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Approved Changes (2)
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OECD Final BEPS Package Webcasts and Presentation Available

The OECD has made available the videos of the news conference and technical briefing for the release of the final BEPS package on 5 October 2015, as well as the PowerPoint presentation used in the briefing. For more information on the final package, click the following link for previous coverage.

United States

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U.S. IRS Announces Start of Automatic Exchange of Information under FATCA IGAs

On 2 October 2015, the U.S. IRS announced that it has begun the automatic exchange of financial account information under intergovernmental agreements for FATCA.

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WASHINGTON — The Internal Revenue Service today announced the exchange of financial account information with certain foreign tax administrations, meeting a key Sept. 30 milestone related to FATCA, the Foreign Account Tax Compliance Act.

To achieve this, the IRS successfully and timely developed the information system infrastructure, procedures, and data use and confidentiality safeguards to protect taxpayer data while facilitating reciprocal automatic exchange of tax information with certain foreign jurisdiction tax administrators as specified under the intergovernmental agreements (IGAs) implementing FATCA.

"Meeting the Sept. 30 deadline is a major milestone in IRS efforts to combat offshore tax evasion through FATCA and the intergovernmental agreements," said IRS Commissioner John Koskinen. "FATCA is an important tool against offshore tax evasion, and this is a significant step in the process. The IRS appreciates the assistance of our counterparts in other jurisdictions who have helped to make this possible."

This information exchange is part of the IRS’s overall efforts to implement FATCA, enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts or foreign entities. FATCA generally requires withholding agents to withhold on certain payments made to foreign financial institutions (FFIs) unless such FFIs agree to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

In response to the enactment of FATCA and other jurisdictions’ interest in facilitating and participating in the exchange of financial account information, the U.S. government entered into a number of bilateral IGAs that set the groundwork for cooperation between the jurisdictions in this area. Certain IGAs not only enable the IRS to receive this information from FFIs, but enable more efficient exchange by allowing a foreign jurisdiction tax administration to gather the specified information and provide it to the IRS. And some IGAs also require the IRS to reciprocally exchange certain information about accounts maintained by residents of foreign jurisdictions in U.S. financial institutions with their jurisdictions’ tax authorities.

Under these reciprocal IGAs, the first exchange had to take place by September 30, giving the IRS a deadline to put in place a process to facilitate this data exchange.

The information now available provides the United States and partner jurisdictions an improved means of verifying the tax compliance of taxpayers using offshore banking and investment facilities, and improves detection of those who may attempt to evade reporting the existence of offshore accounts and the income attributable to those accounts.

The IRS will only engage in reciprocal exchange with foreign jurisdictions that, among other requirements, meet the IRS’s stringent safeguard, privacy, and technical standards. Before exchanging with a particular jurisdiction, the United States conducted detailed reviews of that jurisdiction’s laws and infrastructure concerning the use and protection of taxpayer data, cyber-security capabilities, as well as security practices and procedures.

“This groundbreaking effort has fundamentally altered our relationship with tax authorities around the world, giving us all a much stronger hand in fighting illegal tax avoidance and leveling the playing field,” Koskinen said.

Meeting this deadline reflects a significant international collaboration and partnership with dozens of jurisdictions around the world. The capacity for reciprocal automatic exchange builds on numerous accomplishments including the following:

  • Development of a consistent data reporting format, or schema, and the agreement to use this format by all jurisdictions;
  • Establishment of the details and procedures required to assure data confidentiality;
  • Creation of a data transmission system to meet high standards for encryption and security; and
  • Cooperation with foreign jurisdiction tax administrations to achieve the timely implementation of this exchange.

Koskinen noted the risks of hiding money offshore are growing and the potential rewards are shrinking.

Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP), which is open until otherwise announced.

Proposed Changes (4)

Finland

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Finland 2016 Budget Tax Changes

Finland's 2016 Budget was presented to parliament on 28 September 2015. The main tax changes are summarized as follows.

Individual Income Tax

The threshold for the additional 2.25% solidarity tax on individual income is lowered, effectively replacing the 29.5% bracket. As proposed, this results in the following brackets and rates:

  • EUR 16,700 up to 25,000 - 6.5%
  • EUR 25,001 up to 40,800 - 17.5%
  • EUR 40,801 up to 72,300 - 21.5%
  • over EUR 72,300 - 31.75%

Real Estate Tax

The permitted range of real estate tax at the municipal level is changed to 0.39% - 0.90% for residential property and to 0.86% - 1.80% for other property. The maximum special rate for un-built property is increased to 4%.

Other Taxes

The 2016 Budget also includes various other tax changes, including increases in:

  • Excise taxes on tobacco, and on heating, power plant and machinery fuels;
  • Waste tax;
  • Annual vehicle tax; and
  • Unemployment insurance contributions.

Effective Date

Subject to approval, the proposed budget measures are generally effective 1 January 2016.

Lithuania

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Lithuania to Implement Amendments to the EU Parent-Subsidiary Directive

The Lithuanian Ministry of Finance has issued proposed legislation to implement amendments made to the EU Parent-Subsidiary Directive into domestic law. The amendments include that the participation exemption provided for in the Directive will not be granted if:

  • A profit distribution made by a subsidiary to its parent company is deductible in the Member State of the subsidiary (hybrid mismatch); or
  • An arrangement or a series of arrangements are put in place with the main purpose or one of the main purposes of receiving a tax benefit and not for valid commercial reasons that reflect economic reality.

EU Member States are to implement these changes by the end of 2015.

Switzerland

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Switzerland Prepares for the Implementation of Final BEPS Measures

On 5 October 2015, the Swiss Federal Council announced that it has instructed the Federal Department of Finance to deliver analyses and proposals for implementing the final outcomes of the OECD BEPS project, which were released the same day as the Council announcement (previous coverage).

Switzerland will consider implementing all aspects of the BEPS Project, with work in particular areas already underway, including the implementation of a compliant patent box regime and abolishing non-compliant regimes, the automatic exchange of tax rulings, and the implementation of country-by-country reporting.

United Kingdom

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UK Launches Public Consultation on CbC Reporting Legislation

On 5 October 2015, the UK HMRC launched a public consultation on the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2015, which implements the country-by-country (CbC) reporting requirement developed as part of Action 13 of the OECD BEPS Project. The UK will also require the master file and local file included in the Action 13 guidelines, but no new legislation is needed to implement those requirements.

The CbC report will be in accordance with the OECD template, with multinational groups required to provide information for each tax jurisdiction in which they do business, including:

  • The amount of revenue, profit before income tax, and income tax paid and accrued;
  • Total employment, capital, retained earnings and tangible assets; and
  • Identification of each entity within the group doing business in a particular tax jurisdiction with an indication of business activities within a selection of broad areas that each entity engages in.

The CbC reports will be automatically shared with relevant countries in accordance with international agreements governing the exchange of information.

The legislation requires the ultimate parent entity of a multinational group to file a CbC report if the group has consolidated revenue of GBP 586 million or more in the previous accounting period. If the accounting period is less than 12 months, the revenue threshold is reduced proportionately. If the consolidated financial statements are drawn up in a currency other the GBP, the exchange rate is the average rate for the relevant accounting period.

When the ultimate parent entity is not a UK resident, a constituent entity resident in the UK may file the CbC report on behalf of the group if:

  • The ultimate parent entity is not required to file in its jurisdiction of residence;
  • The jurisdiction of residence of the ultimate parent entity has not entered into arrangements with HMRC for the exchange of the CbC report; or
  • Arrangements have been entered into, but the jurisdiction fails to exchange the reports with HMRC.

The CbC reporting requirement will apply for accounting periods beginning on or after 1 January 2016, and the report must be filed within 12 months following the close of the accounting period.

Click the following links for the The Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2015 and the Explanatory Memorandum.

The consultation ends on 16 November 2015.

Treaty Changes (3)

Bangladesh-Iran

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Tax Treaty between Bangladesh and Iran under Negotiation

According to recent reports, officials from Bangladesh and Iran have begun negotiations for an income tax treaty. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Belize-Untd A Emirates

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Tax Treaty between Belize and the U.A.E. Signed

On 2 October 2015, officials from Belize and the United Arab Emirates signed an income tax treaty. The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

Kenya-Korea, Rep of

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Update - Tax Treaty between Kenya and South Korea

The income tax treaty between Kenya and South Korea was signed on 8 July 2014. The treaty is the first of its kind between the two countries and will enter into force once the ratification instruments are exchanged.

Taxes Covered

The treaty covers Kenyan income tax chargeable in accordance with the provisions of the Income Tax Act, and Korean income tax, corporation tax, special tax for rural development and local income tax.

Withholding Tax Rates

  • Dividends - 8% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 10%
  • Interest - 12%
  • Royalties - 10%

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 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.

Limitation on Benefits

Article 28 of the treaty includes limitation on benefits provisions. In respect of Articles 10 (Dividends), 11 (Interest), 12 (Royalties), 13 (Capital Gains) and 22 (Other Income), a resident of a Contracting State will not be entitled to the benefits otherwise provided if:

  • The resident is directly or indirectly controlled by one or more persons that are not resident of that State; and
  • The main purpose or one of the main purposes of any person concerned with the creation or assignment of a share, debt-claim, or right in respect of which the income is paid is to take advantage of these Articles by means of that creation or assignment.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

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