Worldwide Tax News
The OECD announced on 4 May 2017 that Ecuador has joined the Global Forum on Transparency and Exchange of Information for Tax Purposes as the 140th member. As a member of the Forum, Ecuador will now be subject to monitoring and a peer review process to ensure the implementation of and compliance with the international standards for information exchange.
The Italian Revenue Agency has announced that Google has agreed to pay EUR 306 Million to settle a tax dispute involving profits generated in Italy and booked in Ireland. Although the investigation into Google initially focused on the tax years 2009 to 2013, the final settlement also covers the years 2014 and 2015, as well as a previous dispute concerning the years 2002 to 2006. The announcement also notes that an agreement will be entered into for the taxation of Google's Italian profits going forward.
The Philippines Bureau of Internal Revenue (BIR) has published Revenue Memorandum Order (RMO) No. 8-2017, which prescribes the procedures for claiming tax treaty benefits for dividend, interest, and royalty income of non-resident income earners. RMO No. 8-2017 is similar to RMO 27-2016, which was issued June 2016 and suspended shortly thereafter (previous coverage).
RMO No. 8-2017 provides that the mandatory Tax Treaty Relief Applications (TTRA) is no longer to be filed with the International Tax Affairs Division (ITAD). In lieu of the TTRA, preferential treaty rates for dividends, interests, and royalties may be applied and directly by the withholding agents upon submission of a Certificate of Residence for Tax Treaty Relief (CORTT) Form by the non-resident. The CORTT Form is to be submitted before the income is paid or credited. Failure to submit would mean that the non-resident is not claiming any tax treaty relief and, therefore, such income shall be subject to the normal rate provided under the National Internal Revenue Code (NIRC) of 1997, as amended. For TTRAs already filed, the treaty withholding rates will be allowed, subject to compliance checks.
Although RMO No. 8-2017 is dated 24 October 2016, its issuance date is 28 March 2017 and it is to be effective 90 days after (26 June). Further clarification from the BIR is expected.
On 4 May 2017, the European Parliament published briefing papers on the proposed directives for the Common corporate tax base (CCTB) and the Common consolidated corporate tax base (CCCTB). The CCTB proposal provides for uniform rules for the determination of taxable income in the EU, while the CCCTB provides rules for the consolidation of companies that are subject to the CCTB (previous coverage). The briefing papers provide an overview of the proposals, including background, changes the proposals would bring, the views of advisory committees, national parliaments, and other stakeholders, and the legislative process. As far as the approval process is concerned, both proposals are still in the review stage, with committee opinions and reports to be adopted in the second half of 2017 and a full parliament vote to take place in early 2018. If approved, the proposals will then go to the European Council for final adoption.
On 5 May 2017 the Indian Central Board of Direct Taxes announced a consultation on a draft notification containing rules for the valuation of unquoted equity shares for the purposes of section 56(2)(x) and section 50CA of the Income Tax Act, 1961 as amended by the Finance Act 2017. These sections concern the receipt of assets for no or inadequate consideration and the determination of capital gains based on the fair market value of unquoted shares.
As provided in the draft notification, the fair market value of unquoted equity shares would be equal to (A + B + C + D - L) × (PV)/(PE), where:
A = book value of all the assets (other than jewelry, artistic work, shares, securities and immovable property) as reduced by,- (i) any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any, and (ii) any amount shown as asset including the unamortized amount of deferred expenditure which does not represent the value of any asset;
B = the price which the jewelry and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer;
C = fair market value of shares and securities as determined in the manner provided in the rule; and
D = the value adopted or assessed or assessable by any authority of the government for the purpose of payment of stamp duty in respect of immovable property.
L = book value of liabilities, excluding the following amounts:
- the paid-up capital in respect of equity shares;
- the amount set apart for payment of dividends on preference shares and equity shares;
- reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
- any amount representing provision for taxation, other than amount of income tax paid, if any, less the amount of income-tax claimed as refund, if any, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;
- any amount representing provisions made for meeting liabilities, other than ascertained liabilities; and
- any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares.
PE = total amount of paid up equity share capital as shown in the balance-sheet.
PV = the paid up value of such equity shares.
Click the following links for the press release and the draft notification. Comments/suggestions are due by 19 may 2017. Once finalized, the rules are to enter into force on 1 April 2018 and apply in relation to assessment year 2018-19 and subsequent years.
Norway's Ministry of Finance has published a consultation document on proposed amendments to the country's income expense deduction restrictions. Under current rules, the deduction of interest on related-party debt is limited to 25% of a taxpayer's EBITDA with an annual de minimis threshold of NOK 5 million for deduction without restriction. The proposed changes include:
- Expanding the restriction to also apply for third-party loans;
- Increasing the de minimis threshold to NOK 10 million; and
- Introducing an optional group ratio exemption for taxpayers whose equity to current assets ratio is equal to or exceeds the ratio of the worldwide group as per consolidated financial statements (comparison may be made at the level of individual taxpayer or at the level of the Norwegian part of the group).
The Ministry intends to maintain the current EBITDA percentage (25%) and the 10-year carry forward of excess interest expense. Further the Ministry intends to maintain the exemptions for companies subject to special rules, such as financial institutions and petroleum companies.
Click the following link for the consultation document (Norwegian language). The changes are proposed to apply from the 2018 fiscal year.
On 4 May 2017, officials from Barbados and Cyprus 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.
On 4 May 2017, the Brazilian Senate Committee on Foreign Relations and National Defense approved the pending protocol to the 1988 income tax treaty with India. The protocol, signed 15 October 2013, replaces Article 26 (Exchange of Information) of the treaty, bringing it in line with the OECD standard for information exchange. It is the first to amend the treaty, and will enter into force and apply 30 days after the ratification instruments are exchanged.
On 2 May 2017, the Italian Chamber of Deputies approved the bill for the ratification of the pending tax information exchange agreement with Costa Rica. The agreement, signed 27 May 2016, is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged. It will apply for criminal tax matters on the date of its entry into force, and for other matter for tax periods beginning on or after that date.
The Russian Ministry of Finance has published Letter No. 03-08-05/11935 concerning the application of the 1994 income and capital tax treaty with Uzbekistan for Russian taxpayers subject to the simplified tax regime, which essentially allows for the payment of a single tax on income instead of corporate tax, property tax, and value added tax. The letter states that because the simplified tax is not substantially similar to the taxes covered by Article 2 (Taxes Covered) of the treaty, the provisions of the treaty do not apply for taxpayers under the simplified tax regime.