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Tax News
Edition 23
December 2014/January 2015
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Welcome
Keeping up with the constant flow of
international tax developments worldwide
can be a real challenge for multinational
companies. International Tax News is a monthly
publication that offers updates and analysis
on developments taking place around the
world, authored by specialists in PwC’s global
international tax network.
We hope that you will find this publication
helpful, and look forward to your comments.
Uruguay
Brazil
Tax benefits for Shared
Service Centres (SSC)
activities
Normative Instruction
released providing for
regulation of the Brazilian
controlled foreign
corporation rules
France
China
5% lump sum cost and
expenses share on dividends
distributions arising from
95%-held EU companies
China and Russia signed new
Double Taxation Treaty (DTT)
Shi-Chieh ‘Suchi’ Lee
Global Leader International Tax Services Network
T: +1 646 471 5315
E: [email protected]
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In this issue
Tax legislation
Proposed legislative changes
Administration & case law
EU Law
Treaties
Belgium
New government announces tax plans/
reporting obligation for payments to
tax havens
France
Proposed change in the French tax
group regime
Brazil
Rectification of the Normative Instruction
dealing with Swiss privileged tax regimes
France
5% lump sum cost and expenses share on
dividends distributions arising from 95%held EU companies
Spain
Protocol to the Spain-Canada double tax
treaty signed
Slovakia
Changes to Slovak Income Tax Act
from 2015
Hong Kong
The Bill on the proposed stamp duty
waiver for transactions in all exchange
traded funds
Brazil
Tax rulings released dealing with Tax on
Financial Operations in Brazil
Canada
Canada-Brunei TIEA signed
Spain
Spanish tax reform enters into force on
January 1, 2015
Ireland
Proposed Legislative Changes
Brazil
Normative Instruction released providing
for regulation of the Brazilian controlled
foreign corporation rules
China
China and Liechtenstein signed tax
information exchange agreement (TIEA)
Taiwan
Tax amortisation of unpatented intangible
assets is not allowed
Singapore
Proposed amendments to the Income
Tax Act
Singapore
IRAS updates
China
China and Russia signed new double
taxation treaty (DTT)
Uruguay
Tax benefits for Shared Service Centres
(SSC) activities
United Kingdom
UK Autumn Statement
Cyprus
Cyprus and Iceland sign a double
tax treaty
Hong Kong
Hong Kong and the United Arab Emirates
signed a double tax treaty
Hong Kong
Hong Kong-South Africa double tax treaty
signed
Hong Kong
Hong Kong and the US signed an IGA for
FATCA purposes
Ireland
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Tax Legislation
Belgium
New government announces tax plans/reporting
obligation for payments to tax havens
New government announces tax plans
On October 9, 2014, the new Belgian government announced new tax
measures in its coalition agreement.
The coalition agreed, amongst others, on the following items:
•
A ‘look-through’ tax on legal arrangements such as trusts and
foundations, which would be charged on the income of a lowtax entity or trust payable to a Belgian resident shareholder or
beneficiary even if the income is not distributed to the individual.
•
A restriction of the scope of the catch-all provision to the cases
targeted initially, as mentioned in the circular in this respect
(i.e. only payments for services are targeted and a de minimus
rule for the first tranche of 38,000 euros (EUR) will be taken
into account).
•
Important changes to the secret commissions tax (i.e. the tax at a
current rate of 309% which is due in case certain payments made
are not correctly reported on forms), which could have a positive
impact on Belgian tax payers. The tax would become a tax of last
resort in case the beneficiary cannot be taxed (i.e. non-disclosure
or late disclosure of the beneficiary’s identity that prevents
effective taxation of the beneficiary) and would no longer be
punitive as the rate would decrease to 103% for individual tax
payers and 51.5% for companies (including additional crisis tax).
Failure to report would be sanctioned with administrative fines.
Axel Smits
Brussels
T: +32 (0)3 2593120
E: [email protected]
Pascal Janssens
Antwerp
T: +32 (0)3 2593119
E: [email protected]
Reporting obligation for payments to tax havens
As of January 1, 2010, companies subject to Belgian corporate income
tax (CIT) or Belgian non-resident CIT are obligated to declare direct
or indirect payments (in cash or in kind) exceeding EUR 100,000 to
recipients established in so-called ‘tax havens’. Payments that are not
reported in the tax return are not deductible.
Reported payments are only deductible if the taxpayer can prove that
the payment was made for an ‘actual and genuine’ transaction and was
not aimed at artificially avoiding tax.
For purposes of the reporting obligation, a tax haven country is, apart
from a standard list of countries compiled by the Belgian government,
also defined as a state that, for the whole taxable period during which
the payment was made, is considered by the Organisation for Economic
Co-operation and Development (OECD) Global Forum on Transparency
and Exchange of Information for Tax Purposes (‘the Global Forum’)
as a state that has not substantially or effectively applied the OECD
exchange of information standard (‘OECD blacklist’).
PwC observation:
New government announces tax plans:
Even though these proposed measures have not yet been introduced
as a draft bill in the Parliament, we invite clients with activities
in Belgium to already discuss the content of these new measures
in more detail in order to anticipate on how this could affect their
business going forward.
Reporting obligation for payments to tax havens:
The above mentioned reporting obligation applies for payments
made by Belgian companies to countries on the OECD blacklist.
Hence, companies that are subject to Belgian (non-resident)
corporate income tax should carefully monitor the OECD blacklist
in order to comply with this new reporting requirement.
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Tax Legislation
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Slovakia
Changes to Slovak Income Tax Act from 2015
The Slovak Parliament passed on October 30, 2014 an
amendment to the Income Tax Act which will be effective
from January 1, 2015. It is generally expected that the
amendment will become law when it is signed by the
President and published in the Collection of Laws in the
coming weeks.
The amendment includes, inter alia, the following measures:
•
Introduction of thin capitalisation rules which disallow interest
and other financing charges on any debt funding between related
parties in excess of 25% of adjusted Earnings before interest,
taxes, depreciation, and amortisation (EBITDA). The thin
capitalisation rules will also apply to cash-pooling or back-to-back
financing arrangements.
•
Revision of the rules governing the ‘source of income’.
In contrast to 2014, fees for services will only be taxable in
Slovakia (subject to any double tax treaty [DTT] relief) if
the services are performed in Slovakia or through a Slovak
permanent establishment (PE).
•
Certain service charges, e.g. commissions, advisory, and legal
fees, will only be tax deductible after being paid. In addition,
other restrictions may apply such as 35% withholding tax (WHT),
which will continue to apply on service fees paid to a nontreaty jurisdiction.
•
Taxpayers involved in research and development (R&D) will
be entitled to a R&D super deduction of at least 25% of actual
qualifying costs incurred.
Radoslav Kratky
Bratislava
T: +421259350569
E: [email protected]
The amendment also introduces a number of other changes such as
the tax depreciation rules and the extension of transfer pricing rules to
domestic transactions.
PwC observation:
The new rules are generally expected to increase the tax cost
for businesses in 2015. However, Slovakia’s tax system remains
attractive in its key features and continues to provide for various tax
structuring opportunities.
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Tax Legislation
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On November 28, 2014, the Spanish Official Gazette
published (i) a new Corporate Income Tax (CIT) Law (Law
No. 27) and (ii) Law No. 26 which amends the current NonResident Income Tax Law. Both laws will enter into force
on January 1, 2015 and will be applicable to tax periods
commencing on or after that date.
Among others, the main amendments in these two taxes would be
the following:
•
The CIT rate will be reduced from 30% to 28% in 2015 and
to 25% in 2016 and onwards (also applicable to permanent
establishments [PEs]).
•
The requirements for the participation exemption, which is also
extended to Spanish-resident subsidiaries, are simplified.
•
Anti-hybrid transactions rules are introduced (in the form of nondeductible expenses and non-exempted dividends).
•
The annual offset of net operating losses would be limited to the
70% of the company’s taxable base (1 million euros [EUR] could
be offset in any case).
•
The scope of the tax consolidation is enlarged to include
horizontal consolidation and dependent companies held through
a non-resident company.
Ramon Mullerat
Madrid
T: +34915685534
E: [email protected]
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Spain
Spanish tax reform enters into force on
January 1, 2015
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Taiwan
•
•
The withholding tax (WHT) rate on dividends, interest, capital
gains, and branch profit tax will be reduced to 20% in 2015 and
19% in 2016, whilst other income generated by non-residents
would be taxed at a 24% rate (except for European Union [EU]
taxpayers, in which case the 24% would be substituted by 20% in
2015 and 19% as of 2016).
The anti-abuse clause of the Parent-Subsidiary Directive is
simplified and now it must be proved that the EU shareholder was
incorporated for valid economic and substantive business reasons.
PwC observation:
Multinationals should consider the impact of the amendments in
their existing or future investments in Spain.
Bill to amend the date of entry into force of the CFC
rules to January 2015
The Ministry of Finance (MOF) reiterates that the tax
amortisation for non-patented intangible assets is not
allowed under Taiwanese tax law.
Due to the booming of the technology industry, many companies
purchased non-patented technology in order to reduce development
costs and risks. Since non-patented technology was not registered as
a patent with the competent authority, it does not have a useful life as
provided under the Patent Act and thus is not eligible for amortisation
under Article 60 of the Income Tax Act (ITA) or Tax Ruling No. 32167.
PwC observation:
Since tax amortisation of non-patented intangible assets is not
allowed, when a company claims amortisation for its intangible
assets, the company should pay more attention to examine if the
acquired intangible assets are qualified for tax deduction.
Carlos Concha
Madrid
T: +34915684365
E: [email protected]
Elaine Hsieh
Taipei
T: +886 2 27295809
E: [email protected]
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Uruguay
Tax benefits for Shared Service Centres (SSC) activities
Uruguayan tax authorities have issued the Decree
N° 251/014 that promotes under the Law N° 16,906
(Investment Law) activities carried out by shared service
centres (SSC), granting relevant tax benefits under
certain conditions.
For these purposes, SSC is defined as a subsidiary of a multinational
group that provides to its related parties exclusively advisory and data
processing services, used exclusively outside Uruguay.
Advisory services: shall be considered as those services rendered with
regard to activities performed, property located or rights economically
used outside Uruguay, including technical services rendered in the
fields of management, technical, administration or advice of any
kind, as well as consulting, translation, engineering projects, design,
architecture, technical assistance, audit, and training services.
Data processing services: refer exclusively to those services related
to data that corresponds to activities performed, property located, or
rights economically used outside Uruguay.
Tax benefits granted include the exemption of:
•
Corporate income tax (CIT) of 90% of the income derived from
the promoted activities, for five or ten fiscal years, counted from
the following fiscal year-end in which the inclusion of the project
as promoted activity is requested to the Executive Power.
•
Net wealth tax (NWT) on the assets involved in these activities,
since the fiscal year-end in which the referred request is filed
until the end of the CIT exemption period aforementioned. These
assets will be considered taxable assets for the calculation of
deductible liabilities for determination of the NWT taxable basis
(effective exemption).
To have access to the five year-end tax benefits, SSC must comply
simultaneously with the following conditions:
•
Generation of at least 150 new direct qualified jobs at the end of
the first three year-ends, jobs that must be preserved until the end
of the fifth year-end. At least 75% of the new jobs must correspond
to Uruguayan (natural or legal) citizens (the Executive Power may
allow temporary reductions of this threshold).
•
Implementation of a training plan with a minimum budget of
‘Unidades Indexadas’ 10 million (approximately 1,200,000 United
States Dollars [USD]) for the Uruguayan citizen employees during
the whole first three year-ends.
•
Applicability only for new projects, i.e. projects that start
rendering services since the effective date of the present decree.
The tax exemption period will be extended to ten years when (i) the
minimum number of jobs exceeds 300 at the end of the first five yearends and remains high until the end of the exemption period, and
(ii) the referred training expense exceeds twice the aforementioned
amount in the course of the first six year-ends.
Daniel Garcia
Uruguay
T: +59825182828
E: [email protected]
Eliana Sartori
Uruguay
T: +59825182828
E: [email protected]
Diego Tognazzolo
Uruguay
T: +59825182828
E: [email protected]
CIT exemption will also be applicable when promoted services are
rendered to related resident entities, provided they do not exceed 5%
of the total amount of services rendered during such period. In this
case, these services will not be included in the CIT exemption.
The granting of referred tax exemptions generates withholding
tax (WHT) benefits on payments (or credits) made abroad, such as
interests and technical services, allowing to make payments free from
WHT or with reduced tax rate (under certain conditions).
It must be noted that the provision of these advisory and data
processing services are not subject to value-added tax (VAT), and a tax
credit for VAT included in the acquisition of goods & services (input
VAT) connected to the costs of the services rendered is granted.
Finally, it is required to submit to a Public Office (‘Comisión de
Aplicación’ or COMAP) an expense breakdown of the training plan and
the commitment of the goals of generating qualified jobs. In addition,
the beneficiary must submit to COMAP on an annual basis necessary
documentation to verify the compliance of the commitments assumed.
In case of non-compliance with the assumed commitments by
the beneficiary, the decree foresees the loss of benefits, having to
reassess taxes unduly exempted and pay the corresponding fines
and surcharges.
PwC observation:
In the frame of the promotion of Uruguay as an attractive location
for investments, this new tax benefit encourages multinational
companies to set up SSC in the country. This makes Uruguay an
attractive location for such activities.
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Proposed legislative changes
France
Proposed change in the French tax group regime
The current version of the text provides with the following (section 30
of the Draft):
In its ‘Papillon’ decision of November 27, 2008 (C418/07), the European Court of Justice (ECJ) had
already ruled that a national legislation, which prohibits
tax consolidation of a French parent company and its
French lower-tier subsidiaries, if those subsidiaries
are held indirectly through an intermediary company
resident in another Member State, is incompatible with
the freedom of establishment. Pursuant to this decision,
the French tax consolidation regime was amended and
provides that French sub-subsidiary, held through a foreign
subsidiary, can be part of a French tax consolidation (Law
No. 2009-1674).
Eligibility requirements:
French sister companies directly or indirectly held by a non-French
company wishing to form a French tax consolidation group should
comply with several conditions. The parent company should be
located in a Member State of the European Union (EU), or in Iceland,
Liechtenstein, or Norway. Moreover,
More recently, the Court extended its approach to the case of
sister companies by a common parent company established in
another Member State. This was made through two decisions
dated June 12, 2014 (C-39/13 and C-41/13) - both to the Dutch tax
group regime.
Compliance requirements:
Compliance requirements to set up a horizontal tax consolidation
group must include an option letter from the foreign parent company
as well as an agreement from the foreign subsidiaries if any.
Pursuant to this decision, the French tax consolidation regime had to
be amended in order to allow horizontal structures to form a French
tax consolidation group. Section 30 of the Draft Amended Finance
Bill for 2014 aims at adapting the French tax consolidation regime
accordingly. Therefore, the Draft Amending Finance Bill for 2014
(currently under discussion) will define the conditions to set up a
French tax consolidation group between horizontal structures, and
its effects.
Renaud Jouffroy
Paris
T: +33 1 56 57 42 29
E: [email protected]
i.
the EU parent must hold 95% or more of the French subsidiaries,
ii.
the French subsidiaries and the EU parent company are required
to have the same fiscal year-end,
iii. the EU parent company must be subject to corporate income tax
(CIT) (or equivalent tax) without any exemption and
iv.
the EU parent company should not be held for more than 95%
by another CIT-liable EU company (or Iceland, Liechtenstein, or
Norway).
Head of the French tax consolidation group:
The draft proposal currently provides that the head of this horizontal
tax group would be one of the eligible French subsidiaries (and not the
foreign head company).
Application of the tax consolidation regime:
The Draft Finance Amending Bill provides for an application of the
specific rules that may apply under the French tax consolidation
regime: neutralisations and de-neutralisation of certain intragroup
transactions/transactions with the foreign parent company, so-called
Emmanuelle Veras
Marseille
T: +33 4 91 99 30 36
E: [email protected]
‘Charasse amendment’ regarding certain financial expenses, tax
treatment
of intragroup restructurings.
PwC observation:
The proposed provisions would apply to fiscal years ended as from
December 31, 2014 onwards. Eligible horizontal structures who
wish to apply the French tax consolidation regime for previous
fiscal years should file a claim for refund. Due to French statute of
limitations, claims would be available for financial years 2011 and
following provided that the filing occurs before December 31, 2014
(for financial year 2011).
The choice of the subsidiary elected as the head of the tax group is
quite strategic since the French tax impacts attached thereto may be
substantial notably in case of an exit of the consolidation group (tax
losses arising from group companies during the tax consolidation
period are kept by the head company once the subsidiaries leave the
group) or in respect of intragroup reorganisations.
Moreover, please note that current vertical tax consolidation may be
revised so that horizontal tax consolidations are set up instead (for
instance between two French sister companies which are currently
heads of French tax groups). Potential de-neutralisation costs
should however be anticipated due to the ceasing of the existing tax
group even if they would be (partly) mitigated (new Section 223, L
6 , f of the French Tax Code).
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Hong Kong
The Bill on the proposed stamp duty waiver for
transactions in all exchange traded funds
The Hong Kong Special Administrative Region (HKSAR)
government gazetted the Stamp Duty (Amendment) Bill
2014 on December 5, 2014.
The Bill seeks to waive stamp duty payable on the transfers of shares or
units of all exchange traded funds (ETFs) as proposed in the 2014/15
Budget delivered in February this year. The Bill has to be scrutinised
and approved by the Legislative Council before being enacted into law.
PwC observation:
Since 2010, the HKSAR government has granted stamp duty
concession in the trading of ETFs with their registers of holders
maintained in Hong Kong that tracks indices comprising not more
than 40% in Hong Kong stocks. With the Bill, the stamp duty waiver
will be extended to cover all ETFs irrespective of their underlying
portfolios and dates of listing. The Bill represents another step
taken by the HKSAR government in promoting the development,
management, and trading of ETFs in Hong Kong and strengthening
Hong Kong’s role as an international financial centre.
Fergus WT Wong
Hong Kong
T: +852 2289 5818
E: [email protected]
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Ireland
Proposed Legislative Changes
Following the Budget announcements by the Irish Minister
for Finance (MOF) on October 14, the 2014 Finance Bill
was published on October 23, 2014.
Following the recent Base Erosion and Profit Shifting (BEPS)
announcements by the Organisation for Economic Co-operation
and Development (OECD) in September, the Minister has made
what is expected to be the final unilateral action by Ireland with the
amendment of the tax residence rules. At an Irish parliamentary debate
on the release of the BEPS papers, the Minister stated that ‘the OECD
BEPS project offers more opportunities for Ireland than risks’. This
mirrored the sentiment of a Department of Finance report in October
2014 on the BEPS project which re-affirmed that Ireland’s Foreign
Direct Investment (FDI) policy is ‘centred on substance and as such is
well positioned to compete in the global FDI market for any investment
relocating as a result of the BEPS process’. In addition, the Department
of Finance report also highlighted that ‘Ireland is not mentioned in the
interim report on harmful tax practices and on that level there should
not be an immediate impact on Ireland from this report’.
Corporate tax residence reform
Previously, Irish incorporated companies were automatically Irish tax
resident subject to two exceptions. Whereas ‘treaty exception’ on the
one hand applies where an Irish company is considered tax resident
in another jurisdiction under the terms of an Irish double tax treaty
(DTT), the ‘trading exception’ is applicable if a company which is listed
(or is part of a listed group) or which is controlled by treaty residents
either carries on a trade in Ireland or is related to a company which
carries on a trade in Ireland. In this case, the company’s tax residence
will be determined under the ‘management and control’ test.
Denis Harrington
Dublin
T: +353 1 792 8629
E: [email protected]
The Finance Bill introduces amendments to the corporate tax residence
rules to phase out the so called ‘Double Irish’ structure. In order to
ensure alignment with the treatment of company residence in DTTs,
the treaty exception to the incorporation rule remains. This provides
that if, under the provisions of a DTT, an Irish incorporated company is
tax resident in another territory, the company will not be regarded as
Irish tax resident. The Finance Bill removes the trading exception, with
the amendments having effect from January 1, 2015 for companies
incorporated on or after that date. For companies incorporated
prior to the end of 2014, these amendments will only apply after
December 31, 2020.
The amendments also clarify that a non-Irish incorporated company
that is managed and controlled in Ireland will continue to be regarded
as Irish tax resident.
This means that all of the current corporate tax residence provisions
contained in the legislation (including the ‘Stateless’ provisions
introduced in last year’s Finance Bill and applying to pre-existing
companies from January 1, 2015) will continue to apply to companies
incorporated before January 1, 2015 until December 31, 2020.
Intellectual property (IP) tax regime
The Finance Bill introduced a number of enhancements to the existing
regime for capital allowances (tax depreciation) on intangible assets.
Firstly, the definition of specified intangible asset is extended to
include customer lists. However, the acquisition of a customer list
will only qualify to the extent that it is acquired otherwise than as
part of the transfer of a business as a going concern. While a welcome
addition, this provision could limit its applicability and disappointingly
is not as wide as announced by the Minister in the Budget.
Secondly, the 80% restriction on the combined capital allowances
and related interest expense that can be claimed for intangible asset
acquisitions in any one accounting period is removed such that 100%
of the acquisition cost and related interest expense will be deductible.
This means that trading profits from qualifying IP related activities
and exploitation in any one year can be sheltered in full (with carry
forward of any excess capital allowances and interest to later years),
which is a significant enhancement to the current regime.
However, it should be noted that, as is the case at present, it is not
possible for a company to use the combined Intellectual property
(IP) capital allowances and related interest expense to create or
increase a loss for tax purposes. The above changes will have effect for
accounting periods beginning on or after January 1, 2015.
Finally, an amendment has been introduced in relation to transfers
of intangible assets between connected companies which applies to
transfers occurring on or after October 23, 2014. The amendment
provides that a balancing charge (recapture of allowances) shall not be
made where the event, which would normally give rise to a recapture,
takes place more than five years after the beginning of the accounting
period of the company in which the asset was first provided. There
is a further amendment in this provision which also states that if the
IP which is disposed of after five years, is ultimately acquired by a
connected Irish company as part of the scheme then the unclaimed
allowances on the IP at the time of disposal is deemed to be the cost
of the IP for the purpose of calculating further allowances. In essence
the carry forward unused IP allowances can be transferred into the
connected company which acquires the IP.
continue
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Research and development (R&D) tax credit enhancements
Further enhancements to Ireland’s existing R&D tax credit regime were
announced which is recognised as one of the leading R&D incentive
regimes globally.
Currently, Ireland’s 25% (refundable) R&D tax credit applies to
incremental expenditure with reference to expenditure incurred in a
fixed base period of 2003. This base year limitation is being removed
from January 1, 2015 with the result being that future R&D tax
credits will be calculated entirely on the R&D spend. Although this
does not impact new investors without a ‘base year’, this is a positive
development for multinationals that are well established in Ireland.
Special Assignee Relief Programme (SARP)
Ireland’s SARP regime was first introduced in 2009 to attract
executives from abroad to work in Ireland by offering an effective
30% reduction on income tax on salaries within a certain threshold.
The programme is being extended until the end of 2017 and the upper
salary threshold is being removed. In addition, the requirement to have
been employed abroad by the employer before moving to Ireland has
been reduced to six months from 12 months.
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PwC observation:
From a corporation tax perspective, the key legislative proposals
relate to Ireland’s corporate tax residence and IP amortisation rules
and are broadly in line with expectations. The amendments to the
corporate tax residence rules will be on a transitional basis and this,
together with the proposed enhancements to our IP regime, should
provide certainty to existing and new FDI investors and help ensure
that Ireland remains competitive as a FDI location.
As anticipated, there is no further detail on Ireland’s proposed
‘Knowledge Development Box’ regime announced in the Budget.
This will involve a consultation process in 2015 with draft
legislation expected in next year’s Finance Bill with a proposed
effective date of January 1, 2016 (subject to European Union
[EU] approval).
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Singapore
Proposed amendments to the Income Tax Act
The Income Tax (Amendment) Bill 2014 was published on
October 7, 2014.
In addition, the Ministry of Finance (MOF) issued a press statement
on September 24, 2014 providing a summary of its responses to public
feedback received on the draft Bill, which was published for public
consultation in July 2014.
In particular, the Annex provides the MOF’s policy reasons for
accepting or rejecting suggestions relating to the following:
•
Introducing changes to the Productivity and Innovation Credit
(PIC) scheme and implementing the PIC+ scheme.
•
Putting in place measures to curb abuses of the PIC scheme.
•
Granting tax deduction for expenses incurred to comply with
statutory and regulatory requirements.
•
Extending Section 19B Writing-Down Allowance (WDA) for
Intellectual Property Rights by five years and clarifying the type
of ‘information that has commercial value’ that would be eligible
for WDA.
•
Refining the Designated Unit Trust Scheme.
•
Allowing Supplementary Retirement Scheme (SRS) members
who qualify for the 50% tax concession to withdraw their SRS
investments without liquidation of such investments.
•
Enabling the ratification of the Convention on Mutual
Administrative Assistance in Tax Matters.
Paul Lau
Singapore
T: +65 6236 3388
E: [email protected]
PwC observation:
The Income Tax (Amendment) Act 2014 was subsequently gazetted
on November 27, 2014. No significant changes to the Bill were noted.
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United Kingdom
•
UK Autumn Statement
The UK Chancellor of the Exchequer delivered his Autumn
Statement to Parliament on December 3, 2014.
Draft clauses for consultation and inclusion in Finance Bill 2015 were
published on December 10, 2014.
The main announcements which impact international tax structuring
includes the following:
•
•
Introduction of a new Diverted Profits Tax (DPT) from April 1,
2015. The government’s stated main objective is to counteract
arrangements that would otherwise erode the UK tax base. DPT
will apply in two situations. The first is where a foreign company
avoids a UK permanent establishment (PE). The second situation
is where a UK company or a foreign company with a UK-taxable
presence creates a tax advantage by using transactions or entities
that lack economic substance. The DPT will apply at a rate of 25%
on the diverted profits and will be payable within 30 days after
the issue of a charging notice by Her Majesty’s Revenue & Customs
(HMRC). HMRC has also published Guidance on the new tax.
Publication of a consultation document on the implementation
of rules to counter hybrid mismatch arrangements proposed
under Action 2 of the Organisation for Economic Co-operation
and Development (OECD)/Group 20 (G20) Base Erosion
and Profit Shifting (BEPS) Action Plan. The government has
decided to introduce new legislation to give effect to the OECD
recommendations, rather than amend the existing anti-arbitrage
legislation. The new legislation will apply to payments made on or
after January 1, 2017 and will counteract hybrid mismatches by
aligning the tax outcome of a payment made by an entity or under
an instrument to the tax outcome in the counterparty jurisdiction.
The consultation will run until February 11, 2015.
David J Burn
Manchester
T: +44 (0)161 247 4046
E: [email protected]
Chloe Paterson
London
T: +44 (0)20 7213 8359
E: [email protected]
•
Partial repeal of the late paid interest rules which apply where
the lender and borrower are connected, and those where a party
to a loan has a major interest in another, in order to counteract
perceived abuse of the late paid interest rules. The rules currently
require interest paid more than 12 months after the end of the
accounting period in which it accrues to be tax relieved when the
interest is paid rather than when it accrues. The repeals will have
effect in respect of new loans entered into on or after December 3,
2014. For loans entered into before December 3, 2014, the repeals
will have effect in respect of interest accruing or discounts arising
on or after January 1, 2016, unless material changes (including a
change of lender) are made to the loan between December 3, 2014
and December 31, 2015, in which case the repeal will be effective
from the date of the change.
Introduction of legislation enabling the implementation in the UK
of the OECD model for country-by-country reporting. The new
rules will require multinational enterprises to provide high level
information to HMRC on their global allocation of profits and
taxes paid, as well as indicators of economic activity in a country.
•
The government has confirmed its willingness to grant
corporation tax rate setting powers to the Northern Ireland
Assembly, provided that certain conditions can be met.
•
All requirements relating to the location of a consortium ‘link
company’ (a company that is both a member of a group and
a member of a consortium) for group relief purposes will be
removed with effect for accounting periods beginning on or after
December 10, 2014. Previously a link company was required to be
either in the UK or the European Economic Area (EEA).
•
From April 6, 2015 all returns made to shareholders through
special purpose share schemes, commonly known as ‘B share
schemes’, will be taxed as dividends.
•
Changes to the Companies Act to prohibit capital reductions of
companies in takeover situations using a scheme of arrangement
in which a company can be acquired without a 0.5% stamp duty
charge. The change is intended to ensure that purchasers pay
0.5% stamp duty on company takeovers.
PwC observation:
There was a lot in this Autumn Statement (there are over 550 pages of
draft legislation and explanatory notes), and only the key announcements
which are likely to impact on multinationals have been listed above.
Many of the measures targeting multinationals appear consistent with
the OECD/G20 thinking on BEPS. However, whilst the UK is working
with the international community in some areas (e.g. country by country
reporting), in other areas (e.g. the new DPT) the UK has decided to take
unilateral action.
With respect to the new DPT, the UK, like most other countries, has always
drawn a distinction between ‘trading in’ the UK and ‘trading with’ the UK.
The first is taxable here; the second has not been. The internet age has
meant that multinationals could make significant profits from sales to the
UK without ever being regarded as ‘trading in’ the UK. These new rules
change that and deem such companies to be trading in the UK. The new
rules are complex (running to 28 pages) and will be difficult to operate
where there are double tax treaty (DTT) obligations and interactions with
the taxation of the same profits in the companies’ home countries. There
are lots of conditions in the rules so at this point it is hard to say how many
companies will be affected. For such detailed legislation to come ahead of
the OECDs reforms is surprising, although the overall theme is consistent.
The consultation document on implementation of hybrid mismatch rules
indicates that the UK legislation will closely follow the OECD proposals.
There will not be any transitional rules, so groups have just over two years
to bring their financing arrangements into line with the new rules.
Devolution of corporation tax rate-setting powers to Northern Ireland
could result in Northern Ireland having a lower rate of corporation tax
than the rest of the UK. While that future rate remains uncertain, a rate of
12.5% would achieve parity with the main Republic of Ireland corporation
tax rate.
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On October 17, 2014, the Brazilian Federal Revenue
Authorities (RFB) published a rectification in relation
to Normative Instruction 1,474/2014 (NI 1,474/2014)
published on June 20, 2014. The rectification establishes
that NI 1,474/2014 should take effect from June 20, 2014
rather than January 1, 2014 as set out in NI 1,474/2014.
By way of background, NI 1,474/2014 provided that certain Swiss tax
regimes should be considered ‘privileged tax regimes’ for Brazilian
tax purposes and also cancelled Switzerland’s suspended status as
a tax haven. Further, it removed the Hungarian offshore Korlátolt
Felelõsségû Társaság (KFT) regimes from its list of privileged tax
regimes.
When Brazilian taxpayers deal with parties subject to a privileged
tax regime, some important considerations include the application of
transfer pricing rules regardless of whether the foreign party is related
to the Brazilian entity, as well as more restrictive thin capitalisation
and payment deductibility rules.
NI 1,474 amended Normative Instruction No. 1,037/2010 (NI 1,037)
which set out a list of ‘tax havens’ and ‘privileged tax regimes’ for
Brazilian tax purposes. Specifically, in relation to Switzerland, NI 1,474
provides that the following regimes should be considered as privileged
tax regimes:
•
regimes applicable to a Swiss entity incorporated as a holding
company, domiciliary company, auxiliary company, mixed
company, and/or administrative company whose tax treatment
results in a corporate income tax (CIT) rate of lower than 20%
(on a combined basis) under federal, cantonal, and municipal
legislation, and
•
regimes applicable to other entities whose tax treatment, as a
result of application of rulings issued by local tax authorities,
results in a CIT rate of lower than 20% (on a combined basis),
under federal, cantonal, and municipal legislation.
Switzerland was originally considered a ‘tax haven’ jurisdiction
for Brazilian tax purposes in the ‘black list’ detailed in NI 1,037. Its
inclusion in the black list was then suspended and, as a result of
NI 1,474 was cancelled. Therefore, while Switzerland may not be
considered a tax haven jurisdiction, it is still necessary to consider
whether the particular regime applicable to the Swiss entity falls
within the definition of privileged tax regime.
PwC observation:
Taxpayers potentially impacted by NI 1,474/2014 should
consider whether the rectification is relevant for their particular
circumstances (i.e. for transactions and activities conducted
between January 1, 2014 and June 20, 2014).
Durval Portela
São Paulo
T: +55 11 3674 2582
E: [email protected]
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Administration and case law
Brazil
Rectification of the Normative Instruction dealing with
Swiss privileged tax regimes
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Philippe Jeffrey
São Paulo
T: +55 11 3674 2271
E: [email protected]
Mark Conomy
São Paulo
T: +55 11 3674 2519
E: [email protected]
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Treaties
On September 12, 2014 and September 26, 2014, the
Brazilian Federal Revenue Authorities (RFB) issued Tax
Ruling No. 248/2014 and 261/2014 respectively, providing
guidance in relation to the application of Tax on Financial
Operations (IOF) on extensions, renewals, or modifications
to foreign loans and also on the capitalisation of debt.
In relation to Tax Ruling No. 248/2014, the RFB determined that
the extension, renewal, or modification in the terms of foreign loans
represents a taxable event for IOF purposes. Therefore, where the
minimum average term (currently 180 days) is not observed at the
moment this event occurs, IOF should be imposed at the rate of 6%
of the principal amount (plus the applicable interest and penalties).
Further, the extension, renewal, or modification should be viewed as
a deemed simultaneous outflow and inflow of funds for regulatory
purposes (e.g. updates to the Brazilian Central Bank registrations are
likely to be required).
Further, the ruling confirmed that IOF of 0.38% shall not be levied on
the actual conversion of debt into equity, where in past there had been
some uncertainty in the market as to whether this transaction could
be viewed as a simultaneous deemed out-flow and in-flow of funds
(i.e. out-flow of loan principal and corresponding in-flow of capital)
that should attract IOF.
PwC observation:
Taxpayers contemplating capitalising foreign debts and/or amending
the terms of foreign loan agreements with Brazilian parties
should consider the potential impacts of these rulings on their
proposed transactions.
According to Tax Ruling No. 261/2014, the RFB confirmed that the
capitalisation of foreign debts will also constitute a taxable event
and IOF should therefore be levied at a rate of 6% on the inflow of
the original debt where the capitalisation of the loan occurs before
the minimum average term, along with the applicable interest
and penalties.
Durval Portela
São Paulo
T: +55 11 3674 2582
E: [email protected]
Philippe Jeffrey
São Paulo
T: +55 11 3674 2271
E: [email protected]
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Brazil
Tax rulings released dealing with Tax on Financial
Operations in Brazil
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Paulo Vellano
São Paulo
T: +55 11 3674 2977
E: [email protected]
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Brazil
Normative Instruction released providing for
regulation of the Brazilian controlled foreign
corporation rules
Consolidation
NI 1,520/2014 confirmed that the Brazilian parent company should
only be able to consolidate results until the end of 2022, where certain
conditions set out in Law No. 12,973/2014 are satisfied.
On December 8, 2014, Brazilian Federal Revenue
Authorities (RFB) published Normative Instruction (NI)
1,520/2014, regulating the controlled foreign corporation
(CFC) rules introduced by Law No. 12,973/2014.
Broadly, these include:
•
the subsidiary is located in a jurisdiction that has a tax treaty
or a specific information exchange agreement in place (or
electronically provides its financial statements)
•
This article provides a summary of some of the key issues considered
by NI 1,520/2014.
the subsidiary satisfies the ‘active income’ test (i.e. having active
income of equal to or greater than 80% of total income), and
•
Sub-account recognition and registration
Pursuant to Law No. 12,973/2014, Brazilian parent companies are
required to maintain sub-accounts in which changes in the value
of their foreign investments, corresponding to profits or losses of
directly and/or indirectly controlled subsidiaries should be recognised
in proportion to the Brazilian parent company’s participation. NI
1,520/2014 confirms that the variation must be booked in sub-accounts
for each direct or indirect controlled company.
the subsidiary is not located in tax haven, sub-taxation
jurisdiction (i.e. jurisdiction in which the nominal rate is less than
20%) or subject to a privileged tax regime or controlled directly/
indirectly by such an entity.
NI 1,520/2014 provides that although the choice to consolidate their
profits and losses is irrevocable for each calendar year, the Brazilian
parent company may elect which of its CFCs it wishes to consolidate.
The Brazilian taxpayer may only consolidate results of its CFCs once
per calendar year.
NI 1,520/2014 also confirms that the results of the directly or
indirectly held CFC should not contain income earned by another
entity over which the Brazilian entity continues to have direct or
indirect control. Further, NI 1,520/2014 provides guidance in relation
to how the sub-accounts for CFCs should be valued from an accounting
perspective, including in circumstances where cash is distributed.
Durval Portela
São Paulo
T: +55 11 3674 2582
E: [email protected]
Availability of positive results earned abroad
NI 1,520/2014 confirmed that profits of branches, affiliates, or
controlled subsidiaries located abroad should be included in the
calculation of the Brazilian entity’s taxable income on 31 December
of the calendar year in which the profits are made available to the
Brazilian entity. The timing for when profits are considered to be
made available to the Brazilian entity will generally depend on the
classification of the particular CFC (i.e. as an affiliate or a controlled
subsidiary). Broadly speaking with controlled subsidiaries being taxed
on an accruals basis while affiliates that satisfy certain conditions may
be eligible for CFC taxation on a cash basis.
Philippe Jeffrey
São Paulo
T: +55 11 3674 2271
E: [email protected]
Mark Conomy
São Paulo
T: +55 11 3674 2519
E: [email protected]
For controlled subsidiaries, the profits to be included in the Brazilian
entity’s taxable income should be determined based on the controlled
subsidiary’s local corporate legislation. Absent rules regulating
the preparation of financial statements in the relevant country, the
results to be included in the Brazilian entity’s taxable income should
be calculated based on the general accounting principles adopted
in Brazil.
In addition to the general rules in respect of when profits are made
available, NI 1,520/2014 provides specific guidance around when
profits will be considered to be made available in certain circumstances
such a closure or liquidation of the Brazilian company that holds
foreign branches, affiliates and/or controlled subsidiaries, closure of a
foreign branch, affiliate and/or controlled subsidiary, merger or sale of
a foreign branch, affiliate, and/or controlled subsidiary.
Taxation of profits earned by affiliates
As noted above, Law No. 12,973/2014 provides for distinct tax
treatment in respect foreign affiliates. For affiliates, NI 1,520/2014
confirms that profits will only be considered available to the Brazilian
parent company when credited, paid or in other specific circumstances
defined by the legislation. Therefore, the profits earned by the foreign
affiliate should generally only be taxable in Brazil on 31 December of
the year in which they were actually distributed to the Brazilian entity,
provided that the affiliate satisfies certain conditions outlined in the
new legislation.
Losses
NI 1,520/2014 confirmed that losses (including accumulated losses
prior to January 1, 2015) of the directly or indirectly controlled foreign
subsidiary may be used to offset future profits of the same entity
provided that they are disclosed and recorded appropriately.
continue
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Deductibility of transfer Pricing and thin
capitalisation adjustments
NI 1,520/2014 confirmed that transfer pricing and thin capitalisation
adjustments made in relation to the Brazilian entity’s dealings with
its foreign branches, affiliates treated as controlled subsidiaries or
controlled subsidiaries may be deducted for corporate income tax (CIT)
purposes where these adjusted amounts are reflected in the Brazilian
entity’s taxable basis for corporate income purposes and the tax has
been paid in Brazil on these adjustments.
Foreign tax offsets
Furthermore, the aforementioned NI confirmed that a deduction may
be taken for income tax paid abroad by a foreign controlled subsidiary,
in proportion to the Brazilian entity’s participation, up to the amount
of tax payable in Brazil in relation to the foreign income. Withholding
tax (WHT) is specifically included in the deductible tax paid abroad.
For affiliates eligible to apply the CFC rules on a cash basis, the foreign
tax offset should be limited to the WHT paid on the dividends included
in the Brazilian parent company’s taxable income.
Presumed credit
Law 12,973/2014 provides that until calendar year 2022, Brazilian
parent companies may deduct up to 9% as a presumed/deemed
credit on a CFC’s positive results where the CFC is engaged in the
manufacture of food/beverage products and the construction of
building/infrastructure projects and certain other conditions are
satisfied. Law No. 12,973/2014 provided that the list could be extended
to include additional activities.
On September 29, 2014, Ministry of Finance (MOF) issued Ordinance
427/2014 extending the list of activities eligible for the credit to
include: manufacturing, mineral extraction and exploitation (under
public concession contracts), of public assets located in the country of
residence of the CFC entity.
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On November 14, 2014, Law No. 13,043/2014 extended the list again
to include ‘other general industries’. However, it should be noted that
the latest inclusion set forth in Law No. 13,043/2014 has not been
considered in NI 1,520/2014.
Deferral of tax payments
Where certain conditions are satisfied, taxpayers may be eligible to
defer the payment of taxes in relation to their CFCs in proportion to
the profits distributed in subsequent years. In such circumstances, a
deemed distribution of 12.5% of the positive results will occur in the
following year with the remaining balance deemed to be distributed
in the eighth year following the assessment (if not previously
distributed). Deferred tax payments should be subject to interest at
London Inter Bank Offered Rate (LIBOR).
Other measures
NI 1,520/2014 also sets out the ancillary filing obligations and
specific forms that will need to be completed to comply with Law No.
12,973/2014.
PwC observation:
NI 1,520/2014 provides guidance to taxpayers navigating some of the
practical aspects of the new Brazilian CFC rules. Brazilian taxpayers
that have CFCs should review their procedures in light of the NI to
determine how they may be impacted by the new regulations.
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Singapore
IRAS updates
Recent updates from the Singapore tax authorities (IRAS) include:
Survey on publishing advance rulings: On September 8, 2014, the IRAS
published the results of the survey conducted in February/March 2014.
In order to protect the confidentiality of taxpayers’ identities and
business arrangements, the IRAS will not be publishing advance
rulings, but will incorporate scenarios from certain advance rulings
into the relevant circulars.
•
•
Deduction for statutory and regulatory expenses: The IRAS
issued a circular entitled ‘Deduction for Statutory and Regulatory
Expenses’ on September 12, 2014. The circular explains the
rationale and scope of tax deduction for qualifying statutory and
regulatory expenses incurred from the basis period for the Year
of Assessment (YA) 2014 onwards. The Income Tax Act has been
amended to provide for this deduction.
Productivity and Innovation Credit: On September 19, 2014, the
IRAS issued a revised circular on the Productivity and Innovation
Credit (PIC) scheme. The circular has been amended to reflect the
extension of the scheme for another three years, and to provide
details of enhancements to the scheme which are applicable
to small and medium sized enterprises (SMEs) (known as the
‘PIC+ scheme’).
Other amendments include:
• Cash payout option - The qualifying period for determining if the
‘Three local employees condition’ has been met is extended from
one to three months with effect from the YA 2016.
• Centralised hiring arrangements - individuals employed under
this arrangement are recognised as employees for PIC claim with
effect from YA 2014.
• Introduction of anti-abuse measures.
In addition, the IRAS has updated its website to include new
examples of IT and automation equipment qualifying for PIC for the
landscaping industry.
The Maritime and Port Authority of Singapore also announced on
October 15, 2014 that PIC benefits would be available for expenditure
incurred by bunker suppliers and bunker craft operators in adopting
mass flow meters with effect from YA 2015.
•
Research and development (R&D):On October 30, 2014, the
IRAS issued a revised circular on the R&D tax measures. The
circular incorporates a new Annex G: Application software R&D
projects to provide taxpayers with guidance on how to ascertain
whether their application software projects qualify for the R&D
tax measures.
PwC observation:
The publishing of advance rulings, albeit with sensitive information
removed to protect taxpayers’ confidentiality, would have paved the
way for greater transparency in tax administration. It is hoped that
the IRAS will reconsider its position at an opportune time in the
future, should such practices by other tax authorities become the
international norm.
The legislative intent behind the deduction for statutory and
regulatory expenses is to promote voluntary compliance with
statutory and regulatory requirements, including those of other
jurisdictions. Although the certainty provided by this deduction
should be welcomed by taxpayers, it may be argued that deduction
for most of such expenses should already be available under
current rules.
The revisions to the PIC circular mainly reflect changes proposed
in the 2014 Budget. The measures to curb PIC abuse reflects the
serious view which the IRAS takes towards taxpayers who attempt
to make false PIC claims.
Adoption of mass flow metres is mandatory for bunkering marine
fuel oil in the Port of Singapore from January 1, 2017, and the PIC
benefits will help the industry make the transition.
Ascertaining whether application software R&D projects qualify
as R&D for tax purposes is difficult and frequently the subject of
much uncertainty. It is hoped that the guidance provided will make
it easier for taxpayers to determine if their projects are qualifying
R&D projects.
Paul Lau
Singapore
T: +65 6236 3388
E: [email protected]
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EU Law
France
5% lump sum cost and expenses share on dividends
distributions arising from 95%-held EU companies
On July 29, 2014, the administrative Court of Appeal of
Versailles lodged a request for a preliminary ruling towards
the European Court of Justice (‘ECJ’ hereafter) with respect
to the 5% cost and expenses share that is taxed in France on
dividends distributions arising from 95%-held European
Union (EU) subsidiaries, in view of determining whether
this taxation could be considered as a restriction to the EU
freedom of establishment (Groupe Steria SCA v Ministry of
Finance and Public Accounts, Case C-386/14 and Versailles
Administrative Court of Appeal decision n°12VE03691, Sté
Groupe Steria).
Indeed, while within a French tax consolidated group, dividend
distributions from group subsidiaries are fully tax exempt (except for
distributions made by new member subsidiaries during their first year
of tax consolidation), whereas the maximum exemption only amounts
to 95% otherwise (i.e. out of a French tax group), hence there is a
taxation of a 5% lump sum cost and expenses share in application of
the parent subsidiary regime (participation exemption mechanism).
In that respect, a 5% lump sum cost and expenses share is taxed under
the participation exemption regime for dividends distributions arising
from subsidiaries located in another Member State of the EU while
dividends distributed by a French subsidiary which is placed in the
same situation than the EU subsidiary but, being a French company,
is member of the same French tax group as its parent company, are
fully exempt.
According to the administrative Court of Appeal of Versailles, this
situation could be interpreted as a restriction to the EU freedom of
establishment. In this context, the request that was lodged by the
administrative Court of Appeal is the following:
‘ Must Article 43 EC (now Article 49 TFEU) on freedom of
establishment be interpreted as precluding the rules governing the
French tax-integration regime from granting a tax-integrated parent
company neutralization as regards the add-back of the proportion of
costs and expenses, fixed at 5% of the net amount of the dividends
received by it from tax-integrated resident companies only, when
such a right is refused to it under those rules as regards the dividends
distributed to it from its subsidiaries established in another Member
State, which had they been resident would have been eligible in
practice, if they so elected?’
In addition, the French tax consolidation regime is only available
for French companies and not for companies established in another
Member State of the EU, even though said companies would
theoretically meet all the conditions required to be part of a French tax
consolidated group should they have been established in France.
It should be noted that the ECJ already ruled that the Dutch fiscal unity
regime (which is very similar to the French group taxation regime) is
not in breach of the freedom of establishment under EU Law insofar
as it allows a parent company to set up a tax consolidated group with a
resident subsidiary but it denies the setting up of such a tax group with
a non-resident subsidiary which is not taxable in the same member
state as the parent company (decision X Holding BV, February 25, 2010
case C-337/08).
Renaud Jouffroy
Paris
T: +33 1 56 57 42 29
E: [email protected]
Emmanuelle Veras
Marseille
T: +33 4 91 99 30 36
E: [email protected]
However, a potential breach of the EU freedom of establishment might
still be characterised should a specific tax advantage be granted to
member companies of a tax consolidated group only, while such an
advantage is not inherent to the tax consolidation regime itself and
where the actual objective would be to limit the application of this
advantage to domestic situations. Limiting this tax advantage to tax
consolidated groups would be used as a way to prevent non-domestic
companies from said benefit and could thus be contrary to EU freedom
of establishment.
PwC observation:
The outcome of the administrative Court of appeal’s request seems
rather uncertain for now based on existing European tax case
law. However, while the decision of the ECJ is pending, French
parent companies which received dividends from 95%-held EU
subsidiaries should introduce a claim (before 31 December 2014)
in order to preserve their legal rights and request the repayment
of the 5% lump sum cost and expenses share on said dividends
distributions made during 2011, 2012, and 2013. Potential refund is
however subject to the decision of the ECJ and to the decision of the
administrative Court of Appeal that will follow.
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Spain
Protocol to the Spain - Canada Double Tax
Treaty signed
The first protocol to amend the double tax treaty (DTT)
between Spain and Canada was signed on November 18,
2014 and will enter into force 30 days after both countries
exchange ratification instruments.
The main amendments are:
•
A reduced 5% withholding tax (WHT) rate on dividends is
introduced if the beneficial owner is a company (other than a
partnership) which holds directly at least 10% of the capital of the
paying entity, maintaining the current 15% for all other cases.
•
The branch profit tax will be reduced to 5% as opposed to the
current 15%.
•
Interest taxation is capped to 0% for unrelated parties and to 10%
for related parties, as opposed to the current 15%.
•
A specific anti-treaty shopping clause is introduced following
Base Erosion and Profit Shifting (BEPS) trends: the treaty would
not be applicable to those entities whose beneficial or ultimate
owners were resident in another state when the tax liability was
considered lower than the one that would have been triggered if
the beneficial or ultimate owners were resident in the same state.
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Canada
China
Canada-Brunei TIEA signed
China and Liechtenstein signed tax information
exchange agreement (TIEA)
The Agreement between the government of Canada and the
government of His Majesty the Sultan and Yang Di-Pertuan
of Brunei Darussalam for the exchange of Information (EOI)
on Tax Matters was signed on May 9, 2013 and entered into
force on December 26, 2014.
PwC observation:
Canada’s exemption system will apply to the net earnings from
an active business carried on in Brunei by a controlled foreign
corporation (CFC) resident in that jurisdiction for taxation years
beginning on or after December 26, 2014.
China and Liechtenstein signed a Tax Information
Exchange Agreement (TIEA) and an accompanying
protocol on January 27, 2014. The TIEA is expected to
facilitate the exchange of tax information between the
two countries.
The TIEA is now under internal legal procedures of each country
respectively and would take effect in respect of taxable years
beginning on or after the date of entry into force.
PwC observation:
Chinese tax authorities have always been dedicated to enhancing
the taxation transparency and information exchange mechanism.
So far, China has signed TIEA’s with ten jurisdictions including that
with Liechtenstein.
PwC observation:
Multinationals with presence in Spain and Canada should revisit
their structures in view of this Protocol.
Ramon Mullerat
Vienna
T: +34915685534
E: [email protected]
Luis Antonio Gonzalez
Madrid
T: +34915685528
E: [email protected]
Kara Ann Selby
Toronto
T: +1 416 869 2372
E: [email protected]
Maria Lopes
Toronto
T: +1 416 365 2793
E: [email protected]
Matthew Mui
China
T: +86 (10) 6533 3028
E: [email protected]
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China
China and Russia signed new double taxation
treaty (DTT)
On October 13, 2014, China and Russia signed a new DTT
and an accompanying protocol. The new DTT embodies the
new trends in the development of international tax treaty.
Compared with the China-Russia DTT signed in 1994 (1994 DTT), the
new DTT contains the following key changes:
•
The time threshold for constituting a service permanent
establishment (PE) is changed from 18 months within any period
to 183 days within any 12 month period.
•
Withholding tax (WHT) rate on dividends, interest, and royalties
is reduced from 10% to 5%, 5% and 6% respectively.
•
Under the 1994 DTT, the source country can tax capital gains
on the transfer of shares of a non-property rich company in that
source country if the transferor owns 25% or more of the shares.
The new DTT gives the exclusive taxing right to the resident
country of the transferor.
•
A stand-alone limitation of benefits (LoB) article enforced to
tackle treaty shopping is added, which follows the example
provision in the Commentary of the Organisation for Economic
Co-operation and Development (OECD) Model Tax Convention.
This is the most comprehensive LoB article in any China’s tax
treaties so far.
•
As proper diplomatic procedures have not been completed in 2014
the new DTT would likely apply to income derived on or after
January 1, 2016.
Matthew Mui
China
T: +86 (10) 6533 3028
E: [email protected]
PwC observation:
Compared with the tax treaties China has signed with other
jurisdictions, the new DTT with Russia generally allocates more
tax to the resident countries. It is a sign that the two Brazil, Russia,
India, China, and South Africa (BRICS) countries are encouraging
investment and business from each other. Also the new DTT has
introduced many anti-treaty abuse mechanisms, relevant taxpayers
are suggested to take them into consideration when assessing their
eligibility for treaty benefits.
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Tax Legislation
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Hong Kong
Cyprus
Cyprus and Iceland sign a double tax treaty
Under the treaty Cyprus retains the exclusive taxing right on disposals
of shares in Icelandic companies except in the following cases:
On November 13, 2014 Cyprus and Iceland signed the first
ever double tax treaty (DTT) between the two countries.
•
Before the treaty can take effect it must undergo certain legal formalities
in Cyprus and Iceland, and between the two countries. Since these
formalities have been completed at December 22, 2014 the treaty is
effective as of January 1, 2015. However, based on the typical duration
of such legal processes we would expect a later effective start date for
the treaty.
•
Under the treaty there is no withholding tax (WHT) on interest. The
rates of WHT on dividends and royalties are set out below:
Dividends:
• 5% of the gross amount of the dividends if the beneficial owner is
a company (other than a partnership) which holds directly at least
10% of the capital of the company paying the dividends and
•
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10% of the gross amount of the dividends in all other cases.
Royalties:
• 5% of the gross amount of the royalty.
when the disposed-of shares derive more than 50% of their
value directly or indirectly from immovable property situated in
Iceland or
the disposal of shares is made by an individual who was a resident
of Iceland in the course of the last five years preceding the disposal.
PwC observation:
The signing of this treaty will enhance economic relations between
Cyprus and Iceland and further illustrates the Cyprus government’s
continuing commitment to expand Cyprus’ DTT network.
Hong Kong and the United Arab Emirates signed a
double tax treaty
Hong Kong signed a double tax treaty (DTT) with the
United Arab Emirates (UAE) on December 11, 2014,
bringing the number of DTT signed by Hong Kong to 31.
As Hong Kong does not currently impose any withholding tax (WHT)
on dividends and interest and the WHT rate on royalties paid to nonresidents under the Hong Kong domestic law (i.e. 4.95%) is lower than
that specified in the Hong Kong-UAE DTT (i.e. 5%), the major benefits
under the DTT for UAE resident companies investing in Hong Kong will
be the potential tax exemption for
i.
business profits derived from Hong Kong provided that there is
not a permanent establishment (PE) in Hong Kong and
ii.
trading gains derived from Hong Kong from disposal of shares.
PwC observation:
The Hong Kong-UAE DTT has not yet entered into force as
ratification procedures by both sides are still pending.
Irrespective of the above WHT rates on dividend and royalty payments,
Cyprus does not apply WHT on dividend payments to non-Cyprus tax
residents at all times, and only applies WHT on royalties payment to
non-Cyprus tax residents for rights used within Cyprus, as per the
provisions of the local tax legislation.
Stelios Violaris
Nicosia
T: +357 22555300
E: [email protected]
Nicos Chimarides
Nicosia
T: +357 22555270
E: [email protected]
Fergus WT Wong
Hong Kong
T: +852 2289 5818
E: [email protected]
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Hong Kong
Hong Kong
Ireland
Hong Kong-South Africa double tax treaty signed
Hong Kong and the US signed an IGA for
FATCA purposes
Treaties
Hong Kong recently signed a double tax treaty (DTT) with
South Africa, bringing the number of treaties signed by
Hong Kong to 32.
As Hong Kong does not currently levy any withholding tax (WHT) on
dividends and interest paid to non-resident companies and the WHT
rate on royalties under the Hong Kong domestic law (4.95%) is lower
than that under the Hong Kong-South Africa DTT (5%), the major
benefit of the DTT for South African resident corporations investing
in Hong Kong will be the protection against Hong Kong profits tax
exposure as long as their business activities carried out in Hong Kong
do not create a permanent establishment (PE) in Hong Kong. On the
other hand, potential benefits for Hong Kong resident companies
investing into South Africa under the Hong Kong-South Africa DTT
include: (i) the reduced treaty WHT rates on dividends, interest, and
royalties, (ii) elimination of the WHT for service fees derived from
South Africa as far as the provision of services does not create a PE in
South Africa, and (iii) possible tax exemption for gains derived from
disposal of shares in a property holding company provided that certain
conditions are met.
Further to the inter-governmental agreement (IGA)
substantially agreed in May 2014, Hong Kong and the
US formally signed a Model 2 IGA on November 13, 2014
to facilitate compliance with the US Foreign Account Tax
Compliance Act (FATCA) by financial institutions in
Hong Kong.
Under the Model 2 IGA, Hong Kong financial institutions will report
the information collected directly to the US Internal Revenue Services
(IRS). The first reporting by financial institutions in Hong Kong is
expected to take place in March 2015.
PwC observation:
The Hong Kong-US IGA will reduce the reporting burden and
facilitate compliance with FATCA by financial institutions in Hong
Kong. Exemptions of certain financial institutions and products that
present low risks of tax evasion by US taxpayers are available under
the IGA.
In this issue
The new Botswana-Ireland tax treaty was signed on
June 10, 2014. This treaty provides for a 5% withholding
tax (WHT) on dividends, a 7.5% WHT on interest and 5%
WHT on royalties in respect to the use of or the right to use
industrial, commercial, or scientific equipment.
A 7.5% WHT applies in respect of other royalties.
A new agreement with Ethiopia was signed on November 3, 2014
which is not yet in effect, the text of the treaty will be available
shortly. Protocols to the existing agreements with Belgium, Denmark,
and Luxembourg were signed on April 15, 2014, July 22, 2014,
and May 27, 2014 respectively. The legal procedures to bring these
protocols into force are now being followed.
PwC observation:
These recent ratifications signal Ireland’s commitment to expanding
and strengthening its double taxation treaty (DTT) network. Ireland
has signed comprehensive DTTs with 72 countries, 68 of which are
now in effect and negotiations are ongoing with other territories at
this time.
PwC observation:
The Hong Kong-South Africa DTT has not yet entered into force as
ratification procedures are still pending in both countries. Once the
DTT is legally effective, it would become more attractive for South
African resident companies to invest in Hong Kong.
Fergus WT Wong
Hong Kong
T: +852 2289 5818
E: [email protected]
Fergus WT Wong
Hong Kong
T: +852 2289 5818
E: [email protected]
Denis Harrington
Dublin
T: +353 1 792 8629
E: [email protected]
Tax Legislation
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Changes
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& Case Law
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Contact us
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international tax services, please contact:
Anja Ellmer
International tax services
T: +49 69 9585 5378
E:[email protected]
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