Sweden: Administrative Court of Appeal rules on control over risk in transfer pricing case

The Stockholm Administrative Court of Appeal (ACA) overturned a previous ruling in a transfer pricing case involving a Swedish multinational group. The ACA supported the Swedish Tax Agency’s (STA) view that actual conduct and control over economically significant risks should determine the attribution of residual profits, in line with OECD guidelines. The case centered on a Luxembourg subsidiary (LuxCo) that acquired intellectual property (IP). The STA argued that the Swedish parent company, not LuxCo, controlled key decision-making and risks related to the IP, thus deserved a larger share of the profits.

The ACA emphasized the importance of substance over form, disregarding the contractual terms that allocated profits to LuxCo. It ruled that 60% of the residual profits should be attributed to the Swedish parent. This decision highlights the complexity of transfer pricing and the need for thorough documentation and disclosures in tax returns to avoid penalties and reassessments. The ruling reflects a broader trend of interpreting transfer pricing rules based on actual business conduct rather than formal agreements.

Switzerland: Appeals court rules no capital gains tax due on sale of shares in property company

Switzerland’s Zurich Tax Appeals Court ruled that the sale of shares in a Swiss real estate company by a German resident constitutes a sale of financial assets, not real estate, under the Germany-Switzerland tax treaty. This decision means that the capital gain from the sale is taxable in Germany, not Switzerland. The court’s decision challenges Zurich’s tax authorities’ practice of taxing such sales as real estate transactions. This ruling is not yet final and may be appealed. It could impact other similar treaties without explicit real estate company clauses, potentially affecting tax practices in other Swiss cantons and countries such as Austria, Denmark, and Italy.

Belgium: Mandatory Pillar Two notification for MNEs and large domestic groups imminent

The Belgian tax administration issued new guidance on mandatory registration for multinational enterprise (MNE) groups and large Belgian domestic groups under the Belgian “Pillar Two” rules. This follows a royal decree which was published on 29 May 2024. In-scope groups with a presence in Belgium must submit a notification form to obtain a Pillar Two group registration number from the Belgian trade register (CBE). The deadline for submission is either 13 July 2024, or 30 days after the start of the first Pillar Two reporting year.

Germany:

Ministry of Finance publishes first draft of proposal for Annual Tax Act 2024

The German Ministry of Finance published a 243-page draft of the Annual Tax Act 2024. The draft includes technical updates and amendments based on EU law developments, recent court decisions, and prior tax law changes. Key proposals include allowing tax-neutral transfers of assets between partnerships with identical partners, with an option for taxable transfers for those occurring before 12 January 2024. The VAT small entrepreneur threshold is proposed to increase to EUR 25,000 for the previous year and EUR 100,000 for the current year, aligning with EU Directive 2020/285. Technical updates are also proposed for the Corporate Income Tax Act, Trade Tax Act, and Reorganization Tax Act, along with wage tax relief for certain benefits in kind, such as a monthly mobility allowance. Additionally, the concept of a “deemed or fictitious real estate-owning entity” for real estate transfer tax purposes would be abolished, effective the day after the law’s publication. The draft requires government approval and may be amended during the legislative process. Comments are invited until 24 May 2024, with a goal to finalize the law by year-end.

Lower tax court provides favorable decision for trade tax loss carryforwards

Germany’s lower tax court of Düsseldorf ruled that a corporation’s participation in a trading partnership does not preclude it from benefiting from the business continuation clause exception under the change-in-ownership rules for trade tax (TT) purposes. The court explained that, since partnerships are separate taxpayers for TT purposes, a corporation’s interest in a partnership should not be considered harmful. This differs from corporate income tax (CIT) purposes, where partnerships are treated as transparent entities. This ruling clarifies that the business continuation clause can be applied differently for CIT and TT purposes, allowing corporations to maintain tax attributes like loss carryforwards despite ownership changes. The tax authorities have appealed this decision to the federal tax court.

Italy:

Decree on Pillar Two transitional safe harbor rules published

Italy has published a decree implementing transitional safe harbor (TSH) rules for Pillar Two, effective from January 2024. Aimed at minimizing administrative burdens, the rules apply to large multinational and domestic groups. They include a transitional country-by-country reporting safe harbor (CbCR TSH) and an undertaxed profits rule safe harbor (UTPR TSH). The decree aligns with OECD guidance, exempting qualifying groups from GloBE rules for initial fiscal years. Failure to meet TSH criteria triggers full GloBE computations. Further decrees on QDMTT and Pillar Two communication are anticipated.

DAC 7 obligations may extend to platform operators not involved in payment collection

In a recent tax ruling, Italian authorities clarified that digital platform operators facilitating hotel reservations, even if not involved in payment collection, are subject to information collection and reporting obligations under DAC 7. The ruling extends to intermediaries connecting sellers with customers, regardless of their involvement in payment management. Despite operating solely in Italy, such platform operators are not exempt from reporting requirements, as DAC 7 covers both domestic and cross-border transactions. This ruling aligns with DAC 7’s functional requirements, emphasizing the facilitation of interaction between parties rather than involvement in payment processing.