Proposed Regulations were issued for cloud computing and digital transactions; this is an especially important area re: sourcing of income, definitions, etc. especially in light of France and others looking to implement a digital services tax.
Publication 5188 was revised re: FATCA data reporting.
OECD released Peer 2 review reports re: re: BEPS Action 14 (dispute resolution). Interestingly, some US treaties include a MAP provision, although not all are consistent with the minimum standard.
EU Directive 2018/822, adopted May 25, 2018, is in process of being adopted by Member States through the end of this year. A summary of the status is as follows:
- Adopted: Hungary, Poland, Lithuania, Slovenia
- Published legislation: Austria, Cyprus, Czech Republic, Denmark, Estonia, Finland, Germany, Italy, Luxembourg, Netherlands, Portugal, Slovakia, Spain and UK
- Formal consultation: Latvia and Sweden
- Informal consultations: Belgium, France, Ireland, Malta, and Romania
- No action yet; Bulgaria, Croatia and Greece
- Under the Directive, cross-border reportable arrangements, where the first step of implementation is taken during the transitional period between 25 June 2018 and 30 June 2020, are required to be reported by 31 August 2020. As of 1 July 2020, reporting will be required within 30 days of a triggering event, e.g., the cross-border arrangement being ready for implementation. However, Poland has earlier rules.
International tax professionals should be aware of the above rules, coordinating relevant reporting externally and internally.
EY’s Global Tax Alert has additional details, for reference.
Canada’s Dept of Finance released draft legislative proposals, with comments due by 7 October 2019.
Canada has complex rules re: foreign affiliate dumping, etc. making it more complex to place subsidiaries under a Canadian holding company without proper planning for Paid Up Capital and other items, and these proposals appear to tighten those rules.
Cross border securities lending arrangements are included re: additional rules.
Tax professionals with Canadian operations should monitor this legislation accordingly.
EY’s Global Tax Alert provides additional details therein.
On 24 July 2019, French President Emmanuel Macron signed the bill introducing the Digital Services Tax (DST) and the partial freeze of the corporate income tax rate decrease. The DST consists of a 3% levy applied to revenue derived from specific digital activities by companies with a qualifying revenue of more than €750 million worldwide and €25 million in France.
The bill was published in the Journal Officiel on 25 July 2019, leading to the entry into force of the bill.
This formal action is expected to be met with repercussions, as well as similar unilateral initiatives, in other countries.
Instead of benefiting from a 31% CIT rate on their taxable income exceeding €500,000, as stated by the Finance Bill for 2018,2these “large” companies will still be taxed at the former 33.1/3% rate for the 2019 timeframe noted above. However, the 28% CIT rate will still apply on the first €500,000 of their taxable income.
For FYs starting on or after 1 January 2020 and onwards, the progressive decrease of the French CIT rate (down to 25%, by 2022), as stated by the Finance Bill for 2018,3 should remain unchanged. Yet, according to a recent statement made by the French Economy and Finance Minister, Mr. Bruno Le Maire, for 2020, companies with revenue equal to, or higher than €250 million, may be taxed at a rate of 31% instead of 28%, as initially announced (for 2020, all other companies would still benefit from the 28% CIT rate). This remains to be confirmed by the next Finance Bill.
Monumental progress was recently made, in the form of 4 treaty protocols being approved; Luxembourg, Switzerland, Japan and Spain. This will hopefully start a natural progression towards prompt treaty approvals/ratifications.
Additional Section 965, transition tax, FAQ’s were issued. As you may recall, there was an infamous FAQ issued 13 April, 2018, whereby all overpayments from 2017 were deemed to be credited in their entirety to the 8 years, if elected, of transition tax liability. This important issue is still being contested, and am hopeful that HR 2985 calling for its proper reversal (i.e. IRS was wrong) will attract additional cosponsors and be an integral component of a tax technical corrections package that will be passed this year.
The 2019 United Nations (UN) tax treaty negotiation manual, attached for reference, was updated to reflect changes in the 2017 UN Model Treaty to include changes that resulted from the OECD’s base erosion and profit-shifting project.
Transfer pricing: IRS officials noted that completing the advance pricing and mutual agreement program’s (APMA’s) functional cost diagnostic model (FCDM) is a detailed process and taxpayers may want to submit the model form only in complex cases.
EY’s Global Tax Alert contains additional details, provided as reference.
The recently concluded G20 Leaders’ Summit continues to endorse the OECD’s digital project, which includes future debates on nexus allocations, profit allocations and minimum tax.
EY’s Global Tax Alert highlights these developments, as well as remind international tax colleagues to continually monitor these important developments.