Latest news from international tax and transfer pricing
Draft law on hybrid mismatches
On 24 November 2017, the Government released that proposes the legislative framework to implement the Organisation for Economic Co-operation and Development (OECD) hybrid mismatch rules. The rules are aimed at eliminating double non-taxation benefits from hybrid mismatch arrangements which exploit differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions. Refer to our for further information.
The commencement date of the proposed law is subject to the legislative process and will broadly apply to payments made on or after the day that is six months after the day that the relevant Bill receives Royal Assent, subject to limited transitional rules for regulatory capital.
Comments can be made on the exposure draft law until Friday, 22 December 2017.
ATO amends CbC reporting guidance
The Australian Taxation Office (ATO) has issued an addendum to its Law Companion Guideline LCG 2015/3 which deals with the requirements for Country by Country (CbC) reporting to remove paragraphs that are incorrect and, where appropriate, replace them with correct information. In particular the ATO has omitted a paragraph which had stated an intention that the ATO would not apply the CbC reporting provisions to significant global entities that are exempt from income tax, i.e. Commonwealth or State entities of the type covered by Division 50 of the Income Tax Assessment Act 1997 (Cth).
ATO clarifies impact of the MAAL
The ATO has also a statement on commentary which misrepresented the ATO’s evidence given at Senate Estimates in relation to the Multinational Anti-Avoidance Legislation (MAAL). The ATO has confirmed that the MAAL is effective in bringing multinational taxpayers to the table and that the ATO has raised over AUD4 billion in total assessments against large public groups and multinationals in the last financial year alone, with almost AUD2.9 billion raised from just seven very large multinational companies. In addition, since 1 July 2016, the ATO has that its compliance action has resulted in AUD1.5 billion collected from large multinationals.
ATO statement regarding the ‘Paradise Papers’
In relation to the International Consortium of Investigative Journalist’s ‘Paradise Papers’ investigation, the ATO has indicated that it has of intelligence received to identify possible Australian links, and is working closely with other domestic agencies and tax administrations in other jurisdictions. The ATO has also encouraged those who believe they may have undeclared offshore income to contact the ATO and come forward by making a voluntary disclosure.
New Zealand election results from a tax perspective
The newly elected New Zealand Labour-led Government has stated that it is committed to a progressive tax system where taxpayers contribute to society equitably, according to their means. PwC New Zealand’s publication discusses the key tax focus areas for the new Government, and the steps proposed to address them. The publication also discusses the key tax-related policies that are expected to be introduced as part of the Government’s 100-day plan, which relate to the Families Package, housing, and the establishment of a Tax Working Group.
UK Autumn Budget 2017
On 22 November 2017, the United Kingdom (UK) Chancellor delivered the , which includes the following key business tax outcomes:
· The UK Government will amend the Substantial Shareholding Exemption legislation and the Share Reconstruction rules to avoid unintended chargeable gains being triggered where a UK company incorporates foreign branch assets in exchange for shares in an overseas company.
· Some aspects of the corporation tax rules which apply to arrangements involving hybrid structures and instruments will be amended to clarify how and when the rules apply, and to ensure that the rules operate as intended.
· Effective from April 2019, withholding tax obligations will be extended to royalty payments, and payments for certain other rights, made to low or no tax jurisdictions in connection with sales to UK customers.
· All gains on non-resident disposals of UK property will be brought within the scope of UK tax applicable to gains accrued on or after April 2019. Targeted exemptions will be introduced for institutional investors such as pension funds. A consultation document has been released on this proposal.
· From 22 November 2017, a restriction has been introduced to limit the amount of credit allowed or deduction given for foreign tax incurred by an overseas branch of a company, where losses of the branch have been offset against income other than those of the branch in the foreign jurisdiction.
· A Her Majesty’s (HM) Treasury position paper sets out the challenges posed by the digital economy for the international corporate tax framework.
For further insights and analysis, refer to , which discusses the key outcomes for business tax, property tax, personal tax, indirect tax and avoidance and evasion provisions.
Status update on US tax reform
Work is fast progressing on comprehensive tax reform in the United States (US) since the Trump Administration, the House Ways and Means Committee, and the Senate Finance Committee jointly released a tax reform ‘framework’ document in late September 2017 (see the ‘’ and publications). The ‘framework’ document outlines the key proposed changes to corporate, individual and international tax rules supported by the Trump Administration and Congressional Republicans (for further information, see PwC Global’s ).
Since the release of the framework, the US House of Representatives has now passed the ‘Tax Cuts and Jobs Act’ without any additional amendments to the version previously reported by the Ways and Means Committee (see PwC Global’s for further detail). In addition, the Senate Finance Committee has also approved a Senate version of tax reform legislation (see PwC Global’s for further information). Once the Senate has approved its tax reform bill, the two chambers must reconcile differences between the two bills and then vote to pass a final bill, in identical form, before tax reform legislation can be signed into law by President Trump.
For the latest developments in relation to the US tax reform, see PwC Global's .
Implications of US corporate tax reform
The Australian Department of the Treasury (Treasury) has released a paper examining the likely impacts of the United States’ (US) corporate tax reforms on the US and the rest of the world, placing the US changes in the context of the global trend for lower corporate taxes. The paper concludes that if investors believe that the corporate tax cut is permanent, it will likely lead to an increase in investment in the US, which will be funded only partly from domestic US savings. The rest of the world would likely experience a decline in capital stock resulting from the flow of capital into the US, the magnitude of which will depend on a number of factors.
For Australia, the paper indicates that the size of the negative impact will also depend on how other countries respond. It also notes that the US reforms have the potential to accelerate tax competition between jurisdictions, making Australia’s current corporate tax rate increasingly uncompetitive internationally.
OECD and BEPS developments
At the on held in Cameroon on 15 November 2017, African Ministers agreed on a call to tackle illicit financial flows through international tax cooperation. This meeting took place in the backdrop of the recently released ‘Paradise Papers’, which highlighted the global problem of cross-border tax avoidance and evasion, and the need for an international response to deal with them effectively.
In the meeting , it was indicated that the key focus agreed upon for 2018 was the full and timely delivery of the commitments made by jurisdictions scheduled to commence Automatic Exchange of Information (AEOI) exchanges in 2018, the development of the framework for the full AEOI peer reviews and theprogress in the implementation of the AEOI Standard by developing country members. Furthermore, in relation to the Exchange of Information on Request (EOIR) Standard, the Global Forum will deliver further reports in the second round of EOIR peer reviews. The Forum also relaunched African political support for more tax transparency and agreed on the .
In a separate meeting, 80 delegates from 20 countries and 11 organisations in Bratislava for the of the Inclusive Framework on BEPS in the Eastern Europe and Central Asia regions. The main of this event was to discuss the status of the implementation of the Base Erosion and Profit Shifting (BEPS) measures, with a specific focus on the peer-review mechanisms, as well as timelines for the implementation of the minimum standards.
The OECD has the ‘’ report, which focuses on the implementation of the recommended approaches included in the 2015 final report on BEPS Action 1 ‘’. These recommended approaches, which are also included in the , have already been successfully implemented by a large number of countries.
In other OECD developments:
· Austria and the Isle of Man have deposited their instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (‘BEPS Multilateral Instrument’).
· The second round peer review reports on the standard of transparency and exchange of information on request for Curaçao, Denmark, India, Isle of Man, Italy and Jersey have been released.
· Oman, Qatar, Saint Kitts and Nevis have joined the Inclusive Framework on BEPS.
· Updated versions of transfer pricing country profiles have been published, reflecting the current transfer pricing legislation and practices of 31 participating countries. The document focuses on the countries’ domestic legislation regarding key transfer pricing principles, including the arm’s length principle, transfer pricing methods, comparability analysis, intangible property, intra-group services, cost contribution agreements, transfer pricing documentation, administrative approaches to avoiding and resolving disputes, safe harbours and other implementation measures.
· The public comments received following a request for input on the tax challenges of digitalisation and potential options to address these challenges has been published
· More than 200 global tax and economic crime experts met in London for the Fifth OECD Forum on Tax and Crime. The forum identified five priorities for action, including implementation of the OCED’s Ten Global Principles for fighting tax crime, and stepping up international cooperation, drawing from the key report launched at the forum: Effective Inter-Agency Co-Operation in Fighting Tax Crimes and Other Financial Crimes.
German Court grants foreign corporation full participation exemption for capital gains
The German Federal Tax Court has ruled that capital gains realised by a foreign corporation upon the disposal of shares in a German corporation are fully exempt from German corporate income tax, and not effectively only 95 per cent exempt. This exemption is available provided the capital gains are not realised through a German business, such as a permanent establishment. The decision is relevant for foreign corporate taxpayers for whom a tax treaty does not provide a German tax exemption for capital gains. While the decision provides relief from the effective five per cent tax burden, it remains to be seen how the German tax authorities and legislature will react to the decision. PwC Global’s provides further information.
German tax authorities release circular on withholding tax on royalties for software and databases
On 2 November 2017, German tax authorities released a circular on German non-resident income taxation and withholding tax on royalties for the use of software and databases. The Circular is relevant for all taxpayers receiving royalty income from the licensing of software or databases that are used in a German business or institution. PwC Global’s Tax Insights provides further information.