In Brief from International Taxation – May

The German Federal Ministry of Finance confirmed that payments for online advertising attributed to recipients residing in another state are not subject to German withholding tax. In France, an act introducing the tax on digital services for firms with worldwide sales of over EUR 750 million and sales generated in France of over EUR 25 million was passed. This information and other news can be found in the following article.

Cyprus: ATAD implementation

On 5 April 2019parliament approved legislation implementing the EU Anti-Tax-Avoidance Directive (ATAD) with retroactive effect from 1 January 2019. The bill introduces an EBITDA-based interest deduction limitation rule, controlled foreign company (CFC) rules and a new general anti-avoidance rule (GAAR).

Denmark: rejection of dividend WHT refund

On 2 April 2019, the Danish Eastern High Court (High Court) issued its decision in a case involving two investment funds registered in Luxembourg and the UK that requested a refund of Danish dividend withholding tax (WHT) on distributions received from Danish companies during the period 2000-2009. The High Court ruled that the funds were not entitled to refunds. Under the legislation at issue, an exemption from Danish WHT on dividends distributed by a Danish resident company is available for investment funds if (i) the recipient is a Danish-resident investment fund and (ii) the investment fund fulfils the requirements in article 16C of the Tax Assessment Act. As a result, a non-resident investment fund cannot qualify for the WHT exemption because it can never meet the first requirement and thus, the exemption has never been granted to non-resident investment funds, even though they had article 16C fund status.

German: no royalty WHT for online advertising

A decree issued by the Federal Ministry of Finance on 3 April 2019 and published on 10 April 2019 confirms that payments for online advertising to non-resident recipients are not subject to German withholding tax. The publications confirm that the German tax authorities will not move forward with their initial plans to apply the domestic royalty withholding tax rules to cross-border payments for online advertising, which would have imposed a form of domestic digital services tax.

France: No French PE of Google Ireland

On 25 April 2019, an appeals court upheld a 2017 lower court decision that Google Ireland Ltd. did not have a permanent establishment (PE) in France based on activities performed by Google France. The appeals court argued that Google France was controlled by Google Ireland, it held that the French company’s employees could not enter into contracts on its Irish affiliate’s behalf. In the alternative, the tax authorities argued before the appellate court that Google Ireland Ltd. should be regarded as having a fixed place of business in France consisting of the premises and staff of Google France. However, the appeals court, considering that these were available only to the French company for its own activity in the framework of the contract of service binding it to the Irish company, did not validate this thesis.

France: introduction of digital service tax and reduction of the CIT rate

On 9 April 2019, the National Assembly (the lower house of parliament) adopted a bill introducing a digital services tax (DST), which will apply to resident and non-resident companies with a worldwide turnover exceeding EUR 750 million and a French turnover exceeding EUR 25 million. The French-source turnover will be calculated using a digital presence coefficient based on the proportion of French users, the rate of tax will be 3%. The DST will be deductible from the French corporate income tax base, if any, and will apply retroactively with effect from 1 January 2019 and until an agreement on the taxation of the digital economy is concluded at OECD level. The corporate income tax (CIT) rate will be progressively reduced from 33.3% in 2018 to 25% in 2022. Under current rules, the rate for fiscal years commencing in 2019 should have been 31% for all companies for profits exceeding EUR 500,000 (and 28% for profits up to EUR 500,000). However, article 2 of the Bill provides that companies with a turnover of EUR 250 million or more will remain subject to the 33.3% rate for fiscal years commencing in 2019 on the fraction of profits exceeding EUR 500,000 (profits up to this threshold remain subject to the 28% rate).

Japan: new approach for intangibles

Japan’s 2019 tax reform package, approved by the National Diet on 27 March 2019, contains new rules that represent the domestic implementation of the OECD’s guidance on hard-to-value intangibles (HTVI). The new rules will apply for fiscal years beginning on or after 1 April 2020 for corporations and as from the 2021 calendar year for individuals. Based on the OECD’s approach, the tax authorities can make an adjustment where there is a significant deviation of actual outcomes from forecasts used to price a transaction. Exceptions to an adjustment exist where the deviation does not exceed 20% or where the financial forecasts were based on appropriate weighting of developments or events known at the time of the transaction. Taxpayers also should be granted an exception where a bilateral advance pricing agreement (APA) is in place, the assumption being that thorough due diligence was performed as part of the APA process.

Netherlands: new policies for international tax rulings

The decree proposing a new tax ruling practice implementing from 1 July 2019 was sent to the lower house on 23 April 2019. Based on the new tax ruling practice, in principle, the competent tax inspector is the first point of consultation for obtaining a ruling. For certain types of rulings (e.g. application of participation exemption to foreign income, the presence of a permanent establishment in the Netherlands, or head office/permanent establishment (allocation) rulings), however, the tax authority’s International Fiscal Certainty Team is the first consultation point. A new body – the International Fiscal Certainty Board– will be responsible for the central coordination of rulings in order to ensure unity in, quality of and adherence to the ruling practice and policy. Moreover, a summary of every granted ruling will be published in anonymised form. A ruling will apply (i.e. be valid) for a period not exceeding 5 financial years, under special circumstances, a ruling may be granted for a period of 10 financial years.

The article is part of dReport – May 2019, Tax news; Grants and investment Incentives.

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