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Approved Changes (4)

European Union-Luxembourg-France

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European Commission Opens State Aid Investigation into Luxembourg's Tax Treatment of French Electric Company

The European Commission has initiated an in-depth investigation into Luxembourg's tax treatment of a French electric utility company, the GDF Suez group (now Engie), expressing concerns that several tax rulings issued by Luxembourg may have given the company an unfair advantage over others in a breach of EU State aid rules.

The Commission will examine whether Luxembourg tax authorities selectively deviated from national tax law in tax rulings issued to GDF Suez, which treated the same financial transaction between its companies in an inconsistent way, both as debt and as equity. Currently, the Commission believes that the treatment endorsed in the tax rulings resulted in tax benefits in favor of GDF Suez, which are not available to other companies in Luxembourg.

The financial transactions in question are loans that can be converted into equity and bear zero interest for the lender. This appears to produce double non-taxation for both lenders and borrowers on profits arising in Luxembourg, and a significant proportion of the profits recorded by GDF Suez in Luxembourg through the two deals are not taxed at all.

Click the following for the Commission press release on the investigation.

India

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Indian Official Says No Major Changes Needed to Comply with OECD BEPS Standards

Speaking at a transfer pricing conference in Hong Kong on 19 September 2016, Akhilesh Ranjan, an official with India's Ministry of Finance, announced that no major legislative changes will be required to bring India's international tax and transfer pricing laws in line with the OECD BEPS Project recommendations. According to Ranjan, the country has already adopted most of the same principles.

Ranjan said the country is generally pleased with the results of its BEPS project and that taxpayers can look for future clarification of India's rules concerning the OECD's recommendations. Although it will admittedly be challenging to ensure consistent application of transfer pricing rules by auditors, Ranjan remarked that the government also plans to issue internal guidance to address the issue.

Ranjan also expressed his country’s disappointment that the OECD could not agree on a new permanent establishment standard better suited to the digital economy, preventing India from taxing income generated in the country under bilateral tax treaties. He noted that the controversial new 6% equalization levy is a reasonable compromise to ensure that India has some taxing rights over income generated in the country (previous coverage).

In addition, Ranjan said that India is focusing its efforts on approving traditional mutual agreement procedures that do not limit the arbitrator's authority to a choice between the competing positions of the parties.

United Kingdom

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UK Finance Act 2016 Receives Royal Assent

The UK Finance Act 2016 has been approved by both houses of parliament and received Royal Assent on 15 September 2016. The main measures are generally unchanged from those announced in the 2016 Budget (previous coverage), although certain clarifications and amendments have been made.

Click the following link for the Finance Act 2016 published on the UK parliament site.

United States

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U.S. IRS Issues Interest Rates on Overpaid and Underpaid Tax for Q4 2016

On 14 September 2016, the U.S. IRS announced the interest rates for overpaid and underpaid tax for the fourth quarter of the year beginning 1 October 2016, which are unchanged from the previous quarter. The rates are 4% for both underpayment and overpayment by individuals, and 3% and 4% for corporate overpayments and underpayments respectively.

The rate for corporate overpayments exceeding USD 10,000 in a tax period is 1.5% on the portion exceeding that amount, and the rate for large corporate underpayments exceeding USD 100,000 is 6%.

Proposed Changes (3)

Finland

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Finland Individual Income Tax and Pension Contribution Changes for 2017

As part of the 2017 Budget, the Finnish government has proposed adjusting the individual income tax rates and brackets as follows:

  • EUR16,900 up to 25,300 - 6.25%  
  • over EUR 25,300 up to 41,200 - 17.5%
  • over EUR 41,200 up to 73,100 - 21.5%  
  • over EUR 73,100 - 31.55%  

In addition, a proposal has been submitted that would decrease the pension contribution payable by employers, while increasing the contribution payable by employees. As proposed, the employer contribution rate would be decreased by 0.2% in 2017 and 2018 and by 0.4% in 2019 and 2020, with corresponding increases in the employee contribution at the same rates.

Germany

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German Officials Publish Anti-Avoidance Plan

On 15 September 2016, an 11-point plan to address corporate tax avoidance was jointly published by Sigmar Gabriel, Germany's Vice Chancellor and Federal Minister for Economic Affairs, and Norbert Walter-Borjans, Finance Minister for the German state of North Rhine-Westphalia. The plan offers several ways to attain fair corporate taxation in Germany, as well as in Europe as a whole. Main points of the plan include:

  • More aggressive investigations into the affairs of multinational corporations in Germany, with a particular focus on Apple's German units;
  • Stronger tax enforcement throughout the EU, including regular audits at the national level, as well as joint audits with other countries' tax authorities;
  • Public disclosure of Country-by-Country reports of large multinationals;
  • Reviving negotiations for a common corporate tax base in the EU;
  • Implementation of the modified nexus approach for patent regimes;
  • Restrictions on the exemption for royalties under EU Interest and Royalties Directive; and
  • Other BEPS and transparency-related actions.

Click the following link for the 11-point plan (German language).

Netherlands

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Dutch Tax Plan 2017 Presented

Finance Minister Jeroen Dijsselbloem presented the Dutch Tax Plan and Budget documents for 2017 to parliament on 20 September 2016. Some of the main measures of the plan include:

  • Increasing the first corporate tax bracket (20%) from EUR 200,000 to EUR 250,000 in 2018, to EUR 300,000 in 2020, and to EUR 350,000 in 2021;
  • Amending the individual income tax brackets for 2017 as follows:
    • up to EUR 19,982 - 8.90% (plus social security)
    • over EUR 19,982 up to 33,791 - 13.15% (plus social security)
    • over EUR 33,791 up to 67,072 - 40.80%
    • over 67,072 - 52.00%
  • Amending the innovation (IP) box regime to bring it in line with the modified nexus approach developed as part of Action 5 of the OECD BEPS Project with an effective date of 1 July 2016; and
  • Strengthening the interest deduction limitation rules in regard to acquisitions and fiscal unities (initial maximum of 60% financing reduced to 25% over seven years), by:
    • Adding an anti-refresh provision so that the seven-year period may not be reset by transferring the acquired company to another company;
    • Adding a provision so that when an acquired and acquiring company were part of a pre-2012 fiscal unity (prior to the interest deduction limitation) and later form a new fiscal unity, the seven-year period will start from the year the acquired company originally became part of the pre-2012 fiscal unity;
    • Broadening the term related party so that a collaborating group of shareholders may constitute an affiliated entity and the interest deduction limitation may apply; and
    • Amending the rules so that the limitation may apply when a debt has been pushed down to an acquired company.

Click the following link for the Tax Plan 2017 (Dutch language).

Treaty Changes (4)

Australia-Israel

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Tax Treaty between Australia and Israel under Negotiation

Australian Treasurer Scott Morrison has announced that Australia and Israel have started negotiations for an income 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.

Isle Of Man-Cayman Islands-Romania

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Isle of Man TIEAs with the Cayman Islands and Romania have Entered into Force

According to an update from the Isle of Man government, the tax information exchange agreement with the Cayman Islands entered into force on 1 August 2016 and the agreement with Romania entered into force on 8 September 2016. In addition, a protocol to the Cayman Islands agreement that amended the effective date has also entered into force. The agreements are the first of their kind between the Isle of Man and the respective jurisdictions, and are generally in line with the OECD standard for information exchange.

The Cayman Islands agreement applies for criminal tax matters from 1 September 2005 and for other matters from 1 January 2016. The Romania agreement generally applies from the date of its entry into force.

Montenegro-San Marino

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Tax Treaty between Montenegro and San Marino to be Negotiated

According to recent reports, officials from Montenegro and San Marino met on 5 September 2016 to discuss bilateral relations, including their intent to begin negotiations for an income 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.

Panama

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Panama to Implement Framework for Automatic Exchange of Financial Account Information

On 12 September 2016, legislation was submitted to Panama's National Assembly to implement the framework for the automatic exchange of financial account information based on the OECD Common Reporting Standard (CRS). Panama has committed to adopt the standard and begin the automatic exchange by September 2018.

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