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Approved Changes (5)

European Union

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EU Directive on Dispute Resolution Published in Official Journal

On 14 October 2017, Council Directive (EU) 2017/1852 of 10 October 2017 was published in the Official Journal of the European Union. The Directive includes rules to ensure effective resolution of disputes concerning the interpretation and application of such bilateral tax treaties and the Union Arbitration Convention, and in particular, disputes leading to double taxation. EU Member States have until 30 June 2019 to bring into force the laws, regulations, and administrative provisions necessary to comply with the Directive. The Directive will apply to any complaint submitted from 1 July 2019 onwards relating to questions of dispute relating to income or capital earned in a tax year commencing on or after 1 January 2018.


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French Constitutional Court Holds Lack of Tax Credit Carry Forward is Constitutional

A 28 September 2017 decision of the French Constitutional Court (Conseil Constitutionnel) has been published, finding that the inability of taxpayers to carry forward excess tax credits is not contrary to the Constitutional principles of equality and property. The decision follows a request for a preliminary ruling from the French Council of State (Conseil d'État - Supreme Administrative Court), which earlier concluded the tax credit provisions in relation to investment income in the General Tax Code are to be interpreted as meaning a credit is available only in the year in which the income is received and without the possibility of carry forward (previous coverage). With the Constitutional Court's decision, the position of the Council of State stands.


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Mexico Establishes Three New Special Economic Zones

On 29 September 2017, Mexico published decrees for the establishment of three special economic zones (SEZ) in Puerto Chiapas, Coatzacoalcos, and Lázaro Cárdenas-La Unión. Each decree includes the area of the zones, the tax benefits and incentives, and the customs regimes applicable in the zones. One of the main benefits for approved operators and investors in the SEZs is a 100% income tax rate reduction for the first ten years followed by a 50% reduction for five years. Other benefits include:

  • An additional 25% deduction for training expenses for employees in the SEZ;
  • A credit for social security contributions equal to 50% of contributions for the first ten years followed by a 25% credit for five years (credit refundable);
  • A 0% VAT rate on goods and services acquired by SEZ operators and investors from Mexico residents outside the zones, including temporary use or enjoyment of goods;
  • Goods and services acquired by SEZ operators and investors from non-residents are not considered imported for VAT purposes; and
  • Goods temporarily introduced in SEZs are not subject to customs duties

Also published is a decree amending the SEZ regulations with regard to the general conditions to qualify for the SEZ benefits. These include that the project must be an entirely new investment, the project must not involve the relocation of existing investment from other areas of the country, and the project must generate optimal levels of investment and employment.

The decrees entered into force on 30 September 2017.

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OECD Webcast on Latest Tax Updates

On 17 October 2017, the OECD held a webcast to provide updates on recent and upcoming developments. The main topics covered include:

  • The request for comment on the digital economy and the public consultation that will be held 1 November at the University of California, Berkeley (will be webcasted), which concerns business models and value creation, challenges and opportunities for tax systems, effects of the implementation of the BEPS package, and tax options to address the broader direct tax policy challenges, with a report to be presented to G20 Finance Ministers in April 2018;
  • The work regarding harmful tax practices as per BEPS Action 5, including the peer review results report and further work on monitoring, capacity building, and support going forward;
  • The 2017 update to the OECD Model Tax Convention, which will be submitted to the OECD Council for approval and is expected to be made available (electronically) by the end of 2017;
  • The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI), which has been signed by 71 jurisdictions covering 1,136 agreements (1/3 of the worldwide treaty network) with more expected to sign in the coming months and the expectation that the MLI will enter into force in the beginning of 2018 (ratification by five signatories required for entry into force);
  • Work on tax certainly, including the work of the Forum on Tax Administration to minimize/prevent disputes through cooperative compliance programs, APAs, domestic and coordinated audits, etc., and the work to resolve disputes when they arise through MAP and arbitration;
  • The ICAP voluntary program for CbC reports, which is included as part of the work on cooperative compliance programs, which will allow companies to enter into a multilateral dialogue to explain what is in their CbC reports with tax authorities;
  • The status of CbC reporting implementation and exchange relationships, as well as recent guidance and peer reviews; and
  • The status of the automatic exchange of information under the Common Reporting Standard (CRS) and exchange of information on request.

Click the following link to view a video of the OECD webcast.

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OECD Releases Report on Review of Harmful Tax Regimes

The OECD has released a report on the outcome of peer reviews undertaken of 164 preferential tax regimes identified amongst the jurisdictions participating in the OECD Inclusive Framework on BEPS. The peer review is part of the minimum standard on harmful tax regimes developed as part of BEPS Action 5, which members of the Inclusive Framework are committed to implementing. The key aspect of the minimum standard is that taxpayers benefiting from a regime must themselves undertake the core business activity, ensuring the alignment of taxation with genuine business substance.

The review covers IP regimes, headquarters regimes, financing and leasing regimes, banking and insurance regimes, distribution center and service center regimes, shipping regimes, holding company regimes, and other miscellaneous regimes. Of the 164 regimes reviewed in the last twelve months:

  • 99 require action;
  • For 93 of these 99 regimes, the required changes have already been completed or initiated by Inclusive Framework members;
  • 56 regimes do not pose a BEPS risk; and
  • 9 regimes are still under review, due to extenuating circumstances such as the impact of the recent hurricanes on certain Caribbean jurisdictions.

Of the regimes reviewed with a final result, only the French IP regime and certain aspects of the Italian IP regime have been designated as harmful. The French IP regime is considered harmful as it is not consistent with the nexus approach. The Italian IP regime is only considered harmful in respect of trademarks, which have been excluded for regime applications made after 31 December 2016 instead of 30 June 2016 as recommended. Certain other regimes were identified as potentially harmful and require additional review, including the Barbados international financial services regime and its credit for foreign currency earnings and credit for overseas project or services, Jordan's development zones and free trade zones regime, and Turkey's technology development zones regime. Certain other regimes were considered potentially harmful but not actually harmful based on the review. These will continue to be monitored.

Proposed Changes (2)


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Taiwan Executive Yuan Approves Draft Tax Reform

According to a 12 October 2017 release from the Taiwan Ministry of Finance, Taiwan's Executive Yuan has approved the country's draft tax reform. The reform includes measures to reduce the tax burden for individual taxpayers and SMEs, and to establish a more competitive investment income tax system, which will include the replacement of the current imputation tax system (previous coverage). The draft measures approved are generally unchanged from the initial proposal. With respect to the taxation of individual dividend income, the Executive Yuan has chosen to go with the option which provides that taxpayers may choose to include all dividend income as normal income with a tax deduction equal to 8.5% of the dividend income amount (deduction capped at TWD 80,000), or choose to have the dividend income taxed separately at a flat rate of 26%.

The Ministry of Finance will now coordinate with the ruling and opposition parties of the Legislative Yuan to finalize the legislation as soon as possible.

United Kingdom

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UK Consults on Draft Corporation Tax Regulations 2017

On 16 October 2017, UK HMRC published Corporation Tax (Simplified Arrangements for Group Relief) (Amendment) Regulations 2017 for consultation. The draft regulations set out how companies can enter into simplified arrangements in respect of claims and surrenders of group relief for carried-forward losses. Under current rules, corporation tax losses can only be surrendered to other group companies in the year in which they arise. Under new rules included in the second Finance Bill for 2017, companies will be allowed to surrender carried forward corporation tax losses. The draft Regulations enables a group of companies to nominate a particular member of the group to make claims and surrenders of group relief for carried-forward losses on behalf of other group companies in the same way that they currently can in respect of claims and surrenders of group relief. The regulations will apply for accounting periods beginning on or after 1 April 2017.

Treaty Changes (3)


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Armenia and Iran to Revise Tax Treaty

According to recent reports, officials from Armenia and Iran met 9 October 2017 to discuss bilateral relations, including the need to revise the 1995 income and capital tax treaty between the two countries. Any resulting revisions would be the first to the treaty, and must be finalized, signed, and ratified before entering into force.


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Croatia Negotiating Tax Treaties with Pakistan and Singapore

Croatia has reportedly begun negotiations for income tax treaties with Pakistan and Singapore. Any resulting treaties would be the first of their kind between Croatia and the respective countries, and must be finalized, signed, and ratified before entering into force.


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Spain Approves Pending Tax Treaty with Qatar

On 11 October 2017, the Spanish Cabinet approved the ratification of the pending income tax treaty with Qatar (previous coverage). The treaty, signed 10 September 2015, is the first of its kind between the two countries and will enter into force three months after the ratification instruments are exchanged.


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