Worldwide Tax News
Brazil Extends Provisional Measure for Tax Planning Disclosure Requirements and Tax Litigation Reduction Program
On 10 September 2015, Brazil published National Congress Act 34/2015 in the Official Gazette. The Act extends the validity of Provisional Measure (PM) 685/2015, which was published on 22 July 2015. PM 685 introduced a new requirement that corporate taxpayers disclose tax-planning schemes, and established the Program for Reduction of Tax Litigation (PRORELIT), a special program to resolve tax disputes (previous coverage).
On 12 September 2015, Peru published Law No. 30341 in the Official Gazette. The law introduces a tax exemption on gains from the transfer of shares listed on the Lima Stock Exchange if both of the following conditions are met:
- A taxpayer and its related parties transfer no more than 10% of the total listed shares of the company within any 12-month period; and
- The shares are regularly traded and meet a certain trading volume threshold, which will be set by future regulation
The exemption applies for transfers made from 1 January 2016 to 31 December 2018.
U.S. Issues Regulations Clarifying Coordination of Transfer Pricing Rules with Other Code Provisions
On 14 September 2015, the U.S. Department of Treasury and IRS issued temporary regulations (T.D. 9738) that clarify the coordination of the application of the arm's length standard and the best method rule under section 482 of the Internal Revenue Code (Code) in conjunction with other provisions of the Code. The need for clarification is due to the fact that, while the determination of arm's length prices for controlled transactions is governed by section 482, the tax treatment of controlled transactions is also governed by other Code and regulatory rules applicable to both controlled and uncontrolled transactions. In particular, transfers of property subject to section 367(a) or (e), transfers of intangible property subject to section 367(d) or (e), and the provision of services that contribute significantly to maintaining, exploiting, or further developing the transferred properties.
The following summarizes the main aspects of the regulation.
The arm's length compensation must be consistent with, and must account for all of, the value provided between the parties in a controlled transaction, without regard to the form or character of the transaction. For this purpose, it is necessary to consider the entire arrangement between the parties, as determined by the contractual terms, whether written or imputed in accordance with the economic substance of the arrangement, in light of the actual conduct of the parties.
The combined effect of two or more separate transactions (whether before, during, or after the year under review) may be considered if such transactions, taken as a whole, are so interrelated that an aggregate analysis of such transactions provides the most reliable measure of an arm's length result determined under the best method rule. This aggregation principle also applies for purposes of an analysis under multiple provisions of the Code or regulations.
In addition, consideration of the combined effect of two or more transactions may be appropriate to determine whether the overall compensation is consistent with the value provided, including any synergies among items and services provided.
For one or more controlled transactions governed by more than one provision of the Code and regulations, a coordinated best method analysis and evaluation of the transactions may be necessary to ensure that the overall value provided (including any synergies) is properly taken into account. A coordinated best method analysis of the transactions includes a consistent consideration of the facts and circumstances of the functions performed, resources employed, and risks assumed, and a consistent measure of the arm's length results, for purposes of all relevant Code and regulatory provisions.
The temporary regulations are effective 14 September 2015.
Click the following link for additional details including examples.
On 15 September 2015, the Dutch Ministry of Finance published the Tax Plan 2016 Bill and the Other Tax Measures 2016 Bill. Key measures of the bills include changes to individual taxation and the introduction of new transfer pricing documentation requirements including CbC reporting (previous coverage). Additional important measures proposed are summarized as follows.
Amendments made to the EU Parent-Subsidiary Directive concerning hybrid mismatches (Directive 2014/86) and anti-abuse (Directive 2015/121) are implemented into Dutch law, including the provisions that that the participation exemption will not be granted:
- When a profit distribution made by a subsidiary to its parent company is deductible for the subsidiary (anti hybrid mismatch rule); and
- When a non-resident entity hold a substantial shareholding (5% or more) in a Dutch company and the substantial interest is held with the main purpose to avoid taxation and the structure was not implemented for valid commercial reasons that reflect economic reality (anti-abuse rule).
Also implemented are the changes in EU Directive 2014/107 for the OECD Common Reporting Standard, including automatic exchange of financial account information.
Under current rules, when an individual shareholder with substantial shareholdings in a Dutch company (5% or more) emigrates from the Netherlands, the shareholder is deemed to have disposed of the shareholdings and a tax claim is generated on any capital gain up to the time of emigration. However, the tax claim is forfeited if the shareholdings are not disposed of within a 10-year deferral period following the emigration, or the company has not distributed more than 90% of its reserves during that period.
Under the new legislation, the 10-year deferral period will be abolished. Therefore, any sale of shares or distribution of reserves after the emigration will be taxable in the Netherlands regardless of the timing. The amount subject to tax remains the gain determined at the time of emigration based on the appreciation in value during the period of Dutch residence.
This change will apply retroactively from 15 September 2015, so that shareholders will not be able to take action to avoid taxation before the legislation is in force.
A step-up in the value of assets to the fair market value will be allowed when acquired by a Dutch company resulting from a cross border merger or division. This applies where the target of the merger or division is not resident in the Netherlands and the assets do not include shares of a Netherlands-based company. However, the step-up will not be allowed if the merger or division is predominantly aimed at avoiding or deferring taxation.
The incentive for R&D expenditure (excluding labor costs) and the wage tax incentive for R&D labor costs will be integrated. The changes involve expanding the wage tax incentive to apply for all for all R&D expenditure, and repealing the other incentive. The basic structure of the wage tax incentive is maintained with the following changes to rates and thresholds:
- The threshold for the application of the higher and lower rates of allowed deduction is increased from EUR 250,000 to EUR 350,000;
- The percentage of expenditure up to the threshold is reduced from 35% to 32% (reduced from 50% to 40% for start-ups);
- The percentage of expenditure over the threshold is increased from 14% to 16%; and
- The EUR 14 million base cap is removed
The measures are subject to approval by both houses of parliament. Except for the emigration capital gains measure, the measures will apply from 1 January 2016.
On 11 June 2015, the Swiss Federal Council announced in a press release that it has adopted a dispatch on amending the Withholding Tax Act. The amendments include temporarily extending the existing withholding tax exemptions for contingent convertible bonds and write-off bonds, and the introduction of a new exemption for bail-in bonds approved by FINMA at the time of issuance.
The Council had proposed withholding tax reform that would have included a switch from the debtor principle to the paying agent principle. However, the proposal did not receive support during the consultation, and will be revisited again before the exemptions expire.
Click the following link for the press release.
According to an announcement from the Spanish government on 15 September 2015, Spain and China are negotiating a social security agreement, which will be the first of its kind between the two countries. Negotiations for the agreement began in 2012, and it must be finalized, signed and ratified before entering into force.
On 14 September 2015, officials from Jordan and Thailand met 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.
According to recent reports, officials from Morocco and Sweden began the first round of negotiations for an income tax treaty on 14 September 2015. Any resulting treaty will need to be finalized, signed and ratified before entering into force. It will be the second tax treaty between the two countries, with the first signed in 1961 and subsequently terminated.
On 15 September 2015, officials from Slovenia and South Korea signed a social security agreement. The agreement is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.