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Cross-border tax structuring: is there a common denominator for substance requirements?

Vox Tax This Dentons global tax report has been prepared with a contribution from Loyens & Loe

Contents

Notes from the Editors 2 Comparative Table 4 Survey Questions 6 Canada 7 Czech Republic 11 France 15 Germany 21 Hungary 24 Netherlands 27 Poland 34 Romania 38 Russia 41 Slovak Republic 45 Spain 49 Ukraine 54 United Kingdom 57 United States 62 Tax Contacts 66

Vox Tax Editor-in-Chief Viktoriia Fomenko [email protected]

dentons.com 1 Notes from the Editors

Dear Reader,

The current downturn has caused policy makers in numerous countries to question the tax planning strategies of many multinational groups. The OECD has decided to place particular emphasis on this very topic; its latest report specišically addresses base erosion and prošit shifting situations. It states that actual business activities are generally identišied with elements such as sales work force, payroll and šixed assets. It indicates that increased scrutiny should be put on entities with no or few employees, little or no physical presence in the host economy, whose assets and liabilities represent investments in or from other countries and whose core business consists of group inancing or holding activities. This is how they refer to “special purpose entities”, as examples: šinancing subsidiaries, conduit, holding companies, shell companies, shelf companies and brass plate companies.

Whatever the approach retained, arm’s length requirements for permanent establishments, or treaty shopping, it clearly appears that legislation will be passed at various levels allowing tax authorities around the globe to tackle tax structures more eectively under the angle of artiicial tax planning without appropriate economic substance.

This edition of Vox Tax is dedicated to treaty shopping and substance - hot topics in many jurisdictions. Double Taxation Agreements negotiated between two countries are aimed, precisely, at reducing double taxation. However, many countries have observed that an entity wishing to do business in another country may circumvent unfavorable tax treaty treatment by interposing a company in a third country, deriving benešits from the situation. For these reasons and others, countries look for counter measures against “treaty shopping”.

Most countries have a collection of speciic legislation to prevent treaty shopping, including speciic limitation on beneit rules, anti- abuse rules, abuse of treaties principle, residency requirements and/ or beneicial ownership requirements. Preventing tax avoidance can be achieved in many ways. For example, the tax rules may simply prescribe the tax consequences of a dešined transaction in all circumstances; or the tax law may create a presumption which the taxpayer has to rebut if the transaction is allowed to operate unchanged. Likewise, tax rules may disallow the transaction only where the taxpayer entered into the transaction with the purpose of achieving a particular tax outcome.

Many jurisdictions require a certain level of presence (or substance) in their jurisdiction before they allow a company the beneits of their local tax legislation and tax treaties. Substance requirements vary from country to country; the requirements in some countries are relatively low.

Multinational companies try to generate an optimal return for their shareholders, partly by reducing their eective global tax rate. They operate in a global environment where tax systems dier widely from country to country. Tax

2 dentons.com authorities frequently create dierences between tax systems intentionally in order to attract foreign investors. Multinationals use these dierences to their advantage to achieve a low eective tax rate, thereby increasing shareholder value.

Historically, tax planning was often done without reference to the operational structure of the company. Therefore, such structures often lack economic substance. In this issue of Vox Tax, we draw your attention to the importance of substance in international tax planning and emphasize why structures which lack economic substance are under ever increasing scrutiny by tax authorities around the world.

This issue consists of 14 national reports prepared by Dentons Global Tax Group and Loyens & Loe in the Netherlands. Each report consists of two sections: 1) the substance/residency requirements applied to a local presence of a foreign company; 2) the substance requirements applied to a foreign company established in a foreign country. The substance/residency requirements are summarized in the table following the editorial notes.

This issue of Vox Tax does not constitute tax advice; readers should note that tax authorities’ views on “guidance” are regularly rešined, so the statements made in this report are not dešinitive. However, this guide does provide an indication of the factors tax authorities currently consider and is a useful reminder to multinationals to check that their tax strategy is su¦iciently solid to deal with increased scrutiny from tax authorities.

We want to express our gratitude to all contributors from Dentons’ o¦ices worldwide and to Loyens & Loe who prepared the analysis. Special thanks is also due to Viktoriia Fomenko from Dentons Kyiv as Chief Editor for this edition. Her professionalism and enthusiasm in coordinating the reports from 14 countries has been of invaluable help.

Please do not hesitate to contact our contributors for any further clarišication needed.

Yours sincerely,

Neil Bass Canada Tax head

Sandra Hazan Europe Tax Head

Marc Teitelbaum US Tax Head

Alex Thomas UKMEA Tax Head

dentons.com 3 Comparative Table

Requirements Canada Czech France Germany Hungary Republic

Are there any speci­ic requirements as to “presence” or “substance” of a foreign

Local address N/A Yes Yes Yes Yes Local bookkeeping N/A No Yes1 Yes No Local bank accounts N/A N/A N/A N/A No Local resident employees on the payroll N/A N/A N/A No No Minimum sta on the payroll N/A No N/A No No Local board meetings N/A Yes Yes Yes Yes Board members Yes4 N/A Yes5 No No Place of management Yes Yes Yes Yes Yes Business activities No N/A Yes Yes8 Yes9

Is residency certi­icate required to con­irm residency of a foreign company?

Residency certišicate No12 No13 Yes Yes No14

Is there speci­ic legislation to prevent treaty shopping?

Limitation-on-benešits (LOB) rules Yes “Substance- Yes Yes Yes over-form” principle General anti-avoidance rules (GAAR) No No Yes Yes Yes Abuse of treaties principle No “Abuse No Yes No of law” principle Benešicial ownership requirements Yes No Yes No No

1This is not formally required but is recommended. 2This is not (yet) formally required but is recommended in the light of the current OECD discussions about base erosion and prošit shifting. 3This is not (yet) formally required but is recommended in the light of the current OECD discussions about base erosion and prošit shifting. 425% of the directors must be Canadian residents. Some provinces of Canada do not have this requirement. 5Local expertise shall be in place. 6It is advisable that the board consists of directors who have special knowledge and expertise. 7The specišic requirements depend on the US State where the company is formed. 8In case German tax residents are the ultimate benešiciaries of the company in a foreign country, and this company is deemed to be taxed at a low rate, passive income can be allocated to its German tax-resident benešiciaries. 9Real economic presence entails economic activities (aimed at prošit) using own equipment and own workforce. 10Certain requirements apply to šinancial companies. 11Some types of activities may be subject to US income tax. 12A non-resident company may be required to complete a Declaration of Eligibility for Benešits under a Tax Treaty.

4 dentons.com Netherlands Poland Romania Russia Slovak Spain Ukraine UK US Republic

company in a foreign country:

Yes No No N/A Yes Yes N/A N/A N/A Yes No No N/A No Yes N/A N/A N/A Yes No No N/A No Yes N/A N/A N/A N/A 2 No No N/A No Yes N/A N/A N/A N/A3 No No N/A No Yes N/A N/A N/A Yes No No No Yes Yes No Yes No Yes No No No No Yes No No6 Yes7 Yes Yes No No Yes Yes No Yes No Yes10 No No No No No No No No11

No Yes Yes Yes No15 Yes Yes No No16

Yes No No Yes No No No Yes Yes

Yes No17 No No18 No19 Yes No Yes No Yes No No No No20 No21 No22 Yes No

Yes Yes Yes23 Yes No24 Yes Yes Yes No

13This is not formally required but is recommended. 14Residency certišicate may be required only on a limited number of occasions as there is no withholding tax in Hungary. 15This is not formally required but is recommended. 16A non-resident company may be required to complete the specišic form which depends on the specišic benešit being claimed. 17There is a specišic anti-avoidance rule which refers to mergers and demergers only. 18The general anti-abuse doctrine (the so called “unjustišied tax benešit” doctrine) was developed by the RF Supreme Arbitration Court in 2006. 19There is substance-over-form rule. 20Slovak tax authorities recognize “abuse of tax treaty principle” in practice. 21The rule of “substance-over-form” is generally applied by the Spanish tax authorities and courts. 22The rule of “substance-over-form” is generally applied by the Ukrainian courts. 23Apply with respect to passive income subject to Polish domestic withholding tax exemption. 24May be used in connection with the taxation of dividends, interest and royalties under some DTTs.

dentons.com 5 Ten survey questions

The substance/residency requirements applied to a local presence of a foreign company Question 1 Does your respective country require a certain level of “presence” (or substance) in the country before allowing a company benešits of local tax legislation and/or double tax treaties?

Question 2 How are substance requirements applied in practice by the local tax authorities and/or courts of your respective country?

The substance requirements applied to a foreign company established in a foreign country Question 3 Do the tax authorities of your respective country frequently use their right to request administrative assistance from tax authorities of dierent jurisdictions to conširm level of “presence” (or substance) in the other country before allowing a company the benešits of local tax legislation and/or double tax treaties?

Question 4 What are the requirements of your country as to level of “presence” of a foreign company in a foreign country: • A local address or even real office space; • Local bookkeeping and bank accounts; • Local resident employees on the payroll; • Minimum staff on the payroll; • Possibility to outsource management, bookkeeping to third parties; • Local board meetings? Question 5 Are there any specišic requirements as to type, nationality, residency and knowledge of the board members and/or directors of a company?

Question 6 Does your respective country require that place of management is to be situated and/or decision making is to take place in the foreign country to satisfy a required level of “presence” (or substance)?

Question 7 Are there any requirements as to types of business activities to be performed or not to be performed by a foreign company in foreign country in order to fulšill “presence” or “substance” criteria? Question 8 Is residency certišicate or other document required by your respective country to conširm residency of a foreign company? Are there any specišic requirements to such document? What is the validity term of such document? Question 9 Assess how if at all treaty shopping is addressed in double tax treaties to which your country is a party?

Question 10 Does the legislation of your country provide for specišic legislation to prevent treaty shopping: • specific limitation on benefit (LOB) rules; • the general anti-avoidance rule (GAAR); • an abuse of treaties principle; • residency requirements; and/or • beneficial ownership requirements?

6 dentons.com Canada

dentons.com 7 Canada Tony Schweitzer [email protected]

The substance/residency law are resident in Canada for tax More recently, Canada has been requirements applied to a local purposes. For a foreign-incorporated signing an increased number of Tax presence of a foreign company corporation, the applicable test Information Exchange Agreements Question 1. Does your respective is to determine where the central with non-treaty countries. Tax country require a certain level of management and control of the Information Exchange Agreements “presence” or substance in the corporation is actually exercised. are bilateral agreements that are country before allowing a company This is generally the place where the meant to facilitate the exchange the benešits of local tax legislation board makes decisions. of taxpayer information to and/or double tax treaties? enhance Canada’s administration, The substance requirements enforcement and collection of taxes. Under Canadian tax rules, a company applied to a foreign company incorporated in Canada, or that established in a foreign country Question 4. What are the is otherwise resident in Canada Question 3. Do the tax authorities requirements of your country as because it is managed in Canada, of your respective country to level of “presence” of a foreign will be subject to Canadian tax on frequently use their right to request company in a foreign country? worldwide income. For a non-resident administrative assistance from tax corporation, Canadian tax only applies authorities of dierent jurisdictions Generally, Canada’s tax treaties if the non-resident carries on business to conširm level of “presence” (or require that the recipient of income in Canada or disposes of “taxable substance) in the other country be the “benešicial owner” of such Canadian property” (generally real before allowing a company the income in order to obtain a reduced property and resource properties benešits of local tax legislation and/or withholding tax rate. There have been and entities that derive their principal double tax treaties? a number of recent court decisions value from such property). The where the CRA has challenged the threshold for carrying on business is Canadian tax authorities will entitlement of a non-resident to treaty generally low, but under Canada’s tax generally rely on self-assessment benešits on the basis of the recipient treaties there is only Canadian tax if and documentation provided not being the benešicial owner of the non-resident carries on business voluntarily by a non-resident the income. The CRA has not been in Canada through a permanent company. Occasionally, the Canada successful in these challenges. establishment. A Canadian subsidiary Revenue Agency (the “CRA”) may of a non-resident or permanent communicate with a treaty-country However, in some circumstances, establishment may be able to use if the CRA has particular concerns limitation on benešit provisions must be certain credits and deductions and regarding a self-assessment or met in order to obtain treaty benešits may be able to take advantage of supporting documentation. The CRA (for example, the Canada-US treaty). reduced rates or exemptions from may also expect the non-resident Any non-resident company must withholding tax that are contained in company to complete a Declaration šile a corporate tax return and Canadian tax treaties. of Eligibility for Benešits under a Tax Treaty. This process requires the complete certain schedules in Question 2. How are substance non-resident company to submit order to claim the benešits of a requirements applied in practice by their foreign tax identišication tax treaty. The relevant schedules the local tax authorities and/or courts number, along with other pertinent require information pertaining to the of your respective country? information, to the CRA. This non-resident company’s physical declaration is used by Canadian tax facilities, as well as information Other than a small number of authorities to conširm that the non- regarding the residence, wages, and “grandfathered” corporations, all resident company is a resident of a physical presence of the company’s corporations incorporated under foreign country with which Canada employees and subcontractors Canadian federal or provincial has a treaty. in Canada. The CRA will verify

8 dentons.com this documentation and may act such document? What is the validity a limitation on benešit provision accordingly. term of such document? contained within the Canada-US tax treaty. Canadian courts have Question 5. Are there any specišic In Canada no formal requirement held that the benešicial owner is the requirements as to type, nationality, exists to obtain a residence person who receives the dividends residency and knowledge of the certišicate of a foreign company. for his or her own use and enjoyment board members and/or other However, the CRA may require a and assumes the risk and control directors of a company? non-resident company to complete of the dividend he or she received. a Declaration of Eligibility for Benešits As such, the corporate veil will only Under most Canadian statutes, under a Tax Treaty. This requires be pierced in the most egregious of at least 25% of the directors of a the taxpayer to complete form circumstances, such as when the corporation must be Canadian NR301, NR302, or NR303 depending corporation located in the treaty residents. Some provinces do not on whether the taxpayer is a country is a conduit for another have this requirement. corporation, partnership, or hybrid person and has absolutely no entity, respectively. Generally, the discretion as to the use or application Question 6. Does your respective information to be provided by the of funds. country require that place of non-resident in Form NR301 includes management is to be situated and/or the non-resident’s legal name, type Question 10. Does the legislation of decision making is to take place in the of entity, mailing address, foreign tax your country provide for specišic foreign country to satisfy a required identišication number, Canadian tax legislation to prevent treaty level of “presence” (or substance)? number (if any), country of residence shopping? for treaty purposes and the type of Generally, Canada looks to the place income for which the declaration is As of 2013, only the Canada-US tax in which the central management being made. NR301 also includes a treaty contains a comprehensive and control of a corporation is certišication that the non-resident is limitation-on-benešits provision, exercised, and not the residency of the benešicial owner of the payment. and Canadian authorities have the directors. The above forms expressly provide announced that it is not Canadian that, for withholding tax purposes, policy to seek such provisions in Question 7. Are there any the forms expire at the earlier of other treaties. Under Canada’s tax requirements as to types of business (i) a change in the eective rate of treaties, a person is a resident of one activities to be performed or not to withholding; and (ii) three years from of the countries if he or she is “liable be performed by a foreign company the end of the calendar year in which to tax” by reason of one of several in foreign country in order to fulšill the form is signed and dated. enumerated criteria. Canadian courts “presence” or “substance” criteria? have held that “liable to tax” in the Question 9. Assess how if at all treaty treaty context means being liable to Canada has no requirement as to shopping is addressed in double tax as comprehensive a tax regime as the type of business activities to be treaties to which your country is a imposed in the country. For Canada performed or not to be performed party? this means taxation on worldwide by a foreign company in a foreign income. In some countries, it will be country in order to fulšill “presence” Pursuant to most Canadian tax source based taxation. As stated in or “substance” criteria. treaties the CRA will look to the question 9, the concept of ‘benešicial ‘benešicial owner’ of the Canadian Question 8. Is residency certišicate ownership’ is also used by Canadian corporation when examining or other document required by courts to address treaty shopping. treaty shopping for the purpose your respective country to conširm of minimizing withholding tax on Overall, it has generally been residency of a foreign company? Are dividend payments. There is also acknowledged that the CRA has there any specišic requirements to

dentons.com 9 not been successful at challenging Canada will be consulting with the treaty shopping in Canadian public in taking possible measures courts. Recently, the 2013 budget to prevent treaty shopping and to announced that the government of protect the Canadian tax base.

10 dentons.com Czech Republic

dentons.com 11 Czech Republic Petr Kotab [email protected]

The substance/residency such criterion usually being the tax situations of specišic taxpayers. requirements applied to a local principle place of management or Administrative assistance abroad is presence of a foreign company the place of eective management. normally not sought when dealing Question 1. Does your respective The interpretation of such terms is with standard cases of non-resident country require a certain level of usually identical to the term “place of taxpayers claiming tax benešits under “presence” (or substance) in the management” as used in ITA. Save local tax laws or DTTs. Nevertheless, country before allowing a company for exceptional cases where dual tax since many benešits are based on the benešits of local tax legislation residence is resolved by agreement of the determination of the foreign and/or double tax treaties? the tax authorities of the DTT signing resident status of a company, it is parties and where other auxiliary criteria quite customary that a foreign tax The Czech Income Taxes Act such as “business presence”, “corporate residence certišicate is required to (“ITA”) does not explicitly require substance” etc. on the territory of the support the claim of such benešits. any form of additional “presence” Czech Republic may be taken into view, This rather formal requirement, or “substance” for a company to there are no other prerequisites for a however, is addressed to the non- benešit from the Czech tax laws Czech resident company to benešit resident taxpayer itself who must and double tax treaties to which the from an applicable DTT. obtain the tax residence certišicate Czech Republic is a party (“DTTs”) from the tax authorities of its home provided that the company quališies Question 2. How are substance country, rather than the Czech tax as a Czech tax resident. To qualify, a requirements applied in practice by authorities liaising directly with the company (or any other legal entity) the local tax authorities and/or courts foreign country’s tax authorities must have its seat (i.e., registered of your respective country? about this issue (or about the issue of o¦ice) and/or place of management “presence” or “substance” there). in the Czech Republic. The place of As mentioned above, the substance management is not further dešined requirements (apart from the place of Question 4. What are the or explained in ITA but based on management) are hardly ever applied requirements of your country as the application and interpretation in practice by Czech tax authorities to level of “presence” of a foreign practice of tax authorities and or courts. company in a foreign country: courts it means the place in which the supreme executive body of a The substance requirements • A local address or even real office corporate taxpayer (such as the applied to a foreign company space; board of directors, sole director or established in a foreign country general manager) adopts managerial Question 3. Do the tax authorities • Local bookkeeping and bank decisions and/or exercises the of your respective country accounts; control and management of the day- frequently use their right to request • Local resident employees on the to-day business of such taxpayer. If administrative assistance from tax payroll; either the seat criterion or the place authorities of dierent jurisdictions to conširm level of “presence” (or of management criterion is met in • Minimum staff on the payroll; respect of a company, such company substance) in the other country before allowing a company the is by law (subject to applicable DTT) • Possibility to outsource benešits of local tax legislation and/or considered a tax resident without management, bookkeeping to double tax treaties? the need to meet other “presence” or third parties; “substance” requirements. Interaction between Czech and • Local board meetings? An applicable DTT may set somewhat foreign tax authorities is usually dierently phrased tax residence limited to dealing with suspected Ideally, for a foreign company to be criterion for a corporate taxpayer, cases of tax avoidance or with unclear regarded as a non-resident in the

12 dentons.com Czech Republic for tax purposes For a foreign company to qualify as certišicate is regularly used in it should have its seat (registered a tax non-resident under ITA and/or practice, in particular in connection o¦ice, headquarters) at a local DTTs, its place of management must with withholding taxes and DTT address in a foreign country as well be outside of the Czech Republic. In benešits relating thereto. It is as its place of management there (as disputed cases evidence of various therefore always advisable for a evidenced, for example, by holding types of this non-Czech place of foreign recipient of Czech-sourced local board meetings there). The management may be necessary taxable income or for a foreign other criteria listed in the question or advisable including evidence company with unclear or disputable are usually not considered although of the existence of an operating tax residence status to obtain a in complex disputed cases they may o¦ice (headquarters), place and tax residence certišicate from the have a secondary relevance. infrastructure for taking managerial foreign tax authorities. There are decisions, etc. Such presence or no specišic Czech requirements Question 5. Are there any specišic substance tests are always focused on for such certišicate. Often the form requirements as to type, nationality, the “presence” of management in a used by the foreign tax authorities is residency and knowledge of the foreign country rather than any other non-negotiable and has to be used board members and/or directors of a type of presence (presence of ordinary “as is” which is generally accepted company? trading, manufacturing, service- by Czech tax authorities. There are providing or other business activities). no šixed rules about the validity Currently, there are no such specišic term of such document. Usually requirements in place in the Czech Question 7. Are there any the certišicate is viewed as valid for Republic. A temporary residence requirements as to types of business the period stated therein or for one in the Czech Republic for foreign activities to be performed or not to taxable period (usually one year). directors of a Czech company, which be performed by a foreign company used to be required in the last two in a foreign country in order to fulšill Question 9. Assess how if at all treaty decades, is no longer required now. “presence” or “substance” criteria? shopping is addressed in double tax treaties to which your country is a In rare disputed cases of tax As mentioned above, there are no such party? residence, it may be relevant for specišic requirements incorporated the determination of the place explicitly in ITA. When in rare disputed The treaty shopping as a principle is of management which nationals cases the presence criteria are tested, disapproved by OECD. Since most compose the board of director they relate exclusively to the presence DTTs are built on the OECD model, or other managerial body of a of management and not of other the treaty shopping is generally corporate taxpayer, where they hold business activities. not encouraged in them. The DTTs, regular meetings or, there being no however, do not contain any explicit or too few such meetings, where Question 8. Is a residency certišicate clause banning treaty shopping. the directors/managers have their or other document required by personal residence and/or where your respective country to conširm A few rules contained in the DTTs they usually exercise their directorial/ residency of a foreign company? Are can work as a de facto anti-treaty managerial duties. there any specišic requirements to shopping measure. The most such document? What is the validity important of them is probably the Question 6. Does your respective term of such document? concept of a “benešicial owner” in the country require that place of articles of DTTs relating to dividends, management is to be situated and/or Although there is no formal interest and royalties. Under this decision making is to take place in the requirement of a tax residence concept, only the benešicial (and foreign country to satisfy a required certišicate incorporated in ITA not formal) owner is granted the level of “presence” (or substance)? or other written tax laws, such benešicial DTT treatment. The term

dentons.com 13 “benešicial owner”, however, is not which the tax authorities supported inherent to Czech law, and it is not by local courts attempt to eliminate dešined in DTTs or in ITA. wherever encountered (usually by disregarding DTT-based benešits in Another rule working as an eective random or targeted tax audits). anti-treaty shopping measure is the rule about determining tax residence • residency requirements; and/or (mentioned above). By suppressing the formal criteria of residence (such Czech tax authorities accept the as registered address) and requiring place of management as the a form of material link to the country dominating factor of tax residence of residence (such as the place of in the Czech Republic. This factor management) DTTs are not so easy to generally prevails over the formal be abused by treaty shopping practices. factor of registered seat.

Question 10. Does the legislation of • beneficial ownership requirements? your country provide for specišic legislation to prevent treaty shopping: Benešicial ownership is not a concept explicitly recognized or supported • specific limitation on benefit (LOB) by Czech written law, including ITA. rules; Nevertheless such concept is actively supported by tax authorities on Currently not in place. the basis of DTTs (where it is often mentioned in connection with the • the general anti-avoidance rule taxation of dividends, interest and (GAAR); royalties) and even when the relevant DTT does not mention it (the concept There is no explicit GAAR in Czech of implied benešicial ownership which tax law. However, the role of a is yet to be tested in the courts). general anti-avoidance rule is often performed by the substance-over- form rule incorporated in the Czech Tax Procedure Act. Several other partial anti-avoidance rules can also be found in ITA (fair market price rule, arm’s length rule for a¦iliated dealing, thin capitalization rules, etc.).

• an abuse of treaties principle;

Although Czech tax laws contain no explicit anti-treaty shopping measures, the local courts and tax authorities recognize the term “abuse of law” which extends also to the abuse of DTT. This is regarded as undesirable behavior of taxpayers

14 dentons.com France

dentons.com 15 France Charlotte Robert [email protected]

The substance/residency Companies having their relating to a French property are requirements applied to a local headquarters in a foreign country are taxable in France. presence of a foreign company taxable in France when they carry Question 1. Does your respective out regular business in France by The foregoing may not apply country require a certain level of (alternative conditions): because of tax treaties provisions. “presence” (or substance) in the The decisive criterion to determine country before allowing companies • Operating in France through an the right to tax is the permanent benešit of local tax legislation and/or autonomous establishment establishment. The concept of double tax treaties? with a certain degree of permanent establishment is close permanence (this concept to the French concept of “company In France, only prošits made by is close to the concept of carrying out activity in France”. companies operating an activity permanent establishment used in France are subject to corporate by tax treaties, but it is not strictly The substance requirements income tax (section 209 of the the same). The autonomy is applied to a foreign company French tax code). The place of characterized by the existence established in a foreign country activity determines whether a of separate sta, business Question 3. Do the tax authorities of company is subject to corporate services, and/or separate your respective country frequently use income tax and there is no minimum bookkeeping, and, more generally, their right to request administrative substance requirement to be met. by the presence of a place of assistance from tax authorities of management. The quališication dierent jurisdictions to conširm the As a result, only foreign companies of “autonomous establishment” is level of “presence” (or substance) in carrying out activity in France benešit only based on facts analysis. the other country before allowing from French legislation. companies the benešit of local tax • Performing operations in France legislation and/or double tax treaties? On the other hand, prošits derived from through representatives without companies operating outside of France independent professional status The administrative assistance is are not taxable in France, although (when the representative has an frequently used by the French tax the accounting of these companies is independent status, the foreign authorities when a company is centralized in France and the company’s company cannot be deemed to established in another country, and headquarters is based in France. perform activity in France itself). it is suspected that the activity is actually carried out from France and Double tax treaties apply only to • As a part of operations forming not from the foreign country. companies subject to tax in France a complete business cycle. This (i.e. companies carrying out activity notion is specišic to French tax French international tax audit o¦ice’s in France as dešined below). law. Regular business in France policy is based on widely exchanged can be the result of a complete information. According to the head Question 2. How are substance business cycle of operations of the international tax audit o¦ice, requirements applied in practice by in France while the company France sent 1,614 requests in 2011 to the local tax authorities and/or courts has no French autonomous other countries (only for direct taxes). of your respective country? establishment or French Most of these requests are related to representative (i.e. purchase and the “substance” of foreign companies French law does not detail the resale of goods in France). (IFA 2013: Exchange of information concept of companies carrying out and cross-border cooperation activity in France. The substance In addition it should be noted that between tax authorities, June 21, 2012 requirements were established by foreign companies earning French conference by Maïte Gabet, head of French courts. income and/or French capital gains the international tax audit o¦ice).

16 dentons.com Question 4. What are the French courts generally consider foreign company in a foreign country requirements of your country as that a company does not have (see question 4). to level of “presence” of a foreign “substance” or “presence” in a company in a foreign country? foreign country if the company has Question 6. Does your respective (i) no technical expertise and (ii) no country require that place of French tax law provides for several management autonomy. (Decisions management is to be situated and/or possibilities to challenge the of the French Administrative decision making is to take place in the “substance” of a foreign company Supreme Court dated February 18, foreign country to satisfy a required (see question 9). 2004, société Pléiade and dated May level of “presence” (or substance)? 18, 2005 Société Sagal). To characterize the “presence” or In French domestic law, the presence “substance” of a foreign company The absence of a local board of a place of management is a in a foreign country, French courts meeting is also a criteria used to demonstration of the presence of an seek fulšillment of the two following determine the level of presence of a autonomous establishment of a foreign elements (decision of the French foreign company. country in France (see question 2). Administrative Supreme Court dated April 15, 2011, Alcatel): To characterize the “presence” or Moreover, tax treaties concluded with “substance”, the company has to be France usually have a reference to • the reality of the company’s “real”. According to French courts, a “the place of eective management local “presence”: The condition company without book-keeping, or a and control” which determines the is satisšied in case of local local board meetings cannot have a “presence” and tax residency of the employees, real o¦ice space and presence in a foreign country (decisions company. When a foreign company equipment. The condition is not of the French Administrative Supreme does not have a place of management met when the foreign company Court dated February 27, 1980; May 10, abroad, as dešined below, there is has no activity, no employees, 1973, SARL Elite Model Management, a risk that the company will not be no local expertise or no o¦ice April 29, 2002, Michel Moitié) considered a resident of this country (only a mailbox and a registration by the French tax authorities. This number). Question 5. Are there any specišic issue has serious consequences, requirements as to type, nationality, including whether or not the company • the e ective exercise of an residency and knowledge of the will be treaty protected and enjoy economic activity: The condition board members and/or directors of corresponding benešits (as withholding is met in the situation where a company? tax cancellation or reduced rates). the company has a signišicant number of employees and Local expertise is a requirement France considers that the dešinition generates a large turnover. characterizing the presence of a of the place of eective management

dentons.com 17 of article 24 of the OECD model tax o¦ice is purely šictive and does not foreign holding companies convention according to which “the match the place of management, whose activity is passive šinancial place of eective management is third parties may indierently rely investments. It should be ensured the place where key management on the registered o¦ice or real that the foreign holding company and commercial decisions that are management o¦ice (sections 1835 has a place of eective management necessary for the conduct of the and 1837 of the French civil code). in the country. entity’s business as a whole are in substance made”, will generally According to French courts, a foreign Question 7. Are there any correspond to the place where the company is deemed to have its place of requirements as to types of business person or group of persons who eective management in France, when: activities to be performed or not to exercise the most senior function be performed by a foreign company (for example a board of directors • a foreign company has a seat but in foreign country in order to fulšill or management board) makes its no activity abroad but French “presence” or “substance” criteria? decision. It is the place where the resident managers (Decision of bodies of management and control the Administrative Court of Appeal As mentioned above, it may be are, in fact, mainly located (OECD dated March 10, 2008, Société di¦icult for a foreign company commentary, C (4) n°26.3). Madrigal Servicios Limitada); whose corporate purpose is to hold šinancial investments to comply French tax authorities use the • a foreign company with no with the “presence” or “substance” same dešinition, and the place of employees, no phone or facsimile requirements. Many disputes relating eective management is construed number, and whose current to the absence of “substance” of as the place where the person or management operations are foreign companies are related to the group of persons with the highest outsourced to a third party while activity of šinancial investment. management functions (i.e. board of the manager is a resident of directors) makes decisions. It is also France, who signs contracts and In that situation, the foreign company specišied that determining the place uses the company’s cheque books will have to demonstrate that it has of eective management is a factual (Decision of the Administrative local expertise in šinancial investments issue. A company may have several Court of Appeal dated June 11, and has met some of the requirements seats, but it has only one place of 2008, SA ANA Holding). mentioned in question 4 (i.e. local eective management. o¦ice, local board meeting, etc.) Thus, groups of companies French corporate law determines should ensure that the company Question 8. Is residency certišicate the law applicable to a company by created abroad complies with or other document required by the place of its corporate seat. If the the “substance” or “presence” your respective country to conširm requirements, especially regarding residency of a foreign company? Are

18 dentons.com there any specišic requirements to Question 9. Assess how if at all treaty provision of the United States- such document? What is the validity shopping is addressed in double tax France tax treaty. It is provided term of such document? treaties to which your country is a party? that the tax treaty applies to a resident of a contracting state A residency certišicate is required by Double tax treaties concluded with only if additional conditions are the French tax authorities in situations France include an increasing number met. These additional conditions where a reduced taxation is available of anti-treaty shopping provisions: are very detailed. For example, to non-residents (the idea is to prevent companies cannot enjoy treaty residents avoiding residents taxes by • Bene­icial owner: this is a protection if they are regarded as pretending to be non-residents). provision under which withholding being controlled by non-residents tax or exemption on dividends, and do not satisfy some “tests” When a company can enjoy a interests or royalties provided by described in the convention. reduced withholding tax rate thanks tax treaties are only granted to the to a tax treaty, a residency certišicate benešicial owner of such income. • Other tax treaties provide for must be provided. A decree dated Double tax treaties do not apply specišic provisions to prevent December 20, 2005 sets specišic if the benešiciary is not the “real treaty shopping. forms to use (for dividends, interests benešiciary” and acts only as an and royalties). These forms have agent or a representative. Double For example, in addition to the various references to control the Tax Treaties do not generally percentage of ownership, treaties correct application of tax treaties. provide for a clear dešinition of the concluded with Belgium, Italy, and the “benešicial owner”. United States provide for a holding According to French courts, these period requirement to allow the forms may be required legally by the French tax authorities generally reduced withholding tax on dividends French tax authorities, only if: consider that conduit companies distributed to parents companies. This should be denied benešicial provision prevents arrangements only • the double tax treaty enables the ownership. An interposed holding set up to enjoy a tax treaty. authorities to set up these forms company (in a long chain of (this is common in modern double ownership) whose unique role is to Treaties concluded with Great Britain tax treaties); cash-in and upstream passive income and Japan provide for a “good faith” earned from operating subsidiaries provision whose purpose is to deny and is a “conduit company”. If dividend treaty benešits to residents who act received is entirely redistributed under artišicial arrangements. • the measure has been published (with no reinvestment of any sort) in the “Journal O¦iciel” (i.e. o¦icial in a very short time-frame, this may Question 10: Does the legislation publication of enacted laws and characterize a “conduit” attitude. of your country provide for specišic regulations in France). legislation to prevent treaty shopping? French courts control that the When a reduced withholding rate is provisions of a Double Tax Treaty French tax legislation recently granted to a non-resident company are only granted to benešicial owner, introduced a measure to dissuade by domestic laws, the French tax even if the tax treaty does not persons from conducting code is generally silent about the provide for a specišic provision; transactions with non-cooperative document to be provided. The countries and territories (“NCCT”), French tax authorities may admit • Limitation on bene­its: this aims considered as not satisfying as evidence a certišicate of the to exclude some residents of international standards in the šight foreign tax authorities, a tax notice if the benešit of a tax treaty. The against tax fraud and tax evasion. su¦iciently explicit. A declaration on most successful example is the Transactions carried out with these honor is generally not su¦icient.

dentons.com 19 countries are subject to restrictive and purely tax driven to the extent similar institution established abroad. measures, such as increased they are made for the sole motive of The French tax authorities would be withholding tax rates applicable on reducing the normal tax burden by allowed to use illicit information (i.e. income paid or on prošits realized applying the letter of the law against its stolen data). in France by persons established in genuine purpose (the criteria used are NCCTs, exclusion from the benešit of those mentioned under question 4). The French National Assembly has just favorable tax regimes, etc. begun examining the law. Therefore, The French Government has presented information mentioned above may Section 209 B of the French tax a law designed to strengthen the šight eventually be amended. code provides for the taxation in against tax evasion and šinancial crime. France of prošits realized in entities The draft law establishes a “tax police” In light of these enhanced established in tax heavens. The to combat tax evasion and creates penalties and the extension of the prošits of the foreign company based an “aggravating circumstance” for investigative powers of the French in a tax haven are subject to French the most serious types of tax fraud, tax administration, it seems more corporate income tax. notably fraud conducted through important than ever to best meet the šictitious or artišicial domiciles abroad, French substance requirements. French legislation also sanctions or through the interposition of any “abuses of law” situations as šictitious person, company, organization, trust or

20 dentons.com Germany

dentons.com 21 Germany Oliver C. Ehrmann [email protected]

The substance/residency company has also to be tax resident in bear the burden of proof that they are requirements applied to a local Germany or the respective treaty state, actually not tax resident in Germany. presence of a foreign company with only slightly dierent requirements Question 1. Does your respective as stated above (seat or eective Question 4. What are the country require a certain level of place of management in Germany or requirements of your country as “presence” (or substance) in the maintaining a permanent establishment to level of “presence” of a foreign country before allowing a company or instructing a permanent agent). company in a foreign country: thebenešits of local tax legislation and/or double tax treaties? Question 2. How are substance According to German tax law, a requirements applied in practice by company is tax resident abroad, Yes, in order to be subject to German the local tax authorities and/or courts when it neither has its registered tax legislation and/or German DTTs, of your respective country? seat nor its eective place of a company has to be tax resident in management in Germany. The Germany. In this regard, a distinction The tax authorities tend to assume main requirement for a place of must be made between (i) full/unlimited a company being tax resident in management is that the necessary tax liability and (ii) limited tax liability. Germany if there are some indications day-to-day business decisions of of a domestic place of management some importance are made on a A company (corporations and or permanent establishment. continuing basis, usually by the partnerships both, the latter only managing directors of the company. regarding trade tax purposes) is by The substance requirements The following points can only serve principle subject to an unlimited tax applied to a foreign company as indications in this regard: liability, if its registered seat or its established in a foreign country eective place of management is in Question 3. Do the tax authorities of • A local address or even real office Germany. your respective country frequently use space; their right to request administrative A company is only subject to a assistance from tax authorities of • Local bookkeeping and bank limited tax liability, when it neither dierent jurisdictions to conširm the accounts; local telephone land lines has its registered seat nor its eective level of “presence” (or substance) in place of management in Germany, the other country before allowing As long as it is possible to prove that but the company does generate companies benešits of local tax the day-to-day business decisions domestic income through: legislation and/or double tax treaties? of some importance are made abroad, there is no requirement for • Fixed place of business or German has signed a large number of minimum sta on the payroll or local permanent establishment; DTTs or supplementary agreements resident employees on the payroll. according to which a wide range of Principally, it would even be possible • Instructing a permanent agent administrative assistance between without maintaining any šixed place in Germany who is consistently the respective tax authorities can be of business, to šly in the management acting for and on behalf of the requested. One must assume that the personnel just for the board meetings. company; German tax authorities do make use of these means, although no o¦icial Question 5. Are there any specišic • Domestic real property; or numbers are published. requirements as to type, nationality, residency and knowledge of the • (several other domestic income Additionally, German tax authorities board members and/or directors of sources). do regularly request certišicates of a company? tax residence, as companies with In order to become eligible for the international business operations Principally not. However, if the benešits of the German DTTs, a local personnel allegedly acting

22 dentons.com as managing directors and/or performed by the company’s • specific limitation on benefit (LOB) board members do not seem to German tax-resident benešiciaries or rules; Yes, see below at “abuse of be su¦iciently competent and performed by the company to the treaties principle”. knowledgeable for running the day- ultimate benešiciary. to-day business of the company, the • the general anti-avoidance rule tax authority might question their role Question 8. Is a residency certišicate (GAAR); Yes, not specišically and might suspect that the decisions or other document required by against treaty shopping. are made by dierent persons not your respective country to conširm working in the respective country. residency of a foreign company? Are • an abuse of treaties principle; there any specišic requirements to Yes. According to sec. 50d para Question 6. Does your respective such document? What is the validity 3 German Income Tax Act, (i) country require that place of term of such document? the exemption or reduction management is to be situated and/or of dividend tax according to decision making is to take place in the Please see answer to Q 3. There are no double taxation treaties and (ii) foreign country to satisfy a required specišic requirements explicitly set forth. the exemption or reduction of level of “presence” (or substance)? Usually these residency certišicates are withholding tax on e.g. license requested for every šinancial year. payments is suspended if (i) the Yes, please see answer to Q 4. shareholders of the respective Question 9. Assess how if at all treaty company would not be entitled to Question 7. Are there any shopping is addressed in double tax such benešits themselves and the requirements as to types of business treaties to which your country is a party? company’s income does not derive activities to be performed or not to from the company’s own business be performed by a foreign company • Reservations in the double tax activity and (iii) (alternatively): in foreign country in order to fulšill treaty regarding the application of “presence” or “substance” criteria? local law treaty shopping rules (e.g. • there are no evident economic Malta, Switzerland, Singapore) reasons (other than a benešicial In case German tax residents are the taxation) or ultimate benešiciaries of a company • Switch-Over-clauses: In case in a foreign country, and this of white or low-taxed income • the company does not maintain company is deemed to be low taxed through a quališication conšlict, an appropriately organized (less than 25% tax on its prošits) and the foreign income would not business undertaking derives passive income, this income be tax exempt in the other can be allocated to its German country but credited against the • residency requirement; and/or No. tax-resident benešiciaries. Active tax burden (e.g. Italy, Austria, income in this regard could be e.g. Russia, USA). • beneficial ownership agriculture, the production of goods, requirements? No. in some cases also trade income Question 10. Does legislation of your or rendering of services, as long country provide for specišic legislation as such services are not actually to prevent treaty shopping?:

dentons.com 23 Hungary

24 dentons.com Hungary Zsolt Szatmári Tamás Tercsák [email protected]

The substance/residency dierent jurisdictions to conširm Question 5. Are there any specišic requirements applied to a local level of “presence” (or substance) in requirements as to type, nationality, presence of a foreign company the other country before allowing residency and knowledge of the Question 1. Does your respective companies the benešits of local tax board members and/or directors of country require a certain level of legislation and/or double tax treaties? a company? “presence” (or substance) in the country before allowing companies Direct communication between No the benešits of local tax legislation the tax authorities is – according and/or double tax treaties? to our experience - not frequent in Question 6. Does your respective this regard. On some occasions the country require that place of Yes. Hungarian tax authority may request a management is to be situated and/ residency certišicate from the foreign or decision making is to take place A company is resident in Hungary if tax authority (please see Question 8). in the foreign country to satisfy it is incorporated under Hungarian a required level of “presence” (or law or has its place of management Question 4. What are the substance)? in Hungary. A foreign company is requirements of your country as deemed to be resident in Hungary if to level of “presence” of a foreign Yes, please see Question 4 its actual place of management is in company in a foreign country?: Hungary (i.e. board meetings are held Question 7. Are there any and decisions are made in Hungary). As a general rule the place of requirements as to types of business management and the real economic activities to be performed or not to Hungarian-registered subsidiaries, presence are decisive factor. be performed by a foreign company registered branch o¦ices, and non- in foreign country in order to fulšill registered permanent establishments • A local address or even real “presence” or “substance” criteria? of foreign companies are taxable o¦ice space; Real o¦ice space is under ordinary Hungarian rules. required, a mere postal address is Real economic presence entails not enough economic activities (aimed at prošit) No special procedural requirements such as manufacturing, processing, apply to obtain benešits under • Local bookkeeping and bank agricultural, service, investment Hungary’s tax treaties. accounts; Not decisive and trading activities, using own equipment and own workforce. Question 2. How are substance • Local resident employees on the requirements applied in practice by payroll; Residency of employees Question 8. Is a residency certišicate the local tax authorities and/or courts not relevant or other document required by of your respective country? your respective country to conširm • Minimum staff on the payroll; Not residency of a foreign company? Are The most common issue regarding dešined but for real economic there any specišic requirements to foreign companies is whether they have presence own workforce is such document? What is the validity a permanent establishment in Hungary. necessary. term of such document?

The substance requirements • Possibility to outsource There are a very limited number of applied to a foreign company management, bookkeeping to occasions when a residency certišicate established in a foreign country third parties; is requested, as there is no withholding Question 3. Do the tax authorities of tax in Hungary. In case of a reclaim your respective country frequently use • Local board meetings? Yes, this is of foreign VAT request, a residency their right to request administrative relevant to determine the place of certišicate should be attached to assistance from tax authorities of management the request. Please note that this

dentons.com 25 procedure is only applicable in the Britain, Germany), Limitation of by Hungarian tax resident private EU or if the DTT has such a provision benešit rules (e.g. USA, Mexico, Israel) individuals (“CFC”). A CFC is a foreign (for Hungary solely Switzerland company in which a Hungarian and Lichtenstein). Furthermore, Question 10. Does legislation of your individual holds directly or indirectly due to the place of supply rules, country provide for specišic legislation at least 10% of the shares or most services provided to taxable persons to prevent treaty shopping? of the income is derived from established abroad are tax exempt. To Hungary, and the foreign company support this, the Hungarian taxpayer • specific limitation on benefit is eectively taxed at a rate less than may need to present the residency (LOB) rules; Yes, rules relating to 10%. Certain income received from a certišicate of its business partner. The controlled foreign companies CFC that normally would be exempt tax authority accepts the copy of the is taxable. In addition, undistributed • the general anti-avoidance rule Hungarian o¦icial translation of the prošits of the CFC are taxable in the (GAAR); Yes residency certišicate issued by the hands of the Hungarian resident shareholder. CFC rules do not apply foreign tax authority. • an abuse of treaties principle; to foreign entities established in Question 9. Assess how if at all treaty • residency requirements; and/or EU and OECD member states and shopping is addressed in double tax countries that have concluded a tax treaties to which your country is a • beneficial ownership treaty with Hungary, if the foreign party? requirements? entity has real business presence (has own assets and employees, 50% Benešicial ownership requirements Note: A controlled foreign company of the revenue comes from actual (e.g. USA, Qatar, Mexico, Great is a company ultimately owned business activity) in that country.

26 dentons.com Netherlands

dentons.com 27 Netherlands Rob Cornelissei Janneke Versantvoort rob.cornelisse@loyensloe.com janneke.versantvoort@loyensloe.com

The substance/residency or more) in a company resident in this Decree are in practice used as a requirements applied to a local the Netherlands to the extent this general guideline by the tax authorities presence of a foreign company substantial shareholding cannot be to determine the place of residence of Question 1. Does your respective attributed to a business enterprise, a company in the Netherlands. country require a certain level of and the substantial interest is held “presence” (or substance) in the with the main purpose (or one The Dutch substance requirements country before allowing companies of the main purposes) to avoid based on the Decree are: the benešits of local tax legislation Dutch individual income tax and/ and/or double tax treaties? or Dutch dividend withholding (a) At least half of the total number tax of another person.5 If the of the statutory directors and the Companies that are considered to be substantial interest is held only to directors competent to make tax resident in the Netherlands are avoid dividend withholding tax (i.e. decisions reside in the Netherlands subject to Dutch corporate income not to avoid individual income tax), (individuals) or have their place tax on their worldwide prošits. Dutch the corporate income tax liability is of eective management in the resident companies fully benešit from eectively limited to a 15% rate over Netherlands (non-individuals); local tax legislation and Double Tax dividend distributions. In general a (b) The directors resident in the Treaties benešits. Dutch non-resident company can Netherlands (individuals) or benešit from local tax legislation to having their place of eective For Dutch corporate income tax and the extent applicable to the prošits management in the Netherlands dividend withholding tax purposes from a business carried on in the (non-individuals), have the a company is treated as resident if it Netherlands. A Dutch non-resident professional knowledge required is situated in the Netherlands based company has limited Double Tax 1 to properly perform their duties; on “facts and circumstances.” The Treaties benešits. most important criterion for the (c) (Key) managerial decisions must determination of these facts and Question 2. How are substance be taken in the Netherlands; circumstances is the eective place requirements applied in practice by of management. A company is also the local tax authorities and/or courts (d) The legal entity’s (main) bank considered to be a tax resident of of your respective country? accounts must be maintained in the Netherlands, if the company has the Netherlands; been incorporated under the laws of In order to obtain Advance Tax 2 6 the Netherlands. (should be footnote Rulings (hereafter “ATR”) and (e) The legal entity’s accounts must superscript) Advance Pricing Agreements be kept in the Netherlands; (hereafter “APA”),7 certain conditions Non-resident companies will with respect to “substance” and risks (f) The legal entity must have be subject to Dutch corporate have to be fulšilled. complied with all of the relevant income tax if they derive prošits requirements in respect of the from a business carried on in the The Dutch Ministry of Finance submission of tax returns, at 8 Netherlands through, among published a Decree in 2004 least until the date on which its others, a permanent establishment (hereafter “the Decree”) listing the application is assessed; or an agent3 and if benešits arise minimum “substance” requirements from real estate situated in the for companies requesting an ATR or (g) The legal entity’s registered 4 Netherlands. Furthermore, non- APA. Although the Decree has been o¦ice must be located in the resident companies will be subject to published for so-called “Financial Netherlands. The legal entity is, to Dutch corporate income tax for their Services Companies”, which include the best knowledge of the entity, taxable income from a substantial šinance companies and royalty not (also) regarded as tax resident shareholding (as a general rule, 5% companies, the requirements of in another country;

28 dentons.com (h) The legal entity’s equity must the other country before allowing The “presence” of a foreign company be adequate in relation to the a company the benešits of local tax situated in a foreign state could be of functions performed (taking legislation and/or double tax treaties? importance if that foreign company into account the assets used claims treaty benešits in the Tax and the risks assumed). The risk According to Dutch law, the Treaty between that foreign state requirement is similar to the risk Dutch tax authorities can only and the Netherlands. Generally, a requirement of article 8c CITA, i.e. request administrative assistance company has the right to apply for the minimum amount equity that is from foreign tax authorities if the respective Tax Treaty if its place at risk must be the lower of (i) 1% of Treaties or EU legislation9 allow of residence is situated in one of the the funds lent or (ii) € 2 million. the Netherlands to request for states party to the Tax Treaty. Most administrative assistance.10 The Dutch Tax Treaties have a similar The consequence of not meeting exchange of information should also residence provision as dešined in the substance and/or risk be in accordance with the “general article 4 of the OECD model tax requirements is that the APA or ATR principles of proper conduct”, such convention. For the purposes of this may be terminated by the Dutch as the ‘anti abuse of power principle’, provision, a company is a resident of tax authorities, that the company ‘principle of proportionality’, and the one of the states if, under the laws may not credit foreign withholding principle of ‘balancing interest’. of one of the states, the company taxes incurred on its interest/ is liable to tax11 therein by reason royalty income against its Dutch Further to the yearly report for the of its domicile, residence, place of corporate income tax liability and year 2011 of the Dutch tax authorities, management or any other criterion that the Dutch tax authorities may the Dutch tax authorities requested of a similar nature. spontaneously exchange information administrative assistance 412 times, about the company’s activities with this number includes all kinds When the company resides in one the tax authorities of other countries. of taxes (i.e. direct and indirect state and its place of management taxes). No o¦icial statistics are is carried on in another state, the The substance requirements published with regard to requests company will also be resident in applied to a foreign company for administrative assistance for that other state for tax purposes established in a foreign country the conširmation of the level of and therefore become a so-called Question 3. Do the tax authorities of “presence” in the requested state. dual resident company. Under your respective country frequently use most Tax Treaties concluded by the their right to request administrative Question 4. What are the Netherlands, the place of eective assistance from tax authorities of requirements of your country as management is the decisive criterion dierent jurisdictions to conširm to level of “presence” of a foreign in determining the residence of a level of “presence” (or substance) in company in a foreign country? company (i.e. the tie-breaker). Under

dentons.com 29 some Tax Treaties, such as the Tax the State in which the place of corporate seat to the Netherlands Treaty with the United Kingdom, eective management is situated. or when a Dutch company moves the place of residence in case of The OECD commentary to article 4 its corporate seat to another state, dual resident companies is to be of the OECD model tax convention the key element to determine determined by mutual agreement. is used by Dutch courts for the whether the company has really interpretation of the concept of moved is the place of eective For the Dutch interpretation of the place of eective management management. If the eective “place of management” in Tax Treaties, as dešined in the Tax Treaties management is performed by several Dutch courts ruled that further concluded by the Netherlands. another person or body than to paragraph 1 of article 4 of the the members of the board, the OECD model tax convention, in case a According to paragraph 24 of the place of eective management company is also a resident of another OECD commentary, the place is situated at the place where the state and fully liable to tax in that other of management is the place actual management is performed, state, the Dutch tax authorities must where the key management and at the level of that other person or rely on the decision of the other state commercial decisions that are body.14 The eective management for the company’s residency in that necessary for the conduct of the is more than doing the day-to-day other state.12 However, if the Dutch tax entity’s business are in substance administration of a company.15 authorities prove that the information made, i.e. the place where the Indirectly, knowledge of the used for the decision of the residency actions to be taken by the entity eective management is required of the company and the full tax as a whole are, in fact, determined. to be able to make the key liability by the foreign tax authorities All the relevant facts and decisions for a company. is incorrect, incomplete or if the levy circumstances must be examined cannot reasonably be based on a to determine the place of eective • In order to obtain a Dutch APA or rule of foreign legislation, Tax Treaty management. It is the place ATR, conditions with respect to benešits may be denied. where the organs of direction, “substance” and risk based on the management and control entity Decree (see question 4) have to Question 5. Are there any specišic are, in fact, mainly located.13 be fulšilled. Type, residency and requirements as to type, nationality, Consequently the residency and knowledge of the board members residency and knowledge of the knowledge of the board members and/or directors of a company are board members and/or directors of and/or directors of a company are essential for meeting these Dutch a company? important for this quališication. “substance” requirements.

• Pursuant to the Tax Treaty the • Based on Dutch case law, if Question 6. Does your respective company will be resident in a foreign company moves its country require that place of

30 dentons.com management is to be situated and/ tax authorities from spontaneously place of management18. The Court or decision making is to take place exchanging information about the of Appeal argued that a certišicate of in the foreign country to satisfy company’s activities with the tax residence of a state is only based on a required level of “presence” (or authorities of other countries. the limited facts and circumstances substance)? that a taxpayer provides to the tax Furthermore, a certain level of authorities of that state. The “substance” of company is “substance” is required at the level important in the Dutch interpretation of foreign subsidiary companies Question 9. Assess how if at all Treaty and determination of the “place of engaged in group šinance activities shopping is addressed in double tax management” in Tax Treaties. The in order to qualify for the Dutch treaties to which your country is a Underminister of Finance mentioned participation exemption.17 The Dutch party? that for a company without any physical participation exemption only applies possession or property and personnel, to low-taxed foreign group šinance The Dutch government tries to the domicile of the managing board subsidiaries if such subsidiaries are limit Treaty shopping of Dutch Tax and the place where the board both largely (i.e. 50% or more) and Treaties. In this respect please note meetings are held are of relevance.16 actively engaged in direct or indirect that general anti-avoidance rules group šinance activities. Generally, (see question 10) can be put aside See also question 4. low-taxed companies which are not when a special anti-abuse provision active as a group šinance company is applicable under the respective Question 7. Are there any are considered to be passive Tax Treaty. Therefore the Netherlands requirements as to types of business portfolio investments and do not have introduced several anti-abuse activities to be performed or not to qualify for the Dutch participation provisions in the Tax Treaties to be performed by a foreign company exemption. which it is a party. For example: in foreign country in order to fulšill “presence” or “substance” criteria? Question 8. Is a residency certišicate • In case of non-business like or other document required by circumstances, several Tax Treaties The nature of business activities of a your respective country to conširm have anti-abuse provisions in foreign company that claims Tax Treaty residency of a foreign company? Are relation to dividend, royalties and benešits and is situated in a foreign there any specišic requirements to interest. These provisions restrict state are not explicitly mentioned in such document? What is the validity transactions which are solely the OECD commentary or limited by term of such document? entered into with the intention to the Dutch Minister of Finance. receive benešits from the specišic It is not (automatically) required to provisions under the Tax Treaty. However, if a Dutch company provide a residency certišicate to For example, the Tax Treaty with performs šinancial services within conširm the residency of a foreign Switzerland has an anti-abuse the group (i.e. šinancing or licensing company if a foreign company claims measure for dividend income activities) certain requirements Tax Treaty benešits granted in the Tax included in the Tax Treaty (article with respect to the substance in Treaty between that foreign state and VIII of the protocol), which states the Netherlands and real risk must the Netherlands. that a taxpayer cannot invoke the be met (see Dutch requirements of benešits of the dividend article, if the Decree in question 2) in order In this respect the Court of Appeal the relation between the company to obtain an APA or ATR and credit has recently ruled that the certišicate paying the dividends and the foreign withholding taxes incurred on of residence, used as proof in receiving company has been its interest/royalty income against its that specišic case, was not a very established or maintained mainly Dutch corporate income tax liability. trustworthy source when it came for purposes of taking advantage Furthermore, it prevents the Dutch to proving a company’s eective of such benešits.

dentons.com 31 • The principle of “beneficial owner” determined by mutual agreement The dividend withholding tax is an important element of Articles between the contracting states. exemption on the basis of the EU 10, 11 and 12 on dividends, interest If no agreement is reached, the Parent-Subsidiary Directive or on and royalties in most Tax Treaties contracting states are not required the basis of Tax Treaties does not concluded by the Netherlands. to grant the dual resident company apply in case of certain dividend Based on the Tax Treaties treaty benešits. The dual resident stripping scenarios or in case the concluded by the Netherlands, company will, without a mutual dividend is paid to a company the source state must generally agreement, remain a resident of established in a state with which reduce its withholding tax on both contracting states for Tax the Netherlands has concluded dividend, interest or royalties. This Treaty purposes and this might lead a Tax Treaty which contains an favourable reduced withholding to situations of double taxation (for anti-abuse clause which would be tax rate is only applicable if the example, double levy of dividend applicable in the given situation. receiver of the source income withholding tax or double levy of An example of a Tax Treaty which is the benešicial owner of this corporate income tax). However, contains an anti-abuse clause is income (see also question 10). potential double taxation in some the Tax Treaty with Malta. situations might not occur as a • The Netherlands concluded a result of the domestic tax rules • an abuse of treaties principle; specišic limitation on benešits of the states involved. Under the provision with, among others, the domestic laws, a dual resident In the Netherlands, a general United States of America (article company might be entitled to anti-abuse rule is the principle of 26 of the NLµUS Tax Treaty). This an arrangement to avoid double ignorance of artišicial or simulated provision more or less expresses taxation (such as the participation transactions by the Dutch tax the “anti-Treaty shop” policy of exemption or credit/refund authorities and courts through a the United States of America. The systems).19 determination of the facts rather provision tries to prevent residents than the form, “substance over of a state, which have concluded Question 10. Does the legislation of form”. There is a specišic provision a less favourable regime or no Tax your country provide for specišic that prevents transactions of Treaty at all, to use the Tax Treaty legislation to prevent treaty shopping? which the main purpose is the concluded by the United States avoidance or the abuse of law of America and the Netherlands • specific limitation on benefit (LOB) (fraus legis). The general abuse to create a structure which has a rules; of law or fraus legis doctrine has more favourable tax position with evolved through Dutch case law. the application of this Tax Treaty. The Netherlands concluded a Under the fraus legis doctrine, the Such provision is also included in specišic limitation on benešits tax authorities can ignore a legal the Tax Treaty between Japan and provision with, among others, transaction for tax purposes if the Netherlands (article 21) in which the United States of America and the sole or predominant purpose only a “quališied person” can benešit Japan. These provisions more or of the transaction is to avoid tax, from several treaty benešits. less express the “anti-treaty shop” and the ultimate eect of the policy of the other state. See transaction conšlicts with the • Under some Tax Treaties concluded question 9. objective of the law. by the Netherlands, such as the Tax Treaty with Latvia, Estonia, • the general anti-avoidance rule The Dutch Supreme Court has not the United Kingdom, the United (GAAR); yet ruled that the principle of fraus States of America, and Canada, legis can be applied in cases of The Netherlands has a limited the place of residence in case of the “improper” use of double tax number of anti-abuse provisions. dual resident companies is to be conventions (generally referred to as

32 dentons.com fraus tractatus or fraus conventionis) before it can claim treaty benešits series of structured transactions, and allowed itself little room to (see question 2). and it is likely that the proceeds apply this principle in case of Tax of the dividends, either wholly or Treaty interpretation. However, this • beneficial ownership partially, have benešited another principle seems to be applicable requirements? person who would have been in a legal setting that provides a subject to dividend withholding result contrary to the objective and The Netherlands has separate tax, and this person has directly purpose of the respective Tax Treaty rules regarding the benešicial or indirectly retained the same or 21 provisions as intended by the Tax ownership of a dividend. The a similar interest in the underlying Treaty parties involved. 20 Dutch legislation applies an equity instruments. economic interpretation to the • residency requirements; and/or term benešicial owner. Under the Dutch rules, a recipient of a The Netherlands has imposed the dividend is not considered to be a administrative Decree, in which benešicial owner when it has given a Dutch company should meet a consideration in connection certain substance requirements with the dividend as part of a

1Article 4 General Tax Act. under the “Wet op de internationale (Uitvoeringsbeschikking bijstandsverlening bij de he¦ing van belasting” vennootschapsbelasting 1971). In short, 2Based on article 2 paragraph 4 Corporate (“WIB”; Act on international assistance in the “substance” conditions as set out in Income Tax Act 1969 (hereafter “CITA”) and levying taxes) and the Treaty that applies to the aforementioned provisions require that article 1 paragraph 3 Dividend Withholding Tax the provision of information upon request. See the company is independent in running its Act 1965 (hereafter “DWTA”). the EU directive on mutual assistance (77/779 business, uses the company’s own bank 3Based on article 17, paragraph 3, EEG; “EU directive”), as implemented in the account for relevant šinancing transactions, subparagraph a CITA. WIB. has its own o¦ice space and has su¦icient and quališied personnel. 4Based on article 17a, paragraph a CITA. 11“Liable to tax” does not mean that taxes are actually levied and collected at the level of the 18Conširmed in Supreme Court, VµN 2012/42.18. 5 Pursuant to article 17, paragraph 3, taxpayer; the formal liability to tax is enough 19For instance the Dutch participation subparagraph b, CITA. for this determination. See OECD commentary, exemption, article 13 CITA. 6For advance certainty regarding, among C (4) n°8.6 and case law: Supreme Court, BNB others, the application of the participation 2009/92 and BNB 2009/93. 20See in particular Supreme Court, BNB 1986/127, BNB 1990/45 and BNB 1994/249 and exemption. 12Supreme Court, BNB 2007/38. 259, similar decisions: BNB 2003/285c, BNB 7 For transfer pricing issues regarding, among 13OECD commentary, C (4) n°26.3. 1995/150; BNB 2007/42 and others. others, conširmation of the at arm’s-length character of conditions applied in related party 14Supreme Court, BNB 1993/193. 21Dutch Dividend Withholding Tax Act article 4, transactions. paragraph 3, Supreme Court, BNB 1994 / 217 15Supreme Court, VµN 2012/13.11. and BNB 2001/196. 8Ministry of Finance Decree dated 11 August 16See the paragraph 2.2.1. of the o¦icial enclosure 2004 (IFZ2004/125 +126M). to the letter of the Dutch Underminister of 9Such obligations can be found in: the Council Finance dated 25 June 2012 (IFZ/2012/85). Directive 2008/55/EC, the Commission 17According to article 13, paragraph 12, sub b, Regulation 1179/2008. under 1 CITA and Art. 2a of the Implementation 10The request for administrative assistance decision corporate income tax 1971 is also subject to several Dutch restrictions

dentons.com 33 Poland

34 dentons.com Poland Dariusz Stolarek [email protected]

The substance/residency residency of the Polish seated substance) in the other country requirements applied to a local company. Consequently, if the Polish before allowing a company the presence of a foreign company company is eectively managed benešits of local tax legislation and/or Question 1. Does your respective e.g. in France, it may be potentially double tax treaties? country require a certain level of viewed as a French tax resident “presence” (or substance) in the subject to French domestic tax A request for assistance from the country before allowing companies residency regulations. foreign tax administration is not a benešits of local tax legislation and/or well-recognized or frequently used double tax treaties? Question 2. How are substance tool of gathering tax information requirements applied in practice by by the Polish tax authorities. Polish corporate income tax (CIT) the local tax authorities and/or courts Nevertheless, the clear trend is legislation provides for two “presence” of your respective country? that the number of such requests tests in order to determine if a increases each year. company is a Polish tax resident (i.e. Since, due to the registered o¦ice subject to Polish CIT on its worldwide requirement, it is relatively easy for Question 4. What are the income): (i) a registered o¦ice test and the company to become a Polish tax requirements of your country as (ii) a management test. If either of the resident, if the foreign capital groups to level of “presence” of a foreign above tests is met, the company is a wish to benešit from the Polish tax company in a foreign country: Polish CIT resident. residency, they simply set up Polish seated companies. Therefore, there • A local address or even real office The registered o¦ice test is a quite is a very limited practice in applying space; formal and an easily verišiable substance requirements (referring to requirement. With regard to the the management test) by the local tax • Local bookkeeping and bank management test, although wording authorities or courts. It is, however, accounts; of the Polish CIT legislation does not reasonable to presume that when it • Local resident employees on the explicitly require the company to be comes to assessing the substance payroll; eectively managed in the territory requirements under the management of Poland or by Polish management test, the following sample criteria • Minimum staff on the payroll; board members, in practice, should be taken into consideration according to the Polish Ministry (in line with the Commentary to the • Possibility to outsource of Finance (e.g. a letter of 14 May OECD Model Tax Convention): where management, bookkeeping to 1996), it is passed if key commercial the meetings of the company’s board third parties; decisions on the company’s are held, where the CEO and other operations are taken in Poland (i.e. senior executives usually carry on • Local board meetings? the management test refers to the their activities, where the accounting eective management as provided in records are kept and alike. There is a limited practice of the the OECD Model Tax Convention). Polish tax authorities in analyzing if The substance requirements a foreign company is in substance With regard to double tax treaties applied to a foreign company a foreign tax resident. In order to concluded by Poland, if the Polish established in a foreign country prove the foreign tax residency, the seated company is eectively Question 3. Do the tax authorities foreign company provides the tax managed abroad, the standard of your respective country certišicate conširming its foreign tax tiebreaker rule of the relevant tax frequently use their right to request residency (issued by the foreign tax treaty applies. Namely, the place of administrative assistance from tax administration). For further details eective management is decisive authorities of dierent jurisdictions regarding tax residency certišicates, in determining the state of tax to conširm level of “presence” (or please refer to Question 8.

dentons.com 35 Question 5. Are there any specišic residency of the foreign company, for in both the Polish domestic requirements as to type, nationality, the tiebreaker rule of the relevant legislation and the double tax treaties residency and knowledge of the tax treaty would apply. Since most concluded by Poland. board members and/or directors of a commonly, the tiebreaker rule refers company? to the eective management test the There are no formal requirements šinal decision on the tax residency as to the wording of the foreign tax There are no specišic requirements would most probably be made based certišicates – it should clearly conširm in the Polish tax law as to type, on the eective management criteria the foreign tax residency of the nationality, residency and knowledge provided by the Commentary to the foreign company. If the certišicate of the board members and/or OECD Model Convention. refers to a specišic period of time, directors of a company to prove the a new tax certišicate should be company’s foreign tax residency. Question 7. Are there any obtained for the following period. However, these criteria may requirements as to types of business Under the current tax practice, the theoretically be used as auxiliary activities to be performed or not to certišicates issued for an indešinite factors for the purposes of the be performed by a foreign company time are valid until the circumstance eective management test (although, in foreign country in order to fulšill change – in the meantime the we have not seen cases where such “presence” or “substance” criteria? foreign company may be obliged criteria were analyzed by the Polish to represent that the circumstances tax authorities). The Polish tax regulations do not based on which the certišicate was provide for requirements as to issued in the past have not changed Question 6. Does your respective types of business activities to be country require that place of performed or not to be performed Under the current tax practice, management is to be situated and/or by a foreign company in foreign the certišicate may be provided decision making is to take place in the country in order to fulšill “presence”or following the withholding of tax at foreign country to satisfy a required “substance” criteria. the reduced rate; however, in order level of “presence” (or substance)? to benešit from the reduced tax rate, Question 8. Is residency certišicate the certišicate provided at a later date The Polish tax regulations do or other document required by should conširm the tax residency of not formally require that foreign your respective country to conširm the foreign company as at the time taxpayers have their place of residency of a foreign company? Are of withholding the reduced tax. management situated and/or that there any specišic requirements to decision making is to take place such document? What is the validity Question 9. Assess how - if at all in the foreign country to satisfy term of such document? - treaty shopping is addressed in a required level of the foreign double tax treaties to which your presence”(or substance). The tax certišicate issued by the country is a party? foreign tax administration is a basic However, if the Polish tax authorities and, in practice, most important Generally, the basic tool for avoiding identify the company with such an tool for the Polish tax authorities to treaty shopping in the Polish tax eective management in Poland, conširm the foreign tax residency of treaties is a concept of a benešicial they may claim under the domestic the foreign company. ownership of the passive income. In management test that the company a nutshell, under this internationally is a Polish tax resident. In such a way, This mostly stems from the fact that, well-recognized concept, the Polish tax the Polish domestic management under the Polish tax regulations, authorities may not allow for benešits test would indirectly inšluence the tax residency certišicate is a of the tax treaty with state A if the a perception of the foreign tax formal requirement to reduce the company of that state receives passive residency of the foreign company. Polish withholding tax rates. This income (such as dividend, interest and If there are doubts as to the tax refers to the tax reductions provided royalties) from Poland and transfers

36 dentons.com it further (back-to-back) to the other consequences may follow from the company from state B (an economic/ disguised act in law. Moreover, if the benešicial owner of the income). evidence collected in the course of proceedings and, in particular, In practice, however, the tax authorities depositions of a party shall cast rarely verify the benešicial ownership of doubts on the existence or non- the passive income transferred to the existence of a legal relationship or foreign companies. It does not mean, right having tax consequences, the however, that no special attention tax authority shall request a common should be given to the planning of the court to ascertain the existence or passive income transfers. otherwise of such a legal relationship or right. It is noteworthy that Article It is also noteworthy that lastly the 199a of the Tax Code is rarely Polish Ministry of Finance has taken applicable since most commonly the actions to renegotiate and amend entities involved in the transaction the double tax treaties providing process will present their intentions various tax exemptions or other in a clear and open manner, do not tax advantages. This particularly conceal any other simultaneous refers to tax treaties with Cyprus anti-avoidance tools for the Polish underlying transactions, and they and Luxembourg. Importantly, the tax administration. Currently, there is actually perform the declared amended treaty with Luxembourg no general anti-avoidance rule (there transactions. will provide the limitation of benešit was one in the past but it was šinally clause, under which the Polish tax abolished as being in breach of the Please also note the Polish tax authorities may not allow tax treaty Polish Constitution). There is a specišic regulations may be interpreted benešits if a given transaction was anti-avoidance rule, however, it refers as providing for the benešicial an artišicial arrangement (i.e. mainly to mergers and demergers only and, ownership concept with regard to aimed at obtaining tax advantages). in practice, it is generally relatively passive income subject to Polish easy to prove that these restructuring domestic withholding tax exemption. Question 10. Does the legislation of transactions have business substance This refers to the tax exemption your country provide for specišic and that achieving tax advantages is resulting from implementation of the legislation to prevent treaty shopping: not their key objective. EU Parent-Subsidiary Directive.

• specific limitation on benefit (LOB) The only regulation enabling the tax It also noteworthy that on 6 December rules; authorities to reclassify the business 2012 the European Commission transactions for tax purposes published an Action Plan to strengthen • the general anti-avoidance rule is Article 199a of the Tax Code the šight against tax fraud and (GAAR); (regulating evidentiary proceedings) tax evasion and which sets out under which the tax authority, while recommendations to the EU member • an abuse of treaties principle; establishing the content of a given states on the measures to be taken act in law, may take into account • residency requirements; and/or to prevent, inter alia, treaty shopping. both the mutual intention of the The Action Plan may become a • beneficial ownership parties and purpose of the act stimulus for the Polish government to requirements? and not just the literal wording of introduce more comprehensive tax declarations of intent. Additionally, anti-avoidance rules. Generally, the Polish domestic tax if, while disguised as one act in law, regulations do not provide for eective another act is performed, the tax

dentons.com 37 Romania

38 dentons.com Romania Delia Dragomir [email protected]

The substance/residency Until recently, Romanian tax authorities Romanian Law does not impose any requirements applied to a local were not used to asking information nationality, residency or knowledge presence of a foreign company from the authorities of other countries. requirements for the board members Question 1. Does your respective However, recently, this practice has or for directors of a company. country require a certain level of started to change and, though not “presence” (or substance) in the often, they do ask information from Question 5. Are there any specišic country before allowing companies tax authorities from other countries, requirements as to type, nationality, benešits of local tax legislation and/or especially EU member states. residency and knowledge of the double tax treaties? board members and/or directors of a Question 4. What are the company? Yes. A šixed base is required (e.g., requirements of your country as registered o¦ice) or eective to level of “presence” of a foreign Romanian Law does not impose any management conducted in/from company in a foreign country?: nationality, residency or knowledge Romania. requirements for the board members • A local address or even real office or for directors of a company. Question 2. How are substance space; requirements applied in practice by Question 6. Does your respective the local tax authorities and/or courts • Local bookkeeping and bank country require that place of of your respective country? accounts; management is to be situated and/or decision making is to take place in the Romanian tax authorities can freely • Local resident employees on the foreign country to satisfy a required assess (that is, considering all payroll; level of “presence” (or substance)? factual elements, substance, cause of transactions) whether an entity • Minimum staff on the payroll; Romanian legislation does not require actually has a šixed base in Romania that the place of management be • Possibility to outsource from where it conducts business located in Romania in order to qualify management, bookkeeping to or if eective management occurs a permanent establishment. However, third parties; in Romania. Also, such aspects like as already mentioned above, if there is an o¦ice or other šixed place available the capacity of a representative to • Local board meetings? engage a foreign entity into legal to the foreign entity in Romania through which that company can agreements is also assessed. A company is considered resident pursue its business a permanent if its head o¦ice is registered in establishment would exist. The substance requirements Romania or if it has its eective applied to a foreign company place of management in Romania. Question 7. Are there any established in a foreign country However, permanent establishments requirements as to types of business Question 3. Do the tax authorities are deemed any šixed bases from activities to be performed or not to of your respective country which an entity can operate its be performed by a foreign company frequently use their right to request business directly or by way of a in foreign country in order to fulšill administrative assistance from tax dependant agent. authorities of dierent jurisdictions “presence” or “substance” criteria? to conširm level of “presence”(or Question 5. Are there any specišic No permanent establishment can be substance) in the other country requirements as to type, nationality, deemed present in Romania if, for before allowing companies the residency and knowledge of the example, a šixed place of business is benešits of local tax legislation and/or board members and/or directors of a maintained only to carry out auxiliary double tax treaties? company? activities for the foreign entity.

dentons.com 39 In order to avoid creating a A tax residency certišicate is asked by Question 10. Does legislation of permanent establishment for the Romanian tax authorities in order your country provide for specišic a foreign entity, its employees/ to conširm the residency of a foreign legislation to prevent treaty contractors acting in Romania should company. There are no special shopping: not act as the dependent agents of provisions, provided such document the foreign entity that are able to bind is issued by the authorities having • specific limitation on benefit (LOB) such foreign entity. Thus, the eventual the power to issue such certišicates rules; employees’ activities should be in that respective country. A tax limited to auxiliary activities such as residency certišicate presented to the • the general anti-avoidance rule providing information to the foreign Romanian authorities during a certain (GAAR); company on potential investments year is valid also for the širst 60 days • an abuse of treaties principle; or presenting the company and its of the coming year as well. products. The employees/contractors • residency requirements; and/or should not sign transactional Question 9. Assess how if at all treaty documents and should not undertake shopping is addressed in double tax • beneficial ownership binding obligations on behalf of treaties to which your country is a requirements? the foreign entity. Furthermore, the party? employees should not be deemed As shown above, Romanian relevant as having the authority to make any Romanian legislation, including most legislation does contain requirements typical business decisions on behalf of the double tax treaties concluded as to residency, and it refers to of the company in Romania. by Romania, does not contain “benešicial ownership” of “eective specišic limitations with regard to benešiciary” concepts. However Question 8. Is residency certišicate treaty shopping. It addresses the there are no specišic GAARs, rather or other document required by treaty shopping issue by using the targeted anti-avoidance rules, such your respective country to conširm concept of “benešicial ownership” of as, for example, the provisions residency of a foreign company? Are “eective benešiciary” with respect to allowing the tax authorities to assess there any specišic requirements to withholdings on dividends, interest the substance and cause of the such document? What is the validity and royalties. transactions despite their form. term of such document?

40 dentons.com Russia

dentons.com 41 Russia Boris Bruk [email protected]

The substance/residency of local tax legislation and/or double provided the properly furnished tax requirements applied to a local tax treaties? residence certišicate based on facts presence of a foreign company and circumstances, although this Question 1. Does your respective We are aware of a number of cases reaction cannot be entirely excluded. country require a certain level of where the Russian tax authorities “presence” (or substance) in the employed the treaty exchange of Question 4. What are the country before allowing companies information procedure in order requirements of your country as benešits of local tax legislation and/or to obtain information regarding to level of “presence” of a foreign double tax treaties? foreign companies. However, we company in a foreign country?: would not consider these cases Russia applies incorporation criterion as frequent. It should be noted • A local address or even real office to determine the tax residence of though that a number of Russian space; companies. Russian companies are double tax treaties (in particular, always deemed Russian tax residents those with Cyprus, Luxembourg and • Local bookkeeping and bank and foreign companies are always Switzerland) have been amended to accounts; deemed non-resident taxpayers. broaden the scope of exchange of • Local resident employees on the Thus, Russian tax law employs information provisions, which clearly payroll; no specišic presence/ substance indicates in our view that the volume of exchange of information between requirements for Russian companies • Minimum staff on the payroll; to enjoy local tax and treaty benešits. the Russian and the foreign tax authorities will increase in the future. • Possibility to outsource The government is planning to management, bookkeeping to In respect of granting treaty benešits, introduce a secondary (alternative) third parties; “management and control” tax the tax authorities would usually residence test for foreign companies, require that a foreign company • Local board meetings? but we are not aware if these plans to provides a tax residence certišicate to have been put on paper at the moment. be issued by a competent authority of There are no statutory requirements the state of which the company is a tax in respect of the level of “presence” Question 2. How are substance resident, apostilled and accompanied of a foreign company in its residence requirements applied in practice by with a certišied translation into the state. Since there is nosubstantial the local tax authorities and/or courts Russian language.22 It is advisable administrative or court practice on the of your respective country? that the tax residence certišicate be matter it is not possible to indicate the obtained by the foreign company and requirements that would be used by N/A made available to its income paying the tax authorities in practice. Russian counter party prior to the The substance requirements širst instance of transfer of income Question 5. Are there any specišic applied to a foreign company (otherwise the Russian counter party requirements as to type, nationality, established in a foreign country may be reluctant to apply treaty residency and knowledge of the Question 3. Do the tax authorities benešits, e.g. reduced withholding tax board members and/or directors of a of your respective country rate) in respect of income it pays to the company? frequently use their right to request foreign company). administrative assistance from tax No. authorities of dierent jurisdictions At the moment we are not aware to conširm level of “presence” (or of any cases where the Russian tax Question 6. Does your respective substance) in the other country authorities have challenged the tax country require that place of before allowing companies benešits residence of a foreign company that management is to be situated and/

42 dentons.com or decision making is to take place annual basis and ensures that the Russian tax law contains no anti- in the foreign country to satisfy certišicate indicates the year for which abuse provisions (other than transfer a required level of “presence” (or the tax residence status of the foreign pricing and thin capitalization rules). substance)? company is certišied. However, the general anti-abuse doctrine (the so called “unjustišied No. Question 9. Assess how if at all treaty tax benešit” doctrine) was developed shopping is addressed in double tax by the RF Supreme Arbitration Court Question 7. Are there any treaties to which your country is a in 2006. requirements as to types of business party. activities to be performed or not to The “unjustišied tax benešit” concept be performed by a foreign company Most Russian double tax treaties denies taxpayers tax benešits in foreign country in order to fulšill contain benešicial ownership wording if their activities are entirely or “presence” or “substance” criteria? in respect of all or some types of predominantly aimed at obtaining passive income. Some treaties these benešits (i.e. tax deductions or No. (e.g. those with Cyprus and the US) other reductions to the tax base, the contain LOB provisions, although application of a lower tax rate or a tax Question 8. Is a residency certišicate such practice is still exceptional. refund). An analysis of this doctrine or other document required by demonstrates that it combines a your respective country to conširm Question 10. Does legislation of number of concepts well-known in residency of a foreign company? Are your country provide for specišic the international tax jurisprudence, there any specišic requirements to legislation to prevent treaty such as “substance over form” and such document? What is the validity shopping?: “business purpose” concepts. In term of such document? addition, the “unjustišied tax benešit” • specific limitation on benefit (LOB) doctrine operates in conjunction with Yes, see Question 3 above. Usually rules; various tax law and civil law concepts, the tax authorities and the courts are such as the concept of šictitious/ not sophisticated enough to require • the general anti-avoidance rule sham transaction, the taxpayer due the renewal of the tax residence (GAAR); diligence concept and reclassišication certišicates on a yearly basis or of transactions for tax purposes. indication in the certišicate of a • an abuse of treaties principle; particular year in respect of which the The cornerstone of the “unjustišied tax status of the foreign company is • residency requirements; and/or tax benešit” concept is the conširmed. Nevertheless, it is advisable • beneficial ownership assumption that a taxpayer acts that the foreign company obtains a requirements? in good faith. This assumption new tax residence certišicate on an

dentons.com 43 is, however, rebuttable. The tax • an affiliation between Although the “unjustišied tax benešit” authorities may challenge the use of counterparties to a transaction doctrine has been developed primarily tax benešits by a taxpayer in certain that leads to a tax benešit; to address the domestic tax abuse circumstances, for example: cases, it is the view shared by most tax • volatility in the volume of activities professionals in Russia that the same • where the transactions are of an enterprise; concept may as well apply in cross- documented or accounted for by border situations. There is currently the taxpayer contrary to their true • the facts of tax fraud of the no developed case law concerning economic substance; taxpayer in the past; application of the concept in the international tax context, but this is just • the carrying out of a one-time • where there are no underlying a matter of time. reasonable economic grounds transaction; (no business purpose) for the Russian tax law does not envisage • the carrying out of activities activities of the taxpayer; any LOB or benešicial ownership outside the location of the rules. This said, it should be taxpayer; • where the taxpayer was unable mentioned that the government to carry out the documented or (in particular, the RF Ministry of • the carrying out of activities accounted for transactions or to Finance) is currently developing the through intermediaries; achieve the reported economic rules concerning application of the goals due to a lack of time or • existing possibilities to achieve benešicial ownership concept in resources (for example, lack of the same economic goals by Russia. The previous attempts which sta, production capacity, etc.); structuring operations less tax resulted in some initial draft bills and e¦iciently; having been revealed to the public were not successful (the drafts were • where the taxpayer dealt with • tax fraud committed by the severely criticized by the professional counterparties (either customers taxpayer’s counterparties (unless community and were withdrawn by or suppliers) that were knowingly the taxpayer knew or must the Ministry), but prevention of treaty involved in tax fraud (in particular, have known about the facts of shipping is considered one of the this concerns individuals or legal the tax fraud when entering priorities of the government, so this entities a¦iliated with the taxpayer). into a relationship with these work will likely continue. On the other hand, the scope of counterparties, i.e. if the taxpayer the doctrine has been narrowed is a¦iliated with the fraudulent to exclude a biased interpretation counterparty). of certain factors. For example, If the court conširms that a tax benešit the following factors do not per se is unjustišied, the tax benešit will be evidence an unjustišied tax benešit denied, i.e. the taxpayer will not get (although they may evidence an the deduction sought, will not be able unjustišied tax benešit in combination to apply the lower tax rate or obtain with other facts in a particular the tax refund, which may trigger an context): 22It should be noted that in respect of certain additional tax assessment, as well countries (e.g. Belarus, Cyprus, Germany, Kazakhstan, Moldova, Slovakia, Ukraine, the • the setting-up of an enterprise as an assessment of late payment interest and administrative tax USA, etc.) the Russian tax authorities allow shortly before commencing for the submission of the tax residence activities leading to the receipt of penalties (in some instances criminal certišicates without apostille. See, for example, a tax benešit; penalties may also be imposed). Letter of the RF Ministry of Finance No.03µ03- 04/4/141 of 25 August 2006.

44 dentons.com Slovak Republic

dentons.com 45 Slovak Republic Peter Varga [email protected]

The substance/residency the local tax authorities and/or courts • Possibility to outsource requirements applied to a local of your respective country? management, bookkeeping to presence of a foreign company third parties; Question 1. Does your respective See the answer above. country require a certain level of • Local board meetings? “presence” (or substance) in the The substance requirements country before allowing companies applied to a foreign company Ideally, for a foreign company to be benešits of local tax legislation and/or established in a foreign country regarded as a non-resident in the double tax treaties? Question 3. Do the tax authorities of Slovak Republic for tax purposes it your respective country frequently use should have its seat (registered o¦ice, The Slovak Act on Income Tax their right to request administrative headquarters) at a local address in a (“SITA”) does not explicitly require assistance from tax authorities of foreign country and hold local board any form of additional “presence” or dierent jurisdictions to conširm meetings there. The other criteria “substance” for a company to benešit level of “presence” (or substance) in listed in the question are usually not from the Slovak tax legislation and the other country before allowing considered although in complex double tax treaties to which the companies benešits of local tax disputed cases they may have a Slovak Republic is a party (“DTTs”) legislation and/or double tax treaties? secondary relevance. provided that the company has its seat (i.e., registered o¦ice) and/or In general, Slovak tax authorities Question 5. Are there any specišic place of eective management in the frequently use their right to request requirements as to type, nationality, Slovak Republic. According to SITA, administrative assistance from tax residency and knowledge of the the place of eective management authorities of other jurisdictions. The board members and/or directors of a is the place in which management investigation of Slovak tax authorities company? is exercised and business decisions as to whether a company fulšills the Currently, there are no such specišic are taken by statutory (i.e., chief presence requirement is carried out requirements in place in the Slovak executive) and supervisory bodies of “on the go” basis. The trigger is the Republic. the company. conclusion of Slovak authorities that the intention of a company is to use the Question 6. Does your respective There are no explicit anti-treaty foreign tax residence in combination country require that place of shopping provisions contained in with a DTT solely for tax avoidance. management is to be situated and/or SITA. However, in the application decision making is to take place in the practice of Slovak tax authorities, Question 4. What are the foreign country to satisfy a required treaty shopping may be regarded requirements of your country as level of “presence” (or substance)? as tax avoidance. Taking benešit of to level of “presence” of a foreign company in a foreign country: DTTs by intermediary companies According to SITA, the place of established in the Slovak Republic • A local address or even real office eective management in a foreign only for the purpose of facilitating space; country along with the lack of a šlow-through of cash may be seat (registered address) in Slovakia disallowed by Slovak tax authorities. • Local bookkeeping and bank constitute su¦icient presence of a Therefore, such approach by Slovak accounts; foreign company in a foreign country tax authorities may be viewed as a de to grant such company the status of facto requirement of a certain level of • Local resident employees on the a tax non-resident in Slovakia. In most presence in the Slovak Republic. payroll; if not all of DTTs, the place of eective management is a decisive factor in Question 2. How are substance • Minimum sta on the payroll; case there is a dual tax residence claim requirements applied in practice by

46 dentons.com in respect of such company (by reason status to obtain a residence certišicate benešicial DTT treatment. The term of the registered seat and/or place of from the foreign tax authorities. There “benešicial owner”, however, is not management). Slovak tax authorities are no specišic Slovak requirements inherent to Slovak law and it is not generally accept this treaty rule. for such certišicate. Often the form dešined in DTTs or in SITA. used by the foreign tax authorities is Question 7. Are there any non-negotiable and has to be used Another rule working as an eective requirements as to types of business “as is”. There are no šixed rules about anti-treaty shopping measure is the activities to be performed or not to the validity term of such document. rule about determining tax residence be performed by a foreign company Usually the certišicate is viewed as valid (mentioned above). By suppressing in foreign country in order to fulšill for the period stated therein or for one the formal criteria of residence and “presence” or “substance” criteria? taxable period (usually one year). requiring a form of material link to the country of residence (such as the According to SITA, there are no such Question 9. Assess how if at all treaty place of eective management for specišic requirements in the Slovak shopping is addressed in double tax legal entities) DTTs are not so easily Republic currently in place. treaties to which your country is a abused by treaty shopping practices party? Question 8. Is a residency certišicate Question 10. Does the legislation of or other document required by The treaty shopping as a principle is your country provide for specišic your respective country to conširm disapproved by OECD. Since most of legislation to prevent treaty shopping? residency of a foreign company? Are DTTs are built on the OECD model, there any specišic requirements to the treaty shopping is generally • specific limitation on benefit (LOB) such document? What is the validity not encouraged in them. The DTTs, rules; term of such document? however, do not contain any explicit clause banning treaty shopping. Currently not in place. Although there is no formal requirement of a tax residence A few rules contained in the DTTs • the general anti-avoidance rule certišicate incorporated in SITA or can work as a de facto anti-treaty (GAAR); other written tax laws, such certišicate shopping measure. The most There is no explicit GAAR in Slovak is often used in practice, in particular important of them probably is the tax law. However, the role of a in connection with withholding taxes concept of a “benešicial owner” in the general anti-avoidance rule is often and DTT benešits relating thereto. It is articles of DTTs relating to dividends, performed by the substance-over- therefore always advisable for a foreign interest and royalties. Under this form rule incorporated in the Slovak recipient of Slovak-sourced taxable concept, only the benešicial (and Tax Procedure Act. Several other income or for a foreign company with not formal) owner is granted the unclear or disputable tax residence particular anti-avoidance rules can

dentons.com 47 also be found in SITA (fair market of other countries try to eliminate. the factor of residence in the Slovak price rule, arm’s length rule for Republic for tax purposes. This factor affiliated dealing, etc.). It is a common practice of Slovak tax generally prevails over the factor of authorities to put the tax residence registered seat. • an abuse of treaties principle; of companies under scrutiny, should there be a sign of intention of a • beneficial ownership requirements? Although the Slovak Republic does company to obtain a tax advantage not have any explicit anti-treaty under a DTT that would not normally These are urrently not in place in shopping measures, Slovak tax be available for this company. SITA or under other Slovak laws, authorities recognize the term “abuse althoughay be used in connection of tax treaty”. This is regarded as • residency requirements; and/or with the taxation of dividends, undesirable behavior of taxpayers interest and royalties under some which the Slovak tax authorities in Slovak tax authorities accept the DTTs. cooperation with the tax authorities place of effective management as

48 dentons.com Spain

dentons.com 49 Spain Luis Alaix Climent [email protected]

The substance/residency not determine the attraction of tax consider that an entity is resident or requirements applied to a local residence to Spain, the do determine has a PE in Spain at the minimum presence of a foreign company the taxation in Spain of certain income evidence of presence in Spain. Question 1. Does your respective obtained by non-resident entities. country require a certain level of The substance requirements “presence” (or substance) in the Regarding PEs, the Spanish Non- applied to a foreign company country before allowing companies Residents Income Tax (“NRIT”) Law, a established in a foreign country the benešits of local tax legislation non-resident company is deemed to Question 3. Do the tax authorities and/or double tax treaties? operate in Spain by means of a PE, of your respective country provided any one of the following frequently use their right to request Spanish legislation does not establish circumstances is met: (i) the non- administrative assistance from tax specišic substance requirements resident company has in Spain a authorities of dierent jurisdictions in order to consider a company šixed place of business through to conširm level of “presence” (or a tax payer in Spain. Therefore, it which the business of the company substance) in the other country is not necessary that a company is wholly or partly carried on; or (ii) before allowing companies benešits incorporated in Spain or a permanent the non-resident company acts in of local tax legislation and/or double establishment (“PE”) in Spain of a Spain through a dependent agent, tax treaties? non-resident entity reach a certain who is authorized to conclude level of presence in the country to be contracts in the name and on behalf It is not uncommon that, in a tax considered as tax payers in Spain. of the non-resident company, and audit or in a tax review, the Spanish habitually exercises such powers. tax authorities use their right In principle, any company that (i) has to request assistance from tax been incorporated in Spain or (ii) has The “šixed place of business” concept authorities from dierent jurisdictions its address in Spain or (iii) has its place included in the NRIT Law is more to verify the level of substance. of eective management in Spain extensive than the one included in would be considered a tax resident in OECD Model (e.g. warehouses are It has to be pointed out that this Spain and, thus, its income would be considered to be a PE for NRT Law request for assistance is not made on taxed in Spain on a worldwide basis.23 purposes). a prior basis, but when the tax audit or review is carried out. This means Likewise, Spanish legislation Nevertheless, under Spanish tax that tax payers apply those benešits establishes that an entity resident in legislation, double tax treaties that they consider of application a tax haven might be considered tax override domestic law, and thus the without any initial verišication by resident in Spain if (i) its main assets relevant tax treaty must be taken the Spanish tax authorities and, consist of goods located or rights to into account where a treaty resident afterwards, the tax authorities might be exercised in Spain or (ii) its main undertakes activities/services in Spain. verify if the level of substance in the activity is carried out in Spain. This other country is su¦icient to apply rule would not be of application if Question 2. How are substance said benešits. the entity proves that its place of requirements applied in practice by eective management is located the local tax authorities and/or courts Question 4. What are the in its country of residence and of your respective country? requirements of your country as that it was incorporated for sound to level of “presence” of a foreign economic reasons. Generally, when addressing whether company in a foreign country: an entity is resident or has a PE in Spanish legislation also includes Spain, the Spanish tax authorities/ • A local address or even real office Controlled Foreign Corporation courts apply an extensive criterion, space; (“CFC”) rules which, although they do that is, they are usually prone to

50 dentons.com • Local bookkeeping and bank place of eective management should be taken in these countries. accounts; the place where key management Evidence of this should be kept. If decisions are taken. Most of the the majority of the Directors may • Local resident employees on the rulings from the Spanish tax not be resident in said country, payroll; authorities set various criteria to the evidence related to the place determine where the place of where management decisions take • Minimum staff on the payroll; management is. The rulings usually place becomes a key issue. opt to set the place of management • Possibility to outsource where board meetings take place, • The ordinary management of the management, bookkeeping to and/or where the board members company, including tax šilings, third parties; reside, mainly because this is book-keeping, dealings with the clearest fact stated by the auditors, etc. should take place • Local board meetings? taxpayer when asking for a ruling. in the relevant country. In this regard, the Spanish tax authorities This “presence” will normally exist Consequently, the place where do not require that these activities when the residence of the company meetings are held and the residence are directly carried out by the in the treaty country cannot be of board members will be important company, allowing, therefore, to challenged, and when it may to determine such place of eective outsource them. There should be be deemed to be the “eective management. Other criteria, such as evidence that the Directors of the benešiciary” of the relevant income where the day-to-day management company periodically supervise and not a mere intermediary unduly takes place, will also be relevant. this ordinary management and benešitting from the domestic or Accordingly, from a practical point of that this supervision takes place treaty protection. view these basic guidelines should in the relevant country. Relevant As a general rule, a company is help preserve the residence of the contracts (supplies, etc.) should a resident for treaty purposes company in the relevant country be signed in the relevant country (has “presence”) if it is eectively for Spanish domestic and treaty • The majority of the Directors managed in the treaty country. benešits, as well as the “substance” with respect to the income that it should have su¦icient professional The place of eective management receives for treaty purposes: experience and expertise to carry is not dešined in the OECD out their functions. Commentaries on the Model • The majority of the Directors • There should be evidence that the Convention and is also not clearly should be resident in the country company bears the risks of the dešined by Spanish law. The of residence of the entity and activities carried out. Commentaries simply regard as the key management decisions

dentons.com 51 • To the extent possible, the residence of a foreign entity to Spain Spanish Corporate Tax Law, it is company should have o¦ice if its eective place of management mandatory that the non-resident space, telephone and fax is located in Spain but, in principle, entity that distributes a dividend or lines and o¦ice equipment, they might not analyze if the eective that generates the capital gain carries sta employed and local bank place of management is in a third out business activities outside Spain.25 accounts from which all relevant country (i.e. they might not move the šlows should be performed. tax residence of an entity from one Question 8. Is residency certišicate country to another dierent from or other document required by Question 5. Are there any specišic Spain).24 your respective country to conširm requirements as to type, nationality, residency of a foreign company? Are residency and knowledge of the Question 7. Are there any there any specišic requirements to board members and/or directors of a requirements as to types of business such document? What is the validity company? activities to be performed or not to term of such document? be performed by a foreign company Spanish legislation does not establish in foreign country in order to fulšill The tax residence of a foreign any requirements in this regard. “presence” or “substance” criteria? company will be represented by Notwithstanding, please see the answer a residency certišicate issued by to Question 4 for a further explanation In general terms, there are no the country’s tax authorities. This of the practical approach of the specišic requirements for the type certišicate is required in those cases Spanish tax authorities and courts. of business activity to be performed in which the company applies the in order to consider that an entity provisions of a double tax treaty or Question 6. Does your respective has “presence” or “substance” in a the benešits established in the local country require that place of particular country. Notwithstanding, tax legislation for EU-resident entities. management is to be situated and/or it is essential that companies have decision making is to take place in the the appropriate human and material If the application of a double tax foreign country to satisfy a required resources to carry out their actual treaty is intended, it is a necessary level of “presence” (or substance)? activity. As an example, in case of condition that the document holding entities, the appropriate expressly states that the company In general terms, Spanish tax organization of material and human is resident in the country within the authorities and courts take into resources for the management and meaning of the double tax treaty consideration the eective place of control of the subsidiary are required. signed between Spain and the foreign management of a non-resident entity company’s State of residence. only in such cases in which there is a Although it is not strictly talking a conšlict of residence between Spain matter of “presence” or “substance”, The validity term of such document and the corresponding country. it has to be pointed out that in order is one year (or indešinite in case the That is, the Spanish tax authorities to benešit from the participation taxpayer is a foreign State or any of and courts might attract the tax exemption regime established in its local entities).

52 dentons.com Despite that the Spanish tax (including international structures business activity of the subsidiary; authorities expressly require that a that might be set up by taxpayers) or (b) the business purpose of the residency certišicate is provided by has to be based on sound business parent entity is the management of the tax payers to prove residency, in purposes. In absence of this, the the subsidiary with the necessary some cases, the Spanish case-law has Spanish tax authorities and courts organization of human and material accepted further evidence to prove might deny the application of the means; or (c) the parent entity the residency of a foreign country by double tax treaty benešits. proves that it has been set up with any means allowed by national law. a sound business purpose and not Likewise, Spanish legislation includes to benešit unfairly from the dividend Question 9. Assess how if at all treaty an anti-avoidance rule (“conšlict in the withholding tax exemption. The shopping is addressed in double tax application of the tax rule”) applicable application of Parent-Subsidiary treaties to which your country is a to such cases in which the tax due Directive benešits in situations where party? is reduced or eliminated by means the ultimate parent is not resident of artišicial acts which have the only in the EU is an issue that is typically A signišicant number of double eect of reducing or avoiding said tax scrutinized by the tax audit, that taxation treaties signed by Spain due. In these cases, the tax due would follows a very narrow interpretation, include the benešicial ownership be determined by disregarding said and is therefore a matter giving rise clause to avoid treaty shopping. artišicial acts. Therefore, even though to much controversy. this rule is not specišically aimed at Likewise, the rule of substance over avoiding treaty shopping, it could be Likewise, in case the majority of the form is generally applied by the used for it. voting rights of the EU parent entity Spanish tax authorities and courts in are directly or indirectly held by order to šight against treaty shopping. Despite the above, it has to be individuals or entities that are not pointed out that Spain has included residents of the EU, the application Question 10. Does legislation of your specišic anti-avoidance rules of the Royalties Directive requires country provide for specišic legislation regarding the application of the that the parent company proves to prevent treaty shopping: Parent-Subsidiary and Royalties that it has been set up with a sound Directives when the majority of the business purpose and not to benešit • specific limitation on benefit (LOB) voting rights of the EU parent entity unfairly from the royalty withholding rules; are directly or indirectly held by tax exemption. individuals or entities that are not • the general anti-avoidance rule residents of the EU. (GAAR); According to these specišic anti- • an abuse of treaties principle; avoidance rules, when the majority of the voting rights of the EU parent • residency requirements; and/or 24 entity are directly or indirectly held Please note that despite this, in cases where the benešicial owner is not located in the • beneficial ownership requirements? by individuals or entities that are not country of residence of the direct owner, residents of the EU, the applicability the Spanish tax authorities might deny the Spain does not have any specišic of the exemption included in the application of the benešits of the treaty. legislation to prevent treaty shopping Parent-Subsidiary Directive, as 25This condition is generally deemed to be in addition to said clauses included implemented by Spain, is subject to complied with when at least 85% of the gross in the corresponding treaties. income obtained by the foreign subsidiary compliance with any of the following (i) is not Spanish sourced, and (ii) does not Notwithstanding, Spanish tax additional requirements: (a) the correspond to any of the types of income authorities and courts generally parent entity carries on a business potentially imputable in the taxable base of the require that any tax relevant issue activity directly related to the Spanish entity under the Spanish CFC rules

dentons.com 53 Ukraine

54 dentons.com Ukraine Viktoriia Fomenko [email protected]

The substance/residency frequently use their right to request • Local bookkeeping and bank requirements applied to a local administrative assistance from tax accounts; presence of a foreign company authorities of dierent jurisdictions Question 1. Does your respective to conširm level of “presence” (or • Local resident employees on the country require a certain level of substance) in the other country payroll; “presence” (or substance) in the before allowing companies benešits country before allowing companies of local tax legislation and/or double • Minimum staff on the payroll; benešits of local tax legislation and/or tax treaties? • Possibility to outsource double tax treaties? The administrative assistance management, bookkeeping to The Ukrainian tax legislation between Ukrainian tax authorities third parties; operates only incorporation criterion and tax/šiscal authorities of foreign • Local board meetings? to determine tax residency of a countries has been very rarely company. To benešit from Ukrainian requested in practice up to the Ukrainian law does not provide tax legislation and/or double moment. However, we expect that for any requirements as to level of tax treaties to which Ukraine is a exchange of information between presence of a foreign company in party (“DTTs”) a company must be Ukrainian tax authorities and tax/ a foreign country. There is also no registered in Ukraine according šiscal authorities of foreign countries court practice with respect to this to Ukrainian laws. This being said, will increase in the future taking matter in Ukraine. However, since foreign companies are always into account that all newly signed Ukraine started to apply “benešicial deemed non-resident taxpayers DTTs contain specišic provisions on owner” criterion as precondition for unless a foreign company has a exchange of information. application of the DTTs, we expect permanent establishment in Ukraine. that Ukrainian tax authorities may In order to be able to benešit from start verifying level of presence of a Permanent establishments of foreign provisions of the DTT in question a foreign company in a foreign country companies are subject to taxation in foreign company would be required in the nearest future. Ukraine in accordance with the general to provide to its Ukrainian contractor rules set force for Ukrainian taxpayers. or daughter company a tax residency Question 5.Are there any specišic certišicate, conširming that such requirements as to type, nationality, Question 2. How are substance foreign company is a tax resident residency and knowledge of the requirements applied in practice by paying taxes based on general rules board members and/or directors of a the local tax authorities and/or courts in a country which has a relevant company? of your respective country? DTT with Ukraine. Usually Ukrainian legislation requires that such a tax No. The substance requirements with residency certišicate is formalized respect to foreign companies in Ukraine in a form prescribed by Ukrainian Question 6. Does your respective are applied in practice by Ukrainian legislation (please see answer to country require that place of tax authorities by way of determining Question 8 for more details). management is to be situated and/or whether a permanent establishment of decision making is to take place in the a foreign company exists in Ukraine. Question 4. What are the foreign country to satisfy a required requirements of your country as level of “presence” (or substance)? The substance requirements to level of “presence” of a foreign applied to a foreign company company in a foreign country: No. However, since Ukraine started established in a foreign country to apply “benešicial owner” criterion Question 3. Do the tax authorities • A local address or even real office as a precondition for the application of your respective country space; of the DTTs, we expect that Ukrainian

dentons.com 55 tax authorities may start verifying resident in the current year but a tax • beneficial ownership the level of presence of a foreign residency certišicate that was made requirements? company in a foreign country in the available was issued for the previous nearest future. year, the tax exemption still could be The Ukrainian tax legislation does allowed, provided such non-resident not provide for specišic legislation Question 7. Are there any would submit the tax residency to prevent treaty shopping except requirements as to types of business certišicate issued for the current year for benešicial owner requirements activities to be performed or not to after the end of such year. (please see answer to Question 9 for be performed by a foreign company more detail), transfer pricing and thin in a foreign country in order to fulšill Question 9.Assess how if at all treaty capitalization rules. “presence” or “substance” criteria? shopping is addressed in double tax treaties to which your country is a Recently, the Ukrainian courts started No. party? to apply “substance over form” principle to assess transactions Question 8. Is residency certišicate Ukrainian tax legislation provides that deemed to be conducted without or other document required by the respective DTT applies only in reasonable economic ground. your respective country to conširm case a recipient of income (dividends, Although there are several guidances residency of a foreign company? Are interest, royalty, remuneration, etc.) is a from the Highest Administrative there any specišic requirements to benešicial owner of such income. Even Court of Ukraine on how to assess such document? What is the validity if the recipient of income has rights whether there is reasonable term of such document? to receive such income it would not economic substance in the be treated as benešicial owner in case transaction, such recommendations In order to ensure the relief under such recipient of income is a nominee are not legally binding, and each the DTT for foreign tax residents, shareholder, agent or is an intermediate particular case is assessed on its a Ukrainian tax resident must širst with respect to such income. Notably, own merits. The Ukrainian courts are obtain from a foreign tax resident most DTTs to which Ukraine is a party requested to check the documents its tax residence certišicate issued contain a condition with respect to conširming the transaction and verify by the relevant authorities of the benešicial owner but only with regard to whether such transaction really non-resident’s country of origin. If dividends, interest and royalty. took place (e.g., the courts may ask a tax residency certišicate is issued for review documents conširming in a form prescribed by the laws Question 10. Does the legislation of transportation of goods from the of the country, which is a party your country provide for specišic seller to the buyer and documents to the relevant DTT with Ukraine, legislation to prevent treaty shopping: conširming further disposal of the such tax residency certišicate must goods by the buyer, etc.). be properly legalized (apostilled) • specific limitation on benefit (LOB) and translated into the Ukrainian rules; Although the “substance over form” language. Under Ukrainian tax principle is currently applied by the legislation, a tax residency certišicate • the general anti-avoidance rule Ukrainian courts only with respect is valid during the calendar year, in (GAAR); to domestic transactions, we expect which it has been issued. that the Ukrainian tax authorities may • an abuse of treaties principle; take a closer look at international However, in case the resident of transactions as well. Ukraine repays an income to a non- • residency requirements; and/or

56 dentons.com United Kingdom

dentons.com 57 United Kingdom Alex Thomas [email protected]

The substance/residency dešines a resident of the UK as a person Question 3. Do the tax authorities of requirements applied to a local who is subject to tax there. However, your respective country frequently use presence of a foreign company there a number of variations to this their right to request administrative Question 1. Does your respective dešinition. For example, the UK/Australia assistance from tax authorities of country require a certain level of double tax treaty dešines a resident of dierent jurisdictions to conširm “presence” (or substance) in the the UK as any person resident in the UK level of “presence” (or substance) in country before allowing companies for the purposes of UK tax. the other country before allowing benešit of local tax legislation and/or companies benešit of local tax double tax treaties? Question 2. How are substance legislation and/or double tax treaties? requirements applied in practice by A company resident in the UK for tax the local tax authorities and/or courts This information is not publicly available. purposes is, prima facie, subject to of your respective country? UK corporation tax on its worldwide Question 4. What are the income and gains. However, a UK The test of central management requirements of your country as tax resident company can make and control is one of fact, not law. to level of “presence” of a foreign an irrevocable election to exempt Central management and control is company in a foreign country? from UK corporation tax any prošits not concerned with the day to day (including chargeable gains) made running of a company’s business, but UK tax residence by its overseas branches. with the general policy and overall A company’s tax status overseas management control. is generally not relevant to the A company is resident in the UK for determination of UK residence. tax purposes if it is either: Central management and control is However, a company resident in the the authority exercised at the highest UK could potentially also be treated a) incorporated in the UK; or level of the company’s business. as resident in another country under Generally, it is the board of directors that country’s domestic laws. b) “centrally managed and who exercise management and controlled” in the UK” (see control of a company. However, there Most of the UK’s double tax treaties question 2 below for the meaning are exceptions to this general rule. set out tests to be applied if a of this term in UK law). company is dual resident. These are Central management and control will sometimes referred to as “tie-breaker” A company not resident in the UK not be treated as exercised by the clauses. These clauses determine is chargeable to UK corporation tax board of directors if the directors are where a company is treated as only to the extent that it carries on a perceived as “standing aside” from resident for the purposes of the treaty. trade in the UK through a permanent their directorial duties and merely establishment (PE). Broadly, such a implementing strategic management The “tie-breaker” clausethe OECD company is chargeable only on the and general policy decisions made Model Tax Convention sets out prošits attributable to that PE. by others. This applies even when the that where a company is otherwise day to day running of the company is resident in both countries, it will be Subject to anti-avoidance provisions handled locally. In these circumstances, considered to be resident in the (see questions 9 and 10 below), only central management and control will be country where its place of “eective companies which are resident in the treated as abiding with those actually management” is located. (See UK, can claim benešits under the UK’s exercising controlling authority. question 6 below for further details.) double tax treaties. Most of the UK’s treaties follow the OECD Model Tax The substance requirements Not all treaties which the UK has Convention on Income and Capital (the applied to a foreign company concluded with other countries OECD Model Tax Convention), which established in a foreign country include a standard “tie-breaker”

58 dentons.com clause. For example, in the double residency and knowledge of the meeting. In such cases there is a risk tax agreement that the UK has with directors of a company. that the UK tax authority may argue the Netherlands, the US and Canada that the board is not functioning the competent authorities of the The tax residence of individual and that “central management and relevant countries will determine directors is generally not relevant to control” is exercised by some other where a company is resident. the place of central management person or body elsewhere. and control of a company. It is the Permanent establishment place from which an individual Question 6. Does your respective A non-UK resident company will have exercises central management and country require that place of a permanent establishment in the control that is the relevant factor for management is to be situated and/or United Kingdom if: determining the tax residence of a decision making is to take place in the company rather than the country in foreign country to satisfy a required a) it has a “šixed place of business” which their personal tax liabilities arise. level of “presence” (or substance)? in the United Kingdom through Nevertheless, for the purposes of which its business is wholly or international tax planning it is generally See answers to questions 1 and 2 partly carried on; or advised that the majority of a board of above. directors of a company should consist b) an agent acting on behalf of it of individuals who are based in the The OECD commentary on standard has and habitually exercises in the country of intended residence. “tie-breaker” clause in the Model United Kingdom authority to do Tax Convention states that the business for it. Although not a legal requirement, it “place of eective management” is may be desirable for the purposes the place where key management The UK dešinition of “permanent of international tax planning for and commercial decisions that are establishment”, is based on, but is the board to consist of directors necessary for the conduct of the entity’s not identical to, the dešinition used in who have specialist knowledge business are in substance made”. the OECD Model Tax Convention. and expertise. It is sometimes the case that the board of directors of The commentary goes on to Question 5. Are there any specišic a company (and this is especially state that the “place of eective requirements as to type, nationality, the case for “special purpose management will ordinarily be the residency and knowledge of the companies”) consists of individuals place where the most senior person board members and/or directors of a who have no quališications for the or group of persons (for example company? duties that they have assumed a board of directors) makes its and are merely rubber stamping decisions, the place whether the There are no specišic requirements in decisions made outside the board actions to be taken by the entity as the UK tax laws as to type, nationality, a whole are determined… An entity

dentons.com 59 may have more than one place of your respective country to conširm by third country residents who management, but it can have only residency of a foreign company? Are have deliberately arranged their one place of eective management there any specišic requirements to transactions in such a way as to at any one time”. such document? What is the validity obtain treaty benešits to which they term of such document? would not otherwise be entitled The UK tax authorities have stated through the following means: that eective management is There is generally no requirement normally located in the same country for a residency certišicate to conširm Bene­icial ownership: In order to as central management and control. residency of a non-UK resident benešit from a treaty, the recipient of However, it is also recognised by company. income (such as dividends, royalties the UK tax authority that eective or interest) is commonly required management may, in some cases, In the UK a company must self- to have “benešicial ownership” of be found at a place dierent from assess its residence status. This that income. The UK has used this the place of central management may result for example, in either requirement as a tool to limit treaty and control. Where, for example, a (i) no corporation tax return being benešit to those persons for whom company is run by executives based submitted to the UK tax authority were they were intended. abroad but the šinal decision-making on the basis that the company is power lies with non-executive not resident in the UK (and does not The dešinition of “benešicial directors who meet in the UK, the trade in the UK through a permanent ownership” has been considered place of eective management may establishment), or (i) a tax return by the UK courts in Indofood be abroad but, depending on the being submitted by a non-UK International Finance Ltd v JP precise powers of the non-executive incorporated company on the basis Morgan Chase Bank NA [2006]. directors, central management and that it is UK tax resident. The court held in this case that control (and therefore residence for the term “benešicial ownership” is the purpose) would be in the UK. Relief under a double tax treaty from to be given an international šiscal UK tax on interest or royalties paid from meaning not derived from the Question 7. Are there any a source in the UK is not automatic. An domestic laws of the contracting requirements as to types of business application form must be submitted states. Under an “international šiscal activities to be performed or not to to the UK tax authority together with meaning”, benešicial ownership is be performed by a foreign company supporting documents, which does to be determined by reference to a in foreign country in order to fulšil not include a residency certišicate. test which requires that the recipient “presence” or “substance” criteria? However, the completed forms will enjoys the full privilege to directly then be sent for certišication by the benešit from the interest. It added There is no requirement in the UK as tax authority of the non-UK resident that where recipients are bound in to types of business activities to be company’s country of residence. This legal, commercial or practical terms performed or not to be performed by a certišication provides evidence that the to pass on the income, they will non-UK incorporated company for the non-UK resident company is treated as not be the benešicial owner of that purposes of determining tax residency. being tax resident in that country. income. The UK tax authority’s view is that the “benešicial ownership” A non-UK resident company will Question 9. Assess how (if at all) decision in Indofood, as far as it be subject to UK corporation if it treaty shopping is addressed in relates to double tax treaties, is now carries on a trade in the UK through a double tax treaties to which your part of UK law. permanent establishment. country is a party? The OECD has recently issued a Question 8. Is residency certišicate The UK has sought to limit the use public discussion draft of proposed or other document required by of its double taxation agreements changes to the dividends, royalties

60 dentons.com and interest articles of the OECD considered to be low risk in terms of that the UK has entered into each Model Tax Convention to clarify the acting as a conduit for channeling contain a provision denying treaty meaning of “benešicial ownership”. income or gains to a person not relief under those articles where The OECD stance is that the term resident in either contracting state the debt or the royalty rights have should be understood in the treaty (e.g. individuals, government, listed been created or assigned in order to context and it is not intended to companies etc.). Treaty benešits take advantage of the treaty article “refer to any technical meaning that may nevertheless be available to rather than for bona šide commercial it could have had under the domestic companies that are not quališied reasons. Examples of double tax law of a specišic country”. The persons if other detailed conditions treaties which include such a discussion draft also adopts the view set out in the article are satisšied. provision is the UK/France and UK/ that “benešicial ownership” refers Where a resident of a contracting Netherlands treaties. to the full right to use and enjoy the state is neither a “quališied person” dividend, interest or royalty without nor entitled to benešits with respect Question 10: Does the legislation being contractually or otherwise to an item of income, prošit or gain of your country provide for specišic required to pass it on to another under any other provision of the legislation to prevent treaty shopping? person. This approach would seem article, that resident may nevertheless to endorse the decision in Indofood. be granted benešits under the treaty There are a number of specišic anti- if the competent authority of the avoidance provisions in UK law which Limitation of bene­its article: The other contracting state determines may prevent a treaty from applying. double tax treaties that the UK has that the establishment, acquisition or The UK has also recently adopted a entered into with the US and Japan maintenance of such resident and the General Anti-Abuse Rule (GAAR) which both contact “Limitation on Benešits” conduct of its operations did not have may apply to “abusive” arrangements articles. This article provides that, in as one of its principal purposes the exploiting double tax treaty provisions. order to benešit fully from the treaty, obtaining of benešits under the treaty. a taxpayer must both be resident of a However, there are no general treaty contracting state and be a “quališied Bona ­ide provisions in speci­ic anti-avoidance rules in UK domestic person”. The list of “quališied persons” articles: the interest and royalty legislation. broadly includes persons who are articles in some of double tax treaties

dentons.com 61 United States

62 dentons.com United States John Harrington [email protected]

The substance/residency entity incorporated in the United in the United States. In addition, requirements applied to a local States (or an entity formed in certain former US corporations presence of a foreign company the United States that is treated, remain subject to US income tax Question 1. Does your respective or electing to be treated, as a on their worldwide income, i.e., country require a certain level of corporation for US tax purposes) “expatriated” entities in which “presence” (or substance) in the is a US person and is taxed on a US corporation undergoes a country before allowing companies its income, regardless of where “corporate inversion” transaction the benešit of local tax legislation that income is earned. An entity so that it replaces the US parent of and/or double tax treaties? that is formed in the United a worldwide a¦iliated group with States but is treated as šiscally a foreign parent of the worldwide Because the United States does not transparent for US tax purposes, a¦iliated group. In contrast, the have oshore or ring-fenced regimes, such as a partnership, is not itself determination of whether a foreign there is generally no US tax incentive subject to US tax, but its owners person is engaged in a US trade or or benešit to a company to create are taxed on the income of the business and therefore subject to a taxable presence in the United pass-through entity. Thus, owners US income tax on that US trade or States. Having a taxable presence of the pass-through entity that business is very fact-specišic. There in the United States simply means are US persons are subject to US is case law about the standard, but that a foreign company will pay US income tax on income from the many of the cases are fairly old. The tax at the graduated income tax pass-through entity, regardless of IRS will generally not provide a ruling rates that apply to US taxpayers, where that income is earned. as to whether a foreign company is along with possibly the US “branch engaged in a trade or business in the prošits tax.” Thus, a foreign company • The US income taxation threshold United States or whether income is will “voluntarily” subject itself to US for non-residents generally turns on eectively connected with a US trade income tax only in rare occasions, whether they directly or indirectly or business. Nor will the IRS generally such as when the foreign company (e.g., through ownership in a rule whether a foreign company has would otherwise be subject to US domestic or foreign pass-through a permanent establishment in the withholding tax on gross payments entity) (1) conduct a trade or United States or whether income and determines that being subject business in the United States or (2) is attributable to a US permanent to US income tax on the net income if a US tax treaty is applicable, have establishment. would result in a lower US tax liability a permanent establishment in the for the company. United States. Of course, even if a The substance requirements foreign company is not engaged applied to a foreign company The specišic US taxation of a in a US trade or business, it may be established in a foreign country company depends on (1) whether the subject to US withholding tax on Question 3. Do the tax authorities of company is considered a resident certain US-source income. your respective country frequently use for US tax purposes and (2) if it is their right to request administrative a foreign company, whether it is Question 2. How are substance assistance from tax authorities of engaged in US activities or receiving requirements applied in practice by dierent jurisdictions to conširm US-source income. the local tax authorities and/or courts level of “presence” (or substance) in of your respective country? the other country before allowing • If a company is treated as a US companies benešit of local tax tax resident, then the company Regarding residence, the United legislation and/or double tax treaties? is subject to US income tax on its States is formalistic regarding worldwide income, regardless of corporations, with US taxation of Generally, US tax authorities rely on whether it conducts any activity worldwide income turning simply on self-certišication and documentation in the United States. Generally, an whether the entity is incorporated by a foreign company that it is a

dentons.com 63 resident of a tax treaty partner and Because rules regarding formation of US income tax on its activities. Absent eligible for benešits of a US income a company are at the US State, rather the statutory safe harbors, there is a tax treaty. The US tax authorities may than national, level, the specišic signišicant grey area as to the level contact tax authorities in a relevant requirements depend on the US of activity and specišic activities that jurisdiction if the US tax authorities State where the company is formed. cause a foreign company to be subject challenge the foreign company’s self- to US income tax. certišication or documentation. Question 6. Does your respective country require that place of Question 8. Is residency certišicate Question 4. What are the management is to be situated and/ or other document required by requirements of your country as or decision making is to take place your respective country to conširm to level of “presence” of a foreign in the foreign country to satisfy residency of a foreign company? Are company in a foreign country? a required level of “presence” (or there any specišic requirements to substance)? such document? What is the validity If a foreign company is not eligible term of such document? for benešits of a US income tax treaty, Under its domestic law, the the foreign company is subject to US United States looks only to place A foreign company seeking treaty income taxation to the extent that of incorporation, and not place benešits or asserting no US trade or it has income eectively connected of management and control, in business, generally must complete with the conduct of a trade or determining whether a corporation is a Form Wµ8BEN if it is the benešicial business in the United States (“ECI”). subject to US income tax as a resident. owner of the income, along with In that case, the foreign company’s any substantiation required by the level of presence in another country Question 7. Are there any Form Wµ8BEN (which depends on is generally not relevant for US tax requirements as to types of business the specišic benešit being claimed). purposes. For a foreign company activities to be performed or not to A completed Form Wµ8BEN that resident in a jurisdiction that has an be performed by a foreign company includes a US taxpayer identišication income tax treaty with the United in foreign country in order to fulšill number is generally valid until there States, US tax treaties generally “presence” or “substance” criteria? is a change in circumstances that require the foreign company to have makes any information on the form a substantive connection to the Generally, under case law, to be incorrect. If a foreign company lacks a treaty jurisdiction (beyond merely considered engaged in a US trade US taxpayer identišication number, its being a tax resident) by meeting or business, the activities must be completed Form Wµ8BEN is generally a limitation on benešits provision “continuous, regular, and substantial.” valid for the calendar year in which in the treaty to obtain the benešits Thus, in the absence of any other US the form is signed and the following (e.g., permanent establishment activities, sales of products into the three calendar years, until there is a protection) of the tax treaty. Those United States from outside the United change in circumstances that makes few US income tax treaties without States are not considered to be the any information on the form incorrect. a limitation on benešits provision are conduct of a US trade or business Depending on a foreign company’s being renegotiated to achieve such and income from such sales is not status and activities, the foreign a provision. See the new US income ECI. In contrast, income from the company may have to provide a tax treaties with Hungary and Poland. performance of services in the United dierent type of Form Wµ8, e.g., a Form States generally constitutes ECI and Wµ8ECI if it is engaged in a US trade Question 5. Are there any specišic therefore subjects a foreign company or business or a Form Wµ8IMY if it is an requirements as to type, nationality, to US income tax. For certain activities, intermediary or pass-through entity. residency and knowledge of the e.g., stock trading, there are safe board members and/or directors of a harbors that a foreign company may The forms and requirements company? rely upon to avoid being subject to described above may change

64 dentons.com because the current forms and rules are being modišied in light of the Foreign Account Tax Compliance Act, or FATCA.

Question 9. Assess how if at all treaty shopping is addressed in double tax treaties to which your country is a party?

Treaty shopping is generally addressed through comprehensive limitation on benešits articles in US tax treaties. The limitation on benešits article requires a foreign person seeking treaty benešits to be a tax resident of the treaty jurisdiction and to meet one of the specišic tests in the article. The specišic tests vary by treaty, but they generally permit tax treaty benešits to companies that are owned by individual residents of the treaty partner, publicly traded companies, companies that meet an ownership/base erosion standard, companies that meet an active conduct of business test, and companies that meet any of the other tests intended to show a substantive connection to the treaty partner.

Question 10: Does the legislation of your country provide for to prevent treaty shopping?

There are some statutory rules that limit use of treaty benešits, but the primary means of preventing treaty shopping is through limitation on benešit provisions in the tax treaties themselves.

dentons.com 65 Tax contacts

Almaty Bucharest Edmonton Kanat Skakov, Partner Delia Dragomir, Managing Counsel Mark H. Woltersdorf, Partner 135 Abylai Khan Ave General C. Budisteanu 28µC 2900 Manulife Place Almaty, 050000 Bucharest, 010775 10180 - 101 Street Kazakhstan Romania Edmonton, Alberta T5J 3V5 [email protected] [email protected] Canada T +77272582380 T +40213124950 [email protected] T +17804237100 Amsterdam Budapest Rob Cornelisse, Partner Tamás Tercsák, Managing Partner Frankfurt Roeskestraat 100, Westend ‘A’ Tower, 5th Floor Michael Graf, Partner 1076 ED Amsterdam Váci út 1µ3, Budapest, 1062 Platz der Einheit 2 The Netherlands Hungary Gebäude Pollux rob.cornelisse@loyensloe.com [email protected] Frankfurt am Main, 60327 T +31 20 578 57 85 T +3618806100 Germany [email protected] Baku Calgary T +49 69 4500 12215 Ophelia Abdullayeva, Of Counsel Jehad Haymour, Partner Hyatt International Center 850 2nd Street SW Kansas City Hyatt Tower 2 15th Floor, Calgary, Alberta T2P 0R8 Bruce C. Davison, Partner Baku 1065 Canada 4520 Main Street Azerbaijan [email protected] Suite 1100 [email protected] T +1 403 268 7162 Kansas City, MO 64111 T +994124907565 United States Chicago [email protected] Berlin Thomas Stephens, Partner T +1 816 460 2400 Stephan Busch, Partner 233 South Wacker Drive Markgrafenstraße 33 Suite 7800 Kyiv Dµ10117 Berlin Chicago, IL 60606 Igor Davidenko, Partner Germany United States 49µA, Volodymyrska Street [email protected] [email protected] Kyiv, 01001 T +4930264730 T +1 312 876 7485 Ukraine [email protected] Bratislava Dallas T +380444944774 Katarína Pecnová, Of Counsel Todd Welty, Partner Námestie SNP 15 2000 McKinney Avenue London Bratislava, 81106 Suite 1900 Alex Thomas, Partner Slovakia Dallas, TX 75201 UKMEA Tax Head [email protected] United States One Fleet Place T +4212206601113 [email protected] EC4M 7WS London T +1 214 259 09533 United Kingdom [email protected] T +442072421212

66 dentons.com Madrid Prague Loyens&Loe Lourdes Perez-Luque, Partner Petr Kotáb, Partner www.loyensloe.com José Ortega y Gasset, 29 Platnéřská 4 Madrid, 28006 Prague 1, 110 00 Dentons Spain Czech Republic www.dentons.com [email protected] [email protected] T +34914363325 T +420236082111

Montreal Toronto Constantine A. Kyres, Partner Neil Bass, Partner 1 Place Ville-Marie Canada Tax Head 39th Floor, Montreal 77 King Street West Quebec H3B 4M7 Suite 400, Toronto, Ontario M5K 0A1 Canada Canada [email protected] [email protected] T +1 514 878 8834 T +14168634511

Moscow Vancouver Dzhangar Dzhalchinov, Partner Joel A. Nitikman, Partner Balchug Plaza 250 Howe Street, 20th Floor Ul. Balchug, 7, Moscow, 115035 Vancouver, British Columbia V6C 3R8 Russian Federation Canada [email protected] [email protected] T +7 495 644 0500 T +16046874460

New York Warsaw Marc D. Teitelbaum, Partner Karina Furga-Dąbrowska, Partner US Tax Head CEE Tax Head Rockefeller Center, 620 Fifth Avenue Rondo ONZ 1, 00µ124 Poland New York, NY 10020µ1089 Warsaw United States [email protected] [email protected] T +48222425252 T +12126325500 Washington, DC Paris John Harrington, Partner Sandra Hazan, Partner 1301 K Street, NW Europe Tax Head Suite 600, East Tower 5 boulevard Malesherbes Washington, DC 20005 Paris, 75008 United States France [email protected] [email protected] T +1 202 408 6352 T +33142684800

dentons.com 67

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CS26350-Vox Tax Report — 12/08/2013