E-News from KPMG's EU Tax Centre E-News from KPMG's EU Tax Centre

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KPMG’s EU Tax Centre helps you understand the complexities of EU tax law and how this can impact your business, enabling you to better predict how rules may develop and how to leverage opportunities and reduce risks arising from EU tax law.

E-News provides you with EU tax news that is current and relevant to your business. KPMG’s EU Tax Centre compiles a regular update of EU tax developments that can have both a domestic and a cross-border impact. CJEU cases can have implications for your country.

Opinion of AG Hogan in the GVC Case

On October 24, 2019, Advocate General (AG) Hogan of the Court of Justice of the European Union (CJEU) issued an opinion in GVC Services (Bulgaria) EOOD v Direktor na Direktsia Obzhalvane I danacha asigurieina praktika - Sofia (Case C-458/18). The AG found that the EU Parent-Subsidiary Directive does not apply to companies incorporated in Gibraltar as Annex 1 of the Directive requires that companies are “incorporated under United Kingdom law” and the term “corporation tax in the United Kingdom” does not include equivalent tax in Gibraltar. However, the AG also held that the application of Bulgarian withholding tax to dividends paid to parent companies resident in Gibraltar constituted a restriction on the freedom of establishment as equivalent dividends paid to parent companies in EU Member States could be made free of Bulgarian withholding tax.

Opinion of AG Kokott in the AURES Holdings Case

On October 17, 2019, AG Kokott of the CJEU issued an opinion in AURES Holdings, a.s. v Odvolací finanční ředitelství (Case C-405/18). The AG found that the refusal by the Czech Republic to take into account losses sustained by a company in another Member State prior to the cross-border transfer of its place of management there constitutes a restriction on the freedom of establishment. However, this restriction is justified by the need to preserve the allocation of power to tax between Member States, as well as by the need to prevent the double use of losses. In addition, the restriction is proportionate, as the losses cannot be considered as final based on the ‘Marks & Spencer exception’.

CJEU decision in the Argenta Spaarbank Case

On October 17, 2019, the CJEU rendered its decision in Argenta Spaarbank NV v Belgische Staat (Case C-459/18). The CJEU held that the revised Belgian rules on notional interest deductions concerning companies subject to tax in Belgium with foreign permanent establishments are in line with the freedom of establishment.

Appeal in Hungarian advertising case

On September 27, 2019, an appeal was lodged by the European Commission with the CJEU against the judgment of the General Court of the European Union in Commission v Hungary (Case T-20/17). The General Court in its judgement delivered on June 27, 2019 rejected a European Commission finding that a Hungarian advertising tax was incompatible with EU State aid rules.

Referrals to the CJEU

Portugal

On July 9, 2019, a referral was made to the CJEU by the Tribunal Arbitral Tributario for a preliminary ruling in the case of Alliangzi-Fonds Aevn (Case-549/19). The ruling request relates to an exemption from corporation tax for dividends paid by companies established in Portugal to Portuguese collective investment undertakings and its compatibility with the free movement of capital.

EUROPEAN COUNCIL

Brexit flexible extension granted until January 31, 2019

On October 28, 2019, the European Council acceded to a request for an extension to the period under Article 50.3 TFEU, under which the United Kingdom has signified its intention to leave the EU (commonly referred to as “Brexit”). The extension will apply until January 31, 2020 but includes flexibility for the UK to exit the EU at an earlier date if the Withdrawal Agreement negotiated between the UK and the EU is ratified by both parties in the intervening period. Until such a time, the UK will remain an EU Member State with all of the corresponding rights and obligations of membership continuing in effect.

For more information, please refer to the Council declaration (PDF 195 KB).

Brexit Withdrawal Agreement approved

On October 17, 2019, the European Council endorsed the Withdrawal Agreement and approved the political declaration which were both agreed on the same day at the level of EU and UK negotiators. This deal would allow an orderly departure of the United Kingdom from the European Union.

For more information, please refer to the Council conclusions (PDF 172 KB).

North Macedonia and Albanian accession to European Union stalled

On October 17, 2019, EU Member States failed to reach consensus on whether to commence accession talks with North Macedonia and Albania, despite the countries’ efforts to meet the EU’s requirements. In its conclusions of October 18, 2019, the European Council noted that the EU will revisit the issue of accession before the EU Summit in Zagreb in May 2020 while the European Parliament expressed its disappointment at this result in a resolution dated October 22, 2019.

For more information, the remarks by President Tusk are available here.

EUROPEAN COMMISSION

Task Force for Relations with the United Kingdom set up by European Commission

On October 22, 2019, a “Task Force for Relations with the United Kingdom” (UKTF) was set up under the European Commission’s Secretariat-General for the coordination of the Commission’s work on all strategic, operational, legal and financial issues related to Brexit. Michel Barnier, the EU’s chief Brexit negotiator, has been appointed as the Head of the Task Force.

EUROPEAN PARLIAMENT

Public CbCR rules yet to be agreed at EU level

On October 24, 2019, the European Parliament adopted a resolution urging Member States to agree a position on proposals requiring public country-by-country reporting (CbCR) of taxes paid by multinationals. So far EU Ministers failed to agree on the proposal which was first put forward in 2016. The proposal may be revisited again later in 2019 under the Finnish presidency of the European Council.

For more information, please refer to the resolution.

Multilateral Convention developments

On October 30, Bosnia and Herzegovina signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (2016) (MLI) as the 90th jurisdiction of the signatories. On October 29 and October 18, 2019, Latvia and Mauritius deposited respectively their instruments of ratification for the MLI. The MLI will enter into force for both Latvia and Mauritius on February 1, 2020. On October 25, 2019, an MLI ratification bill was submitted to the Estonian Parliament. The MLI will become effective for Estonia three months after Estonia lodges its instrument of ratification with the OECD. On November 1, 2019, the MLI entered into effect for Norway.

Jordan joins international efforts to fight against tax evasion and BEPS practices

On October 29, 2019, Jordan became the 158th member of the Global Forum on Transparency and Exchange of Information for Tax Purposes, as well as the newest member of the Inclusive Framework on BEPS, bringing to 135 the total number of countries and jurisdictions participating on an equal footing in the Project.

For more information, please refer to the OECD press release.

Sixth round of BEPS Action 14 peer review reports

On October 24, 2019, the OECD published its report on the sixth round of the BEPS Action 14 peer review which covers best practices regarding tax dispute resolution mechanisms in Argentina, Chile, Colombia, Croatia, India, Latvia, Lithuania and South Africa. The report also emphasizes continuing efforts of OECD/G20 Inclusive Framework members to turn political commitments in this area into tangible, measurable progress.

For more information, please refer to the reports.

Update on UN Transfer Pricing Manual for Developing Countries

On October 15-18, 2019, the nineteenth session of the UN Committee of Experts on International Cooperation in Tax Matters was held in Geneva. The meeting expects to further discuss the updates on UN Practical Manual on Transfer Pricing for Developing Countries, including the approval to include in the Manual a new chapter on Financial Transactions, revised text on Profit Splits, Practical Implementation, Establishing Transfer Pricing Capability, Risk Assessment and Transfer Pricing Audits. Three other papers on the update of the Manual, including a revised chapter on Group Synergies and Centralized Procurement Functions, are to be considered for the first time at the nineteenth session.

For more information, please refer to the update report (PDF 2.47 MB).

Austria

Digital tax package and tax reform draft approved by Federal Council

On October 10, 2019, the Austrian Federal Council (the upper house of the Austrian Parliament) approved a draft bill which introduces a tax on digital revenues derived from online advertising and imposes reporting obligations on operators of online platforms. The Federal Council also approved a bill to introduce anti-hybrid mismatch legislation into local Austrian law. The measures will enter into force on January 1, 2020 respectively.

Belgium

Transitional measures introduced in the context of Brexit

On October 18, 2019, the Council of Ministers of Belgium adopted a draft bill to introduce transitional regimes designed to maintain certain benefits in the context of Brexit. In particular, the measures include withholding tax exemptions for remuneration paid to certain R&D researchers, exemptions for capital gains realized before December 31, 2019 by private investment companies established in the United Kingdom (UK) and Belgian tax exemptions for transfers and transactions involving the migration of a UK company to Belgium.

Innovation income deduction requirements published

On October 17, 2019, a decree outlining the documentation requirements necessary to claim a Belgian innovation income deduction was published in the Belgian Official Gazette. In this regard, documentation must be retained to demonstrate the level of innovation income generated by the company since July 1, 2016 and must include details of the transfer pricing method used to determine the gross amount of innovation income. Innovation income must also be split into different categories.

British Virgin Islands

Economic substance rules finalized

On October 9, 2019, the British Virgin Islands published “Rules on Economic Substance in the Virgin Islands”, the final version of its economic substance rules(PDF 1.20 MB).

For more information, please refer to the rules.

Croatia

EU Tax Dispute Resolution Directive implementing legislation published

On October 16, 2019, the Croatian legislation implementing EU Tax Resolution Directive (2017/1852) was published.

Cyprus

Public consultation launched on DAC6

On October 12, 2019, the Cypriot tax department launched a public consultation in respect of a draft bill to implement EU Directive 2018/822 on mandatory disclosure rules (DAC6) into Cypriot national law.

France

DAC6 transposed into French national law

On October 22, 2019, a French Ordinance No. 2019-1068 (the Ordinance) regarding the transposition of the EU Directive 2018/822 on mandatory disclosure rules (DAC 6) into national law was published. The Ordinance closely follows the Directive.

Digital services tax guidelines published

On October 16, 2019, the French tax authorities issued digital services tax (DST) guidelines which address reporting and accounting obligations and a tax consolidation system for groups of companies. The guidelines are subject to public consultation which will run until November 29, 2019.

Germany

2030 Climate Protection Programme

On October 16, 2019, the German Federal Cabinet approved a draft bill to implement a 2030 climate action programme. The programme includes a range of tax measures including deductions for energy efficiency upgrades made to owner-occupied properties, increases in commuter tax allowances and reductions in VAT rates for long-distance train tickets.

Draft bill on DAC6 implementation approved

On October 9, 2019, the German Federal Cabinet approved a draft bill on the implementation of EU Directive 2018/822 on mandatory disclosure rules (DAC6).

Greece

Clarification of Greek tax treatment for reorganizations and disposals of shareholdings

On October 10, 2019, the Greek Public Revenue Authority released Circular E.2181 which seeks to clarify the correct treatment from a Greek tax perspective where a shareholding in a foreign subsidiary is sold or liquidated and a loss is generated.

On September 10, 2019, the Greek Public Revenue Authority published Circular No. 2181 which seeks to clarify the tax treatment of capital gains derived from a reduction of shares of a public company in a reorganization.

Iceland

Revisions to CFC legislation

On October 21, 2019, the Icelandic Ministry of Finance and Economic Affairs issued a draft bill amending its controlled foreign corporation (CFC) rules which will be submitted to the Icelandic Parliament shortly. The proposed amendment would result in a taxpayer, owning more than 50% of the ownership shares or voting rights in a CFC, directly or indirectly, being required to pay tax in Iceland on the income of the CFC although certain exemptions are included for income generated by the real economic activities of the CFC.

Ireland

Responses to feedback statement on transfer pricing rules published

On October 21, 2019, the Irish Department of Finance published the responses received on its feedback statement on the reform of transfer pricing rules. The feedback statement was published on September 2, 2019 to address issues that were brought forward by stakeholders concerning the proposed update of Ireland’s transfer pricing rules.

For more information, please refer to the initial feedback statement(PDF 0.97 MB) and the responses.

Finance Bill 2019 published

On October 17, 2019, the Irish Department of Finance released the 2019 Finance Bill. The main provisions are consistent with the measures announced by the Irish Minister of Finance in Budget 2020 and reported in E-News Issue 109. Additional measures not previously announced include the introduction of mandatory disclosure rules and amendments to Ireland’s securitization regime.

For more information, please refer to KPMG Ireland’s Finance Act 2019 dedicated website.

Isle of Man

Amendments to economic substance legislation

On July 17, 2019, the Isle of Man authorities approved the Income Tax (Substance Requirements) (Amendment) Order 2019. The order clarifies the economic substance requirements for a pure equity holding company, includes amendments to the definitions of a “high-risk IP company” and an “IP asset” and extends the definition of a “foreign tax official” for exchange of information purposes.

For more information, please refer to the order(PDF 152 KB).

Italy

Tougher consequences for tax evasion

On October 27, 2019, a decree became effective in Italy which implements a new strategy to fight against tax evasion through the introduction of measures to promote the use of traceable payment mechanisms and harsher penalties for persons involved in tax evasion. In particular, the offence of falsifying invoices to evade tax will carry a potential penalty of four to eight years imprisonment where the outcome results in an evasion of tax which exceeds EUR 100,000. The decree must be approved by the Italian Parliament within sixty days to remain in effect.

Implementation of EU 5th Anti-Money Laundering Directive

On October 26, 2019, the decree implementing the EU 5th Anti-Money Laundering Directive (2018/843) was published in Official Gazette). The decree, which will enter into force on November 10, 2019, strengthens collaboration and the exchange of information on beneficial ownership between competent authorities and introduces additional reporting obligations for intermediaries whose customers are involved in transactions with high-risk countries.

Withholding tax exemption clarification

On October 24, 2019, the Italian Revenue Agency published clarifications regarding the application of Italian withholding tax to interest payments made to a Dutch bank that entered into a sub-participation agreement with an Irish tax securitization company for part of the corresponding loan. The letter concludes that the Dutch bank is covered by the withholding tax exemption granted to non-resident regulated credit institutions. The Irish company was not considered to qualify as the beneficial owner of the income and the letter clarifies that a “look-through” approach is not able to be applied when considering the application of the withholding tax exemption. However, according to the letter, the bank continues to be the direct recipient of the interest despite the fact that a portion of the interest is passed on to the Irish securitization company.

Changes to Italian 2020 budgetary law

On October 21, 2019, the Italian Council of Ministers put forward changes to the Italian Budget Plan for 2020 from the proposals previously submitted to the European Commission. Key changes include the introduction of a 3% digital tax. A sugar tax of EUR 10 per hectoliter of drinks with added sugar and a plastic packaging tax at a rate of EUR 1 per kilogram of plastic used are also proposed.

Latvia

EU Tax Dispute Resolution Directive implementation

On October 23, 2019, legislation implementing EU Tax Dispute Resolution Directive (2017/1852) entered into force in Latvian domestic law.

Netherlands

Benelux anti-fiscal fraud agreement

On October 16, 2019, a letter announcing an agreement on combating fiscal fraud between Belgium, Luxembourg and the Netherlands (the Benelux countries) was presented to the lower house of the Dutch Parliament. To combat fraud, it is expected that the Benelux countries will exchange information and experience with further improvements in practical cooperation to remove any potential bottlenecks in the fight against fraud.

Limitation of liquidation and cessation loss rules

On October 2, 2019, the final version of a draft bill on the treatment of liquidation and cessation losses for Dutch corporate income tax purposes was submitted to the Dutch Deputy Minister of Finance. The final draft bill, which would enter into effect in 2021, contains a number of amendments as a result of responses to a consultation process on the proposed bill.

For more information, please refer to a tax alert prepared by KPMG Meijburg & Co.

Slovenia

Corporate Income Tax Law and Tax Procedure Law amendments approved

On October 23, 2019, the Slovenian Parliament approved amendments to Slovenian Corporate Income Tax Law and Tax Procedure Law without change. Information regarding the key amendments proposed was previously reported in E-News Issue 108.

Spain

Consultation launched on reporting models for DAC6

On October 21, 2019, the Spanish Ministry of Finance launched a consultation in respect of three new models designed to facilitate the effective implementation of EU Directive 2018/822 on mandatory disclosure rules into Spanish domestic law. The consultation process will run until November 11, 2019.

Amendments to non-resident income regulations

On October 19, 2019, a decree was published which is intended to simplify tax residence certification procedures for EU pension funds and collective investment vehicles (CIVs). The decree entered into force on October 20, 2019.

Sweden

Guidance published on reporting obligations under DAC6

On October 29, 2019, the Swedish tax authorities published guidance on the manner in which mandatory disclosure reporting should be completed in Sweden. In particular, the guidance states that reports will need to be filed electronically with further details on the exact format of reporting to follow once the legislative process to implement EU Directive 2018/822 on mandatory disclosure rules into Swedish national law is finalized.

United Kingdom

EU Tax Dispute Resolution Directive responses

On October 28, 2019, the United Kingdom tax authorities announced that responses received in respect of a consultation on draft regulations to implement the EU Tax Dispute Resolutions Directive 2017/1852 have been considered and will be taken into consideration when the regulations are finalized.

For more information, please refer to the draft regulations.

Draft amendments to the rules on IP offshore receipts published

On ‎October ‎22, 2019, regulations amending existing legislation concerning offshore receipts in respect of intangible property (ORIP) were published in draft form. Considered amendments include extending the scope of the legislation to businesses that do not qualify for relief under a double tax treaty, minor changes to the definition of UK sales, and specific exemptions to avoid cases of double taxation. The ORIP rules target arrangements from multinational groups that result in the IP income generated through UK sales being received and taxed in offshore jurisdictions at low effective rates. The rules tax the proportion of that income which is attributable to the sale of goods or services in the UK.

For more information, please refer to the draft regulations.

Hybrid and other mismatch regulations introduced

On October 14, 2019, new regulations on the treatment of hybrid and other mismatches were introduced into UK law. The Hybrid and Other Mismatches (Financial Instruments: Excluded Instruments) Regulations 2019 (S.I. 2019/1345) impose further requirements to be satisfied in respect of an exemptions for specific regulatory capital securities held by banks and were introduced to ensure compliance with the EU Anti-Tax Avoidance Directive. The regulations will enter into force on November 29, 2019.

United Kingdom

UK court permits the use of documents from a UK fraud case in Danish court proceedings

On October 18, 2019, a UK court granted permission to the Danish tax authorities to use documents from a fraud lawsuit in the UK to expedite proceedings in the Danish court system. The Danish tax authorities had initiated proceedings against in excess of seventy individuals and companies alleging combined damages of USD 1.9 billion in respect of fraudulent withholding tax refund claims.

UK Supreme Court ruling in Routier Case

On October 16, 2019, the United Kingdom Supreme Court rendered its decision in Routier & Anor v Revenue and Customs [2019] UKSC 43 and held that Jersey should be considered a third country when considering the freedom of movement of capital. The court also held that a refusal of relief under the Inheritance Tax Act was a breach of the freedom of movement of capital.

For more information, please refer to the judgment.

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