March 30, 2022

Use it or Lose it: The Future of Shell Entities in the E.U.

March 30, 2022/ Ruchelman P.L.L.C.

Shortly before Christmas, the European Commission published a proposal for a directive laying down rules to prevent the misuse of shell entities for improper tax purposes. The “Unshell Directive” applies to any company or other “undertaking,” regardless of its legal form that (i) is considered tax resident in an E.U. Member State and (ii) is eligible to receive a tax residency certificate. Targeted by the Unshell Directive are entities that have the following characteristics: (a) they lack real economic activities, (b) they are involved in certain cross-border arrangements forming a scheme to avoid and evade taxes, and (c) they allow their beneficial owners or parent company to access a tax advantage. Paul Kraan, a tax partner at Van Campen Liem in Amsterdam, explains the general exemptions, the gateway indicators, the reporting obligations, the presumptions, and potential rebuttals in this attack on certain special purpose vehicles.

April 30, 2019

Austria, France, and Italy to Introduce Digital Services Taxes

April 30, 2019/ Ruchelman P.L.L.C.

A limerick that is popular among members of the U.S. Congressional tax writing committees sheds wisdom on the development of tax policy: “Don’t tax you. Don’t tax me. Tax the person behind the tree.” Several countries in Europe have taken the rhyme to heart in developing unilateral digital services taxes designed to impose tax on extra-territorial activity of out-of-country companies. The issue, as Austria, France, and Italy see it, is that these companies make huge profits in Europe but pay no tax there, while payments for digital services are often tax deductible in the countries where the services are used. According to proponents such as Austria, it is only fair to tax those profits on a destination basis. Benjamin Twardosz of CHSH Attorneys-at-Law, Vienna, explains the various proposals under consideration.

April 30, 2019

The Impact of Brexit on German Taxes for Private Clients and Nonprofit Organizations

April 30, 2019/ Ruchelman P.L.L.C.

American business executives responsible for regional operations in Europe often see different approaches to problem solving in terms of cultural differences between various European countries. It can be said that British colleagues often continue to rethink decisions even after solutions are adopted, and German colleagues focus on engineering a unified approach to reach the best solution to the matter at hand. These cultural characteristics seem to have manifested in the different ways Parliament in the U.K. and the Bundestag in Germany are addressing Brexit. Parliament continues to debate whether, when, and how to implement Brexit, while the Bundestag has enacted several laws to address how a hard or soft Brexit will affect various aspects of German tax law. Dr. Andreas Richter of P+P Pöllath + Partners, Berlin and Frankfurt, provides the reader with an overview of the German tax consequences to be anticipated from a U.K. departure from the E.U. – with or without a formal Brexit agreement.

November 29, 2018

The U.K. Digital Sales Tax – It Could Be You

November 29, 2018/ Ruchelman P.L.L.C.

On November 7, 2018, the U.K. government confirmed that it will proceed with the introduction of a digital services tax ("D.S.T.") on large businesses. The tax will be charged beginning April 2020. It will apply to three key areas, which the government has concluded derive a huge value from the participation of U.K. users and are largely untaxed. Eloise Walker of Pinsent Masons, London, provides an overview of the D.S.T., cautioning that problems exist in identifying both the revenue to which the D.S.T. will apply and the hallmarks of jurisdiction that must exist in order for the tax to be imposed.

October 31, 2018

In the Fight Against Money Laundering, Europe Tackles Cash Controls

October 31, 2018/ Ruchelman P.L.L.C.

In early October, the European Council adopted a regulation aimed at improving controls on cash entering or leaving the E.U. The new regulation provides necessary tools to address threats arising from terrorist financing, money laundering, tax evasion, and other criminal activities. It is based on current standards for combating money laundering and terrorism financing developed by the Financial Action Task Force (“F.A.T.F.”). Among other things, the new regulation requires a declaration of unaccompanied cash – that is, (i) cash sent by post, freight, or courier shipment and (ii) highly liquid instruments and commodities, such as checks, traveler’s checks, prepaid cards, and gold. Once the new regulation is signed by the European Council and the European Parliament, it will be published in the E.U. Official Journal and will enter into force 20 days thereafter. Galia Antebi explains all.

March 27, 2017

E.U. Data Protection and the Fight Against Tax Evasion: A Delicate Balance

March 27, 2017/ Ruchelman P.L.L.C.

The tax world has seen an important shift in global policies, with an emphasis on tax transparency and exchange of information. The transparency measures are contained in tax-driven and non-tax-driven legislation, and while the goals of the legislation may be lofty, the policies may violate fundamental individual rights, including data protection. Fanny Karaman and Astrid Champion examine the E.U.’s non-fiscally-driven approach to tax transparency and, more precisely, the legal limits of such transparency as evidenced in recent cases.

October 26, 2016

European State Aid and W.T.O. Subsidies

October 26, 2016/ Ruchelman P.L.L.C.

Recent European Commission rulings have attacked tax rulings granted by Ireland and the Netherlands to Apple and Starbucks, respectively. These rulings are not meaningfully different from those granted for decades by various E.U. Member States. To the shock of these countries, the tax rulings distorted trade. At the same time, the World Trade Organization (“W.T.O.”) determined that several E.U. Member States have granted actionable subsidies to Airbus in order to assist the company in a way that distorts trade among W.T.O. members. Fanny Karaman, Stanley C. Ruchelman, and Astrid Champion explain (i) the basic internal procedures within the E.U. that outlaw State Aid and (ii) the applicable provisions of the global trade agreement embodied in the W.T.O. in connection with actionable subsidies. In light of the W.T.O. ruling, the question to be answered is whether the E.U. is being disingenuous by not recovering the European subsidies given to Airbus.

January 15, 2016

Insights Vol. 3 No. 1: Updates & Other Tidbits

January 15, 2016/ Web Admin

This month, Insights discusses recent events including a Beanie Baby billionaire’s light sentence; a tax reform report by the European Parliament addressing tax rulings, a common consolidated corporate tax base, a crackdown on tax havens, whistle-blower protection, public access to country-by-country (CbC) reports, and a lower threshold to approve E.U. tax legislation; a House Ways and Means Committee action in regard to B.E.P.S., E.U. investigations on State Aid, patent box regimes, and inversions; identity theft risk in I.R.S. proposed regulations regarding charitable deductions; and allowance of accounting non-conformity for foreign-based groups that do not adopt L.I.F.O. accounting when that method is adopted by a U.S. member.

August 15, 2015

European Commission, State Aid, and Tax Transparency – More Steps in One Direction

August 15, 2015/ Web Admin

The EDF experience in France demonstrates that State Aid in Europe comes in many forms, and it can be harshly treated when discovered. Beate Erwin looks at the case against France’s main electricity provider and other developments in the European Commission’s attack on State Aid through private tax rulings. She finds that the result in the EDF case is not an anomaly.

July 15, 2015

Is an E.U. Financial Transactions Tax Coming in 2016?

July 15, 2015/ Ruchelman P.L.L.C.

Although the origins of the Financial Transactions Tax (“F.T.T.”) date back to the 1970’s, the European Commission first proposed a European Union-wide financial transactions tax in 2011. The proposal came at a time when many Europeans were concerned about the bad behavior of large banks and several E.U. countries were spending billions of dollars to bail out failing banks, while imposing austerity measures to counterbalance the impact on their budgets. Elizabeth V. Zanet and John Chown ponder whether the E.U. will adopt an F.T.T. now that 11 states have agreed to work on its implementation. Open issues exist.

July 15, 2015

Tax Rulings in the European Union – State Aid as the European Commission's Sword Leading to Transparency Rulings

July 15, 2015/ Web Admin

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The European Union’s plan on putting an end to corporate tax breaks granted by means of letter rulings ran into German privacy concerns as E.U. Finance ministers met on June 19, 2015. The initiative, aimed at implementing an automatic exchange of letter rulings granted by E.U. Member States, will affect E.U. businesses as well as European operations of foreign multinationals, including those based in the United States. Examples of the latter are already under review by the E.U. Commission with regard to letter rulings issued by Ireland and the Netherlands, respectively, to local operations of Apple and Starbucks. Although the E.U. Commission, the executive body of the European Union, has no direct authority over national tax systems, it can investigate whether certain fiscal regimes, including those that issue advance private tax rulings, constitute an infringement of E.U. principles, in particular “unjustifiable” State Aid to companies. Such allegedly incompatible State Aid would comprise, inter alia, selective tax advantages granted by an E.U. Member State to companies with operations in its jurisdiction.

The Commission is very clear on its intent to use its powers and pursue its initiative vigorously. The financial press has widely reported a statement made by a spokesman for Competition Commissioner Margrethe Vestager that combating tax evasion and avoidance is a top priority of the Commission. In line with that concern, the Commission is taking a structured approach when using its State Aid enforcement powers to investigate selective tax advantages that distort fair competition.

The following provides an overview on the legislative framework with respect to State Aid, developments and an outlook on the future of tax rulings in an environment of increased tax transparency.

May 15, 2015

Ten Year Throwback

May 15, 2015/ Web Admin

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Two years ago, a U.S. Senate investigation accused Ireland of granting Apple Inc. special tax treatment. This accusation sparked a seemingly never-ending investigation into the state aid granted by certain European countries to specific multinational companies. More recently, Apple, Starbucks, Fiat, and various other companies exposed in the “Luxembourg Leaks” scandal were accused of having paid substandard taxes as a result of agreements between those companies and the Netherlands, Luxembourg, and Ireland, which constituted illegal state aid.

Now, the European Commission (the “Commission”) is looking into the penalties that should be levied upon the income earned through these agreements. The Commission’s investigations into these advance rulings and advance pricing agreements (“A.P.A.’s”) between E.U. member-states and major U.S. multinationals could lead to tax adjustments dating as far back as ten years.

STATE AID

State aid is defined as “an advantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities.” This does not include subsidies or tax breaks available to all entities. A measure of state aid constitutes an intervention by a state, or through state resources, that gives specific companies or industry sectors an advantage on a selective basis, thereby distorting competition and affecting trade between E.U. member states.

March 15, 2015

McDonald's Accused of Re-Routing Royalty Payments to Avoid Billions in European Taxes

March 15, 2015/ Web Admin

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Labor unions are accusing McDonald’s of avoiding €1 billion in tax by re-routing revenue through Swiss and Luxembourg units.

McDonald’s apparently asked its various franchises to pay it royalty revenue for using the McDonald’s brand.

February 15, 2015

The Future of Ireland as a Place to Carry On Business in Light of Recent E.U. & O.E.C.D. Initiatives

February 15, 2015/ Web Admin

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INTRODUCTION

Ireland has long been established as the onshore location of choice for the world’s leading multinational enterprises (“M.N.E.’s”). Although Ireland’s attractiveness as a location for foreign direct investment is based on a number of factors, the low corporate tax rate of 12.5% is crucial.

Ireland’s corporate tax regime has received persistent and pervasive scrutiny from international media in recent times, focusing on topics such as the “Double Irish,” the O.E.C.D. B.E.P.S. initiative, and the Apple investigation. What must not be forgotten in the midst of such coverage is that Ireland has nothing to hide and nothing to fear from any of the above issues. Ireland is a small jurisdiction, and as far back as the 1950’s, the cornerstone of the economy has been foreign direct investment (“F.D.I.”).

Ireland makes no secret of its wish to compete with other jurisdictions for F.D.I., and its highly competitive corporate tax regime, including the 12.5% tax rate, forms part of a broader strategy that allows Ireland to “play to win.”

This article will discuss some of the main O.E.C.D. and E.U. initiatives impacting Ireland and the effects such initiatives are likely to have on Ireland and the M.N.E.’s which are based here.

January 15, 2014

Outbound Acquisitions: European Holding Company Structures [2014]→

January 15, 2014/ Web Admin

Published by the Practising Law Institute in the Corporate Tax Practice Series: Strategies for Corporate Acquisitions, Dispositions, Spin-Offs, Joint Ventures, Reorganizations & Restructurings, 2014.