Fresh thinking and new trends in business tax KPMG EMA Tax Summit

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1 Fresh thinking and new trends in business tax 2014 KPMG EMA Tax Summit

2 Pending cases and recent rulings from the Court of Justice of the EU Robert van der Jagt Tax Partner and Chairman of KPMG s EU Tax Centre KPMG Meijburg & Co Professor Otto Marres Tax Partner KPMG Meijburg & Co Vinod Kalloe Of Counsel KPMG Meijburg & Co

3 Agenda 01 Most Important Rulings from the Court of Justice of the EU in the Past 12 Months 02 Fighting Harmful Tax Practices in the EU and OECD 03 Pending Cases from the Court of Justice of the EU 3

4 Recent Rulings from the Court of Justice of the EU (CJEU) Professor Otto Marres Tax Partner KPMG Meijburg & Co

5 Recent Rulings from the CJEU Imputation method KRONOS Imputation method: refund for underlying CIT German Law German Co Dividend Facts of the Case Exemption method: No refund US resident / German place of management >10% Dividend CJEU Decision Exemption method: No refund US resident / German place of management Dividend Kronos (C-47/12) September 11, 2014 No discrimination exists as Member States are free to opt between an imputation method or an exemption method in order to avoid economic double taxation. Decision unfavorable to Taxpayer German Sub Third Country Sub Cos Sub Cos Discrimination TAXED ON PROFITS TAXED ON PROFITS TAXED ON PROFITS 5

6 Recent Rulings from the CJEU Loss Compensation K CASE Loss relief available in Finland Finnish Law Fin Co PROFIT Facts of the Case Fin Co FINLAND PROFIT CJEU Decision Decision unfavorable to Taxpayer FINLAND Fin Co PROFIT K Case (C-322/11) November 7, 2013 No Cross-Border Loss Relief for losses from passive investments made by private individuals in the event of a disparity between domestic and source country tax legislation FRANCE FRANCE Restriction No loss relief in either France or Finland Justified Proportional 6

7 Recent Rulings from the CJEU Loss Compensation NORDEA Danish Law SWEDEN Facts of the Case SWEDEN RECAPTURE RULE CJEU Decision Decision favorable to Taxpayer SWEDEN RECAPTURE RULE Nordea (C-48/13) July 17, 2014 First decision that addresses cross-border losses when credit method applies NORDEA DENMARK PROFIT NORWAY NORDEA DENMARK PROFIT NORWAY RECAPTURE RULE NORDEA DENMARK PROFIT NORWAY RECAPTURE RULE Recapture rules need to be proportional FINLAND FINLAND FINLAND Transfer of PEs to group companies and recapture of PE losses deducted RECAPTURE RULE RECAPTURE RULE Restriction Justified Proportional 7

8 Recent Rulings from the CJEU Loss Compensation SCA GROUP HOLDING Fiscal Unity Dutch Law A PROFIT X Facts of the Case A PROFIT German Co Decision favorable to Taxpayer CJEU Decision A PROFIT German Co SCA Group Holding (C-39/13, C-40/13 and C-41/13) June 12, 2014 Fiscal Unity A B X B A B German Co B A B German Co B Fiscal unity between companies that are linked with each other through an intermediate company resident in another EU Member State should be allowed Restriction Justified PROFIT PROFIT PROFIT 8

9 Recent Rulings from the CJEU Loss compensation / Anti-Abuse FELIXSTOWE UK Law Parent Decision favorable to Taxpayer Facts of the Case Hong Kong Parent Felixstowe (C-80/12) April 1, 2014 UK Co s HoldCo BVI Cayman UK tax legislation infringes freedom of establishment PROFIT Surrender of losses Consortium Co UK UK Link Co UK loss surrendering Co Dutch Co UK Co s PROFIT Consortium Co Lux HoldCo Luxembourg LUX Link Co Irrelevant the fact that the ultimate parent company of the group and of the consortium as well as a number of intermediate companies are established in third States For consortium group relief Link Company must be established in the UK Surrender of losses UK loss surrendering Co Restriction Justified Key: Group Consortium Simplified illustrations of the case 9

10 Recent Rulings from the CJEU Anti-Abuse X BV and TBG Dutch Law Facts of the Case CJEU Decision X BV and TBG (C-24/12 and C-27/12) June 5, 2014 X No Dividend WHT CURAÇAO NETHERLANDS Curaçao 8.3% Dividend WHT CURAÇAO NETHERLANDS Curaçao 8.3% Dividend WHT The 8.3% dividend WHT can be levied, provided that it is intended to prevent tax evasion and that this goal is effectively and proportionally pursued A A Aimed to counter the appeal of Curaçao as a Tax Haven A Only if the measure is effective and proportional to avoid tax evasion Up to the Dutch Supreme Court to assess whether the measure is effective and proportionate New! tax arrangement between Netherlands and Curaçao pending parliamentary approval 10

11 Recent Rulings from the EFTA Court CFC Rules FRED OLSEN & OTHERS Norwegian Law Facts of the Case CJEU Decision Fred Olsen & Others (E-3/13 and E-20/13) July 9, 2014 Participation exemption for dividends and capital gains Trust Norway Exempt from income tax and capital gains Dividends and capital gains CFC taxed income NORWAY LIECHTENSTEIN Trust Liechten. Dividends and capital gains CFC taxed income NORWAY LIECHTENSTEIN Trust Liechten. CFC rules can be justified on the grounds of overriding public interest and are proportional if they relate to wholly artificial arrangements Only for wholly artificial arrangements aimed to avoid taxes Dutch Co Dutch Co Dutch Co 11

12 Recent Rulings from the CJEU Third Country Claims EMERGING MARKETS Polish Law Exempt from tax if registered office is in Poland Facts of the Case CJEU Decision Emerging Markets (C-190/12) April 10, 2014 Inv. Fund Poland No dividend WHT Poland Co EOI Agreement Inv. Fund 3 rd Country Poland Co 19% dividend WHT EOI Agreement Inv. Fund 3 rd Country No dividend WHT Poland Co Non-EU investment funds should not be denied a tax benefit if the tax authorities of the source state have sufficient means (E.g., Exchange Of Information agreements) to verify the comparability between non-eu funds and domestic funds Restriction Justified 12

13 Fighting harmful tax practices in the EU and OECD Vinod Kalloe Of Counsel KPMG Meijburg & Co

14 Fighting Harmful Tax Practices in the EU and OECD Harmful Tax Practices? IP Regimes IP regimes Ruling practices IP regimes BEPS action point 5 EU Council Code of Conduct Group European Commission State aid OECD Forum on harmful tax practices 14

15 Fighting Harmful Tax Practices in the EU and OECD EU EC and OECD Review: IP Regimes EU and EC France 1971 Luxembourg 2008 Hungary 2003 Malta 2010 Netherlands 2007 Cyprus 2012 (2010) United Kingdom 2013 Spain 2008 Portugal 2014 Belgium 2008 OECD Switzerland, Nidwalden

16 Fighting Harmful Tax Practices in the EU and OECD OECD s Forum on Harmful Tax Practices: Review IP Regimes Criteria Guiding criteria 1. No or low effective tax rate 2. Ringfencing 3. Lack of transparency 4. Lack of effective exchange of information BEPS action point 5:...improving transparency including compulsory spontaneous exchange on rulings related to preferential regimes, and on requiring substantial activity for any preferential regime. 16

17 Fighting harmful tax practices in the EU and OECD Elements of the Reviewed IP Regimes Qualifying self-developed patented IP Concerns EU and OECD? IP self developed non-patented know acquired IP without further development how (technological IP) IP from related party outsourcing acquired IP + further development any copyright of literary, artistic or scientific work including cinematograph films, any trade mark, brandname, logo software and internet domain names Eligible direct royalty Concerns EU and OECD? income embedded royalty transfer pricing approach or formula-based approach capital gains Solution? limit eligible income to eligible development cost ratio? safeharbours? Tax tax base exemption for eligible income Effective tax rate 15% - 10% - 5% - 2,5% - 0% incentive 50% - 80% - 100% Cap none R&D expenses 100% deductible x-times development costs recapture development costs Ruling Advance certainty Concerns EU and OECD? practice on qualifying IP and eligible income Lack of transparency? Ranging from 3 to 10 year period Solution? spontaneous exchange of information? OECD and EU? 17

18 Fighting Harmful Tax Practices in the EU and OECD EC State Aid Review: Ruling Practices Criteria and concern Criteria art. 107 TFEU 1. Advantage 2. Selective 3. State resource 4. Distort competition EU Procedural Regulation Review de jure and de facto Review de jure Review de facto: name companies sectors content of ruling including facts on activities, functions and risk qualifying income and benefit EU Member States 18

19 Fighting Harmful Tax Practices in the EU and OECD EC State Aid Review: Ruling Practices Is the European Commission allowed to request a list of all rulings provided in several years by a Member State? Choice Answer Results 1 Yes 2 No 19

20 Fighting Harmful Tax Practices in the EU and OECD EC State Aid Review The Netherlands 1 The individual ruling issued by the Dutch tax authorities 2 on the calculation of the taxable basis 3 in the Netherlands for manufacturing activities 4 of Starbucks Manufacturing EMEA BV Source: European Commission Press Release IP/14/ June

21 Fighting Harmful Tax Practices in the EU and OECD EC State Aid Review - Ireland 1 the individual rulings issued by the Irish tax authorities 2 on the calculation of the taxable profit 3 allocated to the Irish branches 4 of Apple Sales International and of Apple Operations Europe Source: European Commission Press Release IP/14/ June

22 Fighting Harmful Tax Practices in the EU and OECD EC State Aid Review Luxembourg 1 the individual ruling issued by the Luxembourgish tax authorities 2 on the calculation of the taxable basis 3 in Luxembourg for the financing activities 4 of Fiat Finance and Trade *Source: European Commission Press Release IP/14/ June

23 Pending Cases from the CJEU Robert van der Jagt Tax Partner and Chairman of KPMG s EU Tax Centre KPMG Meijburg & Co

24 Pending Cases from the CJEU Free Movement of Workers SOPORA Sopora (Case C-512/13) Referred on September 25, 2013 The Dutch 30% Tax Ruling provides relief to highly skilled foreign employees who reside more than 150 kilometers from the Dutch border Effectively treats individuals from some Member States, such as Belgium, Germany and Luxembourg, differently from those living in other Member States 150km Commission supports taxpayer 24

25 Pending Cases from the CJEU Free Movement of Workers SOPORA Sopora (Case C-512/13) Who do you think will win the battle? Choice Answer Results 1 Yes 2 No 25

26 Pending Cases from the CJEU Net Taxation SOCIETÉ GÉNERALE and MILJOEN Societé Génerale X Miljoen No credit for Dutch WHT: Societé Génerale (C-17/14) and Miljoen (C-10/14) FRANCE NETHERLANDS X BELGIUM NETHERLANDS 30% tax on 4% value of the shares 15% Dividend WHT (Creditable/Refundable) 15% Dividend WHT Difference in taxation of dividends of a Dutch resident company between a Non-resident investor/ company and a Resident investor/company DutchCo DutchCo 26

27 CJEU Decision Net Taxation GERRITSE German Law GERMANY Service Fee taxed on a Net Basis Facts of the Case NETHERLANDS Service Fee 15% WHT on a Gross Basis Decision favorable to Taxpayer CJEU Decision NETHERLANDS Service Fee 15% WHT on a Net Basis Gerritse (C-290/04) October 3, 2006 Non-residents can also deduct business expenses from the WHT basis provided: The expenses are directly linked to the service, and The effective tax burden would otherwise be higher for the non-resident German Co German Co German Co Restriction Justified 27

28 Pending Cases from the CJEU Net Taxation SOCIETÉ GÉNERALE and MILJOEN Societé Génerale X Miljoen No credit for Dutch WHT: Societé Génerale (C-17/14) and Miljoen (C-10/14) FRANCE NETHERLANDS X BELGIUM NETHERLANDS 30% tax on 4% value of the shares 15% Dividend WHT (Creditable/Refundable) 15% Dividend WHT Difference in taxation of dividends of a Dutch resident company between a Non-resident investor/ company and a Resident investor/company DutchCo DutchCo 28

29 Pending Cases from the CJEU Net Taxation SOCIETÉ GÉNERALE and MILJOEN Societé Génerale (C-17/14) and Miljoen (C-10/14) Is the income tax burden relevant in comparing the resident with the non-resident taxation? Choice Answer Results 1 Yes 2 No 29

30 Thank you

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