Worldwide Tax News
On 22 March 2016, the OECD announced the release of the standardized electronic format for the exchange of Country-by-Country (CbC) reports between jurisdictions. The release includes the CbC XML Schema, which is used for the electronic exchange of reports, and the associated user guide, which explains the information required to be included in each data element to be reported. The CbC XML Schema can also be used by reporting entities to submit CbC reports if their jurisdiction of filing requires that the XML Schema be used.
The first exchange of CbC reports will take place in 2018.
Click the following link for the OECD announcement, which includes links to the files and additional information.
On 21 March 2016, the Indian Income Tax Department published the Proposal for Equalization Levy on Specified Transactions (Report of the Committee on Taxation of E-Commerce). The report covers several aspects of the taxation of e-commerce in the context of the final report for Action 1 of the OECD BEPS Project, including the committee's recommendations for an equalization levy, which the government included in the 2016-2017 Union Budget (previous coverage).
The report, which was provided to the government prior to the Budget, includes the following on the equalization levy:
- The levy is to be withheld by Indian residents and permanent establishments (PE) in India of non-residents on payments made to non-resident suppliers of B2B digital goods and services without a PE in India;
- The levy is a final tax on gross payment without the possibility of a refund;
- The levy is not a tax on income and therefore not covered by tax treaties;
- Lack of tax treaty coverage may result in double taxation unless the supplier's country of residence allows a credit for the levy under its domestic law;
- Income from payments on which the levy has been paid is to be exempt from income tax;
- The recommended rate of the levy is 6% to 8%;
- The recommend payment threshold for the levy to apply is annual payments of INR 100,000; and
- The levy will create incentives for digital services providers to create a permanent establishment (PE) in India in order to be taxed on net income, while creating disincentives to artificially avoid a PE.
As proposed in the Budget, the government has generally followed the recommendations for the equalization levy provided in the report, including a 6% rate, application to B2B supplies only, and an annual payments threshold of INR 100,000. However, while the report recommends the levy be imposed on a variety of digital goods and services, the initial proposal in the Budget focuses only on online advertising and related services. This may be expanded once the levy is finalized for implementation or at a later date.
Click the following link for the full text of the Proposal for Equalization Levy on Specified Transactions (Report of the Committee on Taxation of E-Commerce).
The Swiss National Council (lower house of the Federal Assembly) has approved revised legislation for Corporate Tax Reform III. This follows revisions made in December 2015 by the Council of States (upper house) to the initial version submitted by the Federal Council in June 2015 (previous coverage). The main measures and revisions in this latest version of the legislation are summarized as follows.
The revised legislation maintains the broad patent box regime that will be introduced at the cantonal level based on the modified nexus approach developed as part of Action 5 of the OECD BEPS Project. However, the 90% maximum tax relief limit from the patent box has been removed. Combined tax relief limitations would apply (see below).
The revised legislation maintains the optional increased research and development (R&D) super deduction at the cantonal level, but removes the deduction cap of 150%. As a result, individual cantons would be able to set an increased deduction as they see fit, but combined tax relief limitations would apply (see below). The revised legislation would also allow cantons to provide a super deduction for R&D costs in connection with activities performed outside Switzerland.
The revised legislation reintroduces a proposed notional interest deduction on surplus (above-average) equity that would be mandatory at the federal level and optional at the cantonal level. Combined tax relief limitations would apply (see below).
Instead of individually limiting the tax relief from the above patent box, R&D super deduction and notional interest deduction, the revised legislation introduces a maximum combined tax relief cap of 80% at the cantonal level.
The revised legislation includes two different models for the tax-neutral disclosure of built-in gains, including goodwill, for companies migrating to Switzerland or transitioning from a privileged tax regime (cantonal) that will be phased out.
For migration to Switzerland, the step-up model originally proposed would apply where the step-up could be amortized for tax purposes on a straight-line basis for up to ten years.
For transitioning out of a privileged tax regime, a two-basket model would apply. This includes the ordinary tax rate applying for profits relating to value created under ordinary taxation, and a lower rate applying for profits relating to the realization of built-in gains that were generated under the privileged tax regime. The transition period would apply for up to five years.
The abolishment of the federal capital duty is not included in the revised legislation, but instead segregated into separate legislation to be adopted independently.
The introduction of a tonnage tax regime at the federal and cantonal level is included in the revised legislation.
In order to counter lost tax revenue from planned reductions in cantonal corporate tax rates, the revised legislation includes an increase in the cantonal stake in direct federal tax revenue from 17% to 20.5%.
Note - several cantons are planning to reduce their corporate tax rates as part of the reform, but this is done by each canton individually and not through the broader reform legislation.
The revised legislation includes that individual cantons may reduce annual capital tax on net equity related to participations, patented intangible assets, and intra-group loans.
The legislation as revised by the National Council will now go back to the Council of States. Subject to final approval and a possible referendum, the legislation for Corporate Tax Reform III will apply from the beginning of 2019 at the earliest.
On 16 March 2016, Turkey's tax authority issued a draft communiqué for public comment on new transfer pricing documentation requirements based on the guidelines developed as part of Action 13 of the OECD BEPS Project; including requirements for:
- Country-by-Country (CbC) report;
- Master file; and
- Local file
The draft CbC reporting requirement will apply for ultimate parent entities of MNE groups resident in Turkey when the annual consolidated group revenue in the previous year meets a threshold of TRY 2.37 billion (~USD 825 million). The requirements will apply for fiscal years beginning on or after 1 January 2016, with an initial filing deadline of 31 December 2017. Groups required to file will need to notify the Turkish tax authority by the end of the fiscal year concerned as to which group entity will be filing the report (31 December 2016 for first year).
The draft Master file requirement will apply for Turkish resident entities that are members of MNE groups with a total asset value of at least TRY 250 million (~USD 87 million) at the end of the previous year and annual revenue of TRY 250 million. When required, the Master file must be prepared by the end of the second month following the due date for the corporate tax return, and be available upon request by the tax authority.
The draft Local file requirements will apply for any group entities resident in Turkey for transactions exceeding TRY 30,000 (~USD 10,440).
In addition to the three-tiered documentation requirements based on Action 13, a new related-party transactions disclosure form will be required for Turkish resident entities if the entity's total asset value is at least TRY 100 million (~USD 34.8 million) at the end of the previous year and annual revenue is at least TRY 100 million. The form includes details of all related party transactions and related parties. It is unclear how this will differ from the current disclosure form due with the tax return.
According to a recent release from the Albania government, a member of the Economy and Finance Committee of Albania's parliament has requested that the Ministry of Finance begin negotiations for an income and capital tax treaty with the U.S. Any resulting treaty would be the first of its kind between the two countries, and would need to be finalized, signed and ratified before entering into force.
According to a release from Brazil's Ministry of Labor and Social Security, Brazil is currently negotiating social security agreements with the Czech Republic, India, Sweden, and Ukraine. Any resulting agreements will be the first of their kind between Brazil and the respective countries, and must be finalized, signed and ratified before entering into force.
On 18 March 2016, officials from the Czech Republic and Turkmenistan signed an income and capital 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 one available.
The income and capital tax treaty between Hungary and Iran was signed on 30 November 2015. The treaty is the first of its kind between the two countries.
The treaty covers Hungarian personal income tax, corporate income tax, land parcel tax and building tax. It covers Iranian real estate income tax, tax on income from agriculture, tax on salary income, tax on unincorporated individual business income, tax on the profits of legal persons, and tax on incidental income.
If a company is considered resident in both Contracting States, then it will be deemed to be a resident only in the State in which its place of effective management is located. If its place of effective management cannot be determined, its residence will be determined by the competent authorities through mutual agreement. If no agreement is reached, it will not be entitled to any relief or exemption from tax provided by the treaty.
- Dividends - 0%
- Interest - 0% if paid in connection with the sale on credit of any merchandise or equipment, or paid on any loan or credit granted by a bank; otherwise 5%
- Royalties - 5%
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 shares or other comparable corporate rights deriving more than 50% of their value directly or indirectly from 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.
Iran applies the credit method for the elimination of double taxation, while Hungary generally applies the exemption with progression method. However, Hungary will apply the credit method in regard to income covered by Articles 7 (Business Profits), 11 (Interest) and 12 (Royalties).
Article 27 (Entitlement to Benefits) includes the provision that a benefit provided under the treaty will not be granted if it is reasonable to conclude that obtaining the benefit was one of the principle purposes of any arrangement or transaction that resulted directly or indirectly in the benefit. The denial of benefits will not apply if it is established that the granting of the benefit would be in accordance with the object and purpose of the relevant provisions. Before a resident of a Contracting State is denied benefits, the competent authorities of both States will consult with each other.
The treaty will enter into force 15 days after the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.