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Worldwide Tax News

Approved Changes (3)

Canada

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Canadian House of Commons Passes Motion Against Tax Havens

On 8 March 2017, Canada's House of Commons passed a motion calling on the government to take action against tax havens. According to a release from Canada's New Democratic Party (NDP) the motion targets wealthy Canadian individuals that have evaded tax through tax havens, as well as companies that are able to repatriate profits via tax havens to Canada tax-free. The text of the motion is as follows:

That, given the government loses tens of billions of dollars annually to tax loopholes, deductions, and exemptions that mostly benefit the wealthy and estimates suggest that tax evasion through the use of offshore tax havens costs the government more than $7 billion dollars annually, the House call on the government to: (a) address tax measures that primarily benefit the wealthy, including keeping its promise to cap the stock option deduction loophole; and (b) take aggressive action to tackle tax havens including (i) tightening rules for shell companies, (ii) renegotiating tax treaties that let companies repatriate profits from tax havens to Canada tax-free, (iii) ending penalty-free amnesty deals for individuals suspected of tax evasion.

The motion itself does not change any laws, but its support by both the opposition and government parties indicates that further reform with regard to avoidance/evasion is likely in Canada.

Italy

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Italy Publishes Implementing Decree for CbC Reporting

On 8 March 2017, Italy published the Ministerial Decree of 23 February 2017 in the Official Gazette, which provides for the implementation of the Country-by-Country (CbC) reporting requirements introduced in the 2016 Budget Law (Law No. 208/2015), as well as the amendments made by Council Directive (EU) 2016/881 to the administrative cooperation Directive (Directive 2011/16/EU) for the exchange of CbC reports in the EU. The Decree confirms the general CbC reporting requirements as included in the Budget Law and establishes the mode, terms, and conditions for the submission of CbC reports.

The key points of the Decree include:

  • The CbC reporting requirements apply for fiscal years beginning on or after 1 January 2016 for MNE groups with consolidated revenue in the previous year meeting a EUR 750 million threshold (or close equivalent in other currency as at 1 January 2015);
  • The requirement to submit a CbC primarily applies for ultimate parent entities of MNE groups resident in Italy, and also applies for non-parent constituent entities resident in Italy if:
    • The ultimate parent is not required to submit a CbC report in its jurisdiction of residence;
    • A competent authority agreement for the exchange of CbC reports is not in force between Italy and the ultimate parent's jurisdiction of residence; or
    • An agreement is in force but there has been systemic failure for exchange and this has been communicated to the local entity;
  • Where the non-parent filing requirement applies, if all required information for the CbC report has not been provided to the local entity, an incomplete report must still be submitted and notification must be made of the parent's refusal to provide all information;
  • Where there are multiple constituent entities in Italy, one may be appointed to submit the report;
  • The non-parent local filing requirement will not apply if a surrogate parent has been designated to file a CbC report on behalf of the group by the deadline for filing in Italy and certain other conditions are met, including that the report will be exchanged with Italy;
  • For the fiscal year in progress as of 31 December 2016, the non-parent local filing requirement will also not apply if the ultimate parent voluntarily files (parent-surrogate filing) a CbC report in its jurisdiction of residence, provided certain conditions are met, including that such voluntary report is filed within 12 months of the end of the year, the parent's jurisdiction has CbC reporting requirements in place (although not effective for the year), a CbC report exchange agreement is in force by the deadline, and other conditions;
  • Constituent entities resident in Italy must provide notification to the tax authority by their tax return due date for the year concerned on whether they will be submitting a CbC report as the ultimate parent or surrogate parent, and if neither, must provide details of the reporting entity for the group (return generally due 9 months after tax year-end);
  • The content and form of the CbC report is in line with Action 13 and the requirements of Council Directive (EU) 2016/881;
  • The deadline for submitting the CbC report is within 12 months following the last day of the fiscal year concerned; and
  • CbC reports received by the Italian tax authority will be exchanged with other jurisdictions in which group entities are resident or have a PE, including other EU Member States and any other jurisdiction with which Italy has a competent authority agreement in force (standard exchange within 15 months of the close of the fiscal year; within 18 months for first year).

Failing to comply with the CbC report requirement will result in penalties of EUR 10,000 to 50,000 (provided for in the Budget Law 2016).

Click the following links for the CbC Decree (Italian language) and the CbC Form (Italian language).

Switzerland

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Switzerland Approves Changes for Intra-Group Interest Exemption

The Swiss Federal Council has announced its approval of an amendment to the Withholding Tax Ordinance to strengthen the financing activities of groups in Switzerland. The amendment concerns groups in which a Swiss group company (guarantor) provides a guarantee for a bond of a foreign group company (issuer) belonging to the same group. The amendment provides that interest on funds forwarded from a foreign issuer to a group company established in Switzerland will not be subject to withholding tax, subject to a qualifying funds limit. The limit on the funds amount qualifying for the exemption is equal to the maximum amount of the equity capital of the issuer.

Proposed Changes (2)

Estonia

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Estonia Planning New Restriction on Subsidiary-Parent Loans

Estonia's Ministry of Finance is reportedly planning to introduce a new regulation to restrict loans from subsidiaries to parent companies. Under Estonian tax rules, corporate income tax is imposed on distributed profits. Certain MNEs are avoiding taxation by transferring profits outside of Estonia through loans extended by Estonian subsidiaries to foreign parents. The proposed regulation would curb this practice by requiring a deposit of 20% on any loan from a subsidiary to foreign parent that is deemed excessive, which is any loan in an amount that exceeds the subsidiaries paid-in capital and loans received. Unless such loans are repaid within two years, the deposit would be lost.

United States

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Corporate Tax Dodging Prevention Act Introduced in U.S. Senate

On 9 March 2017, U.S. Senators Bernie Sanders (I-VT) and Brian Schatz (D-HI) introduced the Corporate Tax Dodging Prevention Act of 2017. According to a summary, the bill would:

  • End the rule allowing American corporations to defer paying federal income tax on profits of their offshore subsidiaries;
  • Transition to new rules by imposing a one-time tax of 35 percent on profits currently held offshore by American corporations;
  • Close loopholes allowing American corporations to artificially inflate or accelerate their foreign tax credits;
  • Prevent American corporations from claiming to be foreign by using a tax haven post office box as their address;
  • Prevent American corporations from avoiding U.S. taxes by inverting;
  • Prevent foreign-owned corporations from stripping earnings out of the U.S. by manipulating debt expenses; and
  • Prevent large oil companies from disguising royalty payments to foreign governments as foreign taxes.

Click the following links for the announcement of the bill and the full text.

Treaty Changes (5)

Belgium-India

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Protocol to Tax Treaty between Belgium and India Signed

On 9 March 2017, officials from Belgium and India signed a protocol to amend the 1993 tax treaty between the two countries. According to an announcement from the Indian Ministry of Finance on the signing, the protocol will broaden the scope of the existing framework of exchange of tax related information and will enable mutual assistance in collection of taxes. The protocol will enter into force after the ratification instruments are exchanged.

Pakistan-Switzerland

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Pakistan and Switzerland Set to Sign New Tax Treaty

According to recent reports, Pakistan's Finance Minister is scheduled to meet with Swiss officials on 21 March for the signing of a new income tax treaty. The new treaty is based on the OECD model and once in force and effective will replace the 2005 tax treaty between the two countries, which is based on the UN model. Details of the new treaty will be published once available.

Paraguay-Qatar

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Paraguay and Qatar Conclude Tax Treaty Negotiations

On 9 March 2016, officials from Paraguay and Qatar concluded negotiations with the initialing of an income tax treaty. The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force. Details of the treaty will be published once available.

Turkey-Gambia-Vietnam-South Africa

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Turkey Ratifies Pending Tax Treaties with Gambia and Vietnam and Pending Protocol to Treaty with South Africa

On 8 March 2017, Turkey ratified the pending income tax treaties with Gambia and Vietnam and the pending protocol to the 2005 tax treaty with South Africa. The treaties with Gambia and Vietnam were signed on 11 February 2014 (previous coverage) and 8 July 2014 (previous coverage) respectively and are the first of their kind between Turkey and the respective countries. The protocol to the tax treaty with South Africa was signed 25 December 2015 and is the first to amend the treaty (previous coverage).

United States

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U.S. IRS Expects CbC Report Exchange Agreements to be Completed in Timely Manner but May Not Cover all Countries

While speaking at the Pacific Rim Tax Conference held 9 March 2017 in Redwood City, California, Commissioner Douglas O'Donnell of the IRS Large Business and International Division noted the status of negotiations for competent authority agreements for the purpose of exchanging CbC reports. According to O'Donnell, negotiations are ongoing with jurisdictions that currently have both information exchange instruments with the U.S. and adequate data safeguards. The IRS expects that the competent authority agreements will be completed in a timely manner, but O'Connell also acknowledged the concerns of stakeholders given the absence of any signed agreements to date and noted that the IRS may not be able to exchange CbC reports with all jurisdictions in the current U.S. treaty and TIEA network due to certain jurisdictions not having the required data safeguards in place.

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