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Approved Changes (3)

European Union-Spain

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Advocate General Opinion Issued on Spanish Goodwill State Aid Decision

On 28 July 2016, the opinion of Advocate General (AG) Wathelet of the Court of Justice of the European Union (CJEU) was published concerning the 2009 and 2011 decisions of the European Commission that Spain's goodwill amortization rules violated EU State aid rules. The rules in question allow a Spanish taxpayer to amortize goodwill resulting from an acquired shareholding in a foreign company if the shareholding is at least 5% and is held for at least one year. However, such amortization is not allowed for similar acquisitions of a Spanish company. The European Commission considered this a selective advantage that constituted illegal State aid.

The Commission decisions were appealed and subsequently annulled by the General Court of the European Union (ECG) in November 2014. The annulment was based primarily on the ECG's interpretation of what can be considered a selective advantage under the conditions set out in the Treaty on the Functioning of the European Union (TFEU), which was more limited than the European Commission's interpretation. The European Commission appealed to the CJEU and requested that the judgments of the ECG be set aside.

In the opinion, the AG found that the ECG interpretation of selectivity was too limited and that the Spanish goodwill rules do in fact provide a selective advantage. In particular, the AG found that:

  • Once a tax measure derogates from the 'normal' or reference tax regime and benefits undertakings performing the transactions in question to the detriment of others that perform similar transactions, that measure is by definition discriminatory or selective;
  • The fact that the conditions attached to the transactions covered by the derogatory tax measure are relatively easy to fulfill and available to a large number of undertakings does not call into question its selective nature, but only the degree of selectivity;
  • The fact that the text of Article 107 TFEU speaks only of measures 'favoring certain undertakings or the production of certain goods' does not exclude economic transactions that are favored by such measures, since the act of favoring certain transactions also serves to favor certain undertakings;
  • The selectivity criterion provided for in Article 107(1) TFEU does not require the identification of a category of undertakings with specific characteristics on account of which they are the only ones favored by the tax measure at issue; and
  • The measure at issue is selective because it benefits undertakings performing cross-border transactions but not undertakings performing the same transactions at the national level.

Based on the above, the AG recommends that the judgments (annulments) be set aside and the cases be referred back to the ECG.

Click the following link for the full text of the AG opinion.

Ireland

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Ireland Issues eBrief on Amendments to Electronic Tax Clearance Guidelines and Procedures

On 21 July 2016, Irish Revenue published eBrief No. 71/2016 concerning amendments to the guidelines and procedures for electronic tax clearance (eTC).

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Amendment to eTC Guidelines & Procedures

The Electronic Tax Clearance (eTC) Guidelines & Procedures Manual (PDF, 410KB) has been amended for the following:

  • To take account of changes made to the appeals process as a result of the introduction of the Tax Appeals Commission. All appeals made in relation to the refusal to grant a tax clearance certificate must be made directly to the Tax Appeals Commission.
  • To include, at Appendix 10, a sample of a verification letter to be used to enable applicants doing business outside of the State to prove their tax clearance status.

United States

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U.S. to No Longer Treat FATCA Agreements as in Effect if Not in Force

On 29 July 2016, the U.S. IRS announced that beginning 1 January 2017, the FATCA intergovernmental agreements (IGA) list will be updated to provide that certain jurisdictions that have not brought their IGA into force will no longer be treated as if they have an IGA in effect. The change concerns earlier notices that the 30% withholding under FATCA would not apply for payments to jurisdictions with IGAs not yet in force, provided an IGA has been signed or agreed in substance and such jurisdictions were committed to bringing them into force.

Jurisdictions currently treated as having an IGA in effect may continue to be treated as such if the following is provided to Treasury by 31 December 2016:

  • A detailed explanation of why the jurisdiction has not yet brought the IGA into force; and
  • A step-by-step plan that the jurisdiction intends to follow in order to sign the IGA (if it has not yet been signed) and bring the IGA into force, including expected dates for achieving each step.

Click the following link for the list of jurisdictions and IGA status.

Proposed Changes (2)

Korea, Rep of

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South Korea Issues 2016 Tax Law Amendments Bill including CbC Reporting

On 28 July 2016, the South Korean Ministry of Strategy and Finance (MoSF) published the 2016 Tax Law Amendments bill, which includes the introduction of Country-by-Country (CbC) reporting and amendments to Master and Local file requirements, as well as a number of measures to support investment and R&D, and other changes.

CbC Reporting and Master and Local File

MNE groups operating in South Korea will need to submit a CbC report for fiscal years beginning on or after 1 January 2016 if meeting a KRW 1 trillion consolidated revenue threshold in the previous year. The requirement applies for ultimate parent entities resident in South Korea, as well as constituent entities resident in the country if the group's ultimate parent is resident in a jurisdiction that does not require CbC reports or the ultimate parent's jurisdiction does not automatically exchange CbC reports with the Korean tax authorities.

The required content of the CbC report is in line with BEPS Action 13 guidelines, including aggregate tax information (revenue, taxes paid/accrued, etc.) for each jurisdiction in which the group operates and details of all constituent entities. When required, the CbC report is due within 12 months following the close of the ultimate parent's fiscal year, and will be exchanged with other jurisdictions with which South Korea has entered into a competent authority agreement for exchange (first CbC report due by 31 December 2017). For the purpose of exchange, South Korea has signed the Multilateral Competent Authority Agreement on the exchange of CbC reports.

The Master and Local file requirements (previous coverage) are amended to extend the deadline from 3 months after the fiscal year to 12 months after.

Investment and R&D

Measures to promote investment and R&D include:

  • The new growth engine R&D tax credit is restructured to provide up to a 30% tax credit for qualifying activities, with a higher credit applying based on a higher ratio of R&D investments;
  • A 10% tax credit is introduced for facility investment to commercialize new growth engine technologies;
  • The tax support given to companies with foreign investment is restructured, with an up to 100% percent foreign investment tax deduction; and
  • A 5% corporate tax credit is introduced for investments in ventures.

Other Changes

Other key changes include:

  • Foreign corporate branches in Korea will be allowed to carry forward losses and offset up to 80% of taxable income per year in line with the loss treatment of domestic companies;
  • Technical services provided overseas will be subject to tax if payments are made in Korea;
  • The value limit for the capital gains tax exemption from the sale of shares is reduced to KRW 1.5 billion from the current KRW 2.5 billion for KOSPI listed shares and KRW 2.0 billion for KOSDAQ listed shares; and
  • A 20% capital gains tax is introduced on shares owned by large shareholders if they become non-residents due to emigration regardless of the shares being sold.

Click the following links for an overview of the changes provided in an English language press release from the MoSF and a Korean language press release, which provides a summary, details and a FAQ.

New Zealand

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New Zealand Publishes Fact Sheet on the Implementation of Automatic Exchange of Financial Account Information

On 28 July 2016, New Zealand Inland Revenue published a fact sheet on the implementation of automatic exchange of financial account information under the OECD's Common Reporting Standard (CRS). The fact sheet covers the reporting period, reportable jurisdictions, enforcement and compliance, and other related matters.

The initial reporting period will be 1 July 2017 to 31 March 2018, with subsequent reporting periods covering full tax years from 1 April to 31 March. The legislation for implementation will be introduced in parliament in August 2016 as part of the Taxation (Business Tax, Exchange of Information and Remedial Matters) Bill, which is expected to receive Royal assent in March 2017.

Click the following link for the fact sheet.

Treaty Changes (3)

Albania-Romania

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SSA between Albania and Romania to Enter into Force

The social security agreement between Albania and Romania will enter into force on 1 September 2016. The agreement, signed 27 February 2015, is the first of its kind between the two countries and will replace the current agreement signed in 1961.

Germany-Australia

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Germany Approves New Tax Treaty with Australia

On 6 July 2016, the Finance Committee of Germany's Bundestag (lower house of parliament) approved the pending income and capital tax treaty with Australia (previous coverage). The treaty, signed 12 November 2015, will enter into force once the ratification instruments are exchanged. It will apply in Australia from 1 January next following the date of its entry into force in respect of withholding tax, from 1 April next following its entry into force in respect of fringe benefits tax, and from 1 July next following its entry into force for all other taxes. It will apply in Germany from 1 January next following the date of its entry into force. Once the new treaty is in force and effective, the 1972 income and capital tax treaty between Australia and Germany will be terminated.

Portugal-Vietnam

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Portugal Ratifies Tax Treaty with Vietnam

On 22 July 2016, Portugal published the decree ratifying the pending income tax treaty with Vietnam (previous coverage). The treaty, signed 3 June 2016, is the first of its kind between the two countries. It will enter into force 30 days after the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

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