Worldwide Tax News
Belgium Removes Guatemala and Panama as Jurisdictions for Increased Payment Reporting Obligations
The Belgian Ministry of Finance has published Circular no. 2017/C/66 of 27 October 2017, which is an addendum to Circular No. Ci.RH.421 of 2010 on the requirements to report payments of EUR 100,000 or more to certain jurisdiction in order for those payments to be deductible. The jurisdictions include certain low and no-tax jurisdiction, as well as jurisdictions that have not effectively implemented international standards on transparency and information exchange.
In January 2017, Belgium added five jurisdictions for the purpose of payment reporting due to non-compliance with transparency and information exchange standards, including Guatemala, the Marshall Islands, Micronesia, Panama, and Trinidad and Tobago. As provided for in Circular no. 2017/C/66, Belgium has decided to remove Guatemala, the Marshall Islands, Micronesia, and Panama from its list of non-compliant jurisdictions, while Trinidad and Tobago remains. The removal of the jurisdictions is based on the results of OECD's Fast-Track review process, which was offered in order for jurisdictions to demonstrate progress in meeting the standards (previous coverage).
However, the Marshall Islands and Micronesia remain subject to the reporting rules since they are also listed by Belgium as low or no-tax jurisdictions. As a result, only payments to Guatemala and Panama are removed from the reporting rules, with effect from 22 June 2017.
Chile Passes Measures to Eliminate Business Platform Regime, Enable Financial Account Information Exchange, and Extend Deadline for Full Imputation Credit
- The elimination of the Business Platform Company Regime, which has been characterized by the OECD as potentially harmful regime in relation to BEPS Action 5 - Transitional measures are provided through 2021 for companies already approved for the regime (full elimination 2022);
- The introduction of measures to enable the automatic exchange of financial account information under international exchange agreements, including under the OECD Common Reporting Standard (CRS); and
- A two year extension of the transitional tax treaty deadline for a full imputation credit against the 35% withholding tax under the new partially integrated regime (PIS regime) - With the extension, a treaty must be signed before 1 January 2019 and must be in force by 31 December 2021 (under standard rules, the credit is limited to 65% of the first category tax paid if the shareholder is resident in a country with which Chile does not have an effective tax treaty).
The measures will be enacted after presidential approval is received.
German Federal Council Gives Final Approval on the Maximum Income Basis for Social Security Contributions for 2018
On 3 November 2017, the German Federal Council (upper house of parliament - Bundesrat) approved the maximum annual income basis for social security contributions for 2018. The maximum annual income basis amounts are unchanged from those approved by the Federal Cabinet in September (previous coverage) and are effective from 1 January 2018.
Italy Publishes Law Empowering Government for the Implementation of EU Directives without Parliamentary Approval
Italy has published Law No. 163 of 25 October 2017 on delegation to the government for the implementation of EU Directives, which empowers the government to adopt, as appropriate, the procedures, principles, and guidelines for the implementation of certain EU Directives through legislative decrees that are consulted on by parliament but do not require additional approval by parliament. The EU Directives are specified in an annex to the Law, and include the Directive on the exchange of CbC reports and the Anti-Tax Avoidance Directive, among others.
Law No. 163 will enter into force on 21 November 2017.
Lithuania Publishes Order Clarifying CbC Reporting Requirements
Lithuania has published the State Tax Inspectorate (STI) Order No. VA-93 of 2 November 2017 on Lithuania's Country-by-Country (CbC) reporting requirements, which were adopted in May 2017 and apply for fiscal years beginning on or after 1 January 2016 for MNE groups meeting the standard EUR 750 million threshold (previous coverage). The Order makes certain amendments to correct and clarify the initial STI Order on the rules, including in relation to certain definitions, notification requirements (all resident entities must notify), and the reporting deadline extension for the first year to 31 March 2018 (only applies for fiscal years starting on 1 January 2016 - any later start date subject to standard 12-month deadline). Order No. VA-93 also provides the specific data mapping for the preparation of the XML data file based on the OECD schema.
Russia Clarifies Treatment of Debts Forgiven by Non-Resident Lender
The Russian Ministry of Finance has published Letter No. 03-03-06/1/58668 of 12 September 2017, which clarifies the treatment of a debt under a loan agreement that has been forgiven by a non-resident lender. The letter clarifies that as per Article 415 of the Russian Civil Code, a debt obligation may be terminated by the creditor's absolving the debtor from the obligation, provided that this does not violate the rights of the other persons with respect to the creditor's property. In such case, the income in the form of accounts payable (obligations to the creditor) that have been written off as a result of the debt forgiveness must be included by the taxpayer as non-sales income as per clause 18 of Article 250 of the Russian Tax Code, and taxed accordingly.
IRS Releases Practice Units on Advance Pricing Agreements for Tangible Goods Transactions
The U.S. IRS has released two international practice units concerning advance pricing agreement for tangible goods transactions: Advance Pricing Agreement for Tangible Goods Transactions - Inbound; and Advance Pricing Agreement for Tangible Goods Transactions - Outbound. Each practice unit provides a detailed review, with a focus on:
- Understanding the APA process;
- Identifying Coverable Issues under the APA;
- Understanding the risk allocation between related parties;
- Pre-filing procedures;
- Rollback of the covered methods;
- Renewal of an APA;
- Compliance with APA terms and critical assumptions;
- The examiner's involvement in the APA process;
- Controlling the statue of limitations while an APA is under consideration; and
- The use of an APA in the audit process.
International practice units are developed by the Large Business and International Division of the IRS to provide staff with explanations of general international tax concepts as well as information about specific transaction types. They are not an official pronouncement of law and cannot be used, cited, or relied upon as such.
Click the following link for the International Practice Units page on the IRS website.
Further Increase in Venezuela Minimum Monthly Salary
Venezuela has published Presidential Decree No. 3.138 of 1 November 2017 in the Official Gazette, which increases the minimum monthly salary by an additional 30% from VEF 136,544.18 to 177,507.44. The increase is effective 1 November and impacts the basis cap for social security contributions, unemployment insurance, and other benefits. For employer social security contributions, the rates are 9%, 10%, or 11% based on the risk qualification of the company with a basis cap of five minimum monthly salaries. For employer unemployment insurance contributions, the rate is 2% with a basis cap of 10 minimum monthly salaries. Additional contributions apply as well, including for the housing fund and employee training, although these are not capped based on the minimum salary.
Bahrain Lower House Approves Draft Law for Selective Excise Tax
Bahrain's Council of Representatives (lower house of parliament) has announced its approval of the draft law for the ratification of Gulf Cooperation Council (GCC) Unified Selective Excise Tax, as well as the draft law for the implementation of the Selective Excise Tax in Bahrain. The tax will be levied on goods deemed harmful to health, including tobacco products, energy drinks, and carbonated beverages. Both laws have been submitted to the Shura Council (upper house) for final approval.
Poland to Abolish Social Security Contribution Basis Cap
Legislation is currently under consideration in Poland's lower chamber of parliament (Sejm) that would abolish the maximum salary basis for social security contributions, which is currently PLN 127,890 (annual). If approved, contributions would be made on total gross salary from 1 January 2018, regardless of the amount.
UK Launches Second Consultation on Draft Guidance on the Reform of Corporation Tax Loss Relief
UK HMRC has published a second tranche of draft guidance on the application of the legislation for the reform of Corporation Tax loss relief that is included as part of the second Finance Bill for 2017 (Finance Bill 2017-19), which is currently before the House of Lords. The guidance covers:
- Relaxation of non-trade deficits from loan relationships;
- Relaxation of non-trading losses on intangible fixed assets;
- Relaxation of UK property business losses;
- Relaxation of expenses of management of investment businesses; and
- Group relief for carried-forward losses.
Comments on the second tranche of draft guidance are due by 5 January 2018.
New Tax Treaty between the Czech Republic and Germany under Negotiation
On 6 to 9 November 2017, officials from the Czech Republic and Germany reportedly met for the first round of negotiations for a new income tax treaty to replace the 1980 tax treaty between Germany and the former Czechoslovakia, which continues to apply in respect of the Czech Republic and Germany. Any resulting treaty would be the first of its kind directly between the two countries, although negotiations for an earlier draft treaty were concluded in 2000, but the treaty was never signed.
India to Sign Tax Treaty with Hong Kong and Amending Protocol to Tax Treaty with Kyrgyzstan
According to recent announcements issued by India's Press Information Bureau, the Indian Cabinet has approved the signing of an income tax treaty with Hong Kong and the signing of an amending protocol to the 1999 income tax treaty with Kyrgyzstan. The treaty will be the first of its kind between India and Hong Kong and the protocol will be the first to amend the 1999 treaty. Both will need to be finalized, signed, and ratified before entering into force
Madagascar Approves Pending Tax Treaties with Canada and Morocco
On 8 November 2017, Madagascar's Council of Ministers approved the pending income tax treaties with Canada and Morocco. The treaties, signed 24 November 2016 with Canada (previous coverage) and 18 November 2016 with Morocco (previous coverage), are the first of their kind between Madagascar and the respective countries. Each will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following their entry into force.