EY Webcast How COVID-19 is impacting tax trends and ... · 07/05/2020 · Global tax investing...

7 May 2020

How COVID-19 is impacting tax trends and policies in Europe and India

Global tax investing services webcast series

Disclaimer

► The views expressed by the presenters are not necessarily those of Ernst & Young LLP or other members of the global EY organization.

► These slides are for educational purposes only and are not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.

Global withholding and reporting updates

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moderatorToday’s

Stephanie TanguayAssociate DirectorErnst & Young LLP


speakersToday’s

Roshan SamuelSenior ManagerErnst & Young LLP

Kelly SullivanSenior ManagerErnst & Young LLP

Stijn VanoppenPartnerE&Y Tax Consultants BCVBA

Danielle ClarkPartnerErnst & Young LLP

Sascha BehmSenior ManagerErnst & Young GmbH

Jesper FrokjaerExecutive DirectorEY Denmark

Hans-Joachim JaegerPartnerErnst & Young AG

Katharina ManzManagerErnst & Young AG

Josselin MinpontelManagerErnst & Young Société d'Avocats


Tax in the time of COVID-19


Challenges created by COVID-19 with respect to foreign withholding tax relief

How are global investors coping?

Specific country highlights

Future outlook with respect to foreign withholding tax relief

Switzerland

Switzerland — reclaims


• Reclaim forms

• Original signature claimant required

• Original stamp/signature foreign tax authority required

• Paper filing required (i.e., via postal service)

• Additional information/documentation

• Filing via email currently accepted where no original signature is required

• Cover note should contain reference to COVID-19

Source: estv.admin.ch/estv/de/home/covid19/news.html

Switzerland — paying agent system


• Public consultation on reform of withholding tax launched on 1 April 2020

• End of consultation 8 July 2020

• Main topic: change to paying agent system

• Domestic legal persons and foreign investors to be exempt from withholding tax on Swiss interest income (i.e., withholding tax to be levied on interest payments only where recipient is domestic individual)

• Banks (paying agents) will be required to perform additional due diligence procedures

• Withholding tax to be levied on foreign interest income paid to individuals resident in Switzerland

• Equal treatment of direct and indirect investments

Switzerland — paying agent system (cont.)


• Main topic: change to paying agent system

• Banks (paying agents) to remit taxes withheld on quarterly basis

• Accrued interest not to be subject to withholding tax

• Entities to choose between current and new withholding tax model

• Paying agents to be criminally liable only where offense is committed with intent

• Additional measures: repeal of securities transfer tax due on domestic bonds

Source: https://www.estv.admin.ch/estv/de/home/verrechnungssteuer/verrechnungssteuer.html

Explanatory report on the withholding tax reform dated 3 April 2020

Switzerland — changes to withholding tax relief


• Public consultation on new law launched in December 2019

• Consultation set to end 27 March 2020; currently unclear when legislative process will continue and/or when law may be enacted

• Main points relating to withholding tax relief:

• Legislative basis for procedural provisions currently based on Swiss Federal Tax Administration (SFTA) and Swiss Federal Supreme Court practice, especially claimant’s burden of proof and reclaim deadlines

• Introduction of penal provisions relating to withholding tax evasion and endangerment of withholding tax in connection with international reclaims

Switzerland — changes to withholding tax relief (cont.)


• Impact:

• Procedural provisions unlikely to reduce average amount of time for the processing and granting of reclaim applications

• Penal provisions not expected to lead SFTA to examine reclaim applications less rigorously or request less additional information and documentation

• Offenses may be committed negligently: content and accuracy of information and documentation provided to SFTA will gain importance once the law is enacted

• No clear guidelines yet on SFTA’s practice in terms of determining the amount of potential fines to be levied; further development unclear

Source: EY Global Tax Alert dated 15 April 2020

Germany

Germany update

• German WHT relief at source (status certificate, investment funds)

• General: (procedure, requirements, eligibility, experiences)

• Action/attention: renewal applications, COVID-19 implications


Germany update (cont.)

• German WHT reclaim options

• Quick refund procedure with paying agent (investment funds with status certificate)

• Refund with local German Tax Office (investment funds without status certificate)

• Treaty reclaim with the German Federal Central Tax Office (BZSt)

• 2/5 Reclaim (nonresident corporations, abolished for investment funds as of 2018)

• Action/attention: Cayman funds, statute of limitations, COVID-19 implications


France

France — WHT claims

• Extension of CoRs validity for relief at source procedure

• Fiscal forms such as the certificate of residence (CoRs) and tax attestations issued and previously provided in 2019 would exceptionally remain valid until 15 July 2020, instead of the standard date of 31 March 2020, for the benefit of relief at source

• Statute of limitation

• Technically, statutes of limitation have been extended for the length of health emergency period

• In practice, because of the French statute of limitation (SOL) computation ending on 31 December for tax reclaims, this has no impact for WHT claims (2020 can be claimed up to 31 December 2022)



WHT claims — situation of foreign investors in France

*some conditions and specificities may apply to this table.

EU funds

Non-EU funds

Pension funds —Life insurers

► Almost-systematic refund of the withholding tax for EU funds that are recognized as comparable to French funds (SICAV and FCP) thanks to the UCITS and FIA directives (UCITS and AIF)

► Possibility of “Relief at source”: 0% withholding tax upon distribution of the dividends, provided that the documents are submitted to the French paying agent before the payment of the dividends (notably the UCITS certificate).

► In principle, non-EU funds are eligible for the exemption from withholding tax provided for in Article 119 bis of the French Tax Code.

► In practice, neither the tax authorities nor the Administrative Court have to date ruled on the comparability between a non-EU fund and a French fund.

► Claims have been “frozen” by the FTA since the start of the campaign in 2009, but according to our information, the FTA has started processing US claims in the first quarter of 2020.

► Claim opportunity in France for foreign pension plans following the recent case ECJ case law (College Pension Plan of British Columbia, 13 November 2019), which opens the door to comparability between:

► A tax-exempted foreign pension fund

► A life insurer with a nonsignificant taxation on its investment income due to an accrual for profit-sharing or technical provision

Loss-making companies

► Tax deferral scheme for dividends paid to loss-making foreign companies (Article 235 quarter of the FTC, introduced into French law by the Finance Bill for 2020 following the recent case Sofina case law CJEU, 22 November 2018)

► Refund of withholding tax and tax deferral on dividends received by a loss-making company starting in 2020

► Opportunity to claim the refund for non-statute-barred fiscal years (2018 and 2019)

…

Denmark

Denmark withholding tax

• COVID-19 impact

• Currently no impact from COVID-19 and no initiatives for reclaim processes

• No extensions of SOLs

• Web portal reclaim solution

• Denmark is a reclaim market

• Reclaim web portal introduced in 2017

• Mandatory for double tax treaty reclaims

• Reclaims based on EU law filed separately


Denmark withholding tax (cont.)

• Current trends and hot topics

• “Cum-ex files” impact

• August 2015 to March 2016 — refunds suspended

• Led to massive backlog of claims

• Processing time up to 18 months (even longer in complex cases)

• Significant employee uplift in Denmark Tax Agency (DTA) reclaim administration

• Reform of withholding tax regime in pipeline

2015 2016 2020 Future

Suspension of all refundpayments

Re-initiation of refund payments

Processtime up to 18 months

WHT reform to RaS market

2017/2018

2019

Admin uplift from

5 to 100

Suspension of tax exemption

certificates



• Withholding tax reform

• A bill reforming the withholding tax regime is planned according to the government law program for the current parliamentary year

• Expectedly a transformation from reclaim to relief at source market

• Timeline unknown



• Current trends and hot topics

• Trends coming out of increased DTA scrutiny

• Substantial focus on documenting beneficial ownership (share purchase, share holding, dividend cash flows, securities lending)

• Scrutiny for tax transparent claimants

• US group trust rejections (e.g., 81–100 entities)

• Tax exemption certificates

• Claims raised in early 2020 against international banks involved in custody and equity finance transactions (alleged dividend stripping)


Belgium

Overview — Belgium regional update

1Reclaims of undue WHT based on civil liability of the Belgian state

2Further discussions with the Belgian tax authorities on WHT reclaims

3Other new developments

Key takeaways


• Few developments, given current political context in Belgium (caretaking government, only having full/special COVID-19 powers)

• COVID-19: various tax measures (deferral of payment regarding income tax, VAT, …) but nothing particular on WHT

• WHT claims: tax authorities have sought to clear the existing backlog in terms of claims to handle, but no clear solution in sight

Overview — Belgium regional update (cont.)

1 Reclaims of undue WHT based on civil liability of the Belgian stateBrussels Court of Appeal recognizes civil liability of the Belgian state


• Violation of free movement of capital and freedom of establishment confirmed by CJEU in C-387/11, Commission v Belgium, 25 October 2012

• Law changed in effect as of 1 January 2013 (or later if broken financial year)

• Statute of limitation unclear: 6 months, 5 years, 6 years, 10 years, all appeared possible

• In-depth analysis suggested that correct basis should be 10 years, although Courts appeared hesitant

• Case law of the Brussels Court of Appeal (judgments dated 19 June 2019) suggests that:

• Infringement of the European primary legislation by Belgian law constitutes a civil liability in accordance with the general regime (see Article 1382 of the Belgian Civil Code)

• The refund is to be treated as a compensation

• Applicable statute of limitation is 10 years

Outbound dividend payments (base case)

Bel Co

Bel WHT

BEL SICAV Fund X

Bel WHT

WHT creditable and refundable (past discrimination)

No credit for Belgian WHT

• Renewed interest of the Belgian tax authorities in all pending EU discrimination “Fokus Bank/Denkavit” claims (roughly 6,400 pending cases) and market claims

• New team at the BTA seeks to approach key players/service providers in the broader context of an overall roadshow (not case-/claim-/client-specific) seeking to gather additional knowledge on tax technical topics (with procedural aspects of the claims regarding statute of limitation treated by a separate team)

• BTA seeks to obtain more understanding on how claims were categorized in order to identify claims that would need specific treatment and scrutiny

• Informal information (not case-/claim-/client-specific) seems to suggest that the BTA’s litigation department may be looking to develop an argument on the admissibility of claims against the Treasury (including WHT reclaims), and assuming that the relevant statute of limitation is five years

• New argument contends that even if the claim was validly submitted by a taxpayer within the five-year statute of limitations, the BTA has five years to make a decision.

• Absent any interruptive action taken by the taxpayer, the statute of limitations would be reached in favor of the Treasury.

• BTA has sought to have this position (which seems to be considered rather questionable by some scholars) confirmed by case law.


2 Further discussions with the Belgian tax authorities on WHT reclaimsNew surprising procedural argument developed by the BTA

Outbound dividend payments (base case)

Bel Co

Bel WHT

BEL SICAV Fund X

Bel WHT

WHT creditable and refundable (past discrimination)

No credit for Belgian WHT


3 Other new developments



Liability to tax — treaty entitlement

► Net asset tax reclaims (and case law) under the Belgium-Luxembourg double tax treaty (see last year’s update)

► Interpretation by certain Belgian courts on liability to tax (liable to tax even if not taxable, see Organisation for Economic Cooperation and Development (OECD) position)

► New developments: Belgian government decision to appeal with the Court of Cassation (the Belgian Supreme Court)

India — DDT abolishment


Taxation for: Law until 31 March 2020 Current law (applicable from 1 April 2020)

Distributing company Liable to dividend distribution tax (DDT) at 20.56%

Liable to withholding tax at applicable rates (treaty benefit, where applicable)

Shareholder Exempt under India’s domestic tax laws Taxable at applicable rates under domestic tax law or eligible treaty (whichever is lower)

Holding jurisdiction DWHT (%) Notes/remarks

Non-treaty 21.84% ► Domestic tax rate for foreign company (with surcharge and cess)

US 15%/21.84% ► For beneficial shareholder being a company owning at least 10% voting stock: 15%

► Otherwise: 25%. Hence, restricted to domestic rate

Mauritius2 5% ► For beneficial shareholder being a company owning at least 10% capital: 5%► Otherwise: 15%

Netherlands2 5% ► The Netherlands has a most favored nation (MFN) clause and hence, 5% could apply for beneficial shareholder being a company owning at least 10% capital1

► Otherwise: 10%

Singapore2 10% ► For beneficial shareholder being a company owning at least 25% capital: 10%► Otherwise: 15%

Dividend taxation reform

Dividend withholding tax rate (DWHT) for foreign investor:

1. Other countries where 5% rate could apply are France, Sweden, Switzerland, Hungary, etc.2. Note that the capital gains tax article should be considered as well for potential shareholder restructuring opportunities and whether structures are

grandfathered from GAAR.

India — DDT abolishment (cont.)

• Key takeaways

► Shareholder eligibility to claim lower tax treaty withholding tax rates

► Beneficial ownership requirements

► Limitation of benefits tests

► Indian general anti-avoidance rules

► Multilateral instrument, etc.

► Lower withholding rates based on “most favored nation” provisions

► Potential to rationalize current holding structures to better align with business/substance standpoint

► Determine appropriate strategy (at distributing company level) to address withholding tax considerations


India — other recent updates

► Concessional withholding tax rate on interest earned by a nonresident:

► 5% WHT on interest paid on RDBs and government securities invested by FPIs up to 30 June 2023

► 5% WHT rate on certain borrowings raised from any nonresident up to 30 June 2023

► 4% WHT rate on certain IFSC listed borrowings raised from any nonresident up to 30 June 2023

► Exemptions from indirect share transfer tax provisions extended only to Category-1 FPIs under new SEBI FPI regulations, 2019.

► Category-1/2 FPI investments made under earlier regulations are grandfathered.

► Mauritius funds permitted to register as Category-1 FPIs despite FATF “gray list” inclusion.

► Exemption on certain income earned by SWFs from investments in Indian entities carrying on specified infrastructure projects.


questions?


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EY Webcast How COVID-19 is impacting tax trends and ... · 07/05/2020 · Global tax investing...

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