Worldwide Tax News
Ireland Publishes Updated Manual on Undertakings for Collective Investment
On 11 September 2015, Irish Revenue published eBrief No. 88/15, announcing an updated Tax and Duty Manual on the tax treatment of undertakings for collective investment.
Net Funds - Undertakings for Collective Investment
Section 738 TCA 1997 sets out the tax regime for domestic undertakings for collective investment. Under this regime the undertaking is liable to tax at the standard rate on both its income and gains. The unitholder is not liable to tax on distributions out of the fund. This regime is generally referred to as the "old domestic" or "net" regime and applies to domestic collective funds established prior to 1 April 2000. (All new funds set up on or after 1 April 2000 are taxed under the new "gross- roll-up" regime).
The standard rate of tax (20%) applies to income arising and gains accruing on Net Funds up to and including 7 February 2012. The Finance Act 2012 introduced an increased rate of 30% for income arising and gains accruing on or after 8 February 2012.
The Tax and Duty Manual Part 27.01.02 (PDF, 81KB), which sets out Revenue practice in relation to Undertakings for Collective Investment, has been amended to reflect the increased tax rate, introduced in Finance Act 2012, for Net (i.e. pre gross roll-up) funds.
Mexico 2016 Tax Reform Proposals Include CbC Reporting, Investment Incentives and Other Measures
On 8 September 2015, Mexico's President Enrique Peña Nieto submitted a tax reform package for 2016 to the National Congress. Key proposed measures are summarized as follows.
The package includes the implementation of new transfer pricing documentation requirements in line with the OECD guidelines developed as part of Action 13 of the BEPS Project, including:
- A local file - providing information on the local taxpayer, its business activities, related party transactions, etc.;
- A master file - providing information on the taxpayer's group, including organizational structure, profit drivers, intangible assets, supply chain, intercompany financing, etc.; and
- A country-by-country (CbC) report - providing aggregated information for each jurisdiction in which the taxpayer's group operates, including revenues from related and unrelated parties, profit (loss) before tax, tax paid and accrued, number of employees, capital, tangible assets, etc.
The proposal also includes the requirement that local taxpayers provide certain information on non-resident related parties not otherwise available to the tax authority through information exchange. These new requirements are in addition to Mexico's current transfer pricing documentation/reporting requirements.
The local file and master file requirement would apply for companies with annual revenue in the preceding year exceeding approximately MXN 645 million (threshold adjusted yearly). The CbC report requirement would apply for companies qualifying as Mexican multinational holding companies with consolidated annual group revenue exceeding MXN 12 billion, or a Mexican company designated to file the report by a foreign parent company of a group with annual revenue exceeding that threshold.
The proposal also includes that failure to comply with the requirement will result in penalties of MXN 140,540 to MXN 200,090 and will disqualify the taxpayer from entering into contracts with the Mexican public sector. It is uncertain if the current rule that the deductibility of non-resident related party expenses depends on the filing of transfer pricing information returns will also apply for the new filing requirements.
As proposed, the requirements would apply for the 2016 tax year, with an initial filing deadline of 31 December 2017.
A proposal is included for the implementation of the OECD Common Reporting Standard requiring financial institutions to annually report on both preexisting and new accounts. Reporting on high-value accounts would begin 30 June 2017 and low-value accounts beginning 30 June 2018. The information would then be subject to automatic exchange with other countries.
The main tax incentive included in the package is an immediate deduction incentive that would apply for:
- Investment in fixed assets acquired by SMEs (annual revenue below MXN 50 million);
- Investments in the creation and expansion of transportation infrastructure; and
- Investments in activities regulated by the Hydrocarbons Law (excluding seismic activities and the exploration and extraction of fossil fuels) and in machinery and equipment for the production, transportation, distribution and supply of energy.
The immediate deduction incentive would apply for investment made in the fourth quarter of 2015 up to the end of 2017.
Additional measures proposed include:
- Financing from non-resident related parties for investments in infrastructure for the production of electric power generation would be excluded from the thin capitalization ratio calculation; and
- The reduced 4.9% within tax rate on interest from loans or other non-publically trade debt instruments paid to foreign banks and foreign financial institutions would be extended, subject to certain conditions (currently set to expire the end of 2015).
The package includes an amnesty program for the repatriation of unreported funds held offshore up to December 2014. Under the program, taxpayers would be subject to normal income tax on the funds, including the ability to claim foreign tax credits, while avoiding penalties and surcharges.
In order to be eligible, the tax due must be paid within 15 days of the repatriation of funds, and the funds must be used to either:
- Invest in fixed assets for the taxpayer's business for at least three years;
- Invest in debt or equity in Mexican entities for at least three years;
- Invest in research and development for scientific or technological purposes; or
- Repay loans to unrelated parties.
The program would available until June 2016.
If approved by the National Congress and enacted, the reform package will generally apply from 1 January 2016.
Dutch Tax Plan and Other Measures for 2016 include Individual Income Tax Cuts and Implementation of CbC Reporting
On 15 September 2015, the Dutch Ministry of Finance published the Tax Plan 2016 Bill and the Other Tax Measures 2016 Bill.
The Tax Plan Bill includes a number of measures focused primarily on a reduction in the tax burden for individuals by approximately EUR 5 billion. One of the main measures concerns changes to the individual income tax brackets and rates.
From 1 January 2016, the second and third individual income tax bracket rates will be reduced from 13.85% and 42% to 12.00% and 40.15% respectively, while the first bracket rate will be increased slightly from 8.35% to 8.40%. The top rate remains 52.00%. In addition, the bracket thresholds will be increased overall, with the top bracket increasing from EUR 57,885 to EUR 66,241.
The Other Tax Measures 2016 Bill includes a number of changes, with a key measure being the implementation of new transfer pricing documentation requirements based on the guidelines developed as part of Action 13 of the OECD BEPS Project. The requirements include:
- A local file - providing information relevant to the transfer pricing analysis relating to transactions between a taxpayer and an affiliated non-resident group entity, as well as evidence supporting a business profit allocation to permanent establishments;
- A master file - providing an overview of the company's multinational group, including the nature of its business, its overall transfer pricing policy and its global allocation of income and economic activities; and
- A country-by-country (CbC) report - providing aggregated information for each jurisdiction in which the taxpayer's group operates, including revenue amount, profit before tax, tax paid, paid-up capital, accumulated profit, the number of staff, tangible assets other than cash or cash equivalents; and a description of each group entity including jurisdiction of residence.
The local file requirement applies for residents of the Netherlands regardless of revenue, while the master file requirement applies when consolidated group revenue in the previous year exceeds EUR 50 million. The files should be prepared and registered in the administration of the company before the due date of the tax return of the relevant year, and may be prepared in Dutch or English.
For the CbC report, the ultimate parent entity of a multinational group resident in the Netherlands or a designated surrogate parent entity must file the report if consolidated group revenue in the previous year exceeds EUR 750 million. The filing requirement may fall on a non-parent group member resident in the Netherlands in the event the parent entity is resident in jurisdiction that:
- Does not require submission of a CbC report;
- Does not have adequate exchange of information with the Netherlands; or
- Has demonstrated systematic negligence in providing the report.
If there are multiple group members resident in the Netherlands, only one is required to act as the reporting member. If the Netherlands is able to obtain a report filed by a designated surrogate parent entity resident in another jurisdiction, the filing requirement for the non-parent group member will not apply.
When required, the report is due within 12 months following the close of the tax year, and may be in Dutch or English.
Subject to approval by both houses of parliament, the measures will apply from 1 January 2016.
Ukraine Considering Flat 20% Rate for Income Taxes and VAT in 2016 Budget
On 3 September 2015, Ukraine's Minister of Finance Natalie Jaresko proposed a flat 20% tax rate for corporate income tax, individual income tax and value added tax (VAT) to the National Council of Reform. Currently, the corporate tax rate is 18%, individual tax rates are 15% and 20%, and the standard VAT rate is 20% with a reduced rate of 7%. The proposal also includes measures to:
- Replace the social security contribution made by employees and employers with a single 20% contribution by employers (currently, employee contributions are 3.6% and employer contributions are approximately 41% depending on industry)
- Provide full tax exemption for minimum wage earners (current minimum wage UAH 1,378 per month);
- Allow taxpayers to write off part of their accrued income tax liability as capital investment for new production facilities or equipment; and
- Simplify tax procedures.
The proposed measures are to be included in 2016 budget legislation, which was submitted to parliament on 14 September 2015 but has been withdrawn by the Cabinet of Ministers for further review.
Tax Treaty between Cyprus and Vietnam to be Negotiated
During a meeting held 11 September 2015, officials from Cyprus and Vietnam reportedly agreed to begin negotiations for an income tax treaty. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.
Malaysia Ratifies Protocol to the Treaty with New Zealand
On 25 August 2015, Malaysia ratified a pending protocol to the 1976 income tax treaty with New Zealand. The protocol, signed 6 November 2012, replaces Article 22 (Exchange of Information), bringing it in line with the OECD standard for information exchange. It will enter into force once the ratification instruments are exchanged, and will apply from the date of its entry into force for requests concerning tax periods beginning on or after 1 January following that date.