By Davide Anghileri, University of Lausanne
EU Advocate General of the Court of Justice of the European Union, Juliane Kokott, on March 1, released her opinion in four cases dealing with the interpretation of the beneficial ownership concept where the Interest Royalty Directive applies (C-115/16, C-118/16, C-119/19, and C-299/16) and in two cases where the Parent-Subsidiary Directive applies (C-116/16 and C-117/16).
In her opinion, the AG also discussed the concept of abuse in EU law, concluding that it is up to the national courts to determine if the corporate structures involved were abusive.
Beneficial Ownership
The AG stated that the concept of beneficial owner must be interpreted under EU law autonomously and independently of Article 11 of the 1977 OECD Model Tax Convention or subsequent versions for purposes of the Interest Royalty Directive.
In fact, under EU law, the decisive criterion to establish beneficial ownership is whether the recipient receives the payments for its own benefit rather than as a trustee. Moreover, the AG affirmed that the OECD Model Tax Convention and its commentaries have no binding effect on the interpretation of the EU legislation. Otherwise, OECD member countries would be able to decide on the interpretation of an EU directive.
The AG added that a Member State that does not wish to recognise a company resident in a different Member State to which interest was paid as the beneficial owner of the interest must, in principle, state whom it considers to be the beneficial owner to assume that abuse exists.
This is necessary to determine whether a more favourable tax result is achieved as a result of the arrangement qualified as abusive. In particular, in cross-border cases, the taxable person may have an enhanced duty to assist.
Under the Parent-Subsidiary Directive, the beneficial owner requirement is not relevant, the AG pointed out. In fact, the Parent-Subsidiary Directive does not refer to the concept of beneficial ownership and this is in line with its aims.
Hence, a parent company resident in another Member State receiving dividends from its Danish subsidiary can benefit from the directive if both the parent and the subsidiary are taxed in their respective jurisdictions.
The notion of abuse
Regarding the notion of abuse that is common to both directives, the AG stated that abuse must be determined from an overall examination of the facts of the case, which is for the national court to conduct.
Moreover, the AG affirmed that a wholly artificial arrangement that does not reflect economic reality or the essential aim of which is to avoid tax that would otherwise be payable based on the purpose of the law may constitute abuse under tax law.
Therefore, tax authorities must demonstrate that an appropriate arrangement would have given rise to a tax liability, while the taxable person must demonstrate that there are important, non-fiscal reasons for the arrangement chosen.
The AG, referring to the cases at stake, concluded also that an abuse may be assumed to exist where the corporate structure chosen is designed to take advantage of a lack of information exchange between the States involved to prevent the effective taxation of interest or dividends recipients.
Direct application of a directive
The AG affirmed that a Member State cannot rely on a provision contained in a directive if it has not transposed it. In fact, a directive cannot itself impose obligations upon individuals.
The AG also added that neither Paragraph 2(2)(d) of the Danish law on corporation tax, nor a double tax treaty provision (like article 10 or 11 of the OECD Model Convention), suffice to be deemed to be a transposition of a provision of a directive.
Fundamental Freedoms
The AG concluded that a different treatment of national and foreign interest or dividends recipients cannot be deemed, in fact, they are subject of different taxation arrangements (levying of corporate tax versus application of withholding tax). Hence, these situations are not comparable.
The AG added that even if they were deemed to be comparable situations, restriction on the freedom of establishment would be justified under the case-law of the court as long as the liability for tax at source of the interest or dividend recipient resident abroad is no higher than the liability for corporation tax of a national interest or dividend recipient.
Davide Anghileri
Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.
Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues.
Davide can be reached at [email protected].
Latest posts by Davide Anghileri (see all)
- Swiss government approves new law governing tax treaties - November 11, 2020
- EU states’ compliance with tax avoidance directives assessed in Commission report - August 26, 2020
- Italy clarifies VAT reporting obligations of online marketplaces - June 16, 2020
- EU blacklist: Cayman Islands added with other three jurisdictions - February 18, 2020
- Italy adopts digital services tax, notional interest deduction - January 8, 2020
Be the first to comment