Dear FS professional,

This issue of our newsletter contains our regular update of recent developments within the Financial Services sector. This month we have included an update on the Financial Transaction Tax, FATCA, BEPS and the exemption for dividend withholding tax for exempted entities.

We also would like to take this opportunity to invite you to our roundtable event on the definition of aggressive tax planning in the context of EU / OECD and reputational concerns, which will take place on December 15 at our office in Amstelveen. Please register online if you are interested in attending this event.

By the way, did you know that the Dutch Deputy Minister of Finance recently issued a policy statement granting Dutch subsidiaries of multinational enterprises that are subject to Country-by-Country Reporting a one-off extension for filing the 2016 CbCR notification until September 1, 2017?

Lastly, we would like to wish you and your family happy holidays!

Niels Groothuizen, Partner, Financial Services Tax Group

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Table of Contents

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1. Update Financial Transaction Tax

The Minister of Finance has reacted to a Dutch newspaper article of October 11, 2016 stating that the 10 countries negotiating the financial transaction tax (FTT) are not far from reaching final agreement. In his letter, addressed to parliament, he clarifies that on October 11, 2016 the participating countries have explicitly indicated that there is agreement on the basic principles, e.g. the types of transactions that would be covered by the FTT. Contrary to what the newspaper article presupposes, however, this does not entail any kind of final agreement on the specifics of the FTT. As soon as the participating countries reach such final agreement, the government will inform the Dutch parliament.

If you would like to know more, please contact Robert van der Jagt.

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2. FATCA and CRS reporting deadlines published by Dutch tax administration

The Common Reporting Standard (“CRS”) is an information standard for the automatic exchange of information (AEoI), developed in the context of the Organisation for Economic Co-operation and Development (“OECD”). The CRS’ principles and definitions are very similar to those of the Foreign Account Tax Compliance Act (“FATCA”). However, under CRS, Financial Institutions (i.e. Depository Institutions, Custodial Institutions, Specified Insurance Companies and Investment Entities) are in principle obliged to report information about financial accounts held by a tax resident of one of the 90+ countries that has adopted CRS. Therefore, the scope of CRS is much broader than the scope of FATCA, as under FATCA only US persons have to be identified.

In the Netherlands, CRS was implemented in Dutch law and is effective as of January 1, 2016. Financial Institutions should therefore already comply with certain due diligence requirements. Starting in 2017, Dutch Financial Institutions will report information about their account holders annually to the Dutch tax authorities. The first exchange of CRS information between local tax authorities globally will take place before September 30, 2017.

The Dutch tax authorities recently published the FATCA- and CRS deadlines for the reporting of 2016 account information by Dutch Reporting Financial Institutions. This deadline is August 1, 2017 for Financial Institutions that are only subject to the FATCA and/or CRS reporting regimes. For Financial Institutions that are also subject to the other Dutch domestic reporting regimes (in Dutch: “renseignering”), the deadline is February 9, 2017 for investment products (including FATCA and CRS) and loan products or May 1, 2017 for payment- and savings products. In addition, the Dutch tax authorities published a CRS country list. Certain account holders having their tax residency in a country provided on this list should be reported.

If you would like to know more, please contact one of the members of our FATCA/CRS team, e.g.  Michèle van der Zande, Jenny Tom or Jip Lieverse.

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3. Global FS view on BEPS — latest developments impacting financial services.

It has been almost a year since the Organisation for Economic Co-operation and Development (OECD) issued its final reports and recommendations to tackle perceived tax avoidance by multinational corporations. Several countries, as well as the European Union (EU), have begun to implement a number of the recommendations into their legislation and bilateral tax treaties, and more changes are expected. Organizations are having to review their international tax and transfer pricing arrangements to account for implementation of the BEPS recommendations.

Against this backdrop, KPMG International recently hosted a series of financial services industry focused webcasts in which our international panel shared their latest market insights into what BEPS implementation means for financial services. These address many of the developments that evolved over the summer months and the practical measures for specific FS sectors to consider now.
The sessions made clear that under the BEPS Action Plan there are a number of practical measures that the financial services industry needs to consider.

Please click on the list below to play the webcast and download the slides that were presented:

  • Global FS view on BEPS — latest developments of relevance to asset managers
  • Global FS view on BEPS — latest developments of relevance to banking institutions
  • Global FS view on BEPS — latest developments of relevance to insurers

Please contact your local KPMG tax advisor or any members of the panel if you would like further insights or to arrange a meeting to discuss the impact that the BEPS Action Plan will have on your organization.

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4. Exemption for dividend withholding tax for exempt entities

The 2017 Tax Plan proposes a dividend withholding tax exemption. Currently, entities that are not subject to corporate income tax (such as pension funds) are subject to dividend withholding tax on the dividends they receive, but they are entitled to reclaim the withheld tax. It has now been proposed that - besides the current possibility of a refund - a dividend withholding tax exemption may be applied to dividends paid to these entities. This will remove a liquidity disadvantage and will reduce the circulation of cash. In line with EU law, this exemption will also apply to comparable foreign entities. In this respect, foreign entities are regarded as comparable if they are exempt from profit tax in their country of residence and would also be exempt from Dutch corporate income tax if they would have been resident in the Netherlands. Furthermore, such entities need to be established in the EU/EEA or - with regard to portfolio investments - in a country with which the Netherlands has concluded a tax treaty that provides for the exchange of information.

This exemption may only be applied if the tax exempt entity has a classification certificate from the Dutch tax authorities. It is expected that the tax authorities will test whether the foreign entities are comparable to Dutch tax exempt entities when applying for a classification certificate. In this respect it is important to note that the paper forms to reclaim Dutch dividend withholding tax for exempt entities are replaced by a digital reclaim process. To use this process, entities also need to register themselves with the tax authorities. Thus, similar verification measurements may be used in the classification process and the reclaim process.

We advise our pension fund clients - and their asset managers - to apply for a classification certificate once the 2017 Tax Plan has been passed.

If you would like to know more, please contact Valentijn van Noorle Jansen.

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5. Advocate-General’s opinion with respect to the 2015 decision of the Supreme Court in which it held that a non-resident investment fund was not comparable with a Dutch investment fund

In his opinion issued on November 9, 2016, Advocate-General Wattel holds that the Dutch Supreme Court should not reconsider its 2015 decision in which it held that a non-resident investment fund was not comparable with a Dutch investment fund (fbi) and therefore not entitled to reclaim Dutch withholding tax. According to Advocate-General Wattel, the Dutch Supreme Court correctly applied the comparability test of cross-border situations with internal situations regarding investments through investment funds.

Furthermore, he opines that the preliminary questions raised by the Dutch Lower Court before the Dutch Supreme Court do not - from a legal perspective - justify that these preliminary questions should be raised before the CJEU, as the answers thereto are sufficiently clear in light of EU law interpretation. However, despite presupposing the lack of a justification on legal grounds, he recommends that the Dutch Supreme Court raises the preliminary question as to whether or not it should reconsider its 2015 decision (and Advocate-General Wattel’s answer thereto) before the CJEU on procedural-economic grounds. From the unusually large number of similar cases submitted to the Dutch Lower Courts, it clearly follows that the Dutch Supreme Court’s 2015 decision has not established legal certainty in the market at all. In order to convince the market, Advocate-General Wattel thus recommends the Dutch Supreme Court to have the CJEU confirm its 2015 decision.

If you would like to know more, please contact Robert van der Jagt or read our mailing of August 2016 with respect to the court case.

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6. CJEU on prize money: Does the CJEU’s judgment on prize money influence the VAT treatment of success fees?

The CJEU has rendered its judgment on the VAT taxability of prize money in the ‘Bastova case’. This judgment contains arguments that could be used to sustain the position that success fees, in certain cases, might be out of scope of VAT.

Ms. Bastova received prizes won in horse races. According to the CJEU, Ms. Bastova does not supply a VAT taxable service for consideration by entering her horse in the race, if she does not receive any direct remuneration for participating in the race. Any prize money depends on achieving a certain result at the end of the race. Should the prize be treated as consideration for the VAT taxable supply of the horse, the VAT classification of this supply would be subject to the result achieved by the horse.  According to the CJEU, such an uncertainty precludes the existence of a direct link between the supply of a horse and obtaining a prize. This would be contrary to the general VAT principles, meaning that the supply of services is objective in nature and does not depend on the purpose or results of the transactions concerned.

Although the Bastova case concerns a specific pattern of facts, the CJEU’s arguments might be used to sustain the position that other results-based compensation should be regarded as out of scope of VAT. Currently, such compensation is treated as part of the remuneration for the service performed.  For example, success fees or performance fees depend on the outcome of certain actions (such as the outcome of legal proceedings or investment results). A difference could be that the prize money in the Bastova case does not depend on actions by Ms. Bastova herself, but depends on the performance of her own horse and the other horses, while in the aforementioned examples, the success fee will be earned by the lawyers or asset managers themselves, and mainly depend on the results of their own services. Nonetheless, the Bastova case could be used as a starting point in discussing the VAT taxability of result-based compensation.

If you would like to receive more information about this topic, or if you would like to file an objection against the payment of VAT on result-based compensation, please contact Gert-Jan van Norden or Irene Reiniers.

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7. Tax authorities to gain access to beneficial ownership information

On November 8, 2016, the Council agreed on a proposal granting access for tax authorities to information held by authorities responsible for the prevention of money laundering.
The directive will require Member States to enable access to information on the beneficial ownership of companies. This will apply as from January 1, 2018.

The proposal is one of a number of measures set out by the Commission in July 2016, in the wake of the April 2016 Panama Papers revelations.

Recent amendments to anti-money-laundering legislation recognize the links between money laundering and tax evasion, as well as the challenges faced in prevention. In order for national tax authorities to be able to face these challenges, the transparency framework must be further reinforced at both EU and international levels. In particular, tax authorities need greater access to information on the beneficial ownership of intermediary entities and other relevant customer due diligence information.

On November 23, as part of the consultation procedure, the European Parliament approved its report on this initiative (see the press release). This report includes a proposal for mandatory automatic exchange of information on UBO information between Member States. According to Taxation Commissioner Pierre Moscovici, the Commission should come up with a separate proposal in this respect, subject to related developments, including an ongoing pilot project for exchange of such information initiated by the G5 and the outcome of proposed amendments to the Anti-Money Laundering Directive. 

If you have questions, please contact Barry Larking or Michèle van der Zande.

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6. CJEU on prize money: Does the CJEU’s judgment on prize money influence the VAT treatment of success fees?

The CJEU has rendered its judgment on the VAT taxability of prize money in the ‘Bastova case’. This judgment contains arguments that could be used to sustain the position that success fees, in certain cases, might be out of scope of VAT.

Ms. Bastova received prizes won in horse races. According to the CJEU, Ms. Bastova does not supply a VAT taxable service for consideration by entering her horse in the race, if she does not receive any direct remuneration for participating in the race. Any prize money depends on achieving a certain result at the end of the race. Should the prize be treated as consideration for the VAT taxable supply of the horse, the VAT classification of this supply would be subject to the result achieved by the horse.  According to the CJEU, such an uncertainty precludes the existence of a direct link between the supply of a horse and obtaining a prize. This would be contrary to the general VAT principles, meaning that the supply of services is objective in nature and does not depend on the purpose or results of the transactions concerned.

Although the Bastova case concerns a specific pattern of facts, the CJEU’s arguments might be used to sustain the position that other results-based compensation should be regarded as out of scope of VAT. Currently, such compensation is treated as part of the remuneration for the service performed.  For example, success fees or performance fees depend on the outcome of certain actions (such as the outcome of legal proceedings or investment results). A difference could be that the prize money in the Bastova case does not depend on actions by Ms. Bastova herself, but depends on the performance of her own horse and the other horses, while in the aforementioned examples, the success fee will be earned by the lawyers or asset managers themselves, and mainly depend on the results of their own services. Nonetheless, the Bastova case could be used as a starting point in discussing the VAT taxability of result-based compensation.

If you would like to receive more information about this topic, or if you would like to file an objection against the payment of VAT on result-based compensation, please contact Gert-Jan van Norden or Irene Reiniers.

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8. Supreme Court limits VAT exemption for the management of (real estate) investment funds

On November 25, 2016 the Supreme Court rendered judgment in the Fiscale Eenheid X case. It appears that the Supreme Court has further limited the exemption for the management of real estate companies. The Supreme Court ruled that the VAT exemption can only apply if (the manager of) an investment institution was actually granted a license as referred to in the (then applicable) Investment Institutions Supervision Act (Wet toezicht beleggingsinstellingen). This judgment follows on from the judgment rendered by the Court of Justice of the European Union and the Opinion issued by Advocate General Ettema in this case.

It will be necessary to ascertain for all fund managers whether they are actually required to hold a license. If this is not the case, then the VAT charged on the management of funds that perform activities which are partly or fully VAT-exempt, will be an expense item.

We expect the Dutch tax authorities to eventually announce new policy on this exemption and that this policy will only apply to the future.

A further analysis of this judgment can be found on our website. Of course, the tax advisors of the Indirect Tax Financial Services Group and the Indirect Tax Real Estate Group of Meijburg & Co would be pleased to help you identify the possible impact of this judgment on your business. Feel free to contact one of them or your regular contact for more information.

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