EU and TP - where are we?

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1 EU and TP - where are we? Dominic Stuttaford Tino Duttiné Norton Rose Fulbright LLP 1 March 2018

2 Overall themes Activist Commission Continuing use of State Aid ATAD developments EU Blacklist BEPs Adoption by Members States Substance requirements Alternatives to TP UK Royalty Taxes UK Diverted Profit Tax Brexit Is there an update? 2

3 State Aid - Reminder selective tax advantage Can be: Individual ruling Particular tax regime Action to recover tax 10 year look-back A matter of EU competition law 3

4 Where are we now? Recovery proceedings: Amazon - $ 250m Apple - $13bn Ongoing investigations: McDonalds Engie / GDF Suez UK CFC Regime IKEA 4

5 IKEA 5

6 Netherlands Rulings Ruling issued in 2006 Licence fee paid to 1929 Luxembourg company Ruling issued in 2011 Price paid for the IP Interest rate on l/c loans Tax relief 6

7 Investigation All companies, big or small, multinational or not, should pay their fair share of tax. Member States cannot let selected companies pay less tax by allowing them to artificially shift their profits elsewhere. We will now carefully investigate the Netherland s tax treatment of Inter IKEA. Commissioner Margrethe Vestige 7

8 ATAD Developments Exit Tax Rules 8

9 ATAD Developments CFC Rules 9

10 ATAD Developments General Anti-Abuse Rule 10

11 ATAD Developments Article 6 1. For the purposes of calculating the corporate tax liability, a Member State shall ignore an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, are not genuine having regard to all relevant facts and circumstances. An arrangement may comprise more than one step or part. 2. For the purposes of paragraph 1, an arrangement or a series thereof shall be regarded as non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality. 3. Where arrangements or a series thereof are ignored in accordance with paragraph 1, the tax liability shall be calculated in accordance with national law 11

12 ATAD Developments Open Issues 1. Concept of non-genuine arrangement may go beyond ECJ case law on anti-abuse provisions 2. ECJ only allows limitation to fundamental freedoms where AAR target wholly artificial structures 3. ATAD sets minimum standard, Member States may implement stricter rules 4. Will national courts seek harmonized interpretation? 5. Application on conduits and TP? 12

13 EU Blacklist Aims to improve harmful tax practices Transparency Fair Tax Competition BEPS Minimum Standards What is happening? Initial list 92 countries committed to screening 47 committed to improve practices and 20 given all clear (8 given more time) 17 placed on December list 9 remain What are the tax sanctions? Stricter C by C reporting Reportable transactions for intermediaries Other measures denial of deductions? 13

14 BEPS Adoption of Minimum standards under the MLI Widespread adoption across the EU Member states Growing emphasis and challenges on substance The Netherlands Luxembourg Linked to beneficial ownership challenges for treaty claims 14

15 Royalty taxes To tax the digital economy Responding to public pressure The UK response (from April 2019) UK distributor Payment to a treaty jurisdiction Onward payment to a non-treaty jurisdiction Withholding tax imposed on payment made to non-treaty jurisdiction Collected from UK affiliate, even if arms length 15

16 Royalty payment 16

17 Issues Imposed tax on a gross payment rather than a net payment Query compatible with treaties? Minimum tax in non-treaty? Joint and several liability? Creditability of any tax paid? Still needed post US tax changes? 17

18 TP & Customs Adjustments / ECJ C-529/16 Do TP adjustments impact custom duties? The customs value of imported goods is the transaction value The transaction value must reflect the real economic value of imported goods The court has allowed subsequent adjustments of the transaction value but limited to limited specific situations E.g. quality defects or damaged goods The Customsa Code does not provide for an obligation on the importer to apply for adjustments Hence, risk that only downward adjustments will be claimed The Customs Code does not allow account to be taken for TP adjustments 18

19 Diverted Profits Tax Introduced in 2015 Taxes (at 25 per cent) pay and play Payments to low tax entities lacking substance Avoided Pes Success? Cash raised? 281m for 2016/2017 Deterrent effect?? Quicker resolution of IP issues 19

20 DPT - Glencore Long running TP dispute Payment by UK Company to Swiss affiliate of 80 per cent of profits for insurance and access to storage facilities Use of DPT to resolve the issue? Assessment for tax Relevant alternative Provision Fee for alternative working capital provision No other services supplied Initial appeal dismissed 20

21 Dominic Stuttaford Head of Tax, Europe Middle East, Asia and Brazil Norton Rose Fulbright LLP, UK Dominic Stuttaford is Head of Tax for Europe, Middle East and Asia and Brazil, based in London. He has a particular focus on the tax aspects of corporate finance and other finance transactions and structures, with a particular interest in the insurance and technology sectors, advising both UK and internationally based clients. He trained at Norton Rose and became a partner in Dominic's experience includes mergers and acquisitions of public and private companies, group restructurings, and acquisitions and other finance structures. Dominic has been recommended for some years in Chambers and Partners and Legal 500 and has been described as "extremely bright", and as being " very proactive, thorough and knowledgeable, and always delivers what we need, when we need it" with clients remarking that "he can be relied upon to come up with the right answers". Dominic has been identified for many years by Who's who Legal as a leading Corporate Tax Lawyer Dominic is a member of the Law Society International Tax Committee and the Chartered Institute of Taxation (CTA). He is on the Editorial Committee of Practical Law for Companies (PLC). 21

22 Tino Duttiné Partner Norton Rose Fulbright LLP, Germany Tino Duttiné is a tax partner based in our Frankfurt office. He has extensive experience advising clients on the full range of corporate taxation both nationally and internationally. His main focus lies in project-oriented tax planning, advice on M&A transactions and group structuring for national and international clients as well as advising on financing structures and real estate transactions. Tino studied law at the University of Frankfurt. Additionally, he completed a degree course in business administration and holds a German MBA (Diplom-Kaufmann). He is admitted as a certified tax advisor (Steuerberater). Before joining us in 2015, he worked for twelve years at another international law firm in Frankfurt. He is the author of various publications on corporate and tax matters and lectures on International Taxation at the Frankfurt School for Finance and Management. He is a German native speaker and speaks English fluently. 22

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