Worldwide Tax News
Brazil Further Extends Deadline for PERT Tax Regularization Program
On 29 September 2017, Brazil published Provisional Measure 804/2017, which extends the deadline from 29 September 2017 to 31 October 2017 for taxpayers to take part in the program for the regularization of tax (PERT) introduced by Provisional Measure 783/2017. The program is available for both individuals and legal entities with unpaid tax and non-tax debts up to 30 April 2017, and includes different options for the settlement of debts with varying interest/penalty relief (previous coverage). In addition to extending the deadline, Provisional Measure 804 also provides that for those taxpayers that apply to take part in the program in October, a cumulative payment must be made in October that includes the first and second installments that would have been required for August and September under the original deadline. Lastly, Provisional Measure 804 revokes Provisional Measure 798/2017, which had extended the deadline from 31 August to 29 September.
European Commission Finds Luxembourg Granted Illegal State Aid to Amazon
On 4 October 2017, the European Commission announced the adoption of a decision finding that tax benefits granted to Amazon in Luxembourg are illegal under EU State aid rules. The decision is the result of an investigation launched in 2014 into a tax ruling provided for Amazon by the Luxembourg tax authorities in 2003 and extended in 2011 (previous coverage).
The ruling basically allowed Amazon to deduct excessive royalty expense in Europe without the royalty income being taxed. This involved a structure where Amazon Europe Technologies Holding SCS (SCS), a partnership owned by two U.S. partner companies, licensed Amazon IP for use in Europe to Amazon EU Sarl (LuxOpCo), a company wholly owned by SCS. The royalty payments were deductible for LuxOpCo but treated as non-taxable for SCS because it is a transparent entity, and neither it nor the US partners were deemed to have a permanent establishment in Luxembourg. According to the Commission, the transfer pricing for the royalties agreed to as part of the ruling exceeded, on average, 90% of the LuxOpCo's profits.
The Commission concluded that this level of royalty could not be justified for two reasons:
- First, the holding company was an empty shell that simply passed on the IP rights to the operating company. It had no employees, no offices, and no business activities. It was not in any way actively involved in the management, development or use of this IP. It did not, and could not, perform any activities to justify the level of payments received.
- Second, the operating company was the only entity actively taking decisions and carrying out activities related to Amazon's European retail business. In fact, the operating company also adapted the technology and software behind the Amazon e-commerce platform in Europe. It invested in marketing and gathered customer data. This means that it managed and added value to the IP.
As a result, Luxembourg will be ordered to recover approximately EUR 250 million plus interest from Amazon.
South Africa Publishes Final BRS on Country-by-Country and Financial Data Reporting
On 29 September 2017, the South African Revenue Service (SARS) published the final version of the external business requirements specification (BRS): Country-by-Country and Financial Data Reporting. The BRS covers details of submitting CbC reports as well as Master and Local files.
For the submission of CbC reports, the final BRS includes that reports are to be submitted via SARS eFiling using the CbC01 form. The format of the form will be an HTML5 form developed by SARS based on the OECD XML schema. With respect to Master and Local file submission, the BRS provides that the documentation is to be submitted via SARS eFiling as attachments. The BRS also sets out the minimum required information for the Master and Local file documentation, which is exactly in line with the BEPS Action 13 final report.
Note - South Africa's CbC reporting requirements apply for fiscal years beginning on or after 1 January 2016, while the first year for Master and Local file documentation has not yet been finalized. According to the draft public notice issued in June 2017 (previous coverage), the Master and Local file requirement would also apply from 1 January 2016. However, it is expected that this will be extended in the final notice, which is to be issued before the end of October.
U.S. Provides One-Year Delay for Final and Temporary Regs on Foreign Currency Gains/Losses
The U.S. IRS has issued Notice 2017-57, which announces a delay in the effective date for final regulations (TD 9794) and the temporary regulations (TD 9795), which were published 8 December 2016 and generally effective from 7 December 2016 with a one-year transitional provision (previous coverage). The final regulations concern determination of the taxable income or loss of a taxpayer with respect to a qualified business unit (QBU) subject to section 987, as well as the timing, amount, character, and source of any section 987 gain or loss. The temporary regulations concern the recognition and deferral of foreign currency gain or loss under section 987 with respect to a QBU in connection with certain QBU terminations and certain other transactions involving partnerships, as well as certain other issues.
As a result of the Executive Order requiring a review of significant tax regulations, the Treasury Department and the IRS intend to amend the regulations under section 987 to defer the applicability date of the final regulations, as well as certain provisions of the temporary regulations, by one year. As such, for a taxpayer whose first taxable year after 7 December 2016 begins on 1 January 2017, the final regulations and the related temporary regulations will apply for the taxable year beginning on 1 January 2019. Until the regulations are formally amended, taxpayers may rely on the Notice.
European Commission Announces Plans for EU VAT Reform
On 4 October 2017, the European Commission announced the launch of a proposal for "the biggest reform of EU VAT rules in a quarter of a century". According to the announcement, the Commission will seek agreement on four fundamental principles, or 'cornerstones' of a new definitive single EU VAT area:
- Tackling fraud: VAT will now be charged on cross-border trade between businesses. Currently, this type of trade is exempt from VAT, providing an easy loophole for unscrupulous companies to collect VAT and then vanish without remitting the money to the government.
- One Stop Shop: It will be simpler for companies that sell cross-border to deal with their VAT obligations thanks to a 'One Stop Shop'. Traders will be able to make declarations and payments using a single online portal in their own language and according to the same rules and administrative templates as in their home country. Member States will then pay the VAT to each other directly, as is already the case for all sales of e-services.
- Greater consistency: A move to the principle of 'destination' whereby the final amount of VAT is always paid to the Member State of the final consumer and charged at the rate of that Member State. This has been a long-standing commitment of the European Commission, supported by Member States. It is already in place for sales of e-services.
- Less red tape: Simplification of invoicing rules, allowing sellers to prepare invoices according to the rules of their own country even when trading across borders. Companies will no longer have to prepare a list of cross-border transactions for their tax authority (the so-called 'recapitulative statement').
In addition to the four cornerstones, the proposal also the notion of a Certified Taxable Person that will benefit from much simpler rules, as well as Four 'quick fixes', which include:
- Simplification of VAT rules for companies in one Member State storing goods in another Member State to be sold directly to customers there. This simplification is limited to Certified Taxable Persons who will no longer need to register and pay VAT in another Member State when they store goods there.
- Simplification for those elements of a chain transaction which do not involve the physical movement of goods, for example when goods are sold via several traders, but physically the goods move directly from the original seller to the final buyer. This simplification is limited to Certified Taxable Persons.
- New harmonized and uniform rules so that traders can more easily provide proof that goods have been transported from one EU country to another. This simplification is limited to Certified Taxable Persons.
- Clarification that, in addition to proof of transport, the VAT number of the commercial partners recorded in the electronic EU VAT-number verification system (VIES) is required for the cross-border VAT exemption to be applied under the current rules.
The proposals will now be sent to the European Parliament for consultation and the Council of Ministers for agreement. The quick fixes are to be implemented by 2019, while a detailed legal proposal to amend the EU VAT Directive for the implementation of the four cornerstones is to be completed in 2018 and be implemented by 2022.
Jersey Draft Budget Statement 2018 Published
On 3 October 2017, the Jersey Government published the Draft Budget Statement 2018. The business and personal tax proposals of the Budget are summarized as follows:
- Subjecting the profits of larger corporate retailers to tax at 20%, which will apply for retailers with taxable profits of at least GBP 500,000 per year with a tapering provision for the effective rate (0% to 20%) for retailers with taxable profits of between GBP 500,000 and 750,000;
- Extending the definition of "financial services company" to bring more companies within the scope of the 10% company income tax rate;
- Increasing some International Services Entities (ISE) fees paid by businesses;
- Disallowing the deduction of rates by landlords renting property in Jersey consistent with the 2017 Budget amendment;
- Legislating for the taxation of non-Jersey limited liability partnerships; and
- Introducing a Stamp Duty anti-avoidance provision.
- Increasing income tax exemption thresholds by 2.5% for working-age people;
- Increasing second earner’s allowance by GBP 850 to GBP 5,850;
- Enhancing the tax regime applied to high-value residents, including requiring future high-value residents to pay more; and
- Making minor amendments to the rules applying to pensions and pension schemes including greater flexibility in accessing small pension funds.
The measures must be approved by the States Assembly and will generally apply from 1 January 2018.
UK OTS Consults on Using Accounts Depreciation instead of Capital Allowances for Tangible Fixed Assets
On 3 October 2017, the UK Office of Tax Simplification (OTS) issued a paper for consultation as part of its review of capital allowances and depreciation, which is being conducted as a result of its report on simplifying the computation of corporation tax (previous coverage). The project relates to tangible fixed assets only and will focus on whether the use of accounts depreciation to provide relief for capital expenditure instead of capital allowances would simplify the preparation of tax returns for incorporated and unincorporated business.
Click the following link for the paper, Tax Relief for Tangible Fixed Assets Using Accounts Depreciation. Responses are due by 30 November 2017.
Tax Treaty between Costa Rica and the U.A.E. Signed
The United Arab Emirates Ministry of Foreign Affairs and International Cooperation has announced that an income tax treaty with Costa Rica was signed on 3 October 2017. The treaty is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged. Details of the treaty will be published once available.
Greece and the U.S. Sign CbC Exchange Arrangement
According to a release from the Greek Public Revenue Authority, a bilateral competent authority arrangement for the exchange of Country-by-Country (CbC) reports was signed with the U.S. on 27 September 2017. The arrangement was not yet published at the time of writing, but will likely be published on the U.S. IRS Country-by-Country Reporting Jurisdiction Status Table in the near future and is expected to apply for fiscal years beginning on or after 1 January 2016.
Italy and the U.S. Sign CbC Exchange Arrangement
According to a release from the Italian Department of Finance, a bilateral competent authority arrangement for the exchange of Country-by-Country (CbC) reports was signed with the U.S. on 27 September 2017. The release notes that the arrangement applies for fiscal years beginning on or after 1 January 2016, including for the purpose of CbC reports voluntarily filed in the U.S. in respect of fiscal years beginning before 30 June 2016. The arrangement was not yet published at the time of writing, but will likely be published on the U.S. IRS Country-by-Country Reporting Jurisdiction Status Table in the near future.