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Approved Changes (3)

Australia

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Australian Parliament Passes Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 including CbC Reporting

On 3 December 2015, Australia's House of Representative passed the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 (previous coverage) following passage by the Senate. The legislation includes:

  • A standard for defining a Significant Global Entity (SGE), which is an entity that is part of a consolidated group with annual revenue of AUD 1 billion or more (such entities are subject to the following);
  • A new multinational anti-avoidance law to counter artificial arrangements that avoid attribution of profits to Australia;
  • Increased scheme penalties (doubled), unless taxpayer adopts a reasonably arguable tax position.; and
  • Transfer pricing reporting requirements in line with Action 13 of the OECD BEPS Project, including Country-by-Country report, master file and local file.

The provisions regarding the definition of SGEs generally apply for the 2013-2014 tax year and subsequent years; the anti-avoidance and transfer pricing reporting provisions apply for tax years beginning on or after 1 January 2016; and the increased penalties apply for tax years beginning on or after 1 July 2015.

Additional amendments to the initial draft Bill include:

  • The requirement that Australian entities and PEs in Australia of foreign entities that qualify as SGEs submit general purpose financial statements by the due date of the tax return, rather than special purpose financial statements, for tax years beginning on or after 1 July 2016; and
  • The exemption from the public disclosure of tax return data by the Australian Taxation Office for private Australia companies will no longer apply for companies with annual revenue of AUD 200 million or more, with effect for the 2013-2014 tax year tax return and subsequent years.

The Bill now awaits Royal Assent to be enacted.

Click the following link for the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 as passed by parliament.

Luxembourg-European Union

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Luxembourg Announces it will Appeal FIAT State Aid Decision

On 4 December 2015, the Government of Luxembourg announced it will appeal the European Commission decision that Luxembourg granted selective tax advantages to FIAT Finance and Trade in violation of EU State aid rules (previous coverage).

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Luxembourg to appeal the Commission’s Fiat decision

The Luxembourg government today has decided to appeal the European Commission’s decision in the Fiat case, in order to seek legal clarity and previsibility on the practice of tax rulings.

The vast majority of EU member states use tax rulings to provide legal certainty for the taxpayer. In its decision, the Commission has used unprecedented criteria in establishing the alleged State aid, thus putting into jeopardy the principle of legal certainty. In particular, the Commission has not established in any way that Fiat received selective advantages within the meaning of article 107 TFEU.

Luxembourg is strongly committed to tax transparency and the fight against harmful tax avoidance. Luxembourg fully adheres to the OECD/G20 BEPS project, which will modernize international tax rules and create a global level playing field.

Malaysia

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Malaysia Publishes Guidance on Interest Expense Deductions and Interest Income Recognition for Related Person Loans

On 3 December 2015, the Inland Revenue Board of Malaysia (IRBM) published Public Ruling (PR) No. 9/2015 - Deduction of Interest Expense and Recognition of Interest Income for Loan Transactions between Related Persons.

Related Persons

Related persons (including a company, a body of persons, a limited liability partnership and a corporation sole) include:

  • When one person has control over the other;
  • Individuals who are relatives; and
  • When two persons are controlled by another person.

Interest Expense Deduction

Interest expense is only deductible in ascertaining the adjusted income for the basis period for a year of assessment when the interest is due to be paid, and:

  • The funds borrowed are employed in that period in the production of gross income; or
  • The funds borrowed are laid out on assets used or held in that period for the production of gross income.

When making a claim for an interest expense deduction, a taxpayer is required to inform the IRBM branch office that handles the taxpayer’s file and submit the amended tax computation in respect of the interest expense payable for each relevant year of assessment. The IBRM will then review the claim and adjust the assessment for each year accordingly. For example, if a company has a loan with a three-year term and the total interest is not due until the end of the term, the claim for deduction is made when the interest payment is due and the deduction is split over the three years in amended assessments for each year.

When the interest is obtainable or deemed obtainable on demand by the lender (see Recognition of Interest Income below), the corresponding interest expense of the borrower may be deducted even if not actually paid.

If payment is made before the due date, the interest payment will be allowed as a deduction in the year of assessment that the interest is paid.

Loan agreement prior to the year of assessment 2014

If a loan agreement was entered into prior to the year of assessment 2014 and the due date for the interest payment has not yet occurred, then the interest expense will only be allowed on the date the interest payment is due as described above from the year of assessment 2014. However, interest incurred that had been allowed as a deduction prior to the year of assessment 2014 is maintained.

Business and Non-Business Interest Restriction

When funds borrowed are used for business and non-business purposes, the interest eligible for deduction from adjusted income from business sources is equal to the loan amount used for non-business purposes, divided by the total loan amount, times the interest payable.

The amount that is non-deductible from business income may be deducted from income related to non-business purposes, such as certain dividend or rental income from shares or property purchased with the borrowed funds.

Recognition of Interest Income

Income from interest, discount, rental, royalty or any pensions, annuity or other periodical payments are recognized as part of the gross income of a person when received and is taxable on a receipt basis, even if the income relates to an earlier period. However, an anti-avoidance provision provides the following:

  • For a loan transaction between unrelated persons, interest income will only be recognized as income of the lender if the interest has been received or is obtainable on demand by the lender.
  • For a loan transaction between related persons, for the year of assessment 2014 and subsequent years, the lender is deemed to be able to obtain on demand the receipt of interest in the year the interest is due. Therefore, interest income will be deemed received on the due date whether or not actually received.

Click the following link for PR No. 9/2015 on the Inland Revenue Board of Malaysia website, which includes several examples.

Proposed Changes (3)

France

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French National Assembly Approve Public Disclosure Requirement for CbC Information

According to recent reports, the French National Assembly has approved an amendment to the Amending Finance Bill for 2015 that would require companies to publically disclose Country-by-Country (CbC) information on its business, including type of activity, turnover, employee headcount, and profit or loss before tax. The public disclosure requirement was added to the Amending Finance Bill for 2015 after being rejected in the 2016 Budget Bill, which includes nonpublic CbC reporting requirements (previous coverage).

Companies that would be required to publically disclose the information include listed companies, and companies meeting any two of the following conditions:

  • Balance sheet total of EUR 20 billion or more;
  • Annual net sales of EUR 40 million or more; and
  • An average workforce of 250 or more

The public disclosure amendment now goes to the Senate.

Note - If approved by the Senate without amendment, the CbC public disclosure requirement would potentially apply for companies not meeting the EUR 750 million group revenue threshold for the CbC reporting requirements under the 2016 Budget Bill.

Hong Kong

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Hong Kong Publishes Enhanced Interest Deduction Rules for Intra-Group Financing and a Concessionary Profits Tax Rate for Corporate Treasury Centers

On 4 December 2015, the Hong Kong government published draft legislation that would enhance interest deduction rules for intra-group financing and introduce a concessionary profits tax rate for corporate treasury centers equal to 50% of the standard rate (i.e. 8.25%).

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The Government published in the Gazette today (December 4) the Inland Revenue (Amendment) (No. 4) Bill 2015, which aims to enhance the existing interest deduction rules for the intra-group financing business of corporations and introduce a concessionary profits tax rate for qualifying corporate treasury centres.

The Bill also seeks to clarify profits tax and stamp duty treatments in respect of regulatory capital securities issued by banks in compliance with Basel III capital adequacy requirements.

The Secretary for Financial Services and the Treasury, Professor K C Chan, said, "As announced by the Financial Secretary in his 2015-16 Budget, our legislative proposals will provide a conducive environment for attracting multinational and Mainland corporations to centralise their treasury functions in Hong Kong, thereby enhancing the competitiveness of our financial markets."

"The proposals will also foster Hong Kong's development as an international financial centre and business hub, facilitate banks' issuance of relevant securities to comply with international regulatory capital requirements, generate demand for the financial and professional services sectors, and contribute to the development of a headquarters economy in Hong Kong."

The Bill contains relevant anti-avoidance provisions to ensure that the proposals are consistent with the latest international standards to combat base erosion and profit shifting.

The Bill will be introduced into the Legislative Council for first reading on December 16, 2015.

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Click the following links for the text of the draft Inland Revenue (Amendment) (No. 4) Bill 2015, and the Legislative Council brief.

India

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Indian GST Committee Suggests Standard GST Rate of 17% to 18%

On 4 December 2015, the Committee on Possible Tax rates under GST submitted its report to the Indian Ministry of Finance. In its report, the Committee recommends the following combined Centre (Federal) and state rates:

  • A standard rate of 17% to 18% on goods and services;
  • A lower rate of 12% on essential goods;
  • A lower rate of 2% to 6% on precious metals;
  • A revenue-neutral rate of 15% to 15.5% on goods and services whose taxation is not explicitly specified.; and
  • A higher rate of 40% (sin/demerit rate) on luxury cars, soft drinks, tobacco products and certain others

The Committee also recommends:

  • Eliminating all interstate taxes, including a proposed 1% percent additional tax on the interstate supply of goods;
  • Eliminating exemptions; and
  • Including alcohol, petroleum, and real estate within the scope of GST.

Click the following link for the Ministry of Finance release on the report.

Status of GST in India

The Indian government has been working on passing legislation that would allow the implementation of a national goods and services tax (GST) regime that would replace several indirect taxes levied at the federal, state, and local levels, with a target implementation date of 1 April 2016. The legislation has passed the lower house of parliament, Lok Sabha, but has been delayed in the upper house, Rajya Sabha (previous coverage).

Treaty Changes (1)

China-Zimbabwe

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Tax Treaty between China and Zimbabwe Signed

On 1 December 2015, officials from China and Zimbabwe 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.

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