|
International
Tax Updates
|
Joe
Bollard
Partner Corporate Tax Services
|
EU TAX POLICY
Speaking in Hungary,
Laszlo Kovacs, Commissioner for Taxation and Customs,
pointed out that the EU still does not function properly
— in the field of direct taxation, the 25 countries
apply 25 different methods of calculating the corporate
tax base. To cope with this problem, a Working Group
has started looking at a Commission proposal to introduce
a common consolidated corporate tax base. The business
community and the majority of Member States are in
favour. However, several Member States are still reluctant
and claim that it would interfere with their national
sovereignty and that tax harmonisation would soon
be followed by a harmonisation of corporate tax rates.
[More]
DENMARK
Corporate income tax
Denmark has introduced mandatory 'territorial Danish
joint taxation' for all affiliated Danish companies
and affiliated foreign companies’ permanent
establishments (PEs) in Denmark. Under this arrangement,
Danish companies cannot include profits or losses
from a foreign PE in their statement of taxable income.
An exemption applies to foreign PEs whose financial
income is primarily taxed at a low rate. The possibility
for a Danish company to be taxed on a joint basis
with its foreign subsidiaries is maintained. However,
the rules have changed considerably.
Also, the Danish tax rate for companies is being reduced
from 30% to 28% with effect from the income year 2006.
Finally, Denmark has also implemented the new EU guidelines
on State aid to maritime transportation in the Danish
tonnage tax regime.
FRANCE
Thin capitalisation rules
Recent European and French court decisions have targeted
France's anti-avoidance rules. The French Administrative
Supreme Court (Conseil d'Etat) in various cases has
set aside France's controlled foreign corporation
rules and thin capitalisation rules on the grounds
that they violate Treaty and EU law.
In 2004, France reformed its Controlled Foreign Companies
(CFC) rules to make them more compatible with Treaty
and EU law. The draft of the 2006 Finance (Budget)
Bill, released on 28 September 2005, addresses the
reform of the thin capitalisation rules. The new provisions
seem inspired by Section 163(j) of the US Internal
Revenue Code.
French tax reform
In its fight against tax avoidance, the French authorities
implemented Article 209B of the French Tax Code (CGI)
back in 1980. This Article made it possible to tax
the profits of certain foreign entities, which were
taking advantage of a low-tax jurisdiction. However,
the French State Court judged in the Schneider case
that Article 209B contravened parts of the international
tax treaties concluded by France. Under a new safeguard
clause, Article 209B no longer applies to structures
established in another EU Member State as long as
this investment does not constitute 'an artificial
scheme or structure whose goal would be to counteract
French tax legislation'. The new provisions apply
from 1 January 2006.
ESTONIA
Corporate tax rate
In order to encourage reinvestment, Estonia does not
charge tax on profits, but only on distributed profits,
such as dividends. Corporate income tax in 2005 is
charged on distributed profits at 24%. When Estonia
joined the EU, it was allowed to keep its unique tax
system until at least 31 December 2008, although the
Parent-Subsidiary Directive bars the withholding of
income tax on dividends paid to a parent company in
another EU Member State.
ITALY
Withholding tax changes
This change affects companies with operations in Italy.
In general, interest payments made by an Italian payer
to a foreign payee are subject to 12.5% withholding
tax (27% if the payee is resident in a low-tax jurisdiction).
Royalties paid by an Italian payer to a foreign payee
are subject to a 22.5% withholding tax. In both cases,
a lower withholding tax rate may apply if the recipient
is entitled to benefit from a double tax treaty signed
by Italy and the payee country. Following the official
enactment, no withholding tax should be imposed on
payments of interest and/or royalties to EU group
companies (including permanent establishments) that
have a qualifying relationship.
SWITZERLAND
Swiss-EU Savings Agreement
The Savings Directive (2003/48/EC) and the Savings
Agreement between Switzerland and the EU finally came
into force on 1 July 2005. From that date, Switzerland
will apply a withholding tax on all interest payments
made by a Swiss paying agent to individuals resident
in an EU Member State. Article 15 of the Swiss –
EU Agreement provides for the abolition of withholding
taxes on cross-border payments of interest between
affiliated companies. This agreement affects not only
Swiss companies, but all groups that have holding
companies or affiliates in Switzerland.
|
