International Tax News Welcome

Tax Legislation
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& Case Law
EU Law
International
Tax News
Edition 18
July 2014
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In this issue
Welcome
Keeping up with the constant flow of
international tax developments worldwide
can be a real challenge for multinational
companies. International Tax News is a monthly
publication that offers updates and analysis
on developments taking place around the
world, authored by specialists in PwC’s global
international tax network.
We hope that you will find this publication
helpful, and look forward to your comments.
Luxembourg
Netherlands
Revision of corporate exit tax
rules
ECJ rules that Dutch fiscal
unity regime is in breach of
EU law
Taiwan
United States
Five-year tax deferral of gain
from bargain purchase in a
merger under IFRS
New double tax treaty US
Poland sent to the Senate
Tony Clemens
Global Leader International Tax Services Network
T: +61 2 8266 2953
E: [email protected]
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In this issue
Tax legislation
Administration & case law
EU Law
Treaties
Luxembourg
Revision of corporate exit tax rules
France
French branches of foreign banks are free
to choose between equity and debt
Netherlands
ECJ rules that Dutch fiscal unity regime is
in breach of EU law
Spain
Double tax treaty between Spain and
Cyprus enters into force
United States
Bills introduced in House and Senate to
further limit inversions
Ireland
Public consultation process announced on
the OECD base erosion and profit shifting
project from an Irish perspective
OECD
OECD BEPS action 1 on the digital
economy: Some thoughts on EU state
aid rules
Taiwan
Five-year tax deferral of gain from bargain
purchase in a merger under IFRS
United States
Impact of latest information reporting
requirements on a non-financial
multinational company; other FATCA relief
In this issue
United States
New double tax treaty US Poland sent to
the Senate
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Tax Legislation
Luxembourg
Revision of corporate exit tax rules
On May 13, 2014, the Luxembourg Parliament approved
the law (bill 6556) amending some Luxembourg tax
provisions considered not to be compliant with European
Union (EU) law.
The changes are most notably in the area of exit taxation for corporate
entities. In the wake of the European Court of Justice (ECJ) decision
National Grid Indus (C- 371/10), the main change is the introduction
of an option for a taxpayer to defer tax due on the transfer of statutory
seat and place of central administration (hereafter referred to as
migration) by a Luxembourg company to another member state of the
European Economic Area (EEA).
Deferral of the tax liabilities arising on migration
Article 172 Luxembourg Income Tax Law (LITL) assimilates the
outward migration of a Luxembourg tax resident company to its
liquidation, hence giving rise to immediate taxation on any unrealised
capital gains attached to the assets and liabilities of the company
unless a permanent establishment (PE) remains in Luxembourg.
The new law grants the possibility to a migrating company to opt for
deferral of the payment of the tax caused by its migration. On request,
the company can now defer the payment of the tax liability so long as
it remains the owner of the assets and liabilities transferred, and is
resident in an EEA member state.
Similarly, the new law provides for an equal treatment between
resident and non-resident individuals within the EEA in the event
of a transfer of an enterprise or of a PE. Both resident and nonresident taxpayers in an EEA member state can now opt for a deferred
payment of the tax due on the transfer of an enterprise or a permanent
establishment to another EEA member state under the conditions
described above.
To the extent that capital losses relate to assets with unrealised gains
at the time of the transfer, such losses realised after the transfer to
the other member state will be deductible in Luxembourg, provided
that such losses are not taken into account by the other member
state. Although not clearly stated in the law, we are of the view that
this provision is of a general nature and is equally applicable to the
migration of a company to any EEA member state.
In addition, article 44 LITL, which allowed the transfer at book value
of an asset between Luxembourg enterprises owned by the same
taxpayer, has been abolished following criticism by the European
Commission, on the grounds that this provision did not apply to a
transfer abroad. The new law is unclear as to whether the taxpayer
now has the possibility to opt for deferral of the tax due on such
transfer, notably when allocating an asset to a foreign PE situated in an
EEA member state.
‘Roll-over’ relief on capital gains on reinvestment of the sale proceeds
in an EEA member state
No interest charge arises on the liability that is deferred. The
ownership of the assets involved must be documented annually,
although the law is silent as to the nature of the documentation
required, as well as on the timing and the form of the request.
The new law also provides that capital gains realised on disposal of
qualifying assets (such as immovable property) within the meaning of
article 54 LITL can benefit from a ‘roll-over’ relief in situations where
the sale proceeds derived from such disposal are reinvested in an asset
allocated to a PE of the company situated in any EEA member state,
so long as the taxpayer remains resident in an EEA member state and
complies with the other requirements of the roll-over relief.
Sami Douenias
Luxembourg
T: +352 49 48 48 3060
E: [email protected]
Sandrine Buisseret
Luxembourg
T: +352 49 48 48 3124
E: [email protected]
The old law provided for such a deferral only to the extent that the
reinvestment was made into an asset belonging to a Luxembourg PE.
This was considered not compliant with EU law.
This solution is different from that proposed by draft bill 6681
(amending article 102 (8) and its Grand Ducal decree); this
would abolish the option for roll-over relief for individuals selling
Luxembourg real estate with potential reinvestment of the sale
proceeds, irrespective of whether this would be in Luxembourg or in
another EEA member state.
Entry into force
Bill 6556 was approved through the law dated May 26, 2014. The law
was published on June 4, 2014, and entered into force on June 8, 2014.
PwC observation:
This amendment is a significant advantage for any taxpayer
that until now would have suffered an immediate exit tax in
Luxembourg on an outward migration. Also, the new law extends
the current roll-over relief under article 54 of the LITL to situations
where the sale proceeds of qualifying assets are re-invested in an
asset of the permanent establishment of the company in any EEA
member state. Until now, the roll-over relief was available only if
the proceeds were reinvested in Luxembourg-situs assets: this was
also considered not compliant with EU law.
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United States
Bills introduced in House and Senate to further
limit inversions
Senator Carl Levin and Representative Sander Levin
introduced almost identical bills (the Stop Corporate
Inversions Act of 2014) in the Senate and House,
respectively, to further limit corporate expatriations, or
inversions (the Levin inversion bills).
Senator Levin is chairman of the Senate Permanent Subcommittee on
Investigations, while Representative Levin is ranking member of the
House Ways and Means Committee. The stated intention of the Levin
inversion bills is to ’significantly reduce a tax loophole that allows
US companies that merge with foreign companies to reincorporate
offshore in lower-tax jurisdictions... to avoid being subject to US tax on
their overseas earnings.’
Both bills would be effective for transactions after May 8, 2014.
The Senate bill would only be effective for two years, anticipating
comprehensive US federal income tax reform, while the House bill
would be effective indefinitely.
PwC observation:
Democrats in the Administration and both chambers of Congress
have now proposed substantially similar legislation to further
limit the ability of US entities to reduce their US federal income tax
liability by means of an inversion. However, leading members of the
Congressional tax-writing committees (other than Rep. Levin) have
indicated that they do not support anti-inversion legislation outside
the context of comprehensive tax reform.
The bills are broadly similar to a proposal in the Obama
Administration’s FY 2015 Budget. They change the threshold for
applying Section 7874 (generally, treatment of a foreign company as a
US company) from 80% continuity of ownership by the predecessor US
company’s shareholders to 50% continuity of ownership.
In addition, a foreign company would be treated as a US company for
US federal income tax purposes if its:
i. management and control, and
ii. significant business operations remain in the United States, but
it does not have substantial business activities in the relevant
foreign country.
Michael A DiFronzo
Washington
T: +1 202 312 7613
E: [email protected]
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Carl Dubert
Washington
T: +1 202 414 1873
E: [email protected]
Marty Collins
Washington
T: +1 202 414 1571
E: [email protected]
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The French Supreme Court (Conseil d’Etat) rules that
foreign banks are free to choose between equity and debt for
the purpose of financing their French branches.
In recent years, the French Tax Administration (FTA) has tentatively
rejected all or part of foreign banks’ French branches’ interest
payments to the head office, pursuant to thin cap rules resulting from
both the French tax code and Organisation for Economic Co-operation
and Development (OECD) comments on the attribution of profits to
permanent establishments.
Lower French courts had overturned those reassessments on the
grounds that nothing in French law nor in the arm’s-length principle
precludes banks from favouring debt over equity, but there was no
clear definitive case law yet on this issue.
On April 11, 2014, the French Supreme Court upheld lower court
decisions in 3 cases (Société UniCredit representing the rights of
Banco di Roma, Société Caixa Geral. de Depôsitos, and Hypo und
Vereinsbank) and rules that relevant treaty provisions (article 7,
paragraph 1 read in conjunction with OECD comments released when
the treaty entered into force) do not allow the FTA to apply to French
branches’ equity requirements that would have applied had the branch
been a separate French entity.
Renaud Jouffroy
Paris
T: +33 1 56 57 42 29
E: [email protected]
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Administration and case law
France
French branches of foreign banks are free to choose
between equity and debt
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PwC observation:
Accordingly, foreign banks are free to finance their French branches
by debt or equity as long as remuneration served is arm’s length.
This solution mitigates the risk of double taxation resulting from a
reassessment in France. One may wonder to what extent this case
could be extended to other financial industries such as insurance
which is facing the same types of issues, but within the French thin
cap rules.
For the time being the French Supreme Court does not follow the
OECD’s economic approach set out in its Report on the Attribution
of corporate income to permanent establishments (PEs) dated July
22, 2010, at least for treaties signed before that date. This report
considers that branches should receive enough equity to cover
their functions, assets, and risks, etc. (with no specific reference
to a given ratio). One may wonder to what extent in the medium or
long term, French courts will have no other choice but following
the economic approach for capital allocation advocated by the
OECD. It is likely that it will be the case for treaties signed after
July 22, 2010.
Emmanuelle Veras
Marseille
T: +33 91 99 30 36
E: [email protected]
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Ireland
Public consultation process announced on the OECD
base erosion and profit shifting project from an
Irish perspective
On May 27, 2014, the Irish government published
a public consultation document inviting discussion
and commentary from interested stakeholders on the
Organisation for Economic Co-operation and Development
(OECD) Base Erosion and Profit Shifting (BEPS) project
from an Irish perspective.
As stated in last October’s Budget speech, Ireland’s corporate tax
strategy has three key elements: rate, regime, and reputation. With the
tax rate regarded as a settled policy, Ireland’s commitment to the 12.5%
corporation tax rate will not change.
As part of the Budget 2015 preparations the Minister is examining ways
in which the competitiveness of Ireland’s regime can continue to be
enhanced and reputation protected.
In the context of the ongoing OECD BEPS process, the Minister for
Finance now wishes to consider options for Ireland’s tax system in
responding to an evolving international tax environment.
PwC observation:
In responding to this consultation, respondents are invited to give
their views on the specific questions and comment on the general
direction in which they would like to see tax policy in this area
develop.
The Department would like to engage interested parties in a
discussion on how Ireland’s domestic tax system might best respond
to international tax changes. At this stage, the emphasis is on the
BEPS actions with a 2014 timeline but early views on 2015 actions
are encouraged.
The Government has added weight to the process by stating that the
tax policy issues from this public consultation will form part of the
Minister for Finance’s considerations in the context of Budget 2015
and may help influence the taxation treatment and policy to be
applied in the future.
In that regard, the Government welcomes views in respect of all relevant
issues, including:
The consultation period will run from May 27, 2014, to July 22,
2014, a period of eight weeks.
•
This process is a genuine attempt by the Department to get the
views of industry as to what Ireland’s post-BEPS environment
should look like.
• Treaty anti-abuse provisions (and implications for treaty-related
domestic benefits).
With countries increasingly competing for mobile foreign direct
investment, as the Minister for Finance said in his Budget Day speech,
he wants Ireland to play fair and play to win. In that regard, the Minister
committed to the regular evaluation of the competitiveness of Ireland’s
overall corporate tax regime.
With tax reputation now a key factor in winning mobile foreign direct
investment, the international rules for taxing multinational companies
have been a focus for much discussion. The G20 has acknowledged that
global challenges require global action - with the resulting genesis of the
OECD (BEPS) project in which Ireland is playing an active part.
The Minister for Finance on Budget day last October announced an
international tax strategy statement which set out Ireland’s objectives
and commitments in relation to international tax issues. Changes were
also announced, and were later enacted, to ensure that Irish registered
companies cannot be ‘stateless’ in terms of their place of tax residency.
Denis Harrington
Dublin
T: + 353 (0)1 792 8629
E: [email protected]
The BEPS Action Plan, including the following 2014 actions:
• Country-by-country reporting.
• Hybrid mismatch arrangements.
• Preferential regimes (e.g. patent box for intellectual property
income) and substance requirements.
•
Other BEPS Actions.
•
Company residence rules for the 21st century.
•
Digital economy.
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OECD
OECD BEPS action 1 on the digital economy: Some
thoughts on EU state aid rules
The consensus at a public consultation on the base erosion
and profit shifting (BEPS) discussion draft on the tax
challenges of the digital economy, supported the conclusion
in the draft report that there is no separable ‘digital economy’
which is different from the ‘traditional economy‘, rather,
what we are living through is a ‘digitising’ of the economy.
Notwithstanding this consensus, there was a divergence of views about what
the consequences of this conclusion should be. Broadly speaking, the business
representatives favoured postponing future work on the digital economy issues
outlined by the Organisation for Economic Co-operation and Development
(OECD) Task Force until it was clear what recommendations would come out of
the other BEPS Action Plan groups. Only if it was clear that these did not deal
with the digitisation of the economy, would further work be needed.
Others among the participants were attracted to some of the concepts in
the discussion draft which favour defining digitised activities and applying
different tax rules to them. Examples in the discussion draft include the
virtual permanent establishment (PE) concept and a withholding tax (WHT)
on digital transactions. A consequence of this type of approach is that it
would potentially create situations in which the same economic activity could
be taxed differently depending upon whether it was digitised or not.
Any attempts to draw up different rules applying only to digitised
activities have been thought likely to run afoul of the Ottawa neutrality
principle, although this is only persuasive. However, the task force may
need to consider whether there is potentially a greater issue within
the European Union (EU) if the differing tax treatment of a particular
sector could amount to illegal state aid.
John K Steveni
London
T: +44 0 207 213 3388
E: [email protected]
EU Law
Article 107 of the Treaty on the Functioning of the European Union
(TFEU) prohibits ‘any aid granted by a member state or through state
resources in any form whatsoever which distorts or threatens to distort
competition by favouring certain undertakings or the production of
certain goods.’ Any such treatment is typically called illegal state aid.
The interpretation of this article in the courts has led to some
guidance being available. But most noticeably, if two transactions are
comparable then any differential tax treatment of a particular segment
of the market has to be justified with regard to public policy both as
to purpose and proportionality to avoid being considered as illegal
state aid.
A different tax treatment, whether by way of relief or taxation, which
affects directly or indirectly an identifiable segment of the market
could potentially amount to illegal state aid.
Digital economy discussions about tax treatment
There are, as yet, no digital economy proposals which have been
developed to the stage where there is a clear difference in the tax
treatment of particular transactions or businesses. For illustrative
purposes though, we have imagined a scenario which might
conceivably result from the application of a virtual digital PE rule. In
this scenario a vendor of physical goods has two channels to market in
territories in which it has no physical presence and no PE under current
rules or fixed establishment for value-added tax (VAT) purposes. One
route is via catalogue sales and the other is over the internet. Both
channels require customers to provide information about themselves,
either to make an order, or to qualify for discounts or competition
prizes. This customer information is monetised through selling
advertising, either in the physical catalogue, or on the website. This
particular trader originally sold entirely by catalogue and, given the
lower cost of the online channel, expects to close down the catalogue
channel completely within the next year to two.
This fictitious example has been deliberately chosen to illustrate a
situation where the physical and digital economic activity is the same;
it is just the use of modern information and communication technology
which differentiates the two scenarios. One could imagine a definition
of a virtual PE or digital PE which would capture the digital channel
but not the catalogue channel. In this example, there is no physical
presence and no PE for the catalogue channel.
Clearly, this outcome (PE for digital, none for catalogue) breaches the
Ottawa neutrality principle; however, governments are not prevented
from enacting domestic laws and agreeing to tax treaties which breach
the Ottawa principles.
There would appear potentially to be an issue, however, within the
EU (and European Economic Area [EEA]) because the differing tax
treatment of the same transaction could amount to illegal state aid.
PwC observation:
An EU State aid issue could potentially arise in respect of any
regime whereby a digital transaction were to be taxed more harshly
than the equivalent physical transaction, where the taxation of the
digital transaction is the usual position or reference framework,
and the exemption (or preferential treatment) of the physical
transaction effectively a derogation.
Any recommendations from the Digital Economy Task Force (or any
unilateral action by an EU or EEA territory) to tax digital business
differently from its physical equivalents would then be illegal within
the EU and, therefore, likely to be of practical use only for sales
between businesses and customers located outside of the EU and EEA.
While this article relates strictly to state aid, we also consider that there
are other consequences of trying to tax digital ways of doing business
differently from their pre-digital equivalents and, therefore, suggest
that this is not an attractive policy route for governments to follow.
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Taiwan
Five-year tax deferral of gain from bargain purchase in
a merger under IFRS
In a merger, where the purchase price is lower than the
fair value of the dissolved company’s net identifiable
assets, such difference (also known as negative goodwill)
will be recognised as ‘gain from bargain purchase’ under
International Financial Reporting Standard (IFRS) No. 3.
Moreover, the Ministry of Finance (MOF) issued the captioned tax
ruling on April 10, 2014, which specifies that such gain shall be
deferred and equally taxed over five years, starting from the effective
merger date.
PwC observation:
Based on PwC Taiwan’s discussion with the MOF regarding whether
the five-year tax deferral applies to ‘gain from a bargain purchase’
in a merger under Republic of China (ROC) Generally Accepted
Accounting Principles (GAAP), the opinion is uncertain. Though,
based on the consistence of tax spirit, we are in the position that
the five-year tax deferral policy on gain from bargain purchase may
apply to both ROC GAAP, and IFRS. A further watch and discussion
on a real case basis with tax authority is required.
Elaine Hsieh
Taipei
T: +886 2 2729 5809
E: [email protected]
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United States
Impact of latest information reporting requirements
on a non-financial multinational company; other
FATCA relief
The requirements of the Foreign Account Tax Compliance
Act (FATCA) and other recently issued US information
reporting regulations are either effective immediately or are
set to apply beginning on July 1, 2014.
These rules not only impact the financial services sector, but are
expected to affect many non-financial services entities with operations
both in and outside of the United States. Unfortunately, many nonfinancial multinational companies (MNCs) believe the two sets of
recently released final and temporary regulations do not affect them.
Moreover, MNCs believe that they do not need to take any action to
be compliant with FATCA or to accommodate the overall changes
to existing information reporting and withholding processes and
procedures.
Non-financial MNCs that were in compliance with existing tax
reporting and withholding requirements are discovering they
have many new responsibilities and requirements as a result of the
modifications to the regulations. These regulations not only impact
payment flows; they also impact payee documentation requirements
and the associated presumption rules when documentation is not
provided. Moreover, non-financial MNCs are discovering that foreign
financial institutions (FFIs) exist in their group despite FATCA
providing many exceptions and special carve outs that limit which
entities are considered to be financial institutions.
Entities classified as FFIs
The new FATCA regulations contain a number of changes that affect
the definition of holding companies, treasury centers, and accepted
non-financial group entities. Determining the FATCA status of each
entity in a group of companies is the first step in evaluating the FATCArelated obligations of the group and each company within the group.
The new regulations provide clarification about the types of entities
that are classified as FFIs. Entities that are classified as FFIs may be
required to register with the Internal Revenue Service (IRS) and satisfy
specific requirements pertaining to due diligence, documentation,
withholding, and reporting.
Classifying non-financial foreign entities (NFFEs)
The requirements for determining if an entity is an active NFFE have
been clarified. A non-US entity that is not an FFI is generally viewed
as an NFFE. NFFEs are potentially subject to 30% FATCA withholding
on certain payments unless they provide appropriate documentation
to the payor. FATCA withholding, however, is generally not required
on payments to excepted NFFEs. The temporary regulations provide
details about a new type of excepted NFFE - the direct reporting NFFE
(announced in Notice 2013-69) and clarify existing definitions.
Alignment of withholding requirements
The new regulations eliminate instances when a withholding agent
could be required to withhold more than 30% under a combination
of FATCA, Chapter 3, and Section 3406 of the Internal Revenue
Code (Code).
Changes to withholding requirements
Withholding agents and payors have a variety of existing obligations
under Chapters 3 and 61 and Section 3406 of the Code to report and
withhold tax. FATCA imposes additional reporting and withholding
requirements (i.e. 30% FATCA withholding, documentation, etc.) when
a withholdable payment is made to persons subject to FATCA reporting
and withholding (i.e. NPFFIs, recalcitrant account holders, etc.). The
temporary FATCA and harmonisation regulations insert an ordering
rule to avoid excessive withholding when a withholding agent or payor
could be required to withhold more than 30% under a combination of
Chapters 3 and 4 and Section 3406 of the Code. Specifically, if 30%
FATCA withholding is applied to a payment, it is viewed as a credit
toward withholding that may also apply under Chapter 3 or Section
3406. This credit mechanism prevents withholding tax (WHT) from
exceeding 30%.
Revised reporting obligations
The new FATCA regulations attempt to streamline the reporting
requirements by merging some requirements and providing special
rules on how reporting should occur. FATCA imposes reporting
obligations for those entities affected by FATCA in addition to the
existing reporting requirements under Chapters 3 and 61. The
temporary FATCA regulations attempt to streamline the new and
existing requirements by merging some of them and also provide
special rules on how reporting should occur given the specific
procedural requirements and terminology under FATCA.
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Expansion of intergovernmental agreements ‘in effect’
With deadlines approaching until many of the provisions of FATCA
take effect, a number of FFIs resident or organised in 20 different
jurisdictions have been provided temporary intergovernmental
agreement (IGA) FFI status until December 31, 2014. This ‘in effect’
status is the basis for determining the requirements for FFIs in
these jurisdictions regarding IRS registration and the potential due
diligence, withholding, and reporting obligations under FATCA. The
‘in effect’ status only applies to an institution resident in such country,
but does not include branches located outside of such country. It also
applies to any branch located in the IGA country.
This temporary status was provided in Announcement 2014-17
released by the US Department of the Treasury (Treasury) and the
Internal Revenue Service (IRS).
The announcement provides an expansion of the circumstances in
which the United States will treat a jurisdiction as having an IGA
in effect through the end of 2014. Treasury expanded the list of
jurisdictions deemed to have an IGA in effect which provides FFIs
in those jurisdictions with much needed clarity as they prepare to
comply with FATCA. To be included on the Treasury’s ‘in effect’ list,
the partner country must agree in substance to an IGA before July 1,
2014, and consent to have the status of its IGA disclosed. Treasury has
noted on its website the additional 20 jurisdictions in which IGAs are
now treated as being in effect. FFIs in these jurisdictions are permitted
to register consistent with their treatment under the relevant model
IGA and will be permitted to certify their status to withholding agents
consistent with that treatment.
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Scott Dillman
New York
T: +1 646 471 5764
E: [email protected]
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Good faith transitional relief under FATCA
On May 2, 2014, Treasury and the IRS announced in Notice 2014-33
that calendar years 2014 and 2015 will be regarded as a transition
period for purposes of IRS enforcement and administration with
respect to the implementation of FATCA. In addition, the Notice
provides that this transition period will apply with respect to certain
related due diligence and withholding provisions under the Code that
were revised in coordinating regulations issued on February 20, 2014.
This relief means that the IRS will take into account the extent to
which withholding agents, FFIs, and other entities are making a good
faith effort to comply with FATCA and the modifications to existing
information reporting and withholding obligations until calendar
year 2016.
The Notice also announces that the Treasury and IRS intend to amend
the regulations to provide that:
•
FFIs and withholding agents may treat an obligation held by
an entity that is opened, executed, or issued on or after July 1,
2014, and before January 1, 2015, as a preexisting obligation for
purposes of Sections 1471 and 1472.
•
The requirements of a limited FFI or branch of an FFI (including
a disregarded entity owned by an FFI) that is a member of an
expanded affiliated group of FFIs will be modified.
•
The standards of knowledge under Chapter 3 will be modified
for withholding agents under Reg. sec. 1.1441-7(b) for accounts
documented before July 1, 2014.
•
The description of an individual’s reasonable explanation of
foreign status for purposes of Chapters 3 and 4 will be revised.
The Notice states that the transition period and other guidance
described in the Notice are intended to facilitate a smooth and
orderly transition for withholding agents and FFIs to comply with
FATCA’s requirements.
Stuart Finkel
New York
T: +1 646 471 0616
E: [email protected]
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PwC observation:
Impact of reporting requirements on a non-financial
multinational company - FATCA withholding is effective for
certain payments starting as early as July 1, 2014. Accordingly, time
is of the essence to analyse the impact of the FATCA rules on your
organisation and create an overall compliance plan going forward.
Companies should give FATCA compliance a greater priority to
minimise payment delays and unexpected withholding costs
relating to its status as either a payee or payor.
Expansion of intergovernmental agreements ‘in effect’ Companies that want more certainty with respect to their FATCA
compliance plans in certain countries should promptly review the
additional 20 jurisdictions that have been added to the Treasury’s
‘in effect’ list. Certain FFIs will be able to either push back their
plans to register with the IRS until later this year or will have
greater certainty around their status and register now to obtain
a global intermediary identification number before approaching
withholding deadlines.
Good faith transitional relief under FATCA - The Notice grants
needed but cautionary relief to taxpayers subject to FATCA.
Organisations working diligently and documenting their efforts
to comply with the FATCA requirements need not fear IRS
enforcement action until a reasonable period of time to reach
compliance has elapsed. However, the relief is designed to be
limited in scope and does not represent a delay in the start of
FATCA. Accordingly, many of the provisions of FATCA are effective
on July 1, 2014, and so the pressure is still on organisations to
achieve FATCA compliance as soon as possible. Waiting until 2016
to become FATCA compliant will simply be too late.
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Netherlands
ECJ rules that Dutch fiscal unity regime is in breach of
EU law
On June 12, 2014, the European Court of Justice (ECJ)
ruled in three joined cases (C-39/13, C-40/13, C-41/14)
that the Dutch fiscal unity rules are in breach of the freedom
of establishment of Article 49 Treaty on the Functioning
of the European Union (TFEU) for not allowing (i) a fiscal
unity between a Dutch parent company and a Dutch subsubsidiary that is held through an European Union (EU)
intermediate subsidiary or (ii) a fiscal unity between two
Dutch ‘sister’ companies that are held through a joint EU
parent company.
PwC Netherlands represented SCA Group Holding B.V. in case C-39/13.
Two of the Dutch cases are comparable to the situation that led to the
2008 decision of the ECJ in the Papillon case (ECJ C-418/07), i.e. the
formation of a fiscal unity between a Dutch resident company and
its Dutch sub-subsidiary which in turn is held via intermediate EUresident subsidiaries. These Dutch fiscal unity cases can be depicted
as follows.
Assessing possible justifications for the restriction, the ECJ found
the domestic and the cross-border situation comparable in light of
the objective of the fiscal unity regime, which is, to treat a group
constituted by a parent company with its (sub-)subsidiaries in the same
way as an undertaking with a number of establishments.
The ECJ dismissed that the restriction could be justified by the need
to preserve the coherence of the Dutch tax system, as regards the
prevention of the double use of losses, since the application of the
Dutch participation exemption to the non-resident intermediate
subsidiary prevents a Dutch parent company from taking a loss on its
subsidiary and, therefore, averts the double use of losses within a tax
entity. As the objective of the restriction created by the fiscal unity is
not specifically to prevent tax avoidance, also that justification ground
was rejected.
In Case C-40/13, concerning the request for a fiscal unity between the
Dutch ‘sister’ companies, the ECJ reasoned similarly as in the other
two cases. It rebutted the argument that the scheme of the Dutch
fiscal unity regime, to consolidate the group’s results to the parent
company, would make a fiscal unity with a foreign parent company
different from a fiscal unity with a Dutch parent company. The ECJ
held that, when it concerns only the taxation of the ‘sister’ companies,
the objective of the fiscal unity regime can be fulfilled regardless of the
State of residence of the joint parent company.
The third case considers the formation of a fiscal unity between two
Dutch sister companies with an overseas parent company that is
resident in the EU. All three fiscal unities would have been possible
if the relevant EU company had been a Dutch resident (or - under
circumstances - if the EU company carried on a business through a
Dutch permanent establishment [PE]).
Jeroen Schmitz
Amsterdam
T: +31 8879 27 352
E: [email protected]
Ramon Hogenboom
Amsterdam
T: +31 8879 26 717
E: [email protected]
Pieter Ruige
Amsterdam
T: +31 8879 23 408
E: [email protected]
PwC observation:
As a consequence of the above, the Dutch fiscal unity regime opened
up for ‘Papillon’ fiscal unities such as those in the case at hand.
Legislative changes may be introduced by the Dutch government.
The nature thereof is unknown at this stage. In any case, we
recommend reviewing existing structures to assess whether any of
the fiscal unities mentioned above is possible and beneficial.
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Treaties
Spain
Double tax treaty between Spain and Cyprus enters
into force
Spain’s tax treaty with Cyprus entered into force May 28,
2014. As of this date, Cyprus will no longer be considered as
a tax haven for Spanish tax purposes.
PwC observation:
The new double taxation treaty (DTT) may affect companies with
cross-border businesses in Spain and Cyprus. We invite clients
with interest in these countries to discuss the content of these new
measures in more detail.
This new treatment is important for Spanish multinationals and for
Spanish holding companies of foreign multinationals because:
i.
the Spanish Entidad de Tenencia de Valores Extranjeros (ETVE)
regime will also apply to Cypriot shareholders in the sense that
the Spanish holding company will no longer withhold tax on
dividends, and
ii.
the Spanish participation exemption regime will apply to
dividends distributed by Cypriot controlled foreign corporations
(CFCs) (without further proof), provided that other requirements
are also met.
The treaty highlights include:
•
Dividend withholding tax (WHT) is capped at 0% if the beneficial
owner is a company owning directly at least 10% of the shares
in the distributing company or 5% if the beneficial owner is a
company resident in the other contracting state.
•
Interest and royalties are only taxable in the state of the recipient
when beneficially owned.
•
Capital gains arising from the sale of non-listed shares may not be
subject to tax, unless more than 50% of the value of the issuing
company is derived from real estate.
Ramon Mullerat
Madrid
T: +915685534
E: [email protected]
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Carlos Concha Carballido
Madrid
T: +915684365
E: [email protected]
Luis Antonio Gonzalez Gonzalez
Madrid
T: +915685528
E: [email protected]
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United States
New double tax treaty US Poland sent to the Senate
The Obama Administration recently transmitted to the Senate a proposed
new double taxation treaty (DTT) with Poland that includes a modern
limitation on benefits (LOB) article.
Although this development moves the proposed new treaty one step closer to ratification,
due to the current impasse in the Senate’s consideration of treaties under the typically
employed unanimous consent procedures, the timing of Senate floor consideration is
unclear. The new treaty with Poland joins the proposed protocol to the existing treaty
with Spain - which the Obama Administration transmitted to the Senate earlier this
month - in awaiting Committee consideration.
PwC observation:
Taxpayers currently relying on the 1974 treaty
should revisit their structures to determine
whether they can meet the new LOB article and
be prepared to revise impacted structures before
the new treaty enters into effect. Taxpayers who
are eligible for the benefits of the new treaty
should be aware of the new withholding rates for
interest and royalties.
The new treaty with Poland would replace the 1974 DTT. The 1974 treaty was one
of the few remaining US income tax treaties that did not contain an LOB article and
accommodated international investment. The new DTT, signed on February 13, 2013,
includes a modern LOB article. Unlike other recent treaties, the new DTT between the US
and Poland does not eliminate source state taxation on intercompany dividends, certain
types of interest, or royalties.
For withholding provisions, the treaty will be effective the first day of the second month
following the date on which the treaty enters into force. For all other taxes, the treaty will
be effective for tax periods beginning on or after the first day of January of the next tax
year following the date on which the treaty enters into force. The treaty will enter into
force on the date that Poland and the United States both have notified each other that they
have complied with their applicable internal procedures.
The treaty does not include a transition rule. Therefore, taxpayers presently entitled to
treaty benefits may lose those benefits once the treaty’s provisions take effect.
Bernard E. Moens
Washington
T: +1 202 414 4302
E: [email protected]
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Oren Penn
Washington
T: +1 202 414 4393
E: [email protected]
Steve Nauheim
Washington
T: +1 202 414 1524
E: [email protected]
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International tax services
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