EUDTG Newsletter September – October 2015

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

  • Austria: CJEU Judgment on Austrian goodwill amortization: Finanzamt Linz
  • Netherlands: CJEU Judgment on discriminatory treatment of foreign shareholders receiving dividends from Dutch sources: Miljoen, X and Société Générale

National Developments

  • Finland: Proposed changes to domestic dividend taxation based on amendment to the EU Parent-Subsidiary Directive
  • Italy: New provisions on value attribution to assets of companies transferring place of residence to Italy
  • Italy: New provisions on horizontal tax consolidation
  • Italy: New branch exemption provisions
  • Spain: National High Court of Justice judgment on tax discrimination of UK UCITS
  • Spain: High Court of Justice of Madrid judgment on US investment funds
  • United Kingdom: First Tier Tribunal judgment about tax treatment of the statutory interest on repaid VAT
  • United Kingdom: 45% corporation tax on restitution interest

EU Developments

  • EU: EU-28 political agreement on automatic exchange of information of advance cross-border tax rulings and APAs
  • EU: European Commission launches public consultation on new proposal for CCCTB

Fiscal State aid

  • EU: European Commission final decisions on Starbucks Manufacturing BV and Fiat Finance and Trade
  • Spain: Amendment to General Tax Act regarding the State aid recovery procedure
  • Spain: Two High Court judgments on State aid regarding exemption from Spanish immovable property tax

 

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

 

Release of BEPS deliverable: Making Dispute Resolution Mechanisms More Effective

On 5 October 2015, the Organisation for Economic Co-operation and Development (OECD) released its deliverable on Base Erosion and Profit Shifting (BEPS) Action 14: 2015 Final Report, Making Dispute Resolution Mechanisms More Effective (the “Report”).

According to the Report, countries will commit to develop a minimum standard in the context of treaty-related disputes and will ensure effective and efficient implementation of this standard through the establishment of a peer-based monitoring process.

This minimum standard, which is complemented by a number of recommended best practices, is designed to meet the following objectives:

  • Ensuring that treaty obligations relating to the mutual agreement procedure (MAP) are fully implemented in good faith and that MAP cases are resolved in a timely manner;
  • Ensuring the implementation of administrative processes that promote the prevention and timely resolution of treaty-related disputes; and
  • Ensuring that taxpayers can access MAP when eligible.

Read more.

For more information on the topic discussed above, including what it means in practice or for other tax questions, contact your local PwC engagement team or me.

 

18th Annual Global CEO Survey: Taxing times for global business

Despite evidence that governments around the world are reducing tax costs and compliance, these efforts are not being felt by CEOs. Here we explore some of the reasons for the disparity.
ceo-survey-taxing-times-th
PwC’s 18th Annual Global CEO Survey
reveals that seven in 10 CEOs are still concerned about the increasing tax burden borne by their businesses – some 15 percentage points higher than the levels of anxiety seen in 2012.

These high levels of concern are despite the trends seen in the annual PwC / World Bank Group study, Paying Taxes: The Global Picture, which suggest a different story. The most recent study shows that not only has the global average Total Tax Rate for a typical medium sized company fallen by 1.3 percentage points, but so too has the compliance burden, measured by the average time it takes a case study company to comply with its tax responsibilities and the number of tax payments required to be made. Indeed, all three of these sub-indicators have shown a steady downwards progression over the past decade. So why is there such a mismatch?

Explore CEOs perspectives and what business and government can do.

Read more…

OECD Public Consultation on BEPS Actions 8 through 10 reveals planned revisions to transfer pricing drafts

In brief

During the July 6-7, 2015 public consultation on BEPS Actions 8 through 10, the OECD Working Party 6 announced planned revisions to its proposed changes to the Transfer Pricing Guidelines, including its December 2015 papers on Risk, Recharacterisation and Special Measures and Use of Profit Split Methods and its 2014 draft on Intangibles. The OECD also received feedback from speakers who had submitted written comments to the drafts on Cost Contribution Arrangements and Hard to Value Intangibles (proposed changes to Chapter VI of the Transfer Pricing Guidelines on Intangibles). In providing the updated status of the various transfer pricing workstreams, the OECD also confirmed the delivery timetable for the transfer pricing work.

The extent of potential changes to the Transfer Pricing Guidelines has been scaled back and appears to be more aligned with the arm’s-length principle of the Guidelines. This follows previous public consultations and the hundreds of pages of comments and feedback received from industry and representatives. Further, this scaling back may be attributable to an effort to reach consensus among the various taxing authorities participating in the Working Party 6.

Read more…

EU Commission’s Action Plan for a fair and efficient corporate taxation system

On 17 June 2015, the European Commission (EC) presented its Action Plan for a fair and efficient corporate taxation system in the European Union (EU). The plan’s objectives include, but are not limited to, re-establishing the link between taxation and where economic activity takes place, as well as securing a strong and coherent EU-wide approach to external corporate tax issues, including measures to implement OECD base erosion and profit shifting (BEPS) reforms in order to deal with non-cooperative tax jurisdictions and to increase tax transparency. The Action Plan presents a series of measures to meet the set objectives. These measures include addressing the mechanisms identified within the EU and globally as those most likely to facilitate aggressive tax planning. Five key areas of EU-wide action are proposed:

  • Relaunching the Common Consolidated Corporate Tax Base (CCCTB)
  • Ensuring effective taxation where profits are generated
  • Creating a better business environment
  • Increasing tax transparency
  • Improving EU coordination

For more information and details on the areas for action, please find here the EU Direct Tax Group’s (EUDTG) Newsalert of 17 June 2015, as well as the Commission’s press release, communication and annex, including a first list of third-country non-cooperative tax jurisdictions.

For further questions please contact your usual PwC contact or:

Armin Marti
PwC | Partner, Leader Corporate Tax
Office: +41 58 792 43 43 | Mobile: +41 79 422 15 49
Email: armin.marti@ch.pwc.com

Anna-Maria Widrig Giallouraki
PwC | Senior Manager
Office: + 41 58 792 42 87
Email: anna-maria.widrig.giallouraki@ch.pwc.com

Base erosion and profit shifting (BEPS) proposals address intangibles cost contribution arrangements

Multinational enterprises (MNEs) involved in the development and use of intangibles under cost contribution arrangements (CCAs) should note the 29 April 2015 discussion draft proposals under Action 8 of the Base Erosion and Profit Shifting (BEPS) Action Plan. The discussion draft proposes fundamental modifications to Chapter VIII of the OECD Transfer Pricing Guidelines:

  • with respect to measuring the value of contributions to CCAs and the tax characterisation of contributions, balancing payments and buy-in/ buy-out payments, and
  • to make it consistent with other BEPS amendments including those addressing the fundamental issues on risk, capital, recharacterisation and intangibles.

The primary goal is to ensure that contributions are commensurate with the benefits received under a CCA. This is a difficult task when the contributions are complex and cannot be valued at cost. The guidance suggested by the OECD, although it acknowledges the need to achieve simplification, may nevertheless increase complexity and disputes. The proposed requirement in the draft that a participant in a CCA must have the capability and authority to control the risks associated with the “risk-bearing opportunity” under the CCA, while consistent with the overall theme of the BEPS project of focusing on “substance,” would be a paradigm change for CCAs. Similarly, the proposal that all of the important R&D and other development activities contributed by the participants to a CCA would need to be accounted for at arm’s length prices, rather than at cost as under the existing Guidelines, would also represent a fundamental change and make “cost contribution arrangements” a misnomer.

Read more.

Let’s talk

For a deeper discussion of how these issues might affect your business, please call your usual PwC contact.

Modification of the federal ordinance on the granting of federal tax holidays

In March 2015 the Federal Council published a report on the contemplated modifications of the federal ordinance on the granting of federal tax holidays in application of the new regional policy. The consultation draft of the new federal ordinance can now be commented on by interested parties until July 8, 2015; entry into force of the final version is planned for July 1, 2016.

We have set out below a summary of the most relevant aspects of the consultation draft.

A) Granting of tax holidays according to current tax practice

As part of its regional policy, the Federal Council is endeavouring to strengthen the competitiveness of certain geographical areas. Under the terms of article 12 of the Federal Law on Regional Policy, federal tax holidays can be granted to industrial companies or production-related service providers located in structurally weak geographical areas that are willing to create new jobs or to maintain existing ones.

The cantons are responsible for submitting applications for federal tax holidays in accordance with the Federal Law on Regional Policy. A tax holiday applicant may only obtain a federal tax holiday if the canton of residence has already granted a tax holiday at cantonal/municipal level. The cantonal economic development agencies provide advice about the procedure.

Under current practice, a federal tax holiday can only be granted if the cantonal tax holiday decision contains a claw-back clause. The maximum duration of the tax holiday is 10 years, usually split into a first period of 5 years that is extended for a second period of 5 years if all the tax holiday conditions are met.

Source : http://www.seco.admin.ch/themen/05116/05118/05298/index.html?lang=en

B) Proposed modifications – new federal ordinance

The purpose of the current publication is only to highlight the material and procedural amendments the Federal Council wants to implement.

The amended federal ordinance should enter into force on July 1, 2016. Until then, the current practice will remain applicable. It is also worth mentioning that the amendments proposed by the Federal Council should not have a direct formal effect on cantonal tax practices; some cantons may, however, decide to change current practice and follow the new federal rules. This will have to be monitored in due time.

a.      Regional restrictions for federal tax holidays (articles 2 and 3 of the new ordinance)

The areas in which a taxpayer could apply for a federal tax holiday were significantly restricted in 2010. Currently, approximately 633 towns are located in the regions benefitting from the tax holiday.

Based on the amended federal ordinance, tax holidays may be granted to companies located in municipalities considered to be rural centres, small or medium sized urban centres including the surrounding areas (i.e. Alternative 2 – 136 cities), or alternatively smaller and less urban areas with a central function (i.e. Alternative 4 – 157 cities).

b.      Introduction of a cap for the determination of the tax holiday

Federal tax holidays will be subject to a cap determined using a specific formula (article 11 of the new ordinance). According to the current estimates made by the Federal Council, each new job created could lead to a tax credit ranging from CHF 71,594 to CHF 143,188 per year; each job retained should lead to a tax credit ranging from CHF 35,797 to CHF 71,594 per year.

The cantons should still be able to determine the method used to fix the cap in granting tax holidays in their own right (i.e., application of the tax credit similar to the federal approach or of a percentage of exemption).

c.       Transparency of tax holidays

Once a year the State Secretariat for Economic Affairs (SECO) will publish information connected with newly granted federal tax holidays, e.g., the name of the company, its location, information on the magnitude of the cap on the tax holiday and the number of jobs to be created or saved. Nevertheless, the effective amount of the tax credit granted will not be disclosed. In principle, no information will be published in connection with cantonal tax holidays.

Only a new tax holiday granted under the amended terms of the federal ordinance will be subject to public disclosure; tax holidays granted under the current version of the federal ordinance will not be affected by this new provision.

d.      Miscellaneous

In application of the proposed federal ordinance, compliance with the conditions for the tax holiday will have to be certified by the company’s statutory auditors. This rule will only apply to the tax holidays granted by the federal authorities after the new ordinance enters into force.

Similar to current practice, provisions for a claw-back will still be included when a federal tax holiday is granted.

The conditions for granting a federal tax holiday will not be drastically modified. Here are the main conditions to be met to be granted a federal tax holiday:

(i)   The canton has agreed to grant a cantonal tax holiday to the company

(ii)   Tax holidays may be granted to newly created companies or to companies developing a new activity

(iii)   At least 20 new jobs will be created.

C) Conclusions

The tax holiday practice at federal level is clearly defined and should be seriously taken into consideration when non-Swiss entities contemplate expanding in Switzerland.

The prospect of a future decrease in cantonal tax rates within the framework of Corporate Tax Reform III creates great incentives for multinational companies.

Our tax specialists remain at your disposal should you want to discuss in detail the possibility of being granted a tax holiday according to current or future practice.

Daniel Gremaud
PwC
Avenue C.-F. Ramuz 45
Case postale, 1001 Lausanne
daniel.gremaud@ch.pwc.com
+41 58 792 81 23
Gil Walser
PwC
Avenue C.-F. Ramuz 45
Case postale, 1001 Lausanne
gil.walser@ch.pwc.com
+41 58 792 67 81

Federal Council sets parameters for dispatch of the Swiss Corporate Tax Reform III

Introduction

Today, the Swiss Federal Council published the main parameters/measures which are to be addressed in the Swiss Corporate Tax Reform III (CTR III) proposal, which is to be submitted to the Swiss Parliament in June 2015.

Summary of the Swiss Federal Council’s communication

The parameters, published by the Swiss Federal Council today, are based on the results of the consultation on the draft CTR III bill. The draft bill was published in September 2014 and contained a variety of new measures with the objective of maintaining and fostering Switzerland’s competitiveness as a business location, while at the same time resolving the tax controversy with the EU and also taking into account international tax developments.

Based on the findings of the consultation process, the Swiss Federal Council has given instructions to make various adjustments to the draft CTR III bill published in September 2014. The parameters set out by the Swiss Federal Council can be summarised as follows:

  • Abolition of certain current tax rules including cantonal holding, administrative and mixed company status.
  • Introduction of a Swiss Patent Box at cantonal level. This measure is subject to modifications, taking into account the latest international developments at OECD level.
  • Optional introduction of an input tax super deduction for research and development costs at cantonal level.
  • Reduction of the annual cantonal capital tax.
  • Abolition of issuance stamp tax on equity capital.
  • Introduction of comprehensive rules regarding the treatment of hidden reserves and goodwill (“step-up”).
  • Harmonisation of partial taxation rules on dividend income for private individuals.
  • Reduction of cantonal income tax rates at the discretion of the individual canton.

The Swiss Federal Council decided not to further pursue the following measures, which were part of the draft CTR III bill:

  • A capital gains tax on privately held securities by individuals shall not be introduced.
  • The proposed changes to the participation exemption and the suggested changes regarding tax loss carry forward rules will no longer be pursued.
  • As the introduction of an interest-adjusted profit tax (i.e. notional interest deduction – NID) was controversially discussed during the consultation phase and a majority of the cantons were against the introduction of NID, the Swiss Federal Council has decided, for now, to exclude the NID proposition from the reform proposal.

In addition, the Swiss Federal Department of Finance (FDF) is requested to review whether a tonnage tax should be introduced. Furthermore, the Swiss Federal Council proposed an adaptation of the fiscal equalisation rules – the Federation will participate by absorbing half of all costs which may be triggered by the cantons when reducing their cantonal income tax rates.

Next steps

As a next step, the Swiss Federal Council has instructed the FDF to prepare a dispatch of the CTR III law by June 2015 for debate in the Swiss Parliament. Due to the Swiss political process, it can be expected that the new reform measures will not come into effect before 2018 or 2020.

PwC comments

The parameters set out by the Swiss Federal Council are certainly a step in the right direction towards regaining certainty for businesses in terms of their likely future tax situation in Switzerland. They will also help to maintain Switzerland’s position as an attractive business location and demonstrate that Switzerland is keen to comply with the new international taxation standards. However, for the future prosperity of Switzerland as business location, we are of the opinion that NID should once again be made part of the CTR III law. It seems that a number of cantons have not (yet) recognised the fundamental importance of this measure for Switzerland. It will therefore be important to convince political stakeholders still further (i.e. representatives of the Swiss Parliament) that the NID measure should be re-introduced.

For any questions, please contact the following Corporate Tax III Champions at PwC Switzerland:

Armin Marti
Leader Corporate Tax Switzerland
Tel: +41 58 792 43 43
armin.marti@ch.pwc.com

Andreas Staubli
Leader Tax & Legal Services Switzerland
Tel: +41 58 792 44 72
andreas.staubli@ch.pwc.com