Worldwide Tax News
Brazil Publishes MAP Normative Instruction
On 10 November 2016, Brazil's Federal Revenue Department (RFB) announced that Normative Instruction RFB No. 1669/2016 had been published in the Official Gazette. The Normative Instruction sets out the mutual agreement procedures (MAP) under Brazil's tax treaties in line with the minimum standard for dispute resolution developed under BEPS Action 14.
The Normative Instruction provides that a taxpayer may apply for MAP when it considers that the actions of one or both of the Contracting States have resulted, or may result, in taxation not in accordance with the relevant treaty. The procedure includes:
- A unilateral phase, in which the RFB receives and makes the internal review of the application and, if possible, completes the procedure; or
- A bilateral phase, in which the RFB deals with the other Contracting State in order to seek a resolution to the case where the case could not be resolved in the unilateral phase or a MAP application is received from abroad.
A taxpayer may not apply for MAP if a dispute is already before Brazil's administrative or judicial courts, a judgment has already been handed down in relation to the dispute, and certain other cases.
French Parliament Adopts Transparency and Anti-Corruption Bill including Public CbC Reporting
On 9 November 2016, the French National Assembly adopted the transparency and anti-corruption bill known as Sapin II. Key measures of the legislation are as follows:
The legislation provides for the introduction of a public Country-by-Country (CbC) reporting requirement in line with the proposed EU Directive for public CbC reporting (previous coverage). The requirement is to apply from 1 January 2018 at the latest for MNE groups with annual consolidated group revenue of EUR 750 million or more. The legislation also includes that the EUR 750 million threshold is to be changed to EUR 500 million two years after the requirement is effective and to EUR 250 million four years after.
As with the proposed EU Directive, the public CbC report must include the following information aggregated on a per-jurisdiction basis for each EU Member State in which the MNE group operates, as well as for each non-EU tax jurisdictions that is considered non-cooperative in the 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 sales;
- The amount of income before income taxes;
- The amount of income tax due for the current year, excluding deferred taxes and provisions made in respect of uncertain tax expense;
- The amount of income tax paid, with an explanation of any discrepancies with the amount of tax due, if applicable, taking into account the corresponding amounts for previous fiscal years; and
- The amount of retained earnings.
The information will also be required on a per-jurisdiction basis for other non-EU jurisdictions in which a certain minimum number of related companies are located (condition to be set by future decree). For all other jurisdictions in which the group operates, the information may be aggregated in total.
Other key measures of the legislation include:
- The establishment of a new anti-corruption agency that, among its other functions, will oversee a new anti-corruption program requirement for companies with over 500 employees and annual turnover over EUR 100 million;
- New protections for whistleblowers;
- New rules in relation to tax evasion penalties, including allowing French companies to avoid criminal prosecution in financial crime cases by entering into deferred prosecution agreement and paying fines up to 30% of average annual revenue in the previous three years; and
- The threshold for the submission of the transfer pricing declaration form No. 2257-SD (Déclaration de la politique de prix de transfert) is reduced from gross assets or annual turnover of EUR 400 million or more to gross assets or annual turnover of EUR 50 million or more with effect for accounting periods ending on or after 31 December 2016.
The bill must still be reviewed by the Constitutional Council and published in the Official Gazette before entering into force.
Update - The legislation was published 10 December 2016, although the public CbC reporting requirements were ruled unconstitutional.
Slovenia Corporate Tax Rate Increase and Other Measures for 2017
On 4 November 2016, the law amending the Corporate Income Tax Act was published in Slovenia's Official Gazette. The amendments include:
- An increase in the corporate tax rate from 17% to 19%;
- The abolishment of tax relief for donations to political parties;
- The repeal of the special rates and capital gains exemption on equity holdings disposals for venture capital companies; and
- The disallowance of the recognition of goodwill amortization as an expense for tax purposes.
The changes apply from 1 January 2017.
Uruguay Amends Incentive Regime for Shared Service Centers
Uruguay has published Decree No. 330/2016, which amends the incentive regime for shared service centers (SSC). The changes include:
- The scope of activities eligible for the SSC incentive is expanded to include management and administration services, logistics and storage, financial administration, and research and development support activities;
- The corporate tax exemption provided for qualifying SSC income is reduced from 90% to 70% for five years;
- The new employment generation condition for the incentive is changed from 150 new jobs to 100 new jobs, and the condition for the investment in staff training is changed from 10 million indexed units to 5 million indexed units;
- For the incentive to apply, revenue from services provided to resident related parties in Uruguay may not exceed 5% of annual revenue (even if 5% or less, services to resident related parties are not eligible for the incentive);
- For SSC entities located in Uruguay free trade zones (FTZ), services may be provided to related parties resident in Uruguay outside the FTZ, provided the revenue from the services does not exceed 5% of annual revenue (previously prohibited to provide to Uruguay residents from an FTZ).
The changes generally apply from the publication date of the Decree in the Official Gazette, 24 October 2016.
EU Opens Consultation on the Mandatory Disclosure of Tax Planning Schemes
On 10 November 2016, the European Commission opened a public consultation on whether there is a need for EU action aimed at introducing more effective disincentives for intermediaries engaged in operations that facilitate tax evasion and tax avoidance, and if there is, how it should be designed. The consultation covers various areas, including:
- The criteria to classify tax schemes as potentially aggressive;
- The objectives to strengthen the fight against tax evasion and avoidance;
- The information that should be provided on potentially aggressive tax planning schemes;
- Whether any tax planning scheme relating to countries appearing on the EU's (future) list of non-cooperative third country jurisdictions should automatically qualify as a potentially aggressive tax planning scheme;
- Whether to focus on potentially aggressive tax planning schemes only when there is a cross-border aspect or on any aggressive tax planning scheme;
- Whether tax authorities in all Member States should be made aware of potentially aggressive tax planning schemes and whether such information should be shared between tax authorities of EU Member States;
- Whether mandatory disclosure obligations on potentially aggressive tax planning should apply for taxpayers, intermediaries, or both; and
- The potential options, including:
- OPTION 0: No action at EU level;
- OPTION A: European Commission to encourage Member States to gather information on potentially aggressive tax planning schemes and to share/exchange it with other Member States;
- OPTION B: Require Member States to impose mandatory disclosure obligations on intermediaries and/or taxpayers when using or providing advice on potentially aggressive tax planning schemes;
- OPTION C: Require Member States to impose mandatory disclosure obligations on intermediaries and/or taxpayers when using or providing advice on potentially aggressive tax planning schemes and to automatically exchange the information with other Member States;
- OPTION D: Mandatory disclosure (Option B) or Mandatory disclosure & Exchange of information (Option C) plus Publication; or
- OPTION E: EU Code of Conduct for intermediaries.
Hong Kong to Increase Stamp Duty Rate on Residential Property Transactions
As part of efforts to cool the housing market, Hong Kong government has announced that the ad valorem stamp duty rates for residential property transactions will be increased to a flat rate of 15% for both individuals and companies. Currently, progressive rates up to 8.5% apply based on the consideration amount. The reduced rates for Hong Kong permanent residents that are not the beneficial owner of any other Hong Kong resident property at the time of acquisition will continue to apply.
Subject to approval by the Legislative Council, the increased flat rate will apply for transactions executed on or after 5 November 2015.
Tax Treaty between Ecuador and the U.A.E. Signed
On 9 November 2016, officials from Ecuador and the United Arab Emirates 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.
Finland Approves New Tax Treaty with Sri Lanka
On 10 November 2016, the Finnish government approved the new income tax treaty with Sri Lanka. The treaty, signed 6 October 2016, will replace the 1982 tax treaty between the two countries.
The treaty covers Finnish state income taxes, corporate income tax, communal tax, church tax, tax withheld from interest, and tax withheld at source from non-residents' income. It covers Sri Lanka income tax, including the income tax based on the turnover of enterprises that have entered into agreements with the Board of Investment.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.
- Dividends - 7.5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 10%
- Interest - 10%
- Royalties - 10%
The following capital gains derived by a resident of one Contracting State may be taxed by the other State:
- Gains from the alienation of immovable property situated in the other State;
- Gains from the alienation of shares or other corporate rights in a company whose assets consist of more than 50% of immovable property situated in the other State; and
- Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State.
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Article 22 (Limitation of Benefits) includes that a resident of one Contracting State that derives income from the other State will not be entitled to relief from taxation provided by the treaty if the main purpose or one of the main purposes of any person concerned with the creation or arrangement of such items of income was to take advantage of the provisions of this treaty.
Both countries generally apply the credit method for the elimination of double taxation. However, Finland will exempt dividends received by a Finnish company that directly controls at least 10% of the voting power in the paying company.
The treaty will enter into force 30 days after the ratification instruments are exchanged. It will apply in Finland from 1 January of the year following its entry into force, and in Sri Lanka from 1 April of the year following its entry into force.
The 1982 tax treaty between the two countries will cease to have effect on the dates the new treaty is effective as above, and will terminate on the last date.
Protocol to Tax Treaty between Germany and the Netherlands to Enter into Force
The Dutch government has announced that the protocol to the 2012 income tax treaty with Germany will enter into force on 31 December 2016. The protocol, signed 11 January 2016, is the first to amend the treaty. It includes primarily clarifying adjustments to Articles 3 (General Definitions), 5 (Permanent Establishment), 8 (Shipping and Air Transport), 13 (Capital Gains), and 14 (Income from Employment), as well as to the protocol originally signed with the treaty.
The protocol will apply from 1 January 2017.
Tax Treaty between Paraguay and Qatar under Negotiation
Officials from Paraguay and Qatar held the first round of negotiations for an income tax treaty on 8 November 2016. 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.
U.A.E to Sign Mutual Assistance Convention and Agreement on Exchange of Financial Account Information
The United Arab Emirates Cabinet has approved the signing of the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol, and the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Financial Account Information. The government is planning to sign the agreements in order to improve its peer review rating from the Global Forum on Transparency and Exchange of Information for Tax Purposes.