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Worldwide Tax News

Approved Changes (3)

France

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France Extends Additional Depreciation Allowance Incentive to End of 2017

The French Ministry of Finance and Public Accounts has announced that the additional depreciation allowance for investments in qualifying industrial, manufacturing and scientific research equipment is extended to 31 December 2017. The allowance, introduced in 2015, is an additional 40% added to the depreciable base for assets acquired between 15 April 2015 and 31 December 2017 (previously extended from 14 April 2016 to 14 April 2017).

Greece

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Update - Greek Tax Procedure Amendments

On 27 July 2016, the Greek Parliament approved legislation that includes a number of procedural amendments. In addition to the changes in transfer pricing documentation deadlines previously covered, the legislation also makes the following changes:

  • For fiscal years beginning on or after 1 January 2016, the obligation for Greek enterprises to obtain an annual tax compliance certificate as part of the annual audit of accounts no longer applies (remains optional);
  • The deadline to file a mandatory administrative appeal with the dispute resolution directorate is extended from 30 days to 60 days for non-residents;
  • The deadline to notify the tax authority of any change in taxpayer status is extended from 10 days to 30 days;
  • Penalties for Ministry of Finance employees that disclose confidential taxpayer information are set at EUR 1,000 to 100,000; and
  • The statute of limitation for the issuance of tax assessments and/or penalties may be extended by three years for pending cases transferred from the Financial Crime Unit to the Public Revenue Authority (to begin in 2017).

Poland

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Poland Enacts Retail Sales Tax

On 1 August 2016, the Retail Sales Tax Act of 6 July 2016 was published in Poland's Official Gazette. The Act introduces the new tax on retail sales, which is levied on any person engaged on retail sales if such sales exceed PLN 17 million per month, including natural persons, legal persons, partnerships and civil organizations. The tax is levied progressively as follows:

  • 0.8% on monthly revenue exceeding PLN 17 million up to 170 million; and
  • 1.4% on monthly revenue exceeding PLN 170 million.

The tax base is all revenue received from retail sales exclusive of value added tax, including advances, installments, prepayments, etc., less amounts paid due to the return of goods. Exemptions apply for sales of certain nutritional foodstuffs, medicines, medical devices, electricity, water, natural gas, solid fuels, and other fuels for heating.

When due, a return must be filed and the tax paid by the 25th day of the following month. If the PLN 17 million threshold is not met, no return is required.

The Retail Sales Act applies from 1 September 2016.

Proposed Changes (3)

Cyprus

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Cyprus Proposed Incentive for Investment in Innovative and Start-up Companies

The Cyprus Council of Ministers has approved an incentives package to promote investment in innovative and start-up companies. The incentive includes a 50% exemption of taxable income for investors in such companies with an annual exemption cap of EUR 150,000. Qualifying investments may be made directly or through an investment fund.

The legislation for the incentive must now be approved by parliament.

Luxembourg

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Luxembourg CbC Reporting Legislation Submitted to Parliament

The Luxembourg government has submitted draft legislation to parliament to implement Country-by-Country (CbC) reporting requirements based on BEPS Action 13 and transpose into domestic law Council Directive (EU) 2016/881, which amends the administrative cooperation Directive (Directive 2011/16/EU) to require all EU Member States to exchange CbC reports (previous coverage).

Under the draft legislation, CbC reporting requirement will apply for fiscal years beginning on or after 1 January 2016 for MNE groups operating in Luxembourg that meet the standard consolidated group revenue threshold of EUR 750 million in the previous year. The obligation to submit a CbC report primarily applies for ultimate parent entities of MNE groups resident in Luxembourg. However, the draft legislation also provides for secondary reporting requirements, whereby a CbC report will need to be submitted by a constituent entity in Luxembourg, if:

  • The ultimate parent is not required to file a CbC report in its jurisdiction of residence;
  • The ultimate parent's jurisdiction of residence does not have a competent authority agreement in force for automatic exchange of CbC reports with Luxembourg by the date the report is due; or
  • There is a systemic failure of the jurisdiction of residence of the ultimate parent for automatic exchange and notification of the failure was provided to the Luxembourg constituent entity.

When required, CbC reports must be submitted within 12 months following the close of the fiscal year of the ultimate parent of the MNE group. In addition, all constituent entities resident in Luxembourg must provide notification to the Luxembourg tax authorities by the end of the fiscal year of the ultimate parent on whether the entity is the ultimate parent of the group or acting as surrogate, or if neither, the identity and residence of the entity submitting a CbC report on behalf of the group. Failing to comply with the requirements may result in penalties of up to EUR 250,000.

Click the following link for the draft legislation (French language).

United States

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U.S. Chamber of Commerce Files Lawsuit Challenging Rule Allowing IRS to Disregard Recent Acquisitions in Determining Inversion Thresholds

The U.S. Chamber of Commerce has announced that it has filed a lawsuit along with the Texas Association of Business that challenges the so-called Multiple Acquisition Rule issued by Treasury in April 2016 that applies in relation to the inversion thresholds under Section 7874. The complaint includes that the Multiple Acquisition Rule violates the Administrative Procedure Act (APA), and seeks an order and judgment setting aside the Rule.

The Multiple Acquisition Rule

Under Section 7874, an inverted company will be treated as a U.S. domestic company for tax purposes if there is a continuity of ownership for U.S. shareholders of 80% or more following the inversion. If continuity of ownership is 60% to 80%, the company will be treated as a foreign company, but will be denied certain tax benefits.

With the Multiple Acquisition Rule, the IRS is allowed to disregard foreign parent stock attributable to recent inversions or acquisitions of U.S. companies in the previous three years for the purpose of determining continuity of ownership under Section 7874. This is meant to limit inversions by preventing foreign companies that acquire multiple U.S. companies in stock-based transactions over time from using the resulting increase in size to avoid the inversion thresholds for a subsequent U.S. acquisition.

Chamber Complaint

According to the Chamber complaint, the Multiple Acquisition Rule is in violation of the Administrative Procedure Act (APA) on three counts:

  • Count One: Unauthorized agency action in violation of the APA;
  • Count Two: Arbitrary and capricious rulemaking in violation of the APA; and
  • Count Three: Failure to provide notice and an opportunity for comment in violation of the APA

To support its claims, the Chamber states in the challenge that the issuance of the Multiple Acquisition Rule was specifically targeted at stopping a major inversion involving Allergan and Pfizer. Prior to the Rule, Allergan shareholders would have held 44% of the new company, which would have been treated as a foreign company with no issues. However, with the new Rule, Allergan's acquisitions in the previous three years would be disregarded and Allergan shareholder's would be considered to hold less than 20% of the new company. As a result, the new company would be treated as a U.S. domestic company for tax purposes because the 80% continuity of ownership test would be failed. The rules had their intended effect, and the day after the rules were issued, it was announced that the Allergan-Pfizer merger was off.

Click the following link for the U.S. Chamber of Commerce announcement and the full text of the complaint.

Treaty Changes (3)

Egypt-Kuwait

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Egypt Approves Tax Treaty with Kuwait

On 25 July 2016, the Budget and Planning Committee of Egypt's House of Representatives approved the pending income tax treaty with Kuwait. The treaty, signed 16 December 2014, includes the following withholding tax rates:

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 10%
  • Interest - 10%
  • Royalties - 10%

The treaty will enter into force one the ratification instruments are exchanged, and once in force and effect, will replace the 2004 income tax treaty between the two countries. Additional details will be published once available.

India-France-United Kingdom

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India Court Holds MFN Clause in Protocol to French Tax Treaty Incorporates Scope of FTS under UK Treaty

The Delhi High Court recently published its decision concerning whether the MFN clause included in the final protocol to the 1992 income and capital tax treaty with France may incorporate the more favorable scope of fees for technical services (FTS) under the 1993 income and capital tax treaty with the UK. The case involved Steria (India) Ltd. (Steria India), which entered into a management services agreement in 2009 with French-based Groupe Steria SCA (Steria France). Under the agreement, Steria France provided various management services for which for which Steria India paid management fees. Steria India applied for an advance ruling from India's Authority of Advance Rulings (AAR) on whether the management fees paid were treated as FTS subject to withholding tax.

In the application, Steria India took the position that the management fees should not be treated as FTS subject to withholding tax based on the MFN clause in the final protocol to the tax treaty with France. The protocol provides (among other things) that if India should sign an agreement after 1 September 1989 with an OECD member country that provides for a more restricted scoped of FTS, then such restricted scope will apply under the France-India Treaty. For this purpose, Steria India referenced the India-UK treaty signed in 1993, which excludes management services from the definition of FTS (management services specifically included as FTS under France-India treaty) and includes a make available clause for a service to constitute a technical service.

However, the AAR dismissed India Steria's position. The AAR determined that the restriction imposed by the protocol could only apply to restrict the rates of withholding. It also determined that the make available clause of the UK could not be read into the definition of FTS under the French treaty because the Indian government had not issued a notification to incorporate the clause.

In its decision, the Delhi High Court sided with Steria India. Regarding the need for notification, the Court held that since the France-India treaty had been notified, there is no need for the final protocol itself to be separately notified or for the beneficial provisions in some other tax treaty between India and another OECD country to be separately notified to form part of the France-India tax treaty. Regarding the scope of FTS, the Court found that since management services are clearly excluded from the definition of FTS under the India-UK treaty, then it is clear that the payment of management fees from Steria India to Steria France is not to be treated as FTS subject to withholding tax. Since management fees are not covered, the Court found it was not necessary to examine the application of the make available clause.

Click the following link for the text of the decision.

Malaysia-Ukraine

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Tax Treaty between Malaysia and Ukraine Signed

According to an announcement on the official website of the President of Ukraine, officials from Malaysia and Ukraine signed an income tax treaty on 4 August 2016. The treaty will enter into force after the ratification instruments are exchange, and once in force and effective, will replace the 1987 tax treaty between Malaysia and the former Soviet Union, which continues to be applied in respect of Ukraine and Malaysia in certain cases.

Details of the treaty will be published once available.

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