In brief from international taxation [May 2023]

What is the latest news in international taxation? CJEU rules that the German taxation of real estate funds is not compatible with EU law. Switzerland is holding a referendum on global minimum tax. From next January, the Hungary-US double taxation treaty will be terminated. More information is in our article.

Germany: CJEU rules that the German taxation of real estate funds is not compatible with EU law

On 27 April 2023, the Court of Justice of the European Union (CJEU) issued its judgement in case C-537/20 involving a Luxembourg closed-end specialised property fund—with only two non-German institutional investors—that was partially liable to corporate income tax in Germany. The CJEU ruled that German legislation providing a tax exemption for domestic real estate funds differentiated between comparable resident and non-resident specialised property funds to the disadvantage of non-resident funds and was contrary to the EU principle of the free movement of capital.

Switzerland: Referendum on global minimum tax

The Swiss implementation journey to implement the OECD’s global minimum tax (Pillar Two, or the global anti-base erosion (“GloBE”) rules) began in June 2022 with the release of their roadmap. The roadmap intends to apply the income inclusion rule (IIR) and qualified domestic minimum top-up tax (QDMTT) as of 1 January 2024.

A referendum is scheduled for 18 June 2023, providing the federal government with the authority to continue with the implementation. As Switzerland continues to move forward, it is crucial for in-scope groups located in Switzerland to understand the financial reporting, disclosure, and compliance requirements that are on the horizon. This leaves companies with a short time frame to assess the implications of the rules on their organisations.

Germany: Guidance issued on the use of OECD model commentary in double tax treaty interpretation

In a decree dated 19 April 2023, the German Ministry of Finance (MOF) provided guidance on the use of the commentaries on the articles of the OECD Model Tax Convention on Income and Capital (hereinafter referred to as the “OECD model commentary”) when interpreting German double taxation treaties (DTTs). The guidance clarifies that updates to the OECD model commentary must be considered when interpreting DTTs, even if a DTT was concluded before such updates, unless anMOF decree or other administrative circular applies a contrary interpretation.

Hungary: Consequences of termination of Hungary-US treaty

In July 2022, the United States (US) officially notified Hungary of its intention to terminate the 1979 treaty concluded between the two countries. The treaty was terminated as of 8 January 2023 but in accordance with article 26 (termination) of the treaty, it ceases to have effect as of 1 January 2024.

The 1979 treaty has been in force for over 42 years and has facilitated cross-border investments by providing a withholding tax exemption for interest and royalty payments, and preferential withholding tax rates for dividends. Unusually, the treaty does not include a limitation on benefits clause, typically considered an essential element of US tax treaties.

Even if negotiations were to start soon (which appears unlikely), having regard to the time needed for the negotiation process and subsequent ratification procedures for a tax treaty, the most likely scenario is that there will be no bilateral instrument to prevent double taxation between Hungary and the US in the next few years. This situation will have a significant tax impact (especially in the field of application of WHT, foreign tax credit, capital gain taxation, PE determination, etc.).

France: Taxpayer in a loss position may not carry forward unused foreign tax credits

The French Administrative Supreme Court confirmed on 8 March 2023 that a corporate taxpayer in a loss position may not carry forward unused foreign tax credits to a subsequent tax year and that the credits are definitively lost (Conseil d’Etat, 8 March 2023, n°456349, available in French only).

Belgium: Commission to refer Belgian failure to correctly transpose ATAD CFC rules to CJEU

On 19 April 2023, the European Commission announced its decision to refer Belgium to the Court of Justice of the European Union (CJEU) for failing to correctly transpose the controlled foreign company (CFC) provisions of Council Directive (EU) 2016/1164 (the Anti-Tax Avoidance Directive or ATAD). In accordance with article 8(7) of the ATAD, a parent company should be granted a tax credit for all taxes paid by a CFC in its state of tax residence but Belgian’s transposition of the directive into domestic law does not allow a deduction for taxes paid by a CFC.

Do you want to learn more about important tax news from around the world and stay up to date? Then follow our website tax@hand, where you will find all the important information on international taxation.

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