Worldwide Tax News
Italy Publishes Legislation for the Implementation of EU Directives on Tax Ruling Exchange and Anti-Money Laundering
On 1 September 2016, Italy published Law No. 170 of 12 August 2016 in the Official Gazette. The Law authorizes the government to implement several EU Directives, which are listed in the annexes to the Law. The main Directives include:
- Directive (EU) 2015/2376, which amends the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) for the automatic exchange of cross border tax rulings and advance pricing agreements (previous coverage); and
- Directive (EU) 2015/849, which includes new anti-money laundering rules including the requirement that all EU Member State maintain a central register of Information on beneficial ownership that must be accessible to competent authorities, financial intelligence units, obliged entities such as banks, and any other person or organization that can demonstrate a legitimate interest (previous coverage).
Click the following link for Law No. 170 (Italian language), which will enter into force on 16 September 2016.
The Venezuelan government has increased the country's minimum monthly salary from VEF 15,051.15 to VEF 22,576.73 effective 1 September 2016. This is the third increase so far in 2016, and is the result of major inflation problems in the country.
The minimum salary is used in determining the basis cap for social security contributions, unemployment insurance, and other benefits. For employer social security contributions, the rates are 9%, 10% or 11% based on the risk qualification of the company with a basis cap of five minimum monthly salaries. For employer unemployment insurance contributions, the rate is 2% with a basis cap of ten minimum monthly salaries.
On 6 September 2016, Ireland's Department of Finance issued a release announcing proposed amendments to Section 110 of the Taxes Consolidation Act 1997 to address tax avoidance issues. Section 110 provides the tax regime for special purpose companies established to securitize assets, and if structured correctly can achieve a tax neutral position.
According to the release, the special purpose regime has had the intended effect of improving Ireland’s offering as a location for the conduct of financial services, but has also has the unintended effect of being used to avoid paying tax on certain Irish property transactions. To resolve the issue, the proposed amendment would strengthen anti-avoidance rules specifically related to property by adding a main purpose test and provisions to treat specified property business as a separate business that is distinct from any other business or part of a business carried on by a qualifying company.
The amendments are to be included in the upcoming Finance Bill, and if adopted, will be effective from 6 September 2016.
On 6 September 2016, the New Zealand government issued a discussion document containing proposals for addressing hybrid mismatch arrangements. The discussion document proposes that New Zealand adopt the OECD BEPS Action 2 recommendations on hybrid mismatch arrangements and calls for submissions on how that could best be done.
The discussion document provides an overview of the policy and principles regarding hybrid mismatch arrangements and the OECD recommendations, and seeks input on addressing specific mismatch issues, including those related to:
- Hybrid financial instruments;
- Disregarded hybrid payments;
- Reverse hybrids;
- Deductible hybrid payments;
- Dual resident payers; and
- Imported matches.
The discussion document also seeks input on design principles, including introduction and transitional rules, and key definitions.
Australia and Singapore Sign Competent Authority Agreement for Exchange of Financial Account Information
On 6 September 2016, officials from Australia and Singapore signed a competent authority agreement for the automatic exchange of financial account information based on the Common Reporting Standard (CRS). Under the agreement, each country will automatically exchange information on accounts held in the respective country by tax residents of the other country. The automatic exchange is to begin by September 2018.
On 1 September 2016, officials from Hungary and Oman agreed to conclude negotiations for an income tax treaty as soon as possible. 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, which may be as early as the end of the year so the treaty can apply from 1 January 2017.
On 3 September 2016, officials from India and Vietnam signed a protocol to the 1994 tax treaty between the two countries. The protocol reportedly amends Article 27 (Exchange of Information) to bring it in line with the OECD standard for information exchange, and adds provisions for assistance in the collection of taxes. It is the first to amend the treaty and will enter into force after the ratification instruments are exchanged.
On 6 September 2016, Israel's Ministry of Finance issued a release announcing the ratification of the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol, which Israel signed 24 November 2015. According to the release, the Convention will apply in Israel from 1 January 2017. The release also notes that Israel has chosen to apply the Convention only to direct taxes (excluding social security), and will not apply the provisions of the Convention regarding foreign tax audit assistance, assistance in collection of tax and the transfer of documents.
On 31 August 2016, the Pakistan Cabinet approved the signing of a protocol to the 1989 income tax treaty with China, and the signing of a new income tax treaty with Switzerland. The protocol will be the third to amend the tax treaty with China, and must be signed and ratified before entering into force. The new tax treaty with Switzerland must also be signed and ratified before entering into force, and once in force and effective, will replace the 2005 tax treaty between the two countries that is currently in force.
Additional details of each will be published once available.
Spanish Tax Authority Holds Brazilian Interest on Equity (JCP) to be treated as Interest under Tax Treaty and Eligible for 20% Sparing Credit
The Spanish Ministry of Finance and Public Administration recently published two tax consultations from the General Directorate of Taxes (DGT) related to whether Brazilian interest on equity capital (juros sobre o capital proprio - JCP) received by Spanish residents should be treated as interest or dividends under the 1974 income tax treaty between the two countries. According to the consultations, the income is to be treated for the purpose of the treaty based on its treatment in the source State. Since Brazilian tax law allows taxpayers to deduct JCP as an expense and imposes a 15% withholding tax (the rate for interest) on JCP payments, JCP should therefore be treated as interest for treaty purposes. As such, the 20% sparing credit provided for in the treaty for interest payments also applies for JCP payments.
The consultations also includes that regardless of treating JCP as interest income under the tax treaty, the DGT agrees with the Spanish Supreme Court decision earlier in the year that JCP may qualify as dividends in relation to Spanish domestic legislation and the participation exemption (previous coverage). However, due to the anti-avoidance rule introduced 1 January 2015, the exemption does not apply for JCP since the payment is deductible for the payer.