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KPMG EU Tax Centre E-News Summary - Issue 152, April 13, 2022

Core Content Overview

This E-News from KPMG's EU Tax Centre provides an update on recent developments in EU and international tax law, including decisions by the Court of Justice of the European Union (CJEU), General Court, and other international and local authorities. It also highlights KPMG's insights on key tax topics and the implications for businesses.

Latest CJEU, EFTA and ECHR Decisions

CJEU Decision in Finnish Investment Fund Withholding Tax Case

• Date: April 7, 2022
• Case: C-342/20
• Issue: Finland's rules excluding investment funds not set up in contractual form from an income tax exemption.
• Outcome: The CJEU ruled that the legislation is incompatible with the freedom of capital.
• Reference: Euro Tax Flash Issue 472

General Court Decision in Gibraltar State Aid Case

• Date: April 6, 2022
• Case: T-508/19
• Issue: Gibraltar's corporate income tax exemption for royalties and related individual tax rulings.
• Outcome:
  • The General Court partially annulled the Commission's State aid decision for individual aid granted from 2014 onwards.
  • Upheld the Commission's finding that the tax exemption applicable until December 31, 2013, constitutes unlawful State aid.
• Reference: Euro Tax Flash Issue 472

AG Opinion on EU MDR Notification Obligation

• Date: April 5, 2022
• Case: Orde van Vlaamse Balies and Others (C-694/20)
• Issue: Notification obligation for intermediaries availing of legal professional privilege under DAC6.
• Outcome:
  • The AG concluded that the notification obligation does not infringe on the right to a fair trial or private life.
  • However, the requirement to disclose the name of the intermediary claiming privilege was deemed disproportionate.
• Reference: Euro Tax Flash Issue 472

Infringement Procedures and CJEU Referrals

Commission Sends Letter of Formal Notice to Germany

• Date: April 6, 2022
• Issue: Taxation of dividends and interest paid to charitable organizations.
• Concern: The differential treatment of domestic and cross-border payments is seen as a restriction on the free movement of capital.
• Next Steps: Germany has two months to respond, after which the Commission may issue a reasoned opinion.

Reasoned Opinion Sent to Malta on Investor Citizenship Scheme

• Date: April 6, 2022
• Issue: Malta's investor citizenship scheme in exchange for predetermined investments.
• Concern: Incompatible with EU law (Article 4(3) of TEU and Article 20 of TFEU).
• Next Steps: If not resolved, the Commission may refer the case to the CJEU.

Reasoned Opinion Sent to Spain on SEPA Regulations for Tax Payments

• Date: April 6, 2022
• Issue: Spanish law requiring payment service providers to be authorized by Spanish tax authorities.
• Concern: This is contrary to the SEPA Regulation, which supports the EU single market.
• Next Steps: If not resolved, the Commission may refer the case to the CJEU.

EU Institutions Updates

Council of the EU

• ECOFIN Meeting: No agreement reached on the revised EU Minimum Tax Directive proposal.
• Reason: Reservations from Poland regarding legally binding links to OECD Pillar One and Pillar Two.
• Next Steps: Directive will be added to the agenda for the next ECOFIN meeting on May 24, 2022.

European Commission

• Public Consultation on "Unshell" Directive: Aims to prevent misuse of shell entities for tax purposes.

• Deadline: Comments requested by April 20, 2022.

• Context: Consideration of ATAD, DAC6, and OECD GloBE rules.

• Public Consultation on Withholding Tax Framework: Second step in the consultation process.

• Goal: To create a common EU-wide system for withholding tax on dividends and interest.

• Expected Timeline: Directive likely to be adopted in the fourth quarter of 2022.

European Parliament

• Crypto Assets Legislation: MEPs voted to adopt draft legislation to trace and block illicit crypto transfers.

• Expected Vote: During April plenary session.

• Study on Harmful Tax Practices: Highlights increased taxpayer mobility and competition in personal and wealth taxation.

• Key Findings:

  • Marginal personal taxation rates have been declining.
  • Preferential tax arrangements for high-net worth individuals are increasing.
  • Unilateral measures may lead to harmful practices.

• FISC Hearing on Dutch Tax System: Discussed Dutch reforms to combat tax evasion and aggressive planning.

• Topics Covered:

  • Regulation of financial intermediaries.
  • Dutch patent box regime.
  • Withholding tax regime reforms.

• Tax Information Exchange with "Pandora Papers" Jurisdictions: FISC sub-committee discussed mechanisms to improve transparency and information exchange.

• Proposed Measures:

  • Central registry for trust ownership.
  • Annual publication of Common Reporting Standard statistics.
  • Recommendations on regulating trusts and shell companies.

OECD and Other International Institutions

OECD Public Consultation on GloBE Implementation Framework (Pillar Two)

• Date: April 25, 2022
• Purpose: To discuss mechanisms for consistent implementation of GloBE rules.
• Key Points:
  • The draft rules do not reflect consensus.
  • Open questions on the design of the Model Rules on Scope remain.
• Deadline: April 20, 2022

OECD Releases IT-Format for Digital Platform Sellers

• Date: March 29, 2022
• Purpose: To support electronic reporting and automatic exchange of information under DAC7 and OECD Model Reporting Rules.
• Benefits: Minimizes compliance burden and facilitates IT-based exchanges.

Thailand Ratifies BEPS MLI

• Date: March 31, 2022
• MLI Entry into Force: July 1, 2022.
• Context: Part of the global effort to prevent base erosion and profit shifting.

UN Tax Committee Meeting

• Dates: April 4–7 and April 11–12, 2022
• Key Topics:
  • Update to the UN Model Taxation Convention.
  • Taxation of the digital economy.
  • Transfer pricing and dispute resolution.

Local Law and Regulations

Germany

• Draft Law on Interest on Back Taxes and Refunds:

  • Retroactive reduction of interest rate to 0.15% per month (1.8% per year) for periods from 2019.
  • Based on the German central bank's base rate with a 2.7% markup.
  • The previous rate of 6% was deemed unconstitutional.

• Extension of Cross-Border Worker Tax Agreements:

  • Agreements with Austria, Netherlands, and France extended until June 30, 2022.
  • Working days from home during the pandemic are considered to be spent in the contracting state.
  • Agreements will not be extended beyond this date.

Ireland

• Updated DAC6 Guidance:
  • Clarifications on "reasonable expectation" of tax advantage.
  • Guidance on "knows or could be reasonably expected to know" for secondary intermediaries.
  • Additional details on information to be disclosed in DAC6 filings.

Luxembourg

• Guidance on "Group Escape" Clause:
  • Clarifications on the application of the group escape clause under ATAD.
  • Conditions for application, required information, and consequences.

Netherlands

• Draft Bill to Transpose DAC7:
  • Requires digital platform operators to report information on certain users (sellers).
  • Effective from financial years starting January 1, 2023, with first reporting deadline in 2024.

Turkey

• Corporate Tax Rate Increase for Financial Sector:
  • Proposed increase to 25% for financial sector companies (banks, insurance, etc.).
  • Effective from 2022 if approved by the Parliament.

United Kingdom

• Guidance on Uncertain Tax Treatment (UTT):
  • HMRC published guidance to help taxpayers assess reporting requirements for UTT.
  • Based on new rules for qualifying large companies and partnerships.

Local Courts

France

• Digital Services Tax Guidance Found Invalid:
  • French administrative guidance on digital content supply to online games was deemed invalid.
  • The guidance was interpreted as including an activity that was explicitly excluded.

Germany

• BFH Decision on Permanent Establishment Without Personnel:
  • German Federal Tax Court upheld a lower court decision to suspend enforcement of tax assessment.
  • Concerns raised about the relevance of the "people function" in profit attribution for permanent establishments without local staff.
  • The lower court still needs to rule on the main proceedings.

KPMG Insights

BEPS Pillar 2 and Implications for Multinationals

• Event: April 6–7, 2022 webcast.
• Focus: Next chapter of BEPS Pillar 2 and implications for multinationals.
• Key Points:
  • Analysis of OECD detailed Commentary.
  • Considerations for tax leaders on compliance and reporting.

EU Financial Services Tax Perspectives

• Event: March 30, 2022 webcast.
• Focus: Future volatility in the European tax landscape.
• Topics:
  • Shell Entities Directive proposals.
  • BEPS 2.0 timeline and compliance challenges.
  • Withholding tax developments in the EU.

Key Links

• Visit KPMG's website for earlier editions of the E-News.