February 2016 - edition 152EU Tax Alert

The EU Tax Alert is an e-mail newsletter to inform you of recent developments in the EU that are of interest for tax professionals. It includes recent case law of the European Court of Justice, (proposed) direct tax and VAT legislation, customs, state aid, developments in the Netherlands, Belgium and Luxembourg and more.

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Highlights in this edition

Commission publishes Anti Tax Avoidance PackageOn 28 January 2016, the Commission published an Anti Tax Avoidance Package containing measures to address aggressive tax planning, increase tax transparency and create a level playing field within the EU. With this package, the intention of the Commission is that Member States are able to adopt a coordinated action against tax avoidance and ensure that companies pay tax wherever they make their profits in the EU. The Anti Tax Avoidance Package includes a proposal for an Anti Tax Avoidance Directive. In addition, it includes a recommendation on Tax Treaty Issues, a Proposal for a Directive implementing the OECD Country by Country Reporting rules and a Communication on an External Strategy.

AG Wathelet opines that Portuguese legislation on relief of economic double taxation is in breach of the free movement of capital and the EU-Mediterranean Agreements concluded with Tunisia and Lebanon (Secil)On 27 January 2016, AG Wathelet delivered his Opinion in the case SECIL – Companhia Geral de Cal e Cimento SA contra Fazenda Publica (C-464/14). The case deals with the Portuguese regime on relief of economic double taxation in case of dividends paid to the Portuguese company Secil by its subsidiaries located in Tunisia and Lebanon.

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Contents

Highlights in this edition• Commission publishes Anti Tax Avoidance Package

• AG Wathelet opines that Portuguese legislation on

relief of economic double taxation is in breach of the

free movement of capital and the EU-Mediterranean

Agreements concluded with Tunisia and Lebanon

(Secil)

State Aid / WTO• Commission approves of Netherlands tax regime for

government-owned enterprises apart from seaport

exemption

• Commission widens its investigation into the taxation

of seaports

Direct taxation• AG Bobek opines that Belgium legislation which

subjects non-resident UCIs to an annual tax is not in

breach of the fundamental freedoms while a specific

sanction only for foreign UCIs which fail to pay

amounts in respect of annual tax is in breach of the

freedoms (NN (L) International)

• AG Kokott opines that the EU Charter on Fundamental

Rights and the Directive on equal treatment in

employment and occupation do not apply to Finnish

legislation providing supplementary tax on income

from a retirement pension (C)

VAT• CJ rules on application of VAT exemption for supplies

closely linked to welfare and social security work

in respect of serviced residence (Les Jardins de

Jouvence)

• AG Sharpston opines on arrangement with creditors

which stipulates that payment of the State’s VAT

claim is only partly offered (Degano Trasporti)

• Council authorizes Austria and Germany to continue

measure that excludes non-business use from the

right to deduction

• Council authorizes Latvia to introduce special

measure limiting the right to deduction on passenger

cars not wholly used for business purposes

Customs Duties, Excises and other Indirect Taxes• CJ rules on the definition of ‘related persons’

(Stretinskis)

• Publication of the Delegated Regulation and

Implementing Regulation on the UCC

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Member States exempt income from (active) subsidiaries

and permanent establishments.

The Anti Tax Avoidance Directive is to be tabled for

approval by the European Council on 25 May 2016. It

needs to be approved unanimously by all 28 Member

States. It is unclear whether this will be feasible.

The Anti Tax Avoidance Package includes the following

initiatives:

1. Proposal for an Anti Tax Avoidance Directive;

2. Recommendation on Tax Treaty Issues;

3. Proposal for a Directive implementing the OECD

Country by Country Reporting (CbCR); and

4. Communication on an External Strategy.

Each of these initiatives will be briefly summarized below.

1. Proposal for an Anti Tax Avoidance Directive

The Anti Tax Avoidance Directive aims at implementing

some of the final recommendations of the OECD Base

Erosion and Profit Shifting (BEPS) project into Member

States’ national laws. The Anti Tax Avoidance Directive will

apply to all taxpayers which are subject to corporate tax

in a Member State, including permanent establishments

(PEs) of entities resident in a third (non-EU) country.

The Proposed Anti Tax Avoidance Directive is to be

tabled for approval by the European Council on 25 May

2016. For approval, unanimity of the 28 Member States

is required. The adopted text may differ from the proposal

as it is still subject to negotiations between the Member

States. If adopted, all Member States will be required to

implement the provisions of the Directive in their national

laws. The Directive does not yet contain a date by which

this must be done.

It is intended that this Directive will function as a ‘de

minimis rule’, meaning that it merely sets out minimum

standards. Member States may apply additional or more

stringent provisions.

The Directive lays down rules against tax avoidance in six

specific fields: (i) deductibility of interest, (ii) exit taxation,

(iii) exemption of low taxed profits of a subsidiary or

PE (switch-over clause), (iv) a general anti-abuse rule

Highlights in this editionCommission publishes Anti Tax Avoidance PackageOn 28 January 2016, the Commission published an Anti

Tax Avoidance Package containing measures to address

aggressive tax planning, increase tax transparency

and create a level playing field within the EU. With this

package, the intention of the Commission is that Member

States are able to adopt a coordinated action against tax

avoidance and ensure that companies pay tax where

they make their profits in the EU. The Anti Tax Avoidance

Package includes a proposal for an Anti Tax Avoidance

Directive. In addition, it includes a recommendation on

Tax Treaty Issues, a Proposal for a Directive implementing

the OECD Country by Country Reporting rules, and a

Communication on an External Strategy.

The Anti Tax Avoidance Directive lays down rules against

tax avoidance in six specific fields: (i) deductibility of

interest, (ii) exit taxation, (iii) exemption of low taxed

profits of a subsidiary or permanent establishment

(the switch-over clause), (iv) a general anti-abuse rule

(GAAR), (v) controlled foreign company (CFC) rules and

(vi) a framework to tackle hybrid mismatches.

The proposed rules merely set the minimum required

standards: Member States may apply additional or more

stringent provisions aimed at BEPS practices.

Although all proposed rules may have a substantial

impact, the interest deduction rules and switch-over

clause stand out. Based on the interest deduction rules,

as a general rule the deduction of net interest expense is

limited to the higher of 30% of EBITDA or EUR 1 million.

This limitation relates to group interest as well as third

party interest expense. Currently, many Member States

have less stringent interest deduction limitation rules,

particularly with respect to third party interest expense.

Under the switch-over clause, income from low taxed

subsidiaries or permanent establishments cannot be

exempt. An entity or permanent establishment is regarded

as low taxed if it is subject to a statutory corporate tax

rate lower than 40% of the statutory corporate tax rate

of the parent company or head office. At present, many

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4. transfer of the business carried out in a PE out of a

Member State.

Members States to which assets are transferred must

accept the market value of the assets transferred

established by the transferor Member State as the

starting value for tax purposes (i.e., a step-up).

Member States may allow taxpayers to defer the exit tax

payment by paying it in instalments spread out over at

least five years when the transfers occur between Member

States or States that are party to the European Economic

Area Agreement (EEA Agreement; Liechtenstein, Norway

and Iceland). Interest may be charged on deferred exit

tax and the deferral of payment of exit tax may be subject

to security arrangements to ensure proper collection. The

deferral of exit tax must be terminated if the transferred

assets are disposed of, are transferred to a third country

or if the taxpayer transfers its residence for tax purposes

or goes bankrupt.

c) Switch-over clause

This provision requires Member States to deny an

exemption from corporate tax with respect to distributions

of profits and proceeds from the sale of shares in low

taxed entities that are resident in, and PEs that are

located in, third (non-EU) countries. Presently, many EU

Member States exempt such income under a participation

exemption system or a regime providing for an exemption

of PE profits. An entity or PE is regarded as low taxed

when that entity or PE is subject to a statutory corporate

tax rate lower than 40% of the statutory corporate tax

rate that would apply in the Member State of the taxpayer

receiving the income. A credit will be available for tax that

was paid by the low taxed subsidiary or PE.

d) GAAR

The GAAR which is included in the Directive is identical

to the general anti-abuse rule of the 2015 amendment to

the EU Parent Subsidiary Directive, except that it should

now be applied to the entire domestic corporate tax laws

of the Member States. Under the GAAR, non-genuine

arrangements or a series thereof that are put in place

for the essential purpose of obtaining a tax advantage

(GAAR), (v) controlled foreign company (CFC) rules,

and (vi) a framework to tackle hybrid mismatches. The

following paragraphs contain a brief description of each

of these proposed rules.

a) Interest limitation rule

This rule limits the deduction of net interest expense

to the higher of 30% of EBITDA or EUR 1 million. Net

interest expense in excess of 30% of EBITDA may be

carried forward to subsequent years. To the extent

30% of EBITDA exceeds the amount of the net interest

expense in any given year, the difference may also be

carried forward to subsequent years.

Member States can allow taxpayers to deduct net interest

expenses in excess of 30% of EBITDA if the taxpayer can

demonstrate that the ratio of its equity over its total assets

is equal to or higher than the equivalent ratio of the group

in which the accounts of the taxpayer are consolidated

under IFRS or US GAAP. This exception is subject to

an anti-stuffing rule pursuant to which temporary capital

contributions are disregarded and it cannot be used if

the group pays more than 10% of its total net interest

expenses to associated enterprises.

The interest limitation rule will not apply to financial

undertakings, which are defined in the Directive and

generally comprise regulated financial institutions such

as banks, insurance companies, pension funds and

certain investment funds.

b) Exit taxation

The Directive provides for an exit tax, to be assessed in

the Member State of origin on the difference between

the market value of the transferred assets and their tax

value. Exit tax will be triggered in the case of:

1. transfer of assets from the head office to a PE located

in another Member State or in a third country;

2. transfer of assets from a PE in a Member State to its

head office or another PE located in another Member

State or third country;

3. transfer of tax residence to another Member State

or third country (except when the assets remain

connected with a PE in the Member State of origin);

or

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entity). The provisions also provide rules for relief of

juridical double taxation (previously taxed undistributed

CFC income is not taxed again when received or

realized). However, there is no provision for a credit for

underlying tax.

f) Hybrid mismatches

With respect to the treatment of hybrid mismatches

created by entities or instruments between two Member

States that may give rise to double deduction or deduction/

no-inclusion situations, the Directive prescribes that the

legal characterization given to the hybrid entity or hybrid

instrument by the Member State in which the payment

has its source, should be followed by the other Member

State. For example, if taxpayer X that is a resident of

Member State A makes a tax deductible payment to

entity Y that is treated as transparent in Member State

A and that is owned by Z, a resident of Member State B,

Member State B should tax that payment notwithstanding

that Y is treated as non-transparent for Member State B

tax purposes.

The scope of this rule is limited to hybrid mismatches

between Member States as situations involving Member

States and third countries still need to be further

examined. If, in the example above, Z were resident in

a third (non-EU) country, the hybrid mismatch provision

would not apply.

2. Recommendation on Tax Treaty issues

This recommendation by the Commission to the Member

States addresses the implementation by the Member

States of measures against tax treaty abuse taking

into account the final recommendations of the OECD

BEPS project on Actions 6 (Preventing the granting of

treaty benefits in inappropriate circumstances) and 7

(Preventing the artificial avoidance of PEs).

In this context, the Commission considers that the

inclusion of Limitation on Benefit rules in tax treaties

may be in breach of EU law. As regards the inclusion

of a general anti-avoidance rule based on the Principal

Purposes Test, the Commission suggests that Member

States may adopt it with a modified wording in order to be

EU law compliant:

that defeats the object or purpose of the applicable law

should be ignored for the purposes of determining the

corporate tax liability. Arrangements or a series thereof

shall be regarded as non-genuine to the extent that they

are not put into place for valid commercial reasons which

reflect economic reality. If the GAAR applies, the tax

liability should be determined by reference to economic

substance in accordance with the respective national law.

The preamble to the Directive clarifies that the application

of the GAAR should be limited to wholly artificial

arrangements in order to ensure that it is in line with the

Treaty freedoms and the interpretation adopted by the

Court of Justice of the European Union (CJ).

e) CFC legislation

The Directive prescribes that Member States implement

CFC legislation in their national laws. The CFC legislation

is to be applied to non-distributed income of entities when

the following conditions are met:

1. a taxpayer by itself or together with associated

enterprises, holds directly or indirectly more than 50%

of capital or voting rights or is entitled to receive more

than 50% of the profits of an entity;

2. profits are subject to an effective tax rate lower than

40% of the effective tax rate that would have been

applied in the Member State of the taxpayer; and

3. more than 50% of the income accrued to that entity

falls within one or more of the categories listed in the

Anti-Tax Avoidance Directive (i.e., interest, dividends,

royalties, income from banking and insurance activities

and income from related party services).

The CFC legislation should be applied in general to third

country entities. In the case of entities that are resident

in a Member State or in a third country which is party to

the EEA Agreement, a different standard applies: in that

event the CFC legislation should only be applied in the

case the establishment of the entity is considered to be

‘wholly artificial’ (non-genuine).

The provisions on CFC legislation in the Directive provide

rules with respect to the computation of the income to be

included under the CFC rules (calculated in accordance

with the rules of the Member State where the taxpayer

resides) and the amount of income to be included under

the CFC rules (proportion of entitlement to profits of the

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report relates. The first reporting relates to fiscal years

beginning on or after 1 January 2016.

Under the proposed rules, Member States receiving a

CbC report will be required to automatically exchange

information on the report within 15 months after the end

of the fiscal year to which the CbC report relates by using

a standard form. The first exchange relates to fiscal years

beginning on or after 1 January 2016. A Member State is

only required to share information on CbC reports with

other Member States in which an entity of the MNE group

is resident or liable to tax.

If approved, the proposed rules will amend the Directive

on administrative cooperation between Member States

(Directive 2011/16/EU) and come into effect on 1 January

2017.

4. Communication on an External Strategy

In its Communication to the European Parliament and

the European Council ‘on an External Strategy for

Effective Taxation’, the Commission makes reference

that additional measures to the ones provided in the Anti

Tax Avoidance Directive may be adopted as regards third

countries that are included in the EU common list (EU

Tax Haven list). This list will include jurisdictions that do

not meet the EU standards on tax good governance:

transparency, information exchange and fair tax

competition. Possible measures could include the levy of

withholding taxes on and non-deductibility of payments

made to entities resident in those tax haven jurisdictions.

Loyens & Loeff will keep you updated of any relevant

developments on this subject.

AG Wathelet opines that Portuguese legislation on relief of economic double taxation is in breach of the free movement of capital and the EU-Mediterranean Agreements concluded with Tunisia and Lebanon (Secil)On 27 January 2016, AG Wathelet delivered his Opinion

in case SECIL – Companhia Geral de Cal e Cimento

SA contra Fazenda Publica (C-464/14). The case deals

with the Portuguese regime on relief of economic double

taxation in the case of dividends paid to the Portuguese

‘Notwithstanding the other provisions of this Convention,

a benefit under this Convention shall not be granted in

respect of an item of income or capital if it is reasonable

to conclude, having regard to all relevant facts and

circumstances, that obtaining that benefit was one of the

principal purposes of any arrangement or transaction that

resulted directly or indirectly in that benefit, unless it is

established that it reflects a genuine economic activity or

that granting that benefit in these circumstances would

be in accordance with the object and purpose of the

relevant provisions of this Convention.’

The recommendation encourages Member States to

implement the proposed new provisions to Article 5 of

the OECD Model Tax Convention regarding PE status as

drawn up in the OECD BEPS Action 7 final report when

they (re-)negotiate tax treaties.

3. Proposal for a Directive implementing CbCR

This proposal is aimed at the EU wide implementation of

the CbCR obligation as developed in the OECD BEPS

project in Action 13. It introduces (i) the CbCR obligation,

and (ii) mandatory automatic exchange of information on

CbC reports between Member States.

The rules governing the obligation to file a CbC report

in a Member State, as well as the information to be

reported, are in line with BEPS Action 13. So, the CbCR

obligation will, in principle, rest on those resident entities

of a Member State which are the ultimate parent entity

(or an appointed subsidiary) of a multinational enterprise

(MNE) with a total consolidated group revenue of at least

EUR 750 million. If the ultimate parent company is based

outside the EU and the third country fails to provide a

CbC report to all relevant Member States, the (appointed)

EU subsidiary will become obliged to file the CbC report

of the MNE group. The proposal does not contain rules

on master files or local files as this is already covered

under the EU code of conduct on transfer pricing

documentation.

The information to be reported must include the revenues,

profits, taxes paid and accrued, capital, accumulated

earnings, number of employees and certain tangible

assets of each group company. CbC reports will need

to be filed annually in the relevant Member State within

12 months after the end of the fiscal year to which the

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legislation at stake specifically addresses wholly artificial

arrangements.

As regards the effectiveness of fiscal supervision, the AG

observed that such justification can only be accepted in

the case the legislation of one Member State makes the

concession of a tax benefit dependent on conditions that

can only be verified by obtaining the relevant information

from the competent authorities of a third State. However,

in this case, the Portuguese government did not argue that

granting such benefit is dependent on such conditions. In

any event and even if accepted, such justification could

only proceed in case of Lebanon due to the absence ofa

mechanism for exchange of information pursuant to a

relevant Double Tax Treaty.

Therefore, AG Wathelet considered that the Portuguese

legislation was in breach of Article 34 of the EU-

Mediterranean Agreement with Tunisia and Article 31 of

the EU-Mediterranean Agreement with Lebanon and that

Portugal should refund the amount of tax charged on the

dividends together with accrued interests.

State Aid/WTOCommission approves of Netherlands tax regime for government-owned enterprises apart from seaport exemption On 21 January 2016, the European Commission

ordered the Netherlands to discontinue its corporate tax

exemption for six government-held seaports as of 2017.

The Netherlands had recently revised its corporate tax

such to include other government-held companies in

the corporate tax as from 2016, as requested by the

Commission. The old regime predated the establishment

of the EU/EEC and was treated as existing aid. The

Commission has now confirmed that the new legislation

addressed its State aid concerns (apart from the ports),

thus confirming that the new regime for taxation of

government-owned companies is now in line with EU law

(based on the press release).

Commission widens its investigation into the taxation of seaports On 21 January 2016, the Commission opened two formal

investigations: one into special tax regimes for eight

company Secil by its subsidiaries located in Tunisia and

Lebanon.

The Portuguese legislation provides for a mechanism of

economic double taxation relief which is applicable both

to subsidiaries located in Portugal and to subsidiaries

located in EU Member States, and that meet the

conditions set forth in Article 2 of the Parent-Subsidiary

Directive.

Secil is a company resident in Portugal which held

majority shareholdings in companies located in Tunisia

and Lebanon. During the year 2009, it received dividend

income from those subsidiaries which was taxed in

Portugal without any economic double taxation relief. In

the year of 2012, it submitted a claim before the local tax

authorities and subsequently before the Portuguese First

Instance Tax Court claiming, essentially that the limitation

of the Portuguese economic double taxation regime

was in breach of the EU-Mediterranean Agreements

concluded with Tunisia and Lebanon.

AG Wathelet started by considering that the Portuguese

law provides for a difference in treatment as regards

dividend income depending on the origin of such income.

While undoubtedly Secil was in a situation objectively

comparable to a Portuguese taxpayer receiving dividends

originating from a Portuguese subsidiary or an EU or

EEA subsidiary, there was a difference in treatment in

breach of Article 34 of the EU-Mediterranean Agreement

with Tunisia and Article 31 of the EU-Mediterranean

Agreement with Lebanon.

Subsequently AG Wathelet went on to analyse possible

justifications. It started by referring to the argument

raised by the Portuguese Republic that the discriminatory

treatment provided by the legislation at stake could be

justified by the need to prevent tax avoidance considering,

notably, the absence of a legal framework such as the

Directive on mutual administrative assistance as well the

fact that no Double Tax Treaty had been concluded with

Lebanon and that the article on exchange of information

of the Double Tax Treaty concluded with Tunisia was

not binding, contrary to the Directive. AG Wathelet

recalled that a justification based on the prevention

of tax avoidance can only be justified in the case the

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covered by that directive. In that regard, and taking

into account that the base of annual tax consists of net

amounts invested in Belgium in the preceding year, it

concluded that such a tax does not relate to any of the

types of transactions subject to capital duty under this

Directive.

In regard to Directive 85/611, the question raised was

whether this Directive should be interpreted as precluding

the imposition of the annual tax, because it prejudices the

principal aim of that directive of facilitating the marketing

of UCITS in the EU. AG Bobek noted that Directive 85/611

does not contain any provision on taxation and thus does

not have any bearing on the present case.

Subsequently, AG Bobek dealt with the issue of

compatibility of the annual tax charged on foreign UCIs.

As a preliminary issue, he determined what fundamental

freedom was applicable in this case, concluding that

the annual tax was primarily concerned with the free

movement of capital.

The AG first observed that it was apparent that the

national legislation was applicable without distinction

to resident and non-resident UCIs. In addition, the

application of the annual tax does not result in foreign

UCIs ultimately bearing a heavier tax burden in Belgium

than that borne by Belgian UCIs. However, NN (L)

contented that there was discriminatory treatment

because the tax was applied similarly to the situations

of resident and non-resident UCIs, which nevertheless

were not in comparable situations. AG Bobek considered

that the argument raised by NN (L) was based on the

fact that UCIs resident in Luxembourg were already

subjected to a subscription tax in that Member State.

However, it recalled that the CJ has consistently ruled

that the disadvantages which arise from the parallel

exercise of tax competences by different Member States

do not constitute restrictions on the freedom of movement

to the extent that such an exercise is not discriminatory.

Accordingly, Member States are not obliged to adapt their

tax systems to those of other Member States in order to

eliminate double taxation. Therefore, he concluded that

there was no breach to the free movement of capital.

Finally, the AG analysed the specific sanction only

applicable to foreign UCIs. This sanction essentially

seaports and a number of inland ports in Belgium, and

the other into corporate tax exemptions for 11 seaports as

well as certain other ports in France. Both Member States

have been requested to abandon these regimes and to

subject the ports to normal taxation. As both regimes

predate the establishment of the EU/EEC, no recovery

will be involved. The Commission has also indicated that

it is still investigating special tax regimes for ports in other

EU Member States, amongst others, benefits to ports.

Direct TaxationAG Bobek opines that Belgium legislation which subjects non-resident UCIs to an annual tax is not in breach of the fundamental freedoms while a specific sanction only for foreign UCIs which fail to pay amounts in respect of annual tax is in breach of the freedoms (NN (L) International)On 21 January 2016, AG Bobek delivered his Opinion in

the case Etat belbe v NN (l) International, formerly ING

International SA, successor to the rights and obligations

of ING Dymanic SA (C-48/15). The case concerns

the Belgian annual tax on undertakings for collective

investment (UCIs) which is levied on the basis of the net

value of the assets of these undertakings, both domestic

and foreign. In addition, it considers the specific sanction

for foreign UCIs which fail to pay amounts falling due in

respect of the annual tax. The proceedings concern the

refusal by the Belgian tax authorities to reimburse the

amount of the annual tax paid by NN (L) International

for the year 2005. The referring court asked whether EU

law precludes the application of the annual tax to foreign

UCIs and the imposition of a specific sanction on foreign

UCIs who fail to observe this tax obligation. The questions

referred concern, in particular, the interpretation of

Directive 69/335/EEC (on harmonization of indirect taxes

on raising of capital in Member States), and Directive

85/611/EEC (on harmonization of UCITS) the freedom to

provide services and the free movement of capital.

As regards Directive 69/335, AG Bobek recalled that the

purpose of this Directive is to abolish indirect taxes, other

than capital duty, which have the same characteristics

as that duty, namely those applied to the transactions

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As regards the application of the Charter, the question

arose whether the prohibition of discrimination contained

in Article 21 (1) of the Charter was directly applicable.

AG Kokott stated that in accordance with the first sentence

of Article 51(1) of the Charter, Finland is required to

observe the EU-law prohibition of discrimination on the

ground of age when it is ‘implementing Union law’. It is

the Court’s settled case law that this wording means

that the fundamental rights guaranteed in the legal order

of the European Union are applicable to all situations

governed by EU law, but not outside such situations.

According to the AG, the taxation of the taxpayer’s

retirement pension in this case could constitute a

restriction of a fundamental freedom, and thus fall within

the scope of the Charter. However, although the taxation

in Finland of a pension received by the taxpayer which

he acquired at least in part on account of employment in

Sweden is prejudicial to the exercise of his freedom of

movement as a worker, there is nonetheless no restriction

of that fundamental freedom as defined by previous case

law. This states that a national measure in the field of

tax law is regarded as being liable to hinder or render

less attractive the exercise of a fundamental freedom

only where it distinguishes between domestic and cross-

border activity. On the other hand, the levying of a direct

tax, without distinction, in domestic and cross-border

situations — as in the present case of a uniform rate of

tax applicable to all income derived from a retirement

pension — cannot restrict the fundamental freedoms.

Therefore, the AG concluded that, insofar as it levies

income tax on income from a retirement pension,

Finland is not implementing EU law in the present case.

Consequently, the prohibition of discrimination on the

ground of age laid down in the Charter is not directly

applicable in the dispute in the main proceedings, in

accordance with the first sentence of Article 51(1) of the

Charter.

VAT CJ rules on application of VAT exemption for supplies closely linked to welfare and social security work in respect of serviced residence (Les Jardins de Jouvence)On 21 January 2016, the CJ delivered its judgment in the

case Les Jardins de Jouvence SCRL: ‘LJJ’) (C-335/14).

determines the prohibition of foreign UCIs to carry out

activities in Belgium in the case they fail to submit their

tax declarations within the prescribed period or to pay

the annual tax. The AG noted that since this legislation

may prohibit UCIs established in other Member States

from carrying out their activities in Belgium, even if they

may lawfully continue with the same activities in their

Member State of origin, it should be examined in the

light of the freedom to provide services. Ultimately, the

AG concluded that this sanction did indeed constitute

a breach of the free movement of services notably by

considering that being potentially unlimited in time it does

not satisfy the requirements of proportionality.

AG Kokott opines that the EU Charter on Fundamental Rights and the Directive on equal treatment in employment and occupation do not apply to Finnish legislation providing supplementary tax on income from a retirement pension (C) On 28 January 2016, AG Kokott delivered her Opinion

in case C (C-122/15). This case deals with the Finnish

legislation that subjects taxpayers to a supplementary tax

levied exclusively on income from retirement pensions.

In essence, the question raised is whether the EU law

prohibition of discrimination on the ground of age which

is governed by the Charter of Fundamental Rights of the

EU and Directive 2000/78 preclude a Member State from

imposing a higher rate of taxation on retirement pension

income.

AG Kokott started by analysing whether Directive

2000/78 applied to the taxation of pension income under

Finnish rules. The AG looked in particular to the wording

of Article 3(1) of the Directive and considered that since

there is no directive in the field of taxation of pensions,

then this field does not constitute an area of competence

conferred by the Community within the meaning of Article

3(1) of the Directive. In addition, the AG considered that

the adoption of Directive 2000/78 did not represent laying

down any prohibition on discrimination in the area of

tax law. Therefore, AG Kokott concluded that Directive

2000/78 did not apply to the taxation of pension income

in the present case.

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AG Sharpston opines on arrangement with creditors which stipulates that payment of the State’s VAT claim is only partly offered (Degano Trasporti) On 14 January 2014, AG Sharpston delivered her Opinion

in the case Degano Trasporti S.a.s. di Ferruccio Degano

& C: ‘Degano’ (C-546/14). Degano submitted a proposal

for an arrangement to the referring court, as a result of

financial difficulties which prevented it from pursuing

its commercial activities. Under the proposal, certain

preferential creditors would be paid in full but there

would be partial payment only for some lower-ranking

preferential creditors and unsecured creditors and for the

State with regard to Degano’s VAT debt.

The referring court asked whether the proposal should

be rejected as inadmissible on the ground that it does not

provide for full payment of Degano’s VAT debt. It doubted,

however, whether the Member States’ obligation to take

all legislative and administrative measures appropriate for

ensuring collection of all the VAT due in fact precludes an

arrangement in which only part of a VAT debt is satisfied,

provided that the debt would not be better satisfied in

bankruptcy proceedings. In its request for a preliminary

ruling, the referring court seeks guidance, in essence,

on whether the ensuring of effective collection of the EU

resources and the principle of fiscal neutrality preclude a

Member State from accepting only partial payment of a

VAT debt by a trader in financial difficulties, in the course

of an arrangement with creditors based on the liquidation

of its assets.

The AG first of all opined that the request for a

preliminary ruling was clearly admissible. Furthermore,

she opined that neither Article 4(3) TEU nor the EU VAT

Directive preclude national rules such as those in the

main proceedings, if those rules are to be interpreted as

allowing an undertaking in financial difficulties to enter

into an arrangement with creditors involving liquidation

of its assets without offering full payment of the State’s

claim in respect of VAT. However, this only applies if an

independent expert concludes that no greater payment of

that claim would be obtained in the event of bankruptcy

and that the arrangement is validated by a court.

LJJ is a Belgian cooperative company whose object

consisted of operating and managing care institutions

and in engaging in all activities relating directly or

indirectly to healthcare and the assistance of the sick,

elderly, disabled or other persons. Within the framework

of activities, LJJ rented out small service flats designed

for able-bodied persons, for which it also carried out

substantial building work and installed equipment.

After an audit of LJJ’s accounts, the tax authorities

concluded that LJJ was not entitled to deduct the VAT in

relation to the construction of immovable property, since

LJJ’s transactions in connection with the operation of the

serviced residence were VAT exempt. LJJ opposed this

view and claimed that the formal licence it had obtained

to operate a serviced residence did not necessarily entail

recognition that it is devoted to social wellbeing, since

the conditions for the approval of serviced residences

are fundamentally different from those for the approval

of retirement homes. The referring court had doubts

concerning the interpretation of Article 13A(1)(g) of

the Sixth EU VAT Directive, which exemption provision

refers to welfare and social security work including those

services supplied by old people’s homes, and decided to

refer to the CJ for a preliminary ruling.

According to the CJ, it has to be examined first whether

LJJ falls within the concept of ‘other organizations

recognized as charitable by the Member State

concerned’ within the meaning of Article 13A(1)(g) of the

Sixth EU VAT Directive. In this respect, the CJ ruled that

the charitable nature of the dwelling services provided

by LJJ must be assessed by the referring court in the

light of several factors outlined by the CJ. Secondly, it

is necessary, according the CJ, to examine whether the

other services provided are ‘closely linked to welfare and

social security work’. The CJ ruled that these services

may also benefit from the exemption, provided that the

services are intended to achieve the (legally required)

support and care of elderly persons and correspond to

the (legally required) services for old people’s homes. It

is irrelevant, in the view of the CJ, whether or not the

operator of a serviced residence receives a subsidy or

any other form of advantage or financial support from

public authorities.

12

Between 2008 and 2010, Mr Stretinskis imported from

the United States second-hand clothing for release for

free circulation in the territory of the European Union. In

the single administrative documents which he completed

for this purpose, Mr Stretinskis calculated the customs

value of those goods in accordance with the transaction

value method, relying on the total cost of the goods as it

appeared on the invoices of Latcars LLC and Dexter Plus

LLC (referred to jointly as ‘the companies which sold the

goods’) and the cost of transporting the goods by sea.

After examining the documents submitted by

Mr Stretinskis and carrying out an inspection at his

business premises, the national revenue authority

expressed doubts as to the accuracy of the values

declared, on the ground, in particular, that the director of

the companies which sold the goods was Mr Stretinskis’

brother. Taking the view that they are related persons

for the purposes of Article 143(1)(h) of Regulation

No 2454/93, the national revenue authority, by a decision

of 22 July 2010, recalculated the customs value of the

goods on the basis of Article 31 of the Customs Code.

Mr Stretinskis brought an action for the annulment of that

decision before the administrative court with jurisdiction

at first instance. That action was dismissed by that court.

Hearing the case on appeal, the administrative court

upheld Mr Stretinskis’ action. That court held, in

particular, that the national revenue authority’s doubts as

to the accuracy of the declared customs values of the

goods concerned were not sufficiently substantiated, as

the existence of a kinship relationship, for the purposes

of Article 143(1)(h) of Regulation No 2453/93, could

be recognised, in circumstances such as those in the

dispute in the main proceedings, only if Mr Stretinskis’

brother was the owner of the companies which sold the

goods, which that authority failed to determine.

That authority lodged an appeal on a point of law

against that judgment, claiming, in particular, that the

administrative court with jurisdiction to hear the appeal

ought to have taken the view that Mr Stretinskis and the

director of the companies which sold the goods were

related persons, for the purposes of Article 143(1)(h) of

Regulation No 2453/93.

Council authorizes Austria and Germany to continue measure that excludes non-business use from the right to deduction By Council Implementing Decision dated 10 December

2015, the Council has granted authorization to Germany

and Austria to continue applying a measure derogating

from Articles 168 and 168a of the EU VAT Directive.

As a result, these Member States will remain able to

exclude from the right of deduction the VAT borne on

goods and services which are used for more than 90%

for non-business purposes. The authorization expires on

31 December 2018, in order to allow for a review of the

necessity and effectiveness of the derogating measure

and the apportionment rate between business and non-

business use on which it is based.

Council authorizes Latvia to introduce special measure limiting the right to deduction on passenger cars not wholly used for business purposes On 10 December 2015, the Council authorized Latvia

to introduce a special measure derogating from certain

provisions of the EU VAT Directive. Based on this special

measure, Latvia is authorized to limit to 50% the right to

deduct VAT on expenditure on passenger cars not wholly

used for business purposes. If cars have been subject

to such a limitation, Latvia may not treat as supplies of

services for consideration the use for private purposes

of a passenger car included in the assets of a taxable

person’s business. The Council’s Decision will only apply

to passenger cars with a maximum authorized weight

not exceeding 3,500 kilograms and having no more than

eight seats in addition to the driver’s seat. The Decision

will expire on 31 December 2018.

Customs Duties, Excises and other Indirect TaxesCJ rules on the definition of ‘related persons’ (Stretinskis) On 21 January 2016, the CJ delivered its judgment in

the case Stretinskis (C-430/14). The case concerns

the definition of ‘related persons’ for the purpose of the

determination of the customs value of imported goods.

13

Accordingly, the CJ deemed it appropriate to consider

that, where, in circumstances such as those in the case

in the main proceedings, a natural person, acting within

a legal person, has the power to influence the sales price

of imported goods for the benefit of a buyer to whom he is

related, the capacity of the seller as a legal person does

not prevent the buyer and seller of those goods from

being regarded as being related, within the meaning of

Article 29(1)(d) of the Customs Code.

On the basis of its considerations, the CJ ruled that

Article 143(1)(h) of Commission Regulation (EEC)

No 2454/93 of 2 July 1993 laying down provisions for the

implementation of Council Regulation (EEC) No 2913/92

establishing the Community Customs Code, as amended

by Commission Regulation (EC) No 46/1999 of 8 January

1999, must be interpreted as meaning that a buyer, who

is a natural person, and a seller, which is a legal person,

within which a kin of that buyer actually has the power to

influence the sales price of goods for the benefit of that

buyer, must be regarded as being related persons within

the meaning of Article 29(1)(d) of Council Regulation

(EEC) No 2913/92 of 12 October 1992 establishing the

Community Customs Code, as amended by Regulation

(EC) No 82/97 of the European Parliament and of the

Council of 19 December 1996.

Publication of the Delegated Regulation and Implementing Regulation on the UCCOn 29 December 2016, the Commission Delegated

Regulation (EU) 2015/2446 of 28 July 2015 supplementing

Regulation (EU) No 952/2013 (Union Customs Code,

UCC) as regards detailed rules concerning certain

provisions of the UCC and Implementing Regulation (EU)

2015/2447 of 24 November 2015 laying down detailed

rules for implementing certain provisions of the UCC

were published. These regulations will enter into force on

the same date as the UCC, thus on 1 May 2016.

Taking the view that the resolution of the case in the main

proceedings depends on the interpretation of EU law,

the Augstākā tiesa (Supreme Court) decided to stay the

proceedings and to refer the following questions to the

Court of Justice for a preliminary ruling:

‘(1) Must Article 143(1)(h) of Regulation No 2454/93 be

interpreted as referring not only to situations in which

the parties to the transaction are exclusively natural

persons, but also to situations in which there is a

family or kinship relationship between a director of

one of the parties (a legal person) and the other party

to the transaction (a natural person) or a director of

that party (in the case of a legal person)?

(2) If the answer is affirmative, must the judicial body

hearing the matter carry out an in-depth examination

of the circumstances of the case in relation to the

actual influence of the natural person concerned over

the legal person?’

The CJ considered that the likelihood of persons in a

kinship relationship being able to influence the sales

prices of imported goods similarly exists where the seller

is a legal person within which the buyer’s kin has the

power to influence the sales price for the buyer’s benefit.

In those circumstances, and having regard to the

objectives pursued by the EU legislation on customs

valuation, to rule out, from the outset, that a buyer and

a seller may be regarded as being related persons,

within the meaning of Article 143(1)(h) of Regulation

No 2454/93, on the ground that one of the parties to the

sales contract is a legal person, would undermine the

effectiveness of Article 29(1)(d) of the Customs Code. In

that case, the revenue authorities would be denied the

possibility of examining, pursuant to Article 29(2)(a) of

the Customs Code, the circumstances specific to the sale

concerned, even though there are reasons for supposing

that the transaction value of the imported goods may

have been influenced by a kinship relationship between

the buyer and a member of the legal person which sold

the goods.

14

Correspondents● Gerard Blokland (Loyens & Loeff Amsterdam)

● Kees Bouwmeester (Loyens & Loeff Amsterdam)

● Almut Breuer (Loyens & Loeff Amsterdam)

● Robert van Esch (Loyens & Loeff Rotterdam)

● Raymond Luja (Loyens & Loeff Amsterdam;

Maastricht University)

● Arjan Oosterheert (Loyens & Loeff Zurich)

● Lodewijk Reijs (Loyens & Loeff Rotterdam)

● Bruno da Silva (Loyens & Loeff Amsterdam;

University of Amsterdam)

● Patrick Vettenburg (Loyens & Loeff Rotterdam)

● Ruben van der Wilt (Loyens & Loeff Amsterdam)

www.loyensloeff.com

About Loyens & LoeffLoyens & Loeff N.V. is the first firm where attorneys at law,

tax advisers and civil-law notaries collaborate on a large

scale to offer integrated professional legal services in the

Netherlands, Belgium, Luxembourg and Switzerland.

Loyens & Loeff is an independent provider of corporate

legal services. Our close cooperation with prominent

international law and tax law firms makes Loyens & Loeff

the logical choice for large and medium-size companies

operating domestically or internationally.

Editorial boardFor contact, mail: eutaxalert@loyensloeff.com:

● René van der Paardt (Loyens & Loeff Rotterdam)

● Thies Sanders (Loyens & Loeff Amsterdam)

● Dennis Weber (Loyens & Loeff Amsterdam;

University of Amsterdam)

Editors● Patricia van Zwet

● Bruno da Silva

Although great care has been taken when compiling this newsletter, Loyens & Loeff N.V. does not accept any responsibility whatsoever for any

consequences arising from the information in this publication being used without its consent. The information provided in the publication is intended

for general informational purposes and can not be considered as advice.

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