EU tax alert - November 2015 - edition 147

EU Tax Alert November 2015 - edition 147 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 Commission announces final decisions in Starbucks and Fiat State Aid investigations On 21 October 2015, the Commission announced its final decisions that the advance pricing agreements concluded with Starbucks (the Netherlands) and Fiat (Luxembourg) constitute unlawful State aid. In both cases, the Commission states that the tax burden was unduly reduced by EUR 20 to 30 million over the period under investigation. The Commission requires the Netherlands and Luxembourg to recover such State aid from Starbucks and Fiat respectively. ECOFIN Council reaches agreement on the automatic exchange of information on tax rulings and APAs On 6 October 2015, the Council of the European Union reached agreement on a proposal for a Council Directive (‘the New Directive’) amending Directive 2011/16/EU (Directive on administrative cooperation between Member States) and requiring automatic exchange of information on ‘advance tax rulings’ (‘Tax Rulings’) and ‘advance pricing arrangements’ (‘APAs’) between EU Member States (‘MSs’) and, subject to limitations, to the EU Commission. 3 Contents Highlights in this edition • Commission announces final decisions in Starbucks and Fiat State Aid investigations • ECOFIN Council reaches agreement on the automatic exchange of information on tax rulings and APAs Direct Taxation • CJ rules that Austrian group taxation rules that deny the amortization of goodwill in case of holdings acquired in non-resident companies contravene the freedom of establishment (Finanzamt Linz) • CJ rules that national legislation that allows a public administrative body of a Member State to transfer personal data to another public administrative body and their subsequent processing, without the data subjects having been informed of that transfer or processing, contravenes Directive 95/46/EC (Bara and Others) • Commission asks POLAND to stop discriminatory tax treatment of pensions contributions paid to Individual Pension Insurance Accounts (IKZE) • Commission launches a public consultation to help identify the key measures for inclusion in the relaunch of the proposal for a Common Consolidated Corporate Tax Base (CCCTB) • The Netherlands releases Tax Bill to extend fiscal unity regime in accordance with EU law VAT • CJ rules that national rule on limitation periods for criminal offences must be disapplied if it has an adverse effect on the fulfilment of the Member States’ obligations under EU law (Taricco) • AG Wathelet opines on whether the arbitrage with different VAT tariffs between Member States constitutes an abusive practice on the obligations of national tax authorities to prevent double taxation and on the use of evidence obtained in criminal proceedings (WebMindLicenses Kft.) Customs Duties, Excises and other Indirect Taxes • CJ rules on CN classification of Amino acid mixes (Kyowa Hakko Europe GmbH) • AG opines that preferential import duty tariff can be applied to a mixture of crude palm kernel oil originating in several countries (ADM Hamburg AG) • European Commission requests GREECE to amend its legislation granting reduced rates of excise duty to “Tsipouro” and “Tsikoudià” 4 5 Commission is of the opinion that an inflated price - paid for green coffee beans to a Swiss based group trading company - unduly reduces Starbucks Manufacturing tax base, leaving no margin to pay the royalty. Fiat The Commission finds that the APA concluded by Fiat Finance and Trade Sarl (FFT) endorses a methodology that is not appropriate for the calculation of taxable profits reflecting market conditions. In particular, the Commission finds it artificially lowers taxes paid by FFT in Luxembourg, by applying a number of economically unjustifiable assumptions, down-ward adjustments and a capital base for tax purposes that is much lower than the company’s actual capital. In addition, the estimated remuneration applied to this already lower capital for tax purposes is also lower compared to market rates. Initial comments by Loyens & Loeff The Commission’s key message is that artificial and complex methods used to shift profits where there is no economic justification will not be accepted. Whether this particular application of the State aid provisions to corporate tax planning structures involving APAs will hold before the European courts, is still uncertain. Both the Netherlands and Luxembourg governments issued statements claiming that the APAs granted do not amount to State aid. Also the two companies involved disagree with the EU Commission’s analysis. Nevertheless, the combination of the use of the State aid provisions and the other European initiatives to fight ’base erosion and profit shifting’, are likely to have a serious impact on tax regimes and tax planning structures that are perceived by the EU to be privileged and harmful. The transparency initiatives in the corporate tax field (e.g., Country-by-Country Reporting and the automatic exchange of rulings in the EU) will also put more emphasis and pressure on tax planning structures involving APAs and rulings. Moreover, the constant political, media and public attention are making MNEs and governments aware that it is extremely difficult to fight the widespread perception that they have struck inappropriate tax deals. Needless to say, all of these developments will also affect Swiss based MNEs, with potentially ’sensitive rulings’ in the EU. Highlights in this edition Commission announces final decisions in Starbucks and Fiat State Aid investigations On 21 October 2015, the Commission announced in its final decisions that the advance pricing agreements (APAs) concluded with Starbucks (the Netherlands) and Fiat (Luxembourg) constitute unlawful State aid. In both cases, the Commission states that the tax burden was unduly reduced by EUR 20 to 30 million over the period under investigation. The Commission requires the Netherlands and Luxembourg to recover such State aid from Starbucks and Fiat respectively. State aid rules require that incompatible State aid is recovered in order to reduce the distortion of competition in the EU Single Market. The Commission considers that APAs should not have the effect of granting taxpayers lower taxation than other taxpayers in a similar legal and factual situation. The two final decisions, concerning Starbucks and Fiat, confirm that the Commission is determined to challenge potential State aid elements embedded in APAs, examining in a very detailed manner the transfer pricing methods agreed by tax authorities. Although the full text of the final decisions will not be published until confidentiality issues have been resolved, the announcement of the Commission already gives sufficient guidance to warrant looking anew at existing APAs in the EU. Starbucks The Commission finds that a royalty paid by Starbucks Manufacturing EMEA BV (Starbucks Manufacturing) for the use of know-how cannot be justified as it does not adequately reflect market value. According to the Commission, only Starbucks Manufacturing is required to pay for using this know-how whereas no other Starbucks group company nor independent roasters to which roasting is outsourced are required to pay a royalty in essentially the same situation. The Commission finds that in the case of Starbucks Manufacturing, the existence and level of the royalty means that a large part of its taxable profits is unduly shifted. Furthermore, the 5 exchange, irrespective of whether they are still valid on 1 January 2017. MSs can choose not to exchange information on Tax Rulings and APAs issued, amended or renewed before 1 April 2016 if the Tax Ruling or APA relates to a group that had an annual turnover of less than EUR 40 million in the year preceding the issuance, amendment or renewal of the Tax Ruling or APA (that is, small and medium-sized enterprises). This exemption will not apply to companies engaged in financial or investment activities. The terms Tax Ruling and APA are very broadly defined as any agreement, communication, or any other instrument or action with similar effects, including agreements reached in audits, which can be relied upon by taxpayers. Tax Rulings deal with the interpretation or application of a legal or administrative tax provision to a cross-border transaction or with the question whether or not activities give rise to a permanent establishment in another Member State and are made in advance of the transaction or the filing of the tax return covering the period in which the transaction takes place. APAs establish an appropriate set of criteria for the determination of the transfer pricing of cross-border transactions between associated enterprises or the attribution of profits to a permanent establishment. The scope of the above definitions means that not only rulings and APAs in the traditional meaning of these terms will be covered by the New Directive, but also a vast array of other agreements between taxpayers and tax administrators for dealing with the tax affairs of multinational enterprises. Besides certain basic information, such as the identity of the taxpayers involved, the date of issuance, the start date and the period of validity of the Tax Ruling or APA, the information to be exchanged also comprises more substantive information. Examples of such substantive information include a description of the transactions covered, the transaction amount, the method and the set of criteria used for the determination of the transfer pricing or the transfer price itself and the identification of other MSs likely to be concerned and the identification of taxpayers in those states likely to be affected by the Tax Ruling or APA. The description of the transactions covered in the Tax Ruling or APA may be drafted in abstract terms that do not lead to the disclosure of commercial, Similar decisions can be expected in the other formal State aid investigations involving Apple, Amazon and the Belgian ’excess profit ruling’ system. More formal State aid investigations in relation to tax rulings can be expected to follow as the Commission had requested a substantial number of individual tax rulings from various Member States earlier this year. ECOFIN Council reaches agreement on the automatic exchange of information on tax rulings and APAs On 6 October 2015, the Council of the European Union reached agreement on a proposal for a Council Directive (‘the New Directive’) amending Directive 2011/16/EU (Directive on administrative cooperation between Member States) and requiring automatic exchange of information on ‘advance tax rulings’ (‘Tax Rulings’) and ‘advance pricing arrangements’ (‘APAs’) between EU Member States (‘MSs’) and, subject to limitations, to the Commission. The New Directive is one of the results of the EU’s efforts to combat tax avoidance and aggressive tax planning. On 18 March 2015, the EU Commission launched the Transparency Package, which contained a number of initiatives to help MSs protect their tax base and which also included a proposal for automatic exchange of information on Tax Rulings and APAs. The New Directive is the political outcome of the discussion on the EU Commission’s proposal. The New Directive is also largely in line with the recommendations on automatic exchange of information of tax rulings that were made as part of Action 5 (Countering Harmful Tax Practices) of the OECD/G20 BEPS project and that were released on 5 October 2015. The New Directive requires MSs to automatically exchange information on Tax Rulings and APAs that are issued on or after 1 January 2017. In addition, information on Tax Rulings and APAs issued, amended or renewed between 1 January 2012 and 31 December 2013 will be subject to information exchange, provided that they are still valid on 1 January 2014 (i.e., a five year look-back period instead of the ten year look-back foreseen in the proposal of the EU Commission). Information on Tax Rulings and APAs that were issued, amended or renewed after 1 January 2014 will be subject to information 6 7 Direct Taxation CJ rules that Austrian group taxation rules that deny the amortization of goodwill in case of holdings acquired in non-resident companies contravene the freedom of establishment (Finanzamt Linz) On 6 October 2015 the CJ delivered its judgment in case Finanzamt Linz v Bundesfinanzgericht, Außenstelle Linz (C-66/14).This case concerns the Austrian legislation regarding group taxation which provides for an amortisation of goodwill, at the level of the parent, only for resident subsidiaries. An Austrian group had majority holdings in both resident and non-resident Austrian subsidiaries. Among those participations, the group acquired 100% of the shares in a Slovakian company for which it claimed a depreciation of goodwill. The local tax authorities rejected such claim considering that the depreciation of goodwill was only allowed to companies subject to unlimited tax liability in Austria. Following a decision favourable to the taxpayer in a lower instance, the tax office appealed against that decision based on the lines of arguments: (i) whether the depreciation of goodwill provided for under Austrian Law, is compatible with Articles 107 TFEU and 108(3) TFEU. Such depreciation creates an advantage for the beneficiary but questions whether that advantage must be regarded as favouring certain undertakings or the production of certain goods, (ii) whether the limitation of goodwill depreciation may nevertheless be justified either on the ground that it relates to situations that are not objectively comparable or by an overriding reason in the general interest. The CJ dismissed the first question by considering it that it bore no relation to the subject-matter of the main proceedings. As regards the second question, the CJ started by stating that legislation such as that at issue in the main proceedings created a tax advantage for a parent company acquiring a holding in a resident company, in cases of positive goodwill. By not granting, in those industrial or professional secrets, or be contrary to public policy. The Commission is responsible for developing standard formats to report information on Tax Rulings and APAs as well as a central database accessible for MSs. Information must generally be submitted within three months after the end of each half calendar year. Information on pre-1 January 2017 Tax Rulings and APAs must be submitted before 1 January 2018. MSs 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. Information on bilateral or multilateral APAs with non-MSs will not be subject to automatic exchange of information if this is prohibited under the international tax agreement pursuant to which the APA was negotiated. In that case, however, the basic information referred to above does need to be exchanged, to the extent that it was included in the request that led to the bilateral or multilateral APA. The Commission itself will not have access to information on the identity of the taxpayers involved, the summary of the content of the Tax Rulings and APAs, including a description of the transactions covered, the description of the set of criteria used for the determination of the transfer pricing or the transfer price itself and the identification of the taxpayers in other MSs likely to be affected by the Tax Ruling or APA. It will, however, have access to all other information. The EU Commission may only use the information to which it has access to assess MSs’ compliance with the New Directive. It is not permitted to use such information for other purposes, such as for State aid investigations. Before the New Directive can be formally adopted by the EU Council, the European Parliament must give its opinion. Following the adoption of the New Directive by the EU Council, MSs must implement the New Directive in their national laws before 1 January 2017. 7 of the tax system by considering that there was no direct link between the tax advantage consisting in the depreciation of the goodwill, on the one hand, and the tax attribution to the parent company of the results of the resident company, on the other hand. CJ rules that national legislation that allows a public administrative body of a Member State to transfer personal data to another public administrative body and their subsequent processing, without the data subjects having been informed of that transfer or processing, contravenes Directive 95/46/EC (Bara and Others) On 1 October 2015, the CJ delivered its judgment in case Smaranda Bara and Others v Președintele Casei Naționale de Asigurări de Sănătate, Casa Naţională de Asigurări de Sănătate, Agenţia Naţională de Administrare Fiscală (ANAF) (C-201/14). The case concerns the interpretation of Articles 124 TFEU and Articles 10, 11 and 13 of Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data in a case involving the transfer of personal date between public administrative bodies without the data subjects having been informed of that transfer or processing. The applicants in the main proceedings earn income from self-employment. The ANAF (National Tax Administration Agency) transferred data relating to their declared income to the CNAS (National Health Insurance Fund). On the basis of that data, the CNAS required the payment of arrears of contributions to the health insurance regime. The applicants in the main proceedings brought an appeal before the national court, in which they challenged the lawfulness of the transfer of tax data relating to their income in the light of Directive 95/46. They submitted that the personal data were, on the basis of a single internal protocol, transferred and used for purposes other than those for which they had initially been communicated to the ANAF, without their prior explicit consent and without their having previously been informed. The case was referred to the CJ. circumstances, that tax advantage to a parent company which acquires a holding in a non-resident company, that legislation introduces a difference in tax treatment between parent companies to the detriment of those which acquire a holding in a non-resident company. That difference in treatment is such as to hinder the exercise by the parent company which acquires a holding in a nonresident company of its freedom of establishment for the purposes of Article 49 TFEU by deterring it from acquiring or setting up subsidiaries in other Member States. Therefore, the CJ concluded that such a difference in treatment could only be allowed if related to situations which are not objectively comparable or if justified by an overriding reason of public interest. As regards the question whether the situations were objectively comparable, the CJ recalled that the comparability of cross-border situations with internal situations must be assessed having regard to the aim pursued by the national provisions at stake. In this particular case, the CJ considered that they were comparable taking into account that the Austrian legislation intended to create a tax incentive for the creation of groups of companies by ensuring equal treatment between the purchase of the establishment (‘asset deal’) and the purchase of the holding in the company that owns the establishment (‘share deal’). In regard to possible justifications Austria claimed that the difference at stake could be justified based on the need to preserve a balanced allocation of the powers to tax between Member States and the coherence of the tax system. The CJ started by refusing the first justification. It stated that legislation such as that at issue in the main proceedings allowed the parent company to depreciate the goodwill, irrespective of whether the company in which a holding is acquired makes a profit or incurs a loss. Regarding the granting of that tax advantage, that legislation concerned neither the exercise of the power to impose taxes in respect of the profits and losses of the company in which a holding is acquired, nor, consequently, the allocation of the power to impose taxes between the Member States. The CJ also refused the justification based on the need to maintain the coherence 8 9 Commission asks POLAND to stop discriminatory tax treatment of pensions contributions paid to Individual Pension Insurance Accounts (IKZE) On 22 October 2015, the Commission has asked Poland to change its national tax rules, which treat contributions to certain private pension accounts opened in Polish financial institutions more favourably than those opened in other Member States. According to the Polish domestic rules, private pension contributions are only tax deductible when they are paid into Individual Pension Insurance Accounts (IKZE) opened by Polish investment funds, exchange maker houses, insurance establishments, banks and pension funds. In the Commission’s view, such domestic payments are, therefore, treated more favourably than contributions paid into similar financial products and institutions established in other EU Member States and EEA States. Such a difference in tax treatment may constitute an infringement of the freedom to provide services and the free movement of capital as set out in EU Treaties. The Commission’s request takes the form of a reasoned opinion. In the absence of a satisfactory response within two months, the Commission may refer Poland to the CJ. Commission launches a public consultation to help identify the key measures for inclusion in the re-launch of the proposal for a Common Consolidated Corporate Tax Base (CCCTB) On 8 October 2015, the Commission launched a public consultation to help identify the key measures for inclusion in the re-launch of the proposal for a CCCTB. The call for feedback comes as part of the implementation of the Commission’s Action Plan for Fair and Efficient Corporate Taxation which was presented in June this year. A wide range of views is sought from businesses, civil society and other stakeholders. The Commission intends to come forward with revised legislation next year. The question referred was, in essence, whether Articles 10, 11 and 13 of Directive 95/46 must be interpreted as precluding national measures, such as those at issue in the main proceedings, which allow a public administrative body in a Member State to transfer personal data to another public administrative body and their subsequent processing, without the data subjects being informed of that transfer and processing. The CJ started by observing that the tax data transferred to the CNAS by the ANAF are personal data within the meaning of Article 2(a) of the directive, since they are ‘information relating to an identified or identifiable natural person’. In that regard, it stated that in accordance with the provisions of Chapter II of Directive 95/46, entitled ‘General rules on the lawfulness of the processing of personal data’, subject to the exceptions permitted under Article 13 of that directive, all processing of personal data must comply, first, with the principles relating to data quality set out in Article 6 of the directive and, secondly, with one of the criteria for making data processing legitimate listed in Article 7 of the directive, Furthermore, the data controller or his representative is obliged to provide information in accordance with the requirements laid down in Articles 10 and 11 of Directive 95/46, which vary depending on what data are, or are not, collected from the data subject, and subject to the exceptions permitted under Article 13 of the directive. According to the Court, in this case it is clear from the information provided by the referring court that the applicants in the main proceedings were not informed by the ANAF of the transfer to the CNAS of personal data relating to them. Therefore, the transfer of the information at stake was not carried out in compliance with the directive. The CJ further added that the case in the proceedings did not meet the conditions for the exceptions under Article 13. Therefore, the legislation at stake was considered as being in breach of Directive 95/46/EC. 9 Intermediate Fiscal Unity The EU/EEA intermediate subsidiary needs to satisfy certain requirements that correspond with the existing requirements for fiscal unity subsidiaries, including legal form (e.g., comparable to Netherlands limited liability companies), tax residency (outside the Netherlands, within the EU/EEA), liability to a tax on profits in the EU/ EEA country of residence and absence of a permanent establishment (PE) in the Netherlands. The EU/EEA intermediate subsidiary cannot be included in the Intermediate Fiscal Unity; only the Netherlands parent company and the Netherlands second‑tier subsidiary held by such intermediate subsidiary. As a general rule, the EU/EEA intermediate subsidiary is treated as a regular participation of the Intermediate Fiscal Unity. Sister Fiscal Unity The EU/EEA parent company needs to satisfy certain requirements that correspond with the existing requirements for fiscal unity parent companies, including requirements to the legal form (e.g., comparable to Netherlands limited liability companies, cooperative associations or mutual insurance companies), tax residency (outside the Netherlands, within the EU/EEA), liability to a tax on profits in the EU/EEA country of residence and absence of a PE in the Netherlands. The EU/EEA parent company cannot be included in the Sister Fiscal Unity; only the Netherlands subsidiaries held by such parent company (directly or indirectly via EU/EEA intermediate subsidiaries). In principle, one of the Netherlands subsidiaries needs to be designated by the taxpayer as parent company of a Sister Fiscal Unity. Various aspects need to be considered in determining which subsidiary to designate as parent company. The designated parent company needs to meet the requirements for fiscal unity subsidiaries (e.g., strict requirement on legal form). The tax book year of the designated parent company ends at the time the Sister Fiscal Unity is formed. This consultation wants to gather views, in particular, on the extent to which a CCCTB could function as an effective tool against aggressive tax planning without compromising its initial objective of making the Single Market a more business-friendly environment. Feedback is also expected on the proposed ‘two-step approach’ of the initiative and on the criteria that could determine which companies should be subject to a mandatory CCCTB. The consultation will also look at ideas on how to address the ‘debt bias’ and the type of rules that would best foster Research & Development activity. The public consultation will remain open until 8 January 2016. The Netherlands releases Tax Bill to extend fiscal unity regime in accordance with EU law On 16 October 2015, Netherlands Government released a Tax Bill to extend the fiscal unity regime in accordance with EU law, following judgments handed down by the CJ on 12 June 2014 in the Joined cases SCA Group Holding BV and others (joined cases C-39/13, C-40-13 and C-41/13). The fiscal unity regime is a consolidation regime for corporate income tax purposes that provides for offset of losses and profits between members as well as non-recognition of gains and losses on transactions between members. The Tax Bill extends the fiscal unity regime to allow for (i) the formation of a fiscal unity between a Netherlands parent company and a Netherlands second-tier subsidiary held via one or more EU/EEA intermediate subsidiaries (Intermediate Fiscal Unity), and (ii) the formation of a fiscal unity between Netherlands subsidiaries held, directly or indirectly via EU/EEA intermediate subsidiaries, by an EU/EEA parent company (Sister Fiscal Unity). The Tax Bill codifies, to a large extent, a Decree of the Netherlands State Secretary of Finance of 16 December 2014 (Stcrt. 2014, 38029), that was issued to extend the fiscal unity regime in anticipation of the Tax Bill. The Tax Bill also introduces rules to counter unintended effects of the fiscal unity regime extension. Finally, the Tax Bill tightens the ownership condition for the formation of a fiscal unity, such that full legal and beneficial ownership, including legal title, of at least 95% of the shares in the subsidiary must be held. 10 11 Entry into force The Tax Bill may be amended during the course of the legislative process, and will take effect after publication in the official Netherlands Government Gazette (Staatsblad). The Tax Bill includes a two-year grandfathering rule for existing fiscal unities, with respect to the amendment to the ownership condition. How to proceed? The Tax Bill provides an incentive for international groups with operations in the Netherlands to investigate whether a(n) (extended) fiscal unity is available and beneficial. The Tax Bill is restricted to EU/EEA situations. Cases, however, are pending before Netherlands tax courts, in which a fiscal unity is requested in group structures where parent companies and intermediate subsidiaries are established outside the EU/EEA. In these cases, the position that a fiscal unity can be formed is based on a non-discrimination clause in a bilateral tax treaty. In addition, the Tax Bill does not include amendments based on the judgment of the CJ in the case Groupe Steria (C-386/14). This case may, under circumstances, extend specific benefits of a domestic fiscal unity to a crossborder situation and may result in further amendments to the fiscal unity regime. In either situation, it should be considered to request a fiscal unity or file an objection, in order to preserve the taxpayer’s rights. VAT CJ rules that national rule on limitation periods for criminal offences must be disapplied if it has an adverse effect on the fulfilment of the Member States’ obligations under EU law (Taricco) On 8 September 2015, the CJ delivered its judgment in the case Ivo Taricco (C-105/14). Mr Taricco and a number of other persons were charged with having established a criminal organization or having participated as a member in it in the period from 2005 to 2009. The purpose of the criminal organization is said to have been the commission of the criminal offences of producing false invoices and submitting fraudulent VAT returns. The false invoices related to commercial transactions involving champagne. On the basis of agreements, Fiscal unity including EU/EEA company with a PE in the Netherlands Under current law, a non-Netherlands resident company with a PE in the Netherlands can be included in a fiscal unity as parent company, regarding its PE, if its shareholding in a qualifying Netherlands subsidiary is attributable to such PE (PE Fiscal Unity). For nonNetherlands resident companies that reside in the EU/ EEA, the Tax Bill abolishes the attribution requirement. These companies can, furthermore, form a PE Fiscal Unity, regarding their PE in the Netherlands, with a Netherlands subsidiary held via an EU/EEA intermediate subsidiary. If an EU/EEA parent company owns multiple PEs in the Netherlands via (separate) EU/EEA intermediate subsidiaries, such PEs can be included in a Sister Fiscal Unity. Moreover, Netherlands subsidiaries owned by that EU/EEA parent company can also be included in such Sister Fiscal Unity. Rules to counter unintended effects of the fiscal unity regime extension The Tax Bill introduces rules to counter unintended effects of the fiscal unity regime extension, including amendments to the liquidation loss rules and the interest deduction limitation rules for loans taken up for investment in participations qualifying for the participation exemption. The majority of these rules aim to avoid double deductions for losses incurred on receivables from, and shareholdings in, EU/EEA parent companies and EU/EEA intermediate subsidiaries. Tightening of ownership condition Under current law, the ownership condition for the formation of a fiscal unity, that at least 95% of the legal and beneficial ownership of the shares of the subsidiary must be held, can under circumstances be satisfied if the legal title to the shares are held by an entity outside the fiscal unity (e.g., if the fiscal unity parent company owns depository receipts over shares of a subsidiary and (de facto) exercises the voting rights attached to such shares at its sole discretion). The Tax Bill tightens the ownership condition such that full legal and beneficial ownership, including legal title, of at least 95% of the shares in the subsidiary must be held. 11 AG Wathelet opines on whether the arbitrage with different VAT tariffs between Member States constitutes an abusive practice on the obligations of national tax authorities to prevent double taxation and on the use of evidence obtained in criminal proceedings (WebMindLicenses Kft.) On 16 September 2015, Advocate General Wathelet delivered his Opinion in the WebMindLicenses Kft. case (C-419/14). A Hungarian software developer transferred know-how to a Liechtenstein trust, which granted a licence to exploit the know-how to a Portuguese entity, Lalib. The trust then transferred the know-how to a Portuguese entity of the developer, which in turn, transferred the know-how to a Hungarian entity of the developer, WebMindLicenses (hereafter WML). WML entered into an agreement with Lalib to continue the licensing of the know-how to Lalib. Lalib exploited the know-how on several websites with adult content which offer chat and webcam performance services. According to the Hungarian tax authorities, WML never transferred the exploitation of the know-how to Lalib and in fact, exploited the know-how itself. The authorities claim that the entering into the licensing agreement between WML and Lalib constituted an abusive practice. In the subsequent legal proceedings, the national court referred no less than 17 preliminary questions to the CJ. The AG reformulated these into four questions, on which he gives the following conclusions. First, the AG noted that procuring services from a taxable person located in a Member State with a lower VAT rate does not on its own constitute an abusive practice. Furthermore, a difference in the applicable VAT rate of 4% seems to be insufficient to justify the claim that the essential purpose of the transaction is a tax benefit. However, the AG left it up to the referring national court to investigate whether the essential purpose of the transaction is a tax benefit. domestic sales of champagne were falsely recorded as intra-Community supplies. One of the companies took receipt of false invoices, deducted the VAT on it and filed a fraudulent annual VAT return. The parties issuing the invoices did not submit any annual VAT returns, while others did submit returns but did not pay the VAT due. The referring court in this case pointed out that it is ‘quite likely’ that the prosecution of all defendants will become time-barred (on 8 February 2018 at the latest) before a final judgment is given. According to the referring court, that result was nonetheless foreseeable, because of a rule laid down in the Italian Penal Code which, by allowing the limitation period to be extended, following an interruption, by only a quarter of its initial duration, is tantamount to not interrupting the limitation period in most criminal proceedings. In this light, the referring court expressed the concern that the limitation regime in Italy is becoming a ‘guarantee of impunity’ for economic criminals. Given the aforementioned, the CJ was asked for a preliminary ruling. First of all, the CJ ruled that it is for the referring court to determine whether the applicable national provisions allow the effective and dissuasive penalisation of cases of serious fraud affecting the EU’s financial interests. If the national court concludes that the application of the national provisions has the effect that, in a considerable number of cases, the commission of serious fraud will escape criminal punishment, it would be necessary to find that national measures could not be regarded as being effective and dissuasive. If needed, the national court must, according to the CJ, give full effect to Article 325(1) and (2) TFEU, by disapplying the provisions of national law, the effect of which would be to prevent the Member State concerned from fulfilling its obligations. 12 13 proteins. By replacing the cow’s milk protein allergens, the goods at issue provide the substances necessary for the development of the immune system and growth of those children. By a request dated 12 August 2008 made to the Bundesfinanzdirektion B (Federal Revenue Office B), Kyowa Hakko requested the issue of BTIs on the classification of the goods at issue in the CN. In that request, it proposed that the goods be classified under subheading 3003 90 of the CN. On 23 October 2008, that authority issued BTIs classifying those goods under a subheading of heading 2106 of the CN, namely subheading 2106 90 92. On 24 November 2008, Kyowa Hakko brought a complaint before the Hauptzollamt, disputing the classification of the goods at issue in the CN laid down by the Bundesfinanzdirektion B. In that complaint, it argued that the goods at issue ought to be classified under heading 3003 of the CN on the ground that they were processed into goods used principally for therapeutic purposes in cases of allergy to cow’s milk protein, allergies to other foodstuffs and diseases of the digestive system and for prophylactic purposes. By decision of 5 January 2011 the Hauptzollamt rejected that complaint as unfounded. On 1 February 2011, Kyowa Hakko brought an action before the Finanzgericht Hamburg (Finance Court, Hamburg) against that decision. By a decision of 19 September 2012, that court dismissed the action, holding that the goods at issue should not be classified under heading 3003 of the CN. On 2 November 2012, Kyowa Hakko lodged an appeal on points of law before the referring court against the decision of the Finanzgericht Hamburg. In that appeal, Kyowa Hakko maintained its argument that the goods at issue should be classified under heading 3003 of the CN. In the request for a preliminary ruling, the referring court noted, in essence, that the CN does not provide any definition of the notion of ‘medicinal product’. Nonetheless, it is of the view that the goods at issue cannot be classified as ‘medicinal products’, for the purposes of heading 3003 of the CN. In that regard, Second, the AG concluded that the possibility of double taxation does not preclude the tax authorities of a Member State to determine the place of service as being that Member State, since the tax authorities in a Member State are not bound by decisions from tax authorities in other Member States. Third, EU Regulation 904/2010 on administrative cooperation in the field of VAT does not entail an obligation for the tax authorities in a Member State to file a request with the tax authorities of the Member State in which the taxable person has already paid VAT. Lastly, the AG concluded that the use of evidence in tax procedures, which evidence is obtained by way of monitoring phone calls and seizing and copying e-mails in a criminal procedure, can only be in accordance with articles 7 and 8 of the Charter of Fundamental Rights of the EU if those methods of obtaining evidence are provided by law, pursue a legitimate purpose and are proportional. It is up to the referring national courts to investigate if these requirements are met. Customs Duties, Excises and other Indirect Taxes CJ rules on CN classification of Amino acid mixes (Kyowa Hakko Europe GmbH) On 17 September 2015, the CJ delivered its judgment in the case Kyowa Hakko Europe GmbH (C-344/14). The case concerns the classification in the Combined Nomenclature (CN) of Amino acid mixes used for the preparation of foodstuffs for infants and young children allergic to cow’s milk proteins. Kyowa Hakko produces amino acid mixes, called RM0630 and RM0789, which are composed of various individual amino acids of a very high degree of purity (‘the goods at issue’). The goods at issue are manufactured in such a way that they do not contain cow’s milk proteins. Kyowa Hakko supplies those goods, in bulk, to another undertaking which uses them, adding to them carbohydrates and fats, to prepare foodstuffs for infants and young children who are allergic to cow’s milk 13 preparation of foodstuffs for infants and young children who are allergic to cow’s milk proteins, must be classified under heading 2106 of the Combined Nomenclature as ‘food preparations’ since, because of their objective characteristics and properties, those goods do not have clearly defined therapeutic or prophylactic characteristics, with an effect concentrated on precise functions of the human organism and, accordingly, are not capable of being applied in the prevention or treatment of diseases or ailments and also are not naturally intended for medical use, which it is for the national court to ascertain. AG opines that preferential import duty tariff can be applied to a mixture of crude palm kernel oil originating in several countries (ADM Hamburg AG) On 10 September 2015, AG Wahl delivered its Opinion in the case ADM Hamburg AG (C-294/14). The case deals with the requirement that products, declared for release for free circulation in the European Union, for the application of a preferential treatment, be the same products as exported from the beneficiary country in which they are considered to originate. On 11 August 2011, ADM Hamburg imported a number of consignments of crude palm kernel oil from Ecuador, Colombia, Costa Rica and Panama to Germany for release into free circulation in the European Union. All those countries are GSP(General System of Preferences) exporting countries. The oil was transported in different tanks of a cargo vessel. To benefit from preference, ADM Hamburg submitted preferential treatment certificates issued by the abovementioned countries. The case before the referring court concerns only one of those consignments (‘the consignment at issue’). The consignment at issue contained a mixture of crude palm kernel oil originating in different beneficiary countries. On 8 December 2011, the Hauptzollamt Hamburg-Stadt issued an import duty notice. As regards the consignment at issue, it calculated the import duties on the basis of the duty rate for third countries, that is, without granting the consignment the requested preferential treatment. The reason for denying preferential treatment was, in essence, that, crude palm kernel oil from different import that court is of the opinion that those goods, used as a substitute for milk product allergens for as long as the immune system of a child allergic to cow’s milk proteins is not fully developed, do not appear to have a therapeutic or prophylactic purpose. The goods at issue replace only a pathogenic component of the normal diet of an infant, without acting on the allergy to cow’s milk proteins and without treating or reducing it. However, although it considered that the goods at issue must be classified under heading 2106 of the CN and that the decisions adopted to that effect by both the Hauptzollamt and the Finanzgericht Hamburg were well founded, the referring court considered that, having regard to the different position set out in the decision of the Upper Tribunal (Tax and Chancery Chamber) of 27 September 2013, it is necessary to obtain a preliminary ruling from the Court in order to state the correct classification of those goods in the CN and, accordingly, to ensure a uniform interpretation of the law in the EU. In those circumstances, the Bundesfinanzhof (Federal Finance Court) decided to stay the proceedings and refer the following questions to the Court of Justice for a preliminary ruling: ‘(1) Do amino acid mixes such as those at issue in the present case (RM0630 and RM0789), from which (in combination with carbohydrates and fats) a foodstuff is manufactured by which a substance that is vital for health and present in normal diet but which can in individual cases trigger an allergic reaction is replaced and, as a result, allergy-induced health impairments can be avoided and existing complaints alleviated, if not cured, constitute medicaments consisting of two or more constituents which have been mixed together for therapeutic or prophylactic uses within the meaning of heading 3003 of the CN? (2) If the answer to Question 1 is in the negative, do the amino acid mixes constitute food preparations under heading 2106 of the CN which, pursuant to note 1(a) to Chapter 30 of the [CN], are excluded from Chapter 30 because they have no prophylactic or therapeutic effect beyond the supply of nutrition?’ The CJ ruled that the amino acid mixes such as those at issue in the main proceedings, which are used in the 14 European Commission requests GREECE to amend its legislation granting reduced rates of excise duty to “Tsipouro” and “Tsikoudià” The European Commission has formally requested Greece to amend its excise duty schemes for two specific alcoholic beverages – “Tsipouro” and “Tsikoudià”. “Tsipouro” and “Tsikoudia” are traditional alcoholic drinks which are produced in the north of Greece and in Crete. Both drinks have protected geographical indications. Currently, Greece applies 50 percent of the ordinary excise duty rate applied on ethyl alcohol and a superreduced rate to “Tsipouro” and “Tsikoudià” (around 6% of the ordinary excise duty rate) when these drinks are produced in bulk by so-called “two-day” distillers (vine growers or producers of other agricultural products). EU rules provide that the same excise duty rate should apply to all products made with ethyl alcohol. Exemptions or derogations are provided explicitly by EU law and must be strictly interpreted. Greece does not have any derogation for “Tsipouro” or “Tsikoudià”. The Commission is of the view that both schemes infringe the relevant EU excise duty legislation and also favour a domesticallyproduced spirit drink over spirit drinks produced in other Member States. This is an infringement of EU rules on the free movement of goods. The Commission’s request takes the form of a reasoned opinion. In the absence of a satisfactory response within two months, the Commission may refer Greece to the Court of Justice of the EU. consignments from different countries of origin had been mixed together in a single tank. After an unsuccessful administrative appeal, ADM Hamburg brought an action before the Finanzgericht Hamburg. Since it had doubts as to the correct construction of the relevant provision of EU law, the Finanzgericht Hamburg decided to stay the proceedings and to request a preliminary ruling on the following question: ‘Is the factual condition laid down in the first sentence of Article 74(1) of [Regulation No 2454/93] whereby the products declared for release for free circulation in the European Union must be the same products as exported from the beneficiary country in which they are considered to originate, fulfilled in a case such as the present case, where several part-consignments of crude palm kernel oil are exported from different GSP exporting countries, in which they are considered to originate, and imported into the European Union not as physically separate consignments, but are all exported after being poured into the same tank of the cargo vessel and imported as a mixture in that tank into the European Union, such that it can be ruled out that other products (not enjoying preferential treatment) have been put into the tank of the cargo vessel during the time the products were being transported until they were released for free circulation?’ The AG opined that in circumstances such as those underlying the present case where (i) the products which have been mixed together are materially, in terms of being crude palm kernel oil, the same and interchangeable, (ii) they originate in countries benefiting from the same preferential treatment, and (iii) there is no doubt as to their originating status, the requirement of identity between the products exported and those declared for release for free circulation in the European Union, as laid down in Article 74(1) of Regulation No 2454/93, is fulfilled. 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 Amsterdam) ● 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 15-11-EN-EUTA