Worldwide Tax News
Ireland’s Minister for Finance, Michael Noonan, recently spoke to the Seanad Éireann (upper house of parliament) on the European Commission’s decision that Ireland granted Apple illegal State Aid. He said the Government "profoundly disagrees" with the Commission's analysis and plans to appeal, arguing that the full amount of tax was paid in Ireland, and no State Aid or favorable tax treatment was provided. In September, the Dáil Éireann (lower house) passed a motion supporting the Government's decision to appeal.
The Commission first requested information in 2013 on the practice of tax rulings in Ireland, particularly rulings in favor of Apple. In June 2014, the Commission announced a full investigation into the dealings between Ireland and Apple. According to Noonan, Ireland cooperated fully and provided detailed and comprehensive responses demonstrating that:
- The appropriate amount of Irish tax was charged;
- No selective advantage was given; and
- There was no State Aid.
In August 2016, the Commission issued its decision that Ireland had granted Apple undue tax benefits in violation of State Aid rules. In September, the Government authorized Noonan to appeal the decision to the European Courts on the basis of:
- Defending the integrity of Ireland’s tax system;
- Providing tax certainty to business; and
- Challenging the encroachment of EU state Aid rules into the sovereign Member State competence of taxation.
Ireland holds that there was no favorable treatment to Apple. The Chairman of the Revenue Commissioners stated emphatically that:
- There was no departure from the applicable Irish tax law by Revenue;
- There was no preference shown in applying that law; and
- The full tax due was paid in accordance with the law.
Noonan went on to say that the decision was damaging to the country’s reputation and credibility. It also affects how Ireland could be treated by other jurisdictions.
A key point of the case, Noonan explained, is that the companies concerned were not tax resident in Ireland. As such, under Irish tax law, non-resident companies are chargeable to Irish corporation tax only on the profits attributable to their Irish branches. Profits of such companies that are not generated by their Irish branches cannot be charged with Irish tax under Irish tax law.
Nonetheless, as a result of the Commission decision, Ireland is required to recover up to EUR 13 billon of alleged State Aid from the company covering a 10-year period. The Commission stated the money owed Ireland could be reduced if other countries were to require Apple to pay more taxes, or if the United States required Apple to pay higher taxes for their US parent company. Thus, the final figure is not certain and may take several years of negotiations with other countries.
Noonan emphasized that the Irish position is and has been that the country has no right to this money based on Irish tax law.
"Ireland has done nothing wrong here."
The South African National Treasury has issued a release on the launch of the Special Voluntary Disclosure Program (SVDP), which is generally available for both individuals and companies from 1 October 2016 to 31 March 2017 (previous coverage). Given that the legislation for the program has not yet been finalized and approved by parliament, initial applications will be based on earlier SVDP proposals, but will be processed on the basis of the legislative framework that is ultimately approved by parliament.
Click the following link for the release, which provides the SVDP application process and additional information.
Switzerland's Federal Supreme Court has held that a Swiss bank is prohibited from sharing with the U.S. the names of financial advisers who aided U.S. residents in setting up undisclosed Swiss bank accounts. In the decision released on October 5, the court explained that the U.S. lacks an adequate level of data protection within the meaning of the Swiss Data Protection Act.
The decision concerned an unnamed Ticino-based bank that planned to provide information to the IRS and the U.S. Department of Justice (DOJ) under the terms of the DOJ's Swiss Bank program. The bank intended to provide the DOJ with the names of two Swiss lawyers who were the authorized representatives for the bank accounts of U.S. beneficial owners. In addition, the bank planned to reveal the name of a law firm that worked with U.S. clients.
The court acknowledged that providing the names of so-called facilitators to the U.S. may still be justified provided the failure to do so would intensify the legal dispute with the U.S. and harm Switzerland's reputation as a financial center. In this case, however, it was not shown that turning over the information was essential to the safeguarding of the public interest.
Click the following link for the release on the decision (French language).
The Government of the British Virgin Islands (BVI) held a consultation in September on the impact of implementing Country-by-Country (CbC) reporting. While no details on plans for implementing CbC reporting requirements have been issued, the consultation noted that if implemented, multi-national enterprises incorporated in the BVI with annual group revenues of EUR 750 million would be required to submit a report annually.
Belgian Legislation to Implement EU Parent-Subsidiary Directive Amendments and Introduce Exit Tax Payment Options
On 29 September 2016, draft legislation was submitted to the Belgian parliament to implement the following measures:
- Transposing amendments to the EU Parent-Subsidiary Directive into domestic law regarding:
- Hybrid-mismatches - the dividends-received deduction will not apply if the dividends are deductible for the paying company; and
- General anti-abuse provision - No dividends-received deduction or exemption from withholding tax will be available if in relation to artificial legal acts entered into for the primary purpose of obtaining the benefit and not for valid business reasons that reflect economic reality.
- Introducing the option to pay exit tax at once or in installments over five years, provided that the assets are maintained within a company or establishment located in another EU or EEA Member State.
As drafted, restrictions in relation to the dividend-received deduction will be effective for income paid or attributed as from 1 January 2016, but only for amounts paid or attributed during a financial year closing on or after the first day of the month following the date the law is published in the Official Gazette. For withholding tax, the restrictions will apply for amounts paid or attributed on or after the first day of the month following the date the law is published.
The option to pay exit tax in installments is to apply from assessment year 2017 for transactions made on or after the date the law is published.
On 6 October 2016, the Norwegian Ministry of Finance issued a release on the Budget for 2017. The main tax-related measures of the Budget include:
- A reduction in the standard corporate and individual tax rate from 25% to 24% in 2017 and a further reduction to 23% in 2018;
- Increases in the progressive tax bracket rates for individuals by 0.49% to 0.82%;
- A reduction in net wealth tax by introducing a 10% valuation discount for shares and operating assets (20% for commercial property) and associated debts;
- The introduction of a financial activity tax that will be comprised of a 5% wage-based tax on gross salaries paid and an increased tax rate for financial undertakings (will maintain the 2016 corporate tax rate - 25%);
- The abolition of supplementary initial depreciation of machinery;
- The maximum deductibility basis cap for the Skattefunn R&D incentive scheme will be increased from NOK 20 million to 25 million for internal R&D costs, and from NOK 40 million to 50 million for costs incurred for outsourced R&D; and
- A shift to green taxes, including increased taxes on greenhouse gas emissions and fuel use
Subject to approval, the budget tax measures will generally apply from 1 January 2017.
Click the following link for the Budget 2017 press release.
The Polish Ministry of Finance is working to finalize a draft regulation to suspend the collection of retail sales tax following an injunction on the tax issued by the European Commission on 19 September due to State aid concerns. The tax only entered into force on 1 September 2016, and includes an exemption on monthly retail turnover up to PLN 17 million and a top progressive rate of 1.4% on monthly turnover over PLN 170 million (previous coverage). The draft regulation would suspend collection of the tax for the period 1 September to 31 December 2016.
On 29 September 2016, the Finnish government authorized the signing of new income tax treaties with Portugal and Sri Lanka. The treaties must be signed and ratified before entering into force, and once in force and effective, will replace the 1970 tax treaty with Portugal and the 1982 tax treaty with Sri Lanka.
Additional details of the treaties will be published once available.
The German Federal Council (upper house of parliament - Bundesrat) approved the pending income and capital tax treaty with Australia on 23 September 2016. The treaty, signed 12 November 2015, will enter into force once the ratification instruments are exchanged. It will apply in Australia from 1 January next following the date of its entry into force in respect of withholding tax, from 1 April next following its entry into force in respect of fringe benefits tax, and from 1 July next following its entry into force for all other taxes. It will apply in Germany from 1 January next following the date of its entry into force. Once the new treaty is in force and effective, the 1972 income and capital tax treaty between Australia and Germany will be terminated.
Click the following link for details of the treaty.