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Business Tax Briefing - 19/05/2017


BEPS update: transfer pricing
We understand that consensus has been reached on the Discussion Draft on the Attribution of Profits to Permanent Establishments and that the document will be released publicly towards the end of June.  The updated version will cover both attribution under the Authorised OECD Approach (the new guidelines adopted when the business profits article was updated in 2010) and attribution without applying the Authorised Approach. The Draft on Profit Splits is expected around the same time, and that on transfer pricing of financial transactions a little later. The latter covers guarantees, treasury companies and cash pooling and now includes commentary on risk-free and risk-adjusted returns.  

General Election 2017: manifestos
The following manifestos for the 2017 General Election were published this week:
·        Conservatives - http://deloi.tt/2rvvlgU
·        Labour - http://deloi.tt/2qnOanW The funding document is at http://deloi.tt/2pQXXA0
·        Liberal Democrat - http://deloi.tt/2rvjdf8 The costing summary is at http://deloi.tt/2qx5x6f

G7 Finance Ministers and Central Banks' Governors meeting
The G7 Finance Ministers and Central Banks' Governors met in Bari, Italy on 12-13 May 2017.  The communiqué states that ‘timely, consistent and widespread implementation of the G20/OECD BEPS package is crucial.’  It calls on all jurisdictions to sign and ratify the multilateral Convention on Mutual Administrative Assistance in Tax Matters and urges all relevant countries to commit to implementing the Common Reporting Standard on automatic exchange of financial account information, which will commence in September 2017, and to take the necessary action to start exchanges by September 2018 at the latest. All countries are also encouraged to sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS. See http://deloi.tt/2pWErBr

Dbriefs webcasts
The next Dbriefs webcast is on Wednesday 31 May at 12.00 BST/13.00 CEST. The topic is Comparables And Economic Valuation In The EU and it is from our transfer pricing series. André Schaffers will be hosting and during the webcast our panel of experts will discuss the recent studies by the European Commission on comparables and economic valuation in transfer pricing issues and what their impact might be on your organisation. To register for the webcast, click here.

Berlioz: CJEU judgment on cross-border information request
The CJEU has given judgment in Berlioz Investment Fund. A French company paid a dividend to its Luxembourg parent company and did not deduct tax at source. The French tax authorities asked the Luxembourg tax authorities to obtain various pieces of information from the company about who had received the dividend, and their shareholdings in the parent company. The Luxembourg tax authorities wrote to the parent company requesting the information asked for by the French authorities, but the company declined to give it. The Luxembourg tax authorities then imposed a fine on the Luxembourg company, which appealed to the Luxembourg Courts. The CJEU was asked whether the Luxembourg parent company was entitled to refuse to provide the information concerned. It held that there has to be judicial oversight of the process. In particular, the information has to be 'foreseeably relevant' to the enquiry in question.  See http://deloi.tt/2rflfUj

CJEU rules on competency of EU to sign trade agreements
The CJEU has given its judgment on the proposed free trade agreement between the EU and Singapore, holding that, where legislative competency is shared, both the national and regional parliaments must be involved in the approval process. According to the CJEU, the EU does not have exclusive competence in two areas: non-direct foreign investment (‘portfolio’ investments made without any intention to influence the management and control of an undertaking) and the rules governing dispute settlement between investors and member states. See http://deloi.tt/2rhVjaJ

Commission requests France to abolish withholding tax on non-resident companies in deficit
The European Commission has issued its monthly infringements package. The Commission has requested that France abolish a withholding tax that applies to dividends received in France by companies based in other EU or European Economic Area (EEA) Member States. The withholding tax leads to immediate taxation, without the possibility of a refund of the dividends paid to an EU and EEA company: first, when the company is in structural deficit, even though French companies do not pay this tax in comparable situations; second, when the company is in a temporary loss-making phase, even though French companies facing the same difficulties are subject to taxation only when the firm regains its surplus. An amendment adopted by France in 2015 applies only to non-resident companies facing both deficit and liquidation. If the French authorities fail to respond within two months, the case may be referred to the CJEU. See http://deloi.tt/2rw3gpV

Belgium 'fairness tax: Parent-Subsidiary Directive: CJEU judgment
The CJEU has issued its judgment on the Belgian ‘fairness tax.’  Belgian tax law enables undertakings to carry forward losses without limitation to future assessment periods and to claim a deduction for so-called 'risk capital'. A tax called the ‘fairness tax’ applies where companies distribute profits but have effectively lowered their liability for tax on profits in the same taxable period through the use of such deductions. The CJEU held the freedom of establishment does not bar Belgium from imposing the tax on non-resident companies with permanent establishments in Belgium, provided the non-resident company is not treated less favourably than a resident company (which is a matter for the referring Court to determine) and that the profits are not taxed at a level exceeding the 5% ceiling provided for in Article 4(1)(a) of the Parent-Subsidiary Directive. See http://deloi.tt/2pWNJ0U

Vital Nut: Upper Tribunal considers customs duty on preserved papaya
It may not be immediately obvious whether the crystallised papaya in your tropical fruit muesli has been preserved by boiling in syrup rather than by osmotic dehydration in a sugar solution. However, if it has been boiled, it attracts a higher rate of customs duty. The Upper Tribunal has now ruled how preserved papaya should be classified. In its view, the First-tier Tribunal was right to examine the objective characteristics of the papaya, and then to consider the production processes. Although the First-tier Tribunal’s original decision was clearly mistaken in finding that Vital Nut had produced ‘no evidence’ about the production processes at the relevant time, it was entitled to review its decision and substitute ‘insufficient evidence’. The Upper Tribunal decided that there were no grounds on which to overturn that finding, and dismissed Vital Nut’s appeal. See http://deloi.tt/2qwkpkC    To discuss the case, or its implications, please contact Jeffrie Mann on 020 7007 6975.

VAT: Litdana: CJEU considers cross-border second-hand car sales
Litdana, a car dealer based in Lithuania, purchased second-hand cars from Handicare Auto in Denmark. Handicare did not charge VAT, stating on its invoices that the second-hand margin scheme was being applied, and also that the supplies were VAT exempt. The Lithuanian tax authority considered that this description indicated something suspicious, and Denmark subsequently confirmed that the cars in question did not qualify for the margin scheme. Lithuania therefore assessed Litdana for VAT on the full sale price. In its judgment, the CJEU has taken a rather more forgiving approach. The invoices, although ambiguous, would not arouse the suspicions of a prudent trader who is not a VAT expert as to the existence of an infringement or fraud committed by a trader at an earlier stage in the transaction chain. Provided that Litdana acted in good faith, and took every reasonable measure to check that the margin scheme had been applied properly (and its long-standing commercial relationship with Handicare was relevant in this regard), the Lithuanian tax authority was not entitled to deny it the benefit of the margin scheme. See http://deloi.tt/2qBENPY   To discuss the case, please contact Darren Hattersley on 0113 292 1739.


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