The EY Global Alert link highlights the fact that the former Belgian Fairness Tax was determined to violate:
- Principle of legality
- Article 4, Parent-Subsidiary Directive
- Constitutional principles of equality and non-discrimination
Despite these multiple violations of law, the principle of equality was limited to assessments commencing in 2019, with limited exception.
Most importantly, the lesson learned from this not-uncommon example is: Appeal early to preserve your legal rights; as courts may not preserve such rights in their final decision.
The French Parliament has adopted the Finance Act for 2016, in addition to amendments of the 2015 Finance Act. A comprehensive summary by Bird & Bird is provided for reference:
- Country-by-country (CbC) reporting, effective for the 2016 tax year, for French based MNE’s and other companies not subject to a CbC requirement. (Note for US MNE’s: under the proposed Regulations, this would require CbC reporting in France, and other countries, for 2016 whereas the 2017 tax year would be reported to the IRS in the US)
- Penalty up to EUR 100k if a CbC report is not filed.
- In addition to current French regulations for transfer pricing information, a new requirement has been added: Identification of jurisdictions where intra-group transactions are conducted or where group members own intangible assets.
- The 10.7% exceptional contribution on corporate income tax has not been extended, thereby lowering the total effective tax rate. Calendar year taxpayers will not be subject to this charge for 2016.
- Dividend distributions commencing in 2016 within a French fiscal group, or from an EU member, is subject to a 1% (vs. 5%) income inclusion, to bring its legislation into compliance with European law.
- The EU Parent-Subsidiary Directive’s provisions are adopted: Anti-abuse de minimis clause including a “main purpose” or “one of the main purposes” test. Additionally, “an arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.”
- An advisory committee for the research tax cried and innovation tax credit has been created.
The new legislation highlights new trends that may be followed by other countries:
- Significant penalties for non-filing of required CbC reports.
- Additional subjectivity for anti-abuse provisions.
- Legislation that has been adopted to conform with the European Court of Justice determinations.
- Additional information reporting, including a focus on IP ownership.
All MNE’s should review these new provisions with a global perspective, not only with respect to companies operating in France.
Slovakia has proposed legislation conforming treatment of hybrid loan arrangements and general anti-avoidance rules (GAAR) of the EU Parent-Subsidiary Directive. Note that Slovakia has not suggested expansion of such rules, as Sweden’s recent proposal suggests.
EY’s Global Tax Alert highlights these developments, as well as other changes including penalties and service PE determination.
The new legislation is expected to take effect as of 1/1/2016, thus future planning should document transactions accordingly, especially noting the “main purpose” rule of the GAAR initiative which is inherently subjective.
Following up on its intent to introduce a “Super GAAR” (refer to 03 Jan 2015 post), a draft bill has been issued by the Danish tax authorities to achieve this objective. The new anti abuse provisions would take effect 01 May 2015 with no grandfathering exception.
The draft bill would contain two GAAR provisions:
- EU tax directive following the EU Parent-Subsidiary Directive (PSD) adopted by the European Council on 27 January.
- Domestic provision, mirroring language in the PSD, that would apply to all EU Directives, including the Interest and Royalty Directive.
The provisions would apply to existing and new Danish tax treaties based on the premise that treaty benefits are not available in arrangements that include abuse of treaty provisons.
The inherently subjective nature of the GAAR proposals, including the override of EU Directives, will likely be challenged by taxpayers and possibly the courts. In the interim, Danish transactions should be exercised with an element of care re: the potential application of GAAR that would reverse the tax advantage obtained.
The final OECD BEPS guidelines are yet to be issued, thus inconsistencies may arise between the unilateral legislation speeding into Danish tax law and OECD’s final guidance that aims at worldwide consistency.
The inconsistent use of (tax) terminology in drafting / enacting legislation and communicating issues re: perceived tax abuse, developing specific/targeted/general anti-avoidance rules (SAAR, TAAR, GAAR), anti-abuse rules, etc. promotes subjectivity, uncertainty, and misguided perceptions in trying to understand complex legal and technical international tax laws and regulations.
The recently drafted anti-abuse rule in the EU Parent-Subsidiary Directive (attached link for reference) is designed as a minimum standard to be adopted by EU Member States. Article 1, paragraph 4 of the Directive states “This Directive shall not preclude the application of domestic or agreement-based provisions required for the prevention of tax evasion, tax fraud or abuse.” This language should be compared to other tax legislation that introduce additional subjectivity and confusion with undefined and misunderstood terminology.
Subjective terminology that accompanies undefined verbiage as a basis for tax laws and regulations, such as anti-avoidance / abuse rules, further complicates comprehension, application, interpretation, and assessment of complex international tax rules.
The phrases “tax evasion” and “tax fraud” clearly set forth bright legal lines for definition and enforcement, whereas inherently subjective phrases of “tax avoidance,” “aggressive tax planning,” “intent of Parliament”, “tax abuse,” and similar terminology result in additional uncertainty for deciphering the true intent of significant tax legislation.
It would be beneficial to recognize the inherent inconsistencies of terminology applied in tax laws and regulations, and commence inclusion of verbiage and definitions that provide clarity promoting consistent application, implementation and enforcement of international tax guidelines.
The General Anti-Avoidance Rule (GAAR) has received a status of prominence during 2014, and continues its subjective and complex override provisions in domestic law that are interwoven with treaty provisions.
Denmark has proposed a (Super) GAAR, trumping the EU Parent-Subsidiary Directive, EU Interest-Royalty Directive, EU Merger Directive and Danish double tax treaties. Notwithstanding its current status as a “proposal,” Denmark’s intent is clearly shown to provide an umbrella rule, evidently overriding the respective treaties, providing that a “main purpose” rule which achieves tax advantages would be used to disallow respective tax benefits of the transaction(s). The proposed rule would be effective by 01 May, 2015.
PwC’s Insight has provided a brief summary of the proposal:
GAAR continues to be “the elephant in the room,” highly visible although the rules and appeal avenues are distinct and arbitrary for every country. Some countries have GAAR rules, along with specific / targeted anti-avoidance rules (SAAR / TAAR). Thereby, tax uncertainty and the risk of double taxation increases, dispute resolution (if available) avenues are further stressed, and arbitration measures may not be available.
With respect to arbitration, it should be adopted by every country to achieve mutuality with taxpayers, however some countries have expressly stated that they do not want to give up their control / sovereignty. Unfortunately, OECD has not aggressively pursued this remedy for multilateral agreement.