On 10 August 2016, the Australian Taxation Office (ATO) released several international-tax-related documents covering various international tax, transfer pricing and Goods and Services Tax (GST) issues. These documents address international tax arrangements that the ATO sees as challenging and has under review regarding arrangements involving offshore permanent establishments, thin capitalization (incorrect calculation of the value of “debt capital” treated wholly or partly as equity for accounting purposes), GST implications of arrangements entered into in response to the Multinational Anti-Avoidance Law (MAAL), foreign hybrid limited partnership (FHLP) election by nonresident investors and offshore hubs draft practical transfer pricing compliance guidelines.
The ATO guidance covers a broad territory and reflects the ATO’s much more diligent and risk oriented approach to the management of tax risks in relation to Australian tax revenues arising from international transactions. The ATO approach is encouraged by the strong political and public focus on the adequacy of corporate tax revenues. This public focus is also relevant as companies consider their approach to the voluntary tax transparency code.
See EY Global Tax Alert, Australian Taxation Office releases international tax-related documents covering international tax, transfer pricing and GST issues, dated 10 August 2016.
On 1 August 2016, the European Union (EU) Tax Amendment Act 2016, including among other provisions, the new Austrian Transfer Pricing Documentation Law (TPDL) was authenticated by the Federal President and published in the Federal Law Gazette. The wording of the TPDL corresponds to the wording approved by Austrian Parliament. The TPDL is applicable for fiscal years starting on or after 1 January 2016.
See EY Global Tax Alert, Austrian Parliament approves new Transfer Pricing Documentation Law, dated 20 July 2016.
On 3 August 2016, as part of the measures to align Belgian tax law with BEPS Action 5, the Belgian Parliament approved new legislation to withdraw the patent income deduction (PID) as of 1 July 2016 with a five-year grandfathering period until 30 June 2021. The PID is expected to be replaced shortly with a new, broader innovation deduction (ID). While complying with the modified nexus approach provided for by BEPS Action 5, there will be significant improvements. The new regime would not be limited to patents, but would also apply to copyrighted software and plant breeders’ rights. The deduction rate is expected to increase to at least 90% of the net qualifying income resulting in an effective tax rate of maximum 3.4%. Unused innovation deductions could be carried forward. The income qualifying for the new innovation deduction would also include capital gains. The new regime would also be applicable to patent requests.
On 29 July 2016, the Canadian Department of Finance released draft legislative proposals relating to the 2016 Budget. The draft legislative proposal includes, among other measures, Country-by-Country (CbC) Reporting rules. The proposed legislation would be in line with the OECD final Action 13 report and would cover multinational enterprise (MNE) groups with consolidated group revenue greater than €750 million (like the UK, Canada would introduce a threshold in Euros and not in the country’s currency –Canadian Dollars). The first CbC report would be required for fiscal years beginning on or after 1 January 2016 and would be required to be filed within 12 months after the last day of the reporting fiscal year. However, if there has been systemic failure, the filing would occur within 30 days after notifying a Canadian constituent entity of this. No CbC report should be filed in Canada if a surrogate entity has filed a CbC report with the tax authority of the country in which it is resident before the filing date in Canada. Interestingly, the proposal provides that if an ultimate parent entity is a partnership it will be deemed to be resident. Thus, if the partnership is tax resident under the laws of a country, it will be resident therein; in any other case, it will be deemed resident in the jurisdiction under the laws of which it was organized. Penalties are set out in the draft legislation for failure to comply with the new reporting requirements, these penalties can reach CA$12,000 per report, or CA$24,000 in situations where a demand has been issued by the Minister to file the report. Comments on the proposal must be submitted by 27 September 2016.
See EY Global Tax Alert, Canada introduces country-by-country reporting legislation, dated 9 August 2016.
On 11 August 2016, Resolutions DGT-R-036-2016 and DGH-028-2016 were published in the Costa Rican Official Gazette. These Resolutions establish a commission to analyze and monitor the implications of the BEPS Action plan for Costa Rica.
On 2 August 2016, the Czech Republic Ministry of Finance started a public consultation on a bill which would introduce changes to the Law on International Cooperation in Tax Administration (the Bill). Among other changes, the Bill would introduce CbC reporting rules. The CbC requirements would apply to a group with consolidated group revenue of greater than €750 million during the immediately preceding accounting period (or an equivalent amount in CZK, based on an exchange rate valid for January 2015). Additionally, a secondary filing mechanism would be implemented to request a resident entity to file on behalf of the group when the ultimate parent entity (UPE) is resident in a country that does not require CbC reporting or does not have an exchange of information instrument in place with the Czech Republic. A one year reprieve is granted for filing under the secondary mechanism, thus such local filing is only required for financial years starting after 1 January 2017. The transitional provisions and explanatory report state, however, that the one-year reprieve does not apply if a surrogate entity was appointed. The CbC report will be due within 12 months of the end of the reporting accounting period of the multinational group. Penalties are set out in the Bill for penalties for a failure to comply with non-monetary obligations (e.g., failure to maintain the documentation, failure to cooperate with the UPE); a penalty of up to CZK3 million (approx. US$125k) for the reporting entity’s failure to meet notification requirements; and a penalty of up to CZK1 million for a Czech entity’s failure to meet notification requirements, subject to exceptions. For example, no penalty would be due if the Czech entity: (1) demonstrates that it did not receive the required information from the UPE; or (2) states all information in the CbC report which is available or which it has obtained or secured. The public consultation will run until 30 August 2016, and its text could be amended before it is passed.
On 11 August 2016, the Irish Revenue Authorities issued practical guidance on Ireland’s Knowledge Development Box (KDB). The KDB was introduced in late 2015 and can be availed of by companies in respect of accounting periods commencing on or after 1 January 2016. The regime offers a 6.25% effective tax rate for profits derived from patents and copyrighted software. It is the first OECD compliant patent/IP box in the world having been designed to comply with the new international guidelines on Action 5. It follows the modified nexus approach thereby aligning the benefits available to where the substantial activity is undertaken by the taxpayer. Alongside the 12.5% trading rate for companies, the 25% research and development (R&D) cash refund regime and attractive tax depreciation for intangible assets, the KDB further enhances Ireland’s offering to innovation intensive sectors thereby enhancing its leading position as a location for investment in R&D, intangible asset ownership, development and/or commercialization.
On 2 August 2016, the Luxembourg Government submitted a draft law implementing CbC reporting to the Luxembourg Parliament. The draft law is in accordance with a European Union (EU) Directive of 25 May 2016 requiring all EU Member States to implement a CbC reporting obligation in their national legislation. If adopted, all Luxembourg tax resident entities that are UPEs of a multinational group with annual consolidated group revenue equal to or exceeding €750 million will need to prepare a CbC report. Alternatively, if the UPE is not resident in Luxembourg, and it is not obligated to file a CbC report in its country of residence, or although obligated to file CbC report there is not an exchange of information instrument in place with Luxembourg, any other entity of the group that is resident in Luxembourg would have to prepare the CbC report. Moreover, a Luxembourg group entity will need to notify the Luxembourg tax authorities whether it is the UPE or surrogate parent entity. If it is not, it will have to inform the Luxembourg tax authorities of the identity of the UPE or surrogate parent entity along with its tax residency. The CbC report should be filed annually, within 12 months of the last day of the financial year. If the report is not filed or filed late, the Luxembourg tax administration may impose a penalty of up to €250,000. This penalty may also apply if the information included in the CbC report is incomplete or inaccurate, or if the report does not comply with other specific requirements of the draft law. If adopted, the legislation will apply to fiscal years starting on or after 1 January 2016.
See EY Global Tax Alert, Luxembourg introduces draft law on country-by-country reporting, dated 12 August 2016.
On 28 July 2016, the South African Revenue Service (SARS) issued a revised draft notice (Draft Notice) on record-keeping requirements for “potentially affected transactions.” This Draft Notice is a revised version of the draft notice that was released in December 2015. As per the revised Draft Notice, a person is required to comply with the record-keeping requirements if that person has entered into a potentially affected transaction; and the aggregate of the person’s potentially affected transactions for the year of assessment exceeds or is reasonably expected to exceed the higher of (i) 5% of the person’s gross income; or (ii) R50 million (approx. US$3.7 million). There are similarities between the information mentioned in the revised Draft Notice and the information required to be included in the Master File and Local File as introduced by the OECD under Action 13. However, the revised Draft Notice does not prescribe the form in which the information is to be kept (and hence it is not required to include the information in a report). Specific transfer pricing documentation regulations are expected to be issued by SARS later this year, in line with the final OECD recommendation under Action 13.
See EY Global Tax Alert, South Africa Revenue Service releases revised Draft Notice on additional recordkeeping for transfer pricing transactions, dated 9 August 2016.
On 9 August 2016, the Turkish Government proposed introducing a new withholding tax on the income derived by social media users in the Turkish tax legislation. The intention behind the proposal is to tax the profits derived from electronic commerce and online activities. The withholding tax rate on such e-commerce transactions may be re-determined by the Council of Ministers in coming days. The proposed legislation would be in line with the installation of withholding tax mechanism suggested by the OECD in its final report on Action 1.
See EY Global Tax Alert, Turkish Tax Authority proposes tax on electronic commerce, dated 10 August 2016.
On 2 August 2016, the UK Government announced that will propose amendments to the CbC reporting regulations to include partnerships, after the OECD made clear that partnerships are within scope as reporting entities. The amendment will be applicable for periods beginning on or after 1 January 2016.
EYG no. 02453-161Gbl