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Worldwide Tax News

Approved Changes (5)

France

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French Constitutional Court Holds 3% Surtax on Profit Distributions is Unconstitutional

On 6 October 2017, the French Constitutional Court (Conseil Constitutionnel) issued its decision that the 3% surtax on profit (dividend) distributions is unconstitutional. The decision follows a decision of the Court of Justice of the European Union (CJEU) that dividends distributed by a French company that represent a redistribution of dividends received from its EU subsidiaries cannot be subject to the 3% surtax on profit distributions, as this would be a form of a double taxation in violation of the EU Parent-Subsidiary Directive. After the CJEU decision was given, the French Council of State (Conseil d'État - Supreme Court) requested a ruling on the constitutionality of the 3% surtax from the Constitutional Court on redistributions of dividends received from a French or non-EU subsidiary, which would still fall within the scope of the surtax. In its decision the Constitutional Court found that such differing treatment could not be justified and violates the equality principle, and ruled the surtax as a whole is contrary to the Constitution. As such, the surtax is repealed from the date the decision is published.

Note - The repeal of the 3% surtax has already been included as part of the draft Finance Bill for 2018 (previous coverage).

Malta

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Malta Introduces Rules for Notional Interest Deduction

On 5 October 2017, Malta's Ministry for Finance issued Legal Notice 262 of 2017 on Notional Interest Deduction Rules. Under the rules, an undertaking will be entitled to an optional deduction equal to a reference rate times the risk capital of the undertaking for the accounting period ending in the year preceding the year of assessment. For this purpose:

  • Undertaking means a company or a partnership resident in Malta or a permanent establishment situated in Malta of a company or a partnership that is not resident in Malta;
  • Reference rate means the risk-free rate set by reference to the current yield to maturity on Malta Government Stocks with a remaining term of approximately 20 years plus a premium of 5%; and
  • Risk capital means:
    • Where the undertaking is a company or partnership resident in Malta, the share or partnership capital of the undertaking, any share premium, positive retained earnings, loans or other debt borrowed by the undertaking which do not bear interest, and any other reserves resulting from a contribution to the undertaking, and any other item which is shown as equity in the financial statements of the undertaking; and
    • Where the undertaking is a permanent establishment of a company or partnership that is not resident in Malta, the term shall mean the capital of that undertaking which is attributable to the permanent establishment.

The notional interest amount is limited to 90% of chargeable income for any given year, with the excess allowed to be carried forward for deduction in subsequent years. Where an undertaking claims the deduction, the shareholder or partner, as the case may be, of the undertaking at the end of the year preceding the particular year of assessment shall be deemed to have received in that year an amount of income equal to the interest on risk capital claimed as a deduction by the undertaking for the said year of assessment. Where there are multiple shareholders or partners, the amount deemed received will be based on the proportion of the nominal value of the risk capital pertaining to each shareholder or partner.

The notional interest deduction rules apply from the year of assessment 2018.

Mexico

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Mexico Draft CbC Report, Master File, and Local File Format Guidelines Published

The Office of the Taxpayers' Advocate (PRODECON) of the Mexican government has published the draft format guidelines for the presentation of the Country-by-Country (CbC) report, Master file, and Local file, as well as a related FAQ document. The announcement of the publication notes that the format guidelines and FAQ have been agreed between the Tax Administration (SAT) and PRODECON and that the final element, the electronic platform for actual submission, is to be released by the SAT during the last week of October.

Under Mexico's requirements, which apply from 1 January 2016, a Master file and Local file are required from companies with annual revenue in the preceding year exceeding approximately MXN 645 million (threshold adjusted yearly), and CbC reports are required from MNE groups meeting an MXN 12 billion threshold in the previous year (previous coverage). The deadline for the first submissions is 31 December 2017.

Click the following link for the PRODECON announcement, which includes links to the draft guidelines and FAQ (Spanish language).

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Upcoming OECD Webcast on Latest Tax Updates

The OECD Centre for Tax Policy and Administration will hold a webcast on 17 October 2017 for the latest tax updates, including:

  • BEPS, including the latest results of the minimum standard peer reviews and implementation guidance.
  • Current public consultation on digital economy taxation.
  • Other recent developments: work of the Forum on Tax Administration, and on tax transparency.

Click the following link for the OECD webcast page to register.

Singapore

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Singapore Parliament Approves Income Tax Act (Amendment) Bill

On 2 October 2017, the Singapore parliament approved the Income Tax (Amendment) Bill No. 36/2017, which includes measures of the 2017 Budget (previous coverage). Some of the main measures include:

  • Amendments regarding cost sharing agreements (CSA) for R&D, including that from 2018, payments made under a CSA need not be related to the taxpayers trade or business, and need not be undertaken in Singapore if unrelated to the taxpayers trade or business, to be deductible, as well as new rules for determination of qualifying expenditure under a CSA for the purpose of enhanced deductions for R&D;
  • The introduction of mandatory transfer pricing documentation requirements from Year of Assessment (YA) 2019 for companies with gross revenue exceeding SGD 10 million, with the documentation to be prepared by the company's tax return deadline and submitted within 30 days of a notice of request (documentation based on existing guidelines);
  • The introduction of an SGD 10,000 penalty for failing to comply with the transfer pricing documentation requirements, as well as a 5% surcharge on transfer pricing adjustments made by the tax authority, including where income is increased, or deductions or losses are reduced;
  • The introduction of new rules for the tax treatment for foreign companies re-domiciled in Singapore, including in relation to deductions for bad debts, impairment losses, expenses incurred, and trading stock, as well as allowances for machinery or plant, writing-down allowances for IP rights, etc.; and
  • Amendments to enable the Ministry of Finance to amend any tax treaty in order to give effect to Singapore's obligations under the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).

The Bill also includes a number of measures in relation to the adoption of new financial reporting standards, amendments/extensions for various concessionary tax rates for particular industries, changes in the corporate income tax rebate, and other miscellaneous amendments.

The Bill will enter into force after it is assented (enacted) by the president and published in the Official Gazette.

Proposed Changes (3)

Ireland

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Ireland 2018 Budget Delivered

On 10 October 2017, Ireland's Minister for Finance, Paschal Donohoe, delivered the 2018 Budget. The main tax measures of the Budget include:

  • Amendments to the Universal Social Charge (USC) rates and bands as follows:
    • EUR 0 – 12,012 @ 0.5%
    • EUR 12,012 – 19,372 @ 2%
    • EUR 19,372 – 70,044 @ 4.75%
    • EUR 70,044+ @ 8%
    • Self-employed income over €100,000: 3% surcharge
  • An increase of EUR 750 in the income tax standard rate band (20%) for all earners, from EUR 33,800 to EUR 34,550 for single individuals and from EUR 42,800 to EUR 43,550 for married one earner couples;
  • The introduction of a sugar tax on sugar-sweetened beverages at a rate of 20 cents per liter on beverages with a sugar content between 5 grams and 8 grams per 100ml, and at a rate of 30 cents per liter on beverages with a sugar content of 8 grams or above per 100ml;
  • The introduction of the Key Employee Engagement Programme (KEEP) to facilitate the use of share-based remuneration by unquoted SME companies to attract key employees, with gains arising to employees on the exercise of KEEP share options subject to capital gains tax on disposal of the shares, instead of the current liability to income tax;
  • A change in the capital allowances for intangible assets to provide that the deduction for capital allowances, and any related interest expense, will be limited to 80% of the relevant income arising from the intangible asset in an accounting period;
  • The extension of the Accelerated Capital Allowances for Energy Efficient Equipment to the end of 2020;
  • An increase in the rate of stamp duty on non-residential property from 2% to 6%; and
  • A 0.1% increase (from 0.7% to 0.8%) in the National Training Fund Levy payable by employers with respect of reckonable earnings of employees in Class A and Class H employments.

Click the following link for the 2018 Budget page for more information.

Slovenia

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Slovenia to Amend Lump-sum Expense Deduction Scheme

On 29 September 2017, draft legislation was submitted to the Slovenian parliament to amend the countries Lump-sum Expense Deduction Scheme for small companies. The main change to the scheme is an increase in the qualifying threshold from EUR 100,000 tax annual taxable income to EUR 150,000, along with a mandatory exit rule if the average annual taxable income exceeds the threshold in two consecutive periods. In addition, related party income will be considered in determining if the threshold is met. Lastly, the lump sum deduction is capped at EUR 40,000, which is increased to EUR 80,000 if employing at least one employee for whom social security payments are made.

United States

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U.S. Treasury Publishes Report on Eight Regulations for Possible Withdrawal, Revocation, or Modification

The U.S. Treasury has published its 2 October 2017 report to the president on identifying and reducing tax regulatory burdens under Executive Order 13789. The report provides a summary of the proposed action for eight regulations that Treasury has identified for possible withdrawal, revocation, or modification.

Proposed regulations to be withdrawn entirely include:

  • Proposed Regulations under Section 2704 on Restrictions on Liquidation of an Interest for Estate, Gift and Generation-Skipping Transfer Taxes; and
  • Proposed Regulations under Section 103 on Definition of Political Subdivision.

Regulations to consider revoking in part include:

  • Final Regulations under Section 7602 on the Participation of a Person Described in Section 6103(n) in a Summons Interview;
  • Regulations under Section 707 and Section 752 on Treatment of Partnership Liabilities; and
  • Final and Temporary Regulations under Section 385 on the Treatment of Certain Interests in Corporations as Stock or Indebtedness, and in particular:
    • The potential revocation of the documentation regulations (documentation requirement already delayed to 2019); and
    • Retaining the distribution regulations that limit the ability of corporations to generate additional interest deductions without new investment in the United States pending enactment of tax reform.

Regulations to consider substantially revising include:

  • Final Regulations under Section 367 on the Treatment of Certain Transfers of Property to Foreign Corporations;
  • Temporary Regulations under Section 337(d) on Certain Transfers of Property to Regulated Investment Companies (RICs) and Real Estate Investment Trusts (REITs); and
  • Final Regulations under Section 987 on Income and Currency Gain or Loss With Respect to a Section 987 Qualified Business Unit.

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

Treaty Changes (5)

Hong Kong-OECD

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Hong Kong Publishes Bill to Allow Participation in Mutual Assistance Convention

The Hong Kong Government has announced the publication of the Inland Revenue (Amendment) (No. 5) Bill 2017 in the Official Gazette on 6 October 2017. The Bill would allow for Hong Kong to take part in the multilateral Convention on Mutual Administrative Assistance in Tax Matters and to align the Inland Revenue Ordinance with the OECD Common Report Standard (CRS) for the automatic exchange of financial account information. In addition to exchange under CRS, the announcement also notes Hong Kong's need to take part in the Mutual Assistance convention for the purpose of Country-by-Country report and tax ruling exchange.

India-Kenya

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Tax Treaty between India and Kenya has Entered into Force

According to recent reports, the new income tax treaty between India and Kenya entered into force on 30 August 2017. The treaty, signed 11 July 2016, replaces the 1985 income tax treaty between the two countries.

Taxes Covered

The treaty covers Indian income tax, including any surcharge thereon, and Kenyan taxes on income chargeable under the Income Tax Act.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 90 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 10%
  • Fees for management, professional and technical services - 10%

Capital Gains

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;
  • Gains from the alienation of shares of the capital stock of a company or of an interest in a partnership, trust or estate, the property of which consists directly or indirectly principally of immovable property situated in the other State; and
  • Gains from the alienation of shares, other than the above, in a company resident 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.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Limitation of Benefits

Article 29 (Limitation of Benefits) includes the provision that a resident of a Contracting State will not be entitled to the benefits of the treaty if its affairs were arranged with the main purpose or one of the main purposes to take the benefits.

Article 29 also includes the provision that any person, including legal entities, without bonafide business activities will not be entitled to the benefits of the treaty.

Effective Date

The treaty generally applies in India from 1 April 2018. It applies in Kenya from 1 January 2018 in respect of withholding taxes and applies for other taxes on income arising for the year of income beginning on or after 1 January 2017.

The 1985 tax treaty between the two countries ceases to have effect from the date the new treaty is effective.

Morocco-Netherlands

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Morocco Approves Pending Protocol to SSA with the Netherlands

On 2 October 2017, the Moroccan Council of Ministers approved the pending protocol to the 1972 social security agreement with the Netherlands. The protocol, signed 4 June 2016, is the third to amend the agreement and will enter into force after the ratification instruments are exchanged.

Russia-Turkey

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SSA between Russia and Turkey under Negotiation

On 3 October 2017, officials from Russia and Turkey met to discuss labor issues, including the ongoing negotiations for a social security agreement. Any resulting agreement would be the first of its kind between the two countries and must be finalized, signed, and ratified before entering into force. The next round of talks is scheduled for February 2018.

United States-Greece

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U.S. Publishes CbC Exchange Arrangement with Greece

The U.S. IRS has published the bilateral competent authority arrangement signed with Greece on the exchange of Country-by-Country (CbC) reports. The arrangement was signed on and is effective from 27 September 2017.

The arrangement provides that pursuant to the provisions of Article 18 (Exchange of Information) of the 1950 income tax treaty between the two countries, each competent authority intends to automatically exchange CbC reports received from each reporting entity resident for tax purposes in its jurisdiction, provided that, on the basis of the information provided in the CbC report, one or more constituent entities of the MNE group of the reporting entity are resident for tax purposes in the jurisdiction of the other competent authority, or are subject to tax with respect to the business carried out through a permanent establishment situated in the other jurisdiction.

With respect to fiscal years beginning on or after 1 January 2016, CbC reports are to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC report relates. With respect to fiscal years beginning on or after 1 January 2017, reports are to be exchanged no later than 15 months after the last day of the fiscal year.

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