Worldwide Tax News
During its meeting held 8 November 2016, the Council of the European Union agreed on the criteria and the process for the establishment of an EU list of non-cooperative jurisdictions in taxation matters. The criteria are summarized as follows:
Tax transparency criteria
- Initial criterion: The jurisdiction should have committed to and started the legislative process to implement the OECD Common Reporting Standard (CRS), with first exchanges in 2018 at the latest, and have arrangements in place to be able to exchange information with all EU Member States by the end of 2017.
- Future criterion: The jurisdiction must have at least “Largely Compliant” ratings by the Global Forum with respect to the CRS from 2018 and with respect to the Exchange of Information on Request standard (beneficial ownership exchange will also be considered in the future).
Fair Taxation criteria
- The jurisdiction should have no preferential tax measures that could be regarded as harmful; and
- The jurisdiction should not facilitate offshore structures or arrangements aimed at attracting profits that do not reflect real economic activity in the jurisdiction.
Implementation of anti-BEPS measures
- Initial criterion: The jurisdiction should commit, by the end of 2017, to the agreed OECD anti-BEPS minimum standards and their consistent implementation.
- Future criterion: Once the reviews on the implementation of the minimum standards are completed, the jurisdiction should receive a positive assessment of their effective implementation of the agreed OECD anti-BEPS minimum standards.
Screening of jurisdiction is to be completed by September 2017, so that the Council can endorse the list of non-cooperative jurisdictions by the end of 2017.
Click the following link for the Council conclusions on the establishment of an EU list of non-cooperative jurisdictions.
As part of Colombia's tax reform plans for 2017 (previous coverage), a number of measures have been proposed based on the OECD BEPS project. The measures include:
- The introduction of controlled foreign company (CFC) rules (Action 3) that would require taxpayers with a 10% or greater direct or indirect holdings in a CFC to include their pro-rata share of the CFC's passive income in their taxable income for the year;
- The alignment of transfer pricing rules with the latest OECD guidance (Action 8-10), including that for transactions involving raw materials and commodities, the most accurate transfer pricing method is the comparable uncontrolled price (CUP) method;
- The introduction of mandatory discourse rules for tax planning schemes (Action 12) with a primary disclosure obligation for promoters of tax schemes and a secondary disclosure obligation for users of tax schemes; and
- The introduction of new transfer pricing documentation requirements (Action 13), including:
- Country-by-Country reporting requirements for Colombian ultimate parents of MNE groups meeting a consolidated group revenue of UVT 81 million (~USD 816 million), and for local constituent entities appointed to file; and
- Master and Local file requirements for taxpayers with gross equity exceeding UVT 100,000 (~USD 1 million) or gross revenue exceeding UVT 61,000 (~USD 615,000).
Details of applicable years and related deadlines for the measures are not yet finalized, although the transfer pricing documentation requirements are expected to apply from 2016.
Note - UVT (tax value unit or unidad de valor tributario) for 2016 is COP 29,753 (~USD 10.1 November 2016). The value is adjusted annually based on the accumulated variation in the retail price index.
The Isle of Man Treasury has launched a consultation on the draft Beneficial Ownership Bill 2017, which seeks to give effect to the Island’s obligation arising from an Exchange of Notes with the UK to introduce a central database of beneficial ownership for corporate and legal entities incorporated in the Isle of Man by 30 June 2017.
The legislation includes that each legal entity will be required to appoint a nominated officer to whom legal owners must provide details of all beneficial owners and their interests. The nominated officer must then submit the required details of the "registrable beneficial owners", which includes those with beneficial ownership or control of 25% or more of a legal entity. Access to the database will be limited to competent authorities and a small number of other bodies with similar functions for permitted purposes. Legal entities will also have access to view, submit, and amend information in relation to that entity and authorize access to information by third parties.
Click the following link for the consultation page. Submissions must be made by 16 December 2016.
The Mali Ministry of Finance recently released the draft budget for 2017, which includes the introduction of new transfer pricing rules. Mali currently has no specific transfer pricing regime, although the tax authority is empowered to adjust the tax base when transactions with non-resident parties are not conducted at arm's length.
The main aspects of the draft transfer pricing rules are as follows:
- Related parties are defined to include where one party has direct or indirect capital ownership of 50% or more, or has effective decision-making power in another, or where multiple parties are controlled by a third party meeting the same conditions;
- The transfer pricing rules will apply regardless of two parties being related for transactions undertaken with a non-resident party located in a low-tax jurisdiction (lower than Mali's rate by 10% or more) or a non-cooperative jurisdiction (lack of transparency or exchange of information with Mali - list to be issued)
- Taxpayers under audit will be required to disclose the following information within one month) of request by the tax authorities (possible extension up to three months):
- The nature of relationships with non-resident companies;
- A description of activities with non-resident companies;
- The transfer pricing method used to determine prices for transactions with non-resident companies;
- The foreign tax treatment of operations undertaken with non-resident dependent companies;
- Transfer pricing documentation requirements will be introduced that include:
- Group-level documentation, including details of legal structure, business activity, functions performed and risks assumed, intangible assets, and transfer pricing policy; and
- Taxpayer-specific documentation, including details of business activities, related-party transactions, the transfer pricing methods used, the comparable analysis, cost-sharing agreements, and advance pricing agreements (APAs); and
- Taxpayers will be allowed to request APAs from the tax authority.
Additional details of the new rules will be published once available.
On 7 November 2016, the Swedish Ministry of Finance published a report and draft legislation for the introduction of a financial activities tax. The report was prepared by a government committee appointed to in May 2015 to look into a tax on the financial sector to offset the tax advantage the sector receives from its general exemption from value added tax (VAT).
Due to the technical and fiscal difficulties of appropriately levying an indirect tax on financial service transactions, the report recommends imposing a financial activities tax based on a financial service provider's salary costs. The rate recommended is 15% on total salary costs incurred during a year that are reasonable attributed to supplies of VAT-exempt financial services. As proposed, the tax would apply for banks, insurance companies, fund companies, and similar financial services providers, as well as companies with treasury functions, intermediaries of financial services, and IT-companies providing financial services. The tax would also apply for Swedish companies that receive VAT-exempt financial services from abroad.
Subject to approval, the financial activities tax is to enter into force on 1 January 2018. Click the following link the report and legislation (Swedish language).
On 7 November 2016, officials from Finland and Portugal signed a new income tax treaty. The treaty will enter into force after the ratification instruments are exchanged, and once in force and effective will replace the 1970 tax treaty between the two countries.
Additional details will be published once available.
The protocol to the 1952 social security agreement between France and Monaco entered into force on 1 November 2016. The protocol, signed 18 March 2014, provides that teleworkers residing in France, as defined in the protocol, will be subject Monaco social legislation for the duration of the workers activity if working for a Monaco-based company. It is the sixth protocol to amend the agreement, and applies from the date of its entry into force.
Officials from Lesotho and the UK signed a new income and capital tax treaty on 3 November 2016. Once in force and effective, the treaty will replace the 1997 tax treaty between the two countries.
The treaty covers Lesotho taxes imposed under the Income Tax Act, 1993 (Act No. 9 of 1993), and covers UK income tax, corporation tax, and capital gains tax.
If a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be entitled to the benefits of the treaty aside from those covered in Articles 21 (Elimination of Double Taxation), 23 (Non-Discrimination), and 24 (Mutual Agreement Procedure).
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 State for a period or periods aggregating more than 183 days within any 12-month period.
- Dividends -
- 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital;
- 15% if paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Article 6 (Income from Immovable Property) by an investment vehicle that distributes most of its income annually and whose income from such immovable property is exempted from tax (unless beneficial owner is a pension scheme);
- Otherwise 10%
- Interest - 10%
- Royalties - 7.5%
The following capital gains derived by a resident of one Contracting State may be taxed by the other State:
- Gains from the alienation of immovable property situated in the other State;
- Gains from the alienation of shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other State (exemption for shares substantially and regularly traded on a stock exchange); and
- Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Both countries generally apply the credit method for the elimination of double taxation. However, the UK will exempt dividends paid by a Lesotho company to a company resident in the UK if the conditions for an exemption under UK law are met. An exemption will also apply for profits of a permanent establishment in Lesotho of a UK company if the conditions for an exemption under UK law are met.
Article 22 (Limitation of Relief) includes that if any income is taxed in a Contracting State by reference to the amount remitted or received in that State and not by reference to the full amount, then any relief from tax provided for by the treaty in the other State will be limited to the amount taxed by the first-mentioned State.
In addition, the relief granted under Articles 10 (Dividends), 11 (Interest), 12 (Royalties), and 20 (Other Income) will not be available if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or rights in respect of which the dividends, interest, royalties or other income are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.
The treaty will enter into force once the ratification instruments are exchanged.
It will apply in Lesotho from the first day of the second month following its entry into force in respect of withholding taxes and from the date of its entry into force for other taxes.
It will apply in the UK from the first day of the second month following its entry into force in respect of withholding taxes, from 1 April next following its entry into force in respect of corporation tax, and from 6 April next following its entry into force in respect of income tax and capital gains tax.
The 1997 tax treaty between the two countries will cease to have effect in respect of any tax from the date the new treaty is effective and will terminate on the last such date.