Latest news from international tax and transfer pricing

Final ATO guidance on foreign equity distributions through interposed entities

The Australian Taxation Office (ATO) has finalised its tax determinations dealing with the application of the Subdivision 768-A exemption, which applies to certain foreign equity distributions made to a corporate tax entity, in the context of an interposed partnership and trust:

●Taxation Determination: a partnership can hold a direct control interest (as defined in section 350 of the (ITAA 1936)) in a foreign company for the purposes of determining whether an Australian corporate tax entity that is a partner in the partnership has satisfied the participation test as required for purposes of applying the exemption.

●Taxation Determination: a trust can hold a direct control interest (as defined in section 350 of the ITAA 1936) in a foreign company for the purposes of determining whether an Australian corporate tax entity that is a beneficiary of the trust has satisfied the participation test.

In the case of a corporate tax entity that is a beneficiary of a trust, it is important to note that the Commissioner’s view in TD 2017/22 has changed since its predecessor, draft Determination (TD 2016/D7), which was issued last year. In particular, the view expressed in the final Determination has the effect that it will be difficult (if not practically impossible) for an Australian corporate tax entity that is a beneficiary in a discretionary trust to access the foreign dividend exemption in Subdivision 768‑A. The changed view may also impact the ability of a corporate beneficiary in a fixed trust to access the exemption where it does not have an indirect participation interest in the foreign company of at least 10 per cent at the time the foreign company makes the distribution, notwithstanding that it may be entitled to receive more than 10 per cent of the trust’s income at the end of the income year.

The Determinations apply to foreign equity distributions made on or after 17 October 2014, being the date Subdivision 768-A commenced operation. However, in acknowledgement of the change in the Commissioner of Taxation’s view in relation to an interposed trust, to the extent that TD 2017/22 provides a less favourable outcome, taxpayers are able to rely on the view in TD 2016/7 up until 18 October 2017 (being the date the final determination was issued).

OECD BEPS developments

At the Organisation for Economic Co-operation and Development’s (OECD) Forum on Tax Administration Plenary meeting in Oslo on 27-29 September 2017, a number of key themes were discussed, including:

●Priorities for the incoming G20 Presidency, in particular, effective implementation of Base Erosion and Profit Shifting (BEPS) outcomes, Common Reporting Standards for the exchange of information on offshore accounts and actions to enhance tax certainty, including a new pilot on joint risk assessment of multinationals.

●Continuing efforts to improve tax compliance, including tackling the shadow economy, the effective use of data, the management of tax debt and how to minimise identity fraud through effective registration and identification.

●The digital transformation of tax authorities through the use of new technologies, analytical tools and enhanced data sources.

The OECD has issued a number of updates in relation to BEPS-related issues in the last month:

●A progress report on, which provides details on the outcome of peer reviews undertaken on 164 preferential tax regimes identified amongst more than 100 jurisdictions participating in the OECD Inclusive Framework on BEPS.

●The that are now in place under the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country (CbC) Reporting, and an for CbC Reporting in jurisdictions.

●The received on BEPS discussion drafts on the attribution of profits to permanent establishments and transactional profit splits. Refer to PwC Global’s for comments provided to the OECD on both discussion draft documents.

●The first six for Belgium, Canada, the Netherlands, Switzerland, the United Kingdom and the United States (US) on the implementation of BEPS minimum standards on improving tax dispute resolution mechanisms.

In other OECD developments, a number of reports have been published:

●The, which provides internationally comparative data on important aspects of tax systems and their administration in 55 advanced and emerging economies.

●The, which sets out how tax compliance strategies are evolving in light of new technologies, data sources and tools, including the increasing use of advanced analytics.

●The, which looks at the impact on the shadow economy of changes in ways of working and business models, the growth of the digital economy and the emergence of new technologies. The report also recommends a number of areas for further targeted work to help improve tax administrations’ ability to tackle shadow economy activity.

EU Commission paper on a Fair and Efficient Tax System for the Digital Single Market

A European Commission paper dealing with options for taxing the digital economy in the European Union (EU) Digital Single Market notes that amendments to the Common Consolidated Corporate Tax Base to cover digital activities as the preferred intermediate approach at EU level (developed in parallel with a G20/OECD solution). However, it identifies three EU ‘quick fixes’: an equalisation tax on the turnover of digitalised companies; a withholding tax on digital transactions; and a levy on revenues generated from the provision of digital services or advertising activity. Refer to PwC Global’s Tax Insights for further information.

EU Commission takes next steps in State aid cases

The European Commission has continued its ongoing challenges to Member States’ transfer pricing tax regimes by advancing two high profile cases to the next stages. In the Apple case, the Commission referred Ireland to the Court of Justice of the European Union for failing to enforce an August 2016 State aid recovery decision. In the Amazon case, the Commission announced its conclusion that Luxembourg’s tax treatment of Amazon gave rise to unlawful State aid. PwC Global’s Tax Insights provides further information.

US Treasury recommends substantial changes to tax regulations

The US Treasury Department has released a report, recommending specific actions for eight previously identified regulations that either ‘impose an undue financial burden’ and/or ‘add undue complexity’. The changes relate to the following:

●Treatment of certain interests in corporations as stock or indebtedness.

●Income and currency gain or loss with respect to a Qualified Business Unit.

●Treatment of certain transfers of property to foreign corporations.

●Treatment of partnership liabilities.

●Certain transfers of property to Regulated Investment Companies (RICs) and Real Estate Investment Trusts (REITs).

●Restrictions on liquidation of an interest for estate, gift, and generation-skipping transfer taxes.

●Definition of a political subdivision/participation of a person described in section 6103(n) in a summons interview.

This review is part of the US President’s Executive Order calling for a reduction of tax regulatory burdens. PwC Global’s Tax Insights provides further information.

Revised IRS guidance provides relief for reporting taxpayer identification numbers

The US Internal Revenue Service (IRS) has provided revised guidance for financial institutions required to collect taxpayer identification numbers (TINs) and dates of birth. The Notice provides that foreign financial institutions will not be in significant non-compliance with the Model 1 intergovernmental agreement (IGA) solely because of their failure to report US TINs, provided they comply with certain other requirements. PwC Global’s Tax Insights provides further information.

Japanese National Tax Agency guidance for preparing transfer pricing documentation and mutual agreement procedures

The Japanese National Tax Agency (NTA) has published a new guidebook on transfer pricing for taxpayers, and has announced new consultation services and visits to taxpayers to support taxpayers required to prepare Local File transfer pricing documentation contemporaneously. PwC Global’s Tax Insights provides further information.

In addition, the NTA’s Office of Mutual Agreement Procedure has released guidance on mutual agreement procedures. This guidance complements the existing Commissioner’s Directive on Mutual Agreement Procedures, and is designed to ensure Japan’s compliance with BEPS Action 14: More Effective Dispute Resolution Mechanisms. PwC Global’s Tax Insights provides further information.

Irish Budget

On 10 October 2017, the Irish Minister for Finance released his first Budget, and provided an update on Ireland’s international tax strategy. The Minister also announced details of public consultation on the recently published review of Ireland’s corporation tax code. Refer to PwC Global’s Tax Insights for further information.

Netherlands proposes to amend Dutch dividend withholding tax rules

The Dutch Ministry of Finance has published its 2018 tax budget proposals, which includes a proposal to amend the Dutch Dividend Withholding Tax Act. For multinational enterprises, the proposal broadens the Dutch dividend withholding tax exemption from European Union/European Economic Area residents to all jurisdictions with which the Netherlands has entered into a tax treaty. In addition, ‘holding’ cooperatives owned by residents of non-treaty jurisdictions would become subject to Dutch dividend withholding tax. PwC Global’s Tax Insights provides further information.

Spain introduces new tax return to report transactions with related parties and tax havens

The Spanish Finance Minister has approved a new regulation that will require Spanish corporate taxpayers to file a specific tax return, with detailed information on transactions with related parties and transactions or investments with persons or entities located in tax-haven jurisdictions. Taxpayers are required to file this tax return for all tax periods, starting on or after 1 January 2016. PwC Global’s Tax Insights provides further information.

Brazil updates its oil and gas tax framework

The Brazilian Government has updated its oil and gas tax framework, including eliminating uncertainties regarding the tax treatment of expenses incurred in the exploration and production of oil and gas. A Special Import Regime has been established that includes a complete suspension of federal taxes for goods imported on a permanent basis for the exploration, development, and production of oil and natural gas. PwC Global’s Tax Insights provides further information.