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Approved Changes (6)

European Union-United Kingdom

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European Commission Publishes Non-Confidential Decision to Open State Aid Investigation into UK CFC Group Financing Exemption

On 16 November 2017, the European Commission announced the release of the non-confidential version of the decision to open a State Aid investigation into the UK CFC Group Financing Exemption (previous coverage).

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State aid: Commission publishes non-confidential version of decision to open an in-depth investigation into UK tax scheme for multinationals

Today, the European Commission has published the non-confidential version of the decision adopted on 26 October 2017 to open an in-depth investigation into a UK scheme that exempts certain transactions by multinational groups from the application of UK Controlled Foreign Company rules targeting tax avoidance. The Commission is investigating concerns that the scheme may allow certain multinationals to pay less UK tax, in breach of EU State aid rules. The opening of an in-depth investigation gives the UK and interested third parties an opportunity to submit comments. It does not prejudge the outcome of the investigation. The decision is available under the case number SA.44896 on the competition website.

Guernsey

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Guernsey Publishes Notice on Exchange of Tax Rulings

The Guernsey government has published a notice on the compulsory spontaneous exchange of information on tax ruling as set out in BEPS Action 5, which Guernsey will comply with. According to the notice, past rulings need to be exchanged with relevant tax authorities by 31 December 2017. For this purpose, past rulings mean:

  • Rulings made between 1 January 2015 and 1 April 2017; and
  • Rulings made between 1 January 2012 and 1 January 2015, if still in force at 1 January 2015.

There will be no notification to taxpayers where a past ruling has been identified for exchange.

Click the following link for the notice, C56 Base Erosion and Profit Shifting (BEPS) – Action 5, improving transparency in relation to rulings.

Kazakhstan

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Kazakhstan Issues Notice on New Social Health Insurance System Contributions

Kazakhstan's State Revenue Department issued a notice on 14 November 2017 on the country's new social health insurance system (previous coverage), which was approved in 2015 and applies from 2017. The letter provides that the new system is effective from 1 July 2017, with employers required to contribute 1% of employees' gross salary. The contribution is not withheld from salary, but rather, is an expense for the employer that is deductible for corporate tax purposes. From 2022, the employer contribution rate will be increased to 3%.

For employees, a 1% contribution will apply from 1 January 2019. This will be increased to 2% from 1 January 2020, with the total contribution amounting to 5% of salary from 2022 (3% employer, 2% employee). For individual entrepreneurs, a 5% contribution rate applies from 1 July 2017, but the basis is capped at two times the minimum monthly wage (2017 minimum wage KZT 24,459).

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Peru Publishes Decree on CbC Report, Master File, and Local File Requirements

On 17 November 2017, Peru published Supreme Decree No. 333-2017-EF, which provides regulations for the implementation of the Action 13 transfer pricing documentation requirements that entered into force on 1 January 2017 (previous coverage). The Decree provides definitions for key terms, the conditions for CbC reporting, and the required content of the Local file, Master file, and the Country-by-Country (CbC) report. The form and deadline for submission is not provided.

The main aspects of the Decree regarding CbC reports include:

  • The CbC reporting requirements apply from the 2017 fiscal year with the first reports due in 2018;
  • The reporting threshold is consolidated group revenue of at least PEN 2.7 billion in the previous year;
  • The obligation to submit a CbC report primarily applies for ultimate parent entities resident in Peru, but may also apply for non-parent entities if: 1) the ultimate parent is not required to submit a CbC report in its jurisdiction, 2) there is no agreement for the exchange of CbC reports with Peru by the deadline for the report; 3) there has been a systemic failure for exchange; or 4) the non-parent entity has been designated as the surrogate parent for the purpose of submitting a CbC report;
  • With respect to cases 1 - 3 above, the secondary local filing requirement will not apply if the ultimate parent is not required to a submit a CbC report because it has not met the reporting threshold of its jurisdiction of residence (EUR 750 million or near equivalent); or where a CbC report has been submitted by a surrogate parent entity, notification of the surrogate has been provided, and the report will be exchanged with Peru;
  • The content of the CbC report is in line with the Action 13 guidelines.

With respect to the Local file and Master file content, the requirements are generally in line with the Action 13 guidelines. However, there are some differences with respect to the Local file. The main differences include:

  • Where the entity is not required to submit a Master file, a chart illustrating the MNE’s legal and ownership structure and geographical location of operating entities must be included with the Local file; and
  • In the case of services, the Local file must include information on the benefits test, the value of consideration and, if applicable, the reasons why the services should not be considered as low value added services.

In addition, where an APA has been entered into, the annual report demonstrating compliance with the APA must be submitted along with the Local file.

The Local file requirement applies from 2017 with respect to the year 2016 and the Master file requirement applies from 2018 with respect to the year 2017. However, the service benefits test information mentioned above is not required as part of the Local file for 2016.  

Russia

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Russia Finalizes Revised List of Jurisdictions without Adequate Information Exchange for 2018

Russia has published Order No. MMB-7-17/709 of 9 November 2017 on the approval of the amended list of jurisdictions that do not have adequate tax information exchange with Russia. The list is in relation to the Russian tax exemption for controlled foreign company (CFC) profits, which is not available if a CFC is located in a listed jurisdiction. The amended list includes 125 jurisdictions that have either not entered into an agreement for information exchange with Russia, or have not responded adequately to information exchange requests. The changes to the list include the removal of the British Virgin Islands, the Republic of Congo, and South Korea. No jurisdictions are added.

The order enters into force on 1 January 2018.

United States

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U.S. IRS Advisory Council Releases Release Annual Report for 2017

The U.S. IRS has announced the release of the IRS Advisory Council's annual report for 2017.

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The Internal Revenue Service Advisory Council (IRSAC) today issued its annual report for 2017, including numerous recommendations to the IRS on new and continuing issues in tax administration.

Report recommendations cover numerous topics including:

  • Adequate Funding for the IRS
  • W-2 Verification Codes
  • The Private Debt Collection Program
  • The Large Business & International Examination Process
  • Establishment of Minimum Standards of Competence for All Tax Practitioners and Tax Return Preparers, and
  • Third-Party Application Programming Interfaces

The IRSAC is a federal advisory committee that reports to the IRS Commissioner. IRSAC provides an organized public forum for the discussion of relevant tax administration issues. Members of the committee convey public perception and offer constructive observations regarding current and proposed IRS policies, programs as well as procedures.

Proposed Changes (1)

Cyprus

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Cyprus Consults on EU Anti-Tax Avoidance Directive Provisions

The Cyprus Tax Department has announced the launch of a public consultation on the draft law for transposition of the EU Anti-Tax Avoidance Directive (Directive 2016/1164 - ATAD1) as amended (Directive 2016/952 - ATAD2). The proposed measures are in line with the standard provisions of the Directives, including the 30% of EBITDA interest deduction restriction, the exit taxation rules, the CFC rules, and the main purpose test (GAAR) of ATAD1, as well as the hybrid mismatch rules of ATAD 2.

As drafted, the law would generally apply from 1 January 2019 with respect to the ATAD 1 provisions, and from 1 January 2020 with respect to the ATAD 2 provisions, although certain provisions would apply from 2022. Click the following link for the consultation page (Greek language). The consultation ends 8 December 2017.

Treaty Changes (4)

Brazil-South Africa

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Brazil Chamber of Deputies Approves Pending Protocol to Tax Treaty with South Africa

Brazil's Chamber of Deputies reportedly approved the ratification of the pending protocol to the 2003 income tax treaty with South Africa on 10 November 2017. The protocol, signed 31 July 2015, replaced Article 26 (Exchange of Information) to bring it in line with the OECD standard for information exchange. The protocol will enter into force 30 days after the ratification instruments are exchanged, and will apply from that date.

Bulgaria-OECD

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Bulgaria to Sign Multilateral Agreement on the Exchange of CbC Reports

On 15 November 2017, the Bulgarian government reportedly approved the signature of the Multilateral Competent Authority Agreement on the exchange of Country-by-Country reports (CbC MCAA). Once signed, the CbC MCAA must then be activated by Bulgaria for it to be effective for the exchange of CbC reports with other signatories. With respect to other EU signatories, however, exchange is already effective base on the EU Directive for the exchange of CbC reports.

Click the following link for the list of the CbC MCAA signatories to date.

Comoros-Mauritius

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Updated - Tax Treaty between Comoros and Mauritius to be Signed

According to recent reports, the Comoros government has approved the signing of an income tax treaty with Mauritius on 15 November 2017. The treaty will be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

Note - The Mauritius Tax Authority has announced that the treaty was actually signed on 6 October 2017. It is possible, but unconfirmed, that the Comoros government had instead approved the treaty for ratification on 15 November.

Morocco-Zambia

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Update - Tax Treaty between Morocco and Zambia

The income tax treaty between Morocco and Zambia was signed on 1 October 2017. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Moroccan income tax and corporation tax, and covers Zambian income tax.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 10%
  • Fees for technical services (managerial, technical or consultancy) - 10%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), and 12 (Royalties and Fees for Technical Services) will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims, or other rights in respect of which the income is paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of the Articles.

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 movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of the capital stock of a company, the property of which consists directly or indirectly principally of immovable property situated 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

Both countries apply the credit method for the elimination of double taxation.

Entry into Force and Effect

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

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