1. 7 April 2015 Robert Jan van Lie Peters – tax adviser Recent developments on BEPS

2. Base Erosion and Profit Shifting Project (BEPS) Updates Updates from Europe EU-level UK Netherlands Luxemburg Updates from Asia China India Hong Kong Singapore 2 Part of OECD and fully endorsing BEPS initiatives Non-OECD Members partially endorsing BEPS initiatives, and ‘cherry-picking’

3. EU BEPS related developments

4. Tax planning is allowed under EU Case Law ECJ in the Halifax Case on a VAT matter: […] taxpayers are in principle free to structure their activitities in a way that limits their exposure to taxes […] ECJ in Cadbury Schweppes Case: […]the fact that a company has been established in a Member State for the purpose of benefiting from more favourable legislation does not in itself suffice to constitute abuse […]. 4

5. General trend: “Fair Share” approach is gaining momentum in EU Fair share Apple Amazon Starbucks Fiat Revenue raising from MNE’s BEPS reports Competition for investments Media and politicians EU State Aid “Lux Leaks” 5 Introduction

6. Tax Avoidance Tax Evasion Blurred line between Tax Evasion and Tax Avoidance 6 Introduction Abusive/Illegal: Tax Fraud Criminal offence Mounting international exchange of information and coordination Legal Freedom versus morality International planning opportunities (harmful) tax competition

7. BEPS - 3 main themes to fight “inappropriate” tax planning Transfer pricing Anti- Abuse Trans- parency 7 BEPS overview

8. EU Key focus on these main themes -Anti-abuse and Transparency are key focus points of the EU Commission in recent actions -Transfer Pricing principles are used to test tax rulings and APA’s from an EU law perspective (e.g. recent State Aid cases). 8

9. Important most recent EU Developments (1) July 2014: Amendment to Parent – Subsidiary Directive, inclusion of a GAAR. 2014: domestic ruling practices, IP regimes and specific tax payers under State Aid scrutiny March 2015: EU Commission proposal: mandatory exchange of information on tax rulings and APAs 9

10. Amendment to Parent – Subsidiary Directive, inclusion of a GAAR. -Purpose EU PSD?  Introduced to avoid economic double taxation on dividend distributions between EU member states. -Target of the GAAR = “It is necessary to ensure that this Directive is not abused by taxpayers who fall within the scope of its application” -EU Member States should refrain from granting benefits under the EU PSD, if: arrangements are not ‘genuine’ and have been put in place to obtain a tax advantage that is not reflecting economic reality. 10

11. EU GAAR provision GAAR adopted for EU PSD: ‘Minimal’ rule Subjective and objective elements No clear guidance on terms used in the GAAR To be implemented by EU jurisdictions 31 December 2015, at the latest Similar amendments expected to be included in EU Interest & Royalty Directive 11

12. Important most recent EU Developments (2) July 2014: Amendment to Parent – Subsidiary Directive, inclusion of a GAAR. During 2014: domestic ruling practices, IP regimes and specific tax payers under State Aid scrutiny March 2015: EU Commission proposal: mandatory exchange of information on tax rulings and APAs 12

13. EU State aid: the concept AdvantageSelective State Aid, to be recovered 13 EU State aid

14. State Aid: framework Indication of EU State Aid: tax treatment which results in a lower amount of tax than in a comparable legal + factual situation Selectivity most important: is there a favor of certain undertakings in the member state and is there an exception to the application of the tax system Arm’s length principle and TP documentation gained increased importance! 14 EU State aid

15. Recent EU State Aid scrutiny: 15 Starbucks, formal investigation Netherlands Excess profit ruling practice under formal investigation Belgium Fiat Finance & Trade, formal investigation Amazon, formal investigation IP regime/ruling practice, information injunction Luxembourg Apple, formal investigation Ireland Ruling practice, formal investigation Gibraltar EU State aid

16. EU State Aid risk 16 EU State aid Essential checks Was there an APA / Advance Tax Ruling concluded? yes / no Does the APA have a duration of more than 5 years, or no specific expiry date? yes / no Is the applied transfer pricing substantiated by TP documentation? yes / no To what extent has the qualification of the tested party been substantiated (i.e. is there a wrong characterization of the functionality)? yes / no

17. Important most recent EU Developments (3) July 2014: Amendment to Parent – Subsidiary Directive, inclusion of a GAAR. During 2014: domestic ruling practices, IP regimes and specific tax payers under State Aid scrutiny March 2015: EU Commission proposal: mandatory exchange of information on tax rulings and APAs 17

18. Proposal: Exchange of information on tax rulings and APAs -Proposal status  announced by EU Commission’s President Juncker, as reaction to “Luxleaks”. -In force: 1 January 2016, applicable to rulings issued as of 1 January 2006 and still in force -Purpose: Increase of transparency = Key element of the BEPS initiative. -Very broad scope: “any advance cross-border ruling” 18

19. -Exchange to a database, accessible for all EU Member States’ authorities and the EU Commission; -Content of information: -name company; -activities of the company; -reasoning for the ruling; -criteria used for the transfer price; and -countries involved. 19 Proposal: Exchange of information on tax rulings and APAs

20. BEPS Country specific developments UK, NL, LUX

21. UK Country specific developments 2 major domestic BEPS related developments to be addressed for the UK: -Introduction of a General Anti-Abuse Rule (GAAR) in domestic legislation. -New diverted profits tax (DPT) at 25% from April 2015. 21

22. Introduction of domestic GAAR in the UK -UK tax authorities are enabled to counter perceived abusive arrangements by invoking the GAAR, rather than seeking resolution through the courts.  -additional weapon for HMRC to counter abusive tax avoidance. -Broad scope: “The main purpose, or one of the main purposes” to obtain tax advantage = “ one which reduces or avoids a tax liability through any means”. -Protection for tax payer: -The burden of proof will be with HMRC; -broad carve-out from the GAAR for existing practice (‘grandfathering rule’); -Double reason test and Advisory Panel. 22

23. Diverted Profits tax (DPT) -DPT proposals represent a ‘new approach’ to a problem the OECD has been dealing with (in BEPS Action 7 and 8-10). - Targets: -Companies having a business trade in the UK and avoid PE status -Effective tax mismatch outcome, in the relation with a UK resident whereby an ‘insufficient economic substance’ condition is met. -Self-assessment -Rate 25% -Treaty override? -Breach EU Freedom of Establishment, or Capital? 23

24. The Netherlands Country specific developments -Active approach of treaty partner from ‘developing countries’ to include LOB and anti-abuse rules in the treaties with these countries. -June 2014: New Decree on substance requirements for holding companies -Automatic exchange of information to Double tax treaty partners for intercompany financing and licensing companies that do not meet specific substance criteria 24

25. Active approach of treaty partners from ‘developing countries’ -Active approach of 23 developing states in order to amend the tax treaty. -‘assistance’ in protecting their tax bases from being eroded. -New policy in international taxation, to “help” countries that have less developed and ‘equipped’ tax authorities in there. -How? LOB provisions are included in Dividend, Interest and Royalty article  Only designated investors in these countries can apply the reduced withholding tax rates under the treaty. 25

26. The Netherlands Country specific developments -Active approach of treaty partner from ‘developing countries’ to include LOB and anti-abuse rules in the treaties with these countries. -June 2014: New Decree on substance requirements for holding companies -Automatic exchange of information to Double tax treaty partners for intercompany financing and licensing companies that do not meet specific substance criteria 26

27. New Decree on substance requirements for holding companies -Scope  Minimum substance criteria for (intermediate) holding companies in the Netherlands that want to obtain tax rulings. -Almost similar criteria that already applied as of 2004 to Dutch intercompany financing or licensing companies, in APA context. -If no ruling is desired to be obtained, deviation is possible. Decree gives practical guidance: -However, not meeting the criteria could jeopardize the status of resident under a tax treaty. 27

28. Automatic exchange of information Codification of existing Dutch minimum substance requirements for DVL (dienstverleningslichaam), regulations are effective as per 1 January 2014 Updated decrees on APA’s, ATR’s and relating substance requirements – effective as per 13 June 2014 Exchange of information DVLs that do not meet substance requirements but apply tax treaties and/or EU I&R Directive for financing and licensing income APAs for stand alone structures Assist source country to make own analysis for application tax treaty and EU I&R Directive 28

29. Dutch minimum substance requirements a)At least 50% Dutch resident board members (individuals or companies) b)Board members should be sufficiently skilled to perform relevant tasks c)Avail of qualified employees for proper implementation of transactions d)Board decisions must be taken in the Netherlands e)Main bank accounts must be maintained in the Netherlands f)Bookkeeping must take place in the Netherlands g)The registered address must be in the Netherlands. h)To its knowledge, not considered tax resident elsewhere i)Real risk as meant in article 8c sub 2 CITA j)Equity must be adequate in relation to the functions performed, taking into account the assets used and the risks assumed 29

30. Luxemburg Country specific developments – New ruling policy -1 January 2015: Luxembourg ruling practice has a formal legal framework. -Ruling Committee installed; -Ruling request will cost a non-refundable amount of EUR 3,000 - EUR10,000 -Motivated by the newly proposed EU transparency proposals, moreover: -No more rulings on net wealth tax planning; -No new rulings on goodwill or informal capital contributions, foreign low substance branches, and rulings on the IP regime (without real substance); -general reluctance at rulings on hybrid financing an hybrid structures. 30

31. BEPS Country specific developments China, India, HK, Singapore.

32. People’s Republic of China - Country specific developments -Active involvement -China does not necessarily adopt the OECD / BEPS deliverables: -No LOB is included in its recent tax treaties (‘main purpose test’ is ) -TP approach deviates from the OECD’s TP related reports  strong focus on location savings and local market conditions as value driver -FATCA and reversed exchange of information with US. 32

33. People’s Republic of China - Country specific developments -China combats cross-border tax evasions mostly by domestic anti-abuse measures. -GAARs that have been issued and guidance that has been provided in 2014 to which extent these GAARs apply; -Strong focus on transfer pricing and anti-treaty shopping; -Recently, Notice no. 7 was introduced to replace Circular 698, which enables China to tax some indirect share transfers with Chinese underlying assets in situations which are considered to be abusive. 33

34. India- Country specific developments -Inclusion of LOB Clauses (Action 6) in new treaties -Endorsement of Country-by-country reporting with regard to TP (Action 13) -Strong focus on Transfer Pricing and Value creation in India (Intangibles/R&D) -Budget 2015 aims to attract investors; GAAR implementation postponed until 2017 34

35. Singapore developments -Singapore is neither an OECD nor G20 member, but interested in the developments of the BEPS initiatives. -Seen as a tax friendly jurisdiction, but supports the message that taxes should be paid in the countries were there are substantive economic activities -Active in the field of transfer pricing documentation, mostly to defend its own tax base and build real business substance in Singapore. 35

36. Hong Kong developments -Hong Kong is monitoring the developments of the BEPS initiatives. No active involvement -Seen as a tax friendly jurisdiction, with a typical ‘territorial system’, which may be risky in the sense of benefitting from tax treaties, caused by BEPS and the domestic measures taken by China. -Functionalities gain momentum (“TP Light”) vs. Offshore regime -TIEAs and FATCA 36

37. Future outlook on BEPS for MNEs -Tax burden may increase. -Insecure playing field, if no (global) consensus is reached between countries; -More MAPs will be needed, if countries on global scale will cherry-pick the deliverables of the BEPS initiative (cost inefficient and time consuming). -Increase of compliance burden, caused by: -TP documentation requirements, -Transparency Measures, such as FATCA and TIEAs (also with tax havens!) -Need for multilateral APAs may increase to avoid tax risks Message: careful and robust tax planning with increased attention for substance and focus on transfer pricing! 37