New Zealand's changing international tax rules and relationships
The New Zealand Government has released several papers outlining New Zealand’s Base Erosion and Profit Shifting (BEPS) implementation strategy. Simultaneously, the Government also released its response to the recommendations from a recent inquiry into foreign trust disclosure rules. The inquiry made a number of recommendations which propose improvements to registration and disclosure of information, anti-money laundering rules and increased information sharing between government agencies. The Government has agreed with the majority of the recommendations, with modifications to a few of them. For further information, see PwC New Zealand Tax Tips Alert, New Zealand's changing international tax rules and relationships – what's next?
United Kingdom – Tax Transparency guidance
Her Majesty's Revenue and Customs (HMRC) has provided guidance in Large businesses: publish your tax strategy for United Kingdom (UK) businesses with group turnover above £200m or balance sheet over £2bn requiring them to make their tax strategy public.
Implications of UK vote to leave the EU
In a 23 June 2016 referendum, the UK public voted to leave the European Union (EU). The implications for the UK, the EU and the rest of the world depend to a substantial extent on the agreed exit terms, as well as the negotiations with other countries. Given the comments from incoming Prime Minister Theresa May, it seems inevitable that the UK Government will, at some point, notify the European Council of its intent to leave the EU. That notification triggers a two-year deadline for concluding negotiations. That deadline could be extended further by mutual consent of all Member States.
There are many misconceptions about how the referendum vote impacts taxes, but it causes no major legislative tax changes directly. However, the market volatility that we have seen since the vote could affect some tax-related affairs. In addition, tax policy changes may, in time, result from what transpires. For further information, see PwC’s Tax Policy Bulletin, EU and global tax implications of UK public vote to leave the EU.
European Economic and Financial Affairs Council agree to Anti-Tax Avoidance Directive
Political agreement on the Anti-Tax Avoidance Directive (ATAD) was reached by the EU Member States in the Council of the EU, meeting through the European Economic and Financial Affairs (ECOFIN) Council on 17 June 2016.
The agreement requires all Member States to enact laws that largely implement G20/Organisation for Economic Co-operation and Development (OECD) BEPS outcomes on interest limitation rules, hybrid mismatches and controlled foreign companies as well as additional measures on exit taxation and a general anti-abuse rule. For further information, see PwC’s Tax Policy Bulletin, ECOFIN agrees EU-wide rules in Anti-Tax Avoidance Directive.
Germany and Austria implement BEPS related measures
The German Federal Ministry of Finance published a draft bill which implements the EU directive mandating the automatic exchange of tax information in addition to measures targeting BEPS. The bill’s main legislative changes include the adoption of the OECD’s recommendations for Country-by-Country (CbC) Reporting and the ‘Master File/Local File’ for transfer pricing documentation. The rules, when implemented, will update the General Fiscal Code to follow the scope of information to be provided under the recommended rules in the BEPS Action Item 13 report. For further information, see the PwC Tax Insights from International Tax Services, Germany publishes draft bill implementing BEPS related measures.
The Austrian Parliament enacted legislation that introduces mandatory transfer pricing documentation requirements as defined in BEPS Action Item 13, effective from 1 January 2016. The legislation follows the three-tiered approach to transfer pricing documentation requiring multinational enterprises to prepare a Master File, a Local File, and a CbC Report. For further information, see PwC’s Tax Insights from Transfer Pricing, Austria implements transfer pricing documentation, country-by-country reporting requirements.
United States’ final CbC reporting rules
The United States (US) Internal Revenue Service (IRS) issued final regulations (TD 9773) requiring annual CbC reporting for US-parented multinational enterprise groups. The information collection requirements in these regulations are to be satisfied by submitting a CbC Report with the taxpayer’s income tax return. The final regulations apply to reporting periods of ‘ultimate parent entities’ of US groups that begin on or after the first day of a taxable year of the ultimate parent entity that begins on or after 30 June 2016. For further information, see PwC’s Tax Insights from Transfer Pricing, IRS issues final country-by-country reporting rules, addresses voluntary reporting for ‘gap year,’ along with a few points of clarification.
Ireland introduced formal bilateral Advance Pricing Agreement program
The Irish Revenue Commissioners have introduced a formal bilateral advance pricing agreement (APA) program effective from 1 July 2016. Prior to this, Ireland accepted requests for bilateral APAs with treaty partners where invited to do so by the other country. The new program was introduced in response to Action 14 of the BEPS initiative with a view to providing certainty to taxpayers in relation to the taxation of cross-border transactions and is in line with OECD Best Practice Guidelines. For further information, see PwC’s Tax Insights from Transfer Pricing, Ireland introduced formal bilateral APA program.
Further developments in OECD’s BEPS project
Representatives of more than 80 countries and jurisdictions gathered in Kyoto, Japan from 30 June – 1 July 2016 to progress ongoing efforts to update international tax rules as part of the OECD/G20 BEPS project. In addition, the OECD has undertaken further work to progress specific BEPS implementation plans including the release of the following in recent weeks:
- Discussion Draft, which deals with the design and operation of the group ratio rule under BEPS Action 4 (limiting base erosion involving interest deductions and other financial payments) – comments are due by 16 August 2016.
- The standardised IT-format for the exchange of tax rulings between jurisdictions under BEPS Action 5.
- Public comments received in response to the discussion draft on the development of a multilateral instrument to implement the tax treaty related BEPS measures.
- Guidance on CbC Reporting, which sets out transitional filing options for multinationals that voluntarily file in the Parent jurisdiction, guidance on the application of CbC Reporting to investment funds and partnerships, and the impact of exchange rate fluctuations on the agreed EUR 750 million filing threshold for groups.
- The standardised IT-format for providing feedback on Common Reporting Standard (CRS) information
- Additional guidance on the Attribution of Profits to Permanent Establishments – comments are due by 5 September 2016. For further information, see PwC’s Tax Insights from Transfer Pricing, OECD seeks comments on new permanent establishment profit attribution guidance.
- Revised Guidance on Profit Splits, which deals with BEPS Actions 8-10 (Aligning Transfer Pricing Outcomes with Value Creation) – comments are due by 5 September 2016. For further information, see PwC’s Tax Insights from Transfer Pricing, Release of BEPS discussion draft: Revised guidance on profit splits.
- Conforming amendments to Chapter IX of the OECD Transfer Pricing Guidelines, which are prompted by the changes to the Guidelines set out in the 2015 BEPS reports, specifically the BEPS report on Actions 8-10, Aligning Transfer Pricing Outcomes with Value Creation, and Action 13, Transfer Pricing Documentation and CbC Reporting.
Other International tax news
Read our monthly global newsletter, International Tax News: Edition 41, July 2016, for updates and analysis on developments taking place around the world. The developments covered by this edition include amendments to the Income Tax Act in Singapore, new tax bill in New Zealand, HM Treasury and HMRC consultation of relevance to multinational businesses, and the Dutch Court of Appeal ruling in favour of a cross-border fiscal unity with a non-EU parent.