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Approved Changes (3)

France

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French Administrative Supreme Court Rejects Refund Claim for Unutilized Foreign Tax Credits

The French Administrative Supreme Court recently issued its decision on whether foreign tax credits (FTCs) may be refunded when unutilized due to a loss. The case involved a French consolidated group whose member companies received interest and royalty income from several foreign jurisdictions.

In the year concerned, the consolidated group suffered a loss and was unable to utilize the otherwise available FTCs for the tax withheld by the respective countries, so the parent claimed that the FTCs should be refunded. The parent argued that not providing a refund amounted to double taxation because the interest and royalty income had been taxed in the source countries and was also included in the tax results of the group, which limited the amount of losses that may be carried forward.

In its decision, the Administrative Supreme Court held a resident company in a loss position has no right to a refund of any unutilized FTCs on foreign source income. The Court determined that they are no provisions under the tax treaties with the respective countries or any domestic provisions that would require France to refund the FTCs. As a result, the refund claim was rejected and the FTCs are forfeited.

Turkey

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Turkey Transfer Pricing Rules Amendments

Turkey has made several amendments to its transfer pricing rules through Law No. 6728, published in the Official Gazette on 9 August 2016. The main changes include:

  • The transactional net margin and profit-split methods are added as prescribed acceptable transfer pricing methods (in addition to the comparable uncontrolled price, the resale price, and the cost-plus methods);
  • Taxpayers are allowed to use alternate methods when the arm's-length value cannot be determined by using the prescribed methods;
  • The rollback of advance pricing agreements is allowed, subject to agreement with the tax authorities; and
  • The scope of related parties is changed to include at least 10% direct or indirect partnership interest, voting rights, or dividend rights.

The changes are effective from the date the law was published, 9 August 2016.

Ukraine

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Ukraine Clarifies Tax Treatment of Discount Income

Ukraine's State Fiscal Service (SFS) recently published guidance letter No. 11654/6/99-99-15-02-02-15, which clarifies the tax treatment of discounts provided by a Ukraine resident to a non-resident. According to the letter, discount income is within the scope of taxable income from Ukrainian sources. As such, if discount income is actually paid to a non-resident, such as in the form of a refund, the income is then subject to withholding tax at the standard 15% rate. However, if the discount is included in the price paid by the non-resident to the resident and no separate payment to the non-resident is made, then no tax is due.

Proposed Changes (3)

Israel

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Israel 2017-2018 Budget Proposals include CbC Reporting, Tax Rate Cuts, and a New R&D Incentive

The Israeli Cabinet reportedly approved the country's budget proposals for 2017-2018 on 8 August 2016. The main tax-related measures proposed include:

  • The introduction of Country-by-Country (CbC) reporting requirements in line with BEPS Action 13 that will apply for MNE groups meeting a consolidated revenue threshold of ILS 3.4 billion;
  • A reduction in the corporate tax rate from 25% to 24% in 2017 and 23% in 2018;
  • The introduction of a new incentive for qualifying companies with R&D facilities in Israel that includes a reduced corporate tax rate of 12% (6% if revenue exceeds ILS 10 billion in specified areas) and a reduced withholding tax rate of 4% on dividends to shareholders; and
  • An overall reduction in the individual income tax rates as follows:
    • up to ILS 72,000 - 10%
    • over ILS 72,000 up to 115,200 - 14%
    • over ILS 115,200 up to 172,200 - 21%
    • over ILS 172,200 up to 223,200– 31%
    • over ILS 223,200 up to 496,920 - 34.5%
    • over ILS 496,920 - 47% (with an additional 3% tax on income exceeding ILS 639,996)

The proposed measures must be approved Israel's Knesset (parliament), and are subject to change. Additional details will be published once available.

Malaysia

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Malaysia to Tax Digital Businesses

Malaysia's Finance Minister Johari Abdul Ghani announced during a conference held 9-10 August 2016 that the government is currently planning for the taxation of digital businesses conducted through online platforms such as Airbnb, Alibaba, Netflix, and Uber, which may include requiring such businesses to register in Malaysia. Currently there are no tax laws in place in Malaysia for the taxation of online businesses.

While the government intends to bring such multinational businesses under tax in Malaysia, consideration will also be given to reduce the impact on smaller Malaysian online businesses that would be adversely affected. Additional details of Malaysia plans will be published once available.

United Kingdom

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UK Issues Consultation on New Penalties for Tax Avoidance Enablers and Strengthening Taxpayer Inaccuracy Penalties

On 17 August 2016, UK HMRC issued a consultation document paper seeking input on new penalties for enablers of tax avoidance. The new penalty would be up to 100% of the underpaid tax resulting from a taxpayer's use of an avoidance scheme. The penalty would apply for accountants, lawyers, tax planners and others who design, market or facilitate the use of tax avoidance arrangements that are defeated by HMRC.

The consultation also seeks input on strengthening penalties for the filing of inaccurate returns where an avoidance arrangement has been defeated by HMRC. In general, inaccuracy penalties may be suspended if a taxpayer has taken reasonable care, but with tax avoidance arrangements, it becomes more complicated to determine whether reasonable care has been taken. To address this, the consultation proposes specifying what constitutes not taking reasonable care, or shifting the burden of proof for reasonable care onto the taxpayer.

Click the following link for Strengthening Tax Avoidance Sanctions and Deterrents: A discussion document. The deadline to submit comments is 12 October 2016.

Treaty Changes (2)

Hungary-Turkmenistan

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Update - Tax Treaty between Hungary and Turkmenistan

The income and capital tax treaty between Hungary and Turkmenistan was signed on 1 June 2016. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Hungarian personal income tax, corporate tax, land parcel tax and buildings tax. It covers Turkmen tax on profits of legal entities, tax on income of individuals and tax on property.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 15%
  • Interest - 10%
  • Royalties - 10%

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 shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment 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

Turkmenistan applies the credit method for the elimination of double taxation, while Hungary generally applies the exemption method. However, Hungary will apply the credit method for income that may be taxed in Turkmenistan under the provisions of Articles 7 (Business Profits), 10 (Dividends), 11 (Interest) and 12 (Royalties).

Limitation on Benefits

Article 28 (Special Provisions) includes the provision that a resident of a Contracting State may not receive the benefit of any reduction in or exemption from tax provided by the treaty if the main purpose or one of the main purposes of such resident or a person connected with such resident was to obtain the benefit. Before a resident is denied a benefit, the competent authorities of both States will consult with each other.

Entry into Force and Effect

The treaty will enter into force 30 days after the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

Latvia-Isle Of Man-San Marino-Seychelles

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Latvia Negotiating TIEAs with the Isle of Man, San Marino and the Seychelles

According to an update from the Latvian Ministry of Finance, negotiations are underway for tax information exchange agreements with the Isle of Man, San Marino and the Seychelles. Any resulting agreements will be the first of their kind between Latvia and the respective countries, and must be finalized, signed and ratified before entering into force.

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