Alain Thielemans’ Post

🚢 In a split decision dated February 20 and published on March 28, 2024, the 3rd Chamber of CSRF in Brazil (Superior Administrative Court of Tax Appeals) stated that tax authorities are allowed to consider the "essence" of a charter party agreement instead of its "form", particularly if that "form" is used to shield the allocation of prices between that agreement and a technical services contract (priced at a lower amount and coincidentally subject to a tax on payments for technical services, known in Brazil as "CIDE"). Page 12 of the CSRF ruling says that the contracts (i.e., charter party and technical services) were signed with companies belonging to the same business group and were executed simultaneously. They were also tied to one another: if the client either extended the term of one contract or rescinded it, the other contract would have followed suit. One of the dissident councilors declared their vote and, on page 36, said that, given (a) that the client/taxpayer in this case is a beneficiary of a special regime for oil companies ("REPETRO"), and given (b) that this regime requires charter party and technical service contracts to be segregated from and simultaneous to one another, it is somewhat strange that tax authorities on one side impose certain conditions for access to the special regime and, on the other, use those conditions against the taxpayer. The full decision is attached as a PDF to this post (in Portuguese). If you are interested in the topic of "substance over form" assessments in Latin American tax practice, here are some recommended articles: ✅ "¿Es posible la aplicación del principio de sustancia sobre la forma en Chile, en concordancia con el principio de legalidad tributaria?" ("Is it possible to apply the principle of substance over form in line with the principle of tax legality in Chile?"), by Javiera Bobadilla. Published in 2013 by Universidad Diego Portales. Available at: https://shorturl.at/jmQX8 ✅ "La Elusión Fiscal en Colombia" ("Tax Avoidance in Colombia"), by Paul Cahn-Speyer Wells. Published in 2009 by Universidad de los Andes - Colombia. Available at: https://shorturl.at/azHUY ✅ "El principio de legalidad y reserva de ley en materia tributaria" ("The principle of legality and reservation of law in tax matters"), by Gabriela Inés Tozzini. Published in 2003 by Thomson Reuters La Ley in Argentina. Available at: https://shorturl.at/zGHW6 ✅ "O Propósito Negocial como Condicionante de Validade do Planejamento Tributário" ("Business Purpose as a Condition for the Validity of Tax Planning"), by Tatiane dos Santos Loures Nascimento and Rogério Dias Correia. Published in 2020 by ANPCont in Brazil. Available at: https://shorturl.at/uxzLT 🌎

𝐓𝐡𝐞 𝐑𝐨𝐥𝐞 𝐨𝐟 𝐃𝐓𝐀 𝐂𝐨𝐦𝐦𝐞𝐧𝐭𝐚𝐫𝐲 𝐢𝐧 𝐓𝐚𝐱 𝐃𝐢𝐬𝐩𝐮𝐭𝐞𝐬: 𝐁𝐢𝐧𝐝𝐢𝐧𝐠 𝐨𝐫 𝐆𝐮𝐢𝐝𝐢𝐧𝐠? Article 32A of the Income Tax Law authorizes the government to enter into agreements with other countries or jurisdictions to prevent double taxation and address tax evasion. However, in practice, the implementation of provisions in Double Taxation Avoidance Agreements (DTAs), commonly referred to as Indonesia's tax treaties, often leads to differing interpretations, frequently resulting in tax disputes. A key issue in these disputes is whether the DTA Commentaries, such as those from the OECD or UN Model, are legally binding or merely serve as guidance. In general, the guidelines for interpreting international treaties, outlined in Articles 31 and 32 the Vienna Convention on the Law of Treaties (VCLT) emphasize good faith, ordinary meaning, and alignment with the context, intent, and purpose of the agreement. This principle, rooted in international customary law, is codified in the VCLT and reflected in legislative provisions. 𝗛𝗼𝘄 𝘁𝗵𝗲 𝗗𝗚𝗧 𝗜𝗻𝘁𝗲𝗿𝗽𝗿𝗲𝘁𝘀 𝗧𝗮𝘅 𝗧𝗿𝗲𝗮𝘁𝗶𝗲𝘀 Officially, the Director General of Taxes (DGT) has issued Circular Letter Number SE-52/PJ/2021 on General Guidelines for the Interpretation and Application of Provisions in Double Taxation Avoidance Agreements. This circular aims to provide general guidance on interpreting and applying the provisions in Indonesia's DTAs, serving as a reference for DGT officials in monitoring tax compliance and delivering tax services to taxpayers. The circular does not assert that commentaries are legally binding in interpreting DTAs. It highlights that, due to differences between Indonesian DTAs, the guidelines are not universally applicable and must consider the specific details of each treaty. Accordingly, the application of tax treaty provisions must refer to the relevant Indonesian DTA. 𝗛𝗼𝘄 𝗗𝗼𝗲𝘀 𝘁𝗵𝗲 𝗧𝗮𝘅 𝗖𝗼𝘂𝗿𝘁 𝗩𝗶𝗲𝘄 𝗗𝗧𝗔 𝗖𝗼𝗺𝗺𝗲𝗻𝘁𝗮𝗿𝗶𝗲𝘀? In various tax court rulings, judges have displayed differing perspectives on whether DTA commentaries hold legal authority. These differences are evident in various cases, such as those addressing issues like the definition of a beneficial owner (BO) in interest payment transactions or hidden dividend corrections stemming from secondary adjustments related to corporate income tax. Such inconsistencies are also reflected in court decisions that have been escalated to the Supreme Court. It seems reasonable to conclude that DTA commentaries are not legally binding when interpreting provisions in DTAs for tax disputes in Indonesia. Instead, they serve as a reference or guidance. As emphasized, the interpretation of tax treaties should be conducted in good faith, based on the ordinary meaning of the terms, and aligned with the context, intent, and purpose of the agreement. #gnvconsulting #taxcourt #taxdisputes #taxcontroversy

International Tax Bulletin: Türkiye Introduces Global and Domestic Minimum Corporate Income Tax Legislation Turkish Government submitted a “Legislative Proposal on Amendments to Tax Laws and Certain Laws (the Draft Law)” to the Grand National Assembly of Türkiye on July 16, 2024. Articles 37 through 52 of the aforementioned law include regulations on global and domestic minimum tax practices added to the Corporate Income Tax Law No 5520. These articles aim to introduce a global and domestic minimum corporate income tax for multinational companies. The Draft Law is being ratified by Turkish Parliament and this process will be completed by the end of August. We also expect the Law is approved by the Turkish President by Mid-August. It is expected that Turkish tax authorities release a detailed secondary legislation and its implementation. Nevertheless, we do not expect important deviation from OECD Model. This also indicated that we already know the details of global minimum corporate income taxation. For that reason, it is time also Turkish multinationals to start their preparations for this new taxation. This certainly requires some preparations and works. Our experienced team will be happy to conduct such a work for your group of companies and please contact us for your queries on our international tax bulleting and global and domestic minimum corporate income tax. Attached bulletin provides explanations and opinions on the global and local minimum tax provisions of the Draft Law.

International Tax News: Pillar 2 rules have been legally a part of Turkish domestic tax legislation as of today. Turkish Parliament ratified the Law No. 7425 which includes global minimum corporate income tax rules, last week. Today, the Law No. 7425 amending Turkish tax laws was released in the Official Gazette after approval of the Law by the President. With this Law, QDMTT and IIR will be applicable as of 1st of January, 2024 whereas the UTPR will be effective as of 2025. We also expect a detailed guidance within the form of tax communiqué be released by Turkish tax authorities in the coming months. In our international tax bulletin posted last week, we explained details of Pillar 2 rules adopted into Turkish domestic tax law.

International Tax Bulletin: Türkiye Introduces Global and Domestic Minimum Corporate Income Tax Legislation Turkish Government submitted a “Legislative Proposal on Amendments to Tax Laws and Certain Laws (the Draft Law)” to the Grand National Assembly of Türkiye on July 16, 2024. Articles 37 through 52 of the aforementioned law include regulations on global and domestic minimum tax practices added to the Corporate Income Tax Law No 5520. These articles aim to introduce a global and domestic minimum corporate income tax for multinational companies. The Draft Law is being ratified by Turkish Parliament and this process will be completed by the end of August. We also expect the Law is approved by the Turkish President by Mid-August. It is expected that Turkish tax authorities release a detailed secondary legislation and its implementation. Nevertheless, we do not expect important deviation from OECD Model. This also indicated that we already know the details of global minimum corporate income taxation. For that reason, it is time also Turkish multinationals to start their preparations for this new taxation. This certainly requires some preparations and works. Our experienced team will be happy to conduct such a work for your group of companies and please contact us for your queries on our international tax bulleting and global and domestic minimum corporate income tax. Attached bulletin provides explanations and opinions on the global and local minimum tax provisions of the Draft Law.

🚨👨🎓  𝑻𝒉𝒆 €13 𝑩𝒊𝒍𝒍𝒊𝒐𝒏 𝑸𝒖𝒆𝒔𝒕𝒊𝒐𝒏: 𝑶𝒏𝒆 𝒐𝒇 𝒕𝒉𝒆 𝑴𝒐𝒔𝒕 𝑪𝒓𝒊𝒕𝒊𝒄𝒂𝒍 𝑬𝑼 𝑻𝒂𝒙 𝑪𝒂𝒔𝒆𝒔 𝒊𝒏 𝒅𝒆𝒄𝒂𝒅𝒆𝒔 👨🎓 🚨   𝐓𝐡𝐞 𝐜𝐡𝐚𝐥𝐥𝐞𝐧𝐠𝐞𝐝 𝐭𝐚𝐱 𝐬𝐭𝐫𝐮𝐜𝐭𝐮𝐫𝐞: 🌍Two Irish-incorporated entities, A1 and A2, held the multinational group's intellectual property (IP) that was not related to the U.S. market. 💸 The profits of these Irish branches were allocated to their "U.S. head offices", deemed non-Irish tax residents on the grounds that their effective management and control took place abroad. 👻These entities were also not considered U.S. tax residents because of their minimum activity and presence in the U.S., and profits were not repatriated, resulting in what is known as "stateless entities". This led to low effective tax rates in Ireland.   𝐓𝐡𝐞 𝐈𝐫𝐢𝐬𝐡 𝐭𝐚𝐱 𝐫𝐮𝐥𝐢𝐧𝐠𝐬: 📜 Ireland issued tax rulings in the '90s and 2000s that endorsed the attribution of profits from product sales in Europe to the U.S. head offices of these non-Irish tax resident entities.   𝐓𝐡𝐞 𝐂𝐨𝐮𝐫𝐭 𝐨𝐟 𝐉𝐮𝐬𝐭𝐢𝐜𝐞 𝐨𝐟 𝐭𝐡𝐞 𝐄𝐮𝐫𝐨𝐩𝐞𝐚𝐧 𝐔𝐧𝐢𝐨𝐧'𝐬 (𝐂𝐉𝐄𝐔) 𝐝𝐞𝐜𝐢𝐬𝐢𝐨𝐧: ⚖️In 2016, the European Commission argued this constituted a selective advantage and State Aid, quantified at €13 billion in taxes, as similar companies without such rulings couldn't benefit from the same tax arrangement. The General Court of the EU annulled the European Commission's decision in 2020, but the CJEU has now overturned this annulment in 2024. 🏦 Ireland is expected to collect these €13 billion in taxes from the multinational group, which are already held in an escrow account.   𝐊𝐞𝐲 𝐓𝐚𝐤𝐞𝐚𝐰𝐚𝐲𝐬: 📌 Although EU Member States have exclusive authority to determine their domestic tax systems, tax rulings are still subject to EU State Aid rules, and the European Commission may exercise control. 📌 Ireland amended its tax laws in 2015 to prevent this specific structure, but concerns linger about potential impacts on its reputation as an international digital IP hub.   Read the full article by Raluca Enache, Ana Puscas and Rosalie Worp: https://lnkd.in/dHVt73Vi   #InternationalTax #StateAid #CJEU #Ireland #EuropeanCommission #TransferPricing #DoubleIrish

Circularity - dilemma under the PPT => the purpose of tax treaty provisions in light of their context and the purpose(s) of the treaty   Kasper Dziurdz has recently published an article “The Concept of the “Object and Purpose” in Tax Treaty Law Based on the Vienna Convention (1969) and the Principal Purposes Test Rule” (link in the comment). It is based in his inaugural lecture delivered on 6 October 2023 at the Maastricht University. He has recently been appointed there as Professor of International Tax Law & Director of LL.M. “International and European Tax Law”. Big congratulations Kasper once again!   💡 Among many interesting points, Kasper pointed out in the sec. 2.2. ➲ “Determination of the object and purpose” to the issue of circularity in determining the object and purpose of a (tax) treaty in the following way: ➲ “While the object and purpose is a relevant means of interpretation, it must also be determined by interpretation of the treaty.” ➲ “Accordingly, to some extent, the determination of the object and purpose is a circular exercise.[31] In order to interpret a treaty, it is necessary to take account of the object and purpose of the treaty, but the object and purpose of the treaty must also be discerned from the treaty itself.”   🔥Interestingly, six years earlier, in my publication on the PPT to the World Tax Journal (link in the comment – open access), I referred to the issue of circularity precisely in respect of the determination of the second prong of the PPT, i.e. “would be in accordance with the object and purpose of the relevant provisions of the Covered Tax Agreement.” However, my discovery of the circularity in respect of the determination of the PPT’s second prong is different than that of Kasper. It also is done in a different way. In brief, you can read in my article that: ➲ “Because the purpose of relevant treaty provisions should be seen through the prism of the ultimate and operative purposes and context of the treaty, the purpose of these provisions appears to be multi- rather than mono-dimensional. This is because they aim to eliminate double taxation without creating opportunities for tax avoidance, including treaty shopping, in order to ultimately enhance interactional commerce." ➲ “The elimination of double taxation and prevention of tax avoidance constitute their main operational purpose, while the enhancement of the international commerce environment is the ultimate purpose of the treaty and therefore such provisions. This means that any attempt to define the purpose of the relevant provisions via the ultimate and operative purposes will be circular. The purposes are all identified by themselves and each other.”   🎯 I think that the points of Kasper and mine are nicely match each other. Once combined, they bring new nuance to the Kasper’s approach reflected in the “Priority within the limits of the wording” in respect of the PPT => more on this in one of the next posts. #tax #research #purpose

The Announcement on Issuing the Management Measures for Advance Tax Rulings of the Shanghai Municipal Tax Service (Trial Measures) was released on 29 December 2023 by the Shanghai Municipal Tax Service of the State Administration Taxation (SAT).   To further regulate the advance ruling of tax affairs and enhance the certainty of the application of tax policies of the whole Municipality, the Shanghai Municipal Tax Service has, in light of the actual circumstances of Shanghai, developed the Trial Measures, which are hereby issued for compliance and implementation. All problems encountered during the implementation shall be reported to the Shanghai Municipal Tax Service in a timely manner. #sfaiglobal #sfaiasia #Tax #Compliance #Shanghai

A new direct tax request for preliminary ruling has been registered by the Court of Justice of the European Union – case C-228/24 ‘Nordcurrent group’ UAB. Mokestinių ginčų komisija prie Lietuvos Respublikos Vyriausybės (Lithuania) referred the following questions on interpretation of the anti-abuse measure of the Parent Subsidiary Directive: 1. In circumstances such as those of the present case, is a national practice under which an exemption from taxation on dividends is not granted to a parent company in a Member State in respect of the dividends received from a subsidiary established in another Member State on the ground that such a subsidiary is recognised as an arrangement, where the subsidiary is not an intermediate company and the profits distributed by way of dividends were generated by activities carried out under the subsidiary’s name, so that removing the subsidiary would result in a situation where there are no profits at all or no payment of dividends, consistent with the objectives of the anti-abuse rule in Directive 2011/96? 2. If the answer to the first question is in the affirmative, is a national practice under which, for the purpose of recognising a subsidiary established in another Member State as an arrangement as such, an assessment is made of the circumstances at the time of payment of the dividends, where the establishment of the subsidiary is justified by commercial reasons, consistent with the objectives of the anti-abuse rule in Directive 2011/96? 3. May the anti-abuse rule in Directive 2011/96 be interpreted as meaning that, where a parent company has received dividends from a subsidiary that is established in another Member State and is recognised as an arrangement, that recognition alone is sufficient for it to be found that the parent company, through the application of the exemption from taxation on dividends, obtained a tax advantage that defeats the object or purpose [of Directive 2011/96]? Furthermore, are the circumstances relating to the fact that the profits earned by a subsidiary that has been recognised as an arrangement were subject to corporation tax in the Member State of establishment in accordance with the national rules in force in that Member State to be regarded as relevant for the purpose of challenging the finding that a tax advantage was obtained or that there was an arrangement? https://lnkd.in/e_xFqMp5 #cjeu #tax #taxation #eutaxlaw #europeantaxation #taxabuse #taxplanning #taxavoidance #dividendtax #internationaltax

𝗔𝗽𝗽𝗹𝗶𝗰𝗮𝘁𝗶𝗼𝗻 𝗼𝗳 𝗠𝗼𝘀𝘁 𝗙𝗮𝘃𝗼𝘂𝗿𝗲𝗱 𝗡𝗮𝘁𝗶𝗼𝗻 𝗰𝗹𝗮𝘂𝘀𝗲 𝗶𝗻 𝗮 𝘁𝗮𝘅 𝘁𝗿𝗲𝗮𝘁𝘆 The Indian Supreme Court has fixed November 8, 2024, as the final hearing date on the petitioners' Special Leave Petition to refer the Supreme Court's decision on MFN to a larger bench.  𝗕𝗮𝗰𝗸𝗴𝗿𝗼𝘂𝗻𝗱 India's tax treaties with certain OECD countries include an MFN clause, which provides that if after the tax treaty has entered into force, India enters into a tax treaty with an OECD member third country that provides a beneficial tax rate or restrictive scope for taxation of dividends, interest, royalties, etc., India must accord a similar benefit to the first country. The taxpayer claimed that beneficial provisions would apply when India enters into a tax treaty with an OECD country, irrespective of whether such a country was an OECD member when the treaty was first signed. The tax administration disputed this position. 𝗗𝗲𝗰𝗶𝘀𝗶𝗼𝗻 𝗼𝗳 𝘁𝗵𝗲 𝗦𝘂𝗽𝗿𝗲𝗺𝗲 𝗖𝗼𝘂𝗿𝘁 It may be recalled that the Supreme Court, in its judgment of 19 October 2023, held that, in the context of an Indian tax treaty with a country, the beneficial treatment agreed with a third country can be applied by invoking the MFN clause only if the third country was a member of the Organisation for Economic Co-operation and Development (OECD) at the time of signing its tax treaty with India. The news item below shows that the interpretation of the tax administration, which was finally approved by the Hon'ble Supreme Court, was correct. 𝗠𝗙𝗡 𝗖𝗹𝗮𝘂𝘀𝗲𝘀 𝗼𝗻 𝗶𝗻𝘁𝗲𝗿𝗲𝘀𝘁 𝗮𝗻𝗱 𝗿𝗼𝘆𝗮𝗹𝘁𝗶𝗲𝘀 𝗶𝗻 𝘁𝗵𝗲 𝘁𝗮𝘅 𝘁𝗿𝗲𝗮𝘁𝘆 𝗯𝗲𝘁𝘄𝗲𝗲𝗻 𝗙𝗿𝗮𝗻𝗰𝗲 𝗮𝗻𝗱 𝗟𝗮𝘁𝘃𝗶𝗮 𝘄𝗲𝗿𝗲 𝗮𝗰𝘁𝗶𝘃𝗮𝘁𝗲𝗱 𝗲𝗳𝗳𝗲𝗰𝘁𝗶𝘃𝗲 5 𝗝𝘂𝗹𝘆 2017 On 16 October 2024, the French tax authorities, in their communique, announced the activation of MFN clauses on interest and royalties, provided for by paragraphs 8 and 9, respectively, of the protocol to the 1997 tax treaty between France and Latvia owing the entry into force of tax treaty between Latvia and Japan on 5 July 2017. Activating these MFN clauses was subject to Latvia's subsequent conclusion of any treaty or protocol with another OECD member that provides more favourable withholding tax rates on interest and royalty payments. Japan was an OECD member in 1997 when France and Latvia entered a treaty containing an MFN clause. Activating the MFN clauses effectively means that the beneficial treatment agreed by Latvia in its treaty with Japan will now apply to the France-Latvia tax treaty. I've attached a document with a relevant portion of the Protocol to the France-Latvia tax treaty. #MFN #SupremeCourt #France #Latvia #Japan #TIWB #OECD #UN #ATAF #CIAT #IOTA #BCAS #CTC #PATA #PRONORTHMACEDONIA #TAXTREATY