FS Tax Newsletter | August 2020
Dear FS Professional,
First of all, we hope that you, your families, colleagues and friends are still doing well and keeping safe. At the same time, we hope you and your loved ones are able to enjoy the summer in these unprecedented times. Living and working under a multiplicity of government and corporate measures is impacting our lives and businesses in every imaginable way. We see that various countries are gradually lifting their lockdown measures, yet at the same time measures are being (re-)introduced to limit the impact of a potential second wave. We understand this can lead to confusion about the ins and outs of traveling and conducting business. Please click here for our information page on the coronavirus or click here for regularly updated (by KPMG member firms) information on measures taken by governments worldwide.
In this edition of the FS Tax newsletter we discuss two judgments by the Court of Justice of the European Union in VAT cases: firstly, in the A Oy case, the Court established that co-location services do not constitute the leasing of or service attributable to immovable property. Secondly, in the BlackRock case, the Court confirmed that the provision of a single management service is not partially VAT-exempt.
As for additional EU-developments, we also discuss the request for a preliminary ruling from the CJEU by an Austrian court following two domestic cases concerning the VAT exemption for mutual investment fund management. In dispute in these cases is whether IT and administrative services qualify for this exemption.
As for the Netherlands, a legislative proposal has been submitted by the Dutch Deputy Minister of Finance to introduce an additional withholding tax on dividends to low tax jurisdictions, with a suggested entry into force as of 2024. Additionally, the Dutch guidance on FATCA/CRS obligations has been updated, with numerous editorial and technical changes.
If you would like to know more about the matters addressed in this newsletter please contact us.
For tax-related topics not included in this FS Tax Newsletter, please visit our website.
Niels Groothuizen, Partner, Financial Services Tax Group
Table of Contents
- 1. Confirmation by CJEU in BlackRock case: a single management service is not partly VAT-exempt
- 2. CJEU in A Oy case: co-location services do not constitute the leasing of immovable property, nor any other immovable property service
- 3. Request for a preliminary ruling from the CJEU in Finanzamt Linz and DBKAG cases
- 4. Withholding tax on dividends to low tax jurisdictions as of 2024
- 5. Dutch guidance on FATCA/CRS obligations updated
1. Confirmation by CJEU in BlackRock case: a single management service is not partly VAT-exempt
On July 2, 2020 the Court of Justice of the European Union (‘CJEU’) rendered judgment in the BlackRock Investment Management (UK) Limited case (C-231/19). In this case the CJEU addressed whether a purchased single service can, for VAT purposes, be split in such a way that part of the payment for that service is VAT-exempt under the exemption for the management of special investment funds, while the other part is treated as VAT-taxed. BlackRock UK argued that it should be possible to make such a split, because the purchased service was used for, on the one hand, the management of special investment funds (VAT-exempt) and, on the other, for funds that are not special investment funds (VAT-taxed). The CJEU did not agree with this position and concluded that a single fund management service cannot be partly VAT-exempt.
The CJEU judgment is in line with the Advocate General’s Opinion (we refer to our alert of March 12, 2020). For many market parties, the judgment will be disappointing. In his Opinion, the Advocate General indicated that he believed that a split into a VAT-exempt and a VAT-taxed part was conceivable in some cases, i.e. where sufficient information is available to precisely and objectively determine which part of the payment relates to the VAT-exempt services. However, the CJEU did not address this point, so that it remains unclear whether a split is indeed impossible in all cases.
Although not explicitly addressed by the CJEU, its starting point is that the IT services that BlackRock UK purchases can, in principle, be regarded as management within the meaning of the exemption for the management of special investment funds. That the service cannot be (partly) VAT-exempt in the case at hand is only because the services are not just used for SIFs. This is a welcome confirmation, because in the Dutch practice is it often unclear which IT service could fall within the scope of a financial exemption. We therefore recommend that you take another look at any services purchased that are performed on a technological basis, and critically evaluate them.
To read our full tax alert, please click here or contact Gert-Jan van Norden or Irene Reiniers.
2. CJEU in A Oy case: co-location services do not constitute the leasing of immovable property, nor any other immovable property service
On July 2, 2020 the Court of Justice of the European Union (‘CJEU’) rendered judgment in the A Oy case (no. C-215/19). The case concerned whether co-location services must be regarded as the leasing of immovable property or as another immovable property service. The CJEU ruled that the co-location services in this case do not constitute the leasing of immovable property nor any other immovable property service. We believe that the CJEU thus ruled that the co-location services in this case are general services. The difference in VAT treatment between immovable property‑related services and general services is a fundamental one in practice and can be of commercial importance for data centers and their customers. In many EU Member States the VAT treatment of co-location services is not uniform and this judgment thus provides practical guidance.
This CJEU judgment is a welcome practical clarification of when co-location services are general B2B services that are subject to VAT in the country of the customer under the reverse-charge mechanism. This was already an approach accepted in Dutch case law and in Dutch practice. It now also appears to have been accepted at the European level.
To read our full tax alert, please click here or contact Gert-Jan van Norden, Andy van Esdonk or Willeke Tigchelaar.
3. Request for a preliminary ruling from the CJEU in Finanzamt Linz and DBKAG cases
An Austrian court has sought a preliminary ruling from the Court of Justice of the European Union (‘CJEU’) in the Finanzamt Linz (case no. C-58/20) and DBKAG (case no. C-59/20) cases. At issue in these cases is whether certain IT and administrative services can be regarded as VAT-exempt fund management.
The Finanzamt Linz case concerns administrative services comprising the calculation of yields for tax purposes. The DBKAG case concerns the making available of IT software used for risk management and performance measurement.
In the Netherlands, the extent to which IT services may fall within the scope of the VAT exemption has not been clarified. The CJEU did recently deal with this issue in the BlackRock case (case no. C-231/19). However, in that case the national court had already concluded that the exemption applied, which meant that the CJEU did not have to address this question.
These cases are extremely important for investment funds, pension funds and fund managers. If the CJEU ultimately rules that such services are indeed VAT-exempt, this will result in a tax benefit, because the purchaser of such fund management services generally does not have a VAT recovery right. It is advisable to assess now whether these judgments are relevant for your organization and, if so, to secure your rights.
For more information on this matter, please contact Gert-Jan van Norden or Jochum Zutt.
4. Withholding tax on dividends to low tax jurisdictions as of 2024
By letter dated May 29, 2020 to the Lower House of Parliament, the Deputy Minister of Finance announced that as of January 1, 2024 dividend flows to low tax jurisdictions will be subject to tax. Measures to realize this will be worked out in detail before the government’s term of office ends. The reason for this is because the government wants to put an end to the Netherlands being used as a gateway to low tax countries. To this end, it had already been determined by Act of Parliament that withholding tax on interest and royalties would be introduced as of January 1, 2021. As of 2024, that tax will be supplemented with a withholding tax on dividends. The measure will apply to cash flows to countries with a profit tax rate of less than 9% and to countries appearing on the EU blacklist, even if the Netherlands has a tax treaty with these countries.
To read our full tax alert, please click here or contact Otto Marres, Fred van Horzen, Michael van Gijlswijk or Bauco Suvaal.
5. Dutch guidance on FATCA/CRS obligations updated
On July 2, 2020 the Ministry of Finance published the new Guidance FATCA/CRS with technical explanatory notes to the NL IGA and the CRS regulations (“Guidance”) dated June 23, 2020. The decree contains a number of editorial and technical changes.
Included in the new Guidance are the CRS/FATCA Questions and Answers Decree dated March 13, 2018, law amendments such as the introduction of the General Data Protection Regulation (GDPR) (Algemene Verordening Gegevensbescherming; AVG) and the implementation of the directive on basic payment accounts in the Financial Supervision Act. In addition to this, several sections have been changed or deleted as a result of positions taken by the OECD. Lastly, the policy statement by the IRS dated September 6, 2019 regarding the simplified tax return for citizens who renounce their US nationality is included in the decree and more clarity has been given on the term ‘significant non-compliance’ in accordance with the answers to questions by the Lower House of Parliament on March 18, 2019 and July 3, 2019.
For more information on this matter, please contact Michèle van der Zande or Jenny Tom.
