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Insights 2019 Year in Review RUCHELMAN|30 the next generation of tax 2019 YEAR IN REVIEW IR35 – WHY ARE U.K. BUSINESSES SO CONCERNED? A YEAR OF GUEST FEATURES Insights Special Edition Vol. 6 No. 10 TABLE OF EDITORS’ NOTE CONTENTS As is our tradition at Insights, the December special edition acknowledges the arti- Editors’ Note cles authored throughout the year by colleagues at law firms and accounting firms across the globe who have taken the time and interest to contribute to our jounal. IR35 – Why Are U.K. Businesses Eighteen articles written by 25 guest authors have appeared throughout 2019. We So Concerned? .......................... 8 begin by looking forward, with an article on employment tax rules in the U.K. that will apply to the private sector in April 2020, and follow up with the 17 guest pieces New Developments on the published throughout the year. V.A.T. Regime of Holding Companies .............................. 15 To our guest authors, thanks. To our readers, happy holidays! 2019 Welcomes New Finnish 2019 Guest Authors Interest Deduction Limitations .. 23 Penny Simmons Claire Schmitt and Can Tax Authorities Demand Pinsent Masons LLP Bruno Gasparotto Access to Audit Workpapers? Arendt & Medernach Canadian Experience Follows Antti Lehtimaja and Sunita Doobay U.S. Rule ................................. 32 Sanna Lindqvist Blaney McMurty Krogerus Ltd O.E.C.D. on Digital Business – Seriously?! ............................... 45 Sanjay Sanghvi and Christian Shoppe Raghav Kumar Bajaj Deloitte Deutschland Tax Authorities Eye Gsk-Hul Khaitan & Co Merger: Could Attract Tax on Raghu Marwah and Long-Term Capital Gains and Lous Vervuurt Anjali Kukreja Brand Transfer ......................... 48 Buren N.V. R.N. Marwah & Co LLP Trust Regulations and Payment Services: Dutch Law in 2019 ... 50 Benjamin Twardosz Alicea Castellanos CHSH Attorneys-at-Law Global Taxes LLC Strategies for Foreign Investment in Indian Start-Ups ................... 57 Andreas Richter Arthur J. Radin P+P Pöllath + Partners (in memoriam) Austria, France, and Italy to Thierry Boitelle and Introduce Digital Services Sunil Agarwal Aliasghar Kanani Taxes ....................................... 60 AZB & Partners Bonnard Lawson Foreign Investment an U.S. Real Estate – A F.I.R.P.T.A. Rachida el Johari and Adnand Sulejmani and Introduction .............................. 65 Madeleine Molster Thierry Lesage Sagiure Legal Arendt & Medernach The Impact of Brexit On German Taxes for Private Clients and Daniel Paserman Jairaj Purandare Gornitzky & Co. JMP Advisors Pvt Ltd Nonprofit Organizations ........... 71 India and the Digital Economy – The Emerging P.E. and Attribution • IR35 – Why Are U.K. Businesses So Concerned? New U.K. tax rules are being introduced from April 2020 to make businesses liable for determining Issues ...................................... 77 the employment tax status of contractors who work through personal service companies (“P.S.C.’s”). These outsourcing arrangements have had a devas- tating effect on tax collections and funding for National Insurance, the U.K. version of Social Security. The goal of the new rules is to make customers Insights Volume 6 Number 10 | Table of Contents | Visit www.ruchelaw.com for further information. 2 TABLE OF of P.S.C.’s liable for collecting wage withholding tax and National Insurance contributions that are not collected by the P.S.C. when the worker of the CONTENTS CONT. P.S.C. would otherwise be properly characterized for U.K. tax purposes as an employee of the customer of the P.S.C. under tests published by H.M.R.C. 2020 Will Mark the End of an Any company involved in the P.S.C. arrangement may have inchoate liability Era: Swiss Corporate Tax Reform for payments of wage withholding tax and National Insurance. Penny Sim- Accepted .................................. 87 mons, of Pinsent Masons LLP, London, explains the scope of the exposure and expounds on procedures that should be adopted in advance of the April Reflections on My 66 Years in 2020 effective date. Public Accounting .................... 91 • New Developments on the V.A.T. Regime of Holding Companies. Like C.J.E.U. Judgments on Danish state and local tax in the U.S., where tax exposure can be underestimated Beneficial Ownership Cases .... 96 by many corporate tax planners, the V.A.T. rules in the E.U. contain many pitfalls. This is especially true when it comes to recovery of V.A.T. input taxes Employers in the Netherlands: by holding companies. A corporate tax adviser may presume that all V.A.T. Prepare for Changes to Labor input taxes paid by a holding company are recoverable. Yet, despite abun- and Dismissal Laws in 2020 .. 105 dant jurisprudence, debate continues regarding the V.A.T. recovery rights of holding companies. The starting point in the analysis is easy to state: Hold- India Budget 2019-20 ............ 112 ing companies that actively manage subsidiaries can recover V.A.T., while holding companies that passively hold shares cannot. The problem is in the Israeli C.F.C. Rules Apply to application of the theory, where the line between active and passive behavior Foreign Real Estate Companies is blurred by seemingly inconsistent decisions. Bruno Gasparotto and Claire Controlled by Israeli Schmitt of Arendt & Medernach, Luxembourg, explain the rules and how they Shareholders ......................... 118 have been applied by the C.J.E.U. Collecting Another Country’s • 2019 Welcomes New Finnish Interest Deduction Limitations. Changes Taxes – Recent Experience in the to the Finnish interest barrier regime have come into effect in 2019. They Canada-U.S. Context ............. 120 have been expected since 2016, when the E.U. released its Anti-Tax Avoid- ance Directive (“A.T.A.D.”), which sets forth the minimum standards for inter- Contacts est deduction restrictions within the E.U. The limitations affect E.B.I.T.D.A.- based rules (i.e., addressing earnings before interest, tax, depreciation, and amortization) adopted in 2014, which include the specific interest barrier rule affecting the deductibility of intra-group interest payments. Antti Lehtimaja and Sanna Lindqvist of Krogerus Ltd., Helsinki, explain the key elements of the new restrictions, including some considerations regarding the impact on Finnish taxpayers and investments in Finland. • Can Tax Authorities Demand Access to Audit Workpapers? Canadian Experience Follows U.S. Rule. Recent victories in litigation have allowed the Canada Revenue Agency to review tax accrual workpapers of Canadian corporations, provided the request for access is not a “fishing expedition” attempting to find issues. In the U.S., the I.R.S. has enjoyed that power for many years. Sunita Doobay of Blaney McMurtry L.L.P., Toronto, examines the scope and limitations of the Canadian decisions. Stanley C. Ruchelman reviews case law in the U.S., the role of FIN 48, and the purpose behind Schedule UTP (reporting uncertain tax positions), which surprisingly is de- signed to limit examinations of tax accrual workpapers. • O.E.C.D. on Digital Business – Seriously?! On February 13, 2019, the O.E.C.D. issued a discussion draft addressing the tax challenges of the dig- italization of the economy and asked for feedback in a shockingly brief time- frame. Is the discussion draft — which in many respects mimics G.I.L.T.I. Insights Volume 6 Number 10 | Table of Contents | Visit www.ruchelaw.com for further information. 3 provisions and highlights the value of a market as a key determiner of profit allocation — a move away from value of functions? In a stealth way, it may be a precursor to a global B.E.A.T. Christian Shoppe of Deloitte Deutschland, Frankfurt, cautions that the ultimate destination of B.E.P.S. may be added complexity in tax laws and expanded opportunity for double taxation. Bad news for taxpayers; more work for tax advisers. • Tax Authorities Eye GSK-HUL Merger: Could Attract Tax on Long-Term Capital Gains and Brand Transfer. GSK Consumer Healthcare India (GSK India) is in the process of merging with Hindustan Unilever Ltd (HUL) in the biggest deal in India’s consumer packaged goods space, valued at approx- imately $4.5 billion. Although the transaction is structured to be tax-free for shareholders, plenty of room exists for the Indian tax authorities to assert tax from the companies: The transfer of a brand owned outside India may generate Indian tax to the extent its value stems principally from India. In addition, arm’s length pricing for royalty payments and accompanying with- holding tax issues also come into play. Sanjay Sanghvi and Raghav Kumar Bajaj of Khaitan & Co., Mumbai and New Delhi, discuss the global tax issues surrounding the transaction. • Strategies for Foreign Investment in Indian Start-Ups. Foreign invest- ment in Indian high-tech start-ups can yield significant profit opportunities for savvy investors. During 2018, over 1,000 deals were struck, reflecting $38.3 billion in new investments. If these investments turn out to be profitable, the tax exposure for the investor will vary with the form of the investment. Choic- es of investment vehicles include (i) L.L.P.’s, (ii) Category I, Subcategory I alternative investment funds (“A.I.F.’s”) registered with the Securities Ex- change Board, (iii) Category III A.I.F.’s, and (iv) trusts. Each has unique tax consequences for investors receiving dividends and realizing gains. Raghu Marwah and Anjali Kukreja of R.N. Marwah & Co L.L.P., New Delhi, explain the entities choices and the resulting tax costs. • Trust Regulations and Payment Services: Dutch Law in 2019. The Dutch government has taken steps in recent months to enhance regulatory over- sight. The new Act on the Supervision of Trust Offices 2018 adopts serious best practices for trust companies designed to prevent Dutch entanglement in the next set of Panama Papers. KYC due diligence must be real. At the same time, the Second Payment Services Directive (“P.S.D. II”) was trans- posed into Dutch law.
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