On 8 November 2016, the Council agreed on the criteria and guidelines for selecting and screening third countries with a view to establish an EU list of non-cooperative jurisdictions in tax matters. The broader aim of the initiative is to combat tax base erosion and profit shifting (‘BEPS’).
According to the Council Conclusions on the criteria for and process leading to the establishment of the EU list of non-cooperative jurisdictions for tax purposes (available here), the countries selected for screening will be assessed cumulatively under three criteria, namely:
Screening is due to be completed by September 2017, so that the Council can endorse the list of non-cooperative jurisdictions by the end of 2017. Screening is intended to be a continuous and regular process. Discussions with jurisdictions aimed at resolving concerns and agreeing on commitments are expected to take place by the summer of 2017.
This article appears in the JHA November 2016 Tax Newsletter, which also features:
The Belgian tax regime enables undertakings to carry forward losses without limitation to future assessment periods and to claim a deduction for so-called risk capital. This resulted in a situation where certain undertakings paid virtually no tax but still distributed profits.
Case C-68/15 X concerns a preliminary reference ruling on the Belgian “fairness tax” which was introduced to deal with this perceived unfairness. The “fairness tax” is calculated on the basis of the amount by which the company’s distributed profits exceeded its taxable profits and is levied on domestic companies and foreign companies with a permanent establishment in Belgium but not on subsidiaries.
Examining whether the tax was compatible with the freedom of establishment, Advocate General Kokott concluded that the tax regime did not pose an obstacle to non-resident companies by preventing free choice of legal form.
Further, article 49 did not preclude the levying of a tax in such a way that a non-resident company with a permanent establishment in a Member State is subject to it when it distributes profits, even though the permanent establishment’s profits were retained, whereas a resident company that retains profits in full is not.
However, article 4(3) of the Parent-Subsidiary Directive which sets a maximum tax burden, did render the tax offensive because it operates so as to exceed the tax limit when a company distributes a received dividend in a year subsequent to the year in which it received the dividend. Article 4(3) of the directive could not be interpreted so as to apply only to received dividends and not subsequent redistribution.
This article appears in the JHA November 2016 Tax Newsletter, which also features:
Originally printed in Tax Journal on 21 Oct 2016.
Henderson J handed down judgment in Six Continents v HMRC [2016] EWHC 2426 (Ch) on 5 October 2016. The issues concerned what foreign profits should receive credit at the foreign nominal rate in accordance with the ruling of the CJEU in Test Claimants in the FII Group Litigation v HMRC (Case C-35/11). The judgment holds that Six Continents are entitled to a credit at the FNR on the underlying foreign profits which incorporated adjustments to the commercial profits for the revaluation of shareholdings, the release of warranty provisions and exchange rate adjustments which were removed for local tax. It also held that the same credit would apply to capital gains even though exempt under the Dutch participation exemption.
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The Supreme Court has upheld the appeal of a company and its CEO regarding the scope of the duty of confidentiality owed by HMRC in respect of taxpayers’ affairs. The case concerned an interview given by a senior HMRC official to reporters from The Times regarding tax avoidance schemes allegedly carried out by the appellants.
One of the case’s main issues concerned the scope of the exception contained in section 18(2)(a) of the Commissioners for Revenue and Customs Act 2005, which allows for disclosures made “for the purposes of a function of the Revenue and Customs”. The court held that this must be interpreted narrowly and as permitting disclosure only “to the extent reasonably necessary for HMRC to fulfil its primary function”. It therefore found that HMRC’s reasons, which included a desire to foster good relations with the media, could not possibly justify the disclosure in question.
The Supreme Court also rejected the view of the lower courts that the decision to disclose was a matter for HMRC and that it was not their place to review the facts as though they were the primary decision makers. In doing so, the court emphasised the “cardinal error” of assuming that the principles of judicial review occupied the entire legal field and stated that “public bodies are not immune from the ordinary application of the common law, including… the law of confidentiality”.
The European Court of Justice has dismissed an appeal by Ukraine against an order for it to pay the legal costs of President Viktor Yanukovych and his sons.
The original decision of the General Court of the European Union resulted from an abortive attempt by the Ministry of Justice of Ukraine to intervene in legal proceedings brought by President Yanukovych and his sons seeking to overturn financial sanctions imposed on them by the European Union. In the face of their opposition to the intervention, in December 2014 the Ministry of Justice of Ukraine unilaterally withdrew from the proceedings. Despite the fact that the General Court ordered Ukraine’s Government to pay the legal costs of President Yanukovych and his sons in March 2015, Ukraine’s representatives waited over a year before attempting to appeal that order to the EU’s highest court, the European Court of Justice, in June 2016.
In an order dated 5 October 2016 and published yesterday, the European Court of Justice has now dismissed the appeal and confirmed that Ukraine’s Government will have to pay not only the legal costs of its failed intervention, but also the costs of its unsuccessful appeal. This ruling follows an earlier success in which the General Court found that the European Union had acted unlawfully in imposing a number of sanctions on President Yanukovych and his sons in 2014.
Joe Hage, of the English law firm Joseph Hage Aaronson LLP which represented President Yanukovych and his family in the European court proceedings, said: “This is an important ruling. Our clients challenged sanctions imposed by the EU in 2014 on the basis of one letter in which the Ukrainian authorities made politically motivated and unsubstantiated allegations. Their attempt to intervene in the EU sanctions proceedings, and to bring an impermissible appeal when ordered to pay our clients’ costs, is similarly politically motivated.”
ENDS
Notes to editors
Joseph Hage Aaronson LLP is a law firm based in London:
www.jha.com
The texts of the Court’s Orders are available on the website of the Court of Justice of the European Union.
Case C-317/16 P (Viktor Fedorovych Yanukovych)
Case C-318/16 P (Viktor Viktorovych Yanukovych)
Prohibiting price promotions or discounts which result in tobacco products being retailed below a stipulated price level
The case involves Colruyt, which operates a chain of supermarkets in Belgium under the same name. Following an investigation by the relevant Belgian authorities, it was found that Colruyt made use of tobacco advertising measures prohibited under Belgian law and it was ordered to pay a fine. Belgian law prohibits, inter alia, advertisements for tobacco/tobacco-based products. Any communication which is aimed at promoting sales is regarded as constituting advertising.
On 21 September 2016, the CJEU found that such national legislation, which prohibits retailers from selling tobacco products at a unit price lower than the price indicated by the manufacturer or importer on the revenue stamp affixed to those products, in so far as that price has been freely determined by the manufacturer or importer, is not precluded under EU law.
The CJEU held that such national provision is not encompassed by the situation referred to in Article 15(1) of Directive 2011/64/EU on the structure and rates of excise duty applied to manufactured tobacco. It also held that the Belgian provisions do not breach Article 34 TFEU and the right to free movement of goods because it applies to all relevant traders operating within the national territory and because it does not concern the determination by importers of the products from other Member States of the price indicated on the revenue stamp; those importers remain free to set that price. Moreover, such legislation neither requires nor encourages the adoption of agreements between suppliers and retailers and its direct effect is to set the price charged by retailers for the sale of tobacco products to the consumers, namely the price indicated by the manufacturer or importer on the revenue stamp affixed to those products and hence it does not render Article 101(1) TFEU ineffective.
This article appears in the JHA October 2016 Tax Newsletter, which also features:
Success for the taxpayer
On 5 October 2016, Henderson J handed down his judgment in Six Continents, a case concerning dividends from an EU subsidiary enrolled in the FII GLO and the notional credit for foreign tax which a claimant is entitled to when calculating restitution due for unlawfully levied Case V corporation tax. The judgment found largely for the taxpayer.
The judgment holds that Six Continents are entitled to a credit at the foreign nominal rate (FNR) on dividends where the underlying foreign profits incorporated:
The court found that the accounting profits derived from adjustments and the profits arising from the liquidation of a subsidiary of Six Continents were in principal subject to the Dutch standard rate of corporation tax. Notwithstanding the fact that most of these profits were exempt (or removed from the base), only a tax credit at the FNR is capable of eliminating economic double taxation, this being the objective of the decision of the European Court of Justice in Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2013] STC 612.
However, Six Continents were not entitled to a credit at the FNR in relation to dividends sourced from the share premium account of a Dutch subsidiary. Henderson J held that this was not a case in which the UK taxed returns of capital made by UK-resident companies more advantageously than it taxed similar returns of capital made by non-resident companies. Rather, the return of capital by a non-UK resident company is outside the scope of UK tax altogether. Therefore, the Case V charge on Dividends was, to this extent, compliant with EU law.
The decision is helpful to taxpayers seeking restitution of DV corporation tax levied on controlled holdings.
A copy of the judgment can be found here.
This article appears in the JHA October 2016 Tax Newsletter, which also features:
Originally printed in Tax Journal on 30 September 2016.
Tax avoidance is now a headline-grabbing and career-threatening subject. But over seventy years ago, the highest court in the land told us that taxpayers are entitled to do anything legal to reduce their tax bill. How we have got to here from there is a journey driven by strong personalities reacting to major economic events, changes in tax rates and what until very recently was an ever growing tax avoidance industry.
Graham Aaronson QC (Joseph Hage Aaronson) presents a personal view of tax avoidance in the UK over the past 100 years, looking at the case law and legislation which developed in the first half century, and the social and economic context in which they evolved.
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JHA is to host a CIArb conference on Dealing in Looted Art from Post-Conflict Countries at 6pm on Friday 7 October 2016.
On 4 August, the Court of Appeal handed down its judgment in Chappell v HMRC [2016] EWCA Civ 809, finding in favour of HMRC.
The taxpayer had appealed against an amendment to his self-assessment tax return by HMRC, which effectively disallowed a deduction from his total income. Mr. Chappell’s entitlement to make the deduction depended upon two payments which he made to a company as manufactured overseas dividends. HMRC’s case, based on Ramsay principles, was that the payments were not deductible because they had been made as part of a tax avoidance scheme. The scheme in question had been implemented by 305 high net worth individuals.
In line with the FTT and UT, the Court of Appeal held that, construing the statutory provisions purposively, they were intended to benefit the parties to real-world, commercial transactions involving the lending of marketable securities and not to transactions which lacked those characteristics and whose only purpose was to obtain tax relief. Accordingly, the relief was denied.
