EU Tax News Issue 2015 – nr. 001 November – December 2014

EU Tax News
Issue 2015 – nr. 001
November – December 2014
This EU Tax Newsletter is prepared by members of PwC’s international EU Direct Tax
Group (EUDTG). If you would like to receive future editions of this newsletter free of
charge, or wish to read previous editions, please refer to: www.pwc.com/eudtg.
Contents
Court of Justice of the European Union (CJEU) Cases
Germany
Germany
Germany
Netherlands
Netherlands
United Kingdom
CJEU referral regarding a disclosure duty of a German
bank in case of a client’s death with respect to assets
held in a foreign branch: Sparkasse Allgäu
AG opinion on German rules disallowing non-residents
to deduct annuities linked to an anticipated succession
inter vivos: Grünewald
AG opinion on taxation of foreign investment funds:
Wagner-Raith
CJEU judgment on deduction of costs regarding
monuments: Staatssecretaris van Financiën v X
AG opinion on the 150 kilometer distance requirement
in the Dutch 30% ruling for foreign employees with
specific expertise: Sopora
CJEU judgment on former UK tax legislation on the
attribution of gains to participators in non-resident
companies: Commission v UK
National Developments
Italy
Italy
PwC EU Tax News
Introduction of a patent box regime
New tax credit regime for R&D expenditure
1
Italy
Netherlands
Netherlands
Sweden
Sweden
New provisions relevant to pension funds and noncommercial entities
New decree amends collective decree regarding fiscal
unity
Scheme for qualifying non-resident taxpayer status as
from 1 January 2015
Swedish interest deduction limitations under fire from
the European Commission
Update on Fokus Bank claims
EU Developments
EU
EU
EU
EU
Code of Conduct Group (Business Taxation) 6-monthly
progress report to the ECOFIN Council
ECOFIN Council Conclusions of 9 December 2014
European Commission presents 2015 Work Programme
European Commission presents annual Economic
Governance package (European Semester), including
Annual Growth Survey 2015
Fiscal State aid
EU
Ireland and Luxembourg
Spain
PwC EU Tax News
European Commission extends information enquiry on
tax rulings practice to all EU-28 Member States
European Commission explains State aid investigations
in The Netherlands (STARBUCKS)
Two EU General Court decisions on the Spanish
financial goodwill amortisation regime
2
CJEU Cases
Germany – CJEU referral regarding a disclosure duty of a German
bank in case of a client’s death with respect to assets held in a foreign
branch: Sparkasse Allgäu
On 1 October 2014, the German Federal Fiscal Court referred the following
question to the CJEU in case C-522/14, Sparkasse Allgäu (free translation):

Does the freedom of establishment (Art. 49 TFEU) preclude a Member
State (Germany) from applying legislation obliging a domestic bank to
disclose assets held in a foreign branch in case of death of a (domestic)
client if under the legislation of the state where the branch is located
there is no such obligation but rather a bank secrecy enforced by criminal
law?
A German bank had opened a branch in Austria. Following sec. 33 of the
German Inheritance and Gift Tax Act, if a client of the bank passes away the
German bank is obliged to disclose assets held for the client both in the German
part of the bank and in the foreign branch. By contrast, if the German bank had
opened a subsidiary in Austria there is no legal basis for a disclosure duty
(principle of territoriality).
Therefore, the Federal Fiscal Court asked the CJEU whether the disclosure duty
is in line with Art. 49 TFEU.
It seems that the CJEU needs to answer two questions:
1. Are the establishment of a branch and a subsidiary – due to
aforementioned constraints under the principle of territoriality –
objectively comparable?
2. If the answer under 1. is affirmative, does either the guarantee of the
effectiveness of fiscal supervision or the prevention of tax avoidance
apply as a justification?
--
Ronald
Gebhardt
and
Juergen
Luedicke,
PwC
Germany
,
[email protected]
Germany – AG opinion on German rules disallowing non-residents to
deduct annuities linked to an anticipated succession inter vivos:
Grünewald
On 18 November 2014, AG Mengozzi rendered his opinion in the German
Grünewald case (C-559/13), in which a non-resident individual received 50% of
PwC EU Tax News
3
an interest in a German partnership previously held by his father by means of
anticipated succession inter vivos. The other half of the interest was granted to
his brother. Subsequently, the non-resident became taxable in Germany with his
income earned through the partnership. The non-resident had agreed to pay a
monthly annuity to his father after the anticipated succession was complete. The
payments were not tax deductible due to the fact that the payor was a nonresident.
In its 2011 judgment in Schröder (C-450/09) the CJEU had already held the
German rule at stake to be incompatible with the free movement of capital. It
had decided that non-residents and residents were comparable in respect of the
deductibility of the annuity because the payment was directly linked to an
activity that generated taxable income in Germany. However, the German
Federal Fiscal Court refused to simply apply the Schröder ruling to the
Grünewald case and referred the second case to Luxembourg. According to the
Federal Fiscal Court, the national laws had not been properly explained to the
CJEU by the Fiscal Court of Lower Saxony in the Schröder referral. In particular,
the latter court had not stated clearly enough that under German law the annuity
did not constitute consideration for the transferred assets and that it could only
be taxed at the level of the recipient if he/she was a resident.
AG Mengozzi did not agree with the referring court’s reservations against the
applicability of Schröder. According to Mengozzi, the CJEU had fully understood
that the annuity was part of a family support arrangement and not consideration
for the assets. Moreover, the fact that the annuity could only be taxed in the
hands of resident recipients could not justify the rule since the recipient is a
different taxpayer. Therefore, Grünewald should be decided in the same way as
Schröder.
-Björn
Bodewaldt
and
Jürgen
Lüdicke,
PwC
Germany;
[email protected]
Germany – AG opinion on taxation of foreign investment funds:
Wagner-Raith
On 18 December 2014, AG Mengozzi gave his opinion on the compatibility of
sec. 18 para. 3 Foreign Investment Company Act (Auslandsinvestmentgesetz –
AuslInvestmG) with the free movement of capital (Art. 63 TFEU; case C-560/13,
Wagner-Raith; regarding the judgment in van Caster, C-326/12 dated 9 October
2014 dealing with Sec. 6 German Investment Tax Act please refer to the EU Tax
News issue 6/2014).
Mengozzi particularly expresses the opinion that sec. 18 para. 3 falls within the
scope of legislation dealing with the “movement of capital involving the
PwC EU Tax News
4
provision of financial services” and should therefore be protected by the standstill clause in Art. 64 TFEU.
If a foreign fund did not fulfil specific publication requirements (sec. 17 para. 3),
following sec. 18 para. 3 the foreign fund was treated as a “non-qualifying fund”
and its domestic investors were taxed on a "flat rate” basis. In a pure domestic
case, the tax authorities had the right to estimate the income of investors
pursuant to sec. 162 General Tax Code if the fund did not provide the respective
information. Therefore, the taxation at investor level was essentially higher in
case of non-qualifying foreign funds.
Since sec. 18 para. 3 was already in force on 31 December 1993 and remained
essentially unchanged until its abolition in 2004, the referring Federal Fiscal
Court posed the question whether the legislation was within the scope of the
stand-still clause in Art. 64 TFEU.
The referring court stated that Sec. 18 para. 3 does not fall within the scope of
the “movement of capital involving the provision of financial services” since only
regulations aiming at the provider of those services may fall within this scope
and sec. 18 para. 3 aims at the taxation of the investor.
Contrary to the referring court, the AG opines that provisions aiming at the
provider of financial services are not within the scope of the free movement of
capital but rather in the scope of the freedom to provide services. Hence, there is
no stand still clause issue in such cases.
Since the investor of a foreign fund relies on the free movement of capital
because the foreign fund is providing financial services, sec. 18 para. 3 – in the
view of the AG – falls within the scope of the stand-still clause. The AG
distinguishes between a straight-forward investment in e.g. shares in a stock
corporation on one hand and shares in an investment fund on the other hand.
-Ronald
Gebhardt
and
Juergen
Luedicke,
PwC
Germany,
[email protected]
Netherlands
– CJEU judgment on deduction
monuments: Staatssecretaris van Financiën v X
costs
regarding
On 18 December 2014, the CJEU ruled that the Dutch deduction of costs on monuments
is not in breach of the freedom of establishment (C-87/13: Staatssecretaris van
Financiën v. X).
According to Dutch income tax legislation, individuals who own a historical building that
is situated in the Netherlands can deduct the costs in conjunction with this building.
PwC EU Tax News
5
A Dutch resident moved to Belgium to live in a castle. In his income tax return 2004, he
chose for the treatment as a Dutch resident taxpayer. In this income tax return, he
claimed a deduction of costs on a monument. The tax inspector did not allow the
deduction of costs because the castle is not registered in the Netherlands, as required by
the Dutch income tax legislation.
The CJEU ruled that it is not in breach of the freedom of establishment that the
Netherlands only facilitates the deduction of costs on monuments that are situated in the
Netherlands. According to the CJEU, considering the rationale behind the deduction
facility (to stimulate maintenance of Dutch monuments), the situation of a monument
that is located in Belgium and protected by Belgian legislation is not objectively
comparable to the situation of a monument that is located in the Netherlands and
protected by Dutch legislation. Therefore, according to the CJEU, the refusal of the
requested deduction by the tax inspector does not constitute discrimination.
-Robin
Hiemstra
and
[email protected]
Frederik
Boulogne,
PwC
Netherlands;
Netherlands – AG opinion on the 150 kilometer distance requirement in the
Dutch 30% ruling for foreign employees with specific expertise: Sopora
On 13 November 2014, AG Kokott gave her opinion in the Sopora case of the CJEU (C512/13:). She concludes that the 150 kilometers distance requirement in the Dutch 30%
ruling for foreign employees with specific expertise is not in breach of the freedom of
workers.
Under the 30% ruling, a Dutch employer can grant a tax-free allowance (of 30% of the
gross salary subject to Dutch payroll tax) to a foreign employee with specific expertise
who decides to work and live in the Netherlands. On 1 January 2012, the requirement
was introduced that an employee only qualifies for the 30% ruling if he or she, during at
least two/thirds of the 24-month period prior to becoming a Dutch employee, lived at a
distance of more than 150 kilometers from the Dutch border. The rationale behind this
requirement, according to the Dutch Government, is to prevent economic distortions in
the border area and to prevent the 30% ruling being given to employees who would not
incur many costs due to becoming employed in the Netherlands.
Mr. Sopora worked in the Netherlands for a Dutch employer in 2012. The last two years
before this, he lived in Germany, but less than 150 kilometers away from the Dutch
border. The Dutch tax authorities refused to grant the 30% ruling to him. Mr. Sopora
appealed against this decision, arguing that the refusal to grant the ruling to him violates
EU law.
Kokott concludes that the 150 kilometer criterion of the 30% ruling is not a prohibited
restriction of the free movement of workers, provided that the criterion affects in the
vast majority of cases employees who can commute to their work in the Netherlands on a
daily basis and who do not suffer significant extraterritorial costs.
-Robin
Hiemstra
and
[email protected]
PwC EU Tax News
Frederik
Boulogne,
PwC
Netherlands;
6
United Kingdom – CJEU judgment on former UK tax legislation on the
attribution of gains to participators in non-resident companies:
Commission v UK
On 13 November 2014, the CJEU decision in the Commission v UK (C-112/14)
infringement case regarding the UK’s former legislation for the attribution of gains to
participators in non-resident companies was published.
The legislation at issue, section 13 of the Taxation of Chargeable Gains Act 1992,
provides that UK resident participators of a non-UK resident company (with 5 or fewer
participators) are liable to tax immediately that chargeable gains arise to the company.
Since the compatibility of this legislation with EU law was challenged, the legislation has
been amended by Finance Act 2013 for disposals from 6 April 2012.
The Commission successfully argued that the legislation prior to Financial Act (FA) 2013
was unjustifiably restrictive and breached the Free Movement of Capital. This is because,
prior to changes introduced in FA 2013, section 13 TCGA 1992 gave rise to a situation in
which the UK resident participators of a non-UK resident company were taxed
immediately when the company disposes of assets and makes a gain. In contrast, in the
case of a similar company resident in the UK, tax was charged only in the event of the
distribution of the gains to participators or when they disposed of their shares.
The decision clearly articulated the Cadbury Schweppes principle that to be justified, a
restriction must target arrangements which lack economic reality and concluded that the
legislation went beyond what was necessary to target wholly artificial arrangements
entered into for tax reasons alone.
Third-country implications
The Court’s decision makes no reference to the application of the decision to third
country company situations (where the non-resident company is not an EU or EEA
national). These may be subject to the Article 64 standstill provisions which would
grandfather s13 in certain situations to the extent it was in force 1 January 1993.
However, CJEU case law suggests the grandfathering is unlikely to apply to nondomiciled individuals who only came into s13 in 2008.
Disposals made on or after 6 April 2012
FA 2013 amended the legislation for disposals on or after 6 April 2012 so that the
threshold for the application of the section to a participator is raised to more than 25%.
This is important since part of the intention of the rise in threshold to more than 25%
may have been to make Freedom of Establishment the more relevant freedom, as
opposed to the Free Movement of Capital.
FA 2013 also introduced “significant economic activity” and commercial justification
exclusions applicable in relation to disposals on or after 6 April 2012. Unless the
definition in the “significant economic activity” test which refers to the “provision by the
company of goods and services” is broad enough to include all commercial business
activities, then section 13 may still fail to be fully compatible with EU law and anyway
would only apply where there are ”wholly artificial arrangements”.
PwC EU Tax News
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Given the above, we recommend that individuals, companies or trusts that have paid UK
tax under section 13 in the past under the pre FA 2013 regime should review these
payments, and, if in time, should seek to reclaim the amounts paid. Consideration
should also be given to section 13 tax paid on disposals by EU/EEA non-UK resident
companies on or after 6 April 2012.
-- Peter Cussons and Chloe Paterson, PwC United Kingdom; [email protected]
Back to top
National Developments
Italy – Introduction of a patent box regime
The Italian Government has introduced a patent box regime. The regime has been
designed in light of the guidelines set forth by the OECD in Action 5 of the BEPS project.
Although the first version (as included in the Budget Law for 2015, Law no. 190 of 23
December 2014) was fully compliant with the said OECD guidelines, the changes
recently made via the Law-Decree no.3 of January 24, depart from them in some aspects.
Under the patent box regime taxpayers may opt to benefit from a 50% exemption
(reduced to 30% and 40% for the fiscal years 2015 and 2016) on the income realised
through the use of any patent, trade mark, design and prototype, formula, process, or
information concerning industrial, commercial or scientific experience. After the
changes per January 2015, marketing-related IP rights are included in the regime
(contrary to the suggestion of the OECD). The exemption is relevant to both
personal/corporate income tax (IRPEF and IRES) and to the regional income tax
(IRAP). The option for the regime lasts 5 years.
Italian permanent establishments of non-resident taxpayers may opt for the exemption
provided that they are resident in a State that signed a tax treaty with Italy, which treaty
provides for an effective exchange of information.
If the taxpayer uses the IP directly, the benefits are made conditional to a ruling
agreement with the Italian Tax Authorities which, on a preemptive basis, defines how to
compute the income that will benefit from the exemption. Since the changes per January
2015, an APA procedure is no longer compulsory if the exempted income is (partly) the
result of intercompany transactions
In addition, the regime provides that the capital gains realised upon the disposal of the
relevant IPs shall benefit from a full exemption provided that 90% of the selling price is
invested for the maintenance or the development of other IPs within a period of two
years from the disposal. To benefit from this further exemption a ruling agreement is
needed.
PwC EU Tax News
8
In order to implement the nexus approach as developed by the OECD, the legislation
establishes that the quota of income that may benefit from the exemption is equal to the
ratio between the R&D costs incurred for the development and maintenance of the IP
and the total amount of costs incurred in order to develop the IP.
The proposed changes per January 2015 are to be confirmed within 60 days by the
Italian Parliament. Further ministerial decrees are expected in order to complete the
legislation at stake.
-- Claudio Valz and Gabriele Colombaioni, Italy; [email protected]
Italy – New tax credit regime for R&D expenditure
The budget law for 2015 (Law no. 190 of 23 December 2014) introduced a new tax credit
regime which grants a tax credit equal to 25% of the increase in the amount of R&D
expenses, incurred in each year in the period 2015-2019, measured with respect to the
average R&D expenditures occurred in the period 2012-2014. The maximum amount of
tax credit that a taxpayer may obtain in each fiscal year is Euro 5 m. The tax credit is
awarded only if the taxpayer has incurred in the fiscal year a minimum of 30.000 Euro
of R&D expenditure.
The expenditure to be taken into consideration comprises: trained personnel; R&D
contracts signed with universities, research entities and other companies; assets used in
the R&D activity. With reference to the first two kinds of expenditure the rate of the
credit is equal to 50% (instead of 25%).
The R&D activities that qualify for the regime are, for example, those relevant to: the
realization of new products, processes or services for industrial purposes; the utilization
of scientific knowledge in order to produce new products or prototypes.
In order to obtain the tax credit, all the expenses that qualify for the regime have to be
reported in an audited balance sheet.
The measures at hand are quite similar to those provided under the Law 296/2006 that
were scrutinized by the EU Commission (see decision 11.12.2007, C(2007) 6042 def) and
found to be outside the scope of Article 107 (1) TFEU.
-- Claudio Valz and Gabriele Colombaioni, Italy; [email protected]
Italy – New provisions relevant to pension funds and non-commercial
entities
The budget Law for 2015 (Law no. 190 of 23 December 2014) introduced new provisions
relevant to pension funds and non-commercial entities that may impact the position of
non-resident taxpayers that wish to file refund claims in Italy for withholding tax
suffered on dividends.
As regards pension funds, the new legislation increases the rate of the substitute tax
applied to Italian pension funds. It is provided that the rate shall increase from 11% to
20% starting from fiscal year 2015. The new legislation does not change the tax rate of
PwC EU Tax News
9
the withholding tax to be applied on outbound dividends paid to EU/EEA pension funds
which is still 11%.
As regards non-commercial entities, the new legislation reduces the rate of the dividend
exemption applicable to Italian non-commercial entities. In particular, dividends
distributed as from January 1 2014, the exemption is reduced from 95% to 22,26%. For
fiscal year 2014, the legislation has provided a tax credit regime to neutralize the effect of
the increase; therefore, the latter will fully enter into force only as from 2015. No change
is provided as regards dividends distributed to non-resident non-commercial entities
(e.g. charities, foundations, etc.) which are still subject to the 26% (or the treaty
withholding tax rate if applicable) or the 1,375%, depending on the actual case.
Both the changes may impact the discrimination suffered by non-resident pension
funds/non-resident non-commercial entities on dividends received from Italian
companies because in some cases non-resident are now treated better than the Italian
comparable.
-- Claudio Valz and Gabriele Colombaioni, Italy; [email protected]
Netherlands – New decree amends collective decree regarding fiscal unity
Decree no. BLKB2014/2137M of 16 December 2014 amends decree no.
DGB2010/4620M of 14 December 2010, and contains an approval in anticipation of
forthcoming Dutch legislation as a result of which requests to form a fiscal unity can be
approved between sister entities that are held by a holding company in another EU
Member State, or between a parent company and a sub-subsidiary that is held by an
intermediary holding company in another Member State of the EU.
This amendment is the Dutch response to the SCA case (Joined Cases C-39/13, C-40/13
en C-41/13) in which the CJEU ruled that the Dutch fiscal unity regime, which does
allow a fiscal unity between a parent company that is resident in the Netherlands and
subsidiaries and sub-subsidiaries that are also residents in the Netherlands, but does not
allow a fiscal unity between such a parent company if its resident sub-subsidiaries are
held through a subsidiary that is resident in another Member State, is in breach of EU
law. Furthermore, the CJEU ruled that fiscal unities should be possible between Dutch
sister entities that are held by a holding company in another EU Member State.
The approving Decree now makes such fiscal unities possible, but contains several
requirements that seem to be in breach of EU law (again), such as the requirement that
the foreign parent company / intermediate holding company should be subject to tax in
an EU/EEA Member State “without the possibility of an option or of being exempt”.
-Robin
Hiemstra
and
Frederik
Boulogne,
PwC
Netherlands;
[email protected]
Netherlands – Scheme for qualifying non-resident taxpayer status as from 1
January 2015
A non-resident filing his/her 2014 personal income tax return in the Netherlands (in
2015) can opt to be treated as a resident taxpayer. If he/she does so, he/she will be
PwC EU Tax News
10
entitled to the same deductible items and tax credits as residents of the Netherlands
(personal allowances). This will change as from 2015, with a taxpayer no longer having
to opt for resident treatment. Instead, these personal allowances become available
through qualification. No transitional arrangement will apply.
As from 2015, a taxpayer is a qualified non-resident taxpayer if he/she lives in an
EU/EEA Member State, Switzerland, Bonaire, Sint Eustatius or Saba, and pays tax in the
Netherlands on more than 90% of his worldwide income. In that case, he is entitled to
the same deductible items, tax credits and tax-free allowance as residents of the
Netherlands.
-Robin
Hiemstra
and
[email protected]
Frederik
Boulogne,
PwC
Netherlands;
Sweden – Swedish interest deduction limitations under fire from the
European Commission
On 26 November 2014 the Commission sent a formal notice (C(2014) 8699 final) in case
number 2013/4206) to the Swedish government. The Commission's view is that the 2013
Swedish interest deduction limitations constitute a de facto restriction of the freedom of
establishment when loans are provided from a related company within the EU or in the
EEA. The Commission referred to CJEU case law (C-294/97, Eurowings and C-385/12,
Hervis), noting that loans from related Swedish commercial companies will almost
always be deductible, while the deductibility could always be challenged when the loan is
provied from a related foreign lender.
The Swedish rules are justifiable in order to combat abuse and to safeguard the balanced
allocation of taxing powers, but the rules are too far-reaching and are thus not
proportionate. Not only wholly artificial arrangements will fall under the scope of the
legislation, and a deduction could be denied even if there are some business reasons
behind the loan arrangements. A deduction could also be denied completely even though
the terms of the loan correspond to what would have been agreed betweeen unrelated
parties. The Commission concludes that this is not in line with CJEU case law (C524/04, Thin Cap). The Commission's view is also that the rules are to vague to pass the
CJEU's legal certainty test (C-318/10, SIAT and C-282/12 Itelcar). In this respect, the
Commission notes that during the Swedish legislative process, three judges from the two
Swedish Supreme Courts unanimously concluded that the rules were too difficult to
apply even for the Swedish Tax Agency. This raises serious concerns about how difficult
it would be to assess the rules for the taxpayers, according to the Commission.
The rules are therefore in conflict with the freedom of establishment within the EU and
EEA. The Commission urged the Swedish government to comment on the notice within
two months, and reserved the right to issue a reasoned opinion if the Swedish response
is not satisfactory.
On 23 December 2014 the Swedish Supreme Administrative Court (SAC) handed down
its two first decisions (case numbers 2674-14 and 4217-14) concerning these rules. The
cases were advance ruling requests from two companies, but the SAC refused to respond
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11
to the companies’ questions, saying that the rules are not suitable to be assessed within
an advance ruling procedure. The SAC noted that applying the rules require complete
knowledge of all relevant circumstances and that an advance ruling procedure is illsuited for such an investigative analysis. The decisions mean that taxpayers in most
cases will be left with the normal tax assessment and court litigation. The Commission
will probably have difficulties seeing the SAC decisions as anything else than support for
the Commission view regarding legal certainty issues.
-Fredrik
Ohlsson
and
Gunnar
Andersson,
PwC
Sweden;
[email protected]
Sweden – Update on Fokus Bank claims
In the last couple of years, PwC Sweden has assisted lots of foreign investment funds,
pension funds, insurance companies and other investors in filing of Fokus Bank type
withholding tax refund claims based on CJEU non-discrimination jurisprudence. A large
number of investment fund claims have been successful under our appeals and full,
multi-million refunds have been granted. Certain contractual funds have also been
successful in the reclaims on formal merits. Currently third-country cases as well as
interest matters on refunds are pursued in the courts. The Swedish litigations regarding
reclaims for pension funds have hitherto not resulted in any refunds but the Supreme
Administrative Court has now granted trial dispensation in one of these cases and
recently also referred the case to the CJEU (C-252/14), where it is still pending.
-Angelica
Eksander
and
[email protected]
Gunnar
Andersson,
PwC
Sweden;
EU Developments
EU – Code of Conduct Group (Business Taxation) 6-monthly progress report
to the ECOFIN Council
The Italian EU Presidency’s Code of Conduct Group (Business Taxation) 6-monthly
progress report to the Council was finalised on 11 December 2014:
On patent boxes:
Following all discussions in the OECD Forum on Harmful Tax Practices (FHTP), a
compromise regarding the modified nexus approach was endorsed by the Code Group on
20 November 2014. The Code Group agreed that all the EU patent box regimes that had
been subject to examination by the Group are not compatible with the modified nexus
approach as adapted by the compromise. As a consequence, these EU patent boxes
should therefore be changed in line with the compromise. The Group agreed that the
legislative process necessary to give effect to that change and the related monitoring by
the Code of Conduct Group should commence in 2015.
ANNEX 1 of the progress report contains: Compromise on Modified Nexus Approach
for IP regimes
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ANNEX 2 contains: Guidance on Hybrid Entity Mismatches Concerning Two Member
States
ANNEX 3 contains: Explanatory notes on the guidance on Hybrid Entity Mismatches
Concerning Two Member States
The UK-German proposal forms the basis of continuing work by the FHTP to determine
how the approach will work in practice. As part of the agreement, countries with existing
IP regimes must agree to close these to new entrants by 30 June 2016 and will abolish
them by 30 June 2021, after which all countries will be required to operate only nexuscompliant regimes. The legislative process to introduce changes to existing IP regimes so
that continuing IP regimes conform to the re-modified nexus approach will also begin in
2015.
The Netherlands has made a reservation regarding the scope of IP assets qualifying for
tax benefits under an IP regime in respect of the compromise regarding the modified
nexus approach.
-- Bob van der Made, PwC Netherlands; [email protected]
EU – ECOFIN Council Conclusions of 9 December 2014
EU Directive adopted on mandatory automatic exchange of information in
the field of taxation
The ECOFIN Council adopted an amending Directive that extends the scope for the
automatic exchange of information and that brings interest, dividends, gross proceeds
from the sale of financial assets and other income, as well as account balances, within
the scope of the automatic exchange of information. It accordingly revises Directive
2011/16/EU on administrative cooperation in the field of direct taxation.
Pier Carlo Padoan, minister of economy and finance of Italy and president of the Council
said: "It marks the end of banking secrecy in the European Union. We, EU member
states, are leading by example in the international arena".
EU Member States will start exchanging information automatically under the revised
Directive for the first time by the end of September 2017, along with other OECD "earlier
adopters". Austria announced that it will join the other Member States in doing so by the
same date.
The Commission presented its proposal in June 2013. Work on the text proceeded in
parallel to the development within the OECD of a single global standard for the
automatic exchange of information. The OECD Council published the new global
standard, the "common reporting standard", in July 2014. By adopting the revised
directive, the EU underscores the importance of these developments by adapting its
internal legislation as appropriate.
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13
EU-28 political agreement on adding a binding GAAR clause to the EU
Parent-Subsidiary Directive
The Council approved an amendment in the form a binding GAAR / ”de minimis”antiabuse clause to the EU's Parent-Subsidiary Directive. The GAAR is aimed at preventing
misuses of the Directive and ensuring a greater consistency in its application in different
EU Member States. It requires EU governments to refrain from granting the benefits of
the Directive to an arrangement, or a series of arrangements, that are not "genuine" and
have been put in place to obtain a tax advantage, while not reflecting economic reality.
The amending Directive will be adopted at the next ECOFIN Council in January 2015
without further discussion. The Parent-Subsidiary Directive (2011/96/EU), adopted in
November 2011, is intended to ensure that profits made by cross-border groups are not
taxed twice, and that such groups are thereby not put at a disadvantage compared to
domestic groups. It requires member states to exempt from taxation profits received by
parent companies from their subsidiaries in other Member States. The Commission
proposed to amend the Directive with the twofold objective of tackling hybrid loan
mismatches and introducing a GAAR in November 2013. In May 2014, the Council
agreed to split the proposal and to address the two issues separately. In July 2014, it
adopted as a first step provisions to prevent the use of hybrid loan arrangements so as to
benefit from double non-taxation under the Directive. EU Member States will have until
31 December 2015 to transpose the second amendment of the Directive by introducing
an anti-abuse rule into national law. The same deadline applies for transposition of the
amendments to tackle hybrid loan mismatches.
On the Code of Conduct Group (Business Taxation), the Council:
- welcomes the progress achieved by the Code of Conduct Group during the Italian
Presidency as set out in its report (see newsletter item above);
- asks the Code Group to continue monitoring standstill and the implementation of the
rollback as well as its work under the Work Package 2011;
- invites the Commission to resume the dialogue with Liechtenstein on harmful tax
regimes;
- invites the Group to continue its consideration of the draft guidance on Hybrid PEs;
- takes note of the agreement reached on the interpretation of the third criterion of the
Code Group with regard to patent boxes as contained in the existing mandate;
- emphasises the need to start already in 2015 the legislative process necessary to
change the patent box regimes and asks the Code Group to monitor this process;
- invites the Code Group to report back on its work to the Council by the end of the
Latvian Presidency.
Proposal for a new EU-wide anti-BEPS Directive
The Council took note of a request to the European Commission in the form of a joint
letter letter by France, Germany and Italy for a comprehensive legislative proposal
against corporate tax base erosion and profit shifting. Click here for the reply to this
letter by EU Tax Commissioner Pierre Moscovici.
-- Bob van der Made, PwC Netherlands; [email protected]
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EU – European Commission presents 2015 Work Programme
The European Commission presented its 2015 Work Programme in the European
Parliament in Strasbourg on 16 December 2014. In the annex to its Work Programme,
the Commission presents 23 new initiatives (link) under the banner: “A new Start”. Two
proposals relate to EU efforts to combat tax evasion and tax fraud and “fairer taxation”.
In particular, they are proposed measures at EU level in order to move to a system on the
basis of which the country where profits are generated is also the country of taxation (in
line with the OECD/G20 BEPS initiative), including automatic exchange of information
on tax rulings and “stabilising corporate tax bases” (i.e. relaunching (parts of) the
CCCTB proposal).
-- Bob van der Made, PwC Netherlands; [email protected]
EU – European Commission presents annual Economic Governance
package (European Semester), including Annual Growth Survey 2015
On 28 November 2014, the European Commission presented the Autumn 2014
Economic Governance package to kick off the new European Semester in December. The
Annual Growth Survey sets out general economic and social priorities for the EU for the
coming year. In the survey, the Commission recommends "pursuing an economic and
social policy based on three main pillars: (1) a boost to investment, (2) a renewed
commitment to structural reforms, and (3) the pursuit of fiscal responsibility". The Alert
Mechanism Report provides a screening of all 28 EU economies for potential economic
risks, providing an early warning on imbalances such as housing booms or banking
crises. It indicates which countries warrant an in-depth review of their economies.
Memo. The Commission also published a review of various pieces of legislation that
make up the "Six Pack" and the "Two Pack". The Commission says that while the
legislation has significantly strengthened the EU’s economic governance framework, the
review reveals areas for further improvement on transparency and complexity of policy
making, and their impact on growth, imbalances and convergence. Finally, the
Commission published its opinions on euro area countries' Draft Budgetary Plans for
2015, which give an early signal on whether the underlying national budgets are in line
with the obligations under the Stability and Growth Pact. Details.
The European Commission also published a Fact Sheet: “The EU's Economic
Governance explained”.
-- Bob van der Made, PwC Netherlands; [email protected]
Fiscal State Aid
EU – European Commission extends information enquiry on tax rulings
practice to all EU-28 Member States
On 17 December 2014, the European Commission announced that it had enlarged the
enquiry into the tax ruling practice under EU State Aid rules to cover all EU Member
States, instead of just Ireland, Luxembourg and The Netherlands. The Commission will
ask all EU Member States to provide information about their tax ruling practice, in
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particular to confirm whether they provide tax rulings, and, if they do, send a list of all
companies that have received a tax ruling from 2010 to 2013.
EU Competition Commissioner Margrethe Vestager: "We need a full picture of the tax
rulings practices in the EU to identify if and where competition in the Single Market is
being distorted through selective tax advantages. We will use the information received
in today's enquiry as well as the knowledge gained from our ongoing investigations to
combat tax avoidance and fight for fair tax competition."
Since June 2013, the Commission has been investigating under State Aid rules the tax
ruling practice of seven Member States. The Commission has requested an overview of
tax rulings provided by six Member States (Cyprus, Ireland, Luxembourg, Malta, The
Netherlands and the UK). The Commission has also requested information from
Belgium including on certain specific tax rulings. Furthermore, the Commission has also
requested information about IP regimes / patent boxes, from the ten EU Member States
with such a regime (Belgium, Cyprus, France, Hungary, Luxembourg, Malta, the
Netherlands, Portugal, Spain, and United Kingdom).
Following the Commission’s announcement, Luxembour was quick to abandon its EU
court challenge against the Commission’s information injunction. Luxembourg sued the
Commission in April 2014, refusing to hand over the files in what it called a “speculative
request for information.”
Netherlands – European Commission explains State Aid investigation in the
Netherlands (STARBUCKS)
On 14 November 2014 the European Commission published its opening decision in the
formal investigation into transfer pricing agreements between Starbucks and the Dutch
tax authorities. The Commission had already communicated this investigation through a
press release issued on 11 June 2014. The current decision explains the reason for this
investigation, and specifies the additional information which the Commission has
requested from The Netherlands. This decision does not yet provide the outcome of the
Commission's ongoing, formal investigation in this matter.
The formal investigation pertains to the use of a tax ruling concluded in 2001 on the
application of transfer pricing rules to a Dutch Starbucks entity, Starbucks
Manufacturing BV (‘SMBV’). Under Article 8b of the Dutch Corporate Income Tax Act of
1969, such agreements need to be ‘at arm’s length’. The Commission holds the view that
this agreement between Starbucks and the Dutch tax authorities may not reflect a price
which corresponds with the 'at arm's length' standard. The Commission refers to the
standards set by the OECD's Transfer Pricing Guidelines.
The Commission expresses three key areas of concern:

Firstly, the Commission has doubts over the qualification of SMBV as a "low risk
toll manufacturer" and it cites a number of factual arguments for this position, e.g.
as to why the inventories of SMBV cannot be regarded as being on consignment.
PwC EU Tax News
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
Secondly, the Commission questions two adjustments which were made to the
SMBV agreement in 2002 and 2004. The Commission holds the view that specific
elements of these adjustments are not in line with the OECD Guidelines and could
also not be observed on the market.

Thirdly, the Commission has doubts about the manner in which the amount of
royalties paid by SMBV is calculated, on the grounds that this amount may be
exaggerated in light of the IP in question.
Transfer pricing and EU Law
The Commission asserts that “if the method of taxation for intra-group transfers does
not comply with the arm’s length principle, and leads to a taxable base inferior to the one
which would result from the correct implementation of that principle, it provides a
selective advantage to the company concerned.” Whilst this is not the first time that the
Commission has targeted transfer pricing arrangements, the Commission’s current view
is likely to prove controversial. If this position is confirmed in the final decisions in these
cases, further litigation before the EU’s Courts is likely.
Spain – Two EU General Court decisions on the Spanish financial goodwill
amortisation regime
In two Decisions delivered on 7 November 2014 (T-219/10 Autogrill v Commission, and
T-399/11 Banco Santander and Santusa v Commission), the General Court of the EU
annulled two previous European Commission Decisions that had considered the Spanish
financial goodwill amortisation regime to constitute State Aid incompatible with the
internal market
In 2009, in a first decision (“First Decision”), the Commission found that the Spanish
rules allowing companies to amortise for tax purposes the financial goodwill arising from
acquisitions of non-Spanish EU shareholdings were incompatible with EU State Aid
rules.
In a second decision (“Second Decision”) dated January 2011, the Commission also
concluded that the scheme was incompatible with regard to acquisitions of non-EU
shareholdings.
The Commission thereupon ordered the recovery of the illegal aid, but, taking into
account the existence of legitimate expectations, the recovery only affected the aid
granted in connection with acquisitions made post 21 December 2007 (or even 21 May
2011, in the case of some non-EU acquisitions).
The two cases decided refer to the actions for partial annulment brought forward by
Autogrill España S.A. and Banco Santander, S.A./Santusa Holding S.L. against the First
and Second Decisions, respectively.
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Referring to previous case law, the General Court states that, in order to determine if a
tax measure is selective, it is necessary to examine –having regard to the relevant
reference framework- whether such measure constitutes an advantage for certain
undertakings in comparison with others which are in a comparable legal and factual
situation.
The Court holds that the fact that a tax measure constitutes an exception to the reference
framework is not sufficient to consider the measure to be selective, particularly when
such measure is potentially accessible to all undertakings. Similarly, even if benefiting
from a tax measure requires the fulfilment of certain conditions (as it was the case of the
Spanish financial goodwill regime), this does not suffice to make the tax measure
selective a priori. In order for a tax measure to constitute aid, it is necessary to identify a
particular category of undertakings which can be differentiated from the rest, based on
their specific characteristics.
Lastly, the Court states that the fact that the Spanish regime allegedly favoured the
competitive position of Spanish undertakings, thus affecting trade between Member
States, is of no relevance for purposes of the selectivity analysis. The effects on trade
must be assessed by reference to undertakings in different Member States (i.e. between
Member States) but selectivity can only stem from a difference in treatment of
undertakings within the relevant State (i.e. within Member States).
The General Court concludes that the Commission has failed to demonstrate that the
Spanish measure was selective and annuls articles 1.1 (declaration of aid) and 4 (recovery
order) of the First and Second Decision. The Commission may now file an appeal with
the CJEU.
Implications
A “Third Decision” by the Commission dated 15 October 2014, dealt with the application
of the Spanish financial goodwill regime to indirect shareholdings (see EUDTG
Newsalert of 16 October 2014). The General Court’s annulment decisions will arguably
have a knock-on effect to the extent that the legal basis and selectivity analysis were
virtually identical in all three Commission decisions.
Note
The Commission has now lodged an appeal to the CJEU regarding the General Court
annulment decisions.
-- Carlos Concha, PwC Spain; [email protected]
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About the EUDTG
The EUDTG is PwC’s pan-European network of EU law experts. We specialise in
all areas of direct tax: the fundamental freedoms, EU directives, fiscal State Aid
rules, and all the rest. You will be only too well aware that EU direct tax law is
moving quickly, and it’s difficult to keep up. But, this provides plenty of
opportunities to taxpayers with an EU or EEA presence.
So how do we help you?
● Through our Technical Committee we constantly develop new and innovative
EU Law positions and solutions for practical application by clients.
● We combine EU Law expertise and the specific industry knowledge in our
Financial Services and Real Estate sector networks.
● We have set up client-facing expert working groups to address specific key
topics such as EU State Aid & BEPS and CCCTB.
● We monitor the EU law debate, policy & politics, on the ground in Brussels.
● We report on and help input into the international tax debate by maintaining
regular contact with key EU and OECD policy-makers through “EBIT”, the
PwC-facilitated client EU business advocacy initiative (www.pwc.com/ebit).
● Daily EU tax news from the EU/EEA serviced by our centralised EUDTG
secretariat in Amsterdam.
And what specific experience can we offer for instance?
● We have assisted clients before the CJEU and the EFTA Court in a number of
high-profile cases such as Marks & Spencer (C-446/03), Aberdeen (C303/07), X Holding BV (C-337/08), Gielen (C-440/08), X NV (C-498/10), A
Oy (C-123/11), Arcade Drilling (E-15/11) and SCA Group Holding (C-39/13).
● Together with our Financial Services colleagues, we have assisted foreign
pension funds, insurance companies and investment funds with their
dividend withholding tax refund claims.
● We have carried out a number of tax studies for the European Commission.
More information
Please check out our website www.pwc.com/eudtg. or contact the EUDTG’s
Network Driver Bob van der Made (Telephone: +31 6 130 96 296, E-mail:
[email protected]; or one of the contacts listed on the next page.
PwC EU Tax News
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EUDTG KEY CONTACTS:
Chair:
Stef van Weeghel
[email protected]
Co-Chair
Chair State Aid WG,
Member EU Law Technical Committee:
Sjoerd Douma
[email protected]
Network Driver, EU Public Affairs
Brussels, Member State Aid WG, CCCTB
WG, EU Law Technical Committee:
Bob van der Made
[email protected]
Chair EU Law Technical Committee:
Juergen Luedicke
[email protected]
Chair of CCCTB WG, Member EU Law
Technical Committee and State Aid WG:
Peter Cussons
[email protected]
Chair of FS-EUDTG WG:
Patrice Delacroix
[email protected]
Chair of Real Estate-EUDTG WG:
Jeroen Elink Schuurman
[email protected]
EUDTG COUNTRY LEADERS:
Austria
Belgium
Bulgaria
Croatia
Cyprus
Czech Rep.
Denmark
Estonia
Finland
France
Germany
Gibraltar
Greece
Hungary
Iceland
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Norway
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
Switzerland
UK
Richard Jerabek
Patrice Delacroix
Krasimir Merdzhov
Lana Brlek
Marios Andreou
Peter Chrenko
Soren Jesper Hansen
Iren Koplimets
Jarno Laaksonen
Emmanuel Raingeard
Juergen Luedicke
Edgar Lavarello
Vassilios Vizas
Gergely Júhasz
Fridgeir Sigurdsson
Carmel O’Connor
Claudio Valz
Zlata Elksnina
Kristina Krisciunaite
Ilaria Palieri
Edward Attard
Sjoerd Douma
Steinar Hareide
Camiel van der Meij
Leendert Verschoor
Mihaela Mitroi
Todd Bradshaw
Nana Sumrada
Carlos Concha
Gunnar Andersson
Armin Marti
Peter Cussons
PwC EU Tax News
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