Worldwide Tax News
Brazil Clarifies Taxation of Capital Contributions through the Assignment of Rights by Foreign Shareholders
Brazil recently published Interpretative Act 7/2016 in the Official Gazette of 24 August 2016. The Interpretative Act clarifies that a capital contribution through the assignment of rights by foreign shareholders is subject to withholding tax of 15% on the value of the rights. It also clarifies that the Contribution for Intervention in the Economic Domain (CIDE) will apply at the rate of 10% where the assignment of rights involves the acquisition of technical knowledge or technology transfer.
The Danish tax authority (SKAT) has published Order No. 1133 of 27 August 2016, which entered into force on 1 September 2016. The Order contains the notification requirements for Country-by-Country (CbC) reporting and the required tables for the CbC report, as well as certain provisions related to the implementation of the EU Directive for the exchange of CbC reports.
The Order includes that a notice of obligation for CbC reporting must be provided to the tax authority that includes the following:
- If the ultimate parent company is resident in Denmark: Identifying information of the group company submitting a CbC report;
- If the ultimate parent company is not resident in Denmark: Identifying information of the group company that will be submitting a CbC report and its jurisdiction of residence.
The indentifying information must include the group company's full name, address, tax jurisdiction, and identification number (tax identification number in its jurisdiction if a foreign company).
The notice may be made in Danish, English, Swedish or Norwegian, and must be submitted electronically as instructed by SKAT by the end of the fiscal year covered by the CbC report to be submitted. Notice must also be given if due to a change in circumstances the requirement to submit a CbC report no longer applies.
The Order also contains the three tables that must be used for submitting the tax data of the CbC report, which are based on BEPS Action 13 guidelines. The required tables provided are in Danish, but the Order also notes that the English version of the tables as included in Annex III of Chapter V of the OECD Guidance on Transfer Pricing Documentation and Country by-Country Reporting may also be used. When required, the CbC report must be submitted electronically as instructed by SKAT (Denmark's CbC reporting revenue threshold is DKK 5.6 billion in the previous year).
The Order also notes the implementation of Council Directive (EU) 2016/881, which amended the administrative cooperation Directive (Directive 2011/16/EU) so that EU Member States are required to exchange CbC reports for fiscal years beginning on or after 1 January 2016. The implementation does not include significant amendments, however, since Denmark already had CbC reporting requirements in place.
One specific provision included in the Order from Council Directive (EU) 2016/881 concerns the requirement for a Danish constituent entity to submit a CbC report when Denmark is unable to obtain the report from the ultimate parent's jurisdiction (secondary reporting). The provision includes that in such cases, the Danish constituent entity should request the ultimate parent to provide all information necessary to fulfill the obligation. If the ultimate parent refuses to make the necessary information available, the constituent entity must still submit a CbC report containing the information it has, and inform SKAT of the ultimate parent's refusal to provide the necessary information.
Click the following link for Order No. 1133 (Danish language).
On 30 August 2016, the Egyptian parliament approved legislation for the introduction of a new tax dispute settlement process, which is available for all tax types. Under the new process, pending tax disputes currently being handled through the courts may instead be settled through new independent committees separate from the tax authority.
Taxpayers that wish to have a case settled by an independent committee must submit a request with the tax authority, which is then forwarded to the relevant committee to determine if the case will be accepted. If accepted, the court proceedings are suspended for a standard three-month period while the committee works to resolve the case, with a possible extension of an additional three months. If a resolution is successfully reached in the committee by the end of the suspension period, an agreement must be signed by the taxpayer and approved by the tax authority. If no resolution is reached, the case is referred back to the courts.
The new tax dispute settlement process is a temporary measure meant to help resolve over 6,000 outstanding tax dispute cases worth approximately EGP 47 billion (~USD 5.3 billion), and is scheduled to expire one year from the date it was approved.
The G20 Leaders Summit Communiqué and the OECD Secretary-General Report to the G20 have been published following the meeting held 4-5 September in Hangzhou, China.
The following is the main text of the communiqué concerning tax and transparency issues.
19. We will continue our support for international tax cooperation to achieve a globally fair and modern international tax system and to foster growth, including advancing on-going cooperation on base erosion and profits shifting (BEPS), exchange of tax information, tax capacity-building of developing countries and tax policies to promote growth and tax certainty. We welcome the establishment of the G20/OECD Inclusive Framework on BEPS, and its first meeting in Kyoto. We support a timely, consistent and widespread implementation of the BEPS package and call upon all relevant and interested countries and jurisdictions that have not yet committed to the BEPS package to do so and join the framework on an equal footing. We also welcome the progress made on effective and widespread implementation of the internationally agreed standards on tax transparency and reiterate our call on all relevant countries including all financial centers and jurisdictions, which have not yet done so to commit without delay to implementing the standard of automatic exchange of information by 2018 at the latest and to sign and ratify the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. We endorse the proposals made by the OECD working with G20 members on the objective criteria to identify non-cooperative jurisdictions with respect to tax transparency. We ask the OECD to report back to the finance ministers and central bank governors by June 2017 on the progress made by jurisdictions on tax transparency, and on how the Global Forum will manage the country review process in response to supplementary review requests of countries, with a view for the OECD to prepare a list by the July 2017 G20 Leaders’ Summit of those jurisdictions that have not yet sufficiently progressed toward a satisfactory level of implementation of the agreed international standards on tax transparency. Defensive measures will be considered against listed jurisdictions. We encourage countries and international organizations to assist developing economies in building their tax capacity and acknowledge the establishment of the new Platform for Collaboration on Taxation by the IMF, OECD, UN and WBG. We support the principles of the Addis Tax Initiative. We recognize the significant negative impact of illicit financial flows on our economies and we will advance the work of the G20 on this theme. We emphasize the effectiveness of tax policy tools in supply-side structural reform for promoting innovation-driven, inclusive growth, as well as the benefits of tax certainty to promote investment and trade and ask the OECD and IMF to continue working on the issues of pro-growth tax policies and tax certainty. In this connection, China would make its own contribution by establishing an international tax policy research center for international tax policy design and research.
20. Financial transparency and effective implementation of the standards on transparency by all, in particular with regard to the beneficial ownership of legal persons and legal arrangements, is vital to protecting the integrity of the international financial system, and to preventing misuse of these entities and arrangements for corruption, tax evasion, terrorist financing and money laundering. We call on the FATF and the Global Forum to make initial proposals by the Finance Ministers and Central Bank Governors Meeting in October on ways to improve the implementation of the international standards on transparency, including on the availability of beneficial ownership information of legal persons and legal arrangements, and its international exchange.
Click the following link for the full text of the communiqué.
Part I of the report covers ongoing work in the following areas:
- The G20/OECD Base Erosion and Profit Shifting (BEPS) Project, including the establishment the inclusive framework for the implementation of the BEPS measures, as well as the adoption of hybrid mismatch legislation, Country-by-Country (CbC) reporting requirements and amendments to patent box regimes;
- Tax transparency, including the implementation of automatic exchange of information under the Common Reporting Standard (CRS), and the development of objective criteria for identifying non-cooperative jurisdictions;
- Tax policy tools, including approaches to drive innovation and support inclusive economic growth; and
- Tax and development, including enhanced efforts for greater developing country participation in the work on the international tax agenda regarding transparency and BEPS, as well as establishing and building on other measures to build greater capacity to tackle tax issues and enhance domestic resource mobilization.
Part II of the report contains a progress report to the G20 by the Global Forum on Transparency and Exchange of Information for Tax Purposes.
Click the following link for the full OECD G20 Report.
According to a 25 August 2016 announcement from the Guatemalan Ministry of Finance, recently submitted tax reform legislation has been withdrawn from congress at the request of the president. The legislation as submitted to congress (previous coverage) includes a number of measures, including an increase in the corporate tax rate, allowing loss carry forwards, and others. The withdrawal is to allow additional time to consult with affected sectors, after which the legislation with any amendments will be resubmitted.
The Norwegian government is reportedly considering proposals for the taxation of financial services. Two approaches are under consideration, including abolishing the current value added tax exemption or introducing a new financial tax. Any proposal ultimately adopted by the government is to be included in the 2017 budget, which will likely be presented in October.
On 6 August 2016, the UK House of Commons announced the approval without division of Amendment 145 concerning public disclosure of Country-by-Country (CbC) reports. A previous public CbC reporting measure was defeated in June 2016, but continued campaigns for transparency have pushed the revised amendment through.
The measure amends the pending Finance Bill 2016 to allow HM Treasury to require CbC reports as part of the tax strategy disclosures, which large businesses will be required to publish for the financial year beginning after the Finance Bill 2016 receives Royal Assent (previous coverage). It is important to note, however, that the measure itself does not require public disclosure of CbC reports, but allows HM Treasury to issue regulations for the requirement. For this purpose, a CbC report has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016, which include the non-public CbC reporting requirements (previous coverage).
Although the public CbC reporting measure was approved, the likelihood that HM Treasury will issued the required regulations is uncertain given the confidentiality issues and the position of the U.S. that it will not exchange CbC reports with countries that make the reports public. Any further updates on public CbC reporting in the UK will be published once available.
A protocol to the 2011 tax information exchange agreement between Guernsey and Seychelles was signed 12 August 2016 by Seychelles and 1 September 2016 by Guernsey. The protocol repeals Article 11 (No Prejudicial or Restrictive Measures) of the agreement, which includes that neither Party may apply prejudicial or restrictive measures based on harmful tax practices to residents, nationals or citizens of the other Party, such as the denial of a deduction, credit or exemption, the imposition of a tax, charge or levy, or special reporting requirements.
The protocol will enter into force once the ratification instruments are exchanged, and will generally apply from that date.
Russia Clarifies Effect of Thin Cap Rules on Taxation of Interest Payments to Related Party under Tax Treaty with the Netherlands
Russia's Ministry of Finance recently published Guidance Letter No. 03-03-06/1/46720, which clarifies the taxation of interest payments from a Russian entity to a Dutch related party under the Netherlands-Russia tax treaty. According to the letter, when such payments are made to a related party (20% direct or indirect ownership) and the debtors thin capitalization threshold has been exceeded (3:1 standard, 12.5:1 for banks), then the portion of the payment that would not be deductible due to the thin cap rules will be treated as a deemed dividend. As such, Article 10 (Dividends) of the Netherlands-Russia tax treaty will apply on the portion treated as a dividend and will be subject to 5% withholding tax if the Dutch beneficial owner is a company that directly holds at least 25% of the paying company's capital and has invested at least ECU 75,000 or equivalent; otherwise 15%.
On 29 August 2016, the Uruguayan Senate approved the pending income and capital tax treaty and pending tax information exchange agreement with the UK. The treaty, signed 24 February 2016, is the first of its kind between the two countries and will enter into force once the ratification instruments are exchanged (previous coverage). The tax information exchange agreement, signed 14 October 2013, is also the first of its kind between the two countries and will enter into force once the ratification instruments are exchanged.