Worldwide Tax News
Belgium Publishes Bill on Job Creation and Purchasing Power
On 30 December 2015, Belgium published the Bill on Job Creation and Purchasing Power in the Official Gazette as adopted by parliament on 17 December. The main measures included in the legislation are as follows:
- The domestic withholding tax on dividends, interest and royalties is increased from 25% to 27%, while the applicable reduced rates are unchanged;
- The general investment deduction for corporate tax purpose is increased to 8%, and a supplementary spread deduction is introduced for investments in fixed assets for high-tech product production (total 20.5% for 2016);
- A speculative tax of 33% is introduced on the sales of shares in listed companies by individuals if sold within 6 months after the purchase.
The measures apply from 1 January 2016.
Finland Enacts Budget for 2016 including Individual Income Tax Changes
Finland's Budget Bill for 2016 was enacted on 17 December 2015. One of the main measures is the reduction of the individual income threshold for the additional 2.25% solidarity tax, which effectively removes the 29.5% bracket. As a result, the following brackets and rates apply for 2016:
- EUR 16,700 up to 25,000 - 6.5%
- over EUR 25,000 up to 40,800 - 17.5%
- over EUR 40,800 up to 72,300 - 21.5%
- over EUR 72,300 - 31.75%
Other changes include:
- The permitted range of real estate tax at the municipal level is changed to 0.39% - 0.90% for residential property and to 0.86% - 1.80% for other property, and the maximum special rate for un-built property is increased to 4%; and
- Various other taxes are increased, including:
- Excise taxes on tobacco, and on heating, power plant and machinery fuels;
- Waste tax;
- Annual vehicle tax; and
- Unemployment insurance contributions.
The changes generally apply from 1 January 2016.
India Publishes Notice on Modification of Tax Assessment Proceedings
On 31 December 2015, the Indian Central Board of Direct Taxes (CBDT) published a press release notice that it has instructed assessing officers on a new approach for tax assessment proceedings and communication for cases selected through Computer Aided Scrutiny Selection (CASS) for limited scrutiny . According to the notice:
- The assessing officers must inform the taxpayer of the reasons for limited scrutiny;
- Enquiries must be limited to the specific points for which the case was selected;
- The proceedings should be completed as quickly as possible with a limited number of hearings; and
- The limited scrutiny may only be converted to complete scrutiny with the approval of the Commissioner of Income Tax.
Click the following link for the full press release.
Update - Italian Parliament 2016 Budget Law Measures
Italy's 2016 Budget Law (Law No. 208/2015) was approved by parliament on 22 December 2015 and published in the Official Gazette on 30 December. In addition to the new Country-by-Country reporting requirements previously covered, other important measures included in the Budget Law are as follows.
For most companies, the corporate tax rate will be reduced from 27.5% to 24% from 2017. However, the rate for banks and other financial entities will remain at 27.5%.
The 1.375% withholding tax for dividends paid to white listed EU/EEA resident companies will be reduced to 1.20% from 2017.
An accelerated depreciation deduction of 140% is introduced for certain plant and machinery with a standard annual depreciation rate greater than 6.5% if purchased or rented under a financial leasing contract between 15 October 2015 and the end of 2016.
The budget safeguard clause in the 2015 Stability Law that would have increased the standard and reduced VAT rates by 2% in 2016 is removed, and a new safeguard clause is added that, if triggered, would increase the rates by 3% in 2017 and an additional 1% in 2018.
The deduction restriction on payment to residents of blacklisted jurisdictions is repealed from 2016.
The standard statute of limitation is extended from 4 years following the year the return was filed to 5 years. If no return is filed, the statute of limitation is 7 years following the year the return was due. This applies from the 2016 tax year.
The Netherlands Issues Regulations on CbC Reporting Requirements
On 30 December 2015, the Dutch Ministry of Finance issued Regulation No. DB/2015/462M, which sets out the information required under the country's recently adopted transfer pricing documentation requirements (previous coverage). The requirements are in line with the guidelines developed as part of Action 13 of the OECD BEPS Project.
The Country-by-Country (CbC) reporting requirement applies when consolidated group revenue in the previous year exceeds EUR 750 million. The CbC report must be prepared in accordance with the model included in the regulation and submitted in XML format. The required information includes the following for each jurisdiction:
- Table 1:
- Revenues (unrelated parties, related parties and total);
- Profit (loss) before tax;
- Income tax paid (cash basis);
- Income tax accrued - current year;
- Stated capital;
- Accumulated earnings;
- Number of employees; and
- Tangible assets - other than cash and cash equivalents
- Table 2:
- Constituent entities resident in each tax jurisdiction (including Tax ID and address);
- Jurisdiction of organization or incorporation if different from jurisdiction of residence; and
- Main business activities of each constituent entity
- Table 3:
- Additional information or explanation deemed necessary to understand the CbC report
The CbC report may be submitted in Dutch or English.
The Master File and Local File must be submitted when consolidated group revenue in the previous year exceeds EUR 50 million.
The Master File information requirements are based directly on the OECD guidelines, and include:
- Details of the MNE's organizational structure, including a Chart illustrating the MNE’s legal and ownership structure and geographical location of operating entities;
- Description of the MNE’s business(es), including important drivers of business profit, description of the top five goods or services of the MNE group by revenue, important service arrangements between members of the MNE group, and other information;
- Description of the MNE’s intangibles, including a description of the MNE's strategy regarding intangibles, location of R&D facilities and management, a list of important intangibles of the MNE group, TP policies regarding R&D and intangibles, and other information;
- Details of the MNE's intercompany financial activities, including how the group is financed, financing agreements with unrelated lenders, group members providing a central financing function for the group and other information; and
- Information on the MNE's financial and tax positions, including financial statements for the year concerned and a list and description of any existing advance pricing agreements (APA) and tax rulings related to the allocation of income.
The Local File information requirements are also based directly on the OECD guidelines, and include:
- Details of the local entity, including management structure, local organization chart, detailed description of the business and business strategy, and other information;
- Details of controlled transactions involving the local entity, including descriptions of the transaction types, the amount of intra-group payments and receipts for each category of controlled transactions, identification of associated enterprises involved, transfer pricing methods used, comparables selected and adjustments made, related APAs, and other information; and
- Financial information of the local entity, including financial accounts for the year concerned, Information and allocation schedules, and summary schedules of relevant financial data.
The Master File and Local File may be submitted in Dutch or English.
The new documentation requirements apply for tax years beginning on or after 1 January 2016.
Click the following link for Regulation No. DB/2015/462M, which is primarily written in Dutch but also includes English translations of the specific documentation requirements.
Poland Delays Entry into Force of Law on Tax Administration
On 21 December 2015, Poland's president signed into law an amendment that delays the entry into force of the Law on Tax Administration to 1 July 2016. The law, which was enacted 31 July 2015, establishes:
- The National Tax Information Office, which is empowered to issue tax rulings;
- The Central Register of Tax Data; and
- Tax information centers where taxpayers can submit tax declarations, enquire on the application of tax law, apply for certificates, etc.
It was originally to apply from 1 January 2016.
Korea's Proposed Master File and Local File Regulations
On 23 December 2015, the Korean authorities reportedly announced proposed amendments to the Law for the Coordination of International Tax Affairs to regulate the new transfer pricing reporting obligations introduced in the 2015 Tax Revision Bill (previous coverage), including a Master File and Local File. These new requirements are based on Action 13 of the OECD BEPS Project. The main aspects of the proposed regulations are summarized as follows.
All domestic and foreign entities (with a PE in Korea) will be required to file a full transfer pricing report including the Master File and Local File if:
- Its sales exceed KRW 100 billion (~USD 84 million); and
- Cross border related-party transactions exceed KRW 50 billion (~USD 42 million).
When the above thresholds are met, the following filing requirements apply:
- Master File - must be submitted electronically by the group parent company, including parent companies not resident in Korea, and includes:
- Description of the legal ownership structure of the MNE group;
- Geographic locations of subsidiaries and offices;
- Details of the top five goods or services of the group by sales; and
- Information on significant business restructures, share purchases, company divestitures, etc.
- Local File - must be submitted electronically by all entities in Korea, including PEs of foreign entities, and includes:
- Description of the local entity's business and business strategies;
- Details and explanations of the principal related-party transactions; and
- A list of related-party transactions including transaction types, related risks, relationships of the entities involved, etc.
The Master File may be in English or Korean, but if submitted only in English, a Korean translation must be submitted within one month. The Local File must be submitted in Korean.
The Master File and Local File are due on the filing deadline for the annual tax return (generally 31 March of the following year if following calendar tax year). This applies for the 2016 and subsequent tax years.
Additional details will be published once the specific requirements are finalized.
UK Publishes Draft Examples of the Treatment of Hybrid Mismatches under Proposed Rules to Neutralize their Effects
On 22 December 2015, the UK HMRC published 20 examples of how the draft hybrid mismatch rules included in the Finance Bill 2016 will be applied. The examples are provided in seven main categories, including:
- Hybrid and other Mismatches from Financial Instruments;
- Hybrid Transfer Deduction/Non-inclusion Mismatches;
- Hybrid Payer Deduction/Non-inclusion Mismatches;
- Hybrid Payee Deduction/Non-inclusion Mismatches;
- Hybrid Entity Double Deduction Mismatches;
- Dual Resident Company Double Deduction Cases; and
- Imported Mismatches.
Click the following link for the document Draft Examples - Clause 33: Hybrid and other mismatches.
TIEA between Argentina and Curaçao to Enter into Force
The tax information exchange agreement between Argentina and Curaçao will enter into force on 8 January 2016. The agreement, signed 14 May 2014, is the first of its kind between the two countries and is in line with the OECD Standard for information exchange.
It applies for criminal tax matters from the date of its entry into force, and for other matters from 1 January 2017.
SSA between Australia and India has Entered into Force
The social security agreement between Australia and India entered into force on 1 January 2016. The agreement, signed 18 November 2014, is the first of its kind between the two countries and generally applies from the date of its entry into force.
Tax Treaty between the Czech Republic and Liechtenstein has Entered into Force
The income and capital tax treaty between the Czech Republic and Liechtenstein entered into force 22 December 2015. The treaty, signed 25 September 2014, is the first of its kind between the two countries.
The treaty covers Czech income tax on individuals and legal persons, and tax on immovable property. It covers Liechtenstein personal and corporate income taxes, real estate capital gains tax, wealth tax and coupon tax.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through employees or other engaged personnel for a period or periods aggregating more than 6 months within any 12-month period.
- Dividends - 0% if the beneficial owner is a company that has directly held at least 10% of the paying company's capital for an uninterrupted period of at least one year, otherwise 15% (if the holding period requirement is not met at the time of payment, but subsequently met, the beneficial owner is entitled to a refund of the tax withheld)
- Interest - 0%
- Royalties - 10%
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 alienation of movable property forming part of the business property of a permanent establishment in the other State;
- Gains from the alienation of shares or other interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
- Gains from the alienation of shares or other interests in 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.
The Czech Republic applies the credit method for the elimination of double taxation, while Liechtenstein generally applies the exemption with progression method. However, for income covered by Articles 10 (Dividends) and 12 (Royalties), Liechtenstein applies the credit method.
Article 28 (Miscellaneous Provisions) includes the provision that the competent authority of a Contracting State may, after consultation with the competent authority of the other State, deny the benefits of the treaty to any person, or with respect to any transaction, if the granting of the benefits would constitute an abuse of the treaty.
The treaty applies from 1 January 2016.
Protocol to the Tax Treaty between Luxembourg and Mauritius has Entered into Force
On 11 December 2015, the protocol to the 1995 income and capital tax treaty between Luxembourg and Mauritius entered into force. The protocol, signed 28 January 2014, is the first to amend the treaty. It replaces Article 27 (Exchange of Information), bringing it in line with the OECD standard for information exchange. It also amends Article 2 (Taxes Covered) and Article 26 (Mutual Agreement Procedure).
The protocol applies from 1 January 2016.
Protocol to the Tax Treaty between Luxembourg and the U.A.E. has Entered into Force
On 11 December 2015, the protocol to the 2005 income and capital tax treaty between Luxembourg and the United Arab Emirates (U.A.E.) entered into force. The protocol, signed 26 October 2014, is the first to amend the treaty. The main amendments are summarized as follows.
Paragraph 4 of Article 13 is replaced so that gains from the alienation of shares, bonds and any other securities or similar instruments, listed on a recognized securities market of a Contracting State shall be taxable only in the other Contracting State. In addition, paragraph 5 is added, which states that any gains from the alienation of any other shares in a company will only be taxed in the State in which the alienator is resident.
Paragraph 1 of Article 23, which concerns the elimination of double taxation by Luxembourg, is replaced. The main changes include:
- A tax credit will not be available for taxes paid on business profits (Article 7) and capital gains from the alienation of movable property of a permanent establishment (Article 13(2)) if the profits or gains are derived from activities of a permanent establishment in the U.A.E. in agriculture, industry, infrastructure or tourism; and
- An exemption is provided for dividend income from a U.A.E company to a Luxembourg company if the Luxembourg company has directly held at least 10% of the U.A.E company's capital since the beginning of the accounting year and the U.A.E company is subject to an income tax in the U.A.E. corresponding to the Luxembourg corporation tax.
Article 26 is replaced, bringing it in line with the OECD standard for information exchange.
The protocol applies from 1 January 2016.