Worldwide Tax News
Israel Issues Circular on Taxation of Shareholders on Company Withdrawals
The Israel Tax Authority has published Income Tax Circular No. 7/2017, which concerns new rules for the taxation of substantial shareholders (10% minimum ownership) on company withdrawals. The new rules provide that withdrawals of funds from a company by a substantial shareholder may be considered taxable income in the hands of the shareholder, including shareholder loans and guarantees of shareholder loans.
The time of the taxable event is the end of the year following the year in which the withdrawal was made. The taxable amount is the total withdrawal in the year less any amounts repaid by the time of the taxable event. In general, the taxable amount will be considered a dividend subject to standard tax rates, which may be reduced if certain incentives apply that provide beneficial dividend rates or when reduced under the provisions of an applicable tax treaty. However, if the company has no retained earnings, the taxable amount will be considered employment or business income. In general, withdrawals as of 31 December 2016 may be considered taxable income as of 31 December 2017, unless repaid by that date.
A general safe harbor exemption applies for withdrawal amounts not exceeding ILS 100,000. Further, qualifying loans made between non-transparent companies will not be considered withdrawals if certain conditions are met, including that a loan agreement is in place and the loan is used for business purposes.
OECD Releases New and Updated XML Schemas and Guides to Support Exchange for CRS, CbC Reports, and Tax Rulings
On 20 September 2017, the OECD announced the release of updated and new IT-tools and guidance to support the technical implementation of the exchange of tax information under the Common Reporting Standard (CRS), on Country-by-Country (CbC) Reporting, and in relation to tax rulings exchange. The new and updated IT-tools include:
- Country-by-Country Reporting XML Schema and User Guide
- Exchange on Tax Rulings XML Schema and User Guide
- Country-by-Country Reporting Status Message XML Schema and User Guide
- Exchange on Tax Rulings Status Message XML Schema and User Guide
- Common Reporting Standard Status Message XML Schema and User Guide
With respect to the CbC Report XML Schema, the update allows MNE Groups to indicate cases of stateless entities and stateless income, as well as to specify the commercial name of the MNE Group. The update also provides certain clarifications, in particular with respect to the correction mechanisms.
Russia Clarifies Treatment of Dividends in Kind for VAT and Corporate Tax Purposes
The Russian Ministry of Finance has published Letter No. 03-03-06/1/54596 of 25 August 2017, which clarifies whether a dividend paid in kind (a company's own products) is considered a sale of goods for value added tax (VAT) and corporate tax purposes. The letter notes that as per Article 39 of the Russian Tax Code, the sale of goods means the transfer of ownership of goods in exchange for payment, as well as the transfer of ownership free of charge. When dividends are paid by a company's own products, the ownership rights to those goods is considered transferred to the shareholder, and as such, a dividend paid by a company's own products is considered a sale of goods for both VAT and corporate tax purposes.
Ukraine Clarifies VAT Obligation for Consulting Services Supplied by a Non-Resident
The Ukraine State Fiscal Service has recently published an individual tax consultation on the value added tax (VAT) obligation in relation to consulting services provided by a non-resident to a Ukraine resident. The consultation clarifies that for services provided by non-residents that are not registered for VAT, the recipient of the service is considered the tax agent of the non-resident and is responsible for collecting and remitting the VAT if the place of supply is in the customs territory of Ukraine. For the provision of consulting services, the place of supply is considered to be the place where the service recipient is registered as a business entity. Therefore, consulting services provided by a non-resident that is not registered for VAT to a Ukraine resident are subject to VAT with the recipient responsible for collection and payment. This applies whether or not the Ukraine resident is a registered VAT payer.
Malaysia Planning Measures to Tax B2C E-Services
According to recent comments from Director-General Datuk Seri Subromaniam Tholasy, the Royal Malaysian Customs Department is planning to amend the Goods and Services Tax (GST) Act and related regulations in order to enable the taxation of foreign digital companies. The focus of the amendments would be the taxation of digital B2C services, which will likely involve place of supply and registration rule changes similar to those adopted by several countries in recent years, such as Australia, Japan, Korea and Russia. The planned amendments are to be proposed in the Dewan Rakyat (lower house of parliament) in October. Details will be published once available.
Protocol to Tax Treaty between Belgium and Greece has Entered into Force
On 18 September 2017, Belgium promulgated the law for the ratification of the protocol to the 2004 income tax treaty with Greece, which entered into force on 24 July 2017. The protocol, signed 16 March 2010, replaces Article 25 (Exchange of Information) to bring it in line with the OECD standard for information exchange. The protocol is the first to amend the treaty and generally applies from 1 January 2018.
TIEA between Botswana and Denmark in Force
The tax information exchange agreement between Botswana and Denmark reportedly entered into force on 14 May 2015. The agreement, signed 20 February 2013, is the first of its kind between the two countries and applies for criminal tax matters on the date of its entry into force and generally applies for other matters from 1 January 2016.
Tax Treaty between South Korea and Taiwan under Negotiation
According to recent comments from the Deputy Representative of the Korean Mission in Taipei, negotiations are underway for an income tax treaty (agreement) between South Korea and Taiwan and will be finalized as soon as possible. Any resulting agreement would be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.
Latvia Looking to Sign Tax Treaty with Oman
According to a release from the Latvian Ministry of Foreign Affairs, officials from Latvia and Oman met 18 September 2017 to discuss bilateral relations and international issues, including Latvia's interest in signing 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.
IRS Publishes Model Competent Authority Arrangement for Exchange of CbC Reports based on Mutual Assistance Convention
The U.S. IRS has published the model competent authority arrangement for the exchange of Country-by-Country (CbC) reports on the basis of the Convention on Mutual Administrative Assistance in Tax Matters. Although based on the multilateral Mutual Assistance Convention, the competent authority arrangement is still bilateral in nature; between the U.S. and the respective counterparty to the arrangement. The model arrangement can be used in cases where the automatic exchange of CbC reports would not possible under an existing tax treaty or tax information exchange agreement (TIEA), or where no treaty/TIEA is in place.
The model arrangement provides that pursuant to the provisions of Article 6 of the Convention, each competent authority intends to automatically exchange CbC reports received from each reporting entity resident for tax purposes in its jurisdiction, provided that, on the basis of the information provided in the CbC report, one or more constituent entities of the MNE group of the reporting entity are resident for tax purposes in the jurisdiction of the other competent authority, or are subject to tax with respect to the business carried out through a permanent establishment situated in the other jurisdiction.
According to the IRS Country-by-Country Reporting Jurisdiction Status Table, no arrangements have been signed based on the new model arrangement and no negotiations based on the model are ongoing. However, as the number of jurisdictions adopting CbC reporting requirements continues to expand, the new model arrangement will likely be needed.