The European Commission has announced that it will ask 15 Member States to provide a substantial number of individual tax rulings.
The request forms part of the Commission’s investigation into whether the tax rulings of Member States may constitute state aid. Tax rulings are comfort letters issued by tax authorities to an individual company on a specific tax matter. They are not generally problematic from a state aid perspective. 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.
All EU countries except Estonia and Poland have cooperated and provided the required information in full. The European Commission has therefore issued two injunctions ordering Estonia and Poland to deliver within one month requested information on their tax rulings practice. Should either country fail to deliver the missing information by the deadline, the Commission may refer that country to the Court of Justice.
The ECJ has ruled that the UK’s reduced rate of VAT applicable to energy-saving materials breaches EU law, namely the VAT Directive.
Under the Directive reduced VAT rates lower than the stipulated minimum “must have been adopted for clearly defined social reasons and for the benefit of the final consumer”. In the context of the provision, construction, renovation and alteration of housing, the reduced rates must have been adopted as part of a social policy. In the context of renovation and repair of private dwellings, such rates must exclude materials which account for a significant part of the value of the service supplied.
The ECJ held as follows:
The Convention between the UK and the Republic of Kosovo for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital was signed on 4 June 2015.
The agreement is not yet in force. This will happen when both countries have completed their Parliamentary procedures and exchanged diplomatic notes.
The ECJ has ruled that the new German excise duty on nuclear fuel is permissible under EU law.
The law in question introduced a duty on the use of nuclear fuel for the commercial production of electricity for the period from 1 January 2011 to 31 December 2016. Kernkraftwerke Lippe-Ems challenged the compatibility of the duty with EU law before the Finanzgericht Hamburg, who referred the question to the ECJ.
The ECJ held as follows:
Case C-5/14 Kernkraftwerke Lippe-Ems GmbH v Hauptzollamt Osnabrück
The Administrative Court has held that HMRC’s decision to repay VAT would unjustly enrich a supplier in administration where the claimant was an unsecured creditor.
The claimant had erroneously paid VAT to the supplier, who then accounted for the VAT to HMRC. Under section 80(1) of the Value Added Tax Act 1994 (VATA) only the supplier could be repaid by HMRC, and would then pass the repayment on to the claimant. As the supplier was in administration, the repayment would be distributed to its creditors, of which the claimant was an unsecured one.
Supperstone J held as follows:
R (Premier Foods (Holdings) Ltd) v HMRC [2015] EWHC 1483 (Admin), 21 May 2015
HMRC have decided to temporarily suspend the published list of Recognised Overseas Pension Schemes (“ROPS”). They will publish an updated list on 1 July 2015. They state that they are now aware that there are pension schemes that have appeared on previous lists that do not meet the Pension Age Test, one of the requirements to be a ROPS. Pension schemes established in countries that can be required to make payments before age 55 in circumstances other than ill health will not be able to meet the Pension Age Test if the scheme allows the member to receive transfers before age 55.
Schemes that do not meet the requirements to be a ROPS cannot be a Qualifying Recognised Overseas Pension Scheme (“QROPS)”. HMRC state that if a scheme has ceased to be a QROPS, individuals who transferred their pension savings to that pension scheme before it ceased to be a QROPS will be subject to UK tax on the same basis as if the scheme had remained a QROPS. They will be able to remain as members and receive a pension paid from the sums transferred without automatically incurring additional UK charges.
HMRC do not, however, state what will happen in cases where individuals who transferred their pension savings to a scheme that has ceased to be a QROPS did so prior after such a scheme ceased to be a QROPS but before it was removed from the published list of ROPS. HMRC may therefore seek to raise assessments of 55% of the pension savings transferred in such cases.
This article appears in the JHA June 2015 Tax Newsletter, which also features:
The EU has extended its sanctions regime for Syria, and has also made amendments to prohibitions and listings.
The restrictive measures are further extended until 1 June 2016.
As regards the existing EU prohibition on the trade in cultural property and other items removed from Syria, this now applies to items illegally removed from Syria since 15 March 2011 (by contrast with the earlier provision, since 9 May 2011).
Finally, General Muhamad (Head of the Syrian Military Intelligence and former Deputy Head of Political Security) has been added to the sanctions list. Rustum Ghazali has been removed from the list. The entries for 10 persons have been amended.
Council Regulation (EU) 2015/827 of 28 May 2015
Council Implementing Regulation (EU) 2015/828 of 28 May 2015
Council Decision (CFSP) 2015/837 of 28 May 2015
On 10 June 2016 the ECJ gave judgment in the case of X AB v Skatterverket and held that Swedish tax legislation, which provided that neither capital gains nor capital losses on the transfer of “holdings for business purposes” were to be taken into account for corporation tax purposes, was compatible with freedom of establishment. The Court noted that the legislation did not treat investments made in another Member State less favourably, because capital gains and capital losses, including currency losses, were in principle always disregarded, regardless of where the companies were established. However, according to the Court, even assuming that the non-deductibility of capital losses might be likely to disadvantage a company which has invested in foreign shares because of the exposure to currency losses, it follows from the Member States’ competence in tax matters that the provisions on freedom of establishment cannot be interpreted as requiring Member States to adapt their own tax systems in order to ensure that companies are taxed at the same level wherever they have chosen to establish, in order to take account of possible exchange risks.
In reaching this conclusion the Court distinguished this case from Deutsche Shell on the basis of the different legal context: unlike this case, the national legislation at issue in Deutsche Shell provided that, as a general rule, currency gains were taxed and currency losses were deductible.
This article appears in the JHA June 2015 Tax Newsletter, which also features:
HMRC have issued a Revenue and Customs Brief setting out their position following the Court of Appeal judgment in Littlewoods Ltd & Ors v HM Revenue and Customs [2015] EWCA Civ 515. We reported on this judgment in our May newsletter.
HMRC seek to distinguish the facts and circumstances of the Littlewoods case from other High Court claims for compound interest on the basis that the Court of Appeal “maintained that statutory provisions will provide an adequate amount of interest in many cases, therefore it is not the case that compound interest will always be payable where there has been an overpayment of tax”. They remain of the view that there is no clear method for calculating the level of interest which provides adequate indemnity to claimants, which is the requirement of EU law.
HMRC have also confirmed that they are seeking leave to appeal to the Supreme Court and indicate that they will apply for any compound interest claims already lodged in the High Court or County Court to continue to be stayed and for any new claims to be stayed. Their position in relation to Tribunal appeals also remains unchanged.
HMRC suggest that they will reconsider their position in the event that permission to appeal to the Supreme Court is not granted.
This article appears in the JHA June 2015 Tax Newsletter, which also features:
On 27 May 2015 the EU and Switzerland signed an agreement on the automatic exchange of financial account information. This aims to improve international tax compliance.
From 2018 the EU and Switzerland will automatically exchange information on the financial accounts of their respective residents. This arrangement is intended to address situations where a taxpayer seeks to hide capital representing income or assets for which tax has not been paid.
The agreement ensures that Switzerland applies strengthened measures that are equivalent to the EU directive, as upgraded in March 2014. It also complies with the automatic exchange of financial account information promoted by a 2014 OECD global standard.
The EU and Switzerland must conclude the agreement in time to enable entry into force on 1 January 2017.
Press release, EU-Switzerland taxation agreement signed in joint effort to improve tax compliance
EU-Switzerland agreement on the automatic exchange of financial account information
