FS Tax Newsletter | December 2022
Dear FS professional,
With the end of 2022 less than a month away and the holidays fast approaching you are probably busy wrapping things up and setting goals for next year. This FS Tax Newsletter briefly summarizes the relevant tax developments of the last few months. In this issue we will address the tax developments below.
For other tax-related topics 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.
Table of Contents
2. A CJEU judgment on VAT recoverability
3. A Supreme court judgment on VAT recoverability
5. Two Supreme court judgments on the VAT concept of ‘essentially a new building’
6. The legislative proposal for implementing CESOP
7. The revision of the policy statement on hybrid mismatches
8. Our VAT seminar held on November 15, 2022
9. Real estate fiscal investment institution to be abolished and changes to mutual funds
11. Court of Justice of the European Union rules on financial integration in a German VAT group
1. Tax measures for 2023
On Budget Day, September 20, 2022, the government presented the 2023 Tax Plan package to the Lower House of Parliament. It contains the following bills:
- 2023 Tax Plan
- Box 3 Restoration of Rights Act
- Box 3 Bridging Act
- Minimum CO2 Price on Industrial Emissions Act
- Delegation Provision (no late payment interest in specific cases) Act
- Amendment of the Environmental Management Act in connection with the transitional period for introducing a carbon border adjustment mechanism
- Amendment of the Child-related Budget Act to temporarily increase the child-related budget as a means of improving consumer purchasing power and amendment of the General Old Age Pensions Act and several other pieces of legislation in connection with the income support for old-age pensioners being abolished
Many of the proposed measures will take effect on January 1, 2023. In our memorandum, we have outlined the main features of the 2023 Tax Plan package. Where possible and relevant, we have included in the individual topics other tax measures and developments related to those topics, but have indicated that these are not part of the 2023 Tax Plan package. Please refer to the last section for miscellaneous tax developments.
You can find our memorandum on the tax measures for 2023 here.
2. CJEU does not allow VAT recovery for contribution in kind
The case focused on the VAT recovery right of a holding company that performs VAT-taxed services and also purchases services which it subsequently contributes to its two subsidiaries. The CJEU ruled that in this specific situation there is no right to recover the VAT on costs directly attributable to the contribution. The CJEU seems to have taken the VAT position of the subsidiaries, which have virtually no VAT recovery right, into account. Although the judgment was what was expected, we nevertheless have several reservations about the way in which the CJEU arrived at its ruling.
We believe that case law as developed by the CJEU with regard to the problem of the holding company and VAT recovery has not changed. Furthermore, the facts dealt with in this judgment are quite specific. However, what the case does show is that activities concerning shares always seem to have their own special implications for VAT, which require customized solutions.
For more information on this matter, please follow this link or contact Rahiela Abdoelkariem, Gert-Jan van Norden, Frank Prinsen.
3. Dutch Supreme Court persists with strict interpretation of actual use for VAT recovery right purposes
On November 11, 2022 the Dutch Supreme Court rendered judgment in an important case concerning the VAT recovery right of a bank. The bank in question wanted to determine the VAT recovery right on its mixed costs on the basis of a financial analysis of the profit and loss (‘P&L’) per product. It believed that this VAT recovery method constituted an ‘actual use method’ permitted for determining the VAT recovery right. The Court of Appeals in Den Bosch had ruled in favor of the taxpayer, but in the cassation proceedings the Supreme Court ruled that the Den Bosch Court of Appeals had interpreted the actual use method too liberally. The Supreme Court also ruled that the taxpayer should have applied the actual use method to all the mixed costs.
For more information on this matter, please follow this link or contact Irene Reiniers, Gert-Jan van Norden, Jochum Zutt.
4. Supreme Court: conversion of former wool factory into shopping mall results in ‘essentially a new building’ for VAT purposes
On November 11, 2022 the Supreme Court delivered a judgment in a case involving the question of whether the conversion of a building resulted in the creation of ‘essentially a new building’ for VAT purposes. The taxpayer in this matter acquired a former wool factory turned shopping mall in 2016; in the acquisition process, the taxpayer invoked the real estate transfer tax concurrence exemption. For this exemption to be applicable, the transfer of a building by the seller/property developer to the taxpayer must be subject to VAT by operation of law. For its part, the taxpayer was expected to argue that the conversion of the former wool factory into a shopping mall resulted in the creation of ‘essentially a new building’ for VAT purposes. The Supreme Court ruled that the building works to the property involved such extensive alterations to its structural construction that the only possible conclusion was that the works resulted in the creation of ‘essentially a new building’ i.e., a newly constructed building for VAT purposes.
Since, in its judgment of November 4, 2022, the Supreme Court ruled that ‘essentially a new building’ is not typically likely to be created, this case effectively concerns an exception to the rule. That said, it does offer a certain level of guidance for similar cases.
The question of whether a refurbishment results in the creation of a new building is of major practical relevance and always requires a case-by-case review, as the Supreme Court said. The advisors of KPMG Meijburg & Co’s Real Estate Indirect Tax Group can help you review whether or not ‘essentially a new building’ has been created. Please feel free to contact one of them or your regular advisor.
For more information on this matter, please follow this link or contact Han Leijten, Paul Zijlstra, Willeke Tigchelaar.
5. Supreme Court answers questions about concept of ‘essentially a new building’ for VAT purposes
On November 4, 2022 the Supreme Court issued a preliminary ruling in reply to questions referred to it by the District Court of Zeeland West-Brabant about the concept of ‘essentially a new building’ for VAT purposes. The case before the Supreme Court involved a dispute as to whether the acquisition of an office building that had been converted into a hotel should be exempt from real estate transfer tax for reasons of VAT concurrence. To be exempt from real estate transfer tax, the transfer of the hotel building to the taxpayer must be subject to VAT by virtue of law. To achieve this, the refurbishment is to have resulted in ‘essentially a new building’. The District Court asked the Supreme Court for its opinion on the circumstances under which a property qualifies as ‘essentially a new building’. The Supreme Court answered these questions in line with earlier judgments, indicating that the refurbishment must have resulted in a new and hence previously non-existent property and that this is mainly achieved by an extensive alteration in the building’s structural construction. Other factors can also play a role, but they are not decisive.
For more information on this matter, please follow this link or contact Han Leijten, Paul Zijlstra, Willeke Tigchelaar.
6. CESOP: as of 2024 cross-border payments must be reported for VAT purposes; bill presented to Lower House of Parliament
In order to detect and combat VAT fraud in cross-border internet sales of goods and services (e-commerce), the EU has decided to introduce a centralized European system for collecting and exchanging payment information: the Central Electronic System of Payment Information, CESOP. Payment service providers will have to transmit information about cross-border payments to CESOP. This should make it easier for tax authorities to detect potential VAT fraud. The rules apply to sellers established in and outside the EU. The planned implementation date for the system is January 1, 2024. On October 24, 2022 the Deputy Minister of Finance presented a bill to implement CESOP in Dutch VAT legislation.
It is important to identify whether an entrepreneur provides payment services for which a license is required. Where regulated payment services are provided, it is important to understand which types of customers are being served whereby there is a reporting obligation for cross-border payments. The specific role played by the business in the various payment chains is also relevant. In particular where there are complex payment chains, a thorough analysis of the CESOP obligations will be needed.
After the above analysis has been performed, it will be necessary to identify in which Member States payment registers have to be kept, in which Member States there are reporting obligations and whether the data that must be recorded and reported is available. The actual implementation of the IT solutions will also take time.
For more information on this matter, please follow this link or contact Jochum Zutt, Gert-Jan van Norden, Irene Reiniers, Matthijs Bolkenstein.
7. Policy statement on Hybrid Mismatches updated; no longer double taxation in cost-plus situations
On November 3, 2022 Deputy Minister of Finance Marnix van Rij published an update of the Policy statement on Hybrid Mismatches. In it he states that in cost-plus situations the deduction of costs can still take place and economic double taxation is avoided. The spirit and intent of the anti-abuse measures is thus respected.
It is commendable that the Deputy Minister has persisted in approaching the European Commission in order to arrive at a good and workable solution with regard to the cost-plus problem identified in a case addressed during the parliamentary debates. Just how broadly or narrowly this statement should be understood is not clear from the text of the policy statement.
For more information on this matter, please follow this link or contact Michael van Gijlswijk, Ralph Houtveen.
8. FS VAT SEMINAR
The annual FS VAT seminar was held in Amstelveen on Tuesday, November 15, 2022. During the seminar, we looked at new developments in VAT, the consequences of these developments and the required actions.
The seminar was attended by a broad cross-section of players in the FS sector, including Dutch banks, insurance companies, asset managers and foreign financial institutions as well as a number of fintechs.
Topics addressed during the plenary session included the implementation of the Danske Bank judgment, VAT recovery, pension funds and administration, exemptions governing payment transactions and CESOP.
After the seminar, there was an informal gathering to give the participants the opportunity to catch up and to further explore some topics amongst themselves.
If you are interested in joining us for the next seminar, please contact Marloes Singeling.
9. Real estate fiscal investment institution to be abolished and changes to mutual funds
In its cover letter to the 2023 Tax Plan package, the State Secretary of Finance announced the intended repeal of the Dutch REIT-regime for entities that invest directly in real estate as of January 1, 2024. This measure is designed to ban REIT’s from investing directly in real estate. The cover letter also addressed other related changes to the REIT-regime.
In summary, the announced changes will be as follows:
- REIT’s will be banned from making any more investments in real estate located in or outside the Netherlands and parallel to this so-called real estate measure;
- The 60% financing requirement (for real estate) will be removed from the regulation for REIT’s; and
- The extensions to the term “investing in assets” will be removed from the REIT’s regime.
The announced repeal was substantiated with the argument that, in certain situations involving foreign investors, the taxing right on Dutch real estate held by REIT’s cannot be effectuated fully, if at all. As a result of the real estate measure, any profits earned from real estate will be subject to corporate income tax.
Repeal postponed until January 1, 2025
The initial plan was for these measures to take effect on January 1, 2024 to allow affected REIT’s to restructure and for the government to investigate accompanying measures (e.g. for real estate transfer tax).
On November 30, 2022 the government published its response to the SEO report. For more background on the SEO report, we refer to the FS tax newsletter of September. The government decided, following discussions with REIT’s representatives, to postpone the repeal of real estate REIT’s by one year until January 1, 2025. The reason cited was the time needed for restructuring. The government also said that the postponement was due to the accompanying measure, which involves a conditional exemption from transfer tax during the year 2024 for reorganisations in the context of a restructuring that are directly related to the real estate measure. A more detailed interpretation of this measure has not yet been given. The government’s response also provides a timeline: it is the government’s expectation that a draft bill will be presented for consultation in the first quarter of 2023 and submitted for parliamentary proceedings on next year’s Budget Day (September 21, 2023).
Changes to (open) mutual funds
Open mutual funds have been subject to corporate income tax since the introduction of the current Corporate Income Tax Act; the same applies to investment public limited companies (investment NVs). As open mutual funds fulfill the same function as NVs in the social and economic sphere, it is logical to treat them the same for corporate income tax purposes. A mutual fund is ‘open’ if the consent of all the participants is not required in order to dispose of the participations (consent requirement). If the consent requirement is not met, there is a tax transparent closed mutual fund. There is also a closed mutual fund (redemption option) if the participations can only be sold to the fund itself or to blood relatives or relatives by marriage in the direct line of the participant. Both the open and the closed mutual fund are widely used, including by institutional investors as part of their asset management.
The government has recognized two problems with the current regime:
- The consent requirement is not commonly used internationally and creates qualification differences.
- The actual use of the regime is often not in line with its original purpose.
The government has therefore proposed replacing the consent requirement with another criterion. It is also looking into whether it would be possible to align the definition of mutual fund with the definitions of investment institutions in the Financial Supervision Act. In a stricter definition of a mutual fund, the consent requirement becomes irrelevant for the corporate income tax liability of the fund. For the time being, however, the intention is that a mutual fund remains closed (transparent) for tax purposes, if the fund has included a redemption option in its fund conditions. This, so that institutional investors such as pension funds, can continue to use that option. This proposal will also be opened for public consultation in the first quarter of 2023, after which the final proposal will be included in the 2024 Tax Package.
For more information on this matter, please follow this link or contact Michael van Gijlswijk, Jennifer Evers, Maarten Merkus or Jeroen Bruggeman.
10. New referral to the CJEU – Net taxation – Taxation of dividend income received by a non-resident insurance company
On December 14, 2022 the Court of Appeals in ‘s-Hertogenbosch (CoA) rendered an important judgement in which it asked the Court of Justice of the EU (CJEU) for a preliminary ruling in a case concerning a UK-based life insurance company that received dividend income from the Netherlands.
The dividend income was subject to 15% Dutch dividend withholding tax. However, had the UK insurance company been a resident of the Netherlands, the Dutch tax burden on the dividend income would have been nil. This is because the Dutch dividends were received as part of unit-linked products that had been offered to UK pension schemes.
The Dutch CoA is seeking clarification on the interpretation of, in particular, the CJEU’s judgment in the Société Générale case (C17/14, September 17, 2015, ECLI:EU:C:2015:608) and whether this applies in general to all cases where a non-resident receives dividend income from another Member State.
The UK insurance company argued before the Dutch CoA that although the CJEU’s judgment in the Société Générale case is not necessarily wrong, the facts in Société Générale are fundamentally different in the sense that the dividend income was critical to its business model and the services it offered its clients. In light of this difference, the September 17, 2015 judgment should not be the leading case for resolving the dispute, and other CJEU net taxation judgments providing for a deduction of the directly related expenses must be used as guidance here. Therefore, with regard to a UK-based life insurance company, should the costs incurred as result of an increase in the company’s future payment obligations result in a deduction when calculating taxable income?
The referral to the CJEU by the Dutch CoA should provide clarity on this question.
For more information on this matter, please follow this link or contact Robert van der Jagt.
11. Court of Justice of the European Union rules on financial integration in a German VAT group
On December 1, 2022 the Court of Justice of the European Union (CJEU) rendered judgment in two German cases concerning a VAT group, the Norddeutsche Gesellschaft für Diakonie mbH (C-141/20) and Finanzamt T (C-269/20) cases. The judgments rendered by the CJEU in the aforementioned cases raise the question whether the Dutch Supreme Court’s interpretation of financial integration is compatible with EU law.
In Dutch practice, organizational integration is usually seen as a derivative of financial integration, because the ultimate control over the appointment of directors generally lies with the majority shareholder of a company with share capital. However, if the majority shareholder does not also hold the majority of the voting rights, this may have the effect of breaking the organizational integration between companies, and thus the possibility of forming a VAT group. In both cases, the existence of organizational integration was evidently a given for the CJEU. This may also be connected to the German condition that there is a clearly, identifiable controlling body (Organträger) within the VAT group. In the Netherlands we do not have a controlling body within the VAT group and each member is equal. The abbreviation “c. s.” also always appears in the name of the VAT group, which stands for the Latin cum suis, meaning “with members”.
Nevertheless, there are situations where it is conceivable that organizational integration is not a corollary of financial integration. For those situations, the judgment by the CJEU could mean that it is indeed possible to form a VAT group where it was not previously possible to do so due to the fact that the majority shareholder did not hold the majority of the voting rights.
It is also not entirely clear what the CJEU means in its ruling in the Norddeutsche Gesellschaft für Diakonie mbH case that members of the Organschaft perform uncurtailed independent economic activities. However, partly in light of the ruling in the Finanzamt T case, we do not think it likely that the CJEU means that members of a VAT group can mutually perform activities subject to VAT.
For more information on this matter, please follow this link or contact Leo Mobach, Gert-Jan van Norden, Paul Zijlstra, Mathijs Horsthuis.
12. Court of Justice of the European Union gives strict interpretation of VAT invoicing requirements for simplified triangular transactions
On December 8, 2022 the Court of Justice of the European Union (CJEU) rendered a notable judgment in the Luxury Trust Automobil case (C-247/21) concerning the application of simplified triangulation for VAT purposes. This judgment may have significant practical implications.
In this judgment the CJEU stressed the importance of using ‘Reverse charge’ as a reference on invoices when an intermediary applies simplified triangulation. According to the CJEU, omitting this reference consequently means that the intermediary cannot apply simplified triangulation, and as such it is not possible to correct this error retroactively. That means that the intermediary will have to register for VAT purposes in the Member of State of destination so that it can report an intra-Community acquisition and subsequent domestic supply there. Furthermore, in that case the intermediary must report a number acquisition in the Member State of identification.
In the Netherlands, the Dutch Tax and Customs Administration has (for the time being) approved the use of ‘reverse charge simplified triangulation scheme’ or ‘intra‑Community supply’ as a reference on invoices in such cases. The latter reference in any case does not seem to us to be compatible with the CJEU judgment.
Although the CJEU’s judgment is clear, we believe that it may have been different if the end customer had reported VAT in the Member State of destination. Therefore, we can imagine that Member States will apply the CJEU judgment less strictly in such cases. Nevertheless, it is advisable to use the correct reference on an invoice when applying simplified triangulation so that discussions with the tax authorities about this can be avoided.
For the sake of completeness we would like to point out that, with regard to other reverse-charge mechanisms, such as the reverse-charge mechanism for B2B main rule services or the domestic reverse-charge mechanism for domestic supplies of goods, the EU VAT Directive does not stipulate the use of ‘Reverse charge’ on issued invoices as a substantive condition for applying those mechanisms. In our view, the impact of the CJEU judgment therefore seems to be limited to the reverse-charge mechanism under the simplified triangulation.
For more information on this matter, please follow this link or contact Leo Mobach, Mathijs Horsthuis.
