Worldwide Tax News
Bermuda's New Financial Services Tax and Payroll Tax Changes
Effective 1 April 2017, Bermuda has introduced a new financial services tax and changes to the payroll tax as part of the 2017/2018 Budget.
The new financial services tax is introduced by the Financial Services Tax Act 2017, which was enacted 28 March. The tax applies at the following rates depending on the nature of the financial service provider:
- In the case of a bank, 0.005% of its consolidated gross assets as at the end of a tax period;
- In the case of a domestic insurer, 2.5% of gross premiums written in a tax period, excluding premiums relating solely to health insurance and annuities;
- In the case of a money service business, 1% of aggregated incoming and outgoing money transmission volume in a tax period.
For the purpose of the tax:
- A "bank" means a bank or deposit company licensed under the Banks and Deposit Companies Act 1999 to carry on deposit-taking business;
- A "domestic insurer" means an insurer licensed under the Insurance Act 1978 to carry on domestic business; and
- A "money service business" has the meaning given in the Money Service Business Act 2016, which includes providers of money transmission services, check cashing and guarantee services, currency exchange services, and others.
For all taxpayers of the new tax, a return is to be filed within 30 days of the end of each 3-month period (quarter) along with payment of the tax due. The first period is the three months April, May, and June 2017.
The payroll tax changes are introduced by the Payroll Tax Amendment Act 2017, which was enacted 28 March. Changes include that the payroll tax is split into two separate portions that must be calculated separately with new a new rate structure and reported by employers on the quarterly tax returns:
Employer Portion (based on annual payroll):
- up to BMD 200,000 - 1.75%
- BMD 200,001 to 500,000 - 7.00%
- BMD 500,001 to 1,000,000 - 9.00%
- over BMD 1,000,000 - 10.25%
Employee Portion (based on annual remuneration):
- up to BMD 48,000 - 4.75%
- BMD 48,001 to 96,000 - 5.75%
- BMD 96,001 to 235,000 - 7.75%
- over BMD 235,000 - 8.75%
For the employer portion, different fixed rates apply for certain employer types, and in certain situations, the employer portion is exempt. For the employee portion, a transitional fixed rate of 6% applies for the period 1 April to 30 June 2017. In addition, the annual cap on taxable remuneration is increased from BMD 750,000 to BMD 900,000.
Click the following link for an overview of the changes from the Government of Bermuda.
French Supreme Court Decision Reinforces that the Exemption from 3% Tax on Dividend Distributions Applies for Foreign Groups
On 29 March 2017, the French Council of State (Conseil d'État - Supreme Court) issued its decision that the exemption from the 3% tax on profit (dividend) distributions (previously) only available for French tax-consolidated groups is incompatible with the EU Convention for the Protection of Human Rights and Fundamental Freedoms. The limit of the exemption to French consolidated groups was also ruled unconstitutional by the French Constitutional Court (Conseil Constitutionnel) in September 2016, and as a result, the exemption was amended as part of the Amending Finance Law for 2016 so that it could apply for a foreign group as well from 1 January 2017 (previous coverage). With the decision of the Council of State, however, the exemption may also be applied for foreign groups prior to 1 January 2017 and refunds claims can be made based on the decision.
German Guidance on Tax Refund and Exemption Procedures for Withholding Tax on Dividends and other Returns on Capital
The German Federal Central Tax Office has published updated guidance on the refund and exemption procedures for withholding tax on dividends and certain other returns on capital under tax treaties.
All individuals and legal entities with limited tax liability are entitled to file a refund request for German tax withheld. The time period for filing a request is generally four years beginning at the close of calendar year in which the income was received. However, the period may not end less than 6 months after the date the tax is paid. From 1 January 2017, dividends are deemed to be received on the date of maturity for the purpose of the refund time limit.
Legal entities with limited tax liability are entitled to request an exemption (reduction) prior to tax being withheld, provided that the entity is liable for income tax or taxes on earnings in their country of domicile and have not been granted an exemption, and the entity has a direct shareholding of at least 10% in the paying company. Exemption certificates are valid for a minimum period of one year and a maximum of three years, and apply, at the earliest, from the date the request is received by the Tax Office.
Italy Publishes Updated White List
On 3 April 2017, Italy published the Ministerial Decree of 23 March 2017 in the Official Gazette, which updates the list of jurisdictions that allow adequate exchange of information with Italy (white list). The white list impacts the tax treatment of certain transactions in relation to listed jurisdictions, including withholding tax, payment deductions, inbound migration, and certain other areas. As updated, the list includes the addition of:
- The Holy See (Vatican);
- Saint Kitts and Nevis;
- Saint Vincent and the Grenadines;
- Samoa; and
Click the following link for the Decree, which contains 134 jurisdictions.
Mexico Final Report on Administrative Rules for CbC report, Master File and Local File Published
On 3 April 2017, the Office of the Taxpayers' Advocate (PRODECON) of the Mexican government announced the final report and main outcomes of the consultation held on the administrative rules for Country-by-Country (CbC) report, Master file, and Local file (previous coverage). In addition to the final report, PRODECON has also published a final draft of the administrative rules, with the definitive version to be published by the Mexico Tax Administration (SAT) in the near future.
Overall, the final draft does not include major changes from the original, although some amendments have been made:
- The removal of certain information requirements for the Local file (generally in line with Action 13 guidelines);
- Clarification that one group entity may submit a CbC report file and Master file on behalf of the others (typically the ultimate parent if resident in Mexico);
- Clarification that a Master file made by a foreign parent will be accepted in Mexico if in compliance with Action 13 guidelines;
- Clarification that certain information may be presented in Spanish or English, including the content of the Master file prepared by a foreign entity, as well as agreements/contracts and descriptions of comparable companies in the Local file; and
- Clarification that information in the CbC report can be presented in a foreign currency.
With regard to the actual submission of the documentation, the final draft maintains the requirement to submit via the SAT portal by means of a tool provided by the SAT. However, the tool specified in the original draft, known as DAIPR, is not mentioned in the final draft.
Click the following links for the PRODECON announcement on the final report, which includes both Spanish and English versions, as well as the final draft of the rules (Spanish only). Additional details will be published after the definitive version of the rules is issued by the SAT.
OECD Releases Additional Guidance on CbC Reporting
On 6 April 2017, the OECD announced the release of updated additional guidance on Country-by-Country reporting from the Inclusive Framework on BEPS. The update provides new guidance to further clarify:
- The definition of revenues;
- The definition of related parties;
- The accounting principles/standards for determining the existence of and membership of a group;
- The treatment of major shareholdings;
- The definition of total consolidated group revenue; and
- The transitional filing options for MNEs (parent surrogate filing).
Click the following link for the Guidance on the Implementation of Country-by-Country Reporting as updated.
U.S. Treasury List of International Boycott Countries Published
On 30 March 2017, the U.S. Treasury notice on the current list of countries that may require participation in, or cooperation with, an international boycott was published in the Federal Register. The countries listed include Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, the United Arab Emirates, and Yemen.
Any person or a member of a controlled group with operations in or related to a country on the list, or with the government, a company, or a national of a listed country is required to file Form 5713 (International Boycott Report). Form 5713 must also be filed by any person with operations in a non-listed country that requires participation in, or cooperation with, an international boycott as a condition of doing business with the country.
Taxpayers required to file the form may lose certain tax benefits, including:
- The foreign tax credit (section 908(a));
- Deferral of taxation of earnings of a CFC (section 952(a)(3));
- Deferral of taxation of IC-DISC income (section 995(b)(1)(F)(ii));
- Exemption of foreign trade income of an FSC (section 927(e)(2), as in effect before its repeal); and
- Exclusion of extraterritorial income from gross income (section 941(a)(5), as in effect before its repeal).
The exact limits on benefits are determined through the completion of Form 5713.
UK Consults on Beneficial Ownership Register
The UK Department for Business, Energy & Industrial Strategy has launched a public consultation seeking views on proposals for a new beneficial ownership register of overseas companies that own UK property or participate in UK government procurement. The consultation covers the objectives, scope, and impacts of the new register, as well as details on registering information, the required information, and compliance.
Click the following link for the consultation document. The consultation closes on 15 May 2017.
Moldova and the U.A.E. Conclude Tax Treaty Negotiations
On 5 April 2017, officials from Moldova and the United Arab Emirates concluded negotiations with the initialing of an income and capital tax treaty. The treaty is the first of its kind between the two countries and must be signed and ratified before entering into force. According an announcement from the Moldovan Ministry of Economy, the treaty will be signed in the third quarter of 2017 along with two other bilateral cooperation agreements.