Worldwide Tax News
Denmark Publishes New Form for CbC Reporting Notification
The Danish tax authority (SKAT) has published a new form and instruction for providing notification of the reporting entity for Country-by-Country (CbC) reporting purposes in accordance with Executive Order 1133 of 27 August 2016 (previous coverage). The notification form must be submitted by the end of the fiscal year concerned by companies that are members of an MNE group with consolidated group revenue of DKK 5.6 billion or more in the previous year. For companies subject to joint taxation in Denmark, only the management company of the joint taxation unit is required to submit the notification. The notification form is to be submitted via the online service portal (TastSelv Erhverv).
Click the following link for Notification Form 05.034 (Danish and English language). The first deadline for the notification form is 31 December 2016.
French Court Holds Public CbC Reporting Unconstitutional
In its review of the transparency and anti-corruption bill known as Sapin II, the French Constitutional Council (Conseil Constitutionnel) has ruled that the public Country-by-Country (CbC) reporting provisions included in the bill are unconstitutional. The provisions (previous coverage) were to apply from 1 January 2018 at the latest for MNE groups with annual consolidated group revenue of EUR 750 million or more.
In reviewing the reporting provisions, the Court found that obligation to produce public CbC reports would disproportionately affect the freedom of enterprise since the reports would provide competitors with access to key information on industrial and commercial strategies. As such, the public CbC reporting provisions were held to be unconstitutional.
Click the following links for the full text of the Court's decisions (French language) and a related press release (French language), which provides a summary.
U.S. IRS Publishes Draft CbC Reporting Forms
The U.S. IRS has published early release draft versions of the forms to be used for U.S. Country-by-Country (CbC) reporting purposes. The U.S. CbC reporting requirements apply for fiscal years beginning on or after 30 June 2016 for MNE groups with consolidated group revenue of USD 850 million or more in the previous year (previous coverage). The draft forms include:
- Form 8975, which includes:
- Part I Identification of Filer; and
- Part II Additional Information.
- Schedule A (Form 8975), which must be completed for each tax jurisdiction of the MNE group, and includes:
- Part I Tax Jurisdiction Information, including revenues, profit/loss before tax, income tax paid, etc.;
- Part II Constituent Entity Information, including a list of entities resident in the jurisdiction, the tax identification numbers, business activities, etc.; and
- Part III Additional Information related to the information reported in Parts I and II.
As early release drafts, the forms may not be used for filing, but should generally be consistent with the final forms ultimately released.
Belgium's New IP Regime
The Belgian government has proposed a new IP regime to replace the patent box regime that was repealed effective 1 July 2016 due to non-compliance with the modified nexus approach of BEPS Action 5 (previous coverage). The proposed regime includes an innovation deduction equal to 85% of the net qualifying IP income derived from qualifying IP assets. The main aspects of the proposed regime are summarized as follows:
Qualifying IP income includes:
- Arm’s length license fees;
- Embedded royalties included in the sales price of products and services;
- Damages received in relation to IP infringements;
- IP income derived from process innovation; and
- Capital gains related to fixed assets, provided that the sales proceeds are reinvested in qualifying IP expenditure.
Qualifying IP assets include:
- Patents and supplementary protection certificates (SPCs);
- Copyrighted software;
- Orphan drug designations;
- Data and marketing exclusivity granted by the authorities; and
- Plant breeders’ rights.
Qualifying expenditure includes expenditures for the development of qualifying IP assets, including:
- Expenditures for the acquisition of IP rights;
- Expenditures for R&D conducted by the taxpayer; and
- Expenditure for R&D outsourced to unrelated parties.
Related party expenditure is generally excluded, although a portion is allowed via a 30% uplift (see below).
To determine the innovation deduction amount, the nexus ratio is calculated as: Qualifying R&D Expenditure x 130% (uplift) / Total R&D Expenditure (nexus ratio may not exceed 100%). The nexus ratio is then applied to the total qualifying income and then multiplied by 85% to determine the deduction amount. If the deduction amount cannot be fully utilized, it may be carried forward indefinitely.
The new innovation deduction is to be effective retroactively from 1 July 2016. However, if a taxpayer claims the deduction under the previous patent regime, which was grandfathered through 30 June 2021, the new innovation deduction may not be claimed.
UK OTS Simplification Review of VAT and Stamp Duty Systems
On 8 December 2016, the UK Office of Tax Simplification (OTS) published the terms of reference to carry out simplification reviews of the value added tax (VAT) system and the Stamp Duty system for paper transactions.
The review for simplification of the VAT system includes consideration of:
- The issues and impacts which would be involved if the VAT registration threshold were either higher or lower than at present;
- The extent to which the definitions of the types of supplies that are currently exempt from VAT, are subject to a reduced rate or are zero-rated, fit the modern context, create complexity for businesses and administration;
- The level of demand and practical challenges arising from having a more widely available formal ruling system for businesses uncertain of a particular VAT treatment, for example in relation to the transfer of business as a going concern;
- The potential for simplifying the operation of partial exemption methodologies, the option to tax, and the Capital Goods Scheme with a focus on the impact on smaller businesses;
- Special Accounting Schemes;
- The general administration of VAT, including the penalty regime and the appeals process;
- The opportunities available to align VAT more with other taxes (or vice-versa) as part of the Making Tax Digital plans; and
- The relative significance and impact of the issues identified on businesses of different sizes or in different sectors.
The review for simplification of the Stamp Duty system for paper transactions includes consideration of:
- The inter-relationship between Stamp Duty Reserve Tax and Stamp Duty on shares;
- Situations where reliefs are administered by way of adjudication, such as group relief situations where the consideration is uncertain or contingent;
- Specific situations such as company purchases of own shares or demutualizations, or where Stamp Duty may currently be paid in contemplation of a sale;
- The position of chargeable assets other than shares or land, such as partnership interests and certain debt securities which have equity characteristics;
- Transitional issues relating to existing stampable documents which have not yet been stamped or extant transactions in relation to which no stampable document yet exists;
- In relation to any possible replacement Stamp Duty (e.g. by way of Stamp Duty Land Tax or Stamp Duty Reserve Tax):
- How this could operate electronically;
- Tax administration issues such as returns, interest, and penalties; and
- How to preserve effective registration requirements;
- Non-tax legislation which refers to Stamp Duty; and
- The position of company registrars and shareholder voting rights.
Tax Treaty between Australia and Germany has entered into Force
The new income and capital tax treaty between Australia and Germany entered into force on 7 December 2016. The treaty replaces the 1972 income and capital tax treaty between the two countries.
The treaty covers Australian income tax, fringe benefits tax, and resource rent taxes imposed under the federal law of Australia. It covers German income tax, corporate income tax, trade tax, and capital tax.
If a company is considered resident in both Contracting States, its residence for the purpose of the treaty will be based on its place of effective management. If the place of effective management cannot be determined, or the place of effective management is in neither State, the competent authorities of both States will determine its residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be considered resident of either State for the purpose of enjoying the benefits of the treaty.
The Withholding Tax rate on dividends is 5% provided the beneficial owner is a company that has directly held at least 10% of the voting power of the company paying the dividends for a period of at least six months including the day the dividends are paid; otherwise 15% (15% rate applies for a German Real Estate AG with listed share capital, regardless of meeting conditions for the 5% rate).
Dividends are exempt from withholding if the beneficial owner has directly held shares representing at least 80% of the paying company's voting power for at least a 12-month period ending the date the dividend is declared, and:
- The beneficial owner's principal class of shares are listed and actively traded on one or more recognized stock exchanges, as set out in the treaty; or
- The beneficial owner is directly or indirectly owned by a one or more companies:
- Whose principal class of shares are listed and actively traded on one or more recognized stock exchanges, as set out in the treaty; or
- Each of which would be entitled to equivalent benefits under a tax treaty if it directly held the shares in respect of which the dividends are paid; or
- The beneficial owner does not meet any of the above requirements, but the competent authority of the dividend paying State has determined that the beneficial owner does not have a principal purpose of obtaining the benefit as under Paragraph 2 of Article 23 (Limitation on Benefits).
The withholding tax rate on interest is 10%. Interest is exempt from withholding if the beneficial owner is a financial institution that is unrelated to and dealing independently with the payer. However, if interest is paid as part of an arrangement involving back-to-back loans or an arrangement with similar effect, the 10% rate applies.
The withholding tax rate on royalties is 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 movable property forming part of the business property of a permanent establishment in the other State; and
- Gains from the alienation of shares or comparable interests that have derived more than 50% of their value directly or indirectly from immovable property situated in the other State at any time during the 365 days preceding the alienation.
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Australia applies the credit method for the elimination of double taxation, while Germany generally applies the exemption method, including for dividends when the beneficial owner is a Germany company that owns 10% or more of the voting power of the Australian payer, and the payer is not tax exempt or able to deduct the dividends. However, Germany applies the credit method for dividends not meeting the previous conditions, as well as for interest, royalties, and certain other items of income in accordance with German tax law.
Article 23 (Limitation on Benefits) includes the provision that a benefit under the treaty will not be granted if it is reasonable to conclude that one of the principal purposes of any arrangement or transaction was to obtain the benefit, unless it is established that granting the benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.
If tax is withheld by a Contracting State on dividends, interest, royalties, or other items of income at a rate higher than the rate provided for by the treaty, the beneficial owner of the income in the other State may apply for a refund of the excess tax withheld within four years from the end of the calendar year in which the income is paid.
The treaty applies in Australia from 1 January 2017 in respect of withholding tax, from 1 April 2017 in respect of fringe benefits tax, and from 1 July 2017 for all other taxes. It applies in Germany from 1 January 2017.
The 1972 income and capital tax treaty between Australia and Germany was terminated on the date the new treaty entered into force, although its provisions continue to apply for taxable years and periods that expired before the provisions of the new treaty are effective.
Tax Treaty between Hong Kong and Romania has Entered into Force
According to an update from the Hong Kong Department of Justice, the income tax treaty between Hong Kong and Romania entered into force on 21 November 2016. The treaty, signed 18 November 2015, is the first of its kind between the two jurisdictions.
The treaty covers Hong Kong profits tax, salaries tax, and property tax. It covers Romanian tax on income and tax on profit.
- Dividends - 3% if the beneficial owner is a company directly holding at least 15% of the paying company's capital, otherwise 5%
- Interest - 0%, provided Hong Kong does not levy a withholding tax on interest under its internal legislation (currently does not), but if Hong Kong does introduce a withholding tax on interest, the rate under the treaty will be 3%
- Royalties - 3%
The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:
- Gains from the alienation of immovable property situated in the other Party;
- Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
- Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other Party.
Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.
The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties), and 20 (Other Income) will not apply 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 other rights in respect of which the income is paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.
Both Parties apply the credit method for the elimination of double taxation.
The treaty applies from 1 January 2017.
Singapore and the Netherlands 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 between the Netherlands and Singapore on 24 November 2016 and 5 December 2016 respectively. 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.