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Approved Changes (2)

Iceland

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Iceland Repeals Resident Lender Exemption for New Interest Deduction Rules

On 1 June 2017, Iceland's parliament voted to approve the Law amending various provisions on taxes, duties, and charges. One of the main amendments of the law impacting companies is the repeal of item B under paragraph 3 of Article 57b of the Income Tax Act, which provided an exemption from Iceland's new interest deduction limitation rules where the lender has an unlimited tax obligation in Iceland (i.e., the lender is tax resident in Iceland).

Iceland's interest deduction limitation rules were introduced effective 1 January 2017 and include a limit equal to 30% of EBITDA. Aside from the repealed exemption where the lender is resident in Iceland, other exemptions still apply, including where net interest expense is less than ISK 100 million, the equity ratio of the taxpayer is not lower than 2% below its group equity ratio, or the taxpayer is financial institution or insurance company (or owned by such company's and involved in similar operations).

Click the following link for the full text of the Law (Icelandic language) as published on the parliament website.

Nigeria

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Nigeria Launches Nine-Month Tax Regularization Scheme

Nigeria has launched the Voluntary Assets and Income Declaration Scheme (VAIDS), which will run for nine months beginning 1 July 2017 and ending 31 March 2018. The scheme provides relief from penalties and interest for all taxpayers on outstanding tax liabilities on previously undeclared income and assets from all sources for the 2011 to 2016 years of assessment, as well as immunity from prosecution.

Proposed Changes (2)

European Union

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EU Council Publishes Estonian Presidency Roadmap for Addressing BEPS

The Council of the EU has published the final version of the Estonian Presidency Roadmap, which sets out the work in the Council during the coming months in the field of Base Erosion and Profit Shifting (BEPS). Estonia took over the EU Presidency on 1 July 2017.

Short-term work includes:

  • Reaching agreement on an EU list of third country non-cooperative jurisdictions;
  • Ensuring the rollback of all remaining non-compliant patent box regime (not in compliance with modified nexus approach) and closing the standstill review of all new patent boxes;
  • Seeking agreement on the key elements of a good governance in tax matters clause to be inserted in agreements between the EU and third countries; and
  • Supporting the implementation of the Council conclusions on the future of the Code of Conduct (Business Taxation), including work on applying the modified nexus approach to non-IP regimes.

Medium-term work includes:

  • Exploring options to move forward on amendments to the EU Interest and Royalties Directive, which has included proposed anti-abuse provisions, minimum effective tax provisions, and other options;
  • Finishing the first round of examination of the proposed Common Corporate Tax Base (CCTB) (first step to Common Consolidated Corporate Tax Base), and launching a discussion on coordinated response to the challenges of digital economy, using CCTB as a framework;
  • Moving forward with the technical examination of the European Commission proposal for mandatory reporting of cross-border tax planning schemes;
  • Continuing work on the mandate of negotiations for EU anti-fraud agreements with Andorra, Monaco, San Marino, and Switzerland, while focusing first on the anti-fraud and tax information exchange agreement with Liechtenstein; and
  • Continuing work on addressing abuse issues in relation to payments made from the EU to third countries (outbound payments), with an assessment to be made when new data on the effectiveness of anti-abuse measures in EU Directives has become available.

Click the following link for the full text of the Estonian Presidency Roadmap.

Netherlands

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Dutch Consultation on Implementation of Anti-Tax Avoidance Directive

The Dutch government has launched a public consultation on a proposal to implement the measures of the Anti-Tax Avoidance Directive (EU) 2016/1164 (ATAD1) into domestic law. The Directive includes anti-avoidance rules in five areas, including interest limitation rules, exit taxation rules, a general anti-abuse rule (GAAR), controlled foreign company (CFC) rules, and hybrid mismatch rules. With regard to each, the proposal includes the following:

Interest Limitation Rules

A 30% of EBITDA net interest expense deduction limitation is proposed with a EUR 3 million safe harbor and an exemption for companies that are not a member of a group. Excess interest expense can be carried forward indefinitely. Also included are two group ratio based rules. These include a rule that a taxpayer's interest deduction will not be limited if its equity to total assets is at most 2% lower than the corresponding group ratio, and a rule that a taxpayer can apply the ratio of the group's net interest expense to EBITDA if higher than the standard 30% limit (e.g., if the group had net interest of 150 million and EBITDA of 300 million, the taxpayer could deduct up to 50% of its EBITDA).

Certain provisions of ATAD1, however, are not included in the proposal; in particular the exemptions for financial institutions and financing for public infrastructure. The main reasons for not including the exemptions is that financial institutions typically do not have net interest expense (receive more interest than they pay) and in general, implementing the exemptions would lead to practical problems and increased complexity and administrative burden. Further, the Netherlands is not planning to grandfather existing interest limitation provisions, which would be allowed under ATAD1.

Exit Taxation Rules

Given the existing exit taxation rules, only minor adjustments are proposed to comply with ATAD1.

GAAR

Given the GAAR provisions already provided in existing case law, the GAAR provisions of ATAD1 are not seen as needed.

CFC Rules

The proposal references two models for the CFC rules: Model A, which deals with the inclusion of undistributed (mainly) passive CFC income; and Model B, which is based on the arm's length principle and provides for the inclusion of undistributed income arising from non-genuine arrangements that have been put in place for the essential purpose of obtaining a tax advantage. The proposal includes the preferred Model A approach, although Model B may still be considered.

In particular, the proposal includes that a foreign company (or permanent establishment) will be considered a CFC if the Dutch controlling taxpayer has an interest representing more than 50% of the capital, voting rights, or rights to profits of the company. If the undistributed passive income of the CFC (interest, royalties, dividends, etc.) is taxed at a rate less than half of the tax rate that would be charged in the Netherlands, the income will be included in the taxable income of the Dutch taxpayer. However, certain exemptions are provided, including where the CFC carries on substantive economic activity in relation to the income as supported by staff, equipment, assets, and premises.

Hybrid Mismatch Rules

Given the recent amendment of ATAD1 by the Council Directive (EU) 2017/952 (ATAD2) regarding hybrid mismatches, separate legislation will be proposed and consulted on at a later date.

Effective Date

The effective date of the proposal is 1 January 2019. Regarding hybrid mismatch rules, the future proposal will include a 1 January 2020 effective date.

Click the following link for the consultation webpage (Dutch language). The consultation ends 21 August 2017.

Treaty Changes (8)

Bangladesh-Maldives

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Bangladesh and Maldives Conclude Tax Treaty Negotiations

According to recent reports, officials from Bangladesh and the Maldives concluded negotiations held 3 to 6 July with the initialing of an income tax treaty. The treaty is the first of its kind between the two countries and must be signed and ratified before entering into force.

Cameroon-OECD

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Cameroon Signs Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS

The OECD has announced that on 11 July 2017, Cameroon signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI), bringing the total number of signatories to 70. According to the provisional list of reservations and notifications (French language), Cameroon wishes to have five tax treaties covered by the MLI. For the MLI to become effective for a particular treaty, the other jurisdiction must also include the treaty as a covered agreement, and both sides must have completed the required procedures for the ratification of the MLI (previous coverage).

China-Norway

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China and Norway to Negotiate Tax Treaty Update

According to a release from the Norwegian Ministry of Finance, the Finance Ministers of China and Norway met in the margins of the G20 Summit on 8 July 2017 to discuss the global economic situation and bilateral relations, including the importance of starting negotiations on the update of the 1986 tax treaty between the two countries. Any amendments would be the first to the treaty. Separate to possible bilateral negotiations, the treaty is also a covered agreement for both countries in their provisional position for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS.

Cyprus-San Marino

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Update - Protocol to Tax Treaty between Cyprus and San Marino

The protocol to the 2007 income tax treaty between Cyprus and San Marino was signed on 19 May 2017. The protocol, which is the first to amend the treaty, replaces Article 25 (Exchange of Information) to bring it in line with the OECD standard for information exchange. It will enter into force once the ratification instruments are exchanged and apply from 1 January of the year following its entry into force.

Moldova-Untd A Emirates

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Tax Treaty between Moldova and the U.A.E. Signed

Moldova's Ministry of Foreign Affairs and European Integration has announced the signing of an income tax treaty with the United Arab Emirates on 10 July 2017. The treaty 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.

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OECD Releases Preliminary Version of BEPS MLI Matching Database for Comment

The OECD has released a preliminary (beta) version of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI) Matching Database. The tool allows for the selection of country pairs to see how a particular tax treaty will be impacted by the BEPS MLI based on the provisional positions of the MLI signatories.

Comments and suggestions from the public are welcomed on the development of improved versions of the Database.

Saudi Arabia-Jordan

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Saudi Arabia Approves Pending Tax Treaty with Jordan

On 10 July 2017, the Saudi Cabinet approved the pending income tax treaty with Jordan. The treaty, signed 19 October 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.

Uruguay-Paraguay

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Uruguay Looking to begin Negotiations for Tax Treaty with Paraguay

According to a release from the Paraguay Ministry of Finance, Uruguay's ambassador to Paraguay has presented a draft framework agreement to begin negotiations for an income and capital tax treaty. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

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