EU Tax News Issue 2013 – nr. 006 September – October 2013

EU Tax News
Issue 2013 – nr. 006
September – October 2013
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 EU Cases
Czech Republic
Germany
Netherlands
Portugal
United Kingdom
CJEU judgment on exchange of information between Member
States: Sabou case
CJEU judgment on inheritance allowance for Swiss residents:
Welte case
CJEU referral on tax exemption for Dutch monuments
CJEU judgment on former thin capitalization rules
AG opinion on consortium relief: Felixstowe Dock
National Developments
Finland
Germany
Ireland
Netherlands
Netherlands
United Kingdom
Supreme Administrative Court decision on cross-border merger
and final losses
Lower Fiscal Court judgment on depreciation of real estate
Budget speech on foreign direct investment
No step-down for taxpayer upon immigration
Dutch draft Decree issued re new substance requirements for
conduit companies
High Court decision on taxation of foreign portfolio dividends
EU Developments
EU
EU
PwC EU Tax News
Code of Conduct Group developments
Code of Conduct Group challenge to UK patent box regime
1
EU
Commission Decision setting up High Level Expert Group on
Taxation of the Digital Economy
State aid
Finland
PwC EU Tax News
Supreme Administrative Court decision on possible state aid
relating to loss carry forward regime: P Oy
2
Court of Justice of the European Union (CJEU) Cases
Czech Republic – CJEU judgment on mutual exchange of information
between Member States: Sabou case
On 22 October 2013, the CJEU issued its judgment in Sabou (C-276/12) regarding the
interpretation of Council Directive 77/799/EEC concerning mutual assistance by the
competent authorities of the Member States in the field of direct taxation (Mutual
Assistance Directive). In the case at hand, a Czech football player, Mr. Sabou, claimed to
have incurred expenses in several Member States. The Czech tax authorities (CTA) sent
requests to these States on the basis of the Mutual Assistance Directive (hereafter:
“Directive”) in order to verify the aforementioned expenses.
The CTA issued a tax assessment which was challenged by Mr. Sabou claiming that the
CTA had obtained the information illegally because he was not informed about the
request for assistance and did not take part in the examination of witnesses. The national
court asked the CJEU for a preliminary ruling on:

The taxpayer’s right to be informed about an information request to another
Member State;

The taxpayer’s right to take part in the examination of witnesses; and

The taxpayer’s right to challenge the correctness of the information provided by
other Member States.
The CJEU considered that the Directive imposes certain obligations on Member States.
However it does not confer specific rights on taxpayers. The CJEU concluded that the
right of defence of the taxpayer does not impose the obligation to inform the taxpayer
about the request for assistance to other Member States, or to invite him to take part in
the examination of witnesses. The CJEU reasoned that the Directive does not impose any
particular obligation with regard to the content or accuracy of the information conveyed.
Consequently, the taxpayer may challenge the information conveyed to the tax authorities
of the requesting Member State.
In our view this is a landmark judgment as it reflects the interaction between EU Law and
tax controversy matters in the current environment where the EU and the OECD are
revisiting the measures to be taken in order to enhance cooperation between States.
-- Celso Cañizares, Carlos Concha
[email protected]
and
Antonio
Puentes,
PwC
Spain;
Germany – CJEU judgment on inheritance allowance for Swiss residents:
Welte case
On 17 October 2013, the CJEU ruled in Yvon Welte v. Finanzamant Velbert (C-181/12)
that a German inheritance tax provision according to which the tax allowance for nonresidents is smaller than that for residents is in breach of the free movement of capital
PwC EU Tax News
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(Art. 63 TFEU). The CJEU confirmed AG Mengozzi’s opinion (see EU Tax News 2013 –
004).
After the death of his wife in 2009, a Swiss resident, Mr. Welte, inherited land located in
Germany as well as accounts with two German banks. As a non-resident, Mr. Welte was
granted an inheritance tax allowance of only EUR 2.000, while the tax allowance for
residents amounts to EUR 500.000.
In its 2010 judgment in Mattner (C-510/08), the CJEU decided that such differential
treatment constitutes a restriction of the free movement of capital in the case of a donee
who is resident in another Member State. The CJEU now ruled in Welte that the same
applies to the case of a heir being resident in a Third State (here: Switzerland). The
standstill clause of Article 64 TFEU does not apply as the inheritance of private
immovable property is unconnected with the exercise of an economic activity and, thus,
does not qualify as “direct investment – including in real estate”. The German inheritance
provision could neither be justified by the need to safeguard the cohesion of the tax
system, nor by the need to ensure the effectiveness of fiscal supervision.
As a reaction to the Mattner case, Germany did not change the tax allowance provision,
but now grants taxpayers who are resident in another EU/EEA Member State the
opportunity to opt for taxation as residents. The Commission takes the view that the new
rules are still in breach of EU Law and has started an infringement procedure against
Germany which is currently pending with the CJEU (C-211/13). It is yet unclear how
Germany will react to the Welte judgment.
-- Moritz Glahe and Juergen Luedicke, PwC Germany; [email protected]
Netherlands – CJEU referral on tax exemption for Dutch monuments
On 13 March 2013 the Dutch Council of State asked preliminary questions to the CJEU on
the application of the exemption from Dutch gift tax for estates.
The case concerns a Dutch resident owning an estate in the United Kingdom who wants
to grant the estate to her UK resident son. This donation would normally be subject to
Dutch gift tax. However, if the property concerns an estate as defined under the Dutch
Estates Act, no recovery would take place. The taxpayer argued that the estate should be
designated as an estate since it complied with all the requirements of the Estates Act,
except for being located in the Netherlands. The latter condition should not apply as it is
in breach of the free movement of capital (Article 63 TFEU).
The Council of State ruled that disallowing the estate to be designated as an estate under
the Estates Act is in breach of the free movement of capital. The Council stated that there
is case law of the CJEU regarding the protection of national, historical and artistic
property that may justify this breach however, the case law is not decisive on this matter.
Therefore the Council referred the case to the CJEU for preliminary questions (registered
under C-133/13). The case closely resembles another CJEU referral by the Dutch Supreme
Court on the application of a personal income tax deduction facility for monuments, only
PwC EU Tax News
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available for monuments situated in the Netherlands (C-87/13; see EU Tax News 2013 –
003). PwC is assisting the taxpayer in the latter case.
-Frederik
Boulogne
[email protected]
and
Onno
Heitling,
PwC
Netherlands;
Portugal – CJEU judgment on former thin capitalisation rules
On 3 October 2013, the CJEU ruled that former Portuguese thin capitalisation rules are in
breach of the free movement of capital by disallowing the deduction of interest on “excess
debt” payments of a Portuguese company towards a non-EU associated company, while
no such rule existed for a EU-based lending company (C-282/12).
The CJEU also ruled that because the rules applied to all associated enterprises, there was
an assumption that any indebtedness of the Portuguese entity formed part of an
arrangement aimed at avoiding the payment of tax. The CJEU ruled that these rules were
not proportionate and did not make it possible to determine their scope with sufficient
precision. Accordingly, they did not meet the requirements of legal certainty.
Under the former Portuguese thin cap rules, indebtedness of a Portuguese company
towards a lending entity was regarded as excessive in case the amount of debt exceeded
the participation in the share capital twice as much. As a consequence, the interest
corresponding to the amount of excessive indebtedness was not allowed as a tax
deductible expense. These rules applied when:
(i) the lending company was resident in a third country;
(ii) the lending company had a direct or indirect participation in the borrowing
company;
(iii) the debt was guaranteed or secured by an entity with which special relations
existed.
The rules did not apply if the Portuguese taxpayer was able to demonstrate that the same
level of indebtedness could be obtained from a third party, considering the business
sector, activity developed, size, and other relevant criteria (except if the lending entity was
resident in a tax haven).
Portuguese thin cap rules were revoked per 31 December 2012. Since 1 January 2013, net
financial expenses are disallowed as deductible for tax purposes if they exceed EUR 3
million or 30% of EBITDA (under a transitional period, the percentage is 70% in 2013
and shall be reduced by 10% on an yearly basis reaching 30% in 2017). This rule applies to
debt owed to entities resident in Portugal, Member States and third countries, and both in
case of intra-group or bank financing.
-Jorge
Figueiredo
and
[email protected]
PwC EU Tax News
Leendert
Verschoor,
PwC
Portugal;
5
United Kingdom – AG opinion on consortium relief: Felixstowe Dock
On 24 October 2013 AG Jaaskinen delivered his opinion in Felixstowe Dock (C-80/12).
The case concerns claims for consortium relief by various UK resident members of a
Hong Kong group from a UK resident surrendering company where:

the surrendering company was owned through a consortium of companies via a UK
resident intermediate holding company, and

the link company (being both a member of the consortium and a member of the
group of the claimant companies) was resident in Luxembourg.
At the relevant time, UK legislation only allowed the surrender of relief if the link
company was either UK resident or carrying on a trade in the UK through a permanent
establishment. This requirement has since been amended and consortium relief can also
be claimed via an EU/EEA link company unless there is a third country company higher
up in the ownership chain. In the UK First Tier Tribunal judgment iro Philips Electronics
UK (C-18/11), the UK FTT concluded that this former requirement is a breach of the
freedom of establishment (Article 49 TFEU) in relation to an EU headed group (see also
EU Tax News 2012 – 006). The Felixstowe case raises the same link company point in the
context of a non-EU parented group.
The AG concluded that the requirement that a link company is either a UK resident or
chargeable to UK corporation tax is an unlawful restriction of the freedom of
establishment, irrespective of the fact that there are third country companies in the
ownership chain. According to the AG, the freedom of establishment does not prevent
national legislation from requiring that the lowest common parent within the group of
companies to which the link company and the companies receiving the losses for tax
purposes belong are EU/EEA companies, and that the connections between the link
company and the companies receiving the tax losses consist solely of such companies.
The AG's opinion appears to overlook that under UK law a tax group is traceable via any
company with issued share capital, hence it is arguable that the new rules continue to
discriminate against EU/EEA link companies. Moreover, for EU/EEA headquartered
groups, it is arguable that the new rule discriminates not only against an EU/EEA link
company but also against its ultimate parent. There are also likely to be tax treaty nondiscrimination arguments based on the Court of Appeal decision of 17 October 2012 in
HMRC v FCE Bank Plc.
-- Peter Cussons and Chloe Paterson, PwC United Kingdom; [email protected]
National Developments
Finland – Supreme Administrative Court decision on cross-border merger
and final losses
On 4 October 2013, the Finnish Supreme Administrative Court (SAC) gave its final
decision in A Oy (C-123/11) concerning a Swedish company with tax losses that was
merged into its Finnish parent company. The activities of the Swedish company had
PwC EU Tax News
6
ceased to exist. In its decision, the CJEU upheld the Marks & Spencer doctrine but left
the important question of determining ‘final losses’ to the national court.
Concerning the determination of the 'final losses', the SAC noted that the CJEU had
stated that the calculation must not constitute unequal treatment compared with the
rules of calculation which would be applied if the merger were with a resident subsidiary.
In this respect, the SAC held that the above requirement would be best fulfilled when the
losses of the foreign subsidiary are calculated in accordance with the provisions of the
Finnish Business Income Tax Act. As regards whether the losses are in fact final, the SAC
merely stated that the only question in the proceedings has been to determine whether
the losses of a Swedish subsidiary could be taken into account in the taxation of the
Finnish parent company.
The Finnish procedure of case A Oy started in 2008 as an advance ruling application
made to the Finnish Central Tax Board. The negative ruling was appealed by the tax
payer to the SAC. The SAC now overruled the negative ruling made by the Central Tax
Board and stated that losses should be transferred for A Oy provided that they are final.
However, the SAC did not take a stand if in the case at hand the losses were in fact final.
Neither did the SAC provide any additional guidance on how to evaluate the concept. It
seems to be that the future tax practice will establishes the content of the concept ‘final
losses’.
-- Jarno Laaksonen, Heikki
[email protected]
Lajunen
and
Jaana
Mikkola,
PwC
Finland;
Germany – Lower Fiscal Court judgment on depreciation of real estate
By a judgment dated 10 July 2013 (10 K 2408/10), the Lower Fiscal Court of Cologne
decided that the annual depreciation rate for German real estate being lower for nonresident than for resident corporations constitutes a breach of the free movement of
capital (Article 63 TFEU).
A Luxembourg corporation directly held real estate located in Germany. According to
former German tax rules, the Luxembourg corporation received income from immovable
property instead of business income as it had no permanent establishment in Germany.
As a consequence, the Luxembourg corporation did not qualify for the higher
depreciation rate of 3%, so that the 2% standard rate applied. However, a resident
corporation directly holding real estate receives business income and qualifies for the 3%
rate.
The Lower Fiscal Court of Cologne referred to the CJEU’s judgment in Busley and
Cibrian (C-35/08) and decided that the lower depreciation rate for non-residents
constitutes an unjustifiable breach of the free movement of capital as the Luxembourg
corporation has at least a cash-flow disadvantage compared to a resident corporation. As
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7
a consequence, the Luxembourg corporation can apply the 3% depreciation rate. The
case is now pending with the Federal Fiscal Court (I R 58/13).
With effect from 2009 Germany has changed its tax rules. A non-resident corporation
directly holding German real estate now receives business income and, thus, also
qualifies for the 3% depreciation rate.
-- Moritz Glahe and Juergen Luedicke, PwC Germany; [email protected]
Ireland – Budget speech on foreign direct investment
In his Budget Statement on 15 October 2013, Irish Minister for Finance Noonan
announced the publication of a new International Tax Strategy statement, as well as
flagging changes in the forthcoming Finance Bill to deem Irish tax resident companies
which are incorporated in Ireland but not resident elsewhere.
Mr. Noonan’s Budget Speech on Foreign Direct Investment:
Ireland's corporate tax strategy has three key elements: rate, reputation and regime.
The tax rate is settled policy. We are 100% committed to the 12.5% corporation tax rate.
This will not change. But increasingly tax reputation is also a key factor in winning
mobile foreign direct investment. Over the last 12 months, the international rules for
taxing multi-national companies have been a focus for much debate across the globe.
Global challenges require global action. This is now happening through the OECD Base
Erosion and Profit Shifting project in which Ireland is playing an active part. Let me be
crystal clear. Ireland wants to be part of the solution to this global tax challenge, not part
of the problem. That is why today I am publishing a new international tax strategy
statement which sets out Ireland's objectives and commitments in relation to these
issues. I will also be bringing forward a change in the Finance Bill to ensure that Irish
registered companies cannot be ”stateless‟ in terms of their place of tax residency.
Countries are increasingly competing more and more aggressively for mobile foreign
direct investment. I want Ireland to play fair - as we have always done - and I want
Ireland to play to win. That is why I will continue to examine ways in which Ireland can
ensure that our corporate tax regime remains competitive.
-- Carmel O’Connor, PwC Ireland; [email protected]
Netherlands – No step-down for taxpayer upon immigration
On 27 September 2013 the Dutch Supreme Court delivered its judgment on the question
whether a step-down for a Belgian taxpayer transferring his residency to the Netherlands
was rightly applied (see EU Tax News 2013 – 004). Deviating from the judgment of the
Court of First Instance and the AG’s conclusion, the Supreme Court agreed with the
taxpayer and held that the “step-down” article should not apply.
PwC EU Tax News
8
The question before the Supreme Court was two-fold: Does Art. 16 of the Dutch Income
Tax Decree (ITD) apply in the case at hand and, if so, does it constitute a breach of EU
law. The case concerns a Belgian resident taxpayer owning two companies, one Dutch
BV and one Belgian BVBA. In 2004, the taxpayer sold his shares in the BV to the BVBA.
The price was partly paid in BVBA shares and partly remained indebted. Under the
Netherlands – Belgium tax treaty, the taxing right over this transfer was assigned to
Belgium. In 2006, the taxpayer moved his residency to the Netherlands. Upon
emigration the tax inspector valued the shares in BVBA on fair economic value. On the
basis of Article 16 ITD, the tax inspector applied a step-down by deducting the increase
in value of the shares in BV that had arisen until the moment of sale of these shares to
BVBA. The taxpayer argued that this step-down is in breach of the freedom of
establishment (Article 49 TFEU).
In the literature it was argued that Article 16 ITD was not applicable since the delegation
article, on which Article 16 ITD is based, did not apply to the case at hand. This had led
to a further opinion by the AG concluding that, although a strict reading of this
delegation article would indeed lead to the aforementioned conclusion, Article 16 ITD
nevertheless fell within the scope of the case at hand. The Supreme Court now disagreed
with the AG and judged that Article 16 ITD was not applicable. The more interesting
question whether Article 16 ITD is in breach of EU Law remains unanswered.
-Frederik
Boulogne
[email protected]
and
Onno
Heitling,
PwC
Netherlands;
Netherlands – Dutch draft Decree issued re new substance requirements for
conduit companies
On August 30, 2013, the Dutch minister for Foreign Trade and Development
Cooperation and the Deputy Minister of Finance submitted a letter to Parliament
explaining the position of the Netherlands following the recent Parliamentary debates on
international tax planning by multinational companies (“MNCs”). The letter also
announces unilateral measures to preclude unintended use of Dutch tax treaties.
The letter to Parliament announces the following measures:
1. Substance requirements for conduit companies
Minimum substance requirements will apply to all resident companies that receive
royalties and interest from foreign entities and pay royalties and interest to other foreign
entities. These requirements will be similar to those that have been in place for some
years already for conduit companies that applied for a tax ruling:

At least 50% of the members of the board of directors with decision taking
powers must be resident of the Netherlands;

The board members must be sufficiently competent and qualified to perform
their tasks;

The (most important) board decisions must be taken in the Netherlands;

The (main) bank account of the Dutch company is in the Netherlands;
PwC EU Tax News
9

The bookkeeping of the Dutch company must take place in the Netherlands;

The Dutch company must comply with all its tax obligations;

The Dutch company must have its registered address and office in the
Netherlands and is not treated as a tax resident of another country; and

The Dutch company must have a level of equity which fits with its functions.
The company must account for this substance on an annual basis in its corporate tax
return. If the minimum requirements are not met, the Dutch Tax Authorities will
exchange information with the source countries.
2. Exchange of information on Advance Pricing Agreements (“APAs”)
The Dutch Tax Authorities will proactively exchange information with foreign Tax
Authorities about the content of APAs concluded with Dutch resident conduit companies
that receive and pass on interest and royalties if the MNC does not undertake more
activities in the Netherlands than these conduit financing/licensing activities.
3. No Advance Tax Rulings (ATRs) and APAs for holding companies with insufficient
substance
For reasons of available human resource capacity, the Dutch ruling team will henceforth
only deal with ATR and APA requests of Dutch resident holding companies if there is
sufficient nexus in the Netherlands. The requirements for sufficient nexus will be similar
to the substance requirements for conduit companies mentioned above.
4. Anti-abuse measures in tax treaties with developing countries
The Dutch debate on international tax planning also addresses the fair treatment of
developing countries. To encourage fair treatment, The Netherlands will proactively
reach out to developing countries (e.g. various African countries are mentioned) to
propose the introduction of anti-abuse measures in the tax treaties concluded with these
countries. The Netherlands prefers clear Limitation-on-Benefits tests to general mainpurpose tests.
PwC observations
The Dutch government has taken a balanced approach by clearly stating its preference
for a coordinated multilateral approach whilst emphasising the importance of having
sufficient substance in the Netherlands for Dutch conduit entities. Although the
announced measures can be characterised as a measured response, we are nevertheless
disappointed that the Government takes these measures unilaterally.
We believe that MNCs with Dutch resident holding, financing or licensing companies
should review the substance level in the Netherlands, and if necessary, adjust to the new
requirements once these are published. We would expect that most of our clients already
meet these requirements today. These requirements are in line with PwC’s code of
conduct.
For
more
information
on
our
code
of
conduct,
see
http://www.pwc.com/gx/en/tax/global-tax-practice/code-of-conduct.jhtml.
-- Auke Lamers, PwC Netherlands; [email protected]
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10
United Kingdom – High Court decision on taxation of foreign portfolio
dividends
On 24 October 2013, the UK High Court delivered its decision in Prudential Assurance
Company v. HM Revenue & Customs[2013] EWCH 3249 (Ch). This is a test case in the
CFC & Dividend group litigation in which claimants are challenging the compatibility of
the UK's former rules on the taxation of portfolio dividends with EU Law.
The High Court decision concerns the UK taxation of dividends received from foreign
portfolio (less than 10% of voting power) investments and certain insurance company
specific tax issues. Prior to 1 July 2009, the relevant UK provisions treated such dividends
as taxable with credit only for foreign withholding tax. However, the High Court has now
held that such dividends should have been taxable with credit for underlying tax at the
higher of the nominal foreign statutory rate and extended underlying tax relief in addition
to credit for foreign withholding taxes (but overall limited to the amount of UK
corporation tax on the gross dividend). The decision applies not only to EU/EEA portfolio
dividends but also to third country (non-EU) portfolio dividends.
It is understood that this decision is being appealed and certain of the issues addressed,
for example limitation periods for claims, depend on the decision of the CJEU in the
Franked Investment Income group litigation. However, UK groups or sub-groups which
received foreign portfolio dividends prior to 1 July 2009 should now consider reclaiming
any excess UK corporation tax paid on those dividends. Groups with excess expenses, and
therefore wasted double tax relief, should consider whether they can get a more effective
remedy than carried forward excess unrelieved foreign tax. If a new High Court claim is to
be made, it must be made before 17 January 2014.
-- Peter Cussons and Chloe Paterson, PwC United Kingdom; [email protected]
Back to top
EU Developments
EU – Code of Conduct Group developments
The Code of Conduct Group met on 22 October 2013.
The agenda included:
1. Standstill:
a. UK: Isle of Man
b. Cyprus: Patent Box
c. Belgium: Patent Box
d. UK: Patent Box (see comments in the next item below)
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11
2. Rollback: UK: Gibraltar - Income Tax Act 2010
3. Monitoring Guidance on Inbound Profit Transfers
4. Anti – Abuse: Hybrid Entities and Hybrid PEs
5. Work Package 2011: Links to third countries - Switzerland
6. Any Other Business
The Sub-Group of the Code Group met on 11 October 2013.
The agenda included:
1. Draft Guidance on Hybrid Entity Mismatches involving two Member States
2. Preparation for draft Guidance on Intra-EU Hybrid permanent establishments.
NB: There are no meeting minutes of the Code meetings. The 6-monthly rotating EU
Presidency presents a progress report to ECOFIN at the end of their mandate.
-- Bob van der Made, PwC Netherlands; [email protected]
EU – Code of Conduct Group challenge to UK patent box regime
The European Commission has carried out a formal assessment of the UK patent box
regime at the request of the Code of Conduct Group on Business Taxation. The
Commission published its report in advance of a meeting of the Code of Conduct Group
held on 22 October 2013, finding that in their view the regime triggers two of the five
criteria for identifying potentially harmful preferential tax regimes:
The Commission's view is that fulfilment of the active management condition for
contract-R&D may not necessarily "involve real economic activities and a substantial
economic presence within the UK" for these purposes. The Commission is also of the
view that the calculation of profits subject to a lower level of tax is not in line with
internationally agreed principles. This is because income may qualify for the patent box
regime where there is a patent included in a product so that in some circumstances the
qualifying income is not confined to income attributable to relevant patents.
We understand that there was no consensus between the 28 Member States in the Code
of Conduct Group meeting. In the absence of consensus, the issue will be remitted to the
next Code Group meeting in November.
The issues raised are about the design of the patent box regime, and not about whether
the patent box regime should be removed. The UK Treasury and HMRC are confident
that the regime does not breach the Code of Conduct, but it is difficult to predict what
the outcome of the current challenge will be. If the Code of Conduct Group or ECOFIN
endorse the concept of patent/IP boxes then it is likely that the UK will make either no
modifications or only minor prospective modifications to the patent box regime.
Alternatively there may be deadlock at ECOFIN level, as the UK can veto on tax matters.
Note: we now understand that ECOFIN has remitted the issue back to the Code Group to
report back in June 2014 on the Code’s criterion 3/economic substance issue by the end
of the upcoming Greek Presidency of the EU, and has asked the Code Group to finalise
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its review to assess or consider all patent boxes in the EU, including those already
assessed or considered before, by the end of 2014 by the end of the Italian Presidency of
the EU.
-- Peter Cussons, Adrian Gregory and Diarmuid MacDougal PwC United Kingdom;
[email protected]
EU – Commission Decision setting up High Level Expert Group on Taxation
of the Digital Economy
On 22 October 2013 the European Commission aannounced it had adopted a Decision to
create a High Level Expert Group on Taxation of the Digital Economy. The expert group
will be comprised of up to 7 members, who will be internationally renowned experts on
the digital economy and on taxation. It will be chaired by a person of political profile
with relevant background on such issues. According to the Commission: "Given the pace
at which the digital economy is developing, rapid progress in developing a taxation
response is necessary. Therefore, the expert group should start its work before the end of
the year, and report back to the Commission in the first half of 2014. At the same time,
the EU will continue to contribute actively to the work underway at global level in this
sphere, within the context of the OECD's BEPS. The aim is to ensure a coherent and
complementary approach to digital taxation at EU and international level."
The tasks of the new expert group will be (per EC Decision C(2013) 7082):
a) to assist the Commission in the preparation of legislative proposals or other
policy initiatives;
b) to monitor the evolution of taxation policy related to the digital economy;
c) to bring about an exchange of experience and good practice in the field of taxing
the digital economy;
d) to contribute ideas for the taxation of the digital economy and review possible
alternative bases for taxation to those currently in place, taking into account the
specifics of the EU, but also taking into account developing global policy
responses;
e) to provide a comprehensive analysis of the relation between the operations of
companies active in the digital economy within the EU and their direct or
indirect contribution to the tax revenues of Member States, and of any
deficiencies in the adaptation of current international tax rules to the digital
economy;
f) to provide the Commission with a range of possible solutions to address the
most important issues identified during the analysis referred to in point
(e)stating the risks, possible consequences and economic and financial impact
for the EU of each of the solutions.
The expert group will provide a report to the Commission before 1 July 2014. The
Commission has said that, based on this expert group's report, it will develop any
necessary EU initiatives to improve the tax framework for the digital sector in Europe.
-- Bob van der Made, PwC Netherlands; [email protected]
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13
State aid
Finland – Supreme Administrative Court decision on possible state aid
relating to loss carry forward regime: P Oy
According to Section 122 of the Finnish Income Tax Act, carry forward tax losses are lost
if more than 50% of the shares in the company that has losses have changed ownership.
However, the tax authorities may in special circumstances, when it is vital for continuing
the business activities, grant permission to retain tax losses, regardless of the ownership
change. Finland had not notified the European Commission of the loss carry forward
regime which was already in force when Finland became a member of the EU.
On 18 July 2013 the CJEU concluded that the Finnish tax regime could be regarded as
selective within the meaning of article 107(1) TFEU (P Oy, C-6/12). However, it did not
have sufficient information on the Finnish tax regime at its disposal and left all
important issues open and to be clarified by Finnish Supreme Administrative Court
(SAC) (see EU Tax News 2013 – 005).
On 21 October 2013, the SAC gave its decision (KHO 2013:167) on the matter. The SAC
repeated the CJEU’s judgment in that the Finnish regime should be classified as ‘existing
aid’ (if it constitutes aid at all). Furthermore, when carrying out this classification, the
potential “amendments of the detailed arrangements for the implementation of the
regime” should be taken into account. According to the SAC, such amendments can take
place either through (i) legislation, (ii) interpretation guidelines or (iii) case law and tax
practice.
As regards point (i), the SAC noted that no amendments have taken place that would
have amended the detailed arrangements of Section 122 in the way that was discussed by
the CJEU. As regards point (ii), according to the SAC, the guidelines have first and
foremost been a way to unify the nationwide implementation practice and the guidelines
have not extended the scope of the regime. Finally, as regards point (iii), the SAC
concluded that the case law and tax practice regarding tax loss carry forwards has not
changed in a manner that would indicate the extension of the scope of the regime or that
the selectivity had increased during the time Finland has been a member of the EU.
In the light of the above, the SAC held that the state aid provisions do not prevent the
granting of a permission to retain the losses despite a change in ownership. The SAC
held that this is the case regardless of whether the Finnish regime, as such were to be
considered as state aid. Therefore, there is no need to evaluate whether the regime
fulfills the criteria for state aid.
Finally, the SAC held that the taxpayer had presented that there are special
circumstances within the meaning of Section 122 to carry forward the tax losses despite a
change in ownership.
PwC EU Tax News
14
The SAC basically established that it does not have competence to investigate the issues
relating to selectivity and justification. As the Finnish regime should in the view of the
SAC be regarded as existing aid, it is now up to the Commission to take action. In case
the Commission would initiate a process, it could request Finland to change legislation
regarding the regime for the future.
-- Jarno Laaksonen, Heikki
[email protected]
PwC EU Tax News
Lajunen
and
Jaana
Mikkola,
PwC
Finland;
15
EUDTG Newsletter editors: Peter Cussons, Onno Heitling, Bob van der
Made and Irma van Scheijndel.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional
advice. You should not act upon the information contained in this publication without obtaining specific professional advice.
No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in
this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability,
responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the
information contained in this publication or for any decision based on it.
© 2013 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of
member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms
of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm.
PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its
member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is
responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member
firm’s professional judgment or bind another member firm or PwCIL in any way.
PwC EU Tax News
16
PwC’s EUDTG:
Are you ready to talk EU tax law? If you are, we are!
EUDTG is PwC’s pan-European network of EU law experts. We specialise in all areas of
direct tax: the fundamental freedoms, EU directives, 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 EUDTG Technical Committee, we play a leading role in developing new
and innovative EU law positions and solutions for practical application by clients.
• Our experts combine their skills in EU law with specific industry knowledge by
working closely with colleagues in the Financial Services and Real Estate sectors.
• We have set up client-facing expert working groups to address specific hot topics such
as State aid, the CCCTB and BEPS.
• We closely monitor direct tax policy-making and political developments in Brussels.
• We input to the debate by maintaining regular contact with key EU and OECD policymakers through our EU Public Affairs capability and PwC-facilitated “EBIT” business
initiative (www.pwc.com/ebit) in Brussels.
• Our secretariat in the Netherlands operates a daily EU tax news service, keeping
clients up to date with developments as soon as they happen.
And what specific experience can we offer for instance?
• 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 assisted clients before the CJEU and the EFTA Court in a number of highprofile cases such as Marks & Spencer (C-446/03), Aberdeen (C-303/07), X Holding
BV (C-337/08), Gielen (C-440/08), X NV (C-498/10), A Oy (C-123/11) and Arcade
Drilling (E-15/11).
• We have carried out a number of tax research studies for the European Commission.
For more information contact Bob van der Made, EUDTG network driver: e-mail:
[email protected]; tel: +31 6 130 962 96, or one of the listed contacts below.
PwC EU Tax News
17
EUDTG Contacts:
Chair
Axel Smits
[email protected]
Chair of FS-EUDTG WG
Patrice Delacroix
[email protected]
Co-Chair
Chair of State Aid WG
Sjoerd Douma
[email protected]
Chair of Real Estate-EUDTG WG
Jeroen Elink Schuurman
[email protected]
Network driver
EU Public Affairs Brussels
Bob van der Made
[email protected]
Chair of CCCTB WG
Peter Cussons
[email protected]
Chair of Technical Committee
Juergen Luedicke
[email protected]
EUDTG Country Team 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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[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
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