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Worldwide Tax News

Approved Changes (6)

Denmark

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Danish Disclosure Requirements for Beneficial Ownership Register

Denmark has introduced new disclosure requirements for an ultimate beneficial ownership register, which was approved as part of an agreement in the Danish Parliament to strengthen efforts to combat international tax evasion (previous coverage). Key points include:

  • Danish legal entities are required to disclose the identity of their ultimate beneficial owners (natural persons), with the management of the entity responsible for the investigation and disclosure;
  • The requirements generally apply for all legal entities, including limited liabilities entities, unlimited entities, and foundations, although listed entities, branches of foreign entities, and certain others are exempt;
  • The requirements apply in relation to ultimate beneficial owners with direct or indirect ownership of at least 25%, as well as owners with lower ownership if certain controlling conditions are met, such as the power to appoint directors;
  • Disclosure of ultimate beneficial owners must be made electronically and include the following information:
    • The name and address of the ultimate beneficial owner;
    • The date the person became an ultimate beneficial owner;
    • The share capital and votes held by the ultimate beneficial owner in the case of direct ownership; and
    • Indication as a beneficial owner in the case of share ownership or indirect ownership.

Legal entities have until 1 December 2017 to make the initial disclosure to the Danish Business Authority, with beneficial ownership information to then be reviewed and updated on an annual basis.

Germany

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German Parliament Passes Laws Restricting Royalty Payment Deductions and Increasing Offshore Company Disclosure Requirements

On 2 June 2017, the German Federal Council (upper house of parliament - Bundesrat) passed the laws to restrict the deduction of related party royalty expenses and to increase disclosure requirements for offshore (shell) companies.

Royalty Deduction Restrictions and Other Changes

The law restricting royalty deductions limits the deduction of royalty payments to related parties made after 31 December 2017 if the income is taxed at a rate of less than 25% as a result of the benefits of an IP regime not in compliance with the modified nexus approach developed as part of BEPS Action 5. The limits would also apply to structures involving intermediary companies. The non-deductible portion of such royalty payments is equal to (25% - the actual tax rate on the income) / 25%. For example, if the actual tax rate was 12.5%, 50% of the payment would be non-deductible. If the actual tax rate was 0%, 100% of the payment would be non-deductible.

The law also reportedly provides for an increase in the value limit for the immediate write-off of low-cost movable fixed assets from EUR 410 to EUR 800, and the reintroduction of statutory tax exemption for restructuring gains.

The law must be signed by the president and published in the official gazette before entering into force. Additional details will be published once available.

Disclosure Requirements

The law regarding offshore (shell) companies introduces stricter disclosure requirements for both owners of such companies and banks and financial institutions that facilitate transactions in relation to such companies. The law also provides for increases in the related penalties and the investigative powers of the authorities. Changes include

  • Expanding the notification obligations of taxpayers with 10% holdings, and when a taxpayer has dominant influence over a foreign company;
  • Introducing new disclosure and record-keeping requirements for banks and financial institutions in relation to any investments or other economic activities that have been facilitated in relation to shell companies;
  • Increasing the penalty for failing to notify from EUR 5,000 to EUR 25,000; and
  • Extending the investigation powers of the tax authorities by repealing section 30a of the Tax Code concerning bank secrecy, incorporating the possibility of collective information requests into law, and certain other changes.

The changes generally apply from 2018.

The law must be signed by the president and published in the official gazette before entering into force. Additional details will be published once available.

Ireland

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Ireland eBrief on Revisions to Tax and Duty Manual on Charges on Income for Corporation Tax Purposes

On 6 June 2017, Irish Revenue published eBrief No. 56/17 on revisions to the Tax and Duty Manual regarding anti-avoidance provisions in relation to interest as a charge on income, as well as and the availability of relief for acquired shares.

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Tax and Duty Manual Part 08-02-01 dealing with charges on income for Corporation Tax purposes has been updated. The principal updates are in relation to interest as a charge on income under section 247 Taxes Consolidation Act 1997. In particular, the revised manual contains information on the anti-avoidance provisions that apply in respect of section 247 and related exclusions.

The updated manual also addresses the availability of relief under section 247 where shares are acquired pursuant to a court-approved scheme of arrangement effected in accordance with Chapter 1 of Part 9 of the Companies Act 2014.

Netherlands

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Netherlands Publishes Adopted Law to Amend CbC Reporting Rules including Large Penalty Increase

The Netherlands has published in the Official Gazette the law to transpose the amendments made to the EU administrative cooperation Directive (2011/16/EU) concerning the exchange of Country-by-Country (CbC) reports as per Council Directive (EU) 2016/881. In addition, the law provides for increased CbC non-compliance penalties.

Since the Dutch CbC reporting requirements were already generally in line with the EU requirements, the amendments are relatively limited. Changes include:

  • Setting out the basic provisions for automatic CbC exchange with other EU Member States, including that the reports will be exchanged within 15 months of the close of the fiscal year (18 months for the first year);
  • Allowing the designation of a group entity resident in an EU Member State (instead of just the Netherlands) to fulfill a CbC reporting obligation on behalf of other group entities in the EU when secondary local filing conditions are met;
  • Introducing the requirement that if a constituent entity is required to file locally and the ultimate parent has not provided all required information, a CbC report must still be filed using available information and notification of the parent entity's refusal to provide the information must be made; and
  • Extending the CbC non-compliance penalty to both CbC report and CbC notification obligations, and changing the penalty from a category 4 criminal offence (maximum EUR 20,500 fine) to a category 6 criminal offence (maximum EUR 820,000 fine).

The amending law entered into force on 5 June 2017, and applies retroactively from 1 January 2016. Click the following link for the law as published (Dutch language).

Russia

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Russia Clarifies Needed Changes for Consolidated Group of Taxpayers following Reorganization

The Russian Federal Tax Service (FTS) recently issued guidance letters No. SD-4-3/7956 and No. SD-4-3/7957, which clarify the required changes for a consolidated group of taxpayers (CGT) following a reorganization. The first letter clarifies that when there is a change in ownership, no change to the CGT is required, provided that one entity maintains at least 90% direct or indirect ownership in the other entities (general CGT condition). If a CGT member entity ceases to meet the 90% ownership condition, the CGT may still be maintained if another CGT member entity has met the 90% condition.

The second letter clarifies that a CGT may change its responsible member (entity designated as administration entity), in which case an agreement amending the original CGT agreement must be registered with the tax authorities. Registration of such amending agreement is not restricted by the moratorium on registering agreements for the formation of new CGTs, which applies till the end of 2017. The second letter also clarifies that a CGT agreement must in general be amended if one or more group members are reorganized by way of a merger, acquisition, spinoff, or division, but that no amendment is needed if the reorganization does not result in a change to the overall composition and legal relationships of the CGT.

United States

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IRS Releases Practice Unit on Functional Currency Determination

On 6 June 2017, the U.S. IRS published an international practice unit: Functional Currency Determination. The practice unit presents the legal guidance and facts that must be considered in the determination of functional currency for both book and tax purposes where the books and records of a business enterprise are recorded in multiple currencies and locations. This includes the determination of functional currency for book purposes under US GAAP and IFRS provisions, and the determination of functional currency for tax purposes under the rules defined in IRC 985 (Functional Currency General Rules) and related Treasury Regulations.

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 (1)

OECD, BEPS MLI Signatories

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Signing Ceremony Held for BEPS Multilateral Instrument

On 7 June 2017, the signing ceremony was held for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). Over 70 countries and jurisdictions signed the MLI or formally expressed their intent, with another 25 to 30 countries and jurisdictions expected to sign by the end of the year.

The BEPS MLI provides for the implementation of both mandatory minimum standards and optional provisions developed as part of the OECD BEPS Project. The related BEPS Actions and the main provisions are summarized as follows:

BEPS Action 2 (Hybrid Mismatches), including:

  • Transparent entities provisions, which clarify that treaty benefits will only be allowed to the extent to which the item of income is taxed in the state in which the entity is resident - Optional;
  • Dual resident entities provisions, which require that the competent authorities of the contracting jurisdictions agree on the residence status for dual resident entities for the purpose of treaty benefits - Optional; and
  • Elimination of double taxation provisions, which include strengthened options for the methods of eliminating double taxation in hybrid situations - Optional.

BEPS Action 6 (Preventing Treaty Abuse), including:

  • A new preamble that includes a statement that the common intention of the contracting jurisdictions is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty shopping arrangements - Minimum Standard;
  • Anti-abuse rules, which may take the form of a principal purpose test (PPT) alone; a PPT together with a simplified limitation on benefits (LOB) clause; or a detailed LOB provision together with a PPT or anti-conduit rules - Minimum Standard;
  • A provision that requires shares to be held for a minimum of 365 days for the shareholder to be entitled to a reduced withholding tax rate on dividends - Optional;
  • A provision that strengthens the test for taxation of capital gains from the alienation of shares deriving value principally from immovable property - Optional;
  • A provision that denies treaty benefits in the case of income derived by a PE of a resident of one of the contracting jurisdictions if the PE is situated in a low-tax third jurisdiction - Optional; and
  • A provision that preserves a jurisdiction’s right to tax its own residents - Optional.

BEPS Action 7 (Preventing Artificial Avoidance of a PE), including:

  • A provision to deem non-residents using commissionaire and similar arrangements as having a PE in a jurisdiction - Optional;
  • A provision requiring an activity to be of preparatory and auxiliary nature in order to qualify for specific PE exemptions under a treaty - Optional;
  • An anti-fragmentation rule to prevent non-residents from avoiding a PE by dividing up activities that separately would not be treated as a PE, but would constitute a PE if taken together - Optional; and
  • An anti-contract splitting rule to prevent non-residents from avoiding a PE by splitting up contracts into time periods that are less than the applicable time period thresholds for a PE - Optional.

BEPS Action 14 (Improving Dispute Resolution), including:

  • Provisions for Mutual Agreement Procedure (MAP) allowing taxpayers to make MAP requests to either jurisdiction, which may add to or amend existing MAP provisions - Minimum Standard;
  • A provision requiring contracting states to make appropriate corresponding adjustments in transfer pricing cases - Optional; and
  • Provisions for mandatory binding arbitration - Optional.

In addition, the list of BEPS MLI signatories was published on 7 June, which includes links to the MLI positions for each jurisdiction at the time of signature. The positions include a provisional list of the notifications for tax treaties to be covered by the MLI and the expected reservations (options taken) for each jurisdiction. The definitive position for a jurisdiction will be provided upon the deposit of its instrument of ratification. Each signatory will need to go through its own ratification process to bring the MLI into force and a match-making process will be needed to determine which provisions of the MLI apply to the respective bilateral tax treaties.

In general, the BEPS MLI will become effective for a particular bilateral tax treaty:

  • With respect to withholding taxes from 1 January of the year following the MLI's entry into force for both parties, and
  • With respect to all other taxes for tax periods beginning on or after the expiration of a period of six months following the MLI's entry into force for both parties.

The first modifications to bilateral tax treaties are expected to enter into effect in early 2018.

The signatory list includes 68 jurisdictions that signed the BEPS MLI on 7 June:

Andorra; Argentina; Armenia; Australia; Austria; Belgium; Bulgaria; Burkina Faso; Canada; Chile; China (People’s Republic of); Colombia; Costa Rica; Croatia; Cyprus; Czech Republic; Denmark; Egypt; Fiji; Finland; France; Gabon; Georgia; Germany; Greece; Guernsey; Hong Kong (China); Hungary; Iceland; India; Indonesia; Ireland; Isle of Man; Israel; Italy; Japan; Jersey; Korea; Kuwait; Latvia; Liechtenstein; Lithuania; Luxembourg; Malta; Mexico; Monaco; Netherlands; New Zealand; Norway; Pakistan; Poland; Portugal; Romania; Russia; San Marino; Senegal; Serbia; Seychelles; Singapore; Slovak Republic; Slovenia; South Africa; Spain; Sweden; Switzerland; Turkey; United Kingdom; and Uruguay.

The list also includes the jurisdictions with intent to sign:

Cameroon; Estonia; Ivory Coast; Jamaica; Lebanon; Mauritius; Nigeria; and Tunisia.

For more information, click the following link for the OECD release on the signing ceremony.

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