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Approved Changes (4)

G20-OECD

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G20 Finance Ministers Reiterate Commitment to Implementing the OECD BEPS Project and Endorse new OECD Implementation Framework

The G20 Finance Ministers have issued a communiqué following their meeting held in Shanghai on 26-27 February 2016. The communiqué covers a number of issues, including that the G20 Finance Ministers remain committed to the implementation of the outcomes of the OECD BEPS Project and endorse the OECD's new framework for the implementation (previous coverage).

The following is the text of the communiqué concerning BEPS.

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Widespread, consistent and effective implementation of G20/OECD Base Erosion and Profit Shifting (BEPS) project is critical for a fair and modern international tax system. We reiterate our commitment to timely implementation of the BEPS project, and continue to monitor and address BEPS-related issues in order to ensure tax fairness and a level playing field. To ensure a consistent global approach, we endorse the inclusive framework proposed by the OECD for the global implementation of BEPS project and encourage all relevant and interested non-G20 countries and jurisdictions, which commit to implement the BEPS project, including developing countries, to join in the framework on an equal footing. We support that the specific challenges faced by developing countries in BEPS implementation should be appropriately addressed under the framework. We remain committed to implementing the standard for information exchange on request as well as for Automatic Exchange of Information (AEOI), and call on all financial centers and jurisdictions to do so by 2017 or at the end of 2018. We reiterate our call for all countries to join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and look forward to the progress report by the Global Forum. We welcome the different existing initiatives aimed at building capacity for developing economies to their needs on tax issues, including the Addis Tax Initiative, the Tax Administration Diagnostic Assessment Tool, and the Tax Inspectors Without Borders. In this connection, China would make its own contribution by establishing an international tax policy research center for international tax policy design and research as well as technical assistance to developing economies. We also welcome the new proposal of developing a tax platform jointly by the IMF, OECD, UN and WBG, and call on them to recommend mechanisms to help ensure effective implementation of technical assistance programs, and recommend how countries can contribute funding for tax projects and direct technical assistance, and report back with recommendations at our July meeting. We recognize the role of tax policy in achieving sustainable economic growth, and will explore this issue further at the G20 Tax Symposium to be held in July. We recognize the significant negative impact of illicit financial flows on all our economies, and we continue to take forward the work of the G20 on this theme.

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Click the following link for the full text of the communiqué as published by China's Ministry of Finance.

Jersey

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Jersey Budget Measures for 2016 Enacted

On 19 February 2016, the Laws implementing the measures included in Jersey's 2016 Budget were registered by the Royal Court. The Laws include the Finance (2016 Budget) (Jersey) Law 2016 and the Income Tax (Amendment No. 45) (Jersey) Law 2016. The main measures include changes in the individual income tax thresholds, restrictions on the tax credit for dividends received, amended residency rules to account for the UK's reduction in the corporation tax rate to 19% in 2017, and an extension in the corporate tax return deadline to 31 December.

The measures generally apply from 1 January 2016. Click the following link for previous coverage of the measures.

United States

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U.S. Tax Court Opinion that Determination of Separate Taxable Income not needed for Group Transfer Pricing Adjustment

On 29 February 2016, an opinion of the U.S. Tax Court was published concerning whether the IRS must determine separate taxable income of controlled entities for transfer pricing adjustment purposes and whether related transactions may be aggregated. The case involves Guidant Corp., the U.S. parent of a group engaged in the development, manufacture and sale of medical devices.

For the years concerned (2001-2007), Guidant group's U.S. subsidiaries conducted transactions with foreign affiliates, including the licensing of intangibles, the purchase and sale of manufactured property, and services. Following an audit of Guidant group's returns, the IRS made a transfer pricing adjustment of approximately USD 3.5 billion for the transactions, and determined the group’s true consolidated taxable income by posting all of the adjustments to the separate taxable income of the group’s parent, without making any specific adjustment to any of the subsidiaries' separate taxable income. In addition, the IRS made no determination on what portion of the adjustment related to tangibles, intangibles, or services.

Guidant appealed the adjustment, arguing that the adjustments were arbitrary, capricious, and unreasonable because the IRS:

  1. Did not determined the true separate taxable income of each controlled taxpayer as per regulation § 1.482-1(f)(1)(iv) (includes that the true consolidated taxable income of the affiliated group and the true separate taxable income of the controlled taxpayer must be determined); and
  2. Did not make specific adjustments with respect to each transaction involving an intangible, a purchase and sale of property, or a provision of services.

In reviewing the case, the U.S. Tax Court found that the IRS is not required under section 482 or the applicable regulations to determine the separate taxable income of controlled entities when making transfer pricing adjustments under section 482. In the Court's opinion, the purpose of the regulation is to ensure that section 482 serves the purpose of the consolidated return regime, and that the IRS has the authority to decide whether determining separate taxable income is needed. Concerning the aggregation of transactions, the Court found that the IRS may aggregate transactions involving tangibles, intangibles, or services when it is the most reliable means of determining arm's length consideration under the circumstances.

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

Untd A Emirates-Bahrain-Kuwait-Oman-Qatar-Saudi Arabia

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U.A.E. Confirms Implementation of VAT in 2018

The United Arab Emirates (U.A.E.) Minister of State for Financial Affairs has announced that the U.A.E. will implement a value added tax (VAT) at the rate of 5% from 1 January 2018. VAT will apply for must supplies in the country, with an exemption provided for certain food items, education and healthcare.

The implementation of VAT in the U.A.E. is part of a Gulf Cooperation Council (GCC) framework for the implementation of VAT in all GCC Member States in 2018. VAT is seen as needed due to decreased revenues resulting from falling oil prices. Under the framework, each country is allowed some flexibility on the timing of implementation, but all must implement and apply a VAT system by 1 January 2019 at the latest. The GCC includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the U.A.E.

Proposed Changes (1)

Luxembourg

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Luxembourg Announces Tax Reform Plans including Corporate Tax Rate Cut

On 29 February 2016, the Luxembourg government announced its tax reform plans for 2017. One of the key measures is a cut in the standard corporate tax rate from 21% to 19% in 2017 and to 18% in 2018. In addition, Luxembourg plans to cut the reduced corporate tax rate for small businesses from 20% to 15%, and raise the threshold for the reduced rate from EUR 15,000 to EUR 25,000 in taxable income.

Other planned measures include:

  • Increasing the fixed minimum net wealth tax from EUR 3,210 to EUR 4,815 for specific resident investment vehicles with financial assets exceeding EUR 350,000;
  • Abolishing the Temporary 0.5% Budget Balancing Tax on individual income; and
  • Introducing two new top individual income tax brackets and rates: EUR 150,000 - 41%, and EUR 200,000 - 42%.

As proposed, the reform measures would enter into force on 1 January 2017.

Treaty Changes (2)

Cyprus-Ukraine

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Update - Protocol to the Tax Treaty between Cyprus and Ukraine

The protocol to the 2012 income tax treaty between Cyprus and Ukraine was signed on 11 December 2015, and is the first to amend the treaty. The main aspects of the protocol are summarized as follows.

Withholding Tax Rates

The paragraphs concerning the withholding tax rates in Article 10 (Dividends) and Article 11 (Interest) are replaced.

The rates under the new paragraphs:

  • Dividends - 5% if the beneficial owner is a company directly holding at least 20% of the paying company's capital and the investment to acquire the shares or other rights is at least EUR 100,000 or equivalent; otherwise 10% (current rates 5%/15%)
  • Interest - 5% (current rate 2%)

Capital Gains

Article 13 (Capital Gains) is replaced.

Under the new Article, 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 deriving more than 50% of their value directly or indirectly from immovable property situated in the other State, with an exemption for:
    • Shares listed on an approved stock exchange;
    • Shares alienated as part of a corporate reorganization;
    • Shares deriving their value from immovable property in which the business is carried on;
    • Shares of public companies; and
    • Similar interests in Real Estate Funds

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

MFN Clause

The protocol includes the provision that if Ukraine agrees in any tax treaty after 2 July 2015 to exempt or provide a lower rate of tax for dividends, interest or royalties, or provide more favorable provisions regarding capital gains, Cyprus then has the right to renegotiate the relevant articles of the Cyprus-Ukraine treaty to apply such exemption, lower rate or more favorable provisions.

Entry into Force and Effect

The protocol will enter into force once the ratification instruments are exchanged. It will apply either from 1 January 2019, or if enters into force after that date, from 1 January of the year following its entry into force.

Nigeria-Qatar

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Tax Treaty between Nigeria and Qatar Signed

On 28 February 2016, officials from Nigeria and Qatar 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.

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