In Brief from International Taxation [June 2020]

In the light of COVID-19, the European Commission has proposed the postponing of deadline for initial reporting obligation under DAC 6. The six-month delay is also expected in case of application of the VAT e-commerce regime. The Finnish Highest Tax Court rejected the tax deductibility of interest if the group parent is a contractual investment fund incapable of preparing consolidated financial statements. The Dutch Ministry of Finance has introduced a new Decree on restriction of loss compensation while the State Secretary for Finances proposed new tax measures for Tax Plan 2021. Find out more in Brief from International Taxation.

European Commission: postponing of the initial reporting deadline for DAC 6 and application of the VAT e-commerce package.

The European Commission proposed to delay the initial reporting deadlines for DAC 6 (automatic exchange of information on reportable cross-border arrangements) in the light of COVID-19. Currently, the 30-day reporting window for new reportable arrangements is due to commence on 1 July 2020, and in-scope historical arrangements which of implementation was initiated in the period of 25 June 2018 to 30 June 2020 are due to be reported by 31 August 2020.

The Commission has also proposed to postpone the entry into force of the VAT e-commerce package by 6 months. These rules will apply as of 1 July 2021 instead of 1 January 2021, giving Member States and businesses more time to prepare for the new VAT e-commerce rules.

Finnish court rejects an appeal in an interest expense dispute

On 7 May 2020, the Finnish Highest Tax Court held that multinational group members cannot qualify for the exception to Finland’s former interest expense limitation if the group parent is a contractual investment fund incapable of preparing consolidated financial statements. According to the decision, Finnish law identifies the group parent based on the exercise of control rather than legal classifications or formalities. Citing the district court decision it upheld, the court rejected the taxpayer’s argument that a collection of unrelated investors with no separate legal existence cannot exercise control over another entity.

Netherlands: a new decree on the restriction of loss offsets and a proposal of new tax measures

The Ministry of Finance published a new Decree on the restriction of loss compensation. This Decree, which was published in the Official Gazette of 30 April 2020 and applies retroactively from 17 April 2020, replaces an earlier Decree of 2015. The new Decree clarifies the rules for the set-off of losses stated as introduced by Article 20a of the Corporate Income Tax Act, namely the activities test under a fiscal unity, revaluation test and profit split, and also clarifies the rules for the object exemption for foreign PEs.

The State Secretary for Finance sent to the lower house of the Parliament a list of measures that would probably be included in the Tax Plan 2021 package. The most noteworthy measures are: an increase in the effective tax rate of the innovation box from 7% to 9%; tightening of interest deductibility to prevent tax avoidance in certain circumstances; amendment of the moment stock options in start-ups are taxed; a clarification of the possible confluence of the hybrid mismatch rules and limitations on interest deductibility; codification of the tax free compensation for businesses hit by the Covid-19 crisis; codification of the early loss set-off for expected 2020 losses and codification of the increase in the work-related expense scheme.

Denmark: approval of  the thin capitalisation rules and introduction of new practices of withholding tax on dividends

On 18 May 2020, the government reached an agreement with the Danish financial sector regarding a new dividend withholding tax (WHT) procedure requiring foreign shareholders of Danish companies to register themselves with the Danish tax authorities before dividends are paid by Danish companies from their Danish bank accounts. Such agreement was reached on 18 May 2020 in order to ensure that the correct amount of dividend withholding tax is levied before the dividend is paid. This means that, for example, the withholding tax rate under an applicable tax treaty is applied directly, which should eliminate a burdensome and risky refund procedure. If it later turns out that insufficient withholding tax was levied, the tax authorities can, in principle, collect the underpaid tax from the Danish banks instead of trying to recover the unpaid tax from abroad.

In response to a taxpayer’s request, the Danish Tax Board confirmed on 19 May 2020 that an external debt covered by a parent company’s collateral is a controlled debt, and the corresponding interest expense may be subject to limitation under Denmark’s thin capitalisation regime.

CJEU: former Luxembourg fiscal unity regime is incompatible with EU law

On 14 May 2020, the Court of Justice of the European Union (CJEU) held in the case of B and others (C-749/18), that Luxembourg’s former tax integration (fiscal unity) regime is incompatible with EU law. In line with previous judgments, notably SCA Group Holding BV and Others, and Papillon (C-418/07), the CJEU decided that domestic and cross-border situations were treated differently under Luxembourg’s tax legislation applicable prior to 2015, and that the legislation infringed the principle of freedom of establishment under the Treaty on the Functioning of the European Union (TFEU). The CJEU determined that the foreign-owned group was treated less favourably than a Luxembourg-owned group, notwithstanding that both are in an identical position as regards the objective of the fiscal unity rule (i.e. the aggregation of the results of the Luxembourg entities).

France: guidelines on ATAD limitations on interest deductibility

The tax authorities published their final guidelines on interest deductibility rules applicable as from 1 January 2019, which are the transposition into domestic law of article 4 of the European Union Anti-Tax Avoidance Directive (EU) 2016/1164 (ATAD). The final guidelines also comment on the new rules applicable to standalone entities for financial years ending on or after 31 December 2019 and allowing the deduction of an additional 75% of the fraction of net interest exceeding the standard EUR 3 million or 30% thresholds.

Russia: documents confirming the beneficial owner status

On 9 April 2020, the Ministry of Finance provided examples of the types of document that may be relevant to determine the beneficial owner status of a shareholder receiving dividends paid by a Russian company. The documents certifying the legal rights to use and enjoy the dividends by the foreign recipient are, in particular, documents confirming that there are no contractual or other binding liabilities towards third parties which limit the rights of the recipient to use the dividends; and/or documents certifying that there is no predetermination of the subsequent transit of the income to third parties tax residents in non-treaty states. Also the documents confirming the tax paid on dividends by the recipient in its state of residence and documents confirming that the recipient of the dividends is performing a real business activity in its state of residence can be potentially relevant.

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