Dear FS professional, 

The year 2015 started with many developments which (may) affect the financial services industry. This edition of the FS Tax Newsletter therefore provides an update of the most important topics for the financial services sector, such as the confirmation of the Swedish tax authorities that a closed FGR will be regarded as tax transparent for purposes of the Swedish Withholding Tax Act, the Dutch FATCA guidelines, the joint statement of 10 EU Member States in which they reiterated their commitment to reach an agreement on a financial transaction tax (FTT) and the Guidelines on the loss-absorbing capacity of deferred tax for the purposes of calculating the solvency capital requirement under Solvency II. If you want to reads more about the New policy statement for fiscal unity between sister companies and between parent and sub-subsidiary, please click at this link, which will direct you to our website.

Please save the date in your calendar for the following events/seminars:

  • Our annual FS Insurance seminar will take place on Thursday 28 May 2015
  • Several training courses “Tax Knowledge Institute

Lastly, the annual publication “De Pensioenwereld in 2015” has been released in January 2015. Please visit our website to read this interesting publication.

Niels Groothuizen,

Partner, Financial Services Tax Group

Back to top


Table of Contents

Back to top


1. Captive insurance companies: not insured for tax purposes!

Lower courts have recently ruled in favor of the Dutch Tax Authorities in combating captives. As a result of this, we have noticed that, in its audits, the Dutch Tax Authorities is increasingly challenging, for tax purposes, captives that insure group risks. This is especially true for foreign captives domiciled in a country with a lower tax rate than the Netherlands.

The common thread in the reasoning of the Dutch Tax Authorities is that captives are too far removed from reality. Which position does the Dutch Tax Authorities take in this respect? The arguments given are often a combination of the following:

  • The insurance activities actually take place in the Netherlands (‘substance over form’ approach). Therefore, the profits of the captive must be attributed to the Netherlands and taxed here. Alternatively, a permanent establishment can be deemed to be present in the Netherlands, to which the profits are attributed.
  • The insurance activities lack reality. Even though some relevant functions can be ascribed to the captive, the profit attributed to the captive is limited to a reduced handling fee.
  • Even though the captive has substance, the insurance premiums and the transfer prices for intra-group services are wrong. The insurance premium of the Dutch group company making payments is therefore wholly or partly non-deductible.
  • The participation exemption does not apply to the shares of a captive held by a Dutch company. After all, the captive is taxed at a low rate and, because no insurance activities take place, capital is only passively invested.

Our experience is that there are usually good grounds for rebutting these arguments so that the captive can be retained. Meijburg & Co has recently been able to bring its discussions with the Dutch Tax Authorities about captives to a successful conclusion in a number of situations. An important success factor in this respect is the multidisciplinary collaboration between insurance experts and transfer pricing specialists.

If you have any questions about this particular issue, please contact Otto van Gent and Jens Karreman.

Back to top


2. Qualification of a Dutch closed FGR in Sweden

On January 15, 2015 the Dutch Ministry of Finance published an announcement on their website in relation to the qualification of a Dutch closed FGR (“besloten fonds voor gemene rekening”) in Sweden.

A closed FGR is treated as tax transparent for Dutch tax purposes. This implies that all income and gains derived through such FGRs are attributed to the investors in proportion to their interest in the FGR. FGRs are frequently used for asset pooling by pension funds and other investors.

The Swedish tax authorities confirmed that a closed FGR will also be regarded as tax transparent for purposes of the Swedish Withholding Tax Act. Furthermore, the custodian of the closed FGR should be able to assist investors in relation to a reduction /exemption at source or a refund.

Previously, the Netherlands has concluded Competent Authority Agreements with Canada, Denmark, Norway, Spain, the United Kingdom and the United States confirming the Dutch closed FGR is tax transparent in these countries as well. Furthermore, in the Protocols to the new tax treaties with Germany and with Ethiopia, it is stated that the closed FGR will be treated as tax transparent. It is expected that agreements with other countries will follow.

The message from the Dutch Ministry of Finance is available on their website.

Back to top


3. Currency losses on foreign participations are deductible pursuant to EU law

The Court of Appeals in The Hague recently ruled that the deduction prohibition on currency losses on foreign participations is contrary to the EU freedom of establishment. In the Netherlands, currency results fall under the participation exemption and are consequently ignored when determining profit.

The Court of Appeals in The Hague recently ruled that the deduction prohibition on currency losses on foreign participations is contrary to the EU freedom of establishment. In the Netherlands, currency results fall under the participation exemption and are consequently ignored when determining profit.

The case before the Court of Appeals concerned a Dutch parent company that during 2008 and 2009 incurred currency losses on the transfer of its UK participations in which it had invested in British pounds sterling. As a result of the participation exemption, the taxpayer could not deduct these losses. The taxpayer argued that it should be allowed to deduct the currency losses, thereby invoking the judgment rendered in the Deutsche Shell case. 

The Court of Appeals ruled in favor of the taxpayer. In the judgment rendered by the Court of Justice of the European Union (CJEU) in the Deutsche Shell case, the currency losses incurred by a head office on the assets of a foreign permanent establishment were deemed to be deductible. According to the Court of Appeals in The Hague, this judgment also applies to a participation structure and the fact that the UK participations continued to be part of the group after their transfer does not alter this. After all, the Dutch parent company is confronted with a distinct loss.

Because the Court of Appeals judgment can still be appealed before the Supreme Court, the outcome is not yet irrevocable. It should be noted that the Intermediate Rules on Currency Losses (Tussenregeling Valutaverliezen) applies to the deduction of currency losses. By virtue of these rules taxpayers that wish to deduct their currency losses on participations from their profit must also add their currency gains to the profit for tax purposes.

If you have any further questions, please contact Niels van der Wal.

Back to top


4. Dutch FATCA guidelines

On Thursday, January 22, 2015, the long-awaited Dutch FATCA guidelines were published by the Ministry of Finance. This policy statement contains a technical explanation of the Treaty to Improve International Tax Compliance and to Implement FATCA  (the Dutch IGA).

On Thursday, January 22, 2015, the long-awaited Dutch FATCA guidelines were published by the Ministry of Finance. This policy statement contains a technical explanation of the Treaty to Improve International Tax Compliance and to Implement FATCA  (the Dutch IGA).

The policy statement provides further details about how the Dutch IGA should be applied and contains answers to frequently asked questions. The OECD, in cooperation with the G20, has now developed a global standard for the automatic exchange of information on financial accounts, which is very similar to the standard laid down in the Dutch IGA. Michèle van der Zande, Jenny Tom or one of the other FATCA team members.

Back to top


5. Financial Transaction Tax

On January 27, 2015, at the initiative of France and Austria, ministers of 10 EU Member States issued a joint statement in which they reiterated their commitment to reach an agreement on a financial transaction tax (FTT). The Member States hope that the statement will give fresh impetus to the issue

On January 27, 2015, at the initiative of France and Austria, ministers of 10 EU Member States issued a joint statement in which they reiterated their commitment to reach an agreement on a financial transaction tax (FTT). The Member States hope that the statement will give fresh impetus to the issue.

Background

In September 2011 the European Commission released a proposal for a directive implementing an EU‑wide FTT. After it became apparent that unanimous agreement of EU Member States was not achievable, the European Commission presented a modified proposal on enhanced cooperation to eleven Member States at the beginning of 2013. The content of the proposals was discussed in our memorandums of September 29, 2011 and February 19, 2013.

Since then the leading group of 11 Member States has sought to achieve consensus on an FTT, and has been looking into possible modifications to the European Commission’s proposal. The anticipated introduction date was thereby postponed from January 1, 2014 to January 1, 2016. In their joint statement of May 6, 2014 the leading group indicated that it was focusing on a progressive implementation of the FTT, starting with shares and certain derivatives. Participating Member States would be allowed to impose the FTT on other products in order to maintain existing taxes.

During the meeting of the EU Council of Economics and Finance Ministers (ECOFIN) on December 9, 2014 the current state of affairs was once again discussed, but no agreement was reached. At issue in the negotiations are matters such as whether financial instruments such as derivatives should be covered by the FTT, whether the FTT should be levied on the basis of the residence of the financial institution or the place where the instrument is issued, and what would be a workable collection mechanism.

Joint statement

The joint statement of January 27, 2015 does not contain any technical details. However, according to the leading group the FTT should now be based on the widest possible tax base and low rates, while taking account of the impacts on the real economy and the risk of the relocation of financial transactions. The European Commission is invited to become more involved and the commitment to transparency regarding the non-participating Member States is reiterated. The anticipated implementation date remains January 1, 2016.

Of the original 11 Member States in the leading group, only Greece has refrained from committing itself to the agreement.

Position of the Netherlands

The Netherlands has not joined the enhanced cooperation on an FTT. It has made its participation conditional on pension funds being exempted from the tax, that there is no disproportional overlap with the current bank tax and that the revenue flows back to the Member States. The previous proposal did not meet the above conditions as pension funds would be subject to the FTT.

Next steps

In light of the background to the FTT outlined above, it is difficult to anticipate how the process will proceed and whether (and if so when) an FTT will be introduced. The joint statement of January 27, 2015 has in any case made clear that an FTT is still feasible. The leading group intends to report on its progress at one of the upcoming ECOFIN meetings.

We will, of course, keep you informed of developments. If you would like more information on this matter, our tax advisors will be happy to be of assistance.

Back to top


6. Court of Appeals of The Hague: “Asset management services provided to pension funds are not VAT exempt”

On December 5, 2014 the Court of Appeals of The Hague ruled that the asset management services provided to a Dutch pension fund are not VAT exempt. This judgment is not only important for pension funds, but also for asset managers and other service providers. As an appeal has been lodged with the Supreme Court, it is unclear whether the decision of the Court of Appeals will persist.

On December 5, 2014 the Court of Appeals of The Hague ruled that the asset management services provided to a Dutch pension fund are not VAT exempt. This judgment is not only important for pension funds, but also for asset managers and other service providers. As an appeal has been lodged with the Supreme Court, it is unclear whether the decision of the Court of Appeals will persist.

Case

The case concerned asset management services that a Dutch asset manager provided to a sectoral pension fund. This pension fund administers a Defined Benefit plan (“DB plan”).

At issue in the present case was whether the sectoral pension fund qualifies as a special investment fund for VAT purposes. In that case, the asset management services would be VAT exempt.

Judgment

The Court of Appeals ruled that the nature of the pension fund in question is fundamentally different to that of a special investment fund within the meaning of the VAT exemption. Some of the considerations of the Court seem to be based on the judgment rendered by the Court of Justice of the European Union in March 2014 in the ATP case:

  • According to the Court, the pension fund is not operated solely to invest its assets; the primary objective is related to the insurance aspect. In the Court’s opinion, the return on investment only serves to facilitate the insurance payments.
  • According to the Court, the financial risk run by the participants is not solely dependent on investments (participants are, for example, bound by the statutory funding ratio when indexing the benefit payments).
  • The Court furthermore concluded that the participants are entitled to a pension benefit that is subject to time limits and as such they are not entitled to a fixed part of the capital (for example, the entitlement to a benefit in the event of premature death is severely restricted).

Because the pension fund did not qualify as a special investment fund, the taxpayer in the present case could not apply a VAT exemption to the asset management services it provided to the pension fund. 

Impact

In the judgment rendered in the ATP case, the CJEU provided a number of criteria for determining whether a pension fund qualifies as a special investment fund. One of the criteria was that the investment risk must be borne by the participants. It should be noted here that the pension plan in the ATP case had the hallmarks of a Defined Contribution plan (“DC plan”). In its judgment, the Court of Appeals of The Hague noted that the risk for employees of participating in the pension fund was not only dependent on a number of investments. As such, the Court appears to imply that the particular criterion referred to in the ATP case has not been met.

However, it is debatable whether the risk run by the employees should only be dependent on investments, or whether a more limited investment risk can suffice. Based on the facts, it would appear that in the case of inadequate cover it can ultimately be decided to reduce the pension benefits and entitlements. This makes clear that the participants do run a risk, at least with regard to the return on investment. Seen from this perspective, the criterion stipulated in the ATP judgment would be met.

In September 2014, the Deputy Minister of Finance set out in a letter how he thinks pension funds should be distinguished. Please find our alert on this letter here. As set out in this letter, each pension plan is different. In our view, the ATP judgment leaves enough room to argue for a VAT exemption for both DB plans and DC plans. Because the decision of the Court of Appeals will be appealed before the Supreme Court, it is still important that all stakeholders preserve their rights.

What are your options?

Many pension funds, as well as the service providers of pension funds, will already have filed notices of objection in response to the ATP judgment. If you have not already done so, then we recommend that you to this now. This applies not only to pension funds and asset managers, but also, for example, to pension administrators, investment advisors and other consultants.

We expect that the Dutch Tax and Customs Administration will use this judgment to request taxpayers to substantiate the filed notices of objection in more detail or even to withdraw them. Because the Court of Appeals judgment will be appealed before the Supreme Court, we recommend that you consult with the tax inspector in order to stay the pending notices of objection. Depending on the circumstances, you could also consider instigating legal proceedings.

The tax advisors of the Indirect Tax Financial Services Group at Meijburg & Co would be pleased to help you draft a notice of objection or a more detailed substantiation of the filed notice of objection, as well as assist you with any follow-up action. Feel free to contact Gert-Jan van Norden or Karim Hommen or your regular contact at Meijburg & Co if you have any questions or comments.

Back to top


7. Obtaining a refund of erroneously charged VAT on i.e. the asset management of ‘VBIs’

In practice we see that VAT is sometimes charged erroneously, for example when VAT is charged on the VAT exempt asset management of exempted investment institutions (in Dutch:‘VBI’, which is an abbreviation for: ‘vrijgestelde beleggingsinstelling’). The Dutch Ministry of Finance recently published new rules for obtaining a refund on such erroneously charged VAT.

Example: Asset manager charges VAT to VBI

In practice we see that asset managers are not always aware that the asset management of VBIs is VAT exempt and therefore erroneously charge VAT in this respect. While asset management services provided under a segregated mandate are generally subject to VAT, the management of collective investment undertakings – such as VBIs – is VAT exempt. VBIs in principle qualify as collective investment undertakings, because of the CIT conditions that establish them as such. This means that VAT charged in this respect is VAT charged erroneously.

Erroneously charged VAT, is VAT due to the DTA

When VAT is charged erroneously, the service supplier is obliged to report and pay this VAT to the DTA via its Dutch periodical VAT returns (unless the VAT is credited in the same VAT period in which the original debit invoice was issued). However, the customer is not allowed to (partially) reclaim the erroneously charged VAT. As a result, the erroneously charged VAT leads to additional costs for the customer.

Obtaining a refund of erroneously charged VAT

A service supplier who has erroneously charged VAT can apply for a refund of the VAT it reported and paid on the basis of the specific formalities listed below. These were recently updated by the Dutch Ministry of Finance.

1. The service supplier is not allowed to apply for a refund of erroneously charged VAT through its VAT return. Instead a letter of objection or ex officio request should be filed, as is described below.

a. The right to reclaim erroneously charged VAT arises in the VAT period in which the overpaid VAT was reported.

b. Formally, an objection should be filed on time (within 6 weeks) against the VAT return/ VAT refund decision or VAT assessment covering that period.

c. If no formal objection is filed on time, the DTA will in principle handle the VAT refund request as an ex officio refund request, which means that it is filed on the courtesy of the tax inspector. If a refund is denied, no appeal is possible (as it is treated as inadmissible). Such an ex officio request has a statute of limitation of five years, e.g. a refund request of overpaid VAT in 2010 should therefore be filed before the end of 2015. An exception to this is if new jurisprudence is concerned; VAT refund requests on an ex officio basis will in that case only be granted with respect to the service period starting on the date of this jurisprudence.

2. The service supplier should demonstrate to the DTA that there is no loss of tax revenue. In practice this is often demonstrated by sending the DTA a declaration, signed by the customer, stating that the customer did not and will not reclaim the erroneously charged VAT, or will repay any reclaimed VAT to the DTA.

3. The service supplier should in principle credit the erroneously charged VAT to the customer and should in principle also correct its original debit invoice.

Last, but not least

Erroneously charging VAT is, of course, not limited to the above example of asset managers and VBIs, but may occur in every market sector. In general, taxpayers are however bound to the above set of formal rules when obtaining a refund on VAT charged erroneously.

The tax advisors of the Indirect Tax Financial Services Group at Meijburg & Co would be pleased to help you obtain a refund in this respect. Feel free to contact Gert-Jan van Norden or Irene Reiniers or your regular contact at Meijburg & Co if you have any questions or comments.

Back to top


8. EIOPA's final Guidelines on loss absorbency of deferred tax

Earlier this week EIOPA published final Guidelines on the loss-absorbing capacity of deferred tax for the purposes of calculating the Solvency Capital Requirement under Solvency II. These seem to be the same as the Final Report published in November 2014 (but do not include the Explanatory Notes). National competent authorities now have two months to confirm that they will apply the Guidelines or explain why not. In addition, there are consultation papers dated November 2014 which include proposed Guidelines on the valuation of deferred tax assets and tax disclosures.  We therefore now have public drafts of all Solvency II texts relevant to tax.

In the Netherlands, discussions with the regulator on tax are ongoing. The Dutch Central Bank (De Nederlandsche Bank; DNB) may publish guidance on tax under Solvency II now that the EIOPA Guidelines are final.  An important issue in this respect is the treatment of fiscal unities / tax grouping arrangements. The DNB has informed us that they will apply the EIOPA Guidelines, which state that undertakings can take fiscal unities into account, but must use the worst of the group and non-group outcomes. It is not entirely clear whether the DNB will also take this position on internal model companies, but our impression is that they will.

In some European countries the insurance industry is debating whether or not the risk margin represents a source of future profits for supporting DTAs.  In April 2014 the UK Prudential Regulation Authority published its Supervisory Statement | SS2/14,  Solvency II: recognition of deferred tax, in which it stated that it does not consider it appropriate for companies to include in their projections the amount of the current risk margin as an element of future taxable profits. It is not clear whether the DNB is of the same opinion. The guidance from the DNB is expected to provide more clarity on this, although it is unlikely that the DNB will take a markedly different position on this.

If you have any questions, please contact Bart Jimmink.

Back to top