Worldwide Tax News
The OECD announced on 26 January 2017 that Thailand has joined the Global Forum on Transparency and Exchange of Information for Tax Purposes as the 139th member. As a member of the Forum, Thailand will now be subject to monitoring and a peer review process to ensure the implementation of and compliance with the international standards for information exchange.
Oman's budget for 2017 was presented on 1 January 2017. In connection with the budget, the Ministry of Finance is planning a number of tax measures to shift reliance on oil and gas revenue that are to be introduced in 2017. These include an increase in the corporate tax rate from 12% to 15%, as well as increases in customs duties, license fees for foreign workers, and new excise taxes on tobacco, alcohol, and sugary drinks. Oman is also expected to introduce rules in 2017 for a value added tax that will apply from 2018 as agreed with the other members of the Gulf Cooperation Council (previous coverage).
The South African Revenue Service has published a draft update to the interpretation note (IN) on the definition of a "connected person" for income tax purposes. The Draft IN 67 (Issue 3) updates the previous version to take account of legislative amendments and also includes a discussion regarding connected persons in relation to deceased estates and insolvent estates.
The definition of "connected person" identifies connected persons in relation to different types of persons, namely:
- Natural persons;
- Connected persons in relation to a trust;
- Members of partnerships or foreign partnerships; and
- Companies and close corporations.
The definition also establishes the reverse relationship between the persons that are connected persons in relation to the above persons.
Click the following link for Draft Interpretation Note 67 (Issue 3). Comments are to be submitted to email@example.com by 31 March 2017.
UK Publishes Draft Legislation on Corporate Interest Restrictions and Relief for Carried-Forward Losses
UK HMRC has published draft legislation for provisions that will form part of the Finance Bill 2017 concerning corporate interest restrictions and relief for carried-forward losses.
This legislation introduces a restriction on the amount of interest and other financing amounts that a company may deduct in computing its profits for Corporation Tax purposes. Interest deductions will be limited using a recommended Fixed Ratio Rule or an optional Group Ratio Rule.
The Fixed Ratio Rule will limit the amount of net interest expense that a worldwide group can deduct against its taxable profits to 30% of its taxable EBITDA. A modified debt cap within the rules will ensure the net interest deduction does not exceed the total net interest expense of the worldwide group.
The Group Ratio Rule allows a group ratio to be substituted for the 30% figure. The group ratio is based on the net interest expense to EBITDA ratio for the worldwide group based on its consolidated accounts. Interest payable to shareholders and other related parties, and interest on instruments with equity-like features are not reflected.
Amounts disallowed as a deduction may be carried forward to later periods for "reactivation" and deduction, provided there is excess interest allowance or carried forward interest allowance for the year. The interest allowance for a year is the amount given by the fixed or group ratio method. Where there is excess interest allowance, it may be carried forward for up to five years.
The new interest restriction rules will take effect from April 2017. Groups with less than GBP 2 million of net interest expense within the scope of Corporation Tax per year will not need to apply the rules.
Click the following link for the Draft legislation: corporate interest restriction page for additional information.
This legislation reforms the tax treatment of certain types of carried-forward losses for Corporation Tax purposes. It provides two main changes:
- Companies will be allowed greater flexibility to set off carried-forward losses against the company’s own total profits in later periods or in the form of group relief in a later period without the current restrictions, which include that losses carried forward can only be set off against later profits of the same trade; and
- The amount of profit against which carried-forward losses can be set off is limited to a maximum of 50% of the company’s total profits for the period.
Each group (or a company that is not part of a group) will have an annual allowance of GBP 5 million in profits without restriction. No changes are made regarding relief for in-year losses or in-year group relief.
The new rules will apply to all losses arising on or after 1 April 2017. Losses arising before that date will remain subject to the existing rules and cannot benefit from the increased flexibility. However, such prior losses will be subject to the restriction on the amount of profit that can be relieved by carried-forward losses.
Click the following link for the Draft legislation: relief for carried-forward losses page for additional information.
The tax information exchange agreement between Argentina and the United Arab Emirates entered into force on 17 January 2017. The agreement, signed 5 February 2016, is the first of its kind between the two countries and applies from the date of its entry into force, including for requests in relation to periods before its entry into force.
The new income and capital tax treaty between Hungary and Luxembourg entered into force on 26 January 2017. The treaty, signed 10 March 2015, replaces the 1990 tax treaty between the two countries.
The treaty covers Hungarian personal income tax, corporate tax, land parcel tax, and building tax. It covers Luxembourg individual income tax, corporation tax, capital tax, and communal trade tax.
- Dividends - 0% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 10%
- Interest - 0%
- Royalties - 0%
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 the alienation of shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
- Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State.
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Both countries generally apply the exemption method for the elimination of double taxation, although the credit method may apply in regard to income covered by Article 10 (Dividends) and paragraph 2 of Article 13 (Capital Gains - shares deriving value from immovable property). Luxembourg may also apply the credit method in regard to income covered by Article 16 (Artistes and Sportspersons).
The treaty applies from 1 January 2018. The 1990 tax treaty is terminated from the date the new treaty entered into force and ceases to have effect from 1 January 2018.
Multilateral Agreement on the Exchange of CbC Reports Signed by Gabon, Hungary, Indonesia, Lithuania, Malta, Mauritius, and Russia
The OECD has announced that Gabon, Hungary, Indonesia, Lithuania, Malta, Mauritius, and Russia have signed the Multilateral Competent Authority Agreement (MCAA) on the exchange of Country-by-Country (CbC) reports. The CbC MCAA was signed by Hungary and Lithuania on 1 December and 25 October 2016 respectively and by the other five countries on 26 January 2017. The signings bring the total number of signatories to 57.
As part of the conditions for signing the CbC MCAA, signatories must be a party to the OECD Council of Europe Convention on Mutual Administrative Assistance in Tax Matters and have (or commit to introduce) CbC reporting requirements.
Click the following link for the list of the CbC MCAA signatories to date.
On 27 January 2017, the South African Revenue Service published an update confirming the entry into force of the new income tax treaty with Zimbabwe on 1 December 2016. The treaty, signed 4 August 2015, replaces the 1965 income tax treaty between the two countries and applies from 1 January 2017 (previous coverage).
Officials from Tanzania and Turkey began negotiations for an income tax treaty during a meeting held 13 to 15 January 2017. 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.