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Approved Changes (2)

Netherlands

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Netherlands Announces it will Appeal Starbucks State Aid Decision

On 27 November 2015, the Government of the Netherlands announced it will appeal the European Commission decision that the Netherlands granted selective tax advantages to Starbucks in violation of EU State aid rules (previous coverage).

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The Netherlands stays committed to fight tax avoidance

In October the European Commission has decided that the Netherlands provided State aid to Starbucks Manufacturing. The Commission decision is placed in the context of the fight against tax avoidance by multinationals. The government supports this fight, both in a European and OECD context. The Netherlands wants to make international agreements in order to counter tax avoidance by increasing transparency and aligning different national systems in a better way.

The Dutch government greatly values its practice of offering certainty in advance. The Dutch practice is lawful and compliant with the international system of the OECD. However the European Commission's verdict in the Starbucks case deviates from national law and the OECD's system. In the end this will cause a lot of uncertainty about how to enforce regulations.

In order to get certainty and case law on the application of certainty in advance by way of rulings, the government appeals the Commission decision in the Starbucks case. The government is of the opinion that the Commission does not convincingly demonstrate that the Tax Authority deviated from the statutory provisions. It follows that there is no State aid involved.

United Kingdom

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HMRC Updates Diverted Profits Tax Guidance on DPT Notification and Risk Assessment

On 30 November 2015, UK HMRC published updated guidance on the Diverted Profits Tax (DPT). The 25% DPT was introduced in the UK Finance Act 2015, which received Royal Assent on 26 March 2015, and applies for profits arising from 1 April 2015 (previous coverage). The DPT is levied on profits derived from the UK by large groups that either:

  • Seek to avoid creating a UK permanent establishment that would bring a foreign company into the charge to UK Corporation Tax, or
  • Use arrangements or entities that lack economic substance to exploit tax mismatches either through expenditure or the diversion of income within the group.

The updated guidance replaces all previous guidance. It covers:

  • An introduction and overview;
  • The Application of Diverted Profits Tax;
  • Customer engagement with HMRC;
  • Notification, assessment & payment;
  • Imposing a charge – procedure and governance;
  • Notification template guidance; and
  • The Notification template.

Some of the main updates include additional guidance on:

  • Taxpayer engagement with HMRC concerning notification, assessment and payment;
  • Independent agent and alternative finance arrangements exceptions;
  • Exception for limited UK related sales and expenditures;
  • Effective tax mismatch outcomes; and
  • Tax credits against DPT.

HMRC will continue to review and periodically update the guidance in light of experience and comments made by businesses, advisers and other interested parties.

Click the following link for the updated Diverted Profits Tax: Guidance.

Treaty Changes (8)

Bulgaria-Norway

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New Tax Treaty between Bulgaria and Norway has Entered into Force

According to a recent update from the Norwegian Ministry of Finance, the new income tax treaty with Bulgaria entered into force on 30 July 2015. The treaty, signed 22 July 2014, replaces the 1988 income and capital tax treaty between the two countries.

Taxes Covered

The treaty covers Bulgarian personal income tax, corporate income tax and patent tax, and covers the following Norwegian taxes:

  • National tax on income;
  • County municipal tax on income;
  • Municipal tax on income;
  • National tax relating to income from the exploration for and the exploitation of submarine petroleum resources and related activities and work, including pipeline transport of petroleum produced; and
  • National tax on remuneration to non-resident artistes

Residence

When a person, other than an individual, is a considered resident of both Contracting States, the competent authorities of both States will determine its residence for treaty purposes through mutual agreement. If no agreement is reached, the person will not be considered a resident of either State for the purpose of claiming any benefits provided by the treaty.

Service PE

A permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through one or more individuals present in that other State for the same or connected project for an aggregate period of 183 days or more in any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital, otherwise 15%
  • Interest - 0% on interest paid in respect of a loan granted, insured or guaranteed by a governmental institution for the purposes of promoting exports; in connection with the sale on credit of any industrial, commercial or scientific equipment; or in respect of any loan granted by a bank; otherwise 5%
  • Royalties - 5%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) will not apply if it was 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 dividends, interest or royalties are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

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 deriving more than 50% of their value directly or indirectly from immovable property situated 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.

Offshore PE

Article 20 (Offshore Activities) of the treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise resident in one Contracting State carries on offshore activities in the other State in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in that other State, if such activities continue for a period or periods aggregating more than 30 days in any 12-month period.

In determining if the 30-day period is exceeded, substantially similar activities of an associated enterprise are considered.

Double Taxation Relief

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

Effective Date

The treaty applies from 1 January 2016. However, Article 26 (Assistance in the Collection of Taxes) will not apply until written confirmation is provided by Bulgaria that it is able to provide such assistance.

The 1988 income and capital tax treaty between the two countries will terminate and cease to have effect from the date the new treaty has effect.

Canada-Korea, Rep of

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SSA between Quebec and South Korea Signed

On 24 November 2015, officials from Quebec, CA and South Korea signed a social security agreement. The agreement is the first of its kind between Quebec and South Korea, although an agreement between Canada and South Korea was signed in 1997 and is in force. It will enter into force on the first day of the third month following the exchange of the ratification instruments.

Germany-Mauritius-San Marino-OECD

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Mutual Assistance Convention has Entered into Force in Germany, Mauritius and San Marino

On 1 December 2015, the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol entered into force for Germany, Mauritius and San Marino. Germany signed the original convention on 17 April 2008, although it did not enter into force, and signed the protocol on 3 November 2011. Mauritius and San Marino signed the convention as amended on 23 June 2015 and 21 November 2013 respectively.

Ghana-Korea, Rep of

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Tax Treaty between Ghana and South Korea under Negotiation

According to recent reports, negotiations are underway for an income tax treaty between Ghana and South Korea. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Hungary-Iran

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Tax Treaty between Hungary and Iran Signed

On 30 November 2015, officials from Hungary and Iran 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.

Japan-Taiwan

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Tax Agreement between Japan and Taiwan Signed

On 26 November 2015, officials from Japan and Taiwan signed an income tax agreement. The agreement is the first of its kind between the two jurisdictions and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

Niue-OECD

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Niue Signs Mutual Assistance Convention

The OECD has announced that on 27 November 2015, Niue signed the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. The convention must now be ratified by Niue and the ratification instrument deposited before entering into force in the country.

United Kingdom-Antigua-Belize-Brunei-Myanmar-Greece-Grenada-Guernsey-Isle Of Man-Jersey-Kiribati-Malawi-Montserrat-Saint Kitts and Nevi-Sierra Leone-Solomon Isl-Tuvalu

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UK Changes Interpretation of Residence Articles in 16 Tax Treaties

On 30 November 2015, the UK HMRC issued a policy paper announcing a change in interpretation of the residence articles in tax treaties with 16 jurisdictions. The interpretation is that the articles include a tie-breaker clause to decide where a company is to be treated as resident for the purposes of the treaties. Under this interpretation, a dual-resident company will be treated as a resident of the jurisdiction in which it is managed and controlled for the purpose of the treaty. If managed and controlled in both the UK and the other jurisdiction, it will remain outside the scope of the treaty.

The change in interpretation affects the UK's tax treaties with the following jurisdictions:

  • Antigua;
  • Belize;
  • Brunei;
  • Burma (Myanmar);
  • Greece;
  • Grenada;
  • Guernsey;
  • Isle of Man;
  • Jersey;
  • Kiribati;
  • Malawi;
  • Montserrat;
  • St Kitts & Nevis;
  • Sierra Leone;
  • Solomon Islands; and
  • Tuvalu

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