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Approved Changes (4)

Belgium

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Belgium Provides Deadline Extension for CbC Report, Master File, and CbC Notification

On 28 November 2017, Belgium's Federal Public Service (SPF) Finance published an update on its guidance page for BEPS Action 13 requirements, announcing that the deadline for the submission for Country-by-Country report (Form 275 CBC) and Master File (Form 275 MF) in respect of the fiscal year ending 31 December 2016 has been extended from 31 December 2017 to 31 March 2018. In addition, the deadline for the CbC notification (From 275 CBC NOT) that would normally be due 31 December 2017 in respect of the fiscal year ending that date has also been extended to 31 March 2018. The deadline for the Local file (Form 275 LF) is unchanged (due by return deadline), although the ability to submit via email (BEPS13@minfin.fed.be) has been extended with respect to the 2017 tax year (accounting years ended between 31 December 2016 and 30 December 2017).

Jersey

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Jersey Announcement on CbC Reporting including First Year Deadline Extension

On 24 November 2017, the Jersey government published an announcement from the Director of International Tax relating to Country-by-Country (CbC) reporting in Jersey. The announcement notes three main things:

1. In addition to the jurisdictions listed for CbC exchange by the OECD, additional CbC exchange agreements will be signed and in force by 31 December 2017 with the US, the UK, Guernsey, the Isle of Man, and Hong Kong.

2. For entities whose first CbC reporting deadline is 31 December 2017, the Comptroller has agreed to a filing extension of one month to 31 January 2018.

3. The submission of CbC reports is to be made through the Jersey AEOI portal using the CBC reporting XML schema developed by the OECD.

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OECD Releases Additional Guidance on CbC Reporting

On 30 November 2017, the OECD announced an update to its guidance on the implementation of Country-by-Country (CbC) reporting. The update includes additional guidance on how to report amounts taken from financial statements prepared using fair value accounting; how to treat a negative figure for accumulated earnings in Table 1; how to treat mergers/acquisitions/de-mergers; how to treat short accounting periods; and the definition of total consolidated group revenue.

Poland

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Poland Tax Reform Law Published in Official Gazette

On 27 November 2017, Poland published in the Official Gazette the Act of 27 October 2017 on the amendment of the Personal Income Tax Act, the Corporate Income Tax Act, and the Law on flat-rate income tax. The Act introduces a number of changes, including the implementation of measures from the EU Anti-Tax Avoidance Directive (ATAD1) and other BEPS-related measures. The main measures are summarized as follows:

Restriction on Interest Expense Deduction

An interest restriction is introduced that limits the deduction of net interest expense to 30% of EBITDA, with a PLN 3 million safe harbor threshold. Where the tax year is longer or shorter than 12 months, the threshold is equal to the number of months of the tax year multiplied by PLN 250,000. An exemption from the restriction is provided for interest expense in relation to financing for long-term public infrastructure projects and for financial companies, subject to certain conditions. Non-deductible interest expense may be carried forward up to five years.

Restriction on Deduction of Certain Related Party and Tax Haven Payments

A deduction limit equal to 5% of EBITDA is introduced for certain payments to related parties and tax haven entities in excess of PLN 3 million (adjusted for shorter/longer tax years as for interest above). Payments subject to the limit include payments for:

  • Advisory services, market research, advertising services, management and control, data processing, insurance billing, guarantees, and similar services;
  • Fees for the use of or the right to use intangible assets (royalty payments, licensing fees, etc.); and
  • The transfer of default risk from loans, other than those provided by banks and credit unions, including with respect to obligations arising from derivatives and similar benefits.

Exemptions from the deduction limit are provided in certain case, including where the expenses are directly related to the production of goods and rendering of services and where the expenses are covered by an advance pricing agreement (APA) entered into with Polish tax authority. Non-deductible amounts may be carried forward up to five years.

Amended CFC Rules

The controlled foreign company (CFC) rules are amended to bring them in line with the EU Anti-Tax Avoidance Directive, including that a foreign entity will be a considered a CFC if:

  • The taxpayer directly or indirectly holds itself, or with associated enterprises, more than 50% of the foreign entity's capital, voting rights, or rights to profit for a continuous period of at least 30 days;
  • At least 33% of the foreign entity's income is derived from:
    • Dividends and other revenues from participation in profits of legal persons;
    • The sale of shares;
    • Receivables;
    • Interest and other benefits from of all types of loans;
    • Financial leasing;
    • Guarantees and warranties;
    • Copyright or industrial property rights, including from the sale of such rights;
    • The sale and realization of the rights of financial instruments;
    • The business of insurance, banking, or other financial activities; or
    • Transactions with related parties, where the company adds little or no economic value in relation to the transactions; and
  • The actual tax paid on the income is less than the difference between the income tax that would be due if the foreign entity was a taxpayer in Poland and the actual income tax paid.

Other Measures

Other important measures include:

  • The introduction of rules for the separate tax treatment of capital income (gains) and business activity income, with revenue and costs (gains/losses) for both sources settled separately;
  • The introduction of a minimum tax in respect of taxable persons with commercial real estate of significant value (more than PLN 10 million), with a rate of 0.035% of the real estate value per month, with the tax due by the 20th of the following month - applies for commercial buildings classified as a shopping center, department store, etc., and office buildings;
  • The modification of the tax rules governing the functioning of tax capital groups in order to counter aggressive tax optimization;
  • A restriction on the deduction of interest expense incurred for the acquisition of shares to counter acquisitions where the debt is pushed down to the acquired company; and
  • An increase in the immediate write-off threshold for fixed and intangible assets from PLN 3,500 to PLN 10,000.

Further to the measures/amendments, the annexes to the Act set out the annual depreciation rate schedules.

Click the following link for the Act of 27 October 2017 (Polish language), which enters into force on 1 January 2018.

Proposed Changes (1)

European Union

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European Commission Proposes New Tools to Combat VAT Fraud

On 30 November 2017, the European Commission announced a proposal for new tools to combat value added tax (VAT) fraud in the EU that would provide for greater exchange of information and cooperation between national tax authorities and law enforcement authorities. According to the announcement, the key measures in the proposed legislation include:

  • Strengthening cooperation between Member States: VAT fraud can happen in a matter of minutes, so Member States need to have the tools to act as quickly as possible. Today's proposal would put in place an online system for information sharing within 'Eurofisc', the EU's existing network of anti-fraud experts. The system would enable Member States to process, analyse and audit data on cross-border activity to make sure that risk can be assessed as quickly and accurately as possible. To boost the capacity of Member States to check cross-border supplies, joint audits would allow officials from two or more national tax authorities to form a single audit team to combat fraud - especially important for cases of fraud in the e-commerce sector. New powers would also be given to Eurofisc to coordinate cross-border investigations.
  • Working with law enforcement bodies: The new measures would open new lines of communication and data exchange between tax authorities and European law enforcement bodies on cross-border activities suspected of leading to VAT fraud: OLAF, Europol and the newly created European Public Prosecutor Office (EPPO). Cooperation with European bodies would allow for the national information to be cross-checked with criminal records, databases and other information held by Europol and OLAF, in order to identify the real perpetrators of fraud and their networks.
  • Sharing of key information on imports from outside the EU: Information sharing between tax and customs authorities would be further improved for certain customs procedures which are currently open to VAT fraud. Under a special procedure, goods that arrive from outside the EU with a final destination of one Member State can arrive into the EU via another Member State and transit onwards VAT-free. VAT is then only charged when the goods reach their final destination. This feature of the EU's VAT system aims to facilitate trade for honest companies, but can be abused to divert goods to the black market and circumvent the payment of VAT altogether. Under the new rules information on incoming goods would be shared and cooperation strengthened between tax and customs authorities in all Member States.
  • Information sharing on cars: Trading in cars is also sometimes subject to fraud due to the difference in how VAT is applied to new and used cars. Recent or new cars, for which the whole amount is taxable, can be sold as second-hand goods for which only the profit margin is subject to VAT. In order to tackle this type of fraud, Eurofisc officials would also be given access to car registration data from other Member States.

The legislative proposals will be submitted to the European Parliament for consultation and to the Council for adoption.

Treaty Changes (7)

Algeria-Czech Rep

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Tax Treaty between Algeria and the Czech Republic to be Negotiated

Officials from Algeria and the Czech Republic are scheduled to meet 4 to 7 December 2017 for the first round of negotiations for an income tax treaty. Any resulting treaty would be the first of its kind between the two counties, and must be finalized, signed, and ratified before entering into force.

Argentina-Ecuador

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Argentina Ratifies Pending SSA with Ecuador

On 28 November 2017, Argentina's President Mauricio Macri signed the decree for the ratification of the pending social security agreement with Ecuador. The agreement, signed 9 December 2015, is the first of its kind between the two countries and will enter into force the day after the ratification instruments are exchanged.

Azerbaijan-Israel

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Update - Tax Treaty between Azerbaijan and Israel

The income tax treaty between Azerbaijan and Israel was signed on 13 December 2016. It is the first of its kind between the two countries.

Taxes Covered

The treaty covers Azerbaijani tax on profit of legal persons and income tax on physical persons. It covers Israeli income tax and company tax (including tax on capital gains and taxes imposed under the Petroleum Profits Taxation Law), and tax imposed on gains from the alienation of property according to the Real Estate Taxation Law.

Residence

If a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement based on its place of effective management. If no agreement is reached, the provisions of the treaty will not apply, except for Articles 24 (Non-Discrimination), 25 (Mutual Agreement Procedure), and 26 (Exchange of Information).

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 15%
  • Interest - 10%
  • Royalties - 5% for royalties paid for any patent, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment or for information (know-how) concerning industrial, commercial or scientific experience; otherwise 10%

Note - The final protocol to the treaty provides that distributions made by a Real Estate Investment Trust which is a resident of a Contracting State are not considered as dividends and will be taxable according to the domestic law of that Contracting State.

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of shares or an interest in a partnership, trust, or other entity deriving more than 50% of their value directly or indirectly from immovable property situated in the other State at the time of the alienation or at any time during the twelve preceding months; and
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State, provided that resident was a beneficial owner of the alienated property for the whole period for which the capital gains are calculated.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Limitation on Benefits

Article 27 (Limitation on Benefits) provides that a resident of a Contracting State will not receive the benefit of any reduction in or exemption from taxes provided for in the treaty by the other Contracting State if the main purpose or one of the main purposes of the creation or existence of such resident or any person connected with such resident is to obtain the benefits under the treaty that would not otherwise be available.

In addition, specific limitation on benefits provisions are included in Articles 10 (Dividends), 11 (Interest), 12 (Royalties), and 13 (Capital Gains), which generally provide that the benefits of those Articles will not apply if obtaining the benefits was one of the main purposes of any person concerned with creation, assignment, acquisition, or transfer of the shares, debt-claims, other rights, or property in respect of which the income is paid or gains are realized.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

Bermuda-United Kingdom

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CbC Exchange Agreement between Bermuda and the UK Signed

The Bermuda government has announced that officials from Bermuda and the UK signed a Competent Authority Agreement for the exchange of Country-by-Country (CbC) reports on 29 November 2017. The text of the agreement was not yet available at the time of writing, but it is expected that the agreement applies with respect to CbC reports for reporting fiscal years beginning on or after 1 January 2016.

Comoros-Mauritius

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Tax Treaty between Comoros and Mauritius Signed

According to a newsletter published by the Mauritius Revenue Authority, officials from Comoros and Mauritius signed an income tax treaty on 6 October 2017. The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged. Details of the treaty will be published once available.

Note - A prior report that the Comoros government had only recently approved the signature of the treaty has been updated to note the signing.

Georgia-Moldova

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Tax Treaty between Georgia and Moldova Signed

On 29 November 2017, officials from Georgia and Moldova 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. Details of the treaty will be published once available.

Kosovo-Untd A Emirates

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Tax Treaty between Kosovo and the UAE has Entered into Force

According to a recent update from the Tax Administration of Kosovo, the income and capital tax treaty with the United Arab Emirates entered into force on 3 July 2017. The treaty, signed 20 May 2016, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Kosovo personal income tax and corporate income tax, and covers UAE income tax and corporate tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through employees or other engaged personnel for a period or periods aggregating more than 6 months.

Withholding Tax Rates

  • Dividends - 5%
  • Interest - 5%
  • Royalties - 0%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares or other comparable interest deriving more than 50% of their value directly or indirectly from immovable property situated in the other State, except for shares listed on a recognized stock exchange.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Limitation on Benefits

Article 28 (Anti-abuse Clause) provides that the provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties), and 21 (Other Income) will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims, or other rights in respect of which the income is paid was to take advantage of those Articles by means of that creation or assignment.

Income from Natural Resources

The final protocol to the treaty provides that the treaty will not affect the right of either one of the Contracting States to apply their domestic laws and regulations related to the taxation of income and profits derived from natural resources and its associated activities situated in the territory of the respective Contracting State, as the case may be.

Effective Date

The treaty applies from 1 January 2017 (year in which it entered into force).

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