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.
On 20 June 2019, the Spanish Government published draft legislation and draft guidance addressing the implementation of the European Union (EU) Directive on the mandatory disclosure and exchange of cross-border tax arrangements (referred to as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.
- 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- In addition to Hallmarks A-E included in DAC6, Spain’s draft guidance also includes additional information on the interpretation and application of these hallmarks.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.
Spain’s tax law changes have been published, effective as of October 2015.
- The Law introduces a new penalty for a specific anti-abuse provision in cases for application of GAAR.
- The statute of limitations period of CIT years in which an entity has generated losses and tax credits has been extended from 4 years to 10 years. The Law now extends this provision to all other taxes.
- Duration of an audit has been extended from 12 to 18, or 27, months.
- A Statute of Limitations period of 10 years has been established for EU State Aid cases.
As new penalties are being legislated, in Spain and elsewhere, for subjective provisions in the tax law it is becoming mandatory to assess such provisions in the tax planning stages for significant transactions. This is especially true when the subjective interpretations of GAAR, and the tax authorities, are inherently uncertain and potentially leading to double taxation.
Spain has introduced new tax reforms that will be effective 1/1/2015. A Deloitte International Tax Alert provides details of the new rules, with a link provided for reference:
- OECD BEPS incentivized anti-hybrid rule; Disallowed deductions where no income is generated (Deduction/No-Inclusion), income will not be subject to tax, or income will be subject to a nominal tax rate of less than 10%.
- Impairment losses will be limited.
- The 30% corporate income tax rate will be reduced to 28% for 2015, and 25% in subsequent years.
- NOL’s will be available for indefinite carryover, although subject to taxable income limitations.
- The Statute of Limitations to review NOL’s is extended from 4 to 10 years.
- Participation exemption rules are revised, including a anti-hybrid measure to prevent a benefit where a dividend represents a deductible expense for the payer (in alignment with the EU Parent-Subsidiary Directive).
- New consolidated tax regimes are included, including horizontal tax consolidation.
- Goodwill and asset step-ups of a merger after 2014 will not be recognized for tax purposes.
- CFC rules are modified. Spanish taxable income will include a CFC’s income from a transfer of assets or rights, or service income of the CFC where there are no material and personnel resources at the level of the CFC. Additionally, certain passive income will be subject to the CFC rules.
The EU Parent-Subsidiary Directive (EU PSD) rules were anticipated to be effective by the end of 2015, whereas the anti-hybrid rules represent a proactive legislative response to the OECD BEPS initiatives for which this rule may not match the final guidelines that the OECD will provide in 2015.
Accordingly, the OECD BEPS Guidelines should be closely followed, knowing that proposed guidelines and actions are being legislatively enacted in various countries that provide a complex puzzle of different actions for identical transactions.