Global Tax Alert | 23 October 2017
The Latest on BEPS – 23 October 2017
On 20 October 2017, Oman joined the BEPS Inclusive Framework bringing to 103 the total Members in the framework. As a new BEPS Member, Oman is committed to comply with the BEPS minimum standards, which are contained in Action 5 (countering harmful tax practices), Action 6 (preventing treaty abuse), Action 13 (transfer pricing documentation) and Action 14 (enhancing dispute resolution). Oman will also participate on an equal footing with the rest of BEPS members on the remaining standard setting under the BEPS project, as well as the review and monitoring of the implementation of the BEPS package.
On 17 October 2017, the OECD conducted its seventh Tax Talk wherein the experts from the Centre for Tax Policy and Administration discussed various updates in the OECD’s international tax work. The webcast agenda included: (i) G10 and Forum on Tax Administration; (ii) Digitalization of the economy; (iii) Harmful tax practices and the released progress report on preferential tax regimes; (iv) Tax treaties: Model Tax Convention and Multilateral Instrument; (v) Tax certainty and enhancing dispute resolutions; and (vi) Recent and next developments.
On 16 October 2017, the OECD released Harmful Tax Practices – 2017 Progress Report on Preferential Regimes (the Progress Report), approved by the BEPS Inclusive Framework. The purpose of this document is to provide an update to the 2015 BEPS Action 5 report and to report the results of the review of all Inclusive Framework members’ preferential tax regimes that have been identified. To assist and support the consistent and swift implementation of BEPS Action 5, the Progress Report also contains guidance on preferential tax regimes, timelines for amending regimes and recommendations on monitoring certain features of preferential regimes.
See EY Global Tax Alert, OECD releases progress report on preferential regimes under BEPS Action 5, dated 18 October 2017.
On 11 October 2017, the OECD released additional that have been activated under the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country (CbC) reports. Currently, together with the exchange relationships under the European Union (EU) Council Directive 2016/881/EU, there are over 1000 automatic exchange relationships established among jurisdictions committed to exchanging CbC reports as of mid-2018. The that are in place and an update on the for CbC reporting in jurisdictions are available on the OECD website.
On 6 October 2017, the OECD published, on its website, the comments received on the discussion drafts on the revised guidance on profit splits (BEPS Action 10) and the additional guidance on the attribution of profits to permanent establishments (BEPS Action 7). Interested parties had been invited to provide comments on those two discussion drafts on 22 June 2017. On 6-7 November 2017, the OECD will hold a public consultation on these two discussion drafts at the OECD Conference Centre in Paris.
On 10 October 2017, the Council of the European Union adopted the setting forth the rules for a mechanism to resolve disputes between Member States when those disputes arise from the interpretation and application of agreements that provide for the elimination of double taxation. The adopted Directive was published in the Official Journal of the European Union on 14 October 2017 (OJ L 265 of 14 October 2017). The Directive constitutes part of the EU’s ongoing fight against aggressive tax planning and its efforts to resolve double taxation issues for businesses, and it is in line with recommendations set out under Action 14 on Making Dispute Resolution Mechanisms More Effective.
On 22 September 2017, according to information available on the OECD website, Austria deposited the instrument of ratification, acceptance or approval of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). At the time of depositing the instrument of ratification, jurisdictions must confirm their MLI positions. Accordingly, Austria has confirmed its preliminary MLI positions without any change. However, the MLI has not been published yet in the Federal Law Gazette.
On 26 September 2017, the OECD released Belgium’s peer review report relating to the implementation of the BEPS minimum standards on Action 14 on improving tax dispute resolution mechanisms. Belgium had also requested that the OECD provide feedback concerning their adoption of the Action 14 best practices, and therefore, the OECD has also released an accompanying best practices report. Overall, the report concludes that Belgium meets most of the elements of the Action 14 minimum standard. Therefore, as many practitioners and taxpayers can confirm, it can be concluded that Belgium makes the Mutual Agreement Procedures (MAPs) accessible to taxpayers and that it is also efficient in the actual MAP process.
See EY Global Tax Alert, OECD releases Belgium peer review report on implementation of BEPS Action 14 minimum standards, dated 20 October 2017.
On 11 August 2017, Colombia’s Tax Authorities issued proposed transfer pricing regulations to implement the OECD’s BEPS Action 13 and to establish the analysis for intercompany commodities transactions, which would apply for fiscal year 2017. The proposed transfer pricing regulations include: (i) a local file which is equivalent to the annual transfer pricing documentation that taxpayers have been preparing; (ii) a master file which compiles the global functional and financial information of the multinational group. The master file requirement would apply to fiscal year 2017 and thereafter and; (iii) a CbC report which could contain information in relation to the global distribution of income and taxes of the multinational group. The CbC report would have to be filed no earlier than 31 December 2017 corresponding to fiscal year 2016. Local entities would have to notify the tax authorities about the entity within the group in charge of preparing and submitting the CbC report. This proposed regulation would also include guidance on the application of the comparable uncontrolled price method.
See EY Global Tax Alert, Colombia issues proposed transfer pricing regulations, dated 10 October 2017.
On 9 October 2017, the Cypriot Tax Department announced that the submission of notification of CbC reporting for tax year 2016 had started. Each Cypriot constituent entity of a multinational enterprise (MNE) group must submit an online notification identifying the reporting entity of the MNE group through the Government Portal called “Ariadni” no later than 20 November 2017 (a one-month extension has been granted from the initial deadline date of 20 October 2017) for Reporting Fiscal Years beginning on, or after, 1 January 2016 and ending on, or before, 19 November 2017. For Reporting Fiscal Years ending on or after 20 November 2017, the notification must be filed no later than the last day of the Reporting Fiscal Year of such MNE Group.
See EY Global Tax Alert, Cypriot Tax Authorities announce Country-by-Country Reporting Notification deadline extension, dated 18 October 2017.
On 9 October 2017, the CbC reporting notification electronic form was published in the Czech Republic. A one-time notification identifying the reporting entity of the MNE group must be submitted to the Specialized Tax Authority (STA) in the Czech Republic in the electronic form. The notification must be submitted using certain prescribed ways to prove the identity of the Czech constituent entity submitting the notification, i.e., (i) an accredited electronic signature, or (ii) “data box” login details of the Czech constituent entity. As the STA does not specifically accept notifications sent directly via data box, the recommended approach is to submit a notification through the portal of the Czech Tax Administration () and to use the prescribed methods mentioned above – i.e., methods (i) or (ii) discussed in the previous sentence – as proof of an authenticated access by the Czech constituent entity. The notification must be submitted to the STA no later than 31 October 2017 for Reporting Fiscal Years starting on or after 1 January 2016 and ending on or before 31 October 2017. For Reporting Fiscal Years ending on or after 1 November 2017, the notification must be filed no later than the last day of the Reporting Fiscal Year of such MNE group. There is no requirement to file subsequent notifications with the Czech STA unless the information contained in the original notification has changed.
As part of the published by the Czech Tax Administration, it is stated (in Questions & Answers on CbC reporting) that Czech branches and permanent establishments (PEs) of Czech tax nonresident entities are not required to submit CbC reporting notifications. The guidance further notes that the law does not specify a required language for CbC reports but that English is favored.
On 4 October 2017, the Greek Parliament approved the Multilateral Competent Authority Agreement (MCAA) on the Automatic Exchange of Country-by-Country reports (L. 4490/2017). According to the provisions of the MCAA, Greece will exchange annually, on an automatic basis, the CbC report received from each reporting entity that is resident for tax purposes in Greece, provided that, on the basis of the information included in the CbC report, one or more constituent entities of the reporting entity’s group is resident for tax purposes in the other jurisdiction or is subject to tax with respect to the business carried out through a PE in the other jurisdiction; in order for such exchange to take place an exchange relationship must have been activated between Greece and these jurisdictions and legislation requiring the filing of CbC reports with respect to the reporting fiscal year in scope should be in effect in these jurisdictions. According to the information available on the OECD website, which was last updated on 11 October, Greece has not activated exchange relationships under the MCAA yet. It is also noted that, according to the newly introduced law, a decision issued by the Minister of Finance will follow stating the jurisdictions with which the MCAA is entered in force along with the applicable effective dates per jurisdiction.
On 6 October 2017, the Hong Kong Government introduced a bill to pave the way for Hong Kong’s participation in the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Convention). The Convention will be an important platform that will enable Hong Kong to implement initiatives on international tax cooperation, including the automatic exchange of CbC reports under BEPS Action 13.
On 10 October 2017, Ireland published . In his Budget speech, the Minister for Finance and Public Expenditure and Reform announced a public consultation on: (i) Ireland’s implementation of the EU Anti-Tax Avoidance Directive; (ii) implementation of Actions 8, 9 and 10 of the OECD BEPS Package; (iii) additional considerations regarding Ireland’s domestic transfer pricing rules; and (iv) the effects of moving to a territorial corporation tax base and of reviewing existing law to effect a policy and revenue neutral simplification of the computation of foreign tax credits under the existing worldwide basis of taxation.
See EY Global Tax Alert, Ireland announces consultation on independent review of Irish corporate tax code, dated 12 October 2017.
On 11 October 2017, Japan and Denmark signed a revised tax treaty (the Revised Treaty) which should replace the existing 1968 treaty. The Revised Treaty contains a number of treaty-based recommendations from the BEPS project contained in Action 2 (neutralizing the effects of hybrid mismatch arrangements), Action 6 (preventing the granting of treaty benefits inappropriate circumstances), Action 7 (preventing the artificial avoidance of permanent establishment status) and Action 14 (making dispute resolution mechanisms more effective).
The Revised Treaty contains, for example, a provision dealing with fiscally transparent entities. Its preamble clarifies that tax treaty is not intended to be used to generate double non-taxation or reduced taxation through tax evasion and avoidance and in cases where a person other than an individual is resident in both Japan and Denmark, both competent authorities shall endeavor to determine by mutual agreement the Contracting State of which the person shall be deemed to be a resident. The Revised Treaty has an Entitlement to Benefits clause for certain treaty benefits and a Principal Purpose Test. In the PE clause the Revised Treaty contains an anti-fragmentation rule and the new definition of agency PE. Moreover, the Revised Treaty enables taxpayers to present a case for MAP to the competent authorities of either Contracting State, and taxpayers can request unresolved cases to be submitted to arbitration.
Both Japan and Denmark have signed the MLI and neither of them has included this tax treaty as a Covered Tax Agreement. Therefore, it may be expected that the revised tax treaty will not be further modified by the MLI, particularly given that the treaty already incorporated the treaty-related BEPS minimum standards.
See EY Global Tax Alert, Japan signs revised income tax treaty with Denmark, dated 16 October 2017.
On 11 October 2017, the Luxembourg Tax Authority updated the , including information on the submission of CbC reports. Luxembourg CbC reporting requirements apply for fiscal years beginning on or after 1 January 2016, with the first reports due 31 December 2017. The FAQ provides that CbC reports must be submitted via the by entering the information directly or with a completed XML file. The FAQ also covers other general CbC reporting requirements, including the requirement to submit notification of the reporting entity by the end of the reporting fiscal year via MyGuichet, the local filing requirements when CbC reports are not exchanged with Luxembourg, and Luxembourg’s adherence to the latest version of the .
On 10 October 2017, the new Dutch Government published its (the Paper). The Paper outlines the policy of the new Dutch Government for the next four years. The main proposals include: (i) reducing the corporate tax rate from 25% to 24% in 2019, 22.5% in 2020, and 21% in 2021 (and also reduce the lower rate accordingly from 20% to 16%); (ii) eliminating the standard 15% dividends withholding tax, except for distributions in abusive situations to low-tax jurisdictions; (iii) introducing a withholding tax on interest and royalties paid to low-tax jurisdictions (currently, no withholding tax is levied on interest and royalties in any case); (iv) introducing interest deduction restrictions rules as per the EU Anti-Tax Avoidance Directive that would include a general 30% of EBITDA restriction with a €1 million safe harbor threshold, as well as a rule for banks and insurers limiting interest expense deductions on debt exceeding 92% of the total commercial balance sheet value; (v limiting the allowed carry forward of losses to six years (currently nine years); and (vi) increasing the effective innovation (IP) box regime tax rate from 5% to 7%. The Paper cannot be considered as a formal legislative proposal, but should be considered a blueprint for future formal legislative proposals, which are expected in due course.
See EY Global Tax Alert, New Dutch Government presents its coalition agreement, including proposed tax changes, dated 11 October 2017.
On 19 October 2017, the Polish Senate approved the law for the ratification of the MLI. The law is now awaiting the President’s signature. Once the ratification process is complete and Poland deposits its instrument of ratification, the BEPS MLI will become effective for a particular Polish bilateral tax treaty: (i) with respect to withholding taxes from 1 January of the year following the MLI’s entry into force for both parties to the particular treaty; and (ii) with respect to all other taxes for tax periods beginning on or after the expiration of a period of six months following the MLI’s entry into force for both parties to the particular treaty. For the BEPS MLI to apply for a particular treaty, it must be included in Poland’s list of Covered Tax Agreements (CTAs), as well as in the list of CTAs of the respective treaty partner. includes a provisional list of covered agreements (78) and Poland’s reservations/notifications on the application of the MLI. The definitive position will be provided when the instrument of ratification is deposited.
On 16 October 2017, the OECD’s Forum on Harmful Tax Practices completed its peer review of Singapore’s tax incentives and concluded that they satisfy international standards on countering harmful tax practices under the OECD/G20 BEPS project. This comes as a welcome confirmation to foreign investors that tax incentives will continue to be a part of Singapore’s tax regime to promote and grow business activity, using Singapore as a base.
On 26 September 2017, the OECD released Switzerland’s peer review report relating to the implementation of the BEPS minimum standards on Action 14 on improving tax dispute resolution mechanisms. Switzerland had also requested that the OECD provided feedback concerning their adoption of the Action 14 best practices, and therefore, the OECD has also released an accompanying best practices report.
See EY Global Tax Alert, OECD releases Switzerland’s peer review report on implementation of BEPS Action 14 minimum standards, dated 19 October 2017.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP, International Tax Services, Washington, DC
- Arlene Fitzpatrick
Ernst & Young LLP, Global Tax Desk Network, New York
- Gerrit Groen
- Jose Bustos
- David Corredor-Velásquez
EYG no. 06009-171Gbl