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Approved Changes (2)

Australia

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Australia Enacts Legislation to Implement Common Reporting Standard for the Automatic Exchange of Financial Account Information

The Australian parliament has enacted the Tax Laws Amendment (Implementation of the Common Reporting Standard) Act 2016, which received Royal Assent on 18 March 2016. The legislation is for the implementation of the OECD Common Reporting Standard (CRS) for the automatic exchange of financial account information. Under the legislation, Australian financial institutions are required to submit information about accounts of foreign residents to the ATO Commissioner for the purpose of exchange with relevant jurisdictions under the CRS. The collection and submission of account information is to begin in 2017, and Australia has committed to begin the first exchange of the information in 2018.

Click the following link for the Tax Laws Amendment (Implementation of the Common Reporting Standard) Act 2016.

Isle Of Man

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Isle of Man Income Tax Division Issues Revised Guidance Note on Incorrect Returns Including Increased Penalties

On 21 March 2016, the Income Tax Division of the Isle of Man Treasury issued a revised guidance note (GN 34). GN 34 covers the procedures and penalties for incorrect returns.

The main changes in the revised version concern the level of penalties imposed. Under the Isle of Man's Income Tax Act 1970, the maximum penalty imposed for underpaid tax resulting from an incorrect return is up to 100% of the tax due, and up to 200% in cases of fraud. Interest also applies. In practice, a lower penalty is generally imposed where disclosure is made voluntarily or the taxpayer cooperates in an investigation.

Under revised GN 34, the penalties imposed in practice based on the tax due are as follows:

  • Issues disclosed voluntary by taxpayer:
    • Simple mistake affecting previous return - 0% (unchanged)
    • Mistakes affecting multiple returns - increased from 0% to 10-15%
    • Mistakes affecting multiple returns resulting in investigation with full cooperation - increased from 5-15% to 15-25%
  • Issues uncovered resulting in an investigation:
    • Full cooperation from the taxpayer - increased from 15-30% to 25-35%
    • Partial cooperation from the taxpayer - increased from 20-40% to 35-50%
    • Little or no cooperation from the taxpayer - up to 100% (unchanged)
    • Fraud involving deliberate or attempted concealment of actions - up to 200% (unchanged)

Revised GN 34 applies from 6 October 2016.

Click the following links for the original Guidance Note GN 34 and the revised Guidance Note GN 34.

Proposed Changes (4)

Canada

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Canadian 2016 Budget Tabled Including Several BEPS-Related Measures

On 22 March 2015, Canadian Finance Minister Bill Morneau tabled the 2016 Budget. The main tax related aspects of the Budget are summarized as follows.

CbC Reporting

Country-by-Country (CbC) reporting requirement will be implemented based on the guidelines developed as part of Action 13 of the OECD BEPS Project. The reporting requirement will apply for ultimate parent entities of MNE groups resident in Canada if the consolidated annual revenue of the group meets or exceeds EUR 750 million in the previous year. A non-parent entity of a group resident in Canada will also be required to file if the Canadian tax authorities are unable to obtain the report from the ultimate parent's jurisdiction through automatic exchange. The deadline to file will be within one year following the end of the fiscal year concerned.

The new requirements will apply for taxation years beginning after 2015.

Draft legislation for the CbC reporting requirements will be issued in the coming months.

Revised Transfer Pricing Guidelines

The Budget states that, although the OECD Transfer Pricing Guidelines are not explicitly incorporated into Canada’s legislation, the Canada Revenue Agency (CRA) is applying the Guidelines as revised under Actions 8-10 of the BEPS Project. However, the CRA will not be adjusting its practices in regard to the proposed simplified approach to low value-adding services risk-free and the risk-adjusted returns for minimally functional entities (cash boxes). This is due to the follow-up work needed to finalize guidance in those two areas.

Treaty Abuse

The Budget confirms the government's commitment to implement the minimum standards developed as part of Action 6 of the BEPS Project to address tax treaty abuse. For new treaties going forward, a limitation on benefits rule and/or principal purpose test will be included. For existing treaties, amendments will be made through bilateral negotiations or through the multilateral instrument being developed as part of Action 15, or both.

Common Reporting Standard

The Budget confirms that Canada will adopt the OECD Common Reporting Standard for the automatic exchange of financial account information.

Exchange of Tax Rulings

The Budget confirms that Canada will implement the minimum standard for the spontaneous exchange of certain tax rulings as included in Action 5 of the BEPS Project. The exchange is to begin in 2016 with other jurisdiction that have adopted the minimum standard.

Back-to-Back Loan Rules

In order to prevent base erosion through the use of back-to-back loans, the Budget proposes to strengthen current rules by:

  1. Amending the existing back-to-back loan rules to extend their application to rents and royalties;
  2. Adding character substitution rules to the back-to-back rules;
  3. Adding back-to-back loan rules to the existing shareholder loan rules; and
  4. Clarifying the application of the back-to-back loan rules to multiple intermediary structures.

The new rules regarding rents and royalties and character substitution will apply to payments made after 2016. The new rules regarding existing shareholder loans rules and multiple intermediary structures will apply from 22 March 2016; the date the Budget was tabled.

Debt-parking

To strengthen rules against the use of debt-parking transactions to avoid realizing a foreign exchange gain on the repayment of a foreign currency debt, the Budget proposes to introduce rules so that any accrued foreign exchange gains on a foreign currency debt will be realized when the debt becomes a parked obligation.

Small Business Tax Rate

The small business federal tax rate that applies for qualifying active business income up to CAD 500,000 would be kept at 10.5% after 2016 instead of a reduction by 0.5% per year to 9% in 2019 as included in the 2015 Budget.

Click the following links for the 2016 Budget and details of the tax measures.

European Union

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European Commission Draft Proposal for Public CbC Reports

According to recent reports, a draft version of a European Commission proposal for public Country-by-Country (CbC) reports has been unofficially released. Under the proposal, MNE groups with consolidated annual revenue of EUR 750 million or more with operations in the EU would be required to publish a public CbC report.

The requirement would apply for ultimate parent entities of MNE groups meeting the threshold if resident in the EU. If the ultimate parent were not resident in the EU, an EU resident subsidiary or branch would be required to fulfill the requirement. However, an exemption would apply for smaller EU subsidiaries or branches subject to certain thresholds, such as balance sheet total, net revenue and number of employees. An exemption would also apply for financial sector groups, which are already subject to similar public CbC disclosure requirements in the EU.

The public CbC report information required is less extensive than the information required in non-public CbC reports, and includes:

  • Business activities;
  • Number of employees;
  • Total revenue (including related-party revenue);
  • Pretax profit (loss); and
  • Income tax accrued and paid.

The public CbC report also differs from the non-public version in that the information would only be required on an individual-country basis for EU Member States, while the information for non-EU jurisdictions may be aggregated.

Additional details will be published once the final proposal is formally issued.

Greece

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Greece to Implement EU Parent-Subsidiary Directive Anti-Abuse Amendment

As previously reported, draft legislation has been submitted to the Greek parliament to implement amendments to EU Parent-Subsidiary Directive (2011/96/EU) restricting the exemption for dividends received by Greek companies if involving hybrid mismatches. In addition to the amendment regarding hybrid mismatches, the draft legislation also includes the implementation of an anti-abuse provision that was added to the Parent-Subsidiary Directive.

The anti-abuse provision includes that the withholding tax exemption for dividends paid by Greek companies to EU parent companies and the exemption for dividends received from EU subsidiaries will not apply if involving artificial arrangements put in place to obtain a tax advantage and not for valid commercial reasons reflecting economic reality.

New Zealand

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New Zealand Finance and Expenditure Committee Recommends Passage of Bill for Residential Land Withholding Tax and GST on Online Services

On 21 March 2016, the New Zealand Finance and Expenditure Committee reported back to parliament on the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill. The legislation includes a withholding tax (RLWT) that applies for offshore sellers (vendors) of New Zealand residential property if acquired and sold within two years, and the levy of GST at the rate of 15% on cross border supplies of online "remote" services and intangibles by offshore suppliers (previous coverage).

In the report, the committee recommends that parliament pass the legislation with a few technical amendments. If passed by parliament, the RLWT will apply from 1 July 2016 for property purchased on or after 1 October 2015, and GST on cross border online supplies will apply from 1 October 2016.

Click the following link for the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill as reported from the Finance and Expenditure Committee.

Treaty Changes (1)

Russia-Ecuador

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Russia to Sign Tax Treaty with Ecuador

On 17 March 2016, the Russian government authorized for signature an income tax treaty with Ecuador. The treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Additional details will be published once available.

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