Worldwide Tax News
Brazil published RFB Normative Instruction (NI) No. 1.709/2017 in the Official Gazette on 25 May 2017, which amends RFB Normative Instruction No. 1.681/2016 on the obligation to submit Country-by-Country (CbC) reports. The main amendment is the addition of transitional relief for the 2016 fiscal year in cases where a competent authority agreement (CAA) for the exchange of CbC reports is not in force between Brazil and the ultimate parent's jurisdiction by 31 July 2017 (standard CbC report due date with annual return - ECF). In particular, it provides that a local constituent entity of a foreign-parented group may indicate the ultimate parent as the reporting entity in their CbC notification with the ECF for 2016, and avoid the local filing requirement, even if a CAA is not in place by the due date. However, if no CAA is concluded by 31 December 2017, the local entity will have 60 days to adjust the ECF and either submit a CbC report for the 2016 fiscal year or indicate a surrogate entity to present the CbC report on behalf of the group.
On 25 May 2015, the Hong Kong government announced the passage of the Inland Revenue (Amendment) Bill 2017 by the Legislative Council. The legislation provides for the implementation of 2017-18 Budget measures, which include:
- Reducing profits tax for the 2016-17 year of assessment by 75%, subject to a ceiling of HKD 20,000 (also applies for salaries tax and tax under personal assessment); and
- Widening the marginal bands for salaries tax from the current HKD 40,000 to HKD 45,000 starting from the 2017-18 year of assessment, which results in the following brackets:
- up to HKD 45,000 -2%
- over HKD 45,000 up to 90,000 - 7%
- over HKD 90,000 up to 135,000 - 12%
- over HKD 135,000 - 17%
The legislation also provides for various adjustments in individual income tax allowances, deductions, etc.
On 25 May 2017, Hungary published Law XLVII of 2017 in the Official Gazette, which amends the country's advertising tax regime in order to comply with EU State aid rules. The regime was found in breach of EU rules in November 2016 primarily because its progressive tax rates granted a selective advantage to certain companies (those with lower advertising revenue) without any justification for the differing treatment (previous coverage). The advertising tax originally applied at progressive rates up to 50% with an exemption for advertising income up to HUF 500 million, but was later reduced to 5.3% with an exemption for advertising income up to HUF 100 million.
In order to rectify the State aid issues, the legislation allows taxpayers to recover advertising tax already paid through normal tax refund procedures, with affected taxpayers to be notified by the tax authority on the possibility and conditions for reimbursement. The legislation also increases the advertising tax rate to 7.5% from 1 July 2017 and maintains the exemption for advertising income up to HUF 100 million.
Click the following link for Law XLVII of 2017 as published in the Official Gazette No. 74 (Hungarian language).
Update - For the period January to June 2017, the advertising tax rate is set at 0% to avoid retroactive taxation and ensure equal treatment.
The Norwegian tax authority (Skatteetaten) has announced the fixed penalty amount that applies for late return filing in 2017. For corporate income tax returns, which must be filed electronically by 31 May, the penalty is NOK 524 per day of delay until filed, with a maximum penalty of NOK 52,450. The daily penalty also applies in relation to VAT returns.
OECD Releases Peer Review Document for the Minimum Standard of BEPS Action 6 on Preventing Treaty Abuse
On 29 May 2017, the OECD announced the release of the peer review document for the minimum standard of BEPS Action 6 on preventing the granting of tax treaty benefits in inappropriate circumstances. The document has been approved by the members of the Inclusive Framework on BEPS, which have all committed to implementing the BEPS minimum standards and to participate in the peer review process. The peer review document covers the terms of reference, the core output, the methodology, and other issues related to the review process.
The Action 6 minimum standard requires the inclusion of the following in a jurisdiction's tax treaties:
- An express statement that the common intention of the parties to a tax treaty is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty shopping arrangements (generally included in the preamble to a treaty); and
- Provisions that will implement that common intention and that will take one of the following three forms:
- the Principal Purposes Test (PPT) rule included in paragraph 26 of the Action 6 Report together with either the simplified or the detailed version of the Limitation-on-benefits (LOB) rule that appears in paragraph 25 of the Report, as subsequently modified, or
- the Principal Purposes Test (PPT) rule included in paragraph 26 of the Action 6 Report, or
- the detailed version of the Limitation-on-benefits (LOB) rule that appears in paragraph 25 of the Action 6 Report, as subsequently modified, together with a mechanism (such as a treaty rule that might take the form of a PPT rule restricted to conduit arrangements, or domestic anti-abuse rules or judicial doctrines that would achieve a similar result) that would deal with conduit arrangements not already dealt with in tax treaties.
The first step of the review will be carried out through the preparation of a list (template in annex to the review document) that each jurisdiction of the Inclusive Framework will be asked to complete before 30 June 2018 showing all the existing comprehensive tax treaties of that jurisdiction that will be in force and in effect at that time and whether they comply with the minimum standard. The lists will then be consolidated for a discussion at the September 2018 meeting of the Working Party, with a first report on the implementation of the minimum standard to be finalized prior to a January 2019 meeting of the Inclusive Framework.
For many of the Inclusive Framework members, implementation of the Action 6 minimum standard will be done through the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), although revisions to certain treaties will be negotiated bilaterally. The signing ceremony for the MLI is scheduled to take place 7 June 2017.
The Belarusian government is reportedly planning a reduction in the standard value added tax rate from 20% to 18%. The proposed cut would apply from 1 January 2020.
New Zealand Budget 2017 Includes Changes in the Individual Income Tax Brackets and Treatment of Feasibility Expenditure
New Zealand's Budget 2017 was tabled in Parliament on 25 May 2017. The main tax related measures of the Budget include:
- Increasing the first and second individual income tax brackets from 1 April 2018 as follows:
- up to NZD 22,000 (increased from NZD 14,000) - 10.5%
- NZD 22,001 up to NZD 52,000 (increased from NZD 48,000) - 17.5%
- NZD 52,001 up to NZD 70,000 - 30%
- over NZD 70,000 - 33%
- Changing the tax treatment of feasibility expenditure currently treated as so-called black hole expenditure (non-deductible and non-depreciable expenditure).
With respect to feasibility expenditure, a discussion document has been published for the proposed changes. The changes would provide that where no asset is created on the balance sheet, feasibility expenditure would be immediately deductible for income tax purposes. Where an asset is created, the feasibility expenditure would be capital expenditure for tax purposes. In addition, capitalized feasibility expenditure and other expenditure on an asset abandoned part way through construction would become immediately deductible if it is also expensed under International Financial Reporting Standards.
Click the following links for the Budget 2017 webpage, an overview of the tax-related measures published by Inland Revenue, and the feasibility expenditure discussion document. For the discussion document, the closing date for submissions is 6 July 2017.
The Government of Romania has announced a brief public consultation on a draft emergency ordinance to transpose into domestic law the amendments made to the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) concerning the exchange of Country-by-Country (CbC) reports (Council Directive (EU) 2016/881). The draft notes that the rules will be transposed through an emergency ordinance given that EU Member States are to have their CbC reporting rules in place by 5 June 2017.
The draft emergency ordinance is in line with the EU directive, including CbC requirements from fiscal year 2016, a EUR 750 million group revenue threshold, the requirement to submit the report within 12 months following the end of the reporting fiscal year, secondary local filing requirements, and CbC notification requirements. Failure to comply with the CbC reporting requirements will result in penalties of RON 50,000 to 100,000.
With respect to secondary local filing requirements, the rules will apply for fiscal years beginning on or after 1 January 2017. With respect to notification requirements, group entities resident in Romania must notify the Romania tax authority no later than the last day for filing their annual tax return on whether they are the reporting entity for the group, and if not, the identity and residence of the reporting entity. Although the draft does not appear to provide any sort of transition for notification for the 2016 fiscal year, it is expected additional guidance will be provided given that the standard annual return deadline has already passed (generally 25 March for calendar year).
The pending income and capital tax treaty between Belize and the United Arab Emirates was signed on 1 October 2015. The treaty is the first of its kind between the two countries.
The treaty covers Belize income and business tax, sales tax, and land tax. It covers U.A.E. income tax and corporation tax.
Article 3 (Income from Hydrocarbons) provides that the treaty will not affect the right of either one of the Contracting States to apply their domestic laws and regulations related to the taxation of income and profits derived from hydrocarbons and its associated activities situated in the territory of the respective Contracting State.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel in a Contracting State if the activities continue for a period or periods aggregating more than 9 months.
- Dividends - 0%
- 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 (but the tax charged will be reduced by 50%);
- Gains from the 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 a company deriving more than 50% of their value directly or indirectly from immovable property situated in the other State (exemption for shares listed on a recognized stock exchange).
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State
Both countries apply the credit method for the elimination of double taxation.
The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.
On 26 May 2017, officials from Kosovo and Switzerland 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.