Latest news from international tax and transfer pricing
Draft law released on the Diverted Profits Tax
The Federal Treasurer on 29 November 2016 announced the release of exposure draft legislation on the Diverted Profits Tax (DPT). The draft legislation gives effect to the Australian Government’s announcement in the 2016-17 Federal Budget to impose a 40 per cent penalty tax on profits that have been artificially diverted from Australia by multinationals. The measure is intended to target entities with annual global income of $1 billion or more that shift profits to offshore associates where:
• the resulting increase in the foreign tax liability is less than 80 per cent of the corresponding decrease in the Australian tax liability
• there is insufficient economic substance
• one of the principal purposes is to obtain an Australian tax benefit or both to obtain an Australian tax benefit and reduce foreign tax liabilities.
To ensure that the DPT does not apply where the Australian operations of the global group are relatively small, there is a carve-out for groups that have $25m or less Australian turnover.
Once enacted, the DPT will apply to income years commencing on or after 1 July 2017, whether or not the scheme was entered into, or was commenced to be carried out, before that day. PwC has lodged a submission with Treasury on the draft legislation. Refer to this TaxTalk Alert from Global Tax Insights for a detailed analysis.
US Tax Reform
One of the top priorities for the Trump administration and Republican Congressional leaders is comprehensive tax reform that lowers business and individual tax rates, simplifies the tax code, and makes US business more competitive in the global economy. PwC 2017 US Tax Policy outlook publication, and webcast US Tax Policy and US inbound issues, provides an overview and in-depth discussion of the US Tax Policy outlook in 2017.
Exchange of Information with foreign revenue authorities about indirect taxes
The Australian Taxation Office (ATO) issued Law Practice Statement PS LA 2016/6 on 9 December 2016 which provides guidance on the exchange of information with foreign revenue authorities about indirect taxes under Australia’s international tax agreements such as the Mutual Convention on the Mutual Administrative Assistance in Tax Matters, a bilateral tax treaty, or a taxation information exchange agreement. The Practice Statement importantly outlines the manner in which requests for information from foreign authorities are handled by the ATO. The Law Practice Statement has effect from 16 December 2016. The following Law Practice Statements were withdrawn as a result of the issuing of the new law Practice Statement:
• PS LA 2007/13 - Exchange of Information with foreign revenue authorities in relation to goods and services tax, under international tax agreements
• PS LA 2007/14 - Gathering and use of information from foreign agencies or sources in relation to goods and services tax, wine tax and luxury car tax administration.
Foreign Investment Review Board update
The Foreign Investment Review Board (FIRB) has revised its Guidance Note on Tax Conditions for foreign investments [GN47]. The Guidance Note outlines circumstances in which the Federal Treasurer will consider tax-related conditions, and serves as advice to potential foreign investors of the tax conditions that in certain circumstances may be applied to a no objection notification. A reporting template has been provided for applicants that are required to report to FIRB on compliance with tax conditions.
New tax treaty with Germany enters into force
The Australian Government announced on 13 December 2016 that instruments of ratification were exchanged between Australia and Germany on 7 December 2016, bringing the new AustraliaGermany tax treaty into force. The treaty, which was signed on 12 November 2015, replaces the previous Australia-Germany tax treaty which was signed in 1972. Some of the treaty’s new rules came into effect from 1 January 2017, including those relating to withholding tax rates on non-resident income and with respect to certain pensions first paid from 1 January 2017. Refer to this TaxTalk article for detailed information about the new treaty.
New Zealand IRD focus on multinationals
The New Zealand Inland Revenue Department (IRD) has released its 2016 Compliance Focus for multinationals which highlights the areas of potential risk including transfer pricing, international financing, controlled foreign companies and BEPS. In relation to BEPS, New Zealand will be consulting on hybrid mismatch arrangements, interest limitation rules, signing up to the OECD’s multilateral instrument and applying the revised OECD Transfer Pricing Guidelines.
Cayman Islands approve regulatory amendments related Common Reporting Standard
The Cayman Islands government recently approved regulatory amendments for compliance with and enforcement of the Common Reporting Standard (CRS) by financial institutions. The amendments include clarifications and additions relating to the notification requirement for Cayman Financial Institutions (FIs), CRS policies and procedures, return filing requirements for Cayman Reporting FIs and offense and penalties for contravening the CRS regulation. Refer to Tax Insights from Global Information Reporting & Withholding for further information.
Luxemburg issues new Transfer pricing circular for the fiscal treatment of intragroup financial transactions
The Luxembourg Tax Authorities issued a new Circular providing guidance for the fiscal treatment of intra-group financial transactions. The Circular, which is effective from 1 January 2017 follows the application of the arm's-length principle of the OECD Transfer Pricing Guidelines. All existing transfer pricing rulings are no longer valid from that date. Refer to Tax Insights from Transfer Pricing for further information.
OECD and BEPS developments
The Organisation for Economic Co-operation and Development (OECD) has released the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS and its accompanying Explanatory Statement. The Convention has two main aims:
• to transpose a series of tax treaty measures from the OECD/G20 Base Erosion and Profit Shifting Project (BEPS) into more than 2000 existing bilateral and multilateral tax agreements
• to set a new standard for mandatory binding arbitration in relation to resolving double tax
More than 100 jurisdictions have concluded negotiations on the multilateral instrument that will swiftly implement a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises. The first high-level signing ceremony will take place in the week beginning 5 June 2017, with the expected participation of a significant group of countries during the annual OECD Ministerial Council meeting. For further information refer to this Tax Policy Bulletin.
On 19 December 2016, the Australian Treasury released a discussion paper on the Multilateral Convention. Interested stakeholders are invited to make submissions by 6 February 2017.
In addition, the OECD has released the following:
• discussion draft examples included in a discussion draft on the follow-up work on the interaction between the treaty provisions of the report on BEPS Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances) and the treaty entitlement of non-collective investment vehicle funds. Comments can be made until 3 February 2017.
• an updated version of the BEPS Action 4 Report (Limiting Base Erosion Involving Interest Deductions and Other Financial Payments), which includes further guidance on two areas: the design and operation of the group ratio rule, and approaches to deal with risks posed by the banking and insurance sectors.
• further BEPS guidance which provides key details of jurisdictions' domestic legal frameworks for Country-by-Country (CbC) reporting (including the status of the legislation, first reporting periods, availability of surrogate filing and voluntary filing, and whether local filing can be required) and additional interpretive guidance on the CbC reporting standard.
• the 2016 edition of Revenue Statistics which presents detailed and internationally comparable tax data in a common format for all OECD countries, including Australia, from 1965 onwards. The latest data shows that tax revenues collected in advanced economies have continued to increase from last year’s all-time high, with taxes on labour and consumption representing an increasing share of total tax revenues.
• a report which reviews consumption tax trends in OECD member countries. The report looks at the evolution of consumption taxes as a source of revenue. The report notes that consumption taxes accounted for 30.5 per cent of total tax revenues in OECD countries in 2014, on average.
• mutual agreement procedure statistics for 2015.
In other developments:
• Monaco has ratified the Convention on Mutual Administrative Assistance in Tax Matters. The Convention will enter into force for Monaco on 1 April 2017.
• Peru, Kazakhstan, Côte d’Ivoire and Bermuda have joined the Inclusive Framework on BEPS.
• Belgium has published detailed requirements in relation to transfer pricing documentation and reporting obligations formally adopting the OECD BEPS Action 13 requirements. Refer to Tax Insights from Transfer Pricing for further information. • Canada has passed final legislation to implement CbC reporting. For a detailed analysis refer to Tax Insights from Transfer Pricing.
• The Chilean Internal Revenue Service has published new regulations on CbC reporting which aligns with BEPS Action 13 plan and follows the guidance set out by the OECD.
European Commission publishes directive on new tax proposals
The European Commission has published new tax proposals which seek to harmonise corporate tax bases, apply formulary apportionment, further address hybrid mismatches and improve tax dispute resolution. For a detailed analysis of these proposals refer to this Tax Policy Bulletin.
European Commission publishes Apple State aid decision and opening decision in GDF Suez
The European Commission has published its final decision announced on the State aid investigation into the profit attribution arrangements and corporate taxation of Apple in Ireland. Refer to Tax Insights from International Tax Services and Transfer Pricing for further information.
In addition, the European Commission has also published the non-confidential version of its opening decision in the formal investigation into Luxembourg tax rulings obtained by entities of GDF Suez. Refer to Tax Insights from International Tax Services and Transfer Pricing.
UK issues 2016 Autumn Statement
On 23 November 2016, the United Kingdom’s (UK) Chancellor of the Exchequer, Philip Hammond, made his first Autumn Statement with respect to plans for the UK economy. This is the first Autumn Statement following the EU referendum and the appointment of the Chancellor and the new UK Prime Minister, Theresa May. The Autumn Statement reveals the new government’s direction and tax policy goals and reaffirmed the UK Government’s commitment to previously announced measures, such as cutting the UK corporate tax rate to 17 per cent, and changing the interest deductibility and loss relief rules. It also included commitments to simplify the UK participation exemption (Substantial Shareholdings Exemption, or SSE) and to make the UK an even more competitive location to perform research and development. For further information refer to Tax Insights from International Tax Services.
French budget introduces corporate tax changes and incentives
The French parliament has approved the Finance Act for 2017 and the Amended Finance Act for 2016. These Acts contain certain corporate tax measures designed to improve the competitiveness of the French economy. Most of the measures will apply immediately and affect multinational enterprises with French operations or subsidiaries. The Acts include also a number of other provisions affecting wealth tax, individual taxation, and value-added tax. Refer to Tax Insights from International Tax Services for further information on these measures.
Refer to the International Tax News - Edition 46, December 2016 and Edition 47, January 2017 for other updates and analysis on developments taking place around the world, authored by specialists in PwC’s global international tax network.