Frederik Boulogne University of Amsterdam Amsterdam Centre for

Frederik Boulogne University of Amsterdam / Amsterdam Centre for Tax Law BDO Beneficial Ownership and Abuse Conditions Amsterdam, 25 June 2019

Outline Beneficial ownership • Substantive – what does it mean? • Procedural – how to apply it? Abuse • Definition • The ‘subjective element’ – meaning and importance • Elements • Compatibility with Deister/Juhler decision

Beneficial ownership - substantive • Article 1(1) IRD: “(. . ) provided that the beneficial owner of the interest or royalties is a company of another Member State (. . )” • Not in PSD § 89: “the entity which benefits economically from the interest received and according has the power freely to determine the use to which it is put” § 90: “the concept of ‘BO’, which appears in the bilateral conventions based on the OECD 1996 Model Tax Convention, and the successive amendments of that model and the commentaries relating thereto are, therefore, relevant when interpreting the IRD”

Beneficial ownership - substantive • Praise for the CJEU’s move towards alignment with OECD work • But. . is the CJEU’s interpretation of BO really in line with the OECD’s interpretation? • § 10. 2 (2014/2017 Comm. ): “(. . ) the right to use and enjoy the interest unconstrained by a contractual or legal obligation to pass on the payment received to another person (. . )” • Legal aspects of CJEU’s alignment with OECD BO – see obstacles identified by A-G Kokott and CJEU’s somewhat flawed ‘linking pin’ EU/OECD • Issues with dynamic interpretation

Beneficial ownership - substantive • Will we see more CJEU references to OECD work? • In Lidl Belgium: “that definition of PE as an autonomous fiscal entity is consonant with international legal practice as reflected in the OECD MTC” (§ 22) • 1998 IRD proposal contains more references to OECD MTC • CJEU’s approach towards SICAR doesn’t suggest full alignment (“subject to tax”) • Embrace of BEPS work in ATAD 1 + 2 preambles

Beneficial ownership - procedural • How does the CJEU view the BO requirement? • Merely a ‘formal’ test? : “(. . ) where the BO is resident for tax purposes in a third State, refusal of the exemption (. . ) is not in any way subject to fraud or an abuse of rights being found” • It is also an abuse element (§ 132) • In PSD cases: how can this be aligned with Kolpinghuis doctrine? • And how does this all fit within the CJEU’s division of the burden of proof ((§ 118)?

Abuse • Definition: “§ 124: a combination of objective circumstances in which, despite formal observance of the conditions laid down by the EU rules, the purpose of those rules has not been achieved and, second, a subjective element consisting in the intention to obtain an advantage from the EU rules by artificially creating the conditions laid down for obtaining it” § 127: “an artificial arrangement where it is not set up for reasons that reflect economic reality, its structure is purely one of form and its principal objective or one of its principal objectives is to obtain a tax advantage running counter to the aim or purpose of the applicable tax law. ”

Abuse • This definition goes beyond the “wholly artificial”-test of Cadbury Schweppes • Full alignment with ‘abuse of law’ in VAT case law (one EU abuse doctrine: in all areas of law, whether primary or secondary) • More emphasis is placed on the ‘subjective test’ (PPT). . • But hardly any on the objective of the PSD § 106: “eliminating double taxation of interest and royalty payments (…) spare them burdensome administrative formalities and cash-flow problems and (. . ) ensure equality of tax treatment as between national and cross-border transactions.

Abuse • The question becomes: “when do commercial reasons outweigh a principal tax objective”? • What is a principal tax objective actually? § 129 suggests it is about reducing source State WHT (not CIT on interest, viz. A-G Kokott) • (At least) artificiality in case of a conduit company (§ 127 ): • “Sole activity is the receipt of interest and its transmission to the BO or to other conduit companies” • “Absence of actual economic activity” ((§ 131) -> Implications when there is some other economic activity? Or when the back-to-back activities become an activity as such?

Abuse • § 126 and further: “It is not for the Court to assess the facts in the main proceedings. However, when giving preliminary rulings, the Court may, if appropriate, specify indicia in order to guide national courts in the assessment of the cases that they have to decide. In the main proceedings, whilst the presence of a number of such indications could lead to the conclusion that there is an abuse of rights, it is nevertheless for the referring courts to establish whether those indications are objective and consistent, and whether the applicants in the main proceedings have had the opportunity to adduce evidence to the contrary. ” Compare with Deister/Juhler (see A-G Wattel’s in Case 18/002190

Thank you! g. f. boulogne@uva. nl