Worldwide Tax News
Argentina Introduces and Temporarily Suspends Resolution on Payment of Capital Gains Tax Withholding on Transfers between Non-Residents
On 18 July 2017, Argentina published General Resolution 4094-E, which introduces the mechanism for the remittance of withholding tax on capital gains resulting from the transfer of shares, bonds, and other securities between non-residents. This was followed by the publication of General Resolution 4095-E on 20 July, which temporarily suspended the application of General Resolution 4094-E for 180 days in order to provide time to evaluate issues already expressed by various market participants in relation to compliance difficulties.
The withholding tax on capital gains (15% on a 90% presumed net gain or on the actual net gain) was introduced on 23 September 2013 by Law No. 26,893. In general, the Argentine party to a transaction is responsible for withholding if it is the buyer or intermediary. For transactions between two non-residents, the buyer is responsible, but until now no mechanism was provided for the remittance of the withholding tax for transfers between two non-residents.
General Resolution 4094-E clarifies that:
- For transactions carried out through a stock exchange or other authorized market, the settlement and compensation agent involved must act as the withholding agent; and
- For transactions not carried out through a stock exchange or other authorized market, the buyer must act as the withholding agent.
Where the buyer is a non-resident, the amount of tax withheld may be determined based on the deemed or actual gain method. If based on the actual gain, documentation must be maintained to reliably demonstrate the actual gain. In either case, tax properly withheld by a non-resident buyer must be remitted to the Argentine treasury in U.S. dollars by then end of the fifth business day following the transaction, with the USD amount determined using the exchange rate at the close of the business day prior to the transaction. Remittance is to be made via an international bank transfer, with the transfer order required to contain certain information as specified in the Resolution.
General Resolution 4094-E initially applied from the date it was published (18 July 2017), including for any transactions that took place on or after the effective date of Law No. 26,893 (23 September 2013). However, for transactions prior to 18 July, the requirements of the General Resolution will be considered met if complied with by the last business day of the second month following its publication (29 September 2017). Given the 180 day suspension, it is expected that these days will just be pushed out accordingly, although timing and other changes may be made.
Cyprus Issues Guidance on Transfer Pricing for Intra-group Financing
On 21 July 2017, the Cyprus Ministry of Finance announced the issuance of Circular 3 of 30 June 2017, which provides new guidance/requirements on transfer pricing for intra-group financing arrangements, and in particular, intra-group back-to-back financing arrangements. The Circular follows an instruction to the Institute of Certified Public Accountants of Cyprus (ICPAC) in March 2017 that from 1 July 2017, minimum profit margins will no longer be accepted and all intra-group financing arrangements will require a transfer pricing study in accordance with OECD guidelines. According to the announcement, the Circular:
- Applies to any company carrying out group financing transactions that is a Cyprus tax resident, as well as non-residents with a permanent establishment in Cyprus;
- Defines Intra-group financing transaction as any activity consisting of financing through loans or cash advances remunerated by interest (or should be remunerated by interest) to related companies, or other financial means and instruments, such as debentures, private loans, cash advances and bank loans; and
- Sets out the application of the arm’s length principle to intra-group financing transactions and the minimum requirements for a transfer pricing analysis.
The Circular also provides that for companies performing functions similar to those performed by regulated financing and treasury companies, a return on equity of 10% after-tax can be currently observed in the market and can be taken as reference in calculating the arm's length remuneration for the financing and treasury functions. It also provides that where a group financing company pursues a purely intermediary function, the transactions are deemed to comply with the arm’s length principle if the entity receives in relation to its controlled transactions under analysis, a minimum return of 2% after-tax on assets. Any deviation from the minimum return must be justified by an appropriate transfer pricing analysis.
The circular applies from 1 July 2017 for all intra-group financing arrangements regardless of when an arrangement was entered into, and any relevant tax rulings issued prior to 1 July 2017 are no longer valid from that date. Further, any transfer pricing studies for arrangements entered into prior to 1 July 2017 will need to comply with the new requirements and are subject to verification by the Commissioner of Taxation.
Click the following links for Circular 3 of 30 June 2017 (Greek language) and the Ministry of Finance announcement (English language).
Moroccan Council of Ministers Approves Draft APA Procedures
According to recent reports, the Moroccan Council of Ministers has approved the draft Decree setting out the procedures for Moroccan taxpayers to enter into advance pricing agreements with the tax authorities for transactions with non-resident related parties. The Decree sets out the general conditions for entering into an APA and the required information to be included in an APA application (previous coverage). Applications should be submitted at least six months before the beginning of the year to be covered, and if approved, may apply for up to four years.
Although approved, the Decree must still be published in the Official Gazette for the procedures to be considered finalized and effective.
Russia to Remove the British Virgin Islands and South Korea from List of Jurisdictions without Adequate Information Exchange for CFC Profit Exemption Purposes
The Russian Federal Tax Service is currently consulting on an amended list of jurisdictions that do not have adequate tax information exchange with Russia, which affects the Russian tax exemption for controlled foreign company profits. Under Russian law, an exemption from tax is provided for the profits of CFCs meeting certain conditions, unless the CFC is resident in a listed jurisdiction. The amended list includes 126 jurisdictions that have either not entered into an agreement for information exchange with Russia, or have not responded adequately to information exchange requests. The changes include the removal of the British Virgin Islands and South Korea from the list.
Click the following link for the consultation page (Russian language). The draft Order is to be finalized by October 2017, and will generally apply from 1 January 2018.
Tax Treaty between Ethiopia and Mauritius under Negotiation
On 4 July 2017, officials from Ethiopia and Mauritius met to discuss bilateral cooperation, including the negotiation of an income tax treaty. Any resulting treaty will be the first of its kind between the two countries and must be finalized, signed, and ratified before entering into force.
Finland and Japan Hold First Round of SSA Negotiations
Japan's Ministry of Foreign Affairs has announced that the first round of negotiations for a social security agreement with Finland was held on 17 July 2017. The agreement will be the first of their kind between the two countries, and must be finalized, signed and ratified before entering into force.
SSA between Greece and Serbia Signed
According to an announcement from the Serbian Government, officials from Greece and Serbia signed a social security agreement on 13 July 2017. The agreement is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.
Negotiations to Continue for Tax Treaty between Liberia and Turkey
According to recent reports, officials from Liberia and Turkey met 11 July 2017 to discuss the continuation of negotiations for an income tax treaty, which was originally agreed to in May 2014. Any resulting treaty will be the first of its kind between the two countries and must be finalized, signed, and ratified before entering into force.
U.S. Signs CbC Exchange Arrangements with Belgium, Brazil, Isle of Man, Jamaica, and Malta
According to an update to the IRS Country-by-Country Reporting Jurisdiction Status Table, the U.S. signed competent authority arrangements on the exchange of Country-by-Country (CbC) Reports with Belgium, Brazil, the Isle of Man, Jamaica, and Malta on 20 July 2017. The arrangements were not yet published at the time of writing, but will likely be published on the IRS competent authority arrangements web page in the near future and are expected to be effective for fiscal years starting on or after the effective dates of the CbC regulations in the respective jurisdictions (generally 1 January 2016, although Isle of Man's regulations apply from 2017 and Jamaica's regulations are not yet finalized).
U.S. Publishes CbC Exchange Arrangements with Ireland, Latvia, and the Slovak Republic
The U.S. IRS has published the competent authority arrangements on the exchange of Country-by-Country (CbC) reports with Ireland, Latvia, and the Slovak Republic. The arrangement with Ireland was signed 15 June 2017 and the arrangements with Latvia and the Slovak Republic were signed 21 June 2017.
Each arrangement provides that pursuant to the provisions of the Exchange of Information and Administrative Assistance Articles of the respective tax treaties between the U.S. and the three jurisdictions, 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.