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Worldwide Tax News

Approved Changes (5)

Greece

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Greece Clarifies Amortization of Intangible Assets and Rights

The Greek Public Revenue Authority recently published guidance on the amortization of intangible assets and rights. According to the guidance, the amortization is to begin from the month following the month in which the taxpayer begins to exploit the assets or rights. This applies whether the exploitation results in taxable income or not. Where the exploitation begins mid-year, the amortization is calculated in proportion to the remaining months of the year.

Luxembourg

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Luxembourg Issues Circular on Accounts in Foreign Currency

On 21 June 2016, Luxembourg published Circular L.G. - A n° 60, which concerns the tax treatment of accounts kept in a foreign currency. The Circular supersedes and replaces previous circulars on the issue. The key aspects of the Circular include:

  • Taxpayers wishing to declare taxable income in a foreign currency must submit a written request for authorization to the tax authority at least three months prior to the end of the tax year concerned;
  • Converted amounts must be rounded up or down to the nearest multiple of one hundred in the foreign currency (up if exactly in the middle);
  • In calculating the tax due, profits expressed in foreign currency must be converted to euro using either the average exchange rate for the year or the exchange rate at the end of the year - the choice is binding for future years;
  • For carried forward losses expressed in a foreign currency, the losses are converted using the exchange rate for year in which the losses are utilized;
  • For determining participation exemption eligibility under the EU Parent-Subsidiary Directive, participations expressed in a foreign currency are converted to euro using the historical exchange rate in the year the participation was acquired;
  • For net wealth tax purposes, the determination of the unit value for assets and liabilities in a foreign currency is generally made using the exchange rate as of the closing date of accounts, although for securities the exchange rate is the rate as of 31 December of the year preceding the year for which the value is determined (where the closing date of accounts is not 31 December, a binding choice may be made to use the exchange rate on 31 December for all assets and liabilities for the sake of simplification).

Click the following link for Circular L.G. - A n° 60 (French language).

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OECD Issues Additional Guidance on Implementation of CbC Reporting

On 29 June 2016, the OECD issued additional guidance on the implementation of Country-by-Country (CbC) reporting. The guidance covers the following.

Transitional filing options for MNEs ("parent surrogate filing")

The transitional filing options include that jurisdictions that do not yet have CbC reporting requirements for the year concerned may accommodate voluntary filing for ultimate parent entities resident in their jurisdiction, and such filing may fulfill the CbC reporting obligation in other jurisdictions, provided that:

  • The ultimate parent has made a CbC report available that complies with the BEPS Action 13 guidelines within 12 months following the close of the fiscal year concerned;
  • The jurisdiction has laws in place for CbC reporting by the filing deadline (even though filing for the reporting fiscal year is not required under those laws);
  • A competent authority agreement is in place with the ultimate parent's jurisdiction and the other jurisdiction(s) that require CbC reports;
  • No notification of a systemic failure for exchange has been given to the other jurisdiction(s); and
  • Notification has been given on the reporting entity to both the ultimate parent's jurisdiction and the other jurisdiction(s).

The application of CbC reporting to investment funds

The guidance includes that:

  • If an investment entity does not consolidate with investee companies based on accounting rules, the investee companies are not included as a part of an MNE group for CbC reporting purposes;
  • If accounting rules require an investment company to consolidate with a subsidiary, the subsidiary is included for CbC reporting purposes; and
  • If a company owned by investment controls other entities such that, in combination with these other entities, it forms an MNE Group, the MNE group will be subject to CbC reporting requirements if meeting the reporting threshold.

The application of CbC reporting to partnerships

The guidance states that a partnership's inclusion as a constituent entity of an MNE group for CbC reporting purposes depends on applicable accounting consolidation rules. If the rules required consolidation, then that partnership may be a constituent entity of an MNE group subject to CbC reporting.

For a partnership that is not tax resident in any jurisdiction, the partnership’s items not attributable to a permanent establishment should be included separately in the CbC report as a stateless entity, while a partner's share of the partnership’s items should also be included in the partner's jurisdiction of residence, if such partner is a constituent entity.

The impact of currency fluctuations on the agreed EUR 750 million filing threshold

The guidance states that in situations where reporting threshold vary in different jurisdictions due to currency fluctuations and the MNE group has not met the reporting threshold of the ultimate parent's jurisdiction, then no reporting obligation should apply in any other jurisdiction, provided the reporting threshold of the ultimate parent's jurisdiction is a near equivalent of EUR 750 million as of January 2015.

Click the following link for Guidance on the Implementation of Country-by-Country Reporting.

United Kingdom

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UK Parliament Fails to Pass Bill Requiring Public Disclosure of CbC Reports

On 28 June 2016, a proposed bill to require public disclosure of Country-by-Country reports was narrowly defeated in the UK parliament with a vote of 295 to 273. The bill would have amended the pending Finance Bill 2016 to require the publishing of a CbC report along with the new public tax strategy disclosure. Although the public bill for public CbC reports was defeated, the tax strategy disclosure requirements will still apply (previous coverage).

United States

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U.S. Final CbC Regulations Released

On 29 June 2016, the U.S. Treasury Department released the final regulations (TD 9773) for the implementation of Country-by-Country (CbC) reporting. Overall, the final regulations generally mirror the proposed regulations released in December 2015 (previous coverage), although certain amendments have been made for clarification.

General Requirements to File CbC Report

The CbC reporting requirements as included in the final regulations apply for U.S. resident ultimate parent entities of MNE groups, and stipulate that such MNEs are required to file a CbC report if annual group revenue meets or exceeds USD 850 million in the preceding reporting period.

The final regulations do not provide any secondary reporting requirements as included in the requirement of most other countries, i.e. U.S. constituent entities of foreign MNE groups will not be subject to local filing requirements in the U.S. and may not be appointed as a surrogate parent entity to file on behalf of a foreign MNE group. However, there is an exception for a U.S. territory ultimate parent entity, which may designate a U.S. business entity that it controls to file on its behalf.

Form 8975, Country-by-Country Report

The CbC report is submitted using a new form, Form 8975. When required, Form 8975 must be submitted on or before the due date (including extensions) for the annual tax return, and must contain the following:

  • Information on each constituent entity of the group, including:
    • The complete legal name of the constituent entity;
    • The tax jurisdiction, if any, in which the constituent entity is resident for tax purposes;
    • The tax jurisdiction in which the constituent entity is organized or incorporated (if different from the tax jurisdiction of residence);
    • The tax identification number, if any, issued for the constituent entity by the tax administration of the constituent entity’s tax jurisdiction of residence; and
    • The main business activity or activities of the constituent entity.
  • Aggregate information with respect to each tax jurisdiction in which one or more constituent entities is resident, including:
    • Revenues generated from transactions with other constituent entities;
    • Revenues not generated from transactions with other constituent entities;
    • Profit or loss before income tax;
    • Total income tax paid on a cash basis to all tax jurisdictions, and any taxes withheld on payments received by the constituent entities;
    • Total accrued tax expense recorded on taxable profits or losses, reflecting only operations in the relevant annual period and excluding deferred taxes or provisions for uncertain tax liabilities;
    • Stated capital, except that the stated capital of a permanent establishment must be reported in the tax jurisdiction of residence of the legal entity of which it is a permanent establishment unless there is a defined capital requirement in the permanent establishment tax jurisdiction for regulatory purposes;
    • Total accumulated earnings, except that accumulated earnings of a permanent establishment must be reported by the legal entity of which it is a permanent establishment;
    • Total number of employees on a full-time equivalent basis; and
    • Net book value of tangible assets, which, for purposes of this section, does not include cash or cash equivalents, intangibles, or financial assets.
  • Special Rules - Constituent entity with no tax jurisdiction of residence:
    • The above aggregate information must also be provided for any constituent entity or entities that have no tax jurisdiction of residence and shown under a separate stateless jurisdiction classification;
    • If a constituent entity is an owner of a constituent entity that does not have a jurisdiction of tax residence, the owner’s share of such entity’s revenues and profits will be aggregated with the information for the owner’s tax jurisdiction of residence.

Clarifications from Proposed Regulations

While the final regulations do not differ greatly from the proposed regulations, certain clarifications were made:

  • The definition of constituent entities is not modified, and is confirmed to exclude foreign corporations or foreign partnership for which the ultimate parent entity is not required furnish information under section 6038(a), or any permanent establishment of such foreign corporation or foreign partnership;
  • The definition of permanent establishment is modified to include:
    • A branch or business establishment of a constituent entity in a tax jurisdiction that is treated as a permanent establishment under an income tax convention to which that tax jurisdiction is a party;
    • A branch or business establishment of a constituent entity that is liable to tax in the tax jurisdiction in which it is located pursuant to the domestic law of such tax jurisdiction; or
    • A branch or business establishment of a constituent entity that is treated in the same manner for tax purposes as an entity separate from its owner by the owner’s tax jurisdiction of residence.
  • Regarding deemed domestic corporations, the final regulations provide that foreign insurance companies that elect to be treated as domestic corporations under section 953(d) are U.S. business entities for CbC reporting purposes; and
  • Following consultation with the Department of Defense, no significant national security risks where identified in the information required, so no national security exemption has been provided.

Effective Date

The new CbC reporting requirements will apply for fiscal years beginning on or after the date the final regulations are published in the Federal Register, which is scheduled for 30 June 2016.

In addition, although not provided for in the final regulations, voluntary filing of CbC reports will be allowed for U.S. MNE groups with fiscal years beginning before the effective date to enable compliance with the CbC reporting requirements already implemented in other countries. For this purpose, the Treasury Department is committed to entering into the required bilateral competent authority arrangements for the exchange of CbC reports in a timely manner, and will issue guidance for the voluntary filing in the future.

Click the following link for the final regulations.

Proposed Changes (2)

United Kingdom

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UK Updates Information on Royalty Withholding Tax Reforms

On 27 June 2016, UK HMRC published updated information on the pending royalty withholding tax reforms included in Finance Bill 2016. The measures provide additional obligations to deduct income tax at source from royalties paid to non-resident persons where either:

  • Arrangements have been entered into which exploit the UK’s double taxation agreements (DTAs) in order to ensure that little or no tax is paid on royalties either in the UK or anywhere in the world;
  • The category of royalty is not currently one of those in respect of which there is an obligation to deduct tax under UK law;
  • Royalties that do not otherwise have a source in the UK, but are connected with a business that a non-UK resident carries on in the UK through a permanent establishment.

The changes regarding avoidance under DTAs will apply from 17 March 2016, while the other required changes will apply from 28 June 2016.

Click the following link for the Income Tax: royalty withholding tax webpage for additional information.

Vietnam

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Vietnam Planning Reduced Corporate Tax Rates for SMEs and Certain Exemptions

According to recent reports, the Vietnam Ministry of Finance is currently finalizing a draft proposal to provide reduced corporate tax rates for small and medium-sized enterprises (SMEs). The proposal is expected to include two reduced rates of 15% and 17% that will apply from 1 January 2016 through 2020 (current standard rate is 20%). In addition, a four-year exemption followed by a reduced 10% rate for 15 years will be introduced for startups developing projects in disadvantaged, rural and remote areas.

Treaty Changes (3)

Dominican Rep-OECD

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The Dominican Republic Signs Mutual Assistance Convention

The OECD has announced that on 28 June 2016, the Dominican Republic signed the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. The Convention must now be ratified by the Dominican Republic and the ratification instrument deposited before entering into force in the country.

Click the following link for signatories to the Mutual Assistance Convention to date.

Iceland-Liechtenstein

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Tax Treaty between Iceland and Liechtenstein Signed

On 27 June 2016, officials from Iceland and Liechtenstein 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.  

Turkey-Belgium

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Turkey Ratifies Protocol to Tax Treaty with Belgium

On 24 June 2016, Turkey published in the Official Gazette the law ratifying the pending protocol to the 1987 income tax treaty with Belgium. The protocol, signed 9 July 2013, is the first to amend the treaty. It updates the definition of competent authority in respect of Belgium under Article 3 (General Definitions), replaces Article 26 (Exchange of Information) to bring it in line with the OECD standard for information exchange, and replaces Article 27 (Assistance in Recovery).

The protocol will enter into force once the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

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