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Approved Changes (1)

United Kingdom

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UK Publishes Final Regulations for CbC Reporting

On 26 February 2016, the UK published the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016 No. 237, which are the final regulations for the implementation of Country-by-Country (CbC) reporting in the UK. The CbC reporting regulations apply for accounting periods beginning on or after 1 January 2016.

The CbC Report

The CbC reporting requirements are in line with the guidelines developed as part of Action 13 of the OECD BEPS Project. The CbC report format is in accordance with the OECD template, with multinational groups required to provide information for each tax jurisdiction in which they do business, including:

  • The amount of revenue, profit before income tax, and income tax paid and accrued;
  • Total employment, capital, retained earnings and tangible assets; and
  • Identification of each entity within the group doing business in a particular tax jurisdiction with an indication of business activities within a selection of broad areas that each entity engages in.

CbC Reporting Threshold

The CbC reporting threshold is annual consolidated group revenue of EUR 750 million or more in the preceding period as shown in the MNE group's consolidated financial statements, or would be shown had an enterprise of the MNE group been required to produce them due to being listed on a stock exchange. A threshold of GBP 586 million was originally proposed, but HMRC decided it would be better to use the exact amount recommended by the OECD.

In determining if the EUR 750 million threshold is met, the exchange rate is the average rate for the relevant accounting period. If the accounting period is less than 12 months, the revenue threshold is reduced proportionately.

Reporting Entity

When the Ultimate Parent Entity of the MNE group is tax resident in the UK, the Parent is required to file the CbC report within 12 months after the end of the accounting period concerned. If the Ultimate Parent Entity is not resident in the UK, the CbC report is to be filed with the Parent's jurisdiction of residence and exchanged with the UK.

A UK non-parent entity of the group (Constituent Entity) or permanent establishment (PE) in the UK of a Constituent Entity of the group outside the UK will be required to file the CbC report if:

  • The Ultimate Parent Entity is not required to file in its jurisdiction of residence (or jurisdictions of residence if tax resident in multiple jurisdictions);
  • The jurisdiction of residence of the Ultimate Parent Entity has not entered into arrangements with HMRC for the exchange of CbC reports for the period concerned; or
  • Arrangements for exchange have been entered into, but HMRC has notified the Ultimate Parent Entity or Constituent Entity that the arrangements are not operating effectively.

If multiple UK Constituent Entities or PEs exist, only one is required to file a CbC report, but the others must notify HMRC of the identity of the filing entity and the date the CbC report was filed.

The Ultimate Parent Entity of an MNE Group may also authorize a UK Constituent Entity to file a CbC report on behalf of the Group if one of the above conditions is met. The Ultimate Parent Entity must give notification of the authorization to HMRC.

An exemption applies if a Constituent Entity of the MNE Group in another jurisdiction has filed a CbC report (or equivalent) for the period concerned that includes the information required by HMRC. For the exemption to apply, the other jurisdiction must have entered into arrangements with HMRC for the exchange of CbC reports for the period concerned, and HMRC must have not notified the UK entity that the arrangements are not operating effectively. If the conditions are met, the UK entity must notify HMRC of:

  • The identity of the Constituent Entity that filed the report and its tax residence;
  • The jurisdiction in which the report was filed; and
  • The date the report was filed.

Any notifications concerning the above must be made to HMRC by the filing deadline; 12 months after the end of the accounting period concerned.

Additional Information

HMRC may request additional information to confirm the accuracy of the information in a CbC report. Such information should be provided within 14 days of the request.

Penalties and Anti-Avoidance

Failure to comply with the CbC reporting obligation or provide additional information when requested will result in an initial penalty of GBP 300, plus GBP 60 per day until in compliance. In addition, the filing of CbC report that includes inaccurate information will result in a penalty of up to GBP 3,000.

Also included is the provision that if an arrangement is entered into in order to avoid any obligation under the CbC reporting regulations, such arrangements may be disregarded.

Click the following link for the full text of the CbC reporting regulations.

Proposed Changes (1)

Australia

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Increased Penalties Proposed in Australia for Failure to Submit CbC Reports

Australia's Labor party has reportedly proposed increased penalties for multinational's that fail to submit a Country-by-Country (CbC) report when required. Under Australia's CbC reporting rules, MNE groups operating in Australia are required to submit a CbC report if the annual consolidated revenue of the group exceeds AUD 1 billion. Penalties for failing to comply with the requirement would currently only be up to AUD 5,400. Under the Labor party proposal, the penalty for failing to submit a CbC report would be up to AUD 270,000.

Treaty Changes (4)

Ghana-Turkey

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Tax Treaty between Ghana and Turkey under Negotiation

On 16 to 19 February 2016, officials from Ghana and Turkey met for the second round of negotiations for an income tax treaty. Any resulting treaty will be the first of its kind between the two countries, and will need to be finalized, signed and ratified before entering into force.

Italy-Taiwan

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Update - Tax Agreement between Italy and Taiwan in Force

The income tax agreement between Italy and Taiwan was concluded on 31 December 2015, and entered into force on that date. The agreement is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Italian personal income tax, corporate income tax and regional tax on productive activities (IRAP). It covers Taiwan profit seeking enterprise income tax, individual consolidated income tax, and income basic tax.

Service PE

The agreement includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 10%

Capital Gains

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 deriving more than 50% of their value directly or indirectly from immovable property situated in the other Party, unless listed on a recognized stock exchange

Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) will not be available if the main purpose or one of the main purposes of any person concerned the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest or royalties are paid is to obtain the benefits of those Articles. The limitation is included in each of those Articles.

Article 28 (Limitation on Relief) includes the provision that any reduction or exemption from tax provided for by the agreement will not be available if the main purpose or one of the main purposes of a resident is to obtain the benefits.

Double Taxation Relief

Both parties apply the credit method for the elimination of double taxation.

Effective Date

The tax agreement applies from 1 January 2016.

Korea, Rep of-Turkey

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New Tax Treaty between South Korea and Turkey Initialed

According to an update from the Turkish Revenue Administration, officials from South Korean and Turkey initialed a new income tax treaty on 29 December 2015. The treaty must be signed and ratified before entering into force, and once in force and effective, will replace the 1983 income tax treaty between the two countries, which currently applies.

Additional details will be published once available.

United Kingdom-Uruguay

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Tax Treaty between the United Kingdom and Uruguay Signed

On 24 February 2016, officials from the United Kingdom and Uruguay signed an income tax treaty. The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

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