DAC6 and the use of safe harbours in non-EU jurisdictions

MNEs making use of safe harbour taxation rules, in the E.U. as well as in third-countries, may oblige the E.U.-based taxpayers within the MNEs to report these safe harbour arrangements to tax authorities in the E.U. under the E.U. Directive on Mandatory Disclosure Rules (“DAC6”). In this blog, we take a look at the safe harbour provisions of non-E.U. jurisdictions (specifically, India and Brazil) and when making use of these safe harbour provisions may give rise to a reporting obligation under Hallmark E.1 of DAC6. The blog also sheds some light on transfer pricing methods for pricing low value-adding intragroup services (“LVAS”) as defined in Chapter VII of the OECD TP Guidelines.

Participation exemption regimes could cost WHT reliefs under EU Parent-Subsidiary Directive and DTAAs

Following some recent Italian Supreme Court rulings, uncertainty remains as to the position of the Italian Revenue Authority on the Withholding Tax Exemption under the EU Parent-Subsidiary Directive and the bilateral tax treaties concluded between Italy and other EU Member States. This blog considers (i) these developments, (ii) the influence of EU case laws on this matter, (iii) the cross-border relief measures and (iv) the impact on holding companies that may (potentially) be exposed to (significant) dividend withholding tax leakage.

Cash pooling during and in the aftermath of the Covid-19 pandemic

As businesses across the world struggle to deal with the economic impact of the Covid-19 pandemic, liquidity and freeing up much needed cash resources has become the main concern for many businesses.

Cash pooling arrangements: a reflection on selected court cases

Cash pooling is a cash-management tool used by Multinational Enterprises (MNEs) to efficiently manage the short-term liquidity requirements of the various entities involved in the enterprise. This intra-group financing tool reduces the reliance of MNEs on third-party financing, thereby reducing banking costs and reducing financing needs by offsetting debit account with credit account. Centralizing the control and management of the shared cash pool to a single entity within the multinational group additionally allows all the cash pool participants to benefit from an optimization of the shared resources, better risk management and a better position towards third-party banks or financers.

Dutch (Corporate Income) Tax Plan 2021

On 15 September 2020 (Prinsjesdag), the Dutch government published the Tax Plan for 2021. Aside from proposals to amend the tax regime for 2021, investigations and consultations regarding further changes have been announced. The legislative proposals will be reviewed, first, by the Lower House of Parliament and then, by the Senate. If the proposals are accepted by both Houses of Parliament, the proposals will enter into effect on 1 January 2021.

Effective WHT rate on dividends reduced to 5% under India-Netherlands DTAA after India abolishes DDT

One of the key features of India’s Union Budget for 2020, presented by the Finance Minister on 1 February 2020, was the elimination of the intensely unpopular Dividend Distribution Tax (“DDT”) with effect 1 April 2020 and a return to the “shareholder based taxation system” for dividends. The maneuverer is part of the policy package intended to position India as an attractive investment destination for foreign investors.

Brazilian Court rules on interpretation of substantial economic activity of Dutch holding companies for application of thin-capitalization rules

On December 31, 2019, the Brazilian Administrative Council of Tax Appeals’ published its decision involving the substance of “economic activity” of a Dutch holding company, lending to its related entity in Brazil. The case involved the application of the Brazilian thin-capitalization rules. The Brazilian court ruled that the lender, a Netherlands holding company, had insufficient economic activities. Hence, the thin-capitalization rules applied and part of the interest was not-deductible in Brazil. Consequentially, it resulted in (a partial) double taxation for the Group.

Interrelating treaties lower the WHT on Dividends between South Africa and the Netherlands

Tax courts in the Netherlands and South Africa have confirmed that the effective withholding tax (“WHT”) rate on dividends under the Netherlands – South Africa Double Tax Avoidance Agreement (“NL – SA DTAA”) is 0%, should a company hold at least 10% of the shares in the company paying the dividend. This rate remains conditional upon two factors: the exemption from dividend WHT in the South Africa – Kuwait DTAA (“KU – SA DTAA”) remaining in force and the most favoured nation clause in the South Africa – Sweden DTAA (“SW – SA DTAA”) remaining unchanged. The decisions of the Tax Courts, which apply to dividends flowing between South Africa and the Netherlands, has interesting implications for multinational companies looking to invest in the Netherlands or in South Africa.

Google Ireland not taxable in France via its French subsidiary

On 25 April 2019 the Paris Administrative Court of Appeal confirmed the decision ruled on 12 July 2017 by the first-instance Court that Google Ireland Limited did not have a permanent establishment in France between 2005 and 2010 and was therefore not taxable in France. The key question before the first-instance Court in the original case was if Google Ireland Limited had a permanent establishment (PE) in France. The French tax administration (FTA) argued that the online advertisement services that Google Ireland Limited provided to customers in France through a French Google subsidiary (Google France SARL) constituted a PE in France, and was therefore taxable. The Paris Administrative Court of Appeal found that the establishment in France did not have the capability to carry out the advertising activities in France on its own behalf and declined the statement of the FTA.

CJEU cases on beneficial ownership and treaty abuse – case overview

On February 26, 2019, the Court of Justice of the European Union (CJEU) issued its landmark judgements in six cases which deal with the application of the EC Parent-Subsidiary Directive and the EC Interest and Royalty Directive. The majority (5 out of 6) of the cases involved Luxembourg or Cyprus holding and financing companies. Effectively the Luxembourg and Cyprus holding companies formed part of a pooled investment group collecting funds from generally non-EU investors.