Worldwide Tax News
The Bermuda parliament reportedly adopted legislation in the last week of February 2017 that amends the International Cooperation (Tax Information Exchange Agreements) Act 2005 (TIEA Act) in relation to Bermuda's commitments to exchange of Country-by-Country (CbC) reports under the Multilateral Competent Authority Agreement (MCAA) on the exchange of CbC reports. Bermuda signed the CbC MCAA in April 2016, and as a signatory, committed to the introduction of CbC reporting requirements for fiscal years beginning on or after 1 January 2016.
The key amendment to the TIEA Act is the insertion of Section 4B, which provides that:
- An ultimate parent entity of an MNE group that is resident in Bermuda must provide a CbC report containing information of the description specified in regulations relating to CbC reporting:
- in such manner and form as may be prescribed;
- in respect of such period or periods as may be prescribed;
- at such interval or intervals and by such date or dates as may be prescribed;
- A constituent entity of an MNE group that is resident in Bermuda, may, in such circumstances as may be prescribed, provide a CbC report that complies with the provisions for ultimate parent entities.
For the purpose of CbC reporting, Section 4B refers to The OECD Model Legislation relating to Country-by-Country Reporting, "with such exceptions or modifications as are appropriate".
Although full CbC reporting guidance has not been issued, the requirements will be in line with those included in Annex 1 to Bermuda's declaration to the CbC MCAA Coordinating Body Secretariat. Annex 1 includes the standard CbC reporting requirements, including:
- A reporting threshold of EUR 750 million consolidated annual revenue in the previous year (or equivalent amount in local currency);
- Ultimate parent and non-parent (secondary) filing obligations (see below);
- The requirement that a Bermuda resident entity provide notification by the end of the reporting fiscal year on whether it is the ultimate parent or surrogate parent (see below);
- A due date of 12 months after the fiscal year; and
- For CbC compliance related penalties, the applicable penalties are those provided under the TIEA Act, which include a fine up to BBD 10,000 and/or imprisonment up to six months.
With respect to secondary filing obligations, Annex 1 notes that Bermuda does not intend to require local non-parent constituent entities to submit CbC reports. With respect to ultimate/surrogate parent notifications, Bermuda's OECD CRS and FATCA webpage notes that the deadline is extended to 1 September 2017 for fiscal years ending up to that date. Bermuda does not intend to require other local entities to provide notification.
On 20 March 2017, South Korean Ministry of Strategy and Finance published a notice to clarify Country-by-Country (CbC) reporting and notification obligations and deadlines. The notice states that a CbC reporting obligation exists in Korea:
- For Korean parented MNE groups if consolidated annual revenue in the previous year exceeded KRW 1 trillion; and
- For non-Korean parented groups (with Korean subs) if:
- The ultimate parent is required to submit a CbC report in its jurisdiction of residence for the year; or
- The ultimate parent is not required to submit a CbC report, but the group's consolidated annual revenue in the previous year exceeded EUR 750 million.
For Korean parented groups, a CbC report must be submitted in Korea if the condition for the obligation is met. For non-Korean parented groups, a CbC report must be submitted in Korea if either conditions for the obligation is met and a CbC report is not exchanged with Korea from the ultimate parent's jurisdiction or a surrogate parent's jurisdiction, as the case may be. If local filing is required and there are multiple constituent entities residents in Korea, one may be appointed to submit the CbC report.
With respect to notifications, all Korean entities of an MNE group meeting any of the above conditions for the CbC reporting obligation must submit a notification to the Korean tax authority on which group entity will be fulfilling the CbC reporting obligation.
For the fiscal year ending December 2016, the notice specifies that the notification is due by 30 June 2017 (standard 6 months after), and that the CbC report is due by 2 January 2018 (standard 12 months after, but falls on weekend/holiday).
Click the following link for the notice (Korean language), which applies 21 March 2017.
On 23 March 2017, the Belgian Council of Ministers approved two draft bills related to information exchange. The first bill includes measures to comply with the international requirements established by the World Forum on the exchange of information at the request of a partner State in relation to tax evasion. The second bill provides for the implementation of the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information. Both bills will be submitted to parliament for final approval.
On 24 March 2017, Japan's Ministry of Finance announced that the first round of negotiations with Russia would be held 27 March 2017 to amend the 1986 tax treaty between Japan and the former Soviet Union, which Japan and Russia generally continue to apply with respect to one another. According to the announcement, the result of the negotiations will not affect the application of the current treaty between Japan and other countries besides Russia.
On 23 March 2017, officials from Kazakhstan and Uzbekistan signed a protocol to amend the 1996 income and capital tax treaty between the two countries. The protocol reportedly amends Articles 9 (Associated Enterprises), 10 (Dividends), 11 (Interest), 12 (Royalties), 14 (Independent Personal Services), 26 (Exchange of Information), and 27 (Assistance in the Collection of Taxes). The protocol is the first to amend the treaty and will enter into force after the ratification instruments are exchanged. Additional details will be published once available.
The income tax treaty between Morocco and South Sudan was signed on 1 February 2017. The treaty is the first of its kind between the two countries.
The treaty covers Moroccan income tax and corporation tax, and covers South Sudanese personal income tax and business profit tax.
- Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 10%
- Interest - 10%
- Royalties - 10%
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 of the capital stock of a company, the property of which consists directly or indirectly principally 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 given period in a Contracting State in accordance with the domestic legislation of that State for tax incentives.
The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.
The Russian Ministry of Finance recently published letter No. 03-08-05/10953 concerning the taxation of gains from the alienation of shares in a Russian company by a German resident. The letter notes that under the Russian Tax Code, a non-resident will be subject to tax on its Russian source income if it has a permanent establishment in Russia. If it does not have a permanent establishment in Russia, a non-resident will be subject to tax on certain types of specified income, including gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in Russia. However, given the provisions of Article 13 (Capital Gains) of the 1996 German-Russian tax treaty, gains from the alienation of shares are taxable only in the State in which the alienator is resident, even if exceeding the 50% immovable property value threshold.
The income and capital tax treaty between Saudi Arabia and Turkmenistan will reportedly enter into force on 1 April 2017. The treaty, signed 1 May 2016, is the first of its kind between the two countries and generally applies from 1 January 2018. The treaty provides for the following withholding tax rates:
- Dividends - 10%
- Interest - 10%
- Royalties - 10%
Additional details will be published once available.