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KPMG EU Tax Centre E-News Summary – Issue 134 (June 14, 2021)

Core Content Overview

This summary highlights key developments in EU and international tax policy, focusing on infringement procedures, EU institutions, OECD updates, local laws, and court rulings. It also includes insights from KPMG on tax transparency and reporting.

Infringement Procedures & Referrals to CJEU

• Bulgaria: The European Commission sent a letter of formal notice on June 9, 2021, regarding Bulgaria's exemption from CFC rules for subsidiaries under "alternative forms of taxation," which violates ATAD 1.

  • Bulgaria has two months to respond, after which the Commission may issue a reasoned opinion.

• Sweden: An additional letter of formal notice was sent on June 9, 2021, concerning the interest deduction limitation rules.

  • The 2019 amendments did not resolve the infringement, as the rules still restrict interest deductibility regardless of arm's length terms.
  • The Commission cited the Lexel case (C-484/19) to emphasize the infringement of the freedom of establishment.

• Germany: The Commission issued a reasoned opinion for failing to implement ATAD 1 and ATAD 2 by December 31, 2019.

  • If Germany does not address the issue, the Commission may refer the case to the CJEU.

• Germany – CJEU Jurisdiction: The Commission sent a letter of formal notice to Germany for breaching EU law by not respecting the CJEU's jurisdiction.

  • The German Constitutional Court's ruling that a CJEU decision was "ultra vires" is seen as a serious precedent for all Member States.

EU Institutions

European Commission

• Consultation on Shell Entities: Launched a second step of a consultation on fighting the misuse of shell entities.

  • Aims to improve the efficiency of existing rules, introduce a common definition of shell companies, and enhance compliance measures.
  • Deadline for responses: August 27, 2021.
  • Legislative proposal expected in Q1 2022.

• European Tax Observatory: Launched on June 1, 2021, to support efforts against tax avoidance, evasion, and aggressive tax planning.

  • First report estimates that a global minimum tax of 15% could increase EU corporate tax revenues by EUR 50 billion in 2021.

European Parliament

• DAC Resolution Effectiveness: The ECON committee adopted a resolution on the implementation of DAC, highlighting the need for refinement of the EOI system.

  • Recommendations include broadening the scope of DAC, aligning with OECD CRS and US FATCA, and improving tax administration capacities.

• G7 Summit & EU-US Summit: MEPs debated topics for the G7 and EU-US summits, including the global minimum tax.

  • Some MEPs considered the 15% rate insufficient, while others expressed concerns about Member State acceptance.
  • A coordinated approach with Russia and China was also discussed.

• Cyprus Tax Reform: Cyprus's Finance Minister discussed the country's stance on global minimum tax and CbC reporting.

  • Cyprus maintains that tax matters are national competence.

• FISC – France Exchange: The FISC (Subcommittee on Tax Matters) will meet with the French Finance Committee to discuss taxing the digital economy.

  • This is part of a series of meetings to enhance cooperation between EU and national parliaments.

• Harmful Tax Practices Report: A study was released on harmful tax practices in the EU, including lower corporate tax rates, patent boxes, shell companies, etc.

  • Recommendations include qualified majority voting in the Council, reform of the Code of Conduct Group, and common consolidated tax base.

Council of the EU

• Code of Conduct Group (COCG) Report: Published on June 4, 2021, on the Group's work during the Portuguese Presidency.

  • Covered updates on non-cooperative jurisdictions, beneficial ownership, and Russia's tax regime.
  • The Group found the Russian tax regime harmful and will seek a commitment from Russia.

• CbC Reporting Compromise: Member State representatives on Coreper approved the compromise text for public CbC reporting.

  • The directive will be published in the Official Journal and enter into force 20 days after.
  • Member States have 18 months to transpose the directive into national law.

OECD and Other International Institutions

• G7 Communique: The G7 agreed to support the OECD Inclusive Framework on global minimum tax and digital tax reforms.

  • The communique reflects a coordinated effort to address tax challenges from globalization and digitalization.

• OECD Model Tax Convention: Comments were published on proposed changes to the Commentaries on Article 9.

  • The changes aim to align with the OECD Transfer Pricing Guidelines.
  • KPMG provided a response to these changes.

Local Law and Regulations

Cyprus

• DAC6 Deadline Extended: Deadline for DAC6 reporting extended to September 30, 2021.
• Double Tax Treaty with Netherlands: A new double tax treaty was signed, with withholding tax rates set for dividends, interest, royalties, and capital gains.

Jersey

• Economic Substance Rules for Partnerships: Draft legislation extends economic substance rules to resident partnerships.

Denmark

• ATAD-Compliant CFC Rules: Approved CFC rules to align with ATAD.
• Effective from July 1, 2021.

Finland

• Group Deduction Guidance: Guidance issued on new group deduction rules for final losses of EEA subsidiaries.

France

• Loss Carry-Back Rules: Draft bill allows losses from 2020 to be carried back up to three years, removing the EUR 1 million limit.

Germany

• Corporate Tax Modernization: Draft bill approved by the lower house for taxing partnerships as corporations.
• Next steps: Approval by the Federal Council (Bundesrat) required.

Ireland

• Economic Recovery Plan: Includes extension of CRSS, new BRSS, extension of tax debt warehousing, and extension of EWSS.
• Commitment to 12.5% tax rate: Reaffirmed in line with OECD discussions.

Lithuania

• Loss Carry-Back: Approved a provision allowing carry-back of 2020 losses to 2019.

Netherlands

• Tax Loss Relief: Changes to loss set-off rules will take effect from January 1, 2022.
• Termination of Double Tax Treaty with Russia: Effective from January 1, 2022.

Spain

• Digital Services Tax: Finalized procedures for the digital services tax, including the 490 Form for quarterly reporting.
• Tax Return Guidelines: Draft guidelines issued for practical application of the tax.

Turkey

• Multilateral Agreements: MCAA and CRS agreements entered into force retroactively from 2020.

United Arab Emirates

• Tax Penalty Clarifications: Cabinet Resolution 49/2021 revised penalties for tax violations.
  • 4% monthly penalty is waived for voluntary disclosures within 20 days.
  • 70% penalty reduction available for pre-April 2021 violations.

Local Courts

Austria

• Hidden Profit Distribution: The Austrian Supreme Court ruled that a hidden distribution can be re-qualified as a repayment of equity if the company has sufficient shareholders' equity.
  • The company must declare its decision to the tax authority by the end of the year.

Germany

• Cross-Border Company Split-Up: The Federal Tax Court confirmed that the "company split-up" principle applies to cross-border transactions.
  • This is the first ruling on this principle in a cross-border context.

KPMG Insights

EU Tax Perspectives Webcast

• Replay and presentation available for the June 1 webcast on EU tax developments.
• Covered BEPS 2.0, CbC reporting, and harmful tax competition.

Tax Impact Reporting

• KPMG offers a service to help businesses with tax transparency and ESG compliance.
• Benefits include confidence-building, data-driven tax footprint analysis, and compliance guidance.

Key Takeaways

• Infringement procedures are active in several EU countries, with the Commission pushing for compliance with ATAD rules and CJEU jurisdiction.
• Tax transparency is a growing focus, with CbC reporting and DAC6 being central to EU policy.
• International cooperation is key, with the OECD and G7 driving global minimum tax and digital tax reforms.
• National reforms are taking place, including loss carry-back, tax penalty adjustments, and new double tax treaties.