Worldwide Tax News
On 26 April 2016, the Australian Taxation Office (ATO) announced that it is actively reviewing certain arrangements used by multinationals and large companies operating in Australia to ensure they pay the right amount of tax on income earned in the country. In connection with the announcement, the ATO issued four taxpayer alerts on arrangements of particular concern:
- Taxpayer alert TA 2016/1 Inappropriate recognition of internally generated intangible assets and revaluation of intangible assets for thin capitalization purposes
- Taxpayer alert TA 2016/2 Interim arrangements in response to the Multinational Anti-Avoidance Law (MAAL)
- Taxpayer alert TA 2016/3 Arrangements involving related party foreign currency denominated finance with related party cross currency interest rate swaps
- Taxpayer alert TA 2016/4 Cross-border leasing arrangements involving mobile assets
Taxpayers that have, or are thinking of, entering into the above arrangements are advised to review their arrangements and seek independent advice or discuss their situation with the ATO directly by emailing PGIAdvice@ato.gov.au.
Update - Czech Amendment Concerning Hybrid Mismatches under the Parent-Subsidiary Directive Published
The legislation implementing the amendment to the EU Parent-Subsidiary Directive concerning hybrid mismatch arrangements was published in the Czech Republic's Official Gazette on 25 April 2016 and is effective from 1 May 2016. With the amendment, the participation exemption provided for dividends will be denied if a dividend received is tax deductible for the distributing subsidiary in its country of residence.
Ecuador's President Rafael Correa recently issued Executive Decree 973, which makes a number of changes in the country's transfer pricing regulations. Some of the key changes include:
- No longer requiring the application of the so-called "6th method" for determining transfer prices of commodity transactions, or requiring the hierarchal application of the other transfer pricing methods;
- Requiring the use of current OECD transfer pricing guidelines as of 1 January of the year of a transaction for any issues not covered by domestic laws, resolutions or treaties; and
- Restricting service providers from preparing transfer pricing documentation if also providing tax advice, representation services, financial statements preparation services, or certain other services.
The Decree also allows the Ecuador Internal Revenue Service (SRI) to issue anti-abuse resolutions concerning technical and methodological transfer pricing issues. While this provides SRI with the ability to implement new rules going forward, it could also potentially result in SRI reversing some of the above changes.
On 22 April 2016, the OECD published comments received on a public discussion draft on the tax treaty entitlement of non-CIV (Collective Investment Vehicle) funds, which is part of the follow-up work for BEPS Project Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances). The discussion draft covers concerns on how the new provisions included in the Action 6 Report could affect the treaty entitlement of non-CIV funds, as well as possible ways of addressing these concerns. The discussion draft and the responses received will be discussed at the May 2016 meeting of Working Party 1 of the OECD Committee on Fiscal Affairs.
The Slovenian government is reportedly considering an increase in the corporate tax rate from 17% to 20%. It is uncertain what the effective date of the higher rate would be if approved, but could be as early as 1 January 2017. Additional details will be published once available.
On 26 April 2016, the U.S. Senate Committee on Finance held a full committee hearing on business tax reform. The hearing covered a number of issues and potential reforms, including:
- Introducing corporate integration (full or partial) to eliminate double taxation of corporate business earnings and eliminate distortions in the current tax code, including:
- The incentive to invest in non-corporate businesses rather than corporate businesses;
- The incentive to finance corporations with debt rather than equity;
- The incentive to retain rather than distribute earnings; and
- The incentive to distribute earnings in a manner that avoids or significantly reduces the second layer of tax;
- Simplifying the system of depreciation by abolishing the current depreciation schedules for various assets and industries, and instead assigning assets to one of six asset pools based on asset type, with each pool depreciated at standard rates of 49%, 34%, 25%, 18%, 11% or 8% (change proposed as part of the Cost Recovery Reform and Simplification Act of 2016);
- Adopting a territorial tax system with safeguards to prevent shifting of profits overseas;
- Reducing tax rates in a revenue-neutral manner by offsetting through other measures, such as:
- Broadening the tax base by adjusting depreciation and deduction rules;
- Raising the rate on capital gains and dividends;
- Taxing accrued income of shareholders;
- Introducing a value added tax;
- Introducing a carbon tax; or
- Some combination;
- Introducing an innovation/ patent box providing preferential tax treatment on income attributable to intellectual property; and
- Creating a simpler common taxation approach to the various U.S. business entity types (C corps, S corps, LLCs, etc.).
Click the following link for the Committee Hearing page on the Senate Committee on Finance site for the video of the hearing and the text of all testimony.
On 22 April 2016, officials from Bahrain and Morocco signed a protocol to the 2000 income tax treaty between the two countries. The protocol amends Article 26 (Exchange of information). It is the first to amend the treaty, and will enter into force on the first day of the second month following the exchange of the ratification instruments.
According to recent reports, negotiations for an income tax treaty between Ivory Coast and Mauritius are underway and are expected to be concluded in the near future. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.
On 22 April 2016, Romanian President Klaus Iohannis signed the decree ratifying the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Financial Account Information. The MCAA is part of the Common Reporting Standard developed by the OECD. Romania signed the MCAA on 29 October 2014, and intends to begin the exchange of financial account information by September 2017.
Russia's Ministry of Finance recently issued Guidance Letter 03-08-05/21033, which clarifies that taxation rights on "other income" as set out in Article 21 (Other Income) of the 1983 income and capital tax treaty with Luxembourg.
Under the treaty as originally signed, other income derived by a resident of a Contracting State that is not covered in the preceding Articles of the treaty will be taxable only in that State, wherever the income arises. However, the 2011 protocol to the treaty added a paragraph to Article 21 that states that such other income arising in the other Contracting State may be taxed in that other State. The guidance letter clarifies that for this purpose, the source State of such other income will have taxation rights if the national legislation of that State provides for the taxation of the income.