Worldwide Tax News
Australia Tax Risk Management and Governance Review Guide
The Australian Taxation Office has published a guide setting out principles for tax risk management and governance. The guide was developed primarily for large and complex corporations, tax consolidated groups, and foreign multinational corporations conducting business in Australia, but can be applied to a corporation of any size if tailored appropriately. The guide is broken down into six sections:
- Director's summary;
- Board-level responsibilities;
- Managerial-level responsibilities;
- Tax control frameworks for medium and small corporations;
- How to test controls; and
- Self-assessment procedures for reviewers.
Click the following link for the Tax risk management and governance review guide.
India Publishes FAQ on Implementation of GAAR Provisions
On 27 January 2017, India's Central Board of Direct Taxes issued Circular No. 7 of 2017, which provides clarifications on the implementation of the General Anti-Avoidance Rule (GAAR) that will come into force from 1 April 2017. The Circular takes the form of a FAQ prepared by the Board based on comments/queries received during a consultation with stakeholders held in June 2016. The FAQ includes 16 questions and answers covering a number of areas including GAAR in relation to Special Anti-Avoidance Rules (SAAR), treaty limitation on benefits (LOB), securities and investment transactions, advance rulings, penalties, and others.
Click the following link for Circular No. 7 of 2017: Clarifications on implementation of GAAR provisions under the Income Tax Act, 1961.
OECD Invites Comments for Second Batch of MAP Peer Reviews
On 30 January 2017, the OECD announced the second batch of countries that will undergo review as part of the Mutual Agreement Procedure (MAP) peer review and monitoring process for implementation of the minimum standard developed under BEPS Action 14. The second batch includes Austria, France, Germany, Italy, Liechtenstein, Luxembourg, and Sweden. In connection with the reviews, the OECD is seeking input from taxpayers regarding their experience with the MAP process in the respective countries.
Click the following link for the OECD announcement, which includes a link to the questionnaire and instructions for submission. The deadline to submit the questionnaire is 27 February 2017.
U.S. GAO Publishes Report on the Potential Impact on IRS and U.S. Multinationals of Revised International Guidance on Transfer Pricing
On 27 January 2017, the U.S. Government Accountability Office Published a report on the potential impact on the IRS and U.S. multinationals as a result of the revised international guidance on transfer pricing developed as the OECD BEPS project. In particular the report looks at the potential impact of the revised OECD transfer pricing guidance (Actions 8-10) and Country-by-Country (CbC) reporting (Action 13). The main highlights as provided in the study are as follows:
Transfer Pricing Guidance: OECD's guidance emphasizes that transfer price analysis should reflect actual economic activities, such as who controls decisions related to risk and who has the financial capacity to bear the risk. This clarifies prior guidelines, which also included risk analysis based on functions, but that now focus on the parties' ability to control and finance risk. GAO found that
- OECD's revised guidance may reduce BEPS if it encourages MNEs and tax authorities to ensure that transfer prices are based on real economic activity. U.S. regulations consider risk as part of the analysis of transfer prices. The arm's length principle, which treats transactions between related parties as if they were unrelated, is widely accepted for evaluating transfer prices. However, its application to risk is problematic because related parties cannot transfer risk the way unrelated parties can. Without addressing the application of the arm's length principle under these situations, uncertainty about the correct transfer prices may allow for continued BEPS.
- Administration costs of implementing the guidelines will be minor according to Internal Revenue Service (IRS) officials because IRS's transfer price reviews are consistent with the revised guidance. However, taxpayer compliance costs are uncertain because they will depend on how MNEs respond to the revisions.
- According to stakeholders and industry literature, U.S. employment and investment are unlikely to be significantly affected because the transfer pricing guidance affects a relatively narrow area of the tax code.
Transfer Pricing Documentation and Reporting: OECD's guidance includes new country-by-country (CbC) documentation and reporting actions where information on MNEs activities in different countries will be shared among the countries' tax authorities. GAO found that
- CbC reporting may decrease BEPS because more consistent information will be available to tax authorities on the worldwide activities of MNEs.
- According to IRS officials, CbC implementation costs are uncertain at this time, but can be mitigated by using existing systems and processes. However, MNE compliance costs would likely increase due to new data system needs, according to stakeholders.
- The economic effect of CbC reporting is uncertain because it depends on the extent to which MNEs move business functions to low-tax countries in response to the potential increased scrutiny of BEPS.
Hong Kong Publishes Legislation for Increased Stamp Duty on Residential Property Transactions
On 27 January 2017, Hong Kong government published the Stamp Duty (Amendment) Bill 2017. The legislation introduces a new flat rate of 15% for the ad valorem stamp duty chargeable on residential property transactions, in lieu of the existing progressive rates up to 8.5%. The new rate will generally apply to all transactions of residential property acquired by individuals or companies. However, the current reduced rates will continue to apply for Hong Kong permanent resident that do not own any other Hong Kong residential property at the time of acquisition.
The legislation will be introduced into the Legislative Council on 8 February, and subject to approval, will be effective from 5 November 2016.
SSA between Albania and Austria Signed
On 25 January 2017, officials from Albania and Austria signed a social security agreement. The agreement is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.
SSA between Chile and South Korea to Enter into Force
The social security agreement between Chile and South Korea will enter into force on 1 February 2017. The agreement, signed 22 April 2015, is the first of its kind between the two countries and generally applies from the date of its entry into force.
Tax Treaty between Costa Rica and the U.A.E. to be Negotiated
According to a recent release from the Costa Rican government, president Luis Guillermo Solís met with United Arab Emirates officials on 17 January 2017 to discuss trade and investment relations, including the negotiations of an income tax treaty. 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.
French Senate Approves CbC MCAA
On 26 January 2017, the French Senate adopted the law approving the Multilateral Competent Authority Agreement (MCAA) on the exchange of Country-by-Country (CbC) reports. The CbC MCAA, signed by France on 27 January 2016, provides for the exchange of CbC reports under the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol, which has been in force as amended in France since April 2012. France will exchange reports received with respect to the 2016 fiscal year in the beginning of 2018.
Tax Treaty between Greece and the U.A.E. in Force along with Amending Protocol
According to recent reports, the income and capital tax treaty between the United Arab Emirates and Greece entered into force on 16 December 2014 and is effective from 1 January 2014. The treaty, signed 18 January 2010, is the first of its kind between the two countries. The treaty has also been amended by a protocol signed on 7 June 2013, which entered into force the same date.
The treaty covers Greek income and capital tax on natural persons, and income and capital tax on legal persons. It covers U.A.E. income tax and corporation tax.
- Dividends - 5%
- Interest - 5%
- Royalties - 10% (modified by 2013 protocol - originally 5%)
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; 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 apply the credit method for the elimination of double taxation.
The 2013 protocol to the treaty replaced Article 25 (Special Provisions) with a new Article 25 (Income From Hydrocarbons and Natural Resources). The new Article 25 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, natural resources, and associated activities situated in the territory of the respective Contracting State, as the case may be.
The original final protocol to the treaty was abrogated (repealed) in its entirety by the 2013 protocol.
The treaty applies from 1 January 2014.