Commission notice on the recovery of unlawful and incompatible state aid
The European Commission has published a “Notice on the recovery of unlawful and incompatible state aid”. The purpose of the notice is to explain the EU rules and procedures governing the recovery of state aid, and how the Commission works with member states to ensure compliance with their obligations under EU law.
the end of 2018. The German Federal Government now passed a draft bill
presented by the Federal Ministry of Finance. The main amendments to the
current legal situation, i.e. the lowering of the 95% thresholds for shareholdings
to 90% and the extension of the current holding periods from 5 to 10 or even
15 years, were already known and expected.
The bill further provides for rules on the application of the new regime and
transitional provisions. According to these, the new regime shall, in principle,
apply as of 1 January 2020. However, various deviations from this principle
apply due to which the new regime might also tie in with transactions prior to
Contents EU Developments ............. 1
Germany ........................... 1
Italy ................................... 2
Luxembourg ...................... 4
Netherlands ...................... 7
Portugal .......................... 10
Sweden ........................... 10
United Kingdom .............. 13
International Tax Round-up ï‚½ August 2019 2
this date. Therefore, the contemplated reformed real estate transfer tax regime
already needs to be considered in share deals prior to 1 January 2020.
Read more in our client alert.
Cum/Ex â€“ Cologne tax court rejects action
In its decision announced in July, the Cologne tax court held that a multiple
refund of withholding tax retained and paid only once shall be ruled out.
For the first time, the Cologne tax court heard the case in a so-called cum/ex
proceeding. The legal dispute was based on over-the-counter share
transactions in the context of a short sale. The share transactions had been
concluded prior to the dividend record date with a claim to the expected
dividend (â€œcum dividendâ€) and proffered, as agreed, with shares without a
dividend claim (â€œex dividendâ€) after the dividend record date. It was to be
decided if the share buyer (short buyer) was entitled to a refund of withholding
tax. This entitlement was now rejected by the tax court because in case of an
over-the-counter short sale, the share buyer would not become the beneficial
owner of the shares to be delivered at a later stage already through conclusion
of the purchase agreement. Hence, he was not entitled to a credit of the
withholding tax retained and paid with respect to the dividend. Apart from that,
the multiple refund of withholding tax retained and paid only once was ruled out
already for logical reasons.
The proceeding is of high relevance since it constitutes a model case
proceeding for a number of comparable disputes pending before the Central
Federal Tax Office (Bundeszentralamt fÃ¼r Steuern). The Senate approved an
appeal to the Federal Court of Finance (Bundesfinanzhof).
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Tax ruling on Italian withholding tax exemption on loan interest derived
by institutional investors
With tax ruling No. 76/E of 12 August 2019, the Italian tax authorities have
provided clarifications as to the domestic withholding tax (WHT) exemption
regime applicable to interest on medium-/long-term loans granted to Italian
enterprises by certain qualifying foreign lenders, under Article 26, paragraph
5-bis, of Italian Presidential Decree No. 600 of 1973 (â€œArticle 26, para. 5-bisâ€).
The tax ruling request has been filed by a management company having its
legal seat in Guernsey (â€œApplicantâ€), that is authorized and supervised by the
Guernsey financial authority, i.e. the Guernsey Financial Services Commission
(GFSC), which manages UK investment funds established in the legal form of
UK limited partnerships.
International Tax Round-up ï‚½ August 2019 3
The Applicant has asked the Italian tax authorities to confirm whether the
interest WHT exemption under Article 26, para. 5-bis applies to interest
received by such UK limited partnerships (â€œLendersâ€) in the context of a direct
lending transaction whereby the Lenders have granted medium-/long-term
loans to an Italian holding company (â€œBorrowerâ€) incorporated to purchase a
minority stake in an Italian target company and indirectly controlled by the
Lenders through two intermediate Luxembourg companies.
In general terms, under Article 26, para. 5-bis interest payments may be
exempt from the ordinary 26% domestic WHT to the extent the following
conditions are jointly met: (a) the lending transaction is in compliance with the
Italian regulatory provisions; (b) the lender qualifies as, inter alia, foreign
institutional investor established in White-listed countries and subject to
regulatory supervision therein; (c) the loan has a medium-/long-term maturity;
(d) the borrower is an Italian enterprise.
The clarifications of the Italian tax authority
With the tax ruling No. 76/E of 12 August 2019, the Italian tax authorities have
confirmed that the WHT exemption under Article 26, para. 5-bis applies to
interest paid by the Borrower to the Lenders based on the following remarks.
(a) In line with other tax rulings, the Italian tax authorities have clarified
that the application of the WHT exemption regime at stake is always conditional
upon compliance with the Italian regulatory framework in relation to
professional lending activity to the public. In particular, the Italian tax authorities
point out that, according to Article 3 of the Ministerial Decree No. 53 of 2015,
the lending activity in Italy is restricted and requires license/authorisation from
the competent authority whenever it is performed in favour of third parties on a
professional basis. However, the lending activity performed exclusively in
favour of â€œits own groupâ€ is out of the scope of the Italian regulatory restrictions.
Therefore, in the case at hand, the loans granted by the Lenders to the
Borrower (which is wholly indirectly controlled by the Lenders) meet the
regulatory requirement for the purposes of Article 26, para. 5-bis.
(b) The Italian tax authorities have reiterated that the notion of "foreign
institutional investors" includes investors which, irrespective of their legal status
and their tax treatment, have as their object the carrying on and management
of investments on their own or on behalf of third parties. With respect to the
supervisory requirement, in line with other tax rulings, the Italian tax authorities
have clarified that such requirement can be met (i) either at the level of the
foreign institutional investor, or (ii) at the level of the management company,
based on and in compliance with the relevant regulatory framework applicable
in the respective state of establishment. On this basis, and assuming that the
Lenders may be considered as undertaking for collective investments from an
Italian perspective, the Italian tax authorities have confirmed that the Lenders
can benefit from the Article 26, para. 5-bis exemption considering that (i) they
are established in a White-listed country (i.e. UK) and (ii) the Applicant is
established in a White-listed country (i.e. Guernsey) and subject to regulatory
International Tax Round-up ï‚½ August 2019 4
(c) Through a short sentence, the Italian tax authorities have also clarified
that it is not possible to adopt a â€œlook-throughâ€ approach in order to claim the
application of the Article 26, para. 5-bis exemption in cases where the ultimate
beneficial owner of the Italian-sourced interest, but not the lender itself,
qualifies as a qualifying institutional investor for the purposes of interest WHT
exemption at hand. In particular, the Italian tax authorities have also clarified
that the â€œlook-throughâ€ approach suggested by the same tax authorities with
the previous Circular Letter no. 6 of 2016 in relation to tax litigations arising
from leveraged buy-out transactions with an â€œItalian Bank Lender of Recordâ€
(IBLOR) financing structure cannot be extended to other cases.
(d) As to the medium-/long-term maturity of the underlying loan, the Italian
tax authorities have clarified that the WHT exemption regime cannot apply to
loans with a mandatory maturity lower than or equal to 18 months (and one
day), even if such loans then actually exceed such maturity by an extension of
their original maturity. In particular, in line with the view taken by the Italian
Supreme Court with the Decision No. 7651/2018, the Italian tax authorities
point out that any contractual provision whereby any lender would have the
possibility to withdraw unilaterally from the financing agreement and without
any notice even before the 18 monthsâ€™ deadline expiry do not fall within the
meaning of â€œmedium-/long-term loansâ€.
(e) The Italian tax authorities have clarified that the WHT exemption
regime is applicable only in relation to loans granted to entities which carry out
in Italy a business activity under tax law, as provided by Article 73, para. 1,
letters a) and b) of the Italian Presidential Decree No. 917 of 1986. In addition,
the Italian tax authorities point out that the interest WHT exemption regime also
applies to loans granted to Italian holding companies whose main purpose is
the management of shareholdings. In the view of the tax authorities,
undertakings for collective investments acting as borrowers should not meet
the condition at hand.
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Publication of the draft bill of law implementing ATAD 2 into Luxembourg
The draft bill implementing EU Directive 2017/952 of 29 May 2017 amending
EU Directive 2016/1164 laying down rules against tax avoidance practices that
directly affect the functioning of the internal market (the â€œATAD 2 Directiveâ€)
into Luxembourg domestic law (the â€œDraft ATAD 2 Lawâ€) was submitted to the
parliament on 8 August 2019.
Extension of the scope of the anti-hybrid mismatch rules
The Draft ATAD 2 Law aims at broadening the scope of the anti-hybrid
mismatch provisions introduced into Luxembourg law earlier this year so as to
also include hybrid mismatches with states outside of the EU and increase the
International Tax Round-up ï‚½ August 2019 5
situations targeted by the rules more generally (notably introducing rules
regarding permanent establishments, hybrid transfers or imported
In essence, in situations involving associated enterprises (or permanent
establishments or a structured arrangement) where a hybrid mismatch results
in a double deduction or deduction without inclusion, the effects of such
mismatch are neutralised either by refusing the deduction or by including the
payment. While the Draft ATAD 2 Law may still be subject to change as it goes
through the Luxembourg legislative process, we would like to share with you
our insights on certain selected aspects of the Draft ATAD 2 Law.
The new rules introduced by the ATAD 2 Directive aim at correcting hybrid
mismatches between associated enterprises (or implemented in the context of
a structured arrangement). Thus, the government has decided to introduce a
new stand-alone definition of associated enterprise (point (17) of the first
paragraph of the restated article 168ter of the Luxembourg income tax law
(â€œITLâ€)) applicable only to the anti-hybrid mismatch provisions to be introduced
as a result of the ATAD 2 Directive, the criterion being the holding of 50% or
more of the voting rights, the capital interests or the rights to a share of the
profits (except for hybrid financial instruments, where the relevant threshold is
lowered to 25%).
Where different persons or entities are considered as â€œacting togetherâ€, their
participation in the voting rights, capital interests or profits are aggregated for
the purpose of determining whether they can be considered as associated with
the entity under review. This is to ensure that full effect is given to the anti-
hybrid mismatch provisions in a situation where the effective control of a vehicle
is split between different persons. In this context, it was debated whether the
fact that the general partner of a fund was acting on behalf of all the limited
partners in such fund could trigger the â€œacting togetherâ€ rule. The point was of
particular importance to Luxembourg due to the size of its fund industry. Given
that in an investment fund context, the different investors generally do not have
any effective control over the investments of the fund, it is suggested that
investors in a fund which hold less than 10% (directly or indirectly) of the capital
interests in a fund and are entitled to less than 10% of the profits are presumed
not to be acting together with other investors in the fund, unless proven
otherwise. As a result of such de minimis rule, payments to a tax transparent
fund (e.g., in the form of a Luxembourg limited partnership (SCS(p))) should
only become non-deductible in Luxembourg, if the limited partners in the fund
located in jurisdictions which consider the fund as opaque hold (i) at least 10%
of the interests in the fund each (or are each entitled to at least 10% of its
profits) and (ii) together more than 50% of the voting rights, capital interests or
Reverse hybrid rule
Whereas the application of the current anti-hybrid mismatch provisions may
lead to a non-deduction or to the taxation of an income at the level of ordinary
International Tax Round-up ï‚½ August 2019 6
corporate taxpayers, the new reverse hybrid rule will - from 1 January 2022 -
have the effect of submitting to corporate income tax entities that would
otherwise be tax transparent for Luxembourg tax purposes. For the avoidance
of doubt, a reverse hybrid entity is an entity treated as tax transparent in its
jurisdiction of incorporation but opaque in the jurisdiction of (certain of) its
Given Luxembourgâ€™s importance as an investment fund jurisdiction and taking
into account the fact that numerous fund vehicles take the form of tax
transparent entities (such as the SCS(p)), the Draft ATAD 2 Law proposes to
limit the scope of the new reverse hybrid rule (new article 168quater ITL) so as
not to detrimentally affect the fund industry. In line with the ATAD 2 Directive,
the Luxembourg government thus excludes collective investment vehicles from
such provision and suggests interpreting the notion of CIV so as to encompass
not only UCITS but also other types of investment funds, notably specialised
investment funds (SIFs), UCI Part II and reserved alternative investment funds
(RAIFs), but also any AIF which is widely held, holds a diversified portfolio of
securities and is subject to investor protection obligations.
Also, given that the ATAD 2 Directive does not specifically require that reverse
hybrid entities be subject to a tax other than the corporate income tax, it is
currently not foreseen for these entities to also become subject to net wealth
tax. We are further of the view that they should not be obliged to withhold tax
on their distributions (for example dividend distributions).
Interplay of different anti-hybrid rules
In line with paragraphs (29) and (30) of the preamble of the ATAD 2 Directive,
the anti-hybrid mismatch rules to be introduced by the Draft ATAD 2 Law will
only apply provided that the hybrid mismatch is not already neutralised
otherwise, for example by the application of the anti-hybrid mismatch rule
already in place in article 166 (2-bis) ITL (i.e. no tax exemption on dividend
income if deductibility was granted to the distributing entity).
Similarly, if the reverse hybrid rule is triggered and the relevant reverse hybrid
entity becomes subject to corporate income tax in Luxembourg on all or part of
its income, no other hybrid mismatch rule will apply.
Tax exempt status of an associated entity involved in a hybrid mismatch
The commentary to the Draft ATAD 2 Law expressly refers to paragraphs (16)
and (18) of the preamble of the ATAD 2 Directive to exclude payments made
under hybrid financial instruments or to hybrid entities from the scope of the
anti-hybrid mismatch rules where the mismatch is not the consequence of the
hybridity of the instrument or the entity, but merely the result of the specific tax
status of the payee. The commentary in particular refers to payments made to
tax exempt sovereign wealth funds or investment funds.
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International Tax Round-up ï‚½ August 2019 7
Legislative proposal on the implementation of anti-hybrid mismatch rules
On 2 July 2019, the legislative proposal to implement the EU Anti-Tax
Avoidance Directive 2 (â€œATAD 2â€) into Dutch law was submitted to the Dutch
parliament. The proposal is largely left unchanged compared to the
consultation document that was made public on 29 October 2018. For the most
part, the changes regard clarifications as a result of the internet consultation.
Some of the most notable changes are the documentation requirement, the
profit distribution between Dutch entities and their permanent establishments,
the exemption for collective investment vehicles in the reverse hybrid rule and
the reverse hybrid rule itself, and will be described hereunder.
General rule concerning hybrid mismatches
ATAD 2 addresses structures in which associated entities (or entities in a
â€œstructured arrangementâ€) avoid taxes by abusing the differences in tax
systems of states, so-called hybrid mismatches which result in either deduction
without inclusion or double deduction. In the case of a deduction without
inclusion, the deduction will be denied (this is the primary rule) or included in
the tax base (the - in some situations optional - secondary rule). The
Netherlands has committed itself to implement both the primary and the
secondary rule in all situations covered. In the case of a double deduction, the
Netherlands will deny the deduction (primary rule), but when the Netherlands
is the payor state, the Netherlands will only deny the deduction if the payee
state does not deny the deduction (secondary rule).
The covered hybrid mismatches include hybrid financial instruments (the
transfer of or payments on financial instruments that result in a deduction
without inclusion due to qualification differences of the financial instrument),
hybrid entities (payments to or made by such an entity that result in deduction
without inclusion or double deduction), imported mismatches (payments made
on non-hybrid instruments that fund deductible payments in a hybrid mismatch
situation, where none of the states involved makes a primary or secondary rule
adjustment), dual resident entities (payments made by an entity that is a
resident of two states, resulting in double deduction) and hybrid permanent
establishments. The latter will be described in the â€œdisregarded PEâ€-paragraph.
The legislative proposal introduces a documentation requirement, on the basis
of which the taxpayer has to declare and substantiate in its tax returns whether
the anti-hybrid mismatch rules apply to the entity. Such documentation could
consist of a group structure chart, an assessment of the financial instruments
and - if the anti-hybrid mismatch measures apply to the entity - a substantiated
calculation of the correction applied as a result of the anti-hybrid mismatch
If the Dutch tax authorities request for more information, the period that is given
to hand over the information is in principle six weeks, which period may be
International Tax Round-up ï‚½ August 2019 8
extended in case of complex transactions. If the taxpayer does not (sufficiently)
comply with the documentation requirement, while the Dutch tax authorities
presume that the anti-hybrid mismatch measures apply, the burden of proof to
demonstrate that the anti-hybrid mismatch rules do not apply to the transaction
shifts to the taxpayer.
Due to states having a different interpretation of the term permanent
establishment (â€œPEâ€), a PE mismatch may arise if in the head office jurisdiction
the activities are treated as being carried on through a permanent
establishment in another jurisdiction and therefore the income is exempt in the
head office state, while this other jurisdiction does not treat the activities as
being carried on through a PE (the â€œdisregarded PEâ€), resulting in an exemption
without inclusion. Based on the legislative proposal, if the Netherlands is the
head office jurisdiction it shall include the disregarded PE income in its tax base
(i.e. the object exemption shall not apply to this income), and if the payer is a
Dutch resident taxpayer the Netherlands shall not allow deduction of the
payment in case the head office jurisdiction does not include the disregarded
PE income in its tax base.
Under the relevant tax treaty, the Netherlands may not be entitled to tax the
income of the disregarded PE. The legislative proposal clarifies that the
implementation of ATAD 2 should not affect the allocation of taxing rights under
tax treaties entered into by the Netherlands. This means that where the
Netherlands is the jurisdiction in which the head office of the disregarded PE is
located, but where the relevant tax treaty provides for an exemption for the
business profits attributable to the disregarded PE, such exemption should
continue to apply. However, the Netherlands aims to amend its tax treaties for
these situations through treaty (re)negotiations.
Reverse hybrid rule
A reverse hybrid entity is an entity considered transparent in its jurisdiction of
incorporation or establishment and non-transparent in the residence
jurisdiction(s) of its participants. Contrary to the other measures, the reverse
hybrid rule does not neutralise the tax benefit, but rather solves the qualification
difference, since the hybrid entity will be considered to be a resident of the
jurisdiction of incorporation or establishment.
It is announced that distributions by such reverse hybrid entities will become
subject to Dutch dividend withholding tax. Another change compared to the
consultation document is that - in line with ATAD 2 - the legislative proposal
includes an exception to the reverse hybrid rule for regulated collective
investment funds, provided that certain requirements are met. This exception
was erroneously not included in the consultation document.
ATAD 2 should be implemented as per 31 December 2019, applying to book
years starting on or after 1 January 2020. However, the reverse hybrid rule only
has to be implemented two years later (31 December 2021), and will apply to
book years starting on or after 1 January 2022.
International Tax Round-up ï‚½ August 2019 9
Legislative proposal on the Netherlands implementation of the
Mandatory Disclosure Directive published (DAC 6)
On 12 July 2019, the Netherlands government published the formal draft
legislative proposal on implementing the EU Directive on mandatory disclosure
(also known as â€œDAC 6â€), following a public consultation of a previous version
of the draft legislative proposal earlier this year. DAC 6 introduces an obligation
for intermediaries, extended intermediaries, and taxpayers to report certain
cross-border (tax planning) arrangements to the relevant tax authority of the
EU Member States. The reporting obligation will take effect as of 1 July 2020.
However, all reportable arrangements of which the first step of implementation
has been taken on or after 25 June 2018 but before 1 July 2020 should be
reported to the relevant tax authority as well, ultimately on 31 August 2020.
The draft legislative proposal contains few changes compared to the public
consultation draft and closely follows the text of DAC 6. However, compared to
the earlier public consultation draft, the formal legislative proposal contains
some more clarity on how the Netherlands will interpret the obligations imposed
by DAC 6.
Reportable cross-border arrangements
To constitute a reportable cross-border arrangement, the arrangement should
fulfil one or more of the so-called â€œhallmarksâ€ listed in DAC 6. The hallmarks
represent certain typical features of cross-border (tax) arrangements which,
according to DAC 6, are considered to potentially indicate tax avoidance or
abuse. Some of the hallmarks only apply if the 'main benefit test' is fulfilled. The
main benefit test is met if the main benefit or one of the main benefits which,
having regard to all relevant facts and circumstances, a person may reasonably
expect to derive from an arrangement, is the obtaining of a tax advantage.
According to the draft legislative proposal, the main benefit test is fulfilled if
there is a (series of) arrangement(s) with an (at least partially) artificial nature
that is (at least partially) aimed at obtaining a tax benefit. However, if there are
business reasons for an arrangement, and the arrangement does not contain
artificial elements, it can be assumed that the arrangement is not aimed at
obtaining a tax benefit for the purposes of this main benefit test.
In addition, the draft legislative proposal announces that a guidance note will
be published with examples of arrangements that are covered by the hallmarks
and examples of arrangements that are not covered by the hallmarks to relieve
intermediaries and relevant taxpayers when assessing whether an
arrangement is reportable or not. It is unclear when such guidance note will be
Intermediaries and legal privilege
In accordance with DAC 6, the Netherlands draft legislative proposal has
recognised that certain intermediaries (such as attorneys-at-law) are exempt
from the obligation to report reportable cross-border arrangements if such
reporting obligation infringes upon their legal privilege. However, if the
intermediary invokes legal privilege, that intermediary is obliged to then
immediately notify other intermediaries involved in the same cross-border
International Tax Round-up ï‚½ August 2019 10
arrangement or, if there are no other intermediaries, to inform the relevant
taxpayer(s) of their obligation to report that arrangement in the Netherlands or
in another EU Member State.
Penalties upon non-compliance
Pursuant to the draft legislative proposal, a relevant intermediary or taxpayer
that, intentionally or through gross negligence, fails to report a reportable
arrangement, may be subject to an administrative fine of up to EUR 830,000
or, under certain circumstances, criminal prosecution.
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Non-habitual tax residents' regime
The list of high added-value activities applicable to taxpayers subject to the
non-habitual tax residentsâ€™ regime was updated through the Ordinance no.
230/2019 of 23 July 2019.
Among other features, the non-habitual tax residents' regime allows for the
application of a flat personal income tax rate of 20% to income derived by non-
habitual tax resident individuals from listed high added-value activities
performed in Portugal.
This new ordinance has generally reduced the number of listed high added-
value activities, whilst adding a few, and provided some clarification on the
scope of the regime.
The ordinance will take effect from 1 January 2020, in broad terms to
individuals becoming subject to the regime as from that date and under certain
circumstances to those already subject to the regime as of that date.
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New tax ruling on permanent establishments
In a ruling dated 28 June 2019, the Swedish Supreme Administrative Court (the
â€œCourtâ€) held that a Polish companyâ€™s business operations at a building site had
not been ongoing for more than twelve months, which in turn meant that the
company did not have a permanent establishment in Sweden under the tax
treaty between Sweden and Poland and, as such, was not tax liable.
The Polish company in question had performed work on the bottom plate of an
ethane tank during about one and a half months (27 August - 8 October 2014).
After a break of about four months, the company performed additional work on
the roof dome of the same ethane tank during about eight months (16 February
- 17 October 2015). The Court held that while the work had been performed for
International Tax Round-up ï‚½ August 2019 11
the same principal, on the same site and on the same object (the ethane tank),
the break between both periods of work could not be seen as only a temporary
interruption. The company had also been asked, after the completion of the
first part of the work, to provide a tender for the second part of the work before
it commenced. Therefore, according to the Court, only the time during which
the company had been actively working were to be taken into account when
determining how long its business operations at the site had been ongoing.
Since that time only amounted to an aggregate of about nine and a half months,
i.e. less than the twelve months stipulated in the tax treaty between Sweden
and Poland, the company was not deemed to have a permanent establishment
in Sweden and was not tax liable.
EU Tax Dispute Resolution Directive transposed into domestic legislation
On 19 June 2019, the Swedish Government presented a law proposal (prop.
2018/19:143) transposing the EU Tax Dispute Resolution Directive
(2017/1852) of 10 October 2017 on tax dispute resolution mechanisms in the
European Union into Swedish legislation. The law is proposed to enter into
force on 1 November 2019.
Protocol to treaty between Sweden and Switzerland signed
On 19 June 2019, Sweden and Switzerland signed an amending protocol to
update the 1965 tax treaty between Sweden and Switzerland, as amended by
the 1992 and 2011 protocols.
Facilitated generation shifts in close companies
The so-called 3:12-rules have been adjusted to abolish the difference in tax
treatment when transferring a close company to a close/related person
compared to a transfer to a third person. In short, the adjusted rules mean the
> Shares in a close company shall not be considered qualified solely
because a close/related person other than the shareholderâ€™s spouse has
been active to a significant extent in another close company or close
partnership which carries out the same or similar business, provided that
certain conditions are fulfilled.
> Shares in a close company are qualified even when the shareholder or
a close/related person, during the tax year or any of the preceding five
tax years, has been active to a significant extent in a company which
carries out the same or similar business as the company in which the
shareholder indirectly owns shares.
> The exception regarding the same or similar business shall be
disregarded when applying the adjusted rules to third parties.
International Tax Round-up ï‚½ August 2019 12
The adjusted rules apply to a share, a business or a branch of a business
transferred after 30 June 2019.
The adjusted rules on the same or similar business in an indirectly owned
company will apply for the first time for tax years beginning after 31 December
The so-called RUT-reduction is doubled from SEK 25,000 to SEK 50,000 per
person and calendar year. The change apply from 1 July 2019 but will apply
retroactively for the entire tax year 2019.
Reintroduction of tax reduction for gifts to non-profit organisations
Tax reductions for gifts to non-profit organisations are reintroduced to monetary
gifts of at least SEK 2,000 during the calendar year. The recipients of a gift
must be approved by the Swedish Tax Agency. Maximum reductions amount
to SEK 1,500 per calendar year.
Lowered VAT on e-publications
The VAT rate for electronic publications is lowered to 6% from 25%. This
means that e-publications receive the same tax rate as books, newspapers,
magazines and similar. Products for use mainly in advertising or consisting of
moving image or audible music are not included.
Increased road tolls for heavy vehicles
The road toll for heavy vehicles is extended to include more EURO classes.
The change means that the road toll is increased for most heavy vehicles from
1 July 2019.
Due to the new legislation, the Swedish Tax Agency has developed new
regulations on the withdrawal of road tolls for vehicles without information of its
EURO class in the Road Traffic Register. The regulations state how the road
toll shall be determined for vehicles that do not have a EURO class.
Higher environmental taxes
The reduction of energy tax and carbon dioxide tax for diesel used in industrial
vehicles in the manufacturing process in industrial mining is abolished from
1 August 2019. Furthermore, the reduction of energy tax for fossil fuels used
to produce heat in combined power and heating plants is abolished, while the
carbon dioxide tax is increased.
Special income tax abolished for persons above the age of 65
For employees, income paid after 1 July 2019 is no longer subject to the special
For income from business activities, income shall generally be split so that
income belonging to the time before 1 July 2019 is subject to the special income
tax of 6.15%, and income belonging to the time after is not.
International Tax Round-up ï‚½ August 2019 13
Lowered employer contributions for persons between the ages of 15 and 18
The total employer contributions for compensation to persons who at the
beginning of the year have turned the age of 15 but not 18 are being lowered.
For these persons, the employer contributions and the general payroll tax
amount to 10.21%, which shall be paid on compensations up to SEK 25,000
per calendar month. This applies to compensation paid after 31 July 2019.
Extension of the growth-support from 12 to 24 months
One-person companies that take on their first employee will continue to be
entitled to a reduction of: (i) the employer contributions; (ii) the general payroll
tax; and (iii) the special income tax. Only old-age pension contributions shall
be paid for a maximum of 24 consecutive calendar months. The change will
apply to employments that have begun after 28 February 2018.
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Publication of draft clauses for Finance Bill 2019-2020
Draft clauses to be included in the UKâ€™s Finance Bill 2019-20 were published
on 11 July 2019. These are now subject to a period of technical consultation:
comments are invited by 5 September 2019.
The number of clauses published this year was small, and most were pre-
announced. Nevertheless, there were some that are noteworthy for large
business. These include:
> The new digital services tax (DST), which is likely to be the biggest
headline-grabber. In very broad terms, a new 2% tax will be imposed on
the revenues of search engines, social media platforms and online
marketplaces which derive value from UK users.
As already announced, the DST will come into force on 1 April 2020.
However, the UK government has reiterated its commitment to disapply
it once â€œan appropriate international solution is in placeâ€.
> An extension of the stamp duty and SDRT market value rule to the
transfer of unlisted securities to connected companies in certain
circumstances. In the UK governmentâ€™s words, â€œthe measure is narrowly
targeted to only apply where contrived arrangements are used to
minimise tax in circumstances where stamp duty relief is not availableâ€.
In particular, it only applies if some or all of the consideration for the
transfer consists of an issue of shares. It seems that a more general
market value rule, as previously mooted, will not be pursued at this time.
Changes will also be made to ensure that most capital reduction partition
demergers are only subject to a single stamp duty/SDRT charge.
> A corporate capital loss restriction that will mean that for accounting
periods ending on or after 1 April 2020, companies making chargeable
International Tax Round-up ï‚½ August 2019 14
gains will only be able to offset up to 50% of those gains using carried-
> Rules to shift the responsibility for operating the off-payroll working rules
from an individualâ€™s personal service company to the organisation or
business that the individual is supplying their services to in certain cases.
This will have the effect of extending the rules currently operational in
the public sector to the private sector (where the organisation or
business receiving the services is large or medium sized).
> A new option that will enable the corporation tax due on an intra-group
transfer of assets to an EU or EEA group company to be deferred over
a period of up to five years. This is apparently a reaction to a recent UK
First-tier Tribunal decision (presumably Gallaher v HMRC, see UK Tax
News Issue 10 (2019)). It is designed to ensure that any restriction on
the right to freedom of establishment imposed by the residence
requirements in the rules for intra-group transfer relief (such as in
Section 171 TCGA 1992 and the loan relationships, derivative contracts
and intangibles equivalents) is proportionate and so compliant with EU
This measure may be short-lived: it includes an ability for the UK
Treasury to withdraw the deferred payment option. This may be used if
the Treasury determines that the immediate payment of corporation tax
would not infringe any EU rights (for example following a final judgment
to that effect by a UK court in the Gallaher case, or following Brexit).
> Changes to protect tax in insolvency cases by making the UK tax
authority, HMRC, a secondary preferential creditor in relation to VAT and
other taxes collected by way of deduction (such as PAYE, employee
NICs, student loan deductions and CIS deductions).
> Some technical and procedural amendments to the GAAR.
In terms of next steps, following the consultation period, the expectation is that
these measures will be included in the Finance Bill 2019-2020. This bill should
be introduced into the UK Parliament after the autumn Budget (and the final
content of the bill will be confirmed at that event).
Draft rules to implement the DAC 6 obligations to disclose cross-border
tax planning arrangements
The UK has published draft regulations that will introduce new reporting
requirements in relation to tax planning schemes with a cross-border element.
The rules are required to implement recent changes made to the EU Directive
on Administrative Co-operation (widely known as â€œDAC 6â€). The draft
regulations are accompanied by a consultation document.
Comments are invited by 11 October 2019, with a view to the rules being made
before the end of the year. Taxpayers and intermediaries that may be within
scope will need to consider their obligations carefully.
International Tax Round-up ï‚½ August 2019 15
There has been a lot of concern about DAC 6, both in the UK and elsewhere
in the EU. The drafting is broad and has led to various difficult points of
interpretation. The UK draft regulations draw heavily on the definitions and
concepts contained in DAC 6 (at their heart, both require â€œintermediariesâ€ that
are participating in â€œreportable cross-border arrangementsâ€ to disclose certain
information to relevant tax authorities). However, the UK tax authority, HMRC,
has added a gloss to the rules through both the implementing legislation and
the approach to interpretation it has outlined in the consultation document.
Overall, therefore, whilst areas of uncertainty remain and further work will be
required, HMRC seems to be taking a pragmatic approach in seeking to ensure
that the rules can be operated in practice.
UK challenge to CFC state aid finding
Outline details of the UKâ€™s challenge (T-363/19 United Kingdom v Commission)
to the EU Commissionâ€™s finding that the finance company exemption from its
CFC rules constitutes state aid in part are now available in the Official Journal
(OJEU C 263/68). The Commission decision itself was published in the Official
Journal on 20 August 2019. For details of the Commissionâ€™s findings, see
UK Tax News Issue 13 (2019).
The UKâ€™s challenge is based on four grounds:
> First, that the Commission used the wrong reference system (and should
have used the UKâ€™s corporation tax system as a whole, rather than only
the CFC rules).
> Second, that the exemptions from the CFC rules for certain financing
income are not derogations. Instead they are a method of identifying
those arrangements that present a high risk of abuse/artificial diversion.
> Third, that the Commission made a manifest error of assessment
> Fourth, that finance company exemption has no effect on intra-EU trade.
< back to top >
International Tax Round-up ï‚½ August 2019 16
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