Worldwide Tax News
On 21 June 2016, the Council of the European Union issued a release announcing that agreement has been reached on a final draft of the Anti Tax Avoidance Directive originally proposed by the European Commission (previous coverage). The announcement follows a tentative agreement reached on 17 June 2016, subject to a silence procedure that ended at midnight on 20 June. The final draft includes anti-avoidance rules in five areas based on outcomes of Actions 2, 3 and 4 of the OECD BEPS Project and BEPS-related aspects of the proposed common consolidated corporate tax base (CCCTB). These include
- Interest limitation rules, which include a required deduction limit on net borrowing costs equal to (up to) 30% of EBITDA (based on tax numbers and excluding tax-exempt income), with a number of implementation options for EU Member States, including:
- Calculating the limit at the level of a group as defined according to national tax law;
- Allowing a deduction up to EUR 3 million;
- Allowing a full deduction for stand-alone companies;
- Excluding loans concluded before 17 June 2016 unless subsequently modified;
- Providing for carry forward/back;
- Exit taxation rules, which include that exit tax will apply on the amount equal to the market value of transferred assets less their value for tax purposes with the option to defer the exit tax by paying in installments over five years in certain cases;
- A general anti-abuse rule (GAAR), which includes that an EU Member State may ignore an arrangement or a series of arrangements that have been put into place for the essential purpose of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, and not for valid commercial reasons that reflect economic reality;
- Controlled foreign company (CFC) rules, which include that the Member State of a taxpayer will treat a foreign entity or permanent establishment (PE) as a CFC if:
- The taxpayer directly or indirectly holds itself, or with associated enterprises, more than 50% of the foreign entity's (PE's) capital, voting rights or rights to profit; and
- The actual corporate tax paid by the foreign entity or PE on its profits is less than the difference between the corporate tax that would have been paid in the Member State under its corporate tax system and the actual corporate tax paid on the profits.
- Hybrid mismatch rules, which include that when a hybrid mismatch results in a double deduction, the deduction shall be given only in the Member State where such payment has its source, and when a hybrid mismatch results in a deduction without inclusion, the Member State of the payer shall deny the deduction of such payment.
EU Member States will have until 31 December 2018 to transpose the directive into their national laws and regulations, except for the exit taxation rules, which must be transposed by 31 December 2019. In addition, Member States that already have interest limitation rules in place may continue to apply those rules if they are equally effective as those under the Directive. The continued application of such existing interest limitation rules is allowed until the OECD reaches agreement on a minimum standard or until 1 January 2024 at the latest.
Formal adoption of the directive will take place at an upcoming Council meeting, and it will enter into force 20 days after it is published in the Official Journal of the EU.
The Greek Public Revenue Authority recently published guidance on reporting of the lump-sum depreciation of fixed assets. Under the Greek Tax Code, fixed assets with an acquisitions value of less than EUR 1,500 may be fully written off in the year of acquisition. However, under the Greek Accounting Standards Law, such lump-sum depreciation is not possible. The guidance clarifies that any difference must be reported in the annual tax return as a temporary difference between book and tax accounting.
On 20 June 2016, the Nigerian Federal Inland Revenue Service (FIRS) launched three new online channels for the electronic payment of tax; Rimta, Interswitch and NIBSS. Both corporate and individual taxpayers may use any of the three channels to make payments.
Click the following link for the e-Tax payment page on the FIRS website.
On 8 June 2016, Uruguay published Decree No. 156/016 in the Official Gazette, which introduces new financial statement registration requirements for certain entities meeting certain income thresholds in the previous year. The affected entity types include:
- Commercial companies,
- Civil associations or companies,
- Agricultural associations or companies,
- Non-resident entities registered with the Central Bank of Uruguay, and
- Trusts and investment funds not subject to supervision from the Central Bank of Uruguay.
The above entity types are required to register their financial statements with the Internal Audit Office if:
- Income from ordinary activities exceeds 26.3 million indexed units (UI) (~USD2.92 million) in the previous fiscal year; or
- Income earned exceeds 4 million UI (~USD 440,000) in the previous fiscal year, and at least 90% of the income is not Uruguayan source.
The indexed unit value used is the value at the end of the fiscal year, and if the fiscal year is less than 12 months, the thresholds are adjusted accordingly.
When required, the financial statements must be registered within 180 days following the close of the fiscal year. Failure to file by the deadline will result in a penalty of 2,000 UI for the first offense, and 3,000 UI for repeated failure within five years. In addition, entities required to register their financial statement may not distribute profits until the registration is complete. If profits are distributed prior to registration, a penalty of 125,000 UI will apply, which is increased to 250,000 UI if subsequent distributions are made before registration within five years.
Based on the resolution issued on 10 June 2016 for the regulation of the new requirements, the requirements apply for commercial companies for fiscal years ending on or after 13 June 2016, and for other entity types for fiscal years beginning on or after 10 June.
Note - The indexed unit (Unidad Indexada - UI) is adjusted daily based on the consumer price index. Currently 1 UI = ~UYU 3.43 (~USD 0.11).
The Finnish Ministry of Finance has reportedly released revised draft legislation for the implementation of Country-by-Country (CbC) reporting (previous coverage). The revised draft takes into account the recent adoption of the directive amending the EU Directive on Administrative Cooperation to require that EU Member States implement CbC reporting requirements and exchange the reports with other Member States (previous coverage). Subject to approval, Finland's CbC reporting requirements will apply for fiscal years beginning on or after 1 January 2016 for MNE groups meeting a consolidated group revenue threshold of EUR 750 million in the previous year.
Additional details of the requirements will be published once available.
The government of Guernsey has issued a consultation paper on whether Guernsey should approach Russia for the negotiation of a tax treaty. Any resulting treaty would be the first of its kind between the two jurisdictions, and would need to be finalized, signed and ratified before entering into force.
Click the following link for the consultation page. The consultation closes on 29 July 2016.
According to a release from the Japanese Ministry of Finance, negotiations for an income tax treaty with Latvia began on 21 June 2016. 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.
On 18 June 2016, the Turkmenistan parliament approved for ratification the pending income and capital tax treaty with the Czech Republic. The treaty, signed 18 March 2016, is the first of its kind between the two countries.
The treaty covers Czech tax on income of individuals, tax on income of legal persons, and tax on immovable property. It covers Turkmen profits tax, individual income tax, and property tax.
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 persons if the activities continue for a period or periods aggregating more than 6 months within any 12-month period.
- Dividends - 10%
- Interest - 10%
- Royalties - 10%
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 alienation of movable property forming part of the business property of a permanent establishment in the other State; and
- Gains from the alienation of shares or other interests in a company 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.
Both countries apply the credit method for the elimination of double taxation.
Article 28 (Miscellaneous Provisions) includes the provision that the competent authority of a Contracting State may, after consultation with the competent authority of the other State, deny the benefits of the treaty to any person, or with respect to any transaction, if in its opinion the granting of the benefits would constitute an abuse of the treaty.
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.