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Approved Changes (3)
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OECD Publishes CbC Reporting Handbooks on Implementation and Risk Assessment during Forum on Tax Administration Meeting

On 29 September 2017, the OECD announced the release of Country-by-Country (CbC) Reporting Handbooks on Effective Implementation and Effective Tax Risk Assessment. The two handbooks were released along with certain other documents during the Forum on Tax Administration (FTA) meeting held 27 to 29 September in Oslo, Norway.

The Handbook on Effective Implementation is a practical guide to the key elements that countries need to keep in mind when introducing CbC Reporting. It essentially expands upon the initial Action 13 report and subsequent guidance, including in relation to technical issues related to filing, exchange, and use of CbC reports, as well as practical issues.

The Handbook on Effective Tax Risk Assessment provides guidance on a number of areas, including incorporating CbC reports into a tax risk assessment framework, challenges in using CbC report for risk assessment, using CbC report alongside data from other sources, and using the results of risk assessment based on CbC report information. It also provides 19 potential tax risk indicators that may be detected using a CbC report, along with what an indicator could mean and how else an indicator might be explained. These indicators include:

  • The footprint of a group in a jurisdiction;
  • A group's activities in a jurisdiction are limited to those that pose less risk;
  • There is a high value or high proportion of related party revenues in a particular jurisdiction;
  • The results in a jurisdiction deviate from potential comparables;
  • The results in a jurisdiction do not reflect market trends;
  • There are jurisdictions with significant profits but little substantial activity;
  • There are jurisdictions with significant profits but low levels of tax accrued;
  • There are jurisdictions with significant activities but low levels of profit (or losses);
  • A group has activities in jurisdictions which pose a BEPS risk;
  • A group has mobile activities located in jurisdictions where the group pays a lower rate or level of tax;
  • There have been changes in a group's structure, including the location of assets;
  • IP is separated from related activities within a group;
  • A group has marketing entities located in jurisdictions outside its key markets;
  • A group has procurement entities located in jurisdictions outside its key manufacturing locations;
  • Income tax paid is consistently lower than income tax accrued;
  • A group includes dual resident entities;
  • A group includes entities with no tax residence;
  • A group discloses stateless revenues in Table 1; and
  • Information in a group's CbC Report does not correspond with information previously provided by a constituent entity.

Lastly, the Handbook on Effective Tax Risk Assessment provides an example of using a CbC report for risk assessment.

Although designed for tax administrations, the handbook is obviously useful to MNE groups to understand how their CbC reports will likely be used and to prepare for aspects of their report that may result in requests for additional information or further compliance action, such as an audit.

Switzerland

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Swiss Federal Council Adopts Ordinance on International Automatic Exchange of CbC Reports

On 29 September 2017, the Swiss Federal Council announced the adoption of the Ordinance on the International Automatic Exchange of Country-by-Country Reports of Multinationals, which provides for the implementation of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA) and the Federal Act on the International Automatic Exchange of Country-by-Country Reports of Multinationals. The main aspects of the CbC reporting requirements are summarized as follows:

  • The requirements apply for reporting tax periods beginning on or after 1 January 2018 for MNE groups meeting a CHF 900 million consolidated revenue threshold in the previous year - Voluntary filing available for earlier periods;
  • The requirements mainly apply for ultimate parent entities and surrogate parent entities resident in Switzerland, but may also apply for other non-parent constituent entities resident in Switzerland if the ultimate parent's jurisdiction of residence is not a partner state (CbC exchange partner), or there is a systemic failure for exchange;
  • The required content of the CbC report is in line with the OECD guidelines, and may be submitted in an official language of the Swiss Confederation (German, French, Italian) or in English;
  • Entities resident in Switzerland must provide notification on whether they are the ultimate parent or surrogate parent, or if neither, the details of the reporting entity of the group;
  • Notification is due within 90 days following the reporting tax period, while CbC reports are due within 12 months following the reporting tax period;
  • CbC reports will be submitted electronically using the OECD XML schema (further details to be provided by tax authority, including for voluntary submission);
  • Penalties of up to CHF 50,000 will apply for failing to submit a report and up to CHF 100,000 for deliberately submitting incomplete or incorrect information.

Unless a public referendum is called by 5 October 2017, the CbC reporting requirements will enter into force on 1 December 2017.

Click the following link for the CbC Act, the CbC Regulations, and the Regulations Explanatory Notes, which are in German. Additional information has also been published for voluntary filing (German language).

United States

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U.S. District Court Holds Inversion Rule Unlawfully Issued

On 29 September 2017, the U.S. District Court in Austin, Texas issued its decision that the temporary regulations (T.D. 9761) (the Rule) issued by the IRS in April 2016 to deter corporate inversions was not lawfully issued. The Rule essentially allows the IRS to disregard foreign parent stock attributable to recent inversions or acquisitions of U.S. companies in the previous three years so that inverting companies are less likely to be able to meet the continuity of ownership thresholds for an inverted company to be treated as a foreign company for U.S. tax purposes (previous coverage). The Rule was challenged by the U.S. Chamber of Commerce, which argued that the Rule exceeds statutory authority, constitutes an arbitrary and capricious change in agency policy, and was promulgated without providing notice and opportunity to comment in violation of the Administrative Procedure Act (APA) (previous coverage).

In its decision, the Court found in favor of the Chamber of Commerce. In particular, the Court concluded that the Rule was unlawfully issued without adherence to the APA's notice-and-comment requirements, and accordingly granted summary judgment in favor of the Chamber on their claim concerning the APA and set aside the Rule. The other motions concerning statutory authority and arbitrary and capricious change were denied.

Proposed Changes (2)

European Union

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European Commission to Propose a Single EU VAT Area to Address VAT Fraud

On 28 September 2017, the European Commission issued a release on the urgent need for value added tax (VAT) reform in the EU, which is supported by a new study that found that EU countries lost an estimated total of EUR 152 billion in VAT revenues in 2015. In order to address current issues, the Commission is planning to deliver proposals in the October 2017 to update EU VAT rules that would make it easier to tackle VAT fraud and make VAT collection more efficient.

The main proposal will include rules for a single EU VAT area where VAT is charged under the rules of the originating country on sales that are made across borders to another country in the EU, but at the rate applicable in the country of consumption. The VAT would be collected by the originating country and transferred to the country of consumption. In addition to the upcoming proposals to address fraud and collection issues, the Commission is also hoping for quick agreement on new rules to improve VAT for e-commerce, which include expanding the current mini one stop shop for VAT on e-services to VAT on goods sold online, simplifying the VAT rules for SMEs and startups, and others (previous coverage).

Poland

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Poland Revises Draft Legislation for BEPS-Related Tax Measures

Following a public consultation, Poland's Ministry of Finance has reportedly published a revised version of draft tax legislation that includes several BEPS-related measures, including measures of the Anti-Tax Avoidance Directive (previous coverage). Revisions includes the introduction of a PLN 3 million safe harbor threshold along with the new 30% of taxable income interest deduction restriction, an increase in the new deduction limit on expenses for related party intangible services, licenses, etc. to PLN 3 million, and a reduction in the new tax on commercial real estate of significant value (more than PLN 10 million) to 0.035% per month. Other aspects of the draft tax legislation are reportedly unchanged.

Treaty Changes (4)

Belarus-Ecuador

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Tax Treaty between Belarus and Ecuador has Entered into Force

The Belarus Ministry of Taxes and Levies has announced that the income and capital tax treaty with Ecuador entered into force on 16 August 2017. The treaty, signed 27 January 2016, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Belarusian tax on income, tax on profits, income tax on individuals, and property tax. It covers Ecuador income tax and property tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 10%
  • Interest - 10%
  • Royalties - 10%

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;
  • Gains from the alienation of shares or other rights in a company if more than 25% of the company's assets consist of immovable property situated in the other State; and
  • Gains from the alienation of shares or other rights in a company resident in the other State if at least 25% of the capital of the company was directly or indirectly held at any time during the 12-month period preceding the alienation.

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

Double Taxation Relief

Belarus applies the credit method for the elimination of double taxation, while Ecuador generally applies the exemption method. However, for income covered by Articles 10 (Dividends), 11 (Interest), and 12 (Royalties), Ecuador applies the credit method.

Limitation on Benefits

Article 26 (Limitation on Benefits) provides that the benefits of the treaty will not be available for companies merely acting as a holding company or engaging in activities merely of an auxiliary or preparatory nature for related parties.

Article 26 also provides that a resident of a Contracting State will not receive the benefit of any reduction in or exemption from tax provided for in the treaty if the main purpose or one of the main purposes of the establishment or existence of such resident was to obtain the benefits of the treaty that would otherwise be unavailable.

Effective Date

The treaty applies from 1 January 2018.

China-Norway

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China and Norway to Renegotiate Tax Treaty

Norway's Ministry of Finance announced that officials from Norway and China met on 27 September 2017 and agreed to the renegotiation of the 1986 tax treaty between the two countries. Negotiations are to begin as soon as possible and any resulting treaty or amending protocol will need to be finalized, signed, and ratified before entering into force.

Netherlands-Anguilla

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Netherlands Terminates Savings Tax Agreement with Anguilla

On 27 September 2017, the Dutch Ministry of Foreign Affairs issued a notice that the savings tax agreement with Anguilla was terminated on 22 June 2017. The reason for the termination is the repeal of the EU Savings Directive, which was replaced by the amended provisions of the EU Administrative Assistance Directive. The termination is effective 1 January 2018.

San Marino-OECD

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San Marino Ratifies Multilateral Agreement on Automatic Exchange of Financial Account Information

On 19 September 2017, the San Marino ratified the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (MCAA), which provides for the exchange of information under the OECD Common Reporting Standard (CRS). The first exchanges under CRS are to be made from September 2017.

Click the following link for the list of the CRS MCAA signatories to date.

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