viernes, 22 de septiembre de 2017

-UK's Finance Bill published

The Finance Bill 2017-19 published on 8 September 2017 includes the clauses introduced in March 2017 that were withdrawn after the general election was called. These measures include the corporation tax loss carryforward rules; the corporate interest restriction; the substantial shareholding exemption; and enabling legislation for Making Tax Digital. The committee stage is expected to start by mid-October, with royal assent likely in the first or second week of November.

On 13 September 2017, the UK tax authorities (HMRC) published a consultation and further draft legislation on making tax digital. Specific VAT regulations will be published by April 2018, allowing time to ensure that “functional compatible software” will operate as expected. There is relatively little detail on how the software will need to operate, but the HMRC’s guidance indicates that software will need to keep records and create returns as required by existing regulations, and be able to receive information from HMRC systems. There also will be a facility to provide HMRC with additional information on a voluntary basis. Comments on the consultation document must be submitted by 10 November 2017.

Source: Deloitte

Dbriefs Bytes - 22 September 2017

Argentina: Rules on tax treatment of capital gains on sale of shares issued, then suspended

The tax authorities published a resolution (General Resolution (AFIP) 4094/2017) on 18 July 2017 that set out rules that clarify how Argentine income tax is to be paid on the sale of shares of Argentine companies (and other similar securities and equity participations) by nonresidents. The resolution became effective on the date of publication and provided special payment terms for transactions carried out during the period 23 September 2013 until 29 September 2017. However, on 20 July, the tax authorities issued another resolution that suspends the effective date of AFIP 4094/2017 for 180 days. Based on comments in the media, because the measures also would apply to certain transactions carried out on the Argentine stock exchange, there are concerns that the measures could have a detrimental effect on trading volume.

Capital gains and income obtained by nonresidents from the sale of shares of Argentine companies (and other similar securities) became subject to tax in Argentina on 23 September 2013; such gains previously were exempt. However, the tax authorities never issued guidance on how the tax should be paid where both the purchaser and the seller were nonresidents, so it is likely that some transactions escaped taxation.

According to the new resolution, where a transaction involves shares listed on an Argentine stock exchange, the broker who represents the nonresident seller must act as the withholding agent. In all other cases, the withholding agent will be the purchaser, even if the purchaser is a nonresident.

At the option of the seller, the amount to be withheld is either 13.5% of the sale price or 15% of the gain (measured in ARS). The 15% rate applies to 90% of the gross proceeds or to the entire gross profit less expenses incurred in deriving the gain. If the seller opts for the 15% rate, it must provide documentation to support the determination of the taxable gain.

If the withholding agent is a resident, it must pay the tax according to the general withholding rules. However, where the purchaser is a nonresident, it must pay the tax via an international bank transfer (in USD) by the end of the fifth business day following the transaction. The transfer instructions must include information that clearly identifies the transaction, and the transfer will be rejected if the information is not provided.

The person filing the notice of the change in ownership with the applicable public registry will have to collect and submit information about the transaction and supply a certified copy of the proof of payment of the applicable tax.

Source: Deloitte

jueves, 21 de septiembre de 2017

Indonesian DGT issues guidance on tax treaty benefits

Indonesia’s Directorate General of Taxation (DGT) has issued two sets of regulations addressing the application of tax treaties. A regulation (PER-08) dated 12 May 2017 sets out rules for Indonesian resident taxpayers to obtain a certificate of domicile (COD) to apply for treaty benefits, and a regulation (PER-10) dated 19 June sets out the requirements for a nonresident to obtain benefits under Indonesia’s tax treaties. Both regulations replace previous guidance in these areas. PER-08 is effective as from the date of issuance and PER-10 is effective as from 1 August 2017.

Source & more info: Deloitte

miércoles, 20 de septiembre de 2017

Luxembourg publishes new BEPS-compliant draft of IP regime

The Luxembourg parliament published a draft law on 7 August 2017 that would replace the IP box regime that was abolished in 2016. The draft law would introduce a new article in the Income Tax Law (ITL) that would provide for an 80% exemption on income derived from the commercialization of certain intellectual property (IP) rights, as well as a 100% exemption from net wealth tax. If approved, the new rules would be applicable as from fiscal year 2018.

The proposed legislation is in line with the agreement reached as part of the OECD/G20 BEPS project for patent box regimes, under which preferential IP regimes must comply with the “modified nexus approach” set out in the final report on action 5. The nexus approach requires substantial economic activities in the benefiting country and a direct link between the income benefiting from preferential treatment and the research and development (R&D) expenditure that contributes to the income. Taxpayers must track and trace expenditure and income to IP assets to justify a claim that expenditure qualifies under the regime.

Luxembourg’s regime, like the regimes in several other countries, was not in line with the requirements of the report on action 5 and, therefore, had to be abolished. The regime was abolished as from 1 July 2016 for corporate income tax/municipal business tax purposes, and as from 1 January 2017 for net wealth tax purposes; however, transition rules allow the previous IP regime to be maintained during the period 1 July 2016 through 30 June 2021.

The key features of the draft law are summarized below.

Qualifying assets
According to the OECD nexus approach, the only IP assets that can qualify for tax benefits under an IP regime are patents and other IP assets that are considered functionally equivalent to patents if such assets are both legally protected and subject to similar approval and registration procedures, where such procedures are relevant. IP assets that are functionally equivalent to patents include patents defined broadly (e.g. plant breeder rights), copyrighted software and, for small entities, certain other IP assets that are non-obvious, useful and novel. Luxembourg’s draft law includes these IP assets, but it is narrower than under the previous IP box regime, since marketing-related IP cannot benefit from a preferential regime under the nexus approach.

IP assets under the draft law would need to have been developed or improved after 31 December 2007.

Qualifying net income

Income qualifying for the new regime would include the following:
  • Income derived from the use of, or a concession to use, qualifying IP rights (i.e. royalty income);
  • IP income embedded in the sales price of products or services directly related to the eligible IP asset. The principles in the ITL would be used to separate income unrelated to the IP (e.g. marketing and manufacturing returns);
  • Capital gains derived from the sale of the qualifying IP rights; and
  • Indemnities based on an arbitration ruling or a court decision directly linked to a breach of a qualifying IP right.

The regime would apply on a net income basis, meaning that expenses relating to the qualifying IP asset would have to be deducted from the gross qualifying income.

An important difference from the previous regime is that the exemption would apply only when the global net income derived from qualifying IP assets exceeds the global expenditure linked to qualifying IP rights. As a result, if net losses were incurred on qualifying IP rights in previous tax years, the losses would have to be taken into account in the first year in which the taxpayer has net positive income. The draft law contains two methods to adjust previous losses, depending on whether the costs were capitalized from an accounting perspective. As required by the OECD and the EU, this mechanism is intended to ensure that net losses incurred in relation to the preferential IP regime would not be able to offset other income taxable at the standard rates on a permanent basis.

Nexus ratio
The nexus ratio – the cornerstone of the new regime – would determine the proportion of qualifying net income entitled to the benefits based on the ratio of qualifying expenditure and overall expenditure. Qualifying expenditure would include all R&D expenditure incurred by the taxpayer for the creation, development or improvement of qualifying IP rights. It would not include interest and financing charges, the costs of acquisition of the IP, real estate costs or costs that cannot be linked directly to the eligible IP asset.

The following expenditure also would qualify:

  • R&D expenditure incurred by a permanent establishment located in a country within the European Economic Area, provided the permanent establishment is operating at the time the eligible income is derived and does not benefit from a similar IP regime in its country of establishment;
  • R&D expenditure outsourced to an unrelated party (including when outsourcing is channeled through a related party, but only if the latter does not mark-up the outsourcing costs); and
  • Expenditure for general and speculative R&D or expenditure for unsuccessful R&D that can be linked or prorated across qualifying IP assets to the extent documented by the taxpayer.

Overall expenditure would be defined as the sum of qualifying expenditure, IP acquisition costs and outsourcing costs to related parties, with principles in the ITL used to determine the amount of the IP acquisition costs and outsourcing costs to related parties.

The nexus ratio would be determined on a cumulative basis, and expenditure would be included at the time incurred, regardless of the treatment for accounting or tax purposes.

Finally, a 30% uplift would apply to qualifying expenditure up to the amount of overall expenditure.

Documentation requirements
The new regime would require taxpayers to track income and expenditure to determine the nexus ratio and the net eligible income per type of qualifying IP asset and provide evidence of this to the tax authorities.

If a taxpayer is engaged in a sufficiently complex IP-related business and tracking per individual asset would be unrealistic and based on a subjective determination, it would be allowed to use a product-based approach, where expenditure and income would be tracked and traced to products or services, or families of products or services, arising from qualifying IP assets. These groupings would include all IP assets that arise from overlapping expenditure and contribute to overlapping streams of income. Taxpayers using this approach would have to produce objective and verifiable documentation that justifies the appropriateness of the approach.

Finally, in an intragroup context, all transactions would have to be properly determined and documented according to the new transfer pricing guidelines deriving from BEPS actions 8-10.

Source: Deloitte

martes, 19 de septiembre de 2017

French Prime Minister discloses tax action plan that supports investment and growth

The plan’s five fundamental actions include two items related to corporate taxation that may interest multinational enterprises (MNEs) that have operations in France: a gradual decrease of the French corporate income tax (CIT) rate, and the transformation of the competitiveness and employment (CICE) tax credit — an existing payroll tax credit — into a permanent decrease in employers’ charges. The plan also provides for the elimination of the 3% tax on dividend distributions.
Source & more info: PwC

Taiwan proposes to amend transfer pricing documentation requirements PI

On July 27, 2017, the Taxation Administration of the Ministry of Finance (MOF) released for public consultation draft amendments to the Rules Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm’s Length Transfer Pricing (TP Assessment Rules) to introduce new transfer pricing documentation requirements.  To align with Action 13 of the OECD Action Plan on Base Erosion and Profit Shift (BEPS), Taiwan proposes to adopt a 3-tiered standardized approach to transfer pricing documentation including the Master File, the Local File, and the Country-by-Country (CbC) Report, applicable for fiscal year 2017 and onward.
Source & more info: PwC

lunes, 18 de septiembre de 2017

Italy amends the Notional Interest Deduction regime

The Italian Ministry of Finance issued a decree dated August 3, 2017 (the Decree) and published it in the Official Gazette on August 11, 2017. The Decree includes new regulations that amend the Notional Interest Deduction (NID) regime.

This Insight focuses on the amendments that impact the anti-avoidance provision. One of the Decree’s stated objectives is to more effectively regulate transactions aimed at generating the duplication or multiplication of the NID benefit resulting from one single cash contribution.

Source & more info: PwC

sábado, 16 de septiembre de 2017

Irish Department of Finance publishes independent review of corporation tax code

The Irish Department of Finance released an independent report on Ireland’s corporation tax code on September 12, 2017. Seamus Coffey, a senior independent economist from University College Cork, prepared the report.
The report recommends that Ireland should update its TP rules to follow the current 2017 OECD TP guidelines; the Irish rules currently reference the 2010 guidelines. It also recommends
that TP should apply to all transactions, including non-trading
transactions (including interest-free loans), capital transactions, and
transactions of small and mediumsize enterprises (SMEs). Furthermore, the report recommends that Ireland adopt the TP documentation requirements set out in BEPS Action
The report recommends that these changes be made by the end of 2020.
Source & more info: PwC

viernes, 15 de septiembre de 2017

Dutch tax authorities set up website for CbC report, notification filings

The tax authorities have set up a comprehensive, obligatory web portal for Dutch entities to file their first CbC notifications for financial years starting on or after 1 January 2016 and ending before 31 August 2017, which were to be received by the tax authorities by 1 September 2017.
Source & more info: Deloitte

Belgium’s CbC reporting notification deadline approaches

The first CbC reporting notifications to be made to the Belgian tax authorities are due by 30 September 2017.
Source & more info: Deloitte Belgium

Brazil extends deadline for tax amnesty program

The government published a Provisional Measure (PM) on 30 August 2017 that extends the deadline for taxpayers to enroll in the “Special Tax Regularization Program” (PERT). The PERT is a tax amnesty initiative introduced on 31 May 2017 that allows taxpayers to settle their outstanding federal tax liabilities. The new PM extends the deadline for submitting an application to participate in the PERT from 31 August 2017 to 29 September 2017 and requires that taxpayers joining the program in September pay installments corresponding to August and September at the time of enrollment, in accordance with the various settlement options provided by the PERT.
A decree issued on 18 August 2017 extends until 31 December 2040 the special “REPETRO” customs regime that grants a suspension of certain federal taxes on goods temporarily used in the exploration and production of oil and natural gas fields in Brazil. The regime had been due to expire on 31 December 2020. The decree also introduces a rule that allows goods that are imported by oil and gas ventures after 31 December 2017 and that cannot be physically removed to remain in Brazil and benefit from the regime.
A provisional measure (PM 795) introduced on 18 August 2017 and that will be effective as from 1 January 2018 contains new beneficial corporate income tax deduction rules for oil and gas companies in Brazil. The measures include the immediate deduction of exploration costs; accelerated depletion for development activities; and enhanced depreciation of machinery and equipment used in development and production activities. PM 795 also increases from 0% to 15% (25% where the amounts are paid to persons resident in jurisdictions included on Brazil’s grey or black lists) the withholding tax rate on cross-border payments between related parties for charter vessels and services; and introduces a special regime that provides for a full suspension of federal taxes on certain goods imported on a permanent basis.


Dbriefs Bytes - 15 September 2017

jueves, 14 de septiembre de 2017

Sweden: Consultation launched on proposal to restrict deduction of interest expense

On 20 June 2017, the Swedish Ministry of Finance launched a consultation on a proposal that would revise the interest deductibility rules. Restrictions on deductibility would increase the tax base and would allow for a proposed reduction in the corporate income tax rate from 22% to 20%, the latter of which should encourage investment in the country. If approved, the changes are planned to be effective from 1 July 2018, and would apply for financial years commencing after 30 June 2018.

The proposal aims at incorporating the interest deduction limitation rule in article 4 of the EU anti-tax avoidance directive (ATAD), and the Ministry of Finance considers the proposal to be in line with the recommendations under action 4 of the OECD BEPS project. The proposal also is a first step in implementing the rules on hybrid mismatches with third countries that are outlined in the ATAD 2 and the recommendations under BEPS action 2.

Under the proposal, the current rules restricting the deduction of interest expense on intragroup debt would be maintained, with minor changes. The proposal also contains two alternative proposals for the introduction of general interest deduction limitation rules that would be applicable to both intragroup and external loans, as well as a specific limitation on intragroup hybrid arrangements.

A two-step approach would be applied when determining whether interest expense is deductible:

  1. Assess whether a deduction is allowed under the rules applicable to intragroup loans; and
  2. Evaluate the deductibility of any interest expense that is not limited under the first step against the general interest deduction limitation rules, which would allow for a deduction of net interest expense amounting to a certain share of an adjusted EBIT or EBITDA (as described below).

Intragroup loans and hybrid arrangements
Under existing rules, interest expense on intragroup loans may not be deducted unless the following requirements are met:

  • The corresponding interest income is taxed at a rate of at least 10% in the country in which the beneficial owner is resident, and the “main” reason (defined as 75% or more in the legislative bill) for the loan does not involve obtaining a substantial tax benefit for the group; or
  • The loan is obtained for commercial purposes and the recipient of the interest income is resident in another European Economic Area (EEA) country or a country that has concluded a tax treaty with Sweden.
  • The deductibility rules for interest expense on loans obtained to finance intragroup acquisitions of shares also require the acquisition to be mainly motivated by sound business reasons.

These requirements would be retained under the proposal, with the following modifications:

  • There would be no minimum taxation requirement for interest income received by beneficial owners that are resident within the EEA or in a treaty country.
  • Where the beneficial owner is resident within the EEA or in a treaty country, or resident in a non-EEA/non-treaty country and the interest income is taxed at a rate of at least 10%, an interest expense deduction would be disallowed if the purpose of the intragroup loan is exclusively or almost exclusively (defined under the proposal as 90% or more) for the group to achieve a substantial tax benefit.
  • The deductibility rules for interest expense on loans obtained to finance intragroup acquisitions of shares would require the acquisition to be substantially (generally interpreted as 40% or more) motivated by sound business reasons.

The consultation document also includes rules that would restrict the deduction of interest expense in certain cross-border situations (i.e. hybrid arrangements). A deduction would be disallowed where interest costs that otherwise are deductible in Sweden also may be deducted in another country, or where there is no taxable interest income in another country corresponding to the interest expense in Sweden, and this treatment results from differences in the classification of the payment or in the underlying financial instrument.

General interest deduction limitation rules
The proposal includes two alternative proposals for a general interest deduction limitation. The alternatives have a number of common features, and temporary limitations on the use of tax losses carried forward would apply along with either alternative.

Alternative 1: 35% of EBIT: Under this alternative, a company’s deduction for net interest expense would be limited to 35% of tax EBIT. “Tax EBIT” would be defined as the taxable result of the company before the deduction of net interest expense and net interest costs carried forward, plus interest costs, less interest income and income from Swedish partnerships and foreign legal entities taxed at the level of the owners. Changes in the company’s tax allocation reserve would affect tax EBIT. The basis for calculating the tax allocation reserve, currently 25% of the taxable profit, would be adjusted if this alternative is enacted.

Alternative 2: 25% of EBITDA: As an alternative to an EBIT-based limitation, a company’s deduction for net interest costs is proposed to be limited to 25% of tax EBITDA, as opposed to 30% of tax EBITDA under article 4 of the ATAD. “Tax EBITDA” would be defined as the taxable result of the company before the deduction for net interest expense and net interest costs carried forward, plus interest costs and tax depreciation (on certain asset classes), less interest income and income from Swedish partnerships and foreign legal entities taxed at the level of the owners. Changes in the company’s tax allocation reserve would not affect tax EBITDA.
 Common features of the alternative rules:

  • A de minimis rule would be introduced, under which net interest expense below SEK 100,000 would be deductible without having to satisfy the general interest deduction limitation rule. For companies that are part of a group, the deduction would be limited to SEK 100,000 for the group as a whole.
  • A group ratio rule, suggested under article 4 of the ATAD and BEPS action 4, would not be introduced.
  • A company that is not able to fully deduct its net interest costs would be allowed to carry forward the excess for up to six years. However, the right to use the net interest expense carried forward would be restricted following a change of control in the company.
  • Tax losses carried forward from prior financial years would be included when calculating tax EBIT/EBITDA. In practice, this implies that interest expense would not generate additional tax losses, as long as the company is not in a tax paying position.
  • Group contributions, made and received, would be included when calculating tax EBIT/EBITDA.
  • Companies with net interest income would be allowed to deduct other group companies’ net interest expense. The deduction would be limited to the net interest income of the company, and would be allowed only where both companies are able to exchange tax-deductible group contributions.

Temporary limitation on utilization of tax losses carried forward: The proposal would introduce a temporary limitation on utilizing tax losses carried forward from previous years, with the period of the limitation depending on whether the EBIT-based or the EBITDA-based interest deduction limitation is adopted. In somewhat simplified terms, the proposed rule would limit the ability to use tax losses carried forward to 50% of the current year’s taxable profit. Any tax losses that cannot be utilized would be carried forward and could be utilized in subsequent years when calculating tax EBIT/EBITDA if the conditions for obtaining an interest deduction are fulfilled. The limitation would be applicable for financial years commencing after 30 June 2018 and before 1 July 2020 if the EBIT-based limitation is chosen, and for financial years commencing after 30 June 2018 and before 1 July 2021 if the EBITDA-based limitation is chosen.

The reason for limiting the ability to utilize tax losses carried forward reportedly is that the general interest deduction limitation rules would increase the number of companies that pay corporate tax. Limiting the right to utilize tax losses carried forward during a period of two or three years (for the EBIT and EBITDA-based limitations, respectively) should accelerate the payment of tax without decreasing the value of the actual tax losses carried forward.

Comments in response to the consultation are due by 26 September 2017.

Source: Deloitte

miércoles, 13 de septiembre de 2017

Singapore: IRAS clarifies use of cost plus method by related party service companies

The Inland Revenue Authority of Singapore (IRAS) has clarified that, beginning with the 2019 year of assessment (YOA), only Singapore companies and permanent establishments that provide “routine” services to related parties (routine service companies) will be allowed to calculate their Singapore taxable income using the “cost plus” method. The arm’s length mark-up on routine services under the cost plus method is set at 5%.

Cost plus method
Under the cost plus method, a company’s chargeable income is calculated as its total expenditure reported under Singapore financial reporting standards, plus a profit mark-up (which generally is stated as a percentage). Companies adopting the cost plus method are not allowed to claim the following benefits allowed under Singapore tax law:

  • Double or enhanced tax deductions on specified expenditures;
  • Enhanced deductions and cash payouts under the productivity and innovation credit scheme;
  • Capital allowances;
  • Qualifying donations; and
  • Foreign tax credits.
  • Limitation of cost plus method to routine service companies

The IRAS announcement clarifies that only routine service companies will be allowed to use the cost plus method to calculate chargeable income as from the 2019 YOA. Further, the chargeable income of routine service companies under the cost plus method will be based on a 5% mark-up on total expenditure, without further adjustments. Where a routine service company provides services at cost, the IRAS will be able to impute the 5% mark-up and issue a corresponding assessment.

Routine services include those support services listed in Annex C of the fourth edition of the IRAS e-tax guide on transfer pricing guidelines, which generally are in the nature of administrative, technical and/or customer support services. Examples of routine services include accounting and auditing services, database administration, legal services and payroll services.

Source: Deloitte

martes, 12 de septiembre de 2017

Poland: Five countries provisionally removed from harmful tax practices list

Poland’s Minister of Development and Finance (MOF) issued a decree on 23 May 2017 that includes criteria to determine whether a country will be deemed to engage in harmful tax practices with regard to corporate and personal income tax. Based on these new criteria, five countries have been provisionally removed from Poland’s harmful tax practices list.

Inclusion on the list has the following consequences:

  • A company resident in a listed jurisdiction will be subject to Poland’s controlled foreign company rules.
  • In the case of transactions between Polish taxpayers and entities located in listed jurisdictions that are not carried out on arm’s length terms and that result in a reduction of the Polish taxpayer’s taxable income, the tax authorities may assess the taxable income of the Polish taxpayer as if the transactions were intragroup transactions. Polish taxpayers that enter into transactions with entities located in listed jurisdictions also may be required to prepare transfer pricing documentation.
  • The special tax relief for Polish tax residents with foreign-source income that allows the proportional tax credit method to be used to avoid double taxation cannot be applied with respect to income derived from a listed jurisdiction from a business activity, employment or certain other activities carried out by an individual.

The MOF has decided to implement a pilot program for removing certain countries from the list if all of the following criteria are met:

  • There is a basis for Poland and the other jurisdiction to exchange tax information as a result of a tax treaty, a tax information exchange agreement or the other jurisdiction’s signing the Multilateral Convention on Mutual Administrative Assistance in Tax Matters;
  • The jurisdiction is ranked “largely compliant” or “compliant” with respect to tax transparency, based on a current OECD peer review; and
  • Poland and the other jurisdiction actually exchange tax information, and the other jurisdiction’s cooperation in this regard has received a favorable evaluation by the MOF.

Since the Bahamas, Barbados, Liechtenstein, Saint Kitts and Nevis and Saint Vincent and the Grenadines meet the first two criteria, while the third criterion regarding the actual exchange of tax information will be periodically assessed and verified during the pilot program, the MOF decided to remove these jurisdictions from the harmful tax practices list included in the decree. Once the pilot program is completed, the MOF will make a final assessment as to whether the individual countries have fulfilled the criteria; if the MOF decides in the negative, the country will be re-included on the list.

The following countries and territories are considered to engage in harmful tax practices and, therefore, remain on the list:

  • Andorra
  • Hong Kong
  • Panama
  • Anguilla
  • Liberia
  • Saint Lucia
  • Antigua and Barbuda
  • Macao
  • Samoa
  • Bahrain
  • Maldives
  • Sark
  • British Virgin Islands
  • Marshall Islands
  • Seychelles
  • Cook Islands
  • Mauritius
  • Sint Maarten
  • Curaçao
  • Monaco
  • Tonga
  • Dominica
  • Nauru
  • US Virgin Islands
  • Grenada
  • Niue
  • Vanuatu

Source: Deloitte

lunes, 11 de septiembre de 2017

Draft of 2017 update to OECD model tax treaty released

On 11 July 2017, the OECD announced the release of a draft of the 2017 update to the OECD model tax treaty (last updated in 2014), and requested comments on certain provisions of the update by 10 August 2017. A significant portion of the update already has been approved as part of the BEPS project, and the OECD has not requested comments on these changes or on other changes that previously have been released for public comments. The update will be submitted to the Committee on Fiscal Affairs and the OECD Council for approval later in 2017.

The OECD has requested comments on the following topics:

  • Changes to the commentary to the model tax treaty relating to the meaning of “permanent home available to” and “habitual abode” for purposes of the tie-breaker rule for residence purposes;
  • New commentary indicating that registration for value added tax or goods and services tax purposes is irrelevant for purposes relating to the definition of a permanent establishment; and
  • Changes to the dividends article and commentary to ensure that dividends paid to a partnership or other tax-transparent entity would be eligible for a reduced withholding tax rate in the source country if they are subject to tax in the residence country at the level of the entity or its members.

The update also includes the following:

  • Changes previously approved as part of the BEPS project that are included in the 2015 final reports on BEPS actions 2, 6, 7 and 14, and changes resulting from the follow-up work on those actions;
  • Changes to reflect the mutual agreement procedure arbitration provision of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) adopted on 24 November 2016; and
  • Certain other changes previously released for public comments and “consequential changes” to reflect the contents of the update.

The final version of the update will include changes and additions to the observations, reservations and positions of OECD member jurisdictions and nonmember economies.

Source: Deloitte

viernes, 8 de septiembre de 2017

Italy: Final legislation includes new NID rules and reduced penalties for PEs

The law decree published by the Italian government on 24 April 2017 was converted into law on 21 June 2017, with some modifications (for prior coverage, see World Tax Advisor, 12 May 2017). The final law contains a number of tax measures that are designed to help reduce Italy’s budget deficit, and makes the following changes to the law decree that was published in April:
The amendments to the notional interest deduction (NID) regime that would have calculated the NID based on the equity increases and retained earnings of the prior five years are not adopted;
The notional interest rates for 2017 and later years are reduced from those that would have applied under the 2017 budget law; and
A provision that reduces penalties for foreign companies that settle tax liabilities of previously undisclosed Italian permanent establishments (PEs) is newly introduced.
Under Italian law, the April decree was required to be converted into law by the parliament within 60 days of being published: the final law was published in the official gazette on 23 June 2017, with the changes applicable as from 24 June 2017. The provisions included in the April law decree that were converted into law without modification are effective as from 25 April 2017.

Notional interest deduction
The NID regime grants Italian companies (and branches of foreign companies) a tax deduction that generally is calculated by applying a “notional interest rate” to the increase in qualifying net equity (with certain adjustments) for the period ending on or after the 2010 fiscal year.

The April 2017 law decree had included an amendment that would have calculated the NID based on the applicable equity increases and retained earnings of the prior five years, rather than those received/accrued from fiscal year 2010. This amendment was not included in the final law.

The final law sets the notional interest rate at 1.6% for 2017 and 1.5% thereafter (instead of 2.3% for 2017 and 2.7% for 2018 as provided in the 2017 budget and in the April law decree). The 1.6% notional interest rate for 2017 applies retroactively as from the beginning of the fiscal year that includes 24 June 2017 and, in determining advance payments, companies must recalculate their prior year’s corporate tax by applying the 1.6% rate.

Reduced penalties for PEs
The final law introduces a provision that allows foreign multinationals access to Italy’s “cooperative compliance regime” to determine the existence of previously undisclosed Italian PEs, and to settle, with reduced penalties, the PEs’ overdue tax liabilities. This provision applies only to multinational groups with total consolidated annual revenue exceeding EUR 1 billion and annual revenue derived from sales carried out in Italy exceeding EUR 50 million. The settlement procedure is not available if the group has been notified by the Italian tax authorities (ITA) or otherwise made aware that it is or will be under audit concerning the potential existence of a PE in Italy.

The settlement procedure reduces the administrative penalties that otherwise would be due on the PE’s tax underpayment by 50% and waives any applicable criminal penalties.

Foreign entities that take advantage of the new provision and settle the tax liabilities of their previously undisclosed Italian PEs also will be allowed to join the cooperative compliance program going forward, with the following benefits:
The avoidance of tax audits and controversies by having the ITA evaluate the proper tax treatment of facts and transactions before the company files the corporate tax return;
The reduction of otherwise applicable administrative penalties by 50% in cases where the taxpayer has not reached an agreement with the ITA at the conclusion of the advance evaluation process;
An expedited 45-day deadline for the ITA to respond to advance ruling applications (the deadline ordinarily is 90 days); and
The elimination of the taxpayer guarantees that normally would be required for refunds of tax credits.

Other provisions
The final legislation adopts with no further changes (but with effect from 25 April 2017) the measures included in the April law decree that:

  • Exclude trademarks from the types of IP that can benefit from Italy’s patent box regime under transitional rules (which brings the regime in line with the OECD’s recommendations under action 5 of the BEPS project);
  • Eliminate the definition of the arm’s length standard in the Italian tax code as it applies to intercompany cross-border transactions and introduce a new definition that is in line with that in the OECD model treaty;
  • Provide that downward adjustments in the Italian tax return (to avoid double taxation as a result of a transfer pricing adjustment by a foreign tax authority) may be made through (i) joint audits carried out in the context of international cooperation activities whose outcomes are shared by the participating countries, and (ii) a specific request by the Italian taxpayer with the Italian competent authority for a correlative (i.e. compensating) adjustment in Italy (but only where the foreign country allows an appropriate exchange of information with Italy); and
  • Treat income from “carried interests” as capital income or capital gain (rather than employment income) for tax purposes under certain conditions.

Source: Deloitte

jueves, 7 de septiembre de 2017

Belarus: Penalty waiver granted for failure to withhold from website fees

Belarus’ Ministry of Taxes and Duties issued guidance on 4 May 2017, which clarifies that administrative penalties may not apply to Belarusian entities that fail to withhold tax from payments made for sales of their goods and services on websites, online social networks, electronic platforms, etc. (“internet resources”) owned by foreign entities that do not have a tax presence in Belarus. In general, the penalty for failure to withhold from fees paid to nonresidents for the use of internet resources will not apply where (i) the Belarusian entity is unable to carry out the withholding requirement because it does not control the payment of the fee, and (ii) the Belarusian entity otherwise remits the tax due.

Fees paid by Belarusian entities (i.e. Belarus resident companies and individual entrepreneurs, and registered Belarus permanent establishments of foreign companies) to nonresidents for the use of internet resources are subject to a 15% withholding tax in Belarus, unless the rate is reduced under a relevant tax treaty. The Belarusian payer, as the withholding agent, generally must calculate, withhold and remit the tax to the Belarusian government. To benefit from a beneficial treaty rate or exemption, the foreign recipient of the fees must submit the appropriate tax residence certificate to the Belarusian tax authorities (either directly or through the withholding agent), unless the foreign entity is included in the “SWIFT” international business identifier code directory.

In practice, fees charged by an owner of an internet resource for use of the website, etc. to sell goods or services are withheld from the sales revenue collected (i.e. a Belarusian entity that sells its goods and services via a third party’s website or other internet resource usually will receive the proceeds from its electronic sales net of such fees). In this situation, if no treaty exemption applies and the fee is subject to withholding, the Belarusian entity generally is unable to withhold the tax, because it does not control the payment of the fee.

Failure to comply with a withholding obligation in Belarus normally carries a penalty of 20% of the tax due. However, the recent guidance states that the penalty will not apply if the Belarusian entity is unable to withhold due to the above circumstances, but otherwise pays the tax due.

Source: Deloitte