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Worldwide Tax News

Approved Changes (1)

Brazil

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Brazilian Voluntary Disclosure Program Approved

On 15 December 2015, the Brazilian Senate approved Law Project No. 2960/2015, following approval by the Chamber of Deputies in November. The Law Project provides for the creation of a new voluntary disclosure program for unreported foreign assets: the Currency and Tax Compliance Special Regime (Regime Especial de Regularização Cambial e Tributária, RERCT). RERCT allows both individual and corporate taxpayers to voluntarily disclose any legally obtained funds, assets or rights that have been remitted or kept abroad or repatriated into Brazil without appropriate notification of the tax authorities.

The main aspects of the program include:

  • Unreported assets as of 31 December 2014 may be disclosed, including assets no longer in possession of the taxpayer on that date;
  • The tax rate on disclosed amounts is equal to 15% plus a 15% penalty, with no other penalties or criminal charges (subject to certain conditions);
  • The disclosure deadline will be 210 days from the date the RERCT regulations are issued by the Federal Revenue Department; and
  • Assets and related income from 1 January 2015 must be reported and will be taxed at standard rates.

The Law Project must now be signed by the president, and once enacted, the RERCT regulations will be issued within 30 days.

Proposed Changes (3)

European Union

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BEPS Measures included in Proposed EU Council Directive on a Common Consolidated Corporate Tax Base

The recently proposed EU Council Directive on a Common Consolidated Corporate Tax Base (CCCTB) for the EU includes a number measures aimed at preventing base erosion and profit shifting (BEPS), including measures based on the outcomes of various Actions of the OECD BEPS Project. The measures are summarized as follows.

General Anti-Abuse Rule

The general anti-abuse rule includes that an EU Member State will ignore an arrangement or a series of arrangements that have been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law.

Artificial Avoidance of PE

The rules regarding artificial avoidance of a permanent establishment (PE) include defined cases that will or will not give rise to a PE based on Action 7. This is marked as unresolved until the definition of PE is finalized under the OECD Multilateral Instrument to amend tax treaties (Action 15).

Interest Deduction Limitation

The interest deduction limitation rules are based on Action 4, with the deduction limit equal to the higher of:

  • 30% of EBITDA (fixed ratio rule); or
  • EUR 1 million (de minimis rule).

Also included is a carve-out rule whereby Member States may allow a full deduction if the taxpayer's ratio of its equity over its total assets is equal to or higher than the equivalent ratio of the group.

Switch-Over Clause

A switch-over clause is included where passive foreign income will not be exempted but instead subject to tax, with a deduction allowed for tax paid in a third country on the income, if:

  • The tax rate on profits in the third country is lower than 40% of the tax rate that would have applied on the income in the Member State of the taxpayer; and
  • The third country has not entered into an agreement on automatic information exchange with the Member State of the taxpayer.

The switch-over clause may be made an option to the CFC rules (below).

CFC Rules

The controlled foreign company rules are based on Action 3. Under the rules, the tax base of a taxpayer will include the non-distributed income of any entity resident in a third country (non-EU) if:

  • The taxpayer itself or with related parties directly or indirectly holds 50% of the voting rights or capital of the foreign entity or is entitled to receive more than 50% of the profits of the foreign entity;
  • The tax rate on profits in the third country is lower than 40% of the tax rate that would have applied on the income in the Member State of the taxpayer;
  • More than 50% of the income accruing to the entity is derived from passive income types (interest, royalties, dividends and others as set out in the proposed Directive); and
  • The company's principal class of shares is not regularly traded on one or more recognized stock exchanges (not a final condition).

The rule will not apply for any third country that is part of the European Economic Area or that has concluded an automatic exchange of information agreement with the EU.

Exit Tax Rules

The exit tax rules include that tax will apply on the amount equal to the market value of transferred assets less their value for tax purposes, with the option to defer the tax payment for 5 years or pay installments over 5 years in certain cases. The deferral or installment option is decided by the Member State, not the taxpayer.

The rules also set out the cases in which exit tax and the option for deferral or installments applies.

Hybrid Mismatches involving EU Member States

Rules based on Action 2 are included for determining the treatment of hybrid mismatches for tax purposes between Member States in the following cases:

  • Double deduction - The hybrid entity will be treated as not being transparent or the business activity concerned as not carried on through a permanent establishment;
  • Deduction without inclusion - The hybrid entity will be treated as being transparent; and
  • Non-taxation without inclusion - The business activity concerned will be treated as not carried on through a permanent establishment.

Hybrid Mismatches involving Third Countries

Rules for determining the treatment of hybrid mismatches for tax purposes in cases involving third countries cover the same cases as for those involving EU Member States. However, instead of specifying set treatment, the rules specify that the EU Member State will apply the same treatment as applied by the third country.

Click the following links for the proposed Directive and the Explanatory Notes.

Japan

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Japan to Maintain 8% Consumption Tax Rate for Certain Products

Japan's ruling coalition has agreed to a proposal to maintain the 8% consumption tax rate for food and newspapers sold on a subscription when the standard rate is increased to 10% effective 1 April 2017. However, meals consumed in restaurants and alcoholic beverages will be subject to the increased rate. Keeping the 8% rate for these products is meant to reduce the burden on consumers and help avoid a repeat of the large drop in economic output that followed the increase in the rate from 5% to 8% in 2014.

The proposal will be included in the 2016 budget along with the other measures approved earlier (previous coverage), and if adopted would be the first time Japan has levied two different rates of consumption tax.

South Africa

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South Africa Issues Public Notice on Additional Transfer Pricing Documentation Requirements for Consultation

The South African Revenue Service (SARS) has issued a draft public notice for consultation on additional record keeping requirements for transfer pricing transactions. The requirements are based on the Master and Local File requirements of Action 13 of the OECD BEPS Project and would affect South African companies that have entered into potentially affected (related party) transactions and are a member of a group (50% equity or voting rights threshold) with consolidated South African revenue of ZAR 1 billion (~USD 65.7 million) or more.

Some of the information to be kept includes:

  • A description of the company's ownership structure;
  • Details of group members with which potentially affected transactions have been entered into;
  • A summary of the company's business operations;
  • The nature and terms (including prices) of the potentially affected transactions;
  • Copies of related contracts or agreements;
  • An indication of which party to the potentially affected transaction is the tested party, if applicable, and related details;
  • A description of the functions performed, risks assumed and assets employed by the company and the connected parties involved in the potentially affected transactions;
  • A description of the intangible assets involved in the potentially affected transactions;
  • The comparable data and methods considered and used for determining the arm’s length return and the analysis performed to determine the transfer prices or the allocations of profits or losses or contributions to costs;
  • Details of the adjustments, if any, made to transfer prices to align them with the arm’s length return; and
  • Copies of existing unilateral, bilateral and multilateral APAs and other tax rulings to which the SARS is not a party and which are related to the potentially affected transactions.

Click the following link for the draft public notice, which includes a list of nearly 40 items of information to be kept. Comments on the draft notice must be submitted by 5 February 2016.

Treaty Changes (3)

Finland-Spain

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New Tax Treaty between Finland and Spain Signed

On 15 December 2015, officials from Finland and Spain signed a new income tax treaty. The treaty will enter into force after the ratification instruments are exchanged, and once in force and effective, will replace the 1967 income and capital tax treaty between the two countries, which currently applies.

Additional details will be published once available.

Italy-Barbados

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Italy approves Tax Treaty with Barbados

On 11 December 2015, Italy's Council of Ministers approved for ratification the pending income tax treaty with Barbados. The treaty, signed 24 August 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Barbados income tax, corporation tax, and petroleum winning operations tax. It covers Italian personal income tax, corporate income tax and the regional tax on productive activities (IRAP).

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 15%
  • Interest - 5%
  • Royalties - 5%

A maximum rate of 5% is included in Article 10 (Dividends) for the additional taxation of repatriated profits attributed to a permanent establishment.

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; and
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated 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 generally apply the credit method for the elimination of double taxation.

Special Tax Regimes Limitation

Article 29 (Miscellaneous Provisions) includes the provision that the benefits of the treaty will not apply if a company is entitled to a tax benefit under a special tax regime in either Contracting State.

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.

United States-Isle Of Man-Jersey

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Protocols to the TIEAs between the U.S. and the Isle of Man and Jersey have Entered into Force

According to a recent announcement from the U.S. State Department, the protocols to the tax information exchange agreements with the Isle of Man and Jersey entered into force on 26 August 2015 and 29 October 2015 respectively. Both protocols were signed 13 December 2013 and add Articles 5A (Automatic Exchange of Information) and 5B (Spontaneous Exchange of Information).

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