Worldwide Tax News
European Commission Invites Comments on State Aid Investigations into Tax Exemptions for Belgian and French Ports
On 19 August 2016, the European Commission issued announcements inviting comments on the illegal State aid investigations into the corporate tax exemptions granted under Belgian and French law to ports' economic activities. The Commission opened the investigations on 8 July 2016 due to inaction by both Belgium and France to comply with an initial request in January 2016 that the exemptions be abolished.
Comments are due within one month of the date the announcements were published, and will be communicated with the respective countries.
Hong Kong Clarifies Tax Consequences Following Amalgamation
On 18 August 2016, the Hong Kong Inland Revenue Department published an advance ruling dated 27 June 2016 concerning the tax consequences following an amalgamation of companies incorporated in Hong Kong. The ruling involves two companies belonging to the same group:
- Company A, the group's regional holding company; and
- Company B, a services company wholly owned by Company A
The group is planning to vertically amalgamate Company B into Company A in 2016.
According the ruling:
- Once amalgamated, Company A will succeed to all assets, property or liabilities of Company B, and any provision or accruals of Company B will be carried over to and vested with Company A without any changes in the related tax base and treatments;
- No profits or loss will arise or be deemed to arise in Company A and Company B as a result of the amalgamation; and
- The unutilized losses of Company B will be available for set off against Company A’s assessable profits for the year of assessment 2016/17 and the subsequent years of assessment, provided that such assessable profits are derived from the same trade or business carried on by Company B.
Click the following link for the full text of the ruling, which applies for the year of assessment 2016/17 and all subsequent years of assessment.
Portugal Publishes Law-Decree on Amendments to Patent Box Regime for Modified Nexus Approach
On 22 August 2016, Portugal published Law-Decree no. 47/2016, which introduces changes to the Tax Code concerning the country's patent box regime (50% reduction of qualifying taxable IP income). The amendments bring the regime in line with the modified nexus approach developed as part of BEPS Action 5, which requires that the benefits received under a regime be aligned with the actual activities performed by the taxpayer claiming the benefits.
The nexus ratio formula for determining the benefit of the regime as provided in the Law-Decree is DQ / DT x RT x 50%, where:
- DQ = Eligible costs incurred on development activities for the IP assets performed in-house and through unrelated third parties;
- DT = Total costs incurred on development activities, including costs incurred with related parties; and
- RT = Income derived from the IP assets
In addition, a 30% uplift is allowed for the eligible costs amount, limited by the total costs amount.
The amendment regime applies for income from qualifying IP assets registered on or after 1 July 2016. For qualifying assets registered on or after 1 January 2014 that met the requirements for the previous patent box regime as of 30 June 2016, the benefits and rules of the previous regime will continue to apply up to 30 June 2021.
Click the following link for Law-Decree no. 47/2016 (Portuguese language).
Turkey Tax Debt Restructuring and Amnesty Law Published
On 19 August 2016, Turkey's new law for tax debt restructuring and amnesty (Law No. 6736) was approved by the Turkish president and published in the Official Gazette. The main provisions of the law include:
- Taxpayers are allowed to restructure and settle their outstanding tax debts and other public receivables as of 30 June 2016, with a reduction in the amount due and the option to pay a lump-sum or in installments (up to 18 over 36 months) - available for tax assessments, customs duties, administrative fines, late payment interest and penalties, etc.;
- Taxpayers are allowed to disclose and repatriate offshore assets without any additional tax liabilities or restriction on the use of the assets in Turkey, provided the assets are disclosed by 31 December 2016;
- Taxpayers are allowed to close their accounts against potential tax audits by voluntarily increasing their corporate tax, value added tax and/or withholding tax bases previously declared for 2011 to 2015, with the additional tax resulting from the increase payable in a lump-sum or installments; and
- Taxpayers are allowed to correct their accounts, including
- Accounts related to cash balance and receivables that are not present in the enterprise but shown in their balance sheets as of 31 December 2015, with an additional tax of 3% due on the declared amounts; and
- Accounts related to inventory and fixed assets that are physically present in the enterprise but not in the accounting records, or vice versa, provided the related value added tax (VAT), corporate tax, or other tax due is paid based on standard tax rules.
In order to benefit from the provisions of the law, taxpayers must generally complete the application process with the tax authorities by 31 October 2016.
U.S. IRS Publishes Practice Units on Disposition of a U.S. Real Property Interest and the Foreign Earned Income Exclusion and Foreign Housing Deduction for Individuals
The U.S. IRS recently published three international practice units, including:
- Taxation on the Disposition of a U.S. real property interest (USRPI) by Foreign Persons (23 Aug 2016), which covers the treatment of gains or losses, the applicable withholding tax, and possible reduction of withholding tax;
- Calculating Foreign Earned Income Exclusion (FEIE) – Partner in a Partnership with Foreign Earned Income (19 Aug 2016), which covers the eligibility of an individual partner living/working overseas to claim the FEIE (up to USD 100,800 for 2015) on income earned through a partnership; and
- Foreign Housing Deduction (IRC 911) (19 Aug 2016), which covers the eligibility of individuals living/working overseas to deduct and/or exclude some or all of the amounts paid for their foreign housing.
International practice units are developed by the Large Business and International Division of the IRS to provide staff with explanations of general international tax concepts as well as information about specific transaction types. They are not an official pronouncement of law, and cannot be used, cited or relied upon as such.
Click the following link for the International Practice Units page on the IRS website.
France Planning to Introduce New Tax Rate for Medium-Sized Businesses
French Prime Minister Manuel Valls announced during a 24 August 2016 interview that the government is planning to introduce a reduced corporate tax rate of 28% for medium-sized businesses. Currently, France imposes a standard corporate tax rate of 33.33% and a reduced rate of 15% on the first EUR 38,120 of profits for smaller business with turnover not exceeding EUR 7.63 million.
The planned 28% rate is to be included in the 2017 Finance Bill, which will be submitted to parliament in the fall. Additional details will be published once available.
Iceland Proposed Legislation for the Liberalization of Capital Controls
According to a release published by Iceland's Ministry of Finance and Economic affairs, legislation was submitted to parliament on 17 August 2016 to expand the ability of individuals and companies to transfer funds to and from Iceland and to carry out foreign exchange transactions. As provided in the release, the following provisions of the legislation will have immediate effect upon passage of the legislation:
- Outward foreign direct investment will be unrestricted, but subject to confirmation by the Central Bank of Iceland;
- Investment in financial instruments issued in foreign currency, other monetary claims in foreign currency, and prepayment and full payment of foreign-denominated loans will be permissible up to a given amount, subject to certain conditions;
- Individuals will be authorized to purchase one piece of real estate abroad per calendar year, irrespective of the purchase price and the reason for the purchase;
- Requirements that residents repatriate foreign currency will be eased and lifted entirely in connection with loans taken abroad by individuals for real estate or motor vehicle purchases abroad, or for investment abroad;
- Various special restrictions will be eased or lifted entirely, including individuals' authorization to purchase foreign currency for travel; and
- The Central Bank of Iceland's authorization to gather information will be expanded so that the Bank can promote price stability and financial stability more effectively.
From 1 January 2017, the following provisions will take effect:
- The ceiling on investment in financial instruments issued in foreign currency, other monetary claims in foreign currency, and prepayment and full payment of foreign-denominated loans will be raised;
- Transfers of deposit balances will be permissible for amounts below a certain ceiling and the requirement for domestic custody of foreign securities investments will be revoked to enable residents and non-residents to transfer deposits and securities to and from Iceland and to trade in securities abroad within the limits specified in the bill; and
- Individuals' authorization to purchase foreign currency in cash will be expanded significantly.
The legislation is part of the Iceland's capital account liberalization strategy, and has been prepared in accordance with recommendations from the International Monetary Fund.
Cameroon and the Czech Republic Continue Tax Treaty Negotiations
Officials from Cameroon and the Czech Republic are scheduled to meet 29 August 2016 to begin the third round of negotiations for an income tax treaty, which has been under negotiation since 2014. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.
Mutual Assistance Convention Signed by Burkina Faso, Malaysia, Saint Kitts and Nevis, Saint Vincent and the Grenadines, and Samoa
The OECD has announced that on 25 August 2016, Burkina Faso, Malaysia, Saint Kitts and Nevis, Saint Vincent and the Grenadines, and Samoa signed the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. Saint Kitts and Nevis also deposited the ratification instrument for the Convention on the same date, and it will enter into force in the country on 1 December 2016.
Click the following link for the signatories to the Mutual Assistance Convention to date.