1 Introduction
The European Union (EU) is actively involved in developing proposals to address perceived inappropriate tax avoidance, i.e. Base Erosion and Profit Shifting (BEPS). According to the European Commission, a new approach to taxation is needed within the EU, with a strong focus on preventing profits generated in the EU from being shifted elsewhere without being taxed anywhere in the EU. This is a very current topic within the EU and heavily debated by the Member States.
An important reference for the EU's proposed actions on perceived inappropriate tax avoidance is of course the OECD BEPS action plan covering 15 actions, including among others international (hybrid) mismatches, transfer pricing issues, harmful preferential tax regimes and the effectiveness of anti-avoidance measures in both domestic laws and in tax treaties. The OECD BEPS measures will need to be implemented in domestic laws or tax treaties in order to have effect. Both the EU and the OECD BEPS measures are expected to have considerable impact on international business.
Likely the most noticeable, recent and concrete BEPS measure taken within the EU is the introduction of a mandatory general anti-abuse rule (PSD GAAR) in the EU Parent Subsidiary Directive (PSD), as approved by the ECOFIN Council in January 2015, Directive 2015/121/EU. The PSD GAAR requires that the Member States refrain from granting the benefits of the PSD (i.e. a dividend withholding tax exemption and possibly also a corporate income tax exemption of the dividend at the EU parent level), if (one of) the main purpose(s) of an arrangement is to obtain a tax advantage that would defeat the object or purpose of the PSD and such arrangement lacks economic reality, i.e. is not 'genuine'.
Member States had to implement the PSD GAAR by 1 January 2016 at the latest. It is now clear that not all countries have met the deadline. Some countries have indicated that they will not make changes to domestic legislation to implement the PSD GAAR. For some countries it remains unclear.
The idea for the PSD GAAR is to achieve that all Member States combat abuse of the PSD benefits in a consistent manner. Currently, there is however much uncertainty on the exact interpretation of the PSD GAAR. We fear that the uncertainty about the exact scope of the PSD GAAR will create more issues with tax authorities of source countries denying the exemption from withholding tax. That is why we developed this brochure to monitor the way in which the various Member States are implementing and applying the PSD GAAR in practice.
We are pleased to offer you this brochure which provides a concise overview of the implementation of the PSD GAAR and of similar anti-abuse measures in domestic laws and tax treaties adopted by the 28 Member States and Switzerland that are aimed at limiting (withholding) tax relief on outbound payments of passive income (i.e. dividends, interest and royalties). Furthermore, some countries also introduced the PSD GAAR for CIT purposes to limit application of the participation exemption for inbound dividends, despite the European Commission's statement of 5 December 2014 (16435/14 FISC 221 ECOFIN 1157) that the PSD GAAR is not intended to intervene in domestic participation exemption regimes. The PSD GAAR for participation exemption purposes is addressed in this brochure for the countries for which this is relevant.
In addition, the brochure provides a short description of the main requirements that taxpayers should meet in order to avoid exposure to such rules.
To continue reading this article, please click here
Previously published by Loyens & Loeff
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
