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Approved Changes (8)

Brazil

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Brazil Ruling that Interest on Equity Capital Received by Holding Companies subject to PIS/COFINS

The Brazilian tax authorities recently issued Ruling 84/2016, which includes that the contributions for the Program for Social Integration Contribution (PIS) and Contribution for the Financing of Social Security (COFINS) apply for interest on equity capital (JCP) received by holding companies under the cumulative regime. In the ruling, the authorities based their position on the change in the concept of gross revenue, which forms the contribution base for PIS/COFINS. In 2014, the concept was expanded to include not only the gross revenue from the sale of goods and services, but also other revenue derived from the core business activities of a company. Since the core activity of holdings companies is holding equity participations, interest on equity capital from those participations is subject to PIS/COFFINS.

China

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China Issues New Transfer Pricing Documentation Requirements including CbC Reporting

On 13 July 2016, China's State Administration of Taxation issued Announcement 42 on the Enhancement of the Reporting of Related Party Transactions and Administration of Contemporaneous Documentation. The Announcement includes regulations to replace certain aspects of Circular No. 2/2009 on Implementation Measures for Special Tax Adjustments, including the introduction of three-tiered documentation requirements based on Action 13 of the OECD BEPS Project. However, Announcement 42 does not include all measure initially proposed in the draft to replace Circular No. 2/2009 in its entirety (previous coverage). Some of the main aspects of Announcement 42 are summarized as follows.

CbC Reporting

Country-by-Country (CbC) reporting requirements based on BEPS Action 13 are introduced for fiscal years beginning on or after 1 January 2016. The requirements apply for Chinese MNE groups with consolidated revenue meeting a CNY 5.5 billion threshold in the previous year. The requirements apply for:

  • The Ultimate Parent Entity of the group, if resident in China;
  • A constituent entity resident in China, if designated to file the CbC report; and
  • A constituent entity resident in China, if under special tax investigation and China is not able to obtain the CbC report through exchange due to a lack of requirements in other relevant jurisdictions, a lack of exchange agreements with other relevant jurisdictions, or an exchange failure despite rules and agreements being in place.

The report information content requirements are generally in line with Action 13 guidelines, although a national security exemption may apply for certain or all information.

The CbC report is included as part of the related-party transaction forms that must be submitted with the annual tax return, which is due 31 May. Both Chinese and English language versions of the report must be filed.

Master and Local File and Special Documentation

Previous contemporaneous documentation requirement are replaced with new Master file, Local file, and special documentation requirements.

The new Master file requirements apply for Chinese resident enterprises that have related-party transactions exceeding CNY 1 billion, and those that are a member of an MNE group that has prepared a Master file. When required, the Master file must be prepared within 12 months following the fiscal year end of the MNE group's Ultimate Parent. The information content requirements are generally in line with Action 13 guidelines with a few variations, and must also include details on the entity filing the CbC report on behalf of the MNE group.

The new Local file requirements apply for Chinese resident enterprises for cross border transactions meeting any of the following thresholds:

  • Tangible asset transactions exceeding CNY 200 million;
  • Financial asset transactions exceeding CNY 100 million;
  • Intangible asset transactions exceeding CNY 100 million;
  • Other transactions exceeding CNY 40 million.

The information content requirements for the Local file are generally in line with Action 13 guidelines with a few variations. If a transaction is covered by an advance pricing agreement (APA), it does not need to be included in the Local file and is not considered in determining if the above thresholds are met.

The new special documentation requirements apply regardless of any thresholds for enterprises with cost-sharing agreement (CSAs) and those exceeding the 2:1 thin capitalization threshold (5:1 for financial institutions). The required documentation itself is similar to previous contemporaneous documentation requirements for enterprises with CSAs or in breach of thin capitalization rules. The APA exemption for Local file also applies for special documentation.

When required, the Local file and the special documentation must be prepared by 30 June (one month after annual tax return due date). Documentation must generally be submitted within 30 days of request.

If a Chinese resident taxpayer has only domestic related-party transactions, the above contemporaneous documentation requirements do not apply.

Related-Party Transaction Forms

The new requirements increase the number of related-party transactions disclosure forms to be filed with annual tax return to 22 (not all necessarily apply). These include forms on:

  • Corporate information;
  • Related-party transactions (different forms for different types);
  • Cost-sharing agreements;
  • Overseas payments; and
  • Financial analysis for related-party transactions (consolidated and unconsolidated.

As mentioned above, the CbC report is also included as part of the forms submitted with the tax return.

The requirements under Announcement 42 apply for fiscal years beginning on or after 1 January 2016. Additional details and clarifications will be published once available.

European Union

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EU Council Adopts EU Council Anti Tax Avoidance Directive

On 12 July 2016, the EU Economic and Financial Affairs Council (ECOFIN) formally adopted the Anti Tax Avoidance Directive. The Directive includes anti-avoidance rules in five areas based on outcomes of Actions 2, 3 and 4 of the OECD BEPS Project and certain other BEPS-related measures:

  • Interest limitation rules;
  • Exit taxation rules;
  • A general anti-abuse rule (GAAR);
  • Controlled foreign company (CFC) rules; and
  • Hybrid mismatch rules.

Click the following link for previous coverage of the rules.

The Directive will enter into force 20 days after it is published in the Official Journal of the EU, and EU Member States will generally have until 31 December 2018 to transpose the rules into their national laws and regulations, although the exit taxation rules must be transposed by 31 December 2019.

Click the following link for the press release on the adoption.

European Union-Belgium-France

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EU State aid Investigation into Tax Exemptions for Belgian and French Ports

On 8 July 2016, the European Commission issued a press release announcing that it has opened two in-depth illegal State aid investigations into the corporate tax exemptions granted under Belgian and French law to ports' economic activities. The opening of the in-depth investigation is due to inaction by both Belgium and France to comply with an initial request in January 2016 that the exemptions be abolished.

Click the following link for the press release.

Iceland

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Iceland VAT Registration Threshold Increase

Iceland has reportedly approved an increase in the value added tax threshold from the current ISK 1 million turnover in a 12-month period to ISK 2 million. The change is to apply from 1 January 2017.

Latvia-OECD

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Latvia Completes Accession to OECD

Latvia deposited its instrument of accession to the OECD Convention on 1 July 2016. The deposit of the instrument completes the accession process for Latvia to become a full member of the OECD.

Panama

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Panama Introduces Mandatory E-Filing with New System

On 28 June 2016, Resolution No. 201-3050 of 22 June 2016 was published in Panama's Official Gazette. The Resolution approves and adopts a new online tax system, e-Tax 2.0, which will be accessible from the Panama tax administration (DGI) website from 25 July 2016. With the new system, only electronic filing of returns will be accepted.

Click the following link for Resolution No. 201-3050 (Spanish language).

Singapore

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Singapore Publishes Guide on the General Anti-avoidance Provision and its Application

On 11 July 2016, the Inland Revenue Authority of Singapore (IRAS) published a first edition e-Tax guide on the general anti-avoidance provision in section 33 of the Income Tax Act (ITA) and its application.

Arrangements Subject to Section 33

The general anti-avoidance provision applies to avoidance arrangements falling in four groups:

  • Circular flow or round-tripping of funds;
  • Setting-up of more than one entity for the sole purpose of obtaining tax advantage;
  • Change in business form for the sole purpose of obtaining tax advantage; and
  • Attribution of income that is not aligned with economic reality.

The general anti-avoidance provision does not apply to arrangements that:

  • Form the subject of specific anti-avoidance provisions in the ITA; and/or
  • Involve the evasion of tax.

Determination and Adjustment of Avoidance Arrangements

When an avoidance arrangement is suspected, the Comptroller of Income Tax is empowered to make necessary adjustments if he is satisfied that the purpose or effect of such arrangement is directly or indirectly:

  • To alter the incidence of any tax which is payable by or which would otherwise have been payable by any person;
  • To relieve any person from any liability to pay tax or to make a return; or
  • To reduce or avoid any liability imposed or which would otherwise have been imposed on any person.

However, a statutory exception is provided if the arrangement:

  • Has been carried out for bona fide commercial reasons; and
  • Has not had as one of its main purposes the avoidance or reduction of tax.

In addition, an exception may apply if the taxpayer is able to show that a tax advantage obtained was from the use of a specific provision of the ITA within the intended scope and purpose of such provision.

Click the following link for Income Tax: The General Anti-avoidance Provision and its Application (First Edition) for additional information and several examples.

Treaty Changes (2)

Cyprus-Jersey

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Tax Treaty between Cyprus and Jersey Signed

On 11 July 2016, officials from Cyprus and Jersey signed an income tax treaty. The treaty is the first of its kind between the two jurisdictions, and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

European Union-Monaco

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EU and Monaco Sign Agreement for Automatic Exchange of Financial Account Information

On 12 July 2016, officials from the European Union and Monaco signed an agreement for the automatic exchange of financial account tax information. Under the agreement, information on the financial accounts of residents of EU Member States and Monaco will be automatically exchanged from 2018. The agreement is similar to agreements the EU has signed with Andorra, Liechtenstein, San Marino and Switzerland.

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