Worldwide Tax News
Australia Sets 2016 Benchmark Interest Rate for Private Company Loans to Shareholders
On 29 June 2016, the Australian Commissioner of Taxation issued Taxation Determination (TD) 2016/11, which sets the benchmark interest rate for private company loans at 5.40% for the income year beginning 1 July 2016. The rate is used for determining required repayments of amalgamated private company loans to shareholders. If repayments do not meet or exceed the determined repayment amount, the difference between the required payment and the actual payment made is treated as a deemed dividend.
The benchmark interest rate is relevant to private company loans made or deemed to have been made after 3 December 1997 and before 1 July 2016, and to trustee loans made after 11 December 2002 and before 1 July 2016.
Click the following link for TD 2016/11.
Denmark Issues Notice on Spontaneous Exchange of Information on Cross Border Tax Rulings and Unilateral APAs
On 30 June 2016, the Danish tax authority (SKAT) published a tax notice (SKM2016.308.SKAT) on the mandatory spontaneous exchange of information on cross border tax rulings and unilateral advance pricing agreements (APA) with other OECD and G20 countries. The exchange is in accordance with Action 5 (Countering Harmful Tax Practices) of the OECD BEPS Project.
The type or rulings for which information is exchanged and the countries with which exchange is made include:
- Rulings related to preferential tax regimes - exchanged with:
- Countries in which the related parties included in transactions covered by the preferential regimes are resident; and
- Countries in which the ultimate parent and direct parent are resident;
- Unilateral APAs and other rulings related to transfer pricing - exchanged with:
- Countries in which the related parties included in transactions covered by the APA or other ruling are resident; and
- Countries in which the ultimate parent and direct parent are resident;
- Cross border rulings resulting in unilateral downward adjustments in taxable income not reflected in the taxpayer's financial statements - exchanged with:
- Countries in which the related parties included in transactions covered by the ruling making the adjustment are resident; and
- Countries in which the ultimate parent and direct parent are resident;
- Rulings related to permanent establishments - exchanged with:
- The country where the head office or permanent establishment is situated; and
- The countries where the ultimate parent and direct parent are resident;
- Rulings related to conduit companies - exchanged with:
- The Countries where the related parties directly or indirectly making payments flowing through the company are resident;
- The country where the ultimate beneficial owner of the payments is resident; and
- The countries where the ultimate parent and direct parent are resident.
For the purpose of determining with which countries information is exchanged, related parties are deemed to include where one holds 25% or more of the capital or voting rights in the other, or a third party holds 25% or more of the capital or voting rights in both parties.
The particular information to be exchanged includes:
- Identifying details of the taxpayer, and if applicable, its group;
- Date of issuance, amendment or renewal of the ruling;
- Income years covered;
- Type of ruling;
- Description of the relevant transaction(s);
- Reason for the exchange;
- Information on other countries the information is exchanged with; and
- Information on relevant parties resident in the receiving jurisdiction.
Based on the above information, the receiving tax authority will decided if additional information is needed, including the ruling/APA in its entirety.
Denmark will exchange information on rulings/APAs settled from 1 April 2016 within three months of issuance. Denmark will also exchange information on rulings/APAs issued on or after 1 January 2010 and still in force as of 1 January 2014, with the exchange of such information to be completed by the end of 2016.
Click the following link for the notice (Danish language).
India Issues Rules on Foreign Tax Credits
On 27 June 2016, India's Central Board of Direct Taxes issued Notification No. 54/2016, which includes the rules for foreign tax credits (Rule 128), which is inserted into the Income-tax Rules, 1962. The mail aspects of Rule 128 are summarized as follows.
Rule 128 includes that an Indian resident taxpayer is to be allowed a credit for the amount of foreign taxes paid, by way of a deduction or otherwise, in the year in which the corresponding income is offered to tax in India, or across multiple years in the same proportion in which the income is offered to tax or assessed to tax in India. Foreign taxes paid for which a credit is available include any taxes covered by a relevant tax treaty India has entered into, or in the absence of a tax treaty, any foreign tax in the nature of income tax.
The foreign tax credit may offset the amount of tax, surcharge and cess payable under the Income Tax Act (ITA), although a credit will not be available in respect of any sum payable by way of interest, fee or penalty under the ITA, or for any foreign tax that is disputed in any way by the taxpayer. If a resident taxpayer settles a foreign tax dispute, a credit for the tax will be allowed in the year the income is offered to tax in India if the taxpayer furnishes:
- Evidence of settlement of the dispute;
- Evidence that the liability for payment of the tax has been discharged; and
- An undertaking that no refund of the disputed amount has been claimed or will be claimed (directly or indirectly).
The foreign tax credit is the aggregate amounts of credit computed separately from each source of income on a country-by-country basis. The credit amount for each source of income is equal to the lower of the foreign tax paid or the tax that would be payable under the ITA using the currency exchange rate applicable on the last day of the month immediately preceding the month in which the foreign tax was paid or deducted.
The foreign tax credit is also allowed against Minimum Alternate Tax (MAT) / Alternate Minimum Tax (AMT). The credit amount is determined in a similar manner as above, with any excess foreign credit ignored.
When claiming a foreign tax credit, the taxpayer must furnish the following documentation by the due date for the tax return:
- A statement of income from the country or specified territory outside India offered for tax for the previous year and of foreign tax deducted or paid on such income in Form No. 67; and
- A certificate or statement specifying the nature of the income and the amount of tax paid or deducted:
- From the tax authority of the country or specified territory outside India; or
- From the person responsible for deducting such tax; or
- From the taxpayer, provided the statement is accompanied by an acknowledgment of online payment or bank counterfoil or challan (receipt/invoice) for payment of tax where the payment has been made by the taxpayer, or proof of deduction where the tax has been deducted.
Click the following link for Notification No. 54/2016, which includes Form No. 67.
Japan Issues Guidance on New Transfer Pricing Documentation and Notification Requirements
Japan's National Tax Agency has issued guidance on the country's new transfer pricing documentation requirements, which are in line with the three-tiered approach developed under Action 13 of the OECD BEPS Project. The main aspects of the guidance are summarized as follows.
MNE groups operating in Japan must submit a CbC report when deemed to be a Specified MNE Group, which means the total revenue of the group in the Ultimate Parent Entity's preceding fiscal year amounts to JPY 100 billion or more. The report must be in English and the requirements generally apply for fiscal years beginning on or after 1 April 2016.
If the Ultimate or Surrogate Parent Entity is resident in Japan, the CbC report must be submitted directly via e-Tax (digital submission system) within one year following the end of the Ultimate Parent Entity's fiscal year. If the Ultimate or Surrogate Parent Entity is not resident in Japan, the report will in principle be received by the Japanese tax authorities through exchange from the Ultimate or Surrogate Parent Entity's country of residence. However, local filing by a constituent entity in Japan will be required in the following three cases:
- If the country in which the Ultimate Parent Entity resides has not taken necessary measures to require the submission of items equivalent to the CbC Report for the Ultimate Parent Entity's fiscal year;
- If there is no qualifying competent authority agreement for exchange between the Japanese Minister of Finance and the competent authorities in the country in which the Ultimate Parent Entity resides; or
- If the country in which the Ultimate Parent Entity resides is designated by the Commissioner of the National Tax Agency as a country or territory considered unable to provide Japan with information equivalent to the CbC Report as required in Japan on the day when the Ultimate Parent Entity's fiscal year ends.
However, the guidance includes that the local filing requirement will not apply for cases 1 and 2 for fiscal years that begin between 1 April 2016 and 31 March 2017.
As with the CbC report, Master file requirements apply for Specified MNE Groups. The Master file may be in English or Japanese, but if submitted in English, a Japanese translation may be requested. The requirements apply for fiscal years beginning on or after 1 April 2016.
All constituent entities in Japan of a Specified MNE Group have the obligation to submit a Master file, although a single constituent entity may submit the Master file on behalf of the others, provided information on each constituent entity represented is provided with the submission. When required, the Master file must be submitted via e-Tax within one year following the end of the Ultimate Parent Entity's fiscal year.
For business years beginning on or after 1 April 2017, Japanese corporations engaged in cross border controlled transactions must prepare and store contemporaneous documentation considered necessary to calculate the arm's length for controlled transactions (Local file) by the deadline for the submission of final returns, if:
- Controlled transactions in the previous year amount to JPY 5 billion or more in the previous business year; or
- Transactions of intangibles in the previous year amount to JPY 300 million or more in the previous business year.
If there is no previous business year, current year amounts are used.
When the contemporaneous preparation of the Local file is required, it must be submitted within 45 days of a request, and when not required, documentation equivalent to the local file must be submitted within 60 days of request. In either case, additional supporting documentation must be submitted within 60 days of request. No language requirement is specified, although a Japanese translation may be requested if the Local file is prepared in a non-Japanese language.
Specified MNE groups must submit a "Notification for Ultimate Parent Entity" to the tax authorities via e-Tax by the end of the Ultimate Parent Entity's fiscal year. The notification includes:
- Name of the Ultimate or Surrogate Parent Entity;
- The location of its head or principal office (if the Ultimate Parent Entity resides in a foreign country, the location of its head or principal office or the site where its business is managed or controlled);
- Its corporate identification number; and
- The name of its representative.
All constituent entities of the group in Japan, including permanent establishments, have the obligation to submit the notification, although a single constituent entity may fulfill the obligation on behalf of the others, provided information on each constituent entity represented is provided with the notification.
The notification requirement applies for fiscal years beginning on or after 1 April 2016, i.e. first notification due by 31 March 2017.
Click the following link for the transfer pricing documentation guidance, which includes additional details and the information required in the CbC report, Master file and Local file.
Sweden to Introduce VAT Registration Threshold
According to recent reports, draft legislation has been submitted to the Swedish parliament for the introduction of a value added tax (VAT) registration threshold from 1 January 2017. Currently no VAT registration threshold applies, except for the threshold for EU distance sales.
The proposed threshold is revenue of SEK 30,000 per year, excluding VAT.
Negotiations for Protocol to Austria-Ukraine Tax Treaty Concluded
On 30 June 2016, the Ukraine Ministry of Finance announced that negotiations for a protocol to the 1997 income and capital tax treaty with Austria have concluded. The main changes concern withholding tax rates:
- The tax rate for dividends is increased from 10% to 15%;
- The tax rate for interest is increased from 2% to 5%;
- The tax rate for patents, trademarks, industrial design, plans, models, product formulas or processes is increased from 0% to 5%; and
- The tax rate for the copyright of literary works, artworks including cinema is increased from 5% to 10%.
In addition, revisions are made regarding exchange of information and assistance in tax collection in line with OECD standards.
The protocol will be the first to amend the treaty, and must be signed and ratified before entering into force.
Brazil Clarifies Treatment of Software Licensing Fees under Tax Treaty with France
The Brazilian tax authorities recently issued Ruling 6026/2016 concerning the withholding tax treatment of software licensing fees under the 1971 income and capital tax treaty with France. Under the treaty, three withholding rates are provided depending on the nature of the royalty payment: 10% for the use or right to use any copyrights, 25% for the use of trademarks, and 15% for all other types. Although not specifically defined under the treaty, according to the Ruling, software licensing fees are considered payment for copyrights, and therefore subject to the 10% withholding rate.
Hong Kong Legal Framework for Automatic Exchange of Information has Come into Effect
Hong Kong Inland Revenue (Amendment) (No. 3) Ordinance 2016 came into effect on 30 June 2016. The ordinance provides the legal framework for Hong Kong to implement the automatic exchange of financial account information in tax matters (AEOI) in line with the OECD Common Reporting Standard.
Hong Kong intends to begin the collection of financial account information in 2017 and begin automatic exchange in 2018. For this purpose, Hong Kong aims to conclude AEOI negotiations by the end of 2016 with potential AEOI partners with which Hong Kong currently has a tax treaty or tax information exchange agreement in place.
TIEA between New Zealand and San Marino Signed
According to recent reports, officials from New Zealand and San Marino signed a tax information exchange agreement on 1 April 2016. The agreement is the first of its kind between the two countries, and will enter into force once the ratification instruments are exchanged.
Mutual Assistance Convention has Entered into Force for Bulgaria
On 1 July 2016, the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol entered into force for Bulgaria. The Convention, signed by Bulgaria on 26 October 2015, generally applies from 1 January 2017. However, it may apply for earlier periods between Bulgaria and another signatory if agreed to, and applies in relation to any period regarding criminal matters.