Implications Of The OECD/G20 Base Erosion And Profit Shifting Project

The Subcommittee on Tax Policy of the House Ways and Means Committee has scheduled a public hearing for December 1, 2015, on the Base Erosion and Profit Shifting Project conducted by the Organization for Economic Cooperation and Development at the request of the Group of Twenty ("OECD/G20 BEPS Project").

The Senate Committee on Finance has scheduled a public hearing on December 1, 2015, titled "International Tax: OECD BEPS and EU State Aid." This document, prepared by the staff of the Joint Committee on Taxation, provides background on the OECD/G20 BEPS Project, an overview of its findings and recommendations, and a discussion of its potential implications for U.S. tax policy.

More information: https://www.jct.gov/publications.html?func=startdown&id=4853

FATCA & CRS - Belgian Bill of Law

As of 2017, the Belgian fiscal authorities will be able to acquire an almost complete overview of the revenues generated and deposited by Belgians in other countries who are member of the European Union.

On 13 November, the Belgian Government introduced a bill of law implementing the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). The bill has still to be discussed, potentially amended and then adopted in committee and plenary session before being enacted.

 

The bill of law covers simultaneously FATCA and CRS (the latter being implemented pursuant to both the OECD/Council of Europe Multilateral Convention and the Directive on administrative cooperation in the field of taxation, as amended by Directive 2014/107/EU), provides further details and introduces new obligations and penalties.

 

More information: https://www.linkedin.com/pulse/belgian-bill-law-implementing-fatca-crs-dirk-de-wolf?trk=hp-feed-article-title-like

 

Savings taxation directive repealed

On November 10, the European Council repealed Directive 2003/48/EC on the taxation of savings income.

Brief Background

 

The 2003 EUSD, which originally came into effect on 1 July 2005, was introduced as an European approach to attacking banking secrecy. It provides a mechanism whereby EU Member States automatically exchange information about interest earned in one Member State by a resident of another Member State. Only Belgium, Luxembourg and Austria were entitled, during a transitional period, to levy a withholding tax at a rate of, currently, 35% in place of information exchange. Belgium switched, in January 2010, to the automatic exchange of information. From 1 January 2015, Luxembourg will apply the automatic exchange of information on interest payments made by a paying agent established in Luxembourg to individuals resident in another Member State. The first information exchange will take place in early 2016 with respect to interest payments made in 2015.

Although the legal scope of the EUSD does not extend outside the EU, certain jurisdictions, such as Switzerland, Jersey, Guernsey and the Isle of Man, have agreed to put in place legislation that supports the aims of the EUSD with bilateral agreements with all EU Member States. The EU savings agreements with Switzerland introduced equivalent measures, based around Switzerland paying agents withholding tax of 35% from certain payments to EU residents, with that tax  being (mostly) transferred to the Member States of residence of the taxpayer and being (fully) available as a credit or repayment in that Member State upon full declaration of the income by the taxpayer. To avoid the withholding tax, the account holder has an option of disclosure to the Tax administration of his Member State.

Amended EUSD

Since 2009, on the basis of a proposal presented by the European Commission in November 2008, the EU has broadly agreed on enhancements that need to be made to strengthen the EUSD, mainly by extending its product scope, adding rules for identifying the owners of interest and dealing with artificial or tax exempt intermediary structures. On April 15, 2014 the Council Directive 2014/48/EU of 24 March 2014, amending Directive 2003/48/EC on taxation of savings income in the form of interest payments was published. In addition to the wider range of financial products (this would include life insurance contracts, as well as a broader coverage of investment funds), the amended EUSD will also extend the scope of the savings tax rules to payments made to a significantly broader range of entities such as trusts and foundations.

The proposed amendments were approved by the European Council on 24 March 2014 with the adoption of Directive 2014/48/EU. Member States were now required to adopt the laws, regulations and administrative provisions necessary to comply with the amended EUSD by January 1, 2016. The automatic exchange of information concerning income from securities and life insurances, and concerning the interest payments to entities and legal arrangements would be effective as of January 1, 2017.

EUSD Repealed

The EUSD was repealed following the introduction of a series of measures aimed at preventing tax evasion, and because of developments that are to usher in automatic tax information exchange. In December 2014, the Council adopted Directive 2014/107/EU, which brings interest, dividends, gross proceeds from the sale of financial assets and other income, and account balances within the scope of the automatic exchange of information between Member States. The Directive provides for the implementation of the single global standard on the automatic exchange of information developed by the OECD. It will enter into force on January 1, 2016 and Member States will begin exchanging the information required by the end of September 2017. Austria will apply the Directive a year later than other EU Member States.

Press release: http://www.consilium.europa.eu/en/press/press-releases/2015/11/10-savings-taxation-directive-repealed/

 

 

Belgian fight against tax evasion

As a reminder, the international automatic exchange of financial account information is considered by most countries as particularly efficient in the fight against tax evasion and international tax fraud and is becoming the new global standard (considering the US FATCA legislation, the OECD Common Reporting Standard).

- The Belgian Council of Ministers has approved a draft bill. The draft bill aims at implementing the automatic exchange of information of financial account information between Belgium and cooperating jurisdictions provided for in various legal instruments such as the Directive on Administrative Cooperation as amended on 9 December 2014. The draft bill mainly focuses on the transfer of information from Belgian Financial Institutions to the Belgian competent authority, so that the latter can comply with its obligations towards foreign jurisdictions.

 

- A new measure regarding fiscal amnesty will be introduced in 2016.

- Cayman Tax (Look-through taxation)

The 'Cayman tax' is named after the Cayman Islands and it is presented as the instrument to hit high net worth individuals who had been able to legally escape taxation by parking their wealth in trusts, foundations or offshore companies. Since Belgium does not have any wealth tax or capital gains tax for individuals, the Cayman tax must shift some of the tax burden from employment to wealth.

 

The draft bill containing the Cayman tax was approved by Parliament on 24 July 2015 and the bill of 10 August 2015 ("the Bill") was published in the Belgian official Gazette on 18 August 2015. The Bill provides that the Cayman Tax will apply to income received, attributed or made payable by legal arrangements as of 1st January 2015, so with retroactive effect.

In essence, if Belgium based individuals have parked assets abroad with lowly taxed foreign legal structures (lacking any relevant business substance), the structure will be considered transparent for Belgium personal tax purposes and the Belgium based individual will be directly taxed on the income earned by foreign legal structure.

- In 2017 and 2018, the Belgian tax authorities will focus even more on combating tax fraud.

 

First non-US group request

The Swiss tax office (FTA) has agreed to a request from the Netherlands to hand over information about Dutch nationals with accounts at the biggest banking group in Switzerland, UBS. This is the first time the FTA has accepted a group request from a country other than the United States. The request is made possible by the revised Federal Act on International Administrative Assistance instead of requiring specific client names.

 

The request

 

The request target Dutch nationals who have had more than 1500 EUR on their accounts over the past two years and did not reply to a letter from the Swiss authorities about potential illicit savings. The request is extremely broad and smells like a 'fishing expedition': too vague. The Netherlands basis its claim on a tax treaty (2011) with Switzerland on the exchange of tax information. But in that tax treaty nothing is settled on the group requests.

 

The tax treaty

 

On November 9, 2011, the tax treaty between the Netherlands and Switzerland, that was signed in February 2010, entered into force. It will apply to tax years and tax periods that commence on or after January 1, 2012. Consequently, Switzerland agreed to exchange information in tax matters if so requested; a stance that also applies to its relations with the Netherlands. This exchange of information not only relates to the application of the tax treaty, but also to requests for information regarding the tax levied on the taxpayer. Switzerland may no longer use banking secrecy as a ground for refusal once the treaty enters into force. Fishing expeditions are not permitted, and the treaty countries are also not required to automatically or spontaneously exchange information. The new provision for the exchange of information will apply to requests made on or after November 9, 2011. These requests must concern information relating to facts arising after February 28, 2010. The Netherlands and the Swiss authorities signed an additional agreement at the end of October 2011. To receive information, the Dutch Revenue does not necessarily have to know the name of the party or bank in question. Other data, for example a bank account number, are sufficient for a request for information to be made. The additional agreement also applies as of November 9, 2011.

 

This case raises the question of whether other states will start to hand in group requests as well. There are a total of 27 states which have a double tax treaty with an administrative assistance clause which permits group requests.

 

Press release: Bund will UBS-Kundendaten nach Holland liefern http://www.handelszeitung.ch/unternehmen/bund-will-ubs-kundendaten-nach-holland-liefern-913504

   

Tax ruling practice

The European Commission has enlarged its state aid investigation into private tax ruling practices to cover all 28 European Union States. On 8 June 2015, the European Commission announced its next steps in its EU-wide State aid review of Member States’ tax ruling practices.

Definition (OECD’s Consolidated Application Note, 2004)

“Any advice, information or undertaking provided by a tax authority to a specific taxpayer or group of taxpayers concerning their tax situation and on which they are entitled to rely”

Typical conditions:

-          facts accurately presented;

-          taxpayer abides by the terms of the ruling.

Policy rationale

-          higher certainty of applicable tax law;

-          higher compliance by taxpayers;

-          lower litigation.

State aid

Tax rulings are generally not as such a problem under EU state aid rules. However, if a tax ruling results in a Member State providing selective advantages to specific companies or groups of companies, this distorts competition in the Single Market in breach of EU state aid rules.

Under the State aid rules contained in the EU treaties, State aid is an advantage given by a Member State to specific companies (or specific sectors of the economy), which affects competition within the EU. This advantage is not restricted to beneficial tax treatment: it can either be measures granting positive benefits (such as direct subsidies) or measures which enable a business to mitigate costs it would otherwise have incurred.

Belgium

The Commission opened the state aid investigation February 3, noting that deductions granted through Belgium’s ruling system usually amount to more than 50 percent and sometimes up to 90 percent of the company’s profits.

The rulings allow multinational entities in Belgium to reduce their corporate tax liability by “excess profits” that allegedly result from the advantage of being part of a multinational group. The Belgian tax authorities argue that each company of a multinational group should be taxed as if it was independent, and that any excess profits should not be taxed in Belgium and are thus exempt from corporate taxation.

The European Commission has announced that its current view is that Belgium’s excess profits tax ruling system provides for a selective advantage tantamount to State aid, and has requested stakeholder comments on this determination by July 5.

Globalization and Taxation

In the world-business economy, companies are carrying out cross-border transactions at a fast pace around the world. When companies engage in cross-border transactions, the rules of at least two different tax jurisdictions will apply. This simultaneous application of multiple rules creates enormous complexity.

 

Two important issues surrounding taxation in a global economy are tax havens and double taxation treaties. Dual taxation is another critical issue surrounding taxation along with globalization.

 

The mean consequence of globalization is tax competition and complexity of international tax and businesses. Globalization tends to move taxation away from corporations, and onto individual citizens. Corporations have the ability to move to locations where the tax rate is lowest. Individual citizens have much less ability to make such a change. Also, with today's lack of jobs, each community competes with other communities with respect to how many tax breaks it can give to prospective employers.

 

Companies and tax advisors are searching for more information that allows them to get familiar with the differences in the tax systems and tax cultures when taking decisions on whether or not to invest in one country or whether or not to carry out cross-border transactions. Countries and organizations such as the OECD and the EU are also searching for new answers to the challenging problems caused by the differences in tax systems , tax cultures and the complexity in international taxation.

 

Despite the international measures adopted by countries to prevent double taxation or to tackle tax avoidance, the complexity of international businesses has resulted in the search for new solutions to these problems.