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Approved Changes (6)

Colombia

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Colombia Clarifies that PE's of Foreign Companies Not Required to Submit Foreign Assets Return

Colombia's National Tax Authority recently published a ruling on whether permanent establishments (PEs) of foreign companies are required to file an annual foreign assets return. The foreign assets return was introduced under Colombia's Tax Reform Act (Act 1739), which was passed the end of 2014. The requirement generally applies from 2015 for Colombian taxpayers with assets held abroad.

According to the ruling, the foreign assets return requirement only applies for Colombian taxpayers that are taxed on their worldwide income. Because PEs of foreign companies are only taxed on Colombia-source income, they are not required to file a foreign assets return.

Netherlands-Belgium-France

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Dutch Supreme Court Issues Decision on whether Dividends Withholding Tax Results in a Restriction on the Free Movement of Capital

On 4 March 2016, the Dutch Supreme Court issued its final decision concerning withholding tax on dividends paid to two Belgian individuals and to a French company. The cases involved whether the Netherland's withholding tax on dividends paid resulted in a restriction on the free movement of capital and whether refunds are due. The claimants' argument is based primarily on the withholding tax being deductible for Dutch residents but a final tax for non-residents.

The cases were initially referred to the Court of Justice of the European Union (CJEU) in 2013. In the preliminary ruling provided in September 2015, the CJEU stated that in order to determine if a restriction exists and refund is due, a comparison must be made between the overall tax burden in respect of dividend income of resident taxpayers (individual/corporate income tax) and the non-resident taxpayers (withholding tax).

Regarding the Belgian individuals, the Supreme Court compared the box 3 (income from savings and investment) tax that would be payable by a resident on the total value of shareholdings in the Dutch company less the available exemption for capital. For the comparison, the Supreme Court chose not to divide the exemption for capital pro rata between the shares held in the Dutch company and the other assets held by the non-residents. Based on this approach, it was found that the withholding tax for one of the Belgian individuals exceeded the box 3 comparison amount. Therefore, a restriction on the free movement of capital existed and a refund is due. For the other Belgian individual, the withholding tax did not exceed the box 3 comparison and no refund is due.

Regarding the French company, the Supreme Court compared the tax burden of a resident company by taking into account the costs that are directly linked to the actual payment of the dividends. It did not take into account costs related to pre-acquisition dividends or financing expenses related to the shareholding. Based on this approach, it was found that the tax burden on the French company did not exceed the burden for a resident company. Therefore, no restriction on the free movement of capital existed and no refund is due.

Poland

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Poland to Focus on Transfer Pricing Audits in Second Quarter of 2016

Poland's Ministry of Finance recently published an update on the status of its past and ongoing projects. According to the update, one of the main areas of focus will be on transfer pricing audits beginning in the second quarter of 2016. Particular transfer pricing issues that the Ministry of Finance has indicated will be focused on include:

  • Artificial increases in the book value of shares held in a company in a chain of related entities;
  • Conclusion of agreements with majority shareholders that result in a tax loss for controlled entities;
  • The use of incorrect allocation keys to apportion costs to Polish entities;
  • Non-arm's length appraisals of royalties; and
  • Non-arm's length loans or warranties between related entities.

In addition to the transfer pricing issues listed above, transfer pricing overall will be subject to greater scrutiny.

Portugal

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Portugal Implements Anti-Abuse Amendments made to the EU Parent-Subsidiary Directive

On 29 February 2015, Portugal published Law No. 7./XIII/1.a in the Official Gazette, which implements anti-abuse amendments made to the EU Parent-Subsidiary Directive into domestic law. The law introduces the concept of non-genuine arrangements, which include those that are not carried out for valid economic reasons or do not reflect economic reality. If a non-genuine arrangement is put in place with the main purpose, or one of the main purposes, of obtaining a tax advantage, then Portugal's withholding tax exemption for dividends paid or the participation exemption for dividends received will not apply.

The anti-abuse rules apply from 1 January 2016.

Turkey

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Turkey Implements R&D Incentives Reform Package

Turkey has implemented the research and development (R&D) incentives reform package that was announced earlier in the year. The package is implemented under Law No. 6676, which was published in the Official Gazette on 26 February 2016.

One of the key aspects of the reform is the provision for the establishment of special technology development centers with a number of benefits, including:

  • A corporate tax exemption for income from R&D activities until the end of 2023;
  • An income tax exemption for R&D employees until the end of 2023;
  • A value added tax exemption for goods and services supplied to (in) the centers; and
  • A portion of employee salaries up to the minimum wage is covered by the government for two years if meeting certain education requirements.

Other important measures include:

  • A reduction in the minimum number of employees required to benefit from R&D incentives from 30 to 15;
  • The inclusion of design activities as an eligible activity for R&D incentives;
  • A customs duty exemption for goods imported for R&D activities, as well as a stamp tax exemption for related documentation;
  • An income tax exemption for academics involved in university-industry collaborations; and
  • The removal of restrictions on the time limit for work permits of foreign employees that are essential for R&D activities.

The reform package entered into force on 1 March 2016.

United States

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U.S. IRS Publishes Practice Units on Residual Profit Split Method - Outbound, Review of Transfer Pricing Documentation, and Outbound Services to CFCs

The U.S. IRS has recently published three 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.

Treaty Changes (2)

Bulgaria-Romania

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Update - New Tax Treaty between Bulgaria and Romania

The new income tax treaty between Bulgaria and Romania was signed 24 April 2015. Once in force and effective, the treaty will replace the 1994 tax treaty between the two countries, which is currently in force.

Taxes Covered

The treaty covers Bulgarian personal income tax and corporate income tax, and covers Romanian tax on income and tax on profit.

Residence

If a company is considered resident in both Contracting States, the competent authorities will determine its residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be considered resident in either State and will be unable to claim the benefits of the treaty.

Withholding Tax Rates

  • Dividends - 5%
  • Interest - 5%
  • Royalties- 5%

Limitation on Benefits

The provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 21 (Other Income) will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest, royalties or other income are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of the Articles.

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.

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.

The 1994 tax treaty between the two countries will terminate on the date the new treaty enters into force, and will cease to be effective from the date the new treaty is in effect.

Germany-Jersey

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New Limited Tax Treaty between Germany and Jersey has Entered into Force

The new limited tax treaty between Germany and Jersey reportedly entered into force on 30 January 2016. The treaty, signed 7 May 2015, replaces the 2008 limited tax treaty that was terminated 28 August 2014. The new treaty covers the tax treatment of items of income covered by Article 6 (Pensions and Annuities), Article 7 (Students) and Article 8 (Associated Enterprises). It does not include several of the typical elements included in full tax treaties, such as provisions for permanent establishments, withholding tax rates, exchange of information, etc.

The new treaty applies from 29 August 2014.

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