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Approved Changes (6)

Canada-France-Germany-Italy-Japan-United Kingdom-United States

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G7 Finance Ministers Communiqué and Declaration on Fighting Tax Crimes Published

A Communiqué and Declaration on fighting tax crimes and other illicit financial flows from the G7 Finance Ministers has been published following their meeting held 12 to 13 May 2017 in Bari, Italy. Regarding tax and transparency, the Communiqué includes the following:

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16. We remain committed to work for globally fair and modern tax systems and to achieve a global level playing field for all engaged in economic activities. To this end, timely, consistent and widespread implementation of the G20/OECD BEPS (Base Erosion and Profit Shifting) package is crucial. We encourage all relevant and interested countries and jurisdictions to commit to implement the BEPS package and join the G20/OECD Inclusive Framework on BEPS. We look forward to the first signing on 7th June 2017 of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS. We recognise the importance of monitoring and evaluating the developments related to the digitalization of the economy, and, depending on conclusions of the work by the OECD Task Force on the Digital Economy (TFDE), developing policy options, as appropriate, to address related tax challenges with a consistent approach. In this context, we look forward to the interim report of the OECD TFDE in 2018. We support the work of the OECD and the IMF on Tax Certainty.

17. Reaffirming our goal to enhance tax transparency at the global level, we join the G20 call on all jurisdictions to sign and ratify the multilateral Convention on Mutual Administrative Assistance in Tax Matters and urge all relevant countries and jurisdictions, including all financial centres which have not yet done so to commit without delay to implementing the Common Reporting Standard (CRS) on automatic exchange of financial account information which will commence in September 2017 and to take all necessary actions, including putting in place domestic legislation, in order to start exchanges under the CRS by September 2018 at the latest. We expect sufficient progress from jurisdictions that do not have yet a satisfactory level of implementation of the agreed international standards on tax transparency and look forward to the OECD’s preparation of a list of non-cooperative jurisdictions with respect to tax transparency, which will guide our work on defensive measures against listed jurisdictions. We welcome the work by the FATF and the Global Forum on Transparency and Exchange of Information for Tax Purposes to improve the implementation of the international standards on availability of beneficial ownership information as well as the OECD work in complementary tax areas related to beneficial ownership.

18. The “Bari Declaration on fighting tax crimes and other illicit financial flows” reflects our determination to use a holistic approach to fighting against tax and financial crime based on effective interagency and international cooperation. We support initiatives on discussing possible ways to address arrangements designed to circumvent reporting under the CRS or aimed at providing beneficial owners with the shelter of non-transparent structures, considering also model mandatory disclosure rules.

19. We reaffirm that strengthening the capacity of developing countries to mobilise domestic resources is critical to the achievement of the global 2030 Agenda for Sustainable Development. Improving the capacity in tax policy and administration is also crucial for a global level playing field. To this purpose, we remain committed to the principles of the Addis Tax Initiative and we support the work of the Platform for Collaboration on Tax, acknowledging its key role in deepening collaboration between the international organisations and enhancing effective external support in building tax capacity. We will continue to support targeted assistance to developing countries in building their tax capacity. We also welcome new initiatives in the area of tackling tax and financial crime, like the establishment by the OECD of the Africa Academy for Tax and Financial Crime Investigation in Kenya.

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With respect to the Declaration, specific actions include requesting the OECD to develop ways to address arrangements designed to circumvent reporting under the Common Reporting Standard or aimed at providing beneficial owners with the shelter of non-transparent structures, and to develop model mandatory disclosure rules based on the approach taken for disclosure of avoidance arrangements in BEPS Action 12.

Click the following links for the full text of the Finance Ministers' Communiqué and the Declaration.

Colombia

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Colombia Clarifies Deductibility of Payments under Technology Import Agreement

Colombia's National Tax Authority (DIAN) recently published a ruling on the deductibility of payments made to a non-resident under a technology import agreement in relation to, technology licensing, trademark licensing, patent licensing, technical services, etc. According to the ruling, such payments are deductible provided that tax has been withheld on the payment appropriately and the agreement has been properly registered with the competent authority. Such registration should be made within 6 months following the execution of an agreement and within 3 months of any changes.

Czech Rep

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Czech President Signs Tax Reform Package into Law

Czech President Miloš Zeman has reportedly signed into law a tax reform package (Bill No. 873) passed by parliament in April that includes a number of amendments to Czech tax law in the areas of income tax, value added tax, and others. Main amendments include:

  • Certain asset depreciation rules are changed, including a change in the depreciation of intangible assets to a straight-line basis using net book values, and allowing the depreciation of technical improvements by sub-lessees;
  • Anti-avoidance rules for the participation exemption regime are amended to ensure the exemption is not available for dividends received when deductible for the payer (correction to prior implementation of EU Parent-Subsidiary Directive amendments);
  • New procedures are established for the granting of a tax ruling with respect the determination of the tax base for a permanent establishment (PE);
  • The scope of the 15% domestic withholding tax is extended to cover gratuitous transfers by a Czech resident (or Czech PE of a non-resident) of ownership interests in a Czech company, immovable property in the Czech Republic, and business establishments in the Czech Republic; and
  • New VAT rules are introduced in relation to refunds, groups, import/export related exemptions, and use of the reverse charge.

The reform legislation will enter into force 15 days after it is published in the Official Gazette. The reforms were originally intended to be effective from 1 January 2017 and later delayed to 1 April 2017. However, since the law has not yet been published, it is expected that certain measures will be effective from 1 July 2017, while most measure will be effective from 2018. Additional details on the measures and their effective dates will be published once available.

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OECD Launches Online CbC Report Exchange Relationships Tool

The OECD has launched its online Country-by-Country (CbC) exchange relationships tool. The tool allows users to check exchange relationships that are currently in place for the automatic exchange of CbC Reports under bilateral agreements, the multilateral agreement, and the EU Council Directive 2016/881/EU. The exchange relationship available in the tool are based on the excel list issued 4 May (previous coverage) and will be regularly updated as further jurisdictions activate their exchange relationships.

Pakistan

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Pakistan Publishes Guidance on Alternative Dispute Resolution

The Pakistan Federal Board of Revenue has published guidance on Alternative Dispute Resolution (ADR). Main points of the guidance include:

  • ADR is available for individuals, associations of persons, companies, and trusts;
  • ADR works in parallel with the standard appeals process, and a matter can be referred to ADR during any stage of the appeals process without foregoing the right of appeal;
  • In general, any pending matter before an appellate authority can be referred to ADR, except where prosecution proceedings have been initiated or where there is an interpretation of law involved (matters regarding income tax, sales tax, customs duty, and federal excise duty can be referred to ADR);
  • To refer to ADR, a written application must be sent to the Chairman of the Federal Board of Revenue, with no fees, charges, or costs involved in the process (application form attached as annex to the guidance);
  • After the application is received, the Board is to form the Alternative Dispute Resolution Committee (ADRC) within 60 days for income tax cases and within 30 days for sales tax, customs and federal excise duty cases - ADRC is comprised of members selected/nominated by the Board depending upon the facts and circumstances of each case;
  • The ADRC is required to give its recommendations within 90 days of its constitution - if unable to provide a recommendation within 90 days, a new ADRC is constituted with the same 90-day deadline; and
  • The ADRC recommendation is examined by the Federal Board of Revenue, which must then issue an order as it may deem appropriate within 90 days - if no order is passed within 90 days, the recommendation is treated as an order passed by the Board.

Click the following link for the full guidance: The Mechanism of Alternative Dispute Resolution (ADR).

Russia

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Russia Clarifies Conditions for Foreign Tax Credit

The Russian Ministry of Finance has issued Letter No. 03-12-11/1/26759 on the conditions for a credit for foreign tax paid on foreign source income. The letter clarifies that in order for a foreign tax credit to apply, two main conditions must be met:

  1. The taxpayer has included the foreign source income in its tax base for Russian corporate tax purposes; and
  2. The corporate tax was in fact paid or withheld in the foreign country.

To prove that the second condition is met, the taxpayer must obtain a document certified by the foreign authority confirming that the tax was paid (withheld). In the case of withholding, the taxpayer must obtain a document provided by the withholding agent confirming the tax was withheld. Provided the two conditions are met, the taxpayer will be allowed a credit for the foreign tax paid up to the amount corresponding to the amount of Russian tax otherwise due on the income. The letter also clarifies that in no case may foreign tax paid or withheld be claimed as an expense for tax purposes.

Proposed Changes (1)

Australia

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Australia Issues Draft Guideline on Risk Assessment of Related Party Financing Arrangements

The Australian Taxation Office (ATO) has published a draft Practical Compliance Guideline (PCG 2017/D4) concerning the ATO compliance approach to taxation issues associated with cross-border related party financing arrangements and related transactions. The Guideline provides a framework for taxpayer's to:

  • Assess the tax risk of their related party financing arrangement in accordance with the ATO's risk framework; and
  • Understand the compliance approach the Commissioner is likely to adopt given the risk profile of their related party financing arrangement.

In general, the ATO expects any pricing of a related party debt to be in line with the commercial incentive of achieving the lowest possible 'all-in' cost to the borrower. The ATO expects, in most cases, the cost of the financing to align with the costs that could be achieved, on an arm's length basis, by the parent of the global group to which the borrower and lender both belong. In order to make a risk assessment of an arrangement, an indicator guide table is used with values assigned to specific risk indicators, which include:

  • Price relative to: global group cost of debt, traceable third party debt, relevant third part debt of borrowing tax entity;
  • Leverage of borrower;
  • Interest coverage ratio;
  • Appropriate collateral;
  • Subordinate or mezzanine debt;
  • Currency of debt is different than operating currency;
  • Involves an arrangement covered by a taxpayer alert;
  • At least one party is a hybrid entity;
  • Presence of exotic features on loan; and
  • Sovereign risk of borrower entity.

The sum of the indicator values are then used to classify the tax risk in one of five zones from low to high risk: green, blue, yellow, amber, red. A sixth zone (the white zone) is for arrangements already reviewed and concluded by the ATO.

Click the following link for the draft Practical Compliance Guideline. Comments are due by 30 June 2017.

Treaty Changes (2)

Japan-Denmark-Estonia

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Japan Concludes Tax Treaty Negotiations with Denmark and Estonia

Japan's Ministry of Finance announced on 15 May 2017 that Japan has agreed in principle on a new income tax treaty with Denmark, which will replace the 1968 tax treaty between the two countries (press release), and has agreed in principle on an income tax treaty with Estonia, which will be the first of its kind between the two countries (press release). The two treaties will be signed after the necessary internal procedures have been completed by the respective countries and will enter into force after the ratification instruments are exchanged. Details of each treaty will be published once available.

Jersey-Kenya

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Jersey and Kenya Planning to Negotiate Tax Treaty

According to a release from the Jersey Government, officials from Jersey and Kenya met on 12 May 2017 to discuss various issues, including the negotiation of an income tax treaty. Any resulting treaty would be the first of its kind between the two jurisdictions, and will need to be finalized, signed, and ratified before entering into force.

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