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Approved Changes (3)

European Union-Netherlands-Luxembourg

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EU Commission Announces Decision that Illegal Tax Advantages were Provided in FIAT and Starbucks State Aid Cases

On 21 October 2015, the European Commission announced its decision that Luxembourg and the Netherlands have granted selective tax advantages to FIAT Finance and Trade and Starbucks respectively, which are illegal under EU State aid rules. The decision follows investigations launched in June 2014 into the tax rulings given for the companies by the two countries that resulted in artificially lowered tax burdens.

FIAT Luxembourg

FIAT Finance and Trade in Luxembourg provides financial services, such as intra-group loans, to other FIAT group car companies. It engages in many different transactions with FIAT group companies in Europe.

Based on the activities of FIAT Luxembourg, the Commission's position is that the taxable profits should be determined in a similar way as for a bank, as a calculation of return on capital deployed by the company for its financing activities. However, the Commission found that the tax ruling provided by Luxembourg in 2012 used methods that are artificial and unnecessarily complex, and include unjustified assumptions and downward adjustments for the capital base and estimated remuneration.

The ruling resulted in taxable profits declared that are 20 times lower than what market conditions would dictate, which amounts to an estimated reduction in FIAT Luxembourg's tax burden of EUR 20 to 30 million since 2012.

FIAT denies that it received any State aid and Luxembourg will reportedly appeal the decision.

Starbucks Netherlands

Starbucks Manufacturing EMEA BV in the Netherlands is the only coffee roasting company in the Starbucks group in Europe. It provides roasted coffee and other coffee-related products to Starbucks outlets in Europe, the Middle East and Africa.

Starbucks Netherlands purchased its beans from a Starbucks entity in Switzerland and paid royalties for the "know-how" to roast the beans to a Starbucks UK entity that is directly controlled by Starbucks' U.S. headquarters. According to the Commission investigation, the tax ruling issued to Starbucks by the Netherlands in 2008 artificially lowered the amount of taxes paid by:

  • Allowing an inflated price for the beans, with the margin on the beans more than tripling since 2011; and
  • Allowing a substantial royalty payment for the roasting "know-how" that does not reflect market value, and without regard to the fact that no other Starbucks group company or independent roaster are required to pay a royalty for using the same "know-how" in essentially the same situation.

The Netherlands ruling resulted in an estimated reduction in Starbucks Netherland's tax burden of EUR 20 to 30 million since 2008.

Starbucks is reportedly planning to appeal the decision, and the Netherlands government has stated that it is surprised by the decision and will study the case and possibly appeal.

Tax Recovery

Both Luxembourg and the Netherlands have been ordered to recover the difference between the amount of tax paid and the amount that would have been paid without the tax rulings. The exact amounts are to be determined by the Luxembourg and Dutch tax authorities based on the methodology established in the Commission decisions.

Click the following link for the press release from the European Commission.

Germany

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Germany Approves Tax Amendment Act 2015 including Changes in Certain Reorganization Rules

On 16 October 2015, the German Federal Council (upper house of parliament - Bundestrat) approved the Tax Amendment Act 2015. The Act was approved by the German Federal Diet (lower house of parliament - Bundestag) on 24 September 2015. It will enter into force after it is published in the Official Gazette.

The main measures concern certain aspects of reorganizations and are summarized as follows.

RETT on Indirect Transfers of Real Estate

The substitute basis for the application of real estate transfer tax (RETT) for an indirect transfer of real estate from a reorganization is amended to better reflect the fair market value of the property. In general, this means a higher amount of RETT for reorganizations that include real estate.

The change applies from 1 January 2009, although any assessment already issued may not be amended to the taxpayer's disadvantage.

Loss Forfeiture Rules upon Change in Ownership

The group exemption from loss forfeiture upon a change in ownership is expanded. Under current German law, loss forfeiture does not apply when the same single person or entity has 100% direct or indirect ownership of both the transferring and the receiving entity of the relevant loss company.

This is expanded so that loss forfeiture will also not apply in the case of a direct or indirect transfer where the receiving entity directly or indirectly owns 100% of the transferring entity, or the transferring entity directly or indirectly owns 100% of the receiving entity. This applies for transfer to or by the ultimate parent of a group, as well as when the transferor or acquirer is an individual or commercial partnership.

The change applies for transfers after 31 December 2009.

Limit on Additional Consideration for Tax-Free Contributions

Currently, a transferor may make a tax-free contribution of qualifying assets or shares in exchange for newly listed shares of the transferee. The transferor may also receive other consideration in addition to newly issued shares as long as the fair market value of such other consideration does not exceed the tax basis of the contributed assets or shares.

Under the new rules, in order to qualify for a tax-free contribution, any additional consideration is limited to 25% of the contributed assets or shares, or EUR 500,000 (may not exceed the value of the contributed assets or shares).

This applies from 1 January 2015.

Venezuela

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Venezuela Increases Minimum Monthly Salary

On 15 October 2015, the Venezuelan government announced that the country's minimum monthly salary will be increased from VEF 7,421.68 to VEF 9,649.00 effective 1 November 2015. This is the fourth increase so far in 2015.

The minimum salary is used in determining the basis cap for social security contributions, unemployment insurance, and other benefits (previous coverage).

Proposed Changes (1)

Bulgaria

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Update - Bulgarian Tax Reform Bill for 2016 Submitted to Parliament

On 13 October 2015, the Bulgarian Council of Ministers approved and submitted the tax reform legislation for 2016 to the National Assembly. The main measures include:

  • Implementation of the amendment to EU Parent-Subsidiary Directive that denies the participation exemption if a distribution received is tax deductible for the distributing subsidiary or otherwise reduces the tax base of the subsidiary;
  • The introduction of regional State aid rules in line with the EU guidelines, including that regional tax relief will only be granted with advance approval from the tax authorities, and limiting State aid for certain sectors, including agricultural, energy and transport sectors.
  • The introduction of a municipal-level personal income tax that may be set at a rate of up to 2%, and is in addition to the standard 10% personal income tax rate; and
  • The definition for jurisdictions with preferential tax regimes will be amended to mean jurisdictions that do not have adequate exchange of information with Bulgaria and have corporate tax rates below 60% of the Bulgarian rate.

Subject to approval by the National Assembly, the changes are to apply from 1 January 2016.

Treaty Changes (5)

Bangladesh-Egypt-Portugal-Russia-Spain

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Bangladesh Negotiating Tax Treaties with Egypt, Portugal, Russia and Spain

On 12 October 2015, the Bangladesh National Board of Revenue announced that it has recently begun tax treaty negotiations with Egypt, Portugal, Russia and Spain. Any resulting treaties will be the first of their kind between Bangladesh and the respective countries, and must be finalized, signed and ratified before entering into force.

Hong Kong-Pakistan

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Tax Treaty between Hong Kong and Pakistan Signed

On 16 October 2015, officials from Hong Kong and Pakistan signed an income tax treaty. The treaty is the first of its kind between the two jurisdictions, and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

Kuwait-Sweden

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Tax Treaty between Kuwait and Sweden to be Negotiated

Officials from Kuwait and Sweden met on 13 October 2015 to discuss the negotiation of an income tax treaty. Any resulting treaty would be the first of its kind between the two countries, and would need to be finalized, signed and ratified before entering into force.

Morocco-Tunisia

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SSA between Morocco and Tunisia Signed

On 19 October 2015, officials from Morocco and Tunisia signed a new social security agreement (SSA). Once in force and effective, the new agreement will replace the 1987 SSA that is currently in force. The new agreement will enter into force after the ratification instruments are exchanged.

Switzerland-Uzbekistan

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Protocol to Tax Treaty between Switzerland and Uzbekistan has Entered into Force

On 14 October 2015, the protocol to the 2002 income and capital tax treaty between Switzerland and Uzbekistan entered into force. The protocol, signed 1 July 2014, is the first to amend the treaty. It amends Article 25 (exchange of Information), brining it in line with the OECD standard for information exchange.

The protocol applies from the date of its entry into force concerning tax periods beginning on or after 1 January 2016.

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