Netherlands: The Dutch government publishes consultation on anti-tax avoidance directive

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The State Secretary of Finance provided a letter to Dutch parliament in which he indicated that an internet consultation has been opened for a draft bill on 10th July 2017. The draft bill has been formulating in order to implement the first EU Anti-Tax Avoidance Directive (ATAD 1)  which was approved by the EU member states in June 2016, an EU directive that provides for a minimum harmonization against tax avoidance. The ATAD measures include an earning clear rule, exit taxation, Controlled Foreign Companies (CFC) rule and a general anti-abuse rule (GAAR). Consultation on these preliminary proposals will be open until 27 August 2017 and a final proposal for the further juridical procedure is expected during the first quarter of 2018. The effective date of the proposal is 1st January 2019.

Interest deduction rules: According to the draft bill, the (excessive) interest expenses are only deductible up until 30% of the corrected Dutch taxable profit, or tax available EBITDA. However, the non-deductible interest costs that exceed 30% of EBITDA is deductible up to a maximum amount of EUR 3 million. The proposal does not yet make a choice whether a worldwide group ratio escape rule will be implemented, and, if so, whether this will be an equity escape rule or an earnings-based worldwide group ratio rule.

CFC rules: The CFC rule targets taxpayers that directly or indirectly hold more than 50% of capital or voting rights or are entitled to receive more than 50% of the profits of low-taxed foreign entities and low-taxed PEs. The ATAD provides two different options for EU Member States to include CFC rules (model A and model B). Based on Model A, passive income (e.g. interest, royalties and dividend income) of a CFC will be included as current income in the taxable base of a domestic company, unless the CFC is involved in substantial economic activities. Based on model B the income of a CFC will only be included in the taxable income of the Dutch parent company in case of artificial allocation of profits to a CFC.

The GAAR will not be executed separately, based on the view that the abuse of law-doctrine as developed in Dutch case law achieves the same goal.

Germany releases guidance on CbC reporting requirements

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The Germany Federal Ministry of Finance on 11 July 2017 issued guidance on the Country-by-Country (CbC) reporting requirements in line with BEPS Action 13 and the EU Administrative Assistance Directive as amended. The guidance clarifies the provisions of the Act on the Implementation of the Amendments to the EU Mutual Liability Directive and other measures to prevent profit shifting. The obligations of multinational corporations to create and issue country specific reports were regulated in a newly introduced sec.138a of the German Tax Regulations.

Requirements: The guidance indicates that CbC reporting is effective for tax years starting after 31 December 2015. With respect to the reporting format and technical specifications, the guidance only makes a reference to the OECD XML schema and related User Guide.

In addition, the Ministry of Finance requires the three following tables to be completed:

  • Overview of the distribution of income, taxes and operations by tax jurisdiction;
  • List of all companies and establishments of the Group according to tax jurisdictions and their most important business activities; and
  • Additional Information.

Language: The country report can be submitted in English. The information or explanations contained in Table 3 of the BMF letter must be submitted in English, in accordance with Article 2b of Implementing Regulation (EU) 2015/2378.

Canada agrees to start FTA with EU

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The Prime Minister, Justin Trudeau, announces that Canada agreed to commence operation of the Free Trade Agreement with the European Union (EU) on September 21, 2017. The commencement of the Comprehensive Economic and Trade Agreement (CETA) had been delayed by disputes on some issues including pharmaceuticals. The EU also had some concerns about the opening up of the Canadian market to imports of European cheese.

Both sides have now agreed to begin the interim application of the agreement, thus allowing for all the necessary implementing measures to be taken before September 21, 2017. The agreement will enter into force after all 28 EU member states and parliaments have ratified it.

EU and Japan reach agreement in principle on trade deal

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An agreement in principle has been reached on a free trade deal between the European Union (EU) and Japan. The deal includes sizable tariff cuts, co-operation on standards and regulations and opening up of public procurement markets.

The EU and Japan together account for 19% of global gross domestic product and 38% of goods exports. Around 10% of Japanese exports go to the EU. This is more than double the proportion of EU goods exported to Japan.

The EU estimates the agreement will save it EUR 1 billion in customs duties each year and increase exports to Japan from more than EUR 80 billion to more than EUR 100 billion a year.

Tariff reduction and elimination

Japan’s main objective is to reduce or eliminate EU import duties on its automobile sector. This is very important because the EU is the world’s largest importer of road vehicles. The EU has agreed to gradually phase out all tariffs on cars imported from Japan, with some safeguards in the event of a sudden large rise in imports.

For the EU the most important goal was to reduce Japan’s tariffs on imports of European meat, wine, and dairy products. The EU agricultural sector will be subject to much lower tariffs on exports to Japan. Currently, Japan’s import duties on food are high, ranging from 15% on wine to 30-40% on cheese. After the agreement is effective some tariffs will fall to zero immediately and others will be phased out over 15 years. For some very sensitive products, the zero tariff will only apply up to a certain volume of imports.

Non-tariff barriers

Both sides will benefit from removing non-tariff barriers, such as incompatible product standards. The agreement includes provisions for greater harmonization of standards. The EU considers that this will help its manufacturers increase their exports to Japan.

Investor protection

Before the deal takes effect the EU and Japan must agree on the issue of investor protection. The EU does not want to use “investor state-dispute settlement” tribunals. These tribunals have been widely criticized by campaign groups as offering a way for multinationals to undermine environmental and labor standards. The alternative could be investment courts but Japan may object to this option.

Effective date

According to the European Commission president, the deal could take effect in early 2019. This will however depend on the outcome of negotiations on the remaining details of the agreement. Some further time will be required to turn the agreement in principle into the final text of a free trade agreement.

Sweden: Proposal for major corporation tax reforms

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The Swedish Government on 20 June 2017 issued a statement proposing important changes in the area of corporate taxation. The main proposals are summarised below:

  • According to the announcement the deductibility of the net interest expense would be limited to 35% of taxable EBIT, while a limitation to 25% of taxable EBITDA is presented as an alternative.
  • The corporate income tax rate for legal entities would be reduced from 22% to 20%.
  • New rules are proposed to prevent deductions relating to hybrid mismatches. The rules should implement parts of BEPS Action 2 and ATAD (Anti Tax Avoidance Directive). Additional proposals are to be expected later to fully implement the restrictions from Action 2 and ATAD.
  • According to the announcement, each company in a group may decide to apply a safe harbour rule which allows a deduction of the net interest expense of SEK 100,000 (approximately € 10,000). The limit applies to group level so that the total amount that can be deducted within a group under the Safe Harbor rule is limited to SEK 100,000.
  • The introduction of tax rules for finance leases and the new leasing obligation would be applicable to assets such as inventory, machinery and equipment, buildings, fixed installations/ground installations and land.
  • Temporary limitation on the utilisation of tax losses carry forward. It is proposed that there will be a temporary restriction during two (EBIT-rule) or three years (EBITDA-rule) in respect of the utilisation of tax losses carry forward. Only 50% of the taxable profit will be possible to set off against losses. Any unused losses may be carried forward indefinitely.
  • Standardised income from emergency residences for non-life insurers

It is proposed that most new provisions should enter into force on 1 July 2018.

Hungary: Parliament approved Budget Bill for 2017/18

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The Hungarian Minister of Economy presented the Budget Bill to the Parliament on 2 May 2017 which was approved on 13 June 2017 with 127 votes in favour and 62 votes against.

The Budget targets a GDP growth of 4.3 percent, with 4.1 percent projected for 2017. It assumes an inflation rate of 3 percent.

The tax rate will be cut down by one percentage point to 13 percent for small business, as per the approved Budget Bill. Tax benefits for families with two children will increase, giving them an additional 420,000 forints a year in disposable income on average.

In the Budget Bill, milk, eggs and poultry are included in the list of products eligible for the 5% reduced VAT rate of Hungary which follow the recent addition of pork to the list. Additionally, the government is planning to reduce the VAT on restaurant services from current 27 percent standard rate to 18 percent on 1 January 2017and to 5 percent in 2018.

The Budget Bill for 2017 holds the personal and corporate income tax rate as previous.

Ireland: Revenue assessment in the absence of a return

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On 19 June 2017, the Irish Revenue published the Tax and Duty Manual Part 41A-05-02 that has been amended in paragraph 1 in relation to the pursuit of outstanding returns and in paragraph 4 in relation to appeal provisions.

According to this manual, where a taxpayer has failed to submit a Form 11, CG1 or CT1, as appropriate, section 959O of the TCA 1997 provides that penalties under section 1052 and 1054 may arise. In addition, a surcharge under section 1084 may apply (refer to Part 47-06-01 of the Tax and Duty Manual). Notwithstanding the provisions of sections 1052, 1054 and 1084, outstanding returns are pursued under the Return Non Filer Programme and, where appropriate, prosecution is considered under section 1078.

Furthermore, where a taxpayer has not filed a return (be that a Form 11, CG1 or CT1), then a Revenue Officer may, under section 959AC, make a Revenue Assessment on that person for the amount of tax, which in the best of the officer’s judgment, is due.