Dear FS Professional,
With the end of the year less than a month away and the Christmas holidays fast approaching you are probably busy wrapping things up and setting goals for next year. This last FS Tax Newsletter for the year 2020 briefly summarizes the relevant tax developments of the last few months.
In this issue we address the latest state of affairs regarding the 2020 Tax Plan package, as well as the second amendment to the private member’s bill on the conditional final settlement of dividend withholding tax. The third legislative/policy development we address is the conditions for the corona-related temporary emergency bridging measure to retain jobs (NOW 3), as well as changes to two earlier measures. As for VAT developments, we elaborate on the request submitted to the CJEU for a preliminary ruling on the permanent establishment concept for VAT purposes and the CJEU judgment regarding the non-deductibility of VAT for ‘setting aside’ raised capital after the unsuccessful acquisition of a participation. As for domestic case law, we address the Supreme Court judgment regarding withholding tax on dividends paid to foreign investment funds.
With the end of the year in sight, we would also like to draw your attention to our overview of year‑end 2020 tax accounting considerations and the new substance requirements for the exchange of information on financial service entities, which were announced at the end of 2019 and will take effect on January 1, 2021.
Ultimately, as of 1 January 2021, the Mandatory Disclosure Regime requires taxpayers and qualifying intermediaries to report certain arrangements that were implemented from 25 June 2018 and onward. We would like to draw your attention on the assistance Meijburg can offer to maintain compliant to these obligations through e-learning modules and a managed service reporting solution.
For other tax-related issues not included in this FS Tax Newsletter, please visit our website.
If you would like to know more about the matters addressed in this newsletter please contact us.
Niels Groothuizen, Partner, Financial Services Tax Group
Table of Contents
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1. Lower House of Parliament adopts 2021 Tax Plan package and bill on the Liquidation and Cessation Loss Schemes Limitation Act
On November 12, 2020, the Lower House of Parliament adopted the 2021 Tax Plan package and the bill on the Liquidation and Cessation Loss Schemes Limitation Act. The 2021 Tax Plan package contains the following bills:
- 2021 Tax Plan
- Other tax measures 2021
- Improved Feasibility of Allowances Act
- CO2 tax on Industrial Emissions Act
- Differentiation of Real Estate Transfer Tax Act
- Changes to Box 3 Act
- One-off rent reduction low-income tenants
- Determination of surcharge rates for sustainable energy and climate transition (opslag duurzame energie- en klimaattransitie) 2021 and 2022
For a more detailed explanation of the proposals as these were presented to the Lower House, we refer to the October 2020 issue of our FS Tax Newsletter for a summary of the relevant aspects for the FS sector. For a complete overview of all announced measures, we refer to our general Budget Day memorandum. With regard to the tightening of the loss set-off for corporate income tax purposes as of 2022 and the Job-related Investment Allowance (Baangerelateerde Investeringskorting; BIK, for 2021 and 2022) two separate Memorandums of Amendment to the 2021 Tax Plan were presented to the Lower House on October 5, 2020 (see our separate memorandum).
Amendments and motions were also adopted in the vote on November 12, 2020, but are not directly FS-related. For completeness: motions and amendments to the 2021 Tax Plan that were adopted are in relation to the percentages for the remittance reduction for the BIK, he current gift tax exemptions, the abolishment date of the Reduced Energy Tax Rate Scheme. For real estate transfer tax, amendments were adopted regarding the one-off exemption for homebuyers and the increase of the real estate transfer tax rate.
The adopted amendments are now being incorporated into the bills, after which they will be debated in the Upper House of Parliament in the coming weeks. Unlike the Lower House, the Upper House cannot make any changes, but can only adopt or reject the bills in their entirety (although the latter is unlikely). The Upper House will vote on the bills in mid-December 2020. The adopted motions described above will probably be implemented, because the Deputy Minister of Finance has not advised against them.
For more information on this matter please follow this link or contact Paul te Boekhorst or Bauco Suvaal.
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2. Second amendment to private member’s bill on conditional final settlement of dividend withholding tax
On October 9, 2020 Lower House MP Bart Snels (of the GroenLinks parliamentary party) once again amended his private member’s bill on the ‘Conditional Final Settlement of Dividend Withholding Tax Emergency Act’, which he had submitted on July 10, 2020. You can read more about the submitted bill in our memorandum dated July 13, 2020.
Mr. Snels had already submitted a Memorandum of Amendment on the bill on September 18, 2020, in which he also announced that more changes would follow. In response to criticism from the Council of State, he finally submitted a completely new text and Explanatory Memorandum to the Lower House of Parliament on October 9, 2020.
By removing the criterion that the company was part of a group with a consolidated net turnover of EUR 750 million, the scope of the bill has been expanded. This expansion is somewhat eased by limiting the bill to a withholding agent with a distributable profit of more than EUR 50 million. It is noteworthy that the private member has practically ignored the criticism of the bill by tax specialists where this concerns it being contrary to EU law and tax treaties concluded by the Netherlands.
The question is also whether the right to recourse against shareholders proposed by Mr. Snels can be realized under civil law. In particular, we do not believe this will be a simple matter in respect of cross-border mergers, split-offs/divisions or share mergers. After all these reorganizations are partly controlled by, among other things, relevant foreign law and stock exchange conditions. For the moment, it is unclear whether the bill can count on a parliamentary majority.
For more information on this matter please follow this link or contact Fred van Horzen, Mark Theunissen or Bauco Suvaal.
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3. Conditions for NOW 3, changes to NOW 1 and 2 and opening NOW 1 Subsidy Determination Desk
In recent months the Dutch government has supported the business sector in various ways, including by means of two emergency packages containing, among other things, the Temporary emergency bridging measure to retain jobs (Tijdelijke noodmaatregel overbrugging voor werkbehoud) (NOW 1 and NOW 2). On August 28, 2020 the government presented the relief and recovery package for businesses and workers as a follow-up to the first two emergency packages. This package took effect on October 1, 2020. NOW 3 is part of this package. In this context, the Minister of Social Affairs and Employment informed the Lower House of Parliament on September 30, 2020 about the precise conditions of NOW 3, several changes to NOW 1 and NOW 2 and about the opening of the NOW 1 Subsidy Determination Desk.
In essence NOW 3 is comparable to NOW 1 and 2, i.e. compensation for payroll costs that is based on the loss of turnover and the payroll, with the aim being to retain as many jobs as possible. NOW 3 is aimed at providing longer certainty to employers about the compensation of payroll costs. NOW 3 therefore has a term of nine months, spread over three tranches of three months. Just like NOW 1 and NOW 2, the aim is to retain jobs as much as possible. Because the corona crisis is lasting longer than initially thought, NOW 3 offers employers time to adjust their business operations to the new reality, without the associated decline in the payroll automatically triggering a reduction of the subsidy amount.
As of October 7, 2020 an application for the final subsidy (determination of the final subsidy amount) may be submitted. An employer has 24 weeks to do so. This period is 38 weeks if an employer has to provide an auditor’s statement. The UWV has 52 weeks to decide on the application, but aims to provide a definite answer by the end of November if possible.
If the determination of the final subsidy amount means that an employer has to repay some of the subsidy, a payment deadline of six weeks applies for this. It can request a payment arrangement within this period. The UWV will deal favorably with these requests and will generally offer businesses a payment arrangement of 12 monthly installments. If this payment arrangement also fails to provide relief, the UWV, together with the employer, will look for a customized solution.
For more information on this matter please follow this link or contact Jurgen Stormmesand, Bauco Suvaal or Paul te Boekhorst.
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4. New questions to CJEU: towards a broader concept of fixed establishment for VAT purposes?
A Romanian Court recently sought a preliminary ruling from the Court of Justice of the European Union (“CJEU”) about the concept of fixed establishment for VAT purposes in the Berlin Chemie A. Menarini SRL case (‘BCAM’, case no. C-333/20, submitted July 22, 2020).
The case concerns a company established in Romania, BCAM, that performs services for its affiliated second-tier parent company Berlin Chemie AG (‘BC’) established in Germany. The question is whether BCAM must be regarded as a fixed establishment of the German second-tier parent company BC. After the recent CJEU judgment in the Dong Yang case (C-547/18) and the request for a preliminary ruling in the Titanium case (C-931/19), the present case again shows that the concept of fixed establishment for VAT purposes is evolving. We will, of course, have to wait for the CJEU’s judgment, but it is clear that it may have consequences for internationally operating businesses with (sub-)subsidiaries in other EU Member States.
For more information on this matter please follow this link or contact Leo Mobach or Rahiela Abdoelkariem.
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5. CJEU: no VAT deduction for ‘setting aside’ raised capital after unsuccessful acquisition of a participation
On November 12, 2020, the Court of Justice of the European Union (hereinafter: CJEU) rendered judgment in the Sonaecom case (C-42/19). The CJEU followed the Opinion issued by Advocate General Kokott (hereinafter: AG) and ruled that VAT may be deducted on purchased services in the event of a proposed but unrealized share acquisition. Furthermore, the CJEU confirmed that the ‘setting aside’ of capital in the form of a provided interest-bearing loan results in a VAT deduction limitation on the associated costs. Due to the corona crisis, many acquisition processes have been put on hold for a while. The negotiations have not, for example, been definitely terminated, but parties remain in discussion with one another. Even without a crisis, an acquisition or investment may be postponed for a certain period. It is then important for the investing party to anticipate the VAT implications of the temporary postponement of the transaction and, in particular, the manner in which the investor temporarily sets aside the raised capital.
For more information on this matter please follow this link or contact Gert-Jan van Norden or Rahiela Abdoelkariem.
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6. Dutch Supreme Court decision on Dutch withholding tax on dividends paid to foreign investment funds
On October 23, 2020 the Dutch Supreme Court issued its ruling in the Köln Aktienfonds Deka case (C-156/17) concerning the compatibility with EU law of Dutch withholding tax on dividends distributed to non-resident investment funds. The Supreme Court ruled that its earlier judgments from 2013 and 2015 were an incorrect interpretation of EU law and that foreign investment funds should be entitled to a refund of the Dutch dividend withholding tax paid if certain conditions are met. These conditions are however very difficult to meet. Furthermore, it seems that foreign funds – unlike Dutch funds – are not provided with a mechanism to avoid economic double taxation.
Many foreign investment funds were looking forward to the Dutch Supreme Court decision. Although the Supreme Court acknowledged that it had applied EU law incorrectly in its judgments in 2013 and 2015 (concerning a Finnish and a Luxembourg investment fund), this ruling does not provide the clarity everyone had hoped for, because many elements of the decision are either unclear or possibly contrary to EU law. Under EU law, the system introduced by the Supreme Court – in terms of avoiding economic double taxation – should not be to the detriment of foreign funds. It is unclear how economic taxation is avoided in the solution of the Supreme Court.
For that reason, one would hope that the European Commission intervenes as it did in Denmark in November 2019 after the 2018 CJEU ruling in the Fidelity Funds case (see this link). The next step in the this case is that the Court of Appeals – that referred questions to the Supreme Court, which now have been answered – will resume the court proceedings based on the input received from the Supreme Court (and CJEU).
For more information on this matter please follow this link or contact Robert van der Jagt, Otto Marres or Michael van Gijlswijk.
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7. Year end 2020 tax accounting considerations
The announced 2021 Tax Plan may have a significant impact on those financials and especially the income tax position. The impact should be reflected once the 2021 Tax Plan is (substantively) enacted. On November 12 the announced measures were adopted by the Lower House of Parliament. The 2021 Tax Plan is substantively enacted once the Upper House of Parliament has voted in favor of the announced measures, which is currently scheduled for December 15, 2020. In our memorandum, we highlight the main tax accounting consequences of the 2021 Tax Plan.
Please find the abovementioned memorandum through this link or contact Jan Moret, Ivor Lacroix, Eveline Gerrits or Franklin Hundscheid for more information.
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8. Substance requirements
At the end of 2019, the Deputy Minister of Finance published a draft of the proposed changes to the International Assistance in the Levying of Taxes Act (IALTA) Implementation Decree, which will enable financial service entities within a group to demonstrate their actual presence in the Netherlands. Based on the draft changes, the payroll requirement of EUR 100,000 and the office space requirement of 24 months will also be included. The requirements currently included (the requirements that the place of business must be in the Netherlands and that the taxpayer must not be regarded as a tax resident in and by another country) will be canceled in order to maintain consistency and due to their limited added value.
At the time, the Deputy Minister had explicitly promised that the draft changes to the IALTA Implementation Decree should not enter into force before January 1, 2021. This specifically means the two additional requirements will also have to be met throughout the whole of 2021 in order for the taxpayer to state in their corporate income tax return for 2021 that all the substance requirements have been met (and thus avoid the exchange of information). In such cases, steps will therefore have to be taken before January 1, 2021.
Should you have any questions on this matter, feel free to contact your regular contact or Bauco Suvaal for more information.
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9. DAC6 - E-learning and managed service reporting solution for intermediaries and taxpayers
As from 1 January 2021, taxpayers and intermediaries are required to report certain arrangements under DAC6, also known as the Mandatory Disclosure Regime (MDR) for tax arrangements that were entered into since 25 June 2018. To accommodate taxpayers and qualifying intermediaries with the compliance obligations, Meijburg & Co and KPMG have developed and offer to their clients DAC6 E-learning modules and a managed service reporting solution to provide assistance with internal training, assessing, tracking and reporting cross-border arrangements under the MDR.
E-learning modules: Through the E-learning, which consist of five 15-minute modules followed by a final assessment, clients are provided with the essential concepts and topics from the DAC6 using a mixture of interactive questions, animations and videos. It furthermore provides practical examples based on relevant topics to the Financial Services industry. Our modular approach allows awareness to be raised throughout the business or targeted to a business area where the training need is identified from an impact assessment as well as providing more detailed training to the tax department or heavily impacted business areas.
Incorporating our deep technical expertise and practical knowledge of best practice to implementation, easily provided to 1-1000 users, KPMG E-learning is cost-effective and quick to deploy consistently throughout a business in comparison to traditional training methods, whilst completion can be evidenced to demonstrate a robust compliance regime.
Managed Services Reporting Solution: KPMG’s DAC6 Managed Service reporting solution is designed to assist businesses with their reporting obligations. This is a tailored approach ranging from assisting business with reviewing potentially disclosable transactions to submitting disclosures on behalf of businesses using KPMG’s proprietary DAC6 reporting technology, which can be provided in three different assistance levels. Under level 1 assistance, Meijburg & Co will submit disclosures on behalf of Intermediaries or relevant taxpayers, where a reporting obligation has been identified. Under level 2, Meijburg & Co will review arrangements that Intermediaries or relevant taxpayers have identified as potentially reportable under DAC6, and will analyse and provide recommendations on whether arrangements are reportable and in which jurisdiction this should take place. Meijburg & Co will then submit the disclosures or provide back to the client for submission in the appropriate file format. Level 3 provides a bespoke service tailored to the specific requirements of the businesses, especially for arrangements with the greatest complexity.
Our managed service offering will be delivered by our EU-wide network of DAC6 specialists using our KPMG DAC6 proprietary reporting software. We cover all EU jurisdictions and can submit where the rules allow third party submission.
For more information on this matter or the assistance Meijburg & Co can offer regarding DAC6 reporting obligations, please download our factsheet or contact Robert van der Jagt.
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