Worldwide Tax News
On 13 October 2016, the Icelandic parliament passed legislation on government actions against tax evasion. Two of the main measures include new interest deduction limitations rules based on BEPS Action 4 and Country-by-Country (CbC) reporting requirements based on BEPS Action 13.
The legislation includes the introduction of an interest deduction limitation equal to 30% of EBITDA. However, certain exemptions are provided, including where:
- The taxpayer's total related party interest expense/deduction is less than ISK 100 million (~USD 875,000);
- The creditor is subject to tax in Iceland;
- The equity ratio of the taxpayer is not lower than 2% below its group equity ratio (subject to certain restrictions); or
- The taxpayer is a financial institution or insurance company, or a company owned by a financial institution or insurance company and involved in similar operations.
The interest deduction limitation will enter into force on 1 January 2017. Additional regulation on the implementation of the deduction limit will be issued by the Minister of Finance in the future.
The legislation includes the requirement that MNE groups operating in Iceland must submit a CbC report if meeting an ISK 100 billion (~USD 875 million) consolidated annual revenue threshold. The requirement to submit primarily applies to ultimate parent entities resident in Iceland. In cases where the ultimate parent of the group is not resident in Iceland, an Icelandic constituent entity of the group will be required to submit the CbC report if:
- The ultimate parent is not required to submit a CbC report in its jurisdiction of residence;
- The ultimate parent's jurisdiction of residence does not have an information exchange agreement with Iceland that provides for the exchange of CbC reports; or
- The tax authority has notified the Icelandic constituent entity that there was a failure to exchange.
If there is more than one Icelandic constituent entity, only one is required to submit the report.
Whether the CbC report will be filed locally or overseas, notice of the reporting entity must be submitted to the tax authority by the end of the fiscal year concerned.
The CbC reporting requirements will enter into force 1 January 2017. Additional details of the requirements, such as content requirements, are not included in the legislation and will be issued through regulation from the Minister of Finance in the future.
The legislation also includes a number of other measures, including:
- The introduction of a definition of permanent establishment into law based on the OECD Model;
- The extension of the statute of limitations regarding reassessment and penalties in relation to taxable income and assets in low-tax countries from the standard six years to ten years; and
- The strengthening of rules regarding customs.
Click the following link for the legislation on government actions against tax evasion (Icelandic language).
On 11 October 2016, the Slovak parliament approved an increase in the maximum monthly basis cap for social security contributions from EUR 4,290 to EUR 6,181. The monthly basis cap applies for both employer and employee contributions, which amount to 34.4% and 13.4% respectively. The cap does not apply to the employer accident insurance contribution (0.8%), which has no limit.
The increased maximum basis cap must be signed into law by the president and published in the Official Gazette before entering into force, and will apply from 1 January 2017.
On 17 October 2016, UK HMRC published updated guidance on the disclosure of tax avoidance schemes (DOTAS). Under the DOTAS regime, the promoters of schemes are required to disclose to HMRC that the schemes are being made available or implemented. Disclosures must also be provided by users of avoidance schemes and by employers of employees who may be using such schemes. Various penalties apply for failing to comply with the DOTAS requirements, including a maximum penalty of up to GBP 1 million.
Click the following link for Guidance: Disclosure of tax avoidance schemes (DOTAS).
U.S. IRS Publishes Practice Units on Identifying Foreign Goodwill or Going Concern and Source of Income for Nonresident Alien Individuals
The U.S. IRS recently published two international practice units:
- Identifying Foreign Goodwill or Going Concern, which covers the identification of foreign goodwill or going concern (FGWGC) in relation to the FGWGC income inclusion exception for outbound transfers of property from U.S. persons to a foreign corporation under IRC 367; and
- Source of Income for Nonresident Alien Individuals, which covers the source rules used in determining the U.S. income tax liability of foreign persons, including interest income, dividends, personal services income, rentals and royalties, and gains on the sale of property.
International practice units are developed by the Large Business and International Division of the IRS to provide staff with explanations of general international tax concepts as well as information about specific transaction types. They are not an official pronouncement of law and cannot be used, cited or relied upon as such.
Click the following link for the International Practice Units page on the IRS website.
The Italian Prime Minister Mateo Renzi has announced that the Council of Ministers has approved the draft budget for 2017. Tax-related measures of the budget include:
- Moving forward with the planned corporate tax rate cut from 27.5% to 24% in 2017;
- Taxing income of non-corporate businesses, such as partnerships and sole traders, at the 24% rate in the year it is earned if the income is retrained in the business (taxed as individual income if taken out);
- Extending the depreciation allowance of 140% for plant and machinery through 2017;
- Introducing a 250% depreciation allowance for investments in digital technology; and
- Increasing the tax credit for additional research and development expenditure from 25% to 50%, and increasing the credit cap from EUR 5 million to EUR 20 million (50% already applies for certain expenditure).
The budget also allocates funds to deficit reduction in order to not trigger certain safeguard clauses, including the clause that would increase the value added tax (VAT) rate by 3% in 2017 if fiscal targets are missed.
The budget and the associated measures must still be approved by the European Commission and the Italian parliament.
The income and capital tax treaty between Argentina and Chile entered into force on 11 October 2016. The treaty, signed 15 May 2015, is the second between the two countries. The 1976 tax treaty between the two countries was terminated effective 1 January 2013.
The treaty covers Argentine income tax, personal assets tax and presumptive minimum income tax. It covers Chilean taxes imposed under the Income Tax Act.
The treaty includes the provision that if a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be entitled to any relief or exemption from tax provided by the treaty.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel if the activities continue for a period or periods aggregating more than 183 days within any 12-month period.
- Dividends - 10% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 15% (the rates set in the treaty will not limit Chile's application of the additional tax payable on dividends (35%) provided that the first category tax (FCT) is fully creditable in computing the amount of the additional tax)
- Interest -
- 4% for interest paid in respect of a sale on credit of machinery and equipment if the beneficial owner is the seller;
- 12% for interest on loans granted by banks and insurance companies, and from bonds or securities that are regularly and substantially traded on a recognized exchange;
- Otherwise 15%
- Royalties -
- 3% for royalties paid for the use of, or the right to use, news;
- 10% for royalties paid for the use of, or the right to use, copyrights of literary, artistic or scientific works (excluding royalties for motion picture films, or films or tape for use in television broadcasting); for the use of, or the right to use, a patent, trademark, design or model, plan, secret formula or process; for the use of, or the right to use, industrial, commercial or scientific equipment, and for information concerning industrial, commercial or scientific experience; and for payments for technical assistance;
- Otherwise 15%
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;
- Gains from the alienation of shares or other participation rights that at any time during the 365-day period preceding the alienation directly or indirectly derived at least 50% of their value from immovable property situated in the other State; and
- Gains from the alienation of shares or other participation rights that at any time during the 365-day period preceding the alienation directly or indirectly represented a participation of at least 20% in the capital of a company resident in the other State (if the participation is less than 20%, the rate is limited to 16%)
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Both countries apply the credit method for the elimination of double taxation.
Article 24 (Limitation on Benefits) includes the provision that the benefits of the treaty will only be available for a resident of a Contracting State if the resident is a qualified person as defined in the Article at the time the benefits would apply. However, if a resident does not meet the conditions as a qualified person, the benefits may still apply if the competent authority, upon request, determines that the establishment, acquisition or maintenance of the resident and the conduct of its operations does not have as one of its principal purposes the obtaining of benefits under the treaty.
In addition, Article 11 (Interest) includes the provision that the benefits of the Article will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claims in respect of which the interest is paid was to take advantage of the Article by means of that creation or assignment.
The final protocol to the treaty includes the provision that if Chile signs an agreement with a third state that provides for a lower rate of withholding tax on interest than provided in the Argentina-Chile treaty, then such lower rate will automatically apply for interest payments between Argentina and Chile from the date such other agreement is effective. However, the lower rate applied may not be less than 12%.
The treaty generally applies from 1 January 2017. However, it applies for tax periods beginning on or after 30 June 2012 in respect of Article 8 (International Transport), and applies in Chile from 1 January 2010 in respect paragraph 5 of Article 27 (Exchange of Information) for the exchange of information on certain banking transactions.
On 13 October 2016, Greece published Law 4428 in the Official Gazette, which ratifies the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Financial Account Information. The MCAA provides for the exchange of information as part of the Common Reporting Standard (CRS) developed by the OECD. Greece is committed to begin the first exchanges by September 2017.
Click the following link for the 84 jurisdictions that have signed the MCAA to date.
During a recent meeting between officials from Iran and Norway, Iran expressed its intent to negotiate a tax treaty. 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.
According to a recent update from the Latvian Ministry of Finance, the country will begin tax treaty negotiations with Bahrain on 7 to 9 November 2016. 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.