In Brief from International Taxation [September 2021]

September’s brief news from International Taxation brings information about revised R&D tax incentive rules in Australia, and the extension of tax concession for cross-border workers in Belgium and Luxembourg. In addition, it alters on the ongoing initiative of the European Commission against the aggressive tax planning structures incorporating shell entities. Read more in our article.

European Commissions: Public consultation for new anti-tax avoidance measures (ATAD 3) was closed

The public consultation of the European Commission initiative on minimal substance presence was closed on 27 August 2021. The aim of the European Commission follows the actions taken by the EU over recent years against abusive and aggressive tax structures by taxpayers operating across the border to reduce their tax liability. This initiative focuses on entities with no substance; no real economic activities (i.e., shell entities) which are however being used in aggressive tax planning structures. The legal basis for this initiative is Article 115 of the Treaty on the Functioning of the European Union on the approximation of laws of the Member States, which directly affect the establishment or functioning of the internal market. The intended economic impact is to make tax evasion and avoidance more difficult and less economically attractive for the incorporation of shell entities.

New monitoring and reporting requirements for shell entities shall be introduced by the European Commission in 4Q 2021. The proposed adoption is from 1Q 2022.

Germany: Guidance on Mutual Agreement Procedure (MAP)

The German Federal Ministry of Finance has recently published a leaflet outlining the mutual agreement procedure (MAP) under international taxation treaties, the Arbitration Convention (90/436) and the Tax Dispute Resolution Mechanism Directive (2017/1852) (the Directive). MAP guidance clarifies the relationship between the various dispute settlement procedures, provides a general overview of the procedure for initiating a dispute settlement procedure (including the data which must be sent), the procedure itself and the implementation of an agreement under a tax treaty, the Arbitration Convention, and the Directive, respectively.

A dispute settlement procedure under most tax treaties, the Arbitration Convention and the Directive must be initiated within 3 years. If a treaty does not contain a statute of limitation period, a dispute settlement procedure must be initiated within 4 years. The full version of MAP guidance is available here (in German only).

Netherlands: Court interpretation of international traffic for the purposes of double taxation relief of employment income

The Amsterdam Court of Appeal has in a recently published decision explained how the term “international traffic” shall be interpreted for the purpose of applying article 15(3) of the France-Netherlands Income and Capital Tax Treaty and related application of double taxation relief for employment income.

Article 15(3) of the treaty regulates that remuneration which a resident of one of the contracting states receives in respect of employment exercised aboard a ship or aircraft in international traffic, or aboard a boat engaged in inland waterways transport, will be taxable only in that state.

The Court indicated that for the application of the tax treaty, a flight between different nations must be regarded as international traffic and a flight within the borders of one nation must not. The full version of the Court’s decision is available here (in Dutch only).

Ukraine: Automatic exchange of financial account information will start by 2023

On 30 August 2021 Ukraine committed to implementing the international Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) by 2023. Ukraine has become the 118th Global Forum member to commit to starting AEOI by a specific date.

AEOI which has already been implemented by more than 100 jurisdictions, will help Ukraine generate additional tax revenues by allowing it to identify cases of tax evasion and will help boost tax compliance.

Note that the Czech Republic already has exchange information on financial accounts from 2017. The overview of commitments status of individual jurisdictions is available here.

Belgium-Luxembourg: Tax concession for cross border workers will be extended to 34 days

On 31 August 2021 the Luxembourg and Belgian Ministries of Finance agreed on the extension of tax concession for cross-border workers from the 24-day rule to 34 days. The extension will be effective as from 2022 and it is expected that this higher limit will remain in place for 10 years.

Under the 24-day rule, a Belgian resident employed in Luxembourg by a Luxembourg employer may work for up to 24 days during the year outside Luxembourg, while remaining exclusively taxable in Luxembourg. Similarly, Luxembourg residents employed in Belgium by Belgian companies may exclusively pay their taxes in Belgium if they do not work for more than 24 days in the year outside Belgium.

Australian: Revised R&D Tax Incentive

The Australian government has announced the following changes with respect of the R&D tax incentive. These are effective as of 1 July 2021. The R&D expenditure cap was permanently increased from AUD 100 million to AUD 150 million. Further, the threshold mechanisms were adjusted, and the clawback and catch-up mechanism were introduced.

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