Worldwide Tax News
The Ecuador Internal Revenue Service (SRI) has issued Resolution No. NAC-DGERCGC16-00000440, which sets out new conditions for the determination of whether a foreign jurisdiction is considered a tax haven. Under the new rules, a jurisdiction will be considered a tax haven if its tax regime meets at least two of the following conditions:
- It is expressly or tacitly established that the economic activity under the regime does not require a substantial development within the jurisdiction (does not apply to investment incentives);
- The effective tax rate is lower than 60% of the standard Ecuador rate (lower than 13.2%) or the rate is unknown;
- It does not allow for the exchange of information between tax authorities; and
- It allows entities to hold bearer shares or nominative owners that do not support the economic risk of their ownership.
Regardless of meeting the above conditions, a jurisdiction with a tax regime meeting any of the following conditions will be considered a tax haven:
- Regimes that apply for companies under foreign control, but not for domestic companies;
- Regimes that allow entities to keep rights in their capital with nominal or formal shareholders who do not bear the economic risk of their ownership and the beneficial owners of such rights are unknown;
- Regimes that grant an income tax exemption for foreign activities that involve merchandise that is not originated or intended for distribution in the territory in which the regime is established; and
- Regimes under which private entities are not required to register with the tax administration of the jurisdiction.
Tax haven status affects a number of tax issues in Ecuador, including:
- The general tax exemption for foreign income that has been taxed in another jurisdiction does not apply for income derived from a tax haven;
- The general exemption for dividends received from a foreign jurisdiction does not apply if received from a tax haven (10% rate applies);
- The withholding taxes on certain payments to tax havens are increased, including 10% for dividends and 25% for interest, royalties, and technical service fees; and
- Where an Ecuador company is owned by a resident of a tax haven, the corporate tax rate is increased to 25% (standard rate 22%) on the company's taxable income in proportion to the tax haven ownership, while all taxable income is subject to the increased rate if tax haven ownership exceeds 50%.
The Resolution applies from the date it was published in the Official Gazette, 24 October 2016.
Slovakia has reportedly adopted amendment to its domestic tax law to implement the amendments made to the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) concerning the exchange of cross border tax rulings and advance pricing agreements between EU Member States. The amendments were made by Council Directive (EU) 2015/2376 (previous coverage) and provide for the automatic exchange of cross border tax rulings and APAs with other EU Member States from 1 January 2017. The exchange also includes rulings and APAs issued, amended or renewed between 1 January 2012 and 31 December 2016 subject to certain conditions.
Brazil's Federal Revenue Department (RFB) has launched a public consultation on a draft normative instruction for Country-by-Country (CbC) reporting requirements. The draft requirements are generally in line with BEPS Action 13 and are to apply for fiscal years beginning on or after 1 January 2016. The main aspects of the requirements include:
- A reporting threshold of BRL 2.26 billion or EUR 750 million group revenue in the previous year (or EUR 750 million equivalent as of 31 Jan 2015);
- A primary requirement for ultimate parent entities resident in Brazil to file the report, as well as surrogate parent entity filing and local constituent entity filing where the ultimate parent is not required to file in its jurisdiction or Brazil is unable to obtain the report through exchange;
- A CbC reporting notification requirement for all constituent entities resident in Brazil on whether they are the ultimate parent or surrogate parent, or if neither, the identity and tax residence of the reporting entity; and
- The requirement that the CbC report be submitted by the deadline for the tax accounting return (Escrituração Contábil Fiscal -ECF), which is generally due by the last working day of June following the end of the year (calendar year).
The EU Economic and Financial Affairs Council has agreed on a proposal granting access for tax authorities to information held by authorities responsible for the prevention of money laundering. The directive will require EU Member States to enable access to information on the beneficial ownership of companies from 1 January 2018. The Council will adopt the directive once the European Parliament has given its opinion.
Click the following link for the full press release.
The Malaysian House of Representatives has completed the first reading of the Finance Bill 2016, which includes measures from the 2017 Budget (previous coverage). The Finance Bill also includes new penalties in relation to the late filing of Country-by-Country (CbC) reports and the filing of incorrect returns, information returns, or reports that omit required information. In such cases of non-compliance, a person will be liable to a fine of between MYR 20,000 and 100,000, imprisonment for a term of up to six months, or both.
Malaysia's CbC reporting requirements are expected to be finalized by the end of 2016 and apply from 2017. Master and Local file requirements are also expected.
Click the following link for the current draft of Finance Bill 2016.
On 8 November 2016, the New Zealand government released an updated tax policy work programme for 2016-17. The work programme covers three main areas, including:
- Enhancements to tax policy within broad-base, low-rate (BBLR) tax settings;
- International tax and base erosion and profit shifting (BEPS); and
- Business transformation and Better Public Services.
The BEPS related work in particular includes:
- Consideration of foreign hybrid instruments and entities in the context of BEPS;
- The establishment of new and updated tax treaties;
- Domestic implementation of a new global standard on the automatic exchange of financial bank account information (CRS);
- Consideration of New Zealand’s interest limitation rules in light of OECD recommendations;
- The amendment of tax treaties through the Multilateral Instrument; and
- Policy recommendations arising from the Government Inquiry into foreign trust disclosure requirements.
Click the following link for the Government tax policy work programme 2016-17.
U.S. Treasury Inspector General for Tax Administration Releases Report on Virtual Currencies Tax Compliance
On 8 November 2016, the US Treasury Inspector General for Tax Administration (TIGTA) released a review report evaluating the IRS’s strategy for addressing income produced through virtual currencies. In the report, TIGTA found that although the IRS issued Notice 2014-21, Virtual Currency Guidance (previous coverage), and established the Virtual Currency Issue Team, there has been little evidence of coordination between the responsible functions to identify and address potential taxpayer noncompliance issues for transactions involving virtual currencies. The report recommended that the IRS:
- Develop a coordinated virtual currency strategy that includes outcome goals, a description of how the agency intends to achieve those goals, and an action plan with a timeline for implementation;
- Provide updated guidance to reflect the necessary documentation requirements and tax treatments needed for the various uses of virtual currencies; and
- Revise third-party information reporting documents to identify the amounts of virtual currencies used in taxable transactions.
According to TIGTA, the IRS has agreed with the recommendations and plans to develop a virtual currency strategy, including an assessment of whether changes to information reporting documents are warranted, and to develop additional guidance.
On 4 November 2016, the income and capital tax treaty between Algeria and Mauritania entered into force. The treaty, signed 22 December 2011, is the first of its kind between the two countries.
The treaty covers Algerian tax on global income, tax on corporate profits, tax on mining profits, tax on professional activity, wealth tax, and royalties and taxes on income relating to hydrocarbons.
It covers Mauritanian tax on industrial and commercial profits, tax on income from movable properties, tax on income from immovable properties, tax on wages, salaries and pension, general tax on income, tax on agricultural crops, tax on non-commercial profits, and royalties.
The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise of one Contracting State furnishes services in the other State through employees for a period or periods aggregating more than 1 month within a 12-month period.
- Dividends - 10%
- Interest - 10%
- Royalties - 15%
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; 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 apply the credit method for the elimination of double taxation.
The treaty applies from 1 January 2017.
The first protocol to amend the 2002 income tax treaty between Latvia and Switzerland was signed on 2 November 2016. The main amendments made by the protocol include:
- The title and preamble of the treaty are replaced to introduce language developed under BEPS Action 6 that the Contracting States have a common intention to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through evasion or avoidance;
- Article 10 (Dividends) is replaced to include:
- A withholding tax exemption if the beneficial owner is a company that has directly held at least 10% of the paying company's capital for at least one year before the payment; otherwise 15% (original 5% if holding at least 20%; otherwise 15%); and
- A withholding tax exemption if the beneficial owner is a pension fund;
- Article 11 (Interest) is amended to include:
- A 0% withholding tax rate on interest paid by a company to another company that is the beneficial owner; otherwise 10% (original just 10%); and
- A withholding tax exemption if the beneficial owner is a pension fund or the interest is paid on a loan of any kind granted by a bank;
- Article 12 (Royalties) is amended to include a 0% withholding tax rate on royalties paid by a company to another company that is the beneficial owner; otherwise 5% (original 5% for the use of industrial, commercial or scientific equipment; otherwise 10%);
- Article 22A (Entitlement to Benefits) is added, which includes that a benefit of the treaty will not be granted if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit; unless it is established that granting that benefit in these circumstances would be consistent with the object and purpose of the relevant provisions of the treaty;
- Article 23 (Elimination of Double Taxation) is amended in respect of Switzerland to clarify that Switzerland will only provide an exemption for gains from the sale of shares deriving value from immovable property (Article 13 (4)) if their actual taxation in Latvia is demonstrated
- Article 25 (Mutual Agreement Procedure) is amended to include provisions regarding arbitration in cases where mutual agreement has not been reached within three years of a case being submitted;
- Article 26 (Exchange of Information) is replaced to bring it in line with the OECD standard for information exchange; and
- The final protocol to the treaty is amended to include the provision that if the holding period for the dividend withholding tax exemption is met after the dividend is paid, the beneficial owner may then request a refund of the tax withheld.
The protocol will enter into force once the ratification instruments are exchanged, and will generally apply from 1 January of the year following its entry into force. However, the changes to Article 25 (Mutual Agreement Procedure) will apply from the date of the protocol's entry into force, with the three-year period for arbitration beginning from that date for pending cases.
On 3 November 2016, Portugal's Council of Ministers approved the pending protocol to the 1971 income tax treaty with France and the pending tax treaty with Montenegro. The protocol to the treaty with France was signed 26 August 2016 and is the first to amend the treaty. The tax treaty with Montenegro was signed 12 July 2016 and is the first of its kind between the two countries.
Both instruments will enter into force after the ratification instruments are exchanged.
Singapore and Italy Sign Competent Authority Agreement for Exchange of Financial Account Information
According to an update from the Inland Revenue Authority of Singapore, a competent authority agreement for the automatic exchange of financial account information was signed with Italy on 3 November 2016. Under the agreement, each country will automatically exchange information on accounts held in the respective country by tax residents of the other country based on the OECD Common Reporting Standard (CRS). The automatic exchange is to begin by September 2018 for information collected on the 2017 reporting year.