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Approved Changes (1)

France

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France Passes Amending Finance Bill for 2015 without CbC Public Disclosure Requirements

In a late night session 17-18 December 2015, France's National Assembly approved the Amending Finance Bill for 2015, but has withdrawn the controversial amendment that would have required multinational companies to publically disclose Country-by-Country (CbC) information on its business. The requirement was based on a 2013 Banking law and would have applied for companies with net annual sales of EUR 40 million or more and certain other conditions. France's non-public CbC reporting requirement based on Action 13 of the OECD BEPS Project is still included in the Finance Bill for 2016, which is pending final approval.

Some of the main measures that are included in the Finance Bill for 2015 include anti-abuse rules regarding dividends and extending the withholding tax exemption on dividends paid to EEA parent companies (previous coverage), and changes in the taxable proportion for all dividends that qualify for the participation exemption from 5% to 1% (previous coverage). These measures apply from 1 January 2016.

Proposed Changes (1)

United States

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U.S. CbC Reporting Regulations Expected Soon

According to statements from U.S. Treasury Department Officials on 18 December 2015, regulations for Country-by-Country (CbC) reporting will be released "any day now." In addition, the IRS Large Business and International Division is already preparing for the exchange of the data in the CbC reports with other jurisdictions.

The regulations will closely follow the guidelines developed as part of Action 13 of the OECD BEPS Project and will apply for tax years beginning on or after 1 January 2016, with the first CbC reports filed in 2017.

Details of the CbC regulations will be published once available.

Treaty Changes (6)

Austria-Germany-European Union

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CJEU Rules Reincorporation of Losses of an Austrian PE of a German Company following Transfer does not Violate Freedom of Establishment

On 17 December 2015, the Court of Justice of the European Union (CJEU) ruled on a case referred by the Finance Court in Cologne, Germany concerning the treatment of the losses of an Austrian permanent establishment (PE) of a German company (Timac Agro) following the transfer of that PE to another group company in Austria.  

Timac Agro is a company limited by shares that is governed by German law and belongs to a French group. From 1997 to 2005, it had been operating a PE situated in Austria that incurred losses in most years. In August 2005, the PE was transferred, for consideration, to a company established in Austria belonging to the same group of companies as Timac Agro.

Following the transfer, the German tax authorities conducted a tax inspection and determined that the losses of the PE for 1997 and 1998, which had been deducted from Timac Agro's revenue, should be reincorporated. Further, the deduction of the PE losses for 1999 to 2005, which had not yet been deducted, was disallowed. The decision was based primarily on the Austrian-German tax treaty, under which the right to tax the income of the PE was shifted to Austria, as well as the right to deduct the losses. Timac Agro appealed the decision, claiming it violates the EU's freedom of establishment principle (Article 49 TFEU).

In its decision, the Court ruled that Article 49 TFEU does not preclude a Member State from reincorporating losses into the taxable profit of a resident company when the company's PE situated in another Member State is transferred to a non-resident company within the same group and the income of the PE is exempt from tax in the first-mentioned Member State under a tax treaty. Similarly, in such situations, Article 49 TFEU does not preclude a Member State from disallowing a deduction of losses.

Click the following link for the full text of the CJEU decision.

Belgium-Moldova

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SSA between Belgium and Moldova to Enter into Force

According to an announcement from the Belgian government, the social security agreement with Moldova will enter into force on 1 January 2016. The agreement, signed 12 September 2012, is the first of its kind between the two countries and generally applies from the date of its entry into force.

Gabon-Saudi Arabia

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Tax Treaty between Gabon and Saudi Arabia Signed

On 17 December 2015, officials from Gabon and Saudi Arabia signed an income tax treaty. The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

Germany-Japan

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New Tax Treaty between Germany and Japan Signed

On 17 December 2015, officials from Germany and Japan signed a new income tax treaty. Once in force and effective, the new treaty will replace the 1966 income tax treaty between the two countries, which currently applies.

Taxes Covered

The treaty covers German income tax, corporate income tax, trade tax and the solidarity surcharge. It covers Japanese income tax, corporation tax, the special income tax for reconstruction, local corporation tax, local inhabitant tax and the enterprise tax.

Residence

If a company is considered resident in both Contracting States, the competent authorities of both States will determine its residence for the purpose of the treaty through mutual agreement based on its place of effective management, its place of head or main office, the place where it is incorporated or otherwise constituted and any other relevant factors. If no agreement is reached, the company will not be entitled to any relief or exemption from tax provided by the treaty.

Withholding Tax Rates

  • Dividends -
    • 0% if the beneficial owner is a company that has directly owned at least 25% of the paying company's voting shares for a period of at least 18 months ending the date on which entitlement to the dividends is determined;
    • 5% if the beneficial owner is a company that has directly owned at least 10% of the paying company's voting shares for a period of at least 6 months ending the date on which entitlement to the dividends is determined;
    • Otherwise 15%
  • Interest - 0%
  • Royalties - 0%

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 interests in a company, partnership or trust deriving at least 50% of the value of its property directly or indirectly from immovable property situated in the other State; and
  • Gains from alienation of any other property, other than immovable 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.

Entitlement to Benefits

Article 21 (Entitlement to Benefits) includes substantial provisions regarding a resident's entitlement to benefits under the treaty. In general, a resident of a Contracting State will only be entitled to the benefits of the treaty if it is a qualified person, which includes:

  • An individual;
  • A qualified governmental entity;
  • A company, if its principal class of shares is listed or registered and is regularly traded on one or more recognized stock exchanges;
  • A pension fund or pension scheme, subject to certain conditions;
  • A person established and operated exclusively for a religious, charitable, educational, scientific, artistic, cultural or public purpose, subject to certain conditions; and
  • A person other than an individual, if at least 65% of its voting shares or other beneficial interests are owned, directly or indirectly, by residents of the same Contracting State that meet the conditions for qualified persons above.

Provisions are also included where benefits may still apply for a resident that is not a qualified person, provided certain other conditions are met.

Double Taxation Relief

Japan applies the credit method for the elimination of double taxation. Germany generally applies the exemption method, including for dividends when the beneficial owner is a German company that owns 10% or more of the voting power of the Japanese payer and the payer is not tax exempt or able to deduct the dividends. However, Germany applies the credit method for dividends not meeting the previous conditions, capital gains from shares or interests deriving at least 50% of their value from immovable property situated in the other State, and certain other items of income in accordance with German tax law.

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. However, Article 25 (Exchange of Information) will apply from the date of its entry into force.

The 1966 income tax treaty between Germany and Japan will cease to be effective once the new treaty is effective. In respect of capital taxes for which the 1966 treaty applies, it will cease to be effective the date the new treaty enters into force.

Latvia-Pakistan

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Tax Treaty between Latvia and Pakistan under Negotiation

According to a recent announcement from the Latvian Ministry of Foreign Affairs, negotiations are underway for an income tax treaty with Pakistan. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

United States-Luxembourg

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New Tax Treaty between the U.S. and Luxembourg under Negotiation

According to recent reports, the United States and Luxembourg have begun negotiations for a new tax treaty. Any resulting treaty will need to be finalized, signed and ratified before entering into force, and once in force and effective, will replace the 1996 income and capital tax treaty between the two countries, which currently applies.

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