Swiss International Mutual Legal Assistance - Annual Activity Report 2016

Swiss International Mutual Legal Assistance - Annual Activity Report 2016

Switzerland is often at the heart of major international criminal cases. In 2016, the Federal Judicial Cooperation Department of the Federal Office of Justice (FOJ) handled complex cases of corruption and organized crime. The number of international cooperation cases is globally high, with an upward trend. The updated international treaty strategy focuses on the major financial and economic centers

EU initiative on restrictions on payments in cash

The Commission published on 2 February 2016 a Communication to the Council and the Parliament on an Action Plan to further step up the fight against the financing of terrorism (COM (2016) 50). This Action Plan states that "Payments in cash are widely used in the financing of terrorist activities… In this context, the relevance of potential upper limits to cash payments could also be explored. Several Member States have in place prohibitions for cash payments above a specific threshold." On 12 February 2016 the Economic and Financial Affairs Council concurred and called on the Commission to explore the need for appropriate restrictions on cash payments exceeding certain thresholds.

Cash has the important feature of offering anonymity to transactions. Such anonymity can be misused. The possibility to conduct large cash payments in particular facilitates money laundering and terrorist financing activities because of the difficulty to control cash payment transactions.

Potential restrictions to cash payments would be a means to fight criminal activities entailing large payment transactions in cash by organised criminal networks. Restricting large payments in cash, in addition to cash declarations and other anti money laundering obligations, would hamper the operation of terrorist networks, and other criminal activities, and thus have a preventive effect. It would also facilitate further investigations to track financial transactions in the course of terrorist activities.

While a number of Member States already have (or have had) in place restrictions on cash payments as a measure to combat crime, this has not been addressed at Union level. The fragmentation and divergent nature of these measures has the potential of interfering with the proper functioning of the internal market. The purpose of the initiative under consideration is therefore to examine whether action at EU level is warranted and whether legislative or other measures stemming from such analysis should be initiated.


EU Council adopts Directive (ATAD 2) to address hybrid mismatches with third countries

Executive summary
On 29 May 2017, the Council of the European Union (the EU Council or Council) adopted the Directive amending the Anti-Tax Avoidance Directive (ATAD). This Directive, known as ATAD 2, extends the scope of ATAD to hybrid mismatches involving third countries (i.e., non-EU countries). Additionally, ATAD 2 encompasses forms of hybrid mismatches not covered by ATAD. The content of ATAD 2 corresponds to that agreed by the ECOFIN1 on 21 February 2017.2

Detailed discussion - Background
Formal adoption of ATAD 2 by the Council was dependent on the delivery of the opinion of the European Parliament, which was issued on 27 April 2017.

ATAD 2 aims at implementing the Organisation for Economic Co-operation and Development (OECD) and G-20 recommendations on neutralizing the effects of hybrid mismatch arrangements (final report on Action 2 of the Base Erosion and Profit Shifting (BEPS) project).

Scope of the ATAD 2
With the ATAD 2, the European Commission seeks to establish minimum rules that neutralize hybrid mismatches, where at least one of the parties involved is a corporate taxpayer in an EU Member State. In addition to expanding the territorial scope of the ATAD to third countries, the ATAD 2 also expands the scope to address hybrid permanent establishment (PE) mismatches, hybrid transfers, imported mismatches, reverse hybrid mismatches and dual resident mismatches.

The ATAD 2 would only apply in the case of a hybrid mismatch between “associated enterprises,” between the head office and PE, between two or more PEs of the same entity or under a “structured arrangement.”

As the ATAD 2 is in response to the OECD BEPS conclusions outlined in the Action 2 report, and prescribes Member States to implement the ATAD 2 in their domestic laws and regulations, the ATAD 2 explicitly states that Member States should use the applicable explanations and examples outlined in the Action 2 report as a source of illustration or interpretation to the extent that they are consistent with the provisions of the ATAD 2 and EU Law.

Deadline for implementation by Member States
Member States will have until 1 January 2020 to transpose the Directive into national laws and regulations (1 January 2022 for the implementation of reverse hybrid mismatches).

The ATAD was an unprecedented change in European direct taxation and it will have a significant effect on the taxation of multinational companies operating in the EU. This ATAD 2 completes the picture by tackling mismatches with third countries and significantly expanding the scope of the ATAD to hybrid PE mismatches, hybrid transfers, imported mismatches, reverse hybrid mismatches and dual resident mismatches that may have far reaching consequences for taxpayers operating in the EU.

For detailed information on ATAD 2, see EY Global Tax Alert, ECOFIN agrees on Directive addressing hybrid mismatches with non-EU countries, dated 21 February 2017.

EYG no. 03493-171Gbl

Italian Supreme Court Decides Lack of Organizational Structure is not Decisive in Characterizing the Holding Companies as Conduit Vehicles

The Italian Supreme Court issued a landmark case (n. 27113 December 2016) setting out the principles to be taken into account when analyzing whether a company can be deemed the “beneficial owner” for the purpose of being entitled to double tax treaty benefits. In particular, the Italian Supreme Court examined whether a company resident for tax purposes in France (“French Co”) was eligible to obtain a dividend tax credit as provided for by the tax treaty between Italy and France.


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