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Approved Changes (4)

Germany

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German Constitutional Court Holds Loss Carry Forward Restrictions on Change of Ownership Unconstitutional

A decision of the German Federal Constitutional Court was published on 12 May 2017 that confirmed the findings of a lower court in 2011 that certain aspects of the loss carry forward restrictions in relation to change of ownership are unconstitutional. The provisions in question are under Section 8C of the Corporate Income Tax Act, which generally provides that when there is a greater than 50% change of share ownership within a five-year period, the loss carry forward prior to the change are forfeited, and when there is a 25% to 50% change in ownership within a five-year period, the loss carry forwards are forfeited proportionately.

With respect to a 25% to 50% change in ownership, the Constitutional Court found that provisions violate, without valid justification, the constitutional principles of the ability-to-pay and consistent taxation. As a result, the provisions must be amended by 31 December 2018 with retroactive effect for the period 1 January 2008 to 31 December 2015, and if not amended by that deadline, will be considered void from 1 January 2008. The decision applies for both corporate tax and trade (business) tax purposes, but only for assessment notices that are still open.

Note - Amendments were made in December 2016 with retroactive effect from 1 January 2016 to provide an exception allowing continued loss carry forward where the restructured company had been operating exclusively with the same business purpose for the three years immediately prior to the change in ownership, subject to conditions (previous coverage). The Constitutional Court did not consider in its decision whether the new exception would resolve the constitutional issues, but given that the required retroactive effect of the required amendments ends 31 December 2015, it is possible a similar continued business approach may be taken in future amendments to the rules.

Ireland

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Ireland Exempts Listed Shares from Stamp Duty

According to an announcement from the Irish Department of Finance, Minister for Finance Michael Noonan has signed an order to provide an exemption from Stamp Duty on transfers of shares in Irish companies admitted to the Enterprise Securities Market (ESM) of the Irish Stock Exchange. According to Noonan, “The purpose of the measure is to encourage more investors to back Irish Small and Medium Enterprises, increasing the supply of equity available to SMEs for growth and job creation. It is also our intention that the measure will encourage entrepreneurs and growing businesses to use public equity to raise finances. The cost of the exemptions is estimated at €5m in a full year.”

The exemption will be effective 5 June 2017.

Sweden

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Sweden Clarifies Foreign Transaction Reporting Obligations

The Swedish Tax Agency (Skatteverket) has published updated guidance to clarify the obligation to report foreign transactions. In general, both inbound and outbound foreign transactions exceeding SEK 150,000 (~USD 17,000) in a calendar year must be reported. This applies for transactions involving both individuals and companies, and the information collected is often used in tax audits. The update clarifies that the reporting obligation applies for any intermediary carrying out a transaction on behalf of a customer, and not just banks. This includes when multiple intermediaries are involved, such as when an intermediary (Bank A) cannot facilitate a foreign payment itself and a second intermediary (Bank B) is needed to complete the transaction. In such case, the reporting obligation applies for Bank A.

Taiwan

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Taiwan Issues Clarification on Securities Transaction Tax Obligations

The Taiwan Ministry of Finance has published a brief release to clarify the payment of Securities Transaction Tax when trading securities. The release clarifies that in accordance with the Security Transaction Tax Act, the trading of securities, with the exception of government-issued bonds, is subject to the transaction tax. The tax is to be collected by the buyer (collecting agent) at the time of transaction, and remitted to the national treasury on the following day together with a complete payment slip. If the collecting agent fails to collect or remit the tax due, a fine of one to ten times the amount of tax due may be imposed.

Proposed Changes (4)

Belarus

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Belarus Proposes Measures to Promote Business and Reduce Unnecessary Requirements

The Belarus government has published draft measures meant to promote the development of businesses and reduce unnecessary requirements in relation to business setup, operation, and taxation. With regard to taxation, measures proposed include setting a moratorium on new taxes or tax increases until 2020, introducing a five-year statute of limitations for tax audits and a five-year statute of limitations for the collection of underpaid tax, as well as other changes to reduce the number of audits performed. The proposals also includes measures for the introduction of a regulated tax consultant profession, which can act as a mediator between businesses and the tax authorities and also bear the responsibility for the correct payment of tax for a business.

Norway

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Norway's Proposed Investment Incentive for Start-ups

As part of the revised budget for 2017 (previous coverage 5.16.2017), Norway has proposed new incentives to promote investments in business start-ups. The incentives would apply from 1 July 2017 and provides for an annual deduction of up to NOK 500,000 for investments made by individuals or their investment companies into active start-ups formed in the EEA within the past six years. The minimum required investment is NOK 30,000 and the maximum is NOK 1.5 million per company, and the investment must be held for at least three consecutive years. For the incentives to apply, the investment must be reported and the investee company must have less than 25 employees (average), have an annual social security basis of at least NOK 400,000, have income and balances below NOK 40 million, be at least partially subject to tax in Norway, and meet certain other conditions.

Poland

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Poland to Implement VAT Split Payment System to Counter Fraud

The Polish government has proposed draft legislation to amend the VAT Law to introduce a split payment system for value added tax (VAT). Such a system is meant to counter VAT fraud by splitting a payment so that the VAT due on an invoice at the time of payment would be directly deposited into a restricted VAT account and the net amount deposited in the supplier's normal bank account. As proposed, funds in the supplier's VAT account may generally only be used for settling VAT due with the tax authorities, and can be withdrawn directly by the tax authorities as part of regular VAT filing. However, subject to certain conditions, a request may be made to use the funds for other purposes.

The split payment system is to be introduced in 2018 on a voluntary basis. Supplier's that opt to take part would be relieved from certain anti-VAT fraud measures, including being held jointly and severally liable for the payment of VAT by their customers and certain sanctions.

United Kingdom

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UK Conservative Party Manifesto Includes Further Tax Burden Reduction

As the UK's political parties prepare for the 8 June snap general election, the UK Conservative and Unionist Party has released its election manifesto, which includes keeping taxes as low as possible. With respect to corporation tax, this includes maintaining the current 19% rate until 2020, when it will be reduced to 17%. With respect to individual taxation, the manifesto includes increasing the personal allowance to GBP 12,500 and increasing the higher rate threshold to GBP 50,000 by 2020. It also vaguely states that the level of value added tax will not be increased.

In contrast, both the UK Labour Party and the Liberal Democrat Party would reverse the corporation tax rate cuts. As previously reported, the Labour Party plans to reverse the cuts in stages with a 26% rate in 2020, while the Liberal Democrat Party plans to maintain a 20% rate (i.e., reversing the reduction to 19% from 1 April 2017).

Click the following links for the election manifestos of the Conservative and Unionist Party, the Labour Party, and the Liberal Democratic Party.

Treaty Changes (3)

China-Spain

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SSA between China and Spain Signed

On 19 May 2017, officials from China and Spain signed a social security agreement. The agreement is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

Luxembourg-Norway

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Luxembourg and Norway to Amend Tax Treaty

On 15 May 2017, officials from Luxembourg and Norway met to discuss bilateral relations and economic cooperation, including plans to negotiate amendments to the 1983 income and capital tax treaty between the two countries. Amendments reportedly relate to needed changes resulting from the OECD BEPS Project.

Morocco-Madagascar

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Update - Morocco Approves Pending Tax Treaty with Madagascar

On 4 May 2017, the Moroccan Council of Ministers approved the pending income tax treaty with Madagascar. The treaty, signed 21 November 2016, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Malagasy tax on income, synthetic tax, direct tax on hydrocarbons, tax on salaries and assimilated income, tax on income from movable assets, and tax on gains from immovable property. It covers Moroccan income tax and corporation tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting State for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 10%

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; and
  • Gains from the alienation of shares 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.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation. A provision is also included for a tax sparing credit for tax that has been waived or reduced in a Contracting State in accordance with the laws of that State relating to fiscal incentives.

Entry into Force and Effect

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.

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