Worldwide Tax News
Bermuda CbC Exchange Law Published As Enacted
Bermuda has published the International Cooperation (Tax Information Exchange Agreements) Amendment (No. 3) Act 2017 as assented (enacted) 28 March 2017. The amendments made by the amending Act provide for the requirement to submit Country-by-Country (CbC) reports in Bermuda for fiscal year's beginning on or after 2016, and for the exchange of reports with other jurisdictions (previous coverage).
Reopening of Brazilian Foreign Assets Disclosure Regime Regulated
Brazil published Normative Instruction No. 1704/2017 in the Official Gazette on 3 April 2017. The Instruction regulates the reopening of the Currency and Tax Compliance Special Regime (Regime Especial de Regularização Cambial e Tributária, RERCT), which was approved by the Senate on 14 March and enacted on 31 March as Law No. 13.428/2017. With the reopening of the RERCT regime, taxpayers may disclose assets unreported up to 30 June 2016 subject to a 15% tax rate plus a 20.25% penalty (135% of the tax). Eligible taxpayers generally include Brazilian resident individual and legal entities, as well as non-residents if resident in Brazil as at 30 June 2016. The deadline to apply for the regime is 31 July 2017.
Notice on Dutch Dividends Withholding Tax Exemption for Exempt Companies from 2018
The Dutch Tax and Customs Administration has published a notice that from 2018, exempt entities such as pension funds or exempt investment companies, may opt for a direct exemption from withholding tax on dividends. Currently, dividend payments to such companies are subject to withholding tax, after which a refund needs to be claimed. The option will be available for both Dutch and foreign exempt legal entities.
Russia Clarifies Carry Forward of CFC Losses
The Russian Ministry of Finance recently published Letter No. 03-12-11/2/10244, which clarifies the carry forward of losses of a controlled foreign company (CFC). Under Russia's CFC rules, undistributed profits of a CFC are generally included in a Russian resident's tax base if holding at least 25% of the CFC (10% if total Russian holding in CFC exceeds 50%). For this purpose, the profits of the CFC may be determined based on the financial statements of the CFC, provided that the statements are subject to mandatory audit and the CFC is tax resident in a jurisdiction that has entered into an agreement with Russia for the exchange of information. Basing on CFC financial statements applies from 1 January 2015.
According to the letter, where a CFC has a loss for a year, the pre-tax loss is also recognized and taken into account in determining the CFC tax base for the controlling Russian resident based on the CFC's financial statements (subject to conditions above). CFC Losses incurred from 1 January 2015 may be carried forward indefinitely for determining the CFC tax base. CFC losses incurred prior to 1 January 2015 may also be carried forward, but are subject to a cap equal to the total losses incurred in the three years preceding 1 January 2015. In any case, however, CFC losses may not be carried forward unless the controlling Russian resident provided notice of the CFC for the year the losses were incurred.
Sweden Updates Documentation Guidance for Master and Local File
The Swedish Tax Agency (Skatteverket) has published updated guidance for the new Master file and Local file documentation requirements, which were approved by parliament on 1 March 2017 and generally apply for fiscal years beginning on or after 1 April 2017.
The guidance notes that the content requirements are designed in accordance with the OECD standard (BEPS Action 13), and include:
For the Master file (group part):
- General description of group activity, including factors affecting profit generation; details of top five products/services and others exceeding 5% of group sales; description of major markets; description of key corporate service functions and allocation of costs; description of significant restructurings; etc.;
- Information on group intangible assets, including description of overall strategy for development, ownership and use, and where R&D is conducted; list of important intangible assets and their legal owner; list of agreements related to intangible assets, such as cost-sharing, research, licensing; etc.;
- Information on intragroup financing, including general description of how the group is financed and agreements with independent lenders; details of group companies engaged in intragroup financing; and description of group pricing policy for financial transactions; and
- Financial details, including consolidated accounts and a list and description of unilateral APA's and other tax rulings affecting transfer pricing.
For the Local file (company-specific part):
- Information on the company, including management structure, organization chart, description of business and business strategy, information on restructurings and transfer/assignment of intangible assets the company is involved in, and key competitors;
- Information on related party transactions, including description of operations, transaction amounts, information on parties involved, copies of all important agreements, detailed functional and comparability analysis and methods used, details on comparables and adjustments made, copies of relevant unilateral APA's and tax rulings, etc.; and
- Financial information, including annual reports, description of how financial data is used in the application of pricing method, and a summary of the relevant financial information for the comparables used and the source of data.
In order to avoid duplication, information provided in the Master file does not need to be included in the Local file, although reference must be made in the Local file to the relevant information in the Master file.
In general, the new Master/Local file documentation requirements do not apply for small and medium sized companies that are part of a community of interests (associated enterprises) that in the previous year has less than 250 employees and either revenue not exceeding SEK 450 or balance sheet total not exceeding SEK 400 million.
In addition, transactions below a SEK 5 million threshold are generally deemed insignificant and do not have to be included as part of the Local file with regard to comparability analysis, methods selected, etc., although information that transactions took place and details of the other company should still be provided. This exception threshold applies based on the total transaction value per year at market value. The exception does not generally apply for transactions involving intangibles.
The Master file should be prepared by the deadline for the parent company's tax return. In the event the parent is resident in a foreign jurisdiction and is not required to prepare a Master file or otherwise fails to do so, the Swedish company is responsible. The Local file must be prepared by the Swedish company's tax return deadline, taking into account any extensions. Both the Master and Local file may be prepared in Swedish, Danish, Norwegian or English.
The Master/Local file documentation must be submitted upon request and kept for at least seven years after the end of the calendar year to which the documentation relates. When requested, the Tax Agency may request all or part of the documentation, and the deadline for submission will be determined case-by-case.
Togo Tax Changes for 2017 including Tax Rate Changes, Deduction Restrictions, and Strengthened Transfer Pricing Rules
A number of tax changes have been introduced in Togo for 2017 by the Finance and Management Act 2017 (Law no. 2017-002). The main changes are summarized as follows:
- The corporate tax rate is reduced from 29% to 28%;
- The withholding tax on payments for services and royalties to non-residents without a permanent establishment in Togo is increased from 15% to 20%;
- The VAT registration threshold is set at 50 million CFA franc, with registration and payment required from the day threshold is reached, and payment obligations continued for a period of three years after the threshold is no longer met;
- The disallowance of the deduction of interest, royalty, service, and certain other payments made to non-residents if the non-resident's jurisdiction is deemed to be a non-cooperative jurisdiction or have a preferential tax regime, unless the taxpayer provides details of the transactions and proves the price to be reasonable (at arm's length) (also applies for payments to resident companies subject to a preferential tax regime);
- The transfer pricing rules are expanded to cover transactions with entities resident in a jurisdiction deemed to be non-cooperative or have a preferential tax regime, whether related or not;
- The tax authority is empowered to make transfer pricing adjustments based on available information/comparables in the event a taxpayer fails to comply with a transfer pricing information request;
- Non-cooperative jurisdiction is defined as a jurisdiction that does not comply with the international standards for transparency and exchange of information and preferential regime is defined to include a regime where the effective rate is 50% or lower than the standard effective rate in Togo;
- A dependent (related party) relationship is defined to include a relationship between two entities when one entity holds a majority of the share capital of the other or exercises decision-making power in the other; or when two entities are under the control of a third entity that holds a majority of the share capital of both entities or exercises decision-making power in both entities.
Click the following link for a copy of the Finance and Management Act 2017 (French language). The changes are generally effective from 1 January 2017.
Iceland To Expand Scope of Joint Taxation and Interest Deduction Limitation
According to recent reports, the Iceland Ministry of Finance and Economic Affairs is preparing draft legislation to amend the Income Tax Act with regard to group taxation. The main amendments concern joint taxation and interest deduction limitation rules.
The first main amendment would expand the joint taxation rules so that companies from EEA and EFTA countries and the Faroe Islands could take part. Currently joint taxation is limited to Iceland tax residents only with a 90% ownership threshold.
The second main amendment would expand the interest deduction limitation rules to cases where the creditor is an Iceland resident. The current rules, which were only introduced from 2017 (previous coverage), include an interest deduction limit equal to 30% of EBITDA with certain exemptions, including when the creditor is subject to tax in Iceland.
Azerbaijan Approves Pending Tax Treaty with Israel
On 7 April 2017, the Azerbaijan parliament approved the law for the ratification of the pending income tax treaty with Israel. The treaty, signed 13 December 2016, 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.
Mauritius Concludes Tax Treaty Negotiations with Gambia, Gibraltar, and Malawi
According to an update from the Mauritius Revenue Authority, negotiations have concluded for income tax treaties with Gambia, Gibraltar, and Malawi. The treaties are the first of their kind between Mauritius and the respective jurisdictions, and must be signed and ratified before entering into force.
Ukraine Government Resubmits Legislation to Ratify Pending Tax Treaty with Malta
According to a recent announcement, the Ukraine government has approved and resubmitted legislation to parliament for the ratification of the pending income tax treaty with Malta. The treaty, signed 4 September 2013, is the first of its kind between the two countries.
The treaty covers Malta income tax, and Ukraine tax on profits of enterprise and personal income tax.
- Dividends - 5% if the beneficial owner is a company directly holding at least 20% of the paying company's capital; otherwise 15%
- Interest - 10%
- Royalties - 10%
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 movable property forming part of the business property of a permanent establishment in the other State; and
- Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated 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.
Article 21 (Limitation of Benefits) provides that a resident of a Contracting State shall receive the benefit of any reduction in or exemption from tax provided by the treaty if the main purpose or one of the main purposes of such resident or a connected person was to obtain the benefits of the treaty. The limitation does not apply if the resident is engaged in substantive business operations in its State of resident and the relief claimed is with respect to income connected with such operations.
Both countries apply the credit method for the elimination of double taxation.
The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.