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Approved Changes (2)

Belgium-Netherlands-European Union

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Advocate General Opinion Issued on Belgian Withholding Tax on Dividends Paid to Dutch Parent Subject to Zero Rate of Tax

On 26 October 2016, the opinion of Advocate General Campos Sánchez-Bordona of the Court of Justice of the European Union (CJEU) was published concerning tax withheld at source on dividends paid by a Belgian subsidiary to its Dutch parent. The case involves Wereldhave Belgium, a limited partnership with a share capital, which is jointly owned by Dutch parents Wereldhave International (35%) and Wereldhave (45%). The Dutch parents are collective investment undertakings incorporated as public limited companies that are liable to corporation tax, but are subject to a zero rate.

In 1999 and 2000 Wereldhave Belgium distributed profits to its Dutch parents and paid withholding tax on that investment income at the rate of 5%. The Dutch parents then sought a refund of the tax withheld based on the exemption provided under the EU Parent-Subsidiary Directive. When the Belgian authorities failed to deliver a decision within six months, the parents brought an action before the Belgian court of first instance. The court found that tax should not have been withheld and ordered that the amount be repaid.

The court's decision was appealed on the grounds that the parent companies were not eligible for the exemption provided under the Directive because they were subject to a zero rate of tax in the Netherlands. In response, it was argued that the condition for the exemption on dividends is met since the Dutch parents are technically liable to corporation tax and that actual payment of tax is not required. In the alternative, it was argued that if the Parent-Subsidiary Directive is not applicable, then Articles 49 and 63 TFEU preclude the provisions of Belgian law relied on for the withholding of tax.

The case went to the Court of Appeal, Brussels, which decided to stay the proceedings and to refer the following questions to the CJEU for a preliminary ruling:

  1. Is Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States to be construed as precluding a national rule that does not waive Belgian withholding tax on investment income in respect of dividend payments made by a Belgian subsidiary to a parent company established in the Netherlands that fulfils the condition of a minimum participating interest and the holding of such an interest, on the ground that the Netherlands parent company is a fiscal investment undertaking that is required to distribute all its profits to its shareholders and, subject to that proviso, is eligible for the zero rate of corporation tax?
  2. If the answer to the first question is in the negative, are Articles 49 (ex Article 43 EC) and 63 (ex Article 56 EC) of the Treaty on the Functioning of the European Union (in the version in force since the amendment and renumbering by the Treaty of Lisbon) to be construed as precluding a national rule that does not waive Belgian withholding tax on investment income in respect of dividend payments made by a Belgian subsidiary to a parent company established in the Netherlands that fulfils the condition of a minimum participating interest and the holding of such an interest, on the ground that the Netherlands parent company is a fiscal investment undertaking that is required to pay all its profits to its shareholders and, subject to that proviso, is eligible for the zero rate of corporation tax?

In the Advocate General's opinion, the first question should be answered as follows:

Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States is not applicable to a dispute concerning withholding tax levied in Belgium on the profits distributed by a subsidiary to its parent company where the latter is a Netherlands collective investment undertaking that makes use of the zero rate of corporation tax.

Regarding the second question, the Advocate General is of the view that the question should be declared inadmissible.

Click the following link for the full text of the opinion.

Panama

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Panama Adopts Requirement for Offshore Companies to Keep Accounting Records

On 19 October 2016, Panama's National Assembly adopted legislation to require offshore companies not carrying on operations within Panama to keep accounting records. The new requirement is part of an initiative to increase transparency, and includes that account records be kept for a minimum of five years. The requirement applies from 1 January 2017.

Proposed Changes (2)

Hong Kong

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Hong Kong Consults on Implementation of BEPS Measures

On 26 October 2016, the Hong Kong Inland Revenue Department announced the launch of a public consultation on the implementation of measures developed as part of the OECD BEPS Project. In particular, Hong Kong's priority is to put in place the necessary legislative framework for:

  • Spontaneous exchange of information on tax rulings (Action 5);
  • Specific transfer pricing rules that cover the latest guidance from the OECD (Actions 8 to 10), including the introduction of:
    • A fundamental transfer pricing rule based on the arm's length principle that empowers the Commissioner of Inland Revenue to make transfer pricing adjustments;
    • Specific penalties for making tax returns with incorrect information on transfer pricing; and
    • A statutory APA regime;
  • Transfer pricing documentation requirements (Action 13), which include the following:
    • Master and Local file requirements, with an exemption for enterprises meeting any two of the following conditions: (i) total annual revenue not more than HKD 100 million; (ii) total assets not more than HKD 100 million; and (iii) no more than 100 employees;
    • Country-by-Country reporting requirements for MNE groups with annual consolidated group revenue equal to or exceeding EUR 750 million (or HKD equivalent as of January 2015), with the report due within 12 months following the last day of the fiscal year;
    • Secondary filing requirements, where a constituent entity will be required to file a CbC report if the ultimate parent is resident in a jurisdiction that does not require the filing of CbC report or does not exchange such reports with Hong Kong, with an exemption if Hong Kong can receive the report from another jurisdiction or another Hong Kong entity that is authorized to file the report on behalf of the group; and
    • A transitional filing option, where an ultimate parent entity of an MNE group that is resident in Hong Kong will be allowed to voluntarily file its CbC reports for fiscal periods beginning from 1 January 2016 up to the date before the proposed legislation comes into operation; and
  • Cross-border dispute resolution (Action 14), which includes putting in place a full-fledged statutory mechanism to ensure timely, effective and efficient resolution of cross-border treaty-related disputes.

In addition, Hong Kong is planning to sign the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI - Action 15).

Hong Kong has no immediate plans to implement measures from the other BEPS Actions, but will keep in view the pace of international developments and draw up a response plan as appropriate.

Click the following links for the consultation announcement and the consultation paper. The consultation runs through 31 December 2016, and the relevant amendment bill(s) are to be introduced into the Legislative Council in mid-2017.

Jersey

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Jersey's Draft CbC Reporting Regulations Lodged

The Jersey government has lodged draft regulations for the introducing of Country-by-Country (CbC) reporting requirements. The draft regulations are generally based on the UK CbC reporting regulations with some differences. The key aspects of the regulations include:

  • The reporting requirement will apply in Jersey for accounting periods starting on or after 1 January 2016;
  • The reporting threshold will be consolidated group revenue of EUR 750 million in the previous 12-month accounting period (or equivalent in another currency using the average exchange rate for the period);
  • A Jersey entity that is the ultimate parent of the group must file the CbC report within 12 months following the close of the accounting period;
  • A "Jersey entity" that is not the ultimate parent must file a "Jersey CbC report" if any one of the following conditions are met:
    • Its ultimate parent entity is in a jurisdiction where it is not required to file the equivalent of a CbC report;
    • No exchange arrangements exist between the Comptroller and the appropriate authority in the jurisdiction in which the ultimate parent entity is resident; or
    • Exchange arrangements between the Comptroller and appropriate authority in the jurisdiction in which the ultimate parent entity is resident are not operating effectively;
  • A "Jersey entity" is a constituent entity of a group that is established or resident in Jersey and whose information is not required to be included in the consolidated financial statements of any other constituent entity in Jersey of the group;
  • A "Jersey CbC Report" includes the CbC reporting information of the "Jersey entity" and, where applicable, the constituent entities in respect of which the "Jersey entity" is required to prepare consolidated financial statements or would be so required if its equity interests were traded on a public securities exchange;
  • A "Jersey entity" will not be required to file a "Jersey CbC report" if:
    • Another constituent entity of the group intends to file a report with the Comptroller; or
    • Another constituent entity of the group intends to file a CbC report in another jurisdiction and there are effective information exchange arrangements operating between the Comptroller and the appropriate authority of the other jurisdiction;
  • A Jersey entity is required to notify the Comptroller on or before the last day of the accounting period concerned of its intention to file a CbC report, and if not filing, must notify the Comptroller of the identity of the constituent entity that will file the report (including jurisdiction of tax residence and jurisdiction of filing, if filing outside Jersey);
  • Penalties for failing to comply with the CbC reporting requirements will apply as follows:
    • GBP 300 for failing to file a CbC report or provide notification;
    • GBP 60 per day for continued failure to file a CbC report after being notified of the initial penalty (daily penalty may be increased up to GBP 1,000 if the failure continues for more than 30 days); and
    • GBP 3,000 for providing inaccurate information in the CbC report if known to be inaccurate at the time of filing or subsequently discovered and no action is taken to correct.

Click the following link for the Draft Taxation (Implementation) (International Tax Compliance) (Country-by-Country Reporting: BEPS) (Jersey) Regulations 201-.

Treaty Changes (4)

Azerbaijan-Malaysia

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Tax Treaty between Azerbaijan and Malaysia under Negotiation

Officials from Azerbaijan and Malaysia will meet for the second round of negotiations for an income tax treaty on 14 to 18 November 2016. 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.

India-New Zealand

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Protocol to Tax Treaty between India and New Zealand Signed

On 26 October 2016, officials from India and New Zealand signed a protocol to the 1986 income tax treaty between the two countries. The protocol is the third to amend the treaty and will enter into force after the ratification instruments are exchanged.

Additional details of the protocol will be published once available.

Panama-OECD

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Panama Signs Mutual Assistance Convention

The OECD has announced that on 27 October 2016, Panama signed the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. The Convention must now be ratified by Panama and the ratification instrument deposited before entering into force in the country.

Click the following link for the signatories to the Mutual Assistance Convention to date.

Singapore-Norway-South Africa

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Singapore Signs Agreements for Automatic Exchange of Financial Account Information with Norway and South Africa

Singapore has signed competent authority agreements for the automatic exchange of financial account information with Norway on 25 October 2016 and with South Africa on 24 October 2016. Under the agreements, each country will automatically exchange information on accounts held in the respective country by tax residents of the other country based on the OECD Common Reporting Standard (CRS). The automatic exchange is to begin by September 2018 for information collected on the 2017 reporting year.

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