The US tax treaty protocols will enter into force between US and the countries of Japan and Spain.
The Japanese protocol will have effect for withholding taxes (e.g., related to dividends and interest) for amounts paid or credited on or after the first day of the third month following the date on which the protocol enters into force — that is, 1 November 2019. For all other taxes, the Japanese Protocol will apply to tax years beginning on or after 1 January 2020.
For withholding taxes, the Spanish protocol generally will apply to amounts paid or credited on or after 27 November 2019, the date on which the protocol enters into force. For taxes determined by reference to a tax period, the protocol will apply for tax years beginning on or after 27 November 2019 (e.g., 1 January 2020, for calendar-year taxpayers). In all other cases, the protocol will apply on or after 27 November 2019.
The key features of the protocols are detailed in the EY Global Tax Alert, as reference. For the Spanish protocol, the new limitation on benefits requirements must be met timely for treaty-based withholding rates to apply.
As the French digital services tax (DST) is in effect from 1/1/2019, with the first payment due in November, there is considerable uncertainty how this tax will be repealed/refunded when/if an OECD DST model takes its place.
The politicians see this as a potential remedy to put out the fire which started with implementation of this tax. However, this issue becomes more complex from an international tax perspective as to how a refund/repeal would be treated: prospectively, retroactively, or some other method.
As this tax, similar to other provisions, was enacted unilaterally by the French administration anxious to improve their fisc, it is now shown to be disingenuous timing at the expense of multinationals which now have to pay this tax. Hopefully, other countries do not follow this lead in advance of the OECD DST proposals.
KPMG’s Middle East and South Asia (MESA) e-guide was recently published, providing a tax overview of GCC countries, wider Middle East countries and South Asian countries.
The reported countries include:
- Saudi Arabia
- Sri Lanka
The report provides a summary of Direct Taxes, including branches/permanent establishments, Tax Treaties, Indirect/Withholding taxes, Accounting rules including loss carryovers, and details about each country’s tax rules and requirements.
The guide is a handy reference, especially as the included countries are experiencing significant changes in their tax rules and guidance.
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.