Click cover to download

(Subscriber-only password access)

Not a subscriber?

Click here to join the FREE mailing list and receive password access

The global tax landscape is a fluid entity – an ever changing and increasingly complex environment which has seen the arrival of a number of significant tax-related reforms over the past 12 months. Among the litany of global legislative shakeups is the implementation of the AOA for Permanent Establishments in Germany; the ratification of the Foreign Account Tax Compliance Act (FATCA) in Brazil; the introduction of a new withholding tax scheme to the collection of CGT liabilities in Australia; and the release of a new US model income tax treaty by the US Treasury Department.

UNITED STATES

Peter A. Barnes

Caplin & Drysdale

“Gridlock in Congress prevented any major tax legislation from being enacted over the past year, but important developments emerged in regulations and court decisions. Most notably, new regulations severely restrict the ability of US companies to ‘invert’ in a tax-efficient manner and thereby shift their ownership to a foreign parent. Proposed regulations also include sweeping changes to the rules for classifying an instrument as debt or equity, with the result of limiting US companies’ ability to pay interest to foreign parents. The controversial Altera court decision overturned US regulations on cost-sharing agreements with respect to how taxpayers must treat stock options in such agreements.”

CANADA

David Bunn

Deloitte

“After nearly 10 years of Conservative governments, the Liberal Party of Canada won a majority government in the autumn of 2015. The first budget of the new government was announced in March 2016, and of note was the government’s confirmation of its intention to move forward with a number of initiatives to address the OECD’s base erosion and profit shifting (BEPS) project. These plans include adopting the country-by-country reporting standard for transfer pricing documentation for years beginning after 2015.”

MEXICO

Alejandro Barrera

Basham, Ringe y Correa, S.C.

“For the last four years, the Mexican government has passed a number of strategic reforms designed to make the economic environment in Mexico more appealing and competitive for foreign and domestic investors. An increase in investments would naturally result in higher tax revenues. However, these reforms have not brought the expected results. The pace of economic growth is slower than the government had expected. Therefore, the government was compelled to backpedal on some of the previous reforms.”

BRAZIL

Marco Antônio Gomes Behrndt

Machado, Meyer, Sendacz e Opice Advogados

“Brazil’s corporate tax framework changed significantly as a result of Law 12,973, which came into effect in January 2015 and was designed to act as a bridge between the 2008 accounting standards aligned to IFRS and the corporate tax basis. An important change provided by the law refers to the assessment of goodwill paid in M&A transactions qualifying as a business combination and implemented between independent parties; it now derives from a mechanism inspired by the IFRS approach, whereby a purchase price allocation is initially implemented so that goodwill is assessed on a residual basis. Though enjoyment of goodwill tax amortisation was maintained, the law set new, more restrictive boundaries to be observed by taxpayers.”

COLOMBIA

Juan Manuel Idrovo

BDO

“The last two important tax reforms enacted in Colombia have shown that the country is becoming very proactive and is working intensely to align its legislation and tax procedures with the tools that current international tax law has to offer, especially those that have been applied by more economically developed countries, most of them if not all, members of the OECD. In fact, Colombia has expressed its intention to become the next Latin American member of the OECD, after Mexico and Chile. Recently, Colombia was approved by the 15th OECD committee of the 23 that have to evaluate the country’s compliance with all the requirements to be accepted as a full member.”

CHILE

Joseph Courand

Deloitte

“The tax reform enacted on 29 September 2014 is the most relevant development experienced by our tax legislation in the last 30 years. Indeed, the tax reform introduced deep changes to the Chilean tax system with a view to increasing government revenues and reducing income inequality. In February 2016, the tax reform was amended in order to simplify the coexistence of the two tax regimes that the tax reform created. Among the most relevant changes are the creation of two tax regimes, the inclusion of general anti-avoidance rules, tightening of thin capitalisation rules, the inclusion of controlled foreign corporations rules, and broadening the application of VAT on the transfer of real estate.”

UNITED KINGDOM

Peter Jackson

Taylor Wessing LLP

“UK tax legislation continues to be responsive to the ongoing BEPS project being undertaken by the OECD. Diverted Profits Tax (DPT) at a rate of 25 percent was introduced with effect from 1 April 2015 aimed at counteracting artificial diversion of taxable income from the UK. In 2016, new legislation will apply to deny treaty relief for abusive royalty payment arrangements and to hybrid mismatch arrangements to reflect revised OECD transfer pricing guidelines. The stick of these reforms as driven by BEPS is counterbalanced by the carrot of further reductions in the rate of UK corporation tax with a new rate of 19 percent applicable from 1 April 2017, reducing to 17 percent from 1 April 2020.”

IRELAND

Lorraine Griffin

Deloitte

“Ireland’s most recent Finance Act, which was enacted on 21 December 2015, introduced an OECD-compliant ‘Knowledge Development Box’ and also legislated for country-by-country reporting. At the time of writing, the EU’s own anti-avoidance package, which contains certain BEPS-related provisions, is being considered. This may lead to further legislative changes. Encouraging entrepreneurship is also high on the Irish tax agenda. This has seen measures targeted towards more closely equalising the tax treatment of employed and self-employed individuals being introduced. Finance Act 2015 also introduced an enhanced capital gains tax entrepreneur’s relief for individuals who propose to sell their business at some point.”

NETHERLANDS

Mario van den Broek

RSM Netherlands

“In some areas, the Netherlands has followed OECD recommendations which have led to changes in local tax laws. In other areas the Netherlands has taken a more critical approach. To date there have been several key developments. First, as per 1 January 2016, additional transfer pricing documentation requirements apply to MNEs with entities in the Netherlands, in particular the obligation to include a master file and local file in the administration of the Dutch entity and in certain situations the obligation to file a country-by-country report.”

GERMANY

Dr Thomas Schänzle

PwC

“There is certainly a trend toward further

internationalisation, as taxation in Germany is increasingly linked to tax treatment abroad. For example, a matching principle has been introduced under which participation exemption for dividends is denied if the underlying payments are deducted abroad. Another example is the introduction of dual consolidated loss rules for German tax groups. This development is not a direct result of BEPS but goes along with the main objectives of BEPS to avoid double deduction or double non-taxation. In the context of BEPS, however, a far reaching measure is expected to be introduced this year, restricting the deductibility of expenses if not taxed or deducted at the recipient’s level.”

ITALY

Luca Bosco

Studio Tributario e Societario

“The Italian government has implemented a wide-ranging tax initiative aimed at enhancing the competiveness of the Italian corporate tax regime, in order to stimulate the economy and attract foreign investors, as well as introducing tax provisions to tackle abusive conduct that fall fully within the OECD BEPS Action Plan recommendations. In this spirit, for corporates the changes have included a cut of the CIT rate by 3.5 percent starting in 2017, the potential to exempt the profits of foreign permanent establishments of Italian entities and the introduction of a patent box regime compliant with the OECD’s specific recommendation in BEPS Action 5.”

AUSTRALIA

Gaibrielle Cleary

Mazars

“The key developments in tax laws fall into three broad areas. First, there are a range of new tax concessions for small business entities, including a lower corporate tax rate, a CGT roll-over for restructures and an increase to the threshold for obtaining deductions for depreciating assets acquired. Second, incentives have been introduced to encourage investments in start-up companies. These principally include special concessions for employee share schemes and proposed tax offsets and CGT exemptions for investments in innovation start-up companies.”

MALAYSIA

Yeo Eng Ping

EY

“Recent Malaysian tax changes have focused on increasing tax collections, reducing perceived leakages and improving enforcement, while promoting investments. Some recent highlights include, firstly, the introduction of a Goods and Services Tax (GST) at the rate of 6 percent, on 1 April 2015. Also, a ‘principal hub’ incentive now provides concessionary tax rates from 0 percent to 10 percent. New transfer pricing disclosures have been unveiled, which will require companies to indicate in their income tax return forms whether transfer pricing documentation has been prepared.”

ISRAEL

Ofir Levy

Yigal Arnon & Co.

“A number of major developments have recently taken place in Israeli tax law. First, Israel has increased taxpayers’ reporting duties and imposed a duty on financial institutions to report about foreign residents. Second, the country has expanded information exchanges between the Israeli Tax Authority and other jurisdictions, now that Israel has joined the OECD’s Convention on Mutual Administrative Assistance in Tax Matters and signed the FATCA Agreement with the IRS. Third, firms now face increased enforcement and heavier penalties, as has been done with regard to money laundering.”

SOUTH AFRICA

Peter Dachs

ENSafrica

“Some of the recent key developments in respect of South Africa’s tax law relate to issues identified by the OECD’s Base Erosion and Profit Shifting Action Plans. South Africa’s Davis Tax Committee released its first interim report on various BEPS deliverables towards the end of 2014. There is a key focus on transfer pricing practices, interest deductions in respect of highly geared transactions, hybrid mismatches and improving the quality of information to be provided to the South African Revenue Service (SARS). Trusts are also under scrutiny with future legislative amendments likely to affect the taxation thereof as well as income derived from trusts.”

KENYA

Michael Koome Mburugu

PKF Kenya

“Capital gains tax was reintroduced by the Finance Act 2014 which came into effect on 1 January 2015. Capital gains realised on the transfer of property is taxable at a rate of 5 percent on net gains. The Excise Duty Act 2015 has introduced a wide range of changes to the excise tax regime with the most significant change being excise on specific units of measurement and not ad valorem rates. Excise duty at 10 percent is now charged on money transfer service fees and other fees charged by financial service providers. The Tax Procedures Act 2015 was introduced to simplify the administration of tax by unifying the value added tax (VAT), excise duty and income tax procedures.”

CONTRIBUTORS

Basham, Ringe y Correa, S.C.

BDO

Caplin & Drysdale

Deloitte

ENSafrica

EY

Machado, Meyer, Sendacz e Opice Advogados

Mazars

PKF Kenya

PwC

RSM Netherlands

Studio Tributario e Societario

Taylor Wessing LLP

Yigal Arnon & Co.