Worldwide Tax News
On 3 March 2017, the Australian Taxation Office published guidance on providing International Related Party (IRP) agreements as part of the new Local file requirements. Under Australia's requirements, the Local file consists of two parts: Part A, which includes details of the related party transactions; and Part B, which includes the transfer pricing methods used, copies of agreements, and copies of APAs (previous coverage). The guidance covers details for providing IRP agreements as part of the Local file, including:
- General principles on providing IRP agreements;
- What comprises written agreements in various scenarios;
- Relevant Agreement Series (RAS - repeating series of transactions or dealings on revenue account);
- The principles for determining a material representative agreement in selecting the agreement documentation provided at Part B for a RAS; and
- Special rules that apply to offshore banking units (OBUs) and banks.
Click the following link for Local file – Part B: Guidance on providing International Related Party agreements.
Swedish Parliament Approves Legislation for New Transfer Pricing Documentation Rules including CbC Reporting
The Swedish parliament approved Government Bill 2016/17: 47 on 1 March 2017, which provides for new transfer pricing documentation requirements in line with BEPS Action 13 and Council Directive (EU) 2016/881, including Master file, Local file, and Country-by-Country (CbC) Reporting. The legislation will enter into force on 1 April 2017.
The main points of Sweden's new CbC reporting requirements include:
- The CbC reporting requirements apply for fiscal years beginning on or after 1 January 2016 for MNE groups with consolidated revenue in the previous year meeting a SEK 7 billion threshold;
- The requirement to submit a CbC primarily applies for ultimate parent entities of MNE groups resident in Sweden, but also applies for non-parent constituent entities resident in Sweden if:
- The ultimate parent is not required to submit a CbC report in its jurisdiction of residence (this local-filing condition does not apply where the parent entity is exempt from submitting a report in its jurisdiction due to not meeting a EUR 750 million group revenue threshold or equivalent in local currency);
- A competent authority agreement for the exchange of CbC reports is not in place between Sweden and the ultimate parent's jurisdiction of residence; or
- An agreement is in place but there has been systemic failure for the exchange;
- Where the non-parent filing requirement applies and there are multiple constituent entities in Sweden, one may be appointed to submit the report;
- If all required information for the CbC report has not been provided to the local entity, an incomplete report must still be submitted and notification must be made of the parent's refusal to provide all information;
- The non-parent local filing requirement will not apply if a surrogate parent has been designated in a jurisdiction that will exchange the report with Sweden;
- When required, a CbC report must be submitted within 12 months following the close of the fiscal year concerned;
- Constituent entities resident in Sweden must provide notification to the tax authorities by the end of the fiscal year concerned on whether they are the ultimate parent or surrogate parent, and if neither, must provide details of the reporting entity for the group;
- As part of a transition, the notification deadline is extended to 30 April 2017 for fiscal years ending before 1 April 2017; and
- Existing provisions regarding orders for documentation submission and associated penalties will apply for CbC reporting.
The main points of Sweden's new documentation requirements include:
- New Master and Local file documentation requirements apply for fiscal years beginning on or after 1 April 2017;
- The requirements generally apply for all large Swedish entities, i.e., 250 or more employees and consolidated revenue exceeding SEK 450 million (~EUR 47.25 million) in the previous year or a balance sheet total exceeding SEK 400 million (~EUR 42 million) in the previous year;
- The content of the Master and Local file is line with BEPS Action 13, and may be in Swedish, Danish, Norwegian, or English;
- Certain insignificant/immaterial transactions may be excluded on a case-by-case basis with a general annual transaction threshold of SEK 5 million;
- The scope of entities covered by Sweden's documentation requirements is expanded to include Swedish companies with a foreign PE, foreign companies with a Swedish PE, and Swedish unlimited partnerships that have transactions with a foreign company where the unlimited partnership’s profits are taxed in a Swedish company that is in a group with both the partnership and the foreign company;
- When required, the Master file is to be prepared by the tax return deadline of the ultimate parent and the Local file is to be prepared by the tax return deadline of the local constituent entity; and
- The documentation does not need to be submitted unless requested by the tax authorities.
Click the following link for the parliament CbC legislation webpage (Swedish language), which includes a link to the final report and legislation
On 1 March 2017, the Ukraine State Fiscal Service (SFS) published guidance letter No. 2753/6/99-99-15-02-02-15 concerning the payment of advance corporate tax on dividend distributions. The letter clarifies that tax base for advance corporate tax on dividends is the amount of the dividends paid in excess of the dividend payer's taxable income for the relevant tax (reporting) year. If the dividend amount does not exceed the taxable income and the standard corporate tax due on the taxable income is paid, then no advance tax on the dividend distribution is due. If the corporate tax due has not been paid, however, advance tax will apply on the total amount of dividends, which is then available to offset corporate tax liabilities. Although not covered in the letter, the credit for advance tax paid may also be carried forward to future years.
On 2 March 2017, the European Commission published a public consultation on administrative cooperation and the fight against VAT fraud. According to the consultation release, the Commission aims to update the rules governing the administrative cooperation and the fight against cross border VAT fraud with a view to improve the functioning of the single market and tackling the heavy losses to the Member States and EU revenues. This administrative cooperation assistance is currently governed by Council Regulation (EU) No 904/2010 of 7 October 2010. The purpose of the consultation is:
- To gather views from stakeholders other than tax administrations about their experience of the current rules governing administrative cooperation and fight against cross-border fraud in the field of VAT;
- To bring new insights for the on-going evaluation of Regulation (EU) 904/2010;
- To provide information about possible improvements including to the on-line service for checking VAT numbers for intra-EU transactions: VIES on-the-web.
- To collect quantitative data on possible reduction or increase of regulatory costs/benefits (administrative burden and/or compliance costs) for businesses (in particular SMEs).
Click the following link for the consultation webpage. The consultation runs through 31 May 2017.
New Zealand Consults on New Transfer Pricing, PE Avoidance, and Thin Cap Rules to Address BEPS and Signature of BEPS Multilateral Instrument
On 3 March 2017, New Zealand Inland Revenue's Policy and Strategy group announced the release of three consultation documents on addressing BEPS. The documents and their proposals are summarized as follows:
This consultation document includes a number of proposed rules/requirements, including:
- A new anti-avoidance rule for large multinationals (over EUR 750 million consolidated global turnover) that structure to avoid having a permanent establishment (taxable presence) in New Zealand, which would deem a non-resident entity to have a permanent establishment in New Zealand if a related entity carries out sales activities in the country;
- New income source rules providing that an amount of income will be deemed to have a source in New Zealand:
- If New Zealand has a right to tax that income under the permanent establishment article of an applicable tax treaty (an additional source rule based on New Zealand's model treaty would apply where there is no applicable tax treaty); and
- Where the income of a non-resident would be deemed to have a source in New Zealand if the non-resident’s wholly owned group were treated as a single entity; and
- Amendments to the transfer pricing rules to:
- Allow the tax authorities to disregard transactions where the legal form does not align with the actual economic substance;
- Allow the tax authorities to replace conditions with arm's length conditions, or to eliminate or disregard an arrangement entirely;
- Specifically reference arm’s length conditions and the latest OECD Transfer Pricing guidelines;
- Shift the burden of proof for demonstrating that the actual conditions align with arm’s length conditions to the taxpayer;
- Increase the time limit for the authorities to dispute transfer pricing matters to seven years; and
- Extend the transfer pricing rules to cover not only related parties, but also to investors that "act together", such as private equity investors.
With regard to the BEPS Action 13 documentation recommendations, the consultation document notes that Inland Revenue is requiring New Zealand-headquartered multinationals meeting a EUR 750 consolidated revenue threshold to submit a Country-by-Country (CbC) report for fiscal years beginning on or after 1 January 2016. For this purpose, approximately 20 multinational groups have been directly notified by Inland Revenue. Specific legislative provision is not required to enforce CbC requirements on those groups, but New Zealand may consider codifying the requirements. For Master and Local file requirements, New Zealand is considering to require upon request.
The deadline for submissions for the consultation is 18 April 2017.
This consultation document includes proposed amendments to the thin capitalization rules that would limit the deductible interest rate on related-party loans. The preferred approach would be to set the maximum deductible interest rate on a loan from a non-resident to a New Zealand resident depending on the circumstances:
- Where the ultimate parent of the borrower has a credit rating for senior unsecured debt, the rate is limited to the yield derived from appropriate senior unsecured corporate bonds for that credit rating, plus a margin;
- Where the ultimate parent has no credit rating, the rate is limited to the interest rate that would apply if the parent raised senior unsecured debt on standard terms, plus a margin; and
- Where there is no ultimate parent, the rate is limited to the interest rate that would apply if the New Zealand group raised senior unsecured debt on standard terms (with no margin).
No cap would apply to loans from third parties.
If the proposed direct limitation on interest rates would not be effective, other changes may be considered, including an EBITDA-based rule as recommended by the OECD.
The deadline for submissions for the consultation is 18 April 2017.
This consultation document provides an overview of the multilateral convention to implement tax treaty related measures to prevent BEPS (MLI), which New Zealand plans to sign mid-2017. In general, New Zealand plans to adopt all of the main provisions in the MLI, which include those in relation:
- Neutralizing the effects of hybrid mismatch arrangements (Action 2);
- Preventing the granting of treaty benefits in inappropriate circumstances (Action 6);
- Preventing the artificial avoidance of PE status (Action 7); and
- Providing improved mechanisms for effective dispute resolution (Action 14).
The deadline for submissions for the consultation is 7 April 2017.
The Puerto Rican government has issued its fiscal plan to address the U.S. territory's deficit issues. The plan includes revenue enhancement measures estimated to reduce its spending gap by USD 12.9 billion over 10 years. The measures are broken down into three main areas, summarized as follows:
- Corporate tax reform measures, including a substitute for the excise tax under ACT 154 that will include the following alternatives or a combination thereof:
- A modified version of the effectively connected income source rule;
- An increased income tax rate on exempted income;
- An income tax withholding on imputed royalty or cost allocation payments;
- A withholding income tax on profit distributions;
- Tax compliance improvements, including:
- Creation of an award-based whistleblower office to improve compliance and reduce "Lack of Fear";
- Deployment of internet sales tax collections through economic and affiliate nexus instead of consumer self reporting;
- Implementation of point of sale (POS) Sales and Use Tax (SUT) collections;
- Detection of non-compliance at scale using advanced analytics;
- Development of capabilities to significantly expand capacity to address identified non-compliance through correspondence audits, targeted notices, and other methods;
- Deployment of a lean operations toolkit to increase auditor and institutional capacity;
- Fee adjustments, including:
- An increase in motor vehicle license fees by 10%;
- An increase in insurance fees by 5%;
- An increase in traffic fines fees by 10%;
- An increase in other miscellaneous permits, charges and royalties by 10%.
Click the following link for a copy of the Fiscal Plan.
On 3 March 2017, officials from Jersey and Mauritius signed an income tax treaty. The treaty is the first of its kind between the two jurisdictions and will enter into force after the ratification instruments are exchanged. Additional details will be published once available.
On 1 March 2017, officials from Peru and South Korea signed a social security agreement. The agreement is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.