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Approved Changes (5)

Brazil

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Brazil Implements Exchange of Tax Ruling Information

Brazil has implemented the exchange of information on tax rulings in line with the recommendations of BEPS Action 5. Regulation for the exchange of tax rulings is provided in Normative Instruction No. 1689/2017, which amends Normative Instruction No. 1396/2013 on the consultation process for taxpayers to obtain a tax ruling. The amendments provide that where a taxpayer engages in the consultation process to obtain a ruling, the taxpayer must provide certain information if the consultation concerns matters relating to transfer pricing, the program for the development of the semiconductor industry (PADIS), or permanent establishment issues. The required information includes:

  • Identification of the direct controller and final controller of the taxpayer, including country of residence;
  • Identification of the countries of residence of all related parties with which the taxpayer carries out transactions subject to the consultation; and
  • Identification of the country of residence of the head office or permanent establishment (as applicable).

Where a ruling is issued, information on the ruling will be exchanged with the relevant jurisdiction(s) if an agreement for the exchange of information is in place with Brazil.

Click the following link for an announcement (Portuguese language) from Brazil's Federal Revenue Department on the new requirements and exchange of information.

European Union-Belgium-Netherlands

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CJEU Holds Dividends Exemption under Parent-Subsidiary Directive Not Applicable for Dutch Parents Subject to Zero Rate of Tax

On 8 March 2017, the Court of Justice of the European Union (CJEU) issued its judgment on whether the exemption provided under the EU Parent-Subsidiary Directive applies for dividends paid by a Belgian limited partnership with a share capital to its Dutch parent companies, which are fiscal investment institutions incorporated as public limited companies. Under Dutch law, the parent companies are liable to corporation tax, but are subject to a zero rate, provided that all profits are paid to shareholders.

In its judgment, the CJEU generally followed the Advocate General's opinion issued in October 2016 (previous coverage). The Court determined that for the purpose of the subject to tax provision (Article 2(c)) of the Directive, the provision does not merely require that a company should fall within the scope of tax, but also seeks to exclude situations involving the possibility that, despite being subject to tax, the company is not actually liable to pay tax. While a company that is subject to tax at a zero rate is not exempt from tax, it is, in practical terms, in the same situation that Article 2(c) of the Directive seeks to exclude. As such, the Dutch parent companies do not qualify for the exemption.

Click the following link for the full text of the judgment.

Ireland

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Ireland Updates Code of Practice for Revenue Audit and other Compliance Interventions

Irish Revenue has published eBrief 23/17, announcing the update of the Code of Practice for Revenue Audit and other Compliance Interventions. The Code provides guidelines covering several areas of compliance interventions, including an overview of intervention types, regularization of tax and duty defaults, audit procedures, intervention finalization, prosecution, and specific rules for tax avoidance.

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Code of Practice for Revenue Audit and other Compliance Interventions

The Code of Practice for Revenue Audit and other Compliance Interventions (2.41MB) has now been updated and is available on the Revenue website under Tax Practitioners, Codes of Practice.

This Code of Practice for Revenue Audit and other Compliance Interventions is effective from 22 February 2017 as regards all compliance interventions that are notified on or after that day.

As regards Compliance Interventions, notice of which has been given, but which had not been settled before the 22 February 2017, the taxpayer may choose whether the settlement is made under the terms of this Code of Practice or the Code of Practice for Revenue Audit and other Compliance Interventions published on 20th November 2015.

Isle Of Man

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Isle of Man 2017-18 Budget Measures Approved

The Isle of man Tynwald (parliament) has approved the various orders to enact the 2017-18 Budget measures, which generally apply from 6 April 2017. The tax related measures are mainly limited to individual income tax changes, including an increase in the personal allowance by GBP 2,000 to GBP 12,500 and a reduction in the threshold for the first income tax band (10%) by an equal amount to the first GBP 6,500 of taxable income. The income tax rates for both individuals and companies are maintained.

United States

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U.S. Congressional Budget Office Report: International Comparisons of Corporate Income Tax Rates

On 8 March 2017, the U.S. Congressional Budget Office (CBO) published its report: International Comparisons of Corporate Income Tax Rates. The report examines statutory, average, and effective marginal corporate tax rates and the factors that affect them for the U.S. and other G20 member countries. For the U.S., the top statutory corporate tax rate is 39.1%, the average rate is 29%, and the effective rate is 18.6%, which in comparison with other G20 countries, ranks the U.S. as the highest for statutory rate, and the third and fourth highest for average and effective rates respectively.

Proposed Changes (3)

Australia

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Australia Consults on Foreign Investment Framework

On 8 March 2017, the Australian Treasury published a consultation paper on proposed changes in the rules regulating foreign investment in the country. In particular, the paper seeks feedback on changes relating to residential land, non-vacant commercial land, low sensitivity business investment, and commercial fees, as well as miscellaneous technical issues and ideas for further reform.

Click the following link for the consultation paper: Foreign Investment Framework - 2017 Legislative Package. The deadline for submissions is 29 March 2017.

Malaysia-OECD

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OECD Confirms Malaysia's Participation in BEPS Inclusive Framework

The OECD has published a brief notice welcoming Malaysia as an associate member of the Inclusive Framework for the implementation and monitoring of the BEPS minimum standards (previous coverage). To date, 94 jurisdictions are taking part as members of the Inclusive Framework.

United Kingdom

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UK Spring Budget 2017 Delivered

On 8 March 2017, UK Chancellor of the Exchequer Philip Hammond delivered the Spring Budget 2017 to parliament. With regard to corporation tax, the Budget introduces certain new measures and confirms measure previously announced. Some of the main measures that will be included in the Finance Bill 2017 are summarized as follows.

Offshore property developers

The legislation on profits from trading in and developing land in the UK in the Finance Act 2016 will be amended to remove the exception provided for contracts entered into before 5 July 2016 so that all profits arising on or after 8 March 2017 may be subject to tax.

Reform of the Substantial Shareholdings Exemption

The government will legislate in Finance Bill 2017 to simplify the rules, remove the investing company requirement within the Substantial Shareholdings Exemption, and provide a more comprehensive exemption for companies owned by qualifying institutional investors.

The changes will take effect from 1 April 2017.

Loss relief reform

The government will legislate in Finance Bill 2017 to reform the rules governing corporate losses carried forward from earlier periods. The reform will:

  • Give all companies more flexibility by relaxing the way in which they can use losses arising on or after 1 April 2017 when they are carried forward - these losses will be usable against profits from different types of income and profits of other group companies; and
  • Restrict the use of losses carried forward by companies so that they can’t reduce their profits arising on or after 1 April 2017 by more than 50% - this restriction will apply to a company or group’s profits above GBP 5 million - carried forward losses arising at any time will be subject to the restriction.

The loss relief reform will take effect from 1 April 2017.

Corporation Tax - hybrids and other mismatches

The government will legislate in Finance Bill 2017 to make two minor changes to the hybrid mismatch regime. The first change removes the need to make formal claim in relation to the permitted time period rules in chapter 3 and 4 of Part 6A Taxation (International and Other Provisions) Act 2010 (TIOPA 2010). The second change provides that deductions for amortization are not treated as relevant deductions for the purposes of chapter 5 to 8 of Part 6A.

The changes will be effective from 1 January 2017.

Corporation Tax: Patent Box - cost sharing arrangements

The government will legislate in Finance Bill 2017 to add specific provisions to the revised Patent Box rules introduced in Finance Act 2016, covering the case where Research and Development (R&D) is undertaken collaboratively by two or more companies under a cost sharing arrangement. The provisions will ensure that companies are neither penalized nor able to gain an advantage under these rules by organizing their R&D in this way. The legislation will be revised to narrow the definition of a cost-sharing arrangement and to better align the treatment of payments into, and payments received from, a cost-sharing arrangement by the company.

These changes will take effect on or after 1 April 2017.

Corporation Tax: tax deductibility of corporate interest expense

The government will introduce legislation with effect from 1 April 2017 to limit the tax deductions that companies can claim for their interest expenses. The new rules will restrict each group’s net deductions for interest to 30% of EBITDA that is taxable in the UK. An optional group ratio rule, based on the net-interest to EBITDA ratio for the worldwide group, may permit a greater amount to be deducted in some cases. The legislation also provides for repeal of the existing debt cap legislation and its replacement by a modified debt cap which will ensure that the net UK interest deduction doesn’t exceed the total net interest expense of the worldwide group. All groups will be able to deduct up to GBP 2 million of net interest expense per annum, so groups below this threshold will not need to apply the rules.

Additional Measures

Some of the additional main actions and measures that will be developed for future/separate legislation include:

  • Administrative changes will be made to research and development (R&D) tax credits to increase the certainty and simplicity around claims;
  • An exemption from withholding tax will be introduced for interest on debt traded on a multilateral trading facility, removing a barrier to the development of UK debt markets;
  • State Aid approval will be sought to extend provision of enterprise management incentives and high-end TV, animation and video games tax reliefs beyond 2018;
  • A consultation will be held on bringing non-UK resident companies, who are currently chargeable to Income Tax on their UK taxable income, and to non - resident Capital Gains Tax (CGT) on certain gains, within the scope of Corporation Tax, including the limitation to corporate interest expense deductibility and loss relief rules;
  • VAT registration and deregistration thresholds will be increased in line with inflation effective 1 April 2017 so that:
    • The taxable turnover threshold which determines whether a person must be registered for VAT, will be increased from GBP 83,000 to GBP 85,000;
    • The taxable turnover threshold which determines whether a person may apply for deregistration will be increased from GBP 81,000 to GBP 83,000; and
    • The registration and deregistration threshold for relevant acquisitions from other EU member states will also be increased from GBP 83,000 to GBP 85,000;
  • Consideration will be given to alternative methods of collecting VAT, including in relation to a split payment model to tax overseas businesses selling goods to UK consumers online;
  • A consultation will be held on proposals for late submission penalties and charging of penalty interest on late payments with the aim of adopting a consistent approach across taxes; and
  • A consultation will be launched by HMRC into its process for risk profiling large businesses to review how stronger compliance can be promoted.

Click the following links for the full Spring Budget 2017 and the full overview of tax legislation and rates.

Treaty Changes (2)

Iceland-Netherlands

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Iceland and the Netherlands Sign MOU on Automatic Exchange of Information

Officials from Iceland and the Netherlands have signed an MOU on the automatic exchange of information under the Mutual Assistance Convention as amended by the 2010 protocol. The MOU was signed by Iceland and the Netherlands on 13 February and 7 February 2017 respectively It sets out the scope of information to be exchanged automatically, the timing of exchange, and other related matters. The MOU is generally effective from 13 February 2017 and applies for the first time to information regarding the calendar year 2016.

Jersey-Mauritius

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Update - Tax Treaty between Jersey and Mauritius

The income tax treaty between Jersey and Mauritius was signed on 3 March 2017. It is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Jersey and Mauritius income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting Party for a period or periods aggregating more than 9 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • Royalties - 0%

Capital Gains

The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:

  • Gains from the alienation of immovable property situated in the other Party; and
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party.

Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation. For dividends received by a Mauritius resident company that owns at least 5% of the capital of the paying company, Mauritius will also provide a credit for the Jersey tax payable in respect of the profits out of which such dividend is paid.

Entry Into Force and Effect

The treaty will enter into force one the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

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