In brief from international taxation [September 2022]

The OECD makes significant progress on Pillar One. EU member states aim for consensus in relation to Pillar Two. The US introduces a massive tax-and-spending plan. You can find more detailed information on these issues and other important news on international taxation in our article.

OECD: Report to G20 finance ministers and progress report on Amount A of Pillar One

On 11 July 2022, the OECD announced the publication of a tax report presented by OECD Secretary-General to the G20 finance ministers and central bank, that provides an update on various topics including Pillar One and Pillar Two, and in particular a revised schedule agreed on by the OECD/G20 Inclusive Framework on BEPS for completing the work on Amount A under Pillar One.

The OECD also has released a progress report on Amount A of Pillar One, which “includes a consolidated version of the operative provisions on Amount A (presented in the form of domestic model rules), reflecting the technical work completed thus far”.

The progress report was the subject of public consultation from 11 July 2022 to 19 August 2022. More than 70 responses were published from a variety of stakeholders, including governments, companies, industry and trade associations, and professional services organisations. The public comments are available and can be downloaded through the OECD website.

OECD: Comments on tax certainty aspects of Amount A of Pillar One

As part of the ongoing work of the OECD/G20 Inclusive Framework on BEPS on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy, the OECD issued an announcement on 15 June 2022 on the publication of responses to its 27 May 2022 invitation for public comments on two consultation documents relating to tax certainty and Amount A under Pillar One: Pillar One – Tax certainty framework for Amount A and Pillar One – Tax certainty for issues related to Amount A.

EU: Joint Statement of five EU members on the implementation of Pillar Two in 2023

On 9 September 2022, representatives from France, Germany, Italy, the Netherlands, and Spain issued a joint statement reaffirming their commitment to swiftly implement the global minimum tax rules in Pillar Two of the two-pillar solution developed by the OECD/G20 Inclusive Framework on BEPS.

The statement confirms that although the consensus among EU member states remains the preferred option, should unanimity not be reached in the coming weeks, the governments of the five signatories are ready to implement the global minimum effective taxation in 2023 by any possible legal means and are fully committed to complete the work on the better reallocation of taxing rights over large global multinationals’ profits with the objective of signing a multilateral convention by mid-2023.

EU: European Commission publishes Annual Report on Taxation 2022

On 28 June 2022, the European Commission published its Annual Report on Taxation 2022, which provides an analysis of tax policies in the European Union, evaluating recent trends in tax systems and identifying how tax policy, implementation, or compliance could be improved across the EU.

An accompanying document, Taxation trends in the European Union, published alongside the report, provides key taxation indicators and more specifically data on tax revenues by type of taxes both for the EU as a whole and at the level of individual member states, as well as for Iceland and Norway.

EU: Publication of July 2022 Infringements package

On 15 July 2022, the European Commission released its July 2022 infringement package indicating cases where the Commission is pursuing legal action against EU member states for failing to comply with their obligations under EU law.

Key among the announcements relating to taxation and customs in the July 2022 package is the Commission’s decision to send reasoned opinions to Greece (INFR(2022)0058) and Spain (INFR(2022)0070) for failing to communicate the required national measures implementing article 9a of Council Directive (EU) 2017/952 (Anti-Tax Avoidance Directive 2 (“ATAD 2”)), on amending Council Directive (EU) 2016/1164 (“ATAD 1”) as regards reverse hybrid mismatches. The rules are intended to prevent taxpayers from exploiting the differences between tax systems to reduce their tax liabilities and prevent tax base erosion for member states, although the deadline for communicating the required rules was on 31 December 2021.

Additionally, the European Commission announced that it had closed infringement proceedings against Bulgaria and Germany for certain failures to implement or communicate all required national measures implementing the EU Anti-Tax Avoidance Directives ATAD 1 and ATAD 2.

EU: Public consultation on the role of intermediaries in aggressive tax planning

On 6 July 2022, the European Commission announced a consultation on tackling the role of intermediaries (referred to as “enablers”) in facilitating arrangements or schemes that lead to tax evasion and aggressive tax planning. The consultation period runs from 6 July through 12 October 2022 and aims to collect views from stakeholders on the role of enablers that contribute to tax evasion and aggressive tax planning, the magnitude of the problem, the need for EU action, and the potential policy responses.

The initiative will interact with existing initiatives to combat tax evasion and aggressive tax planning including Council Directive (EU) 2018/822 amending Council Directive 2011/16/EU on administrative cooperation in the field of taxation (i.e. DAC 6 directive) and existing and future measures in the anti-money laundering directives and Directive (EU) 2019/1937 (i.e. whistleblower directive).

Greece: Introduction of transfer pricing documentation and APA application requirements

On 30 June 2022, a package of measures containing comprehensive transfer pricing requirements for businesses was voted into law by the Cyprus House of Representatives. The measures are aligned with the framework within action 13 of the OECD/G2O Base Erosion and Profit Shifting (BEPS) project.

The new rules have been implemented via amendments to the Cyprus Income Tax Law (ITL) and the issuance of regulations. The Assessment and Collection of Taxes Law has also been amended to introduce penalties for noncompliance with the new transfer pricing documentation requirements. In addition, the legislation now also includes a framework for taxpayers to apply for advance pricing agreements (APAs). The new requirements will be effective already for tax years starting on or after 1 January 2022.

Germany: Decision of CJEU on German WHT refund rules for nonresident companies

On 16 June 2022, the Court of Justice of the European Union (CJEU) issued its judgement in case C-572/20 concerning the reimbursement of German withholding tax imposed on dividend distributions from portfolio shareholdings to non-resident companies. The CJEU generally followed the Advocate General’s opinion of 20 January 2022 and concluded that the additional condition for reimbursement (minimum equity holding threshold of 10%) that applies only to nonresident companies constitutes a prohibited restriction of the EU principle of free movement of capital and is, therefore, contrary to EU law.

France: Additional foreign tax credit on dividend lump sum exemption

On 5 July 2022, France’s Supreme Administrative Court (Conseil d’Etat, no. 463021) canceled the French tax authorities’ guidelines that stated that the add-back of a 5% lump sum on dividends that are tax exempt under the participation exemption regime could not be treated as a tax paid on part of the dividends. According to the guidelines the lump sum rather represents only a means to neutralise the expenses incurred in relation to the tax-exempt dividends. Because the 5% add-back is not limited to the amount of actual costs incurred by the parent company in relation to the dividends, the court found that the 5% lump sum aims to tax a portion of otherwise tax-exempt dividends when the add-back amount exceeds the actual expenses incurred. The court did not specify which portion of the tax may be offset with foreign tax credits, however based on this decision, provided certain conditions are met, French companies that did not claim foreign tax credits for the tax imposed on the portion of foreign dividends eligible for the participation exemption regime are entitled to claim a refund.

Italy: Decision of Supreme Court issues on Italian taxation of outbound dividend distributions

On 6 July 2022, the Italian Supreme Court issued six decisions regarding outbound dividend distributions made by Italian companies to US investment funds. The court took the position that US investment funds should be granted the same tax treatment applicable to Italian investment funds, in line with EU principles (especially, the principle of the free movement of capital). According to the Supreme Court, the discrepancy between the withholding tax rate applicable under the Italy-US tax treaty to distributions to US investment funds and the domestic rate of taxation applicable to distributions to Italian investment funds constituted discrimination and was incompatible with EU law, even with respect to distributions to entities established in a non-EU jurisdiction.

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