E-News from KPMG’s EU Tax Centre

Latest CJEU, EFTA, ECHR

CJEU decision in Dutch net-taxation case

On November 7, 2024, the Court of Justice of the European Union (CJEU or the Court) rendered its decision in case C-782/22. The case concerns a UK-based life insurance company that received dividend income from passive investments in the Netherlands and suffered Dutch withholding tax on the gross dividend income. The Dutch dividends were received as part of unit linked products that were offered to UK pension schemes. These dividends were subject to 15 percent Dutch dividend withholding tax, which was a final tax for non-residents. The plaintiff was represented by KPMG.

For Dutch taxpayers, the withholding tax represents a pre-payment of corporate income tax that can be fully offset against the corporate income tax due. Where the corporate income tax due is lower than the dividend tax already levied, the taxpayer receives a refund of the difference. This is due to an offset against the dividend income of an equal amount representing the corresponding increase of the provision for obligations to the policy holders, which reduces the tax base for Dutch corporate income tax purposes to zero. For Dutch taxpayers, the dividend withholding tax is as a result effectively fully refunded.

In summary, the CJEU found that Dutch legislation that allows resident entities to deduct from the tax base expenses directly linked to the investment income, whereas no such option is available to non-resident entities, constitutes an unjustified restriction of the EU free movement of capital, in so far as there is a direct link between the dividends received on the one hand and the increase in the obligations to unit linked policy holders on the other hand. The question whether such direct link exists must be answered by the national court.

For more information, please refer to Euro Tax Flash Issue 552. 

Infringement Procedures and CJEU Referrals

Germany referred to the CJEU over discriminatory tax treatment of reinvested capital gains upon sale of real estate

On November 14, 2024, the European Commission (the EC or the Commission) decided to refer Germany to the CJEU for having failed to remedy the infringement of the free movement of capital triggered by the tax treatment of reinvested capital gains upon sale of real estate located in Germany.

Germany grants a deferral of taxation for reinvested capital gains made on the sale of real estate located in Germany provided that the real estate has been attributed to the fixed assets of a domestic permanent establishment for an uninterrupted period of at least six years. Legal entities established in Germany, even without a business activity therein, are deemed to have such a permanent establishment at their place of management (i.e., in Germany). Comparable legal entities established in other EU/EEA Member States are deemed not to have such permanent establishments in Germany. Therefore, such entities are denied such tax deferral on reinvested capital gains from the alienation of German real estate.

Based on its press release, the EC sent a reasoned opinion to Germany in November 2019 and actively engaged in further discussions with Germany to resolve the issue. Based on its press release, the Commission takes that view that efforts made by the Germany authorities have been insufficient.     

For more information, please refer to the EC’s press release. 

EU Institutions

Updated public CbyC reporting forms published

On October 21, 2024, the European Commission published an updated Implementing Regulation laying down the common template and electronic reporting formats (Regulation) for the application of the EU Public Country-by-Country (CbyC) Reporting Directive (Directive). As previously reported, a public consultation on the draft template and reporting forms was held until September 6, 2024 – for previous coverage and KPMG’s response, please refer to E-News Issue 200.

The updated Regulation – including the Annex laying down the reporting form, is largely in line with the ones subject to the public consultation and only minor amendments were made. The updated documents clarify that:

• in-scope groups are allowed to disclose additional information in the CbyC report, in the form of text, images or other means;
• “Section  3 – List of subsidiaries and activities” shall only include the list of subsidiaries. Establishments, fixed places of business or permanent business activities other than those operating via a subsidiary undertaking need not be disclosed’;
• “Section 5 (non-mandatory) – Explanations for material discrepancies between income tax paid and accrued” only applies where required by the applicable national law. In all other cases it is left to the discretion of reporting undertakings whether or not to provide such information.

Additionally, non-mandatory elements under the Directive – such as assets, capital, the split between related and third-party revenues, or subsidies, which were originally included in "Table 2 - List of taxonomy elements" – have now been moved to a new table titled "Table 3 - List of additional taxonomy elements". This change suggests that these data points are considered optional and only need to be disclosed by in-scope groups if they choose to do so voluntarily.

On October 18, 2024, the updated Regulation received a favorable opinion from the Accounting Directive Committee, which was a necessary step before the EC could adopt it. Once adopted by the Commission, the Regulation will come into force on the twentieth day after its publication in the Official Journal of the EU. The Regulation will apply to CbyC reports prepared for financial years starting on or after January 1, 2025.

For more information on public CbyC Reporting, please refer to KPMG’s dedicated webpage.

Parliamentary confirmation hearing of Commissioner-designate for Climate, Net-Zero and Clean Growth

On November 7, 2024, Commissioner-Designate for Climate, Net-Zero and Clean Growth, Wopke Hoekstra, was questioned by members of the European Parliament (MEPs), as part of the process for the confirmation of the new College of Commissioners. The hearing followed an earlier round of written questions and answers (please refer to E-News Issue 202).

Before answering the queries of the MEPs, Mr. Hoekstra outlined his vision and plans for climate action, competitiveness, and taxation. The Commissioner-designate noted that the tax systems should keep up with the developments or changes in economies and societies, that tax systems must facilitate rather than hamper the climate transition, and that taxation can become a tool for ensuring fairness.

Key takeaways from a direct tax perspective include:

• General: Mr. Hoekstra emphasized the role of taxation in supporting the objectives of the green transition. The Commissioner-designate considers greening economies and dealing with the digital and platform economy to be a global challenge. He further acknowledged the leading role of Member States in taxation and recognized the challenges in advancing tax proposals due to Member State sovereignty. Nevertheless, he expressed a willingness to push forward various pending tax files (including Unshell and BEFIT).
• Pillar One / Pillar Two: The Commissioner-designate stressed the importance of the global implementation of Pillar Two and of continuing the work on Pillar One. Mr. Hoekstra reiterated the message that the EU supports a global agreement on Pillar One, but noted that he would convene with Finance Ministers of EU Member States to discuss a second-best solution at EU level in case such agreement is not reached. According to Mr. Hoekstra, an EU solution would be aimed at avoiding a patchwork of national digital services taxes that would otherwise be the likely result.
• Anti-abuse: The Commissioner-designate committed to continuing the fight against tax fraud, tax evasion and tax avoidance, for which in the last five years various ambitious legislative proposals were delivered, such as the EU Minimum Tax Directive.
• Simplification: Mr. Hoekstra noted that he would focus on streamlining and simplifying EU tax policy. The Commissioner-designate promised to deliver a holistic effort to declutter tax legislation by 2026. He further emphasized his ambition to make the tax system more efficient and easier for everyone, without lowering standards. He noted that EU initiatives such as Pillar One, Pillar Two, FASTER and BEFIT may contribute to achieving this goal.

Mr. Hoekstra concluded by expressing his commitment to working with the European Parliament and other stakeholders to achieve the EU's climate and economic goals.

As a next step, the Commission President will present the College of Commissioners-designate and its program during a plenary session at the European Parliament on November 27, 2024. This will be followed by the European Parliament’s vote on the Commission's College as a whole.

European Parliament adopts opinion on the updated FASTER proposal 

On November 14, 2024, the European Parliament adopted its new opinion on the updated proposal on the Faster and Safer Tax Relief of Excess Withholding Taxes (FASTER) Directive.

The Council had already reached an agreement (general approach) on the proposal FASTER on May 14, 2024 (please refer to Euro Tax Flash Issue 541 for more details). The Council acts as a sole legislator for the proposal, with input from the European Parliament (EP). The EP had already issued its opinion on the original proposal, but had to be consulted again on the agreed text, which differs substantially from the version on which the original EP opinion was issued.

In terms of next steps, formal adoption by the Council is required. As political agreement was already reached, no changes are expected, meaning that this step should only be a formality. Once formally adopted, the proposal will be published in the EU Official Journal and Member States will need to transpose the Directive by December 31, 2028. The rules will become applicable as of January 1, 2030.

For our previous coverage, please refer to E-News Issue 202.

Local Law and Regulations

Domestic list of non-cooperative jurisdictions updated

On October 24, 2024, Czechia published a revised list of non-cooperative jurisdictions with respect to its controlled foreign company (CFC) rules.

According to the Czech CFC rules, a controlled company which as at the end of its taxation period is a tax resident of a state included on the Czech list of non-cooperative jurisdictions, or a permanent establishment located in such a state, is automatically considered a CFC. Controlled subsidiaries located in listed countries are automatically taxed on the level of controlling entities {e.g., not only passive income as for standard CFC regime but income from all activities of the controlled entities)

The update reflects the recent updates to the EU list of non-cooperative jurisdictions (Annex I) adopted by the Council of the EU on October 8, 2024 (see E-News Issue 201). As such, the update resulted in the removal of Antigua and Barbuda. With effect from October 18, 2024, the revised Czech list therefore includes American Samoa, Anguilla, Fiji, Guam, Palau, Panama, Russia, Samoa, Trinidad and Tobago, U.S. Virgin Islands, and Vanuatu.

For more details on defensive measures adopted by EU Member States against non-cooperative jurisdictions, please refer to KPMG’s dedicated summary.

Draft defense tax package published

On September 26, 2024, the Ministry of Finance of Estonia published the draft defense tax act aimed at raising additional revenues to finance Estonia’s increasing defense spending.

The bill includes a temporary corporate tax at a rate of two percent levied on Estonian tax resident companies and permanent establishments in Estonia of non-resident companies. The tax base is the accounting profit before income tax for a financial year, as reported in the income statement as part of the annual report. However, to prevent double taxation the following may be deducted:

• Dividends received from companies in which the taxpayer holds at least a ten percent participation (shares or votes), provided that the profit out of which the dividends were paid was subject to a security tax or a foreign income tax. Dividends may only be deducted if they were included in the profit before tax, i.e. if the dividend received is not recognized as income in the income statement, no deduction can be made.
• The profit attributed to a permanent establishment located in a foreign state.

The tax would be paid in form of advance payments. For 2026 the advance payments should be made for the first time by September 10, followed by December 10. In 2027 and 2028, advance payments would need to be made on a quarterly basis by March 10, June 10, September 10 and December 10 of the respective year. The final amount of the tax, deducted by the advance payments, would need to be declared and paid by the 10th day of the ninth calendar month after the end of the company’s fiscal year.

Based on the current draft bill, the law is intended to come into effect as from January 1, 2026, and will be in effect until December 31, 2028. If the financial year of a company does not coincide with the calendar year, the tax is levied in proportion to the number of months falling within the respective year.

The bill is currently subject to the second (out of three) readings of the Estonian Parliament. After the bill has passed by the Parliament, the bill is sent to the President for proclamation, upon which it is published in the Official Gazette.

Besides the defense tax package, please note that as from January 2025, the corporate tax rate in Estonia will be increased from 20 percent to 22 percent (i.e., corporate tax in relation to distributed profits). In addition, the reduced corporate income tax rate of 14 percent on regularly distributed corporate profits and the related 7 percent withholding tax on dividends paid to individuals will be abolished. For more information, please refer to E-News Issue 179.

For more information, please refer to a report prepared by KPMG in Estonia. 

Consultation launched on draft bill to transpose DAC8

On November 4, 2024, the German Ministry of Finance published the draft bill to transpose Council Directive (EU) 2023/2226 of October 17, 2023 (DAC8) – for more information on DAC8, please refer to Euro Tax Flash Issue 543.

Key takeaways from the German proposal include:

• Introduction of rules on due diligence procedures and reporting requirements for crypto-asset service providers. In-scope crypto-asset service providers would be required to collect and verify information from EU clients, in line with specific due diligence procedures. Subsequently, certain information would be reported to the relevant competent authorities. This information would then be exchanged by the tax authorities of the recipient Member State with the tax authorities of the Member State where the reportable user is tax resident.
• Broadening of the scope of the automatic exchange of advanced cross-border rulings to include those issued to individuals (DAC3).
• Extension of the DAC6 notification procedures to include any other information that could assist the competent authority in assessing a potential tax risk regarding cross-border arrangements

The deadline for submitting feedback to the public consultation was November 14, 2024. To comply with DAC8, the domestic legislation must be implemented by December 31, 2025, and the rules should be applied from January 1, 2026 (with some exceptions).

Due to the end of the German governing coalition and the upcoming snap elections in February 2025, the timing of the legislative process is currently unknown. It can, however, be expected that the draft law would be implemented into domestic law before the December 31, 2025, deadline.

For more information on the consequences resulting from the end of the German governing coalition, please refer to a report prepared by KPMG in Germany.

Ministry of Finance proposes various direct tax amendments

On November 5, 2024, the Greek Ministry of Finance announced legislation for various 2025 proposed tax reform measures. Key takeaways from a direct tax perspective include:

Measures to support business reorganizations/transformations:

• Domestic and cross-border business transformations, including mergers, demergers, branch contributions, share exchanges, and business conversions are proposed to be regulated in a single framework, replacing obsolete laws and maintaining tax benefits while aligning with Greek corporate law and EU Directives.
• For SMEs, the minimum share capital for newly formed companies resulting from reorganizations is proposed to be reduced to EUR 100,000 (from EUR 125,000) to qualify for a 30 percent tax exemption.
• Furthermore, tax loss carry forwards would be allowed to companies undergoing transformations.

Tax incentives in relation to R&D and start-ups:

• Increased super deduction of 250 percent to 315 percent (currently 200 percent) for qualifying R&D expenditure on collaboration projects with startups and research centers. The increased super deduction would also be available for knowledge-intensive SMEs with R&D spending exceeding 20 percent of total expenses.
• In addition to the current three-year exemption on profits from patent commercialization, a 10 percent income tax reduction would be introduced in relation to those profits. This new measure would be applicable for an additional seven years. Patents would be qualified only if they were developed by the company itself.
• Enhancement of tax incentives for angel investors investing in start-ups (registered in the National Startup Registry), with an increase in the maximum contribution from EUR 300,000 to EUR 900,000. Qualifying investors are permitted to deduct 50 percent of the contributed amount for tax purposes.

Participation exemption:

• Introduction of a participation exemption regime for intra-group dividends received by Greek tax-resident legal entities from non-EU entities subject to certain conditions (e.g., minimum share of 10 percent held for a minimum period of 24 months).
• The participation exemption would also apply to capital gains from transferring shares in a non-EU entity subject to the same conditions.
• The participation exemption would not apply where the non-EU entity is resident for tax purposes in a non-cooperative jurisdiction. For more details on defensive measures adopted by EU Member States against non-cooperative jurisdictions, please refer to KPMG’s dedicated summary.
• The Greek government has opened a public consultation on this proposed measure (deadline November 19, 2024).

Following the public consultation, the legislation proposal is going to be tabled in the Parliament as a next step.

Forms updated to claim tax credit under special economic zone regime

On November 6, 2024, the Italian tax authorities updated the model form to be submitted by qualifying taxpayers to benefit from the tax credit for investments made in the single special economic zone (zona economica speciale unica, ZES unica).

The ZES unica tax credit is aimed at encouraging qualifying enterprises, including those in agriculture, fishery, and aquaculture, to invest in new business assets between January 1, and November 15, 2024. These assets must be used in productive facilities in the ZES unica regions: Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia, and Sicily. The tax credit amount varies by region and project costs. Eligible costs can reach up to EUR 100 million per project, with a minimum project value of EUR 200,000. Whilst the tax credit is not refundable, there are no time limits on its use.

For more information on Italian tax credits, please refer to E-News Issue 192.

Revised draft law amending Pillar Two law

On October 31, 2024, the Luxembourg government published additional amendments to the draft law published in June 2024 (for more information, please refer to a report prepared by KPMG in Luxembourg). The revised draft law incorporates the additional guidance and clarifications from the OECD June 2024 Administrative Guidance.

Key highlights include:

• Guidance for securitization entities: Under the revised draft law, any top-up taxes in respect of securitization entities should not be imposed on the securitization entity itself. Instead, these taxes would be allocated to other constituent entities in Luxembourg in proportion to the total amount of their top-up tax liability. If there are no other constituent entities in Luxembourg, the top up tax liability remains with the securitization entity.
• Allocation of profits and taxes in structures including flow-through entities: The revised law incorporates amendments from this guidance directly into the text of the Pillar Two law.
• Remaining elements from the OECD June 2024 Administrative Guidance: the revised draft law clarifies that Chapters 1-4 from the OECD June 2024 guidance will be implemented via upcoming Grand-Ducal Decrees.

The amendments would apply for financial years starting on or after December 31, 2023.

For more information, please refer to a report prepared by KPMG in Luxembourg.

For a summary of the OECD June 2024 Administrative Guidance, please refer to a report by KPMG International.

Public consultation to extend the temporary exemption from withholding tax under the ‘pay and refund' mechanism

On November 4, 2024, the Polish Ministry of Finance launched a consultation on a draft regulation to extend, until December 31, 2025, a temporary exemption from withholding tax under the ‘pay and refund’ mechanism. The exemption applies to intermediary remitters, defined as entities maintaining securities accounts or omnibus accounts, through which issuers of securities make payments on these securities to non-resident taxpayers.

Under the ’pay and refund’ mechanism, effective from January 1, 2019, remitters have been required to collect tax at the applicable rate (19 percent or 20 percent) on any excess over PLN 2 million (approximately EUR 488,000), with no option to apply preferential taxation methods. However, since the regulation’s effective date, this obligation has been temporarily limited or waived for intermediary remitters. The most recent exemption from the ‘pay and refund’ mechanism has been extended until December 31, 2024.

For more information, please refer to a report prepared by KPMG in Poland. 

Minimum taxation rules (under Pillar Two) enacted

On November 8, 2024, the bill transposing the EU Minimum Tax Directive into domestic legislation was published in the Official Gazette and entered into force on the following day. Key takeaways include:

• General: The bill is generally aligned with the EU Minimum Tax Directive and introduces a Domestic Minimum Top-up Tax (DMTT) and an Income Inclusion Rule (IIR), applicable for fiscal years beginning on or after January 1, 2024, as well as an Undertaxed Profits Rule (UTPR), applicable for fiscal years beginning on or after January 1, 2025.
• DMTT: the DMTT generally follows the regular GloBE rules for calculating the ETR and Top-up Tax liability. However, the DMTT will be imposed with respect to 100 percent of the Top-up Tax calculated for local Constituent Entities (i.e., it cannot be limited to the UPE's ownership percentage in the local Constituent Entities). Cross-border taxes, such as CFC taxes that will be allocated to domestic Constituent Entities under the regular GloBE rules, need to be excluded for DMTT purposes. In addition, the law requires for the DMTT computations needs to be computed based on the UPE’s Financial Accounting Standard except where it is not reasonably practicable to use such accounts.
• Safe Harbours: the law incorporates the transitional CbyC Reporting Safe Harbour (including the anti-arbitrage rules applicable to arrangement entered into after December 15, 2022). The law further includes the transitional UTPR Safe Harbour and the permanent QDMTT Safe Harbour (in accordance with the OECD July 2023 Administrative Guidance).
• Registration: Every constituent entity located in Portugal and included in the scope of the GloBE rules must submit a notification to the Portuguese tax authorities within nine months (12 months for the transitional year) after the end of the fiscal year in which the group falls within the scope of the GloBE rules or when there are any changes in the elements contained in the notification. This notification is made using an official model approved by an Ordinance of the Ministry of finance (yet to be published).
• Filing and payment: the GloBE Information Return (GIR) must be filed within 15 months after the end of the fiscal year (18 months for the transitional year). An option is provided to transfer the obligation to file the GIR to another Constituent Entity (along with the requirement to notify the local tax authorities where the GIR has been filed by a foreign Constituent Entity). In addition, a local tax settlement declaration must be filed and any top-up tax paid within the same deadline as for filing the GIR. The legislation further provides for the option to identify a local group member that is responsible for declaring and paying the top-up tax on behalf of all minimum tax group members. The entity must be designated within nine months (12 months for the transitional year) after the end of the fiscal year during which the group falls within the scope of the GloBE rules or when there are any changes in the elements contained in the notification.

For more information, please refer to the KPMG BEPS 2.0 tracker in Digital Gateway.

Note that Portugal is one of the countries that has failed to transpose the EU Minimum Tax Directive into domestic legislation by December 31, 2023. Therefore, Portugal, together with Cyprus, Poland and Spain, were referred by the European Commission to the CJEU on October 3, 2024. For previous coverage, please refer to E-News Issue 201.

Proposed measures to amend Income Tax Act

On November 11, 2024, Slovenia's government submitted to the Parliament a draft bill proposing amendments to the Slovenian corporate income tax act. Key takeaways include:

• Tax loss carry-forward: the bill proposes a limitation of the possibility to carry forward tax losses from business activities to five years and to seven years for tax losses that have already accrued (currently the Slovenian law provides for an unlimited tax loss carry forward).
• Carry-forward of unused allowance: the bill proposes the introduction of the possibility to carry forward to the next five years the portion of the unused digital and green transition allowance. The allowance for qualifying investments (e.g., in cloud computing, artificial intelligence, big data, energy efficiency, decarbonisation) was introduced as from January 1, 2022 and reduces the tax base up to a maximum of the taxpayer’s tax base.
• Interest deduction limitation: the bill proposes the elimination of the current thin capitalisation rule, which denies the deduction of interest expenses where the debt-to-equity ratio exceeds 4:1. In addition, the bill proposes an increase of the de-minimis threshold in relation to the interest deduction limitation rule (implemented as part of the ATAD transposition) from EUR 1 million to EUR 3 million.

For more information on the local implementation of the ATAD interest deduction limitation rules, please refer to KPMG’s dedicated summary.

Updated legislation to implement minimum taxation under Pillar Two submitted to Parliament

On October 30, 2024, the South African government submitted to the National Assembly the Global Minimum Tax (GMT) Bill and GMT Administration Bill to implement the OECD’s Pillar Two Model Rules. This follows the initial draft, which was published for public consultation in February 2024 – for previous coverage, please refer to E-News Issue 191.

Key amendments compared to the initial proposal include:

• Administration: The GMT Administration bill has been updated and now defines the GloBE Information Return (GIR) to include both a GIR in an international context and an information return for DMTT purposes, which are both required to be submitted to the South African Revenue Service within 15 months after the end of the Reporting Fiscal Year (18 months for the transitional year), subject to certain exceptions.
• Penalties: As proposed initially, a non-compliance penalty of ZAR 50,000 (approximately EUR 2,600) would be applied per month per constituent entity. In addition, under the updated law the amount of the penalty would double if the top-up tax not paid exceeds ZAR 5 million (approximately EUR 261,000) and would triple if the top-up tax due exceeds ZAR 10 million (approximately EUR 521,000).

For more information, please refer to the KPMG BEPS 2.0 tracker in Digital Gateway.

Corporate tax guide on tax residency and tax residency certificate published  

On October 18, 2024, the Federal Tax Authority of the United Arab Emirates (UAE) published a new comprehensive corporate tax guide on tax residency and the tax residency certificate. Key takeaways include:

• The guide offers insights into the criteria for determining when an individual or legal entity may qualify as a ‘Resident Person’ under UAE corporate tax law.
• The guide further sets out the criteria for determining when an individual or legal entity qualifies as a ‘Tax Resident’ for the purposes of UAE domestic tax law or the Double Taxation Avoidance Agreements (DTA). It is noted that being a Resident Person for the purposes of UAE Corporate Tax is distinct from being a Tax Resident of the UAE under domestic laws or under the applicable DTA.
• The Guide also provides details on the procedure for obtaining a Tax Residency Certificate (TRC).

For more information on the tax guide, please refer to a report prepared by KPMG in the UAE. 

Tax measures in Autumn Budget 2024

On October 30, 2024, the UK Chancellor presented the UK Autumn Budget before the Parliament, including outlining various tax measures. Subsequently, on November 7, 2024, Finance Bill 2024-2025 was introduced to incorporate some of the announced provisions into legislation.

Key takeaways include:

• Corporate tax rates: the corporate tax rates would remain unchanged. The main corporate income tax rate would stay at 25 percent and the current small profits rate and marginal relief rates and thresholds would be maintained.
• Improving tax certainty: the government plans to launch a consultation in spring 2025 to develop a process to give investors in major projects increased certainty on taxes that will apply.
• Research and development (R&D) tax relief: current rates for the merged R&D Expenditure Credit (RDEC) scheme, and the Enhanced Support for R&D Intensive SMEs (ERIS) would be maintained. In addition, an R&D expert advisory panel and R&D disclosure facility would be introduced. The government also committed to improve the effectiveness of the reliefs, look at longer term simplification, and intends to launch a consultation on the use of advance clearances for R&D reliefs.
• Transfer Pricing: a public consultation is planned for spring 2025 to consult on changes to the UK’s transfer pricing, permanent establishments, and diverted profits tax regimes.
• Reporting regimes: the government has confirmed that the OECD’s Crypto-asset Reporting Framework (CARF) regime would be introduced as from January 1, 2026, with relevant information being collected from that date and reported by May 31, 2027. They further confirmed that there is no plan at this stage to extend the Common Reporting Standard (CRS) regime to domestic reporting.

For more information, please refer to a report prepared by KPMG in the UK.

Pillar Two amendments in Finance Bill 2024-2025

The Finance Bill 2024-2025 also included several amendments to the UK Pillar Two rules, including the introduction of the UTPR into UK Pillar Two legislation, following its initial proposal in September 2023 (for previous coverage, please refer to E-News Issue 184). Key highlights include:

• Provisions related to UTPR: No significant amendments have been proposed with respect to the UTPR as compared to the initial proposal from September 2023. The UTPR would become applicable for financial years starting on or after December 31, 2024, and would be collected in form of an additional top-up tax levied directly on UK constituent entities in an amount equal to the UTPR top-up tax amount allocated to the UK. The UK portion would be allocated between UK constituent entities in proportion to the employees and tangible fixed assets of each entity. An election would also be introduced that allows a group to identify a single constituent entity liable for the entire UK portion of the UTPR top-up tax. An exclusion from the UTPR would apply for groups in the initial phase of international activity.
• Safe Harbours: The bill would also introduce the transitional UTPR Safe Harbour into existing legislation, as initially proposed in September 2023. Moreover, the bill includes amendments to the transitional CbyC Reporting Safe Harbour to introduce the anti-hybrid arbitrage rules as per the OECD December 2023 Administrative Guidance. The new rules would become effective for transactions entered into after December 15, 2022, and would apply for disqualified tax expenses attributable to profits accruing on or after March 14, 2024 (for previous coverage, please refer to E-News Issue 199).
• Additional OECD guidance:  The bill also introduces other aspects from the OECD December 2023 (e.g., guidance on purchase price accounting adjustments and blended CFC regimes) and from the June 2024 Administrative Guidance (e.g., cross-crediting guidance, DTL recapture guidance, and guidance on allocation of profits and taxes in structures including flow-through entities).
• Pillar Two territories: An amendment is proposed to recognize jurisdictions as Pillar Two territories for the purposes of a qualifying IIR, a qualified DMTT, and for QDMTT meeting the requirements for the QDMTT Safe Harbour, based on the OECD peer review process. This change in the legislation is necessary to ensure that any upcoming results from the peer review process could be applied with retroactive effect, even if regulations specifying these territories in UK law  cannot be issued in time before the end of 2024.

According to the bill, some provisions would apply retroactively for financial years starting on or after December 31, 2023 (e.g., removal of election for SBIE purposes, provisions with respect to Pillar Two territories), while others apply for financial years starting on or after December 31, 2024 (unless an election has been made by the filing entity to apply it retroactively).

For more information, please refer to a report prepared by KPMG in the UK.

Local courts

Supreme Court decision on the beneficial ownership concept (Parent-Subsidiary Directive)

On September 3, 2024, the Italian Supreme Court of Cassation (Supreme Court) issued a decision dealing with the beneficial ownership concept in the context of divided payments (decision No. 23628).

The plaintiff was a Dutch company which received dividend payments from its Italian subsidiary between 2013 and 2016. The latter withheld a five percent tax from the dividends paid. In 2017, the plaintiff submitted a refund request to the Italian tax authorities based on the Parent-Subsidiary Directive (PSD), as implemented into the Italian tax law. The request was rejected and, following several appeals, the case was brought before the Supreme Court.

Referring to the CJEU decision in the Danish cases¹, the Supreme Court held that meeting a beneficial ownership requirement represents a critical element for the proper application of the PSD. In the Supreme Court’s view, beneficial ownership indicates the genuineness of the arrangements involved and helps to detect possible abusive situations.

The Supreme Court then clarified that ‘beneficial ownership’ entails meeting three autonomous tests, as follows:

(i) the substantive business activity test – focused on whether the entity receiving the dividends conducts genuine economic activity;

(ii) the control test – focused on whether the recipient can freely dispose of the income or is required to pass it to a third party; and

(iii) the business purpose test – which evaluates whether the entity’s involvement in cross-border dividends serves a legitimate business purpose or exploits favorable tax treatment.

The Supreme Court then took the view that, based on the guidance above, the plaintiff was the beneficial owner of the dividend income. For this purpose, the Supreme Court noted that the parent company was engaged in real business activity and had an operational presence in the Netherlands, that it retained a significant part of the dividends received, and that it had been set up in the Netherlands even before the adoption of the PSD.

Based on the above, the Supreme Court upheld the taxpayer’s appeal and referred back to the Court of Second instance for a final ruling on the facts, in light of the guidelines provided by the Supreme Court. 

Dutch Supreme Court decision on the applicability of the participation exemption with respect to call options

On October 25, 2024, the Dutch Supreme Court decided on the applicability of the Dutch participation exemption to covered call options where the participation falls below a five percent threshold. In general, a shareholding of at least five percent is required for the application of the Dutch participation exemption on benefits received from a qualifying shareholding. However, if the participation falls below the five percent threshold at a certain time, an exception applies whereby the participation exemption continues to apply for three years, subject to conditions.

The case regards a taxpayer that acquired shares and covered call options in a Japanese company in 2014. The shares in the company represented a shareholding of eight and a half percent, whereas the covered call options gave a right to acquire an additional five percent shareholding. Subsequently, in November 2015, the taxpayer waived part of the options. The remaining options gave a right to acquire a shareholding of 2.34 percent in the Japanese company. In 2017, the Japanese company was listed on the Tokyo Stock Exchange, as a consequence of which the taxpayer’s shareholding diluted to 2.28 percent and the taxpayer’s options gave only a right to acquire a shareholding of 1.58 percent. After the listing took place, the taxpayer exercised these call options, upon which a profit was realized. The taxpayer applied the participation exemption to this profit pursuant to the exception for participations falling below the 5 percent threshold.

The question under dispute was whether the exception for participations falling below the five percent threshold could be applied to the result realized on exercising the call options. The Supreme Court reiterated that the aim of the participation exemption is to prevent the same profit from being taxed twice in participation relationships, which also applies in the context of options. In light of previous case law, the Supreme Court decided that if both the option writer and the option holder are eligible for the participation exemption, both parties may apply the exception for participations falling below the five percent threshold (provided that the other applicable conditions are also met).

For more information, please refer to a report prepared by KPMG in the Netherlands. 

Tax transparency at the eve of public CbyC and CSRD reporting

With the EU Public Country by Country Reporting and the CSRD Directive having entered into force in 2024, Tax Transparency will become a reality within the EU legal reporting framework. Debates are still active on the merits of such initiatives, with some companies gradually have become more transparent about their tax affairs, while others have kept their tax cards closer to their chest. Ultimately, in 2026, qualifying companies will have to disclose their CbyC Reporting and need to include comprehensive information in their CSRD Reporting, insofar tax is considered a material topic.

On December 3, 2024, a penal of tax professionals will discuss the current state of Tax Transparency in Europe and how companies are preparing for the upcoming reporting requirements, and to find out how the European MNC’s are contributing to the public finances globally and how this has been evolving.

Questions that will be discussed include:

• What differences can be seen in the various sectors and around Europe in terms of the current level of tax transparency?
• Will the upcoming reporting obligations be sufficient for informing stakeholders adequately?
• What are examples of best transparency practices?
• What role do European MNC’s play in increasing the future EU competitiveness?

Please access the event page to register.

EU Tax Perspectives webcast – December 10, 2024

On December 10, 2024, a panel of KPMG professionals will take a deep dive into the state of play on EU direct tax initiatives, discuss what can be expected from the next Commission and explore future trends in global direct tax policy.

The session will focus on:

• BEPS 2.0 in the EU: state of play on the implementation of the EU Minimum Tax Directive (Pillar Two, practical issues such as registration requirements, proposal for exchange of Pillar Two information between EU Member States (DAC9),
• Incentives: The impact of Pillar Two on incentives and recent country developments,
• Tax transparency: EU public country-by-country reporting forms, practical insights on upcoming publishing deadline for MNEs present in Romania, and trends and best practices in tax transparency,
• State of play of key EU direct tax initiatives: the Withholding Tax Relief Framework (FASTER), the Unshell Directive proposal, BEFIT, the Transfer Pricing Directive, review of the Directive for Administrative Cooperation.

Please access the event page to register.

Talking tax series

With tax-related issues rising up board level agendas and developing at pace, it’s more crucial than ever to stay informed of the developments and how they may impact your business.

With each new episode, KPMG Talking Tax delves into a specific topic of interest for tax leaders, breaking down complex concepts into insights you can use, all in under five minutes. Featuring Grant Wardell-Johnson, KPMG’s Global Head of Tax Policy, the bi-weekly releases are designed to keep you ahead of the curve, empowering you with the knowledge you need to make informed decisions in the ever-changing tax landscape.

Please access the dedicated KPMG webpage to explore a wide range of subjects to help you navigate the ever-evolving world of tax.