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Proposed Changes (4)

European Union

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EU Parliament TAXE 2 Committee Approves Final Report

According to a press release from the European Parliament, the Special Committee on tax rulings and other measures similar in nature or effect (TAXE 2) approved their final report on 21 June 2016 (previous coverage). The main aspects of the report as included in the release:

Tax haven black list

Committee members welcome EU Commission plans to draw up a common EU blacklist of non-cooperative jurisdictions. They call for a common definition of "uncooperative jurisdictions" and say that the blacklisting procedure should include an "escalation" provision to allow for dialogue with the jurisdiction in which shortcomings have been identified before deciding to blacklist it.

MEPs advocate sanctions against non-cooperative jurisdictions, including a possibility to review and even suspend free trade agreements and prohibiting access to EU funds. They add that sanctions should also be put in place for companies, banks, accountancy and law firms and tax advisors proven to be involved in illegal, harmful or wrongful activities with those jurisdictions.

They also call on EU member states to draw up sanctions against company managers involved in tax evasion and make it possible to revoke business licenses in cases where professionals are involved in illegal tax planning and evasion schemes. The EU Commission should also explore the possibility of introducing financial liability for tax advisors engaged in unlawful tax practices, they add.

Misuse of "patent box" regimes

The report also criticizes "patent box" tax regimes for intellectual property revenues. These "have not proven to be effective in fostering innovation. Regrettably, they are used by multinational companies for profit shifting through aggressive tax planning schemes (...) which leads to a race to the bottom. To prohibit misuse and to make sure they are linked to genuine economic activity, the Commission should propose binding union legislation."

Plus…

MEPs also call for guidelines to better define what is allowed with regard to transfer pricing, better protection for whistle-blowers, an EU Commission proposal before the end of 2016 for a Common Consolidated Corporate Tax Base (CCCTB), an EU-wide withholding tax, to be collected by member states, to ensure that profits made in the EU are taxed at least once before leaving it, a code of conduct for banks, tax advisors, law- and accounting firms, a new EU Tax Policy Coherence and Coordination Centre to be created within the EU Commission and a global register of all assets held by individuals, companies and entities, such as trusts and foundations, to which tax authorities would have full access.

The full Parliament vote on the report will be held in July.

Ireland

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Ireland Issues Summer Economic Statement 2016

On 21 June 2016, Ireland's Minister for Finance Michael Noonan and Minister for Public Expenditure and Reform Paschal Donohoe published the Summer Economic Statement for 2016, which sets out the medium-term fiscal and economic policy, and forms the basis for the 2017 Budget due in October. The key aspects of the statement include:

  • The 12.5% corporate tax rate will be maintained;
  • The capital gains tax rate for new start-ups will be reduced to 10%;
  • The Universal Social Charge (USC) will continue to be phased out;
  • The Earned income tax credit for the self-employed will be increased;
  • The pay as you earn (PAYE) tax credit for high earners will be eliminated;
  • Individual tax credits and tax bands will not be indexed for inflation; and
  • Taxation on measures that promote healthier lifestyles will be increased (details not specified, but likely refers to taxes on tobacco, sugary drinks, etc.)

The Summer Economic Statement 2016 will now be debated in the Dáil (lower chamber of parliament). Click the following link for the Department of Finance release on the Summer Economic Statement.

South Africa

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South Africa Launches Public Consultation on Carbon Offset Regulations

On 20 June 2016, the South African National Treasury issued draft carbon offset regulations for public comment. The regulations are in relation to the carbon offset allowance of up to 5% or 10% included in the Carbon Tax Bill, which was consulted on in 2015 and planned to be effective from 1 January 2017 (previous coverage).

Under the draft carbon offset regulations, the offset will generally be available for certified emission reductions derived from projects located in South Africa that are outside the scope of activities subject to carbon tax. Renewable energy projects, however, are specifically excluded.

Click the following links for the Media Statement, the Explanatory Note and the Draft Regulations. Written comments should be submitted by the close of business on 29 July 2016.

United States

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U.S. Multistate Tax Commission Presents Draft Information Exchange Agreement

On 21 June 2016, the U.S. Multistate Tax Commission presented a draft of the Arm’s-Length Adjustment Service Committee's Exchange of Information Agreement. The agreement establishes the nature and operation of information sharing conducted through the Committee within existing state authority for the exchange of confidential taxpayer information among the signatory U.S. states. Information subject to exchange under the agreement includes, but is not limited to:

  • Lists of taxpayers or potential taxpayers including identifying data;
  • Tax or information returns or documents including supporting schedules, attachments, and lists;
  • Nexus information and questionnaires;
  • Research and revenue estimating materials;
  • Audit reports and other information regarding or acquired through audit;
  • Contingent tax liability and tax reserve work papers;
  • Proprietary taxpayer information, including information on intercompany pricing decisions, transfer pricing reports and recommendations, collection and enforcement activities, private letter ruling requests, appeals and criminal tax matters, etc.; and
  • Any other information eligible to be exchanged pursuant to laws of the signatory states

Click the following link for the draft Exchange of Information Agreement.

Treaty Changes (4)

Germany-Netherlands

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Update - Germany Approves Protocol to Tax Treaty with the Netherlands

On 17 June 2016, Germany's Bundesrat (upper house of parliament) approved for ratification the pending protocol to the 2012 income tax treaty with the Netherlands. The protocol, signed 11 January 2016, is the first to amend the treaty. The protocol mainly includes clarifying adjustments to Articles 3 (General Definitions), 5 (Permanent Establishment), 8 (Shipping and Air Transport), 13 (Capital Gains) and 14 (Income from Employment), and to the protocol originally signed with the treaty.

The protocol will enter into force on the last day of the month following the exchange of the ratification instruments, and will apply from 1 January of the year following its entry into force.

Latvia-New Zealand

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Latvia to Negotiate Tax Treaty with New Zealand

The Latvian Ministry of Foreign Affairs has announced that Latvia confirmed its intent to negotiate an income tax treaty with New Zealand during a meeting of officials from the two sides on 16 June 2016. Any resulting treaty would be the first of its kind between the two countries, and must finalized, signed and ratified before entering into force.

Ukraine-Cyprus

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Ukraine Supreme Administrative Court Holds Dividends Paid out of Income Generated Prior to Ownership Eligible for Treaty Benefits

The Ukraine Supreme Administrative Court has recently issued a decision concerning whether a foreign company that acquired a Ukrainian company is eligible for treaty benefits on dividends received if paid out of income generated prior to the acquisition. The case involved Sanitas, a private Ukrainian enterprise acquired in 2012 (100%), by Cyprus-based Rysio Holdings Limited, which was formed in 2009.

In 2013, Sanitas paid dividends to Rysio without withholding any tax based on the exemption provided under the 1982 tax treaty between Cyprus and the former Soviet Union, which still applied in respect of Ukraine in that year (replaced effective 1 January 2014). However, while conducting an audit of Sanitas, the tax authorities found that the income out of which the dividends were paid was generated during 2006 to 2008. Because the income was generated prior to the acquisition and before Rysio was a resident in Cyprus, the tax authority determined that Rysio could not qualify as the beneficial owner and that 15% withholding tax on the dividends was due, with penalties.

Sanitas appealed the determination, which was upheld by the Circuit Administrative Court and the Administrative Court of Appeal before being heard by the Supreme Administrative Court.

In its decision, the Supreme Administrative Court sided with Sanitas. The court held that for treaty purposes, a non-resident company is considered a beneficial owner eligible for treaty benefits if it has the right to receive the income and decide the further economic fate of the income received. It also held that when Rysio acquired its 100% stake in Sanitas in 2012, it effectively acquired the right to decide the distribution of Sanitas' income, regardless of when that income was generated. Based on this and the fact that Rysio was a Cyprus resident when the dividends were paid, the Supreme Administrative Court revoked the earlier decisions by the lower courts, and referred the case back to the court of first instance.

United States-Chile-Hungary-Poland-Japan-Luxembourg-Spain-Switzerland

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U.S. Senators Request Exchange of Information Amendments in Pending Treaties/Protocols

U.S. Senators Rand Paul R-KY, Michael Lee R-UT and Ted Cruz R-TX have sent a letter to Treasury Secretary Jacob Lew requesting amendments to the exchange of information articles in the pending tax treaties with Chile, Hungary and Poland, and the protocols updating the exchange of information articles (among others revisions) in the treaties with Japan, Luxembourg, Spain and Switzerland. Specifically, the Senators request that the exchange of information articles be amended to include a requirement that information about U.S. citizens be exchanged only for cause and with individualized suspicion.

The treaties and protocols were approved by the U.S. Senate Foreign Relations Committee, and are pending a full Senate vote (previous coverage).

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