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Approved Changes (5)


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Australia Passes Bill to Address Double Taxation of Digital Currency

On 19 October 2017, the Treasury Laws Amendment (2017 Measures No. 6) Bill 2017 was passed by both houses of the Australian Parliament and is currently awaiting Royal Assent to be enacted. The Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to ensure that supplies of digital currency receive equivalent GST treatment as supplies of money (previous coverage). The amendments apply in relation to supplies or payments made on or after 1 July 2017.

Belgium-European Union

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CJEU Holds Belgian Rule Restricting Interest Deductions Violates Parent-Subsidiary Directive

On 26 October 2017, a judgment was issued from the Court of Justice of the European Union (CJEU) concerning whether the EU Parent-Subsidiary Directive conflicts with a Belgian rule according to which interest payments by a company are non-deductible to the extent that in the same tax year it receives exempted dividends from holdings that have been owned by the company for less than a year.

The case involves Belgian-based credit institution Argenta Spaarbank, which in the financial years 1999 and 2000 (tax years 2000 and 2001) incurred interest expense and also received dividends from company shares that had been held for less than a year. The interest paid was not connected with loans for the purchase of the holdings in question. However, in applying the provision of Article 198(10) of the Income Tax Code, the Belgian tax administration disallowed as a deduction the amount of interest expense equal to the amount of the dividend income. Argenta appealed, arguing that the application of that provision must be limited to cases in which there is a causal relationship between the interest and the dividends for which a deduction is being claimed. The case was heard by the Belgian Court of First Instance, which decided to refer to the CJEU for a preliminary ruling as to whether Article 198(10) violates the Directive or can be considered a provision for the prevention of tax evasion and abuses within the meaning of the Directive.

In its judgment, the CJEU found that Article 198(10) is not in compliance with the Directive and cannot be considered a provision for the prevention of tax evasion and abuses. In particular, the CJEU ruled that:

  1. Article 4(2) of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States must be interpreted as precluding a provision of domestic law, such as Article 198(10) of the 1992 Income Tax Code, coordinated by the Royal Decree of 10 April 1992 and confirmed by the Law of 12 June 1992, pursuant to which interest paid by a parent company under a loan is not deductible from the taxable profits of that parent company up to an amount equal to that of the dividends, which already benefit from tax deductibility, that are received from the holdings of that parent company in the capital of its subsidiary companies that have been held for a period of less than one year, even if such interest does not relate to the financing of such holdings.
  2. Article 1(2) of Directive 90/435 must be interpreted as not authorising Member States to apply a domestic provision, such as Article 198(10) of the 1992 Income Tax Code, coordinated by the Royal Decree of 10 April 1992 and confirmed by the Law of 12 June 1992, to the extent that that provision goes beyond what is necessary for the prevention of fraud and abuse.

Note - The Court went against the primary conclusion of its Advocate General (AG) on the case, which determined that Article 198(10) does not violate the Parent-Subsidiary Directive on the basis of the exemption clause in the second indent of Article 3(2), which provides that Member States have the option of exempting their companies from the Directive if they have not remained in possession of a holding for an uninterrupted period of at least two years (previous coverage). However, the AG's opinion also provided a secondary conclusion in the event the Article 3(2) conclusion is not accepted. This secondary conclusion is in line with the CJEU's final judgment.


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Brazil Extends Provisional Measure on Special Tax Regime for Oil and Natural Gas Sector

Brazil has published the National Congress Act 53 of 10 October 2017 in the Official Gazette. The Act extends Provisional Measure 795/2017, which was published 18 August 2017 and established a new special tax regime for the oil and natural gas sector effective 1 January 2018 (previous coverage). To remain in force, Provisional Measure 795/2017 must be converted into law with 60 days.

European Union-United Kingdom

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European Commission Opens State Aid Investigation into Group Financing Exemption under UK CFC Rules

The European Commission has announced that it has opened an in-depth investigation into the group financing exemption under the UK's CFC rules.


The European Commission has opened an in-depth probe into a UK scheme that exempts certain transactions by multinational groups from the application of UK rules targeting tax avoidance. It will investigate if the scheme allows these multinationals to pay less UK tax, in breach of EU State aid rules.

Commissioner Margrethe Vestager in charge of competition policy said: "All companies must pay their fair share of tax. Anti-tax avoidance rules play an important role to achieve this goal. But rules targeting tax avoidance cannot go against their purpose and treat some companies better than others. This is why we will carefully look at an exemption to the UK's anti–tax avoidance rules for certain transactions by multinationals, to make sure it does not breach EU State aid rules."

The general purpose of the UK's Controlled Foreign Company (CFC) rules is to prevent UK companies from using a subsidiary, based in a low or no tax jurisdiction, to avoid taxation in the UK. In particular, they allow the UK tax authorities to reallocate all profits artificially shifted to an offshore subsidiary back to the UK parent company, where it can be taxed accordingly. CFC rules in general are an effective and important feature of many tax systems to address tax avoidance.

However, since 2013, the UK's CFC rules include an exception for certain financing income (i.e. interest payments received from loans) of multinational groups active in the UK – the Group Financing Exemption. Generally speaking, financing income is often used as a channel for profit shifting by multinationals, given the mobility of capital. The UK's Group Financing Exemption exempts from reallocation to the UK, and hence UK taxation, financing income received by the offshore subsidiary from another foreign group company. Thus, a multinational active in the UK can provide financing to a foreign group company via an offshore subsidiary. Due to the exemption, it pays little or even no tax on the profits from these transactions, because:

  • the offshore subsidiary pays little or no tax on the financing income in the country where it is based; and
  • the offshore subsidiary's financing income is also not (or only partially) reallocated to the UK for taxation due to the exemption.

On the other hand, the CFC rules reallocate other income artificially shifted to offshore subsidiaries of UK parent companies to the UK for taxation.

The Commission's State aid investigation does not call into question the UK's right to introduce CFC rules or to determine the appropriate level of taxation. The role of EU State aid control is to ensure Member States do not give some companies a better tax treatment than others. The case law of the EU Courts makes clear that an exemption from an anti-avoidance provision can amount to such a selective advantage.

At this stage, the Commission has doubts whether the Group Financing Exemption complies with EU State aid rules. In particular, the Commission has doubts whether this exemption is consistent with the overall objective of the UK CFC rules.

The opening of an in-depth investigation gives the UK and interested third parties an opportunity to submit comments. It does not prejudge the outcome of the investigation.


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Malaysia Provides Withholding Tax Relief on Fees for Certain Services Performed Outside Malaysia

On 24 October 2017, Malaysia published the Income Tax (Exemption) (No. 9) Order 2017 in the Official Gazette, which provides a withholding tax exemption on fees for certain services performed outside Malaysia. Prior to 17 January 2017, fees for services were subject to withholding tax if deemed derived from Malaysia, which generally meant the services were provided in Malaysia. However, from 17 January 2017, deemed derivation rules were amended so that fees for services were deemed derived from Malaysia even if the services were performed outside Malaysia (previous coverage).

The exemption order provides relief from the change in derivation rules by providing an income (withholding) tax exemption in respect of income derived from Malaysia by a non-resident in relation to services referred to in Paragraph 4A(i) of the Income Tax Act 1967 or technical advice, assistance, or services referred to in Paragraph 4A(ii) of the Income Tax Action 1967, if rendered and performed outside Malaysia. Paragraphs 4A(i) and 4A(ii) include:

  • Amounts paid in consideration of services rendered by a non-resident person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any plant, machinery or other apparatus purchased from, such person; and
  • Amounts paid in consideration of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme.

The exemption order is deemed to have come into operation on 6 September 2017 and it is important to note that service fee payments between 17 January and 5 September 2017 still remain subject to tax.

Proposed Changes (1)

South Africa

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South African Medium Term Budget Policy Statement Delivered and 2017 Amendment Bills Tabled

South African Minister of Finance Malusi Gigaba has delivered the 2017 Medium Term Budget Policy Statement (MTBPS) and tabled the 2017 amendment bills before parliament, including the Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Bill 26 of 2017), the Taxation Laws Amendment Bill (Bill 27 of 2017), and the Tax Administration Laws Amendment Bill (Bill 28 of 2017). The MTBPS provides a relatively high-level overview of South Africa's finances and economic outlook, and to what extent the outlook supports national development objectives. The amendment bills give effect to the measures announced as part of the 2017 Budget delivered in February (previous coverage).

Click the following link for National Treasury's MTBPS webpage for more information.

Treaty Changes (2)


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Swiss Federal Council Approves Pending Tax Treaty with Pakistan

On 25 October 2017, the Swiss Federal Council adopted the dispatch for the approval of the pending income tax treaty with Pakistan. The treaty was signed on 21 March 2017, and once in force and effective, will replace the 2005 tax treaty between the two countries (previous coverage).

United States

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U.S. IRS Updates CbC Exchange Arrangement Table to Provide Operative Date

The U.S. IRS updated its Country-by-Country Reporting Jurisdiction Status Table to provide the operative (effective) date for the competent authority arrangement on the exchange of Country-by-Country (CbC) Reports that the U.S. has entered into. In general, the exchange arrangements are effective from the date they are signed, although in certain cases, an arrangement will instead become operative on the date of the later of the notifications provided by each competent authority that its Contracting State has the necessary laws in place to require reporting entities to file a CbC Report. Of the 29 exchange arrangements entered into, the operative date for 5 of the arrangements is not yet finalized, including the arrangements with Estonia, Greece, Guernsey, Jamaica, and Malta.


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