PwC NewsUpdate Financial Services / Insurance tax network

Transcription

1 PwC NewsUpdate Financial Services / Insurance tax network Insurance Financial institutions can claim EU refunds of WHT on dividends and interest Latest developments Did you know that based on EU Law you can claim back withholding taxes which you have already paid? Essentially, in many cases where an EU withholding tax cannot fully be credited in the resident State of the recipient, there is an EU argument to apply for a refund. PwC has assisted many clients with filing requests and protective claims for pension funds, investment funds, insurance companies, charities, banks etc. across many European jurisdictions for the recovery of EU withholding taxes on dividends and interest. Following recent favourable European Court of Justice (ECJ) case law and national court decisions, clients can look forward to substantial Euro refunds. To safeguard their rights, clients will need to file protective claims within local statutory time limitations ranging from 3 months to 5 years. It can take several years until refunds are granted and in certain cases, court procedures in national courts are necessary. Contact a PwC adviser now to carry out a cost-benefit analysis of your company s position.

2 Insurance companies Insurance companies are usually taxable entities in their country of residence, with different treatment of unit and non unit-linked life insurance, non-life insurance and health insurance companies. A PwC study on discriminatory taxation of dividend and interest payments to foreign insurance companies found that ECJ case law and EU legislative developments in this area provide strong legal arguments for filing refund requests. Banking and Insurance companies On 17 June 2010, the ECJ ruled in the case of Commission v. Portugal (C-105/08). On 6 March 2008, the EC referred Portugal to the ECJ claiming that by taxing payment of interest abroad on a gross basis while taxing the payment of interest to entities resident in Portuguese territory on a net basis, payment of interest abroad were taxed more heavily, as a result of which Portugal imposes unjustifiable restrictions on the provision of mortgage and other loan services by financial institutions resident in other EU and EEA countries. The ECJ observed that taxing payment of interest abroad on a gross basis while taxing payment of interest to entities resident in Portuguese territory on a net basis is incompatible with the free movement of capital, provided payments of interest abroad are taxed more heavily. The ECJ however dismissed the action brought by the EC because it failed to demonstrate that payments of interest to entities abroad were indeed taxed more heavily. On 3 August 2010, the Dutch District Court of Haarlem rendered an interesting decision on withholding tax. The legal principle on which the company based its claim, the net taxation argument, was clearly supported by the judgment. The court rejected the tax authority's argument that the different treatment was permissible because it involved different types of tax (withholding and income). The claim however was turned down on the facts of the case (burden of proof lies with the nonresident taxpayer). The above-mentioned case provides legal arguments for banks and insurance companies who cannot get a credit for foreign withholding tax in their country of residence to file refund claims for withholding tax suffered in other EU member states. What progress did we see in 2011? The courts and officials are making positive moves to help both past and future claimants: at the end of 2010 and on into 2011, the European Court of Justice confirmed its earlier position in major new judgments in favour of claimants. This binding precedent has convinced some national tax authorities to accept the Court s and the European Commission s position and amend their legislation. Strengthened by the ECJ s position, the Commission is continuing to press miscreant Member States to amend their laws and, if necessary, call them before the ECJ. We also see national courts referring questions to the ECJ for preliminary rulings. Latest developments Recent ECJ judgments and national Supreme Court decisions in different EU countries were decided in favour of the EC s position. If the ECJ follows the EC, which is increasingly likely, EU/EEA based financial institutions should get refunds if their applications have been filed correctly and in time. Today, we are seeing the first results of the parallel pressure at EU and national level with the first systematic refunds being granted by the Dutch, Polish and Norwegian tax authorities and sporadic payouts and promising developments in an increasing number of other EU countries. A considerable number of EU countries have also made their domestic legislation more EU proof, yet, at the same time, many of them continue to reject claims filed for previous years in their jurisdictions. Non-EU investors Non-EU/EEA based investors e.g. based in Switzerland, U.S., etc., may also file protective claims as EU rules prohibit restrictions on capital movements between EU and non-eu countries. In recent years this rule has been subject to numerous ECJ judgments such that it now seems that it applies to (potentially) all non-eu portfolio investors as well. The European Commission (EC) is of the opinion that non-eu investors have strong arguments and started two test cases against EU member states in 2009.

3 Related products: Pension funds A pioneering study by PwC in 2005 found that 18 EU member states had regimes in place whereby non-resident pension funds effectively paid higher taxes on interest or dividends than comparable resident pension funds. This is prohibited under EU free movement of capital rules, as laid down in article 63 of the Treaty on the Functioning of the European Union (TFEU). Based on this study, PwC and the European Federation for Retirement Provision lodged complaints with the European Commission (EC) in December The EC agreed with us and started infringement proceedings in A number of ECJ cases support the EC s view. In the Denkavit case for instance, the ECJ confirmed that outbound dividends must not be subject to higher taxation in the source State than domestic dividends. Related products: Investment funds Similarly, a study by PwC analysed to what extent investment funds face tax discrimination when making investments across Europe. PwC found that the imposition of withholding taxes on dividends to such funds in many EU countries could constitute an infringement of the free movement of capital. As a result, since 2006, PwC has lodged complaints with the EC against 7 EU countries for their discriminatory fiscal treatment of dividend payments to foreign EU investment funds..

4 TERRITORY UPDATE ON LATEST DEVELOPMENTS Below you ll find a brief run-down of the latest developments in the field of Fokus bank claims in 2011, listed by country. Of course, this is just a choice selection of the changes in this area in a wide range of countries since 2005 and looks just at recent communications from tax authorities, ECJ judgments, etc. Austria 1. EU/EEA corporations (insurances, banks, charities) In order to convert the key aspect of the EFTA-Court and the ECJ judgments in case E-1/04 Fokus Bank (free movement of capital; Art. 40 EEA Agreement) case C-170/05 Denkavit (freedom of establishment; Art. 49 TFEU) case C-379/05 Amurta (free movement of capital; Art. 63 TFEU) into Austria tax law, Sec. 21 para. 1 no. 1a Austrian Corporate Income Tax Act (ACITA) was introduced with the Budget Concomitant Act 2009 (Budgetbegleitgesetz 2009). It determines that: any corporation which is only subject to limited tax liability in Austria and resident in the EU or in a state of the EEA, with which Austria has concluded a comprehensive administrative assistance and enforcement agreement (currently only Norway) will be refunded any Austrian withholding tax (WHT) on received dividends, comparable income from participations in cooperatives and from equivalent payments from participation rights according to Sec. 27 para. 2 no. 1 lit a to c Austrian Income Tax Act (AITA) which cannot be credited in its state of residence based on the applicable double tax treaty (i.e. is not neutralised within the meaning of Denkavit and Amurta, whereby it does not matter why the Austrian WHT cannot be offset). Discriminatory Austrian WHT is thus generally refunded in an EU/EEA scenario in accordance with the Austrian statute of limitations (i.e. generally 5 years retroactively). In this regard PwC Austria has recently seen the first refunds of Austrian WHT to German life, non-life and health insurance companies and an EU bank for the years 2006 to 2010, which were based on Sec. 21 para. 1 no. 1a ACITA and granted by the first instance (tax office Bruck Eisenstadt Oberwart) within three to six months. In the context of these refunds it has turned out difficult, respectively decisive for the refund to prove or at least show credibly the amount of Austrian WHT, which cannot be credited in the state of residence of the claimant based on the applicable double tax treaty (i.e. is not neutralised within the meaning of Denkavit and Amurta ). The Austrian tax authorities generally ask for respective confirmations of the tax authorities of the state of residence of the claimant. Alternative evidence (tax returns in connection with tax assessments) was only accepted after negotiations with the tax office on a case-to-case basis and could be a deal-breaker in practice. Otherwise, it has shown relatively easy to prove the legal preconditions (tax residence, beneficial ownership etc.) of a claim for refund according to Sec. 21 para. 1 no. 1a ACITA. Therefore, it seems worthwhile for foreign investors from the EU or EEA (insurances, banks but also industrial enterprises and charities) to examine their portfolios for any refund potential.

5 2. EU/EEA pension funds (Pensionskassen) Section 6 Austrian Corporate Income Tax Act (ACIT ) only contained a tax exemption for domestic Austrian pension funds (inländischen Pensionskassen). This tax exemption for domestic pension funds explicitly did not apply to foreign pension funds resident in the EU or EEA and thus generally infringed the freedom of establishment and the free movement of capital (Art 49 and 63 TFEU respectively Art. 40 EEA Agreement). In order to comply with EC/EEA law Austria amended Section 6 ACITA with the Budget Concomitant Act 2009 (Budgetbegleitgesetz 2009). Section 6 ACITA now also contains a complete tax exemption for income of EU/EEA pension funds, which is derived from assets that are held for the purposes of the pension scheme, provided that the EU/EEA pension fund is comparable to an Austrian pension fund. Thus, if a comparable EU/EEA pension funds suffer Austrian WHT with respect to such income (e.g. Austrian dividends), they are entitled to a complete refund of all Austrian WHT in accordance with the Austrian statute of limitations (i.e. generally 5 years retroactively). In order to be comparable an EU/EEA pension fund has to comply with Section 5 no. 4 Austrian Pension Fund Act (Pensionskassengesetz), i.e. has to be an institution for occupational retirement provision within the meaning of Directive 2003/41/EC. Furthermore, the pensions granted by EU/EEA pension fund must not exceed 80 % of the last salary of the beneficiaries, as this requirement must also be met by Austrian pension funds in order to benefit from the complete tax exemption. With respect to the two criteria named above the Austrian tax authorities generally ask for official certificates /confirmations of the competent tax and/or supervisory and/or licencing authorities of the state of residence of the claiming EU/EEA pension fund. In practice the ability to provide such certificates/confirmations has turned out as difficult and may be regarded as a deal-breaker. Only with respect to the 80 % limit the Austrian tax authorities have so far accepted the expertise of an independent actuary as alternative evidence. In this respect please note that EU and EEA pension funds, which are either not comparable to an Austrian pension fund or in practice unable to provide the documentation just described, may also resort to Sec. 21 para. 1 no. 1a ACITA in order to obtain a complete refund of all Austrian WHT (please see above). However, PwC Austria has recently witnessed the first refunds of Austrian WHT based on Sec. 6 ACITA to pension funds resident in the Netherlands for the years 2004 to 2009, where the compliance with Directive 2003/41/EC and the 80 % limit could be shown credibly by providing an actuarial expertise and a corresponding confirmation of the supervisory authority. Further refunds, which are also based on Sec. 6 ACITA, to pension funds resident in the United Kingdom are expected to follow soon. This recent success may be seen as an encouragement for pension funds all over the EU/EEA to check their portfolios for refund potential. Refunds in the first instance (tax office Bruck Eisenstadt Oberwart) within 2 to 6 month appear possible, if all required documentation can be provided. 3. EU/EEA investment funds: Claims for refund for corporate investment funds resident in the EU or EEA (e.g. Luxembourg SICAVs or UK ICVCs), which were based on Denkavit, Amurta and Fokus Bank respectively Sec. 21 para. 1 no.1a ACITA, have been rejected in the first instance by the tax office Bruck Eisenstadt Oberwart. The corresponding appeals are currently pending with the second instance (Independent Tax Senate). According to our latest discussions with the Austrian tax authorities one of these appeals shall be referred to the ECJ for a preliminary decision, as the Austrian taxation of EU/EEA corporate funds does not seem to be in line with EC law in the light of the ECJ judgment in case C-303/07 Aberdeen. The preliminary decision of the ECJ should not be expected before the end of Nevertheless, with respect to the Aberdeen judgment of the ECJ, we would encourage clients to file (protective) claims for refund, as Aberdeen should give us a strong position.

6 Belgium PwC Belgium has submitted some insurance Fokus bank claims, and it has submitted claims for other types of companies. Fokus bank claims should be submitted within 5 years from the 1st January in the year the tax was originally withheld (rule as from 1st of January 2011). For the withholding tax retained before 2011, as the 6 months reclaim period (most prudent approach) is not possible anymore, then only based on certain arguments the 5 or 10 year statute of limitation could be applied. PwC Belgium is expecting the claims to be rejected by the Belgian tax authorities. If claims are rejected, an appeal must be lodged within 6 months to the Tribunal Court. Furthermore it might be considered to bring the case before the EU Commission. PwC Belgium is currently assisting and advising clients through the whole Fokus bank process and strategy. Finland Pursuant to the article 63 of the TFEU, restrictions to the free movement of capital are prohibited when the capital movement is between EU Member countries or between EU Member and non-eu Member countries. In accordance with Finnish domestic tax law, a withholding tax of % on the gross amount of the dividend is levied on a non-resident insurance company. Comparable intra-finnish dividends are taxable income in the hands of a Finnish resident insurance company; 75% of the gross dividend is taxable at the statutory tax rate of 24.5 %, i.e. the tax rate is 18.38%. Therefore, prima facie the tax treatment is similar. However, Finnish insurance companies are entitled to specific tax deductions e.g. on the basis of their increased insurance liabilities. Therefore, it could be argued that discrimination exits when withholding taxes are levied on dividends distributed to a non-resident insurance. It should be noted that there is quite recent case law from the Finnish Central Tax Board (concerning withholding tax treatment on dividends received by a non-resident insurance company), where such argument was not accepted. The aforementioned Central Tax Board case concerned a Luxembourg insurance company that received dividends from a Finnish quoted company. The Central Tax Board did not consider the deduction on the basis of the increased insurance liabilities to be "directly linked with the dividend income" and therefore held that withholding tax could be levied from a non-resident insurance company. The case has been appealed and therefore has not yet gained legal force. Further, it should be noted that Finland has been referred to the ECJ as the EU Commission considers the Finnish taxation regarding dividend payments to non-resident pension funds to be in breach of the TFEU. This may have implications also on non-resident insurance companies. Withholding tax refund claims for non-resident investment funds have been successful if the foreign investment fund has been a UCITS fund (as meant in the directive 85/611/EEC) based on a contractual arrangement and whose key characteristics are comparable to the key characteristics of a Finnish investment fund. There is recent case law on positive refund decisions for Norwegian and Swedish investment funds. For UCITS-funds in a corporate form, there are positive decisions from the tax office in cases where the fund has been listed. France WHT reclaims by life companies and to a lesser extent by non life companies, claiming to be taxed on a net basis in respect of French source dividends are currently on hold. The French tax authorities do not respond to applicants who can bring the matter to court at any time at the end of a 6 month period following the claim. One must underline that a recent court case from the French Supreme Court dated 4 June 2012 rendered in the context of interest payments seems to validate the possibility to tax non residents on a gross basis due to the gap between the rate of tax applicable to residents [33.33%] and the lower rate of tax [here capped at 10%] applicable to non residents. We do not believe however that this court case resolves definitely the gross/net taxation matter nor is in line with EU principles. In 2009 a Dutch pension fund won its case at the French Supreme Court in respect of WHT suffered on French source dividends received (French pension funds were exempt). The French tax authorities have not applied this ruling to all pending claims filed by foreign pension funds, as they said they need to assess the

7 comparability of other pension funds by means of an ad hoc questionnaire to be filled in before they can decide a refund. Such decisions are pending though some repayments have already taken place. A test case in respect of investment funds which had suffered WHT on French source dividends has been ruled by the ECJ in the Santander case on 10 May The Court ruled that discrimination was not justified and that discrimination should be determined at the fund level and not at the level of the investors in the fund. Following this ECJ case, claims can now be filed in France back to The French Government is now considering levying a standard tax of around 15% on French source dividends received by French or foreign funds (this is the solution selected to put to an end the discrimination between French and foreign pension funds following the 2009 French Supreme Court case). For sake of completeness, on 18 May 2011, the Commission referred France to the ECJ for discriminatory taxation of dividends paid to foreign pension and investment funds. Despite France having brought in new legislation to end discrimination against foreign non-profit organisations (including pension funds) by imposing a uniform rate of 15%, the Commission considered the new law and guidelines to be unsatisfactory and claim that the French tax provisions thus form a restriction on the free movement of capital. Germany On 20 October 2011, the ECJ decided that the German dividend taxation with respect to withholding taxes for non resident companies is not in line with the free movement of capital (Commission/Germany, C- 284/09). According to current German tax law, dividend payments are subject to withholding tax of % irrespective of the recipient's place of residence. However, whereas resident companies who receive dividends benefit from a participation exemption regime which nearly leads to a full refund of withholding tax (this also applies to non life insurance companies and reinsurance companies), foreign resident recipients who do not benefit from the Parent Subsidiary Directive only could get a partial reduction according to domestic law or an underlying Double Tax Treaty (except in rare cases where the treaty provides for 0% withholding tax). The ECJ decision therefore is directly applicable to non life insurance companies, reinsurance companies and holding companies. Although in Germany the claims have not yet been processed by the German tax authorities, it is highly advisable to file claims for these companies in order to prevent claims from becoming statute-barred. For life insurance companies the German participation exemption is not applicable. Thus the ECJ decision has no direct effect on the taxation of dividends distributed to foreign insurance companies with life insurance business but it may nevertheless have a positive impact on their cases. As German life insurance companies set up technical reserves they are taxed on a net basis, effectively for at the most 10 % of the dividend income. The dividend income of foreign life insurance companies, on the other hand, is taxed on a gross basis not taking into account their expenses for setting up technical reserves, therefore leading to a discriminatory taxation. For health insurance companies the situation is comparable to life insurance companies. Italy In the case of Commission v Italy (C-540/07), the ECJ held that the Italian WHT rules on outbound dividends breached EU law due to their adverse treatment of outbound dividends paid by EU and EEA companies. As a consequence, on 2008 Italy changed its WHT provisions on outbound dividend payments, eliminating the discrimination between distributions to (i) Italian companies and (ii) EU/EEA companies. Furthermore, in order to recognise the discrimination for dividends distributed to EU/EEA companies (including insurance entities) prior than 2008, the Italian tax authorities issued a Circular Letter no. 32/E on 8 July In this recent practice note, the Italian tax authority agrees to refund WHT levied on distributions to EU/EEA companies and it has indicated that the tax provisions on outbound dividends in force as of 2008 also apply to previous dividend distributions (prior to 2008, 1.65% of the WHT cannot be recovered since it was the actual tax charge also borne by Italian companies). However, the refund of the mentioned WHT is subject to certain conditions: (i) the dividend must have been paid after 2004; (ii) the claim has to be submitted within 48 months of the relevant dividend payment; (ii)

8 the entity receiving the Italian dividends must be subject to corporate income tax in its State of residence and (iii) it may not obtain a full tax credit of the Italian WHT in its State; (iv) the dividend distribution may not constitute an abusive transaction within the meaning of Cadbury Schweppes (C-196/04). Although the practice note does not address refund claims to be filed by foreign pension or investment funds, it should strengthen their position before the courts and increase their chances of getting a refund. Netherlands Currently, the Dutch tax authorities do not yet refund dividend withholding tax to foreign insurance companies. Based on the current standing of EU case law there appears to be a clear discrimination if the 15% dividend withholding tax paid by a foreign insurance company on their gross Dutch dividend income exceeds 25% of the net Dutch dividend income paid by a domestic insurance company. As a result, a foreign insurance company should be entitled to a refund of the excess difference between 15% dividend withholding tax paid by a foreign insurance company on their gross Dutch dividend income and 25% of the net Dutch dividend income of the foreign insurance company (i.e. the Dutch dividend income minus costs directly related to that dividend income). Alternatively, it can be argued that a foreign insurance company should be entitled to a full refund of Dutch dividend withhold taxes. Given the fact that there are good arguments to take the position that insurance companies are discriminated against, we advise EU as well as non-eu insurance company clients which have received portfolio dividends on which Dutch dividend withholding tax was levied, to file refund claims to safeguard their rights to a potential refund of Dutch dividend withholding tax. The statute of limitations for filing dividend withholding tax claims in the Netherlands is still being debated. In principle, the statutory limitation is three years as from the end of the financial year in which the dividend was received. However, based on a decree of the State Secretary of Finance, under certain circumstances, the Dutch tax authorities may ex officio extend the statute of limitation to five years. With respect to the statute of limitations, the DTA informed us that they will not ex officio extend the statute of limitation to five years with respect to these refund claims. As the authority to extent the statute of limitation to five years is a discretionary authority of the DTA, it is not possible to appeal against this position before a tax court. If the client wishes to go into appeal against the decision from the DTA to not extend the statute of limitation, the client should go into appeal before a civil court. However, we estimate the chance for successfully claiming an extended statute of limitation before a civil court at relatively low. In view of the statute of limitations, we advise our clients to file their refund claims within the three years term to safeguard the right to a (potential) refund. Should the client not be possible to file the refund claim within the three years limitation, it could be considered to file refund claims within the extended ex officio five year period. PwC is in consultation with the Dutch tax authorities to determine the best way forward with respect to the refund claims that have been filed up to now. Norway Norway is not a member of the EU. But as a member of EFTA the EEA treaty allows more or less the same provisions as within the EEA (EU plus the EFTA member states less Switzerland, which is Iceland and Liechtenstein in addition to Norway). Tax is excluded in the EEA treaty but the fundamental freedoms (including free movement of capital and free establishment) apply. Accordingly, decisions from the ECJ and the EFTA court are relevant for Norwegian tax issues. The Fokus Bank case was in fact an EFTA court decision. The Norwegian tax authorities accept claims for refund of withholding tax on dividends from Norwegian companies when the comparable test is passed. The subjects of the Norwegian tax exemption method are as a main rule companies where the participants have limited liability or partnerships with legal personality where at least one participant has unlimited liability and has contributed capital. Exceptions may apply and an analysis in each separate case is recommended. Transparent entities will be considered at the level of the beneficial owner. Luxembourg SICAV has been accepted, and the same applies for most pension funds and also life insurance companies (unit link and non-nit linked). Luxembourg FCP and German KG and similar entities in other jurisdictions may be disputed by the tax authorities (a case regarding a German KG is pending for the Norwegian Supreme court).

9 The statute of limitation is as a main rule three years from 1 January the year after the time of distribution of the dividends. There is no longer any reason to see the absence of information exchange clause in the EEA treaty as an obstacle as the same clause in included in the tax treaties that Norway has with all other EEA states. However the EEA treaty has no article with rights for entities in a third country connected to the free movement of capital, which leaves some unclarity whether such rights apply due to interpretation of the treaty based on the objective of the treaty to contribute to an effective European capital market. Poland European Commission requests Poland to end discriminatory treatment On 16 June 2011, the Commission asked Poland to amend its tax legislation so as not to discriminate against investment and pension funds from other EU and EEA countries. Partly due to a previous request from the European Commission, Polish tax law currently exempts foreign funds located in EU/EEA in line with the exemption for Polish funds. However, Polish funds do not need to meet any conditions, whereas foreign funds have to meet certain requirements, in particular be subject to tax in their country of residence. According to the Commission, a conditional exemption is not in line with the EU law, as some pension and investment funds from other EU or EEA states are denied the Polish exemption. The Commission s request is in the form of an additional reasoned opinion. Failing a satisfactory response within two months, the Commission may refer Poland to the ECJ. Although no formal response has been published, there is no case pending in the ECJ and no amendments to tax law have been introduced. Additionally, there is one case pending in the ECJ to clarify whether freedom of capital rule applies in tax cases also to non EU/EEA funds. Refunds obtained for foreign investment funds Further to positive decisions rendered, some foreign funds have already obtained a refund of the WHT levied in Poland. Within the last year only, PwC Poland was engaged in refund claims on behalf of eight investment funds for the total amount of nearly EUR 10 million. So far, PwC Poland has recovered taxes amounting to over EUR 4 million and is currently waiting for decisions regarding the remaining amounts of nearly EUR 6 million. Portugal On 6 October 2011, the European Court Of Justice (ECJ), issued a decision, which is in line with the opinion of the Advocate General's (AG), in respect of the action brought forward on 1 December 2009 by the European Commission (EC) against the Portuguese Republic (C-493/09), whereby the EC sought a declaration from the ECJ that by taxing dividends received by non-resident pension funds at a higher rate than dividends received by pension funds resident in Portuguese territory, the Portuguese Republic has failed to fulfil its obligations under Article 63 of TFEU and article 40 of the EEA Agreement. The ECJ concluded that, regarding the taxation of dividends distributed by companies established in the Portuguese territory in respect of shares held by a pension fund for more than one year, the disputed law, which in practice has the effect of dissuading non-resident pension funds investment in local companies, constitutes a restriction on the free movement of capital that is prohibited, in principle, by Article 63 of TFEU. It was also concluded that the impossibility for non-resident pension-funds to prove that they meet the requirements of the Portuguese tax law is not proportionate with the difficulties pleaded by the Portuguese Republic regarding the collection of information and recovery of tax debts.

10 The Portuguese tax law was amended in accordance to this ECJ decision, with effects from 1 January 2012 onwards. According to the new provision, income obtained in Portugal by pension funds established in another EU country or in an EEA Member State (bounded to administrative cooperation on tax matters) is exempt from corporate income tax (CIT), provided that the following conditions are met: 1. the pension fund assures exclusively the payment of retirement pensions granted from elderly, handicapped, surviving, pre-retired, health and post-employment benefits, and death benefits when complementary and ancillary to the previously mentioned; 2. the fund is managed by pension funds professional institutions, to which the Directive 2003/41/EC of the European Parliament and Council (dated 3 June 2003) applies; 3. the fund is the effective beneficiary of the income, and; 4. in case of dividend distributions, the related shareholding was held for a consecutive 1-year period. Proof that the conditions mentioned in (1), (2) and (3) above are met should be made through statement duly certified by the Member State s regulatory authorities. This statement should be available to the entity responsible for the withholding tax, before the date in which income is made available. This provision is only applicable to income obtained by pension funds established in another EU country or in an EEA Member, in 2012 and onwards. Indeed these conditions seems to aim ensure that the non-resident pension funds can be compared to the resident pension funds and, in this way, the tax authorities and/or the judge may adopt such conditions as a comparability criteria in order to verify if the non resident pension funds are eligible to the CIT exemption. Spain Since January 1, 2010 Spanish domestic legislation was amended so as to exempt from Spanish WHT outbound dividends distributed to EU pension funds and UCITS, in order to be compliant with EU principle. Referring amongst others to this amendment, the Spanish Court of appeal ordered the refund of unduly withheld dividend tax to 3 Dutch pension funds. In a decision dated 29 November 2011 related to WHT suffered by a UK pension fund during FY 2004 in Spain, Madrid s Regional Administrative Tax Court (TEAR) acknowledges the application of EU Law over previous discriminatory National Law, referring to the above mentioned amendment and the judgment of the Court of appeal. Nonetheless, the TEAR does not directly grant the refund of undue tax paid, sending back the case file to the Spanish tax authorities (STA) so they may start a verification proceeding in order to assess whether the UK pension fund is comparable to a Spanish pension one. If the outcome of the verification proceeding is positive, the TEAR says that the refund plus late payment interest must be made accordingly.

11 How can PwC help? PwC has extensive experience in assisting our clients in filing protective withholding tax reclaims with tax authorities throughout Europe. Our international client servicing teams are a mix of dedicated Financial Services professionals and leading EU direct tax law specialists who are able to determine the possibilities based on the actual facts and circumstances that will be an essential element in preparing the cost benefit analysis that should be the starting point for any investor that has suffered withholding tax on EU source dividends and interest payments. PwC contacts Territory Name Telephone Austria Thomas Strobach [email protected] Belgium Olivier Hermand [email protected] Denmark Daniel Noe Harboe [email protected] Finland Samuli Makkonen [email protected] France Jacques Taquet [email protected] Germany Jörg Winkler [email protected] Ireland John O Leary [email protected] Italy Giorgio De Pace [email protected] Luxembourg Géraud De Borman [email protected] Netherlands Martin Vink [email protected] Norway Dag Saltnes [email protected] Poland Wiktor Szczypinski [email protected] Portugal Adrião Silva [email protected] Spain Asunción Martin Sobrino [email protected] Sweden Lennart Staberg [email protected] Switzerland Dieter Wirth [email protected] United Kingdom Colin Graham [email protected] PwC. All rights reserved. "PwC" refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in anyway. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm's professional judgment or bind another member firm or PwCIL in anyway. While every attempt has been made to ensure that the contents of this newsflash is correct, PwC advises that this newsflash is provided for general guidance only and does not constitute the provision of legal advice, accounting services, investment advice, written tax advice or professional advice of any kind. The information provided should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.