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Approved Changes (2)

Spain-Brazil

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Spanish Supreme Court Confirms Brazilian Interest on Equity Capital Eligible for Participation Exemption

A recently published decision of the Spanish Supreme Court confirms a 27 February 2014 decision of the lower National Court that Brazilian interest on equity capital (juros sobre o capital proprio - JCP) qualifies as dividends for the purpose of Spain's participation exemption. JCP is an alternate distribution by Brazilian companies to shareholders in proportion to their participation in the company, and unlike dividends, is deductible for the distributing company subject to certain conditions. The Court found that JCP qualifies as dividends for the purpose of the exemption because only shareholders may receive such payments, the payments are subject to withholding tax in Brazil, JCP's deductibility is subject to certain conditions that do not apply for interest payments in Brazil, and other factors.

It is important to note that the Court's decision would likely only apply for tax periods beginning before 1 January 2015. This is due to an anti-abuse provision concerning the participation exemption regime that applies for tax periods beginning on or after that date. Under the provision, dividends or participations in profits received will not be exempt if deductible for the paying company.

Sweden

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Sweden Clarifies Tax Treatment of Dividends Repaid to Distributing Company

The Swedish tax authority (Skatteverket) recently issued guidance clarifying the tax treatment of dividends repaid to a distributing company. According to the guidance, if dividends are repaid due to a suspension of the distribution or the decision to distribute is repealed based on civil law, the shareholder will not be subject to tax on the dividends. If, however, the shareholder repays the dividends without a civil law requirement to do so or waives its rights to the dividends, the dividends will be considered to have been at the disposal of the shareholder and subject to tax, and repayment will be considered as a capital contribution to the distributing company.

Proposed Changes (3)

France-Germany-Italy-Spain-United Kingdom-G20

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Five EU Countries Announce Plans to Develop Multilateral System for Automatic Exchange of Beneficial Ownership Info and G20 Listens

On 14 April 2016, Finance Ministers from France, Germany, Italy, Spain, and the United Kingdom (G5) announced plans to develop a multilateral system for the automatic exchange of beneficial ownership information. The announcement was made during the IMF-World Bank 2016 spring meeting held in Washington, D.C., and was followed by support for action on transparency and beneficial ownership in a G20 communiqué.

The following is from the letter from the G5 Finance Ministers to the other Finance Ministers of the G20.

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On beneficial ownership, it is essential that all jurisdictions apply enhanced standards of transparency. In this spirit, we commit to establishing as soon as possible registers or other mechanisms requiring that beneficial owners of companies, trusts, foundations, shell companies and other relevant entities and arrangements are identified and available for tax administration and law enforcement authorities. We call on all other jurisdictions to do so.

In addition, as a first step we are launching a pilot initiative for automatic exchange of such information on beneficial ownership. This will give our tax and other relevant authorities full knowledge on vast amounts of information and help them track the complex offshore trails used by criminals.

As a next step, we should also call for the development of a system of interlinked registries containing full benefit ownership information and mandate the OECD, in cooperation with FATF, to develop common international standards for these registries and their interlinking.

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The following is from the communiqué issued by the G20 following their meeting held on the margins of the IMF-World Bank meeting.

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The G20 reiterates the high priority it attaches to financial transparency and effective implementation of the standards on transparency by all, in particular with regard to the beneficial ownership of legal persons and legal arrangements. Improving the transparency of the beneficial ownership of legal persons and legal arrangements is vital to protect the integrity of the international financial system, and to prevent misuse of these entities and arrangements for corruption, tax evasion, terrorist financing and money laundering. The G20 reiterates that it is essential that all countries and jurisdictions fully implement the FATF standards on transparency and beneficial ownership of legal persons and legal arrangements and we express our determination to lead by example in this regard. We particularly stress the importance of countries and jurisdictions improving the availability of beneficial ownership information to, and its international exchange between, competent authorities for the purposes of tackling tax evasion, terrorist financing and money laundering. We ask the FATF and the Global Forum on Transparency and Exchange of Information for Tax Purposes to make initial proposals by our October meeting on ways to improve the implementation of the international standards on transparency, including on the availability of beneficial ownership information, and its international exchange.

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Click the following links for the full G5 letter as published by the German Ministry of Finance and the full G20 communiqué as published by the Japanese Ministry of Finance.

Malaysia

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Malaysian Lower House of Parliament Passes New Companies Bill

On 4 April 2016, Malaysia's Dewan Rakyat (lower house of parliament) passed the Companies Bill 2015.The New Companies Bill is meant to simplify and improve company incorporation and management overall, and will replace the Companies Act 1965. Some of the main measures include:

  • Allowing the incorporation of private companies with a single shareholder and director, instead of the current minimum of two shareholders and two directors;
  • No longer requiring a memorandum and articles of association (MAA), although a company constitution may be adopted if specific provisions are needed - existing MMAs will be deemed to be a company constitution;
  • No longer requiring private companies to hold an annual general meeting;
  • The introduction of new debt-restructuring mechanisms for financially distressed companies, including a simpler corporate voluntary arrangement process and a judicial management process; and
  • The introduction of increased sanctions for directors that violate company law, including fines up to MYR 3 million and imprisonment up to 5 years.

The Companies Bill 2015 will now be presented to the Dewan Negara (upper house of parliament) during its session beginning 18 April 2016. If adopted, it will likely enter into force in 2017.

New Zealand

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New Zealand Publishes Officials' Issues Paper on Simplifying Business Taxation

On 13 April 2016, New Zealand Inland Revenue published an officials' issues paper for public comment: Making tax simpler - Better business tax. The paper includes a number of proposed measures to simplify taxation, summarized as follows.

Changes to provisional tax to increase certainty

  • Increase the current safe harbor threshold from use of money interest from NZD 50,000 to NZD 60,000 of residual income tax and extend the safe harbor to non-individual taxpayers; and
  • Remove use of money interest for the first two provisional tax installments for all taxpayers who use the standard uplift option, as long as the payments required under that option are made.

More timely payment of provisional tax for some taxpayers

  • Introduction of another option for calculating provisional tax, the accounting income method, which allows some taxpayers to pay tax as they earn their income; and
  • Allow a company to pay tax as agent for shareholder-employees in respect of their shareholder-employee salary with a view to reducing the impact of provisional tax on them.

Self-management and integrity

  • Allowing contractors to elect their own withholding tax rate to more accurately reflect the tax payable on income earned and reduce the impact of provisional tax;
  • Extending withholding tax to cover contractors working for labor-hire firms to better reflect the working arrangements with those firms; and
  • Introducing voluntary withholding agreements where contractors and principals can agree to withholding tax as income is earned to reduce the impact of provisional tax on contractors.

Making the system fairer

  • Removal of the incremental late payment penalty for new debt for goods and services tax, income tax and working for families tax credits.

Improving the operation of markets through greater tax transparency

  • Allow the credit reporting of significant tax debts to credit reporting agencies, to provide greater transparency for other businesses; and
  • Information sharing with the Registrar of Companies to assist with compliance with company laws to protect other businesses.

Making the system simpler

  • Various measures designed to make tax easier to comply with and reduce compliance costs:
    • Allow small companies providing motor vehicles to shareholder-employees to make private use adjustments instead of paying fringe benefit tax;
    • Increase the threshold for taxpayers to correct errors in returns from NZD 500 to NZD 1,000;
    • Simplify the calculation of deductions for dual use vehicles and premises;
    • Removal of the requirement to renew resident withholding tax exemption certificates annually;
    • Increasing the threshold for annual fringe benefit tax returns from NZD 500,000 to NZD 1 million of PAYE/ESCT; and
    • Modifying the 63 day rule on employee remuneration to reduce costs of complying with that rule.

Click the following link for the Making tax simpler - Better business tax webpage for additional information. Comments are due by 30 May 2016.

Treaty Changes (3)

B Virgin Isl-Isle Of Man

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TIEA between British Virgin Islands and Isle of Man Signed

The government of the British Virgin Islands announced on 14 April 2016 that a tax information exchange agreement was signed with the Isle of Man through the exchange of documents. The agreement was signed by the British Virgin Islands on 21 March and by the Isle of Man on 30 March. The agreement is the first of its kind between the two jurisdictions and will enter into force after the ratification instruments are exchanged.

Germany-Panama

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Tax Treaty Negotiations between Germany and Panama Nearly Complete

Germany's parliamentary finance committee announced in a press release on 13 April 2016 that negotiations for an income tax treaty with Panama are nearly complete. The treaty, which has been under negotiation since 2013, will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Portugal-Saudi Arabia

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Update - Tax Treaty between Portugal and Saudi Arabia

The income tax treaty between Portugal and Saudi Arabia was signed on 8 April 2015. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Portuguese personal income tax, corporate income tax, and surtaxes on corporate income tax. It covers Saudi Zakat and income tax, including the natural gas investment tax.

Service PE

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 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 10%
  • Interest - 10%
  • Royalties - 8%

Capital Gains

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 movable property forming part of the business property of a permanent establishment in the other State;
  • Gains from the alienation of shares or comparable interest deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
  • Gains from the alienation of shares, other than those mentioned above, representing a participation of at least 20% in a company resident 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.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Non-Discrimination

The treaty does not include a non-discrimination article.

Limitation on Benefits

Article 27 (Miscellaneous Provisions) includes that the provisions of the treaty will not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the property or right in respect of which the income is paid was to take advantage of the treaty by means of such creation or assignment. Article 27 also includes that the benefits of the treaty will not be granted to a resident of a Contracting State if it is not the beneficial owner of the income derived from the other State.

Entry into Force and Effect

The treaty will enter into force on the first day of the second month following the exchange of the ratification instruments, and will apply from 1 January of the year following its entry into force.

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