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Tax Planning for European Expansion in a Changing Landscape (2021)

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Tax Planning for European Expansion in a Changing Landscape (2021) OUTBOUND ACQUISITIONS: TAX PLANNING FOR EUROPEAN EXPANSION IN A CHANGING LANDSCAPE (2021) Insights Special Edition © Practising Law Institute. Reprinted from the PLI Publication, The Corporate Tax Practice Series 2021 (Item #304752). TABLE OF CONTENTS EDITORS’ NOTE For several years, the Summer Edition of Insights examined various cross border Editors’ Note structures available to serve as part of an overall tax plan for European expansion by U.S. companies. Author Contacts Historically, these plans followed a road map designed to deconstruct business op- Introduction ................................ 5 erations, placing production, financing, and I.P. functions in separate group mem- bers in different countries. If the road map was carefully followed, European taxes B.E.P.S. and Holding on operations could be driven down in ways that did not result in immediate U.S. Companies .............................. 24 taxation under Subpart F. Large U.S. based multinationals became expert in navi- gating the road map. European Tax Law ................... 50 Events beginning in 2017 and carrying through to 2021 make it unrealistic to believe Luxembourg ............................. 76 that old planning strategies still yield benefits. Too many barriers now exist. Switzerland ............................ 103 • The first barrier consists of the actions taken by the O.E.C.D. to curtail base erosion and profit shifting through the B.E.P.S. Project. Netherlands ........................... 114 • The second barrier is a never-ending stream of directives issued by the Euro- Ireland .................................... 132 pean Commission and proposals by the European Parliament attacking vari- ous tax plans involving affiliated companies and their beneficial owners, with Spain ..................................... 145 the intent of exposing tax plans to name and shame attacks by stakeholders. Portugal ................................. 158 • The third barrier consists of several decisions of the European Court of Jus- tice, known as the “Danish Cases,” judicially mandating that all plans must United Kingdom ..................... 177 reflect economic substance and business purpose in order to be effective. Belgium .................................. 214 • The fourth barrier is D.A.C.6, a European Council Directive on Administrative Cooperation, imposing reporting obligations on intermediaries who advise Sweden .................................. 247 clients or provide services in support of cross-border tax arrangements con- taining certain hallmarks of abusive tax planning. Denmark ................................ 256 • The fifth barrier consists of Pillar 1 and Pillar 2 proposed by the O.E.C.D. Austria ................................... 274 in support of the B.E.P.S. project, which proposes to adjust taxing rights of countries touched by international business, investment, and trade transac- France ................................... 291 tions and to impose a global minimum tax. Italy ........................................ 326 If these were not sufficient impediments to old-fashioned tax plans, the U.S. en- acted the Tax Cuts & Jobs Act (“T.C.J.A.”) in late December 2017, which turned Germany ................................ 357 cross-border tax planning on its head. The T.C.J.A. included many changes to U.S. international tax law. Among its international provisions are the following: Cyprus ................................... 372 • The adoption of a dividends received deduction with a low ownership thresh- Malta ...................................... 401 old in place of the indirect foreign tax credit tax credit available to corporations About Us • The imposition of mandatory gain recognition for outbound transfers of prop- erty to be used in an active trade or business conducted outside the U.S. • The adoption of G.I.L.T.I. provisions on previously deferred income of con- trolled foreign corporations • Attacks on cross-border hybrid transaction among related C.F.C.’s Insights Special Edition | Table of Contents | Visit www.ruchelaw.com for further information. 2 The 2021 Summer Edition of Insights addresses the broad range of impediments that must be overcome in planning cross-border operations. It begins with a de- tailed overview of post-T.C.J.A. U.S. tax law, comparing old rules with new realities, and a general preview of revisions proposed by the current Administration in the U.S. From there, B.E.P.S. provisions applicable on a global basis are addressed, followed by European attacks on illegal State Aid and abusive tax planning within Europe, in which several embarrassing losses for the European Commission and an important win for the Danish tax administration are addressed. It concludes with detailed explanations of corporate tax rules in 16 European jurisdictions by recog- nized experts in the respective countries. In sum, the 2021 Summer Edition of Insights is a treatise that addresses corporate tax planning for European expansion in a changing landscape that is 2021. We hope you enjoy this issue. - The Editors © Practising Law Institute. Reprinted from the PLI Publication, The Corporate Tax Practice Series 2021 (Item #304752). Insights Special Edition | Table of Contents | Visit www.ruchelaw.com for further information. 3 AUTHOR CONTACTS JOÃO LUÍS ARAÚJO STANLEY C. RUCHELMAN TELLES Ruchelman P.L.L.C. Porto, Porugal New York, U.S.A. [email protected] [email protected] GUILLERMO CANALEJO LASARTE Uría Menéndez MATTHIAS SCHEIFELE Madrid, Spain Hengeler Mueller [email protected] Munich, Germany [email protected] MICHEL COLLET CMS-Francis Lefebvre DR. NIKLAS SCHMIDT Neuilly-sur-Seine, France Wolf Theiss [email protected] Vienna, Austria [email protected] NAIRY DER ARAKELIAN-MERHEJE Der Arakelian-Merheje LLC Nicosia , Cyprus JAMES SOMERVILLE [email protected] A&L Goodbody Dublin, Ireland ERIC FORT [email protected] Arendt & Medernach New York, U.S.A. PETER UTTERSTRÖM [email protected] Peter Utterström Advokat AB Stockholm, Sweden DR. STEFAN P. GAUCI Attorney-at-Law [email protected] Malta [email protected] EWOUT VAN ASBECK Van Doorne N.V. WERNER HEYVAERT Amsterdam, Netherlands AKD Benelux Lawyers [email protected] Brussels, Belgium [email protected] FRANK VAN KUIJK Loyens & Loeff STEPHAN NEIDHARDT Stephan Neidhardt A&S Luxembourg Zürich, Switzerland [email protected] [email protected] DR. WOLF-GEORG VON RECHENBERG ARNE RIIS BRL Böge Rohde Lübbehusen BDO Denmark Berlin, Germany Copenhagen, Denmark [email protected] [email protected] ELOISE WALKER LUCA ROSSI Facchini Rossi Michelutti Pinsent Masons L.L.P. Milan, Italy London, U.K. [email protected] [email protected] Insights Special Edition | Table of Contents | Visit www.ruchelaw.com for further information. 4 INTRODUCTION Author GLOBAL TAX PLANNING IN A PRE-2018 WORLD Stanley C. Ruchelman Ruchelman P.L.L.C. Prior to 2018, widely-used tax plans of U.S.-based multinational groups were de- New York, U.S.A. signed to achieve three basic goals in connection with European operations: (i) the reduction of European taxes as European profits were generated, (ii) the integration of European tax plans with U.S. tax concepts to prevent Subpart F from applying to intercompany transactions in Europe, and (iii) the reduction of withholding taxes and U.S. tax under Subpart F as profits were distributed through a chain of European companies and then to the global parent in the U.S. Reduction of Taxes in Europe The first goal – the reduction of European taxation on operating profits – often en- tailed the deconstruction of a business into various affiliated companies, which can be illustrated as follows: • Group equity for European operations was placed in a holding company that served as an entrepôt to Europe. • Tangible operating assets related to manufacturing or sales were owned by a second company or companies where the facilities or markets were located. All of the authors acknowledge the contribution of Claire Melchert of • Financing was provided by a third company where rulings or legislation were Ruchelman P.L.L.C. and Hali R. favorable. Woods for converting 19 separate submissions prepared by persons • Intangible property was owned by a fourth company qualifying as an innova- having a multitude of birth tion box company. languages into a cohesive and accurate monograph. If the roadmap was carefully followed, European taxes on operations could be driv- en down in ways that did not result in immediate U.S. taxation under Subpart F. A simplified version of the plan that was widely used by U.S.-based multinational groups involved the following steps: • Form an Irish controlled foreign corporation (“TOPCO”) that is managed and controlled in Bermuda. • Have TOPCO enter into a qualified cost sharing agreement with its U.S. parent providing for the emigration of intangible property to TOPCO for ex- ploitation outside the U.S. at an acceptable buy-in payment that could be paid overtime. • Have TOPCO form a Dutch subsidiary (“DCO”) to serve as a licensing compa- ny, and an Irish subsidiary (“OPCO”) to carry on active business operations. Insights Special Edition | Table of Contents | Visit www.ruchelaw.com for further information. 5 • Make check-the-box elections for DCO and OPCO so that both are treated as branches of TOPCO. • Have TOPCO license the rights previously obtained under the qualified cost sharing agreement to DCO and have DCO enter a comparable license agree- ment
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