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Approved Changes (2)

Canada

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Canadian Court Holds Canadian Authority May Not Make Transfer Pricing Adjustment following MAP Resolution with U.S.

In its decision, dated 10 March 2017, the Tax Court of Canada ruled on whether the Canada Revenue Agency (CRA) may make a transfer pricing adjustment in relation to a transaction that was already adjusted in the U.S. as part of a MAP resolution.

The case involved Sifto Canada Corp. (Sifto), which is engaged in the mining and sale of various salt products, including the sale of rock salt to a related U.S. corporation, North American Salt Company (NASC). For the years 2002 to 2006, Sifto and NASC determined that the transfer price was less than arm's length price resulting in underreported income of approximately CAD 13.34 million, which Sifto voluntarily disclosed to the CRA. The voluntary disclosure was accepted with an upward adjustment to Sifto's income in Canada. Sifto and NASC then sought a corresponding downward adjustment in the U.S., for which a MAP resolution was reached and accepted. However, the CRA subsequently audited Sifto and disputed Sifto's use of the TNMM method in determining the transfer price for the sales to NASC. Instead, the CRA held the CUP method should be used, which resulted in a reassessment that further increased the income of Sifto.

The main question before the Tax Court was whether the CRA was prohibited from issuing the reassessment by virtue of the MAP resolution. Sifto argued that with the MAP resolution, the CRA had entered into a binding agreement that established the transfer price of the rock salt. The CRA argued, however, that its role was essentially just to facilitate Sifto's request and communicate with the U.S. competent authority and that there was no binding agreement.

In its decision, the Tax Court found in favor of Sifto. The Court held that given the communications between the competent authorities and with Sifto, there was no reason why the MAP resolution would not be considered a binding settlement agreement on the CRA, in particular with regard to the transfer price accepted. Further, the Court found that although the Canada-US tax treaty may not explicitly state that MAP agreements are binding on the parties, by disregarding an agreement reached with the U.S., the CRA would be in Breach of Canada's obligations under the treaty.

Taiwan

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Taiwan VAT on Cross Border Electronic Services to Apply from 1 May

Taiwan's Taxation Administration has announced that the new requirements regarding VAT on cross border electronic services enacted on 28 December 2016 (previous coverage) will enter into force and apply from 1 May 2017. From that date, foreign suppliers with no fixed place of business in Taiwan that sell electronic services to domestic individuals will need to register and account for VAT. Foreign supplies will also need to issue uniform invoices, although an exemption is provided from 1 May 2017 to 31 December 2018.

In a separate release, the Ministry of Finance announced that the registration threshold for cross border services will be TWD 480,000 (~USD 15,750) in annual sales. Registration is to be available via the eTax Portal.

Proposed Changes (4)

Hungary

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Hungarian Government Proposes Draft Legislation for CbC Reporting

The Hungarian government has reportedly proposed draft legislation to transpose into domestic law the amendments made to the EU Administrative Cooperation Directive by Council Directive (EU) 2016/881 concerning Country-by-Country (CbC) reporting. As an EU Member State, Hungary is required to implement the CbC reporting and exchange provision contained in the Directive by 4 June 2017, including that CbC reporting applies for fiscal years beginning on or after 1 January 2016 for Hungarian MNE groups meeting a EUR 750 million consolidated revenue threshold. Local non-parent filing requirements also apply, although individual Member States are allowed to defer such secondary reporting by one year.

Additional details of Hungary's CbC reporting requirements will be published once available.

Netherlands

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Proposed Dutch Penalty for Failing to Provide CbC Reporting Notification

On 21 March 2017, an amendment to the Dutch legislation to transpose Council Directive (EU) 2016/881 into domestic law was submitted to the lower house of parliament that would set the penalty for failing to comply with notification requirements. The Dutch CbC reporting requirements are already in place, but the legislation is needed to bring those requirements in line with the EU rules (previous coverage). The amendment to the legislation would set a penalty of up to EUR 20,250 for failing to provide the required notification of reporting entity, which is due by the end of the reporting fiscal year, with a first year extension to 1 September 2017.

United Kingdom

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Northern Ireland Looking to Take Advantage of Brexit with Reduced VAT Rate

The Northern Ireland Affairs Committee of the UK Parliament has issued a report making the case for the UK Government to implement regional variations in tourism VAT and introduce other tax changes to assist the sector. Currently, the tourism sector in Northern Ireland is seen as being at a disadvantage given its 20% VAT rate in comparison to Ireland's 9% reduced VAT rate for tourism. Providing a reduced VAT rate for tourism just in Northern Ireland is not permitted under EU law, but the Committee hopes that once the UK leaves the EU, a reduced rate may be considered.

United States

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U.S. Infrastructure Legislation Submitted in Congress including Measures for Profit Repatriation and Deadline for Broader Tax Reforms

On 22 March 2017, U.S. Representative John K. Delaney (D-MD) announced the filing of two infrastructure bills, the Partnership to Build America Act and the Infrastructure 2.0 Act.

The Partnership to Build America Act would create the American Infrastructure Fund (AIF) to provide financing to state and local governments for new infrastructure. The AIF would be funded by a bond sale where U.S. companies would be allowed to repatriate a certain amount of overseas earnings tax free for every dollar invested in the bonds.

The Infrastructure 2.0 Act provides for mandatory repatriation of overseas profits at a one-time 8.75% tax. The Act also sets an eighteen-month deadline for broader international tax reform. If reform is not enacted, a fallback international tax package would be implemented that would end deferral and provide that, for Active Market Foreign Income, a company would pay a 12.25% tax to the U.S. on overseas profits if they are currently paying no tax, and a 2% tax to the U.S. if they are already paying the OECD average of 25% abroad, with a sliding scale in-between.

Treaty Changes (4)

Indonesia

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Indonesia Updates Regulation on Exchange of Information

The Indonesian Ministry of Finance has issued Regulation No. 39/PMK.03/2017, which updates procedures for the exchange of information under international agreements Indonesia has entered into, including tax treaties, tax information exchange agreements, the Convention on Mutual Administrative Assistance in Tax Matters, and multilateral and bilateral competent authority agreements. The regulation sets out the procedures for exchanging information under agreements, including upon request, spontaneously, and automatically. The regulation also sets out the type of information that can be exchanged, including for the exchange of financial account information under the OECD Common Reporting Standard (CRS) and the exchange of Country-by-Country reports.

Qatar-Kazakhstan

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Qatar Ratifies Pending Tax Treaty with Kazakhstan

According to a release from the Qatar News Agency, the pending income tax treaty with Kazakhstan was ratified by decree on 21 March 2017. The treaty, signed 19 January 2014, is the first of its kind between the two countries (previous coverage). It will enter into force 30 days after the ratification instruments are exchanged, and will apply 1 January of the year following its entry into force.

Russia-Switzerland

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Russia and Switzerland Negotiating Agreement for Automatic Exchange of Financial Account Information

According to recent reports, Russia and Switzerland have begun negotiations for an agreement for the automatic exchange of financial account information under the OECD Common Reporting Standard (CRS). Any resulting agreement would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

Slovak Republic-Untd A Emirates

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Tax Treaty between the Slovak Republic and the U.A.E. to Enter into Force

The income tax treaty between the Slovak Republic and the United Arab Emirates will enter into force on 1 April 2017. The treaty, signed 21 December 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Slovak tax on income of individuals and tax on income of legal persons. It covers U.A.E. income tax and corporate tax.

Income from Hydrocarbons

Article 5 (Income from Hydrocarbons) provides that the treaty will not affect the right of either one of the Contracting States to apply their domestic laws and regulations related to the taxation of income and profits derived from hydrocarbons and its associated activities situated in the territory of the respective Contracting State.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other personnel in a Contracting State, provided that the activities continue 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 - 0%
  • 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 shares in a company or interest in a partnership, trust or estate, if deriving at least 50% of their value directly or indirectly from immovable property situated in the other State (exemption for shares listed on a recognized stock exchange); and
  • Gains from the 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.

Limitation on Benefits

Article 27 (Limitation on Benefits) includes the provision that the relief from taxation provided for by the treaty will only apply for specified persons, including an individual, a Contracting State, a person engaged in the active conduct of a trade or business, a company whose share are listed on a recognized stock exchange, etc. However, persons that are not specified may still be granted the benefits of the treaty if so determined by the competent authority of the State in which the income arises.

Effective Date

The treaty applies from 1 January 2018.

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