What is the latest development in double taxation treaties? What steps has the EU taken towards the digitalisation of VAT collection? How did the European Court of Justice rule on the issue of state aid from Ireland providing preferential tax treatment to Apple? You can read about these and other important updates in our article summarising the main news from international taxes.
On 30 October 2024, a treaty between the Czech Republic and the Republic of Rwanda on the avoidance of double taxation in the field of income taxes and the prevention of tax evasion and avoidance came into effect. The treaty will be applied from 1 January 2025.
The new version of the double taxation treaty between the Czech Republic and the United Arab Emirates came into effect on 29 May 2024 (we described the most important points of the treaty in the article New Double Taxation Treaty with the United Arab Emirates). The new version of the double taxation treaty between the Czech Republic and Sri Lanka was enacted on 27 August 2024. Both treaties will be applied from 1 January 2025. Among other changes, these treaties impact the taxation of royalties, dividends, interest, and real estate income, allowing under certain conditions for taxation in both contracting states, or, more specifically, allowing withholding tax to be applied in the source country.
Both chambers of the Czech Parliament have expressed their consent to ratify the double taxation treaty between the Czech Republic and Montenegro, which is currently awaiting ratification by the President of the Republic.
On 20 December 2024, the Ministry of Finance informed of changes in the texts of double taxation treaties with Ukraine and Vietnam due to the adoption of the minimum standard under the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI). For taxes withheld at source on amounts paid or credited to non-residents, the change will apply where the event giving rise to such taxes occurs on 1 January 2025 or later. For other taxes, the amendment in the Czech Republic will apply for tax periods starting on or after 13 June 2025.
In November 2024, the Czech Republic, Germany, and Hungary joined the OECD Multilateral Competent Authority Agreement on Automatic Exchange of Information regarding sales of goods through online platforms and income from these sales (DPI MCAA). This agreement aims to enhance and facilitate international cooperation in the area of taxes.
VAT Digitalisation
On 5 November 2024, the Economic and Financial Affairs Council (ECOFIN) reached a political agreement on the “ViDA” Directive (“VAT in the Digital Age”), which aims to modernise and digitalise VAT collection, thereby reducing administrative burdens and helping to combat tax fraud. The Directive consists of three basic pillars:
1. E-invoices: The implementation of digital VAT reporting along with electronic invoicing is expected by 2030 for transactions between EU member states and by 2035 for domestic transactions.
2. Deemed supplier: Online platforms facilitating short-term accommodation and passenger transport will be deemed suppliers and will collect VAT not only for intermediary services but also for the services provided through them. This measure aims to create fair competition mainly concerning hotels and taxi service providers. The transposition by member states and subsequent effectiveness are planned for 2028.
3. Single administrative location: The expansion of the One-Stop-Shop (OSS) regime will include some items previously excluded. The transposition and effectiveness of this adjustment are also expected in 2028.
Second approval of the “FASTER” Directive by the European Parliament
On 14 November 2024, the European Parliament approved the “FASTER” Directive on procedures for exemption from withholding tax for the second time. The “FASTER” directive was previously discussed in the article In brief from international taxation [May 2024]. Member states are required to implement the directive by the end of 2028, with the latest effective date being 1 January 2030.
Implementation of the DAC 8 directive to be discussed by the Chamber of Deputies
An amendment to the International Cooperation in Tax Administration Act, which implements the “DAC 8” directive regarding services related to crypto-assets, was submitted by the Czech Government to the Chamber of Deputies in August and included as Parliamentary Print No. 781 on the agenda of the 119th session. This session started on 19 November 2024; however, the proposal has not yet been discussed. More information about the directive can be found in our earlier article DAC 8: New reporting obligations for providers of crypto-asset services.
List of non-cooperative jurisdictions in tax matters
Changes were made to the EU list of non-cooperative jurisdictions in tax matters on 8 October 2024. The EU Council removed Antigua and Barbuda from the list, which had been included in October 2023 due to deficiencies in the exchange of tax information upon request. Inclusion in this list impacts issues such as the taxation of controlled foreign companies or the application of the reporting obligation under DAC 6. The complete list is available here: EU List of Non-Cooperative Jurisdictions in Tax Matters.
European Court of Justice ruled that Apple’s tax regime in Ireland constituted unlawful state aid
The European Court of Justice recently, in judgment C-465/20 P, confirmed the European Commission’s 2016 decision ordering Apple to pay an additional EUR 13 billion in income taxes in Ireland. This decision marks the end of an eight-year legal dispute between Apple and the European Union Competition Authority.
During the investigation, the European Commission concluded that Apple received preferential tax treatment from 1991 to 2014 that was not available to other companies. This advantage is illustrated by the fact that Apple’s effective tax rate on profits earned in Europe was just 0.005% in 2014 compared to Ireland’s statutory corporate income tax rate of 12.5%.
In 2016, the European Commission issued a decision ordering Apple to repay EUR 13 billion to the Irish government, which it had gained through this preferential regime. Both Apple and the Irish government appealed the decision. The Irish government argued that no company operating on its territory was given preferential tax treatment. However, the European Court of Justice now ruled in favour of the European Commission, confirming that Apple’s tax arrangements constituted unlawful state aid from Ireland, incompatible with EU competition rules.
This largely controversial ruling could have significant implications for the future of corporate taxation within the EU. The ruling is final, and the company can no longer appeal it.
Discriminatory tax treatment in connection with deferred taxation of capital gain from real estate sale in Germany
The European Commission (“Commission”) has decided to sue Germany for inactivity in addressing the violation of free movement of capital rules within the EU (related press release). This violation is considered discriminatory tax treatment in the area of reinvested capital gains from the sale of real estate located in Germany.
Germany allows the deferral of taxation of capital gains from the sale of real estate located in Germany against the costs of subsequently acquired assets if the underlying German properties were part of the German permanent establishment of the taxpayer for an uninterrupted period of at least six years. German-established companies always have a permanent establishment (Betriebsstätte) in Germany, regardless of whether they conduct economic activity there. Companies established in other member states generally do not have such an establishment in Germany and therefore cannot take advantage of the tax deferral. According to the European Commission, this procedure violates the freedom of movement of capital.
The European Commission has been addressing these issues with Germany since 2019 and considers the process too slow. We will inform you about the progress of this case at the European Court of Justice.
Creation of a permanent establishment in connection with remote work according to the Danish tax authority
On 2 September 2024, the Danish Tax Authority issued a decision stating that a permanent establishment of a Swedish company would be created in Denmark if the company’s CEO carried out 40% of his duties from his home in Denmark and the remaining 60% from the company’s office in Sweden. In the same decision, the Danish Tax Authority concluded that in this specific case, the place of effective management of the Swedish company remains in Sweden, thus the CEO’s work regime did not result in transferring the company’s tax domicile to Denmark.
Dutch dividend taxation differentiation contradicts EU law
On 7 November 2024, the CJEU ruled in a preliminary ruling procedure (Case C-782/22) referred by a Dutch court regarding the taxation of dividends paid to a UK insurance company. According to the CJEU, the free movement of capital guaranteed by the EU Treaty precludes national legislation that differentiates in the taxation of dividends paid to non-resident companies and resident companies. Under the assessed Dutch law, dividends paid to a non-resident company are subject to a 15% withholding tax on their gross amount, whereas dividends paid to a resident company are subject to dividend withholding tax, which can be fully credited against the corporate tax due by that company or refunded, resulting in a zero tax burden on those dividends.
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