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February 2016 - edition 152EU Tax Alert
The EU Tax Alert is an e-mail newsletter to inform you of recent developments in the EU that are of interest for tax professionals. It includes recent case law of the European Court of Justice, (proposed) direct tax and VAT legislation, customs, state aid, developments in the Netherlands, Belgium and Luxembourg and more.
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Highlights in this edition
Commission publishes Anti Tax Avoidance PackageOn 28 January 2016, the Commission published an Anti Tax Avoidance Package containing measures to address aggressive tax planning, increase tax transparency and create a level playing field within the EU. With this package, the intention of the Commission is that Member States are able to adopt a coordinated action against tax avoidance and ensure that companies pay tax wherever they make their profits in the EU. The Anti Tax Avoidance Package includes a proposal for an Anti Tax Avoidance Directive. In addition, it includes a recommendation on Tax Treaty Issues, a Proposal for a Directive implementing the OECD Country by Country Reporting rules and a Communication on an External Strategy.
AG Wathelet opines that Portuguese legislation on relief of economic double taxation is in breach of the free movement of capital and the EU-Mediterranean Agreements concluded with Tunisia and Lebanon (Secil)On 27 January 2016, AG Wathelet delivered his Opinion in the case SECIL – Companhia Geral de Cal e Cimento SA contra Fazenda Publica (C-464/14). The case deals with the Portuguese regime on relief of economic double taxation in case of dividends paid to the Portuguese company Secil by its subsidiaries located in Tunisia and Lebanon.
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Contents
Highlights in this edition• Commission publishes Anti Tax Avoidance Package
• AG Wathelet opines that Portuguese legislation on
relief of economic double taxation is in breach of the
free movement of capital and the EU-Mediterranean
Agreements concluded with Tunisia and Lebanon
(Secil)
State Aid / WTO• Commission approves of Netherlands tax regime for
government-owned enterprises apart from seaport
exemption
• Commission widens its investigation into the taxation
of seaports
Direct taxation• AG Bobek opines that Belgium legislation which
subjects non-resident UCIs to an annual tax is not in
breach of the fundamental freedoms while a specific
sanction only for foreign UCIs which fail to pay
amounts in respect of annual tax is in breach of the
freedoms (NN (L) International)
• AG Kokott opines that the EU Charter on Fundamental
Rights and the Directive on equal treatment in
employment and occupation do not apply to Finnish
legislation providing supplementary tax on income
from a retirement pension (C)
VAT• CJ rules on application of VAT exemption for supplies
closely linked to welfare and social security work
in respect of serviced residence (Les Jardins de
Jouvence)
• AG Sharpston opines on arrangement with creditors
which stipulates that payment of the State’s VAT
claim is only partly offered (Degano Trasporti)
• Council authorizes Austria and Germany to continue
measure that excludes non-business use from the
right to deduction
• Council authorizes Latvia to introduce special
measure limiting the right to deduction on passenger
cars not wholly used for business purposes
Customs Duties, Excises and other Indirect Taxes• CJ rules on the definition of ‘related persons’
(Stretinskis)
• Publication of the Delegated Regulation and
Implementing Regulation on the UCC
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Member States exempt income from (active) subsidiaries
and permanent establishments.
The Anti Tax Avoidance Directive is to be tabled for
approval by the European Council on 25 May 2016. It
needs to be approved unanimously by all 28 Member
States. It is unclear whether this will be feasible.
The Anti Tax Avoidance Package includes the following
initiatives:
1. Proposal for an Anti Tax Avoidance Directive;
2. Recommendation on Tax Treaty Issues;
3. Proposal for a Directive implementing the OECD
Country by Country Reporting (CbCR); and
4. Communication on an External Strategy.
Each of these initiatives will be briefly summarized below.
1. Proposal for an Anti Tax Avoidance Directive
The Anti Tax Avoidance Directive aims at implementing
some of the final recommendations of the OECD Base
Erosion and Profit Shifting (BEPS) project into Member
States’ national laws. The Anti Tax Avoidance Directive will
apply to all taxpayers which are subject to corporate tax
in a Member State, including permanent establishments
(PEs) of entities resident in a third (non-EU) country.
The Proposed Anti Tax Avoidance Directive is to be
tabled for approval by the European Council on 25 May
2016. For approval, unanimity of the 28 Member States
is required. The adopted text may differ from the proposal
as it is still subject to negotiations between the Member
States. If adopted, all Member States will be required to
implement the provisions of the Directive in their national
laws. The Directive does not yet contain a date by which
this must be done.
It is intended that this Directive will function as a ‘de
minimis rule’, meaning that it merely sets out minimum
standards. Member States may apply additional or more
stringent provisions.
The Directive lays down rules against tax avoidance in six
specific fields: (i) deductibility of interest, (ii) exit taxation,
(iii) exemption of low taxed profits of a subsidiary or
PE (switch-over clause), (iv) a general anti-abuse rule
Highlights in this editionCommission publishes Anti Tax Avoidance PackageOn 28 January 2016, the Commission published an Anti
Tax Avoidance Package containing measures to address
aggressive tax planning, increase tax transparency
and create a level playing field within the EU. With this
package, the intention of the Commission is that Member
States are able to adopt a coordinated action against tax
avoidance and ensure that companies pay tax where
they make their profits in the EU. The Anti Tax Avoidance
Package includes a proposal for an Anti Tax Avoidance
Directive. In addition, it includes a recommendation on
Tax Treaty Issues, a Proposal for a Directive implementing
the OECD Country by Country Reporting rules, and a
Communication on an External Strategy.
The Anti Tax Avoidance Directive lays down rules against
tax avoidance in six specific fields: (i) deductibility of
interest, (ii) exit taxation, (iii) exemption of low taxed
profits of a subsidiary or permanent establishment
(the switch-over clause), (iv) a general anti-abuse rule
(GAAR), (v) controlled foreign company (CFC) rules and
(vi) a framework to tackle hybrid mismatches.
The proposed rules merely set the minimum required
standards: Member States may apply additional or more
stringent provisions aimed at BEPS practices.
Although all proposed rules may have a substantial
impact, the interest deduction rules and switch-over
clause stand out. Based on the interest deduction rules,
as a general rule the deduction of net interest expense is
limited to the higher of 30% of EBITDA or EUR 1 million.
This limitation relates to group interest as well as third
party interest expense. Currently, many Member States
have less stringent interest deduction limitation rules,
particularly with respect to third party interest expense.
Under the switch-over clause, income from low taxed
subsidiaries or permanent establishments cannot be
exempt. An entity or permanent establishment is regarded
as low taxed if it is subject to a statutory corporate tax
rate lower than 40% of the statutory corporate tax rate
of the parent company or head office. At present, many
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4. transfer of the business carried out in a PE out of a
Member State.
Members States to which assets are transferred must
accept the market value of the assets transferred
established by the transferor Member State as the
starting value for tax purposes (i.e., a step-up).
Member States may allow taxpayers to defer the exit tax
payment by paying it in instalments spread out over at
least five years when the transfers occur between Member
States or States that are party to the European Economic
Area Agreement (EEA Agreement; Liechtenstein, Norway
and Iceland). Interest may be charged on deferred exit
tax and the deferral of payment of exit tax may be subject
to security arrangements to ensure proper collection. The
deferral of exit tax must be terminated if the transferred
assets are disposed of, are transferred to a third country
or if the taxpayer transfers its residence for tax purposes
or goes bankrupt.
c) Switch-over clause
This provision requires Member States to deny an
exemption from corporate tax with respect to distributions
of profits and proceeds from the sale of shares in low
taxed entities that are resident in, and PEs that are
located in, third (non-EU) countries. Presently, many EU
Member States exempt such income under a participation
exemption system or a regime providing for an exemption
of PE profits. An entity or PE is regarded as low taxed
when that entity or PE is subject to a statutory corporate
tax rate lower than 40% of the statutory corporate tax
rate that would apply in the Member State of the taxpayer
receiving the income. A credit will be available for tax that
was paid by the low taxed subsidiary or PE.
d) GAAR
The GAAR which is included in the Directive is identical
to the general anti-abuse rule of the 2015 amendment to
the EU Parent Subsidiary Directive, except that it should
now be applied to the entire domestic corporate tax laws
of the Member States. Under the GAAR, non-genuine
arrangements or a series thereof that are put in place
for the essential purpose of obtaining a tax advantage
(GAAR), (v) controlled foreign company (CFC) rules,
and (vi) a framework to tackle hybrid mismatches. The
following paragraphs contain a brief description of each
of these proposed rules.
a) Interest limitation rule
This rule limits the deduction of net interest expense
to the higher of 30% of EBITDA or EUR 1 million. Net
interest expense in excess of 30% of EBITDA may be
carried forward to subsequent years. To the extent
30% of EBITDA exceeds the amount of the net interest
expense in any given year, the difference may also be
carried forward to subsequent years.
Member States can allow taxpayers to deduct net interest
expenses in excess of 30% of EBITDA if the taxpayer can
demonstrate that the ratio of its equity over its total assets
is equal to or higher than the equivalent ratio of the group
in which the accounts of the taxpayer are consolidated
under IFRS or US GAAP. This exception is subject to
an anti-stuffing rule pursuant to which temporary capital
contributions are disregarded and it cannot be used if
the group pays more than 10% of its total net interest
expenses to associated enterprises.
The interest limitation rule will not apply to financial
undertakings, which are defined in the Directive and
generally comprise regulated financial institutions such
as banks, insurance companies, pension funds and
certain investment funds.
b) Exit taxation
The Directive provides for an exit tax, to be assessed in
the Member State of origin on the difference between
the market value of the transferred assets and their tax
value. Exit tax will be triggered in the case of:
1. transfer of assets from the head office to a PE located
in another Member State or in a third country;
2. transfer of assets from a PE in a Member State to its
head office or another PE located in another Member
State or third country;
3. transfer of tax residence to another Member State
or third country (except when the assets remain
connected with a PE in the Member State of origin);
or
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entity). The provisions also provide rules for relief of
juridical double taxation (previously taxed undistributed
CFC income is not taxed again when received or
realized). However, there is no provision for a credit for
underlying tax.
f) Hybrid mismatches
With respect to the treatment of hybrid mismatches
created by entities or instruments between two Member
States that may give rise to double deduction or deduction/
no-inclusion situations, the Directive prescribes that the
legal characterization given to the hybrid entity or hybrid
instrument by the Member State in which the payment
has its source, should be followed by the other Member
State. For example, if taxpayer X that is a resident of
Member State A makes a tax deductible payment to
entity Y that is treated as transparent in Member State
A and that is owned by Z, a resident of Member State B,
Member State B should tax that payment notwithstanding
that Y is treated as non-transparent for Member State B
tax purposes.
The scope of this rule is limited to hybrid mismatches
between Member States as situations involving Member
States and third countries still need to be further
examined. If, in the example above, Z were resident in
a third (non-EU) country, the hybrid mismatch provision
would not apply.
2. Recommendation on Tax Treaty issues
This recommendation by the Commission to the Member
States addresses the implementation by the Member
States of measures against tax treaty abuse taking
into account the final recommendations of the OECD
BEPS project on Actions 6 (Preventing the granting of
treaty benefits in inappropriate circumstances) and 7
(Preventing the artificial avoidance of PEs).
In this context, the Commission considers that the
inclusion of Limitation on Benefit rules in tax treaties
may be in breach of EU law. As regards the inclusion
of a general anti-avoidance rule based on the Principal
Purposes Test, the Commission suggests that Member
States may adopt it with a modified wording in order to be
EU law compliant:
that defeats the object or purpose of the applicable law
should be ignored for the purposes of determining the
corporate tax liability. Arrangements 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. If the GAAR applies, the tax
liability should be determined by reference to economic
substance in accordance with the respective national law.
The preamble to the Directive clarifies that the application
of the GAAR should be limited to wholly artificial
arrangements in order to ensure that it is in line with the
Treaty freedoms and the interpretation adopted by the
Court of Justice of the European Union (CJ).
e) CFC legislation
The Directive prescribes that Member States implement
CFC legislation in their national laws. The CFC legislation
is to be applied to non-distributed income of entities when
the following conditions are met:
1. a taxpayer by itself or together with associated
enterprises, holds directly or indirectly more than 50%
of capital or voting rights or is entitled to receive more
than 50% of the profits of an entity;
2. profits are subject to an effective tax rate lower than
40% of the effective tax rate that would have been
applied in the Member State of the taxpayer; and
3. more than 50% of the income accrued to that entity
falls within one or more of the categories listed in the
Anti-Tax Avoidance Directive (i.e., interest, dividends,
royalties, income from banking and insurance activities
and income from related party services).
The CFC legislation should be applied in general to third
country entities. In the case of entities that are resident
in a Member State or in a third country which is party to
the EEA Agreement, a different standard applies: in that
event the CFC legislation should only be applied in the
case the establishment of the entity is considered to be
‘wholly artificial’ (non-genuine).
The provisions on CFC legislation in the Directive provide
rules with respect to the computation of the income to be
included under the CFC rules (calculated in accordance
with the rules of the Member State where the taxpayer
resides) and the amount of income to be included under
the CFC rules (proportion of entitlement to profits of the
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report relates. The first reporting relates to fiscal years
beginning on or after 1 January 2016.
Under the proposed rules, Member States receiving a
CbC report will be required to automatically exchange
information on the report within 15 months after the end
of the fiscal year to which the CbC report relates by using
a standard form. The first exchange relates to fiscal years
beginning on or after 1 January 2016. A Member State is
only required to share information on CbC reports with
other Member States in which an entity of the MNE group
is resident or liable to tax.
If approved, the proposed rules will amend the Directive
on administrative cooperation between Member States
(Directive 2011/16/EU) and come into effect on 1 January
2017.
4. Communication on an External Strategy
In its Communication to the European Parliament and
the European Council ‘on an External Strategy for
Effective Taxation’, the Commission makes reference
that additional measures to the ones provided in the Anti
Tax Avoidance Directive may be adopted as regards third
countries that are included in the EU common list (EU
Tax Haven list). This list will include jurisdictions that do
not meet the EU standards on tax good governance:
transparency, information exchange and fair tax
competition. Possible measures could include the levy of
withholding taxes on and non-deductibility of payments
made to entities resident in those tax haven jurisdictions.
Loyens & Loeff will keep you updated of any relevant
developments on this subject.
AG Wathelet opines that Portuguese legislation on relief of economic double taxation is in breach of the free movement of capital and the EU-Mediterranean Agreements concluded with Tunisia and Lebanon (Secil)On 27 January 2016, AG Wathelet delivered his Opinion
in case SECIL – Companhia Geral de Cal e Cimento
SA contra Fazenda Publica (C-464/14). The case deals
with the Portuguese regime on relief of economic double
taxation in the case of dividends paid to the Portuguese
‘Notwithstanding the other provisions of this Convention,
a benefit under this Convention shall not be granted in
respect of an item of income or capital if it is reasonable
to conclude, having regard to all relevant facts and
circumstances, that obtaining that benefit was one of the
principal purposes of any arrangement or transaction that
resulted directly or indirectly in that benefit, unless it is
established that it reflects a genuine economic activity or
that granting that benefit in these circumstances would
be in accordance with the object and purpose of the
relevant provisions of this Convention.’
The recommendation encourages Member States to
implement the proposed new provisions to Article 5 of
the OECD Model Tax Convention regarding PE status as
drawn up in the OECD BEPS Action 7 final report when
they (re-)negotiate tax treaties.
3. Proposal for a Directive implementing CbCR
This proposal is aimed at the EU wide implementation of
the CbCR obligation as developed in the OECD BEPS
project in Action 13. It introduces (i) the CbCR obligation,
and (ii) mandatory automatic exchange of information on
CbC reports between Member States.
The rules governing the obligation to file a CbC report
in a Member State, as well as the information to be
reported, are in line with BEPS Action 13. So, the CbCR
obligation will, in principle, rest on those resident entities
of a Member State which are the ultimate parent entity
(or an appointed subsidiary) of a multinational enterprise
(MNE) with a total consolidated group revenue of at least
EUR 750 million. If the ultimate parent company is based
outside the EU and the third country fails to provide a
CbC report to all relevant Member States, the (appointed)
EU subsidiary will become obliged to file the CbC report
of the MNE group. The proposal does not contain rules
on master files or local files as this is already covered
under the EU code of conduct on transfer pricing
documentation.
The information to be reported must include the revenues,
profits, taxes paid and accrued, capital, accumulated
earnings, number of employees and certain tangible
assets of each group company. CbC reports will need
to be filed annually in the relevant Member State within
12 months after the end of the fiscal year to which the
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legislation at stake specifically addresses wholly artificial
arrangements.
As regards the effectiveness of fiscal supervision, the AG
observed that such justification can only be accepted in
the case the legislation of one Member State makes the
concession of a tax benefit dependent on conditions that
can only be verified by obtaining the relevant information
from the competent authorities of a third State. However,
in this case, the Portuguese government did not argue that
granting such benefit is dependent on such conditions. In
any event and even if accepted, such justification could
only proceed in case of Lebanon due to the absence ofa
mechanism for exchange of information pursuant to a
relevant Double Tax Treaty.
Therefore, AG Wathelet considered that the Portuguese
legislation was in breach of Article 34 of the EU-
Mediterranean Agreement with Tunisia and Article 31 of
the EU-Mediterranean Agreement with Lebanon and that
Portugal should refund the amount of tax charged on the
dividends together with accrued interests.
State Aid/WTOCommission approves of Netherlands tax regime for government-owned enterprises apart from seaport exemption On 21 January 2016, the European Commission
ordered the Netherlands to discontinue its corporate tax
exemption for six government-held seaports as of 2017.
The Netherlands had recently revised its corporate tax
such to include other government-held companies in
the corporate tax as from 2016, as requested by the
Commission. The old regime predated the establishment
of the EU/EEC and was treated as existing aid. The
Commission has now confirmed that the new legislation
addressed its State aid concerns (apart from the ports),
thus confirming that the new regime for taxation of
government-owned companies is now in line with EU law
(based on the press release).
Commission widens its investigation into the taxation of seaports On 21 January 2016, the Commission opened two formal
investigations: one into special tax regimes for eight
company Secil by its subsidiaries located in Tunisia and
Lebanon.
The Portuguese legislation provides for a mechanism of
economic double taxation relief which is applicable both
to subsidiaries located in Portugal and to subsidiaries
located in EU Member States, and that meet the
conditions set forth in Article 2 of the Parent-Subsidiary
Directive.
Secil is a company resident in Portugal which held
majority shareholdings in companies located in Tunisia
and Lebanon. During the year 2009, it received dividend
income from those subsidiaries which was taxed in
Portugal without any economic double taxation relief. In
the year of 2012, it submitted a claim before the local tax
authorities and subsequently before the Portuguese First
Instance Tax Court claiming, essentially that the limitation
of the Portuguese economic double taxation regime
was in breach of the EU-Mediterranean Agreements
concluded with Tunisia and Lebanon.
AG Wathelet started by considering that the Portuguese
law provides for a difference in treatment as regards
dividend income depending on the origin of such income.
While undoubtedly Secil was in a situation objectively
comparable to a Portuguese taxpayer receiving dividends
originating from a Portuguese subsidiary or an EU or
EEA subsidiary, there was a difference in treatment in
breach of Article 34 of the EU-Mediterranean Agreement
with Tunisia and Article 31 of the EU-Mediterranean
Agreement with Lebanon.
Subsequently AG Wathelet went on to analyse possible
justifications. It started by referring to the argument
raised by the Portuguese Republic that the discriminatory
treatment provided by the legislation at stake could be
justified by the need to prevent tax avoidance considering,
notably, the absence of a legal framework such as the
Directive on mutual administrative assistance as well the
fact that no Double Tax Treaty had been concluded with
Lebanon and that the article on exchange of information
of the Double Tax Treaty concluded with Tunisia was
not binding, contrary to the Directive. AG Wathelet
recalled that a justification based on the prevention
of tax avoidance can only be justified in the case the
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covered by that directive. In that regard, and taking
into account that the base of annual tax consists of net
amounts invested in Belgium in the preceding year, it
concluded that such a tax does not relate to any of the
types of transactions subject to capital duty under this
Directive.
In regard to Directive 85/611, the question raised was
whether this Directive should be interpreted as precluding
the imposition of the annual tax, because it prejudices the
principal aim of that directive of facilitating the marketing
of UCITS in the EU. AG Bobek noted that Directive 85/611
does not contain any provision on taxation and thus does
not have any bearing on the present case.
Subsequently, AG Bobek dealt with the issue of
compatibility of the annual tax charged on foreign UCIs.
As a preliminary issue, he determined what fundamental
freedom was applicable in this case, concluding that
the annual tax was primarily concerned with the free
movement of capital.
The AG first observed that it was apparent that the
national legislation was applicable without distinction
to resident and non-resident UCIs. In addition, the
application of the annual tax does not result in foreign
UCIs ultimately bearing a heavier tax burden in Belgium
than that borne by Belgian UCIs. However, NN (L)
contented that there was discriminatory treatment
because the tax was applied similarly to the situations
of resident and non-resident UCIs, which nevertheless
were not in comparable situations. AG Bobek considered
that the argument raised by NN (L) was based on the
fact that UCIs resident in Luxembourg were already
subjected to a subscription tax in that Member State.
However, it recalled that the CJ has consistently ruled
that the disadvantages which arise from the parallel
exercise of tax competences by different Member States
do not constitute restrictions on the freedom of movement
to the extent that such an exercise is not discriminatory.
Accordingly, Member States are not obliged to adapt their
tax systems to those of other Member States in order to
eliminate double taxation. Therefore, he concluded that
there was no breach to the free movement of capital.
Finally, the AG analysed the specific sanction only
applicable to foreign UCIs. This sanction essentially
seaports and a number of inland ports in Belgium, and
the other into corporate tax exemptions for 11 seaports as
well as certain other ports in France. Both Member States
have been requested to abandon these regimes and to
subject the ports to normal taxation. As both regimes
predate the establishment of the EU/EEC, no recovery
will be involved. The Commission has also indicated that
it is still investigating special tax regimes for ports in other
EU Member States, amongst others, benefits to ports.
Direct TaxationAG Bobek opines that Belgium legislation which subjects non-resident UCIs to an annual tax is not in breach of the fundamental freedoms while a specific sanction only for foreign UCIs which fail to pay amounts in respect of annual tax is in breach of the freedoms (NN (L) International)On 21 January 2016, AG Bobek delivered his Opinion in
the case Etat belbe v NN (l) International, formerly ING
International SA, successor to the rights and obligations
of ING Dymanic SA (C-48/15). The case concerns
the Belgian annual tax on undertakings for collective
investment (UCIs) which is levied on the basis of the net
value of the assets of these undertakings, both domestic
and foreign. In addition, it considers the specific sanction
for foreign UCIs which fail to pay amounts falling due in
respect of the annual tax. The proceedings concern the
refusal by the Belgian tax authorities to reimburse the
amount of the annual tax paid by NN (L) International
for the year 2005. The referring court asked whether EU
law precludes the application of the annual tax to foreign
UCIs and the imposition of a specific sanction on foreign
UCIs who fail to observe this tax obligation. The questions
referred concern, in particular, the interpretation of
Directive 69/335/EEC (on harmonization of indirect taxes
on raising of capital in Member States), and Directive
85/611/EEC (on harmonization of UCITS) the freedom to
provide services and the free movement of capital.
As regards Directive 69/335, AG Bobek recalled that the
purpose of this Directive is to abolish indirect taxes, other
than capital duty, which have the same characteristics
as that duty, namely those applied to the transactions
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As regards the application of the Charter, the question
arose whether the prohibition of discrimination contained
in Article 21 (1) of the Charter was directly applicable.
AG Kokott stated that in accordance with the first sentence
of Article 51(1) of the Charter, Finland is required to
observe the EU-law prohibition of discrimination on the
ground of age when it is ‘implementing Union law’. It is
the Court’s settled case law that this wording means
that the fundamental rights guaranteed in the legal order
of the European Union are applicable to all situations
governed by EU law, but not outside such situations.
According to the AG, the taxation of the taxpayer’s
retirement pension in this case could constitute a
restriction of a fundamental freedom, and thus fall within
the scope of the Charter. However, although the taxation
in Finland of a pension received by the taxpayer which
he acquired at least in part on account of employment in
Sweden is prejudicial to the exercise of his freedom of
movement as a worker, there is nonetheless no restriction
of that fundamental freedom as defined by previous case
law. This states that a national measure in the field of
tax law is regarded as being liable to hinder or render
less attractive the exercise of a fundamental freedom
only where it distinguishes between domestic and cross-
border activity. On the other hand, the levying of a direct
tax, without distinction, in domestic and cross-border
situations — as in the present case of a uniform rate of
tax applicable to all income derived from a retirement
pension — cannot restrict the fundamental freedoms.
Therefore, the AG concluded that, insofar as it levies
income tax on income from a retirement pension,
Finland is not implementing EU law in the present case.
Consequently, the prohibition of discrimination on the
ground of age laid down in the Charter is not directly
applicable in the dispute in the main proceedings, in
accordance with the first sentence of Article 51(1) of the
Charter.
VAT CJ rules on application of VAT exemption for supplies closely linked to welfare and social security work in respect of serviced residence (Les Jardins de Jouvence)On 21 January 2016, the CJ delivered its judgment in the
case Les Jardins de Jouvence SCRL: ‘LJJ’) (C-335/14).
determines the prohibition of foreign UCIs to carry out
activities in Belgium in the case they fail to submit their
tax declarations within the prescribed period or to pay
the annual tax. The AG noted that since this legislation
may prohibit UCIs established in other Member States
from carrying out their activities in Belgium, even if they
may lawfully continue with the same activities in their
Member State of origin, it should be examined in the
light of the freedom to provide services. Ultimately, the
AG concluded that this sanction did indeed constitute
a breach of the free movement of services notably by
considering that being potentially unlimited in time it does
not satisfy the requirements of proportionality.
AG Kokott opines that the EU Charter on Fundamental Rights and the Directive on equal treatment in employment and occupation do not apply to Finnish legislation providing supplementary tax on income from a retirement pension (C) On 28 January 2016, AG Kokott delivered her Opinion
in case C (C-122/15). This case deals with the Finnish
legislation that subjects taxpayers to a supplementary tax
levied exclusively on income from retirement pensions.
In essence, the question raised is whether the EU law
prohibition of discrimination on the ground of age which
is governed by the Charter of Fundamental Rights of the
EU and Directive 2000/78 preclude a Member State from
imposing a higher rate of taxation on retirement pension
income.
AG Kokott started by analysing whether Directive
2000/78 applied to the taxation of pension income under
Finnish rules. The AG looked in particular to the wording
of Article 3(1) of the Directive and considered that since
there is no directive in the field of taxation of pensions,
then this field does not constitute an area of competence
conferred by the Community within the meaning of Article
3(1) of the Directive. In addition, the AG considered that
the adoption of Directive 2000/78 did not represent laying
down any prohibition on discrimination in the area of
tax law. Therefore, AG Kokott concluded that Directive
2000/78 did not apply to the taxation of pension income
in the present case.
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AG Sharpston opines on arrangement with creditors which stipulates that payment of the State’s VAT claim is only partly offered (Degano Trasporti) On 14 January 2014, AG Sharpston delivered her Opinion
in the case Degano Trasporti S.a.s. di Ferruccio Degano
& C: ‘Degano’ (C-546/14). Degano submitted a proposal
for an arrangement to the referring court, as a result of
financial difficulties which prevented it from pursuing
its commercial activities. Under the proposal, certain
preferential creditors would be paid in full but there
would be partial payment only for some lower-ranking
preferential creditors and unsecured creditors and for the
State with regard to Degano’s VAT debt.
The referring court asked whether the proposal should
be rejected as inadmissible on the ground that it does not
provide for full payment of Degano’s VAT debt. It doubted,
however, whether the Member States’ obligation to take
all legislative and administrative measures appropriate for
ensuring collection of all the VAT due in fact precludes an
arrangement in which only part of a VAT debt is satisfied,
provided that the debt would not be better satisfied in
bankruptcy proceedings. In its request for a preliminary
ruling, the referring court seeks guidance, in essence,
on whether the ensuring of effective collection of the EU
resources and the principle of fiscal neutrality preclude a
Member State from accepting only partial payment of a
VAT debt by a trader in financial difficulties, in the course
of an arrangement with creditors based on the liquidation
of its assets.
The AG first of all opined that the request for a
preliminary ruling was clearly admissible. Furthermore,
she opined that neither Article 4(3) TEU nor the EU VAT
Directive preclude national rules such as those in the
main proceedings, if those rules are to be interpreted as
allowing an undertaking in financial difficulties to enter
into an arrangement with creditors involving liquidation
of its assets without offering full payment of the State’s
claim in respect of VAT. However, this only applies if an
independent expert concludes that no greater payment of
that claim would be obtained in the event of bankruptcy
and that the arrangement is validated by a court.
LJJ is a Belgian cooperative company whose object
consisted of operating and managing care institutions
and in engaging in all activities relating directly or
indirectly to healthcare and the assistance of the sick,
elderly, disabled or other persons. Within the framework
of activities, LJJ rented out small service flats designed
for able-bodied persons, for which it also carried out
substantial building work and installed equipment.
After an audit of LJJ’s accounts, the tax authorities
concluded that LJJ was not entitled to deduct the VAT in
relation to the construction of immovable property, since
LJJ’s transactions in connection with the operation of the
serviced residence were VAT exempt. LJJ opposed this
view and claimed that the formal licence it had obtained
to operate a serviced residence did not necessarily entail
recognition that it is devoted to social wellbeing, since
the conditions for the approval of serviced residences
are fundamentally different from those for the approval
of retirement homes. The referring court had doubts
concerning the interpretation of Article 13A(1)(g) of
the Sixth EU VAT Directive, which exemption provision
refers to welfare and social security work including those
services supplied by old people’s homes, and decided to
refer to the CJ for a preliminary ruling.
According to the CJ, it has to be examined first whether
LJJ falls within the concept of ‘other organizations
recognized as charitable by the Member State
concerned’ within the meaning of Article 13A(1)(g) of the
Sixth EU VAT Directive. In this respect, the CJ ruled that
the charitable nature of the dwelling services provided
by LJJ must be assessed by the referring court in the
light of several factors outlined by the CJ. Secondly, it
is necessary, according the CJ, to examine whether the
other services provided are ‘closely linked to welfare and
social security work’. The CJ ruled that these services
may also benefit from the exemption, provided that the
services are intended to achieve the (legally required)
support and care of elderly persons and correspond to
the (legally required) services for old people’s homes. It
is irrelevant, in the view of the CJ, whether or not the
operator of a serviced residence receives a subsidy or
any other form of advantage or financial support from
public authorities.
12
Between 2008 and 2010, Mr Stretinskis imported from
the United States second-hand clothing for release for
free circulation in the territory of the European Union. In
the single administrative documents which he completed
for this purpose, Mr Stretinskis calculated the customs
value of those goods in accordance with the transaction
value method, relying on the total cost of the goods as it
appeared on the invoices of Latcars LLC and Dexter Plus
LLC (referred to jointly as ‘the companies which sold the
goods’) and the cost of transporting the goods by sea.
After examining the documents submitted by
Mr Stretinskis and carrying out an inspection at his
business premises, the national revenue authority
expressed doubts as to the accuracy of the values
declared, on the ground, in particular, that the director of
the companies which sold the goods was Mr Stretinskis’
brother. Taking the view that they are related persons
for the purposes of Article 143(1)(h) of Regulation
No 2454/93, the national revenue authority, by a decision
of 22 July 2010, recalculated the customs value of the
goods on the basis of Article 31 of the Customs Code.
Mr Stretinskis brought an action for the annulment of that
decision before the administrative court with jurisdiction
at first instance. That action was dismissed by that court.
Hearing the case on appeal, the administrative court
upheld Mr Stretinskis’ action. That court held, in
particular, that the national revenue authority’s doubts as
to the accuracy of the declared customs values of the
goods concerned were not sufficiently substantiated, as
the existence of a kinship relationship, for the purposes
of Article 143(1)(h) of Regulation No 2453/93, could
be recognised, in circumstances such as those in the
dispute in the main proceedings, only if Mr Stretinskis’
brother was the owner of the companies which sold the
goods, which that authority failed to determine.
That authority lodged an appeal on a point of law
against that judgment, claiming, in particular, that the
administrative court with jurisdiction to hear the appeal
ought to have taken the view that Mr Stretinskis and the
director of the companies which sold the goods were
related persons, for the purposes of Article 143(1)(h) of
Regulation No 2453/93.
Council authorizes Austria and Germany to continue measure that excludes non-business use from the right to deduction By Council Implementing Decision dated 10 December
2015, the Council has granted authorization to Germany
and Austria to continue applying a measure derogating
from Articles 168 and 168a of the EU VAT Directive.
As a result, these Member States will remain able to
exclude from the right of deduction the VAT borne on
goods and services which are used for more than 90%
for non-business purposes. The authorization expires on
31 December 2018, in order to allow for a review of the
necessity and effectiveness of the derogating measure
and the apportionment rate between business and non-
business use on which it is based.
Council authorizes Latvia to introduce special measure limiting the right to deduction on passenger cars not wholly used for business purposes On 10 December 2015, the Council authorized Latvia
to introduce a special measure derogating from certain
provisions of the EU VAT Directive. Based on this special
measure, Latvia is authorized to limit to 50% the right to
deduct VAT on expenditure on passenger cars not wholly
used for business purposes. If cars have been subject
to such a limitation, Latvia may not treat as supplies of
services for consideration the use for private purposes
of a passenger car included in the assets of a taxable
person’s business. The Council’s Decision will only apply
to passenger cars with a maximum authorized weight
not exceeding 3,500 kilograms and having no more than
eight seats in addition to the driver’s seat. The Decision
will expire on 31 December 2018.
Customs Duties, Excises and other Indirect TaxesCJ rules on the definition of ‘related persons’ (Stretinskis) On 21 January 2016, the CJ delivered its judgment in
the case Stretinskis (C-430/14). The case concerns
the definition of ‘related persons’ for the purpose of the
determination of the customs value of imported goods.
13
Accordingly, the CJ deemed it appropriate to consider
that, where, in circumstances such as those in the case
in the main proceedings, a natural person, acting within
a legal person, has the power to influence the sales price
of imported goods for the benefit of a buyer to whom he is
related, the capacity of the seller as a legal person does
not prevent the buyer and seller of those goods from
being regarded as being related, within the meaning of
Article 29(1)(d) of the Customs Code.
On the basis of its considerations, the CJ ruled that
Article 143(1)(h) of Commission Regulation (EEC)
No 2454/93 of 2 July 1993 laying down provisions for the
implementation of Council Regulation (EEC) No 2913/92
establishing the Community Customs Code, as amended
by Commission Regulation (EC) No 46/1999 of 8 January
1999, must be interpreted as meaning that a buyer, who
is a natural person, and a seller, which is a legal person,
within which a kin of that buyer actually has the power to
influence the sales price of goods for the benefit of that
buyer, must be regarded as being related persons within
the meaning of Article 29(1)(d) of Council Regulation
(EEC) No 2913/92 of 12 October 1992 establishing the
Community Customs Code, as amended by Regulation
(EC) No 82/97 of the European Parliament and of the
Council of 19 December 1996.
Publication of the Delegated Regulation and Implementing Regulation on the UCCOn 29 December 2016, the Commission Delegated
Regulation (EU) 2015/2446 of 28 July 2015 supplementing
Regulation (EU) No 952/2013 (Union Customs Code,
UCC) as regards detailed rules concerning certain
provisions of the UCC and Implementing Regulation (EU)
2015/2447 of 24 November 2015 laying down detailed
rules for implementing certain provisions of the UCC
were published. These regulations will enter into force on
the same date as the UCC, thus on 1 May 2016.
Taking the view that the resolution of the case in the main
proceedings depends on the interpretation of EU law,
the Augstākā tiesa (Supreme Court) decided to stay the
proceedings and to refer the following questions to the
Court of Justice for a preliminary ruling:
‘(1) Must Article 143(1)(h) of Regulation No 2454/93 be
interpreted as referring not only to situations in which
the parties to the transaction are exclusively natural
persons, but also to situations in which there is a
family or kinship relationship between a director of
one of the parties (a legal person) and the other party
to the transaction (a natural person) or a director of
that party (in the case of a legal person)?
(2) If the answer is affirmative, must the judicial body
hearing the matter carry out an in-depth examination
of the circumstances of the case in relation to the
actual influence of the natural person concerned over
the legal person?’
The CJ considered that the likelihood of persons in a
kinship relationship being able to influence the sales
prices of imported goods similarly exists where the seller
is a legal person within which the buyer’s kin has the
power to influence the sales price for the buyer’s benefit.
In those circumstances, and having regard to the
objectives pursued by the EU legislation on customs
valuation, to rule out, from the outset, that a buyer and
a seller may be regarded as being related persons,
within the meaning of Article 143(1)(h) of Regulation
No 2454/93, on the ground that one of the parties to the
sales contract is a legal person, would undermine the
effectiveness of Article 29(1)(d) of the Customs Code. In
that case, the revenue authorities would be denied the
possibility of examining, pursuant to Article 29(2)(a) of
the Customs Code, the circumstances specific to the sale
concerned, even though there are reasons for supposing
that the transaction value of the imported goods may
have been influenced by a kinship relationship between
the buyer and a member of the legal person which sold
the goods.
14
Correspondents● Gerard Blokland (Loyens & Loeff Amsterdam)
● Kees Bouwmeester (Loyens & Loeff Amsterdam)
● Almut Breuer (Loyens & Loeff Amsterdam)
● Robert van Esch (Loyens & Loeff Rotterdam)
● Raymond Luja (Loyens & Loeff Amsterdam;
Maastricht University)
● Arjan Oosterheert (Loyens & Loeff Zurich)
● Lodewijk Reijs (Loyens & Loeff Rotterdam)
● Bruno da Silva (Loyens & Loeff Amsterdam;
University of Amsterdam)
● Patrick Vettenburg (Loyens & Loeff Rotterdam)
● Ruben van der Wilt (Loyens & Loeff Amsterdam)
www.loyensloeff.com
About Loyens & LoeffLoyens & Loeff N.V. is the first firm where attorneys at law,
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Editorial boardFor contact, mail: [email protected]:
● René van der Paardt (Loyens & Loeff Rotterdam)
● Thies Sanders (Loyens & Loeff Amsterdam)
● Dennis Weber (Loyens & Loeff Amsterdam;
University of Amsterdam)
Editors● Patricia van Zwet
● Bruno da Silva
Although great care has been taken when compiling this newsletter, Loyens & Loeff N.V. does not accept any responsibility whatsoever for any
consequences arising from the information in this publication being used without its consent. The information provided in the publication is intended
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