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Summary of E-News from KPMG's EU Tax Centre (Issue 194)

Core Content

This E-News edition from KPMG's EU Tax Centre provides an overview of recent developments in EU and international tax law, with a focus on state aid, EU directives, and local regulations across multiple jurisdictions. It highlights key legal opinions, legislative updates, and administrative changes that may affect multinational enterprises (MNEs) and their tax strategies.

Main Viewpoints and Key Information

State Aid

• AG Opinion on UK CFC Regime:

  • Advocate General (AG) Laila Medina recommended the CJEU to set aside the General Court's judgment and annul the EC's decision on the UK's Finco Exemption.
  • The Finco Exemption allowed for partial tax exemption on non-trading finance profits of CFCs, which the EC found to be selective and potentially illegal under State aid rules.
  • AG Medina emphasized that the reference framework for determining selectivity should be the general UK corporate tax system, not the CFC rules alone.
  • The EC used the CFC rules as the reference system, but the AG argued this was legally incorrect.

• AG Opinion on Street Advertisement Tax Exemption:

  • AG Anthony Michael Collins concluded that the tax exemption for using display panels in Brussels conferred an economic advantage, thus violating EU State aid rules.
  • The exemption was part of a contractual agreement, but the AG stated that the plaintiff's ability to avoid marketing costs constituted a selective advantage.
  • The AG supported the Commission and General Court's findings and recommended the CJEU dismiss the appeal.

EU Institutions

• European Commission:

  • Updated Q&A on the Foreign Subsidies Regulation (FSR) was published, clarifying procedural and jurisdictional aspects.
  • The FSR requires that certain foreign financial contributions be included in notifications, even if they are not directly related to the concentration.

• European Parliament:

  • Adopted a resolution on the proposed Transfer Pricing (TP) Directive, which supports the Commission's initial proposal.

  • The resolution retains the reference to the 2022 OECD TP Guidelines and suggests re-establishing the European Forum on Transfer Pricing (EFTP).

  • The TP Directive is expected to apply from January 1, 2025, with transposition required by December 31, 2024.

  • Adopted a resolution on the proposed Head Office Tax (HOT) Directive, which supports the Commission's proposal and extends the scope to include up to two subsidiaries.

  • The HOT regime would apply for a renewable period of seven years, with a shortened transposition deadline to January 1, 2025.

Local Law and Regulations

• Austria:

  • Draft bill to transpose the EU Public CbyC Reporting Directive into local law was issued.
  • Includes a safeguard clause allowing temporary omission of CbyC data for five years, with the Commercial Registry Court having authority to scrutinize such omissions.
  • The threshold for CbyC disclosure is a net turnover of EUR 10 million in the last two reporting years.
  • Penalties for non-compliance include fines up to EUR 10,000 for companies and EUR 100,000 for representatives.

• Czechia:

  • Draft bill to transpose DAC8 into national law was adopted.
  • Introduces due diligence and reporting requirements for crypto-asset service providers.
  • Expands DAC3 and DAC6 reporting obligations.
  • Penalties for DAC6 non-compliance increased to CZK 1,500,000 (approximately EUR 59,400).
  • Further amendments to DAC6 rules are pending.

• Estonia:

  • Legislation was approved to implement minimum taxation under Pillar Two, deferring the application of the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) until December 31, 2029.
  • The legislation includes provisions for designating foreign constituent entities and exchanging information within the group to enable filing of the GloBE Information Return (GIR).
  • IIR and UTPR provisions are not included, and it is unclear if a domestic minimum top-up tax (DMTT) will be applied.

• France:

  • New rules introduced to avoid double taxation from the sale of a Controlled Foreign Company (CFC).
  • Dividends distributed under CFC rules are exempt from French corporate income tax (CIT), and capital gains from disposal of CFCs may also be exempt if taxed at the shareholder level.
  • These rules apply from March 30, 2024.

• Greece:

  • Enacted legislation to implement minimum taxation under Pillar Two, mirroring the OECD Model Rules.
  • Includes transitional safe harbors for Country-by-Country Reporting (CbyC), UTPR, and QDMTT.
  • The explanatory notes reference OECD Administrative Guidance.

• Iceland:

  • Fiscal Strategy Plan for 2025-2029 confirms intent to implement Pillar Two by the second half of 2024, with entry into force planned for 2025.
  • The plan expects increased tax revenue in 2026.
  • New disclosure rules on income derived from digital platforms were implemented in line with the OECD DPI-MCAA.

• Poland:

  • DAC7 draft legislation was adopted by the Council of Ministers.
  • The legislation aims to implement the EU Directive on cross-border payment information.

• Portugal:

  • New government proposes reducing the corporate income tax rate to 15 percent.

• Slovakia:

  • Public consultation on DAC8 transposition was launched.

• United Kingdom:

  • Updated draft guidance on R&D tax reliefs was published.

Local Courts

• Czechia:
  • Court judgments on the tax treatment of interest income and expenses were issued.

KPMG Insights

• The CJEU may not follow the AG's opinion in the UK CFC case, but it remains a critical reference for future rulings.
• The EC and Member States must consider EP resolutions when proposing new rules.
• Pillar Two implementation is progressing in several EU member states, with varying timelines and approaches.
• The transposition of EU directives into local law continues to be a key focus, with increased reporting and compliance requirements.

Conclusion

This E-News highlights the ongoing evolution of EU and international tax regulations, particularly in the areas of state aid, transfer pricing, and Pillar Two implementation. The key developments include legal challenges to existing tax regimes, new legislative measures, and administrative updates that affect MNEs' tax strategies and compliance obligations. KPMG advises that businesses should closely monitor these changes to ensure alignment with evolving tax frameworks.