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Approved Changes (3)


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Brazil Lower Level Federal Court Finds CFC Legislation Unconstitutional

On 16 May 2016, the Lower Level Federal Judicial Court of Curitiba issued a decision holding that the provisions of Art. 76 of Law 12.973/2014, which contain the Brazilian CFC rules, are unconstitutional. Under the rules, Brazilian companies must add a pro rata share of the profits of their foreign CFCs to their taxable income as on 31 December of the relevant fiscal year, regardless of any actual distribution of profits from the CFC.

The plaintiff in the case submitted that the application of CFC rules to affiliates in Argentina and Chile is contrary to the provisions of the double tax treaties signed by Brazil with both countries. Since the provisions of international conventions override domestic laws, the CFC rules would be unconstitutional. The Revenue Service, on the other hand, submitted that the rules were examined by the Supreme Court in earlier cases and the latter did not conclude that they would be unconstitutional. Moreover, the rules lead to the current taxation of a Brazilian resident, and not the taxation of the foreign CFC, so that they cannot be held to be incompatible with tax treaties.

The Court, nevertheless, held that the CFC rules as they stand are incompatible with the tax treaties with Argentina and Chile and, therefore, unconstitutional. According to the Court, the earlier position of the Supreme Court was a simple abstention from addressing the constitutionality issue and may not be interpreted as being for or against unconstitutionality.

It is unclear whether, in determining incompatibility with the tax treaties with Argentina and Chile, the Court relied on the provisions of Art. 7(1) of the respective treaties, or on some other provision. The decision is appealable.


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French Trust Register to be Open to Public

The Trust register will become accessible to the public at large as from 30 June 2016, following the publication of the public access conditions in a Decree of 11 May 2016.

The Trust Register lists all trusts with a connection to France. The connection can be the residence of the settlor, trustee or beneficiary in France, or the location of any trust property in France. The information contained in the Register is supplied by trustees who, pursuant to a law of 2013, are required to file various items of information with the Tax Administration, including notifications on the creation, modification or liquidation of the trust, the trust by-laws, and the value of trust assets per 1 January of every year.

Access to the Register will be online and open to all. For every Login, the username of the person gaining access, the IP address and the exact login date will be kept for one year. Persons accessing the Register can access the following information:

  • Name and address of the trust;
  • Date of creation and, if applicable, liquidation;
  • Identity of settlor, trustee and beneficiaries.


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Spain Makes Electronic Filing Mandatory for Large Taxpayers

By virtue of an Order published in the Official Gazette of 2 June 2016, taxpayers listed in the Large Enterprises Registry are henceforth required to file their tax returns, refund claims and other notifications to the tax administration electronically. Subject to few exceptions, the rules would apply from 1 January 2017.

Proposed Changes (2)

European Union

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EU Commission Reiterates Plans to Relaunch CCCTB

The EU Commissioner for Economic and Financial Affairs, Taxation and Customs reiterated the resolve of the European Commission to revive the long-stalled plans for a Common Consolidated Corporate Tax Base (CCCTB) within the European Union. According to the Commissioner, CCCTB would largely resolve the issue of profit shifting and harmful tax competition, and ensure a level-playing field for all enterprises active in the EU.

The Commission will have a two-pronged approach to CCCTB. Firstly, it will put forward a proposal in the fall of 2016 regarding the determination of a Common Corporate Tax Base (CCTB) for businesses across the EU. The CCTB will act as a uniform rule for the determination of taxable income of companies across the EU and, in contrast to proposals made in 2011, will be mandatory at least for larger multinationals. The establishment of uniform rules for determining taxable income is intended to do away with national rules resulting in the minimization of taxable income and, thus, in harmful tax competition. Moreover, the uniform rules would introduce across the EU a number of the best practices recommended under the OECD BEPS initiative, including the updated PE rules and an improved CFC regime.

Once the CCTB is approved, the Commission will then submit proposals for a Common Consolidated Corporate Tax Base (CCCTB). Under the CCCTB, profits and losses of businesses active in the EU, as determined in accordance with the uniform CCTB rules, would be consolidated and allocated to the various Member States pursuant to a number of allocation keys such as sales, assets or personnel. In addition to eliminating most of the opportunities for profit shifting through TP arrangements, the CCCTB would effectively allow the compensation of losses suffered in one Member State against profits earned in other Member States.


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French Voting Stock Eligibility Condition for Participation Exemption to be Reviewed by Constitutional Court

The French Supreme Administrative Court (Conseil d’Etat) decided to submit to the Constitutional Council a pre judicial question on the constitutionality of one of the conditions required for the application of the French participation exemption regime. The Constitutional Council is empowered to verify the conformity of laws with the Constitution.

One of the conditions of eligibility for the French participation exemption regime pursuant to an amendment introduced at the end of 2005, is that the parent holds at least 5% of the voting rights of the distributing company. Indeed, distributions received on non-voting stock are not eligible for the regime unless the parent holds a minimum of 5% of the capital and voting rights of the issuer. This condition amended an earlier and more stringent eligibility condition introduced in 1992, by virtue of which all distributions on non-voting stock are excluded from the regime.

The 1992 eligibility condition was struck down by the Constitutional Council on the grounds of non-conformity with the Constitution. However, the Council did not examine the constitutionality of the 2005 amendments to the regime. The Supreme Court is now of the opinion that there are serious presumptions of non-conformity of the 2005 amendments with the principles of equality before the law and fairness in the contribution to public finances, as embodied in Arts. 6 and 13 of the Declaration on Human Rights and Citizenship, which is referenced in the preamble to the French Constitution. As a result, the Court has requested the Constitutional Council to review the eligibility condition and determine whether or not it is in conformity with the Constitution.

Treaty Changes (3)


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French Supreme Court Defines "Place of Management"

In a recently notified decision of 7 March 2016, The French Supreme Administrative Court (Conseil d’Etat) determined that the place of (effective) management of an enterprise is the place where the senior executives of the enterprise take the strategic decisions affecting the affairs of the enterprise, and not necessarily the place where board meetings are held. The case dealt with by the Court concerned the interpretation of the words “place of management” as it appears in Art. 4 of the France-Belgium tax treaty. The case concerned a Belgian company with a permanent establishment (PE) in France and also a holding activity which according to the company was conducted in Belgium, but according to the French Tax Administration was actually managed from France. The Court indicated that the place where board meetings are held is an indicator of the existence of a place of management, but that this indicator is not sufficient, in and by itself, to determine the place of management notably when contradicted by other indicators. In reaching its decision, the Court relied heavily on the following circumstances:

  • All services necessary for the holding activity were located in France;
  • The board of directors decided to sell the building hosting the offices of the company in Belgium, without acquiring a replacement; and
  • Whilst 3 board meetings were held in Belgium, all decisions were prepared and effectively pre-agreed in preparatory meetings held in France.  


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Indian Cabinet Approves Signature of Protocol to India-Belgium Treaty

The Indian cabinet approved in a meeting of 22 June 2016 the signature of a protocol amending the 1993 tax treaty between India and Belgium. According to preliminary information, the protocol amends the exchange of information article to conform it with the OECD standard. It would also amend the article on assistance in collection.


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Protocol to India-Slovenia Tax Treaty Signed

A protocol to the 2003 tax treaty between India and Slovenia was signed by representatives of both countries on 17 May 2016 in Ljubljana. According to preliminary information, the protocol essentially amends the exchange of information article to bring it in conformity with the OECD standard on exchange of tax information.


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