Worldwide Tax News
German Federal Council Approves Legislation for New Loss Carry Forward Rules for Changes in Ownership
The German Federal Council (upper house of parliament - Bundesrat) has reportedly approved legislation that would allow the carry forward of losses upon change of ownership in certain cases that would be disallowed under current rules. Currently, the losses of a company are generally forfeited where there is a change of ownership of 50% or more, and a reduction in available losses where there is a change of ownership between 25% and 50%. Under the new rules, the carry forward of losses would be allowed in full such cases, provided the restructured company had been operating exclusively with the same business purpose for the three years immediately prior to the change in ownership or since the date of its incorporation. However, the losses would still be forfeited if the business operations are subsequently discontinued or changed and in certain other cases.
The legislation will enter into force after it is published in the Official Gazette and applies retroactively for ownership transfers taking place after 31 December 2015.
Greece 2017 Tax Reform Legislation Published
On 22 December 2016, Law 4446/2016 was published in the Greek Official Gazette, which includes a number of tax reform measures for 2017. The main measures are summarized as follows.
A new voluntary disclosure program for undeclared income is introduced that will run through 31 May 2017. Under the program, both individual and corporate taxpayers may file an initial or amended return for undeclared amounts that should have been included in returns filed for tax years up to 2015.
Tax is imposed based on the rate applicable in the relevant year plus a penalty tax of 8% to 10% of the tax amount if declared by 31 March 2017, and 10% to 13% of the tax amount if declared by 31 May 2017 (the older the liability, the higher the penalty tax rate). The resulting amount assessed should be paid as a lump sum within 30 days of assessment, although the taxpayer may request payment in installments.
Changes are made in the tax assessment appeal procedure, including:
- Appeals will be heard by:
- The single member Administrative Court of First Instance in cases of assessments up to EUR 60,000;
- The three-member Administrative Court of First Instance in cases of assessments over EUR 60,000 up to EUR 150,000; and
- The Court of Appeals in cases of assessments over EUR 150,000; and
- The amount of tax in dispute that must be paid prior to the appeals process is reduced from 50% to 20%.
- The capital gains tax suspension on the transfer of real estate is extended to 31 December 2017;
- A requirement is introduced that all salaries be paid electronically, and if not paid electronically, the salary expense would be disallowed as a deduction;
- A rule is introduced where the capitalization or distribution of tax-free reserves will trigger a corporate income tax liability, regardless of any tax losses the taxpayer may have for the year;
- A new provision is introduced concerning the transfer of foreign permanent establishment (PE) losses under which losses from the business activities of a foreign PE can be set off in the same tax year and against future profits, provided the PE is located in an EU/EEA jurisdiction that has a tax treaty with Greece that allows the profits of a PE to be taxed in Greece (applies retroactively from 1 January 2014); and
- The annual revenue threshold for taxpayers to use cash accounting for value added tax is increased from EUR 500,000 to EUR 2 million; cash accounting is also allowed for taxpayers in their first year of operation.
The measures generally apply from 1 January 2017 unless otherwise indicated.
South Africa Publishes Final CbC Reporting Regulations
On 23 December 2016, the South African Revenue Service (SARS) published Notice No. R. 1598, which includes the final regulations specifying the Country-by-Country (CbC) reporting standard for multinational enterprises based on the guidelines developed as part of BEPS Action 13.
The applicable threshold for the CbC reporting requirements depends on whether the ultimate parent entity of the group is resident in South Africa or in another jurisdiction. If the ultimate parent entity of an MNE group is resident in South Africa, it must file a CbC report for the reporting fiscal year if the consolidated annual group revenue in the previous year meets or exceeds ZAR 10 billion.
If the ultimate parent of the group is not resident in South Africa, a constituent entity of the group resident in South Africa must file a CbC report for the reporting fiscal year if the consolidated annual group revenue in the previous year meets or exceeds EUR 750 million, and one of the following conditions are met:
- The ultimate parent is not required to file a CbC report in its jurisdiction of residence;
- The required agreements to exchange CbC reports between the parent's jurisdiction of residence and South Africa are not in effect by the deadline to file the report in South Africa; or
- There has been a systemic failure to exchange with the parent's jurisdiction and SARS has informed the constituent entity of such failure.
In the event the above conditions are met, and there is more than one constituent entity resident in South Africa, only one entity needs to file a CbC report; however, SARS must be notified by the filing deadline that the constituent entity is filing on behalf of all other constituent entities resident in South Africa.
The requirement for a constituent entity to file a CbC report as above will not apply, however, if a surrogate parent entity has filed a CbC in another jurisdiction by the deadline for the report in South Africa, and:
- The jurisdiction of residence of the Surrogate Parent Entity requires CbC filing;
- The jurisdiction has the agreements in effect for the exchange of CbC reports with South Africa by the deadline to file in South Africa;
- The jurisdiction has not notified South Africa of a systemic failure;
- The jurisdiction has been notified that the constituent entity in the jurisdiction is the surrogate parent entity; and
- Notification has been provided to SARS that the surrogate parent entity will be filing the report.
The filing deadline for the CbC reports in South Africa is within 12 months following the last day of the reporting fiscal year.
The same deadline applies for all constituent entities resident in South Africa to notify SARS on whether it is the ultimate parent entity of the group or acting as a surrogate parent entity, and if neither, the identity and tax residence of the reporting entity for the year.
The content of the CbC report required in South Africa is in line with the OECD guidelines, including:
- Aggregate information relating to the amount of revenue, profit (loss) before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets other than cash or cash equivalents with regard to each jurisdiction in which the MNE Group operates;
- Identification of each Constituent Entity of the MNE Group setting out the jurisdiction of tax residence of such Constituent Entity, and where different from such jurisdiction of tax residence, the jurisdiction under the laws of which such Constituent Entity is organized, and the nature of the main business activity or activities of such Constituent Entity.
The regulations apply for fiscal years beginning on or after 1 January 2016, i.e., the first CbC reports and related notifications will be due by 31 December 2017.
Cyprus Announcement on CbC Reporting and Initial Notification Deadline
On 22 December 2016, the Cyprus Ministry of Finance published an announcement concerning Country-by-Country (CbC) reporting and notification requirements, which as a Member of the EU, Cyprus must require for fiscal years beginning on or after 1 January 2016 (may provide one-year deferral for non-resident parented groups).
According to the announcement, the Ministry of Finance intends to issue a decree by the end of the year that will define the requirements of entities of MNE groups with consolidated group revenue of EUR 750 million and above in relation to the information to be provided to the Cyprus Tax Authorities under the CbC Report. The announcement also notes that one of the requirements will be for Cyprus resident entities to provide notification of the ultimate or surrogate parent entity by the end of reporting fiscal year, but the first notification will not be due until 20 October 2017.
Hong Kong Publishes CbC Reporting Guidance including for Voluntary Filing
On 23 December 2016, the Hong Kong Inland Revenue Department (IRD) published guidance on Country-by-Country (CbC) reporting. The guidance covers the general requirements for CbC reporting, which are currently under public consultation. Under the proposed requirements, ultimate parent entities resident in Hong Kong will be required to file a CbC report within 12 months followings its fiscal year-end if its MNE group meets a consolidated group revenue threshold of least EUR 750 million (or HKD 6.8 billion) in the preceding accounting period. In addition, secondary local filing requirements will apply in certain cases where the ultimate parent is not resident in Hong Kong.
One of the main areas further clarified in the guidance is in relation to a transitional arrangement for voluntary parent surrogate filing. Under the transitional arrangement, ultimate parent entities resident in Hong Kong are allowed to voluntarily file a CbC report in Hong Kong for accounting periods commencing between 1 January 2016 and 31 December 2017 (Hong Kong's mandatory CbC reporting requirements to apply from 1 January 2018). Such voluntary filing may relieve a group’s constituent entities in other jurisdictions from a local filing obligation provided that:
- The required legal framework will have been put in place in Hong Kong by 31 December 2017;
- Qualifying competent authority agreements will have come into effect between Hong Kong and the tax jurisdictions concerned by 31 December 2017;
- The IRD has been notified that the CbC reports will be filed by the deadline which is to be provided under the legal framework; and
- The competent authorities of the tax jurisdictions in which the constituent entities are resident, if required, have been notified that the CbC reports will be filed to the IRD by the deadline prescribed under the domestic legislation of the jurisdictions.
The procedures for voluntary filing in Hong Kong are to be finalized in the first quarter of 2017; but in the meantime, the ultimate parent entity of Hong Kong MNE Group seeking parent surrogate filing in Hong Kong should submit a notification, duly signed by its director, secretary, or responsible officer, to the IRD containing the following information:
- The name of the ultimate parent entity;
- The Hong Kong business registration number of the ultimate parent entity;
- The accounting period(s) for which the group’s CbC report(s) will be filed to the IRD;
- A list showing the name, tax identification number, and jurisdiction of tax residence (relevant jurisdiction) of each of the constituent entities to be included in the CbC report; and
- A consent given to the IRD to inform the relevant jurisdictions of the ultimate parent entity's agreement to perform parent surrogate filing in Hong Kong.
The notification should be submitted by post to:
Chief Assessor (Tax Treaty)
G.P.O. Box No. 10856
(Re: Country-by-Country reporting)
The notification in the form of electronic record may also be sent by email to firstname.lastname@example.org.
The guidance also notes that the transitional arrangement may not relieve the obligations of group entities in all jurisdictions, as local filing requirements may vary in different jurisdictions.
Singapore to Allow Voluntary CbC Report Filing for the 2016 Fiscal Year
According to a 20 December 2016 update to the Country-by-Country (CbC) reporting webpage on the Inland Revenue Authority of Singapore (IRAS) website, IRAS is planning to accept voluntary filing of CbC reports. Singapore's CbC reporting requirements will apply from 1 January 2017 (previous coverage), while several other jurisdictions already require CbC reports for fiscal years beginning on or after 1 January 2016. To address the transition issue, affected Singapore-headquartered MNEs may file a CbC Report for fiscal years beginning on or after 1 Jan 2016 to IRAS on a voluntary basis. This may enable such MNE groups to meet local filing obligations in other jurisdictions, provided certain conditions are met, including that a competent authority agreement for the exchange of CbC reports is in effect between Singapore and the relevant jurisdiction.
Details on how to submit a 2016 fiscal year CbC Report will be released by the IRAS by the end of March 2017.
UK Policy Paper on Changes to Northern Ireland Corporation Tax for SMEs
UK HMRC has published a policy paper concerning changes to the Northern Ireland Corporation Tax (NICT) for small and medium-sized enterprises. The NICT is to be introduced at a rate of 12.5% from April 2018.
Under current rules, large companies with a permanent place of business or dependant agent acting on their behalf in Northern Ireland will be required to allocate their UK trading profits accordingly for the application of the NICT, while SMEs will have all their UK trading profits subject to NICT if at least 75% of their employment costs and time arises in Northern Ireland. If the 75% threshold is not met, all UK trading profits will be subject to the standard UK rate. To provide greater flexibility for SMEs, provisions are introduced in Finance Bill 2017 to provide an option for SMEs not meeting the threshold to apply the large company allocation rules for NICT purposes.
Protocol to the Tax Treaty between Albania and Switzerland has Entered into Force
On 22 December 2016, the Swiss Federal Council announced the entry into force of the protocol to 1999 income and capital tax treaty with Albania on 1 December 2016. The protocol, signed 9 September 2015, is the first to amend the treaty. The main changes include:
- Amends Article 2 (Taxes Covered) in regard to Albanian taxes;
- Amends the definition of Switzerland and its competent authority in Article 3 (General Definitions) and the definition of resident in Article 4 (Resident);
- Adds a withholding tax exemption for interest paid to a pension scheme or government in Article 11 (Interest);
- Adds an arbitration clause to Article 25 (Mutual Agreement Procedure);
- Adds Article 26 (Exchange of Information) and renumbers the following Articles accordingly;
- Adds a new paragraph 4 to the protocol originally signed with the treaty that includes limitation on benefits provisions whereby the provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties), and 21 (Other Income) will not apply to an item of income paid under a transaction, a part of a transaction, or series of transactions, or derived by an entity, if the main purpose of its conclusion or its establishment was to obtain the benefits under those Articles; and
- Adds a new paragraph 7 to the protocol originally signed with the treaty that includes an MFN clause regarding the withholding tax rate on royalties that applies in the event that Albania signs an agreement with an EU/EEA Member State providing for a lower rate than provided in the Albania-Swiss treaty (5%).
The protocol applies from 1 January. For the purpose of the new arbitration clause in Article 25, the three-year period after which a pending case may be submitted to arbitration will begin for pending cases on the date the protocol entered into force.
TIEA between Argentina and the U.S. Signed
On 23 December 2016, officials from Argentina and the U.S. signed a tax information exchange agreement. The agreement is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.
Tax Treaty between Canada and Taiwan has Entered into Force
The income tax treaty (arrangement) between Canada and Taiwan entered into force on 19 December 2016. The arrangement is the first of its kind between the two jurisdictions.
The arrangement covers Canadian taxes imposed under the Income Tax Act, and Taiwan profit-seeking enterprise income tax, individual consolidated income tax, and income basic tax.
If a company is considered resident in both Contracting Parties, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement based on its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. If no agreement is reached, the company will not be entitled to claim any relief or exemption from tax provided by the arrangement.
The arrangement includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting Party furnishes services in the other Party through employees or other engaged personnel for a period or periods aggregating more than 183 days within any 12-month period.
- Dividends - 10% if the beneficial owner is a company that directly or indirectly holds at least 20% of the paying company's capital; otherwise 15%
- Interest - 10%
- Royalties - 10%
The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:
- Gains from the alienation of immovable property situated in the other Party;
- Gains from alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
- Gains from the alienation of shares in a company or of interests in a partnership, trust, or other entity deriving more than 50% of its value directly or indirectly from immovable property situated in the other Party.
Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.
Both parties apply the credit method for the elimination of double taxation.
The beneficial provisions of Articles 10 (Dividends), 11 (Interest), and 12 (Royalties) will not be available if one of the main purposes of any person concerned with:
- the creation, assignment, or transfer of the dividend, interest, or royalty; or
- the creation, assignment, acquisition, or transfer of the shares, debt-claim, or other rights in respect of which the income is paid; or
- the establishment, acquisition, or maintenance of the person that is the beneficial owner of the income
is to obtain the benefits of those Articles. The limitation is included in each of those Articles.
Article 26 (Miscellaneous Rules) includes the provision that the income tax arrangement will not apply to any company, trust, or other entity that is resident of a Contracting Party and beneficially owned or controlled, directly or indirectly, by one or more persons who are not residents of that Party, if the amount of the tax imposed on the income is substantially lower than the amount that would be imposed if all the shares or interests were beneficially owned by residents of that Party.
In addition, Article 26 (Miscellaneous Rules) includes the provision that if any income is taxed in a Contracting Party by reference to the amount remitted or received in that Party and not by reference to the full amount, then any relief from tax provide for by the arrangement in the other Party will be limited to the amount of income taxed by the first-mentioned Party.
The income tax arrangement applies from 1 January 2017.
Japan and Lithuania Conclude Tax Treaty Negotiations
On 22 December 2016, officials from Japan and Lithuania concluded negotiations with the initialing of an income tax treaty. The treaty is the first of its kind between the two countries and must be signed and ratified before entering into force.
Marshall Islands Signs Mutual Assistance Convention and Deposits Ratification Instrument
On 22 December 2016, the Marshal Islands signed the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. On the same date, the Marshal Islands deposited the ratification instrument for the conventions entry into force.
According to the OECD overview of signatories to the convention, the convention will enter into force for the Marshal Islands on 1 April 2017.