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E-News from the EU Tax Centre

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KPMG’s EU Tax Centre helps you understand the complexities of EU tax law and how this can impact your business, enabling you to better predict how rules will develop and how to leverage opportunities and minimize risks arising from EU tax law.

E-News provides you with EU tax news that is current and relevant to your business. KPMG’s EU Tax Centre compiles a regular update of EU tax developments that can have both a domestic and a cross-border impact. CJEU cases can have implications for your country.

Latest CJEU, EFTA and ECHR

AG Opinion in the Sofina case

On August 7, 2018, Advocate General (AG) Wathelet, of the Court of Justice of the European Union (CJEU) rendered his Opinion in the Sofina and Others case (C-575/17). The case concerned the compatibility with EU law of the French withholding tax levied on dividends paid by French companies to non-resident loss-making companies. The AG concluded that the French legislation is contrary to the free movement of capital and to the freedom of establishment.

For more information please refer to Euro Tax Flash 379.

CJEU decision in the TTL case (C-553/16)

On July 25, 2018, the CJEU rendered its decision in the TTL case (C-553/16) concerning the compatibility with EU law of Bulgarian legislation imposing the payment of irrecoverable default interest on cross-border transactions, even if no tax is, in principle, payable, due to the application of a tax treaty. The CJEU concluded that the Bulgarian rules are contrary to the freedom to provide services.

AG Opinion in the Commission vs. France Case (C-416/17)

On July 25, 2018, AG Wathelet of the CJEU published his Opinion in the Commission vs. France case (C-416/17) concerning the compatibility with EU law of the French Supreme Court’s case law interpreting the CJEU decision in the Accor case (C-310/09). The AG concluded that such case law is contrary to the fundamental freedoms and further noted that France failed to fulfill its obligations under the EU treaties, as the French Supreme Court did not refer the matter to the CJEU.

For more information please, refer to the CJEU website.

Infringement procedures and referrals

Infringement Procedures

European Commission requests Belgium to amend its rules on taxation of savings income

On July 19, 2018, the European Commission sent Belgium a letter of formal notice concerning its rules on the taxation of interest payments to Belgian residents with accounts in Luxembourg and Austria. The case concerns Belgium’s refusal to grant tax credits for the withholding tax levied in Luxembourg and Austria. If Belgium does not act within the next two months, the European Commission may send Belgium a reasoned opinion (second stage of the infringement procedure).

For more information, please refer to the July infringements package.

European Commission requests Estonia to amend its rules on exchange of information

On July 19, 2018, the European Commission sent a letter of formal notice to Estonia regarding its legislation on the exchange of information for tax purposes, which is not in line with Directive 2011/16/EU on Administrative Cooperation (DAC1). According to the Commission, Estonian law currently does not oblige its tax authorities to provide tax authorities of other EU Member States with the requested information, or to initiate tax proceedings for obtaining such information where needed or to engage in spontaneous exchanges of information. If Estonia does not act within the next two months, the Commission may send a reasoned opinion (second stage of the infringement procedure).

For more information, please refer to the July infringements package.

European Commission requests Greece to amend its rules on deduction of foreign losses

On July 19, 2018, the European Commission sent a letter of formal notice to Greece regarding the tax treatment of foreign business losses. According to the Commission, the difference in treatment between losses incurred in Greece and in another EU/EEA state is a restriction to the freedom of establishment. If Greece does not act within the next two months, the Commission may send a reasoned opinion (second stage of the infringement procedure).

For more information, please refer to the July infringements package.

European Commission requests the UK to amend its rules on taxation of losses on disposals of shares

On July 19, 2018, the European Commission sent a letter of formal notice to the United Kingdom concerning the income tax relief available for losses on disposals of shares. According to the Commission, the difference in treatment between taxpayers who invest in qualifying shares of companies which carry on their business in other EU Member States and in the UK constitutes a restriction to the freedom of establishment. If the UK does not act within the next two months, the Commission may send a reasoned opinion (second stage of the infringement procedure).

For more information, please refer to the July infringements package.

European Commission requests the UK to amend its rules on tax relief for loans to traders

On July 19, 2018, the European Commission sent a letter of formal notice to the United Kingdom concerning the tax relief available for capital losses on irrecoverable loans to traders. According to the Commission, the UK legislation constitutes an unjustified restriction on the free movement of capital. If the United Kingdom does not act within the next two months, the Commission may send a reasoned opinion (second stage of the infringement procedure).

For more information, please refer to the July infringements package.

European Commission requests the Netherlands to amend its rules on taxation of pensions

On July 19, 2018, the European Commission sent a reasoned opinion to the Netherlands regarding its rules on the taxation of transfers of pension capital by mobile workers. According to the Commission, the Dutch legislation constitutes a restriction on the free movement of workers, the freedom to provide services and the free movement of capital. If the Netherlands does not comply with the reasoned opinion within two months, the matter may be referred to the CJEU.

For more information, please refer to the July infringements package.

The European Commission closes procedure against Belgium regarding DAC3 and DAC5

On July 19, 2018, the European Commission closed a procedure against Belgium for failure to implement the automatic exchange of information on advance cross-border tax rulings (Directive 2015/2376 or DAC3) and on rules providing tax authorities with access to anti-money laundering information (Directive 2016/2258 or DAC5).

For more information, please refer to the July infringements package.

European Commission closes procedures against Cyprus and Italy regarding DAC5

On July 19, 2018, the European Commission closed procedures against Cyprus and Italy regarding the implementation of Directive 2016/2258 (DAC5) on access by tax authorities to anti-money laundering information.

For more information, please refer to the July infringements package.

State Aid

Legality of tax rulings granted by the Netherlands to Shell in light of EU State aid rules

On July 27, 2018, the European Commission replied to a question by MEP Paul Tang about whether the tax ruling granted by the Netherlands to Royal Dutch Shell was compatible with EU State aid rules. The European Commission confirmed that it was aware of the case but refused to comment further on the specific ruling.

For more information, please refer to the European Parliament’s website.

CJEU decision in the State aid case concerning the Spanish ‘tax lease’ arrangement

On July 25, 2018, the CJEU rendered its decision on the ‘Spanish tax lease system’ (STLS) case (C-128/16 P). The STLS was a shipbuilding financing agreement (that is no longer in force), which granted Spanish tax relief to investors that provided the finance. The CJEU ruled that the STLS may constitute illegal State aid and referred the case back to the General Court.

For more information, please refer to Euro Tax Flash 378

Code of Best Practices for the conduct of State aid control procedures

On July 16, 2018, the European Commission adopted a new Code of Best Practices for State aid control. The new rules provide guidance on State aid procedures in order to improve their effectiveness, transparency and predictability.

For more information, please refer to the Code (PDF 460 KB).

EU Institutions

COUNCIL OF THE EUROPEAN UNION

Work Program Code of Conduct Group during the Austrian Presidency

On July 27, 2018, the Code of Conduct Group published its work program under the Austrian Presidency of the Council. The Group will, in particular, continue reviewing the tax measures notified by the Member States, with a focus on notional interest deduction regimes.

Agreed guidance by the Code of Conduct Group (business taxation) published

On July 13, 2018, the Council of the European Union updated the Agreed guidance by the Code of Conduct Group (business taxation): 1998-2018. Previous agreed versions of the guidance were published on February 27, and June 22, 2018.

For more information, please refer to the Guidance (PDF 1.70 MB).

EUROPEAN COMMISSION

European Commission publishes documents on preparing for Brexit

On July 19, 2018, the European Commission published documents on preparing for Brexit together with a fact sheet on issues that entrepreneurs and companies in the EU27 should be aware of in order to prepare for the withdrawal of the United Kingdom from the European Union.

For more information, please refer to Communication (PDF 664 KB) and Fact Sheet (PDF 256 KB).

European Commission publishes report on methodologies for studying tax gaps.

In July 2018, the European Commission issued a report presenting different methodologies for studying tax gaps, including case studies. The corporate income tax gap is the gap between corporate tax revenues as they “should be” collected and as they “are” collected, and is an indication of potential tax revenue losses. While about ten Member States have taken steps or already estimate a tax gap, the report concludes that it is still too early to find a consensus methodology.

For more information, please refer to the report (PDF 1.87 MB).

EUROPEAN PARLIAMENT

TAX3 Committee Delegation in Washington D.C.

From July 16 to 18, 2018, a delegation of the Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3) travelled to the United States, where they discussed future plans for international cooperation in the fight against financial criminality, tax evasion and tax avoidance. Topics such as digital taxation, CBCR, money-laundering risks posed by of crypto-currencies and tax havens were also added to the agenda.

For more information please refer to European Parliament’s press release.

OECD

OECD invites taxpayer input on sixth batch of Dispute Resolution peer reviews (BEPS 14)

On July 26, 2018, the OECD invited taxpayer input under Action 14 of the Base Erosion and Profit Shifting (BEPS) Project for the Stage 1 peer reviews of Argentina, Colombia, Croatia, India, Latvia, Lithuania and South Africa.

For more information, please refer to OECD’s announcement.

Annual report on status of BEPS Inclusive Framework released

On July 22, 2018, the OECD issued a report on the status of the Inclusive Framework on the BEPS project for the period July 2017 – June 2018.

For more information, please refer to KPMG’s TaxNewsFlash.

Updated Report on tax certainty

On July 22, 2018, the OECD released an updated report, produced by the OECD and the IMF, identifying a set of approaches and solutions to enhance tax certainty and discussing initiatives that aim to improve tax certainty in developing countries.

For more information, please refer to the updated OECD report.

High-level meeting to discuss developments in international tax cooperation

On July 17 and 18, 2018 over 70 participants from 20 countries took part in a regional event on Developments in International Tax Cooperation: Fighting Tax Evasion and Avoidance. Participants discussed policy responses to fighting tax evasion and avoidance, as well as the opportunities and challenges presented by the practical implementation of international standards on tax transparency and BEPS.

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

New members of the Global Forum on Transparency and Exchange of Information

In July 2018, Bosnia and Herzegovina, Swaziland and Cape Verde joined the Global Forum on Transparency and Exchange of Information. This takes the Forum’s membership to 153. The main objective of the Global Forum is to cooperate in the international fight against cross-border tax evasion. On July 16, 2018, the Forum published peer review reports assessing compliance with the international standard on tax transparency and exchange of information on request for Guernsey and San Marino (rated “compliant”), Indonesia, Japan, the Philippines and the United States (“largely compliant”) and Kazakhstan (“partially compliant”).

For more information, please refer to the OECD’s announcement.

Local Law and Regulations

Austria

Multilateral Competent Authority Agreements on exchange of information approved

On July 11, 2018, the Austrian Federal Council approved the Multilateral Competent Authority Agreement on the Automatic Exchange of Country-by-Country Reports (CbC MCAA) (2016), as well as the Multilateral Competent Authority Agreement on the Automatic Exchange of Information Agreement (2014) (CRS MCAA) on the introduction of the automatic exchange of information in tax matters on a reciprocal basis.

Cyprus

Tax law changes concerning capital gains, carried interest, funds

Cyprus amended its laws on the tax treatment of certain capital gains and “carried interest” of individuals working in the funds industry.

For more information, please refer to KPMG’s TaxNewsFlash.

Finland

Proposal for 2019 Budget

On August 9, 2018, the Ministry of Finance published its proposal for the 2019 Budget. According to that proposal, interest deductibility rules under the Anti-Tax Avoidance Directive 2016/1164 (ATAD) will be transposed into Finnish Tax Law.

Public consultation launched for amendment of CFC legislation compatible with ATAD

On August 6, 2018, the Ministry of Finance launched a public consultation for a law proposal aiming to implement CFC legislation in line with ATAD. The consultation paper also mentions that the current Finnish General Anti-Avoidance Rule (GAAR) under the Finnish Tax Procedural Law is considered in line with the ATAD provisions, although not identical. Therefore, it is not necessary to amend the current Finnish GAAR. Interested parties have until August 27, 2018, to submit their comments.

Nordic Convention – signature authorization

On July 13, 2018, the President of Finland authorized for signing a protocol amending the Nordic Convention. The minimum standards under BEPS will now be included in the Convention concluded between Denmark, the Faroe Islands, Finland, Iceland, Norway, and Sweden regarding income and capital tax.

France

Decree on disclosure obligations for financial institutions published

In order to comply with Directive 2011/16/EU on administrative cooperation, as amended (DAC2), France has introduced a new decree on additional disclosure obligations for financial institutions. The new law will take effect on November 1, 2018.

Guidelines on transfer pricing documentation published

On July 18, 2018, the French tax authorities published guidelines on transfer pricing documentation, which include confirmation that the OECD Transfer Pricing Guidelines apply to French transfer pricing documentation. The new rules apply to financial years commencing on or after January 1, 2018.

Greece

Greek Parliament adopts Bill on Fourth Anti-Money Laundering Directive

On July 26, 2018, the Greek Parliament adopted a draft bill implementing the Anti-Money Laundering Directive (2015/849). The bill will take effect upon its publication in the Official Government Gazette.

Guernsey, Isle of Man, Jersey

Revision of substance requirements for resident companies

On August 6, 2018, both Guernsey and Jersey launched consultations on the introduction of new substance requirements for resident companies. The Isle of Man’s government published an update on the progress made in this respect on August 7, 2018. These initiatives are part of the three jurisdictions’ commitments to address the EU’s concerns about the EU blacklisting process.

Lithuania

Lithuania joins OECD

On July 5, 2018, Lithuania deposited its instrument of accession to the Convention on the Organisation for Economic Co-operation and Development (OECD). Lithuania became the 36th full member country of the OECD.

Ireland

Tax Strategy Group’s Papers published for the Budget of 2019

On July 31, 2018, the 2018 Tax Strategy Group Papers were published by the Department of Finance. The policy papers consider a number of tax policy issues and possible solutions that may be taken into account during the 2019 budget exercise, including implementation of the EU Anti-Avoidance Directives, the Common Consolidated Corporate Tax Base, the Multilateral Instrument, taxation of the digital economy, and Brexit.

Manual for tax evasion reporting updated

On July 20, 2018, the Irish tax authorities announced that the manual on tax evasion reporting had been updated in respect of the following aspects: the tax evasion reports can be sent by post or email and can be made anonymously, and the tax authorities are responsible for ensuring the confidentiality of such reports.

Italy

Consultation launched on exchange of information of reportable cross-border arrangements

On July 30, 2018, the Ministry of Finance launched a public consultation on the implementation of Council Directive 2018/822 regarding the mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements.

New Law Decree concerning relocation of enterprises published

On July 13, 2018, new tax measures were published in the Italian Official Gazette. The measures included restrictions to the relocation outside of the EU/EEA of enterprises that have received “state aid”, the extra depreciation allowance and the research and development tax credit regime.

For more information please refer to KPMG’s TaxNewsFlash.

Liechtenstein

Amendments to Tax Act gazetted

On July 12, 2018, amendments to the Tax Act were published in the Official Gazette. The bill, which is a response to the EU Code of Conduct Group’s recommendations, amends tax provisions related to the exemption of dividends and capital gains, the abolition of the deductibility of losses from shareholdings and the introduction of anti-abuse rules with respect to the notional interest deduction regime.

Luxemburg

Bill to implement DAC 5 published

On August 6, 2018, a bill implementing EU Directive 2016/2258 regarding access by tax authorities to anti-money-laundering information (DAC 5) was published in the Official Gazette.

Circular on virtual currency released

On July 26, 2018, the Luxembourg tax administration released a circular on tax aspects of virtual currency. According to the administration, virtual currency should be considered as an intangible asset for income tax, local business tax and net worth tax purposes. Income from virtual currency realized from a transfer or mining will be taxed as business profits or other income.

The Netherlands

ATAD implementation postponed

On July 13, 2018, the Deputy Minister of Finance informed the Dutch Parliament that the legislative proposal to implement the EU ATAD (2016/1164) will be submitted after the Parliament’s summer break. The government had initially planned to submit the proposal in June 2018.

The Netherlands and the UK join the coalition formed to tackle international tax crime

The Joint Chiefs of Global Tax Enforcement, or “J5” was set up by the tax authorities in the Netherlands, the UK, the USA, Canada and Australia, as a response to the OECD’s call for countries to do more to tackle the enablers of tax crime. The J5 will pool intelligence, expertise and resources, as well as conduct joint investigations and programs.

Poland

Draft measures on taxpayer rights, tax collection efforts

A draft tax ordinance has been released containing draft measures on the introduction of legal mechanisms for protecting a taxpayer’s rights and new tax collection procedures including a simplified tax procedure in “low value cases” and a requirement for cooperation between the tax authorities and taxpayers.

For more information, please refer to KPMG’s TaxNewsFlash

Slovakia

Multilateral Instrument (MLI) ratified by Slovak Republic

On July 30, 2018, Slovakia ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). It includes 64 treaties which will be covered by the MLI.

Spain

MLI approved by Spanish Council of Minister

On July 13, 2018, the Spanish Council of Ministers approved the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). It includes 86 treaties which will be covered by the MLI.

United Kingdom

Brexit referendum: Taxation (Cross-border Trade) Bill

On July 12, 2018, the House of Commons released a list of amendments to the Taxation (Cross-Border Trade) Bill. The Bill focuses on providing continuity for businesses and consumers once the UK leaves the EU. It contains provisions about the implementation of international trade agreements, provisions establishing the Trade Remedies Authority and conferring functions on it, and provisions about the collection and disclosure of information relating to trade.

New Register of beneficial owners

The Department for Business, Energy & Industrial Strategy (BEIS) has launched a consultation on the Draft Registration of Overseas Entities Bill, which sets out provisions to establish a new public register of the beneficial owners of overseas entities that hold UK land. The new foreign entities register is intended to prevent and combat overseas entities from using land in the UK for the purposes of money laundering and to achieve greater transparency in the UK property market.

For more information, please refer to KPMG’s TaxNewsFlash.

Local Courts

United Kingdom

Prudential Assurance Company Ltd v HMRC – Supreme Court Decision

On July 25, 2018, the Supreme Court rendered its judgment in Prudential, a test case concerning tax on overseas portfolio dividends (i.e. holdings of less than 10 percent) and compound interest. At the time, double tax relief was given for foreign withholding taxes paid, but not for any underlying tax. Based on previous case law from the CJEU, the Supreme Court confirmed that credits for underlying tax on portfolio dividends should be calculated by reference to the foreign nominal tax rate not the tax actually paid. However, the Court ruled that compound interest was not due on tax that was levied in breach of EU law.

For more information, please refer to KPMG’s TaxNewsFlash.

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