EU Tax News Issue 2014 – nr. 002

January – February 2014

This EU Tax Newsletter is prepared by members of PwC’s international EU Direct Tax Group (EUDTG). If you would like to receive future editions of this newsletter free of charge, or wish to read previous editions, please refer to: www.pwc.com/eudtg.

Contents

EU Court of Justice (CJEU) Cases Germany Hungary Netherlands Netherlands

CJEU ruling on Sec. 20 Reorganisation Tax Act (old version): DMC CJEU judgment on tax rules which make a distinction between related and unrelated companies: Hervis AG Opinion on ‘Papillon’ fiscal unity: SCA Group Holding et al AG Opinion on the territorial scope of the free movement of capital and the standstill clause: X BV and TBG Limited

National Developments Denmark Italy Netherlands United Kingdom United Kingdom United Kingdom

PwC EU Tax News

Change of tax calculation of foreign salary income New taxes on digital economy operators active in online advertising partially repealed Swiss pension fund not entitled to refund of Dutch dividend withholding tax Supreme Court judgment on cross-border loss relief: Marks and Spencer case Proposed changes to remove the time limit on mistake claims following the FII case Court of Appeal decision on time limits on pension fund claims for tax credits

1

EU Developments Romania EU EU

New holding regime potentially incompatible with EU law EU JTPF issues report on compensating adjustments and MAPs High Level Expert Group on Taxation of the Digital Economy meets for the second time

Fiscal State aid Italy

Italy EU

PwC EU Tax News

CJEU judgment clarifies national courts should identify aid beneficiaries and amount of recoverable aid (which might be nil) where the Commission has not done so: Mediaset CJEU referral on quantification of interest due upon recovery of unlawful aid 2014 European Competition Forum

2

EU Court of Justice (CJEU) Cases Germany – CJEU ruling on Sec. 20 Reorganisation Tax Act (old version): DMC Case On 23 January 2014, the CJEU rendered its judgment in the DMC case (C-164/12) on the compatibility of the former version of section 20 paragraph 3 of the German Reorganisation Tax Act (RTA) with EU law. In the underlying case two Austrian corporations contributed their interests in a German partnership to a German corporation and received new shares in the transferee in return. Sec. 20 para. 3 RTA prescribed that a continuation of the book value of the partnership's assets at the level of the transferee was only possible if the received shares were taxable in Germany. However, due to the Double Taxation Treaty concluded with Austria, Germany had no right to tax the disposal of the new shares. Therefore the transferor was forced to pay tax on the hidden reserves included in the contributed assets. The question was whether this was compatible with EU law and whether another rule, which allowed for a payment of the tax in five equal instalments without interest over a five year period, was proportionate. In its judgment, the CJEU chose to apply the free movement of capital (Art. 63 TFEU) rather than the freedom of establishment (Art. 49 TFEU), because the applicability of sec. 20 RTA did not depend on whether the transferor owned a controlling interest in the receiving corporation. The CJEU held that the German rule constituted a restriction of the free movement of capital but that it could be justified by the balanced allocation of taxing rights provided that Germany had no right to tax the hidden reserves in the contributed assets at the level of the receiving corporation. The CJEU left it up to the referring German court to determine if this was the case. Furthermore, the CJEU decided that an interest free deferral of the tax payment over a five year period is proportionate. Whether a bank guarantee can be required for a deferral, must be assessed individually considering the risk of non-collectability of the taxes (see also the CJEU’s 29 November 2011 judgement in case C-371/10, National Grid Indus). -- Björn Bodewaldt, Ronald Gebhardt and Juergen Luedicke, PwC Germany; [email protected] Hungary – CJEU judgment on tax rules which make a distinction between related and unrelated companies: Hervis case On 5 February 2014, the Grand Chamber of the CJEU handed down an important decision in the Hervis retail tax case (C-385/12) which makes clear that tax rules that de facto discriminate can be contrary to the free movement provisions. Hervis, a Hungarian resident company, was part of an Austrian group. Under the Hungarian law, in effect between 2010 and 2013, the rate of the tax on retail trade activity was steeply progressive. In addition, companies who were part of a group were liable to pay tax on the basis of their shares, in proportion to their turnover, of the PwC EU Tax News

3

special tax payable by all the Hungarian group companies on the basis of their overall turnover. Given the two elements of the Hungarian regime (the steeply progressive rates and the fictitious turnover allocated to ‘group’ companies), a company belonging to a group, like Hervis, would be subject to a higher tax burden than an ‘unrelated’ domestic company operating in a franchise structure. The question was whether this was in breach of EU law. The CJEU examined the question under the freedom of establishment (Art. 49 TFEU) as the rules concerned taxable persons classified as associated undertakings per the Hungarian Corporate Income Tax Act. In its judgment, the CJEU found that the Hungarian rules have the effect of disadvantaging taxpayers which are associated to other companies compared with taxpayers which are not part of such a group of companies. Consequently, the provisions of the questioned act may result in indirect discrimination, which is in breach of the freedom of establishment, provided that the entities affected by such provisions are mostly part of company groups seated in other EU Member States. The CJEU noted that the Hungarian Government did not provide any grounds to justify the different treatment. It is now up to the Tribunal of Székesfehérvár to decide whether the Special Tax Act (STA) discriminates against certain taxpayers based on the freedom of establishment – namely whether the taxpayers in the qualifying upper band of the Retail Tax are mostly members of foreign groups of companies. Depending on the outcome of the main proceedings between Hervis and the National Tax Authority, the Tribunal’s decision may not only affect the retail sector but also other sectors to which the taxes defined in the STA (the Telecommunication Tax) and – from 2013 – also the local business tax apply. -- Gergely Juhász, Dóra [email protected]

Máthé

and

Borbála

Szilágyi,

PwC

Hungary:

Netherlands – AG Opinion on ‘Papillon’ fiscal unity – SCA Group Holding et al On 27 February 2014, AG Kokott gave her Opinion in Joined Cases C-39/13 – C-41/13, SCA Group Holding BV et al. PwC NL represented the client in case C-39/13 (SCA). In her Opinion, the AG concludes that the Dutch fiscal regime breaches the freedom of establishment of Article 49 TFEU. Case C-39/13 concerns a Dutch-resident parent company, part of a Swedish group, which held various Dutch sub-subsidiaries through two intermediate German-resident subsidiaries. The taxpayer requested a fiscal unity between the Dutch-resident parent company and the Dutch-resident sub-subsidiaries. Under Article 15 of the Dutch Corporate Income Tax Act 1969 (CITA 1969) such a fiscal unity would only have been possible if the intermediate company were a Dutch-resident company or if the Germanresident intermediate entities carried on business in the Netherlands through a

PwC EU Tax News

4

permanent establishment, to which the shares in the Dutch-resident sub-subsidiaries were to be allocated. AG Kokott concludes that Article 15 CITA 1969 creates a restriction of the freedom of establishment, by not offering taxpayers with non-resident subsidiaries the option to form a fiscal unity between the Dutch-resident companies, while giving such a possibility if the intermediate entities would have been subject to Dutch corporate income tax (in which case also the intermediate subsidiaries could be included in the fiscal unity). The AG concludes that both situations are comparable in the light of the objective of the Dutch fiscal unity regime. AG Kokott distinguishes this case from the X Holding B.V. case (C-337/08), where the taxpayer sought to include the non-resident subsidiary in a Dutch fiscal unity. The AG concludes that the restriction cannot be justified by the need to prevent a double use of losses or by the need to prevent tax avoidance. If the CJEU follows AG Kokott, this means that the Dutch fiscal unity regime would have to be opened up for ‘Papillon’ fiscal unities such as those in the case at hand. Importantly, all Joined Cases concern situations where the relevant non-resident entities are resident within the EU. One of the other Joined Cases concerned the request for a fiscal unity between Dutch ‘sister’ companies with a parent company that was not subject to Dutch CIT. The AG concluded that also in such cases, there is a restriction of the freedom of establishment that cannot be justified. -Robin Hiemstra and [email protected]

Frederik

Boulogne,

PwC

Netherlands;

Netherlands – AG Opinion on the territorial scope of the free movement of capital and the standstill clause: Joined cases of X BV and TBG Limited On 16 January 2014, AG Jääskinen delivered his Opinion in the cases X BV and TBG Limited (joint cases C-24/12 and C-27/12). In the case at hand two companies established in the Netherlands Antilles received Dutch dividends on which 8, 3% Dutch dividend withholding tax was levied. The Dutch companies argued that this levy infringes the free movement of capital (Article 63 TFEU) as dividends paid to companies established in the Netherlands Antilles are being subject to different treatment compared to dividends paid to companies established in the Netherlands. The Dutch Supreme Court asked the CJEU whether the capital movements from the Netherlands to the Netherlands Antilles fall within the scope of Art. 64 TFEU free movement of capital, or whether the situation is purely EU-internal. If Art. 64 TFEU applies, the Dutch Supreme Court would like guidance on the approach to be taken to the so called ‘standstill clause’ in Art. 64 TFEU.

PwC EU Tax News

5

The AG concluded that dividends paid to companies in the Netherlands Antilles fall within the scope of the free movement of capital (Art. 63 TFEU) as the Netherlands Antilles (Dutch overseas territory in the Caribbean) is to be regarded as a third country in relation to the Netherlands. Under the standstill clause any restrictions existing before 31 December 1993 are excluded from the free movement of capital. The AG concluded that the question whether there has been an increase in restrictions applicable on 31 December 1993 must be assessed by taking into account relevant tax measures in both the Member State and the overseas territory concerned, if the combined level of taxation is determined by a legal instrument mutually binding both of them. With regard to the application of Art. 64 TFEU, the AG opines that the reduction in tax resulting from the overseas territory implementation arrangements must also be taken into account, when those arrangements had the effect that, in 1993, the actual tax liability with respect to dividends received from a Member State subsidiary was substantially lower than the combined tax rate resulting from the measures introduced after 31 December 1993. -Robin Hiemstra and [email protected]

Frederik

Boulogne,

PwC

Netherlands;

National Developments Denmark – Change of tax calculation of foreign salary income On 26 April 2013, The European Commission sent a statement of objection to the Danish Government. The Commission is of the opinion that it conflicts with the principle of free movement of persons, employees and capital when persons who are resident in Denmark and who have received income in the EU/EEA lose a proportional part of their personal tax allowance when relief is calculated. Under domestic law and under tax treaties, Denmark uses the exemption method for salary earned abroad and where the employee according to EU-law is socially secured in the country of work and pays social security contributions there. When using the exemption method the foreign income is included in the taxable income base and the tax is calculated under deduction of the tax value of the personal tax allowance. Subsequently, a tax relief is granted. The tax relief equals the share of the total Danish tax which proportionally relates to the foreign income.

The Commission is of the opinion that the personal tax allowance treatment must be considered a preferential treatment of a personal and/or family-related nature and that such preferential treatment according to the practice of the EU Court of Justice may not be lost as a result of income from another member state, unless the personal and familyrelated conditions are considered in taxation in this other state.

PwC EU Tax News

6

The Danish Government follows the opinion of the Commission: the calculation method for relief will be changed. New guidelines for recalculation have been issued by the Danish tax authorities and recalculation of tax assessments from the income year 2010 and the time after will be possible. -- Benedicte Wiberg and Anne Øvlisen, PwC Denmark; [email protected] Italy – New taxes on digital economy operators active in online advertising partially repealed On 28 February 2014, the Italian Government approved amendments to the new online tax provisions. Italian Law Decree no. 16 entered into force after publication in the Italian Official Journal on 6 March. As previously commented (see: EUDTG Newsletter Issue 2014 – 001), the online tax consists of the following provisions: 

for VAT purposes, “web advertising services” shall be purchased only from suppliers registered for VAT purposes in Italy;



for transfer pricing purposes, companies providing “online advertising and ancillary services” are prevented from relying on cost based profit level indicators to determine their arm's-length remuneration unless otherwise established under an APA concluded with the Italian Tax Authorities;



payments in consideration for the purchase of “web advertising and ancillary services” shall be executed through bank transfer or any other mean that will enable the tax authorities to track down the beneficiaries of the payment and their VAT code. The compliance with EU law of these rules was questioned from their very introduction. The provisions were supposed to enter into force together on 1 January 2014 but the Italian Government decided to postpone the entry into force of the VAT-relevant provisions until 1 July 2014. The Law Decree repeals the VAT relevant provisions. The other two sets of rules (relevant to transfer pricing and means of payment) have not been amended and are, therefore, still in force (although the transfer pricing rule seems to feature some aspects in breach of EU law). -- Claudio Valz and Luca la Pietra, PwC Italy; [email protected] Netherlands – Swiss pension fund not entitled to refund of Dutch dividend withholding tax On 14 February 2014, the Dutch Supreme Court decided that a Swiss pension fund (“Claimant”) was not entitled to a refund of Dutch dividend withholding tax for the year 2005. The Claimant requested such a refund by invoking Art. 10 of the Dutch dividend withholding tax act (“DWTA”) and Art. 63 TFEU (free movement of capital). In 2005, Art. 10 DWTA stated that entities residing in the Netherlands are entitled to a refund of

PwC EU Tax News

7

dividend withholding tax if they are: i) exempt from Dutch corporation tax; and ii) the beneficial owner of the dividend. The Dutch Supreme Court held that it is justified not to apply this provision in the situation of the Claimant. In 2005, the relation between the Netherlands and Switzerland lacked a legal framework for mutual assistance comparable to the framework available within the EU (i.e. the Mutual Assistance Directive). Neither the EU-Swiss agreement providing for measures equivalent to those laid down in the EU Savings Directive nor the double tax treaty between the Netherlands and Switzerland applicable at that time, provided for exchange of information. The Supreme Court referred to the judgments of the CJEU in Établissements Rimbaud SA (C-72/09) and Yvon Welte (C-181/12) and derived that - in the absence of an agreement which contains an information exchange clause – the Claimant does not have to be granted the opportunity to prove he is the beneficial owner of the dividends, because the question of who is the beneficial owner of portfolio dividends cannot be easily verified. On these grounds, the Supreme Court considered the rejection of providing a refund of dividend withholding tax was justified for overriding reasons relating to the general interest in combating tax evasion and the need to safeguard the effectiveness of fiscal supervision. Over the years, the Netherlands has concluded many tax treaties with third countries which allow for exchange of information, including Switzerland (from 2012). In these situations, third country recipients may still be eligible for a refund of dividend withholding tax pursuant to EU law. Furthermore, as of 2012, the DWTA provides that when certain conditions are met, exempt entities (e.g. sovereign wealth funds and pension funds) residing in third countries may also be entitled to a refund of dividend withholding tax. One of the conditions is that the Netherlands must have an agreement with the respective country of residence to exchange information. In view of the above, this judgment should have limited impact. -Robin Hiemstra and [email protected]

Frederik

Boulogne,

PwC

Netherlands;

United Kingdom – Supreme Court judgment on cross-border loss relief: Marks and Spencer case On 19 February 2014, the UK Supreme Court delivered its final decision in the longrunning Marks and Spencer (M&S) cross-border loss relief case. It was unanimously held that M&S was entitled to make claims for relief, although claims relating to Pay & File accounting periods (i.e. accounting periods ending on or before 30 June 1999) were time barred. M&S first made group relief claims for losses of European subsidiaries which were refused by HMRC more than a decade ago in a case which was subsequently referred to the CJEU. In its judgment on 13 December 2005, the CJEU held that it was contrary to

PwC EU Tax News

8

the freedom of establishment provisions of the EC Treaty (now TFEU) to prevent a parent company from claiming relief for losses of an EU subsidiary where there is no possibility of overseas tax relief for those losses being given in current, past or future periods. The Supreme Court unanimously held in May 2013 that the time at which M&S had to demonstrate that the EU losses for which they are claiming group relief are "final" is the time at which the group relief claim is made (and not, as HMRC argued, at the end of the accounting period in which the loss arose; see EUDTG Newsletter Issue 4 - 2013). In November 2013 the Supreme Court heard the remaining issues which included: whether M&S could make sequential or cumulative claims for the same losses in respect of the same accounting period; whether the principle of effectiveness required M&S to be allowed to make fresh Pay & File claims now that the CJEU has identified the circumstances in which losses may be transferred cross-border; and what the correct method of calculating losses available for transfer is. In respect of these points, the Supreme Court unanimously held that M&S is able to make further sequential claims for relief provided domestic time limits permit (such that the no possibilities test can be assessed at those dates). However, although the principle of effectiveness and certainty would allow M&S to make Pay & File claims it was held that the claims made by M&S under this regime were made outside of domestic time limits and were therefore time barred. The Supreme Court also endorsed M&S's method of calculating the amount of loss available for relief. This basically involves calculating the amount of loss for a period which remains unutilised under local rules and then converting under UK tax principles. This judgment highlights the importance of taxpayers making cross-border group relief claims as early as possible. Losses should be calculated according to the methodology presented by M&S and endorsed by the Supreme Court. Although this judgement signals the end of the M&S case, the Loss Relief group litigation involving groups with different fact patterns to M&S is ongoing. The M&S litigation concerns the UK group relief rules which applied prior to 1 April 2006. The rules were amended with effect from that date in response to the CJEU decision in the M&S case, but these new rules have now been referred to the CJEU by the European Commission (C-172/13). -- Peter Cussons, Juliet Trent and Chloe Paterson, PwC United Kingdom; [email protected] United Kingdom – Proposed changes to remove the time limit on mistake claims following the FII case S32(1)(c) Limitation Act 1980 provides for an extended time limit for common law claims for payments made under a mistake of law, the time limit being six years from when claimant became aware of the mistake, rather than six years from the date of the payment. UK tax legislation includes two restrictions on this extended time limit in relation to claims in respect of tax paid under a mistake of law, in s320 FA 2004 and s107 FA 2007. The limitation in s320 FA 2004 blocks access to the extended time limit for mistake of law claims for tax made on or after 8 September 2003. The limitation in PwC EU Tax News

9

s107 FA 2007 retrospectively blocked such common law claims even if made prior to 8 September 2003. The intention behind this legislation was to protect HMRC from costs when UK tax rules that have been in place for a long period of time are subsequently found to be contrary to EU law. The Government has now published draft legislation which would retrospectively amend s107 FA 2007 so that the restriction of the extended time limit would not have effect for common law mistake claims for repayment of tax paid contrary to EU law. This follows the Supreme Court judgment of May 2012 in the Franked Investment Income (FII) group litigation (Test Claimants in the FII Group Litigation v CIR and another [2012] UKSC 19) (see EUDTG Newsletter Issue 4 - 2012). The Supreme Court unanimously held that s107 FA 2007 was unlawful and should be disapplied. The ruling thereby reinstated six FII GLO claims made pre-8 September 2003, including the claims made by the lead test claimant. The draft legislation will give statutory force to this ruling for similar mistake claims in relation to tax paid contrary to EU law. A majority of the Supreme Court, and subsequently, in December 2013, the CJEU held that s320 FA 2004 is also unlawful (see EUDTG Newsletter Issue 1 – 2014) in which CJEU decision was reported]) and the matter will return to the UK High Court in May 2014. The restriction of the extended time limit in s320 FA 2004 has not, therefore, been amended concurrent with the proposed amendment to s107, but a similar change to s320 is anticipated in due course. It should be noted that the change to s107 and the anticipated change to s320 will probably only be relevant for taxpayers who have already made common law claims for repayment of tax contrary to EU law. This is because it is arguable that the statutory overpayment relief provisions provide an exclusive remedy for tax paid contrary to EU law, following the enactment of s231 FA 2013 which removed the prevailing practice exclusion from statutory overpayment relief claims in relation to income tax, capital gains tax, corporation tax, petroleum revenue tax and stamp duty land tax paid contrary to EU law for claims on or after 17 January 2014. The presence of this exclusion had allowed for the argument that overpayment relief did not provide an effective remedy for EU claims. -- Peter Cussons, Juliet Trent and Chloe Paterson, PwC United Kingdom; [email protected] United Kingdom – Court of Appeal decision on time limits on pension fund claims for tax credits On 17 January 2014, the Court of Appeal published its decision in The Trustees of the BT Pension Scheme v HMRC ([2014] EWCA Civ 23 A3/2013//1211 & 1208). This test case concerned action by the BT Pension Scheme (BTPS) to obtain payment of tax credits under s231 ICTA 1988 on foreign income dividends (FIDs) and foreign dividends received. In February 2013 the Upper Tribunal upheld the First Tier

PwC EU Tax News

10

Tribunal’s decision that the claims for tax credit were allowed, but all except one of the claims were out of time (see EUDTG Newsletter Issue 2 - 2013). The key issue considered was the time limits relating to these claims. The Upper Tribunal has previously held that s43 TMA 1970, which imposes time limits on claims, applied such that the majority of claims were out of time. BTPS appealed on this point, arguing that s43 does not apply on the basis that the entitlement to a tax credit under s231 arises automatically and does not require a claim. However, the Court of Appeal has unanimously held that a tax credit under s231 is a 'claim for relief' within s43 rather than a claim for payment, and that a BTPS could not be considered to have already made a claim. The appeal was dismissed accordingly. Despite this setback, BTPS's arguments about the compatibility of domestic time limits with EU law remain live and may be referred to the CJEU. -- Peter Cussons, Juliet Trent and Chloe Paterson, PwC United Kingdom; [email protected] Back to top

EU Developments Romania – New holding regime potentially incompatible with EU law On 1 January 2014, Romania has introduced new holding legislation. Capital gains derived by a Romanian company from the sale of shares held in another Romanian company are not subject to the 16% corporate income tax, provided that at least 10% of the shares are held for an uninterrupted period of at least one year. On the other hand, non-resident companies continue to be liable to pay 16% corporate income tax on gains derived from the sale of shares held in Romanian companies and cannot benefit of the exemption. However, most double tax treaties concluded by Romania with the other EU Member States offer protection from such capital gains taxation and as a general rule double tax treaty provisions prevail. The exception is where a non-resident company located in Germany, Austria, France or Ireland sells shares in a Romanian real estate company (i.e. more than 50% of its fixed assets are real estate properties). For these investors, the double tax treaties do not offer capital gains tax protection and they would thus suffer 16% corporate income tax in Romania on any such gains. Based on the current provisions of the Romanian tax legislation, there is discrimination between resident and non-resident investors when it comes to selling shares in Romanian real estate companies. Any affected investor from Austria, Germany, Ireland and France can apply for an infringement procedure to remove the said discrimination between resident and non-resident investors. -- Mihaela Mitroi, Raluca [email protected] PwC EU Tax News

Popa

and

Alexandra

Smedoiu,

PwC

Romania;

11

EU – EU JTPF issues report on compensating adjustments and MAPs The European Commission released an EU JTPF report on compensating adjustments in January 2014. The report aims to provide practical guidance on avoiding double taxation and double non-taxation in the application of compensating adjustments in spite of the different national practices. The guidance is applicable to compensating adjustments which are made in the taxpayer’s accounts and explained in the taxpayer’s transfer pricing documentation. In addition, the EU JTPF published its annual statistics on the number of pending Mutual Agreement Procedures (MAPs) under the Arbitration Convention at the end of 2012. See also the web page of the EU JTPF. -- Bob van der Made, PwC Netherlands; [email protected] EU – High Level Expert Group on Taxation of the Digital Economy met for the second time On 14-15 January 2014, the Expert Group held their second meeting. See the Commission’s Summary. -- Bob van der Made, PwC Netherlands; [email protected]

Back to top

Fiscal State aid Italy – CJEU judgment clarifies national courts should identify aid beneficiaries and amount of recoverable aid (which might be nil) where the Commission has not done so: Mediaset On 13 February 2014, the CJEU decided in the Mediaset Case (C-69/13). The case at hand was about the aid granted by Italy to digital terrestrial broadcasters offering pay-tv services and to cable pay-tv operators. The Commission found the aid incompatible with the internal market and ordered Italy the recovery (Decision 2007/374/EC of 24 January 2007). The decision did not identify in detail who the beneficiaries were and how much they had to pay back. Italy carried out the recovery in cooperation with the Commission. In 2009, eventually, Mediaset was ordered to pay back about € 6 m; this amount was agreed by Italy with the Commission in an exchange of letters. The company paid the amount but appealed the recovery order before the Civil Court of Rome. During the trial, as per a request introduced by Mediaset, the Court gathered a survey from a panel of experts that cast doubt on the quantification of the aid. The Civil Court subsequently asked the CJEU whether, in cases such as the case at hand, in which the Commission’s Decision does not quantify the amount of the recovery, a domestic Court is obliged to follow the

PwC EU Tax News

12

quantification established by the Commission in a letter addressed to the Member State during the execution of its decision. The CJEU ruled that a domestic court is bound by the EC Decision but not by other acts that the Commission issues afterwards which the domestic court is to take into account when assessing the amount to recover. As a consequence, the domestic court, in its final decision, may conclude that the aid to be repaid is equal to nil. -- Claudio Valz and Gabriele Colombaioni, PwC Italy; [email protected] Italy – CJEU referral on quantification of interest due upon recovery of unlawful aid By Order no. 3006 issued on 11 February 2014, the Italian Supreme Court asked the CJEU for a preliminary ruling on how to quantify the interest due upon the recovery of State aid based on a negative decision issued by the Commission before the entry into force of Commission Regulation No 794/2004 of 21 April 2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty (Reg. 794/2004). Commission Decision 2003/193/EC declared the three year tax exemption granted to Italian multi-utilities companies unlawful. The interest on the recovery was quantified on a compound basis as per art. 11 of Reg. 794/2004. The taxpayer challenged the interest quantification arguing Reg. 794/2004 was not applicable as Decision 2003/193 /EC was notified to Italy on 2 June 2002 before Reg. 794/2004 came into force. The Supreme Court stayed the proceeding and lodged the preliminary ruling on the basis of the following circumstances: a) Reg. 794/2004 entered into force after the issue of decision 2003/193/EC; b) in the judgment issued on 11 December 2008, case C-295/07 P, the CJEU ruled that, in case of EC Decisions issued before Reg. 794/2004, recovery interests shall be quantified as required under national law for interest due on late payment of the State’s credits; c) under Italian general rules, interests shall be quantified on a simple basis, but the Law Decrees (issued in 2007 and 2008), ordering the recovery of the specific aid, made reference to the application of art.11 of the Reg. 794/2004 (i.e. compound interest quantification). The issue that the CJEU is required to answer is essentially the following: whether, in case of a Commission’s decision issued before the entry into force of Reg. 794/2004, EU law prevents the relevant Member State to dispose that interest on the recovery shall be quantified pursuant to Reg. 794/2004, whereas, on the basis of the domestic legislation in force at the time the Commission’s decision was issued, interest would have been quantified on a simple basis. -- Claudio Valz and Gabriele Colombaioni, PwC Italy; [email protected] EU – 2014 European Competition Forum The EU Competition Forum was held on 11 February 2014 in Brussels. See Summary. -- Bob van der Made, PwC Netherlands; [email protected] PwC EU Tax News

13

Newsletter Editors: Peter Cussons, Bob van der Made and Irma van Scheijndel. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2014 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.

PwC EU Tax News

14

PwC’s EUDTG: Are you ready to talk EU tax law? If you are, we are! EUDTG is PwC’s pan-European network of EU law experts. We specialise in all areas of direct tax: the fundamental freedoms, EU directives, State aid rules, and all the rest. You will be only too well aware that EU direct tax law is moving quickly, and it’s difficult to keep up. But, this provides plenty of opportunities to taxpayers with an EU or EEA presence.

So how do we help you? • • • • •

•

Through our EUDTG Technical Committee, we play a leading role in developing new and innovative EU law positions and solutions for practical application by clients. Our experts combine their skills in EU law with specific industry knowledge by working closely with colleagues in the Financial Services and Real Estate sectors. We have set up client-facing expert working groups to address specific hot topics such as State aid, the CCCTB and BEPS. We closely monitor direct tax policy-making and political developments in Brussels. We input to the debate by maintaining regular contact with key EU and OECD policy-makers through our EU Public Affairs capability and PwC-facilitated “EBIT” business initiative (www.pwc.com/ebit) in Brussels. Our secretariat in the Netherlands operates a daily EU tax news service, keeping clients up to date with developments as soon as they happen.

And what specific experience can we offer for instance? •

• •

We have assisted clients before the CJEU and the EFTA Court in a number of high-profile cases such as Marks & Spencer (C-446/03), Aberdeen (C-303/07), X Holding BV (C-337/08), Gielen (C-440/08), X NV (C-498/10), A Oy (C-123/11) and Arcade Drilling (E-15/11). Together with our Financial Services colleagues, we have assisted foreign pension funds, insurance companies and investment funds with their dividend withholding tax refund claims. We have carried out a number of tax research studies for the European Commission.

For more information contact Bob van der Made, EUDTG network driver: e-mail: [email protected]; tel: +31 6 130 962 96, or one of the listed contacts below.

PwC EU Tax News

15

EUDTG KEY CONTACTS: Chair: Axel Smits [email protected]

Co-Chair - Chair of State Aid WG & Member of Technical Committee: Sjoerd Douma [email protected]

Network Driver & EU Public Affairs – Brussels Member of all WGs: Bob van der Made [email protected]

Chair of Technical Committee: Juergen Luedicke [email protected] Chair of FS-EUDTG WG: Patrice Delacroix [email protected]

Chair of CCCTB WG & Member of Technical Committee: Member of State Aid WG: Peter Cussons [email protected]

Chair of Real Estate-EUDTG WG: Jeroen Elink Schuurman [email protected]

EUDTG COUNTRY LEADERS: Austria Belgium Bulgaria Croatia Cyprus Czech Rep. Denmark Estonia Finland France Germany Gibraltar Greece Hungary Iceland Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Norway Poland Portugal Romania Slovakia Slovenia Spain Sweden Switzerland UK

Richard Jerabek Patrice Delacroix Krasimir Merdzhov Lana Brlek Marios Andreou Peter Chrenko Soren Jesper Hansen Iren Koplimets Jarno Laaksonen Emmanuel Raingeard Juergen Luedicke Edgar Lavarello Vassilios Vizas Gergely Júhasz Fridgeir Sigurdsson Carmel O’Connor Claudio Valz Zlata Elksnina Kristina Krisciunaite Ilaria Palieri Edward Attard Sjoerd Douma Steinar Hareide Camiel van der Meij Leendert Verschoor Mihaela Mitroi Todd Bradshaw Nana Sumrada Carlos Concha Gunnar Andersson Armin Marti Peter Cussons

PwC EU Tax News

[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] 16