On 10 July 2017, the OECD issued new OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the revised Guidelines). The new guidelines provide guidance on the application of the “arm’s length principle”, which represents the international consensus on the valuation, for income tax purposes, of cross-border transactions between associated enterprises. Guidelines reflect a consolidation of the changes resulting from the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. The main modifications include the following:
Local tax news
Belgium - New Tax Reform Announced
Belgian government has announced Tax reform which will be included in the Budget 2018. For the corporate income tax payers, the tax reform will lower corporate income tax rates as well as change the notional interest deduction rules.
It is proposed that the corporate income tax rate will be reduced in two stages. Reduction from 33% to 29% in 2018 following by further reduction to 25% in year 2020. Additionally, the surcharge of 3%, currently imposed on the adjusted corporate income tax liability, will be reduced to 2% in 2018 and phased out by year 2020. Compensatory measures flowing the decrease in corporate tax rate will be included in the new legislation.
Notional interest deduction will continue to apply, however the existing legislation will be modified in order to stimulate the increase of equity. Such a deduction will be limited and in the future based on an increase in the value of the equity of the company.
Italy - Taxation of Capital Gains
The Italian government published a decree decreasing the exemption percentages of qualifying capital gains. As a consequence qualifying capital gains realised from 1 January 2018 are tax exempt for 41.86% (previously, 50.28%) of their amount. The remaining 58.14% (previously, 49.72%) is part of taxpayers taxable income and therefore taxed at the standard rate of 24%.
Slovenia - Liechtenstein Removed from List of Non-Cooperative Tax Jurisdictions
The Slovenian Ministry of Finance decided to remove Liechtenstein from the list of non-cooperative tax jurisdictions. The resolution is effective from 17 June 2017.
South Africa - Sweden - Ruling on MFN Clause
South African tax authority has issued a binding ruling concerning application of the most-favoured-nation (MFN) clause in respect of dividend payments under the South Africa - Sweden Income Tax Treaty.
The ruling states that due to the fact that Kuwait - South Africa double tax treaty (2004) provides no source taxation of dividends, the MFN clause in South Africa - Sweden Income Tax Treaty will be automatically triggered.
This is due to unusual formulation of MFN provision not limiting the MFN effect to treaties signed after the South Africa - Sweden Income Tax Treaty entered into force 2012. As a result, the MFN clause, according to South African Tax authority, has a retroactive effect. This ruling and the effect of MFN clause is effective until South Africa renegotiates its Double tax treaty with Kuwait.
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