Dear FS professional,
Most of us are returning to the office as the summer holiday is coming to an end. We hope that you have enjoyed your summer. If you are wondering what you might have missed during the last two months, please find below an overview of relevant tax developments between June and August 2019.
This issue includes VAT-related topics covering, for example, the VAT position of supervisory board members and similar officials and the possibility of VAT on compensation in the event of premature termination of (lease) agreements. In addition, DNB’s guidance on tax integrity risks for banks and two bills, one about the Mandatory Disclosure Directive and one about ATAD2, will be discussed.
For tax-related topics not included in this FS Tax Newsletter, please visit our website.
If you would like to know more about the matters addressed in this newsletter please contact us.
Niels Groothuizen, Partner, Financial Services Tax Group
Table of Contents
- 1. CJEU judgment: possible implications of the VAT position of supervisory board members and similar officials
- 2. Possibility of VAT on compensation in the event of premature termination of (lease) agreements
- 3. DNB’s guidance on tax integrity risks for banks - final good practices document published
- 4. Bill implementing the Mandatory Disclosure Directive (DAC6) presented to the Lower House
- 5. Bill on implementation of ATAD2 presented to the Lower House
- 6. Supreme Court confirms broad interpretation of VAT group
1. CJEU judgment: possible implications of the VAT position of supervisory board members and similar officials
On June 13, 2019, the Court of Justice of the European Union (‘CJEU’) rendered judgment in the IO case (no. C-420/18). This case concerns the VAT position of supervisory board members. The CJEU ruled that a member of a supervisory board of a Dutch stichting (foundation) does not perform economic activities independently and therefore does not qualify as a VAT taxable person. To date, the Dutch tax authorities (‘DTCA’) have designated supervisory board members with one or more supervisory positions as VAT taxable persons.
This judgment therefore deviates from current Dutch practice. For organizations that are not entitled to recover input VAT (banks, insurers, pension funds and charities, for example), VAT is a cost item and as such, the CJEU’s judgment is positive. We refer to our tax alert for more information. As an update to this alert, we note that the Dutch Deputy Minister of Finance stated in July that in his view the status of a supervisory board member and similar officials should be determined on a case-by-case basis, and that he does not envisage publishing general guidelines on this topic at this point in time.
2. Possibility of VAT on compensation in the event of premature termination of (lease) agreements
On July 3, 2019, the Court of Justice of the European Union (‘CJEU’) rendered judgment in the UniCredit Leasing EAD case (‘UniCredit’; no. C-242/18). The most pertinent question in this case is whether the lessor can recover the VAT it paid to the Bulgarian tax authorities on all lease installments on the basis that it did not receive payment for all lease installments from the lessee and also did not receive the contractual compensation which replaces the lease installments that were still due.
For Dutch practice, it is particularly important that, according to the CJEU, the compensation that replaces the outstanding lease installments must be regarded as VAT taxable payment for the lease performance and (thus) not as non-taxable compensation. In practice, it is not easy to determine whether compensation is taxable for VAT purposes. When compensation is agreed in advance, the recent CJEU case law points towards VAT-taxable payment in the event of early termination of an agreement. This will nevertheless always have to be assessed on a case-by-case basis.
We recommend reviewing existing agreements with compensation agreed in advance in light of the CJEU’s judgment in this case. This not only applies to lease agreements, but also to other agreements in which compensation has been agreed that is payable in the event of premature termination. We refer to our tax alert for more information.
3. DNB’s guidance on tax integrity risks for banks - final good practices document published
The Dutch regulator (De Nederlandsche Bank (DNB)) requires that financial institutions and the trust sector take measures to guarantee business integrity. In order to gain adequate insight into the type of integrity risks that may occur with banking/trust customers, banks/trust offices have to carry out a systematic integrity risk analysis (SIRA).
In our newsletter of April 2019 we informed you about, for example, published draft guidance on how banks and the trust sector can set up their SIRA process and the roundtable meetings that have been organized by DNB. Meijburg attended the roundtable meeting about the draft guidance for banks. The input during this constructive meeting has resulted in a final good practices document that was published by the DNB on July 2, 2019.
Some of our clients have already been approached by DNB regarding this topic and over the last few months we have assisted several banks to develop and put in place an adequate tax risk policy as part of their SIRA. If you need any assistance or have any questions in respect of this matter, please contact Niels Groothuizen, Michèle van der Zande, Jeroen Bruggeman or Mark Theunissen.
4. Bill implementing the Mandatory Disclosure Directive (DAC6) presented to the Lower House
On July 12, 2019, the bill to implement the EU Directive on mandatory disclosure (DAC6), which took effect on June 25, 2018, was presented to the Dutch Lower House. DAC6, in principle, obliges intermediaries (including so-called ‘auxiliary intermediaries’) to report potentially aggressive cross-border tax planning arrangements, so that this information can be exchanged between the tax authorities of the EU Member States.
On the basis of the bill before the Lower House and the accompanying explanatory notes, the Dutch implementation appears to remain close to the text of DAC6 in terms of its wording. Unlike the implementation in some other EU Member States, the Dutch bill does not go beyond the requirements prescribed by the Directive. Despite the fact that the explanatory notes to the bill provide clarity about how the Netherlands interprets the obligations and terms, many practical questions still remain.
A particular attention point is the pecuniary penalty of a maximum of the sixth category (in 2019: EUR 830,000), which may be imposed if the fact that the reporting obligation was not complied with, was not complied with on time, or was not fully or accurately complied with, is due to the gross negligence or deliberate actions of the intermediary or the taxpayer. We refer to the following tax alert for more information about the bill.
Although the Netherlands must have implemented DAC6 by December 31, 2019 at the latest, the bill will take effect as of July 1, 2020 in accordance with DAC6. As of the effective date, reportable cross-border arrangements must, in principle, be reported within 30 days of their having been made available for implementation, being ready for implementation or the first step in their implementation was taken (whichever occurs first). Transitional rules apply to certain reportable cross-border arrangements, for which the first step of implementation took place between June 25, 2018 and July 1, 2020. These must be reported no later than August 31, 2020.
Global Tax Webcast
DAC6 is a far-reaching piece of legislation, creating new significant tax governance obligations for organizations operating across borders. KPMG is pleased to invite you to its webcast on September 12, 2019 focusing on the evolving impact of DAC6 for the financial sector.
5. Bill on implementation of ATAD2 presented to the Lower House
On July 2, 2019, the bill to implement the amendment to the EU Anti-Tax Avoidance Directive (ATAD2) was presented to the Lower House. The content of the bill now before the Lower House is broadly in line with the draft bill that was opened for public consultation in October 2018. New to the bill, compared to the draft bill, are, for example, the documentation obligations related to the hybrid mismatch rules. More information about this is included below.
Content of the bill in short – date of effect
ATAD2 amends ATAD1. The result of this amendment is to combat hybrid mismatches among EU Member States and between EU Member States and third countries. The hybrid mismatch rules will apply to financial years commencing on or after January 1, 2020. Also, as of January 1, 2020, the policy statement on hybrid entities under the tax treaty with the United States will be withdrawn (Policy Statement of July 6, 2005, IFZ2005/546M). The bill also contains a subject-to-tax measure for ‘reversed hybrid entities’ such as in the CV/BV structure. The reversed hybrid rules will apply to financial years commencing on or after January 1, 2022.
New to the bill compared to the draft bill
New to the bill compared to the draft bill are:
- the documentation obligations related to the hybrid mismatch rules.
In short, a taxpayer who indicates in the tax return that the hybrid mismatch rules do not apply to it, must include information in its accounts and records showing this is the case. If a taxpayer does apply the hybrid mismatch rules in its tax return, it must include information in its accounts and records showing how the hybrid mismatches rules are applied. If a taxpayer fails to comply with the documentation obligation or only partly complies with it, it will be presumed that the hybrid mismatch rules apply. This means that a heavier burden of proof will come to rest on the taxpayer, because it must then be shown that the hybrid mismatch rules do not apply.
- In addition, other than in the draft bill, the bill now before the Lower House includes double tax relief rules under which the reversed hybrid entity is only effectively taxed in the Netherlands insofar as its profit is not taken into account at the level of the participants.
- Also new in the bill is that designated undertakings for collective investment in transferable securities (UCITS) and alternative investment institutions will, under certain conditions, be excluded from the subject-to-tax measure.
Despite the fact that this concerns complex tax (implementation) legislation, it is pleasing to see that, compared to the draft bill and also on the basis of the internet consultation, a number of matters have been clarified in (the explanatory notes to) the bill. The documentation obligation is very important for the practice. For the rest, it remains important to assess international arrangements and make changes where necessary.
Please find for more information about the bill implementing ATAD2 in the following tax alert. In addition, please feel free to contact Niels Groothuizen or one of our other FS Tax Professionals for more information about this bill and its possible impact on your situation.
6. Supreme Court confirms broad interpretation of VAT group
In the Netherlands, multiple VAT taxable persons can together be regarded as a VAT group. This is particularly favorable in the case of a limited VAT recovery right. In practice, the economic interdependence required for a VAT group raises questions, as it is more difficult to measure than financial and organizational interdependence, which are also conditions for a VAT group. The Supreme Court has confirmed the broad scope of economic interdependence in two judgments. This is particularly important for parties with a limited VAT recovery right, such as banks, insurers and other financial service providers. It may also impact holding companies. We refer to our tax alert for more information.