Daily Tax Update - October 25, 2017: EU Advocate General Proposes Dutch Earnings Stripping Rule Is Precluded by EU Treaty

EU Advocate General Proposes Dutch Earnings Stripping Rule Is Precluded by EU Treaty:  An Advocate General of the Court of Justice of the European Union delivered his opinion today in X BV, X NV v. Staatssecretaris van Financiën concerning the application of the “freedom of establishment” rule in a case involving a Dutch limitation on interest deductibility. This limitation can disallow a deduction of interest for parent-subsidiary debt but can be avoided when the parent and subsidiary are treated as a single entity under the Dutch tax consolidation regime. Because the consolidation regime generally is restricted to Dutch resident subsidiaries, the effect of the interest deduction limitation can be avoided in situations where the subsidiary is Dutch but not where it is resident in another EU member state. As a result, the Advocate General proposes that the Court of Justice find this rule is precluded by the freedom of establishment provision of the Treaty on the Functioning of the European Union. The Advocate General’s proposal will only go into effect if it is adopted by the Court of Justice.

OECD Releases Comments to Tax Challenges of Digitalization:  The OECD released public comments that it received on the tax challenges presented by the digital economy. The OECD invited comments in response to its Action 1 report, Addressing the Tax Challenges of the Digital Economy as part of the Base Erosion and Profits Shifting (BEPS) project.

Treasury and IRS Issue Corrections:  Treasury and the IRS released a number of technical corrections to final and temporary regulations regarding dividend equivalents from sources within the United States issued in January. The corrections include a number of changes to applicability dates.

Treasury and the IRS also released a correction to proposed rules concerning Chapter 3 withholding issued in January. A September revision to these proposed rules had an error, which has now been corrected.