E-News from the EU Tax Centre Issue 49 - September 18, 2014 IN THIS ISSUE Latest CJEU, EFTA and ECHR Infringement Procedures & Referrals to CJEU State Aid EU Institutions Latest CJEU, EFTA and ECHR Belgium Verest and Gerards (C-489/13) On September 11, 2014, the Court of Justice of the European Union (CJEU) rendered its decision in the Verest and Gerards case (C- 489/13). The issue before the Court concerned whether the freedom of capital movement precludes national legislation which in case of immovable property that is not rented out provides for different method for determining income derived from such property, depending on whether it is situated in or outside Belgium, even though the foreign income was only taken into account in order to establish tax rate applicable to income taxable in Belgium. The Court held that such legislation is contrary to Article 63 TFEU in so far as it is liable to lead to a higher tax rate merely because the method for determining income applicable to the foreign property results in income derived from the foreign property being assessed at a higher amount than income from similar domestic property. However it was left for the referring court to ascertain whether that was in fact the effect of the legislation concerned. OECD Local Law & Regulations Local Courts Germany - Commission v. Germany (C-211/13) On September 4, 2014, the CJEU rendered its decision in the Commission v. Germany case (C-211/13) concerning the inheritance and gift tax provisions applicable to immovable property situated in Germany. Under said provisions a considerably lower tax-free allowance applies if the donor or the deceased person and the acquiring person are non-residents at the time of inheritance or gift, compared to a domestic situation where at least one of the two parties concerned is a German resident. The Court held that these
rules are incompatible with the freedom of capital movement. Germany - Kronos (C-47/12) On September 11, 2014, the CJEU rendered its decision in the Kronos case (C-47/12) concerning German legislation which provided for different methods of eliminating double taxation of profits distributed by resident and non-resident subsidiaries. this led to a cash-flow disadvantage in a cross-border situation where a receiving company was in a loss position because a shareholder in a domestic company would get a refund of the underlying tax. The Court held that the German rules were not in breach of the free movement of capital. Read our EuroTaxFlash for more details. The Netherlands - Deputy Minister of Finance v. X (C-87/13) On September 4, 2014, Advocate General Juliane Kokott gave her opinion in the Deputy Minister of Finance v. X case (C-87/13) concerning the deductibility of expenses incurred in relation to a listed building in Belgium owned and occupied by a Dutch national who resides in Belgium, but has opted to be fully liable to tax in the Netherlands. The Advocate General opined that the Dutch rules providing for a higher deductibility of expenses incurred in the conservation of listed monuments only in the Netherlands do not preclude the rules on freedom of establishment and on free movement of capital. Spain - Commission v. Spain (C-127/12) On September 3, 2014, the CJEU rendered its decision in the case of Commission v. Spain (Case C-127/12). Under Spanish inheritance and gift tax rules, Spanish tax residents are granted tax benefits that reduce their overall tax liability. These benefits however, do not apply to non-residents. The CJEU concluded that this differential tax treatment is contrary to the free movement of capital. Read a September 2014 report prepared by the KPMG member firm in Spain. Iceland - The Icelandic State v. Atli Gunnarsson (E-26/13) On June 27, 2014, the EFTA Court gave its decision in the Icelandic State v. Atli Gunnarsson case (E-26/13) regarding less favorable treatment of taxpayers who have ceased their occupational activity in a home State and moved to another State, but receive pensions from the home State. Under the Icelandic tax rules, they had to reside in Iceland in order to benefit from an option of pooling personal tax credits of spouses for the purpose of the assessment of their income tax liability in Iceland. No such option was given to spouses who had moved to another Member State. The EFTA Court ruled that such less favorable tax treatment is incompatible with
Article 7 of the Directive 2004/38 on the right of citizens of the Union and their family members to move and reside freely within the territory of the Member States. Infringement Procedures & Referrals to CJEU Closed infringement proceedings On July 23, 2014, the European Commission closed proceedings with respect to the following infringement cases: Austria - discriminatory treatment of foreign non-profit institutions (Case No 2009/2335); Belgium - discrimination of credit institutions established in other Member States; Belgium - taxation of foreign collective investment undertakings (Case No 2009/4568); Belgium - taxation of paid interest (Case No 2008/4157); Belgium - discriminatory tax reduction for Walloon tax residents (Case No 2009/4386); Belgium - rules on the notional interest deduction. All of the above cases were closed as the Member States concerned changed their legislation in question. For more information on infringement procedures, you can access the dedicated page on the European Commission s website. State Aid Netherlands Commission invites comments to be submitted on the corporate tax exemption of Dutch public companies On August 22, 2014, following an in-depth investigation opened by the European Commission on July 9, 2014 with respect to the corporate tax exemption of Dutch public companies, an invitation to submit comments by interested parties was published in the Official Journal of the European Union. Comments may be submitted until September 22, 2014. For further information, see the publication in the Official Journal of the EU.
EU Institutions Goals of new Commissioner for Economic and Financial Affairs, Taxation and Customs On September 10, 2014, President-elect of the European Commission, Jean-Claude Juncker, officially designated Pierre Moscovici as the new Commissioner for Economic and Financial Affairs, Taxation and Customs. In his mission letter addressed to the new Commissioner, President-elect stressed the modernization of the Member States tax systems, including broadening of the tax base, shifting the tax burden away from labour, improving tax compliance and addressing the debt bias in corporate and personal income taxation as well as combating tax evasion and tax fraud, as essential for delivering on the priorities of the European Semester of economic policy coordination. The main goals for which the new Commissioner will be responsible for reaching during his mandate will be improvement of the functioning of the internal market in indirect taxation and development of the definitive VAT system at the EU level, seeking to finalize negotiations on the FTT and CCCTB, fight against tax fraud, tax evasion and aggressive tax planning, and tackling base erosion and profit shifting, including in the digital economy. For more details, read the Mission letter of President-elect of the European Commission addressed to the new Commissioner. IASB proposals on deferred tax assets, unrealized losses On August 21, 2014, the International Accounting Standards Board (IASB) issued proposals that seek to address the fundamental question of what future taxable profit is, and whether a taxpayer must recognize a deferred tax asset if the loss is unrealized. Read more on the TaxNewsFlash issued by the KPMG member firm in the UK. Public consultation on IFRS launched On August 7, 2014, the European Commission launched a public consultation on the impact of International Financial Reporting Standards (IFRS) in the European Union. Interested parties are welcome to give views on their experience of adoption of IFRS by October 31, 2014. For more details, see dedicated page on the European Commission s website.
Proposal for a Council Regulation laying down detailed rules for the application of Article 108 TFEU (codification) On August 26, 2014, the European Commission adopted a proposal for a Council Regulation laying down detailed rules for the application of Article 108 TFEU (codification). According to the Explanatory Memorandum, the purpose of this proposal is to undertake a codification of Council Regulation (EC) No. 659/1999 of March 22, 1999 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union. The new Regulation will supersede the various acts incorporated in it; this proposal fully preserves the content of the acts being codified and hence does no more than bring them together with only such formal amendments as are required by the codification exercise itself. In order to see the full text of the proposal and monitor the decisionmaking process between institutions in this respect, see PreLex. International Conference on Taxation of Extractive Industries On September 9 to 11, 2014, the International Conference on Taxation of Extractive Industries, jointly organized by the International Tax Compact (ICT), the European Commission and the World Bank Group, was held in Brussels. For more details, see the ICT website. OECD Information Exchange/Common Reporting Standard KPMG's Global Financial Services Tax practice has published an extensive report on the impact of the three main tax information exchange initiatives: the OECD s Common Reporting Standard for Automatic Exchange of Information, the US FATCA, and the EU Savings Directive and the influence these new standards have upon financial institutions around the world. The report considers the steps financial institutions should take to achieve compliance costeffectively. BEPS recommendations to G20 On September 16, 2014, the OECD released its first set of recommendations under seven topics of the Base Erosion and Profit Shifting (BEPS) project. Read more and watch the webcast. Read also an overview prepared by the KPMG member firm in the Netherlands.
Requests for public comments on BEPS Action 11 On August 4, 2014, the OECD issued a release containing a request for public comments on BEPS Action 11, concerning work on establishing methodologies to collect and analyze data on the base erosion and profit shifting (BEPS) plan and the action to address it. Read more. Compliance ratings for tax transparency of ten jurisdictions On August 4, 2014, the global forum of the OECD announced the release of peer review reports demonstrating progress by countries towards implementation of an international standard for exchange of information on request tax transparency and issued compliance ratings for 10 jurisdictions, including Andorra, Anquilla, Antigua and Barbuda, Indonesia, Saint Lucia, Chile, Macedonia, Montserrat, St. Kitts and Nevis and Mexico. Read more. BEPS impact on low income countries On August 1, 2014, the OECD released part one of a report that addresses the impact of the base erosion and profit shifting (BEPS) plan on low income countries. Read more. More TaxNewsFlash OECD can be found here. Local Law & Regulations Andorra Transitional rules with respect to application of participation exemption On August 1, 2014, the tax administration of Andorra issued a technical statement clarifying that the participation exemption does not apply to dividend received out of profits generated before the entry into force of the said regulation (i.e. January 1, 2012). Croatia New tax on interest on savings accounts On August 24, 2014, the Croatian government announced that a 12% interest tax on savings accounts will apply as of January 1, 2015. Czech Republic New transfer pricing reporting requirements to be introduced The Czech tax administration has introduced a new compulsory appendix to the corporate income tax return that will require
companies to report certain related-party transactions. Read a July 2014 report prepared by the KPMG member firm in the Czech Republic. Ireland Irish Collective Asset management Vehicles Bill published On July 29, 2014, Ireland published the Irish Collective Assetmanagement Vehicles Bill 2014, which introduces a new form of corporate vehicle for Irish investment funds. Read a September 2014 report prepared by the KPMG member firm in Ireland. Italy Tax credit for investments in new capital goods A new provision in Italian tax law provides a tax credit equal to 15% of the value of qualifying investments in certain capital goods, made between June 24, 2014 and June 30, 2015. Read a July 2014 report prepared by the KPMG member firm in Italy. Exit tax on company transfers to other countries The Italian Government has issued a ministerial decree and tax regulations amending the income tax treatment of the migration of Italian companies. Read more. France Final guidelines for interest deductions on related-party loans The French tax authorities, earlier in August 2014, issued final, definitive guidelines on newly enacted rules limiting the interest deduction on loans between related parties. Read more. Germany Voluntary disclosure rules tightened On August 27, 2014, the Ministry of Finance issued a draft bill that provides for a tightening of the voluntary disclosure rules. The statute of limitation for minor offences and the mandatory selfdisclosure period is increased from 5 to 10 years. The draft bill also provides for an increase of the penalty payments if certain thresholds are reached. The above amendments will become effective as of January 1, 2015. Luxembourg Transfer and deferral of real estate-related gains On July 25, 2014 the tax authorities in Luxembourg published a circular repealing a regime that allows a taxpayer to transfer gains from existing real property being sold by the taxpayer to a new property being purchased. Read an August 2014 report prepared by the KPMG member firm in Luxembourg.
Russia Ministry of Finance s clarifications with respect to taxation of interest derived by a foreign company The Ministry of Finance clarified that interest income paid by a Russian resident individual or company to a foreign company based on a loan agreement is, under certain circumstances, subject to corporate income tax in Russia. Spain Government approves tax reform to be submitted to parliament On June 2014, a proposal for a new tax reform was announced by the Council of Ministers. On August 1, 2014, the Spanish government approved three bills to be submitted to Parliament. Those bills include most of the tax measures of the tax reform that was announced on June 20, 2014 (E-News 48). The intention is for this new legislation to come into force in 2015. Some of the main points for companies are as follows: The general rate of taxation will fall from 30% to 28% in 2015 and to 25% in 2016. The current limitation on the deduction of unused losses (up to 50% or 25% of the tax base) will be applied before the tax base is reduced by the proposed new special tax-free reserve. Companies allocating more than 10% of their revenues to research and development (R&D) activities will be allowed to monetize the R&D tax credit up to EUR 5 million if the option for the monetization of the credit is applicable. Allows the consolidation of: (i) Spanish entities owned through a non Spanish entity and (ii) Spanish subsidiaries and branches of any non-resident entity (direct or indirect interest of common holding more than 75% as general rule). Switzerland Swiss Federal Tax Administration publishes data on regularization of untaxed assets under agreements with Austria and United Kingdom On September 1, 2014, Swiss Federal Tax Administration published data on the transferred amounts arising from the regularization of previously untaxed assets belonging to Austrian and UK banks clients. Between July 2013 and August 2014, the following amounts have been transferred as a result of the bilateral withholding tax agreements with the UK and Austria: GBP 469.5 million to the United Kingdom; and EUR 738.3 million to Austria. United Kingdom
Outcome of consultation on capital gains tax charge on nonresidents On July 31, 2014, HM Treasury and HM Revenue & Customs (HMRC) published the outcome of the consultation on implementing a capital gains tax levied on non-residents disposing of UK residential property. Details of the outcome of the consultation are available on the HMRC websites. Proposed country-by-country reporting for extractive companies On August 21, 2014, the UK Department for Business Innovation and Skills (BIS) released updated draft legislation that would implement Chapter 10 of the EU Accounting Directive. Read an August 2014 report prepared by the KPMG member firm in the UK. Consultation on implementing agreements under global standard on automatic exchange of information announced HM Revenue & Customs (HMRC) released proposals to implement the OECD's common reporting standard (CRS) with respect to the automatic exchange of financial account information. Read an August 2014 report prepared by the KPMG member firm in the United Kingdom. Consultation on strengthening and updating tax avoidance disclosure regimes On July 31, 2014, HMRC opened a consultation process entitled Strengthening the Tax Avoidance Disclosure Regimes. The regimes were introduced in 2004 to provide early information to HMRC regarding tax avoidance schemes and their users. Responses to the consultation are sought by October 23, 2014. Further details of the consultation are available on the HMRC website. More TaxNewsFlash Europe can be found here. Local Courts United Kingdom Court holds in favor of tax authorities regarding tax avoidance schemes organized by specified provider On July 30, 2014, the Upper Tribunal dismissed the taxpayer s appeal in the Andrew Chappell v. HMRC case which concerned a tax avoidance scheme that used complex financial arrangements involving alleged overseas securities, by a specific provider. Germany Federal Financial Court questions constitutionality of loss carry-
forward rules In a recent decision, the Federal Constitutional Court opined that the general concept of the so-called minimum taxation, which results in a n extension of the loss carry-forward accompanied with an interest and cash flow disadvantage is generally compatible with the German Constitution. However, the application of this minimum taxation when the taxpayer is subject to an insolvency procedure, is not compatible with the general principle of equality as it negates the possibility of the losses being taken into account at any time. Write-downs to the lower going-concern value The German federal tax court (BFH) addressed write-downs to the lower going-concern value with respect to stock exchange-listed shares held as fixed assets and investment shares. Read more. More TaxNewsFlash Europe can be found here. kpmg.com/socialmedia kpmg.com/app Privacy Legal KPMG's EU Tax Centre, Laan van Langerhuize 9, 1186 DS Amstelveen, Netherlands This newsletter is published by KPMG International Cooperative in collaboration with KPMG's EU Tax Centre. 2014 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.