EU Tax Alert - December 2015 - edition 149

EU Tax Alert December 2015 - edition 149 The EU Tax Alert is an e-mail newsletter to inform you of recent developments in the EU that are of interest for tax professionals. It includes recent case law of the European Court of Justice, (proposed) direct tax and VAT legislation, customs, state aid, developments in the Netherlands, Belgium and Luxembourg and more. To subscribe (free of charge) see: www.eutaxalert.com Please click here to unsubscribe from this mailing. 2 3 Highlights in this edition Investigation into McDonald’s Luxembourg tax treatment: branch structures On 3 December 2015, the Commission announced that it is to open an investigation into McDonald’s Luxembourg tax treatment. This announcement follows the final decisions of October in which the Commission decided that Starbucks and Fiat received unlawful State aid. This announcement is, again, a step in the fight against perceived harmful and aggressive tax structures using the State aid instrument. More cases are expected to follow. OECD BEPS action plan: EU implementation proposals announced On 8 December 2015, the EU Council adopted conclusions on base erosion and profit shifting (“BEPS”). In summary, the EU Council agreed that the OECD BEPS measures should preferably be implemented through hard law (EU legislation) namely an anti-BEPS Directive while complemented by soft law through the non-legislative guidance developed by the EU Code of Conduct Group on business taxation. ECOFIN Council adopts the automatic exchange of information on tax rulings and APAs On 8 December 2015, the Council adopted a Directive requiring the automatic exchange of information on tax rulings and advance pricing arrangements between Member States and, subject to limitations, to the Commission. This Directive is in line with the political agreement that was reached by the Council on 6 October 2015. CJ issues ruling on VAT exemption for the management of real estate funds (Fiscale Eenheid X NV) On 9 December 2015, the CJ delivered a ruling in the case Staatssecretaris van Financiën v Fiscale Eenheid X NV (C-595/13). The case deals with the scope of the VAT exemption for management of special investments funds. The CJ has decided that the management of real estate funds may qualify as exempt fund management. According to the CJ, in order to qualify for the exemption an investment fund must be regulated (i.e. subject to governmental supervision). Consequently, the management of a regulated real estate fund is exempt from VAT. However, property management of real estate held by such fund cannot benefit from the VAT exemption for fund management. 3 Contents Highlights in this edition • Investigation into McDonald’s Luxembourg tax treatment: branch structures • OECD BEPS action plan: EU implementation proposals announced • ECOFIN Council adopts the automatic exchange of information on tax rulings and APAs • CJ issues ruling on VAT exemption for the management of real estate funds (Fiscale Eenheid X NV) Direct taxation • CJ rules that German legislation is in line with the Agreement on the Free Movement of Persons concluded between the EU and Switzerland (Bukovansky) • CJ rules that Swedish legislation granting personal deductions to non-resident taxpayers is in line with the free movement of persons (Hirvonen) VAT • CJ rules that company with exclusively public capital can qualify as a body governed by public law (Saudaçor) • AG Mengozzi opines that German restriction on turnover based allocation key is not binding against private persons (Wolfgang und Dr. Wilfried Rey Grundstücksgemeinschaft GbR) • Commission publishes explanatory notes on place of supply rules on immovable property services • OECD presents recommended solution for effective VAT collection on cross-border B2C sales of digital products • Council authorizes Slovenia to extend derogation for SME threshold • Council authorizes the United Kingdom to continue to apply measure on flat-rate deduction Customs Duties, Excises and other Indirect Taxes • CJ rules on incurrence of a customs debt resulting from removal from customs supervision (B&S Global Transit Center BV) • CJ rules on the CN classification of temperature indicators (Duval GmbH) • Commission publishes the 2016 version of the Combined Nomenclature 4 5 OECD BEPS action plan: EU implementation proposals announced On 8 December 2015, the EU Council adopted conclusions on base erosion and profit shifting (“BEPS”). In summary, the EU Council agreed that the OECD BEPS measures should preferably be implemented through hard law (EU legislation) namely an anti-BEPS Directive while complemented by soft law through the non-legislative guidance developed by the EU Code of Conduct Group on business taxation. In the context of the BEPS implementation, the Council stresses the need to develop a common solution at the EU level that is both consistent with the OECD BEPS conclusions and also compliant with the EU Treaty freedoms. The development of an EU common approach is particularly relevant taking into account that the OECD BEPS conclusions frequently propose different options for implementing some of its recommendations. A common approach at EU level in favour of certain options would bring value with a view to ensuring the proper functioning of the Single Market, according to the EU council. Therefore, it invited the Commission to come forward with a proposal for an anti-BEPS directive that addresses both third countries and intra-EU situations. This Directive may include the international aspects related to conclusions in OECD Action 2 (hybrid mismatches), Action 3 (CFC rules), Action 4 (interest limitation rules), Action 6 (Treaty abuse, in the specific context of a GAAR), Action 7 (PE status) and Action 13 (country by country reporting). While favouring the implementation of the OECD BEPS conclusions via EU legislation, the Council acknowledged the complementary role that can be played by the Code of Conduct Group to provide guidance to the Member States in implementing some of the BEPS conclusions. In this regard, the Code of Conduct Group is expected to develop general guidance (soft law) that ensures an effective implementation at EU level of the OECD BEPS conclusions that are not covered by EU legislation. Highlights in this edition Investigation into McDonald’s Luxembourg tax treatment: branch structures On 3 December 2015, the Commission announced that it is to open an investigation into McDonald’s Luxembourg tax treatment. This announcement follows the final decisions of October in which the Commission decided that Starbucks and Fiat received unlawful State aid. This announcement is, again, a step in the fight against perceived harmful and aggressive tax structures using the State aid instrument. More cases are expected to follow. In all previous cases, the Commission is setting its own minimum standard on how to apply the OECD transfer pricing guidelines in order to argue the presence of unlawful State aid. This approach is quite novel and, as yet, untested by the EU courts. The McDonald’s case is a variation on the transfer pricing theme: the Commission is disputing the profit allocation between the Luxembourg head office and the foreign branches. According to the Commission, the ruling granted to McDonald’s constitutes a selective derogation from Luxembourg domestic corporate tax law by allocating too much profit to branches with limited or no real activities. As a result of such allocation, the Luxembourg company is paying no or too little corporate tax in Luxembourg. The continuing State aid investigations and decisions should bring MNEs to carefully review certain transfer pricing arrangements, in particular, if those arrangements form part of a cross border tax planning set-up. Also the functional analysis and allocation of profit between head offices and foreign (finance, IP or trading) branches deserve consideration and may require bolstering or amendment of structures and/or further substantiation of the applied underlying TP methodology and documentation. 5 • If tax rulings and APAs are issued, amended or renewed between 1 January 2014 and 31 December 2016, exchange shall take place irrespective of whether they are still valid or not. • Member States will have the possibility (not an obligation) to exclude from information exchange tax rulings and APAs issued to companies with an annual net turnover of less than EUR 40 million at a group level, if such tax rulings and APAs were issued, amended or renewed before 1 April 2016. However, this exception will not apply to companies conducting mainly financial or investment activities. Member States may request additional information, including the full text of the tax ruling or APA, under the normal procedures for information exchange upon request provided for in Directive 2011/16/EU. CJ rules on VAT exemption for the management of real estate funds (Fiscale Eenheid X NV) On 9 December 2015, the CJ delivered its judgment in case Staatssecretaris van Financiën v Fiscale Eenheid X NV (C-595/13). The case deals with the scope of the VAT exemption for management of special investments funds. The CJ ruled that the management of real estate funds may qualify as exempt fund management. According to the CJ, in order to qualify for the exemption, an investment fund must be regulated (i.e. subject to government supervision). Consequently, the management of a regulated real estate fund is exempt from VAT. However, property management of real estate held by such fund cannot benefit from the VAT exemption for fund management according to the CJ. The case concerns a real estate fund management company rendering its services to three companies, investing in real estate. The manager considered its services to be VAT exempt under the exemption for the management of collective investment funds. The services provided by the management company included portfolio management, property management, (financial) administration services, directorship services and managing investor relations. Contrary to the viewpoint of the fund management company, the Netherlands tax authorities argued that the VAT exemption does not Concretely, this may involve: • As regards Action 2 (hybrid mismatches) to take into account forms of hybrid mismatches which are not addressed through EU legislation; • In the context of Action 5 (harmful tax competition) to develop guidance and on the modified nexus approach and monitor the legislation implementation of Member States when amending their existing ‘patent boxes’ regimes; • Develop guidance for implementing Actions 8, 9 and 10 (aligning transfer pricing outcomes with value creation) and Action 13 working closely with the EU Joint Transfer Pricing Forum; • Develop guidance as regards Action 12 (disclosure of aggressive tax planning) notably with a view to facilitate exchange of information. The Commission proposal for an EU anti-BEPS Directive is expected at the beginning of 2016. ECOFIN Council adopts the automatic exchange of information on tax rulings and APAs On 8 December 2015, the Council adopted a Directive (New Directive) requiring the automatic exchange of information on tax rulings and advance pricing arrangements (APAs) between Member States and, subject to limitations, to the EU Commission. The New Directive is in line with the political agreement that was reached by the Council on 6 October 2015. The New Directive is one of the results of the EU’s efforts to combat tax avoidance and aggressive tax planning and is also largely in line with developments within the OECD and its work on tax base erosion and profit shifting. The new rules will apply from 1 January 2017 and will require Member States to automatically exchange a basic set of information on tax rulings and APAs that are issued, amended or renewed on or after 1 January 2017. Concerning rulings issued before 1 January 2017, the following rules will apply: • If tax rulings and APAs are issued, amended or renewed between 1 January 2012 and 31 December 2013, exchange shall take place under the condition that they are still valid on 1 January 2014. 6 7 in some cases currently treated as VAT exempt. Such fund management may include elements which could be considered property management. In this respect, the question arises whether the VAT exemption may still be applied in full. This would have to be analysed on a case to case basis. Luxembourg In Luxembourg, article 44, 1, d) of the Luxembourg VAT law providing the VAT exemption for management services of regulated funds, does not specify the kind of investments the funds are entitled to perform to benefit from the VAT exemption. The discussed CJ case provides legal certainty as it confirms the Luxembourg practice that the management of regulated investment funds is VAT exempt if the services are specific and essential for the management of the fund, whereas the actual immovable property management (exploitation) is not VAT exempt. Belgium In Belgium, the VAT exemption for management of special investments funds applies to all kinds of regulated collective investment funds, which are undertakings for collective investment as referred to in the Act of 3 August 2012 relevant to certain forms of collective management of investment portfolios. The VAT exemption also applies to public or institutional Regulated Real Estate Companies as referred to in Article 2, subs 1, 2 and 3 of the Act of 12 May 2014 relevant to regulated real estate companies, and to certain pension funds structured as a separate legal entity as referred to in Article 8 of the Act of 27 October 2006. Real Estate Investment Companies with fixed Capital or REIC (institutionele vastgoedbevak / SICAFI institutionnelle) and Regulated Real Estate Company or REC (gereglementeerde vastgoedvennootschap / société immobilière réglementée) thus fall within the scope of the Belgian VAT exemption for management of special investment funds. Consequently, in Belgium, the management of these regulated real estate funds is already VAT exempt. However, the Belgian VAT exemption does not refer to all regulated funds as such. For example, the exemption does not refer to the funds which fall within the scope apply to the services rendered by the fund management company. The Netherlands Supreme Court referred preliminary questions to the CJ. The questions were (i) whether an entity investing solely in real estate may be considered an investment fund within the meaning of the VAT exemption, and (ii) whether the exploitation of the real estate (property management) qualifies as exempt fund management. According to the CJ, a company investing in real estate can qualify as an investment fund within the meaning of the VAT exemption if it is subject to a regulatory regime. The fact that the company invests in real estate does not preclude qualification as a special investment fund. The CJ did not specify the extent to which an investment fund (or its manager) has to be subject to a regulatory regime. With respect to the question whether property management services may benefit from the VAT exemption, the CJ considered that property management services are not specific to the management of an investment fund and therefore, are subject to VAT. Consequences for the fund practice / remaining questions: The Netherlands In the Netherlands, the VAT exemption for fund management has always been applied irrespective of whether the fund (or its manager) is subject to a regulatory regime. The ruling of the CJ will likely have consequences for the management of unregulated funds that is currently being treated as VAT exempt. In this respect, it is not clear to what extent a fund (or its manager) has to be subject to a regulatory regime in order to qualify for the exemption. For example, the question arises whether a manager registered with the financial authority but exempt from requiring a license, qualifies for the VAT exemption. Property management of real estate as such - whether or not with respect to funds in particular - is currently generally treated as VAT taxed. In this respect, the ruling of the CJ should not have any consequences for the Netherlands VAT practice. However, fund management of real estate funds - in particular regulated ones - is 7 over the gross income received. Ms Hirvonen did not obtain any additional income in Finland while incurring expenses related to the interest paid on a housing loan. Those expenses could not be deducted in Finland as Ms Hirvonen had no income there, reason for which she requested a deduction in Sweden. Ms Hirvonen had opted not to have her income taxed under the ordinary taxation in Sweden, since that regime would have resulted in a higher tax burden than that under the taxation at source regime, even taking into account the deduction of her interest costs, contested that decision before the Swedish Courts, claiming that she should receive a deduction in respect of her interest costs under the taxation at source regime. The CJ observed that while it is true that it is open to nonresident taxpayers to opt for the ordinary taxation regime, primarily intended for resident taxpayers, the Swedish taxation at source regime is overall more favourable than the ordinary taxation regime and requires less effort from non-resident taxpayers than that required of resident taxpayers. In that regard, a difference in treatment between nonresident and resident taxpayers, consisting in the fact that it subjects the income of non-residents to a definitive tax at the single rate of 25%, deducted at source, whilst the income of residents is taxed according to a progressive table including a tax-free allowance, is compatible with EU law provided that the single rate is not higher than that which would actually be applied to the person concerned, in accordance with the progressive table, in respect of net income increased by an amount corresponding to the tax-free allowance.   In the main proceedings, Ms Hirvonen would have paid higher taxes if she had opted to be treated like a resident taxpayer and thus to be subject to the ordinary taxation regime. That is why she opted for the taxation at source regime, governed by the special income tax law. Since she benefited from more advantageous taxation than that which would have been applied to her had she opted for the ordinary taxation regime, Ms Hirvonen cannot, in addition, claim a tax advantage which would have been granted to her under the ordinary taxation system. of the AIFM-Directive 2011/61/EU and the Belgian AIFM Act of 19 April 2014 resulting therefrom. Consequently, the exemption does not include all types of regulated Alternative Investment Funds (i.e. the non-UCITS funds). As the CJ established in its judgment that the VAT exemption for ‘management of special investment funds’ applies to investment undertakings that are subject to specific supervision at national level, this leads to a broader interpretation of the current Belgian VAT exemption also including all types of regulated Alternative Investment Funds, although these are not mentioned in the text of the VAT exemption in the Belgian VAT Code. Please note that it is expected that the wording of the Belgian VAT exemption will be adapted following the AIFM Act. The CJ also ruled that the VAT exemption for ‘management of special investment funds’ must be interpreted as meaning that the term ‘management’ does not cover the actual management or exploitation of the immovable property of a special investment fund. With respect to property management of real estate funds in particular, this is currently generally treated as VAT taxed. Therefore, the judgment of the CJ should not have any significant consequences for the Belgian VAT practice in this respect. Direct Taxation CJ rules that Swedish legislation granting personal deductions to nonresident taxpayers is in line with the free movement of persons (Hirvonen) On 19 November 2015, the CJ delivered its judgment in case Skatteverket v Hilkka Hirvonen (C-632/13). The case deals the Swedish legislation that precludes the legislation of personal deductions to non-resident taxpayers which are taxed on Swedish sourced income by means of withholding tax. Ms Hirvonen moved to Finland after having worked in Sweden all her life. She received income from Sweden in the form of a pension, an annuity and sickness benefit which was subject to withholding tax in Sweden 8 9 2008 he assumed that, for the period during which he had been resident in Switzerland, namely from August to December 2008, he was, pursuant to Article 15a(1) of the German-Swiss Agreement, to be subject, in respect of his employment income, to tax in Switzerland as a ‘reverse’ frontier worker. The Lörrach Tax Office, however, took the view that the income in question had to be subject to taxation in Germany for the entire tax year 2008. That tax office found that, for the period from August to December 2008, Mr Bukovansky was subject to income tax in Germany under Paragraphs 1(4) and 49(1) of the EStG and that, furthermore, the income paid to him as an employee had, in accordance with Article 4(4) of the German-Swiss Agreement, to be taxed in Germany. Following an objection lodged by Mr Bukovansky, the Lörrach Tax Office, first, confirmed the income tax notice assessment established for the purposes of taxation of the income concerned, and second, took into account the amounts which Mr Bukovansky had paid to the Swiss tax authorities by way of income tax as from August 2008. In his action brought before the Finanzgericht Baden-Württemberg (Finance Court, Baden-Württemberg), Mr Bukovansky maintained his line of argument, submitting that the payment received for his activity for the period from August to December 2008 had to be exempt from tax in Germany and to be subject solely to tax in Switzerland. The referring court considered that since Mr Bukovansky was not a Swiss national and was subject to unlimited tax liability in the Federal Republic of Germany for a total of at least five years, and maintained his place of employment in Germany following his move to Switzerland, Article 4(4) of that agreement also provides that, notwithstanding the other provisions of that agreement, the Federal Republic of Germany may tax Mr Bukovansky on income originating in Germany and on assets located in German territory in the year in which the unlimited tax liability came to an end for the last time and in the following five years, the Federal Republic of Germany crediting, however, the Swiss tax levied on the income in question against the relevant portion of the German tax. For that period, the tax burden borne by Mr Bukovansky was at the level of the tax imposed on the German income. The CJ stated that the refusal to grant the personal deduction at issue in the main proceedings must, as the Skatteverket points out in its observations, in circumstances such as those of the main proceedings, rather be accepted as an element inherent to that regime, since it seeks both to simplify the task of the administration and ease the burden on the non-resident taxpayer. Thus, when a non-resident taxpayer opts for that regime, the Skatteverket no longer has to collect the tax from that taxpayer, so that it is not necessary for it to have a precise overview of the personal or family circumstances of that person. At the same time, that taxpayer is no longer required to cooperate, in that he is not required to submit a tax return in Swedish for the income which he obtains in Sweden and, in consequence, is not required to make himself familiar with the tax system of a Member State other than his Member State of residence. Accordingly, it concluded that the Swedish legislation was compliant with the free movement of persons. CJ rules that German legislation is in line with the Agreement on the Free Movement of Persons concluded between the EU and Switzerland (Bukovansky) On 19 November 2015, the CJ delivered its judgment in case Roman Bukovansky v Finazamt Lörrach (C-241/14). The case concerns the interpretation of Agreement on the Free Movement of Persons concluded between the EU and its Member States with Switzerland as regards the German legislation on the taxation of an individual’s employment income for the period after he had transferred his residence from Germany to Switzerland. Mr Bukovansky lived in Germany from 1969 until July 2008. From January 1999 to February 2006, he worked in Switzerland. He was at that time subject to income tax in his State of residence, namely the Federal Republic of Germany. In March 2006, Mr Bukovansky was transferred by his Swiss employer, as part of a transfer agreement, to a company established in Germany. Initially, Mr Bukovansky’s employment in Germany was to last for two years; however, it was progressively extended up to the end of 2012. On 1 August 2008, Mr Bukovansky, while continuing to work in Germany, transferred his residence to Switzerland. In his income declaration for 9 agreement concerned and follows from the disparities existing between the tax schemes of those parties. Accordingly, since, in comparison with taxable persons residing in Germany, Mr Bukovansky does not suffer any tax disadvantage, there is no reason to conclude that there is discrimination resulting from unequal treatment contrary to Article 9(2) of Annex I to the Agreement on the Free Movement of Persons. With regard to the principle of non-discrimination laid down in Article 2 of that agreement, it should be noted that that article prohibits, as a general rule, any discrimination on grounds of nationality. As Article 9 of Annex I to the Agreement on the Free Movement of Persons ensures the application of that principle in the area of the free movement of workers, there are also no grounds for concluding that there is discrimination contrary to Article 2. VAT CJ rules that company with exclusively public capital can qualify as a body governed by public law (Saudaçor) On 29 October 2015, the CJ delivered its judgment in the case Saudaçor - Sociedade Gestora de Recursos e Equipamentos da Saúde dos Açores SA v Fazenda Pública (C-174/14). Saudaçor is a limited liability company with exclusively public capital, of which the share capital belongs in full to the Autonomous Region of the Azores. The company was established for the transformation of the regional Institute for Healthcare Financial Management. Based on programme agreements which it concluded with the Autonomous Region of the Azores, Saudaçor performs services of general economic interest in the field of health care, such as planning, control and constructions. The Portuguese tax authorities took the view that Saudaçor, based on its juridical regime, was not a body governed by public law as mentioned in Article 13(1) of the EU VAT Directive, and that the national provision based on which such an entity is not regarded as a taxable person for VAT purposes was not applicable. Furthermore, according to the tax authorities, Saudaçor accepted that it qualified as a VAT taxable person as The referring court asked, in essence, whether the principles of non-discrimination and equal treatment, set out in Article 2 of the Agreement on the Free Movement of Persons and in Article 9 of Annex I thereto, must be interpreted as precluding a bilateral agreement on double taxation, such as the German-Swiss Agreement, under which the right to tax employment income of a German taxpayer who does not have Swiss nationality, although he has transferred his residence from Germany to Switzerland whilst retaining his place of employment in the first of those Member States, is vested in the State in which that income originates, namely the Federal Republic of Germany, whereas the right to tax employment income of a Swiss national who is in an analogous situation is vested in the new State of residence, in this case, the Swiss Confederation. The CJ observed that Mr Bukovansky, even after the transfer of his residence from Germany to Switzerland, is treated, for tax purposes, in the same way, by the State in which his employment income originates, in the present case, the Federal Republic of Germany, as a taxable person working and residing in Germany. Still, Mr Bukovansky claimed that he has suffered unequal treatment in comparison with a Swiss national who, like him, has transferred his residence from Germany to Switzerland, whilst retaining the place of his employment in the first of those States, since the power to tax that person’s employment income is vested in the State of his residence, namely the Swiss Confederation, and not, as in Mr Bukovansky’s case, in the State in which the employment income originated, namely the Federal Republic of Germany. In that regard, the CJ stated that the objective of an agreement on double taxation, such as the GermanSwiss Agreement, is to prevent the same income from being taxed in each of the two parties to that agreement; it is not to ensure that the tax to which the taxpayer is subject in one State is no higher than that to which he or she would be subject in the other contracting State. In the present case, the difference in treatment that Mr Bukovansky claims to have suffered results from the allocation of fiscal sovereignty between the parties to the 10 11 The building contains six residence and business units and ten parking spaces. The Grundstücksgemeinschaft calculated its right to deduction of input VAT related to the demolition and construction work by using an allocation key based on the ratio of the expected VAT taxed turnover from the business units l and VAT exempt other rental turnover, which resulted in a deduction right of 78.15% and which was approved by the German tax authorities. In the VAT return for 2004, the Grundstücksgemeinschaft adjusted the deducted VAT, based on the turnover allocation key, because certain parts of the building which were intended for VAT taxable lease had been leased out VAT exempt. The tax authorities declined this calculation method as the German VAT Act - amended in 2004 - mentions that the allocation key based on turnover can only be applied in the case no other method for the attribution of goods and services for mixed use is possible. In the view of the tax authorities, it is possible and more precise to base the allocation key on the ratio of the square metres and therefore, that method should have been applied. Accordingly, the tax authorities determined a deduction right of 38.74%. Based on this deduction right, the tax authorities imposed a VAT assessment for the year 2004 on the Grundstücksgemeinschaft. The Grundstücksgemeinschaft opposed this VAT assessment and finally, the matter ended up with the Federal Fiscal Court, which decided to refer questions to the CJ for a preliminary ruling with regard to the applicable allocation key. First of all, the AG concluded that Germany had acted contrary to the relevant provisions of the EU Sixth Directive as a result of which, the relevant provision in the German VAT Act is not binding against private persons. In conformity with the EU Sixth Directive, the right to deduction, in principle, has to be determined based on a turnover based allocation key. The Member States, nevertheless, are entitled to establish another calculation method, but deviations are limited to certain activities and will have to lead to a more precise result according to the AG. The provision in the German VAT Act determines in general, and without any specification, that the allocation key based on turnover is only permitted in the case no it deducted input VAT on goods and services, without paying any VAT due. Accordingly, the tax authorities imposed VAT assessments for the VAT due by Saudaçor for the years 2007-2010. Saudaçor brought an action against those VAT assessments and finally the matter ended up with the Supreme Administrative Court. As the companies regime has both public and private characteristics, the question arose whether Saudaçor qualifies as a body governed by public law as mentioned in Article 13(1) of the EU VAT Directive. Furthermore, the question arose if the consideration received by Saudaçor had to be regarded as payment for services provided for the purposes of liability to VAT. The Supreme Administrative Court decided to refer questions to the CJ for a preliminary ruling in this respect. Firstly, as a point of interpretation, the CJ ruled that an activity such as that as issue, constitutes an economic activity within the meaning of Article 9(1) of the EU VAT Directive, assuming that a direct link existed between the supply and the consideration actually received by Saudaçor. Furthermore, the CJ rules that some of the characteristics of Saudaçor, such as the non-opened capital, seem to support its classification as a body governed by public law within the meaning of Article 13(1) of the EU VAT Directive. The activities of such an entity would not, however, according to the CJ, be regarded as non-taxable for VAT purposes if it were to be found that the non-taxability would lead to significant distortions of competition. AG Mengozzi opines that German restriction on turnover based allocation key is not binding against private persons (Wolfgang und Dr. Wilfried Rey Grundstücksgemeinschaft GbR) On 25 November 2015, Advocate General Mengozzi delivered his Opinion in the case Wolfgang und Dr. Wilfried Rey Grundstücksgemeinschaft GbR (C-332/14). Between 1999 and 2004, the private real estate company, Wolfgang und Dr. Wilfried Rey Grundstücksgemeinschaft GbR (‘Grundstücksgemeinschaft’), demolished an old building on land belonging to it and constructed a new building intended for both residential and business purposes. 11 Council authorizes Slovenia to extend derogation for SME threshold Based on point 15 of Article 287 of the EU VAT Directive, Slovenia is authorized to exempt from VAT taxable persons whose annual turnover is no higher than EUR 25,000. As a derogation, Slovenia was authorized, until 31 December 2015, by the Council to exempt from VAT taxable persons whose annual turnover is no higher than EUR 50,000. Slovenia requested authorization for an extension of this measure. On 10 November 2015, the Council authorized Slovenia to apply the measure for a further limited period, until 31 December 2018, as the higher threshold has resulted in reduced VAT obligations for small businesses and such businesses may still opt for the regular VAT arrangements. Council authorizes the United Kingdom to continue to apply measure on flat-rate deduction Council Decision 2006/659/EC has authorized the United Kingdom to apply special simplification measures in order to determine the proportion of non-deductible VAT relating to expenditure on fuel in business cars not exclusively used for business purposes on a flat-rate basis. The system, which is optional for taxable persons, is based on the level of CO2 emissions from the car. The United Kingdom requested authorization to continue to apply the measure. As the arrangement has effectively led to a simplification, it is appropriate, according to the Council, that the United Kingdom be authorized to apply the measure until 31 December 2018. Customs Duties, Excises and other Indirect Taxes CJ rules on incurrence of a customs debt resulting from removal from customs supervision (B&S Global Transit Center BV) On 29 October 2015, the CJ delivered its judgment in the case B&S Global Transit Center BV v Staatssecretaris van Financiën (C-319/14). The case concerns the incurrence of a customs debt for goods that were unlawfully removed from customs supervision. other economic attribution is possible. This subordinated character conflicts, in the view of the AG, with the priority that should be given to the turnover based allocation key. Commission publishes explanatory notes on place of supply rules on immovable property services The Commission has published explanatory notes on the place of supply rules on services connected with immovable property that enter into force in 2017. They can be regarded as a guidance tool that can be used to clarify the practical implementation of the European VAT legislation. Legally, the explanatory notes are not binding. As a result, national tax administrations may also issue separate guidance on the application of VAT rules on services connected with immovable property. Only certain issues have been included where it was considered desirable to provide explanation. The explanatory notes are not a final product but reflect the state of play at a specific point in time in accordance with the knowledge and experience available. OECD presents recommended solution for effective VAT collection on crossborder B2C sales of digital products At the 2014 OECD Global Forum, the first three chapters of the International VAT/GST Guidelines were endorsed as global standards for the application of VAT/GST to international trade. Since April 2014, new elements have been endorsed in order to form a fully consolidated draft. This draft was approved on 7 July 2015, and was now also presented for discussion at the third meeting of the OECD Global Forum of VAT. The new elements notably include a recommended solution for the effective collection of VAT/GST on the remote business-toconsumer sales of digital products by foreign suppliers. The Guidelines now address the core features of VAT, the fundamental principles and the place of taxation for cross-border trade, and mechanisms for supporting the Guidelines in practice. The latter issue includes mutual co-operation, dispute minimization, and application in cases of evasion and avoidance. 12 13 B & S brought an action against the Inspector’s decisions before the Rechtbank Haarlem (District Court, Haarlem). That court annulled those decisions on the ground that the documents provided by B & S made it possible to establish the existence of a failure having no significant effect on the correct operation of those procedures within the meaning of Article 204(1)(a) of the Customs Code, read in conjunction with Article 859(6) of the implementing regulation, since the documents provided by B & S proved that the goods had left the customs territory of the European Union. The Inspector brought an appeal against that judgment of the Rechtbank Haarlem before the Gerechtshof te Amsterdam (Court of Appeal, Amsterdam). That court first of all found that the Inspector was correct to consider that none of the goods had been presented at the office of destination, for the purposes of Articles 92 and 96 of the Customs Code. Next, that court held that none of the documents produced by B & S satisfied the mandatory conditions laid down in Article 365(3) or Article 366(2) and (3) of the implementing regulation. Finally, referring to the judgment in Hamann International (C‑337/01), it held that, despite the goods leaving the customs territory of the European Union, the failure to end the transit procedures amounted to those goods being removed from customs supervision and led to a customs debt being incurred under Article 203 of the Customs Code. B & S lodged an appeal on a point of law against that judgment before the referring court, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands). That court considered that the Gerechtshof te Amsterdam was correct to hold that the transit procedures at issue had not ended, for the purposes of Article 92 of the Customs Code, and could not be considered as having ended, for the purposes of Article 365(3) or Article 366(2) and (3) of the implementing regulation. However, that court considered that the judgment in X (C‑480/12) could be interpreted as meaning that the incurrence of a customs debt under Article 203 of the Customs Code is precluded where it is established that the goods did not enter the economic network of the European Union without having been cleared through customs. On 3 July 2006, 13 August 2007 and 18 December 2007, B & S, a provider of logistical services, submitted, as principal, electronic declarations for foodstuffs to be placed under the transit procedure. Those declarations designated each time the customs office of Moerdijk (Netherlands) as the office of departure, and, respectively, those of Bremerhaven (Germany), Antwerp (Belgium) and, again, Bremerhaven as the offices of destination. On 4 August 2006, 26 September 2007 and 24 January 2008, the customs office of departure notified B & S that it had received neither the necessary return copies nor the electronic confirmations of receipt. Following that office’s request to furnish proof that those procedures had been correctly ended, B & S submitted a number of commercial transport documents, referred to as ‘bills of lading’. In response to an enquiry notice issued by the tax inspector of the Netherlands fiscal authorities (Inspecteur van de Belastingdienst: the ‘Inspector’), the customs offices of destination stated that no goods or corresponding transit documents had been submitted to them. In those circumstances, and taking the view that the commercial documents produced by B & S did not comply with Article 365 or Article 366 of the implementing regulation, so that the transit procedures could not be regarded as having ended, the Inspector, relying on Article 203 of the Customs Code, issued, on 24 May 2007, 1 July 2008 and 4 November 2008 respectively, demands for payment of customs duties by B & S, on the ground that the latter had removed the goods concerned from customs supervision. B & S submitted an objection to two duty assessments and a request for reimbursement concerning the third duty assessment. In that context, B & S produced additional documents, in particular acknowledgments of receipt for the goods at issue, issued by the consignees thereof, namely United Nations (UN) forces in Abidjan (Côte d’Ivoire), North Atlantic Treaty Organisation (NATO) forces in Kabul (Afghanistan) and UN forces in Port-auPrince (Haiti). The Inspector, not being satisfied with those new documents, decided to uphold the demands for payment. 13 not been completed does not, in a situation such as that in the present case - in which, on the basis of documentation, it has been shown that the goods left the customs territory of the European Union subsequent to transit within the European Union - preclude the condition that “all the formalities necessary to regularise the situation of the goods are subsequently carried out” from being deemed to have been satisfied?’ The CJ ruled that Articles 203 and 204 of Council Regulation (EEC) No 2913/92 of 12 October 1992 establishing the Community Customs Code must be interpreted as meaning that a failure to comply with the obligation to present goods placed under the external Community transit procedure at the customs office of destination leads to a customs debt being incurred on the basis, not of Article 204 of Regulation No 2913/92 but of Article 203 of Regulation No 2913/92, where the goods concerned have left the customs territory of the European Union and the holder under that procedure is unable to produce documents that comply with Article 365(3) of Commission Regulation (EEC) No 2454/93 of 2 July 1993 laying down provisions for the implementation of Regulation No 2913/92 or Article 366(2) and (3) of Regulation No 2454/93. CJ rules on the CN classification of temperature indicators (Duval GmbH) On 26 November 2015, the CJ delivered its judgment in the case Hauptzollamt Frankfurt am Main v Duval GmbH & Co. KG (C-44/15). The case concerns the classification in the Combined Nomenclature (CN) of Indicators of exposure to a predetermined target temperature to be used on one occasion only. The CJ ruled that heading 9025 of the Combined Nomenclature set out in Annex I to Council Regulation (EEC) No 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff, as amended by Commission Regulation (EC) No 1549/2006 of 17 October 2006 must be interpreted as covering ambient temperature indicators made of paper, in some circumstances covered with plastic film, such as the goods at issue in the main proceedings, which, by If a failure to fulfil the obligation to duly end the transit procedure does not amount to removal of the goods from customs supervision, the referring court was uncertain whether such a failure may be considered to have no significant effect on the correct operation of that procedure within the meaning of Article 204(1)(a) of the Customs Code, read in conjunction with the third indent and paragraph 6 of Article 859 of the implementing regulation. In those circumstances, the Hoge Raad der Nederlanden decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling: ‘(1) Must Articles 203 and 204 of the Customs Code, read in conjunction with Article 859 (in particular paragraph 6) of the implementing regulation, be interpreted as meaning that, where the transit procedure has not ended, but documents have in fact been produced which make it possible to assume that the goods have left the customs territory of the European Union, the fact that that procedure has not ended does not lead to the incurring of a customs debt by reason of a removal of the goods from customs supervision within the meaning of Article 203 of the Customs Code but, in principle, to the incurring of a customs debt on the basis of Article 204 of that code? (2) Must Article 859(6) of the implementing regulation be interpreted as meaning that that provision concerns exclusively the non-performance of (one of) the obligations associated with the (re)exportation of goods as set out in Articles 182 and 183 of the Customs Code? Alternatively, should the clause “without completion of the necessary formalities” be taken to mean that the “necessary formalities” also include the formalities that must be completed prior to the (re)exportation in order to bring to an end the customs procedure under which the goods have been placed? (3) If the answer to Question 2 is in the affirmative, must the third indent of Article 859 of the implementing regulation be interpreted as meaning that the fact that the formalities referred to in Question 2 have 14 the effect of a change in colour, indicate, irreversibly and without the possibility of subsequent re-use, whether one or more threshold temperatures have been reached. Commission publishes the 2016 version of the Combined Nomenclature The European Commission has published the latest version of the Combined Nomenclature (CN), applicable as from 1 January 2016. The Combined Nomenclature forms the basis for the declaration of goods (a) at importation or exportation, or (b) when subject to intra-Union trade statistics. This determines what rate of customs duty applies and how the goods are treated for statistical purposes. The CN is thus a vital working tool for business and the Member States’ customs administrations. The Combined Nomenclature was established by Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff. It is updated every year and is published as a Commission Implementing Regulation in the Official Journal of the European Union, L Series. The latest version is now available as Commission Regulation (EU) No 1754/2015 in EU Official Journal L 285 of 30 October 2015. This version applies from 1 January 2016. 15 Correspondents ● Gerard Blokland (Loyens & Loeff Amsterdam) ● Kees Bouwmeester (Loyens & Loeff Amsterdam) ● Almut Breuer (Loyens & Loeff Amsterdam) ● Robert van Esch (Loyens & Loeff Rotterdam) ● Raymond Luja (Loyens & Loeff Amsterdam; Maastricht University) ● Arjan Oosterheert (Loyens & Loeff Zurich) ● Lodewijk Reijs (Loyens & Loeff Rotterdam) ● Bruno da Silva (Loyens & Loeff Amsterdam; University of Amsterdam) ● Patrick Vettenburg (Loyens & Loeff Rotterdam) ● Ruben van der Wilt (Loyens & Loeff Amsterdam) www.loyensloeff.com About Loyens & Loeff Loyens & Loeff N.V. is the first firm where attorneys at law, tax advisers and civil-law notaries collaborate on a large scale to offer integrated professional legal services in the Netherlands, Belgium, Luxembourg and Switzerland. Loyens & Loeff is an independent provider of corporate legal services. Our close cooperation with prominent international law and tax law firms makes Loyens & Loeff the logical choice for large and medium-size companies operating domestically or internationally. Editorial board For contact, mail: [email protected]: ● René van der Paardt (Loyens & Loeff Rotterdam) ● Thies Sanders (Loyens & Loeff Amsterdam) ● Dennis Weber (Loyens & Loeff Amsterdam; University of Amsterdam) Editors ● Patricia van Zwet ● Bruno da Silva Although great care has been taken when compiling this newsletter, Loyens & Loeff N.V. does not accept any responsibility whatsoever for any consequences arising from the information in this publication being used without its consent. The information provided in the publication is intended for general informational purposes and can not be considered as advice. www.loyensloeff.com Amsterdam Arnhem Brussels Dubai Hong Kong London Luxembourg New York Paris Rotterdam Singapore Tokyo Zurich