EUDTG Newsletter March – April 2017

EU direct tax law is a fast developing area. This presents taxpayers, in particular groups and multinational corporations that have an EU or European Economic Area (EEA) presence, with various challenges.

The following topics are covered in this issue of EU Tax News:

CJEU Cases

  • Belgium: CJEU judgment on interpretation of the subject-to-tax requirement of the Parent-Subsidiary Directive: Wereldhave
  • Belgium: AG Opinion on interest deduction limitation in light of the Parent-Subsidiary Directive: Argenta
  • Germany: CJEU referral on the German CFC rules: X

National Developments

  • Belgium: Supreme Court does not allow withholding tax refunds for dividends received by investment companies before 12 June 2003
  • Belgium: CJEU referral by the Commission of Belgium over the discriminatory tax treatment of foreign real estate income
  • Finland: Supreme Administrative Court confirms tax treatment of dividend income from third countries to be in line with Articles 63 and 65 TFEU
  • Italy: Amendments to the NID and Patent Box Regime
  • Norway: Government’s response to ESA’s decision on the compatibility of the Norwegian interest limitation rules with the freedom of establishment
  • Poland: Supreme Administrative Court judgment on the settlement of foreign branch losses
  • Spain: Supreme Court judgment on State aid recovery procedure
  • United Kingdom: England and Wales High Court judgment regarding repayment of stamp duty reserve tax: Jazztel plc v The Commissioners for HMRC
  • United Kingdom: The Great Repeal Bill White Paper

EU Developments

  • EU: European Parliament clears way for formal adoption of ATAD II by the ECOFIN Council
  • EU: Update on EU proposal for public country-by-country reporting
  • EU: Council adopts conclusions on EU relations with the Swiss Confederation
  • EU: Informal ECOFIN Council held in Malta in early April

Fiscal State aid

  • Greece: CJEU judgment on State aid implemented by Greece: Ellinikos Chrysos AE
  • Italy: CJEU judgment on Italian bankruptcy procedure: Marco Identi

Read the full newsletter here.

This EU Tax Newsletter is prepared by members of PwC’s international EU Direct Tax Group (EUDTG).

Further information about our service offerings in EU taxes: www.pwc.com/eudtg

Webinar: How US tax reform impacts Switzerland

Wednesday, 3 May 2017, 4–5pm CET

US tax reform is one of the key topics in the US under the Trump administration. Various proposals are being discussed and prepared − notably measures with the common goal of making the US corporate tax system more competitive. Given the potential magnitude of the proposed changes and the short timeframe within which legal changes are usually implemented in the US, it’s time to consider what US tax reform could mean for Switzerland and Swiss-based companies that do business in the US.

This webinar addresses questions such as:

  • How is the US tax system unique?
  • What’s involved in the process of transforming tax reform into US law?
  • What are the options for tax reform, and how do they compare and contrast (Camp plan, Trump proposal, Republican blueprint)?
  • What are the consequences for Swiss companies doing business in the US (e.g. interest deducibility, treatment of intangibles, state taxes and border adjustment tax)?
  • What impact will US tax reform have on the Swiss tax reform?

To register for the online event, please click on the link below.

WEBEX LINK

Once you have registered, you will receive the WebEx access details. The WebEx will be recorded and you will receive a link to the recording via e-mail after the event using the same details. There will be time for questions and answers with your speakers during the WebEx. Questions can also be sent in advance of the WebeX session to the following email address: rolf.j.roellin@us.pwc.com.

We do hope that you will join us online!

If you have questions, please contact your usual PwC contact person or one of our US tax experts named below.

Matina M. Walt
Partner
Swiss Tax Desk
PwC New York / Switzerland
martina.m.walt@us.pwc.com

Bernard Moens
Principal
PwC US
bernard.e.moens@us.pwc.com

 

EUDTG Newsletter January – February 2017

EU direct tax law is a fast developing area. This presents taxpayers, in particular groups and multinational corporations that have an EU or European Economic Area (EEA) presence, with various challenges.

The following topics are covered in this issue of EU Tax News:

CJEU Cases

  • Netherlands: CJEU judgment on pro-rata personal deductions for non-resident taxpayers: X
  • Netherlands:  CJEU judgment on the application of Article 64 (1) TFEU concerning the extended recovery period for foreign assets: X

    National Developments
  • Belgium: New Innovation Income Deduction replaces the Patent Income Deduction
  • Finland: Supreme Administrative Court confirms withholding tax treatment for non-UCITS and non-listed Maltese SICAV
  • Hungary:  Hungarian implementation of ATAD’s CFC rules
  • Italy: Italian Tax Court of First Instance judgment on the compatibility of withholding tax levied on dividends distributed to a US pension fund with EU law
  • Sweden: Swedish Supreme Administrative Court judgments on the denial of refund of Swedish withholding tax
  • Switzerland: Corporate Tax Reform III rejected by the Swiss voters
  • United Kingdom: Supreme Court judgment in R (on the application of Miller and another) v Secretary of State for Exiting the European Union

EU Developments

  • EU: ECOFIN Council agreement on ATAD II
  • EU: European Parliament Resolution of 14 February 2017 on the annual report on EU competition policy
  • EU: Public CBCR: European Parliament’s joint ECON & JURI Committee issues draft report
  • EU: EU Member States send letter to non-EU 92 countries in context of common EU list of non-cooperative tax jurisdictions
  • Spain European Commission requests Spain to amend its law implementing reporting obligations for certain assets located outside of Spain

Fiscal State aid

  • Luxembourg: Non-confidential version of the European Commission’s State aid opening decision in GDF Suez
  • Spain: AG Opinion on tax exemptions for Church-run schools

Read the full newsletter here.

This EU Tax Newsletter is prepared by members of PwC’s international EU Direct Tax Group (EUDTG).

Further information about our service offerings in EU taxes: www.pwc.com/eudtg

Changes to legislation governing Swiss VAT liability

Swiss VAT law places new obligations on foreign companies

The partial amendment to the Federal Law on Value Added Tax (VAT law) will impact companies not established in Switzerland from 1 January 2018. Businesses which are not based in Switzerland but provide supplies vis-a-vis Switzerland may be liable to pay Swiss VAT. This will apply in instances where a foreign company generates turnover in Switzerland, in other words in cases where Switzerland is the place of supply for the purposes of VAT. The following information outlines the VAT situation in Switzerland today and in the near future.


Download the full report here.

If you have any questions, please get in touch your usual PwC contact person or our expert

Julia Sailer
Director
Leader VAT compliance Switzerland
Tel. +41 58 792 44 57
julia.sailer@ch.pwc.com

Additional Languages for this report

German
French
Italian

Group financing: changes to the withholding tax ordinance designed to facilitate intragroup financing activities out of Switzerland

  1. Current group financing environment in Switzerland

Interest payments on bonds and client credit balances are generally subject to Swiss withholding tax at a rate of 35%. This may have far-reaching consequences on both the external and internal financing of Swiss-based groups and widely impedes both types of financing activity in Switzerland.

  • With respect to external financing, the withholding tax levied on interest payments makes the issuance of bonds in Switzerland rather unattractive. For this reason, groups established in Switzerland often carry out financing activities abroad.
  • With respect to intragroup financing, the crucial point is whether a particular intragroup obligation (note payable) qualifies as a bond/client credit balance or not. Generally, obligations qualify as bonds if they are issued by a Swiss obligor to more than 10 (if the terms are identical) or 20 (if the terms are similar) non-bank creditors and the total credit amount is at least CHF 500,000. Moreover, if a Swiss company has more than 100 non-bank creditors and a loan volume of at least CHF 5 million, such obligations are deemed to be a client credit balance with the corresponding withholding tax consequences for interest payments. These limitations are generally known as the 10/20/100 non-bank lender rules.

The legislator is aware of these disadvantages and introduced an exemption in the withholding tax ordinance in 2010. From that point on, intragroup obligations between fully consolidated group companies have not qualified either as bonds or client credit balances, provided that no Swiss group company guarantees a bond of a foreign group company by way of a downstream guarantee.

As a result of this constraint, the intragroup financing activities of Swiss groups with foreign-issued bonds outstanding and a Swiss downstream guarantee in place need to take account of the 10/20/100 non-bank rules, which substantially hinders the settlement of intragroup financing and treasury activities in Switzerland. If the 10/20/100 non-bank rule is not observed, there is a risk that interest payments to other group companies will be subject to Swiss WHT.

 

  1. Improved group financing opportunities due to changes to the withholding tax ordinance

In order to facilitate group financing in Switzerland, the federal council has decided to amend the Swiss withholding tax ordinance with effect 1 April 2017. Under this amendment, a downstream guarantee issued by a Swiss group company no longer automatically leads to a situation where the above-mentioned exemption for intragroup obligations is not applicable. The amended withholding tax ordinance states that the intercompany exemption introduced in 2010 shall also be applicable for groups with a foreign bond guaranteed through a downstream guarantee of a Swiss guarantor, provided that the funds that are forwarded by the foreign bond issuer to Swiss group companies do not exceed the equity of the foreign bond issuer.

In addition, the current provision under which the exemption is only applicable to fully consolidated group companies is to be extended to include partially consolidated group companies (for example a joint venture in which an interest of least 50% is held).

 

  1. Expected implications in practice

The amendment of the withholding tax ordinance is a step in the right direction, and will facilitate group financing activities in Switzerland. The main benefit of the change in the withholding tax ordinance is the fact that group of companies with bonds issued abroad with a Swiss downstream guarantee can also benefit from the intercompany exemption under the 10/20/100 non-bank rule. The fact that partially consolidated group companies also qualify for the exemption is helpful as well.

However, the general statement that the financing of Swiss entities from a foreign bond issued does not create a harmful flowback, provided that the financing does not exceed the foreign issuer’s equity, will hardly have a lasting positive impact on intragroup financing activities in Switzerland. This is mainly due to the fact that foreign bond issuing entities generally do not require substantial equity, so the permitted flowback to Switzerland will be minimal.

If the legislator is serious about fostering the settlement of intragroup financing activities in Switzerland, additional measures should be taken quickly.

Contacts:

Martin Bueeler
Partner
Tax and Legal Services
+41 58 792 4392
martin.bueeler@ch.pwc.com

Martin Burri
Manager
Tax and Legal Services
+41 58 792 4500
martin.burri@ch.pwc.com

 

EU: Anti-Tax Avoidance Directive II (“ATAD II”)

On February 21, 2017, the 28 European Union (EU) Finance Ministers in the ECOFIN Council meeting reached political agreement on the Council Directive amending Directive (EU) 2016/1164 regarding hybrid mismatches with third countries with a view to adopting it (subject to receiving European Parliament’s opinion and legal-linguistic revision).

ATAD II basically adds to the existing ATAD I (adopted in 2016 and effective as of 2019) rules on mismatches with third countries and basically extends the hybrid mismatch definition to also include mismatches resulting from arrangements involving PEs, hybrid transfers, imported mismatches, and reverse hybrid entities. In addition, ATAD II includes rules on tax residency mismatches.

ATAD II still needs to be submitted for formal adoption at a next ECOFIN Council meeting after the European Parliament has formally issued its opinion on the EC proposal, which is currently scheduled for 26 April 2017.

Once formally adopted, EU Member States will need to transpose the provisions by 31 December 2019 and apply them per 1 January 2020. By way of derogation, the specific reverse hybrid entity rule would need to be transposed by 31 December 2021 and applied per 1 January 2022, however payments to reverse hybrids would not be deductible anymore from 1 January 2020.

The further developments in the EU in this regard should be closely monitored as they may potentially have implications for Swiss Finance Branches and Principal Companies.

For more information please find below the newsletter from our EUDTG network.

Download EUDTG newsletter

 

Germany: new draft bill introducing a ‘license barrier’

On 25 January 2017 the German government proposed a new draft bill aiming at fighting harmful tax practices in connection with licensing of intellectual property rights (so called license barrier).

The new draft bill lays down that license fees or royalty payments made by German taxpayers to related parties are not or only partially tax deductible if the payments are subject to low taxation (i.e. < 25%) at the level of the recipient of the payments and if the low taxation is based upon a preferential tax regime in the country of the recipient. While the intention of the law is to take actions against IP box regimes that are not in line with the OECD nexus approach (see below), it is currently unclear whether also other preferential tax regimes (e.g. mixed company) might fall within the scope of the proposed law.

In order to avoid any work-around schemes the new legislation also applies to cases in which further related parties are interposed. Furthermore, permanent establishments are included as potential payers or recipients of license fees / royalties in terms of the new regulation if they qualify as the respective beneficial owner. If the requirements of the new regulation are met a tax deduction for any license fees / royalties paid to related parties will be denied to the extent of the percentage resulting from the following formula:

formulaIn other words: the higher the tax charge in the country of the recipient of the payments the higher the tax deduction for the German payer of the license fees / royalties.

The restrictions with regard to tax deductibility shall not apply if the low taxation of license fees / royalties in the country of the recipient is resulting from a preferential regime which requires that the recipient has developed the respective intellectual property in line with the nexus approach. As a result, only BEPS conform patent boxes (particularly incl. nexus approach) should generally not be subject to the restrictions of the new draft bill. However, how the nexus approach has to be interpreted under German rules in detail is still not fully clear. Therefore, an individual review of each case is required in order to determine whether the exception under the nexus approach applies.  Preferential tax regimes covering marketing intangibles, brands etc. will not be able to benefit from said exemption.

The new draft bill will still have to pass both the German Bundestag and Bundesrat and is planned to be enacted as from 1 January 2018 (i.e. the restrictions shall apply to expenses arising after 31 December 2017).

EUDTG Newsletter November – December 2016

EU direct tax law is a fast developing area. This presents taxpayers, in particular groups and multinational corporations that have an EU or European Economic Area (EEA) presence, with various opportunities.

The following topics are covered in this issue of EU Tax News:

CJEU Cases

  • Belgium: AG’s Opinion on the Belgian fairness tax: X
  • Denmark: CJEU Judgment on the Danish thin capitalisation rules: Masco Denmark ApS
  • Portugal: CJEU Judgment on the taxation of profits distributed by entities in third countries: SECIL
  • United Kingdom: AG’s Opinion regarding UK trust exit taxation: Trustees of the P Panayi Accumulation & Maintenance Settlements v HMRC
  • United Kingdom: AG’s Opinion on UK FID regime: The Trustees of the BT Pension Scheme v HMRC

National Developments

  • Netherlands: Dutch AG’s Opinion regarding Dutch dividend withholding tax on foreign investment funds
  • Spain: National High Court of Justice upholds insurance company claims
  • United Kingdom: Court of Appeal judgment on remedies in the franked investment income (FII) group litigation

EU Developments

  • EU: ECOFIN Council of 8 November 2016 adopts criteria for screening of third country jurisdictions
  • EU: ECOFIN Council of 6 December 2016 – results
  • EU: European Commission’s public CBCR proposal’s legal basis challenged
  • EU: European Commission welcomes the entry into force of new transparency rules for tax rulings

Fiscal State aid

  • Hungary: European Commission publishes its final decision on the Hungarian advertisement tax
  • Ireland: Non-confidential version of the European Commission’s final State aid Decision on Apple
  • Spain: CJEU Judgments on the Spanish financial goodwill amortisation scheme: Autogrill v Commission and Banco Santander and Santusa v Commission

This EU Tax Newsletter is prepared by members of PwC’s international EU Direct Tax Group (EUDTG).

Read the full newsletter here.

Further information about our service offerings in EU taxes: www.pwc.com/eudtg

Double Tax Treaty between India and Singapore renegotiated

Following the changes of the Double Tax Avoidance Agreements between India and Mauritius and between India and Cyprus, also the treaty between India and Singapore will, effective as from 1 April 2017, switch to a source based taxation for capital gains arising from the transfer of shares acquired on or after 1 April 2017. What that means is – effective 1 April 2017 when a Singapore resident sells Indian equity shares, acquired on or after 1 April 2017, the capital gains arising on such a transaction will – as in the case of Indian investments held through other jurisdictions (apart from the Netherlands; see below) – be taxable in India.

Out of the former Quadriga (i.e. Singapore, Mauritius, Cyprus and the Netherlands) providing for advantageous provisions covering the taxation of capital gains arising on the transfer of shares in Indian companies, only the India – Netherlands treaty still provides for an exemption of capital gains from taxation in India, as long as the purchasing party is not an Indian resident.

The India – Netherlands treaty will remain applicable for the time being. It however remains to be seen how long the treaty will remain effective as new negotiations are likely to put pressure on the Netherlands to bring the treaty in line with developments now taking place under the treaty with Singapore, Mauritius and Cyprus. If investments into India through the Netherlands seem to be too risky in view of potential future changes to the double tax treaty as mentioned above, then holding investments into India directly by Switzerland might be a realistic alternative. In any case, future investments into India require careful planning.

Read more in the Tax Insights “Double taxation avoidance agreement between India and Singapore renegotiated”.

We are happy to discuss any questions you have, please feel free to contact Norbert Raschle or Roger Wetli anytime.

Invitation Webcast: US Tax Reform and Impact on Companies Investing in the US

Wednesday, January 18, 1:00 pm.- 2:00 pm ET

Online registration

Whatever your resolutions, the start of a new year offers opportunities for new beginnings and improvements. As you look at 2017 and what’s ahead for your business, PwC’s Doing business in the United States can help guide you through the US tax system as you invest or expand your investments in the United States.

Wondering what’s the outlook for the US tax system this year? Join PwC for a closer look at tax reform and other tax policy issues specific to global companies investing in the United States.

When: 
Wednesday, January 18, 1:00 pm.- 2:00 pm ET

What:

  • How is the US tax system unique?
  • What is the process of transforming tax reform into US law?
  • What are the option for tax reform and how do they compare and contrast (Camp plan, Trump proposal, Republican Blueprint)
  • What are the consequences for US inbound companies, from interest
    educibility, treatment of intangibles, state taxes, and border adjustability?

Speakers:

  • Chris Kong, US Inbound Tax Leader
  • Peter Merrill, US National Economics and Statistics Principal
  • Pam Olson, US Deputy Tax Leader & Washington National Tax Services Leader
  • Oren Penn, US Inbound Tax and International Tax Services, Principal

For further details please refer to our registration page.