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Approved Changes (4)

Australia

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Australian Tax Incentives for Innovation Bill Approved

On 4 May 2016, both houses of the Australian parliament approved the Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016. The Bill includes tax incentives for early stage investors and amendments to the venture capital regimes.

Incentives for Early Stage Investors

Tax incentives for entities making new investments in Australian early stage innovation companies (ESIC) are introduced, including:

  • Entities that acquire newly issued shares in an Australian ESIC may receive a non-refundable carry-forward tax offset of 20% of the value of their investment subject to a maximum offset cap amount of AUD 200,000 - A total annual investment limit of AUD 50,000 for retail (non-sophisticated) investors; and
  • Investors may disregard capital gains realized on shares in qualifying ESICs that have been held for between one and ten years - Investors must disregard any capital losses realized on these shares held for less than ten years.

For the purpose of the incentives, an Australian-incorporated company will generally qualify as an ESIC if it is at an early stage of its development and it is developing new or significantly improved innovations with the purpose of commercialization to generate an economic return.

The incentives for investments in ESICs apply in relation to shares issued on or after 1 July 2016.

Venture Capital Regime Amendments

The Bill includes a number of amendments regarding the early stage venture capital limited partnership (ESVCLP) and venture capital limited partnership (VCLP) regimes. These include:

  • Providing non-refundable carry-forward tax offsets for limited partners in ESVCLPs, equal to up to 10% of contributions made by the partner to the ESVCLP during an income year;
  • Increasing the maximum fund size for ESVCLPs from AUD 100 million to AUD 200 million;
  • Removing the requirement that an ESVCLP divest an investment in an entity once the value of the entity’s assets exceeds AUD 250 million, but restricting tax concessions for such investments; and
  • Allowing entities in which a VCLP, ESVCLP or an Australian venture capital fund of funds (AFOF) has invested (the investee entity) to invest in other entities, provided that after the investment:
  • The investee entity controls the other entity; and
  • The other entity broadly satisfies the requirements to be an eligible venture capital investment.

The amendments to the venture capital regimes generally apply from 1 July 2016. However, the tax offset is available for qualifying contributions made to ESVCLPs that become unconditionally registered as an ESVCLP on or after 7 December 2015.

Click the following link to the Australian parliament website for the text of the Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016 as approved and the Explanatory Memorandum.

Panama

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German Newspaper Publishes Manifesto of "Panama Papers" Leaker

The German newspaper Süddeutsche Zeitung has recently published the manifesto of "John Doe", the leaker of the now infamous "Panama Papers". The following is an excerpt from the document.

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Income inequality is one of the defining issues of our time. It affects all of us, the world over. The debate over its sudden acceleration has raged for years, with politicians, academics and activists alike helpless to stop its steady growth despite countless speeches, statistical analyses, a few meagre protests, and the occasional documentary. Still, questions remain: why? And why now?

The Panama Papers provide a compelling answer to these questions: massive, pervasive corruption...

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Click the following link for the full text on the Süddeutsche Zeitung website.

Russia

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Russia Confirms Carry Forward of Losses Following Acquisition

The Russian Ministry of Finance recently issued Letter No. 03-03-06/1/17811, which confirms that the acquiring company in a merger has the right to offset taxable income using the carried forward losses of the acquired company. The letter also clarifies that eligible losses include the losses of the acquired company incurred prior to the acquisition, but that the losses may not be used to offset the taxable income of the acquiring company until the tax period following the period in which the acquisition occurred. In general, tax losses may be carried forward up to ten years from the year incurred.

South Africa

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South Africa to Create Public Beneficial Ownership Registry

During a recent meeting of the Africa Regional Open Government Partnership, South African Department of Public Service and Administration (DPSA) Deputy Minister Ayanda Dlodlo announced that the government has adopted a 2016-2017 national action plan that includes the creation of a beneficial ownership registry. The registry, which will be available to the public, will include beneficial ownership information on legal persons and arrangements. It will be implemented and managed by the DPSA with input from the South African Revenue Service and the National Treasury, as well as the G20 Anti-Corruption Working Group and the Financial Action Task Force.

Proposed Changes (2)

Taiwan

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Taiwan Government Proposes CFC Rules

On 29 April 2016, the Taiwan approved draft legislation for the introduction of controlled foreign company (CFC) rules. Currently, Taiwan has no specific rules targeting CFCs, although the introduction of rules has been under consideration for several years.

Under the draft rules, foreign subsidiaries located in low-tax jurisdictions would be considered CFCs if controlled by a Taiwan taxpayer and its related parties. For this purposes, low-tax jurisdictions include jurisdictions with a corporate tax rate below 11.9%. When the CFC rules apply, a Taiwan taxpayer is required to include in their taxable income their pro rata share of the CFC's income. The draft rules also provide that CFC losses may be carried forward up to ten years to offset CFC income, and that CFC income already taxed under the CFC rules is exempt from corporate income tax when repatriated to Taiwan.

The draft legislation is to be submitted to the Legislative Yuan before the end of May for approval.

United States

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U.S. Won't Adopt BEPS Project PE Standard into Tax Treaties until Profit Attribution Sorted out

According to recent comments from U.S. Treasury Attorney Advisor Brian Jenn, the U.S. will not move forward with the adoption of the new standards for permanent establishments as developed under Action 7 of the OECD BEPS Project until Treasury is confident that there is consensus with other countries on the rules for attribution of profits. The standard in question is the new anti-fragmenting rule regarding Article 5(4) of the OECD Model Convention, which includes that any one of the listed activity exceptions can still create a PE if the overall activity is not of a preparatory and auxiliary character. Treasury's issue with the standard is that while it may result in more PEs, the profit attribution rules will result in little or no income being attributed. According to Jenn, until the profit attribution issue is resolved, the only thing that would be achieved by adopting the standard is an additional compliance and administrative burden.

The development of guidance on the attribution of profits to PEs in relation to the new standard is included in the follow-up work for Action 7 and is to be completed by the end of 2016.

Treaty Changes (1)

Panama-Bahrain-Lebanon-Nauru-Vanuatu-OECD

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Panama, Bahrain, Lebanon, Nauru and Vanuatu Commit to Automatic Exchange of Financial Account Information

According to an OECD update dated 9 May 2016, Panama, Bahrain, Lebanon, Nauru and Vanuatu have committed to the automatic exchange of financial account information by 2018. Each country must now sign the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information and complete the required ratification procedures before the exchange can begin.

To date, over 100 countries have committed to the automatic exchange, and 80 have signed the multilateral agreement.

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