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Approved Changes (3)

European Union-United Kingdom

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EU Council Authorizes Start of Brexit Negotiations

The Council of the EU has announced that the Council, meeting in an EU27 format, has adopted a decision authorizing the opening of Brexit negotiations with the UK and formally nominating the Commission as EU negotiator. The Council also adopted the negotiating directives for the talks, which provide for a phased approach (previous coverage). The Commission will now need to agree with the UK on the dates for the first negotiating sessions, with the first formal meeting between the EU and the UK negotiators likely to take place in June.

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OECD Publishes Discussion Draft on Hard-to-Value Intangibles

On 23 May 2017, the OECD announced the release of a discussion draft on implementation guidance for hard-to-value intangibles (HTVI) based on the approach developed as part of BEPS Action 8. The discussion draft presents the principles that should underlie the implementation of the HTVI approach and provides a number of examples to clarify the implementation of the HTVI approach in different scenarios. The discussion draft also includes a section explaining the interaction between the HTVI approach and access to the mutual agreement procedure under applicable tax treaties.

Comments on the draft, which should focus on the implementation guidance and not the approach to pricing HTVI, are due by 30 June 2017.

Spain

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Spain Publishes Draft Order on Form 232 for Disclosure of Tax Haven Transactions

The Spanish Ministry of Treasury and Public Administration has published the draft order on Form 232 for the purpose of reporting transactions with related parties in tax havens. Traditionally, this information has been reported in Form 200 with the tax return, but for tax periods beginning on or after 1 January 2016, Form 232 is to be used instead, including certain new reporting conditions. No legislative changes are required for the change, and the order will enter into force after it is published in the Official Gazette.

Transactions to be reported in Form 232 include:

  • Transactions carried out with the same related person or entity if the aggregate amount of transactions exceeded EUR 250,000 (market value) in the period;
  • Transactions carried out with the same related person or entity if the transactions are of the same type, use the same valuation method, and the amount exceeded EUR 100,000 (market value) in the period; and
  • Transactions carried out with the same related person or entity if the transactions are excluded from simplified documentation and the aggregate amount exceeded EUR 100,000 (regardless of valuation method) in the period (new reporting condition).

Simplified documentation refers to the documentation requirements for taxpayers whose annual turnover is below EUR 45 million. Excluded transactions for which simplified documentation cannot be applied include intangible asset transactions, real estate transactions, and certain others.

Regardless of meeting any of the above thresholds, any transactions with the same person or entity that are of the same type and use the same valuation method must be reported if the amount exceeded 50% of the taxpayer's turnover for the period (new reporting condition).

The due date for submitting Form 232 is 1 May to 31 May following the tax year, but for the first year (tax year 2016) it will be due 1 November to 31 November. In general, it must be submitted electronically.

Click the following links for the draft order and Form 232 (both in Spanish language).

Proposed Changes (2)

European Union

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EU Council Agrees on Draft Directive on Dispute Resolution with Certain Compromises

The Council of the EU has announced that agreement has been reached on a new system for resolving double taxation disputes within the EU during a 23 May 2017 meeting of the Economic and Financial Affairs Council (ECOFIN). The new system will be introduced through a draft Council Directive that sets out a harmonized and transparent framework for solving disputes with set procedures and timeframes. This is meant to cover all taxpayers in the EU that are subject to taxes on income and capital covered by relevant bilateral tax treaties and the Union Arbitration Convention (90/436/EEC), and in particular, cases where the mechanisms of the relevant treaty or the Convention are not effective in reaching timely resolution for a dispute.

The draft Council Directive requires dispute resolution mechanisms to be mandatory and binding with clear time limits, including that a taxpayer may initiate a mutual agreement procedure, under which Member States must reach an agreement within two years. If the procedure fails, an arbitration procedure is launched to resolve the dispute within specified timelines. For this purpose, an advisory panel (commission) would be established with independent arbitrators and representatives of each Member State involved. The advisory panel issues an opinion for eliminating the double taxation in the disputed case, which is binding on the Member States involved unless they agree on an alternative solution.

During the meeting, the Council agreed on certain compromises, including:

  • Agreement on a broad scope of disputes that can be covered with the possibility, on a case-by-case basis, of excluding disputes that do not involve double taxation;
  • Agreement that independent arbitrators must not be employees of tax advice companies or have given tax advice on a professional basis, and unless agreed otherwise, the panel chair must be a judge; and
  • Agreement that Member States may agree to setting up a permanent structure (standing committee) to deal with dispute resolution cases.

The Council will adopt the draft Directive once the European Parliament has given its opinion. Once adopted and published in the Official Journal, Member States will have until 30 June 2019 to transpose the Directive into domestic laws and regulations. The Directive will apply from 1 July 2019 for disputes in relation to tax years beginning on or after 1 January 2018.

Netherlands

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Dutch Consultations on Proposals to Extend Dividend Withholding Obligations to Cooperatives and VAT Deduction Adjustment Rules for Costly Services

The Dutch government has launched public consultations on proposals to extend dividend withholding obligations to cooperatives and related changes, and to extend value added tax (VAT) deduction adjustment rules to certain services.

Dividends Withholding for Cooperatives

This proposal concerns issues involving the use of cooperatives as holding companies in international structures. Under current rules, public and private limited liability companies are liable to withholding tax, while cooperatives, even when acting as holding companies, are not. To resolve the differing treatment, the proposal would expand the dividend withholding tax obligation to qualifying interests in holding cooperatives (at least 5%), if in the previous year, at least 70% of the actual activities of the cooperative consisted of the holding of participations or the direct or indirect financing of related entities. In addition, other related changes include:

  • Extending the withholding exemption that applies for EU/EEA countries to also apply for third countries that have concluded a tax treaty with the Netherlands that includes dividend provisions, subject to anti-abuse provisions; and
  • Amending anti-abuse provisions under current law to bring them in line with EU law and treaty anti-abuse provisions.

The changes are intended to take effect 1 January 2018. Click the following link for the consultation page (Dutch language). Comments are due by 13 June 2017.

VAT Deduction Rules for Services

This proposal would bring certain services within the scope of the VAT deduction adjustment rules that apply for capital goods. Under current rules, an adjustment scheme applies where the input VAT is initially deducted based on the use of the good (in taxable/exempt activities) and if the use of the good changes in future years, a proportionate correction is made for the input VAT claimed, which depending on circumstances could be a positive (refund) or negative (supplement payment) for the taxpayer. For immovable property the adjustment period is ten years and for movable property it is five.

As proposed, similar rules would apply for so-called "costly services" (kostbare diensten) that are capitalized on the balance sheet over several years, i.e., have the same characteristics of capital goods. For such services related to immovable property the adjustment period would be ten years and for other services the adjustment period would be five. As with capital goods, if there is a change in activities for which the services are used, it could be a positive or a negative for the taxpayer.

The changes are intended to take effect 1 January 2018. Click the following link for the consultation page (Dutch language). Comments are due by 15 June 2017.

Treaty Changes (6)

Argentina-Turkmenistan

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TIEA between Argentina and Turkmenistan Signed

On 27 April 2017, officials from Argentina and Turkmenistan signed a tax information exchange agreement. The agreement is the first of its kind between the two countries and will enter into force once the ratification instruments are exchanged.

Bulgaria

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Bulgaria Approves Signing of BEPS Multilateral Instrument

The Bulgarian Government has announced that it has approved the signing of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which is scheduled to take place in Paris on 7 June 2017. The BEPS MLI is for the purpose of implementing the treaty-related measures developed as part of the BEPS Project without needing to separately amend each bilateral treaty. This includes measures developed as part of BEPS Action 2 (Hybrid Mismatches), Action 6 (Preventing Treaty Abuse), Action 7 (Preventing Artificial Avoidance of a PE), and Action 14 (Improving Dispute Resolution).

Cyprus-San Marino

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Update - Protocol to Tax Treaty between Cyprus and San Marino Signed

According to a release from the Cyprus Ministry of Finance, an amending protocol to the 2007 tax treaty with San Marino was signed on 19 May 2017, and not a new treaty as previously reported. Details of the amendments will be published once available.

Japan-Luxembourg

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SSA between Japan and Luxembourg to Enter into Force

The social security agreement between Japan and Luxembourg will enter into force on 1 August 2017. The agreement, signed 10 October 2014, is the first of its kind between the two countries and will generally apply from the date of its entry into force.

Norway-United States

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CbC Exchange Agreement between Norway and U.S. Signed

On 22 May 2017, the U.S. IRS published the bilateral competent authority agreement signed with Norway on the exchange of Country-by-Country (CbC) reports. The agreement is effective from the latter date of signature, which is reportedly 11 May 2017 (version published by IRS does not indicate signed date).

The agreement provides that pursuant to the provisions of Article 28 (Exchange of Information) of the 1971 income and property tax treaty between the two countries, as amended, each competent authority will automatically exchange CbC reports received from each reporting entity resident for tax purposes in its jurisdiction, provided that, on the basis of the information provided in the CbC report, one or more constituent entities of the MNE group of the reporting entity are resident for tax purposes in the jurisdiction of the other competent authority, or are subject to tax with respect to the business carried out through a permanent establishment situated in the other jurisdiction.

With respect to fiscal years beginning on or after 1 January 2016, CbC reports are to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC report relates. With respect to fiscal years beginning on or after 1 January 2017, reports are to be exchanged no later than 15 months after the last day of the fiscal year.

Saint Kitts and Nevi-Untd A Emirates

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Update - Tax Treaty between Saint Kitts and Nevis and the United Arab Emirates

The income and capital tax treaty between Saint Kitts and Nevis and the United Arab Emirates was signed on 24 November 2016. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Saint Kitts and Nevis general income tax on individuals and on bodies corporate and proprietorships. It covers U.A.E. income tax and corporation tax.

Income from Hydrocarbons

Article 3 (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 engaged personnel in a Contracting State if the activities continue for a period or periods aggregating more than 9 months.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • Royalties - 0%

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 (but the tax charged will be reduced by 50%);
  • 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 in a company deriving more than 50% of their value directly or indirectly from immovable property situated in the other State (exemption for shares listed on a recognized stock exchange).

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.

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 in which it was signed (1 January 2016).

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