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Approved Changes (3)

Cuba-United States

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Cuba removed from U.S. Foreign Tax Credit Blacklist

On 1 March 2016, the U.S. IRS published Rev. Rul. 2016-8, which amends Rev. Rul. 2005-3 to remove Cuba from the foreign tax credit (FTC) black list. The black list concerns section 901(j), which includes that a FTC will not be available for taxes paid or accrued to any listed country. The list also concerns section 952(a)(5), which provides that subpart F income includes income derived by a controlled foreign corporation from any foreign country during any period during which section 901(j) applies.

Cuba's removal from the list is effective 21 December 2015.

New Zealand

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New Zealand's Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 Receives Royal Assent

On 24 February 2016, New Zealand's Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Act 2016 received Royal assent. The main changes relate to loss-making research and development (R&D) start-ups, non-deductible and non-depreciable R&D expenditures, and remedial changes to controlled foreign company (CFC) rules.

"Cash Out" Credit for Tax Losses of R&D Start-ups

The Act includes measures to allow loss-making research and development (R&D) start-up companies to “cash out” their tax losses arising from qualifying R&D expenditure in the form of a tax credit for income years beginning on or after 1 April 2015.

In order to qualify, the following conditions must be met:

  • The company must be a New Zealand resident and not treated as a resident of another country under any tax treaty;
  • The company must not be part of a group that includes a foreign company;
  • The company must have a net loss for the corresponding year, or if part of a group, the group must have a net loss for the corresponding tax year;
  • The company must incur R&D expenditure in the income year;
  • The company's R&D labor expenditure must be at least 20% of their total labor expenditure, or if part of a group, the aggregate expenditure of the group must meet the 20% requirement; and
  • The intellectual property and know-how that results from the R&D must vest in the company, solely or jointly.

The R&D tax loss credit amount is limited to the lower of the following multiplied by the basic tax rate for the year (current company tax rate 28%):

  • A yearly net loss cap of NZD 500,000 for the 2015-16 tax year, which will be increased by NZD 300,000 per year over the next 5 years to NZD 2 million (2020-21 tax year);
  • The company’s net loss for the year;
  • The company’s total research and development expenditure for the year; or
  • 1.5 times the company’s R&D labor expenditure for the year.

When the company makes a return on their R&D, they will be required to repay some or all of the credit amounts cashed out. Triggers for repayment include the sale of R&D assets, failure to meet the eligibility conditions, liquidation or migration of the company, and the sale of the company.

"Black Hole" R&D Expenditures

A number of changes are made concerning previously non-deductible and non-depreciable R&D expenditures, including:

  • Capitalized development expenditure incurred on or after 7 November 2013 for the development of intangible assets that are not depreciable for tax purposes is allowed as a one-off income tax deduction in the year in which the intangible asset is derecognized (written off) for accounting purposes. In the event the asset is disposed of for consideration, or is used or becomes available for use, the deduction will be clawed-back.
  • Capitalized expenditure on an underlying item of intangible property that gives rise to an item of depreciable intangible property may be included as part of the depreciation costs of the depreciable property from the beginning of the 2011-12 income year. For capitalized expenditure relating to patents, patent applications and plant variety rights, the change applies from the 2015-16 income year for expenditure incurred on or after 7 November 2013.
  • Costs for design registration, design registration application, and industrial artistic copyright are made depreciable. The change applies from the 2015-16 income year for expenditure incurred on or after 7 November 2013.

CFC Rules

A number of remedial changes are made to the CFC rules. The main changes include the following:

  • Taxpayers are only able to choose the fair dividend rate (FDR) method applied once every four years for each foreign investment fund (FIF), which includes the usual 5% method and the more accurate unit-valuing method. Since the choice is made retrospectively, the change was made to keep taxpayers from just choosing the most beneficial method each year. The change applies from 1 April 2016.
  • The prepayment rules are applied to CFCs, so that taxpayers may not make an immediate deduction for expenses that should be spread out over several years (separate from but similar to depreciation rules). The change applies from 1 April 2016.
  • The Australian FIF exemption average ownership test (10%) is changed so that the test only applies for the period of the year that the taxpayer holds an interest in the FIF. The change applies to income years starting on or after 1 July 2011.
  • An anti-avoidance rule is introduced that allows the Commissioner to reverse CFC grouping elections in cases where a taxpayer uses the CFC tax grouping rules to gain an unintended tax advantage, such as grouping passive income CFCs with active income CFCs to take advantage of the active income exemption, but not grouping when the passive CFC has a loss that can be carried forward. The rule applies from 1 April 2016.

Click the following link for the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 as enacted.

United Kingdom

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UK Publishes New Policy Paper on Taxing the Profits of Companies not Resident in the UK and Updates Papers on Transfer Pricing and Aggressive Tax Planning

On 1 March 2016, the UK HMRC published a policy paper title Issue briefing: Taxing the profits of companies that are not resident in the UK. On the same date, HMRC also published an updated policy paper on transfer pricing and an updated corporate report on aggressive tax planning.

HMRC issue briefing: taxing the profits of companies that are not resident in the UK

Explains when a foreign company operating in the UK must pay UK Corporation Tax, and what HMRC is doing to make sure the rules are applied fairly and consistently.

Taxing multinationals: how international transfer pricing rules work

Explains how transfer pricing rules are operated by HMRC to ensure that the UK gets the tax it is due.

Taxing multinationals: tackling aggressive tax planning through international co-operation

Explains how HMRC is working with other countries to change the international tax rules and ensure multinationals pay the right amount of Corporation Tax on their UK profits, including the implementation of the outcomes of the OECD BEPS Project.

Proposed Changes (2)

Luxembourg

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Luxembourg's Proposed Loss Carry Forward Restrictions

As part of its tax reform plans for 2017 (previous coverage), Luxembourg is proposing to restrict the carry forward of losses realized in 2017 and subsequent years. Under current rules, losses may be carried forward to offset taxable income indefinitely. Under the proposed reform, losses may only be carried forward for ten years, and may only offset up to 80% of taxable income in each year. The restrictions would not apply to losses carried forward from years prior to 2017.

Singapore

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Singapore Launches Public Consultation on Implementing the Common Reporting Standard for the Automatic Exchange of Financial Account Information

On 1 March 2016, Singapore's Ministry of Finance launched a public consultation on the draft Income Tax (Amendment No. 2) Bill 2016. The legislation includes amendments to the Income Tax Act that would allow for the implementation of the OECD's Common Reporting Standard (CRS) for the automatic exchange of financial account information (AEOI). In particular, the draft bill:

  • Makes clear that existing AEOI provisions for the implementation of the Singapore-U.S. FACTA agreement apply to any other AEOI agreements under the CRS;
  • Requires and empowers all financial institutions to collect and retain CRS information for all non-Singapore-tax-residents; and
  • Vests in the Inland Revenue Authority of Singapore (IRAS) the necessary powers, which include mandating the electronic filing of returns and information, to implement AEOI under the CRS effectively.

Click the following link for additional information. Comments must be submitted by 16 March 2016.

Treaty Changes (3)

Egypt-Kazakhstan

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Tax Treaty between Egypt and Kazakhstan to be Negotiated

Officials from Egypt and Kazakhstan have reportedly agreed to begin negotiations for an income and capital tax treaty during a meeting held 26 February 2016. Any resulting treaty would be the first of its kind between the two countries, and would need to be finalized, signed and ratified before entering into force.

Ivory Coast-Turkey

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Tax Treaty between Ivory Coast and Turkey Signed

On 29 February 2016, officials from Ivory Coast and Turkey 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.

Netherlands-Philippines

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Protocol to the SSA between the Netherlands and the Philippines has Entered into Force

The protocol to the 2001 social security agreement between the Netherlands and the Philippines entered into force on 1 March 2016. The protocol, signed 21 April 2015, is the first to amend the agreement. It amends the meaning of competent institution in relation to the Netherlands (Article 1), and removes the reference to Dutch children's allowances in respect of the material scope to which the agreement applies (Article 2).

The protocol applies provisionally from 1 July 2015.

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