Tax and Legal News, December 2020

Corporate taxation

The Central Tax Board Issued a Decision Concerning the Interest Limitation Rules

According to the rules, the interest limitation rules do not apply if the equity / assets ratio of the debtor is higher than the corresponding ratio on the group level (balance sheet exception). The case concerned the level at which the group accounts had to be prepared.In the case at hand, the Swedish parent company was owned by two Luxembourgian companies both with equal shares. The Central Tax Board considered that group accounts prepared by the Swedish company were those of a sub-group and thus, could not be used as a basis for the balance sheet exception. The Central Tax Board’s decision is in line with previous cases issued by SAC concerning foreign PE funds, in which SAC held that group accounts prepared at the level of a company directly owned by the fund was not sufficient.

The Supreme Administrative Court of Finland: Distribution of funds from the reserve for invested unrestricted equity was classified as dividend for tax treaty purposes

In the case of the Supreme Administrative Court 25.11.2020 T 4276, the question was whether a planned distribution of funds from the reserve for invested unrestricted equity should be regarded as a dividend for tax treaty purposes.

According to Finnish tax legislation, the distribution of funds from the reserve for invested unrestricted equity by a publicly listed company constitutes dividend income. With reference to applicable OECD guidelines, the Supreme Administrative Court ruled that such a distribution must also be regarded as dividend income for the purposes of tax treaties.

The Advocate General: Finnish rules on taxation of dividends partly in conflict with EU law

The Finnish Supreme Administrative Court (SAC) has requested a preliminary ruling in a case concerning the taxation of income from a foreign investment fund. The SAC asked the European Union Court of Justice (in case C-480/19) whether the provisions of the Treaty on the Functioning of the European Union (TFEU) concerning the free movement of capital preclude domestic rules according to which income received by an individual from a Luxembourg SICAV UCITS fund are classified as progressively taxed earned income, where income received from a domestic UCITS fund is taxed as capital income (subject to only mildly progressive taxation).

According to the AG, EU law has to be interpreted as “precluding that same legislation from reclassifying dividends paid by such companies as income from employment, while that same legislation states that dividends constitute, in principle, capital income”.

European Council conclusions: Fairness, efficiency, and conforming to the digitalization as key areas of European tax policy

The European Council has adopted conclusions (27.11.2020) expressing its latest views on tax policy of the European Union. The conclusions express the importance of fair and efficient taxation in the economic recovery during and after COVID-19, the challenges posed by digitalization, as well as the significance of enhancing good governance and cooperation in the field of taxation.

New transfer pricing documentation legislation in Italy

The Italian Revenue Agency on 23 November 2020 issued new transfer pricing documentation legislation which align the Italian requirements to the OECD transfer pricing guidelines. The new requirements introduce significant and substantial changes to the documentation that must be prepared in order to support the application of the arm’s length principle, and hence requirements for opting in the Italian penalty protection regime.

European Commission proposes measures in case of hard Brexit

Negotiations on the trade agreements between Great Britain and the EU will continue. Even though the transition period ends in two weeks. European Commission has already presented some measures that would be put into place if an agreement is not obtained or if an agreement is obtained too late for it to be implemented on 1st of January 2021. The measures would mitigate some significant disruptions, for example, by ensuring basic air and road connectivity. The Commission will work closely with the European Parliament to ensure that the measures would be implemented promptly, if necessary.

Is your SAP configuration ready for Brexit?

European Commission has published a new Regulation that sets two new different nomenclature codes to identify the UK territory: XU for the UK excluding Northern Ireland and XI for Northern Ireland. According to the communication from the Finnish Customs, GB code will be used for Great Britain and XI will be reserved for Northern Ireland. XI code is to be used in Intrastat reporting and GB code in the customs declarations. Contrary to previous information, the code XU will not be used in customs declarations.