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Approved Changes (6)

European Union

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EU Economic and Financial Affairs Council Adopts Directive for Exchange of CbC Reports and Commission Conclusions on VAT; Holds off on Anti Tax Avoidance Directive

On 25 May 2016, the EU Economic and Financial Affairs Council (ECOFIN) held a meeting to discuss the European Commission's package of measures targeted at corporate tax avoidance in the EU (previous coverage) and the Commission's Action Plan on VAT (previous coverage). The Council is comprised of the finance ministers from each EU Member State.

Corporate Tax Avoidance Package

Regarding the corporate tax avoidance package, the Council adopted the directive for the exchange of Country-by-Country (CbC) reports in the EU. The directive amends the administrative cooperation Directive (Directive 2011/16/EU) so that EU Member States are required to exchange CbC reports for fiscal years beginning on or after 1 January 2016, without the need for any additional tax information exchange agreement or competent authority agreement between the exchanging Member States. This is not related to the directive for public CbC reporting (previous coverage).

For this purpose, all EU Member States are required to adopt CbC reporting requirements into their domestic law that are in line with Action 13 of the OECD BEPS Project and apply for fiscal years beginning on or after 1 January 2016, including the consolidated group revenue threshold of EUR 750 million. The reporting requirements must apply for all MNE groups with operations in the respective Member State, including both EU and non-EU parented groups. However, each EU Member State has the option to provide a one-year deferral for non-EU parented groups (i.e., reporting obligation would apply for fiscal years beginning on or after 1 January 2017). Of the EU Member States that have already adopted CbC reporting requirements, only Denmark has provided for such a deferral.

In addition to the CbC exchange directive, the Council also adopted the Commission's conclusions on problematic tax jurisdictions outside the EU. This includes the establishment of an EU list of non-cooperative jurisdictions and other related actions to ensure effective taxation.

One important component of the corporate tax avoidance package that was not adopted, however, is the anti tax avoidance directive. This directive includes a number of measures resulting from the BEPS Project, including interest deduction limitation rules, CFC rules, hybrid mismatch rules, and others. The council decided to postpone the adoption of the directive to its upcoming meeting to be held 17 June 2016.

Action Plan on VAT

Regarding the Action Plan on VAT, the Council adopted the conclusions of the Commission. The Council also adopted a directive maintaining the minimum standard VAT rate at 15% until the end of 2017, pending discussions on definitive VAT rules.

Click the following link for additional information on the meeting.

France-Ireland

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Google's French Offices Raided as Part of Fraud Probe

On 24 May 2016, French specialist anti-corruption officers and tech experts raided the offices of Google France as part of an investigation into possible aggravated tax fraud and organized money laundering. The investigation concerns whether Google's activities in France constitute a permanent establishment for Google Ireland, which is the company through which Google funnels most of its European revenue. The French tax authorities have claimed that a permanent establishment does exist and is seeking EUR 1.6 Billion in back taxes and penalties (previous coverage).

Greece

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Greece Passes Legislation Amending Effective Date of Increased Dividends Tax, Increasing the VAT Rate, and Making Several other Changes

On 22 May 2016, the Greek parliament adopted legislation that includes a number of changes concerning income tax and value added tax. The changes are generally required as part of Greece's bailout agreement. Main changes include:

  • The recently adopted increase in the dividends withholding tax rate from 10% to 15% will apply from 1 January 2017 instead of 1 January 2016;
  • The increase of the VAT rate from 23% to 24% is formally effective 1 June 2016;
  • The reduced VAT rates for the second group of islands is abolished effective 1 June 2016 (the reduced rates were abolished for the first group effective 1 October 2015);
  • The unified property tax is amended, including an increase in the computing factors for the main and supplementary tax and the repeal of the supplementary tax exemption for property used for business activities effective from 1 January 2016;
  • An accommodations tax is introduced effective 1 January 2018;
  • A number of amendments are made regarding the increase or introduction of various excise duties and taxes, including cable tax, telephone subscriber tax, and others; and
  • A number of amendments are made regarding the taxation of portfolio investment companies, real estate companies and funds, and undertakings for collective investment in transferable securities.

Additional details of the various changes will be published once available.

Hong Kong

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Hong Kong 2016-2017 Budget Legislation Passed

The Hong Kong Legislative Council passed the Inland Revenue (Amendment) (No. 2) Bill 2016 in its third reading on 19 May 2016. The legislation includes measures proposed in the 2016-2017 Budget (previous coverage). The measures affecting corporate taxpayers are relatively limited, and include the extension/expansion of certain incentives and support programs, and a 75% reduction in final profits tax for the 2015-16 tax year, which is capped at a maximum tax reduction of HKD 20,000.

India

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Indian Tribunal Holds Book Profits Not Subject to Transfer Pricing Adjustments for Minimum Alternate Tax Purposes

The Mumbai Income Tax Appellate Tribunal recently issued a decision on whether book profits may be increased by a transfer pricing adjustment for Minimum Alternate Tax (MAT) purposes. The case involved an Indian subsidiary of Owen Corning U.S., which in the 2007-08 tax year was involved in related party transactions for which it chose the transactional net margin method to determine the arm's length price. For the year concerned, the subsidiary filed its return and was subject to MAT on its book profit. When auditing the return, the assessing officer challenged the comparables used and made a transfer pricing adjustment. Based on the adjustment, the assessing officer increased the subsidiaries book profit and levied additional MAT. The subsidiary appealed.

In its decision, the Tribunal sided with the subsidiary. The tribunal found that the comparables used were appropriate and that no adjustment was needed, and also found that book profits for the purpose of MAT may not be increased by a transfer pricing adjustment. The tribunal reasoned that section 115JB of the Income Tax Act, which contains the MAT provisions, is a self-contained tax code and that only adjustments to book profits specified within section 115JB may be made for MAT purposes. Since transfer pricing adjustments are not specified in 115JB, such adjustments may not be used to increase a taxpayers MAT liability.

Isle Of Man

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Isle of Man Increases VAT Registration Threshold

On 17 May 2016, the Isle of Man parliament approved the Value Added Tax (Increase of Registration Limits) Order 2016, which increases the value added tax (VAT) registration and deregistration thresholds. With effect from 1 April 2016, the VAT registration threshold is increased from taxable supplies of GBP 82,000 in the previous 12-month period to GBP 83,000, and the deregistration threshold is increased from GBP 80,000 to GBP 81,000.

Treaty Changes (3)

Cambodia-Singapore

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Tax Treaty between Cambodia and Singapore Signed

On 20 May 2016, officials from Cambodia and Singapore signed an income tax treaty. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Cambodian tax on profit, including withholding tax, additional profit tax on dividend distributions and capital gains tax, and tax on salary. It covers Singapore income tax.

Permanent Establishment

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting State for a period or periods aggregating more than 183 days within any 12-month period.

The treaty also includes the provision that a permanent establishment will be deemed constituted when an enterprise carries on activities (including the operation of substantial equipment) in the other Contracting State for the exploration or for exploitation of natural resources for a period or periods aggregating more than 90 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 10%
  • Fees for technical services (managerial, technical or consultancy) - 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 movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from 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.

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. It will apply in Cambodia from 1 January of the year following its entry into force. It will apply in Singapore in respect of withholding taxes from 1 January of the year following its entry into force and for other taxes from 1 January of the second year following its entry into force.

In respect of Article 26 (Exchange of Information), it will apply in both countries from the date of its entry into force for requests made concerning tax periods beginning on or after 1 January of the year following its entry into force.

Panama-Australia

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Panama Negotiating TIEA with Australia

Panama's Minister of Economy and Finance Dulcidio de la Guardia announced on 20 May 2016 that negotiations are underway for a tax information exchange agreement with Australia. Any resulting agreement will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Seychelles-Slovenia

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Seychelles Negotiating Tax Treaty with Slovenia

The Seychelles Ministry of Foreign Affairs and Transport announced on 18 May 2016 that negotiations are underway for an income tax treaty with Slovenia. 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.

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