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Approved Changes (1)

United States

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US IRS Issues Practice Unit on Taxpayer’s Affirmative Use of IRC 482 for Transfer Pricing Purposes

On 12 May 2016, the U.S. IRS publishes an international practice unit on a taxpayer's affirmative use of IRC 482. According to the practice unit, IRC 482 may generally only be used by the IRS to make allocations to ensure that taxpayers clearly reflect income attributable to controlled transactions and to prevent the avoidance of taxes. However, taxpayers are allowed to invoke IRC 482 under certain situations:

  • On a timely filed U.S. income tax return, the taxpayer is reporting the results of a transaction which are different than the actual prices charged, but is doing so to clearly reflect an arm’s length result.
  • In appropriate circumstances, the IRS may permit amended returns that increase taxable income if the results are otherwise arm’s length.
  • A taxpayer can request a setoff when the IRS proposes an IRC 482 allocation. The setoff transactions must be between the taxpayer and the same controlled party involved in the proposed IRC 482 adjustment, be in the same tax year and follow certain procedural requirements.

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.

Proposed Changes (3)


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Cyprus to Implement CbC Reporting Requirements

The Cyprus government has reportedly announced its intent to implement Country-by-Country (CbC) reporting requirements in line with Action 13 of the OECD BEPS Project. Although draft legislation is not yet available, it is expected that the requirement will apply for fiscal years beginning on or after 1 January 2016 for MNE groups meeting a EUR 750 consolidated group revenue threshold in the previous year. In general, the ultimate parent company of a group resident in Cyprus would be required to file, although a constituent entity resident in Cyprus would be required to file if Cyprus is unable to obtain the CbC report through exchange with the parent's jurisdiction of residence.


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Liechtenstein Issues Consultation Report on Implementation of BEPS Measures

On 3 May 2016, the Liechtenstein government issued a consultation report on the implementation of measures based on the outcomes of the OECD BEPS Project. In particular, the report covers:

  • Measures targeting hybrid-mismatches that limits the exemption for profit distributions received if deductible for the distributing company (Action 2);
  • The introduction of a new IP box regime based on the modified nexus approach, with the existing regime grandfathered through 2020 (Action 5);
  • The introduction of a clear definition of tax rulings for the purpose of the exchange of rulings with other jurisdictions (Action 5);
  • The introduction of Master and Local file documentation requirements for large companies (Action 13); and
  • The introduction of Country-by-Country reporting requirements for MNE groups meeting a consolidated revenue group revenue threshold of EUR 750 million (Action 13).

Click the following link for the full consultation report (German language). The consultation ends 17 June 2016.

United Kingdom

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UK Issues Follow-up Consultation on Tax deductibility of Corporate Interest Expense

On 12 May 2016, the UK Treasury issued a follow-up consultation on new rules concerning the tax deductibility of corporate interest expense in line with the guidelines developed as part of Action 4 of the OECD BEPS Project. The consultation seeks views on the detailed policy design and implementation of the new rules, which were announced as part of the UK Budget 2016. These rules include:

  • A Fixed Ratio Rule limiting a group’s UK tax deductions for net interest expense to 30% of its UK EBITDA;
  • A Group Ratio Rule based on the net interest to EBITDA ratio for the worldwide group;
  • A group de minimis threshold of up to GBP 2 million of UK interest expense;
  • Specific rules to ensure that the restriction does not impede the provision of private finance for certain public infrastructure in the UK where there are no material risks of BEPS;
  • Specific rules to prevent BEPS involving interest in the banking and insurance sectors; and
  • Specific rules to limit a group’s net UK interest deductions so that the deductions cannot exceed the global net third party expense of the group (the current debt cap regime will be repealed).

The new rules are to apply from 1 April 2017.

Click the following link for the consultation webpage on the UK.Gov site. Comments are due by 4 August 2016.

Treaty Changes (4)

Botswana-Isle Of Man

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TIEA between Botswana and the Isle of Man has Entered into Force

The tax information exchange agreement between Botswana and the Isle of Man entered into force on 5 March 2016. The agreement, signed 14 June 2013, is the first of its kind between the two jurisdictions and is in line with the OECD standard for information exchange. The agreement applies for criminal tax matters on the date of its entry into force, and for other tax matters for tax periods beginning on or after that date.


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Capital Gains Taxation under India-Singapore Treaty Affected by Protocol to India-Mauritius Tax Treaty

On 10 May 2016, India signed a protocol to the 1982 tax treaty Mauritius that grants taxation rights to India on gains from alienation of shares in Indian resident companies acquired on or after 1 April 2017 (previous coverage). This change also affects India's taxation rights on capital gains under the 1994 India-Singapore tax treaty (Singapore does not tax capital gains).

Under the original 1994 India-Singapore tax treaty, gains from the alienation of shares by a resident of a Contracting State were taxable in the other State if the shares derived their value from immovable property situated in the other State or the shares were in the capital of a company resident in the other State. However, those provisions were removed by the 2005 protocol to the tax treaty, with the condition that the exemption under the India-Mauritius tax treaty remained. Since the exemption will no longer apply from 1 April 2017 under the India-Mauritius tax treaty, it will also no longer apply under India-Singapore tax treaty as amended by the 2005 protocol.

In addition to allowing India to tax capital gains of Mauritius residents from the sale of shares in Indian resident companies, the protocol to the India-Mauritius tax treaty also provides that shares acquired before 1 April 2017 will remain exempt and provides a two-year transition period that includes 50% reduced taxation on such gains. However, since there is currently no agreement between India and Singapore providing for such a guarantee or transition period, it is possible that India may fully tax capital gains from the sale of shares by Singapore residents from 1 April 2017, regardless of when the shares were acquired.

Any clarifications provided by India or Singapore on the capital gains taxation issue will be published once available.


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Israel and Russia Sign Multilateral Agreement on Automatic Exchange of Financial Account Information

According to a recent update from the OECD, Israel and Russia signed the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Financial Account Information on 12 May 2016. The MCAA is part of the Common Reporting Standard developed by the OECD. With the signing, both countries have committed to begin automatic exchange by September 2018.

Click the following link for the 82 jurisdictions that have signed the MCAA to date.


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Tax Treaty between Singapore and Tanzania to be Negotiated

According to recent reports, officials from Singapore and Tanzania have expressed their intent to begin income tax treaty negotiations during a meeting held 25 to 29 April 2016. Any resulting treaty would be the first of its kind between the two counties, and must be finalized, signed and ratified before entering into force.


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