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Approved Changes (5)

Ireland

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Ireland Updates Guidance on Certification of Residence

Irish Revenue has published eBrief 27/17, announcing the update of the guidelines on obtaining certification of residence, which is generally used in obtaining tax treaty benefits such as reduced withholding tax rates.

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Certification of Residence for Individuals/Companies/Funds

Tax and Duty Manual Part 35-01-05 (Certification of Residence for Individuals/Companies/Funds) has been updated:

  1. To include letter templates for the certification of residence of companies and funds;
  2. To clarify that in the case of companies, such letters are certification of a company's Irish residence for the purposes of residence as defined in Ireland's Double Taxation Agreements; and
  3. To confirm that from 1 January 2017, letters of residence issued by Revenue’s Large Cases Division (LCD) will be in pdf format and sent via a secure electronic channel.

Japan

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Japan Passes 2017 Tax Reform Including New CFC Rules

On 27 March 2017, Japan's National Diet (legislature) passed the required legislation for the 2017 tax reform measures.

CFC Regime Amendments

The main measures of the reform include amendments to Japan’s controlled foreign company (CFC) regime, which are meant to strengthen the regime as per BEPS Action 3. Amendments to the CFC regime include the replacement of the current income inclusion conditions (20% effective tax rate and activity exception tests) with new conditions that include:

  • No income inclusion if:
    • Effective tax rate for the foreign company is at least 30%; or
    • Effective tax rate for the foreign company is at least 20% and all economic activity tests are met (business, substance, control, location, unrelated party);
  • Passive income inclusion if effective tax rate less than 20% but all economic activity tests are met (exception if passive income does not exceed JPY 20 million); and
  • Full income inclusion if:
    • Effective tax rate is less than 20% and at least one of the economic activity tests is not met; or
    • The foreign company is a paper company, a cash box company, or company located in a black-list country.

The reform measures also set new requirements for the economic activity tests, expand the scope of passive income, and amend the control tests, including:

  • The introduction of a de facto control test (current greater than 50% direct or indirect ownership test maintained); and
  • The revision of the determination of indirect ownership of a foreign company from the current multiplication method to a greater than 50% chain of ownership method, i.e., A Co meets ownership test in relation to C Co if A Co holds greater than 50% of B Co (foreign intermediary), which holds greater than 50% of C Co (foreign company).

Other Changes

Other changes include:

  • The R&D tax credit range is changed from 8%-10% to 6%-14% based on the ratio of the incremental increase in R&D costs; and
  • New rules regarding spin-off taxation, including that the following types of transactions for unrelated parties will be treated as non-recognition transfers if there is a continuity of business operation by at least 80% of current employees after the transaction and certain other conditions are met:
    • The transferor transfers some businesses to a newly incorporated unrelated company; and
    • The transferor distributes the shares of a wholly owned subsidiary to its shareholders.

Effective Date

The CFC rule changes are to apply from 1 April 2018, while the R&D credit and spin-off changes are to apply from 1 April 2017. Additional details of the reform will be published once available.

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OECD Webcast on International Tax Work including BEPS

On 28 March 2017, the OECD held a webcast to provide updates on recent and upcoming developments. Some of the main topics covered include:

  • The BEPS Inclusive Framework:
    • To date, 94 Countries/jurisdictions have joined and committed to implementing the four minimum standards from the BEPS Project, including those developed under Action 5 (Countering Harmful Tax Practices), Action 6 (Preventing Treaty Abuse), and Action 14 (Dispute Resolution), as well as Country-by-Country (CbC) reporting under Action 13 (Transfer Pricing Documentation; and
    • Of the four minimum standards, the terms of reference and methodology for peer review have been agreed to for Actions 5, 13, and 14;
  • Action 13 CbC Reporting Status:
    • Over 45 countries/jurisdictions have primary or secondary legislation in place for CbC reporting (also required under EU directive, although not all Member States have finalized legislation);
    • 57 countries/jurisdictions have signed the Multilateral Competent Authority Agreement on the Exchange of CbC reports, with more planning to sign;
    • Activation of bilateral CbC exchange agreements is underway, with activation of the first agreements expected towards the end of April; and
    • Additional CbC reporting guidance is currently being developed;
  • Signing ceremony for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) will be held 7 June 2017;
  • Revised transfer pricing guidance in relation to Actions 8-10 (Aligning Transfer Pricing Outcomes with Value Creation) and Action 7 (Prevent Artificial Avoidance of PE) is being developed with discussion drafts to be released mid-2017, including on:
    • Attribution of profits to PEs;
    • The use of the transactional profit split method;
    • The approach to hard-to-value intangibles; and
    • Transfer pricing of financial transactions;
  • The development of the Common Transmission System for the bilateral exchange of financial account information under CRS, CbC reports, and tax rulings, which is to be ready Sept 2017; and
  • Ongoing work on VAT/GST treatment of international trade, including the adoption of the OECD international VAT/GST guidelines as an OECD recommendation to be released at the Global Forum on VAT in April, and the development of an implementation package regarding VAT/GST on digital supplies to consumers for foreign suppliers.

Click the following link to view a video of the OECD webcast.

Poland

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Poland Publishes New Exchange of Information Law including New CbC Reporting Requirements

On 27 March 2017, Poland published in the Official Gazette the Act of 9 March 2017 on the exchange of tax information with other countries. The Act was passed by parliament on 9 March and signed into law by the president on 20 March. The Act includes measures for the exchange of Country-by-Country (CbC) reports, cross border tax rulings and advance pricing agreements, and financial account information under the OECD Common Reporting Standard (CRS). Click the following link for previous coverage of the new CbC reporting requirements.

United Kingdom-European Union

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UK Invokes Article 50 for EU Exit

On 29 March 2017, the UK's permanent representative to the EU delivered a letter to the president of the European Council on behalf Prime Minster Theresa May confirming the government's decision to invoke Article 50 of the Treaty on European Union and begin the process for the UK's exit from the EU. Click the following link for more information on the government's Department for Exiting the European Union website.

Treaty Changes (4)

Andorra-Italy

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TIEA between Andorra and Italy to Enter into Force

The tax information exchange agreement between Andorra and Italy will enter into force on 8 June 2017. The agreement, signed 22 September 2015, is the first of its kind between the two countries. It applies for criminal tax matters from the date of its entry into force and for other tax matters for tax periods beginning on or after 1 January 2018 (from date of entry into force where there is no tax period).

Note - Article updated to reflect entry into force date of 8 June and not 27 March as initially reported.

Cyprus-Jersey

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Tax Treaty between Cyprus and Jersey has Entered into Force

The income tax treaty between Cyprus and Jersey entered into force on 17 February 2017. The treaty, signed 11 July 2016, is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Cyprus income tax, corporate income tax, the special contribution for the defence of the republic, and capital gains tax. It covers Jersey income tax.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • Royalties - 0%

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; and
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party.

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

Offshore PE

Article 20 (Offshore Activities) provides that a permanent establishment will be deemed constituted if an enterprise of one Contracting Party carries on offshore activities in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in the other Party, if such activities continue for a period or periods aggregating more than 30 days in any 12-month period. In determining if the 30-day period has been exceeded, activities of an associated enterprise that are substantially the same will be included.

Article 20 also provides that gains derived by a resident of one Contracting Party may be taxed by the other Party if derived from the alienation of exploration or exploitation rights, property situated in the other Party used in connection with exploration or exploitation, and shares deriving the greater part of their value directly or indirectly from such rights or property.

Double Taxation Relief

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

Effective Date

The treaty applies from 1 January 2018.

Ghana-Netherlands

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Protocol to Tax Treaty between Ghana and the Netherlands Signed

On 10 March 2017, officials from Ghana and the Netherlands signed an amending protocol to the 2008 income and capital tax treaty between the two countries. The protocol is the first to amend the treaty and will enter into force after the ratification instruments are exchanged. Details of the protocol will be published once available.

Portugal-Montenegro

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Portugal Ratifies Pending tax Treaty with Montenegro

The Decree ratifying Portugal's pending income tax treaty with Montenegro was published in the Official Gazette on 21 March 2017. The treaty, signed 12 July 2016, is the first of its kind between the two countries (previous coverage). It will enter into force 30 days after the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

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