Worldwide Tax News
On 23 February 2016, Costa Rica published Resolution No. DGT-R-004-2016, which sets out the requirements for a taxpayer to request the elimination or reduction of advance tax payments. Under Costa Rican tax rules, advance payments are generally due in March, June and September. In order for a taxpayer to eliminate or reduce the required advance tax payments, they must submit the following to their local tax authority:
- An application form, including the reasoning and legal basis for the request;
- The legal status of the taxpayer;
- Proof that the taxpayer's tax obligations have been met;
- Certified financial statements for previous years and projections for the current year; and
- Documentation supporting the projections for the current year.
The application must be made before the advance tax payment is due. If an application is denied, an appeal may be filed with the Tax Administrative Court within 30 days of the notification.
The resolution applies from the date it was published, 23 February 2016. Click the following link for the resolution (Spanish language).
European Commissioner Responds to U.S. Treasury's Concerns that State Aid Investigations are Targeting U.S. Multinationals
In a letter dated 29 February 2016, European Commissioner for Competition Margrethe Vestager responded to U.S. Treasury Secretary Jacob Lew's concerns that EU State aid investigations are targeting U.S. multinationals (previous coverage). In short, Vestager denies that the European Commission is specifically targeting U.S. companies. In particular, the letter notes that:
- The Commission is enforcing State aid rules that are fundamental to protect fair competition and protect the EU's Single Market;
- The rules apply to all companies operating in the EU irrespective of whether they are European companies or from outside the EU;
- EU Member States are entitled to tax profits generated by companies operating in their territories, including U.S. companies, and the Commission has the duty to enforce that the rules are applied in a non-discriminatory manner;
- The Commissions investigations are based on firm legal ground, including that Member States cannot provide multinationals more favorable tax treatment than stand-alone companies and that transactions between members of a group must be in line with the arm's length principle;
- Ordering the recovery of illegal State aid is an inherent and longstanding feature of EU State aid rules that does not penalize the company, but simply restores equal treatment with other companies; and
- Of the approximately 170 Commission decisions ordering the recovery of illegal State aid from companies since 1999, only a "handful" concerned U.S. companies.
Click the following link for the full text of the letter.
Russia Issues Guidance on the Recognition of Interest Expense and Related Foreign Exchange Differences
The Russian Ministry of Finance recently published Guidance Letter No. 03-03-06/1/4857, which clarifies that tax treatment of interest expense and foreign exchange difference for controlled debt in a foreign currency.
According to the letter, if a loan agreement or similar agreement resulting in a debt obligation exceeds one year, the interest expense must be recognized and included as an expense for tax purposes at the end of each month of the period, without regard to the payment dates stipulated in the agreement. This even recognition over the term of the agreement applies for all types of borrowing. For loans in a foreign currency, positive exchange rate differences must be included as non-operating income and negative exchange rate differences must be included as a non-operating expense.
On 2 March 2016, Treasury Deputy Assistant Secretary Robert Stack stated that Treasury is planning to issue final Country-by-Country (CbC) reporting regulations by 30 June 2016. If issued on that date, U.S. based MNE groups will need to file CbC reports in the U.S. for tax years beginning on or after 1 July 2016 if annual group revenue in the previous year meets the reporting threshold. The proposed regulations issued in December 2015 include a threshold of USD 850 million (previous coverage).
Since the U.S. CbC reporting regulations will not apply from 1 January 2016 as recommended by the OECD, U.S. based MNE groups with tax years beginning between 1 January 2016 and 30 June 2016 will need to file CbC reports through surrogate reporting entities or local subsidiaries in countries that have adopted the recommended start date, such as Australia, the Netherlands, Spain, the UK and others. In addition, because the U.S. has not yet signed any competent authority agreements for the exchange of CbC reports, U.S. based MNE groups with tax years starting on or after 1 July 2016 may still need to file outside the U.S. to meet the CbC reporting obligations of the countries in which they operate.
Note - Under U.S. Tax code section 6038, Treasury and the IRS may not impose reporting obligations for tax years beginning before a final regulation is issued.
According to recent reports, negotiations are underway for an income tax treaty between Gambia and Saudi Arabia. Any resulting treaty will be the first of its kind between the two countries, and will need to be finalized, signed and ratified before entering into force.
The tax information exchange agreement between Greenland and Hong Kong entered into force on 17 February 2016. The agreement, signed 22 August 2014, is the first of its kind between the two jurisdictions and is in line with the OECD standard for information exchange. It applies from the date of its entry into force.
The tax information exchange agreement between Hong Kong and Sweden entered into force on 16 January 2016. The agreement, signed 22 August 2014, is the first of its kind between the two jurisdictions and is in line with the OECD standard for information exchange. It applies from the date of its entry into force.
According to an update on effective treaty withholding rates published by South Korea's National Tax Service, the income and capital tax treaty with Nigeria is not yet effective, despite an announcement earlier in 2015 that the treaty entered into force on 21 March 2015. The treaty, signed 6 November 2006, has been ratified by South Korea, but Nigeria reportedly failed to complete the required domestic procedures. Completion of the procedures is expected in the near future.
Click the following link for previous coverage of the treaty.
On 29 February 2016, Saudi Arabia's Cabinet authorized the signing of an income tax treaty with Cyprus. The treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.
On 17 February 2016, Tunisia's Finance, Planning and Development Committee approved a draft law for the ratification of the protocol to the 1996 income and capital tax treaty with Luxembourg. The protocol, signed 8 July 2014, is the first to amend the treaty. It replaces Article 26 (Exchange of Information), bringing it in line with the OECD standard for information exchange.
The protocol will enter into force once the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.