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The Latest on BEPS – 10 September 2018

The updated version provides additional clarifications, such as documentation for a non-paper company CFC and the requirements for a capital gain exemption under qualified post-merger-integration.

The new Japanese CFC rules apply to CFC fiscal years starting on or after 1 April 2018.

Kuwait

On 9 July 2018, the Kuwaiti Cabinet approved the MLI. The MLI is awaiting approval by the Kuwait Parliament. Once the domestic ratification process has been completed, Kuwait would need to deposit its instrument of ratification, approval or acceptance of the MLI with the OECD and confirm its MLI positions. The MLI will enter into force for Kuwait on the first day of the month following the expiration of a period of three calendar months beginning on the date of deposit of such instrument.

Luxembourg

On 3 July 2018, the Luxembourg Government submitted a draft law to the Luxembourg Parliament, ratifying the MLI. The draft bill contains the preliminary MLI positions submitted at the time of signature of the MLI with one amendment; the draft provides for one additional reservation on arbitration, being the exclusion of the tax treaty with Switzerland from those provisions. Once the draft law has been adopted, Luxembourg will need to deposit its instrument of ratification, approval or acceptance of the MLI with the OECD and confirm its MLI positions.

See EY Global Tax Alert, Luxembourg publishes draft law ratifying Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, dated 4 September 2018.

Malta

On 30 August 2018, the OECD released the fourth batch of peer review reports relating to the implementation of the BEPS minimum standard under Action 14 on improving tax dispute resolution mechanisms. Malta was among the assessed jurisdictions in the fourth batch. Malta requested that the OECD also provide feedback concerning their adoption of the Action 14 best practices, and therefore, in addition to the peer review report, the OECD has released an accompanying best practices report.

Overall the report concludes that Malta meets almost all the elements of the Action 14 minimum standard, although several elements were not available for assessment at this stage due to Malta’s limited experience with the MAP. Notwithstanding this limited experience, the Stage 1 peer review report appears to indicate that Malta generally has the tools to be able to resolve MAP cases satisfactorily. Malta has indicated that it is committed to address any shortcomings identified in its Stage 1 peer review report.

See EY Global Tax Alert, OECD releases Malta peer review report on implementation of Action 14 minimum standard, dated 5 September 2018.

Nordics

On 29 August 2018, the Nordic countries signed an amending protocol to the Denmark – Faroe Islands – Finland – Iceland – Norway – Sweden Income and Capital Tax Convention (Nordic Convention) (1996), as amended by the 1997 and 2008 protocols, and the 2014 protocol in relations between Denmark and the Faroe islands. The amending protocol contains some treaty-based BEPS recommendations from Action 6 (preventing the granting of treaty benefits in inappropriate circumstances) and Action 14 (making dispute resolution mechanisms more effective).

The amending protocol contains the new preamble language that clarifies that the tax treaty is not intended to be used to generate double non-taxation or reduced taxation through tax evasion and avoidance. It also contains a Principal Purpose Test. Moreover, the amending protocol enables taxpayers to present a case for MAP to the competent authorities of either Contracting State.

All signatories of the Nordic Convention have signed the MLI, but none of the signatories of the Nordic Convention included it as a CTA on their preliminary positions. It is expected that the Nordic Convention will not be further modified by the MLI, particularly given that the amending protocol has incorporated the treaty-related BEPS minimum standards into the Nordic Convention. For the MLI to have effect on the Nordic Convention, all signatories of the Nordic Convention would need to include it in their respective list of CTAs, and indicate whether the Nordic Convention falls within the scope of any of the reservations made by that respective jurisdiction.

Panama

On 16 July 2018, Panama’s Minister of Economy and Finance (MEF) proposed to the National Assembly a bill (Draft Bill No. 654) that would establish the method for calculating income that is derived from the “transfer or exploitation” of intangible assets and subject to a tax exemption or a preferential tax treatment. The bill would establish that taxpayers operating under a preferential tax regime that grants tax benefits or exemptions to income derived from the transfer or exploitation of intangible assets would only be eligible to access these benefits when the income originates from a qualifying intangible asset. To this end, the taxpayer would need to apply a formula contained in the bill and meet the rest of the bill’s provisions (including tracking and documentation requirements) to access the tax benefit granted by the respective preferential regime. The bill follows the nexus approach recommended in the final report of BEPS Action 5 (Countering Harmful Tax Practices More Effectively, Taking Into Account Transparency and Substance).

See EY Global Tax Alert, Panama’s Minister of Economy and Finance proposes bill for calculating income subject to preferential tax treatment under an IP regime, dated 28 August 2018.

Poland

On 24 August 2018, the Polish Minister of Finance published draft legislation introducing very favorable Intellectual Property regime (IPR). The IPR aims at incentivizing IP developments (including software and all kinds of research and development (R&D)) in Poland by taxing profits from qualifying IP rights at a preferential 5% tax rate. This incentive is based on the OECD recommendations on BEPS Action 5 regarding the modified nexus approach and it intends to link the relief to the proportion of R&D managed from Poland. The new regime is expected to enter into force on 1 January 2019.

See EY Global Tax Alert, Poland publishes legislation on Innovation Box, dated 30 August 2018.

Singapore

On 24 August 2018, the Inland Revenue Authority of Singapore (IRAS) published an updated list of activated bilateral Automatic Exchange of Information (AEOI) relationships for the automatic exchange of CbC reports for the Ultimate Parent Entity of Singapore Multinational Enterprise groups. The updated list available on IRAS’ website now comprises 55 jurisdictions. The full list of jurisdictions and their respective effective taxable periods is set out below. This list should continue to be monitored as additional AEOI relationships may be concluded over time.

List of jurisdictions

AEOI relationships effective from fiscal year (FY) 2016: Australia, Belgium, Brazil, Bulgaria, Cayman Islands, Colombia, Denmark, Finland, France, Germany, Greece, Guernsey, India, Ireland, Italy, Japan, Jersey, Korea, Lithuania, Luxembourg, Malta, Mexico, Netherlands, New Zealand, Norway, Pakistan, Poland, Romania, Slovak Republic, Slovenia, South Africa, Spain, Sweden and the United Kingdom

AEOI relationships effective from FY 2017: Argentina, Austria, Canada, Chile, Costa Rica, Croatia, Cyprus, Czech Republic, Estonia, Hungary, Iceland, Indonesia, Isle of Man, Latvia, Liechtenstein, Malaysia, Portugal, Russia and Uruguay

AEOI relationships effective from FY 2018: Mauritius and Switzerland

Sweden

On 29 August 2018, the Swedish Tax Agency (Skatteverket) published updated transfer pricing guidance which incorporates the OECD’s revised guidance on the application of the profit split method that was published on 12 June 2018 based on BEPS Action 10. The Swedish Tax Agency takes the position that the OECD’s revised guidance provides clarifications on the application of the profit split method, without effectively changing the application of the arm’s-length principle as such. Therefore, the new guidance can also be applied retroactively.

EYG no. 011096-18Gbl

Download this Tax Alert as a PDF file.

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