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Approved Changes (2)

European Union-Denmark-Germany

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Advocate General Opinion Issued that Denmark's Interest Income Exemption Rules do not Restrict Freedom of Establishment

On 12 May 2016, the opinion of Advocate General (AG) Kokott of the Court of Justice of the European Union (CJEU) was published concerning Denmark's interest income exemption rules. The rules provide for an exemption for a Danish creditor on interest income that has not been allowed as a deduction for the debtor due to Danish thin cap rules, but do not provide an exemption for the creditor if the debtor was not allowed a deduction based on the thin cap rules of another EU Member State.

The case involved Damixa ApS, a Danish resident, and Damixa Armaturen GmbH, its wholly owned German subsidiary. For the 2005 and 2006 tax years, interest payments on a loan from Damixa Denmark to Damixa Germany were recharacterized as dividend payments under Germany's thin cap rules. As a result, the payments were not deductible for Damixa Germany, but the income for Damixa Denmark was still subject to tax in Denmark. Damixa Denmark argued that the Danish rules restricted Damixa's freedom of establishment, because had the subsidiary been resident in Denmark, the interest income would have been exempt. Denmark's Western Appeals Court referred the case to the CJEU on 19 December 2014.  

In the opinion, the AG found that Denmark's interest exemption rules do not constitute a restriction on the freedom of establishment. Furthermore, if the rules did constitute a restriction, it must then be determined if the less favorable treatment was justified. In this case, it could be justified due to the fact the disallowance of the deduction was under foreign tax rules, and not under Denmark's corporate tax regime. In particular, the tax treatment can be justified on the basis of preserving the allocation of taxing powers between Member States, and on the basis of safeguarding the cohesion of the tax system of a Member State.

Click the following link for the full AG opinion (French language - English not yet available at time of writing).

Greece

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Greece Improves Incentive for Assets used in Research

On 11 May 2016, Greece published Law no. 4386/2016 in the Official Gazette, which includes changes to the incentives for scientific and technological research activities. One of the main changes is allowing qualifying taxpayers to deduct in full the expenses incurred for such activities, including the cost of equipment and instruments in the period the costs are realized, with any excess carried forward for up to five years. For this purposes, the 130% super deduction applies. Previously, such assets could be depreciated over three years.

The law applies from the date it was published.

Proposed Changes (1)

Belgium

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Belgium Drafts Legislation for the Implementation of CbC Reporting and Master/Local File Documentation requirements

According to recent reports, the Belgian government has drafted legislation for the implementation of the three-tiered transfer pricing documentation requirements developed under Action 13 of the OECD BEPS Project, including Country-by-Country (CbC) reporting, and Master file and Local file documentation requirements.

CbC Reporting

As drafted, the CbC reporting requirement would apply for MNE groups operating in Belgium with annual consolidated group revenue meeting a threshold of EUR 750 million in the previous year. The content of the report will be in line with the Action 13 guidelines, and will be due within 12 months following the end of the fiscal year concerned. The requirement will apply for fiscal years beginning on or after 1 January 2016.

Master/Local File

The Master file and Local file documentation requirements will also be in line with the guidelines developed as part of Action 13 and will apply for fiscal years beginning on or after 1 January 2016. In general, Belgian resident companies and permanent establishments in Belgium of foreign companies will be required to prepare the documentation if total operational and financial income is at least EUR 50 million. When required, the documentation is to be submitted with the annual tax return.

Penalties

Failure to meet the documentation requirements will result in penalties of EUR 1,250 up to EUR 25,000.

Treaty Changes (5)

Cook Isl-Czech Rep

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TIEA between the Cook Islands and the Czech Republic has Entered into Force

The tax information exchange agreement between the Cook Islands and the Czech Republic entered into force on 10 May 2016. The agreement, signed 4 February 2015, is the first of its kind between the two countries. It applies for criminal tax matters on the date of its entry into force and for other matters for tax periods beginning on or after 1 January 2017.

India-Singapore

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India to Revise Tax Treaty with Singapore

According to recent reports, India's Finance Minister Arun Jaitley has stated that India will need to revise the 1994 income tax treaty with Singapore to take into account capital gains tax provisions included the recent protocol to the tax treaty with Mauritius.

As previously reported, the 2005 protocol to the India-Singapore tax treaty provides for an exemption from taxation on gains from the sale of shares, with the condition that the exemption under the India-Mauritius tax treaty remain. Since such gains will no longer be exempt under the recent protocol to the India-Mauritius tax treaty, the condition will no longer be met. According to Jaitley, the new capital gains provisions of the protocol to the Mauritius treaty do not automatically extend to the Singapore treaty, therefore negotiations with Singapore are needed.

Jersey-Untd A Emirates

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Update - Tax Treaty between Jersey and the U.A.E

The income tax treaty between Jersey and the United Arab Emirates was signed on 20 April 2016. The treaty is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Jersey income tax, and U.A.E income tax and corporate tax.

Income from Hydrocarbons

Article 3 (Income from Hydrocarbons) includes the provision that the treaty will not affect the right of either Contracting Party to apply their domestic laws and regulations related to the taxation of income and profits derived from hydrocarbons and its associated activities situated in the territory of the respective Contracting Party.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting Party through employees or other engaged personnel for a period or periods aggregating more than six months.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • Royalties - 0%

Capital Gains

The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:

  • Gains from the alienation of immovable property situated in the other Party; and
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party

Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.

Double Taxation Relief

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

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

OECD Forum on Tax Administration

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OECD Forum on Tax Administration Agrees on Common Transmission System for CbC and CRS Information

According to a communiqué issued by the OECD Forum on Tax Administration (FTA) following a recent meeting in Beijing, the heads of 44 tax administrations have designed and agreed to a Common Transmission System (CTS) for the exchange of information. The CTS will enable tax administrations to exchange Country-by-Country (CbC) reports and information collected under the OECD Common Reporting Standard (CRS), as well as other information that may be exchanged between tax jurisdictions. It will provide reliable and secure data transmission for the benefit of all countries, and is to be operational in time for the first CRS data exchanges in September 2017.

Click the following link for the FTA communiqué.

Romania-Uzbekistan

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Romania to Sign Protocol to Tax Treaty with Uzbekistan

On 11 May 2016, the Romania government approved the signing of a protocol to the 1996 income and capital tax treaty with Uzbekistan. The protocol will be the first to amend the treaty, and must be finalized, signed and ratified before entering into force.

Details of the protocol will be published once available.

Note - a previous protocol to the Romania-Uzbekistan tax treaty was approved for signature in 2013, but was never signed.

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