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Approved Changes (4)

European Union-United Kingdom

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European Council Guidelines for Brexit Published

The European Council has published the guidelines adopted during the 29 April 2017 meeting on the United Kingdom's notification under Article 50 of the Treaty on European Union (TEU), which began the process for the UK's exit from the EU. The guidelines define the framework for negotiations under Article 50 TEU and set out the overall positions and principles that the Union will pursue throughout the negotiation. This includes:

  • The core principles;
  • A phased approach to negotiations;
  • Agreement on arrangements for an orderly withdrawal;
  • Preliminary and preparatory discussions on a framework for the Union - UK future relationship;
  • Principle of sincere cooperation; and
  • Procedural arrangements for negotiations under Article 50.

With respect to the overall approach to the negotiations, the guidelines state:

Throughout these negotiations the Union will maintain its unity and act as one with the aim of reaching a result that is fair and equitable for all Member States and in the interest of its citizens. It will be constructive and strive to find an agreement. This is in the best interest of both sides. The Union will work hard to achieve that outcome, but it will prepare itself to be able to handle the situation also if the negotiations were to fail.

Greece

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Greek Supreme Administrative Court Initial Ruling on Extension of Statute of Limitations Period

The Greek Supreme Administrative Court recently issued decision no. 675/2017 concerning whether the retroactive application of rules extending the statute of limitations within which a tax assessment may be issued is constitutional. According to the decision, the extension of the prescription period is constitutional, provided that the relevant legislation has entered into force no later than one year following the year in which the tax liability arose. With regard to the constitutional principle of proportionality, the total statute of limitations period following an extension should be reasonable and fair. Given the importance of the decision, a final decision on the matter is to be issued after it is heard by the plenary session of the Court.

Ireland

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Ireland eBrief on Corporation Tax Return Forms for 2017 and Revised Form for 2016

Irish Revenue has published eBrief 39/2017 on the release of corporation tax return forms for accounting periods ending in 2017 and a revised form for periods ending in 2016.

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Release of Form CT1 for accounting periods ending in 2017

The Corporation Tax Return for accounting periods ending in 2017 is available since April 3rd, for filing through ROS online and ROS offline.

Tax and Duty Manual Part 38-02-12 (PDF, 473KB) has been updated to include reference to the main changes to the 2017 CT1 return.

Release of revised Form CT1 for accounting periods ending in 2016

A revised version of the Corporation Tax Return for accounting periods ending in 2016 is available since April 3rd.

Tax and Duty Manual Part 38-02-12 (PDF, 473KB) has also been updated to include reference to the main changes to the 2016 CT1 return.

Form 46G (Company) for accounting periods ending in 2017 and 46G Spreadsheet

The ROS online and ROS offline Form 46G (Company) for 2017 is available since April 3rd.

An updated version of the 46G Return Tool (XLS, 707KB) (spreadsheet) is now available directly from www.revenue.ie. This will cater for accounting periods ending in 2017 and for the 2016 year of assessment.

ROS Registration changes

From June, the ROS registration process will be updated; which will include security questions as a means of authenticating ROS users. This is in line with current standard security best practice. Introducing security questions will streamline and speed up the process for retrieving lost and expired ROS certificates and forgotten passwords.

There will be ongoing communication updates on these changes available on www.revenue.ie (on the ROS login page).

Italy

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Italy Publishes Law Decree including Urgent Tax Measures

Italy has published Law Decree No. 50 of 24 April 2017 in the Official Gazette. The Law Decree includes a number of various measures including urgent tax measures. The Decree entered into force on 24 April, but must be confirmed by parliament within 60 days to remain in force and converted into law. Main measures of the Law Decree are summarized as follows

Allowance for Corporate Equity

The Law Decree provides for a change in the calculation of incremental equity for the allowance for corporate equity benefit (notional interest deduction). From the 2017 fiscal year, the allowance is to be based on the increases from the fifth preceding year instead of the 2010 base equity amount as originally provided. The allowance rate is 2.3% for 2017 and 2.8% for 2018 and future years.

Arm's Length Principle

The Law Decree amends the definition of "normal value" for the purpose of the arm's length principle to bring it more in line with OECD principles. This includes that items of income arising from intercompany transactions carried out with nonresident related entities are determined on the basis of conditions and prices that would have been applied between unrelated parties, operating in free competition and in comparable circumstances. In addition, the availability of downward adjustments resulting from the application of the arms length principle is expanded to not only include adjustments by means of the EU Arbitration Convention 90/436/EEC, but also in the context of other international cooperation activities and by a specific request filed by the taxpayers.

Additional Decrees clarifying the application of the changes are expected.

Patent Box Regime

The Law Decree amends Italy's patent box regime to exclude trademarks from the scope of qualifying IP that can benefit from the regime. Although Italy's patent box regime was for the most part in line with the modified nexus approach of BEPS Action 5, the exclusion of trademarks brings the regime more in line with BEPS guidelines. The exclusion of trademarks generally applies for applications made after 31 December 2016. For applications made up to that date, a five-year grandfathering period is available.

Value Added Tax

The Law Decree makes a number of changes regarding value added tax (VAT), which include:

  • Limiting the period for the recovery of input tax to the due date of the annual VAT return for the year in which the VAT was incurred (previously recovery could be made up to the annual return for the second year following the year incurred);
  • Extending the split payment system to supplies of goods and services to additional categories of Italian public bodies, to their subsidiaries, and to corporations listed on the FTSE MIB Italian stock exchange, as well as to supplies of services made by self-employed professionals to such customers; and
  • Introducing a new VAT rate adjustment schedule (safe guard clause) if budget targets are not met:
    • Reduced rate increased from 10% to 11.5% in 2018; increased to 12% in 2019; and increased to 13% in 2020.
    • Standard rate increased from 22% to 25% in 2018; increased to 25.4% in 2019; decreased to 24.9% in 2020; and increased to 25% in 2021;

Carried Interest Treatment

The Law Decree clarifies the tax treatment of carried interest income derived by employees or directors from direct or indirect participation in companies or undertakings for collective investment (UCI), or by employees or directors of any other entity linked to such vehicles by a control relationship or a management agreement. In such case, the carried interest will be treated as income from capital or capital gain rather than employment income, provided that:

  • The commitment of all the relevant employees and directors is equal to at least 1% of the overall investments actually made by the relevant UCIs or of the company’s net equity;
  • Payment of the carried interest is only be made once the other investors or the shareholders have received sums at least equal to the overall investment plus a pre-determined return; and
  • The fund managers maintain their investment for at least five years or for a shorter period if there is a change of control or change of management.

The treatment of carried interest income as capital in nature only applies in relation to companies or undertakings for collective investment resident in Italy, or in countries that have adequate information exchange with Italy.

Proposed Changes (1)

Germany

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German Bundestag Adopts Draft Laws Restricting Royalty Payment Deductions and Increasing Offshore Company Disclosure Requirements

The German Bundestag (lower house of parliament) has announced the adoption of the draft laws to restrict the deduction of related party royalty expenses and to increase disclosure requirements for offshore (shell) companies.

The draft law restricting royalty deductions would limit the deduction of royalty payments to related parties if the income is taxed at a rate of less than 25% as a result of the benefits of an IP regime not in compliance with the nexus approach developed as part of BEPS Action 5 (previous coverage). The draft law regarding offshore (shell) companies introduces stricter disclosure requirements for both owners of such companies and banks that facilitate transactions in relation to such companies, as well as increases in related penalties and investigative powers (previous coverage).

The draft laws must now be approved by the German Federal Council (upper house of parliament - Bundesrat).

Treaty Changes (4)

Belgium-Russia

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Belgium Approves Pending Tax Treaty with Russia

On 26 April 2017, the Belgian Chamber of Representatives (lower house of parliament) approved for ratification the pending income and capital tax treaty with Russia (previous coverage). The treaty, signed 19 May 2015, will enter into force once the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force. Once in force and effective, it will replace the 1995 tax treaty between the two countries.

Malaysia-OECD

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Mutual Assistance Convention has Entered into Force for Malaysia

On 1 May 2017, the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol entered into force for Malaysia. The Convention generally applies in Malaysia from 1 January 2018. 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.

Mexico-Argentina

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Mexico Approves Pending Tax Treaty with Argentina

On 27 April 2017, Mexico's Senate approved for ratification the pending income and capital tax treaty with Argentina (previous coverage). The treaty, signed 4 November 2015, is the first of its kind between the two countries. It 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.

Saudi Arabia-Egypt

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Saudi Arabia Approves Pending Tax Treaty with Egypt

On 1 May 2017, the Saudi Cabinet approved the pending income tax treaty with Egypt. The treaty, signed 8 April 2016, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Egyptian individual income tax, tax on profits of legal entities, tax withheld at source, and supplementary taxes. It covers Saudi Zakat and income tax, including the natural gas investment tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 20% of the paying company's capital; otherwise 10%
  • Interest - 10%
  • Royalties 10% (exemption if paid to government)

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 other rights representing the capital of a company resident 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.

Entry into Force and Effect

The treaty will enter into force on the first day of the second month following the exchange of the ratification instruments, and will apply from 1 January of the year following its entry into force.

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