European Tax Report Confédération Fiscale Européenne (CFE) October - November 2010 / Edition 9 NEWS - DIRECT TAX tablished in the Czech Republic, these contributions do not need to be included in the taxpayers‘ income tax base. In contrast, similar contributions paid to a foreign pension scheme are not deductible if paid by Council agrees on administrative the taxpayer and are considered as taxable income cooperation directive if paid by the employer. The Commission considers that this regime is contrary the free movement of wor- On 7 December 2010, the Ecofin Council reached a kers (Article 45 TFEU), to the freedom of establish- political agreement on the draft directive on admini- ment (Article 49 TFEU) and to the freedom to provide strative cooperation (COM(2009)29). The text shall services (Article 56 TFEU). be adopted without further discussion at the forthco- ming Ecofin meeting. In Sweden, according to the Commission, non-resi- dent pension funds are subject to discriminatory divi- Among the most discussed issues were the following: dends tax rules. Dividends paid to non-resident pen- sion funds are subject to a withholding tax of 15% or - Requests for information to other member states 30% in Sweden, depending on whether Sweden has will have to specify the identity of the person under a double tax treaty with the country of establishment investigation and the tax purpose for which the infor- of the pension fund. Pension funds established in mation is sought; these requirements that serve to Sweden, however, are exempt from tax on dividends avoid so-called „fishing expeditions“ (random collec- as well as from corporation tax. They are subject to tion of tax data without particular indications of fraud a 15% tax based on a notional calculation of its pro- or evasion), are less strict than the respective OECD fits. As a result of this system, the effective tax rate criteria. on Swedish-sourced dividends received by resident - Automatic exchange of information will start in 2015 pension funds will in most cases be lower than the and initially include 5 categories of information. 15% tax on the gross dividend of non-resident pen- sion funds. The Commission considers this to discri- minate against non-resident pension funds and to be contrary to the free movement of capital laid down READ MORE (click to open): in Article 63 of the Treaty on the Functioning of the European Union (TFEU). Directive Proposal: EN FR DE Both requests take the form of ‚reasoned opinions“ Council press release (7.12.10): EN (second stage of an infringement proceeding). In the absence of satisfactory responses within two months, the Commission may refer these member states to the ECJ. Commission requests Czech Republic and Sweden to end discriminatory READ MORE (click to open): pensions treatment Press release: FR DE CS On 28 October 2010, the European Commission re- quested the Czech Republic and Sweden to amend discriminatory provisions with regard to the taxation of pensions. Commission requests France to re- In the Czech Republic, domestic pension insurance schemes receive a more favourable tax treatment view two capping measures than similar foreign schemes, limiting Czech taxpa- On 28 October 2010, the European Commission has yers‘ freedom to choose foreign insurance schemes formally requested France to amend its legislation over domestic ones. Under Czech legislation, tax- governing its tax shield (bouclier fiscal) and the cap- payers can deduct their pension insurance contri- ping of the solidarity tax on wealth (ISF - impôt de so- butions from their income tax base if contributions lidarité sur la fortune) in order to bring it into line with are paid to a pension fund established in the Czech EU law, particularly in relation to the free movement Republic. In addition, if an employer, on behalf of its of persons, workers and capital. The request takes employees, pays into a pension insurance fund es- the form of a reasoned opinion. If France fails to com- NEWS - DIRECT TAX considers that the unequal treatment violates Articles 45 and 49 TFEU. Furthermore, Belgian legislation authorises the ded- ply with the reasoned opinion within two months, the uction of interest as professional expenses only in so Commission may refer the matter to the ECJ. far as it does not exceed an amount corresponding to the market rate. Such deduction however is possible The tax shield is a cap placed on the combined taxes where the interest is paid to Belgian financial institu- paid by a taxpayer in France which is fixed at 50% tions. This difference is likely to restrict foreign insti- of their income, the remaining amount being eligible tutions‘ freedom to provide services on the Belgian for a refund. The Commission does not challenge market and therefore, according to the Commission, the principle of this capping but objects to the fact contravenes Article 56 TFEU. The difference in treat- that persons who are not resident for tax purposes in ment is also likely to restrict access for customers France cannot benefit from it, even if they earn most resident in Belgium to services provided by foreign of their income in France and are primarily eligible to financial institutions and therefore restricts the free pay tax in that country. This limitation contravenes movement of capital (Article 63 TFEU). the free movement of persons and workers which is provided for under Articles 21, 45 and 49 TFEU. The Both requests take the form of reasoned opinions, same applied for a cap on the ISF to ensure that the the second step in infringement proceedings and the total amount of the ISF and income tax combined last step before bringing a case before the ECJ. does not exceed 85% of the tax household‘s taxable net income of the previous year which only applies to READ MORE (click to open): persons domiciled in France. In addition, the calculation of taxes paid, which cal- Press release: EN FR DE NL culates the amount equating to 50% and any possi- ble reimbursement, only takes into account the taxes paid in France. This is an obstacle to the free move- ment of capital provided for in Article 63 of the TFEU since it influences the investment decisions taken Project on the transfer pricing by French taxpayers who would, as a consequence, aspects of intangibles - prefer to acquire securities yielding dividends that are OECD meets with business taxed in France and included in the tax shield cal- commentators culation, rather than purchasing equivalent securities for which they would pay tax in another EEA member OECD received almost 50 contributions from the pu- state and which would not be taken into account in blic in response to its July 2010 call for comments the tax shield calculation in the same way. on the scoping of the new project on the transfer pri- cing aspects of intangibles (see European Tax Re- port 6/2010, p.5) envisaged for 2011. These were READ MORE (click to open): discussed at a meeting the competent OECD wor- king party held with commentators on 9 November Press release: EN FR DE 2010. The meeting documents were made publically available. The OECD indicated that it would release on the internet, probably in January 2011, information on the decisions that will be made on the scope of the project. The special session on the transfer pricing Commission asks Belgium to end aspects of intangibles will start substantive discus- discriminatory deduction of interest sions at its next meeting in March 2011 and hopes to paid and Flemish residents be able to release a discussion draft for public com- tax reduction ment towards the end of 2013. On 28 October 2010, the European Commission has formally asked Belgium to end the discriminato- READ MORE (click to open): ry treatment of non residents working in the Flemish Region and of interest paid to other member states‘ Press release: EN FR financial institutions: Under Belgian legislation, a flat rate tax reduction is Meeting documents: EN granted to residents of the Flemish region. The re- duction is not available to residents of another mem- ber state, who work in the Flemish region and earn all or virtually all of their income there. The Commission 3 NEWS - DIRECT TAX READ MORE (click to open): Press release: EN FR DE DA ES NL Commission publishes study on emission trading taxation The 76-page study published on 29 November 2010 examines current national practices with respect to Commission asks Belgium to put an emissions allowances in the EU and the countries end to the discriminatory tax treat- with similar cap-and-trade systems. It analyses po- ment of certain income from capital tential distortions resulting from national practices and identifies the best solutions. It deals with issues On 24 November 2010, the European Commission such as the tax treatment of allowances allocated for has officially asked Belgium to review its tax system free, that of allowances originated as Clean Deve- which imposes additional taxes on income from ca- lopment Mechanism or Joint Implementation, and the pital (dividends/interest) paid by foreign intermedia- tax treatment of penalties for non-compliance. It also ries to Belgian residents who invest abroad. Income examines the feasibility of various policy solutions at from capital paid in Belgium to Belgian residents is EU level. subject to a withholding tax. This deduction at source means that Belgian residents do not have to mention these dividends and interest in their annual personal READ MORE (click to open): income tax declarations and are exonerated from further taxation. Income from capital paid abroad to Study on tax treatment of ETS allowances: EN Belgian residents must, however, be mentioned in their annual personal income tax declarations.