The European Commission has published the key decisions of its June 2021 infringements package. With respect to taxation, this includes a letter of formal notice sent to Bulgaria regarding issues with its CFC exemption for certain undertaxed subsidiaries, an additional letter of formal notice sent to Sweden regarding issues with its interest deduction limits, and a reasoned opinion sent to Germany regarding its implementation of exit tax rules.
Taxation: Commission requests BULGARIA to abolish exemption for undertaxed subsidiaries
The Commission has today decided to send a letter of formal notice to Bulgaria drawing its attention to the tax treatment of undertaxed subsidiaries. The taxation of such companies is required under Council Directive (EU) 2016/1164]. The anti-avoidance rules allow the Member State where a parent company is based to tax not only the profits of that parent company, but also the profits of its subsidiaries that do not pay sufficient corporate tax (or no tax) in their jurisdiction of residence. The current legislation transposing this Directive in Bulgaria includes an undue exemption for subsidiaries (also known as controlled foreign companies), which are subject to "alternative forms of taxation". Such an exemption is not allowed by the Directive. The Commission therefore considers that the undue exemption of subsidiaries that are subject to "alternative forms of taxation" constitutes an infringement to the Anti-Tax Avoidance Directive. Bulgaria has two months to address the shortcomings identified by the Commission after which the Commission may decide to send a reasoned opinion.
Taxation: Commission requests SWEDEN to amend its rules limiting tax deductibility of interest paid to affiliated companies established in other EU/EEA States
Today, the Commission has decided to send a complementary letter of formal notice to Sweden, drawing its attention to the incompatibility of its legislation limiting tax deductibility of cross-border intra-group interest payments with Union law. Under this scheme, interest deductibility is denied in relation to loan arrangements between affiliated companies established within the EU/EEA, irrespective of whether the terms and conditions of those arrangements remain at arm's length or not. In its ruling of 20 January 2021 in case C-484/19 Lexel, the Court of Justice held that the scheme amounts to an unjustifiable restriction on the freedom of establishment set out in Article 49 TFEU. While Sweden introduced some modifications to the rules in question as of 2019, their general design remains unchanged and the infringement is yet to be remedied. The Commission had sent a letter of formal notice in 2014. Sweden has two months to address the shortcomings identified by the Commission, after which the Commission may decide to send a reasoned opinion.
Taxation: Commission urges GERMANY to communicate all measures implementing the rules against tax avoidance practices that directly affect the functioning of the Single Market and as regards hybrid mismatches with third countries in the EU
The Commission has today decided to send a reasoned opinion to Germany for failure to communicate all required national measures fully implementing the exit tax rules in Article 5 of Council Directive (EU) 2016/1164 of 12 July 2016, laying down rules against tax avoidance practices that directly affect the functioning of the Single Market (ATAD1). Germany also failed to communicate all required national measures implementing Council Directive (EU) 2017/952 of 29 May 2017 amending Directive 2016/1164 (ATAD1) as regards hybrid mismatches with third countries (ATAD2). The deadline for the communication of the measures was 31 December 2019. In the absence of full communication of all national implementing measures, the Commission may decide to refer the case to the Court of Justice.