Worldwide Tax News
Chile's New CFC Rules in Effect
Chiles' new controlled foreign company (CFC) rules are effective from 1 January 2016. The new rules are included under Article 41 G of the Chilean Income Tax Law, which was introduced with Chile's 2014 tax reform.
Under Article 41 G, all taxpayers domiciled, resident, or incorporated in Chile that have direct or indirect control over foreign entities must treat the passive income accrued or received by the controlled entities as accrued or received in Chile.
A foreign entity, including a company, fund, trust, estate, or any other entity, is deemed to be controlled by a Chilean resident taxpayer when:
- The taxpayer directly or indirectly holds more than 50% of the capital shares, rights to profits or voting rights of the foreign entity, or holds an option for the purchase or acquisition of shares or rights that would meet the 50% threshold;
- The taxpayer has the authority, directly or through related parties, to appoint the board members/directors of the foreign entity directly or unilaterally amend the bylaws of the foreign entity; or
- The taxpayer has a participation in a foreign entity that is resident in a tax haven or preferential regime (a jurisdiction is considered a tax haven or preferential regime if at least two of the following conditions are met: 1. its effective tax rate is less than 17.5%; 2. it has not entered into a tax information exchange agreement with Chile; 3. it does not have transfer pricing rules; 4. it is identified as a preferential tax regime by the OECD; or 5. it only taxes local source income)
Passive income of a CFC includes:
- Dividends and profit distributions, unless received from a controlled active income entity not resident in Chile;
- Interest, unless from a regulated bank or financial institution not incorporated in a tax haven or preferential regime;
- Income from intangible property, including royalties or other forms of remuneration;
- Income from the lease of immovable property, unless it is the foreign entities main line of business;
- Capital gains; and
- Any income from related parties resident in Chile where the income is a deductible expense for the payer, and the income is not Chilean source or is Chilean source and the effective rate of tax in Chile is less than 35%.
If the conditions for control are met, the passive income of the foreign entity is deemed accrued or received in Chile in proportion to the taxpayer's direct or indirect interest in the controlled foreign entity at the close of the relevant fiscal year concerned. The income is determined in the currency of the CFC's jurisdiction and converted to Chilean pesos using the exchange rate at the end of the fiscal year. If the passive income of the foreign entity exceeds 80% of its total income, the CFC's total income will be considered passive for the purpose of the CFC rules. Expenses incurred to generate the passive income are deductible and foreign taxes paid on the income are creditable.
If the passive income represents less than 10% of the foreign entity's total income or the total passive income does not exceed 2,400 UF (~USD 85,000) the CFC rules do not apply.
Legislation to Reinstate Brazilian Bank Transactions Tax Expected
On 15 January 2015, Brazil published the Budget for 2016 in the Official Gazette as Law 13,255/2016. Although no tax changes are included in the Budget, it does take into account expected revenue from the bank transactions tax (CPMF), which was proposed to be reinstated as part of proposed measures to increase revenue in September 2015 (previous coverage). In that proposal, the tax would be levied at a rate of 0.2% on any debit on bank accounts for four years. Legislation for CPMF is expected to be introduced in the near future.
Poland's Proposed GAAR
Poland is again considering a new general anti-avoidance rule (GAAR). A previous GAAR was ruled unconstitutional in 2004, and a draft GAAR had been developed in 2014, but was not implemented.
The proposed GAAR will apply if a taxpayer uses artificial legal actions with the primary purpose of obtaining tax benefits not in line with the object and purpose of the law. The GAAR will apply specifically to tax planning involving:
- The use of hybrid instruments;
- The use of offshore and other trusts for tax avoidance;
- The use of entities in tax havens, especially if such entities hold IP rights;
- The use of foreign foundations;
- The use of artificial holding companies; and
- The use of debt securities aimed at generating high tax-deductible costs and taxable income subject to an income tax exemption under a tax treaty.
The list is not exhaustive and other arrangements may be deemed artificial and subject to the GAAR as well.
The Ministry of Finance will be the only authority to apply the GAAR. In addition, a GAAR Committee will be established to provide its opinion to the Ministry of Finance on GAAR cases. The opinion of the GAAR Committee may be requested for any GAAR case, but is mandatory for appeals.
A tax benefit threshold of PLN 100,000 is included, under which the GAAR would not be applied. If GAAR is applied, the taxpayer could propose a more suitable action in place of its actual actions. Although not covered specifically in the proposal, it is expected that artificial arrangement entered into prior to the implementation of the GAAR may be subject to the rules, but only in regard to tax consequences following the GAAR's implementation.
Taxpayers will be able to obtain a formal opinion from the Ministry of Finance on the applicability of the GAAR on both future and past actions. Individual tax rulings issued for specific actions will not provide protection from the application of the GAAR.
If adopted by parliament and signed into law by the president, the proposed GAAR will apply within 14 days of being published in the Official Gazette. This could be as early as March 2016.
TIEA between Argentina and Ireland has Entered into Force
The tax information exchange agreement between Argentina and Ireland entered into force on 21 January 2016. The agreement, signed 29 October 2014, is the first of its kind between the two countries and is line with the OECD standard for information exchange. It applies for criminal tax matters from the date of its entry into force, and for other matters for tax periods beginning on or after 1 January 2017.
Protocol to the Tax Treaty between France and Luxembourg to Enter into Force
The 2014 protocol to the 1958 income and capital tax treaty between France and Luxembourg will enter into force on 1 February 2016. The protocol, signed 5 September 2014, is the fourth to amend the treaty.
The protocol adds a fourth paragraph to Article 3 of the treaty that includes the provision that gains from the alienation of shares or other rights in a company, trust or any other institution or entity will be taxable in a Contracting State if:
- 50% or more the entity's asset or property value consists of immovable property situated in that State; or
- The entity derives more than 50% of its value directly or indirectly from immovable property situated in that State.
For the purposes of this provision, immovable property pertaining to the business activities of such company is not taken into account.
The provision does not apply for mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different EU Member States under the EU Merger Directive 2009/133/EC and to the transfer of a registered office of a European Company (SE) or European Cooperative Society (SCE) from one EU Member State to another.
The protocol applies from 1 January 2017.
Tax Treaty between Guinea and Morocco has Entered into Force
The income tax treaty between Guinea and Morocco entered into force on 15 January 2016. The treaty, signed 3 March 2014, is the first of its kind between the two countries.
The treaty covers the income and corporation taxes of both countries.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months within any 12-month period.
- Dividends - 5% if the beneficial owner is a company directly holding at least 30% of the paying company's capital; otherwise 10%
- Interest - 10%
- Royalties - 10%
Article 10 (Dividends) also includes that the withholding tax on repatriated profits of a permanent establishment is limited to 5% after deducting the corporation tax payable.
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 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 whose assets consist principally directly or indirectly of immovable property situated 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.
Both countries apply the credit method for the elimination of double taxation. A provision is also included for a tax sparing credit for tax that would otherwise be payable but has been reduced or exempted for a specified period in a Contracting State under that State's domestic laws relating to tax incentives.
The treaty applies from 1 January 2017.
Tax Treaty between Serbia and South Korea Signed
On 22 January 2016, officials from Serbia and South Korea signed an income tax treaty. The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.
Additional details will be published once available.