Dear FS professional,
It is nearly the end of the year and you are probably at your busiest as things have to be finished up before December 31, goals have to be set for next year and the Christmas holiday is quickly approaching.
Let us simplify your life with this last FS Tax Newsletter of the year 2018 in which you can find, for example, the latest state of affairs regarding the 2019 Tax Plan package, the implementation of ATAD1 and ATAD2, not to be missed expected changes on the European and national level and interesting VAT updates. For tax-related topics, not included in this FS Tax Newsletter, please visit our website.
If you would like to know more about the matters addressed in this newsletter please contact us.
Niels Groothuizen, Partner, Financial Services Tax Group
Table of Contents
- 1. Latest state of affairs: 2019 Tax Plan package and bill implementing ATAD1
- 2. Public consultation on bill implementing ATAD2
- 3. Deadline for filing Country-by-Country Reports and notifications approaching
- 4. Updated ruling practice – stricter requirements for rulings with an international character
- 5. New proposals regarding digital services tax
- 6. VAT updates
1. Latest state of affairs: 2019 Tax Plan package and bill implementing ATAD1
On November 15, 2018, the Lower House of Parliament adopted the 2019 Tax Plan package and the bill implementing the First European Anti-Tax Avoidance Directive (ATAD1). A number of amendments and motions were also adopted. Please note that the Upper House is scheduled to vote for the 2019 Tax Plan package and the bill implementing ATAD1 on December 18, 2018. Unlike the Lower House, the Upper House cannot make any changes, but can only adopt or reject the legislative proposals in their entirety (although the latter is unlikely).
Selection of the most relevant adopted motions/amendments:
- Further reduction of the corporate income tax rate.
- Therefore, the expected tax rates are 19% / 25% in 2019; 16.5% / 22.55% in 2020 and 15% / 20.5% in 2021.
- Dividend withholding tax will not be abolished.
- This has the following effects:
- The intended introduction of the conditional withholding tax will also not take place.
- Maintaining the dividend tax would mean that fiscal investment institutions (fiscale beleggingsinstellingen; FBIs) can continue to make use of the remittance reduction for dividend tax purposes.
- The proposal to no longer allow FBIs to invest in Dutch property has also been abandoned.
- Introduction of a transitional rules for limiting, for corporate income tax purposes, the depreciation of property in own use.
- It was proposed that as of January 1, 2019, property in own use can henceforth be depreciated, for corporate income tax purposes, up to a maximum of 100% of the WOZ value (this is currently 50% of the WOZ value). This measure now includes transitional rules for buildings that were brought into use before January 1, 2019 and that have not been depreciated for more than three years.
- Introduction of transitional rules for the 30% ruling.
- The term of the 30% ruling will be shortened from eight to five years as of January 1, 2019. Transitional rules have been introduced for existing cases, which means that the 30% ruling will end on December 31, 2020, or sooner if the eight-year term ends before this date.
- The bill to implement ATAD1 has been amended as follows.
- For the purposes of the Controlled Foreign Company (CFC) measure, a controlled entity is said to exist if that entity meets, among other things, the condition that it is established in a low-taxed state. This is the case if that state does not subject entities to a profit tax or subjects them to a profit tax at a statutory rate of less than 7%, or if that state appears on the EU list of non-cooperative jurisdictions for tax purposes. The aforementioned rate of 7% will be increased to 9%.
For all our memoranda on this subject, please click here.
2. Public consultation on bill implementing ATAD2
On May 29, 2017, an amendment to the EU Anti-Tax Avoidance Directive was adopted, so that this directive also focuses on combating hybrid mismatches between EU Member States and third countries (ATAD2). On October 29, 2018, the government launched an internet consultation to give interested parties the opportunity to respond to the draft bill to implement ATAD2.
ATAD2 tackles tax avoidance via hybrid mismatches in affiliated relationships. Hybrid mismatches concern situations in which differences between tax systems are used with regard to the qualification of entities, instruments or permanent establishments. Hybrid mismatches may result in a tax deduction whereby the corresponding income is not taxed anywhere, or where the same payment is deducted several times.
Please find here more information about the bill and the changes it will entail for corporate income tax.
3. Deadline for filing Country-by-Country Reports and notifications approaching
Country-by-Country Reporting (CbCR) obliges multinational enterprises (“MNEs”) to annually provide tax administrations with information about all jurisdictions where they do business, more specifically the global allocation of income generated and taxes paid, together with the location of economic activities within the MNE group. As from January 1, 2016, MNEs with a turnover of EUR 750 million or more are required to file the CbC Report within 12 months following fiscal year-end closing. This means that the 2017 CbCR almost needs to be filed if the financial year of the ultimate parent entity corresponds to the calendar year. The CbC Report needs to be filed electronically with the Dutch tax authorities in XML format. Meijburg & Co can assist with the conversion and filing of CbC Reports.
Furthermore, group entities must file a notification about the reporting entity before the end of the financial year. This means that the 2018 CbCR notification should also be filed before January 1, 2019 if the financial year of the ultimate parent entity corresponds to the calendar year. Meijburg & Co has prepared an overview of the CbCR notification requirements for all countries that implemented final CbCR legislation as of 2016, 2017 and 2018. Please click here for more information. Meijburg & Co can assist you as well with the filling of the notification.
4. Updated ruling practice – stricter requirements for rulings with an international character
In a letter sent to the Lower House on November 22, 2018, the Deputy Minister of Finance outlined the main features of the revision of the ruling practice. The proposed measures cover the elements transparency, process and content in the context of the issuing of all rulings with an international character. The revision of the ruling practice stems from the Tax Policy Agenda, in which measures on transparency and integrity form an important pillar. The Deputy Minister hopes to have the new measures take effect on July 1, 2019.
The measures in any case mean that taxpayers that only establish themselves in the Netherlands for tax reasons and have no economic nexus with the Netherlands will no longer be able to obtain a ruling from the Dutch tax authorities. The ‘economic nexus’ concept is expected to raise the threshold for obtaining advance certainty in all cases above that which applies on the basis of the current substance requirements.
Existing rulings and rulings issued up to the time that the updated ruling practice is implemented, will not be affected by the new policy. In his letter the Deputy Minister further confirms that no longer issuing a ruling for certain structures does not mean that these structures will disappear, since the law will not change because rulings are no longer issued.
Please find here more information about this subject.
5. New proposals regarding digital services tax
On March 21, 2018 the European Commission issued several proposals on “A Fair and Effective Tax System in the EU for the Digital Single Market” which included proposals for Directives on a digital services tax (DST).
According to the latest Presidency compromise text presented on November 29, 2018, the DST would apply as of January 1, 2022. Based on this proposal, the provision of regulated financial services by regulated financial entities should not fall within the scope of DST. However, the provision of non-regulated services by regulated financial entities could fall within the scope of the DST. ‘Regulated financial entity’ refers to providers of financial services who are subject to supervision under a Union or equivalent non-Union framework, as determined by a Union legal act.
Some delegations continued to raise objections to the DST. In this context, Member States were given the opportunity, during the ECOFIN meeting of December 4, 2018, to comment on a last minute proposal presented by France and Germany. According to a joint declaration, France and Germany agreed to focus the scope of the DST on revenues from the supply of advertising space only, and to submit – in a second step – proposals on taxing the digital economy and on minimum taxation that are in line with the work of the OECD. During the debate on this new initiative, some countries expressed clear opposition to the Franco-German initiative as it stands, therefore the Member States failed to unanimously agree on the DST.
It is now expected that the technical working groups of the Council will draft a juridical text that reflects the Franco-German initiative, with a view to adopting a final text by March 2019. The formalized text should take the form of a compromise text on the current EU Commission’s proposal. At this stage, it is unlikely that the Commission will present a new proposal.
It remains to be seen whether all Member States will be able to agree on the new proposal put forward by France and Germany, and particularly whether Romania, which will hold the upcoming Presidency of the EU, will maintain political momentum on this topic. However, failure to reach agreement on this issue is likely to trigger an increase in unilateral initiatives. Italy, Spain and the UK have already announced their intention to introduce a tax on digital services, if a compromise is not reached at the EU level. It is also worth noting that Germany seems to favor a debate on minimum taxation at the OECD level, as an alternative to the implementation of an EU-wide DST.
Please click here for more information about the DST.
6. VAT updates
In this edition of the FS Tax Newsletter, three out of the four VAT updates below are linked to the recovery of input VAT. This should not come as a surprise, since both the FS Sector as well as the tax authorities are struggling with the VAT recovery of taxpayers with both VAT-taxed and VAT-exempt activities.
The first update concerns a judgment of the Court of Appeals in Amsterdam, which could be very important for the asset management and insurance industry. In the second update, we will review the judgments of the CJEU in two cases regarding the proposed, but not realized, sale of shares and the attempt to acquire shares. Is the VAT on costs incurred for these proposed, but unrealized transactions recoverable? Furthermore, we will update you regarding the complex proposal from the CJEU AG to calculate the pro rata recovery rate for branches established in one EU member state, which incur costs for both the activities of that branch and the activities of the head office in another EU member state. Lastly, we will take a deeper look at the judgment of the CJEU regarding the VAT recovery in the United Kingdom for hire purchase agreements.
Groundbreaking judgment of the Amsterdam Court of Appeals regarding the VAT exemption for management of special investment funds (SIFs)
The Court of Appeals in Amsterdam has provided a groundbreaking judgment in respect of the VAT exemption for management of special investment funds (SIFs). The Court of Appeals has ruled that the VAT exemption can also apply to products which are offered under a license for individual investment management where individual assets are pooled. Please click here to read our comprehensive update .
Mergers & acquisitions and VAT recovery
In the Ryanair case (C-249/17), the CJEU ruled that Ryanair is entitled to directly recover VAT on professional advisor fees incurred for the unrealized acquisition of the shares in its competitor Aer Lingus as Ryanair acted as a VAT taxable person and had the intention to provide management services to the newly acquired subsidiary. The fact that the acquisition was ultimately unsuccessful and also that the management services never eventuated, does not hinder the acceptance of a full and direct VAT recovery right.
Less than one month later, the CJEU ruled in the C&D Foods case (C-502/17) that the purpose for which shares would be sold is decisive to establish whether there is a VAT recovery right on professional advisor fees. C&D Foods intended to use the proceeds of the sale to repay a debt it had with its bank, which was also its shareholder. Therefore, the share sale by C&D Foods was, in that case, an activity falling outside the scope of VAT. Consequently, the VAT charged on professional advisor fees was irrecoverable.
VAT recovery of branch and head office
The Morgan Stanley case (C-165/17) concerns the VAT recovery of costs incurred by a fixed establishment, where these costs are also used for the activities of a foreign head office. The Advocate General (“AG”) concluded that a cross border pro rata recovery right must be applied to such costs and should be calculated on the basis of both the activities of the fixed establishment and the activities of the head office. Furthermore, VAT can only be recovered as far as the turnover gives rise to VAT recovery both in the head office’s country and in the fixed establishment’s country. In our view, this could be very complex, all the more so if the head office has several branches throughout the EU and outside the EU. We look forward to the decision of the CJEU, which hopefully bears in mind the practical application of such a cross border pro rata rate recovery right.
VAT recovery of hire purchase agreements
The CJEU ruled in the Volkswagen Financial Services UK (“VWFS”) case (C-153/17) that in case of a hire purchase agreement, the supply of a vehicle and supplies of credit can be treated as separate supplies for VAT purposes. Even though no profit is being made with the supply of vehicles by VWFS, the VAT recovery method of VWFS should take account of an actual and non-negligible allocation of general costs to the supply of cars transactions that give rise to input VAT recovery.