Dear FS professional,
This newsletter contains information about an important insight from the Dutch Supreme Court on interest deduction, three VAT-related topics and the new insurance contracts standard, IFRS 17.
The following edition of our FS Tax Newsletter will be published in August. In the meantime we wish you a good summer!
If you would like to know more about the topics included in this newsletter please contact us.
Partner, Financial Services Tax Group
Table of Contents
- 1. Important Insight from Dutch Supreme Court on Interest Deduction
- 2. Advocate General at CJEU issues Opinion on VAT exemption for cost-sharing groups: infringement proceedings against Germany
- 3. VAT exemption for cost-sharing groups: CJEU judgment in infringement proceedings against Luxembourg
- 4. Proposal to extend VAT adjustment rules to ‘expensive services’ has enormous impact
- 5. The new insurance contracts standard – IFRS 17 – brings fundamental changes to international insurance accounting.
- 6. Dutch District Court rules that Dutch dividend withholding tax withheld on portfolio dividends is not refundable to the taxpayer, a Japanese pension fund.
1. Important Insight from Dutch Supreme Court on Interest Deduction
On April 21, 2017, the Dutch Supreme Court issued four rulings in a total of 10 cases which revolved around tax planning structures with acquired profit companies. The cases provide important insights and clarification on the abuse of law doctrine, the application of the counterproof provisions in Article 10a of the Corporate Income Tax Act and the possibilities of imposing penalties or of criminal prosecution in (aggressive) tax planning structures.
Click here to read more.
2. Advocate General at CJEU issues Opinion on VAT exemption for cost-sharing groups: infringement proceedings against Germany
On April 5, 2017 the Advocate General (‘AG’) at the Court of Justice of the European Union (‘CJEU’) issued his Opinion in the infringement proceedings initiated by the European Commission against Germany (case no. C-616/15). Contrary to other recent Opinions, the AG considered that the VAT exemption for cost-sharing groups does apply to the financial and insurance markets. The AG concluded that the restriction in German national VAT legislation limiting the VAT exemption for cost-sharing groups to a certain sector is not in line with the EU VAT Directive.
3. VAT exemption for cost-sharing groups: CJEU judgment in infringement proceedings against Luxembourg
On May 4, 2017 the Court of Justice of the European Union (‘CJEU’) rendered judgment in the infringement proceedings initiated by the European Commission against Luxembourg (case no. C-274/15). The CJEU ruled that the VAT exemption for cost-sharing groups does apply if the members of a cost-sharing group also perform services subject to VAT, provided the services of the cost-sharing group are ‘directly necessary’ for the VAT exempt or non-taxable activities of the members. Furthermore, the CJEU ruled that the members of a cost-sharing group are not entitled to deduct the VAT charged to (or which is payable by) the cost-sharing group. If the members of a cost-sharing group purchase goods and services in their own name and for the account of the cost-sharing group, they are providing services to the cost-sharing group that fall within the scope of VAT.
4. Proposal to extend VAT adjustment rules to ‘expensive services’ has enormous impact
The VAT adjustment scheme is likely to be extended to cover the refurbishment of real estate and other so-called ‘expensive services’ such as software. It will then take longer for the VAT deduction on these to become final and, in the event of a change of use, VAT deducted in the past may have to be repaid. The new rules also offer the prospect of a VAT refund, which was initially precluded. This follows from a draft proposal published by the Ministry of Finance for public consultation purposes.
5. The new insurance contracts standard – IFRS 17 – brings fundamental changes to international insurance accounting.
IFRS 17 will give users of financial statements a whole new perspective. The ways in which analysts interpret and compare companies internationally will change. The standard places insurers reporting under IFRS on a level footing, opening up the ‘black box’ of current insurance accounting.
The new standard brings both benefits and challenges for insurers, who will need to gain an understanding of the accounting changes and the impacts on their businesses.
What’s new in IFRS 17?
Increased transparency about the profitability of new and in-force business will give users more insight into an insurer’s financial health than ever before.
- Separate presentation of underwriting and finance results will provide added transparency about the sources of profits and quality of earnings.
- Premium volumes will no longer drive the ‘top line’ as investment components and cash received are no longer considered to be revenue.
- Accounting for options and guarantees will be more consistent and transparent.
These have the potential to reduce the cost of capital for leading insurers. Greater comparability could facilitate merger and acquisition activity, encourage greater competition for investment capital and help gain the trust of investors.
At the same time, there are likely to be a number of other effects. For example, there could be greater volatility in financial results and equity due to the use of current market discount rates. Insurers may also need to revisit the design of their products and other strategic decisions, such as investment allocation.
If you would like to know more, please contact Otto van Gent.
6. Dutch District Court rules that Dutch dividend withholding tax withheld on portfolio dividends is not refundable to the taxpayer, a Japanese pension fund.
On March 30, 2017 the Dutch District Court of Zeeland West-Brabant rendered judgment in a case concerning a request for the refund of dividend withholding tax that had been withheld on portfolio dividends received by a Japanese pension fund from Dutch listed companies during 2008 through 2011. As the pension fund was not subject to corporate income tax in Japan it could not credit the 15% dividend withholding tax against a profit tax or obtain other tax relief in Japan for the Dutch dividend withholding tax. The pension fund had thus requested a refund of the dividend withholding tax pursuant to Section 10(1) of the Dividend Withholding Tax Act 1965, based on which a Dutch pension fund is entitled to a refund.
If you would like to read more, please click here.