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Approved Changes (1)


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Chile Issues Circular Detailing Penalties for Failure to Report Related Party Cross Border Transactions

On 12 May 2016, the Chilean tax authorities (Servicio de Impuestos Internos) issued Circular No. 31, which includes the penalties applicable for failure to report cross border transactions carried on with related parties, as established in article 41 E No. 6 of the Income Tax Law.

Under the law, Chilean resident taxpayers must report cross border transactions carried on with related parties by the last business day of June of each year in respect of operations carried on during the immediately preceding business year. Penalties ranging from 10 to 50 annual tax units will be imposed for failing to report the information, or reporting erroneous, incomplete or untimely information. The penalty cannot, however, exceed the higher of the equivalent of 15% of the equity of the taxpayer determined under article 41 or 5% of its paid-up capital.

Proposed Changes (3)


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German Federal Assembly Wary of Public Release of CbC Reports on Multinationals

The German Federal Assembly (Bundesrat) on 12 April 2016 passed a resolution on the EU proposal for public Country-by-Country (CbC) reporting by multinationals, revealing significant concerns about the initiative.

The EU Commission proposal, issued the same date, would amend the EU Accounting Directive to include public CbC reporting requirements. It goes beyond a 26 January proposal that calls for amendment of the EU Council Directive on Administrative Cooperation (DAC IV) to adopt exchange of non-public CbC reports among EU tax officials in accordance with Action 13 of the OECD BEPS Project.

The Assembly said that the affected companies have interests worth protecting, which would need to be considered and safeguarded in an appropriate manner. Especially business secrets needed to be protected, the legislative body said.

The Assembly highlighted the issue of two parallel CbC reporting initiatives. The international implementation of the OECD BEPS approach should have priority, the Assembly said. As such, the German government was asked to ensure that the EU proposal for public CbC reports would not undermine or weaken the proposal for exchange of non-public CbC reports among tax officials.

The Federal Assembly also requested that the German government advocate the following changes to the directive vis-a-vis the European Commission:

  • Businesses should only have to fulfill appropriate reporting requirements they are able to comply with, especially for the reporting requirements of subsidiaries and branches with parent entities outside the EU; and
  • Both public and non-public CbC reporting instruments should be streamlined in terms of content to keep the additional administrative burden of affected companies as low as possible.

The resolution is quite a departure from the initial recommendation of the Finance Committee to the Federal Assembly, which was far more supportive of public CbC reporting. That initial recommendation welcomed the EU initiative as an addition to non-public CbC reporting, stating that disclosure could be a helpful instrument to combat BEPS. At that time, the Finance Committee was of the view that public disclosure would meaningfully complement CbC reporting because companies would stop engaging in tax avoidance to protect their reputations and because public debate would be enabled, strengthening the public’s trust in the transparency and fairness of the tax systems. The Committee also said that the OECD should consider extending the BEPS CbC reporting standard to require public reporting as well.


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Japan's Abe to Make Decision on Consumption Tax Increase "at the Appropriate Time"

After local media reported that the Japanese government would postpone the scheduled implementation of an increase in the consumption tax for a second time, Prime Minister Shinzo Abe told the National Diet on 17 May that he would make up his mind on the matter "appropriately, at the appropriate time."

The increase, from 8% to 10%, was originally scheduled to go into effect on 1 April 2015, but Abe delayed its implementation by two years after an earlier rate increase of 3 percentage points was blamed for a decline in economic activity. Despite Abe's statement at the time that the increase to 10% would take place on 1 April 2017, concerns about the country's deteriorating economic output have prompted a number of economists to call for a further delay in its implementation.

United States

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U.S. Bill Introduced to Target Hopscotch Lending and Decontrolling

On 17 May 2016, U.S. House Ways and Means Committee ranking minority member Sander M. Levin D-MI introduced the Protecting the U.S. Corporate Tax Base Act of 2016. The bill calls for stricter anti-inversion rules against hopscotch lending and decontrolling - two common tax avoidance practices.

A hopscotch loans allows a foreign parent or affiliate to bypass U.S. taxation by borrowing deferred earnings of a newly acquired U.S. controlled foreign corporation (CFC). The rules would go further than those issued by the Treasury Department in April, as they would apply to any multinational company acquired by a foreign company, not just inverted companies.  

The bill would also target decontrolling, defined as a situation where a non-CFC foreign affiliate transfers a sufficient amount of property to the CFC in exchange for 50% or more of the CFC stock, resulting in the "decontrolling" of the CFC. Under the current rules, after decontrolling the CFC, the non-CFC foreign affiliate can access the deferred earnings of the CFC without paying U.S. taxes. The new bill attributes the stock of a foreign corporation owned by a foreign person to a related U.S. person for purposes of determining whether the U.S. person is a U.S. shareholder of the foreign corporation. This determination is then used to decide whether the foreign corporation is a CFC.  

Treaty Changes (4)

Australia-Untd A Emirates

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Australia and the U.A.E. Continue Tax Treaty Negotiations

According to a 16 May 2016 release from the U.A.E Ministry of Finance, the U.A.E. Minister of State for Financial Affairs and the Australian ambassador to the U.A.E recently met and discussed the importance of continuing negotiations for an income tax treaty between the two countries. The two sides last discussed treaty negotiations in October 2014. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.


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Belgian Lower House Approves Tax Treaty with Uruguay

On 12 May 2016, the Belgian Chamber of Representatives approved the pending income and capital tax treaty with Uruguay. The Uruguayan Senate approved the treaty on 9 July 2014. The treaty, signed 23 August 2013, is the first of its kind between the countries. It will enter into force 15 days after the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.


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Israel Ratifies New Tax Treaty with Germany

On 8 May 2016, Israeli Finance Minister Moshe Kahlon signed a decree ratifying the new tax treaty with Germany. Germany ratified the treaty on 20 November 2015. The treaty, signed 21 August 2014, is expected to enter into force before the end of 2016 and apply from 1 January 2017. Once in force and effective, the new treaty will replace the 1962 tax treaty between the two countries.


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Panama Negotiating Tax Information Exchange Agreement with India

On 16 May 2016, Panama's Vice Minister of Multilateral Affairs and Cooperation, Maria Luisa Navarro, told reporters in New Delhi that negotiations are underway for a tax information exchange agreement (TIEA) with India. Navarro also noted that negotiations are ongoing for TIEAs with Brazil, Germany and Japan. Any resulting TIEA's will be the first of their kind between Panama and the respective countries, and must be finalized, signed and ratified before entering into force.


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