ECOFIN: Debate on OECD Pillar 1 and Pillar 2 solution

As we have informed you last time, at the 15 March 2022 meeting of the Council of the EU in its Economic and Financial Affairs configuration (ECOFIN) a possible postponing of the implementation of Pillar 2 directive (i.e. Council Directive on ensuing a global minimum level of taxation for multinational groups in the Union) has been suggested (namely i.e. by the end of 2023 to 2024 for UTPR rules). On 5 April 2022 the ECOFIN held the next round of policy debate on the proposal to transpose into EU law the global agreement reached on Pillar 1 and Pillar 2 solution at the OECD level (all 27 Member States has previously supported the OECD Agreement). The aim of the debate was to reach a Council position on the proposal Pillar 2 directive. While 26 Member States have supported the latest compromise text which reflects the issues discussed in the previous ECOFIN meeting and the accompanying statement put forward by the French Presidency, Poland has spoked out against the proposal. Poland does not support the separation of the Pillar 1 and Pillar 2 solution with the EU, and they are willing to support the European Pillar 2 directive only with the assurance that also OECD Pillar 1 will come into force.

Germany: Reduction of interest rate on late tax payments and refunds

On 30 March 2022 a draft bill providing a reduction of interest rate on late payments and refunds was approved by the German government. The draft bill proposed a reduction of interest rate of 0.15 % per month (i.e., 1.8 % per year). The reduction shall have a retroactive effect from 1 January 2019. As a part of the draft bill the evaluation of interest rates for every three years is proposed. However, the proposed reduction concerns only interest on late tax payments and refunds, i.e. no changes in any other cases (e.g., interest on deferrals, interest applied to pension accruals discounting, etc.) are anticipated. The proposed changes reflect the recent decision of the Federal Constitutional Court ruling that the current interest rate of 0.5 % per month on late tax payments and refunds is unrealistic and violates constitutional principles.

The draft bill must go through the whole legislative process and shall be approved by the upper and lower house of parliament.

CJEU: AG opinion on German exclusion of foreign PE’s final losses

Advocate General (AG) Collins of the Court of Justice of the European Union (CJEU) issued his opinion in the W.case (C-538/20) on the German rules governing the offsetting of final losses of a foreign permanent establishment (PE) against the profits of the German resident head office. According to the AG the situation of the UK PE is not objectively comparable to the situation of German PEs of the German head office, and therefore, the German rules denying the import of losses of foreign PEs are not contrary to the EU principle of freedom of establishment. The case shall be now considered by the CJEU, which is not obliged to follow the AG’s opinion.

CJEU: Finnish investment fund tax exemption violates free movement of capital

On 7 April 2022 the Court of Justice of the European Union (CJEU) ruled in case C-342/20 that Finnish tax legislation requiring that an investment fund must be contractually based to qualify as tax-exempted from corporate income tax and withholding tax in Finland violates the free movement of capital. The assessed tax legislation is applicable from 1 January 2020 and provides a tax exemption regime only to investment funds which are contractually based, however it does not cover any other legal forms, such as limited companies etc. This judgment clarifies that the mere legal form of an investment fund does not justify different tax treatment, as such a distinction violates article 63 TFEU.

Belgium: Final extension of tax tolerance for cross-border workers

As a consequence of the COVID-19 pandemic, Belgium has entered into several mutual agreements with France, Germany, Luxembourg and the Netherlands, under which the remuneration derived from “home working days” solely due to COVID-19 travel restrictions may be tax exempt in the state of residence, provided it is effectively taxed in the state where the cross-border worker would normally have exercised their professional duties had the travel restriction not been in place. The Belgian tax authorities confirmed on 24 March 2022 that this tax tolerance will be finally extended until 30 June 2022 and no further extension is deemed necessary since most COVID-19 restrictive measures have been abolished in all states.

Cyprus: Extension of the deadline for electronic submission of tax return

On 24 March 2020 the Cyprus parliament voted for the extension of the deadline for electronic submission of Cyprus tax returns for 2020. The deadline should be extended to 31 July 2022. The extension shall be applicable for Corporate Income Tax returns as well as for Personal Income Tax returns of individuals whose financial statements must be audited.

India: Mandatory reporting of Significant Economic Presence in tax return

A concept called “Significant Economic Presence” (“SEP”) for taxation of foreign entities in India (irrespective of whether they have a physical presence in India or not) was introduced in India on 1 April 2021. The SEP is identified as a foreign entity provided a gross receipt from a transaction in respect of any goods, services or property carried out by a foreign entity with any person in India, including the provision or download of data or software in India, reaches INR 20 million (i.e., USD 0.27mn/EUR 0.22mn) or more or, an entity performs systematic and continuous soliciting of business activities or engaging in interaction with more than 0.3mn users in India.

A new obligation with respect to income tax return for the Financial Year 2021-2022 (1 April 2021 till 31 March 2022) has been recently introduced by the Indian Government. Provided the SEP regime is applied, a non-resident entity is required to disclose details about the aggregate of payments and the number of users in India as a mandatory requirement to be reported in the tax return.