BEPS related compliance

Latvia: State Revenue Service announces CbC reporting regulations

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The Latvian State Revenue Service (SRS) on 08 August 2017 announced the Country-by-Country (CbC) reporting regulations, which were approved by the Latvian Cabinet in July following an amendment to the Law on Taxes and Duties to require CbC reports. The regulations are principally in line with BEPS Action 13.

A parent company of an international group that is tax resident in the Republic of Latvia must submit by 31 December 2017 to the State Revenue Service an overview of the group’s economic activities and finances in 2016. The SRS is inviting enterprises to notify the SRS before August 31 whether the report will be submitted as a parent company, an alternate company or as a multinational enterprise group entity.

In Latvia the obligation to prepare and submit a CbC report applies to a taxpayer who is a tax resident of the Republic of Latvia, if it is a parent company of the group and the consolidated turnover of the group is at least 750 million Euros. Also a tax resident of Latvia may be appointed as a substitute company for submission of the CbC report if there is an obstacle to the group parent company submitting a report in another country.

The CbC report for the previous year has to be submitted by December 31, 2017, using the form for completion of the report available in the Electronic Declarations System (EDS). The relevant form will be placed in the EDS during the fourth quarter of this year.

Pakistan implements documentation and CbC reporting requirements

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In Pakistan until 2016, no transfer pricing documentation was required under the Income Tax Ordinance (ITO). However, with effect from 1 July 2016, the Government has approved the new legislation to effectively implement the Country-by-Country Reporting (CbCR or CbC reporting) and introduce formal transfer pricing documentation requirements in Pakistan through Finance Act, 2016. The new legislation is generally in line with the three-tiered approach of Action 13 of the Organization for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project.

The Finance Act has made the following documentation compulsory:

  • a master file and a local file containing documents and information as may be prescribed;
  • a prescribed country-by-country report, where applicable; and
  • any other information and documents as may be prescribed in respect of transactions with an associate.

CbC reporting requirements: The CbC reporting should contain all required information: for each country where entities of the Multinational Enterprise (MNE) group operate: gross income, profit/loss before tax, income tax paid, accrued income tax, the nature of the group entities’ core business operations, and other measures of economic activity. In addition, the activities of all entities in each country should be disclosed.

The CbC report should be prepared in English. As currently proposed, the CbC report is applicable for financial years ending on or after 1 July 2017.

Documentation requirements: Every qualifying Pakistani group entity which is a member of a Multinational Enterprise group will be required to prepare a master file and every Pakistani group entity will be required to prepare a local file if it meets the following threshold:

  • Master file: MNE group turnover of more than PKR100 million (approximately US$950,000); and
  • Local file: Related party transactions of more than PKR50 million (approximately US$475,000).

Penalties for non-compliance:

  • For failure to furnish the CbC report by a reporting entity within the due date, a day wise penalty structure would apply (PKR2,000 for each day of default and subject to a minimum penalty of PKR25,000)
  • For failure to keep the records required under Section 108, a penalty of PKR10,000 or 5% of the amount of tax on income whichever is higher.
  • If the reporting entity has provided inaccurate information in connection with the CbC report, a penalty of PKR25,000 for the first default and PKR50,000 for each subsequent default shall apply.
  • For failure to keep and maintain documentation and information, a penalty of 1% of the value of a transaction, the record of which is required to be maintained under Section 108 of the Ordinance and Income Tax Rules, 2002.
  • Additionally, non-compliance with the new transfer pricing documentation obligations is likely to increase the audit risk.

India: Multilateral Competent Authority Agreement on Exchange of CbC reports enters into force

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The Ministry of Finance on 28 July 2017 has issued a Notification (No. 75/2017), which announces that the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country (CbC) Reports entered into force for India on 12 May 2016 and is effective between India and other jurisdictions.

US: IRS now accepting CbC reports

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On 11 August 2017 the US IRS in its latest bulletin of news and information on country by country (CbC) reporting advised that parent entities of U.S. multinational enterprise (MNE) groups with $850 million or more of revenues in a previous annual reporting period can now file Form 8975, Country-by-Country Report, with their annual income tax return.

Form 8975, and attached Schedules A, will report a U.S. MNE group’s income, taxes paid, and other indicators of economic activity on a country-by-country basis.

Greece: Law 4484/2017 regarding TP documentation requirements publishes

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The Law 4484/2017 entitled “Adaptation of Greek Legislation to the provisions of Directive (EU) 2016/881 and other provisions” was published in the Government Gazette on August 1, 2017. It harmonizes Greek legislation with the provisions of Council Directive (EU) 2016/881 of May 25, 2016 on the mandatory automatic exchange of information in the field of taxation and modifies the Greek Corporate Income Tax L.4170/2013 and 4474/2017 with respect to Country-by-Country (CbC) reporting. The House of Representatives of the Ministry of Finance on “Law 4484/2017” was voted on by the Plenary Assembly on July 28, 2017. The Greek Parliament introduced this draft Law 4484/2017 on July 20, 2017.

Brazil publishes amended regulation on CbC reporting

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Normative Instruction 1,722/2017 published in Brazil’s Official Gazette on 17th July 2017 amends Normative Instruction 1,681/2016 relating to guidance on CbC reporting. According to NI 1,722/2017, transitional provisions apply if a legal entity which is resident in Brazil for tax purposes and which is not the ultimate controlling company of a multinational group has not designated a substitute entity for filing the CbC report on behalf of the group.

Under the transitional mechanism the tax authorities would accept a notification that the ultimate controlling company of the multinational group is located in a jurisdiction that has no competent authority agreement for the automatic exchange of CbC reports in force with Brazil; or that it has a competent authority agreement for the automatic exchange of CbC reports in force with Brazil that is in force for years beginning from 1 January 2017.

In the latter case the Brazilian entity could be required to file a CbC report within a deadline of sixty days if the competent authority agreement is not implemented (retroactively to 1 January 2017) by 31 December 2017; or if the other jurisdiction requires a CbC report from one or more entities whose ultimate parent company is tax resident in Brazil.


New Zealand: Government announces BEPS decisions

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The Finance Minister and Revenue Minister have announced the Government’s final decisions on proposals to address base erosion and profit shifting (BEPS) on 3rd August 2017.

In combination the new measures will:

  • Stop foreign parents charging their New Zealand subsidiaries high interest rates to reduce their taxable profits in New Zealand.
  • Stop multinationals using artificial arrangements to avoid having a taxable presence in New Zealand.
  • Ensure multinationals are taxed in accordance with the economic substance of their activities in New Zealand.
  • Counter strategies that multinationals have used to exploit gaps and mismatches in different countries’ domestic tax rules to avoid paying tax anywhere in the world.
  • Make it easier for Inland Revenue to investigate uncooperative multinational companies.

According to the proposals, these decisions have been arrived at after weighing up public feedback on three government discussion documents relating to: hybrid mismatch arrangements; interest limitation rules; and transfer pricing and permanent establishment avoidance. For the most part, the proposals will proceed as originally devised but in some instances, public feedback made a good case for refining the scope of proposals or for fleshing out technical detail. The government will carry out further targeted consultation on matters of technical detail (including draft legislation), without reducing the effectiveness of the proposals.

It is expected that the BEPS measures will be included in a tax bill to be introduced by the end of the year, for enactment by July 2018.