Feb 26

 

CJEU expected to deliver judgment in Case C-115/16, N Luxembourg 1 (The Interest and Royalty Directive – Beneficial ownership)

 

Questions referred for a preliminary ruling:

(1)   Is Article 1(1) of Directive 2003/49, read in conjunction with Article 1(4) thereof, to be interpreted as meaning that a company resident in a Member State that is covered by Article 3 of the directive and, in circumstances such as those of the present case, receives interest from a subsidiary in another Member State, is the “beneficial owner” of that interest for the purposes of the directive?

(1.1)                Is the concept “beneficial owner” in Article 1(1) of Directive 2003/49, read in conjunction with Article 1(4) thereof, to be interpreted in accordance with the corresponding concept in Article 11 of the OECD 1977 Model Tax Convention?

(1.2)                If Question 1.1 is answered in the affirmative, should the concept then be interpreted solely in the light of the commentary on Article 11 of the 1977 Model Tax Convention (paragraph 8), or can subsequent commentaries be incorporated into the interpretation, including the additions made in 2003 regarding “conduit companies” (paragraph 8.1, now paragraph 10.1), and the additions made in 2014 regarding “contractual or legal obligations” (paragraph 10.2)?

(1.3)                If the 2003 Commentaries can be incorporated into the interpretation, is it then a condition for deeming a company not to be a “beneficial owner” for the purposes of Directive 2003/49 that there actually has been a channelling of funds to those persons who are deemed by the State in which the interest payer is resident to be “the beneficial owners” of the interest in question, and — if so — is it then a further condition that the actual passing take place at a point close in time to the payment of the interest and/or take place as a payment of interest?

(1.3.1) Of what significance is it in that connection if equity capital is used for the loan, if the interest in question is entered on the principal (“rolled up”), if the interest recipient has subsequently made an intra-group transfer to its parent company resident in the same State with a view to adjusting earnings for tax purposes under the prevailing rules in the State in question, if the interest in question is subsequently converted into equity in the borrowing company, if the interest recipient has had a contractual or legal obligation to pass the interest to another person, and if most of the persons deemed by the State where the person paying the interest is resident to be the “beneficial owners” of the interest are resident in other Member States or other States with which Denmark has entered into a double taxation convention, so that under the Danish taxation legislation there would not have been a basis for retaining tax at source had those persons been lenders and thereby received the interest directly?

(1.4)                What significance does it have for the assessment of the issue whether the interest recipient must be deemed to be a “beneficial owner” for the purposes of the directive if the referring court, following an assessment of the facts of the case, concludes that the recipient — without having been contractually or legally bound to pass the interest received to another person — did not have the “full” right to “use and enjoy” the interest as referred to in the 2014 Commentaries on the 1977 Model Tax Convention?

(2)   Does a Member State’s reliance on Article 5(1) of the directive on the application of national provisions for the prevention of fraud or abuse, or of Article 5(2) of the directive, presuppose that the Member State in question has adopted a specific domestic provision implementing Article 5 of the directive, or that national law contains general provisions or principles on fraud, abuse and tax evasion that can be interpreted in accordance with Article 5?

(2.1)                If Question 2 is answered in the affirmative, can Paragraph 2(2)(d) of the Law on corporation tax, which provides that the limited tax liability on interest income does not include “interest which is tax-exempt under Directive 2003/49 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States”, then be deemed to be a specific domestic provision as referred to in Article 5 of the directive?

(3)   Is a provision in a double taxation convention entered into between two Member States and drafted in accordance with OECD’s Model Tax Convention, under which taxation of interest is contingent on whether the interest recipient is deemed to be the beneficial owner of the interest, a conventional anti-abuse provision covered by Article 5 of the directive?

(4)   Is it abuse, etc. under Directive 2003/49 if, in the Member State where the interest payer is resident, no tax deductions are allowed for interest, whilst interest in the Member State where the interest recipient is resident is not taxed?

(5)   Is a Member State that does not wish to recognise that a company in another Member State is the beneficial owner of interest and claims that the company in the other Member State is a so-called artificial conduit company, bound under Directive 2003/49 or Article 10 EC to state whom the Member State in that case deems to be the beneficial owner?

(6)   If a company resident in a Member State (parent company) is in fact deemed not to be exempt from tax at source under Directive 2003/49 concerning interest received from a company resident in another Member State (subsidiary), and the parent company of the latter Member State is deemed to have limited tax liability on that interest in that Member State, does Article 43 EC, read in conjunction with Article 48 EC, preclude legislation under which the latter Member State requires the company liable for retaining the tax at source (subsidiary) to pay overdue interest in the event of overdue payment of the tax at source claim at a higher rate of interest than the overdue interest rate that the Member State charges on corporation tax claims (including interest income) lodged against a company resident in the same Member State?

(7)   If a company resident in a Member State (parent company) is in fact deemed not to be exempt from tax at source under Directive 2003/49 concerning interest received from a company resident in another Member State (subsidiary), and the parent company of the latter Member State is deemed to be a taxable person with limited tax liability on that interest in that Member State, does Article 43 EC, read in conjunction with Article 48 EC (in the alternative Article 56 EC), viewed separately or as a whole, preclude legislation under which:

(a)   the latter Member State requires the person paying the interest to retain tax at source on the interest and makes that person liable to the authorities for the non-retained tax at source, where there is no such duty to retain tax at source when the parent company is resident in the latter Member State?

(b)   a parent company in the latter Member State would not have been required to make advance payments of corporation tax in the first two fiscal years, but would only have begun to pay corporation tax at a much later time than the due date for tax at source?

The EU Court of Justice is requested to include the answer to Question 6 in its answer to Question 7

 

Cases C‑115/16, C‑118/16 and C‑119/16 were joined by order dated 13 July 2016. Written observations on the questions referred were submitted to the Court of Justice in the joined proceedings by N Luxembourg 1, X Denmark A/S, C Danmark I, the Kingdom of Denmark, the Federal Republic of Germany, the Grand Duchy of Luxembourg, the Kingdom of Sweden, the Italian Republic, the Kingdom of the Netherlands and the European Commission. N Luxembourg 1, X Denmark A/S, C Danmark I, the Kingdom of Denmark, the Federal Republic of Germany, the Grand Duchy of Luxembourg and the European Commission attended the hearing on 10 October 2017, which also included Cases C‑116/16, C‑117/16 and C‑299/16.

 

More information on the opinion in this case as delivered on March 1, 2018 by Advocate General Kokott can be found here

 

 

 

 

 

Feb 26

 

CJEU expected to deliver judgment in Case C-118/16, X Denmark (The Interest and Royalty Directive – Beneficial ownership)

 

Questions referred for a preliminary ruling:

1. Must Article 1(1) of Directive 2003/49, read in conjunction with Article 1(4) thereof, be interpreted as meaning that a company resident in a Member State that is covered by Article 3 of the directive and, in circumstances such as those of the present case, receives interest from a company resident in another Member State, is the ‘beneficial owner’ of that interest for the purposes of the directive?

1.1.  Must the concept ‘beneficial owner’ in Article 1(1) of Directive 2003/49, read in conjunction with Article 1(4) thereof, be interpreted in accordance with the corresponding concept in Article 11 of the OECD 1977 Model Tax Convention?

1.2.  If Question 1.1 is answered in the affirmative, must the concept then be interpreted solely in the light of the commentary on Article 11 of the 1977 Model Tax Convention (paragraph 8), or can subsequent commentaries be incorporated into the interpretation, including the additions made in 2003 regarding ‘conduit companies’ (paragraph 8.1, now paragraph 10.1), or the additions made in 2014 regarding ‘contractual or legal obligations’ (paragraph 10.2)?

1.3.  If the commentaries of 2003 can be incorporated into the interpretation, is it then a condition for deeming a company not to be a ‘beneficial owner’ for the purposes of Directive 2003/49 that there actually has been a channelling of funds to those persons who are deemed by the State in which the interest payer is resident to be ‘the beneficial owners’ of the interest in question, and — if so — is it then a further condition that the actual passing take place at a point close in time to the payment of the interest and/or take place as a payment of interest?

1.3.1.   Of what significance is it in that connection if equity capital is used for the loan, if the interest in question is entered on the principal (‘rolled up’), if the interest recipient has subsequently made an intra-group transfer to its parent company resident in the same State with a view to adjusting earnings for tax purposes under the prevailing rules in the Member State in question, if the interest in question is subsequently converted into equity in the borrowing company, if the interest recipient has had a contractual or legal obligation to pass the interest to another person, and if most of the persons deemed by the State where the person paying the interest is resident to be the ‘beneficial owners’ of the interest are resident in other Member States or other States with which Denmark has entered into a double taxation convention, so that under the Danish taxation legislation there would not have been a basis for retaining tax at source had those persons been lenders and thereby received the interest directly?

1.4.  What is the significance for the assessment of the issue whether the interest creditor must be deemed to be a ‘beneficial owner’ for the purposes of the directive if the referring court, following an assessment of the facts of the case, concludes that the interest creditor — without having been contractually or legally bound to pass the interest received to another person — did not have the ‘full’ right to ‘use and enjoy’ the interest as referred to in the 2014 commentaries on the 1977 Model Tax Convention?

2. Does a Member State’s reliance on Article 5(1) of the directive on the application of national provisions for the prevention of fraud or abuse, or of Article 5(2) of the directive, presuppose that the Member State in question has adopted a specific domestic provision implementing Article 5 of the directive, or that national law contains general provisions or principles on fraud, abuse and tax evasion that can be interpreted in accordance with Article 5?

2.1.  If Question 2 is answered in the affirmative, can Paragraph 2(2)(d) of the Selskabsskattelov (Law on Corporation Tax), which provides that the limited tax liability on interest income does not include ‘interest which is tax-exempt under Directive 2003/49 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States’, be deemed to be a specific domestic provision as referred to in Article 5 of the directive?

3. Is a provision in a double taxation convention entered into between two Member States and drafted in accordance with OECD’s Model Tax Convention, under which taxation of interest is contingent on whether the interest creditor is deemed to be the beneficial owner of the interest, a conventional anti-abuse provision covered by Article 5 of the directive?

4. Is it abuse etc. under Directive 2003/49 if, in the Member State where the interest payer is resident, no tax deductions are made for interest, whilst in the Member State where the interest recipient is resident this interest is not taxed?

5. Is a company resident in Luxembourg, established and registered under Luxembourg company law as a ‘société en commandite par actions’ (S.C.A.) and also classified as a ‘société d’investissement en capital à risque’ (SICAR) under the Luxembourg law of 15 June 2004 relating to the investment company in risk capital (SICAR), covered by Directive 2003/49?

5.1   If Question 5 is answered in the affirmative, can a Luxembourg ‘S.C.A./SICAR’ then be ‘beneficial owner’ of interest for the purposes of Directive 2003/49, even though the Member State in which the interest-paying company is resident deems the company in question to be a tax-transparent entity under its domestic law?

5.2   If Question 1 is answered in the negative, i.e. if the company receiving the interest is not deemed to be ‘beneficial owner’ of the interest in question: in circumstances such as in the present case — can the S.C.A./SICAR at issue be deemed to be the ‘beneficial owner’ of the interest in question for the purposes of the directive?

6. Is a Member State, which does not wish to recognise that a company resident in another Member State is the beneficial owner of interest and claims that the company in the other Member State is an ‘artificial conduit company’, bound under Directive 2003/49 or Article 10 EC to state whom it deems to be the beneficial owner in this case?

7. If a company resident in a Member State (parent company) is in fact deemed not to be exempt from tax at source under Directive 2003/49 concerning interest received from a company resident in another Member State (subsidiary), and the latter Member State deems that parent company to have limited tax liability on that interest in that Member State, does Article 43 EC, read in conjunction with Article 48 EC, then preclude legislation under which the latter Member State requires the company liable for retaining the tax at source (subsidiary) to pay default interest in the event of late payment of the tax at source at a higher rate of interest than the default interest rate that the Member State charges on corporation tax claims (including interest income) lodged against a company resident in the same Member State?

8. If a company resident in a Member State (parent company) is in fact deemed not to be exempt from tax at source under Directive 2003/49 concerning interest received from a company resident in another Member State (subsidiary), and the latter Member State deems the parent company to have limited tax liability on that interest in that Member State, does Article 43 EC, read in conjunction with Article 48 EC (in the alternative Article 56 EC), viewed separately or as a whole, preclude legislation under which:

a) the latter Member State requires the person paying the interest to retain tax at source on the interest and makes that person liable to the authorities for the non-retained tax at source, where there is no such duty to retain tax at source when the parent company is resident in the latter Member State?

b)        a parent company in the latter Member State would not have been required to make advance payments of corporation tax in the first two fiscal years, but would only have begun to pay corporation tax at a much later time than the due date for tax at source?

The EU Court of Justice is requested to take the answer to Question 7 into account in its answer to Question 8.

 

By order of 13 July 2016, Cases C‑115/16, C‑118/16 and C‑119/16 were joined. N Luxembourg 1, X Denmark A/S, C Danmark I, the Kingdom of Denmark, the Federal Republic of Germany, the Grand Duchy of Luxembourg, the Kingdom of Sweden, the Italian Republic, the Kingdom of the Netherlands and the European Commission have made written observations to the Court of Justice regarding the questions referred in the joined proceedings. N Luxembourg 1, X Denmark A/S, C Danmark I, the Kingdom of Denmark, the Federal Republic of Germany, the Grand Duchy of Luxembourg and the European Commission participated in the hearing of 10 October 2017 — which also included the Cases C‑116/16, C‑117/16 and C‑299/16.

 

The opinion in this case as delivered on March 1, 2018 by Advocate General Kokott can be found here

 

 

 

 

 

Feb 26

 

CJEU expected to deliver judgment in Case C-119/16, C Danmark I (The Interest and Royalty Directive – Beneficial ownership)

 

Questions referred for a preliminary ruling:

1. Must Article 1(1) of Directive 2003/49, read in conjunction with Article 1(4) thereof, be interpreted as meaning that a company resident in a Member State that is covered by Article 3 of the directive and, in circumstances such as those of the present case, receives interest from a company resident in another Member State, is the ‘beneficial owner’ of that interest for the purposes of the directive?

1.1.  Must the concept ‘beneficial owner’ in Article 1(1) of Directive 2003/49, read in conjunction with Article 1(4) thereof, be interpreted in accordance with the corresponding concept in Article 11 of the OECD 1977 Model Tax Convention?

1.2.  If Question 1.1 is answered in the affirmative, must the concept then be interpreted solely in the light of the commentary on Article 11 of the 1977 Model Tax Convention (paragraph 8), or can subsequent commentaries be incorporated into the interpretation, including the additions made in 2003 regarding ‘conduit companies’ (paragraph 8.1, now paragraph 10.1), or the additions made in 2014 regarding ‘contractual or legal obligations’ (paragraph 10.2)?

1.3.  If the commentaries of 2003 can be incorporated into the interpretation, is it then a condition for deeming a company not to be a ‘beneficial owner’ for the purposes of Directive 2003/49 that there actually has been a channelling of funds to those persons who are deemed by the State in which the interest payer is resident to be ‘the beneficial owners’ of the interest in question, and — if so — is it then a further condition that the actual passing take place at a point close in time to the payment of the interest and/or take place as a payment of interest?

1.3.1.   Of what significance is it in that connection if equity capital is used for the loan, if the interest in question is entered on the principal (‘rolled up’), if the interest recipient has subsequently made an intra-group transfer to its parent company resident in the same State with a view to adjusting earnings for tax purposes under the prevailing rules in the Member State in question, if the interest in question is subsequently converted into equity in the borrowing company, if the interest recipient has had a contractual or legal obligation to pass the interest to another person, and if most of the persons deemed by the State where the person paying the interest is resident to be the ‘beneficial owners’ of the interest are resident in other Member States or other States with which Denmark has entered into a double taxation convention, so that under the Danish taxation legislation there would not have been a basis for retaining tax at source had those persons been lenders and thereby received the interest directly?

1.4.  What is the significance for the assessment of the issue whether the interest creditor must be deemed to be a ‘beneficial owner’ for the purposes of the directive if the referring court, following an assessment of the facts of the case, concludes that the interest creditor — without having been contractually or legally bound to pass the interest received to another person — did not have the ‘full’ right to ‘use and enjoy’ the interest as referred to in the 2014 commentaries on the 1977 Model Tax Convention?

2. Does a Member State’s reliance on Article 5(1) of the directive on the application of national provisions for the prevention of fraud or abuse, or of Article 5(2) of the directive, presuppose that the Member State in question has adopted a specific domestic provision implementing Article 5 of the directive, or that national law contains general provisions or principles on fraud, abuse and tax evasion that can be interpreted in accordance with Article 5?

2.1.  If Question 2 is answered in the affirmative, can Paragraph 2(2)(d) of the Selskabsskattelov (Law on Corporation Tax), which provides that the limited tax liability on interest income does not include ‘interest which is tax-exempt under Directive 2003/49 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States’, be deemed to be a specific domestic provision as referred to in Article 5 of the directive?

3. Is a provision in a double taxation convention entered into between two Member States and drafted in accordance with OECD’s Model Tax Convention, under which taxation of interest is contingent on whether the interest recipient is deemed to be the beneficial owner of the interest, a conventional anti-abuse provision covered by Article 5 of the directive?

4. Is a Member State, which does not wish to recognise that a company resident in another Member State is the beneficial owner of interest and claims that the company in the other Member State is an ‘artificial conduit company’, bound under Directive 2003/49 or Article 10 EC to state whom it deems to be the beneficial owner in this case?

5. If a company resident in a Member State (parent company) is in fact deemed not to be exempt from tax at source under Directive 2003/49 concerning interest received from a company resident in another Member State (subsidiary), and the latter Member State deems that parent company to have limited tax liability on that interest in that Member State, does Article 43 EC, read in conjunction with Article 48 EC, preclude legislation under which the latter Member State requires the company liable for retaining the tax at source (subsidiary) to pay default interest in the event of late payment of the tax at source at a higher rate of interest than the default interest rate that the Member State charges on corporation tax claims (including, inter alia, interest income) lodged against a company resident in the same Member State?

6. If a company resident in a Member State (parent company) is in fact deemed not to be exempt from tax at source under Directive 2003/49 concerning interest received from a company resident in another Member State (subsidiary), and the latter Member State deems the parent company to have limited tax liability on that interest in that Member State, does Article 43 EC, read in conjunction with Article 48 EC (in the alternative Article 56 EC), viewed separately or as a whole, preclude legislation under which:

a) the latter Member State requires the person paying the interest to retain tax at source on the interest and makes that person liable to the authorities for the non-retained tax at source, where there is no such duty to retain tax at source when the parent company is resident in the latter Member State?

b)        a parent company in the latter Member State would not have been required to make advance payments of corporation tax in the first two fiscal years, but would only have begun to pay corporation tax at a much later time than the due date for tax at source?

The EU Court of Justice is requested to include the answer to Question 5 in its answer to Question 6.

 

By order of 13 July 2016, Cases C‑115/16, C‑118/16 and C‑119/16 were joined. N Luxembourg 1, X Denmark A/S, C Danmark I, the Kingdom of Denmark, the Federal Republic of Germany, the Grand Duchy of Luxembourg, the Kingdom of Sweden, the Italian Republic, the Kingdom of the Netherlands and the European Commission have made written observations to the Court of Justice regarding the questions referred in the joined proceedings. N Luxembourg 1, X Denmark A/S, C Danmark I, the Kingdom of Denmark, the Federal Republic of Germany, the Grand Duchy of Luxembourg and the European Commission participated in the hearing of 10 October 2017 — which also included the Cases C‑116/16, C‑117/16 and C‑299/16.

 

The opinion in this case as delivered on March 1, 2018 by Advocate General Kokott can be found here

 

 

 

 

 

Feb 26

 

CJEU expected to deliver judgment in Case C-116/16, T Danmark (Parent-subsidiary Directive – Need for a beneficial owner of dividend payments – Abuse of possible tax arrangements – Criteria for abuse through avoidance of withholding tax)

 

Questions referred for a preliminary ruling:

1. Does a Member State’s reliance on Article 1(2) of the Directive on the application of domestic provisions required for the prevention of fraud or abuse presuppose that the Member State in question has adopted a specific domestic provision implementing Article 1(2) of the Directive, or that national law contains general provisions or principles on fraud and abuse that can be interpreted in accordance with Article 1(2)?

1.1   If Question 1 is answered in the affirmative: can Paragraph 2(1)(c) of the Law on corporation tax, which provides that ‘it is a precondition that taxation of the dividends be waived … under the provisions of Council Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States’, then be deemed to be a specific domestic provision as referred to in Article 1(2) of the Directive?

2. Is a provision in a double taxation convention entered into between two Member States and drafted in accordance with OECD’s Model Tax Convention, under which taxation of distributed dividends is contingent on whether the dividends recipient is deemed to be the beneficial owner of the dividends, a conventional anti-abuse provision covered by Article 1(2) of the Directive?

3. If Question 2 is answered in the affirmative: is it then for the national courts to define what is included in the concept ‘beneficial owner’, or should the concept, in the application of Directive 90/435, be interpreted as meaning that a specific EU law significance should be attached to the concept referred to the EU Court of Justice for a ruling?

4. If Question 2 is answered in the affirmative and the answer to Question 3 is that it is not for the national courts to define what is included in the concept of ‘beneficial owner’: is the concept then to be interpreted as meaning that in a company resident in a Member State which, in circumstances such as those of the present case, receives dividends from a subsidiary in another Member State, is the ‘beneficial owner’ of those dividends as that concept is to be interpreted under EU law?

a) Is the concept ‘beneficial owner’ to be interpreted in accordance with the corresponding concept in Article 1(1) of Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (OJ 2003 L 157, p. 49), read in conjunction with Article 1(4) thereof?

b)        Should the concept be interpreted solely in the light of the commentary on Article 10 of the OECD 1977 Model Tax Convention (paragraph 12), or can subsequent commentaries be incorporated into the interpretation, including the additions made in 2003 regarding ‘conduit companies’, and the additions made in 2014 regarding ‘contractual or legal obligations’?

c) What significance does it have for the assessment of the issue whether the dividends recipient must be deemed to be a ‘beneficial owner’ if the dividends recipient has had a contractual or legal obligation to pass the dividends to another person?

d)        What significance does it have for the assessment of the issue whether the dividends recipient must be deemed to be a ‘beneficial owner’ that the referring court, following an assessment of the facts of the case, concludes that the recipient — without having been contractually or legally bound to pass the dividends received to another person — did not have the ‘full’ right to ‘use and enjoy’ the interest as referred to in the 2014 Commentaries on the 1977 Model Tax Convention?

5. If it is assumed in the case that there are ‘domestic provisions required for the prevention of fraud or abuse’ within the meaning of Article 1(2) of Directive 90/435, that dividends have been distributed from a company (A) resident in a Member State to a parent company (B) in another Member State and from there passed to that company’s parent company (C), resident outside the EU/EEA, which in turn has distributed the funds to its parent company (D), also resident outside the EU/EEA, that no double taxation convention has been entered into between the first-mentioned State and the State where C is resident, that a double taxation convention has been entered into between the first-mentioned State and the State where D is resident, and that the first-mentioned State, under its legislation, would therefore not have had a claim to tax at source on dividends distributed from A to D, had D been the direct owner of A, is there abuse under the Directive so that B is not protected thereunder?

6. If a company resident in a Member State (parent company) is in fact deemed not to be exempt from tax at source pursuant to Article 1(2) of Directive 90/435 concerning dividends received from a company resident in another Member State (subsidiary), does Article 49 TFEU, read in conjunction with Article 54 TFEU, preclude legislation under which the latter Member State taxes the parent company resident in the other Member State on the dividends, then the Member State in question deems resident parent companies in otherwise similar circumstances to be exempt from tax on such dividends?

7. If a company resident in a Member State (parent company) is in fact deemed not to be exempt from tax at source pursuant to Article 1(2) of Directive 90/435 concerning dividends received from a company resident in another Member State (subsidiary), and the parent company in the latter Member State is deemed to have limited tax liability in that Member State on the dividends in question, does Article 49 TFEU, read in conjunction with Article 54 TFEU, preclude legislation under which the latter Member requires the company liable for retaining the tax at source (subsidiary) to pay overdue interest in the event of overdue payment of the tax at source claim at a higher rate of interest than the overdue interest rate that the Member State charges on corporation tax claims lodged against a company resident in the same Member State?

8. If Question 2 is answered in the affirmative and the answer to Question 3 is that it is not for the national courts to define what is included in the concept ‘beneficial owner’, and if a company (parent company) resident in a Member State cannot, on that basis, be deemed exempt from tax at source pursuant to Directive 90/435 concerning dividends received from a company resident in another Member State (subsidiary), is the latter Member State then bound pursuant to Directive 90/435 or Article 4(3) TEU to state whom the Member State in that case deems to be the beneficial owner?

9. If a company resident in a Member State (parent company) is in fact deemed not to be exempt from tax at source under Directive 90/435 concerning dividends received from a company resident in another Member State (subsidiary), does Article 49 TFEU, read in conjunction with Article 54 TFEU (or Article 63 TFEU), viewed separately or as a whole, preclude legislation under which:

a) the latter Member State requires the subsidiary to retain tax at source on the dividends and makes that person liable to the authorities for the non-retained tax at source, where there is no such duty to retain tax at source when the parent company is resident in the Member State?

b)        the latter Member State calculates overdue interest on the tax at source owing?

The Court of Justice is requested to include the answer to Questions 6 and 7 in its answer to Question 9.

10.   In circumstances where:

1. a company (parent company) resident in a Member State fulfils the requirement in Directive 90/435 of owning (in 2011) at least 10% of the share capital of a company (subsidiary) resident in another Member State;

2. the parent company is in fact deemed not to be exempt from tax at source pursuant to Article 1(2) in Directive 90/435 concerning dividends distributed by the subsidiary;

3. the parent company’s (direct or indirect) shareholder(s), resident in a non-EU/EEA country, are deemed to be the beneficial owner(s) of the dividends in question;

4. the aforementioned (direct or indirect) shareholder(s) also fulfil the aforementioned capital requirement,

does Article 63 TFEU then preclude legislation under which the Member State where the subsidiary is situated taxes the dividends in question when the Member State in question deems resident companies fulfilling the capital requirement in Directive 90/435, that is to say in fiscal year 2011 owns at least 10% of the share capital in the dividend-distributing company, to be tax-exempt on such dividends?

 

Cases C‑116/16 and C‑117/16 were joined by order of 13 July 2016. Written observations on the questions referred were submitted to the Court of Justice in the joined proceedings by T Danmark, Y Denmark Aps, the Kingdom of Denmark, the Federal Republic of Germany, the Kingdom of Sweden, the Italian Republic, the Kingdom of the Netherlands and the European Commission. T Danmark, Y Denmark Aps, the Kingdom of Denmark, the Federal Republic of Germany, the Grand Duchy of Luxembourg and the European Commission attended the hearing on 10 October 2017, which also included Cases C‑115/16, C‑118/16, C‑119/16 and C‑299/16.

 

The opinion in this case as delivered on March 1, 2018 by Advocate General Kokott can be found here

 

 

 

 

 

Feb 26

 

CJEU expected to deliver judgment in Case C-117/16, Y Denmark (Parent-subsidiary Directive – Need for a beneficial owner of dividend payments – Abuse of possible tax arrangements – Criteria for abuse through avoidance of withholding tax)

 

Questions referred for a preliminary ruling:

1. Does a Member State’s reliance on Article 1(2) of the Directive on the application of domestic provisions required for the prevention of fraud or abuse presuppose that the Member State in question has adopted a specific domestic provision implementing Article 1(2) of the Directive, or that national law contains general provisions or principles on fraud and abuse that can be interpreted in accordance with Article 1(2)?

1.1   If Question 1 is answered in the affirmative: can Paragraph 2(1)(c) of the Law on corporation tax, which provides that ‘it is a precondition that taxation of the dividends be waived … under the provisions of Council Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States’, then be deemed to be a specific domestic provision as referred to in Article 1(2) of the Directive?

2. Is a provision in a double taxation convention entered into between two Member States and drafted in accordance with OECD’s Model Tax Convention, under which taxation of distributed dividends is contingent on whether the dividends recipient is deemed to be the beneficial owner of the dividends, a conventional anti-abuse provision covered by Article 1(2) of the Directive?

2.1.  If so, is the term ‘agreement’ in Article 1(2) of the Directive then to be construed as presupposing that the Member State may, under its domestic law, rely on the double taxation convention, to the detriment of the taxpayer?

3. If Question 2 is answered in the affirmative: is it then for the national courts to define what is included in the concept ‘beneficial owner’, or should the concept, in the application of Directive 90/435, be interpreted as meaning that a specific EU law significance should be attached to the concept referred to the EU Court of Justice for a ruling?

4. If Question 2 is answered in the affirmative and the answer to Question 3 is that it is not for the national courts to define what is included in the concept of ‘beneficial owner’: is the concept then to be interpreted as meaning that in a company resident in a Member State which, in circumstances such as those of the present case, receives dividends from a subsidiary in another Member State, is the ‘beneficial owner’ of those dividends as that concept is to be interpreted under EU law?

a) Is the concept ‘beneficial owner’ to be interpreted in accordance with the corresponding concept in Article 1(1) of Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (OJ 2003 L 157, p. 49) (‘the Interest and Royalties Directive’), read in conjunction with Article 1(4) thereof?

b)        Should the concept be interpreted solely in the light of the commentary on Article 10 of the OECD 1977 Model Tax Convention (paragraph 12), or can subsequent commentaries be incorporated into the interpretation, including the additions made in 2003 regarding ‘conduit companies’, and the additions made in 2014 regarding ‘contractual or legal obligations’?

c) What significance does it have for the assessment of the issue whether the dividends recipient must be deemed to be a ‘beneficial owner’ if the dividends recipient has had a contractual or legal obligation to pass the dividends to another person?

d)        What significance does it have for the assessment of the issue whether the dividends recipient must be deemed to be a ‘beneficial owner’ that the referring court, following an assessment of the facts of the case, concludes that the recipient — without having been contractually or legally bound to pass the dividends received to another person — did not have the ‘full’ right to ‘use and enjoy’ the interest as referred to in the 2014 Commentaries on the 1977 Model Tax Convention?

5. If it is assumed in the case that there are ‘domestic provisions required for the prevention of fraud or abuse’ within the meaning of Article 1(2) of Directive 90/435, that dividends have been distributed from a company (A) resident in a Member State to a parent company (B) in another Member State and from there passed to that company’s parent company (C), resident outside the EU/EEA, which in turn has distributed the funds to its parent company (D), also resident outside the EU/EEA, that no double taxation convention has been entered into between the first-mentioned State and the State where C is resident, that a double taxation convention has been entered into between the first-mentioned State and the State where D is resident, and that the first-mentioned State, under its legislation, would therefore not have had a claim to tax at source on dividends distributed from A to D, had D been the direct owner of A, is there abuse under the Directive so that B is not protected thereunder?

6. If a company resident in a Member State (parent company) is in fact deemed not to be exempt from tax at source pursuant to Article 1(2) of Directive 90/435 concerning dividends received from a company resident in another Member State (subsidiary), does Article 43 EC, read in conjunction with Article 48 EC (and/or Article 56 EC), preclude legislation under which the latter Member State taxes the parent company resident in the other Member State on the dividends, then the Member State in question deems resident parent companies in otherwise similar circumstances to be exempt from tax on such dividends?

7. If a company resident in a Member State (parent company) is in fact deemed not to be exempt from tax at source pursuant to Article 1(2) of Directive 90/435 concerning dividends received from a company resident in another Member State (subsidiary), and the parent company in the latter Member State is deemed to have limited tax liability in that Member State on the dividends in question, does Article 43 EC, read in conjunction with Article 48 EC (and/or Article 56 EC), preclude legislation under which the latter Member requires the company liable for retaining the tax at source (subsidiary) to pay overdue interest in the event of overdue payment of the tax at source claim at a higher rate of interest than the overdue interest rate that the Member State charges on corporation tax claims lodged against a company resident in the same Member State?

8. Should the Court answer Question 2 in the affirmative and the answer to Question 3 is that it is not for the national courts to define what is included in the concept ‘beneficial owner’, and if a company (parent company) resident in a Member State cannot, on that basis, be deemed exempt from tax at source pursuant to Directive 90/435 concerning dividends received from a company resident in another Member State (subsidiary), is the latter Member State then bound pursuant to Directive 90/435 or Article 10 EC to state whom the Member State in that case deems to be the beneficial owner?

9. If a company resident in a Member State (parent company) is in fact deemed not to be exempt from tax at source under Directive 90/435 concerning dividends received from a company resident in another Member State (subsidiary), does Article 43 EC, read in conjunction with Article 48 (in the alternative Article 56 EC), viewed separately or as a whole, preclude legislation under which:

a) the latter Member State requires the subsidiary to retain tax at source on the dividends and makes that person liable to the authorities for the non-retained tax at source, where there is no such duty to retain tax at source when the parent company is resident in the Member State?

b)        the latter Member State calculates overdue interest on the tax at source owing?

The Court of Justice is requested to include the answer to Questions 6 and 7 in its answer to Question 9.

10.   In circumstances where:

1. a company (parent company) resident in a Member State fulfils the requirement in Directive 90/435 of owning (in 2005 and 2006) at least 20% of the share capital of a company (subsidiary) resident in another Member State;

2. the parent company is in fact deemed not to be exempt from tax at source pursuant to Article 1(2) in Directive 90/435 concerning dividends distributed by the subsidiary;

3. the parent company’s (direct or indirect) shareholder(s), resident in a non-EU/EEA country, are deemed to be the beneficial owner(s) of the dividends in question;

4. the aforementioned (direct or indirect) shareholder(s) also fulfil the aforementioned capital requirement,

does Article 56 EC then preclude legislation under which the Member State where the subsidiary is situated taxes the dividends in question when the Member State in question deems resident companies fulfilling the capital requirement in Directive 90/435, that is to say, in fiscal years 2005 and 2006 owns at least 20% of the share capital in the dividend-distributing company (15% in 2007 and 2008 and 10% thereafter), to be tax-exempt on such dividends?

 

Cases C‑116/16 and C‑117/16 were joined by order dated 13 July 2016. Written observations on the questions referred were submitted to the Court of Justice in the joined proceedings by T Danmark, Y Denmark Aps, the Kingdom of Denmark, the Federal Republic of Germany, the Kingdom of Sweden, the Italian Republic, the Kingdom of the Netherlands and the European Commission. T Danmark, Y Denmark Aps, the Kingdom of Denmark, the Federal Republic of Germany, the Grand Duchy of Luxembourg and the European Commission attended the hearing on 10 October 2017, which also included Cases C‑115/16, C‑118/16, C‑119/16 and C‑299/16.

 

The opinion in this case as delivered on March 1, 2018 by Advocate General Kokott can be found here

 

 

 

 

 

Feb 26

 

CJEU expected to deliver judgment in Case C-299/16, Z Denmark (The Interest and Royalty Directive – Beneficial ownership)

 

Questions referred for a preliminary ruling:

(1)   Must Article 1(1) of Directive 2003/49, read in conjunction with Article 1(4) thereof, be interpreted as meaning that a company resident in a Member State that is covered by Article 3 of the Directive and, in circumstances such as those in the present case, receives interest from a subsidiary in another Member State, is the “beneficial owner” of that interest for the purposes of the Directive?

(1.1)                Must the concept “beneficial owner” in Article 1(1) of Directive 2003/49, read in conjunction with Article 1(4) thereof, be interpreted in accordance with the corresponding concept in Article 11 of the OECD 1977 Model Tax Convention?

(1.2)                If question 1.1 is answered in the affirmative, must the concept then be interpreted solely in the light of the commentary on Article 11 of the 1977 Model Tax Convention (paragraph 8), or can subsequent commentaries be incorporated into the interpretation, including the additions made in 2003 regarding “conduit companies” (paragraph 8.1, now paragraph 10.1), or the additions made in 2014 regarding “contractual or legal obligations” (paragraph 10.2)?

(1.3)                If the commentaries of 2003 can be incorporated into the interpretation, is it significant in this case for the assessment of whether a company can be deemed not to be a “beneficial owner” for the purposes of Directive 2003/49, if the interest in question is added to the principal debt (“rolled up”), if the interest creditor had a contractual or legal obligation to pass the interest to another person and if a majority of the persons whose interest is credited/paid to and who are deemed by the State where the person paying the interest is resident to be the “beneficial owners” of the interest are resident in other Member States or other States with which Denmark has entered into a double taxation convention, so that under Danish law there would not have been a basis for retaining tax at source had those persons been lenders and had thereby received the interest directly?

(1.4)                What is the significance for the assessment of the issue whether the interest creditor must be deemed to be a “beneficial owner” for the purposes of the Directive if the referring court, following an assessment of the facts of the case, concludes that the interest creditor — without having been contractually or legally bound to pass the interest received to another person — did not have the “full” right to “use and enjoy” the interest as referred to in the 2014 commentaries on the 1977 Model Tax Convention?

(2)   Does a Member State’s reliance on Article 5(1) of the Directive on the application of national provisions for the prevention of fraud or abuse, or of Article 5(2) of the Directive, presuppose that the Member State in question has adopted a specific domestic provision implementing Article 5 of the Directive, or that national law contains general provisions or principles on fraud, abuse and tax evasion that can be interpreted in accordance with Article 5?

(2.1)                If question 2 is answered in the affirmative, can Paragraph 2(2)(d) of the Selskabsskattelov (Law on Corporation Tax), which provides that the limited tax liability on interest income does not include “interest which is tax-exempt under Directive 2003/49/EC on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States”, be deemed to be a specific domestic provision as referred to in Article 5 of the Directive?

(3)   Is a provision in a double taxation convention entered into between two Member States and drafted in accordance with the OECD Model Tax Convention, under which taxation of interest is contingent on whether the interest creditor is deemed to be the beneficial owner of the interest, a conventional anti-abuse provision covered by Article 5 of the Directive?

(4)   Is a Member State, which does not wish to recognise that a company resident in another Member State is the beneficial owner of interest and claims that the company in the other Member State is an “artificial conduit company”, bound under Directive 2003/49 or Article 10 EC to state whom it deems to be the beneficial owner in this case?

(5)   In a case where an interest payer is resident in one Member State and the interest creditor is resident in another Member State and where the interest creditor is deemed by the first Member State not to be the “beneficial owner” of the interest in question under Directive 2003/49 and is therefore deemed to have limited tax liability on that interest in that Member State, does Article 43 EC, read in conjunction with Article 48 EC, preclude legislation under which the first Member State, in the taxation of the non-resident interest creditor, does not take account of expenses in the form of interest expenses that the interest creditor has incurred in circumstances such as those in the present case, whilst interest expenses are generally deductible under that Member State’s legislation and can therefore be deducted from taxable income by a resident interest creditor?

(6)   If a company resident in a Member State (parent company) is in fact deemed not to be exempt from tax at source under Directive 2003/49 concerning interest received from a company resident in another Member State (subsidiary), and the latter Member State deems that parent company to have limited tax liability on that interest in that Member State, does Article 43 EC, read in conjunction with Article 48 EC, preclude legislation under which the latter Member State requires the company liable for retaining the tax at source (subsidiary) to pay default interest in the event of late payment of the tax at source at a higher rate of interest than the default interest rate that the Member State charges on corporation tax claims (including, inter alia, interest income) lodged against a company resident in the same Member State?

(7)   If a company resident in a Member State (parent company) is in fact deemed not to be exempt from tax at source under Directive 2003/49 concerning interest received from a company resident in another Member State (subsidiary), and the latter Member State deems that parent company to have limited tax liability on that interest in that Member State, does Article 43 EC, read in conjunction with Article 48 (in the alternative Article 56 EC), viewed separately or as a whole, preclude legislation under which:

(a)   the latter Member State requires the person paying the interest to retain tax at source on the interest and makes that person liable to the authorities for the non-retained tax at source, where there is no such duty to retain tax at source when the interest creditor is resident in the latter Member State?

(b)   a parent company in the latter Member State would not have been required to make advance payments of corporation tax in the first two fiscal years, but would only have begun to pay corporation tax at a much later time than the due date for tax at source?

The Court is requested to take the answer to Question 6 into account in its answer to this question.

 

The opinion in this case as delivered on March 1, 2018 by Advocate General Kokott can be found here

 

 

 

 

 

Feb 27

 

Opinion of the Advocate General expected to be delivered in Case C-26/18, Federal Express Corporation Deutsche Niederlassung (VAT – importation within the meaning of Articles 2(1)(d) and 30 of Council Directive 2006/112/EC)

 

Questions referred for a preliminary ruling:

1  Is importation within the meaning of Articles 2(1)(d) and 30 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax 1 subject to the condition that goods which have been introduced into the territory of the European Union must enter the economic network of the European Union, or is the mere risk that the goods introduced may enter the economic network of the European Union sufficient?

2  If importation is subject to the condition that goods must enter the economic network of the European Union:

3  Do goods which have been introduced into the territory of the European Union automatically enter the economic network of the European Union in the case where, contrary to customs law, those goods are not placed under an arrangement within the meaning of the first paragraph of Article 61 of the Directive or, although initially placed under such an arrangement, they later cease to be covered by that arrangement on account of conduct contrary to customs law, or is it the case that, in the event of conduct contrary to customs law, entry into the economic network of the European Union is subject to the condition that it may be presumed that, on account of the conduct contrary to customs law, the goods entered the economic network of the European Union in the fiscal territory of the Member State in which the unlawful conduct was committed and may have been consumed or used?

 

 

 

 

 

 

 

 

The schedule above merely contains a selection of events/important dates taking place during the week and should in no way be considered to be complete. It is very well possible that other important events take place during the week that were not included in the schedule above. It is your own responsibility to research other sources to review whether other important events take place that are not included in the schedule above.

 

Furthermore the schedule above is solely based on the information provided as by the respective authorities when the schedule above was drafted. It is your own responsibility to check whether the information included in the schedule above is complete, accurate and correct. International Tax Plaza and/or its owners do not accept any liability if the information provided in the schedule above is incomplete, not accurate and/or incorrect.

 

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