the construction, acquisition, use, conservation or maintenance of that building must, in a first stage, be assigned to those various transactions when such assignation is difficult to carry out, so that, in a second stage, only the deduction entitlement due in respect of those goods and services used both for certain transactions for which VAT is deductible and for others in respect of which it is not is determined by applying a turnover-based allocation key or, provided that this method guarantees a more precise determination of the deductible proportion, on the basis of floor area.

  • Judgment: EN (all EU languages available)
  1. CJEU decides follow-up case on non-compatible Romanian car tax

On 9 June 2016, the CJEU decided in the Romanian preliminary ruling case C-589/14, Budișan, that a member state may introduce a tax levied on imported second-hand motor vehicles at the time of their first registration in that state and on vehicles already registered in that state at the time of the first transfer of ownership, within that member state. In contrast, vehicles already registered in that state, for which a tax that was previously in force but later found to be incompatible with EU law has been paid and not repaid, may not be exempted from the new tax.

  • Judgment: EN (all EU languages available)
  1. State Aid: Commission publishes its letter to Luxembourg in Fiat case

On 9 June, the Commission published a non-confidential version of its decision of 21 October 2015 that rulings granted by the country to Fiat Finance constituted illegal state aid.

  • Text of Fiat decision of 21 October 2015: FR, EN
  • Pending court cases:
    • Fiat Chrysler Finance v. Commission: EN
    • Luxembourg v. Commission: EN
  1. OECD webcast on BEPS and Panama

The OECD will host a webcast on 16 June 2016 from 14:00-15:00 h CET explaining the developments since the presentation of the final BEPS Recommendations in October 2015, including planned next steps, and the impact of Panama Papers and progress towards a global level playing field through enhanced transparency.

  • Registration: EN
  1. EP votes its version of ATAD and sets up “Panama Committee”

On 8 June 2016, the European Parliament voted on the proposed Anti-Tax Avoidance Directive, suggesting changes that would go far beyond the OECD BEPS Recommendations and the Commission´s draft Directive of 28 January 2016. The EP´s suggestions include:

  • Setting a minimum tax rate of 15% on foreign income as part of the switch-over clause, with any difference between a lower foreign rate being payable;
  • Limiting the deductibility of borrowing costs to 20% of EBITDA or € 2 million, whichever is higher;
  • Drawing up an exhaustive black list of tax havens and countries, including those in the EU, complemented with a list of sanctions for non-cooperative jurisdictions and for financial institutions that operate within tax havens;
  • Prohibiting the use of letterbox companies;
  • Swiftly introducing a common consolidated corporate tax base (CCCTB);
  • Increasing the transparency of trust funds and foundations;
  • Introducing a common method for calculating the effective corporate tax rate in each member state to allow for comparison across the EU;
  • Introducing a cross-border tax dispute resolution mechanism with clearer rules and timelines by January 2017; and
  • Creating a harmonized, common European taxpayer identification number to serve as a basis for effective automatic exchange of information between member states.

The EP´s opinion is not binding for the EU Council which will have to vote unanimously and will try to reach political agreement on the proposal at its next meeting this Friday.

As anticipated in the last issue of the Tax Top 5, the EP also agreed to set up an inquiry committee into alleged contraventions and maladministration in the application by the EU Commission or member states of EU laws on money laundering, tax avoidance and tax evasion, as a follow-up to “Panama Papers”.

  • Press release ATAD, 8 June: EN (all EU languages)
  • EP vote ATAD: EN (all EU languages)
  • Press release Panama Committee, 8 June: EN
  • EP vote Panama Committee: EN (all EU languages)
  1. CFE issues Opinion Release on corporate tax transparency and tax rulings

On 13 June 2016, the CFE issued an Opinion Release on “Strengthening corporate tax transparency in the EU”, following up on its previous work in this matter. The statement stresses the importance of tax rulings and APAs as instruments to create legal certainty, provided that they comply with EU state aid rules. It supports mandatory exchange of tax rulings information among tax administrations but warns against publication of tax rulings.

 

  • Opinion Release (13 June 2016) and related Opinion Statement (June 2015): EN

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The selection of the remitted material has been prepared by Piergiorgio Valente / Filipa Correia / Rudolf Reibel

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6 June 2016

1.      State aid and tax rulings I: Commission publishes working paper and agrees closer cooperation with Italy, Romania and Bulgaria

On 3 June 2016, the European Commission´s Directorate-General for Competition published a 6-page working paper on state aid and tax rulings meant as a preliminary summary of the Commission´s views after having looked at more than 1,000 tax rulings including the “Lux Leaks” rulings, in particular rulings endorsing transfer pricing arrangements and confirming the (non-) application of particular legislation. According to the Commission paper, the remuneration of intra-group financing companies has raised concerns in some cases, as well as tax deductions for “virtual” intra-group payments. The paper also explains a preference of the Commission which of the transfer pricing methods accepted by the OECD are more appropriate for specific situations, but stresses that the Commission´s focus will be on manifest breaches of the arm´s length principle.

On the same day, the Commission declared that it has offered member states to enter into strengthened bilateral partnerships to improve the management of state aid. One such partnership with concluded with Italy. An agreement with Bulgaria already exists and another one with Romania seems to be on the way.

–         Working paper: EN

–         Agreement with Italy: EN

–         Press release: EN

2.      CJEU rules on Swedish difference in treatment of dividends paid to non-resident pension fund

On 2 June 2016, the EU Court of Justice (CJEU) delivered its judgment in the Swedish preliminary ruling case Pensioenfonds Metaal en Techniek, C-252/14, on the compatibility with EU law of a difference in treatment of resident and non-resident pension funds. According to the CJEU, national law may levy a withholding tax on dividends distributed by a domestic company to a non-resident pension fund, while it imposes on dividends paid to a resident pension fund a lump-sum tax on a notional yield, which, over time, is intended to correspond to the normal taxation of all yields on capital under the general law regime. However, the Court stressed that non-resident pension funds must be able to take into account expenses directly linked to the receipt of dividends if resident pension funds are allowed to take such expenses into account.

–         Judgment: EN

3.      CJEU decides on VAT treatment of a mainly publicly funded water disposal system

On 2 June 2016, the CJEU rendered its decision in the Hungarian preliminary ruling case Lajvér (C-263/15) on the recovery of VAT on the cost of the construction and operation of an agricultural water disposal system.

The Court concluded that the operation of such system by a non-profit company which engages in such activities only on an ancillary basis constitutes an economic activity, even where those works have in large part been financed by state aid and that their operation gives rise only to revenue from modest fees, if these can be regarded as having a ‘continuing basis’. The operation is a supply of services for consideration, if it is directly linked to a fee, even where performance of those services is a legal obligation. Subject to the further circumstances to be verified by the Hungarian court, VAT recovery is in principle possible.

–         Judgment: EN (all EU languages available)

4.      CJEU judgment on VAT liability in case of breach of customs warehousing rules

On 2 June 2016, the CJEU decided on the joined cases C‑226/14 and C‑228/14, Eurogate Distribution and DHL Hub Leipzig on whether VAT is due on goods which have been re-exported as non-Community goods where a customs debt is incurred due to non-compliance with formalities of the Customs Code. The Court held that this is not the case, as no import for VAT purposes can be assumed where the goods have not been removed from the customs arrangement at the date of their re-exportation but were only removed from that arrangement as a result of their re-exportation.

–         Judgment: EN (all EU languages available)

–         Advocate-General opinion of 12 January 2016 : EN (all EU languages)

5.      State aid and tax rulings II: Commission publishes its decision to open investigations on Mc Donald´s

On 6 June 2016, the European Commission published its decision of 3 December 2016 to open in-depth investigations into rulings by the Luxembourg tax authorities on transfer pricing arrangements of Mc Donald´s. To date, the Commission has not taken a decision.

–         Case in State Aid Register : EN

–         Letter to Luxembourg : FR, EN

–         Press release : EN (all EU languages available)

6.      OECD consults on Multilateral Instrument and updates BEPS timetable

On 31 May 2016, the OECD opened a public consultation (until 30 June) on creating a multilateral instrument to implement the tax treaty-related BEPS measures by modifying bilateral tax treaties (Action 15 of the BEPS Action Plan). An Ad Hoc Group of now 96 countries charged with developing such legal instrument was set up in May 2015. The Group aims to conclude its work and open the multilateral instrument for signature by the end of this year. The OECD invites comments specifically on the implementation of the multilateral agreement and on the matters it will deal with, namely a mutual agreement procedure including an optional provision for binding arbitration and provisions on hybrid mismatch arrangements, tax treaty benefits in inappropriate circumstances, and the artificial avoidance of “permanent establishment” status.

The OECD also updated its BEPS timetable: The next consultation papers the OECD is planning to issue are:

–         Design and operation of the group ratio rule for interest deductions: 6 July 2016 (deadline: 3 August 2016).

–         Hybrid mismatches and branches: 15 July 2016 (deadline: 28 July 2016).

–         Interest limitation in the banking and insurance sectors: 18 July 2016 (deadline: 29 August).

–         Press release : EN

–         Discussion draft : EN

–         List of members of the ad-hoc group : EN

7.      EP to set up “Panama” Special Committee

On 2 June 2016, the European Parliament´s Conference of Presidents (consisting of the EP President and the political group leaders) agreed on a mandate for an inquiry committee “to investigate alleged contraventions and maladministration in the application of Union law in relation to money laundering and tax avoidance and tax evasion”. The alleged failures of the Commission and member states include enforcement and implementing the 3rd Anti Money Laundering (AML) Directive of 2005, the spontaneous information exchange in the 2011 Administrative Cooperation Directive, the 2006 Audit Directive, the 2013 Accounting Directive and the duty to sincere cooperation in the EU Treaty.

An inquiry committee has more powers than the TAXE Special Committee that was set up after the Lux Leaks revelations; back in February 2015, the EP´s Conference of Presidents had refused to grant the TAXE Committee inquiry powers.

The plenary of the EP will vote on 8 June on the setting up of the Committee which will have 12 month to produce its report which would also contain recommendations on the EU’s external strategy for effective taxation and transparency in tax and beneficial ownership information.

–         Press release : EN

–         Request for a mandate : EN

8.      Reforms of professional regulation: Commission consults on National Action Plans

On 27 May 2016, the European Commission has opened a public consultation on the “National Action Plans” drawn up by EU member states to explain whether or not they intend to reform the regulation of their professions. The Commission has observed that its recommendations in this matter, expressed in the country-specific recommendations as part of the European Semester, are often ignored. Indeed qualification requirements are a competence of member states, to the extent they are in conformity with EU law, in particular the proportionality requirement.

The public consultation will give stakeholders the possibility to comment on a maximum of 4 National Action Plans and express criticism towards the member states´ assessments. The outcome of the survey will feed into the development a common methodology for member states to assess the proportionality of their requirements. The consultation will be open until 19 August 2016.

–         Consultation paper: EN

9.      Commission publishes Communication on taxing players in the “collaborative economy”

On 3 June 2016, the European Commission has published a Communication on “a European agenda for the collaborative economy” also containing considerations on taxation (Chapter 2.5). The considerations mostly relate to the collection of taxes (VAT, income tax and other taxes such as tourist taxes) from private persons or businesses providing services on platforms like Airbnb and Uber. The paper advocates an exchange of tax-related information from platforms to tax authorities which it considers to be easy thanks to digital processing. Interestingly, the possibility of introducing a withholding tax (from the user) which was still included in an earlier draft of the paper has disappeared in the final version. The Communication does not focus on how to tax the profits generated by the platforms. The accompanying impact assessment contains an interesting overview of member states’ tax rules targeted at the collaborative economy. Italy for instance appears to consider platforms  permanent establishments and withholding agents.

–       Dedicated website: EN

–       Communication COM(2016)356 and staff working document SWD(2016)184 (Communication also available in DE, FR): EN

Corrigendum: draft TAXE 2 report

The amendments to the draft TAXE 2 report will be made available at the bottom of this website: EN

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The selection of the remitted material has been prepared by Piergiorgio Va