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PwC EU Tax News 1
EU Tax News
Issue 2014 – nr. 006 September - October 2014
This EU Tax Newsletter is prepared by members of PwC’s international EU Direct TaxGroup (EUDTG). If you would like to receive future editions of this newsletter free ofcharge, or wish to read previous editions, please refer to: www.pwc.com/eudtg.
Contents
Court of Justice of the European Union (CJEU) Cases
Belgium CJEU judgement on discriminatory tax treatment of
foreign real estate income: Ronny Verest, Gaby
Gerards v. Belgium
Belgium CJEU judgement on tax on conversion of bearer stock:
Gielen v. Belgium
Germany CJEU judgement on denial of a tax credit/refund in case
of foreign dividends: Kronos
Germany CJEU referral on possibility to opt for unlimited
inheritance and gift tax liability: Hünnebeck
Germany CJEU judgement on the flat rate taxation of income
from investment funds failing to provide information:
van Caster & van Caster
Italy CJEU judgment on taxation of foreign-sourced
winnings from games of chance: Blanco and Fabretti
United Kingdom AG Opinion on the 'final losses' exception and timing of
demonstration thereof in the UK's group relief rules:
Marks and Spencer
National Developments
Belgium Reporting obligation for payments to tax havens
Belgium Fokus Bank claims: important developments for UCITS
SICAVs
PwC EU Tax News 2
Finland Supreme Administrative Court decision on merger of a
Finnish UCITS investment fund into a Luxembourg
UCITS-SICAV
Finland Legislative proposal on taxation of dividends
distributed to non-resident pension funds
Hungary Tribunal decision on retail tax following CJEUs ruling
in the Hervis case
Italy New law partly aligning Italian legislation with
Schumacker
Italy Discriminatory legislation on inheritance tax amended
EU Developments
EU Agenda of the EU Code of Conduct Group (Business
Taxation) meetings held in September and October
EU ECOFIN Council Conclusions of 14 October 2014
EU European Commission Paper: "Tax reforms in EU
Member States 2014 - Tax policy challenges for
economic growth and fiscal sustainability"
EU and Switzerland EU and Switzerland sign joint statement on business
taxation
Fiscal State aid
Gibraltar European Commission investigates Gibraltar tax ruling
practice
Luxembourg European Commission opens in-depth investigation
into Amazon tax ruling in Luxembourg
Ireland and Luxembourg European Commission explains State aid investigations
in Ireland (Apple) and Luxembourg (allegedly FIAT)
Spain European Commission orders Spain to recover aid
granted through amortization of financial goodwill on
indirect shareholdings
PwC EU Tax News 3
CJEU Cases
Belgium – CJEU judgement on discriminatory tax treatment of foreign real
estate income: Ronny Verest, Gaby Gerards v. Belgium
On 11 September 2014, the CJEU ruled that the Belgian taxation of immovable property
in another EU Member State breaches the free movement of capital (C-489/13).
According to Belgian income tax legislation, individuals who own a (secondary) house or
apartment in Belgium (i.e. a built property other than their own dwelling) and who do
not rent this property, are taxable on the indexed deemed rental income of the property
(which is significantly lower than the actual rental value), increased by 40%.
The real estate income in relation to such property, located abroad is however
determined based on the actual rental value of these properties. Where a double tax
treaty is in force, the foreign real estate income will be exempted from taxation in
Belgium. Yet, this income will be taken into account to determine the tax rate that is
applicable to Belgian source income.
Recently, the CJEU decided that the above-mentioned difference in taxation between
domestic property and property located elsewhere in the European Union, violates the
“free movement of capital”, to the extent that it results in a higher tax burden.
Consequently, it is anticipated that taxpayers will be able to file a tax claim if they can
prove that the rental value would lead to a higher taxable income compared to the
deemed rental income in Belgium. However, at this time there is no information
available from the Belgian tax authorities regarding their approach to possible
rectifications.
-- Patrice Delacroix and Olivier Hermand, PwC Belgium; [email protected]
Belgium – CJEU judgement on tax on conversion of bearer stock: Gielen v.
Belgium
On 9 October 2014, the CJEU issued a judgement in Gielen v. Belgium (C-299/13),
holding that Belgium's tax on the conversion of bearer securities is in violation of
Directive 2008/7/EC concerning indirect taxes on the raising of capital.
A Belgian resident, together with her two children, held a number of bearer securities
issued by two domestic public limited companies. On 21 December 2011, the securities
were converted into registered securities in accordance with the Act of 14 December
2005 on the abolition of bearer securities. The conversion, however, could not take place
prior to 1 January 2012, when a tax on conversion of bearer shares as a part of the tax on
bearer securities entered into force.
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The taxpayer brought an action before the Belgian Constitutional Court for annulment of
the provisions imposing that tax on the grounds of infringement, inter alia, of Article
5(2)(a) of Directive 2008/7. That article forbids Member States to subject the following
transactions to any form of indirect tax : the creation, issue, admission to quotation on a
stock exchange, making available on the market or dealing in stocks, shares or other
securities of the same type, or of the certificates representing such securities, by
whomsoever issued. The taxpayer took the view that, since the conversion of the bearer
securities is mandatory, it is part of the ‘overall transaction’ of capital raising and can
therefore not be subject to any indirect tax. The Constitutional Court therefore requested
a preliminary ruling to the CJEU.
The CJEU considered that, although Article 5(2)(a) of Directive 2008/7 does not
expressly mention the conversion of stocks, the compulsory conversion of bearer stocks
into dematerialised securities or registered securities under the Act of 14 December 2005
on the abolition of bearer securities, falls within the issue of stocks in the meaning of
Article 5(2)(a) of Directive 2008/7.
Therefore, the CJEU considered that levying tax on that conversion undermines the
effectiveness of Article 5(2)(a) of Directive 2008/7.
In the light of the foregoing, the CJEU ruled that Article 5(2) of Directive 2008/7
precludes from taxing the conversion of bearer securities into registered securities or
dematerialised securities such as those at issue in the main proceedings and that such a
tax cannot be justified under other provisions of the Directive.
-- Patrice Delacroix and Olivier Hermand, PwC Belgium; [email protected]
Germany – CJEU judgement on denial of a tax credit/refund in case of
foreign dividends: Kronos
On 11 September 2014, the CJEU judged in Kronos International Inc. (KII; C-47/12)
that the denial of a tax credit/refund in case of foreign dividends under the former
German corporate tax imputation system does not infringe EU law.
Domestic dividends received by a German resident corporate taxpayer were fully taxable
in Germany until 2001. A certain amount of corporate tax paid by the subsidiary was
credited/refunded at the level of the parent company. Foreign dividends had been
exempted under certain conditions (e.g. participation of at least 10%). Hence, a
credit/refund of foreign corporate tax was not possible.
The claimant (KII) had its statutory seat in the USA and its place of effective
management in Germany. KII held different participations (90-100%) in subsidiaries
domiciled in the EU and in third countries. In the years in dispute (1991-2001) KII
received various dividends and made both domestic profits (1991/1992) and domestic
losses (1993-2001). KII claimed for a credit/refund of foreign Corporate Tax in
Germany.
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Since KII was founded in a third country (USA), the freedom of establishment (Art. 49
TFEU) is not applicable in this case.
Therefore, KII can only claim protection under Article 63 TFEU (free movement of
capital). The exemption for foreign dividends is applicable for a participation of at least
10%. Hence, the CJEU – in line with its judgment in Itelcar (C-282/12) – emphasized
that a 10%-shareholding does not necessarily constitute a controlling stake (irrespective
of the fact that the actual shareholdings vary from 90%-100%). Thus, the free movement
of capital is applicable in this case.
The CJEU judged that the case of domestic dividends and foreign dividends are not
comparable in this case and, therefore, under EU Law KII cannot claim a credit/refund
of foreign Corporate Tax in Germany.
The court justifies this with reference to the different systems Germany used to avoid
economic double taxation in the case of dividends.
Consequently, Germany is not obliged under EU Law to credit/refund foreign taxes, if
foreign dividends are exempt from tax.
This holds true even if in case of domestic dividends Corporate Tax can be
credited/refunded, since domestic dividends are fully taxable.
-- Björn Bodewaldt and Ronald Gebhardt, PwC Germany;
Germany – CJEU referral on possibility to opt for unlimited inheritance and
gift tax liability: Hünnebeck
In a decision of 22 October 2014 (C-479/14, Hünnebeck), the Fiscal Court of Düsseldorf
has referred the question to the CJEU whether the German rules on the option for
unlimited inheritance and gift tax liability are in line with the free movement of capital.
In the case of an inheritance or a gift, German tax law sharply distinguishes between
unlimited and limited tax liability. Unlimited liability requires one person involved
(deceased person or heir, donor or donee) to be resident in Germany and encloses all
assets transferred irrespective of where they are located. Limited liability requires none
of the persons involved to be resident in Germany and only affects assets that are located
in Germany. Whereas the tax base will therefore usually be higher if the transfer is
subject to unlimited tax liability, the personal allowances granted in this case will also be
much higher.
In Mattner (C-510/08) and Welte (C-181/12) the CJEU held that Germany violated
Article 63 TFEU by denying the high allowances if limited tax liability was given. In 2011
Germany therefore introduced a rule which gives taxpayers the possibility to opt for
unlimited tax liability even if the conditions of this regime are not met.
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The Fiscal Court has doubts about the conformity of the new law with Article 63 TFEU
for the following reasons. First, taxpayers need to actively opt in. Otherwise they will still
be treated as subject to limited tax liability. Secondly, the option can only be used by
EU/EEA residents (no protection of third state residents). Thirdly, under the optional
unlimited tax liability all transfers between the same persons within 20 years are taxed
together. In contrast, under "normal" unlimited tax liability only transfers within 10
years are taxed together which can lead to a lower tax rate. Lastly, the option can be
disadvantageous compared to "normal" unlimited tax liability if a taxpayer has moved
into or out of Germany.
-- Björn Bodewaldt and Ronald Gebhardt, PwC Germany;
Germany – CJEU judgement on the flat rate taxation of income from
investment funds failing to provide information: van Caster & van Caster
On 9 October 2014, the CJEU held in case C-326/12 (van Caster & van Caster) that the
German flat-rate taxation of income from an investment fund which does not provide
the German tax authorities with information required by law, infringes the free
movement of capital (Article 63 TFEU). Mrs. van Caster and her son, who were German
residents, held portfolio shareholdings in foreign, non-transparent investment funds.
Since the funds did not comply with the information/publication requirements
according to sec. 5 German Investment Tax Act (GITA), the van Casters were taxed on a
flat-rate basis, instead of being taxed on their actual income.
Sec. 6 GITA in conjunction with Sec. 5 GITA stipulates that the income from
shareholdings in both domestic and foreign investment funds is taxed on a flat-rate basis
(the minimum was 6% of the redemption price) if the requirements of sec. 5 are not
fulfilled.
At first glance, there seems to be no (direct) restriction of the free movement of capital
since the legislation applies irrespective of the residence of the fund. Nevertheless, the
CJEU held that the information/publication requirements constitute an (indirect)
restriction because in most cases foreign funds do not provide for sufficient information.
The CJEU held that such a lump sum taxation “is, therefore, likely to deter […] a
taxpayer from investing in funds which do not satisfy the obligations under that
provision of national law.” As a result, Germany de facto favours domestic funds in
comparison to foreign funds since domestic funds are more likely to comply with the
information/publication requirements.
The CJEU held that the van Casters should be allowed to provide evidence or
information that could prove their actual income.
-- Björn Bodewaldt and Ronald Gebhardt, PwC Germany;
PwC EU Tax News 7
Italy – CJEU judgement on taxation of foreign-sourced winnings from
games of chance: Blanco and Fabretti
On 22 October 2014, the CJEU issued its judgment in the joint cases C-344/13 and C-
367/13, Blanco and Fabretti which concern two Italian resident individuals who, over
the years 2007-2009, received winnings from gambling houses located outside Italy and
didn’t report the income from those winnings in their tax returns. The tax authorities
assessed them challenging the fact that winnings realized outside Italy must be reported
in the tax return and thus taxed. The two taxpayers appealed the assessment acts before
the Tax Court alleging, among other arguments, that, since the winnings paid by Italian
gambling houses are tax exempt, the taxation of similar winnings when paid by-non
resident gambling houses constitutes an infringement of the freedom to provide services
granted by Article 56 TFEU.
The CJEU decided that the taxation of foreign sourced winnings provided by Italian tax
law infringes the freedom to provide services to the detriment of both the providers of
the services (the gambling houses) and the winners of the games. In particular, the CJEU
found that the discrimination at stake cannot be justified by the need to prevent money
laundering as an overriding reason in the public interest. In fact, according to the CJEU,
a Member State cannot assume, as a general rule, that bodies and entities established in
other Member States are engaging in criminal activities.
-- Claudio Valz and Gabriele Colombaioni, Italy; [email protected]
United Kingdom – AG Opinion on the 'final losses' exception and timing of
demonstration thereof in the UK's group relief rules
Following the initiation of an infringement challenge by the European Commission
regarding the UK's cross border group relief rules (s111-128 CTA 2010), AG Kokott has
issued an Opinion in which she invites the CJEU to review its judgement of 13 December
2005 in the Marks-and-Spencer (M&S) case (C-446/03) and conclude that on
reconsideration, denial of cross-border loss relief is justifiable. AG Kokott's view suggests
that the Commission's objections are inappropriate as the UK goes further than is
required by EU law, so the UK's rules are not contrary to the freedom of establishment.
The Commission argued that the legislation was too restrictive in two material respects.
Firstly, it only applied for “final losses” sustained on or after 1 April 2006. Secondly, in
requiring the claimant to demonstrate that the losses were “final” immediately after the
end of the relevant loss period, it restricted claims for unused losses to the loss for the
period in which the loss-maker was put into liquidation, even though in most cases there
would be unused losses from earlier periods which could not then be relieved anywhere.
AG Kokott urges the CJEU to reverse its M&S decision and remove the exception that
group relief can be claimed for 'final losses' from elsewhere in the EU (or EEA). She
argues that the reconsideration of discrimination on cross-border losses is justifiable,
saying (at para 54): "... the complete refusal of loss relief for a non-resident subsidiary
satisfies the principle of proportionality. Any restriction on cross-border relief in respect
PwC EU Tax News 8
of a subsidiary is thus justified by ensuring the cohesion of a tax system or the allocation
of the power to impose taxes between Member States."
On this basis she argues that the Commission's objection to the narrowness of the
exception for "final losses" is no longer appropriate, as (para 55) "... the contested United
Kingdom rules on group relief go even further than is required by European Union law
in that they provide for cross-border relief in certain cases, they are not contrary to the
freedom of establishment."
She also puts forward the opinion that the Commission's objection with respect to the
time at which claims for 'final losses' need to be demonstrated (immediately after the
end of the loss accounting period) is not contrary to the freedom of establishment, as "...
the United Kingdom was not obliged under European Union law to amend its legislation
on group relief at all."
However, it should be noted that the CJEU has historically been reluctant to reverse its
prior decisions, so it remains to be seen whether the CJEU will follow the AG's Opinion,
or rather, as in the vast majority of cases, adhere to its earlier decision. The last relevant
instance of the CJEU reviewing/reversing its prior case law which Kokott cites was Keck,
21 years ago. And the CJEU didn't follow her Opinion in A Oy (February 2013) where she
previously urged the CJEU to overturn its prior Marks-and-Spencer decision.
We recommend that existing claims for relief for “final losses” should be maintained and
new claims should continue to be made on the basis that the time at which the claimant
must demonstrate that the loss is “final” is the time of the operative group relief claim
(following the Marks-and-Spencer Supreme Court decision of 22 May 2013), pending the
CJEU’s decision.
-- Peter Cussons and Chloe Paterson, PwC United Kingdom; [email protected]
Back to top
National Developments
Belgium – Reporting obligation for payments to tax havens
As from 1 January 2010, companies subject to Belgian corporate income tax or Belgian
non-resident corporate income tax are obliged to declare direct or indirect payments
exceeding EUR 100,000 to recipients established in so-called “tax havens”. The
reporting obligation applies to both cash payments and payments in kind. Payments that
are not reported in the tax return are not deductible. Reported payments are only
deductible if the taxpayer can prove that the payment was made for an “actual and
genuine” transaction and was not aimed at artificially avoiding tax.
For purposes of the above mentioned reporting obligation, a tax haven country is, apart
from a standard list of countries compiled by the Belgian Government, also defined as a
State that, for the whole taxable period during which the payment was made, is
PwC EU Tax News 9
considered by the OECD Global Forum on Transparency and Exchange of Information
for Tax Purposes (“the Global Forum”) as a State that has not substantially or effectively
applied the OECD exchange of information standard (“OECD blacklist”).
On 22 November 2013, the OECD Global Forum published an updated black list with
countries who failed to meet the OECD Exchange of Information standard. Four new
countries (i.e. Luxembourg, Cyprus, the British Virgin Islands and the Seychelles) were
deemed to be non-compliant.
Recently, on 29 October 2014, a new meeting of the OECD Global Forum took place.
“The statement of outcomes” adopted seven new peer review reports. However, no
update of the blacklist was published by the Global Forum. It is not expected that
another meeting of the OECD Global Forum will take place in 2014. It is thus unlikely
that the four new countries will be removed from the blacklist in 2014.
If the four new countries remain on the OECD blacklist for the whole financial year 2014,
the above mentioned reporting obligation applies for payments made by Belgian
companies to amongst others Luxembourg and Cyprus. It should be reviewed how this
Belgian rule links in with the tax treaties concluded with those countries as well as with
the European freedoms.
-- Patrice Delacroix and Olivier Hermand, PwC Belgium; [email protected]
Belgium – Fokus Bank claims: important developments for UCITS SICAVs
As the Belgian tax authorities (“BTA”) have started to analyse the Fokus Bank refund
claims filed by UCITS SICAVs in Belgium and to refund some of them, the chances of
success of these claims have increased in Belgium.
In the past year, there have been two important developments regarding the Fokus Bank
claims filed by UCITS SICAVs in Belgium:
the BTA issued several official decisions of reimbursement;
the BTA have started to send requests for completion/provision of several
certificates to taxpayers with pending claim(s) in Belgium.
These developments indicate that the BTA are willing to grant a refund of the
withholding tax to UCITS SICAVs which have introduced claims in the past. If all the
requested documents/information are submitted to the BTA, chances of success for
UCITS SICAVs to obtain a refund in Belgium are now estimated to be very high.
-- Patrice Delacroix and Olivier Hermand, PwC Belgium; [email protected]
PwC EU Tax News 10
Finland – Supreme Administrative Court decision on merger of a Finnish
UCITS investment fund into a Luxembourg UCITS-SICAV is tax neutral
The Finnish Supreme Administrative Court (“SAC”) held on 22 September 2014
(reference number 2075/2/13) that the merger of a Finnish UCITS fund into a
Luxembourg UCITS-SICAV is to be considered comparable to Finnish domestic fund
mergers. As domestic fund mergers are tax neutral under certain prerequisites stated in
Sections 52 a-b of Finnish Business Income Tax Act, the same principles shall also be
applied to cross-border mergers when taking into account Articles 49 and 63 TFEU on
the freedom of establishment and the free movement of capital as well as the CJEU case
law.
In the case at hand the Applicant intended to acquire units in a UCITS fund registered in
Finland. This Finnish investment fund planned to merge into a Luxembourg SICAV
which as well was a UCITS fund within the meaning of the UCITS Directive
(2009/65/EC). As a result, the Applicant’s units in the Finnish investment fund would
be exchanged for shares in the Luxembourg SICAV. The question was whether the
exchange of units for shares consequential to the merger would be considered as a
disposition that would realize a capital gain or loss.
According to Sections 52 a-b of Finnish Business Income Tax Act, domestic mergers are
tax neutral under certain prerequisites, which means that the ownership of shares is
unbroken even though the shares of the merging company are exchanged for shares of
the receiving company. The rules apply also to domestic fund mergers. The SAC ruled
that the cross-border merger of the Finnish UCITS investment fund into the
Luxembourg UCITS-SICAV was to be treated equally to a merger stated in Sections 52 a-
b. Therefore, the exchange of units of the merging investment fund to shares of the
receiving collective investment fund is not considered as a disposition in the taxation of
the Applicant but instead the principle of continuity is applied.
The SAC decision concerned a Central Tax Board ruling given in 2013. In 2013, the
Central Tax Board had already held that a merger of a Finnish UCITS fund into a
Luxembourg UCITS-FCP is to be considered comparable to Finnish domestic fund
mergers.
-- Jaana Mikola and Jarno Laaksonen, PwC Finland; [email protected]
Finland – Legislative proposal on taxation of dividends distributed to non-
resident pension funds
In November 2012, the CJEU held in the case of Commission v Finland (C-342/10) that
Finnish taxation of dividends paid to non-resident EU/EEA pension funds is
discriminatory.
Currently, dividends paid to pension funds resident in other EU/EEA Member States are
subject to a withholding tax of 15% (or a lower rate under an applicable tax treaty) on the
gross basis. Dividends to Finnish resident pension institutions are taxed at 75% of the
PwC EU Tax News 11
gross dividend with the tax rate of 20%, resulting, as a starting point, in an effective tax
rate of 15%. However, Finnish pension institutions are entitled to a specific tax
deduction e.g. on the basis of their pension liabilities.
The Finnish Government Proposal (HE 157/2014) introduces a new deduction available
for non-resident pension funds receiving Finnish source dividends. The purpose of the
proposal is to remove the current discrimination against foreign pension funds.
The starting point in the proposal is that foreign pension funds are entitled to make a
specific tax deduction corresponding to the one Finnish pension institutions are entitled
to in accordance with Finnish domestic tax legislation. Accordingly, the withholding tax
should be levied on a net income basis in this respect, i.e. the foreign pension funds may
deduct as costs the part of the said deduction which corresponds to the portion the
Finnish dividends represent in the foreign pension fund’s turnover prior to the levying of
the withholding tax.
There are several conditions for benefiting from the deduction: (i) the ownership in the
Finnish dividend distributing corporation must be less than 10%, (ii) the shares must
belong to the “investment assets” of the foreign pension fund (as defined in Finnish
legislation) and (iii) the foreign pension fund must be comparable to a Finnish pension
institution.
In addition to the above, as regards non-EU/EEA pension funds, there should be a treaty
on exchanging information between Finland and the state of residence of the foreign
pension fund. Furthermore, Finland must be able to de facto verify amongst other things
the tax treatment of the non-EU/EEA pension fund and the level of supervision
applicable by local authorities.
As the requirements for benefiting from the deduction are strict, in practice, the
withholding tax would still be levied on the gross dividend and the foreign pension fund
would have to apply for a refund from the Finnish tax administration. In this connection,
the foreign pension fund must present adequate documentation and calculations.
If adopted, the amendments will apply in respect of dividends paid on or after 1 January
2015.
Finland has a unique pension system and pension provision is managed by various
pension insurance companies, company pension funds or industry-wide pension funds
(i.e. private sector pension institutions), and public sector pension institutions. The
legislative proposal contains a list of several criteria that need to be fulfilled in order to
achieve comparability with a Finnish pension institution. PwC can assist you with
assessing the possibilities to obtain the new deduction and also in the filing of
withholding tax refund claims.
-- Jaana Mikola and Jarno Laaksonen, PwC Finland; [email protected]
PwC EU Tax News 12
Hungary – Tribunal decision on retail tax following CJEU ruling in the
Hervis case
The Tribunal of Székesfehérvár made its decision on retail tax against the Hungarian Tax
Authority and in favour of Hervis on 6 November 2014.
Hervis (“taxpayer”) is a Hungarian resident company, part of the SPAR group and was
subject to the progressive tax on retail trade activity between 2010 and 2013.
The retail tax was steeply progressive and included a group consolidation rule. In the
application of the group consolidation rule, companies being part of a group could have
been subject to tax rates higher than those applicable if no consolidation was applied, i.e.
if only the individual company’s tax base would have been taken into account. A group
could have consisted of only Hungarian taxpayer companies which were considered to be
related parties. Also, a common direct or indirect foreign parent could have triggered the
related party status.
Hervis indeed paid the retail tax for 2010 as set forth by law, but at the same time filed a
self-revision and claimed back the part of the tax exceeding its liability calculated
without the group consolidation by arguing that such rule was discriminatory. The
Hungarian Tax Authority refused the claim both in first and second instance so Hervis
filed the claim to court in October 2011. The Tribunal suspended the procedure and
requested a preliminary ruling from the CJEU in Hervis (C-385/12) issued on 5
February 2014.
In the Hervis judgement, the CJEU ruled that the Hungarian rules have the effect of
disadvantaging taxpayers which are associated to other companies compared to
taxpayers which are not part of such a group of companies. Consequently, the provisions
of the questioned act may result in de facto discrimination (which would breach the
freedom of establishment), if – due to the application of the group consolidation rule –
the upper band is only applicable to groups with foreign parents. The CJEU left it to the
Hungarian court to decide whether this is in fact the case considering the characteristics
of the Hungarian retail market.
Following the preliminary ruling of the CJEU, , the Tribunal appears to have decided
that on the basis of the retail market’s specifics and the actual business structures
retailers used, the group consolidation rule, together with the steeply progressive rates,
are de facto discriminatory. As a result it concluded that Hervis shall determine its retail
tax base for 2010 solely on the basis of its own stores’ income and shall not take into
account the group consolidation rule.
The exact wording of the Tribunal’s decision is not yet available, it will have to be
analysed in detail once it is published. Nevertheless, a few aspects may already be raised
in relation to the interpretation of the Hungarian decision.
Based on the wording of the decision it will need to be considered whether the retail tax’s
rules are only discriminatory in the retail sports market or other market segments are
also affected. In the latter case other stakeholders may also initiate proceedings to
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reclaim the previously paid retail tax. The telecommunication sector might also be
affected, since the telecommunication sector’s austerity tax had rules similar to that of
the retail tax. Further to the above, it may also be subject to examination whether the
steeply progressive rate in itself – without the group consolidation rule – can result in de
facto discrimination in the retail market, or certain of its segments. Taking into
consideration the above and subject to the exact wording of the Tribunal’s decision, it
may well be the case that in addition to the retail tax, other tax types will also face
challenges (e.g. local business tax, advertisement tax, etc.).
-- Gergely Júhasz, PwC Hungary; [email protected]
Italy – New law partly aligning Italian legislation with Schumacker
On 30 October 2014 the Italian Parliament approved a Bill which is aimed at aligning
Italian tax law with the principles laid down by the CJEU in the Schumacker case (C-
279/93).
Essentially, in the Schumacker case the CJEU stated that Member States shall allow
non-resident taxpayers who derive the major part of their income from sources located
in their territory the same personal allowances as granted to resident taxpayers. The
provision introduced states that a non-resident taxpayer who is resident in an EU or
EEA Member State (provided that between the EEA Member State and Italy there is
effective an appropriate exchange of information mechanism) and derives at least 75%
of its overall income from sources located in Italy, is entitled to the same personal
allowances granted to resident taxpayers provided that it does not benefit from similar
allowances in its State of residence. The new provision is effective as from fiscal year
2014. A decree shall be issued by the Ministry of Finance in order to provide the
operational rules relevant to the new provision.
Although introduced to comply with CJEU case law, some aspects of the new provision
seem questionable. In particular, the fact that the allowances are denied if the taxpayer
benefits from similar allowances in its State of residence seems to feature aspects in
breach of EU law. Moreover, the new legislation does not apply to fiscal years prior to
2014.
-- Claudio Valz and Gabriele Colombaioni, Italy; [email protected]
Italy – Discriminatory legislation on inheritance tax amended
On 25 September 2014, the European Commission announced that it has requested Italy
in two reasoned opinions (ref.:2012/2156 and 2012/2157), to amend two discriminatory
provisions in its inheritance tax legislation regarding (i) legacies in favour of non-profit
organisations settled in another EU or EEA Member State and (ii) the disposal as part of
a legacy of bonds and public securities issued by other EU and EEA States. On 30
October 2014, the Italian Parliament approved the requested amendments.
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As for the first point, legacies in favour of Italian non-profit organizations carrying on
public and social aims as well as legacies in favour of similar entities resident in other
EU or EEA Member States are now tax exempted. Before the amendment the exemption
of legacies in favour of non-profit entities established outside Italy was subject to the
principle of reciprocity. This condition is still effective whenever the non-profit
organization is established in a third country.
As for the second point, Italian or other EU/EEA Member States bonds and public
securities are now excluded from the inheritance tax base. Before the amendment such
exemption was granted only to Italian bonds and public securities (bonds and public
securities issued by third countries are still fully subject to the inheritance tax).
-- Claudio Valz and Gabriele Colombaioni, Italy; [email protected]
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EU Developments
EU – Agenda of the EU Code of Conduct Group (Business Taxation)
meetings held in September and October
Code Meeting held on 16 September - agenda:
1. Appointment of Vice-Chairs
2. Work Programme during the Italian Presidency
3. Work Package 2011: Links to third countries
a) Switzerland
b) Liechtenstein
c) Approach to other third countries
4. Rollback: Gilbraltar Income Tax Act 2010
5. Standstill: Patent Boxes
6. Any Other Business
Code Meeting held on 20 October - agenda:
1. Work Package 2011: Links to third countries
a. Switzerland
b. Liechtenstein
c. Approach to other third countries
2. Standstill: Patent Boxes
3. Rollback: Gibraltar Income Tax Act 2010
4. Work Package 2011: Monitoring Guidance on Inbound Profit Transfers
5. Any Other Business.
-- Bob van der Made, PwC Netherlands; [email protected]
PwC EU Tax News 15
EU – ECOFIN Council Conclusions of 14 October 2014
EU-28 Political agreement on DAC Directive
The Council agreed on a draft directive extending the mandatory automatic exchange of
information between EU-28 tax administrations, thereby enabling them to better
combat tax evasion and to improve the efficiency of tax collection.
The proposal brings interest, dividends and other income, as well as account balances
and sales proceeds from financial assets, within the scope of the automatic exchange of
information. It thus amends EU directive 2011/16/EU on administrative cooperation in
the field of direct taxation (“DAC”). It is aimed at remedying situations where a taxpayer
seeks to hide capital or assets on which tax is due. Unreported and untaxed income is
considerably reducing potential national tax revenues and cross-border tax fraud and tax
evasion have become a major focus of concern both within the EU and at global level,
according to the ECOFIN Council statement.
The automatic exchange of information is seen by the Member States as an important
means for strengthening the efficiency and effectiveness of tax collection, and the new
directive thereby sets out to meet that challenge.
The text will be adopted at a forthcoming Council meeting without further discussion,
once it has been finalised in all official languages.
Click here for the full Conclusions of the ECOFIN Council.
-- Bob van der Made, PwC Netherlands; [email protected]
EU – European Commission Paper: "Tax reforms in EU Member States 2014
- Tax policy challenges for economic growth and fiscal sustainability"
The European Commission published its annual Working Paper today entitled: "Tax
reforms in EU Member States 2014 - Tax policy challenges for economic growth and
fiscal sustainability". Link to the report:
http://ec.europa.eu/economy_finance/publications/european_economy/2014/pdf/ee6
_en.pdf
-- Bob van der Made, PwC Netherlands; [email protected]
EU and Switzerland sign joint statement on business taxation
The EU and Switzerland signed a joint statement on 14 October 2014 on business
taxation in the margins of the ECOFIN Council meeting.
-- Bob van der Made, PwC Netherlands; [email protected]
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PwC EU Tax News 16
Fiscal State Aid
Gibraltar – European Commission investigates Gibraltar tax ruling practice
On 1 October 2014, the European Commission announced that it will examine the
Gibraltar tax rulings practice from the perspective of the EU State aid rules. This
decision comes as part of an in-depth State aid investigation into the Gibraltar corporate
tax system, which was opened in October 2013. The expansion of the in-depth
investigation signals that the Commission will research the Gibraltar tax rulings practice.
This does not necessarily mean that the tax rulings are State aid.
The Gibraltar tax system to be investigated dates from 2010. The possibility for
taxpayers to conclude tax rulings with the Gibraltar tax authorities was also introduced
in 2010. The Commission has reviewed 165 tax rulings, which were granted between
2011 and August 2013 . The Commission has come to the conclusion that the Gibraltar
tax authorities appear to have granted tax rulings which exempt from corporate income
tax income without an adequate evaluation the prerequisite that that income actually
was accrued or derived outside Gibraltar. Even if the Gibraltar tax authorities are to be
considered as given a wide margin of appreciation under the corporate tax regime of
2010, the Commission notes that a misapplication of its provisions cannot be excluded at
this stage.
The Commission estimates that potentially all assessed rulings may contain State aid,
because none of them are based on sufficient information to ensure that the level of
taxation of the activities concerned is in line with the tax paid by other companies, which
generate income that is to be considered accrued in or derived from Gibraltar. For this
reason the Commission extends its on-going investigation into the 2010 Gibraltar regime
to tax rulings.
In the past, the Commission had examined the corporate tax regime in Gibraltar. In July
2001, the examination followed by an in-depth State aid investigation in respect of a
specific tax exemption for companies without any trade or business in Gibraltar, and not
owned by a resident of Gibraltar resulted in abolition of that regime. In August 2002, the
UK notified an envisaged corporate tax reform, applicable to all companies in Gibraltar
and consisting of a payroll tax, a business property occupation tax and a registration fee.
Following litigation before the EU Courts, this regime was found to constitute unlawful
State aid in 2011 (see the CJEU's decision under C-106/09 P).
-- Edgar Lavarello, PwC Gibraltar; [email protected]
Luxembourg – European Commission opens in-depth investigation into
Amazon tax ruling in Luxembourg
On 7 October 2014, the European Commission opened an in-depth investigation into the
provision of a tax ruling to Amazon in relation to its Luxembourg corporate income tax
position. Based on this formal investigation, the European Commission will determine
whether Amazon has - in its view - benefited from unlawful State aid granted by
PwC EU Tax News 17
Luxembourg and, if yes, how it should proceed from there. In the event that unlawful
State aid has been granted, the European Commission may be obliged to order recovery
of that aid (going back max. 10 years).
Until the formal investigation is completed, it is not clear whether and to what extent
Amazon has - in the view of the European Commission - received State aid.
Regarding the tax ruling itself, the European Commission states in its press release:
"The tax ruling in favour of Amazon under investigation dates back to 2003 and is still in
force. It applies to Amazon's subsidiary Amazon EU Sàrl, which is based in Luxembourg
and records most of Amazon's European profits. Based on a methodology set by the tax
ruling, Amazon EU Sàrl pays a tax deductible royalty to a limited liability partnership
established in Luxembourg but which is not subject to corporate taxation in
Luxembourg. As a result, most European profits of Amazon are recorded in Luxembourg
but are not taxed in Luxembourg.
At this stage the Commission considers that the amount of this royalty, which lowers the
taxable profits of Amazon EU Sàrl each year, might not be in line with market
conditions. The Commission has concerns that the ruling could underestimate the
taxable profits of Amazon EU Sàrl, and thereby grant an economic advantage to Amazon
by allowing the group to pay less tax than other companies whose profits are allocated in
line with market terms."
The in-depth investigation into Amazon follows the opening of formal investigations into
three other companies - Apple, (allegedly) Fiat and Starbucks - on 11 June 2014. The full
text of the opening decisions in the Apple and (allegedly) Fiat cases was published on 30
September 2014. All three of the aforementioned cases involve the use of tax rulings and
are limited to the application of the transfer pricing rules and the arm's length standard.
In addition to this, the European Commission announced on 1 October 2014 that it has
expanded an ongoing investigation into Gibraltar's 2010 corporate income tax regime to
include an investigation into the Gibraltar tax ruling practice.
In a statement on the opening of the Amazon investigation, then EU Vice-President
Almunia stressed that the investigation is limited to a ruling issued specifically to
Amazon, stating that the Luxembourg tax system is not the subject of the investigation.
-- Alina Macovei, PwC Luxembourg; [email protected]
Ireland and Luxembourg – European Commission explains State aid
investigations in Ireland and Luxembourg
On 30 September 2014 the European Commission published the public versions of its
June 2014 opening decisions in the formal investigations into transfer pricing
agreements between Apple and, allegedly, Fiat and - respectively - Ireland and
Luxembourg. The Commission had already communicated these investigations through
a press release issued on 11 June 2014. The current decisions explain the reason for these
investigations, and specify the additional information which the Commission has
requested from the aforementioned Member States.
PwC EU Tax News 18
These decisions do not yet provide the outcomes of the Commission's ongoing, formal
investigations in this matter.
Both the Irish and the Luxembourg formal investigations pertain to the use of tax rulings
on the application of transfer pricing rules. In each case, the Commission holds the view
that agreements made between the taxpayer and the Member State may not reflect a
price which corresponds with the 'at arm's length' standard. The Commission refers to
the standards set by the OECD's Transfer Pricing Guidelines.
The Commission notes that the current agreements do not so much reflect the
application of transfer pricing rules as a targeted approach towards reaching a particular
(favourable) tax base.
The Commission specifies a number of aspects of the agreements which it considers to
be relevant in the present context:
The approach taken in the agreements seems to have been the result of a
negotiation process (i.e. not a proper transfer pricing analysis);
There is in the Irish ruling a general failure to explain the methodology which
applies;
The Irish agreements are open-ended and do not provide for adjustment in the
event of the evolution of sales;
The Luxembourg ruling appears to depart from the at arm's length approach.
Transfer pricing and EU Law
The Commission asserts that “if the method of taxation for intra-group transfers does
not comply with the arm’s length principle, and leads to a taxable base inferior to the one
which would result from the correct implementation of that principle, it provides a
selective advantage to the company concerned.”
Whilst this is not the first time that the Commission has targeted transfer pricing
arrangements, the Commission’s current view is likely to prove controversial. If this
position is confirmed in the final decisions in these cases, further litigation before the
European Courts is likely.
The Commission's Decisions of 11 June 2014 with regard to alleged aid to APPLE in
Ireland and alleged aid to "FFT" (allegedly FIAT) in LUXEMBOURG were formally
published in the Official Journal of the European Union on Friday 17 October 2014
[short summary is available in all 23 official EU languages; Commission letter is
available in the authentic language only]
-- Alina Macovei, PwC Luxembourg; [email protected] and Anne Harvey, PwCIreland; [email protected]
PwC EU Tax News 19
European Commission orders Spain to recover aid granted through
amortization of financial goodwill on indirect shareholdings
On 15 October 2014, the European Commission announced that a new interpretation of
the Spanish tax authorities allowing companies to amortise for tax purposes the financial
goodwill on indirect shareholdings is incompatible with EU State aid rules.
In 2009, the Commission had already found that the Spanish rules allowing companies
to deduct the financial goodwill arising from acquisitions of non-Spanish EU
shareholdings from their tax base was incompatible with the State aid rules.
In a second decision dated January 2011, the Commission also concluded that the
scheme was incompatible with the State aid rules as regards acquisitions of non-EU
shareholdings. The Commission ordered the recovery of aid granted, but taking into
account the existence of legitimate expectations, the recovery only affected aid granted in
connection with acquisitions made post 21 December 2007 (or even 21 May 2011, in the
case of some non-EU acquisitions.
The goodwill amortisation rules were introduced in the year 2000 and the position of the
Spanish tax authorities (expressed through various administrative interpretations) had
always been that this benefit only applied to direct shareholdings (i.e. financial goodwill
in second-or lower-tier subsidiaries could not be amortised for tax purposes).
This interpretation of the Spanish tax authorities was controversial, and some taxpayers
took a different position in their tax returns and the matter is being litigated in the
Spanish Courts.
In March 2012, the Spanish tax authorities issued a new administrative interpretation
which allowed the deduction of financial goodwill on indirect shareholdings. The
Spanish government did not notify the Commission in advance of issuing this new
interpretation.
In July 2013, the Commission opened an in-depth investigation to verify whether this
new interpretation was compatible with State aid rules.
In its decision announced on 15 October 2014, the Commission concluded that this new
administrative interpretation constitutes new aid incompatible with European State aid
rules and ordered Spain to recover the aid granted through this revised interpretation of
the financial goodwill amortisation rules. The Commission considers that the
amortisation of financial goodwill from indirect shareholdings was not covered by the
scope of the original measure at the time of adopting the above-mentioned 2009 and
2011 decisions and beneficiaries of the aid have thus no legitimate expectations.
The Spanish Government has publicly expressed the view that this revised interpretation
cannot be considered as new aid, and given the potential major financial implications of
this decision, litigation can be expected.
PwC EU Tax News 20
Additionally, on 5 June 2014, the Spanish Central Tax Court already lodged a request for
a preliminary ruling with the CJEU on whether the legitimate expectations recognised in
the 2009 Commission decision also apply to indirect acquisitions and, if so, whether the
2013 Commission decision is invalid.
Meanwhile, the initial 2009 Commission decision is also being litigated before the EU
Courts. It therefore appears that the Spanish goodwill saga is likely to continue.
-- Carlos Concha and Antonio Puentes, PwC Spain;
PwC EU Tax News 21
The EUDTG is PwC’s pan-European network of EU law experts. We specialise in all
areas of direct tax: the fundamental freedoms, EU directives, fiscal State Aid rules, and
all the rest. You will be only too well aware that EU direct tax law is moving quickly, and
it’s difficult to keep up. But, this provides plenty of opportunities to taxpayers with an
EU or EEA presence.
So how do we help you?
Through our EUDTG Technical Committee, we play a leading role in developing new
and innovative EU law positions and solutions for practical application by clients.
Our experts combine their skills in EU law with specific industry knowledge by
working closely with colleagues in the Financial Services and Real Estate sectors.
We have set up client-facing expert working groups to address specific hot topics such
as EU State Aid & BEPS.
We closely monitor direct tax policy-making and political developments on the
ground in Brussels through “our man in Brussels” through our man in Brussels
We input to the debate by maintaining regular contact with key EU and OECD policy-
makers through “EBIT”, the PwC-facilitated EU business advocacy initiative
(www.pwc.com/ebit).
Daily EU tax news from the EU/EEA serviced by our centralised EUDTG secretariat
in Amsterdam.
And what specific experience can we offer for instance?
We have assisted clients before the CJEU and the EFTA Court in a number of high-
profile cases such as Marks & Spencer (C-446/03), Aberdeen (C-303/07), X Holding
BV (C-337/08), Gielen (C-440/08), X NV (C-498/10), A Oy (C-123/11), Arcade
Drilling (E-15/11) and SCA Group Holding (C-39/13).
Together with our Financial Services colleagues, we have assisted foreign pension
funds, insurance companies and investment funds with their dividend withholding
tax refund claims.
We have carried out a number of tax research studies for the European Commission.
For more information about the EUDTG contact Bob van der Made, the EUDTG’s
Network Driver: e-mail: [email protected]; Tel: +31 6 130 962 96, or one of
the listed contacts below.
PwC EU Tax News 22
EUDTG KEY CONTACTS:
Chairman:
Stef van Weeghel
Network Driver, EU Public Affairs –
Brussels, Member Technical Committee
and State Aid WG:
Bob van der Made
Member Technical Committee and State
Aid WG, Chair of CCCTB WG:
Peter Cussons
Co-Chair, Chair State Aid WG,
Member Technical Committee:
Sjoerd Douma
Chair Technical Committee:
Juergen Luedicke
Chair of FS-EUDTG WG:
Patrice Delacroix
Chair of Real Estate-EUDTG WG:
Jeroen Elink Schuurman
EUDTG COUNTRY LEADERS:
Austria Richard Jerabek [email protected]
Belgium Patrice Delacroix [email protected]
Bulgaria Krasimir Merdzhov [email protected]
Croatia Lana Brlek [email protected]
Cyprus Marios Andreou [email protected]
Czech Rep. Peter Chrenko [email protected]
Denmark Soren Jesper Hansen [email protected]
Estonia Iren Koplimets [email protected]
Finland Jarno Laaksonen [email protected]
France Emmanuel Raingeard [email protected]
Germany Juergen Luedicke [email protected]
Gibraltar Edgar Lavarello [email protected]
Greece Vassilios Vizas [email protected]
Hungary Gergely Júhasz [email protected]
Iceland Fridgeir Sigurdsson [email protected]
Ireland Carmel O’Connor [email protected]
Italy Claudio Valz [email protected]
Latvia Zlata Elksnina [email protected]
Lithuania Kristina Krisciunaite [email protected]
Luxembourg Ilaria Palieri [email protected]
Malta Edward Attard [email protected]
Netherlands Sjoerd Douma [email protected]
Norway Steinar Hareide [email protected]
Poland Camiel van der Meij [email protected]
Portugal Leendert Verschoor [email protected]
Romania Mihaela Mitroi [email protected]
Slovakia Todd Bradshaw [email protected]
Slovenia Nana Sumrada [email protected]
Spain Carlos Concha [email protected]
Sweden Gunnar Andersson [email protected]
Switzerland Armin Marti [email protected]
UK Peter Cussons [email protected]