Dear FS professional, 

Before the holiday season begins, we would like to update you on the hot topics in the FS sector.

This newsletter provides updates on three VAT-related topics: the Skandia case; the VAT-exempt management of (real estate) investment funds; and payment services and debt collection. It also includes an update on the revised discussion draft on BEPS Action 6 and our global withholding tax web application (GloW Track).

On Thursday May 28, 2015 our FS Insurance seminar “(Fiscale) risico’s verzekerd” (Insuring Tax Risks) took place at our office in Amstelveen. A summary of the seminar is included in this newsletter.

If you would like to attend a seminar organized by Meijburg & Co, please visit our seminar calendar.

The following edition of our FS Tax Newsletter will be published in early August; in the meantime we wish you a good summer!

Niels Groothuizen,

Partner, Financial Services Tax Group

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Table of Contents

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1. Skandia case update: infringement procedures possible

It appears that the European Commission may start infringement procedures against Member States that do not apply the Skandia case.

In our April 2015 newsletter, we informed you that the Dutch Ministry of Finance had informally announced its position on the application of the Skandia case in the Netherlands. A meeting of the European VAT Committee recently took place during which the Skandia case was also discussed. From the information we received about this discussion, we understand that most Member States do not have a problem with the CJEU judgment. As we already know, the UK and the Netherlands would like to apply the Skandia judgment more strictly, although they support a broader application of the VAT grouping option (i.e. a foreign head office can also be part of a VAT group). It is our understanding that this is also the position taken by Finland and Ireland. 

It seems that the European Commission will follow-up on this discussion. Although not set in stone, we understand that this follow-up may involve a review of the Commission’s communications on the VAT grouping option from 2009 and a discussion of new legislation. It will be very interesting to hear the outcome of these discussions.

The European Commission may also start infringement procedures against Member States that do not apply the Skandia case. Whether it will actually do so and what the exact timing will be, remains to be seen.

The KPMG network has prepared a survey on the application of the Skandia case in all EU Member States. If you would like to receive a copy of this survey, please contact Gert-Jan van Norden (Partner Indirect Tax Financial Services Group).

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2. Advocate General at CJEU: VAT-exempt management of (real estate) investment funds

On May 20, 2015 the Advocate General (“AG”) advised the CJEU to qualify a real estate investment fund as a ‘special investment fund’, as long as this fund is under special regulatory supervision. Furthermore, she believes that the actual property management also falls under the concept of ‘management’.

The case

The taxpayer concluded management agreements with three companies that invest in real estate (real estate investment funds). The taxpayer’s activities consist of the administration and management of the companies, attracting investors, the sale and purchase of real estate (fund and asset management) and the exploitation of the real estate (property management).

Pursuant to VAT legislation, the management of special investment funds is exempt from VAT. The Supreme Court requested a preliminary ruling from the CJEU on whether investment companies that invest in real estate qualify as a special investment fund. The Supreme Court also wanted to know whether the actual property management is covered by the term ‘management’ within the meaning of the exemption.

AG’s Opinion

According to the AG it is necessary to examine whether the investment fund is subject to special regulatory supervision. Since the European AIFM Directive did not yet exist at the time of the present case, the AG is of the opinion that the national court must determine whether the real estate investment fund was under national regulatory supervision at that time.

As to whether the actual property management falls under the concept of ‘management’ within the meaning of the exemption, the AG notes that any transactions must be specific to the activity of the special investment fund. According to the AG, the determination of what is ‘specific’ depends upon the investment object. Everything that a manager must do to maintain the investments and derive income from them is specific. In the case of real estate, it also includes the actual property management.

Practical consequences

There are several reasons why this case is relevant to the current (real estate) investment fund practice:

  • Under current Dutch practice, investment funds that are comparable with regulated funds also qualify as ‘special investment funds’. If the CJEU follows the AG, it will be important for the application of the VAT exemption whether an investment fund is covered by national or European regulatory rules;
  • If the CJEU follows the AG that the interpretation of the term ‘management’ depends upon the investment objects and includes everything a manager must do to maintain the investments and derive income from them, then not only actual property management, but also other activities for other types of investment funds, will fall under the exemption.
  • If the CJEU follows the AG’s opinion, this can provide a basis for exempting from VAT those services that are currently treated as being subject to VAT. To ensure that you do not wrongly pay (reverse charged) VAT, we recommend preserving your rights by filing a notice of objection against (the remittance of VAT on) the Dutch VAT return. If you receive services from Dutch-resident service providers, we advise making arrangements with them as to how any VAT that may have wrongly been charged can be refunded.

The tax advisors of Meijburg & Co’s Indirect Tax Financial Services Group would be pleased to help you identify any potential consequences of this procedure. Feel free to contact one of them or your regular contact for more information. A more detailed report of this opinion can be found on our website.

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3. National Exhibition Center (‘NEC’): payment services and debt collection

On May 22, 2015 a request for a preliminary ruling was lodged by the UK Upper Tribunal (Tax and Chancery Chamber) with the Court of Justice of the European Union (CJEU) concerning booking costs charged for debit and credit card payments. This concerns the scope of the VAT exemption for transfers and payments as well as the limits thereof in relation to ‘debt collection’.

The case

NEC is involved in the sale of entrance tickets to events. NEC sells these tickets on behalf of the (third party) event organizations. 

For its payment handling services, NEC charges booking costs (often 10% of the ticket price) to purchasers of such tickets in case of payment by debit or credit card. For these card payments, NEC sends data to the merchant acquirer via a payment gateway. After the process of obtaining authorization for the card payment is finalized, NEC provides information to the merchant acquirer for completing the payment transaction.

Reference for a preliminary ruling

  • The UK court would like to know whether the VAT exemption is applicable to the service that NEC provides, given that this does not include debiting or crediting any accounts over which NEC has control (since that is done by an independent financial institution).
  • The UK court would also like to know whether the VAT exemption depends on whether NEC itself obtains authorization codes directly from the cardholder’s bank, or alternatively obtains those codes via its merchant acquirer bank.
  • Furthermore, the UK court seeks clarification on the scope of VAT taxed ‘debt collection’ services.


Much like the Bookit case, the questions referred to the CJEU could provide further insight into the definition of transactions concerning payment and transfers, and the scope of transactions entailing legal and financial changes. Additionally, the questions could provide insight into the limitations of the exemption in the case of VAT taxed ‘debt collection’. This is relevant for all parties involved in payment-related services. If you would like to receive more information about this case, please contact Gert-Jan van Norden (Partner Indirect Tax Financial Services Group) or Marije Harthoorn (Director Indirect Tax Financial Services Group). 

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4. Revised discussion draft on BEPS Action 6 (Prevention of treaty abuse)

In September 2014 the OECD released a Report on BEPS Action 6 (the 2014 Report). In this 2014 Report a draft treaty provision on the entitlement to benefits was introduced (Article X) which combines a Limitation on Benefits (LOB) rule in paragraphs 1-6 and a Principal Purpose Test (PPT) in paragraph 7. In the Report, it was recommended that treaties include the combination of the LOB rule and the PPT, and at a minimum, either the inclusion of the PPT or the LOB rule supplemented by a mechanism such as a restricted PPT applicable to conduit financing arrangements or domestic anti-abuse rules.

Furthermore other situations where a person seeks to circumvent treaty limitations were addressed. 

On November 21, 2014, the OECD released a discussion draft that identified remaining issues. Public comments on this discussion draft were invited and also abundantly received. In March 2015 the Working Party on Tax Conventions and Related Questions agreed on how to address the majority of these issues. Their conclusions and proposals reached are reflected in this revised discussion draft, which was released on May 22, 2015.

The revised discussion draft deals with several issues relating to the LOB provision, the PPT and other issues. Below we will discuss a selection of relevant conclusions and proposals relating to the LOB provision, the PPT and other issues.

LOB provision

The revised discussion draft contains an alternative, simplified LOB rule, which is intended to be used in combination with the PPT rule. The main difference with the LOB rule under the 2014 deliverable is that the various tests (such as the publicly traded companies exception, the ownership test, active business test and the equivalent beneficiaries test) are less detailed and less complicated (e.g. no base erosion test under the ownership test and the derivative benefits provision). Furthermore the simplified LOB rule does not contain provisions for pension funds, fund of funds and collective investment vehicles (CIVs). Under the simplified LOB rule the most obvious cases of treaty-shopping would be dealt with (other cases being dealt with under the PPT). The LOB rule as included in the 2014 Report would be more appropriate for countries that would prefer to meet the minimum standard through the combination of an LOB rule and a mechanism dealing with conduit arrangements (instead of the combination of an LOB rule and the PTT). It is suggested to incorporate the simplified LOB rule into the OECD Model Convention by describing the main features of the LOB in the Articles of the Model and presenting the alternative formulations in the Commentary.

Furthermore several issues related to the LOB provision are addressed, for example the position of CIVs and REITs. There appears to be general support for the conclusions of the 2010 CIV Report concerning the treaty entitlement of CIVs. Since subparagraph 2 f) of the LOB rule dealt with the application of the LOB to CIVs in a way that reflected the conclusions of the 2010 CIV Report, there was no need for additional changes to the 2014 Report on Action 6. Unlike the conclusions of the 2010 CIV Report, the conclusions of the 2008 REIT Report were not confirmed. The Working Party agreed to further discuss, at its June meeting, proposals intended to (i) add a specific reference to the conclusions of the REIT Report, and (ii) ensure that a pension fund should be considered to be a resident of the State in which it is constituted (irrespective whether it benefits from a limited or complete exemption). 

In the context of the derivative benefits provision, two US proposals are mentioned, which were not included in the 2014 Report and on which comments are invited: a proposal for a new treaty provision on “special tax regimes” and a proposal for a treaty rule to make a treaty responsive to future changes in domestic laws (i.e. future exemptions for foreign source income). 


Discretionary relief under the PPT

According to the 2014 Report, application of the PPT would result in the (complete) denial of the application of treaty provisions and the income in question would become taxable under the provisions of the national law of the Contracting States. However, as observed in the November 2014 discussion draft, it would be more appropriate to provide some form of tax relief. This could for example be the case when a taxpayer engages in an avoidance transaction to transform what would normally be a cross-border dividend (taxable at source under the provisions of Art. 10(2)) into a capital gain on shares (exempt from source taxation under Art. 13(5) of the Model Tax Convention). In such a case, the application of the PPT rule would result in the denial of the benefits under art. 13(5). However, a tax administration may consider it appropriate to apply the relief provided for under Art. 10(2), which could be done in a manner similar to the discretionary relief provision of the LOB rule.

After consideration of the received comments the Working Party decided to introduce a new paragraph 8 to the article which introduces a discretionary relief. Based on paragraph 8 the competent authorities of the Contracting States could- in case a benefit is denied to a tax payer on the basis of the PPT (paragraph 7)- grant the benefits that the tax payer would have been entitled to in the absence of the transaction of arrangement referred to in the PPT. Based on paragraph 8 broad discretion is granted to the competent authority for the determination on whether (or not) to grant this benefit. Nevertheless, the Competent Authority has to take into consideration all relevant facts and circumstances and has to consult the competent authority of the other Member State before rejecting a request made by a resident of that other State.

Alternative to the PPT for “conduit arrangements”

In the 2014 Report an alternative rule to the PPT was included in the Commentary on the PPT, that States may use to address treaty shopping commonly referred to as “conduit arrangements”, which would not be caught by the LOB provision (hereafter: the anti-conduit rule). Originally a very precise definition of “conduit arrangement” was proposed in this anti-conduit rule. Since this definition has been criticized by a number of commentators, it is now proposed to replace this precise definition and simply focus on general principles and include examples of transactions that the anti-conduit rule should address. 

Additional examples on the PPT

In the 2014 Report the application of the PPT is illustrated through five examples included in the Commentary on the PPT. In the November 2014 discussion draft was suggested that additional examples should be added, which suggestion was supported by commentators. Therefore 4 additional examples have been included in the Commentary on the PPT. Based on these additional examples it seems crucial whether the transactions have taken place for commercial reasons. If that is the case, the PPT would not apply in the absence of other facts that would indicate that one of the principle purposes is to obtain the treaty benefits.

Other issues

Several other issues have been discussed in the revised discussion draft. However, the most important development is the adaption of the rule included in the 2014 Report to prevent the abuse of permanent establishments (hereafter: PE) in third States, where the profits are not adequately taxed. The tax benefits under the Convention will not apply to income, which is derived from the other contracting State and is attributable to a tax-exempted PE on which the effective tax rate on the profits of the permanent establishment in the third jurisdiction is less than 60 percent of the general rate of company tax in the State of the State of residence. However, this provision will not apply if the income is derived in connection with or is incidental to the active conduct of a business carried on through the PE.

Concluding remarks

Public comments on this revised discussion draft should be sent by June 17, 2015 at the latest and will be discussed at the Working Party meeting of June 22-26, 2015. Afterwards the Working Party will produce a final version of the report on Action 6 which will include the conclusions on these remaining issues as well.

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5. GloW Track – WHT tool

Withholding tax on cross-border investments is becoming increasingly important for both investors and their service providers.  Finding reliable and accurate information can be challenging, particularly if you are constantly bombarded with information from all directions.  At KPMG, we recognize this and have created GloW Track – our global withholding tax web application.  It provides information in an accessible and consistent format on withholding tax rates, capital gains tax and transaction taxes for a variety of securities in over 60 markets.  Please contact Robert van der Jagt.

GloW Track WHT tool .pdf 

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6. FS Insurance Seminar “(Fiscale) risico’s verzekerd”

On Thursday, May 28, 2015 Meijburg & Co organized the FS Insurance seminar “(Fiscale) risico’s verzekerd” (Insuring Tax Risks). The seminar addressed the following topics:

  • Solvency II
  • Group captive insurance companies
  • Tax incentives for innovation and R&D for insurers
  • Insurance Premium Tax

Solvency II

Solvency II will take effect as of January 1, 2016. Deferred tax liabilities and receivables have a significant impact on the required solvency. Some recent developments have provided more clarity on how regulatory authorities consider that the tax position should be taken into account.

Group captive insurance companies

Lower courts have recently ruled in favor of the Dutch tax authorities in proceedings on captives. We have noticed that the Dutch tax authorities are consequently looking more closely at insurance companies that insure and reinsure group captives. They are also paying more attention to the services provided by these insurance companies to the captives of their clients. The seminar addressed the tax treatment and qualification of captives and the role of insurance companies in this.

Tax incentives for innovation and R&D for insurers

The financial sector makes enormous investments in innovation. Insurance companies have to invest heavily in order to compete with new players that are using new technologies and social innovation to produce new products and faster services. Newly developed software and applications can, under certain conditions, qualify for attractive tax credits for proprietary innovation. The tax credits for investment are still not often applied by insurance companies, but they could claim a rebate for the payroll tax and social security contributions that have to be remitted on R&D-related activities, deduct innovation costs sooner (accelerated depreciation deducted from the profit), effectively only pay 5% tax on the profit realized from certain intangible assets if they opt to apply the innovation box and receive an additional deemed deduction of 54% for certain R&D costs and investments.

Insurance Premium Tax

For many years insurance premium tax was 7%. In 2008 it was increased to 7.5%, only to be subsequently increased to 9.7% as of March 1, 2011. As of January 1, 2013 the insurance premium tax rate was brought into line with the VAT rate, i.e. 21%. The Dutch tax authorities use tax audits as a means of ensuring that market parties in the insurance sector use the correct rate in their insurance premium tax returns and when remitting the insurance premium tax. How has increasing the insurance premium tax rate impacted insurers and what are the specific points that the Dutch tax authorities take into consideration?

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