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The (too) Famous UBO
This is just a  useless blind obedience or in other words a UBO But let‘s find out where all that nonsense started The (too) Famous UBO  /39
UBO - the concept of beneficial ownership Term is used in the domestic law of a limited number of countries whose legal systems are based on  Beneficial owner common law The meaning of this term has been developed by the courts in these countries Significant factors: ,[object Object],[object Object],The (too) Famous UBO  /39
In fact the beneficial ownership comes from trust law  The basic and simplified concept is  ,[object Object],[object Object],[object Object],[object Object],But  Civil Law  does not know the concept of trusts! UBO - the concept of beneficial ownership The (too) Famous UBO  /39
The term beneficial ownership can be seen in contrast to legal ownership Legal ownership refers to more formal attributes such as  ,[object Object],[object Object],[object Object],In Civil Law the term  “beneficial ownership“  could rather be explained with the term economic ownership UBO - the concept of beneficial ownership The (too) Famous UBO  /39
Example A is owner of an apartment building but has endowed the usufructuary rights ( = rental income) to his daughter A is the legal owner of the house  The daughter is enjoying the fruits from this asset, she is the economic owner UBO - the concept of beneficial ownership The (too) Famous UBO  /39
International aspects In an international context the term  beneficial ownership is mostly used in connection with tax treaties and of a treaty entitlement in respect of  interest dividends royalties The idea behind is clear: anti-avoidance UBO - the concept of beneficial ownership The (too) Famous UBO  /39
Conduit company So-called „conduit companies“ or „stepping stone companies“ play a major role in treaty shopping  Example: 15 % w/t dividends 0 % dividends 5 % w/t 0 % dividends 0 % 0 % UBO - the concept of beneficial ownership The (too) Famous UBO  /39
Tax treaties now more often contain a  limitation on benefits provision which is aiming at the improper use of such a treaty through conduit companies Improper use ? How come ? Is there no one who understood the difference between Common Law and Civil law ? But there is one who understood the difference A judge in Canada UBO - the concept of beneficial ownership The (too) Famous UBO  /39
The Prevost Case The structure 51 % 49 % dividends 0 % w/t 0 % w/t 100 % 15 % w/t dividends dividends 5 % 10 % w/t The (too) Famous UBO  /39
The Prevost Case In 2008 the Tax Court of Canada released the decision in Prevost Car The first case to address the meaning of “beneficial ownership“ for tax purposes in Canada According to the Tax Court of Canada….. … a Dutch holding company that received dividends from a Canadian subsidiary was the beneficial owner of the dividends and therefore entitled to the lower rate of withholding tax provided by the Canda – Netherlands tax treaty The (too) Famous UBO  /39
The Prevost Case The Tax Court of Canada also held that …. … the „beneficial owner“ of dividends is the person who receives the dividends for his or her own use and enjoyment and assumes the risk and control of the dividend he or she received …. In short the dividend is for the owner‘s own benefit and this person is not accountable to anyone for how he or she deals with the dividend income The (too) Famous UBO  /39
The Prevost Case Furthermore it was decided that … …  when corporate entities are concerned, „one does not pierce the corporate veil unless the corporation is a conduit for another person and has absolutely no discretion as to the use or application of funds put through it as a conduit, or has agreed to act on someone else‘s behalf pursuant to that person‘s instructions without any right to do other than what that person instructs it (for example a stock  broker who is the registered owner of the shares it holds for clients).“ The (too) Famous UBO  /39
The Prevost Case So,  excellent news for the taxpayer  Time to lean back and relax NO WAY ! The Spanish National Court released a decision in January 2009 which is annoying and confusing  The (too) Famous UBO  /39
The Case Incorporated in Ireland and resident in Bermuda Transferred its residence from Bermuda to Netherlands According to the National Court in Spain  domestic  anti-avoidance provisions with respect to the exemption from withholding taxes under Parent - Subsidiary - Directive are fully applicable The (too) Famous UBO  /39
The Case Because ,[object Object],[object Object],[object Object],[object Object],The (too) Famous UBO  /39
The Case Did I miss something in the development of the EU ? Aren ‘ t there some basic rules existing ? Does the EU not provide some freedoms ? Among others ,[object Object],[object Object],The (too) Famous UBO  /39
The Case But you are right  I should have listened to my teachers  The Bermudas do  NOT  belong to the EU So the Spanish National Court is right, isn ‘ t it ? Hmm … The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Art 56 of the EC treaty includes the principle of free movement of capital and payments  Whereas Art 57 – 60 set certain limitations on that freedom  The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Art 56 of the EC Treaty concerns two relationships the one between two different EU Member States  and the one between a EU Member State and a non-Member State The person moving the capital does not need to have the nationality of an EU Member State The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Art 58 of the EC Treaty Art 58 allows, despite of Art 56, a state to implement tax provisions which might restrict the free movement of capital and payments EC Court Measures with the objective of safeguarding the effeciveness of fiscal supervision may be accepted The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Rule of reason There must be a good reason for the provision resulting in indirect discrimination or a restriction on the free movement The free movement of capital may also be restricted if there is an overriding reason in the public interest  The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Direct discrimination Always prohibited unless EC Treaty expressly allows it Usually allowed in case of  ,[object Object],[object Object],[object Object],Very seldom relevant in cases concerning direct taxation The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Indirect discrimination Based on EU Court case law on the so-called ,[object Object],rule of reasons principle ,[object Object],[object Object],The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Indirect discrimination Such restriction may be justified on the basis of the rule of reasons principle if the restriction has an objective that is in accordance with the EC Treaty and which is justified by an overriding reason in the public interest chewing gum  chewing gum  chewing gum  chewing gum chewing gum  chewing gum  chewing gum  chewing gum The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Indirect discrimination Such tax provisions, nevertheless, are not accepted if there would be a measure available to reach the same objective with a less restrictive manner  Accepted reasons ,[object Object],[object Object],[object Object],[object Object],chewing gum can have different colors !  Chewing gum can have different colors ! chewing gum can have different flavors !  Chewing gum can have different flavors ! The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Indirect discrimination Unaccepted reasons ,[object Object],[object Object],EU nationals are free to choose the country for their activities that is the most beneficial from a tax perspective (2) ECJ Cases: (1)  C-136/00 Danner and C-422/01 Skandia and Ramstedt (2)  C-264/96 ICI, Para. 26, C-364/01 Barbier, C-212/97 Centros, C-167/01  Inspire Art, C-324/00 Lankhorst-Hohorst and C-294/97 Eurowings The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Impact on non-Member States Although Art 56 of the EC Treaty covers both  ,[object Object],[object Object],Art 57 of the EC Treaty allows certain restrictions effecting the free movement of capital and payments to and from non - Member States The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Only direct investments This concept of direct investments covers  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Only direct investments Furthermore it is requested that  the shares held by the shareholder enable the shareholder to participate effectively in the management of that company or in its control The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Right to capital in companies Art 294 of the EC Treaty  Gives EU nationals the same right to participate in the capital of companies or firms in a Member State as applies to the nationals of that state Relevance Low, Art 56 also entitles to national treatment But  … The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Right to capital in companies Art 294 of the EC Treaty  applies to all EU nationals Art 294 applies even though the EU national could reside in a non  –  Member State  Therefore  … irrespective of their state of residence or of the state of establishment The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Right to capital in companies Art 294 of the EC Treaty  the limitations included in Art 57, which are applicable to non  –  Member States cannot be applied to  ,[object Object],[object Object],[object Object],The (too) Famous UBO  /39
The EC Treaty and its impact on taxation For a better understanding the following example: Marco, an Italian, lives in Moscow and holds shares in a French corporation Without doubt Art 294 of the EU Treaty applies  (EU national, resident outside of the EU, holds shares in a EU corporation) And without doubt the dividends distributed to him by the French corporation are due to a withholding tax at source The rate is 15 % according to the French  –  Russian tax treaty  The (too) Famous UBO  /39
During his holidays he falls in love with a beautiful lady from the Czech Republic The EC Treaty and its impact on taxation He follows her to her hometown Prague and establishes his residence in that beautiful city  Now the tax treaty between France and the Czech Republic is governing the tax treatment of this dividend income Treaty rate of withholding taxes:  10 % (instead of 15 % as with Russia) The (too) Famous UBO  /39
The EC Treaty and its impact on taxation Can anyone please be so kind to explain to me the difference between ,[object Object],[object Object],The (too) Famous UBO  /39
The EC Treaty and its impact on taxation How can it be that a court in an EU Member State ,[object Object],[object Object],[object Object],[object Object],The (too) Famous UBO  /39
THANK YOU FOR YOUR ATTENTION ! The (too) Famous UBO  /39
 /39 The (too) Famous UBO

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Erich Baier Präsentation Ubo 2011

  • 2. This is just a useless blind obedience or in other words a UBO But let‘s find out where all that nonsense started The (too) Famous UBO /39
  • 3.
  • 4.
  • 5.
  • 6. Example A is owner of an apartment building but has endowed the usufructuary rights ( = rental income) to his daughter A is the legal owner of the house The daughter is enjoying the fruits from this asset, she is the economic owner UBO - the concept of beneficial ownership The (too) Famous UBO /39
  • 7. International aspects In an international context the term beneficial ownership is mostly used in connection with tax treaties and of a treaty entitlement in respect of interest dividends royalties The idea behind is clear: anti-avoidance UBO - the concept of beneficial ownership The (too) Famous UBO /39
  • 8. Conduit company So-called „conduit companies“ or „stepping stone companies“ play a major role in treaty shopping Example: 15 % w/t dividends 0 % dividends 5 % w/t 0 % dividends 0 % 0 % UBO - the concept of beneficial ownership The (too) Famous UBO /39
  • 9. Tax treaties now more often contain a limitation on benefits provision which is aiming at the improper use of such a treaty through conduit companies Improper use ? How come ? Is there no one who understood the difference between Common Law and Civil law ? But there is one who understood the difference A judge in Canada UBO - the concept of beneficial ownership The (too) Famous UBO /39
  • 10. The Prevost Case The structure 51 % 49 % dividends 0 % w/t 0 % w/t 100 % 15 % w/t dividends dividends 5 % 10 % w/t The (too) Famous UBO /39
  • 11. The Prevost Case In 2008 the Tax Court of Canada released the decision in Prevost Car The first case to address the meaning of “beneficial ownership“ for tax purposes in Canada According to the Tax Court of Canada….. … a Dutch holding company that received dividends from a Canadian subsidiary was the beneficial owner of the dividends and therefore entitled to the lower rate of withholding tax provided by the Canda – Netherlands tax treaty The (too) Famous UBO /39
  • 12. The Prevost Case The Tax Court of Canada also held that …. … the „beneficial owner“ of dividends is the person who receives the dividends for his or her own use and enjoyment and assumes the risk and control of the dividend he or she received …. In short the dividend is for the owner‘s own benefit and this person is not accountable to anyone for how he or she deals with the dividend income The (too) Famous UBO /39
  • 13. The Prevost Case Furthermore it was decided that … … when corporate entities are concerned, „one does not pierce the corporate veil unless the corporation is a conduit for another person and has absolutely no discretion as to the use or application of funds put through it as a conduit, or has agreed to act on someone else‘s behalf pursuant to that person‘s instructions without any right to do other than what that person instructs it (for example a stock broker who is the registered owner of the shares it holds for clients).“ The (too) Famous UBO /39
  • 14. The Prevost Case So, excellent news for the taxpayer Time to lean back and relax NO WAY ! The Spanish National Court released a decision in January 2009 which is annoying and confusing The (too) Famous UBO /39
  • 15. The Case Incorporated in Ireland and resident in Bermuda Transferred its residence from Bermuda to Netherlands According to the National Court in Spain domestic anti-avoidance provisions with respect to the exemption from withholding taxes under Parent - Subsidiary - Directive are fully applicable The (too) Famous UBO /39
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  • 18. The Case But you are right I should have listened to my teachers The Bermudas do NOT belong to the EU So the Spanish National Court is right, isn ‘ t it ? Hmm … The (too) Famous UBO /39
  • 19. The EC Treaty and its impact on taxation Art 56 of the EC treaty includes the principle of free movement of capital and payments Whereas Art 57 – 60 set certain limitations on that freedom The (too) Famous UBO /39
  • 20. The EC Treaty and its impact on taxation Art 56 of the EC Treaty concerns two relationships the one between two different EU Member States and the one between a EU Member State and a non-Member State The person moving the capital does not need to have the nationality of an EU Member State The (too) Famous UBO /39
  • 21. The EC Treaty and its impact on taxation Art 58 of the EC Treaty Art 58 allows, despite of Art 56, a state to implement tax provisions which might restrict the free movement of capital and payments EC Court Measures with the objective of safeguarding the effeciveness of fiscal supervision may be accepted The (too) Famous UBO /39
  • 22. The EC Treaty and its impact on taxation Rule of reason There must be a good reason for the provision resulting in indirect discrimination or a restriction on the free movement The free movement of capital may also be restricted if there is an overriding reason in the public interest The (too) Famous UBO /39
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  • 25. The EC Treaty and its impact on taxation Indirect discrimination Such restriction may be justified on the basis of the rule of reasons principle if the restriction has an objective that is in accordance with the EC Treaty and which is justified by an overriding reason in the public interest chewing gum chewing gum chewing gum chewing gum chewing gum chewing gum chewing gum chewing gum The (too) Famous UBO /39
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  • 30. The EC Treaty and its impact on taxation Only direct investments Furthermore it is requested that the shares held by the shareholder enable the shareholder to participate effectively in the management of that company or in its control The (too) Famous UBO /39
  • 31. The EC Treaty and its impact on taxation Right to capital in companies Art 294 of the EC Treaty Gives EU nationals the same right to participate in the capital of companies or firms in a Member State as applies to the nationals of that state Relevance Low, Art 56 also entitles to national treatment But … The (too) Famous UBO /39
  • 32. The EC Treaty and its impact on taxation Right to capital in companies Art 294 of the EC Treaty applies to all EU nationals Art 294 applies even though the EU national could reside in a non – Member State Therefore … irrespective of their state of residence or of the state of establishment The (too) Famous UBO /39
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  • 34. The EC Treaty and its impact on taxation For a better understanding the following example: Marco, an Italian, lives in Moscow and holds shares in a French corporation Without doubt Art 294 of the EU Treaty applies (EU national, resident outside of the EU, holds shares in a EU corporation) And without doubt the dividends distributed to him by the French corporation are due to a withholding tax at source The rate is 15 % according to the French – Russian tax treaty The (too) Famous UBO /39
  • 35. During his holidays he falls in love with a beautiful lady from the Czech Republic The EC Treaty and its impact on taxation He follows her to her hometown Prague and establishes his residence in that beautiful city Now the tax treaty between France and the Czech Republic is governing the tax treatment of this dividend income Treaty rate of withholding taxes: 10 % (instead of 15 % as with Russia) The (too) Famous UBO /39
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  • 38. THANK YOU FOR YOUR ATTENTION ! The (too) Famous UBO /39
  • 39. /39 The (too) Famous UBO