Worldwide Tax News
India Issues Final Master File and CbC Reporting Rules
The Indian Central Board of Direct Taxes has published the final notification on the rules for Master file documentation and Country-by-Country (CbC) reporting. The final notification is generally in line with the draft notification issued earlier in October for consultation, with some adjustments for clarity (previous coverage). Main points of the requirements include:
- Both the Master file and CbC report requirements apply for the 2016-2017 fiscal year (beginning 1 April 2016);
- The full Master file requirement applies if consolidated revenue of the MNE group exceeds INR 5 billion; and the value of aggregate international transactions exceeds INR 500 million or intangibles transactions exceed INR 100 million (Part A of the Master file includes basic details and is always required, while Part B includes the full content and is required if the thresholds are met);
- The CbC report requirement applies if consolidated revenue of the MNE group meets or exceeds an INR 55 billion threshold;
- Where consolidated financial statements are in a foreign currency, the exchange rate for determining if the above thresholds are met/exceeded is the telegraphic transfer buying rate of such currency on the last day of the accounting year for Master file purposes, and the buying rate on the last day of the preceding accounting year for CbC report purposes;
- The standard due date for the Master file and CbC report is the return deadline of the reporting entity (30 November), but for the first year, 2016-2017, the due date is 31 March 2018;
- The due date for the CbC reporting notification is at least two months prior to the due date for the CbC report, i.e., 31 January 2018 in respect of the first reporting year and 30 September for subsequent years.
Click the following link for final Notification No. 92 /2017.
IOTA Publishes Collection of Articles from Tax Officials on the Disruptive Business Models
The Intra-European Organisation of Tax Administrations (IOTA) has published Disruptive Business Models – Challenges and Opportunities for Tax Administrations. The publication contains 15 articles prepared by the speakers of IOTA’s 21st General Assembly, including tax administrations’ director generals, senior executives and business representatives, and IOTA partners such as the Inter-American Center of Tax Administrations (CIAT) and the European Commission. The articles discuss the challenges and opportunities related to digital business models, the sharing economy, the impact of blockchain technology, and other technology-driven issues.
Argentina's Tax Reform Plan Includes Reduced Corporate Tax Rate for Reinvested Earnings
On 31 October 2017, Argentina's Minister of the Treasury, Nicolas Dujovne, announced a tax reform plan that would introduce a number of changes in the country. Main measures include:
- A reduction in the corporate tax rate on non-distributed earnings from 35% to 30% in 2019 and to 25% from 2021;
- The introduction of a 10% tax on dividends (meant to promote reinvestment along with the corporate rate reduction);
- The introduction of a VAT obligation on supplies of digital services by non-resident suppliers, including for downloadable content, such games, music, etc.;
- The introduction of standard 19.5% social security contribution rate for employer contributions and the elimination of current regional-based reductions, as well as a phased-in exemption on gross salary up to approximately ARS 12,000 and the elimination of the salary basis cap for employee contributions;
- A change in the rules for the financial transactions tax on bank credits and debits to allow for a full credit against income tax;
- The removal of exemptions for investment income for individuals along with the introduction of a reduced tax (5% to 15%) on such income; and
- The strengthening of anti-avoidance/evasion rules, including in relation to thin cap, transfer pricing, limitations on exempt activities/entities, etc.
The reform plans are expected to be finalized and submitted to the National Congress in the coming week. Additional details will be published once available.
France Moving Forward with Temporary Surcharge on Large Companies to Fund Distribution Tax Refunds
The Finance Committee of the French National Assembly has approved a finance amendment bill to introduce a temporary surcharge on large companies that is meant to offset the cost of pending refunds resulting from the repeal of the 3% tax on profit (dividend) distributions, which was recently found unconstitutional. The exceptional surcharge will be levied at a rate of 15% on corporate income tax due by companies with gross revenue exceeding EUR 1 billion for financial years ending between 31 December 2017 and 30 December 2018. For companies with gross revenue exceeding EUR 3 billion, an additional 15% surcharge will apply. This will result in effective tax rates of approximately 38.3% and 43.3% for companies with gross revenue exceeding EUR 1 billion and EUR 3 billion, respectively.
The 3% distribution tax was ruled unconstitutional by the French Constitutional Court (Conseil Constitutionnel) in October (previous coverage) following an earlier decision by the Court of Justice of the European Union that it was incompatible with the EU Parent-Subsidiary Directive. France had already planned to repeal the 3% tax as part of the 2018 budget and planned to introduce a temporary tax to offset lost revenue. However, with the ruling that the distributions tax is unconstitutional, France now also needs to fund potential refunds up to approximately EUR 10 billion for pending cases as of 6 October 2017 (date ruled unconstitutional). Claims for refund are reportedly accepted until the end of 2017.
Maldives Joins Inclusive Framework for Implementation of BEPS Measures
According to a 3 November 2017 update to the list of members, the Maldives has joined the Inclusive Framework for the global implementation of the BEPS Project, bringing the total number of members to 104. As a member of the Framework, the Maldives has committed to the implementation of four minimum standards, including those developed under Action 5 (Countering Harmful Tax Practices), Action 6 (Preventing Treaty Abuse), and Action 14 (Dispute Resolution), as well as Country-by-Country (CbC) reporting under Action 13 (Transfer Pricing Documentation).
U.S. Tax Reform: Impact on Companies with International Operations
On 2 November 2017, the U.S. House Ways and Means Committee Chairman Kevin Brady presented the Tax Cuts and Jobs Act Bill, H.R. 1 containing proposed U.S. Tax Reform provisions. The measures of the legislation generally follow the Unified Framework released in September (previous coverage), including a reduction of the standard corporate tax rate to 20%, the introduction of a 25% rate for pass-through entities, and the simplification of individual taxation with marginal rates of 12%, 25%, 35%, and 39.6% for high-income earners. Some of the most significant measures, however, are those impacting U.S. companies with international operations, which are summarized as follows:
- A one-time deemed repatriation tax on the net E&P of a U.S. Parent's10% U.S.-owned foreign subsidiaries:
- The tax would apply for the last tax year beginning before 2018. (For calendar year taxpayers the tax would apply for 2017).
- The tax would apply only on Untaxed E&P not on Previously-Taxed Income ("PTI").
- The tax rate would be 12% on E&P related to CASH and equivalents; 5% on other E&P.
- Deemed paid credits would offset the tax partially; foreign tax credit carry-forwards would offset the tax dollar-for-dollar.
- The tax would be payable over 8 years at the election of the taxpayer.
- A new minimum tax on a U.S. Parent's aggregate foreign earnings each year from 10%-owned foreign subsidiaries:
- The tax would apply for tax years after 2017.
- The tax would apply on 50% of "foreign high returns" - the excess of aggregate net income over a routine return (7% plus the Federal short-term rate) on the foreign subs aggregate adjusted depreciable tangible property.
- Aggregate net income is the aggregate net income of a U.S. Parent's foreign subs after Subpart F income.
- Adjusted depreciable tangible property is the aggregate adjusted basis of a U.S. Parent's foreign subs in tangible depreciable property adjusted downward for interest expense.
- 80% of current foreign taxes paid on "foreign high returns" would reduce the new U.S. tax.
- Various changes to the rules taxing U.S.-offshore earnings would also apply for tax years after 2017:
- The Section 956 Investment in U.S. Property rule would be eliminated.
- The Section 902 Deemed Paid Credit on Dividends would be eliminated; a Section 960 Deemed Paid Credit on Subpart F Income would still apply but be calculated using current taxes instead of tax pools.
- The automatic 50% sourcing to foreign income of U.S. Inventory Sales outside the U.S. ("Section 863b Sales") would change to a sourcing rule based on where the production activities on the inventory occur.
- The current Subpart F "de minimis" rule threshold of $1million would be indexed upwards for inflation.
- The current "look-thru" rule exempting from Subpart F treatment, the dividend, interest and royalty income from related foreign subs would be made permanent.
- Other changes such as the repeal of Subpart F treatment on foreign base company oil related income, the elimination of the 30-day control rule before Subpart F applies, and other miscellaneous changes would apply.
- Effective for tax years beginning after 2017, in a addition to the new interest deduction disallowance rule that would apply generally to all U.S. companies when interest expense exceeds 30% of the business' adjusted taxable income, an additional interest deduction disallowance rule would limit a U.S. Parent's interest deduction to the extent that the U.S. Parent's share of its global group's net interest expense is more than 110% of the U.S. Parent's share of its global group's EBITDA. The actual denied interest deduction would be the greater limit determined under each of these two new rules, and the denied interest deduction would carry-forward for five years.
Click the following link for the House Ways and Means Committee release on the Bill, which includes a general summary of the measures, as well as links to the full legislative text and a section-by-section summary of the Tax Cuts and Jobs Act.
Update - U.S. IRS Clarification on Status of CbC Exchange Arrangements
Through correspondence with the U.S. IRS, further clarification has been provided in relation to recently reported comments that the IRS may not be able to finalize all required CbC exchange arrangements (CAA) by the end of 2017. Additional points of clarification as provided by the IRS include:
- The IRS’s International Division continues to make negotiating and concluding CbC CAAs their top priority.
- The International Division is prioritizing concluding CAAs with jurisdictions that have a local filing requirement for tax year 2016. For these CAAs, although they cannot say with certainty where things will stand at the end of the calendar year, dialogue with these jurisdictions remains active and they are continuing to make progress.
- For jurisdictions that do not have a local filing requirement until tax year 2017, it is not necessary to have a CbC CAA in place by 31 December 2017 to avoid the local filing requirement, but the IRS intends to move as quickly as possible in any event.
While the IRS is continuing its efforts to complete the required CbC CAAs by the end of 2017, it is important that U.S. based MNE groups are prepared in the event a local CbC report filing will be required. Further, it is important that all required notifications have been made in relation to a voluntary (parent surrogate) filing of CbC reports for 2016 (applicable for MNEs with tax years starting between 1 January and 29 June 2016), since jurisdictions with a local filing requirement may require a local constituent entity to file a CbC report if the required notifications have not been made, even if a CbC CAA is signed. Lastly, MNE groups should review the jurisdictions in which they operate that have a local filing requirement and check against the IRS CbC Reporting Jurisdiction Status Table to confirm that an agreement has been signed or is at least under negotiation.
U.S. Signs CbC Exchange Arrangement with Portugal
According to an update to the IRS Country-by-Country Reporting Jurisdiction Status Table, the U.S. signed a competent authority arrangement on the exchange of Country-by-Country (CbC) Reports with Portugal on 2 October 2017. The arrangement was not yet published at the time of writing, but will likely be published in the near future and is expected to apply for fiscal years beginning on or after 1 January 2016.