Worldwide Tax News
Japan Passes 2016 Tax Reform Including Corporate Tax Rate Cuts and Introduction of CbC Reporting Requirements
On 29 March 2016, Japan's National Diet (legislature) passed the bill for the 2016 tax reform (previous coverage). The main measures of the reform are summarized as follows.
The statutory corporate tax rate is reduced from 23.9% to 23.4% effective 1 April 2016, and will be further reduced to 23.2% in 2018. In addition, the enterprise tax rate is reduced from 6.0% to 3.6%.
These changes result in a reduction in the standard effective tax rate from 32.11% to 29.97% from 1 April 2016 and to 29.74% from 1 April 2018 (rates for companies with paid-in capital exceeding JPY 100 million excluding added-value and capital levy).
The utilization limit for carried forward tax losses is reduced from 65% of taxable income to 60% for the tax year beginning 1 April 2016, and will be further reduced to 55% and 50% for the tax years beginning 1 April 2017 and 1 April 2018 respectively.
New requirements based on the guidelines developed as part of Action 13 of the OECD BEPS Project are introduced, including:
- Country-by-Country (CbC) reporting requirements for fiscal years beginning on or after 1 April 2016 - applies for ultimate parent entities of MNE groups resident in Japan if group revenue in the previous year meets a JPY 100 billion threshold, as well as group constituent entities and permanent establishments resident in Japan if the ultimate parent is not filing a CbC report in a jurisdiction that will exchange the report with Japan;
- Master file requirements for fiscal years beginning on or after 1 April 2016 - applies for MNE group entities resident in Japan if group revenue in the previous year meets the JPY 100 billion threshold;
- Local file requirements for fiscal years beginning on or after 1 April 2017 - applies for entities resident in Japan with intangibles transactions with foreign related parties amounting to JPY 300 million or more in the previous fiscal year, or other transactions with foreign related parties amounting to JPY 5 billion or more in the previous year.
When required, the deadline for the CbC report and Master file is one year following the end of the fiscal year concerned, and the deadline for the Local file is with the tax return (two months after the end of the year with the possibility for a one-month extension).
The 8% consumption tax rate will be maintained for food and newspapers sold on a subscription when the standard rate is increased to 10% effective 1 April 2017. This excludes meals consumed in restaurants and alcoholic beverages, which will be subject to the increased rate.
Additional details of the final tax reform measures as passed will be published once available.
Morocco's Ministry of Economy and Finance has issued a decree reducing the maximum interest rate for loans granted by direct shareholders from 2.97% to 2.53% for 2016. Interest on loans exceeding that rate is non-deductible.
In addition to the interest rate limitation, Morocco also disallows the deduction of interest expense for loans from shareholders if the capital of a company has not been fully paid in and applies a debt-to-equity ratio limitation of 1:1.
Russia Approves Final List of Jurisdictions without Adequate Information Exchange for CFC Profit Exemption Purposes
The Russian Federal Tax Service has issued an order approving the final list of jurisdictions that do not have adequate tax information exchange with Russia. The importance of the list is its effect on the tax exemption for controlled foreign company profits. Under Russian law, an exemption from tax is provided for the profits of CFCs meeting certain conditions, unless the CFC is resident in a listed jurisdiction. The final list includes 137 jurisdictions that have either not entered into an agreement for information exchange with Russia, or have not responded adequately to information exchange requests.
Compared with the previous list issued in October 2015 (previous coverage), jurisdictions removed include Austria, Israel, Lebanon, Malta, Switzerland, the UK, and the Caucasus regions of Abkhazia and South Ossetia. Jurisdictions added include the Faroe Islands, Greenland, Guam, Puerto Rico, Taiwan and the U.S. Virgin Islands.
The list is effective from 1 April 2016. Going forward, a revised list is to be issued once each year in October and will be effective from 1 January of the following year.
On 28 March 2016, Sri Lanka's Inland Revenue Department issued a notice of revision to the corporate income tax rate changes as included in the 2016 Budget.
In the original 2016 Budget, a new standard rate of 15% was to be introduced along with a higher rate of 30% for certain sectors. Instead, the rates will be as follows:
- The 28% corporate income tax rate will be maintained for banking, financial services and insurance sectors;
- The 40% corporate income tax rate will be maintained for liquor, tobacco, lottery, betting and gaming sectors; and
- A new 17.5% corporate income tax rate will apply for all other sectors.
The rates are effective from 1 April 2016.
Click the following link for the revisions notice.
On 29 March 2016, Scotland's Greens Party announced proposed changes in the individual income tax rates and bands that deviate significantly from the rates and bands included in the UK Budget 2016. The power to set different rates in Scotland is one of the devolved powers provided under the recently passed Scotland Act 2016 (previous coverage).
Under the Greens Party proposal, the individual income tax rates and bands would be as follows for the 2017-2018 tax year:
- up to GBP 11,500 - 0% (personal allowance - same as UK Budget)
- over GBP 11,500 up to 19,000 - 18%
- over GBP 19,000 up to 43,000 - 22%
- over GBP 43,000 up to 150,000 - 43%
- over GBP 150,000 - 60%
Click the following link for the Greens Party proposal, which also includes proposals related to property tax.
On 29 March 2016, tax haven legislation (Bill SF 3318) was introduced in the senate of the U.S. State of Minnesota. The bill expands the definition of domestic corporations for tax purposes to include certain foreign corporations incorporated in tax havens. The legislation lists 45 jurisdictions to be considered tax havens. It also provides that a listed jurisdiction would cease to be considered a tax haven in the first taxable year after:
- The jurisdiction enters into a tax treaty or other agreement providing for the automatic exchange of information with the U.S.; and
- The jurisdiction imposes a tax rate of at least 10% on a tax base that is equal to at least 90% of the corporate tax base under the U.S. Internal Revenue Code.
If adopted, the changes would apply for taxable years beginning after 31 December 2015.
The Minnesota bill follows a number of tax haven related bills recently introduced in U.S. states, including recent bills passed by the respective houses in Colorado and Maine earlier in March (previous coverage). However, the final passage of these bills is uncertain. A senate committee has postponed the Colorado bill indefinitely and an amendment to the Maine bill has been proposed that would replace the tax haven language in the bill.
On 24 March 2016, Brazil's Chamber of Deputies (lower house of congress) approved for ratification the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. The Convention as amended was signed by Brazil on 3 November 2011. Ratification of the Convention will be completed once approved by the Senate (upper house) and a presidential decree is issued. It will enter into force in Brazil on the first day of the third month following the deposit of the ratification instrument.
On 17 March 2016, officials from India and the Marshal Islands signed a tax information exchange agreement. The agreement is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.
On 25 March 2016, the Italian Council of Ministers approved for ratification the pending income tax treaty with Iran. The treaty, signed 19 January 2005, 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.