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Worldwide Tax News

Approved Changes (3)

Finland

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Finland Approves New Transfer Pricing Documentation Requirements including CbC Reporting

On 23 November 2016, the Finnish parliament approved the law introducing new transfer pricing documentation requirements, including Country-by-Country (CbC) reporting requirements in line with BEPS Action 13 and Council Directive (EU) 2016/881.

Master/Local File

The new transfer pricing documentation requirements are based on BEPS Action 13 guidelines and include two sections:

Section 1 (Master file), including:

  1. Organizational structure;
  2. A description of the group's business;
  3. A description of the activities related to intangible assets;
  4. A description of group financing;
  5. The group's consolidated financial statements for the fiscal year or equivalent if available; and
  6. Information on unilateral APAs and other relevant cross-border tax rulings.

Section 2 (Local file), including:

  1. A description of the organizational and management structure;
  2. A detailed description of the business operations and strategy;
  3. A description of the relationships with related parties transacted with and those that directly or indirectly affect the pricing of transactions;
  4. The details of related party transactions and transactions between the company and its permanent establishment;
  5. A functional analysis of related party transactions and transactions between the company and its permanent establishment;
  6. A comparability analysis and available comparable data;
  7. A description of the selected transfer pricing method and its application;
  8. The financial statements or equivalent information for the year; and
  9. Copies of the unilateral, bilateral or multilateral APAs affecting the related party transactions and other relevant cross-border tax rulings.

If the Finnish entity's related party transactions do not exceed EUR 500,000, the information under Section 1 (Master file) and items 5-7 under Section 2 (Local file) are not required.

CbC Reporting

The main aspects of the CbC reporting requirements are summarized as follows:

  • The requirements will apply for fiscal years beginning on or after 1 January 2016 for MNEs meeting an annual consolidate revenue threshold of EUR 750 million;
  • The requirement to submit the CbC report primarily applies to ultimate parent entities resident in Finland, but also applies for a local non-parent constituent entity if:
    • The ultimate parent is not required to submit a CbC report in its jurisdiction of residence;
    • The ultimate parent is resident in a jurisdiction that does not have an agreement for the exchange of CbC reports with Finland in force by the due date of the CbC report; or
    • An agreement is in place, but there has been a systemic failure to exchange and notification of this failure has been provided by the Finnish Tax Administration;
  • A local non-parent constituent entity will not be required to submit a CbC report as above if a surrogate parent entity has been designated in another jurisdiction - certain conditions apply including that the report will be exchanged with Finland and notification of the reporting entity has been provided to the Tax Administration;
  • Notification of the reporting entity (in all cases) must be provided to the Tax Administration by the by the last day of the fiscal year being reported on (note - the law includes that for fiscal years that begin in 2016 and end before 1 June 2017, the first reporting notification is to be submitted before 1 June);
  • When required, the CbC report must be submitted within 12 months following the end of the fiscal year being reported on;
  • The content of the CbC report follows the Action 13 guidelines; and
  • A penalty of up to EUR 25,000 will be imposed for failing to meet CbC reporting requirements, including the requirement to provide notification of the reporting entity.

The law also notes that the Tax Administration may issue further regulations on the content of the reporting notification, as well as the content of the CbC report and how it should be submitted.

Click the following link for the new transfer pricing documentation law.

Kazakhstan

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Kazakhstan Tax Code Amendments Approved Including VAT, Loan Taxation, and other Changes

On 30 November 2016, Kazakhstan President Nursultan Nazarbayev reportedly signed legislation approved by the Senate on 17 November that introduces amendments to the Tax Code regarding taxation and customs administration. Some of the main amendments include:

  • A reduction in the value added tax (VAT) registration threshold as follows:
    • 30,000 MCI for 2017 maintained (MCI - monthly calculation index = KZT 2,269 in 2017);
    • 25,000 MCI from 1 January 2018;
    • 20,000  MCI from 1 January 2019; and
    • 15,000 MCI from 1 January 2020;
  • Delayed implementation of mandatory electronic invoicing for VAT purposes until 2018 for large taxpayers and 2019 for all taxpayers;
  • A VAT zero-rate for ferry and railway transportation;
  • Measures to strengthen the financial sector and reduce bad debts, including:
    • A VAT exemption for loans granted by licensed banks and other financial institutions; and
    • Allowing second-tier banks to write off bad debts without resulting in tax consequences for the debtor, i.e. the waiver of the debt is not considered taxable income for the debtor;
  • Delayed implementation of the new system of income and property reporting by individual taxpayers to 2020; and
  • A phased increase in alcohol and tobacco duties through 2019.

Click the following link for the legislation (Russian language), which will enter into force 1 January 2017.

United Kingdom

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UK Transfers Individual Income Tax Power to Scottish Parliament

On 30 November 2016, UK government regulations entered into force for the transfer of power to the Scottish Parliament to set individual income tax rates and thresholds in Scotland. The transfer of power is included as part of the Scotland Act 2016 (previous coverage). The power to set income tax rates and thresholds separate from the UK will apply from 6 April 2017.

Although new Scottish rates and thresholds have not yet been finalized, a proposal (previous coverage) has been made for a new bracket structure with a top rate of 60% on income over GBP 150,000 (standard UK top rate is 45%).

Click the following link for the Scotland Act 2016 (Commencement No. 2) Regulations and a related press release.

Proposed Changes (3)

Algeria

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Algeria 2017 Finance Bill Includes Increased VAT Rates

According to an announcement from the Algerian tax authority, the draft Finance Bill for 2017 was adopted by National People's Congress (lower house of parliament) on 22 November 2016. The main change introduced in the bill is an increase in the standard value added tax (VAT) rate from 17% to 19%, and an increase in the reduced VAT rate from 7% to 9%. The law also adjusts various fees and consumption/excise taxes, etc.

The Finance Bill must now be approved by the Council of the Nation (upper house).

European Union

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European Commission Proposes VAT Measures to Support E-Commerce and Online Businesses in the EU

On 1 December 2016, the European Commission announced proposed measures to improve the value added tax (VAT) environment for e-commerce businesses in the EU. The proposed measures include:

  • Introducing a "One Stop Shop" that expands the Mini One Stop Shop (MOSS), which is already available for the payment of VAT on cross-border supplies of e-services, to also allow the quarterly payment of VAT on cross-border online sales of goods throughout the EU (currently, registration is required in each Member State where goods are sold);
  • Simplifying the VAT rules for SMEs and startups, including the introduction of:
    • An annual online sales threshold of EUR 10,000 under which businesses selling cross-border can continue to apply the VAT rules of their home State; and
    • An annual online sales threshold of EUR 100,000 under which businesses selling cross-border may apply simplified rules for identifying where their customers are based;
  • Removing the small consignments VAT exemption for imported goods worth less than EUR 22 in order to counter VAT fraud from outside the EU; and
  • Allowing EU Member States to apply the same reduced VAT rates to e-publications such as e-books and online newspapers as is currently allowed for their printed equivalents.

The proposed measures will now be submitted to the European Parliament for consultation and to the Council for adoption.

Click the following link for the European Commission press release on the proposals for additional information.

New Zealand

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New Zealand Expresses Commitment to BEPS Multilateral Instrument

New Zealand Revenue Minister Michael Woodhouse has expressed the government's commitment to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. Negotiations for the Multilateral Instrument concluded 24 November 2016 (previous coverage). In a recent release, Woodhouse stated that "BEPS is a global problem that this government is committed to addressing. The best way to do that is through a coordinated global response, which is why we are fully committed to the multilateral instrument."

New Zealand is planning to sign the multilateral instrument in June 2017.

Treaty Changes (6)

Albania-Hungary

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SSA between Albania and Hungary in Force

The social security agreement between Albania and Hungary entered into force on 1 July 2016. The agreement, signed 10 December 2014, is the first of its kind between the two countries and generally applies from the date of its entry into force.

Andorra-Israel-Liechtenstein-Saint Kitts and Nevi-St. Vincent-Samoa-Senegal-Uruguay-OECD

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Mutual Assistance Convention has Entered into Force for Eight Countries

On 1 December 2016, the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol entered into force for:

  • Andorra;
  • Israel;
  • Liechtenstein;
  • Saint Kitts and Nevis;
  • Saint Vincent and the Grenadines;
  • Samoa;
  • Senegal; and
  • Uruguay.

The Convention generally applies in the respective countries from 1 January 2017. However, it may apply for earlier periods with another signatory if agreed to, and applies in relation to any period regarding criminal matters.

Click the following link for the signatories to the Mutual Assistance Convention to date.

Austria-Israel

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New Tax Treaty between Austria and Israel Signed

On 28 November 2016, officials from Austria and Israel signed a new income tax treaty. According to a release from the Israeli Ministry of Finance on the signing, the treaty provides the following withholding tax rates:

  • Dividends - 0% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 10%
  • Interest - 5%
  • Royalties - 0%

The treaty will enter into force after the ratification instruments are exchanged, and once in force and effective, it will replace the 1970 tax treaty between the two countries. Additional details will be published once available.

Belgium-Kenya

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Belgium and Kenya Resume Tax Treaty Negotiations

Officials from Belgium and Kenya have agreed to resume negotiations for an income tax treaty. 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.

Ivory Coast-Portugal

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Update - Tax Treaty between the Ivory Coast and Portugal

The income tax treaty between the Ivory Coast and Portugal was signed on 17 March 2015. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Portuguese personal income tax, corporate income tax, and surtaxes on corporate income tax. It covers the following Ivory Coast taxes:

  • Tax on business and agricultural profits;
  • Tax on non-commercial profits;
  • Tax on wages, salaries, pensions and annuities;
  • Tax on income from movable capital;
  • Tax on income from debt;
  • Tax on income from land; and
  • General income tax.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 5%

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 comparable interests 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.

Double Taxation Relief

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

Entitlement to Benefits

Article 30 (Entitlement to Benefits) stipulates that the benefits of the treaty will not be granted to a resident of a Contracting State that is not the beneficial owner of the income derived from the other State. In addition, the benefits of the treaty will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the property or right in respect of which the income is paid was to take advantage of the benefits through the creation or assignment.

Entry into Force and Effect

The treaty 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.

Madagascar-Vietnam

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Madagascar and Vietnam to Negotiate Tax Treaty

During a meeting held 25 November 2016, officials from Madagascar and Vietnam discussed their intent to begin negotiations for an income tax treaty. 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.

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