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Approved Changes (5)

European Union

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EU Council Conclusions on Tax Transparency

On 11 October 2016, the Council of the European Union adopted conclusions in response to a Commission communication on tax transparency following the April 2016 Panama Papers revelations. The conclusions are as follows in regard to tax evasion and avoidance, information exchange, beneficial ownership and other issues.

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The Council:

1.       RECOGNISES the progress made in pursuing the ambitious EU agenda for fairer, more transparent and more effective taxation and in strengthening the cooperation between fiscal authorities across the EU;

2.       CONFIRMS the importance of improving further the EU and international tax framework to prevent cross-border tax abuse and illicit financial activity;

3.       WELCOMES the Communication from the Commission of 5 July 2016 on further measures to enhance transparency and the fight against tax evasion and avoidance;

4.       AGREES that recent EU legislation to automatically exchange information on tax rulings and on tax related country-by-country reports of multinationals between Member States' competent authorities is an important step forward;

5.       CALLS for looking at options for enhancing the administrative cooperation between competent authorities within the EU even further, including through considering options inspired by the work of the OECD Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC);

6.       CONSIDERS the proposals by the Commission for revision of the Directive on Administrative Cooperation and of the Anti-Money Laundering Directive in view of the synergies between these two areas as timely and INTENDS to work towards their swift adoption in accordance with the EU legislative process;

7.       CONFIRMS that there is a need for more effective and efficient cooperation between tax authorities and other agencies involved in the fight against tax evasion, money laundering and terrorist financing in line with the appropriate legal safeguards;

8.       STRESSES the need to prevent the large-scale concealment of funds which hinders the effective fight against tax evasion, money laundering and terrorist financing, and to ensure that  the identities of beneficial owners of companies, legal entities or legal arrangements are known;

9.       WELCOMES the initiative for the automatic exchange of information on ultimate beneficial owners whereby many jurisdictions, including all Member States, have agreed to exchange information on the beneficial owners of companies, legal entities and legal arrangements and LOOKS FORWARD to rapid international progress;

10.     INVITES the Commission to analyse the possibility for a proposal on improving the cross-border access to information on ultimate beneficial owners on the basis of the ongoing work at international level;

11.     NOTES that at its October 2016 meeting the G20 heard initial proposals by OECD and FATF on ways to improve the implementation of the international standards on transparency, including on the availability of beneficial ownership information;

12.     RECALLS the need to increase oversight of enablers and promoters of aggressive tax planning and to introduce more effective disincentives for such activities;

13.     WELCOMES the intention of the Commission to launch in autumn 2016 a public consultation to gather feedback on the most appropriate approach to achieve greater transparency on the activities of intermediaries who assist in tax evasion or avoidance schemes;

14.     NOTES the intention of the Commission to explore possibilities for Mandatory Disclosure Rules inspired by Action 12 of the OECD BEPS project, drawing on the experiences in this area of some EU Member States, and to possibly come forward with a legislative proposal in 2017;

15.     ENCOURAGES the Commission to start reflecting on the possibility for future exchange of such information between tax administrations in the EU;

16.     STRESSES the need to work closely with the OECD and other international partners on a possible global approach to greater transparency in this area;

17.     SUPPORTS the promotion of higher tax good governance standards worldwide and NOTES that technical work in the Council has already started within the Code of Conduct on Business Taxation Group on establishing an EU list of non-cooperative third country jurisdictions to be ready in 2017, including on defining the criteria for listing jurisdictions and on exploring possible countermeasures;

18.     AGREES that the protection of whistle blowers is important and ENCOURAGES the Commission to explore the possibility for future action at EU level while respecting the principle of subsidiarity;

19.     RECOGNISES that improving tax certainty in the EU can contribute to further increase the competitiveness of EU businesses and TAKES NOTE of the intention of the Commission to present proposals aimed at fighting BEPS and tax avoidance while also ensuring a stable and predictable tax environment and eliminating double taxation, namely on improving dispute resolution and the relaunch of the CCCTB.

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OECD Videos of Public Consultation on Transfer Pricing Matters: Attribution of Profits to PEs and Guidance on Profit Splits

The OECD has made available the videos from the public consultation on transfer pricing matters held 11 and 12 October 2016. The consultation covered the discussion drafts on attribution of profits to permanent establishments and revised guidance on profit splits (previous coverage).

Click the following links for the attribution of profits morning session and afternoon session videos.

Click the following links for the guidance on profit splits morning session and afternoon session videos.

Portugal

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Portugal Tax Regularization Program for Tax and Social Security

On 6 October 2016, the Portuguese government announced the approval of the Special Program for the Reduction of Debts to the State. Under the program, both individuals and businesses that pay outstanding tax and social security debts by the end of 2016 will not be subject to interest. The program also allows taxpayers to enter into an installment plan with a maximum duration of 11 years (150 payments) without the need to provide a guarantee. The regularization program is available for tax debts due up to 31 May 2016 and social security debts due up to 31 December 2015.

Russia

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Russia Clarifies Increased Deduction for Qualifying R&D Expenses

The Russian Ministry of Finance recently published Letter No. 03-03-06/1/52384, which clarifies the increased deduction for qualifying R&D expenses (1.5 times expense amount). According to the letter, qualifying R&D expenses include those related to the creation/improvement of products (goods, works, services), and the creation/improvement of applied technologies and methods of organizing production and management. The specific qualifying expense types are those listed in subparagraphs 1-5 under paragraph 2 of Article 262 of the Tax Code, which include:

  1. Depreciation of fixed assets and intangible assets (with the exception of buildings and structures) used in R&D activities as calculated based on the number of full calendar months during which the assets are used exclusively for the performance of the R&D activities;
  2. Payroll expenses for employees participating in the performance of R&D activities as calculated based on the period during which the employees performed the R&D activities;
  3. Material expenses directly connected with R&D activities, including expenses for the acquisition of raw or other materials; the acquisition of instruments, appliances, inventory, devices, laboratory equipment, protective gear and other forms of individual and group protection; and the acquisition of fuel, water, and energy;
  4. Other expenses directly connected with R&D activities in an amount that does not exceed 75% of the payroll expenses referred to above; and
  5. Costs of contract work for the performance of R&D activities by third parties.

Regardless of the results of the R&D work, taxpayers may deduct the above qualifying expenses at a rate of 1.5 times the expense amount after the R&D work is completed. A report on the completion of the work must be presented at the time the increased deduction is claimed.

Vietnam

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Vietnam Introduces Annual Business Fee Structure

On 10 October 2016, Vietnam's General Department of Taxation issued a release on Decree No 139/2016/ND-CP, which was issued on 4 October and applies from 1 January 2017. The Decree introduces an annual business fee structure for organizations dealing in production and business activities as follows:

  • VND 3 million per year for organizations with a charter or investment capital of more than VND10 billion;
  • VND 2 million per year for organizations with a charter or investment capital of less than VND10 billion;
  • VND 1 million per year for branches and representative offices of the organizations, or non-productive units; and
  • VND 300,000 to VND 1 million per year for individuals and households involved in production and business activities, depending on the annual revenue amount.

Click the following links for the release and the Decree (Vietnamese language).

Proposed Changes (2)

Ireland

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Ireland's 2017 Budget Presented to Parliament

Ireland's Minister for Finance Michael Noonan delivered the financial statement for the Budget 2017 to the Dáil Éireann (lower house of parliament) on 11 October 2016. The main tax-related measures include:

  • Entrepreneurial relief will be improved with a reduction of the reduced capital gains tax rate from 20% to 10% on up to EUR 1 million in chargeable gains from the sale in whole or in part of a business;
  • The lower three rates of the Universal Social Charge (USC) will each be reduced by 0.5% and the threshold for the third rate will be increased to keep minimum wage workers outside of the top rates as follows:
    • EUR 0 to 12,012 @ 0.5%
    • EUR 12,013 to 18,772 @ 2.5%
    • EUR 18,773 to 70,044 @ 5%
    • EUR 70,045 to 100,000 @ 8%
    • PAYE income in excess of EUR 100,000 @ 8%
    • Self-employed income in excess of EUR 100,000 @ 11%
  • Amendments will be made to Section 110 of the Taxes Consolidation Act 1997 to address avoidance issues in relation to the unintended use of Section 110 for property transactions;
  • Offshore tax evasion will be addressed through the introduction of restrictions on the use of Ireland's voluntary disclosure regime for those using offshore accounts to avoid paying tax, and the introduction of a new strict liability criminal offense to facilitate the prosecution of serious cases of offshore tax evasion; and
  • Measures to promote health will be implemented, including a tax on sugar-sweetened drinks and increased in taxes on tobacco products.

Also noted in the financial statement is that Ireland will maintain the 12.5% corporate tax rate, which is seen as an part of the reason Ireland is an attractive destination for foreign investment, including for businesses that may move out of the UK due to its exit from the EU.

Click the following link for Ireland's Budget website, which includes the full financial statement, the full Budget, and other related documents.

United States

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U.S. Senator Hatch Seeks Clarification from Treasury on Use of Secret Memo Regarding Section 385 Debt-Equity Regulations

On 11 October 2016, Senate Finance Committee Chairman Orrin Hatch R-UT sent a letter to Treasury Secretary Jacob Lew seeking clarification on the use of a long-secret Memorandum of Agreement (MOA) with the Office of Management and Budget (OMB) concerning the economic and regulatory effects of tax regulations. Treasury uses the MOA to justify forgoing a cost-benefit analysis required by federal law and executive order when issuing tax regulations, including the proposed debt-equity regulations under Internal Revenue Code section 385.

In the letter, Hatch asks for a response by no later than 2 December 2016, and before any final regulations are promulgated under section 385.

Click the following link for the full text of the letter.

Treaty Changes (3)

Belgium-Morocco

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Belgium Approves Pending SSA with Morocco

On 7 October 2016, the Belgian Council of Ministers approved for ratification the pending social security agreement with Morocco. The agreement, signed 18 February 2014, will enter into force after the ratification instruments are exchanged, and once in force and effective, will replace the existing 1968 agreement between the two countries.

Brunei-Kuwait

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Protocol to Tax Treaty between Brunei and Kuwait Signed

On 11 October 2016, officials from Brunei and Kuwait signed an amending protocol to the 2009 income tax treaty between the two countries. The protocol is the first to amend the treaty, and will enter force after the ratification instruments are exchanged.

Additional details will be published once available.

Vietnam-Croatia

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Vietnam to Sign Tax Treaty with Croatia

According to a release from the Vietnamese government published 8 October 2016, Vietnamese President Tran Dai Quang has stated that he would like to expedite the signing of a tax treaty with Croatia, which will be the first of its kind between the two countries. Negotiations for the treaty have already concluded, and it must now be signed and ratified before entering into force.

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