Worldwide Tax News
On 27 April 2017, Irish Revenue published the Annual Report for 2016, which provides a review for the year in respect of collections, managing debt, supporting compliance, confronting non-compliance, and other areas. With regard to international tax matters, the report notes:
- The adoption of Country-by-Country reporting requirements, as well as amendments to Directive 2011/16/EU on administrative cooperation for the exchange of CbC reports, which Ireland has implemented;
- The EU Anti-Tax Avoidance Directive that includes rules in the areas of exit taxation and a general anti-avoidance rule (GAAR), as well as interest limitation rules, a controlled foreign company (CFC) rule, and rules against hybrid mismatches, which are to be implemented through domestic legislation in 2019;
- Further EU rules to deal with hybrid mismatches involving third countries, which are to be finalized in 2017;
- Proposals relating to the EU Common Corporate Tax Base (CCTB), the Common Consolidated Corporate Tax Base (CCCTB), and Dispute Resolution, which are to be negotiated in 2017; and
- Matters relating to Ireland's tax treaty network, including that 72 Double Taxation Agreements (DTAs) and 26 Tax Information Exchange Agreements are in place by the end of 2016, and that Ireland will take part in the Multilateral Convention for the implementation of treaty-related BEPS measures and will also incorporate anti-BEPS measures into any new or replacement DTAs as appropriate.
According to recent reports, the U.S. IRS has filed a formal notice of appeal regarding the June 2016 U.S. Tax Court decision that the IRS had made arbitrary, capricious, or unreasonable allocations under Section 482 between Minnesota-based Medtronic Inc. and its Puerto Rican subsidiary (previous coverage), which was seen as a major defeat for the IRS. The allocations had resulted in income tax deficiencies of USD 548 million and USD 810 million for Medtronic US for the tax years 2005 and 2006. The case concerned the allocation of intercompany licenses, whether royalty payments were at arm's length, and whether intangible property was transferred during a restructuring was compensable under section 367(d). In general, the Tax Court sided with Medtronic in the case, although it did find that arm's length adjustments were needed for the royalty rates.
The Australian Treasurer Scott Morrison has issued a release announcing that the government will re-introduce the remaining elements of the Enterprise Tax Plan, which includes reducing the corporate tax rate for all companies. Legislation for a phased in reduction to 25% for all companies was submitted in 2016, but was held up in the Senate with a compromise reached to limit the reduction only to companies with annual revenue below AUD 50 million. However, the government believes that having an internationally competitive corporate tax rate is imperative given the lower rates in countries such as the UK, Singapore, and possibly the U.S., and will re-introduce legislation for the cut when Parliament resumes for the Budget.
A release has been published announcing the adoption of the Parliament resolution on the proposal for a Council directive amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries (previous coverage), with amendments.
MEPs amended the EU’s anti-tax avoidance directive to prevent multinationals taking advantage of mismatches between EU and third countries’ tax rules to reduce their tax bills. The resolution was approved by 591 votes to 36, with 12 abstentions.
"These arrangements are frequently used by the largest companies with the sole purpose of reducing corporate taxation. We have seen it in both the Apple case and in the McDonald’s case. It is about time these corporations paid their fair share of taxes," said rapporteur Olle Ludvigsson (S&D, SE).
If EU ministers back these amendments, corporations established in two jurisdictions (inside and outside the EU) for example, will no longer be able to have the same expenditure deducted from tax in both jurisdictions.
MEPs also want to put an end to the practice of having a payment recognised as tax deductible in one jurisdiction but not recognised as taxable income in the other.
The report now goes to the Council for their consideration and final approval.
Click the following link for the adopted text of the Parliament resolution.
AG Opinion Issued on Dispute Involving Austria-Germany Tax Treaty and the Limits of Its Jurisdiction in Resolving Such Disputes
On 27 April 2017, an opinion was issued from Advocate General (AG) Mengozzi of the CJEU regarding the interpretation of the interest provisions in the 2000 Austria-Germany tax treaty as amended by the 2010 protocol, as well as the limits of the CJEU's jurisdiction in resolving such disputes. Addressing the limits of jurisdiction is a key aspect of the opinion as this is the first time a Member State has brought before the Court, pursuant to Article 273 TFEU, a dispute, between it and another Member State that relates to a tax treaty.
The case concerns the taxing rights of interest under the Austria-German tax treaty from registered certificates known as 'Genussscheine' acquired by UniCredit Bank Austria AG from a German bank. The certificates essentially provide for a fixed rate of interest predetermined at the time of purchase, which may be reduced to 0% if the debtor incurs a loss. Austria, as the State of residence of the beneficial owner, claims that it alone is entitled to tax the interest income pursuant to para 1 of Article 11 (Interest) of the Austria-German treaty, while Germany claims it also has a right to tax the income because the interest must be classified as income from rights or debt-claims with participation in profits, which pursuant to para 2 of Article 11 may be taxed in the State of origin.
With regard to the CJEU's jurisdiction in the matter, the opinion notes that although the Austria-Germany tax treaty does not fall within the subject matter of the governing treaties of the EU, the dispute itself has a clear link to the objective of the establishment of the internal market, in that the elimination or avoidance of double taxation by convention will ultimately assist the realization of the internal market and the exercise of the freedoms of movement. As such, the case is within the CJEU's jurisdiction and has been legitimately brought before the CJEU on the basis of Article 273 TFEU.
With regard to the case itself, the AG finds that although the interest rate may be reduced to 0% in the event of a loss, the interest rate is independent of the amount of profits made by the debtor, and therefore the remuneration of the certificates cannot be regarded as remuneration which, in whole or in part, provides a creditor with a part or a share of the debtor’s profits. As such, the income cannot be classified as income from rights or debt-claims with participation in profits within the meaning para 2 of Article 11 of the Austria-German tax treaty.
In conclusion the AG proposes that that the Court should:
- Hold that the phrase ‘income from rights or debt-claims with participation in profits’, contained in Article 11(2) of the Convention of 24 August 2000 between the Republic of Austria and the Federal Republic of Germany for the avoidance of double taxation with respect to taxes on income and capital must be interpreted as meaning that it covers income which provides a creditor with a part or a share of the debtor’s profits, to the exclusion of income which varies only in the event of losses incurred by that debtor; and
- Order the Federal Republic of Germany to pay the costs.
Click the following link for the full text of the AG opinion.
On 26 April 2017, officials from Ireland and Kazakhstan signed an income tax treaty. The treaty is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged. Additional details will be published once available.
On 28 April2017, the Japanese Ministry of Finance announced that officials from Japan and Russia have agreed in principle on a new income tax treaty. The treaty must be signed and ratified before entering into force, and once in force and effective, will replace the 1986 tax treaty between Japan and the former Soviet Union as it applies in respect of Japan and Russia. Additional details will be published.
According to recent reports, the Luxembourg government has begun negotiations for income tax treaties with the Democratic Republic of the Congo and Ivory Coast. Any resulting treaties would be the first of their kind between Luxembourg and the respective countries, and must be finalized, signed, and ratified before entering into force.