Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘Tax Risk Management’ Category

US int’l developments

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.

https://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_16_August_2019/$FILE/2019G_003793-19Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2016%20Aug%202019.pdf

EU Mandatory disclosure update

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.

https://www.ey.com/Publication/vwLUAssets/EU_Mandatory_Disclosure_Rules_-_An_update_on_local_country_implementation_status_and_trends/$FILE/2019G_003690-19Gbl_EU%20Mandatory%20Disclosure%20Rules%20-%20Update%20on%20local%20countries.pdf

Canada: Draft legislation

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.

https://www.ey.com/Publication/vwLUAssets/Finance_Canada_releases_draft_legislation_for_2019_budget_measures/$FILE/2019G_003652-19Gbl_Canada%20-%20Draft%20legislation%20for%202019%20budget%20measures.pdf

France: Bonjour DST, Rates.. merci

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.

 

French tax credits: Favorable treaty interpretation

IRS indicated that it will no longer assert that taxpayers are precluded from claiming foreign tax credits for the contribution sociale généralisée (CSG) and the contribution pour le remboursement de la dette sociale (CRDS).

As a result, US citizens and resident aliens who pay the CSG and CRDS in France may now claim foreign tax credits to offset their US income tax. Additionally, they potentially may file claims for refund of US income tax by claiming foreign tax credits for CSG and CRDS paid in the last 10 years under Internal Revenue Code Section 6511.

The appeals court indicated the text of the Totalization Agreement required consideration of French law in evaluating whether CSG and CRDS amended or supplemented the French social tax laws in the Agreement.the US Government, represented by the Department of State, and the French Government now have a shared understanding that the laws enacting CSG and CRDS do not amend or supplement the French social tax laws listed in the Totalization Agreement. As a result, the IRS will no longer disallow foreign tax credits for CSG and CRDS.

EY’s Global Tax Alert provides additional details, for reference.

https://www.ey.com/Publication/vwLUAssets/US_IRS_ends_challenge_to_creditability_of_French_CSG_and_CDRS/$FILE/2019G_003135-19Gbl_US%20IRS%20-%20French%20CSG%20and%20CDRS%20are%20creditable%20taxes.pdf

Spain: Mandatory disclosure +

On 20 June 2019, the Spanish Government published draft legislation and draft guidance addressing the implementation of the European Union (EU) Directive on the mandatory disclosure and exchange of cross-border tax arrangements (referred to as DAC6 or the Directive). Under DAC6, taxpayers and intermediaries are required to report cross-border reportable arrangements from 1 July 2020. However, reports will retrospectively cover arrangements where the first step is implemented between 25 June 2018 and 1 July 2020.

Comments are requested by July 12, 2019.

Key highlights

  • The scope of taxes covered is not broader than the Directive.
  • The definition of reportable arrangements does not include domestic arrangements.
  • In addition to Hallmarks A-E included in DAC6, Spain’s draft guidance also includes additional information on the interpretation and application of these hallmarks.
  • The definition of intermediaries is not broader than the definition in DAC6.
  • The Spanish draft legislation includes an annual reporting obligation, detailing the use of reportable cross-border arrangements that have already been reported before any tax authority. This obligation is not required under the Directive. The draft legislation includes a list of nexus thresholds with Spain which give rise to this obligation.
  • Penalties for failures to report are expected to apply and will range between €3,000 and up to the maximum of the fees received/agreed or the value of the tax impact of the arrangement.
  • Intermediaries are exempt from the obligation to report where the reporting obligation would breach legal professional privilege (LPP). LPP is foreseen both for lawyers and other intermediaries, but only in limited cases. If there are no EU intermediaries which can report, the obligation will shift to the taxpayer.
  • The Spanish Tax Authority will publish on its website, for information purposes, the most relevant reported cross-border arrangements as well as the tax information related to the applicable regime or characterization of such cases.

Multinationals with cross-border transactions subject to such reporting should review Spain’s proposals, as well as monitor other EU Member States for additional obligations not required under the Directive. 

EY’s Global Tax Alert provides additional details, for reference.

https://www.ey.com/Publication/vwLUAssets/Spain_issues_draft_mandatory_disclosure_regime_legislation/$FILE/2019G_003011-19Gbl_Spain%20issues%20draft%20mandatory%20disclosure%20regime%20legislation.pdf

Euro tax update

KPMG’s Euro Tax Flash is attached for reference, highlighting:

  • ECOFIN Financial Transactions Tax
  • Revised EU Blacklist, including: American Samoa, Belize, Fiji, Guam, the Marshall Islands, Oman, Samoa, Trinidad and Tobago, the United Arab Emirates, the US Virgin Islands, and Vanuatu

https://assets.kpmg/content/dam/kpmg/xx/pdf/2019/06/etf-406-ecofin-financial-transaction-tax-dominca-eu-blacklist.pdf

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