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Approved Changes (5)

Italy

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Italy Publishes Legislative Decree to Implement EU Directive on Exchange of Tax Rulings

On 23 March 2017, Italy published Legislative Decree No. 32 of 15 March 2017 in the Official Gazette. The Decree transposes into domestic law the amendments made by Council Directive (EU) 2015/2376 to the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) concerning the automatic exchange of cross border tax rulings and advance pricing agreements (APAs) (previous coverage). With the implementation the exchange rules, Italy will exchange information on tax rulings in relation to cross-border transactions, including those related to Italy's patent box regime, cooperative compliance program, and new investments. Italy will also exchange information on bilateral and multilateral APAs, provided that a particular APA allows for disclosure to third parties.

Click the following link for the Decree (Italian language), which entered into force the day it was published and is effective from 1 January 2017.

Monaco

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Monaco Updates VAT Registration Thresholds

Monaco has issued Ministerial Decree No. 2017-157 of 13 March 2017, which updates the principality's VAT registration thresholds:

  • For goods, the annual threshold is EUR 82,200;
  • For services, the annual threshold is EUR 33,100; and
  • For specified activities of lawyers and solicitors and intellectual property transactions, the annual threshold is EUR 42,900.

The thresholds are effective from 1 January 2017.

Netherlands

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Netherlands Revises Decree on Foreign Functional Currency

On 21 March 2017, the Netherlands published Decree No. 2017-1187 in the Official Gazette. The Decree is a revised version of Decree No. BLKB2011/392M of 11 May 2011 on the use of a foreign functional currency. The revised version clarifies the continued application of the Decree's rules for the prevention of double taxation with respect to foreign permanent establishments in relation to the object exemption for foreign permanent establishments introduced in 2012 (after the previous decree was issued).

Click the following link for the Decree (Dutch language), which is in force from 22 March.

New Zealand

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New Zealand Parliament Approves Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill

The New Zealand parliament approved the Taxation (Annual Rates for 2016-2017, Closely Held Companies, and Remedial Matters) Bill in its third reading on 23 March 2017. The Bill provides for a number of amendments, with some of the main changes summarized as follows.

Closely Held Companies

The Bill includes a number of changes to the look-through company (LTC) rules and the dividend rules as they apply to closely held companies. The changes are intended to simplify the rules to reduce compliance costs, while ensuring that the rules remain robust and in line with intended policy. Changes include:

  • Amendments to LTC eligibility rules regarding trusts and foreign income limits;
  • Amendments to the LTC entry tax calculation to address issues of over-taxation or under-taxation;
  • Removal of the deduction limitation rule, except for LTCs in a partnership or joint venture;
  • Retrospective amendments to the debt remission rules to ensures that remission income does not arise to a person who is a LTC owner or partner and who remits a debt owed by the LTC or the partnership;
  • Introduction of a 50% control continuity test, under which qualifying companies lose their QC status;
  • Amendments to the tainted capital gain rule, so that a capital profit on the disposal of an asset is tainted only if the shareholders of the disposing company retain an interest in the asset of at least 85%;
  • Amendments to allow companies to opt out of deducting resident withholding tax (RWT) from fully imputed dividends paid to corporate shareholders, and to treat cash and non-cash dividends paid contemporaneously as a single dividend for RWT calculation purposes; and
  • Amendments allowing taxpayers to make an irrevocable election to have pay-as-you-earn (PAYE) deducted on regular shareholder-employee salary, with no tax withheld on any variable amount that is paid out.

NRWT: Related party and branch lending

The Bill includes changes to the non-resident withholding tax (NRWT) and approved issuer levy (AIL) rules as they apply to interest paid on debt provided by non-residents to ensure consistent application to transactions that are economically similar and easily substitutable. Main changes include:

  • Requiring that NRWT be paid in the cases of back-to-back loans involving associated parties, or when interest is paid to a non-resident that is not associated, but is part of a group acting together that would be considered associated if it were a single entity;
  • Limiting the exemption that currently applies for interest paid to a non-resident by a foreign branch of a New Zealand company (offshore exemption), so that NRWT or AIL is imposed on interest paid if the money is lent to New Zealand residents; and
  • Limiting the exemption that currently applies if the non-resident lender operates a business in New Zealand through a branch (onshore exemption), so that the exemption only applies if the money lent is used by the non-resident for the purposes of a business carried on through the New Zealand branch.

GST Deductions for Capital Raising and Alternative Input Tax Apportionment

The Bill includes changes to the Goods and Services Tax (GST) Act to allow businesses to recover GST incurred on goods and services purchased to raise capital. Under prior rules, input tax deductions are generally unavailable, because supplies of financial services to final consumers are exempt, and therefore do not give rise to deductions.

The Bill also includes changes to allow businesses with a turnover likely to exceed NZD 24 million in a 12-month period to enter into an agreement with the Commissioner to use alternative methods for applying the apportionment rules to determine input tax deductions when making mixed supplies (taxable and exempt). An industry association could also agree on a method with the Commissioner, which could then be applied to that industry or to a group of businesses.

Related Parties Debt Remission

The Bill includes changes to the treatment of debt remission, bad debts, and debt guarantees involving related parties, including that:

  • The remission of a company’s debt to an associated creditor will increase the available subscribed capital of the company, and also increase the cost of the creditor’s investment in the debtor;
  • A bad debt deduction will be denied when the creditor and debtor are part of the same economic group in order to address double deduction issues; and
  • A debt guarantee payment to a third-party creditor under a guarantee of an associated person’s borrowing will be treated as purchasing the debt, with the rules relating to sales of debts to associates applying.

Loss Grouping and Imputation

The Bill includes changes to allow a loss company, or another company in a commonly owned group, to transfer imputation credits to a profit company in conjunction with a loss grouping transaction. The imputation credit transfer allows the profit company to pay a fully imputed dividend despite engaging in loss grouping.

Anti-Avoidance Rules Application for Tax Treaties

The Bill includes an amendment to the Income Tax Act to clarify that the empowering provision for New Zealand’s tax treaties does not prevent the anti-avoidance rules contained in income tax legislation from applying to a tax advantage arising under a treaty.

Entry into Force

The Bill will be enacted once it receives Royal assent and will generally come into force on that date, although certain clauses will enter into force on dates as specified in the commencement section of the Bill.

Slovak Republic

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Slovak Republic CbC Notification Instructions

The Slovak Republic has updated its automatic information exchange page to include guidance on the submission of notifications for Country-by-Country reporting purposes. Under the Slovak implementation of CbC reporting requirement, notification of the reporting entity is due by the tax return deadline of the notifying entity (31 March if calendar year). If the return deadline is extended, the notification deadline is extended accordingly. The notification is made using the electronic Notification Form DAC4/CbCR, which is submitted via the online electronic service (PFS) on the website of the Slovak Financial Directorate (requires registration).

Click the following links for the notification guidance, the notification form, and the Financial Directorate website, which are all in Slovak language. English versions for selected e-services are under development, but uncertain if will include CbC-related e-services.

Proposed Changes (3)

Bulgaria

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Bulgaria Consulting on Draft Legislation for Automatic Exchange of Tax Rulings and CbC Reports

The Bulgarian Ministry of Finance has launched a public consultation on the draft legislation to transpose into domestic law the amendments made to the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) concerning the exchange of cross border tax rulings and advance pricing agreements (Council Directive (EU) 2015/2376) and Country-by-Country (CbC) reports (Council Directive (EU) 2016/881).

With regard to CbC reporting, the main points of the draft legislation for consultation are largely unchanged from the draft released in September 2016 (previous coverage 9.28.2016), including the uniquely low reporting threshold for Bulgarian parented groups of BGN 100 million (~EUR 51 million) group revenue in the previous year and a threshold for foreign parented groups of BGN 1,466,872,500 (~EUR 750 million). Otherwise, the legislation is in line with the EU requirements, including the standard 12 month CbC reporting deadline and the requirement for Bulgarian entities to provide notification of the reporting entity to the tax authorities by the end of the reporting fiscal year (extended to 30 September 2017 for first year). As allowed under the EU requirements, CbC reporting will apply for Bulgarian parented groups for fiscal years beginning on or after 1 January 2016, and for foreign parented groups from 1 January 2017.

Click the following link for the consultation page (Bulgarian language). The consultation ends 20 April 2017.

European Union-United States

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EU Parliament Members Push for Improved Transparency During Recent U.S. Visit

A delegation of the European Parliament’s Inquiry Committee into money laundering, tax evasion and tax avoidance met with U.S. officials during a fact-finding mission from 21 to 24 March. According to a Parliament release on the visit, the main discussions held during the visit concerned ultimate beneficial ownership registers of companies and whether such information should be made publicly accessible, the reporting of suspicious transactions by banks and intermediaries, the robustness of client due diligence regulation, reporting standards and obligations, special tax loopholes such as in the state of Delaware, and the U.S. sanctions regimes. Although the visit was mainly for discussion purposes, the release does note that the delegation made appeals to clamp down on anonymity by introducing beneficial ownership registers.  

Russia

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Russian Considering Cut in Social Security Rate with Increase in VAT Rate

The Russian Ministry of Finance is reportedly considering a reduction in the combined social security contribution rate from 30% to 22% that would be offset with an increase in the standard value added tax rate from 18% to 22%. The shift in the tax burden from labor to consumption is meant to support businesses and reduce the prevalence of informal sector employment.

Treaty Changes (2)

Austria-Panama

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Austria and Panama to Conclude Tax Treaty Negotiations

According to an announcement from the Panama Ministry of Foreign Affairs, officials from Austria and Panama have agreed to the swift conclusion of negotiations for an income tax treaty. 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.

Belgium-India

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Update - Protocol to Tax Treaty between Belgium and India

The Belgium government has published the protocol signed 9 March 2017 to amend the 1993 income tax treaty with India. The Protocol:

  • Replaces the definition of "competent authority" in Article 3 (General Definitions) to mean:
    • in the case of India, the Central Government in the Ministry of Finance (Department of Revenue) or their authorized representative; and
    • in the case of Belgium, as the case may be, the Minister of Finance of the federal Government and/or of the Government of a Region and/or of a Community, or his authorized representative;
  • Adds a definition to Article 3 for the term "criminal tax matters", which means tax matters involving intentional conduct, whether before or after the entry into force of this Agreement, which is liable to prosecution under the criminal laws and/or the tax laws of the applicant Party;
  • Replaces Article 26 (Exchange of Information) to bring it in line with the OECD standard for information exchange; and
  • Replaces Article 27 (Aid and Assistance in Recovery) with a new Article 27 (Assistance in the Collection of Taxes).

The protocol, which is the first to amend the treaty, will enter into force once the ratification instruments are exchanged and will apply for criminal tax matters on that date and for other tax matters for periods beginning on or after that date.

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