Latest news from international tax and transfer pricing

US tax reform developments

To keep up to date with the latest developments, news and implications of tax reform in the United States (US), visit PwC’s dedicated website at www.pwc.com.au/ustaxreform. The website is regularly updated, and brings together insights from business specialists across the globe for US inbound and outbound organisations navigating change.

Some recent updates to note include:

PwC US has been hosting a tax reform readiness webcast series, covering everything from financial reporting implications to workforce strategies and business preparedness. You can view past webcast recordings, and register for upcoming topics by following this link: www.pwc.com.au/ustaxreform.

Addressing hybrid mismatch arrangements

The Australian Government has released revised exposure draft legislation to address hybrid mismatch arrangements. The proposed rules are designed to prevent companies doubling up on certain taxation benefits and will operate by either denying deductions or including relevant amounts in assessable income (refer to the Government’s media release). This latest exposure draft updates the incomplete draft legislation previously released for comment in November 2017, and also incorporates rules to address branch mismatch arrangements and to introduce a targeted integrity rule designed to discourage foreign interposed zero or low tax entities (where the rate of foreign income tax in the country of the interposed entity is 10 per cent or less) lending to Australia.

Comments on this latest exposure draft are due 4 April 2018. This TaxTalk Alert, which was published on 9 March 2018, discusses the revised draft law in further detail.

Australia – Singapore tax treaty

The Prime Minister, in a press conference with the Singaporean Prime Minister, has indicated that the double tax treaty between the two nations will be updated, and is subject to relevant discussions. The treaty was last updated in 2009.

OECD and BEPs developments

The Secretary-General of the Organisation for Economic Cooperation and Development (OECD) has released his reportto the G20 Finance Ministers and Central Bank Governors that met in Argentina. A key challenge noted in the report is the taking of unilateral action by members which pose a threat to multilateralism, and which could affect the level of co-operation between G20 countries. The report contains two parts:

  • Part I is a report on the activities and achievements of the OECD’s tax agenda, and looks ahead at the further progress needed, in particular through the Inclusive Framework on Base Erosion and Profit Shifting (BEPS).
  • Part II is a progress report to the G20 by the Global Forum on Transparency and Exchange of Information for Tax Purposes.

In addition, the interim report on the Tax Challenges Arising from Digitalisation was also released. This interim report is a follow-up to the work delivered under BEPS Action 1 on addressing the tax challenges of the digital economy. It sets out the Inclusive Framework’s agreed direction of work on digitalisation and describes how digitalisation is also affecting other areas of the tax system, providing tax authorities with new tools that are translating into improvements in taxpayer services, improving the efficiency of tax collection and detecting tax evasion.

The OECD has also issued new model disclosure rules that require lawyers, accountants, financial advisors, banks and other service providers to inform tax authorities of any schemes they put in place for their clients to avoid reporting under the OECD/G20 Common Reporting Standard (CRS) or prevent the identification of the beneficial owners of entities or trusts.

In other BEPS-related developments:

  • Anguilla has joined the Inclusive Framework on BEPS.
  • The OECD has released the third round of peer reviews on the implementation of BEPS Action 14 minimum standards on improving tax dispute resolution mechanisms which relate to Czech Republic, Denmark, Finland, Korea, Norway, Poland, Singapore and Spain. The OECD is also calling on taxpayers to provide input (due 9 April 2018) for the fifth round of BEPS Action 14 Stage 1 peer reviews of Estonia, Greece, Hungary, Iceland, Romania, Slovak Republic, Slovenia and Turkey.

OECD working paper on loss carryover provisions

The OECD has released a working paper on Loss carryover provisions - Measuring effects on tax symmetry and automatic stabilisation. Using detailed country-level information, this paper presents two tax policy indices capturing the effects of carryover provisions on tax symmetry and stabilisation across a total of 34 OECD and non-OECD countries. The report shows that only 18 countries provide unlimited loss carry-forwards and most countries do not index tax losses to inflation; and only nine countries provide carry-backs, while eight countries limit the amount of tax losses which can be offset in any given year.

EU tax proposals for digital economy

The European Commission (EC) has proposed new measures to ensure ‘fair and effective taxation’ for digital business activities in the European Union (EU). The two distinct legislative proposals are as follows:

  • Reforms to the corporate tax rules so that profits are registered and taxed where businesses have significant interaction with users through digital channels. This forms the Commission’s preferred long-term solution. This proposal would enable Member States to tax profits that are generated in their territory, even if a company does not have a physical presence there. The new rules would ensure that online businesses contribute to public finances at the same level as traditional ‘bricks-and-mortar’ companies.
  • Introducing an interim Digital Services Tax (DST) for the taxation of digital activities in the EU. The DST proposal sets out a rate of 3 per cent, which would apply to gross revenue derived in the EU from selling online advertising; from the sale of data collected and generated from users’ activities on digital interfaces, and from making available to users a multi-sided digital interface which allows users to find and interact with other users, and which may also facilitate the provision of goods or services directly between users.

The legislative proposals will be submitted to the Council for adoption, and to the European Parliament for consultation. The EC states that it will continue to actively contribute to the global discussions on digital taxation within the G20/Organisation for Economic Cooperation and Development (OECD), and push for international solutions. Refer to PwC’s Global Tax Insights for further information.

EU Commission finds that Luxembourg granted unlawful State aid

The European Commission has published the non-confidential version of its final decision, issued on 4 October 2017, concerning a State aid investigation. This decision is the latest in a number of related high-profile cases that concern the EC’s approach on State aid, in particular in relation to tax rulings and transfer pricing. Refer to PwC’s Global Tax Insights for further information.

Dutch Government provides guidance on EU anti-tax avoidance directive implementation

The Dutch Government has provided additional guidance on its proposed measures addressing tax avoidance and the Dutch interpretation of the EU anti-tax avoidance directive. The guidance is in line with the Dutch Government’s previously proposed tax plans for the coming years, which aim to increase the Netherlands’ attractiveness for multinational enterprises doing business in the Netherlands. The Government still intends to reduce the general Dutch corporate income tax rate to 21 per cent and abolish the current Dividend Withholding Tax Act. Refer to PwC’s Global Tax Insights for further information.

In addition, the Dutch corporate income tax for fiscal unities will be amended in response to the EU Court of Justice ‘per-element approach’. This may have an impact on the tax position of multinational enterprises whose Dutch entities currently are included in a fiscal unity. Refer to PwC’s Global Tax Insights for further information.

Canadian Federal Budget 2018

The Canadian Government has released its 2018 Federal Budget, which includes various international tax developments such as cross-border surplus stripping using partnerships and trusts, investment business definition, controlled foreign affiliate status, reporting requirements and reassessments.