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Approved Changes (4)

Belarus

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Belarus Amends Tax Code to Account for Redenomination of Belarusian Ruble

On 17 June 2016, Belarus published Law No. 372-Z in the Official Gazette, which amends the Tax Code to take into account the upcoming redenomination of the Belarusian ruble. Effective 1 July 2016, the current ruble will be exchanged for a new ruble at a rate of 10,000:1. As a result, the references in the Tax Code to specific ruble amounts are reduced by the 10,000:1 rate. The relevant forms for tax returns are also amended accordingly.

Canada

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Canada Budget Implementation Act, 2016 No. 1 Receives Royal Assent

On 23 June 2016, Canadian Finance Minister Bill Morneau announced that Budget Implementation Act, 2016, No. 1 received Royal Assent. The Act mainly includes the 2016 Budget measures designed to help the middle class, including increased child benefits, support for seniors and changes in the employment insurance program. It also includes certain business related tax measures, including:

  • Maintaining the small business tax rate at 10.5% for 2016 and subsequent taxation years and making consequential adjustments to the dividend gross-up factor and dividend tax credit;
  • Amending the anti-avoidance rules in the income tax act that prevent the conversion of capital gains into tax-deductible intercorporate dividends;
  • Ensuring that profits from the insurance of Canadian risks remain taxable in Canada;
  • Ensuring that the dividend rental arrangement rules under the income tax act apply where there is a synthetic equity arrangement.

Click the following links for the announcement and the final text of the Budget Implementation Act, 2016, No. 1, which includes a summary of all measures.

European Union-Netherlands

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European Commission Publishes Public Version of Decision on State Aid Implemented by the Netherlands to Starbucks

On 27 June 2016, the European Commission published a non-confidential version of its 21 October 2015 decision that the Netherlands granted selective tax advantages to Starbucks in breach of EU State aid rules.

The decision mainly concerned a 2008 advance pricing agreement (APA) concluded with Netherlands-based Starbucks Manufacturing EMEA BV (SMBV), which provides roasted coffee and other coffee-related products to Starbucks outlets in Europe, the Middle East and Africa. SMBV purchased its beans from a Starbucks entity in Switzerland and paid royalties for the "know-how" to roast the beans to a Starbucks UK entity that is directly controlled by Starbucks' U.S. headquarters. According to the Commission investigation, the SMBV APA artificially lowered the amount of taxes paid by:

  • Allowing an inflated price for the beans, with the margin on the beans more than tripling since 2011; and
  • Allowing a substantial royalty payment for the roasting "know-how" that does not reflect market value, and without regard to the fact that no other Starbucks group company or independent roaster are required to pay a royalty for using the same "know-how" in essentially the same situation.

As a result of the decision, the Netherlands is required to recover the illegal State aid from SMBV, which amounts to EUR 20 to 30 million.

Click the following links for the letter and the case page on the European Commission website.

United Kingdom

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UK Publishes Guidance on Publishing of Large Businesses Tax Strategy

On 24 June 2016, UK HMRC published guidance on the publishing of tax strategies by large businesses. According to the guidance, a company, partnership, group or sub-group is required to publish their tax strategy if in the previous year:

  • Turnover exceeds GBP 200 million; or
  • Balance sheet total exceeds GBP 2 billion.

For groups and sub-groups, the combined totals of all the relevant bodies are considered. Although separate from Country-by-Country reporting requirements, UK companies not meeting the above thresholds may still be required to publish the tax strategy if their group meets the EUR 750 million revenue threshold. Open-ended investment companies and investment trusts are not required to publish their tax strategy.

The information in the tax strategy should include:

  • An explanation of tax arrangements;
  • How tax risks are managed;
  • The attitude towards tax planning;
  • The approach to working with HMRC; and
  • Any other relevant information.

The tax strategy does not need to include amounts of tax paid or commercially sensitive information.

When required, the tax strategy must be published online and be accessible to the public free of charge. The first tax strategy must be published by the end of the first financial year beginning after the Royal Assent of Finance (No. 2) Bill 2016 (pending). Subsequent tax strategies must be published annually within 15 months of the previous tax strategy. Penalties for failing to publish properly will apply.

Click the following link for the guidance, Large businesses: publish your tax strategy.

Proposed Changes (3)

Cyprus

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Cyprus Planning to Amend Immovable Property Tax Regime

The Cyprus Council of Ministers has approved proposals to amend the immovable property tax regime. The proposals include:

  • Replacing the current progressive property tax rates of 0.6% to 1.9% based on 1 January 1980 market values with a flat 0.05% rate based on 1 January 2013 market values;
  • Abolishing the property taxes collected at the municipal and community level; and
  • Making permanent the 50% transfer fee reduction for immovable property, which is scheduled to expire the end of 2016.

The proposals must now be approved by parliament.

New Zealand

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New Zealand Publishes Papers on BEPS and Related Issues

On 27 June 2016, New Zealand Inland Revenue published four papers concerning base erosion and profit shifting (BEPS) and related issues.

Government Inquiry into Foreign Trust Disclosure Rules

The inquiry examines whether New Zealand’s foreign trust disclosure rules are adequate in light of the release of the Panama Papers and when considered alongside New Zealand's commitment to various OECD and other international agreements. In short, the inquiry concludes that the existing foreign trust disclosure rules are inadequate and make a number of recommendations, including:

  • Increased disclosure and documentation requirements during the foreign trust registration process;
  • Annual return filing requirements and annual filing fees;
  • Expansion of scope and application of anti-money laundering rules;
  • Revision of the legislation or regulations that govern suspicious transaction reporting to facilitate the reporting of actual or proposed transactions that have not or will not necessarily go through a New Zealand bank; and
  • Improved information sharing between relevant government agencies.

Cabinet paper - Base erosion and profit shifting (BEPS) update

The cabinet paper provides background to the OECD/G20 BEPS project, the related OECD/G20 initiative regarding the automatic exchange of financial account information, and New Zealand’s response to the OECD/G20 recommendations. In particular, New Zealand will:

  • Hold a consultation on hybrid instruments in the second half of 2016, with legislation to be introduced in March 2017 (BEPS Action 2);
  • Hold a consultation on interest deduction limitations in the second half of 2016, with legislation to be introduced in March 2017 (BEPS Action 4);
  • Apply revised OECD Transfer Pricing Guidelines to address misallocation of profits to low tax jurisdictions, with legislation to be introduced, if needed, in March 2017 (BEPS Actions 8-10);
  • Introduce legislation to require multinational companies to prepare Country-by-Country reports in line with OECD guidelines (BEPS Action 13);
  • Sign the multilateral instruments being developed to insert a new anti-treaty abuse article, a new permanent establishment definition, anti-hybrid entity rules and dispute resolution articles in bilateral tax treaties (BEPS Action 15);
  • Introduce legislation in mid-2016 to enable automatic exchange of financial account information under the OECD Common Reporting Standard; and
  • Consider other possible measures to address BEPS concerns, including the diverted profits tax adopted in the UK and Australia, and possible increased public transparency on taxes paid by multinationals in New Zealand.

New Zealand’s plan to ensure multinationals pay their fair share of tax

The paper provides a summary of the changes New Zealand is planning to make to address BEPS based on the OECD action plan, as well as the steps already taken. It is essentially a briefer version of the cabinet paper.

New Zealand’s taxation framework for inbound investment

This draft document describes New Zealand’s approach to taxing foreign investment income, and is being used as the basis for targeted consultation with private sector representatives and to facilitate a wider understanding of the trade-offs the government faces in responding to BEPS. A final version of this paper will be released in the next few months together with consultation documents for public feedback on measures to address BEPS.

Taiwan

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Taiwan to Require Foreign E-Service Suppliers to Register for VAT

The Taiwan Ministry of Finance (MoF) has announced that it plans to require foreign suppliers of electronic services and content (e-services) to register for value added tax (VAT). Currently Taiwanese consumers are technically required to self-declare and pay any VAT due on online purchases, such as music, videos, games, e-books, etc. Given the increase in online purchases and related compliance issues for consumers, the MoF has determined it will be better to require all foreign suppliers of e-services to register and account for VAT due on supplies made to Taiwan individuals instead.

Treaty Changes (2)

Mali-Morocco

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Tax Treaty between Mali and Morocco has Entered into Force

The income tax treaty between Mali and Morocco reportedly entered into force on 3 June 2016. The treaty, signed 20 February 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Moroccan income tax and corporation tax, and covers Malian:

  • Tax on wages and salaries;
  • Tax on income from securities;
  • Income tax on receivables and deposits;
  • Tax on business profits;
  • Tax on property income;
  • Tax on agricultural profits;
  • Tax on capital gains from the sale of movable and immovable property; and
  • Corporation tax.

Service PE

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

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital, otherwise 10%
  • Interest - 10%
  • Royalties - 10%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares in the capital of a company the assets of which consist primarily, directly or indirectly, of immovable property situated in a Contracting State

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

Double Taxation Relief

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

Effective Date

The treaty applies from 1 January 2017.

Nauru-OECD

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Nauru Signs Mutual Assistance Convention and Multilateral Agreement on Automatic Exchange of Financial Account Information

The OECD has announced that on 28 June 2016, Nauru signed the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol, as well as the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Financial Account Information. On the same day, Nauru deposited the ratification instruments for the Mutual Assistance Convention, which will enter into force in the country on 1 October 2016. Regarding the MCAA, Nauru has committed to begin automatic exchange by September 2018.

Click the following link for signatories to the Mutual Assistance Convention and the MCAA on Automatic Exchange of Financial Account Information to date.

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