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Approved Changes (2)

France

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France Finance Law for 2017 Adopted by Parliament

On 20 December 2016, the French Finance (Budget) Law for 2017 was definitively adopted by the National Assembly after being adopted and sent back from the Senate. The Law will now be subject to constitutional review and will enter into force after being published in the Official Gazette. Key measures of the law regarding corporate tax and the introduction of a diverted profits tax are summarized as follows.

Corporate Tax

The maximum revenue threshold for the 15% reduced tax rate on the first EUR 38,120 in taxable profit is increased from EUR 7.63 million to EUR 50 million.

The standard corporate tax rate is reduced from 33.33% to 28% with a phased in application on profits as follows for tax years beginning on or after:

  • 1 January 2017: Profits between EUR 38,120 and EUR 75,000 for SMEs with revenue up to EUR 50 million;
  • 1 January 2018: Profits up to EUR 500,000 for all companies;
  • 1 January 2019:
    • Total profits for companies with annual turnover below EUR 1 billion; and
    • Profits up to EUR 500,000 for companies with annual turnover above EUR 1 billion; and
  • 1 January 2020: Total profits for all companies.

For large companies with revenue exceeding EUR 250 million, the final corporate tax installment payment is increased from 1 January 2017:

  • Revenue up to EUR 1 billion - 80% of the estimated tax liability for the year, less installments already paid (increased from 75%);
  • Revenue over EUR 1 billion up to EUR 5 billion - 90% of the estimated tax liability for the year, less installments already paid (increased from 85%); and
  • Revenue over EUR 5 Billion - 98% of the estimated tax liability for the year, less installments already paid (increased from 95%).

Diverted Profits Tax Note - This measure was ultimately ruled unconstitutional

A diverted profits tax (DPT) regime is introduced that mainly targets large foreign multinationals supplying goods or services online, but may cover certain other cases as well. The DPT will apply to profits realized by a non-resident in relation to the sale of goods or services:

  1. Through a permanent establishment as newly defined to include when the non-resident controls or directly or indirectly owns 50% of an enterprise, whether resident in France or not, that is engaged in the sale of the non-resident's goods or services in France; or
  2. By a person or entity, when it can be reasonably concluded that the activity of such person or entity is aimed at avoiding or reducing the tax that should be due in France, including:
    • A person acting on behalf of the non-resident that habitually enters into contracts or acts as principal in the process leading to the conclusion of contracts on behalf of the non-resident; and
    • An online website, whether hosted in France or not, that is engaged in the supply of goods or services sold by the non-resident to persons resident in France.

The amount taxable is the amount of diverted profits that would have been attributable to a French permanent establishment (PE) in the absence of an artificial arrangement. The tax rate is the standard rate provided in the Tax Code.

The DPT will generally apply if the conditions set out in the law are met. However, a non-resident will not be subject to the DPT if it can demonstrate that its activities do not have the main purpose or effect of avoiding tax in France.

The DPT will apply from 1 January 2018.

Click the following link for the text of the Finance (Budget) Law for 2017 as adopted (French language).

Luxembourg

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Luxembourg Approves CbC Reporting Legislation

On 13 December 2016, the Luxembourg parliament adopted Law No. 7031, which transposes amendments to the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) concerning the exchange of Country-by-Country (CbC) reports as per Council Directive (EU) 2016/881.The final draft of the law is largely the same as the draft proposed, including that:

  • The CbC reporting requirements apply for fiscal years beginning on or after 1 January 2016 for MNE groups exceeding a consolidated group revenue threshold of EUR 750 million in the previous year;
  • The requirement to submit a report primarily applies for ultimate parent entities resident in Luxembourg, although non-parent constituent entities may also be required to file if:
    • The ultimate parent is not required to file a CbC report in its jurisdiction of residence;
    • The ultimate parent's jurisdiction of residence does not have a competent authority agreement in force for automatic exchange of CbC reports with Luxembourg by the date the report is due; or
    • There is a systemic failure of the jurisdiction of residence of the ultimate parent for automatic exchange and notification of the failure was provided to the Luxembourg constituent entity;
  • The required CbC report information is in line with the BEPS Action 13 guidance and must be submitted within 12 months following the close of the fiscal year reported on;
  • All constituent entities resident in Luxembourg must provide notification to the Luxembourg tax authorities by the end of the fiscal year concerned on whether the entity is the ultimate parent of the group or acting as surrogate, or if neither, the identity and residence of the entity submitting a CbC report on behalf of the group; and
  • Failing to comply with the CbC reporting requirements will result in a penalty of up to EUR 250,000 (the final draft of the law is amended to clarify that the penalty may apply for the late/non-filing of CbC reports, the late/non-filing of notifications, and the filing of incomplete/inaccurate information).

Click the following link for additional information on Law 7031 (French language).

Guidance for the filing of the CbC report and notifications is not yet available, but Luxembourg is reportedly planning to require electronic filing via the guichet.lu business portal. Any additional information will be published once available.

Proposed Changes (1)

European Union

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Revised Directive for Proposed EU Public CbC Reporting

On 19 December 2016, a revised version of the proposed Directive for public Country-by-Country (CbC) reporting requirements in the EU was published (previous coverage). The proposed requirements are similar to but separate from the non-public CbC reporting requirements based on BEPS Action 13. The following is a summary of the main revisions.

Reporting Threshold and Exemption

One of the main changes in the revised version is the threshold for publishing a public CbC report. As originally proposed, ultimate parent undertakings would be required to publish a public CbC report if consolidated net turnover exceeded EUR 750 million (would also apply for non-affiliated undertaking if net turnover exceeds the threshold). As revised, a public CbC report will required if total consolidated revenue exceeded EUR 750 million as reflected in the consolidated financial statements on an undertaking's balance sheet date for the last two consecutive financial years. Similar provisions apply for undertakings that are not affiliated undertakings.

If ultimate parent undertakings and their affiliated undertakings operate only in a single Member State and in no other tax jurisdiction, the public CbC reporting requirements do not apply.

It is also clarified that the public CbC reporting requirements will not apply to undertakings already subject to the existing country-by-country reporting requirements for credit institutions and investment firms as per Article 89 Directive 2013/36/EU, provided the report includes information on all their activities and all of the activities of all the affiliated undertakings.

Subsidiary and Branch Reporting

Where an ultimate parent is not resident in the EU, medium-sized and large subsidiaries and branches in the EU are responsible for publishing public CbC reports on the tax information of the ultimate parent. The revised version adds that in such cases, the report must be published to the extent that the requested information is available to the subsidiary or branch. If the requested information is not available, the subsidiary or branch should explain in the report the reasons for the omission.

In addition, the revised version adds that if a subsidiary meets the reporting threshold on its own, it should prepare and publish its own public CbC report.

Public CbC Report Content

The overall information required is the same as proposed, but certain clarifications are added in the revised version, including in relation to the number of employees, revenue amounts, taxes paid, and accumulated earnings.

The revised version also adds that in order to reduce the administrative burden, undertakings should be entitled to prepare the information for the public CbC report on the basis of the reporting specifications laid down in the EU Directive on administrative cooperation in the field of taxation (2011/16/EU), which was amended by Council Directive (EU) 2016/881 for the exchange of CbC reports (non-public). These reporting specifications are largely in line with BEPS Action 13. The reporting specifications used should be specified in the public CbC report.

Lastly, the revised version adds the provision that Member States may allow the omission of certain information if its nature is such that it would be seriously harmful to the commercial position of the undertakings to which it relates, including when only a single affiliated undertaking operates in a tax jurisdiction which is not listed in the EU list of non-cooperative jurisdictions for tax purposes.

Publishing of the Report

The report must be published and made accessible to the public within 12 months after the balance sheet date of the financial year for which the report is drawn up. Depending on which undertaking is responsible, the report is to be published on the website of either the ultimate parent undertaking, the non-affiliated undertaking, the EU subsidiary or affiliated undertaking, or the branch or the undertaking that opened the branch.

Effective Date

If approved, the proposed Directive will enter into force 20 days after it is published in the Official Journal of the European Union. Individual Member States will have two years after its entry into force to bring into force the laws, regulations, and administrative provisions necessary to comply with the new requirements.

Treaty Changes (6)

Burundi-Turkey

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Negotiations for Tax Treaty between Burundi and Turkey Concluded

On 9 December 2016, officials from Burundi and Turkey concluded negotiations with the initialing of an income tax treaty. The treaty is the first of its kind between the two countries and the first bilateral tax treaty for Burundi with any country. It will enter into force after it has been signed and ratified.

Guernsey-Montserrat-Korea, Rep of

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Guernsey's TIEAs with Montserrat and South Korea have Entered into Force

According to a recent update from the Guernsey government, the tax information exchange agreement with Montserrat entered into force on 1 November 2016, and the agreement with South Korea entered into force on 21 December 2016. The agreement with Montserrat was signed 7 April 2014 and the agreement with South Korea was signed 23 September 2015.

Both agreements are the first of their kind between Guernsey and the respective jurisdictions and apply for criminal tax matters on the date of their entry into force, and for other matters for taxable periods beginning on or after that date.

India-Tajikistan

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Protocol to Tax Treaty between India and Tajikistan Signed

On 17 December 2016, officials from India and Tajikistan signed a protocol to amend the 2008 income tax treaty between the two countries to enable sharing of information exchanged under the treaty with other law enforcement agencies for non tax purposes. The protocol is the first to amend the treaty and will enter into force after the ratification instruments are exchanged. Additional details will be published once available.

Kyrgyzstan-Estonia

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Kyrgyzstan to Sign Tax Treaty with Estonia

On 19 December 2016, the Kyrgyzstan Parliamentary Committee on International Affairs, Defense, and Security approved the signature of the draft tax treaty with Estonia, which was initialed on 20 April. The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force.

Additional details will be published once available.

Qatar-Turkey

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Tax Treaty between Qatar and Turkey Signed

On 18 December 2016, officials from Qatar and Turkey signed an income tax treaty. The treaty will enter into force after the ratification instruments are exchanged. Once in force and effective, it will replace the 2001 tax treaty between the two countries.

Additional details will be published once available.

Saudi Arabia-Venezuela

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Tax Treaty between Saudi Arabia and Venezuela has Entered into Force

The income tax treaty between Saudi Arabia and Venezuela entered into force on 1 December 2016. The treaty, signed 11 November 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Saudi Zakat and income tax including the natural gas investment tax. It covers Venezuelan income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 5%
  • Interest - 5%
  • Royalties - 8%

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;
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
  • Gains from the alienation of shares that constitute a share in a company that is a resident 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.

Non-Discrimination

The treaty does not include a non-discrimination article.

Limitation on Benefits

Article 27 (Miscellaneous Provisions) includes the provision that nothing in the treaty will affect the application of domestic anti-evasion/avoidance provisions concerning the limitation of expenses and any deductions arising from transactions between enterprises of a Contracting State and enterprises of the other State, if the main purpose or one of the main purposes of the creation of such enterprises or of the transactions undertaken between them was to obtain the benefits under the treaty that would not otherwise be available.

Effective Date

The treaty applies from 1 January 2017.

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