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Approved Changes (1)

New Zealand

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New Zealand Issues Special Report on "Cash out" of R&D Tax Losses

On 5 April 2016, New Zealand Inland Revenue's Policy and Strategy group issued a special report on the "cash out" of research and development tax losses. The new rules were introduced as part of the Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Act 2016, which received Royal assent on 24 February 2016 (previous coverage). The report provides a full review of all aspects of the new rules, including examples.

Click the following link for the special report.

Proposed Changes (2)

European Union

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European Commission Issues Proposed Directive for Public CbC Reports

On 12 April 2016, the European Commission issued the proposed Directive for public Country-by-Country (CbC) reporting requirements in the EU. The requirements are similar to, but separate from the non-public CbC reporting requirements based on Action 13 of the OECD BEPS Project. The new public CbC requirement will apply under the EU Accounting Directive (Directive 2013/34/EU), which will be amended by the proposed Directive for this purpose. According to the explanatory memorandum included with proposed Directive, at least 6,000 MNE groups will be subject to the public CbC reporting requirement, with around 4,000 being non-EU MNE groups.

Public CbC Reporting Requirement

The requirement to publish public CbC reports will generally apply to all MNE groups operating in the EU with consolidated annual group revenue exceeding EUR 750 million. When the consolidated financial statements of the group are presented in a currency other than the euro, the EUR 750 million threshold is to be converted to an equivalent amount in the currency used by applying the exchange rate applicable on the date the proposed Directive enters into force, rounded off to the nearest thousand.

When required, the public CbC reports are to be filed with an official EU business register and made publically available on the website of the group member(s) responsible for the report for at least five consecutive years.

Entities Required to Publish/File

For EU headquartered MNEs, the public CbC reporting requirement is met by the ultimate parent located in the EU. For non-EU headquartered MNEs, two options apply:

  1. The subsidiaries and/or branches of the MNE in the EU publish the report on their websites and file with the relevant EU business registers on behalf of the non-EU parent; or
  2. The non-EU parent publishes the report on its website, and designates one of the EU subsidiaries to file with an EU business register on its behalf.

However, an exemption applies for non-EU headquartered MNEs having only branches considered small undertakings in the EU. For this purpose, the definition of small undertakings provided under the Accounting Directive is used, which includes undertakings not exceeding two or more of the following:

  • Balance sheet total: EUR 4 million;
  • Net turnover: EUR 8 million;
  • Average number of employees during the financial year: 50

The balance sheet and net turnover thresholds for small undertakings vary by Member State depending on their implementation of the Accounting Directive, meaning the thresholds may be up to EUR 6 million and EUR 12 million respectively.

Public CbC Report Content

The public CbC report must include the following information on a per-country basis for each EU Member State in which the MNE group operates, as well as for each non-EU tax jurisdictions that is considered a tax haven in a yet to be finalized common EU list:

  • A brief description of the nature of the activities;
  • The number of employees;
  • The amount of the net turnover, which includes the turnover made with related parties;
  • The amount of profit or loss before income tax;
  • The amount of income tax accrued (current year) which is the current tax expense recognized on taxable profits or losses of the financial year by undertakings and branches resident for tax purposes in the relevant tax jurisdiction;
  • The amount of income tax paid which is the amount of income tax paid during the relevant financial year by undertakings and branches resident for tax purposes in the relevant tax jurisdiction; and
  • The amount of accumulated earnings.

The information for all other tax jurisdiction in which the MNE group operates must also be included, but may be presented on an aggregated basis.

The report should also include an overall narrative providing explanations on material discrepancies between the amounts disclosed for income tax accrued and income tax paid, if any, taking into account corresponding amounts concerning previous financial years.

The currency used in the report should be the currency in which the consolidated financial statements are presented. Individual Member States are not allowed to require the use of another currency.

Penalties

The penalties that will apply for failing to publish the public CbC report when required are those provided for by each Member State in accordance with the Accounting Directive. Individual Member States are not allowed to impose domestic penalties outside the scope of the Accounting Directive.

Next Steps

The proposed Directive for public CbC reporting is now submitted to the European Parliament and the Council of the EU for adoption. Once adopted, the proposed Directive will enter into force 20 days after it is published in the Official Journal of the European Union. Individual Member States will have one year after its entry into force to bring into force the laws, regulations and administrative provisions necessary to comply with the new requirements.

Click the following links for the associated press release, a factsheet on the public CbC requirements, and a provisional version of the proposed Directive.

South Africa

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South Africa Issues Draft Regulations on CbC Reporting

On 11 April 2016, the South African Revenue Service (SARS) published draft regulations on the Country-by-Country (CbC) reporting standard for multinational enterprises based on the guidelines developed as part of Action 13 of the OECD BEPS Project. The main aspects of the draft regulations are summarized as follows.

CbC Report Filing Obligation

The ultimate parent entity of an MNE group that is resident in South Africa must file a CbC report for the reporting fiscal year if the consolidated annual group revenue in the previous year meets or exceeds ZAR 10 billion.

If the ultimate parent of the group is not resident in South Africa, a constituent entity of the group in South Africa must file a CbC report for the reporting fiscal year if the consolidated annual group revenue in the previous year meets or exceeds EUR 750 million, and:

  • The ultimate parent is not required to file in its jurisdiction of residence;
  • The required agreements to exchange CbC reports between the parent's jurisdiction of residence and South Africa are not in effect by the deadline to file the report in South Africa; or
  • There has been a systemic failure to exchange with the parent's jurisdiction and SARS has informed the constituent entity of such failure.

In the event the above conditions are met and there is more than one constituent entity resident in South Africa, only one needs to file a CbC report, but SARS must be notified by the filing deadline that the constituent entity is filing on behalf of all other constituent entities resident in South Africa.

The requirement for a constituent entity to file a CbC report as above will not apply, however, if a surrogate parent entity in another jurisdiction that requires CbC reports has filed a report by the deadline to file in South Africa, provided the required agreements for exchange of CbC reports are in effect and there has been no notice of systemic failure for exchange.

Filing Deadline and Notification Requirements

The filing deadline for the CbC reports in South Africa is within 12 months following the last day of the reporting fiscal year.

The same deadline applies for a constituent entity resident in South Africa to notify SARS that it is the ultimate parent entity of the group or acting as a surrogate parent entity, and for all other constituent entities resident in South Africa to notify SARS of the identity and tax residence of the reporting entity.

Content of the CbC Report

The content of the CbC report to be required in South Africa is in line with the OECD guidelines, including:

  • Aggregate information relating to the amount of revenue, profit (loss) before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets other than cash or cash equivalents with regard to each jurisdiction in which the MNE Group operates; and
  • Identification of each Constituent Entity of the MNE Group including the jurisdiction of tax residence, jurisdiction of organization (where different from tax residence), and the nature of the main business activity or activities of the entity.

Effective Date

The draft CbC regulations will apply for fiscal years beginning on or after 1 January 2016. Click the following links for the draft CbC regulations and the SARS public comments page. Comments are due by 3 May 2016.

Treaty Changes (3)

Costa Rica-Panama

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Costa Rica to Negotiate TIEA with Panama

The Costa Rican government announced on 5 April 2016 that it intends to negotiate a tax information exchange agreement with Panama. 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.

Egypt-Saudi Arabia

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Tax Treaty between Egypt and Saudi Arabia Signed

On 8 April 2016, officials from Egypt and Saudi Arabia signed an income tax treaty. 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.

India-Maldives

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TIEA between India and Maldives Signed

On 11 April 2016, officials from India and the Maldives signed a tax information exchange agreement. The agreement is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.

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