CbC Reporting Update on Sweden and Hungary, Amendments to withholding taxes in South Africa and Oman
On 3 March 2017, the proposed law (Prop. 2016/17:47) implementing OECD country-by-country (CbC) reporting and transposing EU Directive 2016/881/EU on the exchange of ruling reports between EU Member States into national legislation, as presented to the parliament was adopted by the parliament. The amendments will enter into force on 1 April 2017. The most important elements of the new legislation are summarised below:
New transfer pricing documentation
The new format of Master and Local file will apply to companies which financial year starts on or after 1 April 2017. The Master file will have to be prepared with the parent company's tax return and the Local file by the time the local entity is required to submit its tax return.
Entities with less than 250 employees and with either revenue below SEK 450 million or total value assets not exceeding SEK 400 million will be exempt from the obligation of preparing such documentation.
Companies covered by the legislation include foreign entitities with PEs in Sweden, Swedish companies with PEs abroad and Swedish unlimited partnerships (Handelsbolag). For the unlimited partnerships to fall under the scope of documentation, they need to have transactions with non-resident entities and the partnership's profits are to be taxes in Sweden.
The safe harbour of unsignificant value transaction will also provide an exemption from filing the documentation e.g. transactions not exceeding SEK 5 million in a financial year, however tax authorities have a right to access the meaning of 'insignificant transaction' on a case-by-case scenario.
Country by Country Report
The Report will have to be submitted by 31 December 2017 for financial years starting on or after 1 January 2016. The threshold for submitted CbC Report in SEK 7 billion. Following the OECD Guidelines, if there is no obligation to submit CbC report in the country where the parent company is resident, Swedish tax authorities may require Swedish subsidiary to submit it on behalf of the parent company.
Note: Swedish companies should notify tax authorities by 30 April 2017 as to which entity will submit CbC report for financial years that ended before 1 April 2017.
Hungarian government released the draft version on implementation on CbC reporting. The proposal aims at implementing EU Directive 2016/881, which also follows OECD recommendations on Country-by-Country reporting. Hungarian companies that are part of a MNE group with a consolidated income exceeding € 750 million will have to comply with the reporting standard. Additionally, companies will also have to notify tax authorities within 12 months from 31 December 2016 as to which entity will submit the report. Both lack of notification and false information may be subject to penalties. Once enacted, the legislation will apply retroactively for fiscal years starting 1 January 2016.
Croatia – Kosovo
Signed a new tax treaty on 6th March 2017. Further details will be reported in due course.
Cyprus – Iran
Tax treaty signed on 4th August 2015 will enter into force 1 January 2018.
Cyprus – Jersey
Tax treaty signed on 11th July 2016 will enter into force 1 January 2018.
Panama – Vietnam
Tax treaty signed on 20th August 2016 will enter into force 1 January 2018.
Local tax news
The Budget Speech delivered in the end of February amended effectively the withholding tax rates on dividends from South Africa. Dividends paid out of profits on or after 22 February 2017 will be subject to a higher rate of 20%. Dividends paid before that day can apply the older rate of 15%.
The recent corporate tax reform in Oman introduced several new measures, including
While the post-BEPS legislation changes aim at preventing tax abuse and profits’ shifting, governments still aspire to attract business investment by means of tax incentives, legal transparency and simplification of tax compliance. With effect 1 January 2017 Colombia and Georgia significantly amended their tax systems in order to increase their revenue stream from corporate taxpayers. Although both reforms represent different approaches, this brief outline will explain how the relevant changes have been implemented in Comtax®.
The most significant changes include simplification of corporate tax rate, abolishing fairness tax (CREE) on corporations and surcharge, introduction of 5% withholding tax on dividends paid to non-residents if dividends are paid out of profits taxed at the corporate level and introduction of CFC regime. The new corporate income tax rate has been set at 34% for 2017 plus an additional 6% temporary surtax as opposed to previous rate of 25%, 9% CREE and 6% CREE surcharge. For 2018 the corporate tax rate will be 33% and 4% temporary surcharge and in 2019 the CIT is set to be 33% without surcharge.
Relational tax rate for the new 5% withholding tax for dividends have been updated in Comtax database, together with relevant tax treaties (i.e. tax treaties with Chile, Spain and Switzerland include 0% withholding tax on dividends).
Dividends paid out of profits which were not subject to corporate income tax will be subject to 35% withholding tax. Colombian taxpayers will be subject to tax on income (including passive income) on a proportionate share if they own directly or indirectly min. 10% in an entity considered as CFC. More information about CFC in Colombia can be found in our Commentary under the headline Anti-avoidance/CFC legislation.
Effective 1 January 2017 Georgia implemented the ‘Estonian system’ where only the distributed profits are subject to tax (however banks, credit units, insurance organisations will be still subject to the old taxation system until 1 January 2019). Although the corporate tax rate remains unchanged (15%), the taxable amount will now have to be divided by a coefficient 0.85. Similarly to Estonia, Georgia will also implement a calendar month as a taxing period; more information about tax returns and payment of tax can be found in our Tax Calendar.
Taxation of only distributed profits implicates that foreign source dividends received in Georgia will no longer be subject to tax. However, dividends received from resident entities classified as low-tax jurisdiction will be considered as hidden profit distribution and therefore subject to tax. On the 26 December 2016, Georgian Ministry of Finance issued a new low-tax jurisdiction list, which can be found in our Commentary under Anti-avoidance/Black list. Additionally, transactions with related parties that do not satisfy the arm’s length standard, or with entities not subject to income tax might also be considered as a form of a distribution of profits.
As a consequence of the reform, thin capitalisation rules, depreciation rules and loss carry forward will cease to apply. More information about the tax reform can be found under relevant headlines in the Commentary section.
TRANSFER PRICING NEWS
Colombia – transfer pricing as part of tax reform
Colombia’s most recent tax bill significantly modified the existing tax system. Amendments also include changes to the current transfer pricing regime. The most important changes cover sections 260-3, 260-5 and 260-7. Section 260-3 introduces CUP method as the most appropriate (but not mandatory) for establishing AL prices for transactions involving raw materials and basic products. Further, section 260-5 aligns Colombian transfer pricing documentation with BEPS Action 13 on local and master file. Lastly, section 260-7 modifies the meaning of tax haven for transfer pricing purposes to include non-cooperative jurisdictions and special regimes.
India – introduction of secondary adjustments for transfer pricing purposes
India seeks to implement secondary adjustments for transfer pricing purposes in order to comply with OECD Guidelines. Secondary adjustments which may take form of constructive dividend, equity contributions or constructive loans constitute a follow up to primary adjustments of profits allocation. According to the draft, secondary adjustment will not be necessary if the primary adjustments does not exceed Rs 1 crore (INR 10 million). The amendments are expected to become effective from 1 April 2018.
Austria and Japan signed tax treaty on 30th January 2017.
Azerbaijan and Denmark signed tax treaty on 17th February 2017.
Hong Kong and Pakistan signed tax treaty on 17th February 2017.
LOCAL TAX NEWS
Greece – publication of non-cooperative jurisdictions
Greek Ministry of Finance published a list of non-cooperative states which include: Andorra, Antigua and Barbuda, Bahamas, Bahrain, Barbados, Brunei, Cook Islands, Dominica, Grenada, Guatemala, Hong Kong, Lebanon, Liberia, Liechtenstein, Former Yugoslav Republic of Macedonia (FYROM), Malaysia, Marshall Islands, Monaco, Nauru, Niue, Philippines, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Samoa, Uruguay, US Virgin Islands and Vanuatu.
The list impacts substance requirements for tax payers who wish to deduct expenses from transactions with residents registered in the above-listed territories. Otherwise, the corporate income tax withheld in order to deduct relevant expenses, will not be refunded.
Uruguay – changed criteria for low and no-taxation jurisdictions
Ministry of Finance published modified criteria for determining low and no tax jurisdictions: