Tax Aspects of Research and Development within the European Union

Preface | str. 15

Keynote Speeches | str. 17

H. Onno Ruding

The European Union, the Internal Market, Euro-area Crisis and Harmonisation of Corporate Taxes | str. 19

1. The euro area and the EU: internal market and corporate taxation | str. 19

2. National diff erences in corporate tax rates | str. 21

3. Harmonisation of the tax rate vs. the tax base | str. 22

4. France and Germany | str. 25

5. Harmonisation of the tax base (CCCTB) | str. 26

Frans Vanistendael
Should Poland Access Euroland? | str. 28

1. Why a contribution on the euro crisis in a book on R&D? | str. 28

2. Two very diff erent objectives of the EU | str. 29

2.1. The objective of the internal market | str. 29

2.2. The objective of the Economic and Monetary Union | str. 30

2.3. The diff erence between the two objectives | str. 30

3. Principles governing the Economic and Monetary Union | str. 30

3.1. Th ree government functions in public finance | str. 30

3.2. The stabilisation function | str. 31

3.3. The level of government responsible for the stabilisation function in the eurozone | str. 31

4. The legal framework of taxation in the European EMU | str. 32

4.1. Taxing power in indirect taxation | str. 32

4.2. Taxing power in direct taxation | str. 33

4.3. Impact of the fundamental freedoms on taxing power | str. 33

5. The framework for economic governance in the European EMU | str. 34

5.1. The existing treaty framework for economic governance | str. 35

5.2. New procedures for economic governance | str. 36

5.3. Role of the European Central Bank | str. 37

6. The institutional framework of the European EMU | str. 39

7. The budgetary framework in the European EMU | str. 40

8. Preliminary conclusion | str. 41

9. Solution: federalisation of the stabilisation function | str. 42

9.1. Transfer of the stabilisation function to the European level | str. 42

9.2. Indirect budgetary monitoring | str. 43

9.3. Euro power to table a motion of no confidence in a national parliament | str. 44

9.4. Emergency powers in the case of financial crisis | str. 44

10. Procedural way to reform | str. 46

10.1. Reforms within the general framework of the European treaties | str. 46

10.2. Specific rules in accordance with Chapter 4 TFEU | str. 47

10.3. Establishment of a specific euro budget authority | str. 48

11. What about Poland? | str. 49

11.1. The figures | str. 49

11.2. The rules | str. 51

11.3. The conclusion | str. 52

Part One
General Report | str. 53

Adam Zalasiński
General Report - Tax Aspects of Research and Development within the European Union | str. 55

1. General remarks | str. 55

2. The structure of the R&D tax system in EU Member States | str. 56

2.1. Research and development activities | str. 56

2.2. (Tax) Legislative background | str. 57

2.2.1. Domestic law | str. 57

2.2.2. EU law | str. 58

2.2.3. International law - double taxation conventions | str. 59

2.3. The approach of tax legislation towards R&D activities | str. 59

2.3.1. R&D-neutral tax legislation | str. 59

2.3.2. R&D incentives | str. 60

2.3.3. (Cross-border) R&D disincentives | str. 61

2.3.4. Rules aff ecting the scope of R&D tax incentives and R&D tax disincentives - "rules of the second degree" | str. 61

3. The dynamic of the R&D tax system in EU Member States | str. 62

3.1. The actors and their roles | str. 62

3.2. The continuous development and interaction of the elements of the system | str. 63

4. Main conclusions of the thematic reports | str. 64

4.1. EU Control of State Aid and R&D Tax Incentives | str. 64

4.2. R&D Mobility and EU Law - Application of the Fundamental Freedoms | str. 67

4.3. EU Secondary Tax Legislation and R&D Mobility in the EU - Application of the Interest and Royalties Directive | str. 71

4.4. Transfer Pricing Aspects of Transfers of Intellectual Property | str. 74

Part Two
EU Control of State Aid and R&D Tax Incetives | str. 77

Anna Nykiel-Mateo
State Aid Limitations on Fiscal Support to R&D&I | str. 79

1. General remarks | str. 79

2. Qualification of fiscal measures as state aid | str. 79

2.1. Advantage | str. 80

2.2. Granted by the state or through state resources | str. 80

2.3. Selectivity | str. 81

2.4. Distortion of competition and eff ect on trade | str. 83

3. The GBER | str. 83

4. The R&D&I Framework - the balancing test | str. 84

Raymond H.C. Luja
R&D, Innovation and Tax Incentives: Do Th ey Have a Joint Future under State Aid Rules? | str. 89

1. Introduction | str. 89

2. Does the CCCTB allow for R&D incentives? | str. 90

2.1. Can R&D benefits be general? | str. 90

2.2. Are national R&D incentives blocked? | str. 90

3. The GBER | str. 92

4. Should R&D incentives be granted regardless of legal form? | str. 94

5. R&D incentives between state aid and fundamental freedoms | str. 95

6. Conclusion | str. 97

Part Th ree
R&D Mobility and EU Law - Application of the Fundamental Freedoms | str. 99

Adam Zalasiński
General Prohibition of Restrictions on Cross-border R&D Activities and IP Mobility - Application of the TFEU Freedoms | str. 101

1. General remarks | str. 101

2. Basic concepts of the internal market | str. 102

2.1. The concept of discrimination | str. 102

2.2. The concept of restriction on free movement | str. 103

3. Prohibition of tax discrimination/restriction on cross-border IP development and migration - examples of the ECJ's case law | str. 110

3.1. Case C-254/97 Société Baxter - (covert) discrimination infringing the right of establishment | str. 110

3.2. Case C-39/04 Laboratoires Fournier SA - restriction on the free movement of services | str. 111

3.3. Case C-10/10 Commission v. Austria - restriction on the free movement of capital | str. 112

4. Conclusion | str. 115

Frans Vanistendael
R&D Mobility in the EU and the Fundamental Freedoms | str. 116

1. Introduction: scope and structure of the topic | str. 116

2. Transfer of intangibles in international taxation | str. 117

3. EU Merger Directive: transfer of entities and transfer of seat | str. 118

4. Transfer of residence and exit tax | str. 121

4.1. Daily Mail case | str. 121

4.2. Lasteyrie du Saillant and N. cases | str. 124

4.3. National Grid Indus (NGI) case | str. 126

4.4. Conclusion on transfer of residence and exit tax | str. 129

5. Some critical remarks: comparing EU and international tax principles | str. 130

6. Conclusion: how should the taxing power be allocated? | str. 133

Philip Baker
CFC Aspects of Intellectual Property | str. 135

1. Controlled foreign company rules on passive income from royalties | str. 135

2. The impact of CFC rules | str. 135

3. Problems for research and development stemming from CFC rules | str. 138

4. European Court case law on CFC rules | str. 140

5. Problems for research and development from CFC rules in the European Union | str. 142

Part Four
EU Secondary Tax Legislation and R&D Mobility in the EU - Application of the Interest and Royalties Directive | str. 145

Mauritz von Einem
The EU Interest and Royalties Directive: Current Issues | str. 147

1. Introduction | str. 147

2. Overview of the current Interest and Royalties Directive | str. 149

2.1. Personal scope | str. 149

2.2. Substantive scope | str. 151

2.3. Legal consequences | str. 153

2.4. Status of implementation | str. 153

3. ECJ case law | str. 155

3.1. Scheuten Solar Technology case | str. 155

3.2. Other judgments | str. 157

3.3. Conclusion | str. 158

4. Deficiencies of the current Directive | str. 158

4.1. Subject-to-tax requirement | str. 158

4.2. Other aspects | str. 161

4.2.1. Associated companies | str. 161

4.2.2. Internal payments | str. 161

5. Commission Proposal | str. 162

6. Suggestions and outlook | str. 164

Part Five
Transfer Pricing Aspects of Transfers of Intellectual Property | str. 169

Giammarco Cottani
Transfer Pricing Aspects of Business Restructurings - an International Perspective | str. 171

1. Introduction | str. 171

1.1. Importance | str. 171

2. Types of business restructurings | str. 173

2.1. Common tax consequences arising from business restructurings | str. 178

2.1.1. Transfer of functions and risks arising from business restructurings | str. 183

2.1.2. Transfer of intangibles arising from business restructurings | str. 183

2.1.3. Transfer of going concern | str. 184

2.1.4. Termination or substantial renegotiation of existing arrangements | str. 186

3. Operational considerations | str. 187

4. Conclusion | str. 188

Aneta Błażejewska-Gaczyńska
Business Restructuring - Practical Application of Transfer Pricing Rules: a Case Study | str. 189

1. Introduction | str. 189

2. Business restructuring - definitions and practice | str. 191

2.1. Business restructuring - definition | str. 191

2.2. Business restructuring - examples | str. 191

2.3. Business restructurings - key points | str. 194

2.3.1. Special considerations for risks allocation | str. 195

2.3.1.1. Contractual terms | str. 195

2.3.1.2. Significance of risks allocated - examples | str. 196

2.3.1.3. Control over risks allocated | str. 198

2.3.2. Compensation for restructuring | str. 199

2.3.2.1. Business reasons for the restructuring/ alternative options realistically available to the parties | str. 202

2.3.3. Remuneration of post-restructuring transactions | str. 204

2.3.4. Recognition of the actual transactions undertaken | str. 206

Giammarco Cottani
Transfer Pricing Aspects of Transfers of Intellectual Property | str. 208

1. Overview | str. 208

1.2. Business restructurings and domestic anti-abuse rules | str. 209

2. Tax eff ects of cross-border business restructurings: overview | str. 210

2.1. Transfer of risks and functions | str. 211

2.2. Transfer of intangible assets | str. 212

2.3. Transfer of going concern | str. 214

2.4. Termination or substantial renegotiation of existing arrangements | str. 216

2.5. Recognition of the actual transactions undertaken | str. 217

2.6. Permanent establishment issues | str. 217

3. Change of a full-fledged distributor into commissionaire or low-risk distributor | str. 219

3.1. Change of manufacturing activities | str. 222

3.2. Centralisation of intangible property rights and research and development activities in a specific IP company | str. 224

4. Relationship to EU law | str. 227

5. Summary and conclusions | str. 227

Anuschka Bakker
Intangibles: a Legal, Accounting and Tax Perspective | str. 231

1. Introduction | str. 231

2. Setting the scene | str. 233

3. Definition of intangibles | str. 235

3.1. Value drivers | str. 236

3.2. Legal definition | str. 236

3.3. Tax | str. 238

3.3.1. Article 12 OECD Model Convention | str. 238

3.3.2. Transfer pricing purposes | str. 239

3.3.3. Various definitions used by countries | str. 242

3.4. Valuation | str. 244

3.5. Accounting | str. 246

4. Valuation | str. 247

4.1. TP methods | str. 247

4.2. Financial valuation methods | str. 253

5. Conclusion | str. 255

Monika Laskowska
Transfer of Profit Generators Aiming to Exploit Location Advantages in the Area of Research and Development | str. 256

1. Introduction | str. 256

2. Location savings | str. 258

3. Location specific advantages (LSAs) and location rent | str. 259

4. Existence and quantification of LSAs | str. 263

5. Bargaining position/Attribution of location rent | str. 265

6. Computation | str. 266

7. R&D in Poland | str. 268

8. Conclusion | str. 269

Part Six
Comparative Aspects of Taxation of Research and Development | str. 271

Dominik Mączyński, Ryszard Sowiński
R&D Incentives under Polish Tax Law | str. 273

1. Introduction | str. 273

2. Terminology | str. 273

3. Income tax incentives supporting R&D activity | str. 276

3.1. Preferential treatment with respect to income costs | str. 276

3.2. Depreciation based on preferential principles | str. 277

3.3. Deduction of R&D costs from the taxable base | str. 278

3.4. Exemption from tax of a part of income assigned for statutory activity | str. 280

4. Other tax R&D incentives | str. 280

4.1. VAT | str. 280

4.2. Preferences within the scope of land tax | str. 283

4.3. Preferences within the scope of stamp duty | str. 283

5. Summary | str. 283

Ewa Bienkowska
R&D Incentives in Selected EU Member States | str. 287

1. Introduction | str. 287

2. Selected R&D schemes in the European Union | str. 293

2.1. The Netherlands | str. 293

2.1.1. R&D tax incentives in the Netherlands | str. 293

2.1.2. Innovation box in the Netherlands | str. 294

2.1.3. Amendments to the Netherlands R&D tax system | str. 295

2.2. The United Kingdom | str. 295

2.2.1. R&D tax incentives in the United Kingdom | str. 295

2.2.2. UK patent box | str. 297

2.2.3. Amendments to the UK R&D tax system | str. 298

2.3. Spain | str. 299

2.3.1. R&D tax incentives in Spain | str. 299

2.3.2. Spanish patent box | str. 300

3. R&D tax incentives and the way forward to enhance the EU innovativeness | str. 301

3.1. Current state of R&D taxation in the European Union | str. 301

3.2. Recommendations of R&D tax treatment in the European Union | str. 304

4. Conclusion | str. 305

List of Authors | str. 309

Centre of Tax Documentation and Studies | str. 315