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Approved Changes (3)

European Union

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European Parliament Approves Second Special Committee on Tax Rulings

On 2 December 2015, the European Parliament approved the formation of the Special Committee on Tax Rulings II.

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The work of Parliament’s Special Committee on Tax Rulings will be continued under a new mandate for six months, starting on 2 December. This was decided unanimously at Wednesday’s Conference of Presidents and endorsed by Parliament as a whole, by 561 votes to 69 with 5 abstentions. The committee's work will focus on harmful corporate tax regimes and practices at European and international level.

The structure of the Special Committee on Tax Rulings II will be the same as that of its predecessor. The new committee will build on the work done previously, in particular to tackle unresolved issues highlighted in Parliament's resolution of 25 November.

Among other tasks the Special Committee will look into the work of the Commission in the areas of state aid and taxation, examine member states' compliance with tax legislation, as well as look into companies' aggressive tax planning.

The new committee will also look closely at how EU member states and institutions follow up the first committee’s recommendations. It will also follow up on on-going work by international institutions including the OECD and G20.

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Click the following for previous coverage of the proposed measures for EU tax reform based on the report of the first Special Committee on Tax Rulings.

European Union-Luxembourg-United States

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Update - EU Commission Opens Formal Investigation into Luxembourg's Tax Treatment of McDonald's

The European Commission has issued a press release announcing that it has opened a formal probe into tax rulings provided by Luxembourg for McDonald's that, in the Commissions view, may have granted McDonald's an advantageous tax treatment in breach of EU State aid rules. The following from the release outlines the Commissions reasons for looking into the tax treatment and the main issues.

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The Commission requested information on the tax rulings in summer 2014 following press allegations of advantageous tax treatment of McDonald's in Luxembourg. Subsequently, trade unions presented additional information to the Commission. The Commission's assessment thus far has shown that in particular due to the second tax ruling granted to the company McDonald's Europe Franchising has virtually not paid any corporate tax in Luxembourg nor in the US on its profits since 2009]. In particular, this was made possible because:

  • A first tax ruling given by the Luxembourg authorities in March 2009 confirmed that McDonald's Europe Franchising was not due to pay corporate tax in Luxembourg on the grounds that the profits were to be subject to taxation in the US. This was justified by reference to the Luxembourg-US Double Taxation Treaty. Under the ruling, McDonald's was required to submit proof every year that the royalties transferred to the US via Switzerland were declared and subject to taxation in the US and Switzerland.
  • However, contrary to the assumption of the Luxembourg tax authorities when they granted the first ruling, the profits were not to be subjected to tax in the US. While under the proposed reading of Luxembourg law, McDonald's Europe Franchising had a taxable presence in the US, it did not have any taxable presence in the US under US law. Therefore McDonald's could not provide any proof that the profits were subject to tax in the US, as required by the first ruling (see further details below).
  • McDonald's clarified this in a submission requesting a second ruling, insisting that Luxembourg should nevertheless exempt the profits not taxed in the US from taxation in Luxembourg. The Luxembourg authorities then issued a second tax ruling in September 2009 according to which McDonald's no longer required to prove that the income was subject to taxation in the US. This ruling confirmed that the income of McDonald's Europe Franchising was not subject to tax in Luxembourg even if it was confirmed not to be subject to tax in the US either.

With the second ruling, Luxembourg authorities accepted to exempt almost all of McDonald's Europe Franchising's income from taxation in Luxembourg.

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Click the following link for the full press release from the European Commission.

United States

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U.S. IRS Publishes Practice Units on Foreign Trusts and Structures used to Conceal Beneficial Ownership of Foreign Accounts and Assets

The U.S. IRS has recently published four international practice units, including:

International practice units are developed by the Large Business and International Division of the IRS to provide staff with explanations of general international tax concepts as well as information about specific transaction types. They are not an official pronouncement of law, and cannot be used, cited or relied upon as such.

Click the following link for the International Practice Units page on the IRS website.

Proposed Changes (1)

United Kingdom

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UK Publishes Draft Changes to Installment Payment Dates for Very Large Companies

On 2 December 2015, the UK HMRC published draft legislation for changes to the installment payment dates for very large companies as announced in the Summer Budget 2015 (previous coverage). Under current rules, large taxpayers (generally those with annual profits exceeding GBP 1.5 million) are required to make quarterly installment payments based on estimated profits with the first payment due in the 7th month of the taxpayer's current accounting period. There is no separate rule for very large companies.

Under the new rules, for accounting periods beginning on or after 1 April 2017, companies with annual taxable profits of over GBP 20 million (very large companies) will be required to make payments four months earlier. For a 12-month accounting period, payments will be due in the 3rd, 6th, 9th and 12th months of the current accounting period.

The same 51% group test for determining the threshold for large companies will apply in determining the threshold for very large companies. Under this test, the GPB 20 million annual profit threshold is reduced by dividing the annual threshold by the number of related 51% group companies plus one. The result is the annual threshold for the taxpayer.

Click the following links for the Draft Legislation and the Policy Paper on the changes.

Treaty Changes (6)

Andorra-OECD

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Andorra Signs OECD Agreement on Automatic Exchange of Financial Information

The OECD has announced that on 3 December 2015, Andorra signed the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information. Andorra is the 75th country to sign the agreement, and intends to begin the first information exchange in September 2018.

Click the following links for the multilateral agreement, the list of the signatories to date, and the list of countries that have committed to the automatic exchange of information.

Chile-Czech Rep

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Tax Treaty between Chile and the Czech Republic Signed

On 2 December 2015, officials from Chile and the Czech Republic 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.

Ethiopia-Morocco

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Tax Treaty between Ethiopia and Morocco to be Negotiated

Officials from Ethiopia and Morocco are scheduled to meet 7 - 11 December 2015 for the first round of negotiations for an income tax treaty. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

India-Japan

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India Approves Signing of Protocol to the Tax Treaty with Japan

On 2 December 2015, the Indian Cabinet approved the signing and ratification of a protocol to the 1989 income tax treaty with Japan. The protocol will amend Article 26 (Exchange of Information), bringing it in line with the OECD standard for information exchange. It will be the second protocol to amend the treaty and must be finalized, signed and ratified before entering into force.

Isle Of Man-Spain

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TIEA between the Isle of Man and Spain Signed

On 3 December 2015, officials from the Isle of Man and Spain signed a tax information exchange agreement. The agreement is the first of its kind between the two jurisdictions and will enter into force 3 months after the ratification instruments are exchanged. It will apply for criminal tax matters from the date of its entry into force and for other matters in respect of taxable periods beginning on or after the date it was signed, 3 December 2015.

In addition, the agreement states that once in force, the Isle of Man will no longer be considered a tax haven under Spanish law.

Israel-Italy

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New SSA between Israel and Italy has Entered into Force

On 1 December 2015, the new social security agreement (SSA) between Israel and Italy entered into force. The agreement, signed 2 February 2010, replaces the 1987 SSA between the two countries. The new agreement applies from the date of its entry into force.

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