Worldwide Tax News
On 3 January 2017, the Estonian Ministry of Finance published a notice on important legal amendments entering into force in 2017. The main items covered include:
- The general income tax rate will remain at 20%;
- The social tax rate will remain at 33% (reduction by 0.5% originally planned);
- The VAT rate for accommodation establishments will remain at 9% (increase to 14% originally planned);
- The VAT Reverse charge for metal products mainly used in construction and the machine industry is implemented as of 1 January 2017;
- Excise duties on cigarettes, tobacco, and natural gas are increased from January 2017, and excise duties on alcohol and fuel are increased from February 2017; and
- Amendments made to the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) will be transposed into domestic law concerning the exchange of cross-border tax rulings (Council Directive (EU) 2015/2376) and Country-by-Country (CbC) reports (Council Directive (EU) 2016/881).
The required legislation for most of the 2017 measures has already been enacted, although the legislation regarding the EU Directive amendments is still pending. However, the tax ruling exchange requirements will still generally apply from 1 January 2017, and the CbC reporting requirement will apply for fiscal year beginning on or after 1 January 2016, with the first reports due by 31 December 2017 (to apply from 1 January 2017 for non-Estonian parented groups).
Click the following link for the full notice on the Ministry of Finance website.
On 3 January 2017, the EU Commission issued a press release welcoming the entry into force of new transparency rules for tax rulings.
The Commission has welcomed the entry into force of new rules to ensure that Member States have all the information they need on tax rulings given to multinational companies in other EU countries.
As of 1 January 2017, Member States are obliged to automatically exchange information on all new cross-border tax rulings that they issue. This will be done through a central depository, accessible to all EU countries.
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "We have a duty to make corporate taxation fairer and more transparent, and to use every means possible to block tax abuse and profit shifting. The entry into force of the automatic exchange of information on cross-border tax rulings on 1 January marks a major step forward. It equips Member States and their national tax administrations with the information they need to detect certain abusive tax practices and take the necessary action in response."
Every six months national tax authorities will send a report to the depository, listing all the cross-border tax rulings that they have issued. Other Member States will then be able to check those lists and to ask the issuing Member State for more detailed information on a particular ruling. This first exchange should take place by 1 September 2017 at the latest.
By 1 January 2018, Member States will also have to provide the same information for all cross-border rulings issued since the beginning of 2012.
Liechtenstein has published the Law on the International Automatic Exchange of Country-by-Country (CbC) reports (CbC Act) as definitively adopted, which entered into force on 1 January 2017. The Liechtenstein CbC reporting requirements are in line with BEPS Action 13 and include:
- A consolidated group revenue reporting threshold of CHF 900 million in the previous year;
- The primary requirement is for ultimate parent entities resident in Liechtenstein to file the report, although non-parent constituent entities may be required to file when:
- The ultimate parent is not required to file in its state of residence;
- The ultimate parent's state of residence is not a "partner state" (see below); or
- The ultimate parent's state of residence is a "partner state", but a systemic failure for exchange has occurred;
- The CbC reporting requirement may be met by a surrogate parent entity resident in a foreign jurisdiction, subject to certain conditions, including that the foreign jurisdiction requires CbC reports, the jurisdiction is a "partner state", the jurisdiction has been notified, and no systemic failure has occurred;
- The CbC report may be submitted in German or English language;
- Notification (registration) of the reporting entity must be made by the end of the fiscal year;
- Penalties of up to CHF 250,000 will apply for intentional failure to comply with the CbC requirements, and up to CHF 100,000 for negligence; and
- CbC Reports may be voluntarily filed in Liechtenstein for fiscal years beginning before 1 January 2017 and will be exchanged with the "partner states" in which constituent entities of the group are resident.
Also published is the implementing CbC regulation for the exchange of CbC reports. The regulation includes the list of "partner states" referred to in the main legislation, which are the countries with which Liechtenstein will automatically exchange CbC reports.
Lastly, Liechtenstein has published the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA), which entered into force for Liechtenstein on 1 January 2017.
The Korean Ministry of Strategy and Finance has published a notice on a draft decree that sets certain requirements regarding the country's Country-by-Country (CbC) report, Master file, and Local file requirements, and makes certain other amendments. The main points include:
- Ultimate parent entities resident in Korea are required to submit a CbC report if group revenue exceeds KRW 1 trillion in the previous year, and subsidiaries and branches (constituent entities) in Korea of foreign groups are also required to submit a CbC report if the parent is not required to file in its jurisdiction or the report is not exchanged with Korea;
- Group constituent entities must provide notification of the CbC reporting entity to the tax authority within six months following the close of the fiscal year;
- The KRW 30 million penalty for failing to submit the Combined Report on International Transactions (Master/Local file) is split so that a KRW 10 million penalty would apply for failing to submit any one of the required documents: the Master file, the Local file, and the newly required CbC report;
- The penalty in relation to the statement of cross-border transactions is changed from a general penalty of KRW 10 million for failing to submit or the submission of inaccurate information to a penalty of KRW 5 million for failing to submit information or the submission of inaccurate information per related party (e.g., if reportable transactions are made with six related parties and information is omitted or inaccurate in relation to three parties, a KRW 15 million penalty would apply); and
- The rules for the determination of the deemed arm's length interest rate for intercompany loan transactions are amended to provide taxpayers the option to use a standard interest rate determined by the Ministry, instead of the current rule which requires determining the rate based on the amount of the obligation; the maturity of the obligation; whether the obligation is secured; and the credit rating of the debtor (current rule remains an option).
The notice period for the draft decree runs through 19 January 2017.
The Finance Bill for 2017 is reportedly before Togo's National Assembly (parliament). The bill includes tax rate changes, as well as certain BEPS and transfer pricing-related changes. The main measures are summarized as follows:
- Reducing the corporate income tax rate from 29% to 28%;
- Increasing the withholding tax rate on royalties and services from 15% to 20%; and
- Introducing a reduced value added tax (VAT) rate of 10% on basic commodities and certain services.
- Disallowing the deduction of interest, royalty, and service payments made to non-residents if the non-resident's jurisdiction is deemed to be a non-cooperative jurisdiction or have a preferential tax regime, unless the taxpayer provides details of the nature of the transactions and proves the price to be reasonable (at arm's length) (would also apply when paid to resident companies subject to a preferential tax regime);
- Empowering the tax authority to make transfer pricing adjustments based on available information/comparables in the event a taxpayer fails to comply with a transfer pricing information request;
- Expanding the scope of transfer pricing rules to cover transactions with entities whether or not related, if resident in a jurisdiction deemed to be non-cooperative or have a preferential tax regime; and
- Adding relevant definitions, including:
- Defining a preferential tax regime to include a regime where the effective rate is 50% or lower than the standard effective rate in Togo;
- Defining a non-cooperative jurisdiction as a jurisdiction that does not comply with the international standards for transparency and exchange of information; and
- Defining a dependent (related party) relationship between entities to include when one entity holds a majority of the share capital of the other or exercises decision-making power in the other; or when two entities are under the control of a third entity that holds a majority of the share capital of both entities or exercises decision-making power in both entities.
Subject to approval, the measures will generally apply from 1 January 2017.
The protocol to the 1969 Austria-Liechtenstein income and capital tax treaty and the protocol to the 2013 Austria-Liechtenstein withholding tax agreement entered into force on 1 January 2017.
The protocol to the 1969 treaty was signed on 15 September 2016 and is the second to amend the treaty. The protocol:
- Replaces the Title and Preamble of the treaty;
- Amends Article 19 (Government Service);
- Replaces Article 25 (Mutual Agreement Procedure);
- Adds Article 26A (Entitlement to Benefits), which includes that a benefit under the treaty will not be granted in respect of an item of income or capital if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting the benefit would be in accordance with the object and purpose of the relevant provisions of the treaty;
- Specifies that the additional protocol added to the treaty by the 2013 protocol will be entitled "1. Additional Protocol"; and
- Adds "2. Additional Protocol" concerning the application of Article 19 (Government Service).
The protocol generally applies from the date of its entry into force, although the changes in relation to Article 19 (Government Service) apply from 1 January 2015.
The protocol to the 2013 withholding tax agreement was signed on 17 October 2016 and is the first to amend the agreement. The 2013 agreement provides for the regularization of untaxed assets of Austrian residents held in Liechtenstein bank accounts. The protocol amends the agreement with respect to the automatic exchange of financial account information between the two countries and generally applies from the date of its entry into force.
The income tax treaty between Azerbaijan and Sweden entered into force on 31 December 2016. The treaty, signed 10 February 2016, is the first of its kind directly between the two countries, although the 1981 income and capital tax treaty between Sweden and the former Soviet Union had applied in respect of Azerbaijan but was terminated.
The treaty covers Azerbaijani tax on profit of legal persons and income tax on physical persons. It covers the Swedish national income tax, withholding tax on dividends, income tax on nonresidents, income tax on nonresident artists and athletes, and municipal income tax.
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 more than 6 months within any 12-month period.
- Dividends - 5% if the beneficial owner is a company directly holding at least 20% of the paying company's capital, and the participation in that company exceeds EUR 200,000 or equivalent in the national currencies of the Contracting States; otherwise 15%
- Interest - 8%
- Royalties - 5% on royalties paid for the use of, or the right to use, any patent, trade mark, design or model, plan, secret formula, or process, or for information concerning industrial, commercial, or scientific experience; otherwise 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; and
- Gains from the alienation of movable property forming part of the business property of a permanent establishment 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.
Both countries generally apply the credit method for the elimination of double taxation. However, in respect of dividends paid by an Azerbaijani company to a Swedish company, Sweden will apply the exemption method in accordance with the provisions of Swedish law.
Article 26 (Limitation of Benefits) includes that an exemption or reduction of tax provided by the treaty will not apply to the income of companies resident in a Contracting State:
- That derive income primarily from other states:
- from banking, shipping, financing, or insurance activities; or
- from being the headquarters, coordination centre or similar entity providing administrative services or other support to a group of companies which carry on business primarily in other states; and
- The income from such activities bears a significantly lower tax burden under the laws of that State than income from similar activities carried out within that State or from providing services or support to companies carrying on business in the State.
Dividends paid by such companies will also not qualify for an exemption or reduction of tax provided by the treaty.
The treaty applies from 1 January 2017.
According to recent reports, the Netherlands is planning to negotiate a protocol to amend the pending income tax treaty with Malawi. The treaty, signed 19 April 2015, is the first of its kind directly between the two countries and is not yet in force. The 1948 tax treaty between the Netherlands and the UK had been extended to Malawi but was terminated effective 1 January 2014.
The income tax treaty (agreement) between Poland and Taiwan entered into force on 30 December 2016. The agreement, signed 21 October 2016, is the first of its kind between the two jurisdictions and applies from 1 January 2017.
Click the following link for details of the treaty.