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Approved Changes (3)

Cyprus

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Cyprus Publishes Additional Guidance on CbC Reporting

The Cyprus Tax Department has published additional English-language guidance on the country's Country-by-Country (CbC) reporting requirement, which apply for fiscal year's beginning on or after 1 January 2016 with the standard reporting threshold of EUR 750 million consolidated group revenue in the previous year (1 Jan 2017 for non-resident parented groups). The main additional guidance is a CbC reporting FAQs document, which covers the general requirements of CbC reporting and CbC notification in Cyprus. In addition, data submission files have been published, including the OECD XML schema and user guide, and a sample CbC notification.

Ireland

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Ireland Publishes eBriefs on MAP Assistance and Transfer Pricing Documentation Obligations

Irish Revenue has published eBrief No. 73/17 and eBrief No. 74/17, which concern mutual agreement procedure assistance and transfer pricing documentation obligations.

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Revenue eBrief No. 73/17

01 August 2017

Guidelines for requesting Mutual Agreement Procedure (MAP) assistance in Ireland

In broad terms, a MAP is a mechanism, under a relevant double taxation agreement (DTA) and, or the EU Arbitration Convention, by which two tax authorities try to come to a mutual agreement for eliminating double taxation and resolving conflicts of interpretation of the relevant DTA.

Guidance on the operation of MAP is contained in Tax and Duty Manual Part 35-02-08 (Guidelines for requesting Mutual Agreement Procedure (MAP) assistance in Ireland).

Revenue eBrief No. 74/17

03 August 2017

Transfer Pricing Documentation Obligations

Tax and Duty Manual Part 35a-01-02 dealing with Transfer Pricing Documentation Obligations has been published. The contents of this manual were previously included in Tax Briefing 07 of 2010.

United States

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U.S. Treasury List of International Boycott Countries Published

On 2 August 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.

Proposed Changes (2)

New Zealand

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New Zealand Finalizes Decisions on BEPS Measures

On 3 August 2017, New Zealand Inland Revenue published a release announcing that the Government has finalized its decisions on proposals to tackle base erosion and profit shifting, including in relation to hybrid mismatch arrangements, interest limitation rules, and transfer pricing and permanent establishment avoidance. According to the release, the measures will:

  • Stop foreign parents charging their New Zealand subsidiaries high interest rates to reduce their taxable profits in New Zealand.
  • Stop multinationals using artificial arrangements to avoid having a taxable presence in New Zealand.
  • Ensure multinationals are taxed in accordance with the economic substance of their activities in New Zealand.
  • Counter strategies that multinationals have used to exploit gaps and mismatches in different countries’ domestic tax rules to avoid paying tax anywhere in the world.
  • Make it easier for Inland Revenue to investigate uncooperative multinational companies.

Further consultations will now be held on the measures, including for draft implementing legislation, which is to be introduced by the end of the year for enactment by July 2018.

United Kingdom

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UK Consults on Second Draft Corporate Interest Restriction Guidance

On 4 August 2017, UK HMRC published for consultation a second draft guidance on pending corporate interest restriction rules. The rules will be included in the UK's second Finance Bill for 2017 to be introduced in autumn 2017, and will apply from 1 April 2017.

The rules will operate on a worldwide group basis with a default fixed ratio method that imposes two main limits on the group's tax-interest deductions:

  • The first is by reference to a fixed ratio of 30% of the taxable earnings before tax-interest, depreciation, and amortization (tax-EBITDA) of group companies in the charge to corporation tax. Tax-EBITDA and tax-interest are measured by reference to amounts taken into account in computing corporation tax; and
  • The second is a debt cap, designed to limit the net tax-interest to a measure of the worldwide group's net external interest and economically similar expense.

As an alternative, a group ratio method may be applied, under which the net tax-interest deduction is limited by applying the group ratio to tax-EBITDA. The group ratio is, in essence, the ratio of group-interest to group EBITDA, both measures based on a group's consolidated accounts. The group ratio method also incorporates a debt cap, based on the measure of the group's net interest expense that is used as the denominator in the group ratio.

Interest above the limit is restricted and carried forward indefinitely. It can be reactivated if there is sufficient interest allowance in a subsequent period. Unused interest allowance is carried forward for use in a subsequent period for up to five years.

Click the following link for draft guidance consultation page. Comments are due by 31 October 2017.

Treaty Changes (4)

Belgium-OECD

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Belgium Approves Multilateral Agreement on Automatic Exchange of Financial Account Information

On 27 July 2017, the Belgian Parliament approved the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information, which provides for the exchange of information under the OECD Common Reporting Standard (CRS). Belgium is to begin the first exchanges under CRS by September 2017.

Guernsey-Isle Of Man

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CbC Exchange Agreement between Guernsey and the Isle of Man Signed

The Isle of Man Government has published the bilateral competent authority agreement on the exchange of Country-by-Country (CbC) reports that was signed with Guernsey on 19 July 2017.

The agreement provides that pursuant to Article 24 (Exchange of Information) of the 2013 Guernsey-Isle of Man income tax treaty, each competent authority will automatically exchange CbC reports received from each reporting entity resident for tax purposes in its jurisdiction, provided that, on the basis of the information provided in the CbC report, one or more constituent entities of the MNE group of the reporting entity are resident for tax purposes in the jurisdiction of the other competent authority, or are subject to tax with respect to the business carried out through a permanent establishment situated in the other jurisdiction.

A Guernsey CbC Report is first to be exchanged with respect to fiscal years of MNE Groups commencing on or after 1 January 2016, while an Isle of Man CbC Report is first to be exchanged with respect to fiscal years of MNE Groups commencing on or after 1 January 2017. In both cases, the first reports are to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC Report relates. For subsequent years, reports are to be exchanged no later than 15 months after the last day of the fiscal year.

The agreement will enter into force once notifications are exchanged that each jurisdiction has the necessary laws in place to require reporting entities to file a CbC Report (both jurisdictions have already implemented their CbC reporting regulations).

Nigeria-Singapore

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Tax Treaty between Nigeria and Singapore Signed

On 2 August 2017, officials from Nigeria and Singapore signed an income and capital tax treaty. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Nigerian personal income tax, companies income tax, petroleum profits tax, capital gains tax, tertiary education tax, and the information technology levy. It covers Singapore income tax.

Permanent Establishment

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.

The treaty also includes the provision that a permanent establishment will be deemed constituted when any place is used for any activity relating to the exploration of natural resources, provided that such activity exists for a period or periods aggregating more than 60 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 7.5%
  • Interest - 7.5%
  • Royalties - 7.5%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares, other than shares traded on a recognized stock exchange, or of an interest in a partnership, trust or estate deriving more than 50% of their value directly or indirectly from immovable property situated in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation. The treaty also provides that in the case of dividends, the credit will take into account the tax paid on the profits out of which dividends are paid, provided that the beneficial owner is a company that directly or indirectly controls/holds least 10% of the paying company (10% of voting power in the case of Nigeria and 10% of share capital in the case of Singapore).

MFN Clause

The final protocol to the treaty provides that if Nigeria enters into any agreement with any other jurisdiction that provides for an exemption or lower rate than applies in the Nigeria-Singapore treaty in respect of dividends, interest, or royalties, then such exemption or lower rate will automatically apply. With respect to royalties, however, the minimum applicable rate is 5%.

Entry into Force and Effect

The treaty will enter into force 90 days after the ratification instruments are exchanged. For Nigeria, it will apply from 1 January of the year following its entry into force. For Singapore, it will apply in respect of withholding taxes from 1 January of the year following its entry into force and for other taxes from 1 January of the second year following its entry into force.

Serbia-Sweden

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SSA between Serbia and Sweden under Negotiation

According to a release from the Serbian Ministry of Labour, Employment, Veteran and Social Affairs, officials from Serbia and Sweden met 2 August 2017 to discuss bilateral relation, including continued negotiations for a social security agreement. Any resulting agreement would replace the 1978 agreement between Sweden and the former Yugoslavia, and must be finalized, signed, and ratified before entering into force.

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