Dear FS professional,
In this first FS Tax Newsletter for 2019 we will summarize the most important tax developments of the last two months and will inform you about the upcoming FATCA and CRS reporting deadlines. Two developments that are definitely important are the Dutch Supreme Court decision on costs related to the acquisition or disposal of participations and the CJEU Morgan Stanley case about how to deal with input VAT recovery in head office – brand configurations.
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. Dutch Supreme Court renders important judgment on costs related to the acquisition or disposal of participations
- 2. Internet consultation on implementation of Mandatory Disclosure Directive
- 3. 2019 FATCA and CRS reporting deadlines
- 4. CJEU Morgan Stanley - VAT recovery right on the basis of cross-border use costs
- 5. Insurance premium tax: CJEU decision on location of risk
- 6. VAT proposal introducing requirements for payment service providers
1. Dutch Supreme Court renders important judgment on costs related to the acquisition or disposal of participations
For Dutch corporate income tax purposes, the costs related to the acquisition or disposal of shares that are covered by the participation exemption are non-deductible.
On December 7, 2018 the Dutch Supreme Court rendered judgment in a case specifically concerning the sale of a participation. In its judgment, the Supreme Court provided detailed guidelines on how to decide whether the costs incurred relate to the acquisition or disposal of participations. In addition, the judgment provides mandatory rules on how costs incurred during the process of acquiring or disposing of a participation should be accounted for.
The guidelines provided by the Dutch Supreme Court deviate from what is considered standard practice. Consequently, the judgment is also likely to impact tax years for which tax eturns still have to be filed or that are still under consideration by the tax authorities.
Therefore it is essential to re-examine any position taken in respect of costs related to the acquisition or disposal of participations in years that are still pending and to examine how the Supreme Court’s guidelines may affect the positions taken in this respect.
2. Internet consultation on implementation of Mandatory Disclosure Directive
On June 25, 2018, the EU Directive on Mandatory Disclosure (Directive (EU) 2018/822, DAC6) took effect. This Directive provides for the mandatory automatic exchange of information on reportable cross-border arrangements. On December 19, 2018 the Dutch government launched an internet consultation offering interested parties the opportunity to respond to the draft bill to implement this Directive into Dutch law (more information can be found here).
On the basis of the draft legislation and explanatory notes, the Dutch implementation appears to remain close to the text of the Directive. There is even a one-on-one reference to the Annex to the Directive which includes the hallmarks. The draft explanatory notes provide more clarity about, for example, the interpretation of certain terms in the directive, the hallmarks and the main benefit test. The notes also mention that the only arrangements which can be viewed as aggressive tax planning should be reported.
Although the draft legislative proposal provides clarity in some cases, many questions still remain unanswered and new questions have arisen. In addition to looking at the Dutch rules, the rules of other countries also need to be examined since these countries may implement the directive in a way that goes beyond the requirements of the directive, as Poland has already done. In the case of a cross-border arrangement including the Netherlands and Poland, this could mean that there is no reporting requirement in the Netherlands but there is in Poland. In addition to the Netherlands and Poland, more Member States are taking the first steps toward implementation.
For this reason, Meijburg will organize a roundtable session on February 28, 2019 in the Amstelveen office. Please click here to register or contact Raluca Enache or Robert van der Jagt for more information. You can also contact them if you are interested in the KPMG MDR technology solution.
3. 2019 FATCA and CRS reporting deadlines
The Dutch Tax and Customs Administration announced the 2019 reporting deadlines for returns relating to FATCA and CRS regimes:
- For Financial Institutions (FIs) that are only subject to the FATCA and/or CRS reporting regimes, the reporting deadline is August 1, 2019.
- For FIs with investment products (including FATCA and CRS) and loan products that are also subject to other Dutch domestic reporting regimes, the reporting deadline is February 1, 2019.
- For FIs with payment and savings products (including FATCA and CRS) and Private Home Annuity Savings (EWLS), the reporting deadline is May 1, 2019.
In addition, FIs are also allowed to submit all the information relating to Investment products, Loan products, Payment and savings products, Private Home Annuity Savings, FATCA and CRS before February 1, 2019.
If you need assistance with FACTA/CRS, please contact Michèle van der Zande.
4. CJEU Morgan Stanley - VAT recovery right on the basis of cross-border use costs
On January 24, 2019, the Court of Justice of the European Union (‘CJEU’) rendered judgment in the Morgan Stanley & Co International plc (‘Morgan Stanley’) case (case no. C-165/17).
This case concerned the VAT recovery of costs incurred by a fixed establishment that are also used for the turnover of a foreign head office. In answering the question how the VAT recovery on such costs should be calculated, the CJEU concluded that the turnover of the foreign head office should be taken into account. Depending on how the costs were used, the recovery right should be calculated on the basis of the turnover of the fixed establishment and/or the turnover of the head office. VAT can only be recovered if turnover is generated, for which there is a VAT recovery right, according to both the VAT rules of the head office’s country of residence and the VAT rules of the fixed establishment’s country of residence.
This judgment differs from Dutch practice on a number of points. The tax advisors of Meijburg & Co’s Indirect Tax Financial Services Group would be pleased to help you identify the potential implications of this judgment. Feel free to contact one of these tax advisors or your regular contact for more information. For more information about the case and its consequences, please click here.
5. Insurance premium tax: CJEU decision on location of risk
On January 17, 2019, the Court of Justice of the European Union (‘CJEU’) rendered judgment in a case that dealt with the location of risk for insurance premium tax purposes (case no. C-74/18).
The case concerned insurance policies for M&A transactions. The CJEU ruled that the place of risk for insurance covering the contractual risks associated with the value of the shares and the fairness of the purchase price paid is the place where the policyholder is established. The CJEU judgment provides a welcome clarification for many other insurance programs.
In practice, multinationals often have a combination of risks at the country level and shareholder risks, with premiums being allocated for insurance premium tax purposes between the various countries and the shareholder. Based on the CJEU judgments to date, these risks would have to be allocated to the various countries and to the country where the shareholder is located. The challenge is to ensure that such an allocation is appropriate and applied consistently.
We would like to point out that a question that arises in the Dutch practice is whether security provided for business acquisitions always qualifies as insurance and is thus subject to 21% insurance premium tax. The argument here is that sometimes it is not an uncertain event that is covered, but rather damages as a result of a still unknown defect. As this is not a matter of EU law, it has never been referred to the CJEU.
The tax advisors of Meijburg & Co’s Financial Services Group would be pleased to help you identify the potential implications of this CJEU judgment. Please feel free to contact one of them or your regular contact at Meijburg & Co.
6. VAT proposal introducing requirements for payment service providers
The European Commission has proposed amending the EU VAT Directive to include requirements for payment service providers. The proposal seeks to solve the problem of VAT fraud in e-commerce by improving cooperation between tax authorities and payment service providers.
According to a study by the DPD group, more than 90% of online purchases made in recent years were made by European customers through remittances, direct debits and card payments, i.e. via an intermediary involved in the transaction (a payment service provider).
The European Commission is of the view that third parties who have information on payments can assist the tax authorities in their audit task by providing them with a complete overview of online purchases. According to the Commission, the experience of EU Member States that have already cooperated at the national level with payment service providers has shown that this produces tangible results in the fight against VAT fraud in e-commerce.
The proposal places a significant burden on payment service providers in terms of maintaining records and making these available to the tax authorities. Besides the more fundamental payment information, the payment service provider also needs to keep records such as the VAT identification numbers and addresses of payees and retain these for a period of at least two years. It is anticipated that the Directive will apply as of January 1, 2022.