Originally published in Tax Journal on 27 May 2016
Swiss leaks, Luxembourg leaks, the Panama papers, BEPS and the EU Commission’s Anti-Tax Avoidance Package – where will all this get us? Despite the public furore over the tax affairs of multinationals, there is still no clear dividing line between acceptable and unacceptable tax planning arrangements for groups. This is because the OECD, the EU Commission, the CJEU, HMRC and other tax authorities employ a number of different doctrines that try to identify what tax avoidance means. All that is certain is that the boundaries are constantly shifting and may be defined differently by different players.
Continue reading on Tax Journal (subscription required) or
Originally printed in Tax Journal on 11 May 2016
The Court of Appeal has handed down its judgment in the Prudential case, in what is hoped to be one of the final steps of this long lasting action between taxpayers invested in cross border portfolio holdings and HMRC. HMRC’s appeal was allowed on three esoteric issues of computation relating to ACT but was otherwise dismissed. The judgment sends out a broader message: it is not permissible, as HMRC sought to do in relation to ACT, to disregard the legislative system and seek to superimpose a newly devised system to replace it in circumstances where EU law was engaged. The issue of Prudential’s entitlement to compound interest remains subject to further litigation. Simon Whitehead and Philippe Freund (Joseph Hage Aaronson), who acted for the taxpayers, summarise the outcome of this judgment and explain why it has taken so long.
Continue reading on Tax Journal (subscription required) or
In April 2015 the European Commission opened a formal antitrust investigation of Google in relation to its Android mobile operating systems and Google’s agreements associated with the use of Android and Google’s proprietary applications. Following from that investigation, the European Commission has (on 20 April 2016) issued a Statement of Objections. In effect, the European Commission alleges that Google, which has 90% of the market share for general internet searches, is abusing its dominant position. In its Statement of Objections, the Commission outlined three specific concerns:
It will be up to Google to reply to the Commission’s Statement of Position before the matter is concluded at the level of the European Commission.
This article appears in the JHA May 2016 Tax Newsletter, which also features:
The Court of Justice last Thursday handed down its judgments in C-607/14 Bookit and C-130/15 National Exhibition Centre, clarifying the application of the VAT payment and transfer exemption under Article 135(1)(d) of Council Directive 2006/112/EC. The decision has a bearing on the VAT treatment of card handling services.
In the first instance, the Court observed that the national court ought to consider whether the provision of such services was part of a single supply of tickets or constituted a separate service.
The Court went on to decide that an exchange of information between a trader and its merchant acquirer bank could not fall within the exemption. Collecting and sending cardholder details, receiving authorisation codes and sending authorisation codes and transaction data back to the cardholder bank via a merchant acquirer could not constitute a ‘specific and essential function’. Whether an authorisation code was obtained directly or through a merchant acquirer made no difference to the analysis. Further, Bookit and the NEC did not assume liability as regards changes in the financial and legal situation.
The decision at least partially undermines Bookit CA [2006] EWCA Civ 550 in which the Court of Appeal considered Bookit’s previous regime, which involved specifically transmitting card information and security information to its own bank without a merchant acquirer, as VAT exempt.
This article appears in the JHA May 2016 Tax Newsletter, which also features:
The Council of the European Union has been busy this week in the area of both direct and indirect taxation at EU and international level.
First, in the area of direct taxation, the Council adopted rules on the exchange of tax-related information on multinational enterprises (MNEs). The directive, which is part of the EU Commission’s Anti-Tax Avoidance Package, builds on OECD’s BEPS Action 13 and is aimed at groups of companies with a total consolidated group revenue of at least €750 million. Starting with the 2016 fiscal year, MNEs will be required to report information on their profits, taxes paid, tangible assets, number of employees, etc. Non-EU resident parent companies will have to file a report through their EU subsidiaries. The information will be exchanged automatically amongst tax authorities.
The deadlines set by the directive include:
Member States are to implement penalties in cases of breaches.
In the area of indirect taxation, the Council has adopted a directive, amending the VAT Directive, whereby the minimum standard VAT rate of 15% will be maintained until 31 December 2017. This, according to the Council, will help prevent excessive divergence in VAT rates applied across different Member States, distortions of competition that could arise as a result, and ensure legal certainty. Discussions on the features of a definitive EU VAT regime are ongoing. At global level, the Council agreed on the establishment of an EU list of third country non-cooperative jurisdictions, more commonly known as tax havens. The Code of Conduct Group will commence work on such a list by September 2016.
This article appears in the JHA May 2016 Tax Newsletter, which also features:
The General Court of the European Union (“the General Court”) today heard oral argument in challenges by Viktor Fedorovych Yanukovych (Case T-346/14) and Oleksandr Viktorovych Yanukovych (Case T-348/14) to the EU Sanctions imposed on them in 2014 and 2015.
In these Cases, which started in May 2014, the Applicants challenge the freezing of their assets by the EU, and seek the annulment of the relevant EU Council Decisions and Regulations insofar as they apply to them.
Each Applicant has a different case based on different circumstances, but the Court joined the Cases for the purposes of the oral hearing.
The oral hearing was in front of the Ninth Chamber of the General Court sitting with five judges rather than the usual three.
For part of the hearing the public was excluded.
The Applicants argued in the open part of the hearing, amongst other things, that the Sanctions had been imposed for impermissible political reasons, but that, in any event, the Applicants did not fulfil lawful sanction listing criteria set by the Council, and that the Council’s assessment that they did fulfil such criteria was wrong.
The judgments of the General Court on these Cases are expected to be delivered within three to six months.
ENDS
Notes to editors
The Applicants were represented before the General Court by Joseph Hage Aaronson LLP, a law firm based in London:
www.jha.com
An action for annulment seeks the annulment of acts of the institutions of the EU, in these cases the Council, that are contrary to EU law.
Further information about the Cases, including a summary of the pleas in law and main arguments, is available at the website of the Court of Justice of the EU at:
http://curia.europa.eu
OR alternatively direct links:
Case T-346/14 (Viktor Yanukovych)
Case T-348/14 (Oleksandr Yanukovych)
Enquiries to Joseph Hage Aaronson LLP, Tel. +44 (0) 20 7851 8888.
29 April 2016
Christoph Jumpelt
Head of Corporate Communications
Deutsche Welle
Kurt-Schumacher-Str. 3
53113 Bonn
Germany
By email to: christoph.jumpelt@dw.com; info@dw.com
Dear Sirs
This firm represented President Yanukovych in the annulment application hearing in the General Court of the European Union today.
In your article published a few hours ago you suggest that President Yanukovych has complained (through his lawyers) that an excessive amount of his European assets have been frozen. You have completely misunderstood the nature of the legal submissions made on his behalf. There was no suggestion at the hearing that President Yanukovych has any European assets or even any discussion of his assets, let alone any suggestion that “too many” of these assets have been frozen.
It is important that all reports of legal proceedings are fair and accurate. In the circumstances, we would invite you to correct your misleading article and to publish the content of this letter.
Yours faithfully,
Joe Hage
In two recent cases concerning applications for relief from sanctions pursuant to CPR3.9 the Court of Appeal has applied the 3-stage tests set out in Denton v TH White Ltd [2014] 1 WLR 3926 and emphasised the need to act promptly when applying for relief.
In Gentry v Miller and another [2016] EWCA Civ 141 an insurance company’s application to set aside a default judgment and damages award against its insured was dismissed, even though there was evidence suggesting that the claim was fraudulent.
Vos J held that it is now established that the Denton tests apply to applications under CPR 13.3 (setting aside a default judgment) and that it is “equally clear” that the same tests also apply to an application under CPR 39.3 to set aside a judgment or order made at a hearing not attended by the party affected. The crucial factor in this case was the insurer’s delay in applying for relief, which had to be considered both as one of the requirements under CPR 13.3 and CPR 39.3, and at the third stage of the Denton tests.
The applicant’s failure to act promptly was also the determining factor in Oak Cash & Carry Ltd v British Gas Trading Ltd [2016] EWCA Civ 153 where the Court refused to grant relief from the sanction of striking out following the applicant’s non-compliance with an unless order. In this case Jackson LJ also clarified that when assessing the seriousness and significance of a breach of an unless order (Denton first stage) the Court must also look at the underlying breach which gave rise to the unless order.
In Degano Transporti, the District Court of Udine (Italy) was presented with an application by Degano Transporti (“the Taxpayer”) for approval of a debt compromise arrangement similar in nature to a scheme of arrangement pursuant to the UK Companies Act 2006, Part 26. The proposed scheme of arrangement would result in the Italian tax authorities receiving only a partial payment of the Taxpayer’s VAT liability. The Court, of its own motion, requested a preliminary reference from the CJEU on the question of whether the acceptance by the Italian tax authority of a partial payment of the Taxpayer’s VAT liability would be in breach of the provisions of TFEU and the VAT Directive (Directive 2006/112/EC) concerning the principle of the fiscal neutrality and the obligation on Member States to take the necessary administrative and legislative measures to ensure the proper collection of VAT due.
The Court, largely following the Opinion of AG Sharpston, reasoned that the acceptance of the partial VAT liability would not constitute a breach of EU law. In particular, it noted three safeguards about the Italian insolvency legislation which militated in the Member State’s favour. Firstly, the legislation in question permitted the arrangement to be valid only if an independent expert attests that the tax authority, as a creditor, would not enjoy better treatment in the event of the Taxpayer being declared insolvent and subsequently liquidated. Secondly, the arrangement must be voted on by the creditors. This offered the tax authority the opportunity to oppose the partial payment of the tax liability. Thirdly, even if the arrangement is agreed between the majority of the creditors and the company, the arrangement requires court approval. During this final stage, the tax authority has a second opportunity to oppose the arrangement and demand full payment of the outstanding VAT liability. For EU jurisdictions where there is an insolvency regime similar to the Italian system, this judgment will allay the concerns of insolvency practitioners as to compatibility with EU law.
This article appears in the JHA April 2016 Tax Newsletter, which also includes:
Court of Appeal Finds for the Taxpayer
By Paul Farmer and Alex Psaltis
The Court of Appeal today handed down judgment in the Prudential Test Case in the CFC & Dividend GLO. The judgment dismisses HMRC’s appeal and upholds Henderson J’s decisions except on three minor computational issues.
The judgment is given following the ECJ’s ruling that the UK legislation in force at the material time unlawfully refused UK companies a credit for foreign underlying corporation tax paid by their foreign portfolio holdings.
The central issue was whether Prudential, as a recipient of foreign portfolio dividends, was entitled to claim a credit at the foreign nominal (or statutory) corporation tax rate (rather than at the actual underlying tax rate, which would be impossible for Prudential to prove). The Court of Appeal, upholding Henderson J’s judgment, held that Prudential could claim either a nominal rate credit or an actual tax credit. Prudential therefore succeeded on its claim, and it was unnecessary for the Court to consider whether the EU principle of effectiveness exempted Prudential from the need to show the actual tax paid in order to make its claim. HMRC had agreed that in that event Prudential’s claims in relation to dividend income from non EU countries would also succeed.
HMRC were refused permission to raise the argument that in the event that credit was given at the nominal rate, that nominal rate should be the rate of the profit source of the dividend (which again would be impossible for Prudential to prove) as opposed to that of the foreign dividend paying company. The Court also rejected HMRC’s attempt to run a series of other new or late points, including limitation, change of position and the argument that the flow of the EU income through and out of the UK group had to be traced in order to determine the amount of unlawful ACT. That argument was also rejected on its merits.
The Court found that the conforming interpretation previously given by the Court of Appeal to section 231 ICTA 1988 in Test Claimants in the FII Group Litigation v HMRC [2010] EWCA Civ 103 provided the answer to how to determine the amount of unlawful ACT. The Court considered that the conforming interpretation to section 231 described in the FII case was to be achieved by modifying section 231 to create a tax credit in respect of foreign dividends assessed by reference to the relevant foreign nominal or effective rate of tax (whichever is the higher), capped at the UK nominal rate of tax. This interpretation meant that no change was needed to the other ACT provisions which ought to operate in the normal way on the tax credit in respect of the foreign dividends.
The Court held that it was bound by the Court of Appeal’s decision in Littlewoods establishing the right to compound interest on repayments of unlawful tax (but noted that the decision was the subject of a pending appeal in the Supreme Court).
This article appears in the JHA April 2016 Tax Newsletter, which also includes:
