Worldwide Tax News
New Zealand Announces Transfer Pricing Focus for 2016 and Implementation of Exchange of Information on Tax Rulings
In New Zealand Inland Revenue's Large Enterprises Update, published 15 February 2016, Inland Revenue set out its transfer pricing focus for 2016 and announced that it will implement the standard for exchange of information on tax rulings developed as part of Action 5 of the OECD BEPS Project.
According to the update, the 2016 transfer pricing focus will be on the following:
- Unexplained tax losses returned by foreign-owned groups;
- Inbound and outbound loans in excess of NZD 10 million principal as well as guarantee fees;
- Cash pooling arrangements;
- Payment of unsustainable levels of royalties and/or service charges;
- Material associated-party transactions with low or no tax jurisdictions including the use of offshore hubs for marketing, logistics and procurement services;
- Appropriate booking of income arising from e-commerce transactions;
- Supply chain restructures involving the shifting of any major functions, assets or risks away from New Zealand; and
- Any unusual arrangements or outcomes that may be identified in controlled foreign company disclosures.
Concerning the exchange of information, Inland Revenue will implement the exchange of tax ruling information with tax treaty partners in 2016, which will include:
- Rulings related to preferential regimes;
- Cross-border unilateral advance pricing agreements and any other cross-border unilateral tax ruling covering transfer pricing or the application of transfer pricing principles;
- Cross-border rulings giving a unilateral downward adjustment to the taxpayer's taxable profits in the country giving the ruling;
- Permanent establishment rulings; and
- Related party conduit rulings.
This is to include new rulings as well as past rulings issued on or after 1 January 2010 and still in effect on 1 January 2014.
Ukraine Reverses Restriction on Carryforward of Excess Advance Tax on Dividends
The Ukraine State Fiscal Service (SFS) recently published guidance letter 2779/7/99-99-19-02-01-17. The letter, dated 28 January 2016, amends prior guidance that excess advance tax payments on dividends could only offset corporate income tax (CIT) in the current reporting year and could not be carried forward.
Under the new guidance, any excess advance tax payments on dividends as of 1 January 2015 may offset the CIT liability of 2015 and carried forward to subsequent years until fully offset. The guidance also clarifies that excess advance tax payments on dividends may not be refunded or used to offset any taxes other than CIT.
UK Updates Guidance on Rules for Disclosure of Tax Avoidance Schemes for VAT, Direct Taxes and National Insurance Contributions, and Related Penalties
On 19 February 2016, the UK HMRC published updated guidance on the rules for disclosure of tax avoidance schemes for value added tax (VAT), direct taxes and National Insurance contributions, and related penalties. Under UK law, failure to provide notification of involvement in tax avoidance schemes to HMRC may result in penalties.
VAT avoidance schemes to be disclosed include listed schemes and hallmarked schemes (schemes that include or are associated with a ‘hallmark’ of avoidance). VAT schemes must be disclosed in the following cases:
- Listed schemes must be disclosed by taxpayers registered for VAT in the UK, or are liable to be, unless their annual turnover or group turnover is less than GBP 600,000; and
- Hallmarked schemes must be disclosed if the taxpayer's annual turnover or group turnover is GBP 10 million or more, unless a third party has voluntarily disclosed the scheme and provided the taxpayer a Voluntary Registration Scheme (VRS) reference number.
Failure to disclose when required will result in a penalty of 15% of the VAT to be avoided for listed schemes, and a penalty of up to GBP 5,000 for hallmarked schemes.
Under the UK's disclosure of tax avoidance schemes (DOTAS) regime, the promoters of schemes are required to disclose to HMRC that the schemes are being made available or implemented. However, notification must also be provided by users of avoidance schemes and by employers of employees who may be using such schemes. The disclosures must be made in a report filed by 19 April following each tax year in which a tax advantage is expected to arise.
Failure to file the report when required will result in an initial penalty of up to GBP 5,000 plus penalties of up to GBP 600 per day of delay. HMRC may impose higher penalties in certain cases.
Click the following link for the full guidance, which also includes links for additional information.
U.S. IRS Publishes Practice Units on Outbound Transfers of Foreign Stock, the Residual Profit Split Method, Gross Effectively Connected Income of a Foreign Corporation, and Others
The U.S. IRS has recently published nine international practice units, including:
- Outbound Transfer of Foreign Stock Followed by Check-The-Box Election;
- Residual Profit Split Method - Inbound;
- Revenue Procedure 99-32 Inbound Guidance;
- Interest Expense of a Foreign Corporation Engaged in a U.S. Trade/Business (Non-Bank, Non-Treaty);
- Gross Effectively Connected Income (ECI) of a Foreign Corporation (Non-Treaty);
- Interest Expense of US Branch of a Foreign Bank Non-Treaty;
- Calculating the Net Adjustment Penalty for a Substantial Valuation Misstatement;
- Physical Presence Test for Purposes of Qualifying for IRC § 911 Tax Benefits; and
- Non-Services FDAP Income
International practice units are developed by the Large Business and International Division of the IRS to provide staff with explanations of general international tax concepts as well as information about specific transaction types. They are not an official pronouncement of law, and cannot be used, cited or relied upon as such.
Click the following link for the International Practice Units page on the IRS website.
Brunei's TIEAs with Greenland and Sweden have Entered into Force
According to a recent update from the Brunei Ministry of Finance, the tax information exchange agreement (TIEA) with Greenland entered into force on 7 August 2015 and the TIEA with Sweden entered into force on 20 December 2015. The TIEAs were both signed 27 June 2012 and are in line with the OECD standard for information exchange. They are the first of their kind between Brunei and the respective countries.
The TIEA with Greenland applies for criminal tax matters from the date of its entry into force and for other matters from 1 January 2016. The TIEA with Sweden generally applies from the date of its entry into force.
Tax Treaty between Finland and Germany Signed
On 19 February 2016, officials from Finland and Germany signed an income tax treaty. The treaty will enter into force after the ratification instruments are exchanged, and once in force and effective will replace the 1979 tax treaty between the two countries, which is currently in force.
Additional details will be published once available.
Montserrat Ratifies TIEA with Guernsey
On 19 January 2016, Montserrat ratified the pending tax information exchange agreement with Guernsey. It was ratified by Guernsey on 25 September 2014.
The agreement, signed 7 April 2014, is the first of its kind between the two jurisdictions and will enter into force and apply from the first day of the second month following the exchange of the ratification instruments.
Switzerland Signs Joint Declaration on Automatic Exchange of Information with South Korea
On 18 February 2016, officials from Switzerland and South Korea signed a joint declaration on the automatic exchange of information in tax matters on a reciprocal basis, according to a press release from the Swiss Federal Council. The information exchange will be carried out under the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information and the Convention on Mutual Administrative Assistance in Tax Matters. Switzerland and South Korea intend to begin the automatic exchange of financial account information in 2018.
Click the following link for the press release.