Worldwide Tax News
Greece Enacts New Rules Introducing Withholding Requirements and Deductibility Limitations
On 21 March 2015, Greece published in its Official Gazette L. 4321/2015, which introduces new withholding tax requirements on certain payments. Under the new provisions, a withholding tax of 26% applies for payments made to individuals or legal entities that:
- Are resident in a jurisdiction that is non-cooperative in tax matters,
- Are resident in a jurisdiction with a beneficial tax regime, i.e. a tax rate less than half of the Greek 26% tax rate,
- Are an associated company and not in compliance with transfer pricing documentation requirements, or
- Lack the organizational structure or substance to carry out the business activity required for which the payment is made
If the Greek taxpayer fails to withhold tax on the payment, the expense will not be deductible. However, if the taxpayer can show that the expense is linked to a recurring operation and is at arm's length, a refund of the tax withheld may be claimed.
It is currently unclear whether the rules only apply to cross border payments, or to domestic payments as well based in regard to the third and forth conditions listed above. It is expected that the Greek Finance Minister will issue a ministerial decision in the near future providing guidance on the implementation of the new provisions.
Japan Enacts 2015 Tax Reform
On 31 March 2015, Japan's Tax Reform Bill for 2015 was enacted, which includes several proposals made the end of 2014. The main measures of the reform generally apply for tax years beginning on or after 1 April 2015 unless otherwise indicated, and include:
From 1 April 2015, the standard corporate tax rate is reduced from 25.5% to 23.9% and the top size-based enterprise tax rate including the special local corporation tax is reduced from 7.2% to 6%. The top size-based enterprise tax rate will be further reduced to 4.8% from 1 April 2016. Size-based enterprise tax applies for companies with paid-in capital of more than JPY 100 million.
The changes result in a reduction of the standard effective tax rate from 34.62% to 32.11% from 1 April 2015, and 31.33% from 1 April 2016 (rates for companies with paid-in capital exceeding JPY 100 million excluding added-value and capital levy). The actual effective tax rate varies by prefecture/municipality due to varying rates of inhabitant's tax at the local level.
The added-value levy of 0.48% and the capital levy of 0.2% that applies for companies subject to size-based enterprise tax are also changed. The added-value levy is increased from 0.48% to 0.72% from 1 April 2015, and to 0.96% from 1 April 2016. The capital levy is increased from 0.2% to 0.3% from 1 April 2015, and to 0.4% from 1 April 2016. Certain measures are introduced to reduce the taxable base for the levies to lessen the burden in the first 2 years.
The consumption tax rate will be increased from 8% to 10% from 1 April 2017.
From 1 October 2015, e-services, such as e-books, streaming music and video, games, etc., supplied by foreign suppliers will be subject to consumption tax. For B2B supplies, the tax is paid via reverse charge (paid by the customer). For B2C supplies, the foreign supplier will be required to register for consumption tax and file returns. If the foreign supplier keeps an office in Japan, the office may register. If the foreign supplier has no office, they must appoint a tax agent. Registration is expected to be available from July 2015.
For tax years beginning in the period between 1 April 2015 and March 31 2017, the utilization limit for carried forward tax losses is reduced from 80% of taxable income to 65%. For tax years beginning on or after 1 April 2017, the utilization limit is further reduced to 50%. However, SMEs, qualifying, newly established companies and companies emerging from bankruptcy may fully utilize losses carried forward.
The R&D tax credit limit is reduced from 30% to 25% of national corporate tax liability per year, although an additional limit of up to 5% of national corporate tax liability is introduced for certain special experiment and research expenses. Unused credit may no longer be carried forward.
The determination for tax haven subsidiary status for the CFC rules is changed from an effective tax rate of 20% or less, to less than 20%.
The 95% foreign dividend exclusion for dividends paid by foreign subsidiaries is no longer available if the dividends are deductible in the jurisdiction of residence of the subsidiary. If partially deductible, that part is not eligible for the exclusion. The withholding tax on the part the exclusion does not apply will be creditable.
New Zealand Launches Public Consultation for Improving Tax Administration
On 31 March 2015, the New Zealand Inland Revenue Department issued two discussion papers as part of a public consultation for improving tax administration. The two papers are:
- Making Tax Simpler - Green Paper on Tax Administration, and
- Making Tax Simpler - Better Digital Services
Comments on the Green Paper on Tax Administration must be submitted by 29 May 2015 and comments on Better Digital Services must be submitted by 15 May 2015. Comments may be submitted online at makingtaxsimpler.ird.govt.nz, by email or by post.
OECD Issues Discussion Draft for BEPS Project Action 12
On 31 March 2015, the OECD released a discussion draft for Action 12 (Mandatory Disclosure Rules) of the Base Erosion and Profiting Shifting (BEPS) Project.
This discussion draft provides an overview of mandatory disclosure regimes, based on the experiences of countries that have such regimes, and sets out recommendations for a modular design of a mandatory disclosure regime including recommendations on rules designed to capture international tax schemes.
The discussion draft sets out a standard framework for a mandatory disclosure regime that ensures consistency while providing sufficient flexibility to deal with country specific risks and to allow tax administrations to control the quantity and type of disclosure.
Click the following link for the Action 12 discussion draft.
Comments should be submitted by 30 April 2015. A public consultation meeting will be held 11 May 2015 at the OECD Conference Centre in Paris.
UK Issues Updated Diverted Profits Tax Guidance
On 30 March 2015, the UK HMRC published updated guidance on the new Diverted Profits Tax included in UK Finance Act 2015, which received Royal Assent on 26 March 2015. The new tax applies from 1 April 2015. The guidance includes:
- An introduction and overview
- The Application of Diverted Profits Tax
- Customer engagement with HMRC
- Notification, assessment & payment
- Imposing a charge – procedure and governance
- Notification template guidance
- The Notification template
The main amendments from the original guidance issued in December 2014 include:
- Narrowing the notification requirement
- Clarifying rules for giving credit for tax paid
- Clarifying the meaning of “excluded loan relationship”
- Simplifying the legislation by restructuring and clearer signposting
- Clarifying the economic substance test
- Clarifying the operation of the rule to address avoidance of a UK taxable presence (Permanent Establishment)
- Exclusion of charities and other exempt bodies
- Application to land and property
- Application to oil and gas ring fence regime
Tax Treaty between Chile and Hungary under Negotiation
The Hungarian Ministry of Foreign Affairs and Trade has announced that negotiations are underway for an income tax treaty with Chile. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.
Protocol to the Tax Treaty between France and Germany Signed
On 31 March 2015, officials from France and Germany signed a protocol to the 1959 income and capital tax treaty between the two countries. The protocol is the fourth to amend the treaty, and will enter into force after the ratification instruments are exchanged.
Additional details will be published once available.
Protocol to the Tax Treaty between Georgia and Germany in Force
The German government has recently published an announcement that the 2014 protocol to the 2006 income and capital tax treaty with Georgia entered into force 16 December 2014. The protocol replaces Article 26 (Exchange of Information) bringing it in line with the OECD standard for information exchange, and adds Article 26A (Assistance in the Collection of Taxes).
The protocol applies from 1 January 2015.
Tax Treaty between Nigeria and South Korea (Amended)
The income and capital tax treaty between Nigeria and South Korea was initially reported to have entered into force on 21 March 2015, but the Korean government subsequently announced that Nigeria has not yet completed the required domestic ratification procedures. The treaty, signed 6 November 2006, is the first of its kind between the two countries.
The treaty covers Nigerian personal income tax, companies income tax, petroleum profits tax, capital gains tax, education tax, and other taxes on income and capital gains. It covers Korean income tax, corporation tax, inhabitant tax where charged by reference to the income tax or the corporation tax, the special tax for rural development, and other taxes on income and capital gains.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services, including technical, management or consultancy services, in the other State through employees or other engaged personnel for the same project for a period or periods aggregating more than 6 months within any 12 month period.
- Dividends - 7.5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital, otherwise 10%
- Interest - 7.5%
- Royalties - 7.5%
- Capital gains - generally exempt, except for gains from the alienation of immovable property, gains from the alienation of movable property forming part of the business property of a permanent establishment, and gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other Contracting State
Both countries apply the credit method for the elimination of double taxation.
The treaty also includes the provision that for a period of 10 years, the tax payable in the other State for which a credit is provided will be deemed to be 10% of the gross amount of dividends, interest and royalties if the actual tax was reduced or exempted through incentives for the promotion of economic development. However, the deemed tax paid will not apply if the competent authorities of both Contracting State agree that the granting of the benefit would be inappropriate in regard to:
- whether an arrangement was entered into for the purpose of taking advantage of the benefit,
- whether any benefit accrues or may accrue to any person not resident in either State,
- the prevention of fraud, evasion or avoidance of the taxes, or
- any other matter considered relevant
A protocol to the treaty, signed the same date, includes the provision that the benefits of the treaty will not apply for a resident of a Contracting State, if:
- the resident is directly or indirectly beneficially owned by one or more persons not resident of that State, and
- the amount of tax imposed on the income or capital of the resident is substantially lower than the amount that would be imposed if all beneficial owners were resident of that State.
However, the limitation will not apply if 90% or more of the income on which the lower amount of tax is imposed is derived exclusively from the active conduct of a trade or business, other than an investment business, carried on in that State.
The treaty will enter into force after the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.