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Approved Changes (2)

Cyprus

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Cyprus Extends 2016 FATCA Reporting Deadline to July 15

Cyprus Tax Department has extended the reporting deadline for FATCA purposes from June 30, 2016 to July 15, 2016.

Ireland

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Ireland’s tax authority issues FAQs on country-by-country reporting

Irish Revenue on June 23 issued a set of frequently asked questions regarding new Irish tax legislation and regulations that require country-by-country reporting by multinational corporations.

The FAQ for the most part is based on the various OECD publications on CbC reports but there are a few deviations/additional guidance worth noting

  • A secondary reporting mechanism where the local Irish constituent entity files on behalf of the entire MNE group as a local filer (and not as the ultimate parent or surrogate parent) can be limited to reporting on just the Irish resident entities and their subsidiaries (in this regard these rules are similar to the UK CbC reporting). However, in this situation the Irish local reporting entity is not eligible to prepare and file EU CbC reports on behalf of the rest of the EU entities.
  • Details about the notification requirement which is due at the end of the MNE group fiscal year end and will have to be made electronically to Irish Revenue. The notification will inform Irish Revenue the specific entity in the MNE Group who will be filing the CbC report with the Irish Revenue
  • Rules around fiscal years that are less than 12 months and the procedure to be followed if an MNE Group is acquired during its fiscal year

Please click here to download a copy of the FAQ.

Proposed Changes (2)

Netherlands

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Corporate Income Tax Rate in the Netherlands could be significantly reduced for next year

Dutch State Secretary of Finance, Eric Wiebes, discussed the possibility of a lowering the  corporate income tax rate (currently 25 percent) in the tax plan for next year, during a tax conference last week. Next year’s corporate tax rate will be officially announced on Budget Day

According to the Secretary “We have to be able to continue to attract investors in the future and then you automatically end up on the rate”,

Wiebes stressed that 40 percent of the jobs in the Netherlands are attributable to multinationals established here partly for tax reasons. But he added that they also have other reasons for settling in the Netherlands, like “just because we have a pleasant country to live in”.

The Secretary would give no hints on what it will be. He did say that it will not drop down to Ireland standards, where companies only pay 12.5 percent.

United States

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House GOP Unveils Ambitious Tax Reform Plan

House Republicans on June 23 unveiled an ambitious tax reform plan proposing significant changes to U.S. individual, corporate, and international taxes.

The House plan would reduce the corporate tax rate from the current 35% to 20% and make several other significant changes. Net interest expenses would no longer be deductible. Capital costs could be deducted immediately instead of over several years.

There will be only be three individual income tax rates 12%, 25% and 33%, though the top rate on business income reported on individuals’ returns would be 25%. There would also be a 50% deduction for capital gains, while the estate and alternative minimum taxes would be completely repealed. Most individual tax deductions would be eliminated, including the state and local tax deduction and all other itemized deductions besides those for mortgage interest and charitable contributions.

On the international tax side, the United States would move to a territorial system and destination-based consumption tax.

“We think this is a game changer, because we’re going all-in for growth and all-in for simplicity,” said Ways and Means Committee Chairman Kevin Brady (R., Texas).

Click the following link for the A Better Way Tax Plan.

Treaty Changes (3)

Finland-Uzbekistan

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Protocol to Finland-Uzbekistan Tax Treaty to Enter Into Force

The amending protocol to the Finland-Uzbekistan tax treaty will enter into force July 3, according to a release by the Uzbek Embassy in Latvia. The protocol signed March 8 in Helsinki, will apply from January 1, 2017. However, the provisions of article 25 (exchange of information) will apply from July 3. The protocol also stipulates that its provisions will apply to information that predates its entry into force.

This is the first amendment to the treaty which was signed April 9, 1998. It replaces the treaty article on exchange of information and adds a new article providing for assistance in tax collections.

Russia-Singapore

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Russia Ratifies Protocol to Tax Treaty With Singapore

Russian President Vladimir Putin on June 23 signed a law ratifying the pending protocol to the Russia-Singapore income tax treaty.

The protocol was signed in Moscow on November 17, 2015. It is the first amendment to the 2002 treaty. It replaces the dividend article of the treaty, reducing the withholding tax rate from 5 percent to 0 percent if the beneficial owner is the government of the other contracting state. The new article also eliminates the requirement for a minimum investment of $100,000 in the payer company by the beneficial owner of the dividends and applies a maximum withholding rate of 10 percent to distributions paid by real estate investment funds. The protocol also replaces the treaty article on interest, reducing the withholding rate from 7.5 percent to 0 percent, and amends the article on royalties, reducing the tax rate from 7.5 percent to 5 percent.

Further, the protocol amends treaty articles 2 (taxes covered), 3 (general definitions), 5 (permanent establishment), 14 (independent personal services), 18 (pensions), and 24 (nondiscrimination), as well as provisions of the protocol signed with the 2002 treaty. It also replaces articles 22 (limitation on benefits) and 26 (exchange of information).

The protocol will enter into force after the exchange of ratification instruments and its provisions will apply in Russia from January 1 of the year following entry into force. In Singapore, the withholding tax provisions will apply from January 1 of the year following entry into force, while other tax provisions will apply from January 1 of the second year after that date.

United States-Luxembourg

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US, Luxembourg agree to tax treaty changes to prevent double nontaxation

The US Treasury Department announced that the US and Luxembourg, during negotiations for a new protocol to their 2000 tax treaty, have agreed to provisions to address tax avoidance through triangular and exempt permanent establishments consistent with the US model tax treaty issued by the US Treasury Department in February 2016.

The Luxembourg government also introduced Bill Number 7006 into Parliament to implement the change in Luxembourg.

Assuming the law is passed and the protocol enters into force, the changes will take effect for amounts paid or credited three days after publication of the law in the Official Gazette of Luxembourg.

The Law accommodates the retroactive denial of Treaty benefits in respect of income attributable to a permanent establishment (PE) that is not subject to taxation due to differing domestic law interpretations of the notion of permanent establishment.

Given the legislative schedule of the Luxembourg Parliament, it appears unlikely that the Law will be adopted prior to September.

Of concern are instances where US source income is paid to Luxembourg residents that, for purposes of Luxembourg tax law, treat the income as attributable to a permanent establishment in the United States, and therefore as exempt from tax in Luxembourg, while at the same time, treat the income as exempt from tax in the United States, Treasury said.

Pursuant to the Law, where an enterprise of one State derives income from the other State which would generally qualify for Treaty benefits, such benefits will be denied, including reduced withholding tax rates, if (i) the residence State treats such income as attributable to a PE situated outside the residence State and (ii) the profits that are treated as attributable to such a PE are subject to a combined aggregate effective rate of tax in the residence State and the state where the PE is situated that is less than the lesser of (a) 15% or (b) 60% of the general statutory rate of company tax applicable in the residence State.

According to the explanatory memorandum to the Law, the specific aim is to end what is viewed as abusive situations whereby US source income derived by a Luxembourg company which is attributable to a PE situated in the US is untaxed both in Luxembourg and the US due to differing domestic law interpretations of the notion of a PE.  

In addition, even in situations where the abovementioned 15% or 60% thresholds are met, Treaty benefits will be denied if the PE is situated in a third country which has not concluded a comprehensive treaty for the avoidance of double taxation with the source State from which Treaty benefits are claimed, unless the residence State includes the income as attributable to the PE in its tax base.

Finally, the Law provides that where a resident of one of the Treaty States is denied Treaty benefits due to the above, the competent authority of the other Treaty State may still grant the Treaty benefits with respect to a specific item of income if it deems such justified in light of the reasons why the requirements were not satisfied (e.g., in case of the existence of losses).

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