You will find below a summary of some of the most important tax developments that have happened, since the release of our last newsletter, at the OECD, EU, or country level in the area of tax transparency and the fight against tax avoidance.
Release of the Anti-Tax Avoidance Package
On 28 January 2016, the European Commission unveiled its Anti-Tax Avoidance Package. This includes two legislative proposals, addressing certain anti-base erosion and profit shifting (BEPS) issues and non-public country-by-country reporting (CbCR), as well as a common approach to tax good governance towards third countries and recommendations to tackle treaty abuse. The draft of the Anti-Tax Avoidance Directive proposes common minimum rules in the areas of interest limitation, exit taxation, switch-over clauses, general anti-abuse rules (GAAR), controlled foreign companies (CFC), and hybrid mismatches.
For more details on the package, read our newsletter dated 1 February 2016.
During the ECOFIN meeting of 8 March 2016, a political agreement was reached on the draft non-public CbCR Directive. The new rules will apply to multinational companies which operate cross-border in the EU. Member States will have 12 months to transpose the new rules into national law after its entry into force, which is expected in spring 2016. As part of a separate work stream, the Commission is currently finalising its impact assessment on public CbCR and will present a proposal in April.
Public consultation on improving double taxation dispute resolution mechanisms
On 16 February 2016, the European Commission launched a public consultation on improving double taxation dispute resolution mechanisms. The deadline for responses is 10 May 2016.
The Dutch presidency's roadmap on future work on BEPS
On 19 February 2016, the Dutch presidency issued the final version of its roadmap (PDF, 234 KB), setting out future work in the Council during the coming months in the field of inter alia BEPS. In the short term, the roadmap sets out further plans on inter alia the Interest and Royalties Directive (the possible inclusion of a minimum effective taxation test), the Anti-Tax Avoidance Directive and country-by-country reporting (the view is to reach a political agreement by June 2016), and the reform of the Code of Conduct Group. In the medium term, priorities of the roadmap include, among others, work on transfer pricing and disclosure of aggressive tax planning.
BEPS Action 6 - Discussion Draft on the treaty residence of pension funds
Public comments are invited to be sent by 1 April 2016, on a discussion draft (PDF, 264 KB) that includes proposals for changes to the OECD Model Tax Convention which concerns the treaty residence of pension funds. This discussion draft includes draft changes to Articles 3 and 4 of the OECD Model Tax Convention, and to the Commentary on these Articles, that will ensure that a pension fund is considered to be a resident of the State in which it is constituted for the purposes of tax treaties-regardless of whether that pension fund benefits from a limited or complete exemption from tax in that country.
BEPS Action 13 - MCAA on country-by-country reporting
On 27 January 2016, ministers and top tax officials from more than 30 countries, including Luxembourg, signed the Multilateral Competent Authority Agreement (MCAA) in order to facilitate the automatic exchange of country-by-country reporting called for in Action 13 of the OECD/G20 BEPS Project.
For more details, read our newsletter dated 29 January 2016.
Inclusive framework for the global implementation of BEPS
On 23 February 2016 the OECD agreed on a new framework that would allow all interested countries and jurisdictions to join in efforts to update international tax rules for the 21st century. The proposal for broadening participation in the BEPS project was presented to the G20 finance ministers at their meeting on 26-27 February in Shanghai, China.
BEPS Action 13 - Transfer Pricing Documentation and Country-by-Country Reporting
The local implementation of CbCR and other transfer pricing disclosure requirements based on Action 13 of the BEPS Action Plan goes on…
|Australia||In late 2015, Australia introduced CbCR regulations that require entities to file some combination of a CbC report, master file, and local file. A bill now proposes to introduce a penalty regime. Read more|
|Finland||The Ministry of Finance, on 21 December 2015, released a draft bill that includes CbCR, master file, and local file requirements, and penalty provisions, generally following the BEPS recommendations. Public comments were allowed till the end of January. Read more|
|India||The Union Budget 2016, presented on 29 February 2016, includes measures to implement the three-tiered transfer pricing documentation requirement for corporate taxpayers under BEPS Action 13 (i.e. master file, local file, and CbCR). Read more|
|Jersey||At the end of February, Jersey opened a consultation on the introduction of CbCR. The consultation asks for opinions on the UK’s draft of CbCR regulations, as the intention is that Jersey’s own regulations will be closely based on these and on OECD model recommendations. Read more|
|Netherlands||Legislation amending the rules governing transfer pricing documentation, to include CbCR, master file, and local file provisions in line with BEPS Action 13 has been enacted with the effective date on 1 January 2016. This means that if the fiscal year of the group commences on 1 January 2016, the group companies will need to file the CbC report by 31 December 2017. Read more|
|Norway||The Norwegian Ministry of Finance published a public consultation paper regarding CbCR for tax purposes. The proposal suggests that multinational groups - when the ultimate parent company is a resident in Norway - would be required to submit CbC reports. The reporting requirements could also affect foreign group entities that are residents in Norway if certain conditions are met. The public consultation ended on 25 January 2016. Read more|
|United Kingdom||The UK final CbCR regulations were published on 3 March 2016. The final regulations reflect several amendments to the draft regulations published in October 2015, in particular that UK subsidiaries of foreign-parented groups will now be required to file a CbC report for the UK sub-group if the foreign parent is not required to file in its own territory (or if HMRC does not receive the report from that tax authority). As expected, the regulations will apply to multinational groups for accounting periods beginning on or after 1 January 2016. Read more|
Australia - Anti-tax avoidance measures
The Australian government, on 22 February 2016, announced another measure aimed at addressing tax base erosion and profit shifting. The government intends to apply new requirements on foreign investment applications to ensure multinational companies investing in Australia pay tax in Australia on what they earn. A breach of these requirements could result in prosecution, fines, and potentially divestment of the Australian assets.
The Treasury, on 11 February 2016, released a consultation paper concerning the transfer pricing recommendations within the BEPS project (Actions 8-10), and requesting comments with respect to possible adoption of the new OECD recommendations in the context of the Australian tax system.
Hybrid mismatch examples
The UK government published, in January 2016, draft examples that aim to assist in the understanding of the application of the draft hybrid mismatch legislation published on 9 December 2015 (see our previous newsletter). The draft examples (PDF, 1.13 MB), covering 20 different scenarios, are in line with expectations and largely based on the OECD Action 2 examples.
New US Model Income Tax Treaty
On 17 February 2016, the US Treasury Department issued a newly revised US Model Income Tax Convention (the “2016 Model”), which is the baseline text the Treasury Department uses when it negotiates tax treaties. The 2016 Model includes inter alia new rules that target “special tax regimes” (STRs) designed to attract certain mobile forms of income (interest, royalties, and other income). These rules preserve the source state’s taxing rights when the recipient is subject to low or no taxation on the income in the residence state by denying treaty benefits for certain related-party deductible payments that benefit from an STR in the recipient’s country of residence. Interestingly enough, a new article triggers a consultation between the two treaty partners to determine whether to amend the treaty when one of the treaty partners changes its general corporate tax system after entering into the treaty so that it no longer imposes a significant tax on the cross-border income of resident countries.
Read more in the KPMG US report here.
Tax treaty between Luxembourg and Senegal
The Luxembourg - Senegal Income and Capital Tax Treaty, signed on 10 February 2016, incorporates some of the BEPS Action 6 recommendations. In particular, the tax treaty includes in its title/preamble a clarification that it is not intended to create opportunities for double non-taxation, as well as a general anti-abuse provision (“principal purpose test”). It also includes specific anti-abuse provisions with respect to treaty benefits relating to dividends, interest, royalties, and other income, as well as the possibility for the contracting states to apply their domestic anti-abuse provisions (to the extent that this application does not result in a taxation which is contrary to the tax treaty).
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