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Worldwide Tax News

Approved Changes (2)

India

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India Issues Notice on Recent Decisions Concerning Minimum Alternate Tax, Transfer Pricing and Others

On 15 December 2015, India's Central Board of Direct Taxes published a notice summarizing recent tax related decisions concerning changes in transfer pricing, Minimum Alternate Tax (MAT) and others.

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CBDT takes various significant decisions in last three months for

providing better taxpayer services, improving ease of doing

business and reducing the burden of compliance on the tax payer]

The Central Board of Direct Taxes (CBDT) has taken a number of decisions over last three months with the objective of providing better taxpayer services, improving ease of doing business and reducing the burden of compliance on the tax payer.

Some of the significant decisions taken are

  • Acceptance of A.P Shah Committee's recommendations regarding applicability of MAT on Foreign Institutional Investors/Foreign Portfolio Investors (FII/FPI).
  • Decision that MAT will not apply to foreign companies having no PE in India.
  • Simplification of procedures for submission of Form No 15G and Form No 15H for furnishing self declaration for lower deduction or no deduction of tax.
  • Notification of Transfer Pricing Rules to incorporate "range concept" and use of "multi year data" to reduce litigation on transfer pricing issues.
  • Launching of "e-sahyog" Pilot Project to provide online facility to resolve mismatch of prepaid taxes in Income Tax Returns.
  • Setting up of Committee with a view to simplify the provisions of the Income Tax Act, 1961.
  • Phasing out plan of deductions under the Income Tax Act with reduction in tax rates for corporate taxpayers-extension of time for submission of comments.
  • Notification of Income Computation and Disclosures Standards (ICDS) under section 145(2) of the Income Tax Act.
  • Notification regarding income from off-shore Rupee Denominated Bonds.
  • Decision to expedite issue of refunds below Rs.50,000/- for A.Y. 2013-14 and 2014-15 for cases not selected for scrutiny.
  • Monetary limits for filing appeal by the Income Tax Department before Tribunal and High Courts enhanced from Rs.4 lakh and Rs.10 lakh to Rs.10 lakh and Rs.20 lakh respectively with retrospective effect.

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Click the following links for additional information included in previous coverage of the changes in transfer pricing and Minimum Alternate Tax.

United States

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U.S. Tax Extenders Legislation Approved

On 18 December 2015, both houses of the U.S. Congress approved the Protecting Americans from Tax Hikes (PATH) Act and the Omnibus spending bill, which was then signed by the president the same day. The legislation renews 52 tax provisions (tax extenders) that expired the end of 2014, and makes certain provisions permanent. The main business related provisions that have been made permanent include:

  • The research and development tax credit, which is also amended to allow businesses with less than USD 50 million in gross income to claim the credit against their Alternative Minimum Tax (AMT) and to allow start-ups with less than USD 5 million in gross income to claim the credit against their payroll taxes; and
  • Section 179 tax relief, which allows small businesses to immediately deduct the cost of investments in property and qualifying equipment.

For the most part, the other tax provisions are extended for 2 years, although the new markets tax credit and bonus depreciation for property have been extended through 2019. The bonus depreciation will be gradually reduced through 2019, with 50% bonus allowed for property placed in service in 2015, 2016 and 2017, and reduced to 40% in 2018 and 30% in 2019.

Proposed Changes (2)

Belgium

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Belgian Policy Note Issued on the Implementation of BEPS Related Measures including CbC Reporting

According recent reports, Belgium's Minister of Finance has issued a policy note on the country's plans to combat tax fraud, which includes several measures based on outcomes of the OECD BEPS Project. Key measures being planned include:

  • The introduction of Country-by-Country (CbC) reporting and transfer pricing documentation requirements in line with the guidance developed as part of Action 13, including an annual group revenue threshold of EUR 750 million for CbC reporting and a reportable transaction threshold of EUR 500,000;
  • The issuance of revised guidance on dependent agent permanent establishments (PE) based on the broader approach targeting the avoidance of a PE through commissionaire structures developed as part of Action 7, as well as the amendment of PE provisions in tax treaties through the Multilateral Instrument being developed as part of Action 15;
  • The introduction of a interest deduction limitation rule based on a percentage of EBITDA (fixed ratio rule) developed as part of Action 4 in addition to the 5:1 debt to equity ratio currently applied to intra-group loans; and
  • The implementation of the minimum standard for the resolution of treaty disputes developed as part of Action 14.

The measures are expected to be finalized in 2016, and will take into account the work being done at the broader EU level on the introduction of a Common Consolidated Corporate Tax Base (CCCTB), which includes certain related measures (previous coverage).

United States

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U.S. IRS Issues Proposed CbC Reporting Regulations

On 21 December 2015, the U.S. Treasury Department and the IRS issued REG-109822-15, which includes proposed regulations for Country-by-Country (CbC) reporting requirements. The regulations are generally in line with the CbC reporting guidance developed as part of Action 13 of the OECD BEPS Project, with certain exceptions. The proposed regulations do not mention the Master File and Local File concepts, which are part of the Action 13 three-tiered approach to transfer pricing documentation.

The main aspects of the proposed regulations are as follows.  

Affected Entities

The proposed regulations affect U.S. persons that are the ultimate parent entity of an MNE group that has annual revenue of USD 850 million or more in the preceding annual accounting period. An ultimate parent entity of a U.S. MNE group is a U.S. business entity that controls a group of business entities, at least one of which is organized or tax resident outside of the United States, that are required to consolidate their accounts for financial reporting purposes under U.S. generally accepted accounting principles (GAAP), or that would be required to consolidate their accounts if equity interests in the U.S. business entity were publicly traded on a U.S. securities exchange. Generally, the determination to include an entity as a constituent entity under the proposed regulations is to be made on the basis of majority ownership or control, consistent with U.S. GAAP and U.S. securities financial reporting regulations.

Comments have been requested by Treasury and the IRS with regard to the need for further clarification in the regulations for situations in which U.S. GAAP or U.S. securities regulations require consolidation of an entity on a basis other than majority ownership or control. This majority ownership threshold is a slight departure from the 2015 revision of Chapter V of the OECD Guidelines, which more broadly defines constituent entities to be included in the CbC Report, indicating that entities excluded from the MNEs consolidated group only on the basis of size or materiality grounds should be included as constituent entities.

CbC Report Content

Ultimate parent entities will be required to file a CbC report containing information on a country-by-country basis related to the U.S. MNE group's income and taxes paid, together with certain indicators of the location of economic activity within the MNE group. This includes information on any separate business entity of the group (constituent entity), except a foreign corporation or foreign partnership for which the ultimate parent entity is not required to furnish information under section 6038(a).

The proposed regulations are fairly consistent with the international standard developed under Action 13, including form and content based on the G20/OECD CbC report template. However, the regulations add the requirement to include Tax IDs of constituent entities, reverse the order of Tables 1 and 2, and require presentation of financial details in U.S. Dollars, translated from local currencies following U.S. GAAP consolidated financial reporting principles instead of the average exchange rate for the year as indicated in Chapter V of the OECD Guidelines. Additionally, the regulations provide somewhat clearer definitions of financial data elements required by comparison to Chapter V of the OECD Guidelines.  

Specific information to be reported on a country-by-country basis includes:

  • Details of each constituent entity, including jurisdiction of residence/organization/incorporation, tax ID of constituent entity used by tax administration of country of tax residence, and main business activity or activities;
  • The following for each jurisdiction on an aggregate basis:
    • Revenues generated from transactions with other constituent entities of the U.S. MNE group;
    • Revenues not generated from transactions with other constituent entities of the U.S. MNE group;
    • Profit (or loss) before income tax;
    • Income tax paid on a cash basis to all tax jurisdictions, including any taxes withheld on payments received;
    • Accrued tax expense recorded on taxable profits (or losses), reflecting only the operations in the relevant annual accounting period and excluding deferred taxes or provisions for uncertain tax positions;
    • Stated capital;
    • Accumulated earnings;
    • Number of employees on a full-time equivalent basis in the relevant tax jurisdiction (as of the end of the period, average for the period, or other reasonable basis, including independent contractors participating in ordinary operating activities); and
    • Net book value of tangible assets other than cash or cash equivalents; and
  • Additional information

Comments have been requested by Treasury and the IRS with regard to (1) the request for cash income taxes paid and accrued, relevant to the accounting period, and (2) the need for further clarification of the calculation of employees in special employment situations.

CbC Reporting Period

The CbC reporting period is the annual accounting period for which the MNE group prepares its financial statements, with or within the ultimate parent’s tax year.

CbC Data Sources

Under the proposed regulations, financial data may be based on certified financial statements, the books and records of the constituent entities, or records used for tax reporting purposes. In contrast to Chapter V of the OECD Guidelines, the regulations do not mention the use of internal management accounts as an acceptable basis for reporting. In addition, there is no requirement to reconcile financial data presented to consolidated financial statements of the MNE, nor to tax returns filed in a particular tax jurisdiction, and no requirement for adjustments to reflect the differences in local accounting principles applied by constituent entities in various tax jurisdictions.

Disclosure of a brief description of the sources of data used is required in the additional Information section. If a change is made to the sources of data used, an explanation of the rationale for the change and its consequences is required. No permission is however required to make a change to accounting principles or to change data sources.

CbC Report Filing

The CbC report will be filed with the ultimate parent entity’s timely-filed income tax return (with extensions). A new reporting form to be filed with the income tax return will be issued.

Use of the CbC Report

The CbC report will be used to perform high-level transfer pricing risk identification and assessment. It will not be used as a substitute for appropriate transfer pricing determination based on a best method analysis as required by the arm's length standard set forth in the regulations under section 482, and transfer pricing adjustments will not be based solely on a CbC report. However, the report may be used as the basis for making further inquiries into transfer pricing practices or other tax matters of the MNE group.

CbC Report Exchange

A U.S. CbC report filed with the IRS may be exchanged by the U.S. with other tax jurisdictions in which the U.S. MNE group operates if such other tax jurisdictions have agreed to provide the IRS with foreign CbC reports filed in their jurisdiction by foreign MNE groups that have operations in the U.S.

For this purpose, the report will only be exchanged with jurisdictions that have established legal safeguards to protect the confidentiality of the information and have entered into a tax information exchange agreement with the U.S. The U.S. competent authority is also expected to enter into competent authority arrangements for the automatic exchange of CbC reports under the authority of information exchange agreements to which the U.S. is a party. The U.S. competent authority will not agree to automatic exchange of information unless it has reviewed the tax jurisdictions policies and procedures for confidentiality protections, and will pause automatic exchanges of CbC reports with any tax jurisdiction that it determines is not in compliance with confidentiality requirements, data safeguards, and appropriate use standards.

National Security Exception

Consideration has been given to the possible need for an exception to filing some or all of the information required in the CbC report for national security reasons. In such cases, an exception would require the Treasury Department and affected U.S. persons to coordinate with other federal agencies, such as the Department of Defense, to determine whether such an exception is warranted.

Comments have been requested by Treasury and the IRS with regard to procedures required to receive such an exception.

Effective Date

As proposed, the CbC reporting regulations would apply for tax years beginning on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register.

Click the following link for the full text of the proposed CbC reporting regulations. Comments must be submitted by 22 March 2016.  

Treaty Changes (5)

Greenland-OECD

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Greenland Signs OECD Agreement on Automatic Exchange of Financial Information

The OECD has announced that on 17 December 2015, Greenland signed the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information. Greenland is the 78th country to sign the agreement, and intends to begin the first information exchange in September 2017.

Click the following links for the multilateral agreement, the list of the signatories to date, and the list of countries that have committed to the automatic exchange of information.

Hong Kong-Untd A Emirates

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Tax Treaty between Hong Kong and the United Arab Emirates has Entered into Force

On 10 December 2014, the income tax treaty between Hong Kong and the United Arab Emirates entered into force. The treaty, signed 11 December 2014, is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Hong Kong profits tax, salaries tax and property tax. It covers United Arab Emirates income tax and corporate tax.

Service PE

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

Withholding Tax Rates

  • Dividends - 5%
  • Interest - 5%
  • Royalties - 5%

Capital Gains

The following capital gains derived by a resident of one Contracting Party may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other Party;
  • Gains from alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
  • Gains from the alienation of shares of a company deriving more than 50% of its asset value directly or indirectly from immovable property situated in the other Party, with an exemption for shares:
    • Quoted on a recognized stock exchange;
    • Alienated or exchanged in the framework of a reorganization of a company, a merger, a scission or a similar operation; or
    • In a company that carries on its business in the immovable property from which the value is derived

Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.

A protocol to the treaty, signed the same date, further clarifies that gains from the alienation of shares or comparable interests in a company or of securities or debentures will only be taxable in the Contracting Party in which the alienator is a resident.

Double Taxation Relief

Both jurisdictions apply the credit method for the elimination of double taxation.

Effective Date

The tax treaty applies in Hong Kong from 1 April 2016 and in the United Arab Emirates from 1 January 2016.

Mexico-Saint Lucia

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TIEA between Mexico and St. Lucia has Entered into Force

On 18 December 2015, the tax information exchange agreement between Mexico and St. Lucia entered into force. The agreement, signed 9 July 2013, is the first of its kind between the two countries and is in line with the OECD standard for information exchange. It generally applies from the date of its entry into force.

Norway-Serbia

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New Tax Treaty between Norway and Serbia has Entered into Force

According to an update from the Norwegian Ministry of Finance, the new income tax treaty with Serbia entered into force on 18 December 2015. The treaty, signed 17 June 2015, replaces the 1983 income and capital tax treaty between Norway and the former Yugoslavia, which applied in respect of Serbia.

Taxes Covered

The treaty covers Norwegian:

  • National tax on income;
  • County municipal tax on income;
  • Municipal tax on income;
  • National tax relating to income from the exploration for and the exploitation of submarine petroleum resources and activities and work relating thereto, including pipeline transport of petroleum produced; and
  • National tax on remuneration to non-resident artistes.

It covers Serbian corporate income tax and personal income tax.

Residence

If a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement based on its place of effective management, place of registration and any other relevant factors. If the authorities cannot reach mutual agreement, any relief or exemption from tax provided by the treaty will not apply unless agreed upon by the competent authorities.

Service PE

A permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through one or more individuals present in that other State for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 15%
  • Interest - 10%
  • Royalties -
    • 5% for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films, or films or tapes used for radio or television broadcasting;
    • 10% for the use of, or the right to use, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 22 (Other Income) will not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest, royalties or other income are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

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 or comparable interests of any kind 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.

Effective Date

The tax treaty applies from 1 January 2016.

The 1983 income and capital tax treaty between Norway and the former Yugoslavia is terminated in respect of Serbia, and its provisions will cease to have effect once the new treaty is effective.

San Marino-Singapore

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Tax Treaty between San Marino and Singapore has Entered into Force

On 18 December 2015, the income tax treaty between San Marino and Singapore entered into force. The treaty, signed 11 December 2013, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Singapore income tax, and covers San Marino general income tax on individuals, and on bodies corporate and proprietorships.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 365 days within any 15-month period.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 12%
  • Royalties - 8%

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; and
  • Gains from alienation of movable property forming part of the business property of a permanent establishment 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.

Effective Date

The tax treaty applies in respect of withholding taxes from 1 January 2016 and in respect of other taxes from 1 January 2017.

Article 25 (Exchange of Information) applies from the date of the treaty's entry into force for requests concerning tax periods beginning on or after 1 January 2016.

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