International Tax News, Edition 2, February 2013
 

International Tax News, Edition 2, February 2013

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This month we cover the French Finance Act for 2013 and 3rd amended Finance Act for 2012; the second CJEU judgment in Franked Investment Income Group Litigation; Taiwan's controlled foreign company ...

This month we cover the French Finance Act for 2013 and 3rd amended Finance Act for 2012; the second CJEU judgment in Franked Investment Income Group Litigation; Taiwan's controlled foreign company rules and place of effective management; and New Zealand's tax treaty with Japan.

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International Tax News, Edition 2, February 2013 International Tax News, Edition 2, February 2013 Presentation Transcript

  • Tax Legislation Proposed Legislative Changes Administration & Case Law International tax news Edition 2 February 2013 EU Law Treaties Subscription In this issue Welcome Keeping up with the constant flow of international tax developments worldwide can be a real challenge for multinational companies. As a result, PwC’s International Tax Network is excited to bring you a new publication that will offer updates and analysis on international tax changes around the world. We hope that you will find this publication helpful, and look forward to your comments. France United Kingdom Finance Act for 2013 and 3rd Amended Finance Act for 2012 Second CJEU judgment in Franked Investment Income Group Litigation Taiwan New Zealand Implementation of Controlled foreign company (CFC) rules and place of effective management New Zealand signs tax treaty with Japan Tony Clemens Global Leader International Tax Services Network T: +61 2 8266 2953 E: tony.e.clemens@au.pwc.com
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties Subscription In this issue www.pwc.com/its In this issue Tax legislation Treaties Belgium Budget law for 2013 published in Official Gazette Ukraine New rules for taxation of securities transactions United Kingdom Foreign currency capital gains calculations Belgium Protocol to the Belgium – UK double tax treaty (DTT) entered into force Brazil Brazilian Government introduces tax benefits relating to the 2016 Rio Olympics United States Obama signs legislation retroactively extending taxpayer-favourable provisions United Kingdom ‘Above-the-line’ credit for Research and development R&D Gibraltar Gibraltar signs tax information exchange agreements (TIEAs) with Mexico and with Turkey United Kingdom Deferral of corporate exit charges Ireland Recent ratifications of tax treaties United Kingdom Group relief for losses of UK Permanent establishments (PEs), European Economic Area (EEA) companies Luxembourg Draft bill covering the approval of new DTT and protocols Denmark New anti-avoidance legislation adopted Proposed legislative changes France Finance Act for 2013 and 3rd Amended Finance Act for 2012 Hong Kong New bill on Islamic finance Ireland Ireland enters into Foreign Account Tax Compliance Act (FACTA) agreement with the United States Hong Kong New bill on buyer’s stamp duty Ireland Budget 2013 Portugal Reform of corporate income tax Italy Italy introduces a financial transaction tax from March 1, 2013 Taiwan Implementation of Controlled foreign company (CFC) rules and place of effective management Luxembourg Bill in relation to new tax measures for individuals and corporations United Kingdom Amendments to new CFC rules Portugal Main tax changes United Kingdom Autumn Statement and draft Finance Bill 2013 (FB 2013) Thailand DTA Thailand and Taiwan Switzerland Tax treatment of equity-based employee compensation schemes United Kingdom Corporation tax rate cut Ukraine New Ukraine-Cyprus DTT Switzerland Withholding tax (WHT) treatment of interest from specific Swiss bonds United Kingdom General anti-abuse rule (GAAR) United States New protocol to US-Spain treaty signals possible changes in US policy on limitation on benefits Administration & case law China Foreign investment using equity of Chinese company made possible EU Law United Kingdom Second CJEU judgment in Franked Investment Income Group Litigation New Zealand New Zealand signs tax treaty with Japan Portugal Treaty update Switzerland Double taxation agreement Double taxation agreement (DTA) between Switzerland and the United Arab Emirates (UAE) has entered into force Switzerland Amendment to the DTA with Russia has entered into force
  • Tax Legislation Proposed Legislative Changes Administration & Case Law Tax Legislation Belgium Budget law for 2013 published in Official Gazette On December 20, 2012, the limitations on the carry forward of excess notional interest deduction (NID) were published in the Belgian Official Gazette with entry into force as from assessment year 2013, financial years ending on December 31, 2012 or later (the change provides that new excess NID can no longer be carried forward and that the use of existing carried forward NID is limited to 60% of the remaining profit exceeding 1 million euros (EUR) after all other deductions have been claimed). Furthermore, on December 31, 2012, the law was published implementing (amongst other changes) the amendments to the Belgian participation exemption (qualifying capital gains on shares realised by Belgian companies or branches (not Small and medium enterprises [SMEs]) would become subject to a 0.4% tax constituting a separate assessment). Pascal Janssens Antwerp T: +32 3 2593119 E: pascal.janssens@pwc.be EU Law Treaties Subscription In this issue www.pwc.com/its Continue Brazil Also, some changes were made to the Belgian domestic withholding tax rates: a uniform rate of 25% was introduced both for interest and dividends. Royalties will remain taxable at 15% and existing exemptions and reduced rates remain in place (e.g. liquidation surpluses remain taxed at 10%). These changes don’t impact the various withholding tax exemptions available (tax treaties, domestic exemptions, exemptions resulting from European Union [EU] directives etc.). PwC observation: This new legislation may impact the tax position of Belgian companies benefitting from the NID and/or realising capital gains on shares or in cases where interest or dividends are paid and no full exemption is available. It is highly recommended to review existing holding/financing structures or management participation plans to assess the impact of the new measures. Axel Smits Brussels T: +32 3 2593120 E: axel.smits@pwc.be Brazilian Government introduces tax benefits relating to the 2016 Rio Olympics On October 10, 2012, the Brazilian Government published Provisional Measure (PM) 584, in order to provide for tax measures applicable to operations involving the organisation or realisation of events directly related to the 2016 Olympic and Paralympic Games to be held in Rio de Janeiro. The PM provides for the exemption of federal taxes due on import of goods or services used exclusively in activities directly related to the organisation or realisation of both events, such as: trophies, medals, plaques, statuettes, pins and badges, flags and other commemorative objects; promotional material, flyers and the like; and other similar non-durable material (up to one year). Taxes included in this exemption are II (import tax); IPI (excise duty) over imports due on customs clearance; PIS/COFINS-Import; among other charges and duties. Additionally, non-resident individuals entering Brazil with a temporary visa, employed or contracted by affiliated organisations in order to carry out activities related to the Events’ organisation, are exempted from IRPF (personal income tax). As a general rule, a PM is issued by the Executive Branch of the Federal Government and has the effect of law while it is analysed by the Brazilian Congress, that has up to a maximum of 120 days to approve or reject it. If approved, the above measures shall enter into force from January 1, 2013 until December 31, 2017. PwC observation: This legislative change impacts companies and individuals which intend to work on the organisation and realisation of the 2016 Olympic and Paralympic Games in Brazil. The implications will depend on the analysis of particular facts and circumstances. The PM also provides for the exemption of several federal taxes such as IRRF (withholding income tax), IOF (financial tax), CIDE and the PIS/COFINS-Import due on remittances by or to the International Olympic Committee and affiliated companies domiciled abroad and in Brazil, in relation to taxable events directly related to the organisation of the Events. Nelio Weiss São Paulo T: +55 11 3674 3745 E: nelio.weiss@br.pwc.com Carolina Ibarra São Paulo T: +55 11 3674 3496 E: carolina.ibarra@br.pwc.com
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties Denmark New anti-avoidance legislation adopted On December 14, 2012 the Danish parliament passed a bill containing measures targeted at certain tax avoidance structures. The adopted bill, which is largely identical with the initial proposal presented by the Ministry of Taxation on October 3, 2012, contains the following measures: • WHT at 27% is imposed on certain intra-group restructurings (effective for restructurings that have taken place from October 3, 2012). • WHT exemption will not apply to dividend distributions if Danish flow-through entities are used (effective for distributions from January 1, 2013). • Full Danish tax liability will be incurred if business entities are either registered or have an effective seat of management in Denmark (effective for income years starting January 1, 2013 or later). Søren Jesper Hansen Copenhagen T: +45 39 45 33 20 E: sjh@pwc.dk Natia Adamia Copenhagen T: +45 39 45 94 92 E: nad@pwc.dk PwC observation: The most significant amendment can be said to be the imposition of withholding tax on certain intra-group restructurings, which is primarily targeted at private equity owned structures. Based on the new legislation, intra-group restructurings against remuneration other than shares in the acquiring company will be subject to withholding tax if the transferring company cannot receive a tax exempt dividend. The new rules on withholding tax for ‘flow-through’ entities will be relevant where the applicable double tax treaty rate is above 0%. The rules apply to ‘on-distributions’ of dividends received from foreign companies. The new rules illustrate that the Danish Government aims to prevent that companies with a sole holding function from setting up in Denmark. Subscription www.pwc.com/its In this issue Continue
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties Subscription www.pwc.com/its In this issue Continue France Finance Act for 2013 and 3rd Amended Finance Act for 2012 On December 19 and 20, the French parliament approved the Finance Act for 2013 and the 3rd Amended Finance Act for 2012. These Finance Acts contain a variety of new corporate tax measures. 1. New tax credit to boost competitiveness and employment A new tax credit will be available to most enterprises subject to corporate tax in France. Partnerships will pass their tax credit benefits through to their partners subject to French corporate tax or individual tax on their trade and business income. The tax credit will be calculated as a percentage of the wages paid, during the calendar year, to employees receiving less than 2.5 times the French minimum wage (SMIC). The current gross monthly SMIC is 1,426 EUR. The rate of this tax credit will be 4% for calendar year 2013 and will be increased to 6% for 2014 and subsequent years. The tax credit can be offset against the income tax liability payable by the taxpayer with respect to the calendar year during which the wages are paid. Any excess credit can be carried forward and offset against the tax liability of the taxpayer during the next three years. Any remaining or unused credit after three years will be refunded to the taxpayer. The regime applies from January 1, 2013. Renaud Jouffroy Paris T: +33 1 56 57 42 29 E: renaud.jouffroy@fr.landwellglobal.com 2.  ew exit tax rules in case of transfer of French head office N or establishment Under current law, in the case of a transfer of assets as part of a transfer of a head office or an establishment outside France, unrealised gains are, in principle, immediately taxable. To comply with recent decisions of the European Court of Justice, the Finance Act provides taxpayers with the following options: • The total amount of the corporate tax assessed on the unrealised gains or deferred capital gains relating to the transferred assets can be paid within two months of the transfer or • The taxpayer can elect to pay one fifth of the tax due within two months of the transfer; the balance then must be paid each year in four equal instalments payable no later than the anniversary of the first payment. An advance payment of the whole amount due can be made at any time within this period. This will apply to transfers to another Member State of the European Union or, under certain conditions, to a member of the EEA member state. The tax becomes immediately due if the assets are sold or transferred outside EU or the EEA or if the taxpayer is liquidated. This new rule applies to transfers completed on or after November 14, 2012. 3. Other main measures (applicable for Fiscal Years ending on ar  after December 31, 2012) • In addition to current restricted rules related to the tax deductibility of interest (i.e. thin capitalisation rules and the anti-abuses rules so-called ‘Charasse’ and ‘Carrez’), 15% of the net financial expenses will not be tax deductible. This rate will be increased to 25% for FYs opened as from January 1, 2014. • The tax losses carried forward will only be available to offset 1 million EUR plus 50% (instead of 60% currently) of the current taxable income exceeding that amount. • Gains on investment shares owned for more than two years will be taxed up to 12% (instead of 10% before) on the ‘gross amount’ of the gains realised (instead, currently, of the gain , ‘net’ of capital losses realised on investment shares realised during the same financial year). PwC observation: This new legislation could have a significant impact on the tax position of French companies and on their effective tax rates. Taxpayers should assess the opportunity to benefit from the competitiveness tax credit to outweigh the potential increase of tax due to the other changes, particularly the new interest deductibility limitation. In this respect, identification of appropriate actions is key.
  • Tax Legislation Proposed Legislative Changes Administration & Case Law Ireland Treaties Budget 2013 Subscription www.pwc.com/its In this issue Continue Ireland Ireland enters into FATCA agreement with the United States EU Law Mr Michael Noonan T.D, Minister for Finance and Chargé d’affaires at the US Embassy in Ireland, John HennesseyNiland, signed an agreement to improve international tax compliance and to implement the FATCA (Foreign Account Tax Compliance Act) on December 21, 2012. Ireland is one of the first countries in the world to sign such an agreement with the United States, demonstrating Ireland’s commitment to helping combat international tax evasion. The agreement will significantly increase the amount of tax information automatically exchanged between Ireland and the United States and it sets a new standard in international tax transparency aimed at tackling tax evasion. This agreement provides for the automatic reporting and exchange of information in relation to accounts held in Irish financial institutions by US persons, and the reciprocal exchange of information regarding US financial accounts held by Irish residents. PwC observation: The main purpose of this agreement is to combat international tax evasion, by preventing individuals from hiding money outside of their state in order to avoid paying tax. The early conclusion and publication of the agreement will also provide certainty and clarity to Irish financial institutions and assist them in preparing to meet their compliance obligations under the FATCA. Denis Harrington Dublin T: +353 1 792 8629 E: denis.harrington@ie.pwc.com On December 5, 2012, the Minister for Finance announced the Irish Budget 2013. In his speech the Minister confirmed that the Government remains 100% committed to maintaining the 12.5% rate of corporation tax. In addition, the Minister outlined some positive measures for the business sector including a review of the R&D tax credit regime in order to ensure that it remains the ‘best in class internationally’ and offers value for money for taxpayers. Research and development tax credit Previously, the R&D tax credit applied to incremental expenditure with reference to a fixed base period of 2003. Going forward, the first 200,000 EUR of qualifying R&D spent will now be eligible for a tax credit without reference to the 2003 threshold. Aviation industry Ireland is a hub for the aviation industry and in particular for aircraft leasing. The Budget seeks to enhance this by a proposal to offer a ringfenced, but accelerated scheme of tax depreciation (capital allowances) over seven years. This will operate for a period of five years and will apply to the construction of hangers and ancillary facilities that will be key to attracting additional maintenance, repair and operational activity to Ireland. The Minister also confirmed that the Government will consider the feasibility of new sources of funding for airlines, lessors and aircraft financiers. An announcement on this is expected shortly and it is anticipated that this development should secure Ireland’s leading position as the location of choice for all aviation related activities. Denis Harrington Dublin T: +353 1 792 8629 E: denis.harrington@ie.pwc.com PwC observation: Given the tough environment in which it was framed, Budget 2013 is broadly positive for business.
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties Italy Italy introduces a financial transaction tax from March 1, 2013 On December 24, 2012, the Italian Parliament passed the 2013 budget law introducing a tax on financial transactions into Italian tax law (i.e. the so-called ‘Tobin Tax’). The tax will be levied from March 1, 2013 on the transfer of shares of Italian joint stock companies (società per azioni) and other participating financial instruments issued by Italian resident companies regardless of where the transfer occurs, as well as on the transfer of securities representing such other participating financial instruments regardless of the residency of the issuer. The tax is applied on the value of the transaction. The rate of the tax has been set by the Italian legislature at 0.20% (0.1% if the transfer refers to publicly listed companies). However, for the tax period 2013, the rate will be 0.22% (0.12% if the transfer refers to public listed companies). The tax will be payable by the transferee. The tax will not be deductible for corporate income tax and regional production tax purposes. Ad-hoc guidelines for the application of the tax, including potential reporting obligations, are to be issued by the Italian Government though a Ministerial Decree. The tax will also apply on the trade of derivatives having as underlying assets – or whose values are mostly derived from – one or more shares of Italian joint stock companies and other participating financial instruments issued by Italian resident companies. In this case, the tax is at a fixed amount which depends on the kind of instrument and on the value of the contract. The tax will also apply on trades defined as ‘at high frequency’ executed on the Italian financial market and involving shares of Italian public limited liability companies, participating financial instruments and derivatives. In this case, the rate of the tax has been set at 0.02% and generally applies on the value of the orders subject to certain specific conditions. PwC observation: The introduction of the Tobin Tax into Italian tax law will clearly affect the circulation of shares of Italian joint stock companies . Moreover, under the current wording of the law, transfers of quotas of Italian limited liability companies (società a resposabilità limitata) are not mentioned. However, the Italian tax administration has not provided an official confirmation of this exclusion. Certain transactions will be excluded from the tax, including transactions between controlled companies and transactions following group restructuring operations under specific conditions to be set by the aforementioned Ministerial Decree. Franco Boga Italy T: +39 02 9160 5400 E: franco.boga@it.pwc.com Pasquale A Salvatore Italy T: +39 02 9160 5810 E: pasquale.salvatore@it.pwc.com Subscription www.pwc.com/its In this issue Continue
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties www.pwc.com/its Luxembourg Bill in relation to new tax measures for individuals and corporations On December 13, 2012, the Luxembourg Parliament enacted bill No. 6497 (the ‘Tax Bill’), introducing new tax measures for corporations and individuals that are effective of tax year 2013. Further to the numerous discussions held between the government and various stakeholders since the introduction of the draft tax bill, on December 21, 2012 the tax authorities issued further guidance as to how the provisions in relation to the minimum corporate income tax are to be interpreted, with a positive outcome for real estate owning companies. Two different minimum corporate income taxes will apply as from tax year 2013 as follows: • A minimum corporate income tax of 3,000 EUR (i.e. 3,210 EUR taking into account the solidarity surtax) applicable to all corporate entities having their statutory seat or central administration in Luxembourg and for which the sum of fixed financial assets, transferable securities and cash at bank exceeds 90% of their total gross assets. • The tax authorities issued official commentaries in which they confirmed that the net value of assets, whose taxation rights are exclusively allocated to the other contracting state of a DTT entered into by Luxembourg, is not to be taken into account when determining the total gross assets of the company. This means notably that companies whose sole asset is a real estate property located in a DTT country should not be subject to the 21,400 EUR minimum tax (assuming the value of the property exceeds 20 million EUR) but to a lower amount as the value of their other assets should be quite nominal. PwC observation: Said official interpretation is warmly welcomed by the marketplace and the practitioners that have expressed, since the release of the draft bill in November, major concern about the potential incompatibility of the new provisions with DTTs and its major impact on the competitiveness of the Luxembourg marketplace. The issue of said official interpretation, so shortly after the vote of the law, is therefore a positive sign that the government and the tax authorities remain open to the comments expressed by the stakeholders. A new minimum corporate income tax, ranging from 500 EUR to 20,000 EUR (i.e. 535 EUR to 21,400 EUR taking into account the solidarity surtax) depending on a company’s total gross assets, applicable to all other corporations having their statutory seat or central administration in Luxembourg. Sami Douénias Luxembourg T: +352 49 48 48 33 3060 E: sami.douenias@lu.pwc.com Fabien Hautier Luxembourg T: +352 49 48 48 33 3004 E: fabien.hautier@lu.pwc.com Subscription Sandrine Buisseret Luxembourg T: +352 49 48 48 33 3124 E: sandrine.buisseret@lu.pwc.com In this issue Continue
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties www.pwc.com/its Portugal Main tax changes State Budget 2013 Measures effective from January 1, 2013 include the following: • The deductibility of net financing expenses is capped at the higher of (i) 3 million EUR or (ii) 30% of the profit before depreciation, net financing expenses and taxes; under the transitional regime, the percentage will start at 70% in 2013 and will be reduced by 10% annually until it is fixed at 30% in 2017; this rule applies to domestic and foreign (EU and non-EU) group and bank financing; this regime replaces the thin capitalisation rules; • An increase from 15% to 25% of the withholding tax rate levied on royalties, commissions, service fees and rental income paid to nonresident companies; • An increase of the State Surcharge by means of a reduction of the higher threshold; the 5% rate now applies to taxable profits (prior to the use of carry forward tax losses) exceeding 7.5 million EUR (formerly 10 million EUR); • A legislative authorisation has been granted to the Government to introduce the Financial Transactions Tax (FTT) within the Stamp Duty Code; FTT shall apply to financial transactions in the secondary markets (buy/sell transactions of equities, bonds, money market instruments, units or shares in funds and other securities, structured products, derivatives and other financial instruments, including also the conclusion or amendment of derivatives contracts); the applicable rates shall be (i) a general rate of up to 0.3%; (ii) up to 0.1% in cases of high frequency trading; (iii) up t0 0.3% in cases of transactions of financial derivatives. Jorge Figueiredo Lisbon T: +351 213 599 618 E: jorge.figueiredo@pt.pwc.com Furthermore, the 2013 State Budget includes an authorisation to the Government to transpose Council Directive 2011/16/EU, dated February 15, regarding tax administrative cooperation, establishing the electronic exchange of tax information between the EU Member States. Other tax changes Additionally, the following measures were introduced at the end of 2012: • Subscription An increase from 30% to 35% of the withholding tax rate applicable to investment income paid into bank accounts open in the name of one or more account holders but held on behalf of non-identified third parties, and to investment income paid to entities resident in blacklisted jurisdictions. PwC observation: The limitation of the tax deductibility of net financing expenses will have a major impact on highly leveraged companies, however given the transitional period and the fact that the limitation applies per entity (and not to a group of companies), there are opportunities to restructure the debt to minimise the impact of these rules. Additionally, the increase of the withholding tax rate applicable on royalties, commissions and service fees paid to non-residents aggravates taxation in the case of countries which have not concluded tax treaties with Portugal. Furthermore, companies should be aware that the Portuguese tax authorities will have easier access to relevant information on taxpayers from other EU member States, allowing for a more effective application of taxes. Catarina Nunes Lisbon T: +351 213 599 621 E: catarina.nunes@pt.pwc.com In this issue Continue
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties Switzerland Switzerland Tax treatment of equity-based employee compensation schemes WHT treatment of interest from specific Swiss bonds As of January 1, 2013, the new Federal Act on the taxation of equity-based employee compensation schemes has become effective. The act harmonises the taxation of equity instruments in Switzerland – especially with respect to the tax relevant date and the basis for pro rata temporis calculation in international cases – and contains new regulations pertaining to employer reporting obligations. Corporations may be impacted if they issue equity-based employee compensation, such as shares or stock options. Interest paid on contingent convertible bonds (CoCos) and on write-off bonds (bonds with claim waiver) of systematically important banks will be exempt from Swiss WHT as of January 1, 2013. The WHT exemption is restricted to bonds issued by respective institutions between 2013 and 2016. These bonds must, furthermore, fulfill specific criteria in order to benefit from the WHT exemption. PwC observation: In contrast to the equity-based compensation schemes, the WHT treatment of specific Swiss bonds will only be of relevance for certain specific businesses. PwC observation: This change may have implications to a vast number of groups with Swiss business operations. Stefan Schmid Zurich T: +41 58 792 44 82 E: stefan.schmid@ch.pwc.com Stefan Schmid Zurich T: +41 58 792 44 82 E: stefan.schmid@ch.pwc.com Subscription www.pwc.com/its In this issue Continue
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties www.pwc.com/its Ukraine New rules for taxation of securities transactions Amongst other changes, the following new rules for taxing transactions with securities will apply from January 1, 2013: From January 1, 2013, new rules for the taxation of transactions with securities came into force (Law of Ukraine No. 5519 of December 6, 2012). • Gains or losses will be computed by individual transactions but the taxable gain will be calculated on an aggregate basis. • Gains and losses will be calculated separately for stock exchange transactions and off-stock exchange transactions. Under the new rules, excise tax will apply to the disposal of securities and transactions with derivatives with the following criteria and tax rates: • The aggregate taxable gain will be subject to the 10% corporate income tax and the aggregate loss will be carried forward. • The maximum loss carry forward period from off-stock exchange transactions with securities and derivatives is three years. • Existing accumulated tax losses as at January 1, 2013 from transactions with securities and derivatives will lapse. The cost of securities held at that date will be deducted in arriving at taxable gain when these securities are sold. • 0.1% for off-stock exchange transactions with listed securities. • 1.5% for off-stock exchange transactions with non-listed securities (refer below for exemptions). • 5 tax-free allowances (currently 85 UAH or approximately 10 USD) for off-exchange derivatives. The following financial instruments and transactions are exempt: • Shares of private companies (LLC’s) and corporate rights issued in the form other than securities. • Derivatives on interbank market. • Deposit certificates. • Securities issued by non-residents. • Transactions with certificates of open-ended fund by the issuer. • Transactions with securities by the issuer. • Government securities or securities guaranteed by the government. Vadim Belik Ukraine T: +380 44 490 6777 E: vadim.belik@ua.pwc.com Subscription PwC observation: The new excise tax on transactions with securities would increase transaction costs for the market players. This is unlikely to be outweighed by the reduced 10% corporate tax applicable to gains on trading in securities. The new excise tax is supposed to incentivise the market players to move their transactions from over-the-counter to the stock exchange. However, it may give rise to many potential distortions and unknown consequences. The major threat is that junk securities that have been widely used by many Ukrainian taxpayers for tax avoidance purposes will be traded in the stock exchange instead of being traded over the counter. Svetlana Bilyk Ukraine T: +380 44 490 6777 E: svetlana.bilyk@ua.pwc.com Ron Barden Ukraine T: +380 44 490 6777 E: ron.j.barden@ua.pwc.com In this issue Continue
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties United States Obama signs legislation retroactively extending taxpayer-favourable provisions President Barack Obama on January 2 signed into law the American Taxpayer Relief Act of 2012 (the Act), which includes permanent extensions of certain 2001 and 2003 tax provisions for individuals with incomes below 400,000 USD and joint filers with incomes below 450,000 USD. The Act also includes retroactive extensions through 2013 of certain business and energy tax provisions that had expired at the end of 2011. The renewed business tax provisions include the research credit, CFC look-through, and the subpart F exception for active financing income. Taxpayers may receive a credit against tax for increasing research activities. Generally, the credit is an incremental credit equal to the sum of 20% of the excess (if any) of the taxpayer’s qualified research expenses (QREs) for the taxable year over the base amount, and 20% of the taxpayer’s basic research payments. The Act extends the section 41 research credit (with modifications) for two years retroactively from January 1, 2012 through December 31, 2013. The new law also resolves an issue regarding the treatment of QREs in the event of an acquisition or disposition of a trade or business. Geoff Jacobi Washington, DC T: +1 202 414 1390 E: geoff.jacobi@us.pwc.com The CFC look-through rules generally allow taxpayers to pay dividends, interest, rent and royalties between affiliated foreign subsidiaries without giving rise to subpart F income in the United States. The active financing exception to subpart F allows the deferral from US tax of certain income earned by CFCs from active banking, finance, or insurance businesses. The Act retroactively extends both of these provisions from January 1, 2012 through December 31, 2013 for calendar-year taxpayers. Without such retroactive extensions, taxpayers could have been subject to subpart F income inclusions for certain intercompany transactions during 2012. For fiscal-year taxpayers, the extensions apply for fiscal years ending in 2013 and 2014. PwC observation: The extension of these provisions is taken into account for financial reporting purposes in the quarter in which the legislation is enacted by Congress and signed into law by the President. Thus, President Obama’s signing of the bill would be a financial statement event for the first quarter of calendar year 2013. Therefore, regardless of the timing or retroactive nature of the enacted legislation, calendar year businesses would not be expected to reflect the financial statement benefits of these extensions in their 2012 calendar year-end financial statements. Nonetheless, financial statement disclosure in 2012 may be appropriate depending upon the potential impact of the legislation. Subscription www.pwc.com/its In this issue
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties Subscription In this issue Continue www.pwc.com/its Proposed legislative changes Hong Kong Hong Kong Portugal New bill on Islamic finance New bill on buyer’s stamp duty Reform of corporate income tax The Inland Revenue and Stamp Duty Legislation (Alternative Bond Schemes) (Amendment) Bill 2012 was gazetted on December 28, 2012. The Stamp Duty (Amendment) Bill 2012 was gazetted on December 28, 2012. An order of the Secretary of State and Tax affairs published on January 2, 2013, has announced the appointment of a Commission that will carry out a reform of corporate income tax. The bill contains the draft legislation that provides the taxation framework for Islamic bonds (i.e. sukuk) in Hong Kong. It proposes various amendments to the Inland Revenue Ordinance and Stamp Duty Ordinance to level the playing field for sukuk vis-à-vis their conventional counterparts for profits tax, property tax and stamp duty purposes so as to facilitate the development of sukuk market in Hong Kong. The Bill has to be scrutinised and approved by the Legislative Council before it can be enacted into law. PwC observation: While the Bill represents a further step taken by the HKSAR Government in promoting the development of the sukuk market in Hong Kong, some of the features in the proposed tax regime (e.g. the ‘reasonable commercial return’ requirement and the limit on the ‘maximum term length’ of the sukuk) may present a challenge or create uncertainties to taxpayers engaged in sukuk activities. Those who are interested in the sukuk market in Hong Kong need to keep a close watch on any further developments in this area. Florence KF Yip Hong Kong T: +852 2289 1833 E: florence.kf.yip@hk.pwc.com It contains the draft legislation that adjusts the rates and extends the coverage period in respect of the Special Stamp Duty (SSD) which is imposed on top of the ad valorem stamp duty on the disposal of Hong Kong residential properties with effect from November 20, 2010. The Bill also introduces a Buyer’s Stamp Duty (BSD) on Hong Kong residential properties acquired by any person including both Hong Kong and non-Hong Kong companies, except an individual who is a Hong Kong permanent resident (HKPR). The BSD is imposed on top of the ad valorem stamp duty and the SSD, if applicable. These measures will have retrospective effect from October 27, 2012 when the Bill is enacted into law. PwC observation: The measures proposed in the Bill aim at further curbing the overheated residential property market in Hong Kong. When the Bill is enacted into law, non-HKPRs (which is defined to include Hong Kong and overseas incorporated companies) will be liable to pay BSD on Hong Kong residential properties acquired on or after October 27, 2012, with certain exemptions such as redevelopment projects. The BSD will be charged at a flat rate of 15% on the stated consideration or the market value of the property acquired, whichever is the higher. Fergus WT Wong Hong Kong T: +852 2289 5818 E: fergus.wt.wong@hk.pwc.com The reform aims at reviewing the legal framework of taxation of companies, in order to redefine the taxable basis and nominal rate, simplify tax obligations and reduce context costs, restructure and optimise tax benefits to promote national and foreign investment, employment, competitiveness and the internationalisation of Portuguese companies in strategic foreign markets. The Portuguese Government is negotiating with the EU commission on the introduction of a corporate income tax rate of 10%, as an extraordinary tax measure to increase foreign investment and the competitiveness of Portuguese companies, based on the current financial and economic situation; it is expected that the 10% rate would apply to new investment projects – no draft legislation is yet known. PwC observation: Multinational corporations and foreign investors in general should assess the potential benefits of a corporate income tax rate of 10% and tax incentives that may be granted to foreign investment in Portugal (e.g. investment tax credit). Jorge Figueiredo Lisbon T: +351 213 599 618 E: jorge.figueiredo@pt.pwc.com Catarina Nunes Lisbon T: +351 213 599 621 E: catarina.nunes@pt.pwc.com
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties Subscription In this issue Continue www.pwc.com/its Taiwan United Kingdom United Kingdom Implementation of CFC rules and place of effective management Amendments to new CFC rules Autumn Statement and draft FB 2013 New CFC rules were introduced in Finance Act 2012 and came into effect for CFC accounting periods beginning on or after January 1, 2013. Draft legislation has now been published which amends the new CFC rules and other provisions which interact with them with effect from the same date. The Chancellor of the Exchequer delivered his Autumn Statement on December 5, 2012. The main change is an amendment to to the double taxation relief (DTR) rules which limits DTR available where a CFC lends to a non-UK resident group company via a UK group company. • a further reduction in the UK corporation tax rate to 21% from April 1, 2014 • introduction of a new general anti-abuse rule; • amendments to the new controlled foreign companies rules; • introduction of new rules to allow deferral of tax payable in respect of corporate exit charges when a UK company migrates its tax residence with the European Economic Area (EEA); • relaxation of the restriction on the surrender of losses of UK branches of EEA companies as group relief; • mandatory new rules for chargeable gains calculations for UK companies which do not operate in a sterling environment, and • a new above-the-line R&D credit. The Ministry of Finance (MOF) has proposed to implement ‘CFC rules’ and ‘Place of Effective Management’ from 2015 onwards. Pursuant to the draft amendments to the Income Tax Act (ITA), profits of CFCs that meet prescribed criteria shall be recognised as taxable investment gains based on the equity method. The MOF will draft the relevant CFC enforcement rules after the passage of the proposed CFC legislation. Moreover, as specified under the draft amendments to the ITA, if a foreign company’s place of effective management is situated in Taiwan, the foreign company will be deemed an enterprise that has its head office in Taiwan. In accordance with Article 3 of the ITA, where an enterprise has its head office within the territory of Taiwan, corporate income tax will be taxed on its global income. Therefore, a foreign company may be subject to Taiwan income tax assessment accordingly. PwC observation: The proposed change to the DTR rules will limit the benefit of certain structures which make use of the new CFC financing exemptions. We will be making representations to Her Majesty’s Revenue and Customs (HMRC). PwC observation: Notwithstanding the MOF has introduced the concept of ‘CFC rules’ and ‘Place of Effective Management’ in the draft amendments to the ITA, relevant details are still under discussion. The draft amendments to ITA had passed Executive Yuan’s examination and submitted for Legislative Yuan’s review. We shall closely monitor the draft amendments’ development in the Legislative Yuan. Peter Y Su Taiwan T: +886 2 2729 6666 E: peter.y.su@tw.pwc.com Draft legislation to be included in FB 2013 was published on December 11, 2012, although this is subject to consultation and so may be subject to change prior to enactment. Measures include: PwC observation: The government remains committed to corporation tax reform, and the Chancellor of the Exchequer has said that he wants this at the top of the agenda during Britain’s chairmanship of the G7/8 in 2013. Stella C Amiss London T: +44 207 212 3005 E: stella.c.amiss@uk.pwc.com Andrew Boucher London T: +44 207 213 1165 E: andrew.boucher@uk.pwc.com David J Burn Manchester T: +44 161 247 4046 E: david.j.burn@uk.pwc.com Chloe Paterson London T: +44 20 7213 8359 E: chloe.paterson@uk.pwc.com
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties United Kingdom General anti-abuse rule (GAAR) From April 1, 2014 the main corporation tax rate will fall to 21% rather than the 22% previously announced in Budget 2012. The Government announced in Budget 2012 that a GAAR will be introduced in Finance Bill 2013 (FB 2013). In this issue www.pwc.com/its Continue United Kingdom Corporation tax rate cut Subscription That follows its reduction in April 2013, as previously announced, to 23%. PwC observation: The further reduction in the corporation tax rate should increase the attractiveness of the UK as a financing, holding company and business hub location. It has now confirmed that the GAAR will apply to arrangements entered into on or after the date when FB 2013 is enacted (likely to be in July 2013), and has published revised draft legislation, draft guidance notes, and further details on how the GAAR Advisory Panel will operate. Draft legislation The GAAR will apply to income tax, corporation tax, capital gains tax, petroleum revenue tax, inheritance tax, stamp duty land tax and the new annual residential property tax, but not value-added tax (VAT). The GAAR will also be extended to cover national insurance contributions, but separate legislation will be needed and the start date for this has not yet been announced. The government has reiterated that the GAAR is only intended to apply to abusive tax avoidance arrangements. The draft legislation shows several changes from the initial draft legislation which was released for consultation in June 2012. However the legislation is still broadly drafted and still includes a subjective ‘double reasonableness test’, under which arrangements are regarded as abusive if carrying them out “cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions”. However, under the revised draft legislation, arrangements might not be regarded as abusive if they accord with established practice at the time they are entered into, and HMRC is aware of that practice and has not challenged it. David J Burn Manchester T: +44 161 247 4046 E: david.j.burn@uk.pwc.com Chloe Paterson London T: +44 20 7213 8359 E: chloe.paterson@uk.pwc.com David J Burn Manchester T: +44 161 247 4046 E: david.j.burn@uk.pwc.com Draft guidance There are three Parts: Part A is a commentary on the scope of the legislation; Part B contains examples of schemes which HMRC thinks would be caught by the GAAR, and others which are not caught; and Part C contains detailed notes on procedures. Advisory panel Further details of the workings of the Advisory panel have been announced. HMRC will not be able to bring proceedings to apply the GAAR without first getting the opinion of the panel as to whether entering into the arrangements was a reasonable course of action. Whilst the panel’s opinions will not be binding on HMRC, in practice they will be influential in determining how the case will be resolved as they will have to be taken into consideration in any subsequent litigation. It has been confirmed that a report of key principles of the panel’s opinions will be published in anonymised form. PwC observation: Overall the announcements on the GAAR are useful. However, the legislation remains broadly drafted and more work is needed to clarify where the boundaries lie and provide greater certainty to taxpayers. Chloe Paterson London T: +44 20 7213 8359 E: chloe.paterson@uk.pwc.com
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law United Kingdom Foreign currency capital gains calculations New legislation will be introduced in FB 2013 covering the computation of chargeable gains on the disposal of shares by UK companies which do not operate in a sterling environment. Currently all UK companies’ chargeable gains and losses must be computed in sterling; but this can result in a mismatch between the economic and tax outcomes where the company operates in a nonsterling environment. Broadly, the new rules provide that where a UK company has (or has had) a functional currency other than sterling it must compute chargeable gains arising on a disposal of shares: • Subscription In this issue www.pwc.com/its This requirement will be mandatory. The new rules will only apply to disposals of shares, and not to other assets within the capital gains regime, made on or after enactment of FB 2013. PwC observation: This change could impact, in particular, companies in the energy, shipping and aircraft businesses, where transactions are normally priced in US dollars. UK companies which prepare non-sterling accounts and which hold shares should review their position to determine how the new regime will impact them. Such companies may currently have arrangements in place to hedge the tax exposure on forex movements, and such arrangements may need to be unwound or amended. ‘Above-the-line’ credit for R&D A new ‘above-the-line’ (ATL) R&D credit will be introduced in FB 2013 and will come into effect for expenditure incurred on or after April 1, 2013. This is earlier than previous proposals. The new ATL credit will be offset against the R&D cost above the ‘profit before tax’ line, effectively treating the credit more like a grant. The credit rate will be 9.1% and taxable. The credit will be available for loss-making companies as a cash refund, although there are restrictions on the credit payable. The new ATL credit will initially work alongside the existing R&D tax credit so that companies have the option to elect into the ATL regime or continue to claim the current increased deduction of 130%. However for accounting periods beginning on or after April 1, 2016, the new ATL credit will be mandatory and the existing increased deduction will be withdrawn. PwC observation: The ATL credit will have greater visibility than the current increased deduction, and this should make it more effective in influencing investment decisions. Loss-making companies may see an immediate cash benefit. But there are areas the credit will impact and which companies will need to address if they’re going to elect to use it, for example: • the transfer pricing impact, particularly for groups undertaking contract R&D; • the effective tax rate and deferred tax impact; • any impact on company bonuses, if determined by reference to profit before tax, and • the need for real-time methodologies for compiling claims. where a company has made a designated currency election, in that designated currency (provided it is the same as the currency which would be the company’s functional currency on a stand-alone basis). David J Burn Manchester T: +44 161 247 4046 E: david.j.burn@uk.pwc.com Continue United Kingdom either in the company’s accounting currency (i.e. functional currency or local currency) at the date of disposal, or • Treaties Chloe Paterson London T: +44 20 7213 8359 E: chloe.paterson@uk.pwc.com David J Burn Manchester T: +44 161 247 4046 E: david.j.burn@uk.pwc.com Chloe Paterson London T: +44 20 7213 8359 E: chloe.paterson@uk.pwc.com
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties United Kingdom Deferral of corporate exit charges Currently, when a UK resident company transfers its tax residence out of the UK, it is deemed to have disposed of its chargeable assets at market value immediately prior to migration, such that the company is required to pay tax on any resulting chargeable gain even though it may still hold the assets. Similar exit charges apply in respect of intangible assets, loan relationships and derivatives. Legislation will be included in FB 2013 giving companies the option to defer payment of these corporate exit charges when they migrate their tax residence and business out of the UK to another state in the EU or EEA. PwC observation: Changes to allow deferral of corporate exit charges have been expected following the judgment of the CJEU in the National Grid Indus BV case (C-371/10) on November 29, 2011, and the subsequent commencement on March 22, 2012 of infringement proceedings against the UK’s corporate exit tax provisions by the European Commission. It is questionable whether the proposed changes fully implement the CJEU decision, since both of the alternative payment options have maximum deferral periods and may therefore involve acceleration of tax payments ahead of realisation. Furthermore, there are not currently any proposals to allow deferral of tax in relation to capital allowances balancing charges arising on migration, which are also arguably in breach of EU law. There are two alternative methods for payment of the deferred tax: www.pwc.com/its Group relief for losses of UK PEs of EEA companies Currently, it is not possible to surrender a loss of a UK PE of a non-UK resident company to other UK resident group companies if the loss is potentially deductible overseas (CTA 2010 s107). The legislation is to be amended with effect from April 1, 2013 for UK PEs of EU or EEA resident companies, such that the restriction on group relief will be based on whether the losses have actually been relieved overseas. The legislation has been amended in response to the CJEU’s judgment of September 6, 2012 in the Philips Electronics UK Ltd case (C-18/11). In that case the CJEU held that ICTA 1998 s403D (which has now been rewritten into CTA 2010 s107) is in breach of EU law and cannot be justified by overriding reasons in the public interest, so should be disapplied. PwC observation: While the proposed changes make the legislation more proportionate, we consider that it does not go far enough in implementing the CJEU’s decision, and that it should have removed all restrictions on the surrender of group relief of losses of UK PEs of EU and EEA companies. Instalments The deferred tax is paid in six equal annual instalments, with the first instalment due nine months and one day after the end of the accounting period in which the company migrated its tax residence out of the UK, and the remaining instalments due annually thereafter. • In this issue United Kingdom Companies will be able claim to defer payment of the tax in respect of corporate exit charges arising in accounting periods ending on or after March 10, 2012, provided certain conditions are met. • Subscription Realisation The deferred tax is paid as assets are realised, with a maximum deferral of ten years. Peter Cussons London T: +44 20 7804 5260 E: peter.cussons@uk.pwc.com Chloe Paterson London T: +44 20 7213 8359 E: chloe.paterson@uk.pwc.com Peter Cussons London T: +44 20 7804 5260 E: peter.cussons@uk.pwc.com Chloe Paterson London T: +44 20 7213 8359 E: chloe.paterson@uk.pwc.com
  • Tax Legislation Proposed Legislative Changes Administration & Case Law Administration & case law China Foreign investment using equity of Chinese company made possible As a long-awaited breakthrough to the regulatory basis for using equity of a Chinese company as capital contributions to Foreign-invested Enterprises (FIEs), the Chinese Ministry of Commerce promulgated the Provisional Regulation for Capital Contribution to FIEs in Form of Equity Interests (the ‘Provisional Regulation’) on September 21, 2012 which became effective from October 22, 2012. The Provisional Regulation is applicable to both domestic and foreign investors which make capital contributions by using the equity interests that they own in existing Chinese enterprises to establish or modify the FIEs in China (‘Investee Enterprise’). Noticeably, a 70% cap is imposed on non-cash capital contributions (including contributions using equity) out of the total registered capital of the Investee Enterprise. PwC observation: The Provisional Regulation has made it possible for foreign investors to restructure their existing holding structures by way of contributing equity of a Chinese enterprise. Share swap transactions are now formally allowed. As such, foreign investors may consider using a China holding company or regional headquarters in China as a holding vehicle to streamline their structures in China/Asia-Pacific region. Matthew Mui China T: +86 6533 3028 E: matthew.mui@cn.pwc.com EU Law Treaties Subscription www.pwc.com/its In this issue
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties EU Law United Kingdom Second CJEU judgment in Franked Investment Income Group Litigation On November 13, 2012 the CJEU delivered its second judgment in Test Claimants in the FII Group Litigation v HMRC (C-35/11) following a second referral from the UK High Court. The case concerns a number of different issues including the differential UK taxation of foreign dividends in the hands of UK resident companies prior to July 1, 2009 (UK dividends were exempt, whilst foreign dividends were taxable with credit for foreign tax). The CJEU has now held that the differential taxation of UK and EU dividends is contrary to the freedom of establishment and free movement of capital if the UK effective tax rate for companies is generally lower than the UK nominal rate. Assuming this condition is met, it is unclear how the High Court will implement the CJEU’s judgment. For example, the UK could make all foreign dividends exempt, or it could require the tax credit for underlying tax to be based on the foreign statutory tax rate and not the foreign tax actually paid. The latter would also raise further questions in extended company structures where dividends are passed up the chain, as to whether the tax credit should be based on the statutory tax rate of the company paying the dividend to the UK, or the statutory tax rate of the company where the underlying profits arose. Peter Cussons London T: +44 20 7804 5260 E: peter.cussons@uk.pwc.com The CJEU also held that differential taxation of UK dividends and third country dividends where the shareholding confers ‘definite influence’ may be subject to challenge under the free movement of capital provisions. It did not indicate whether such a challenge would be successful, but earlier UK High Court and Court of Appeal decisions indicate that such a challenge would only be successful in relation to third country ‘portfolio’ dividends which are not ‘direct investments’ (being dividends on investments where the UK shareholder cannot participate effectively in the management or control of the company). PwC observation: The case now returns to the UK High Court for implementation of the judgement, but a number of uncertainties remain and there is potential for future appeals by HMRC and/or the taxpayer. Furthermore, some issues may not be addressed in this case and may need to be addressed in other litigation. It could therefore be several years before all of the issues are resolved. Chloe Paterson London T: +44 20 7213 8359 E: chloe.paterson@uk.pwc.com Subscription www.pwc.com/its In this issue
  • Tax Legislation Proposed Legislative Changes Administration & Case Law Treaties Belgium EU Law Treaties www.pwc.com/its Gibraltar Protocol to the Belgium – UK double tax treaty entered into force After a period of ratification, the Protocol amending the existing DTT between Belgium and the UK entered into force and is applicable from a Belgian perspective as from January 1, 2013 for withholding taxes and as from assessment year 2014 (financial years ending on or after December 31, 2013) for all other taxes. This protocol amends a number of provisions of the Belgian/UK tax treaty and further limits withholding tax for dividends, interest and royalties. The protocol is especially important as it provides for a full withholding tax exemption for interest payments between two enterprises, even if these enterprises are not part of a related group of companies (also in third party situations). Most provisions have been updated with an anti-abuse provision and a paragraph has been added to prevent the application of the DTT in cases where structures have been set up for the main purpose of benefitting from the DTT. The changes also include an amendment of the exchange of information clause and the mutual agreement procedure. Gibraltar signs TIEAs with Mexico and with Turkey Representatives from the Gibraltar Government have confirmed that they have signed separate agreements with both Mexico and Turkey. The agreement with Mexico was signed on November 29, 2012 and the agreement with Turkey was signed on December 4, 2012. The Minister responsible for Financial Services, Gilbert Licudi, stressed the importance of signing these agreements especially as these countries are important members of the G20. Both TIEAs will enter into force after being ratified by each party. PwC observation: The respective tax authorities will be able to benefit from the features of TIEA. Gibraltar has now signed 23 TIEAs with other countries, thereby increasing the level of tax transparency between these countries and Gibraltar. PwC observation: The amended DTT is very important for all transactions between Belgian and UK companies. Particularly relevant may be that borrowers may now pay interest free of WHT to most UK non-bank lenders and the potential application of the DTT to the extent the Interest and Royalties Directive is not applicable. Pascal Janssens Antwerp T: +32 3 259 3119 E: pascal.janssens@pwc.be Axel Smits Brussels T: +32 3 259 3120 E: axel.smits@pwc.be Lalit Khatwani Gibraltar T: +350 200 73520 E: lalit.khatwani@gi.pwc.com Subscription Aine Panter Gibraltar T: +350 200 73520 E: aine.panter@gi.pwc.com In this issue Continue
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties Ireland Recent ratifications of tax treaties The new Germany – Ireland tax treaty came into force on November 28, 2012 and will take effect from January 1, 2013. This treaty provides for a 5% WHT on dividends if the company receiving the dividend holds at least 10% of the capital of the company paying the dividends. A 15% rate will apply in other cases. The treaty provides for a 0% WHT on interest and royalties. The Armenia – Ireland treaty will also take effect from January 1, 2013. The treaty was signed in Dublin on July 14, 2011. This treaty provides for a 0% WHT on dividends if the beneficial owner is a company which has held at least 25% of the capital of the company paying the dividends for two years when the exemption is claimed and is relieved from the tax on dividends by an exemption in its home country or would, if not for the treaty, be entirely relieved by a credit for the tax paid on the dividends by the paying company. Dividends are subject to a 5% WHT if the beneficial owner is a company which holds at least 10% of the capital of the paying company. In other cases, a 15% rate applies. Interest paid on government debt is exempt, and interest paid on bank loans is taxable at a rate of 5%. A 10% rate applies to interest in other cases. Royalties are taxable at a rate of 5%. The Uzbekistan – Ireland treaty was ratified by the Uzbekistan government on January 3, 2013. The treaty was signed on July 11, 2012. This treaty provides for a 5% WHT on dividends if the beneficial owner is a company which holds directly at least 10% of the capital of the payer company. In other cases, a 10% rate applies. Interest and royalties are taxable at a maximum of 5%. The treaty will enter into force upon the exchange of ratification instruments, and its provisions will apply from January 1 of the year following its entry into force. Denis Harrington Dublin T: +353 1 792 8629 E: denis.harrington@ie.pwc.com The Irish Revenue Commissioners have confirmed that the Panama – Ireland tax treaty will take effect from January 1, 2013. Ireland signed a tax treaty with Panama on November 28, 2011. The treaty provides a 5% WHT on dividends and interest and royalties if the beneficial owner of the income from these sources is resident in the other state. The Ireland – Morocco treaty, signed in Rabat on June 22, 2010, will take effect retroactively from January 1, 2012. Under the treaty, dividends are taxable at a maximum rate of 6% if the beneficial owner is a company which holds at least 25% of the capital of the company paying the dividends. In other cases, dividends are taxable at a maximum rate of 10%. Interest and royalties may be taxed at a maximum rate of 10%. PwC observation: These recent ratifications signal Ireland’s commitment to expanding and strengthening its DTT network. Ireland has signed comprehensive DTTs with 68 countries, 63 of which are now in effect and negotiations are ongoing with other territories at this time. DTAs seek to eliminate and minimise double taxation that might arise for companies operating crossborder and are an essential tool for achieving international tax efficiencies. Subscription www.pwc.com/its In this issue Continue
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties www.pwc.com/its Luxembourg Draft bill covering the approval of new DTTs and protocols On November 21, 2012, the Luxembourg government introduced a draft Bill n°6501 covering the approval of new DTTs and protocols which are being amended mainly in order to include an exchange of information clause in line with the Organisation for Economic and Co-operation Development (OECD) model convention. The draft bill is still subject to a Parliamentary vote, but no information on the timing of the vote has been provided so far. • Macedonia: New treaty – In line with the OECD Model. • Malta: Amendment of the exchange of information provision (Article 26). • Poland: Main changes provided by the Protocol are related to Articles 10 (dividends), 11 (interest), 12 (royalties), 13 (real estate rich company article), 24 (elimination of double taxation), 27 (exchange of information) and 29 (anti-abuse provision). • Romania: Amendment of the exchange of information provision (Article 28). • Russia: Main changes provided by the Protocol are related to Articles 4 (tax residency), 10 (dividends), 13 (real estate rich company article), 21 (elimination of double taxation), 26 (exchange of information) and 29 (limitation of benefits). • Seychelles: New treaty – In line with the OECD Model. • Switzerland: Amendment of the exchange of information provision (Article 26). • Tajikistan: New treaty – In line with the OECD Model. The draft bill covers the following main items: • Canada: Amendment of the exchange of information provision (Article 26). • Germany: New treaty – Introduction of a real estate-rich company article, explicit treaty access to fund. • Italy: Main changes provided by the Protocol concern the amendment of the exchange of information provision (Article 27). • Kazakhstan: New treaty – In line with the OECD Model. • South Korea: Main changes provided by the Protocol are related to Articles 9 (associated entities), 10 (dividends), 11 (interest) and 23 (elimination of double taxation). Sami Douénias Luxembourg T: +352 49 48 48 33 3060 E: sami.douenias@lu.pwc.com Fabien Hautier Luxembourg T: +352 49 48 48 33 3004 E: fabien.hautier@lu.pwc.com Subscription PwC observation: The draft bill shows the continuous efforts of the Luxembourg government in negotiating new tax treaties and also revisiting the existing ones to introduce internationally agreed tax standards for exchange of information. This approach is also intended to increase the attractiveness of Luxembourg in the marketplace and to broaden investment opportunities through Luxembourg. Sandrine Buisseret Luxembourg T: +352 49 48 48 33 3124 E: sandrine.buisseret@lu.pwc.com In this issue Continue
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties Subscription In this issue www.pwc.com/its Continue New Zealand Portugal Switzerland New Zealand signs tax treaty with Japan Treaty update On December 10, 2012, the New Zealand Government signed a new DTA with Japan which will replace the existing 1963 treaty. A key feature of the new DTA is lower withholding taxes on dividends, interest and royalties. Portugal/Cyprus tax treaty On December 27, 2012, the Council of Ministers approved a proposal of resolution regarding the signature of a tax treaty between Portugal and Cyprus. DTA between Switzerland and the UAE has entered into force The WHT rate for dividends will reduce from 15% to 0% for an investor who holds at least 10% of the voting power in the company paying the dividend (subject to certain conditions being met). The withholding tax rate for royalties will reduce from 15% to 5%. The WHT rate for interest will reduce from 15% to 10%. The new agreement will come into force once both countries have given legal effect. In New Zealand the new agreement will apply to WHTs from January 1 of the year following entry into force, for other taxes on income that are not withheld at source the treaty will apply from April 1 following entry into source. PwC observation: Applying the 0% WHT rate on dividends to situations where the shareholder has only a 10% voting interest is a first for New Zealand. In other treaties a 0% rate will only apply where the shareholder holds 50%, or in some cases 80% of the voting rights. We particularly welcome the move to extend the 0% WHT rate on dividends to situations where the shareholder holds 10% of the voting power and we hope to see this trend to continue in New Zealand’s future DTAs. PwC observation: Portugal has been increasing its network of tax treaties aiming not only at fostering the investment and economic transactions between Portuguese and foreign companies but also allowing the communication and exchange of information between tax authorities of the signing countries. With the conclusion of the tax treaty with Cyprus, Portugal has now entered into tax treaties with all the EU member states. It is the first agreement of this kind between Switzerland and the UAE. As well as a provision on the exchange of information, Switzerland and the UAE have also agreed a WHT exemption for dividend payments to the other contracting state or state institutions (e.g. sovereign funds), as well as for dividend payments to qualifying pension funds. There will be a residual tax of 5% for dividend payments to companies that hold a stake of at least 10% in the company making the payment, and of 15% in all other cases. Interest and royalty payments will be taxed only in the state of residence. PwC observation: In addition to the DTT with Hong Kong on which we have reported previously, this new tax treaty with the UAE is another important milestone in the positive development of Swiss bilateral economic relations. Jorge Figueiredo Sandy M Lau Wellington T: +64 9355 7523 E: sandy.m.lau@nz.pwc.com Nicola J Jones Auckland T: +64 9355 8549 E: nicola.j.jones@nz.pwc.com Portugal/Peru tax treaty On December 27, 2012, the Council of Ministers approved a proposal of resolution regarding the signature of a tax treaty between Portugal and Peru. The DTA between Switzerland and the UAE entered into force on October 21, 2012 and applies to WHT paid from January 1, 2012 and all other taxes from January 1, 2013. Lisbon T: +351 213 599 618 E: jorge.figueiredo@pt.pwc.com Michelle D Redington Auckland T: +64 9355 8014 E: michelle.d.redington@nz.pwc.com Catarina Nunes Lisbon T: +351 213 599 621 E: catarina.nunes@pt.pwc.com Stefan Schmid Zurich T: +41 58 792 44 82 E: stefan.schmid@ch.pwc.com
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties Subscription In this issue www.pwc.com/its Switzerland Thailand Amendment to the DTA with Russia has entered into force DTA – Thailand and Taiwan Continue The Protocol of Amendment to the DTA between Switzerland and Russia entered into force on November 9, 2012 and will apply from January 1, 2013. Thailand and Taiwan signed a DTA on December 3, 2012. The agreement entered into force on December 19, 2012 and is applicable for income years commencing January 1, 2013 and onwards. It contains an administrative assistance clause in accordance with the international standard. The revised DTA allows for a full exemption from WHT on dividend payments to the other contracting state or state institutions, as well as for dividend payments to the national banks of the two jurisdictions or to qualifying pension funds/schemes. The tax exemption under this DTA between Thailand and Taiwan was issued in accordance with Thai Royal Decree 463. Income tax on petroleum income tax is excluded (at this stage) from the DTA as agreed, by Protocol. The residual WHT of 5% remains unchanged for dividend payments to companies (other than partnerships) that hold a stake of at least 20% of the capital of the company making the payment provided that the foreign capital invested exceeds 200,000 Swiss francs (CHF) or its equivalent in any other currency at the time when the dividend becomes due. In all other cases there will be a 15% residual WHT. Under the revised DTA, interest payments shall not be subject to WHT in the source country. • The amount of WHT is limited as follows: Dividend WHT is limited to 5% of the gross amount of the dividends if the beneficial owner directly holds at least 25% of the capital of the company paying the dividends and to 10% in all other cases. • Interest WHT is limited to 15% or 10% where paid to a financial institution (including insurance companies). • PwC observation: An interesting implication of the DTA between Thailand and Taiwan is that it may impact the tax rates imposed under other DTA’s. For example, there is a protocol to the DTA with Mauritius which states that the WHT rates on dividends, interest and royalties will be the rate under the DTA or any lower rate applied under any DTA signed by Thailand after the date of the Mauritius DTA. The implication therefore appears to be that the tax rate on qualifying dividends paid to Mauritius (or other countries which have concluded a DTA with Thailand with similar protocol) will reduce to 5% once the DTA between Thailand and Taiwan is concluded. Other jurisdictions which have concluded DTA’s with Thailand may seek to negotiate a reduction in the dividend WHT rate in line with the Thailand Taiwan DTA. Royalty WHT is limited to 10%. Under all DTA’s previously executed by Thailand with other countries (subject to the protocol observations below) the lowest limit of dividend WHT is 10%. PwC observation: The revised tax treaty with Russia provides a number of benefits and will contribute to the further positive development of bilateral economic relations between the contracting states. Stefan Schmid Zurich T: +41 58 792 44 82 E: stefan.schmid@ch.pwc.com Michael Anastasia Bangkok T: +66 0 2344 1246 E: michael.x.anastasia@th.pwc.com Vanida Vasuwanichchanchai Bangkok T: +66 0 2344 1303 E: vanida.vasuwanichchanchai@th.pwc.com
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties Ukraine New protocol to US-Spain treaty signals possible changes in US policy on limitation on benefits In this issue www.pwc.com/its United States New Ukraine-Cyprus DTT Subscription On November 8, 2012, a new DTT between Ukraine and Cyprus and a protocol to the treaty were signed. The treaty introduces a number of important changes regarding WHT rates, compared to the effective Cyprus-USSR tax treaty (see the table below). The new treaty also introduces the beneficial ownership requirement Type of income Dividends Interest Royalties New WHT (%) 5/15% 2 5/10 Current WHT (%) 0 0 0 in order to enjoy the reduced WHT rates on dividends, interest and royalties. To become effective, the new treaty will have to be ratified by the Parliaments of the two states. There is no certainty when this will happen. If the ratification by the Parliaments is completed during 2013, the new treaty would apply from January 1, 2014. The United States and Spain signed, on January 14, 2013, a new protocol amending the existing 1990 income tax treaty between the United States and Spain, together with a memorandum of understanding. The protocol is a significant development in that it modernises the existing treaty and more closely conforms with both countries’ current tax treaty policies. Specifically, the protocol provides for exclusive residence-state taxation of interest, royalties, certain capital gains and certain parent-subsidiary dividends. The protocol includes updated Limitation on Benefits (LOB) and exchange of information articles, and also contains a mandatory binding arbitration provision. While the protocol modernises the provisions of the existing treaty, the LOB article represents a fundamental shift in US tax treaty policy in certain respects. For example, the protocol fundamentally changes long accepted US tax treaty standards under which a taxpayer may seek a discretionary grant of benefits in a case where the taxpayer does not satisfy the requirements of the tests set forth in the LOB, and also adds a new restriction on the ability to meet the derivative benefits/ equivalent beneficiaries test for treaty eligibility. PwC observation: Taxpayers should note the following: • This protocol is the first US derivative benefits LOB provision to impose a residence requirement with respect to intermediate owners; it is understood that this change was implemented in order to be consistent with the requirements of the ownershipbase erosion test, although one can question whether this consistency is appropriate given the different rationales behind the two tests. This more restrictive approach likely will be seen in future US tax treaties and protocols. • The more stringent standards for seeking discretionary grant of benefits, which is new with this protocol, means that treaty benefits could be denied to companies that can demonstrate to the satisfaction of the US Competent Authority that they have no ‘treaty shopping’ purpose, but that do not come close to satisfying one of the objective tests in the LOB article. • A US company that derives income from Spain through a fiscally transparent entity organised in a jurisdiction outside of the United States and Spain that does not have an exchange of information agreement in force with Spain will not be able to claim reduced Spanish taxation or exemption otherwise available under the treaty. PwC observation: Businesses are recommended to revisit their foreign structures involving Cypriot entities to see if they continue to be tax efficient after the new Ukraine-Cyprus treaty comes into force. Svetlana Bilyk Ukraine T: +380 50 443 4321 E: svetlana.bilyk@ua.pwc.com Ron Barden Ukraine T: +380 44 490 6777 E: ron.j.barden@ua.pwc.com Steve Nauheim Washington, DC T: +1 202 414 1524 E: stephen.a.nauheim@us.pwc.com Alexandra K Helou Washington, DC T: +1 202 346 5169 E: alexandra.k.helou@us.pwc.com
  • Tax Legislation Proposed Legislative Changes Administration & Case Law EU Law Treaties Subscription In this issue www.pwc.com/its Contact us For your global contact and more information on PwC’s international tax services, please contact: Anja Ellmer International tax services T: +49 69 9585 5378 E: anja.ellmer@de.pwc.com Subscribe to International tax news To subscribe to international tax news and other PwC tax updates please visit www.publications.pwc.com to sign yourself up and manage your subscription choices. Worldwide Tax Summaries: Corporate taxes 2012/13 If you’re operating globally, are you aware of changes to the myriad tax rates in all the jurisdictions where you operate? If not, we can help – download the eBook of our comprehensive tax guide, or explore rates in over 150 countries using our online tools, updated daily. www.pwc.com/its PwC helps organisations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with more than 180,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC does do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2013 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. Design Services 28024 (01/13).