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Approved Changes (4)

Australia

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Australian Court Holds Interest Income of CFC to be Reported as Derived on Accruals Basis

A decision of the Federal Court of Australia has been published concerning whether interest income of a CFC should be reported as derived for tax purposes on an accruals (earnings) basis or a cash (receipts) basis. The case involves News Australia Holdings Pty Ltd. as the provisional head company of a group that included SRC Holdings Limited, a controlled foreign company in the Cayman Islands, which was wholly owned by News Limited.

Under a loan agreement between SRC and News Limited, SRC was owed interest income of approximately USD 66 million. The interest was paid in the 2011 income year, on 2 July 2010, and on 8 July 2010 SRC paid withholding tax of approximately AUD 7 million in respect of the interest. However, the Australia Taxation Office (ATO) determined that SRC was to be assessed on an accruals basis for the interest income, which as per the terms of the agreement was due to SRC on 28 June 2010, and therefore accrued and was derived for tax purposes in the 2010 income year ending 30 June 2010.

In its decision, the Court sided with the ATO. The Court found that although interest income can in general be accounted for on a cash basis, interest income can be accounted for on an accruals basis when the lending of money is an aspect of a taxpayer's business. Although SRC is not in the business of lending money, the Court accepted the position that an accruals basis should be used because the lending of money is part of SRC's business as evidenced by its income earning activities, which include the lending of money to, amongst others, its parent on commercial terms for reward. As such, the interest income should have been considered derived for tax purposes in the income year it accrued (2010).

Ireland

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Ireland eBrief on New Manual for Application of 12.5% Tax Rate on Dividends Received out of Trading Profits

On 12 June 2017, Irish Revenue issued eBrief No. 64/17 announcing the publication of Revenue Tax and Duty Manual Part 02-02-03a, which deals with the tax treatment of foreign dividends paid out of trading profits, which may be chargeable to corporation tax at the standard rate of 12.5% (trading income rate) rather than at 25% (passive income rate). The manual sets out:

  • The nature of dividends that qualify and the conditions that must be satisfied;
  • The rules for identifying the underlying trading profits out of which dividends are paid for the purpose of determining the rate of tax to be applied to those dividends;
  • The conditions that allow the full amount of a dividend received by a company to be charged at the 12.5% rate, notwithstanding that a part of the dividend may not be paid out of trading profits; and
  • Special rules that apply in the case of companies that are portfolio investors.

The new guidance is not the result of any recent changes, but rather serves to clarify the treatment of foreign dividends as provided in section 21B of the Taxes Consolidation Act 1997.

Romania

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Romania Adopts Emergency Ordinance to Implement CbC Reporting

The Government of Romania has announced the adoption of the emergency ordinance to transpose into domestic law the amendments to the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) concerning the exchange of Country-by-Country (CbC) reports (Council Directive (EU) 2016/881). As previously reported, the emergency ordinance includes the standard provisions of the Directive, including a EUR 750 million group revenue threshold, CbC reporting requirements from fiscal year 2016 for ultimate parent and surrogate parent entities resident in Romania (2017 for secondary local filing), the requirement to submit the report within 12 months following the end of the reporting fiscal year, and CbC notification requirements.

United States

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U.S. IRS Issues Interest Rates on Overpaid and Underpaid Tax for Q3 2017

The U.S. IRS has announced the interest rates for overpaid and underpaid tax for the calendar quarter beginning 1 July 2017, which are unchanged from the previous quarter. The rates are 4% for both underpayment and overpayment by individuals, and 3% and 4% for corporate overpayments and underpayments, respectively.

The rate for corporate overpayments exceeding USD 10,000 in a tax period is 1.5% on the portion exceeding that amount, and the rate for large corporate underpayments exceeding USD 100,000 is 6%.

Revenue Ruling 2017-13, announcing the rates of interest, will appear in Internal Revenue Bulletin 2017-26, dated 26 June 2017.

Proposed Changes (4)

Canada

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Canada Launches Public Consultation on Changes to Voluntary Disclosures Program

The Canadian Revenue Agency has launched a public consultation on proposed changes to narrow the eligibility for the Voluntary Disclosures Program (VDP) and impose additional conditions on applicants. The proposed changes include measures that would:

  • Require the payment of the estimated taxes owing as a condition of qualifying for the program;
  • Exclude applications that involve transfer pricing and applications from corporations with gross revenue in excess of CAD 250 million from VDP relief;
  • Exclude applications that disclose income from the proceeds of crime from VDP relief;
  • Change the way the amount of interest relief available is calculated; and
  • Cancel VDP relief if it is subsequently discovered that a taxpayer’s VDP application was not complete due to a misrepresentation attributable to willful default.

Click the following link for the VDP consultation webpage. The consultation was launched 9 June 2017 and runs for 60 days. The Minister of National Revenue is expected to announce formal changes to the VDP in the fall of 2017.

European Union

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EU Parliament Committees Approve Draft Public CbC Reporting Proposal with Broader Exemption for Commercially Sensitive Information

During a 12 June 2017 joint meeting of the European Parliament's Economic and Monetary Affairs Committee and Legal Affairs Committee, the Committees reportedly approved the latest compromise proposal for public Country-by-Country (CbC) reporting, with an amendment allowing for a broader exemption for commercially sensitive information.

In order to reach a compromise on extending public CbC reporting to a per jurisdiction basis worldwide, a disclosure exemption was proposed for commercially sensitive information on branches and subsidiaries in third countries if established for less than two years and carrying out R&D investment or new market development. However, an amendment was put forward and accepted by the two Committees to provide that Member States may allow the temporary omission of specific information regarding activities in one or more jurisdictions if disclosure of the information would be seriously prejudicial to the commercial position of the undertaking. There is no mention of the two-year period or the required nature of activities, although the exemption would be subject to prior approval from the national authority and monitoring by the European Commission.

The proposal must still be approved by the full Parliament.

Switzerland

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Swiss Federal Council Adopts Parameters for TP17 Tax Reform

The Swiss Federal Council has announced its adoption of the parameters for tax proposal 17 (TP17) during its meeting held 9 June 2017. Overall, the Federal Council accepted the 1 June 2017 recommendations of the tax reform steering body, except for the cantons' share of direct federal tax, which will be increased to 20.5% instead of 21.2% as was recommended (previous coverage).

The Federal Council has instructed the Federal Department of Finance to submit a TP17 consultation draft by September 2017. Details of the draft will be published once available.

Thailand

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Thailand Considering 5% VAT Withholding on E-Commerce Payments

According to recent reports, the Thai government is considering the introduction of a 5% value added tax (VAT) withholding on payments for e-commerce transactions for goods and services. The VAT withholding would apply for both resident and non-resident suppliers, with the bank or credit card company processing the transaction acting as the withholding agent.

Thailand has also been considering other ways to effectively tax e-commerce and expand the VAT base, including a proposal to amend the permanent establishment rules to bring e-commerce with Thai consumers within the scope of a taxable presence (previous coverage), and a proposal to introduce VAT registration requirements for non-resident suppliers (previous coverage).

Treaty Changes (3)

Australia-New Zealand

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New SSA between Australia and New Zealand to Enter into Force

The new social security agreement between Australia and New Zealand will enter into force on 1 July 2017. The agreement, signed 8 December 2016, replaces the 2001 social security agreement between the two countries and generally applies from the date of its entry into force.

Egypt-Latvia

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Egypt and Latvia to Negotiate Tax Treaty

According to a release from the Latvian Ministry of Foreign Affairs, officials from Egypt and Latvia met 8 June 2017 to discuss bilateral and international issues, including Latvia's interest in signing an income tax treaty as soon as possible. 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.

Portugal-Philippines

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Portugal Approves Pending SSA with the Philippines

On 8 June 2017, Portugal's Council of Ministers approved the pending social security agreement with the Philippines. The agreement, signed 14 September 2012, is the first of its kind between the two countries and will enter into force on the first day of the second month following the exchange of the ratification instruments.

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