Global tax newsletter
Welcome to the eighth edition of the
When I introduced our first edition of
So the future looks bright for the
Global tax newsletter.
this newsletter, I indicated the purpose
globally minded tax professional who
of this publication was to keep our
keeps current on tax developments
international tax practitioners and their
around the world as multi-nationals will
clients up to date on world tax
seek the guidance and expertise from
developments which impact businesses
those who can demonstrate creative tax
globally. Since that first edition we have
thinking in a world of constant change.
presented hundreds of tax developments
This will be my last time to address
of cross border tax interest around the
you in this forum. I will be assuming new
world. The pace of the developments
duties within Grant Thornton
has increased since that first edition and
International Ltd (GTIL) and Francesca
the theme has changed as you can see
Lagerberg will succeed me as the Global
from the Organisation for Economic
leader – tax services.
Co-operation and Development
I look forward to reading future
(OECD), Base Erosion and Profit
editions of this newsletter under
Shifting (BEPS) report article on page 3.
Ian Evans
Global leader – tax services (Outgoing)
Grant Thornton International Ltd
Global tax newsletter No. 8: June 2013
I would also like to add my welcome
First of all I would like to personally
Wales and a former Council member of
it is no wonder that tax policy is
to our eighth edition of the Global
thank Ian Evans for all of the
the Chartered Institute of Taxation. I
becoming more unified and the
contributions he has made to the GTIL
have had the good fortune to sit on a
multinational is finding it more difficult
tax newsletter.
global tax community during his tenure
number of Her Majesty's Revenue and
to manage the global effective tax rate.
as Global leader - tax services. Ian was
Customs' committees and was one of the
But as Ian suggests, with all of this
the first to hold that position and he has
tax practitioners invited to join the
increased focus on cross border taxation,
built the role to where it is today. Ian has
Coalition's Tax Professionals' Forum.
there will be opportunities, such as
set the bar high and will be a tough act
For the past several years, I was the UK's
thinking outside the tax practitioner's
head of tax and worked with Ian on the
home country and continuing to
Under Ian's leadership, he established
GTIL Tax Advisory Committee.
perform the taxpayer advocacy role.
a GTIL tax infrastructure on behalf of all
I am currently active on a number of
This is the role of this newsletter…to
of the tax practices in our member firms
tax policy committees and therefore find
inform you of global tax trends and
which includes many initiatives that have
this publication of particular interest.
tax policies.
become part of our tax landscape. I look
Today we see governments requesting
In this issue we continue to
forward to continuing to work with Ian
more transparency from taxpayers as
investigate cross border tax issues
as he assumes new roles and
well as being more transparent in
regionally as well as for transfer pricing,
responsibilities within GTIL.
sharing ideas amongst themselves. These
indirect taxation and developments in tax
For those of you I haven't met yet, I
trends have turned what was once a
treaties. We are also increasing our
joined Grant Thornton UK LLP as a
government by government, issue by
African tax focus within the EMEA tab.
direct entry partner in 2006 after 15 years
issue, discussion into a multi
An analysis by The Economist finds that
of tax experience. I was a past Chairman
government discussion with common
over the ten years to 2010, no fewer than
of the Tax Faculty of the Institute of
issues being raised across the borders.
six of the world's ten fastest-growing
Chartered Accountants in England and
When you factor in some of the
economies were in sub-Saharan Africa so
OECD reports, such as the BEPS paper,
it is an important area to keep aware of.
which Ian mentioned together with the
transfer pricing guidelines, hybrid
Global leader – tax services (Incoming)
mismatch arrangements, tackling
Grant Thornton International Ltd
aggressive tax planning and many more,
Global tax newsletter No. 8: June 2013
OECD featured article
Since our last edition, one of the more
The report highlights many of the
The tax authorities' armament to
OECD: Addressing Base Erosion and Profit Shifting (BEPS)
significant developments is a report
reasons multinationals are able to
combat aggressive tax planning includes:
Base erosion constitutes a serious risk to tax revenues, tax
achieve BEPS, including; differences in
transfer pricing; general anti-avoidance
sovereignty and tax fairness for many countries. While there
BEPS is the ability of a multi-
jurisdictional taxing rights; transfer
rules or doctrines; CFC rules; thin
are many ways in which domestic tax bases can be eroded, a
national to shift profits from high tax to
pricing; hybridisation of entities,
capitalisation; and anti-hybrid rules.
significant source of base erosion is profit shifting. The BEPS
low tax jurisdictions. The most
financing transactions, and leasing
The OECD notes in its report that
report presents the studies and data available regarding the
publicised BEPS strategy was the double
arrangements; use of conduit companies;
there is no magic recipe to address the
existence and magnitude of BEPS, and contains an overview of
Irish manoeuvre where a multinational,
and derivative instruments.
BEPS issues. Although the OECD is
global developments that have an impact on corporate tax
routes profits through its European
ideally positioned to support countries'
matters and identifies the key principles that underlie the
headquarters in Ireland, whose laws
efforts to ensure effectiveness and fairness
taxation of cross-border activities, as well as the BEPS
then allow the company to shift profits
as is noted in the report, no doubt
opportunities these principles may create. The report
to zero-tax jurisdictions, such as
differences in the interpretation and
concludes that current rules provide opportunities to associate
Bermuda or the Caymans.
implementation of OECD guidelines will
more profits with legal constructs and intangible rights and
The OECD issued a report which
most likely create a new set of challenges
obligations, and to legally shift risk intra-group, with the
addresses ‘Base Erosion' and ‘Profit
and opportunities for adjusting prior tax
result of reducing the share of profits associated with
and profit shifting
Shifting' and presents studies and data
strategies to comply with future cross
substantive operations. Finally, the report recommends the
(BEPS) is the ability
regarding the existence and magnitude of
border tax opportunities.
development of an action plan to address BEPS issues in a
BEPS. The report contains an overview
of a multi-national to
of global developments that have an
shift profits from
impact on corporate tax matters and
high tax to low tax
identifies the key principles that underliethe taxation of cross-border activities, as
well as the BEPS opportunities theseprinciples may create.
Global tax newsletter No. 8: June 2013
How big a problem is BEPS? An
Addressing concerns related to base
• Transfer of manufacturing
overview of the available data
erosion and profit shifting
operations together with a transfer
• Data on corporate income tax
• Key pressure areas
of supporting intangibles under a
cost-contribution arrangement
the report indicates
• Data on Foreign Direct Investments
• Developing a global action plan
• Leveraged acquisition with debt-
the comprehensive
• A review of recent studies relating
push down and use of intermediate
• Immediate action from our tax
holding companies.
coverage of BEPS
administrations is also needed.
by the OECD.
Global business models,
Current and past OECD work related
Data on corporate tax revenue as a
to base erosion and profit shifting
governance and taxation
percentage of GDP
• Tax transparency
• Global business models and taxation
• Tax treaties
• Competitiveness and taxation
A review of recent studies relating to
• Transfer pricing
• Corporate governance and taxation.
• Aggressive tax planning
• Studies of effective tax rates of MNEs
• Harmful tax practices
Key tax principles and opportunities
• Studies using data from taxpayer
• Tax policy analyses and statistics
for base erosion and profit shifting
• Tax administration
• Key principles for the taxation of
• Other analyses of profit shifting
• Tax and development cost-
cross-border activities
contribution arrangement
• Key principles and BEPS
• Leveraged acquisition with debt-
Examples of MNEs' tax planning
push down and use of intermediate
holding companies.
• E-commerce structure using a
two-tiered structure and transfer ofintangibles under a cost-contributionarrangement
Global tax newsletter No. 8: June 2013
Isle of Man featured article
Man's taxation policy
has been a significant
contributor to its
economic success.
The Isle of Man taxation
member of the European Union but it
in the Isle of Man and have taxable
system and its use in
falls within the EU common customs
income of more than £500,000.
The island has long been
The Isle of Man has been, and continues
The Isle of Man's taxation policy has
committed to international standards
to be, a significant economic success
been a significant contributor to its
of tax transparency and helped develop
story that has now enjoyed over 29
economic success. The standard rate of
the OECD template for tax
years of continuous economic growth.
tax for individuals is 10% with a higher
information exchange agreements
The Isle of Man economy is well
rate of 20% applicable for all income
(TIEA). Since then, the Isle of Man has
diversified and counts aviation, clean
above £10,500 after generous personal
remained at the forefront of efforts to
tech, e-business, e-gaming, financial
allowances and reliefs have been taken
put in place tax co-operation
This commitment to openness was
services, manufacturing, maritime, space,
account of. The Isle of Man also
agreements, signing 27 TIEAs and 11
recognised by the G20, with the Isle of
agriculture and tourism amongst its
operates a cap on the maximum amount
double taxation agreements thus far.
Man earning a place on the OECD
successful industries.
of tax payable of £120,000 for a single
Such agreements have been signed with
‘white list' of countries. Responding to
The Isle of Man, located in the Irish
individual. There is no capital gains tax,
Argentina, Australia, Bahrain,
evolving world standards, the island
Sea between the UK and Ireland is an
wealth tax, stamp duty, death duty or
Belgium, Canada, China, Czech
moved to the automatic exchange of tax
internally self-governing dependency of
inheritance tax.
Republic, Denmark, Estonia, Faroe
information on savings, under the EU
the British Crown and is not part of the
The standard rate of corporate
Islands, Finland, France, Germany,
savings Directive, in 2011.
United Kingdom (it is however, part of
income tax in the Isle of Man is 0%. A
Greenland, Guernsey, Iceland, India,
In further recognition of its wish to
the British Isles). Tynwald, the Island's
10% rate of tax applies to income
Indonesia, Ireland, Japan, Jersey,
cooperate on the international stage, the
1,000 year old Parliament, makes its
received by a company from banking
Luxembourg, Malta, Mexico, the
Isle of Man Chief Minister announced
own laws and oversees all internal
business, land and property in the Isle of
Netherlands, New Zealand, Norway,
that they would be moving to a closer
administration, fiscal and social policies.
Man (including property development,
Poland, Portugal, Qatar, Seychelles,
form of tax cooperation with the UK,
The population of the Isle of Man is
residential and commercial rental or
Singapore, Slovenia, Sweden, Turkey,
based on the same principles as the
around 85,000 all contained within an
property letting and mining &
UK and USA. Further agreements with
FATCA agreement which the Isle of
area of 221 square miles (572 square
quarrying) and, from 6 April 2013, on
Italy, the Netherlands and Spain are
Man was negotiating with the USA. The
kilometres). The Isle of Man is not a full
companies who carry on retail business
currently being negotiated.
new arrangements with the UK will also
Global tax newsletter No. 8: June 2013
primary benefits
for businesses…will
be their ability to use
the Isle of Man as a
be put in place shortly. The Isle of Man
information on the investments of
can significantly reduce these issues and
Treasury Minister said that after three
UK resident taxpayers, which will
provide a very effective route to the EU
months of intensive negotiation he
then be shared automatically with
market. The Isle of Man has its own
anticipated a package of measures with
the UK by the Isle of Man tax
electronic Entry Processing Unit (EPU)
the UK that would include:
authorities. Both governments will
which is housed within the UK's
• a bespoke Isle of Man disclosure
work together to minimise the
import/export computer system. This
facility, based on the Liechtenstein
burden on those businesses affected
provides importers, exporters and their
model, for UK taxpayers wishing to
by the new system. In addition, in
agents with the ability to electronically
regularise their tax affairs. This will
recognition of their different status
declare goods imported to or exported
customs and excise imports, no matter
give those taxpayers a number of
under UK tax law, people who are
from the UK/Isle of Man. Accordingly
where in the EU the goods arrive. In
important assurances about what to
resident but non-domiciled in the
Isle of Man importers, exporters and
summary, one of the primary benefits
expect after they first contact
UK will be subject to an alternative
their agents are able to obtain fast
for businesses from, for instance, the
HMRC. The Isle of Man
reporting regime under this
electronic system generated customs
USA, China, India or Canada, will be
Government will assist the UK
clearance without the need for the goods
their ability to use the Isle of Man as a
authorities in ensuring that the
to physically travel to the Isle of Man.
base to operate in the EU.
facility is a success
In respect of international trade matters,
Advantages of using an Isle of Man
• the extension of the double taxation
the Isle of Man, by virtue of its unique
company in this way are that Isle of
For any further information regarding the Isle of Man,
agreement between the Isle of Man
Customs and Excise Agreement with
Man companies are taxed at 0% for this
and the UK to include the automatic
the United Kingdom and European
type of business, a permanent
exchange of tax information between
Law, is treated as part of the UK and EU
establishment in the UK is avoided, the
T +44 (0)1624 639481
the two countries
for customs, excise and Value Added
Isle of Man is treated as part of the EU
• a new agreement between the Isle of
Tax (VAT) purposes.
for VAT and customs purposes, goods
Man and the UK, closely modelled
Non-EU companies which supply
do not need to physically travel to the
on a US FATCA agreement that will
goods to the EU can often face
Isle of Man and an electronic single
result in Manx financial institutions
complexities and costs when importing
point of entry is provided for all
providing a broad range of
into the EU, but using the Isle of Man
Global tax newsletter No. 8: June 2013
The German tax authorities will send
Cross border pension
out demands for Austrian pensioners to
Angola's National Assembly recently
submit a tax declaration dating back to
introduced an advance
enacted several corporate tax
continues to be an EU
2005. The move follows the decision to
tax ruling regime. The
amendments which include:
issue given the proximity of borders and
modify German legislation. The new
regime, which had immediate effect, is
• new rules for companies involved in
worker mobility.
legislation provides that German
designed to provide greater certainty for
mergers – providing for an
A change to German tax law will
pensions paid out to foreign taxpayers
taxpayers and enhanced monitoring
exemption from taxation of those
require individuals currently in receipt
will be subject to taxation in Germany.
capabilities for the tax administration.
operations if the transferred assets
of a German pension to pay taxes on
The Austrian Finance Ministry intends
Administered by the Directorate of
are registered in the account of the
their income, with retroactive effect
to challenge the decision to seek hefty
Large Enterprises (DGE), it allows a
acquirer at the same value they had
from 2005. In 2010 a 2005 amendment
back payments and to find a sustainable
taxpayer to request a ruling that sets out
in the merged company, and are
to the German Income Tax Act entered
solution to protect low-income
the formal position of the tax
amortised the same way
into force. Individuals who are not
pensioners in particular.
administration on the taxpayer's
• establishment of a withholding tax
resident in Germany are subject to
particular situation. A taxpayer
rate of 6.5% on the Angola-source
income tax in Germany if they receive a
requesting a ruling must act in good
income of companies that do not
German pension. Almost three years
faith, and must state the particulars of its
have their head office or place of
after this change – and just before the
situation clearly so that the tax
effective management or permanent
statutory period of limitations for 2005
administration can make a fully
establishment in Angola
expired on 31 December 2012 – the
informed decision on the request. The
• non-allowable expenses to include
German tax authorities began sending
ruling can be applied only to the specific
interest on loans from shareholders.
notices to hundreds of thousands of the
situation for which the ruling was
1.6 million recipients of German
requested and is binding on the tax
pensions who reside outside Germany.
administration only in relation to thespecific case and the correspondingprovisions of the tax law (this is notbinding for other taxpayers).
Global tax newsletter No. 8: June 2013
African Tax Administration Forum
The OECD and ATAF have signed a
The Antwerp court and appeal court ruled for the
‘Memorandum of Co-operation',
A Dutch national, had
government and held that the pension was derived from
The ATAF is a platform to promote and
agreeing to work together to improve
been working in the
private employment. Under the treaty, pensions and other
facilitate mutual co-operation among
tax systems in Africa.
Netherlands for a
similar remuneration paid to a resident of a contracting state in
African tax administrations (and other
This memorandum was signed at the
consideration of past employment – as well as annuities and
relevant and interested stakeholders)
Global Forum on Transparency and
Upon retiring, he took up Belgian
benefits, whether or not periodic, arising from pension
with the aim of improving the efficacy
Exchange of Information in Cape Town,
residence in 1992. Part of his pension
savings, pension funds, and group insurance funds – that are
of their tax legislation and
South Africa. The forum brings together
relates to his work for the foundation in
paid to a resident of a contracting state will be taxable only in
116 members, including 15 from Africa.
the Netherlands and the pension was
The ATAF brings together heads of
Joint activities planned for 2013 –
taxed in Belgium for tax years 2004 and
At the request of the taxpayer, the court of appeal
African tax administrations and their
2015 include technical events for African
submitted a request for a preliminary ruling from the
representatives to discuss the progress
tax officials to share knowledge and
The taxpayer appealed, arguing that
constitutional court.
made, challenges faced and possible new
develop good practices. Co-operation
under the Belgium-Netherlands tax
The constitutional court held that the treaty's treatment of
direction for African tax policy and
efforts will include working on tax
treaty, his pension should be taxable in
pensions derived from a government service in the source state
administration in the 21st century.
incentives for investment, transfer
the Netherlands because it was derived
is in accordance with the rules of international courtesy and
ATAF works towards state building,
pricing, exchange of information,
from government service. The taxpayer
mutual respect between sovereign states and that the right to
governance, political economy and
taxpayer education, and collection of
argued that a pension derived from
tax government pensions is reserved for the state that financed
African revenue statistics and support
employment with a foundation should
the pension build-up.
The work and programme priorities
for the proposed Tax Inspectors without
not be treated differently from a pension
The constitutional court referred the case back to the
of the Forum will be driven and
Borders (TIWB) initiative.
derived from government service that is
referring court, which must determine whether the build-up
managed by African countries, with the
taxable in the Netherlands since both
of pension rights occurred from private employment or from
support of donor agencies, other tax
pensions were funded (at least partially)
government service and to what extent the state was in charge
administrations and international
by the Dutch government. Taxing his
of financing the build-up of those pension rights.
organisations to reflect African needs
pension in Belgium is, therefore,
and strategies.
discriminatory according to thetaxpayer.
Global tax newsletter No. 8: June 2013
During the operating phase, and for a
Advance or estimated tax
The African region is offering more
maximum of ten years, entities will be
The Congolese Government has
payments are merely a
incentives than usual to spur economic
granted a total or partial exemption
introduced a new tax regime for holding
prepayment of the
growth in the region.
(depending on the investment's size and
companies under the following
current year's tax liabilities. From a tax
Cameroon introduced several tax
efficiency) from the following taxes:
authority viewpoint, such payments feed
incentives to boost private investment in
• corporate income tax and other taxes
• the company holds shares in other
the treasury sooner rather than later
the country. The following incentives
on profits and incomes
companies (domestic or foreign) that
when the final tax payment is made. The
are granted to companies during the
are classified as companies limited by
basis upon which the advance payment
setup phase, which should not exceed
• registration duties
shares and the share value represents
is calculated can also influence the fat or
• taxes and other levies due on the
more than two-thirds of the fixed
lean situation of taxpayer revenue in the
• exemption from registration duties
purchase of equipment required for
assets of the holding company
on deeds related to setting up the
the operating activities.
• the company holds the above-
Corporate income tax advance
company or increasing its share
mentioned shares for at least five
payments will be calculated,
During the operating phase, losses
commencing 1 January 2013, on the
• exemption from VAT on purchases
incurred may be carried forward for the
• activities should consist only of the
basis of forecasted tax profit instead of
of services provided by non-
five subsequent years (as opposed to
management of share portfolios,
being calculated on taxable profits of
residents that relate to establishing
four years under the standard treatment
management services rendered to
previous years. Taxpayers will pay
affiliate companies, research and
instalments on either a monthly or
• exemption from VAT, other taxes
development activities performed for
quarterly basis depending on their level
and customs duties, levied on the
the sole benefit of a group of
of net income from sales. Monthly
import of equipment indicated in the
companies, and management of the
advance instalments are due the 15th day
of the current month and for quarterlydepositors the 15th day following thequarter.
Global tax newsletter No. 8: June 2013
To demonstrate the non-resident's
circumvent the dividend/capital gain
The Ministry of Finance
income recipient's eligibility for the
The Danish parliament
distinction with a result that makes it
lower 15% domestic withholding tax
passed two bills (Bill no.
less attractive to use Denmark as an
information on the
rate, a valid identity card or a sworn
10 and Bill no. 49) that
international holding company location.
means to demonstrate the income
statement can be used. Where the
expand the scope of dividend
Bill no. 49 prevents resident
recipient's residence for the purpose of
recipient of income claims the benefits
withholding taxes.
minority corporate shareholders from
application of withholding tax. Tax
of a tax treaty, the withholding agent
Bill no. 10 prevents non-resident
transforming taxable dividends into tax-
residence of the recipient of income, is a
may apply the reduced tax treaty rates
taxpayers from circumventing dividend
exempt capital gains through
determinant for both the application of
withholding tax by internal
liquidations, share redemptions, and
the correct domestic withholding tax
• the recipient of income has furnished
reorganisations. Denmark does not levy
repurchase strategies. The basic issue is
rate (i.e. 35% or 15%), and the
a valid tax residency certificate
tax on capital gains on shares in Danish
the same issue of the taxation of
withholding tax rate under a tax treaty.
confirming that the recipient is
companies derived by non-residents
dividends and capital gains.
The residence of individuals who
resident in the other contracting state unless the shares are attributable to a
claim to be resident in the Czech
• the recipient of income has made a
permanent establishment in Denmark.
Republic shall be demonstrated by the
sworn statement that the recipient is
By contrast, non-residents are subject to
relevant identification document. The
the beneficial owner of the income
a 27%, or lower, treaty rate of
residence of companies incorporated in
• all other conditions for applying the
withholding tax on dividends from
the Czech Republic shall be
relevant treaty have been met.
Danish companies. Non-residents that
demonstrated by an excerpt from the
intend to repatriate cash from a Danish
relevant public register (e.g. company
Where the recipient's eligibility for the
subsidiary may thus be better off by
register). Alternatively, a sworn
lower 15% domestic withholding tax
adopting a transaction that receives
statement can be used as evidence of
rate or for tax treaty benefits cannot be
capital gains treatment rather than
demonstrated, the 35% domestic
dividend treatment. The bill negates
withholding tax rate shall be applied.
planning structures that attempt to
Global tax newsletter No. 8: June 2013
The Finnish supreme court did not find
The second case, involved a Finnish
A Oy contended that the Finnish tax
Two cases concerning
any grounds to apply the statutory
parent company, A Oy, that had a
rules constitute a violation of the
cross border tax issues
income tax rate of the UK instead of the
wholly owned subsidiary in Sweden.
freedom of establishment because they
are of interest, the first
tax actually paid when calculating the
Following trading losses, the Swedish
permit a Finnish parent company to use
deals with portfolio dividends and the
imputation credit granted to FIN Oy.
subsidiary ceased trading in Sweden,
a subsidiary's losses in a merger only if
second with cross border loss
In another case, the European Court
though it would remain bound by two
the subsidiary is located in Finland
of Justice (ECJ) held that Finland's rules
long-term leases. It was decided that the
(provided the merger was not carried
A company resident in Finland (FIN
denying the transfer of tax losses
subsidiary would be merged into its
out solely to obtain a tax advantage).
Oy), received portfolio dividends from a
incurred by a non-resident subsidiary to
parent in Finland; the parent would no
The ECJ held that the rules do
group's parent company resident in the
its Finnish parent company in a cross-
longer have a subsidiary or permanent
constitute an obstacle to the freedom of
UK (UK Co) during which time
border merger do not violate the
establishment in Sweden as a result of
establishment because the inability of a
Finland applied an imputation credit
freedom of establishment unless the
resident parent company to use a non-
system. The assets of UK Co consisted
parent is not allowed to show that the
The Finnish parent asked the Finnish
resident subsidiary's tax losses when it
of dividends it received from its
non-resident subsidiary has exhausted
tax authority if it could deduct the
merges with that subsidiary, is liable to
subsidiaries running the business of
the possibilities of taking those losses
Swedish subsidiary's tax losses once the
make establishment in the non-resident
merger was carried out. The Finnish tax
state less attractive and to deter the
The issues were whether Finland,
authority denied the request on the
parent from setting up subsidiaries there.
when calculating the imputation credit,
grounds that the Finnish tax rules do not
should take into account:
allow the use of losses, if the losses are
• the statutory income tax rate instead
from a business activity in another
of the tax actually paid
member state that is not subject to
• the corporate income tax paid by the
subsidiaries of UK Co.
Global tax newsletter No. 8: June 2013
A new tax on database collection
A new definition of permanent
As part of an effort to
The report proposes the creation of a
establishment for the digital economy
Currently, there is a
raise more tax revenues
new tax on the use of data that has been
In order to more effectively attribute
100% exemption on
from large Internet
collected from the systematic
profits to a permanent establishment, the
dividend and capital
companies, the French government is
monitoring of web usage on the French
report proposes a number of measures.
gains income received from a
studying the feasibility of measures
These measures are as follows:
corporation by another corporation
proposed in a new report on the taxation
• applying (in some form) the concept
regardless of its nature, foreign or
of the digital economy, including a levy
Adaptation of the research and
of ‘free work' of web users which, in
domestic, and regardless of any holding
on the collection of personal data.
development (R&D) credit to the
providing their data, must be
period or amount of shareholding.
The Colin-Collin report had been
regarded as a source of revenue for
In 2011, the ECJ decided in an
commissioned by the government to
According to the report, the current
digital companies (i.e. the permanent
infringement proceeding that the non-
evaluate the rise of the digital economy
R&D credit is not adapted to the digital
establishment in France)
refunding of German withholding tax
and find ways to effectively tax
economy. The report proposes to merge
• the implementation of a virtual
on dividend payments generated by
multinational companies that pay little
the R&D credit and the start-ups or
permanent establishment for
portfolio holdings of foreign corporate
to no corporation tax in France despite
innovative companies credit.
companies that provide services
investors is contrary to the Treaty on the
their business activities there.
based on personal data collected
Functioning of the European Union
On 19 January 2013, the expert
Promoting the role of the market in
from the systematic monitoring of
(TFEU) and the European Economic
commission submitted their official
financing the digital economy
web usage on French territory.
area (EEA) agreement. Since Germany
report that states, the current tax
The availability of capital is a critical
taxes dividends paid to foreign
legislation is not able to effectively tax
factor for the development of the digital
companies more heavily in economic
this type of activity. The report gives
sector. To stimulate the contribution of
terms than dividends paid to domestic
proposals to remedy this problem as
this capital, the report contains four
companies, it restricts the free
summarised below:
proposals to encourage the equity
movement of capital provided for in
financing of companies.
article 63 of the TFEU and article 40 ofthe EEA agreement.
Global tax newsletter No. 8: June 2013
The upper house of Germany's
parliament and the lower house decided
The Budget for 2013 was presented to
The government has
The Icelandic parliament
to insert a 10% minimum shareholding
parliament by the Minister for finance
published a list of the
approved a bill to change
requirement in the participation
and economic planning. The minister
Free Business Zones
the withholding tax law
exemption rule. The minimum 10%
announced the following tax
(FBZ). Different tax, social security and
applicable on fixed income securities.
requirement is fulfilled if at least 10% of
administration measures:
vocational training contribution credits
The change will abolish withholding tax
the shares are held directly from the
• to undertake a comprehensive
and allowance are available for
on interest and capital gains from
beginning of the calendar year.
review of the tax exemption regime
businesses operating in the designated
Icelandic fixed income securities, for
After the legislative modifications
with the view to reducing the grant
zones from 2013.
both foreign and resident investors that
entered into force, nothing changes for
of such incentives
The decree lists 903 business zones
are issued by Icelandic financial
those shareholders with a participation
• to make changes to the income tax
in towns and villages located in the least
institutions or Icelandic energy
of more than 10% and those with
and anti-money laundering laws in
developed parts of Hungary. A
income from capital gains. However,
accordance with recommendations
designation is valid for five years but can
Exemption will be granted at issuer
those owning less (portfolio shares)
be prolonged by the government. The
and instrument level. In order to qualify
must tax 100% of their dividend income
• to initiate steps to expand the
available FBZ benefits are:
for the exemption, issuers must meet a
at a corporate tax rate of 15% and an
network of tax information exchange
• a corporate tax credit for the
set of specific requirements. The
average trade tax rate of another 15%.
promotion of development for
issuance of the bonds must be done in
• to establish a special unit that will
investments in FBZ
their own name and issuers must qualify
undertake tax audits with the view to
• a social contribution tax credit for
as financial institution by meeting the
detecting and reducing transfer
employment in FBZ
requirements set forth in the Act or, if
• a vocational training contribution
the issuer is an energy company, it will
• to make improvements to the tax
be subject to a different set of rules
administration in order to facilitate
under an Act on the taxation of energy
compliance by taxpayers
• to improve the system of VAT
refunds and duty drawbacks.
Global tax newsletter No. 8: June 2013
• the first €100,000 spend on R&D
• expenditure includes direct and
Ireland has long been
can qualify for the credit on a full
indirect costs in addition to capital
Many countries with
user friendly for
volume basis: any spend above
expenditure on related plant and
worldwide taxation, that
establishing soft tech
€100,000 must be more than the
allow the profits of a
industries through tax incentives. The
2003 base year spend
• a company's credit may be assigned
foreign subsidiary to be deferred from
Irish Ministry of Finance has opened a
• the exemption from the base year
to key employees
taxation until repatriated, are finding
consultation with interested parties on
restriction would be increased to the
• a scheme also exists in respect of
locally based multi-nationals hoarding
provisions that would increase research
first €200,000 of R&D expenditure.
capital expenditure for R&D
profits in offshore subsidiaries. Israel has
tax incentives for small and medium-size
There is no ceiling to the level of
adopted new legislation which, if copied
eligible expenditure over the 2003
elsewhere, would be a good approach to
Ireland has a tax credit scheme for
encourage both local investment and
R&D, the key features of the scheme
• unused tax credits can be carried
homeward repatriation. A combination
back and set-off against a company's
of host country withholding taxes and
• a tax credit of 25% on incremental
prior year corporation tax liabilities
home country foreign tax credit erosion
R&D expenditure – in addition to
thus generating a tax refund
discourage homeward repatriations of
the normal 12.5% trading deduction
• where there is insufficient current or
offshore profits.
• the scheme is based on incremental
prior year corporate tax liabilities,
Israel's legislators passed a law that
spend and provides for expenditure
the company can claim unused tax
will reduce the amount of tax payable by
on R&D that is in excess of that
credits in cash over three years (in
multinational companies seeking to
company's R&D expenditure in the
three instalments over 33 months
distribute dividends or invest profits
base year of 2003 to qualify for the
from the end of the accounting
abroad, in return for these companies
period in which the expenditure is
investing at least 50% of their profits in
• the base year has been permanently
the country.
set at 2003, making it effectivelyvolume based for new entrants
Global tax newsletter No. 8: June 2013
Under prior law, a qualifying
Foreign investors are only taxed on
industrial companies profits were not
the distribution of profits from the
taxable until distributed as dividends.
Commission (EC) called
investment fund. These untaxed profits
authorities victorious
However, this led to large scale profit
for the development of
are subject to a final 20% withholding
attacks on taxpayers, tax
retention by these companies. The
innovative financing solutions, making
tax. No further Italian taxation applies.
authorities must play by the rules when
government has therefore proposed a
the creation of an efficient European
Foreign investors are fully exempt
enforcing collection in what it perceives
one year lowering of the tax rate on
venture capital market a reality. Italy has
from withholding tax on the funds'
to be delinquent taxes. The Kenyan
profit distributions made by such
now implemented an attractive tax
profit distributions, if they are:
High Court gave its decision against the
incentive to stimulate investments in
• resident in a country or territory
tax authorities on this issue.
The ‘trapped profits' law will lower
venture capital initiatives in line with the
included in Italy's ‘white list'
The taxpayer (GDC) entered into a
the amount payable by multinationals
principles expressed by the commission.
• entities or international bodies
contract with another company
by 40% to 60%, depending on how
Italian investment funds are subject
established in accordance with
(GWDC Ltd.) to provide drilling
much the company is willing to invest in
to corporate income tax and thus
international treaties implemented in
services for ten geothermal wells.
Israel. However, the tax rate of a
entitled to tax treaty benefits. However,
Kenya Revenue carried out an audit
company benefiting from the trapped
under domestic legislation income in the
• institutional investors established in
of the transaction and issued a tax
profits law cannot fall below 6%.
hands of Italian investment funds is
a ‘white list' country, even if they are
demand to GDC. The letter of demand
The law specifies that the company
exempt from corporate income tax,
not subject to tax
set out the amount due and requested
must invest in ‘industrial enterprise, in
provided that either the fund or the fund
• central banks or bodies that manage
GDC to pay to avoid additional interest.
assets used by the enterprise, in R&D or
manager is subject to oversight. Italian
a country's official reserves.
The letter did not draw GDC's attention
in the salaries of new employees' and
investment funds are exempt from the
to the fact that it was an assessment and
that tax benefits will only be available if
business regional tax on productive
the subsequent consequences of failure
the company commits to reinvest at least
activities. Therefore, no income taxation
to comply. Kenya Revenue sought to
half of the freed profits in Israel. The
applies at the fund level (except for a
enforce the tax due through an agency
proposals will also change the tax
possible final withholding tax). In
treatment of dividend distributions from
particular, dividends and capital gains
such profits in the hands of the recipient.
are not subject to income taxes in thehands of investment funds.
Global tax newsletter No. 8: June 2013
GDC filed a petition seeking to have
X also requested a refund for the rest
Regarding the Netherlands –
the agency notice removed on the basis
of the withheld DWT. X argued that the
Switzerland income tax treaty, the AG
that the letter did not meet the
reporting and increased
domestic law provisions, which grant a
noted that neither the treaty, nor the
requirements of a proper notice.
taxpayer reporting
full refund of DWT to resident, tax
protocol, requires the Swiss authorities
The court ruled that a notice to
although sometimes burdensome, can
exempt entities, read in conjunction with
to exchange information regarding the
enforce collection of taxes must clearly
come to the taxpayer's benefit
freedom of establishment laid down in
beneficial ownership (in this case, the
state the amount claimed, the legal
particularly in terms of determining
provision under which it is made and
beneficial ownership for tax treaty
The tax inspector disagreed, and
The AG acknowledging that the
draw the taxpayers attention to the
denied the request as did the he District
agreement did not cover portfolio
consequences of failure to comply with
The Dutch Supreme Court
Court. The appeal court, however, sided
dividends, and noted that the exchange
the law. It must also state the
(Advocate General (AG)) gave an
with X and decided a refund should be
of information requirements of the
opportunity provided by law to contest
opinion on the refund of dividend
granted. The case was appealed to the
agreement could only be activated in the
withholding tax to an exempt pension
Dutch Supreme Court.
case of ‘.tax fraud or the like'. The term
The court held that the letter failed
The DWT law provides that a Dutch
‘the like' refers to acts that have the same
to meet the requirements of a proper
The taxpayer (X), a Swiss resident
resident entity, not subject to corporate
degree of severity as that of tax fraud. As
notice as it failed to draw attention to
pension fund received portfolio
income tax, may request a refund of any
the case at hand concerned portfolio
the consequences of non-compliance
dividends from listed companies,
withheld DWT if that entity is the
dividends, it falls outside the scope of
and notify GDC of the available
resident in the Netherlands on which
beneficial owner. The beneficial
channels to review and appeal.
dividend withholding tax (DWT) was
ownership criterion also applies to non-
This led the AG to propose that X's
withheld. X was exempt from a tax on
resident situations. In the specific treaty,
situation resulted in no refund of DWT
profits in Switzerland.
there was no mutual assistance provision
as the beneficial owner cannot be
X requested, and received a refund of
under which the Dutch tax inspector
officially verified.
dividend withholding tax on the basis of
may request information from the Swiss
the Netherlands – Switzerland income
tax authorities about the beneficial
and capital tax treaty (1951). This treaty
ownership of the recipient (X).
entitled X to a refund of the tax as thewithholding rate exceeded 15%.
Global tax newsletter No. 8: June 2013
• irrespective of whether or not the
The commission believes the interest
On 11 April, Norway's
interest has been deductible for the
The deductibility of
deduction limitation rules only affect
Ministry of Finance
payer, the recipient of the interest
certain interest payments
interest payments to companies that are
released a consultation
income is taxed according to the
was abolished in 2009 to
not resident in Sweden. It believes that
paper on a plan to limit the deduction of
prevent certain types of tax planning
similar problems may arise when
interest on related-party debt. The main
• the limitation is calculated separately
using interest deductions on debts to
interest is paid to a pension fund that is
purpose of the proposal is to restrict
for each entity in a group situation
group companies provided the loan
not domiciled in Sweden.
earnings stripping, via intercompany
• disallowed interest deductions may
funded an intra-group stock purchase.
The EC considers that the rules
be carried forward for five years
Loans that funded external acquisition
constitute indirect discrimination for
Details of the bill are summarised as
• the limitation applies to limited
of shares were not covered by the rules
companies and pension funds that are
liability companies and other
and the scope of the rules was extended
not resident in Sweden and, accordingly,
• parties are considered related if one
companies and entities that are non-
as from 1 January 2013 to cover all intra-
the Swedish interest deduction
party directly or indirectly owns or
transparent for tax purposes. In
group interest payments irrespective of
limitation rules violate the freedom of
controls the other party by at least
addition, it covers partnerships and
whether intra group or third party stock
50% of the capital or voting power.
CFC companies, as well as foreign
purchases are made.
Sweden's Ministry of Finance issued
Related parties may be resident in
entities that have a taxable presence
The EC stated that it had received
a reply to the EC inquiry and essentially
Norway or abroad. Hence, the
in Norway (e.g. a permanent
several complaints regarding the
stated that Sweden considers that the
limitation also applies to the
establishment). Financial institutions
Swedish interest deduction limitation
interest deduction limitation rules do
deductibility of interest expenses
are excluded from its scope
rules. The EC considers it unlikely that
not restrict the freedom of establishment
between two Norwegian companies
• the new rules are proposed to be
domestic intra-group loans can ever be
because the rules apply regardless of
• qualifying interest expenses in excess
effective from 2014 but would also
considered to have arisen in order to
where the lender is domiciled and
of 25% of the taxable income of an
apply for interest expenses on loan
obtain a significant tax benefit because
regardless of whether the borrower has
entity, subject to certain adjustments,
agreements concluded before 2014
of exceptions for deductibility together
limited or unlimited liability to tax.
are not deductible for tax purposes
with the low rates of Swedish incometaxation.
Global tax newsletter No. 8: June 2013
The cantonal tax authorities had
The Cayman branch's main purpose
The Swiss Federal
granted an advance tax ruling
was the financing of the Swiss group
Supreme Court denied
confirming that the Cayman finance
companies that were eligible to claim full
Economics has published
treatment as a permanent
branch constituted a foreign permanent
tax deduction for interest paid.
a new Decree, which
establishment to a foreign finance
establishment. Accordingly, the relevant
As a result of collapsing the Cayman
provides an opportunity for regional
branch that a Swiss corporation
financial assets (loans) and income
permanent establishment, the entire
management centres to operate in Turkey
operated in the Cayman Islands. The
(interest) was allocated from Switzerland
profit resulting from the financing
under a liaison office structure. A regional
Swiss group financing performed with
to the foreign permanent establishment,
activities was subject to Swiss corporate
management centre may perform the
part-time employees was not deemed to
and based on Swiss domestic law,
coordination and management services
be a sufficient enough business activity
exempted it from Swiss taxation.
for business units in other countries for
to justify treatment as a foreign
The Swiss federal tax administration
the following areas:
permanent establishment, which would
did not accept this assessment and
• establishment of investment and
have been exempt from taxation in
requested a decision that for federal tax
management strategies
purposes the branch's income be taxed
The taxpayer involved a Swiss group
in Switzerland.
that had outsourced its group financing
The court confirmed the tax
to a Cayman branch of a Swiss affiliate.
authority's view. It held that the overseas
• after sales services
The Cayman branch had hired four
financing activities did not reach the
• brand management
people who each worked one day per
level of business substance required for a
• financial management
week and were paid annual salaries.
foreign permanent establishment to be
• technical support
The group claimed that the financing
recognised. The company's lean
• research and development
activities constituted a foreign
structure in the Cayman Islands and the
permanent establishment of the Swiss
economic value created in the Cayman
• testing of new products (including
company and that therefore the profit
Islands were contrasted with the
laboratory activities)
resulting from the financial activities
considerable financial assets and the
• research and analysis
should be exempt from Swiss taxation.
related income involved.
• employee training.
Global tax newsletter No. 8: June 2013
The liaison offices are granted the license
• there are no jurisdictions where UK
• increasing the likelihood of evaders,
to operate in Turkey for a period of
HMRC has issued a
taxpayers feel safe to hide their
and those who make offshore
three years. However, based on the new
report in conjunction
income and assets
evasion possible, being caught, by
decree, if a liaison office operates as a
with the release of the
• would-be offshore evaders realise
investing in the skills of specialist
regional management centre after the
2013 budget that describes its strategy to
that the balance of risk is against
staff, using the data generated by
initial period of three years, an extension
address offshore tax evasion. The report
international agreements, and
of an additional ten years can be granted.
defines offshore evasion as using a non-
• offshore evaders voluntarily pay the
investing in improved tools,
Liaison offices cannot have any
UK jurisdiction with the objective of
technology and customer
commercial operations, thus they are
evading UK tax. This includes moving
• those who do not come forward are
understanding to identify,
exempted from the major taxes in
UK gains, income or assets offshore to
detected and face vigorously
understand and profile high risk
Turkey. Accordingly, based on the new
conceal them from HMRC; not
enforced sanctions
decree, a regional management centre
declaring taxable income or gains from
• there will be no place for facilitators
• strengthening the severity of the
operating under a liaison office will be
overseas sources or taxable assets kept
of offshore evasion.
punishments for those who are
exempted from the following Turkish
overseas; and using complex offshore
caught, with tough penalties, the
structures to hide the beneficial
The report states that the way that
possibility of criminal investigation
• corporate income tax
ownership of assets, income or gains.
HMRC will achieve these objectives is
and publishing the names of the
• value-added tax
The report states that HMRC is
most serious evaders.
• income tax on salaries of
building a new offshore evasion strategy,
• reducing the opportunities to evade
• the liaison office employees
expressing a renewed commitment to
offshore through initiatives to ensure
• stamp tax.
clamping down on those who conceal
compliance, international agreements
income, assets and gains overseas to
and multilateral action
evade tax. The objectives of this newstrategy are to ensure that:
Global tax newsletter No. 8: June 2013
The Australian resident taxpayer
The taxpayer's FX gains and FX
The globalisation of
held a diverse asset portfolio with
losses arise from currency transactions
business has led to
particular classes of assets, including
that are entered into as part of its
Administration of
dealing in multiple
international equity investments that
strategy to hedge its exposure to foreign
Taxation (SAT) issued a
currencies due to supply contracts and
were held in foreign currencies but were
currency fluctuations affecting the
new bulletin on capital gains provisions
customer contracts. This has resulted in
recorded in Australian dollars in the
underlying value of its international
in China's tax treaties. Such articles
the management of foreign currencies
taxpayer's financial statements. The
equity investments. A currency hedging
usually deal with the sale of shares but
and resulting hedging contracts, the
taxpayer adopted a mark to market
transaction by its nature will result in
often contain exceptions to treaty
taxation of which is not often a well
accounting system.
FX gains and FX losses. These are a
benefits for capital gains where the
settled issue.
In relation to the international equity
function of the direction in which the
underlying assets of the company in
The Australian tax Office (ATO)
investments only, the taxpayer entered
foreign currency moves against the
which the shares were sold meet certain
recently ruled favourably for a taxpayer
into foreign currency hedging
Australian dollar.
with foreign currency hedging losses
transactions to hedge its exposure to
The FX losses are reasonably related
Under most of China's tax treaties,
(FX losses), arising from transactions
currency risk in respect of the
to the FX gains in this instance by being
capital gains arising from the sale of
entered into to hedge exposure to
underlying capital value of these
part of the hedging strategy
shares of a company resident in a treaty
foreign currency movements. The ATO
investments through an actively
implemented by the taxpayer in relation
country can be exempted from tax
held that the FX losses were ‘reasonably
managed currency strategy applicable to
to its international equity investments to
provided that the following two tests
related' to foreign currency hedging
those investments. The taxpayer realised
limit its exposure to FX risks.
can be satisfied:
gains (FX gains) in relation to the same
assessable FX gains and incured FX
• the target company is not a ‘land-
losses arising from these foreign
rich' company in which 50% or
currency hedging transactions. No
more of the share value consists
foreign income tax was paid on the FX
(directly or indirectly) of immovable
gains. The FX gains and FX losses are
property (the 50% test)
from a foreign source.
Global tax newsletter No. 8: June 2013
• the transferor company must hold,
The bulletin introduces a look-
Hong Kong
• procuring samples and relaying of
directly or indirectly, less than 25%
through concept for the 25%
Hong Kong is used for
the manufacturers terms and
of the shares of the target company
shareholding test. If a Singapore resident
several purposes with
(the 25% shareholding test).
indirectly owns the equity interest of a
respect to a multi-
• coordination activities, including
Peoples Republic of China (PRC)
national's Asian based operations. One
negotiating and placing purchaser
The bulletin provides that the scope of
company through a nominee, but
taxpayer, a well-known athletic shoe
orders, between India and the
immovable property includes
exclusively enjoys the participation
company used Hong Kong as a location
operational and non-operational
interest of the equity and substantially
in which procurement services were
• payment of the manufacturers on
housing properties, land use rights, and
bears the equity investment risks of the
performed. Despite the efficiency of the
behalf of the athletic shoe company
attached fixtures. The bulletin also
PRC. company, the Singapore resident
Hong Kong operation, the taxpayer ran
India. The invoices were issued in
further describes the meaning of the
can be treated as if it holds the equity
into tax difficulties for services
the taxpayer's name as the agent of
three-year look back period for
interest of the PRC company directly
performed with respect to services
determining the proper date, or dates
for purposes of the 25% shareholding
provided to a related party in India.
that should be used to apply the 50%
test. The nominee can be an individual,
The taxpayer was a Hong Kong
However, the taxpayer did not have the
test defining it as the 36 consecutive
company, or other entity.
resident and it functioned as a ‘buyer'
authority to accept or reject prices or
calendar months before the month of
for the entities within the group of
terms established between India and the
the share transfer.
companies including a related company
manufacturers. In return for the above
in India. The services provided by the
services, the taxpayer received an arm's
taxpayer to India included, amongst
length agency service fee. The taxpayer
contended in its Indian tax return that
• sourcing new manufacturers and
the fees did not qualify as fees for
maintaining relationships with
technical services and in the absence of a
existing manufacturers
permanent establishment in India, theincome was not taxable in India.
Global tax newsletter No. 8: June 2013
The tax authorities disagreed and
In its transfer pricing analysis, Z
In the transfer pricing audit, the
held that the fees did qualify as fees for
India is well known as a
chose the comparable uncontrolled price
transfer pricing officer examined Z's
technical services and thus, were taxable
favourable location from
(CUP) method to establish the arm's-
documentation and agreed that its
in India. The issue before the tribunal
length price of its transaction with S.
transaction with S was at arm's length.
was whether the fees were in the nature
outsourcing activities. In a recent ruling,
The US company paid 85% of the
The transfer pricing officer issued an
of fees for technical services and thus,
the use of an outsourcing operation
amount it received from its external
order to that effect and advised the tax
taxable in India.
together with a tax advantaged company
clients to Z as an arm's-length fee under
assessing officer (TAO).
The tribunal held that the fees were
the CUP method, based on the
The TAO challenged the amount of
not for managerial, technical or
The taxpayer Z, a provider of back
functions performed and risks assumed
Z's profits that were eligible for the tax
consultancy services and as such did not
office support services (excluding
holiday under the ITA. The TAO
constitute fees for technical services.
telecommunication services), was
As a backup analysis, Z also adopted
denied the tax holiday for profits in
Fees for technical services had to involve
established in a designated software park
the transactional net margin method
excess of 8% of Z operating costs, and
some type of applied and industrial
and was eligible for a tax holiday for the
(TNMM) and selected a few
assessed tax on that amount.
sciences and in this case, the taxpayer
profits attributable to its exported
comparables from the public domain.
The tribunal ruled that profits from
provided no such technical services.
The average operating margin of the
the supply of business outsourcing
Z supplied its services exclusively to
comparables was around 8%. Z's
services to a related party by an Indian
a related party in the United States (S).
operating margin was 1.5 times its
company qualifying for a tax holiday are
In terms of the business model, clients
operating cost and was much higher
fully tax exempt, even if the profit
contracted with S to provide back office
than the average operating margin of the
margins are excessive because of
services, and S subcontracted with Z for
comparables. Z therefore determined
operating efficiencies, provided that the
the non-telecommunication portion of
that its transaction with S was at arm's
supply is at an arm's-length price.
those services. S assumed the marketing,
length. As Z was eligible for the tax
contractual, and credit risks whereas Z
holiday, it claimed that its profits from
assumed the operating risks associated
the transaction with S were exempt from
with the delivery of its services.
tax under the domestic income tax act(ITA).
Global tax newsletter No. 8: June 2013
The tribunal sided with Z and
Residence taxpayer victory
overruled the tax assessment. It held that
Indonesia's Finance
Two recent international
A victory in a Japanese gift tax case of
once the transfer pricing officer agreed
Ministry has been
developments are of
the elder heir of the recently bankrupt
with the taxpayer and accepted the
looking into the granting
interest, the bad news,
Japanese consumer finance company has
arm's-length nature of the transaction
of tax incentives to encourage the
earnings stripping, the good news, a
been widely publicised. One aspect of
with S the TAO had to have new
production of environmentally-friendly
taxpayer victory concerning residence.
the case that drew particular media
evidence to invoke his powers under the
‘green' vehicles. The proposals have
attention was the loss to the Japanese
recently received parliamentary backing.
state through the payment of around
Further, the TAO provided no
The proposals would allow tax
Japan adopted earnings stripping
JPY40Bn (USD450m) of interest and
independent evidence to support his
incentives for the manufacturing of low-
provisions under which a corporation's
penalties to the taxpayer in addition to
conclusion that Z had generated more
cost low-emission cars in Indonesia, that
deduction for net interest expense paid
the taxes repaid of around JPY133Bn
than ordinary profits by virtue of the
could, not only reduce fuel
to a related party will be limited to 50%
arrangement of its dealings with its
consumption, but also make the country
of adjusted income, effective for tax
In the case the taxpayer had received
into an Asian production base for such
years beginning on or after 1 April 2013.
a gift of the company's shares during a
The tribunal also found that Z had
A related party is defined to be any:
period when he was living in Hong
significant operating efficiencies and
The incentives for low-cost green car
i) person with whom the corporation
Kong, where he spent approximately
low-cost advantages over some of the
production form part of the Ministry of
has a 50% of more equity
two thirds of his time while spending
Industry's plans for Indonesia to
just over a quarter of his time visiting
The tribunal therefore held that the
become a regional production base, in
ii) person with whom the corporation
Japan and the remainder elsewhere.
TAO could not adjust Z's profits for
competition with Thailand and
has a de facto controlling or
The tax authorities had asserted that
purposes of the tax holiday and erred in
Malaysia, while increasing employment.
controlled relationship
the taxpayer was resident in Japan
assessing tax on a part of the profits.
The Indonesian government has also
iii) third party lender which is
during the period concerned, despite his
announced that companies involved in
financially guaranteed by one of the
relatively short period of residence in
the exploration of oil, gas and
geothermal resources are able to get taxincentives.
Global tax newsletter No. 8: June 2013
The authorities asserted that he had
an ‘address' in Japan and hence the gift
Previously, tax residents
• name of the individual who fails to
The Labuan Financial
of shares to him was a taxable
in South Korea were
comply will be disclosed to the
Services Authority
transaction by virtue of such residence.
required to file a foreign
public effective from reporting year
(LFSA) has issued
Under changes to the law in Japan in
financial accounts report form with the
2012 (filing due 30 June 2013)
guidelines applicable to all Labuan
2000, where either the recipient or
National Tax Service (NTS) between 1
• if the total amount not reported or
international trading companies (LITCs)
transferor of gifted assets has been
June and 30 June of the following year if
under-reported exceeds KRW 5
licensed to conduct international
resident in Japan for five years tax can
the aggregate value of cash and listed
billion, criminal law penalties will
commodity trading business in the
apply to such assets even when they are
stocks held in foreign financial accounts
apply with a maximum of two years
Labuan International Business and
not located in Japan.
exceed KRW 1 billion on any day during
imprisonment or a fine up to 10% of
Financial Centre (LIBFC) under the
In the instant case, the taxpayer's
the tax year. Under the revised law, the
the non-reported or under-reported
Global Incentives for Trading (GIFT)
lifestyle was 25% or less in Japan for
reportable criterion is extended to
more than the five year period.
include all financial assets including
The guidelines that were effective
The court ruling in the case indicated
bonds, derivatives, etc. In addition, the
from 1 January 2013, cover a Labuan
a warning from the Japanese courts
KRW 1 billion value measurement date
international commodity trading
against abusive interpretation of the tax
has changed from ‘on any day during
business involved in the trading of
law by the tax authorities. In particular
the year' to the ‘end of each month' for
physical and related derivative
the ruling noted the words of the
the convenience of taxpayers in
instruments of petroleum and
Japanese constitution, that ‘…taxes
determining the reportable financial
petroleum-related products including
should be assessed according to the
accounts value.
liquefied natural gas (LNG), agriculture
Additionally, new penalty provisions
products, refined raw materials,
have been introduced to enhance
chemicals and base minerals. An LITC
effective enforcement of the law, these
can only deal with non-residents in anycurrency other than Malaysian ringgit.
Global tax newsletter No. 8: June 2013
Under the GIFT program, a general
New Zealand
Under international accounting
LITC is subject to a corporate tax rate of
Although miles from
standards (which required that the
A proposed plan has been announced to
3%, but an LITC set up purely as an
Europe, New Zealand is
OCNs be split into their debt and
introduce six pilot economic free zones in
LNG trading company is entitled to a
just as plugged into
equity components, and interest
northern, central and southern Taiwan. The
100% income tax exemption on
attacking tax avoidance schemes as other
recognised on the debt element), and a
zones will offer foreign investors tax incentives including:
chargeable profit for the first three years
jurisdictions many times its size.
determination issued by the Inland
• a reduced corporate income tax rate of 10% (previously
of its operation, provided the company
The appeal court has recently issued
Revenue, ANZ treated the difference
17%) for multinational companies that set up their
is licensed before 31 December 2014.
a judgment concerning a finance
between the present value of the debt
regional headquarters in the designated locations
Other tax incentives applicable for
structure which was held to be a tax
component of the OCNs (NZD 38
• a 50% income tax exemption for foreign and Chinese
avoidance scheme. The case involved
million) and the cash redemption value
workers in the first three years of their employment
• a 100% exemption on fees paid to
taxpayer (ANZ) funding its NZD 78
(NZD 78 million), i.e. NZD 40 million,
non-Malaysian directors of the LITC
million acquisition of two New Zealand
as deductible interest expenditure. It
• incentives for profits repatriated from overseas to
• a 50% exemption on gross
companies by issuing non-interest
then amortised over the term of the
enterprises established in the zones
employment income of non-
bearing, ten-year optional convertible
OCNs. Australia treated OCNs as
• incentives for the acquisition of patented technologies
Malaysian professional and
notes (OCNs) to its Australian parent
equity and did not assess the amortised
• incentives for research and development activities
managerial staff, including traders
company (AA). At maturity the OCNs
• duty-free import and export of goods and raw materials
could be redeemed in cash or converted
ANZ's resultant tax loss was offset
from and to the zones.
• an exemption on dividends received
into ANZ shares at the rate of one share
against the taxable incomes of its New
by or from the LITC
Zealand group companies.
Subsidies for rents and a relaxed work permit policy for
• an exemption on royalties received
The High Court found that the
qualified foreign workers will also be available.
arrangement was a tax avoidance
• an exemption on interest received by
arrangement and therefore void. ANZ
residents or non-residents from the
appealed the High Court's decision. The
appeal court upheld the High Court
• a stamp duty exemption on all
decision in favour of the commissioner.
instruments for Labuan businessactivities and the transfer of shares.
Global tax newsletter No. 8: June 2013
In 2013, the annual income tax
In order to enjoy an alternative
Many countries are
exemption for SMEs will be increased
From 1 January 2012,
incentive, an enterprise must notify the
raising corporate tax rates
from THB150,000 to THB300,000, and
companies were no
local tax authority of the alternative CIT
but are being criticised
there will be a 15% tax rate on their
longer entitled to enjoy
incentives by the submission deadline
by those who say raising tax rates lowers
profits between THB300,000 and
incentives based on the export criteria, as
for the 2012 final CIT return. Where an
government tax collections and lowering
THB1m. The normal 20% tax rate
a result of Vietnam's world trade
enterprise has already declared/notified
tax rates has the opposite effect. Who is
would apply to incomes above THB1m.
organisation commitments. This is
an alternative CIT incentive which is not
right? Let's look at Thailand.
Thailand's tax collections for the first
somewhat similar to the US Foreign
in line with circular 199, it is allowed to
Thailand's cabinet approved a
five months of the 2013 fiscal year
Sales Corporation complaint several
make an adjustment and submit a
package of tax measures to provide
beginning last October reached 28.06
revised notification to the local tax
assistance to small and medium-sized
billion US dollars, which is 13% or 3.21
The Ministry of Finance issued a
enterprises (SMEs) and lessen the effect
billion dollars more than targeted,
circular describing the alternative
of the government's minimum wage
according to the Fiscal Policy Office.
corporate income tax (CIT) incentives
The Fiscal Policy Office reported
available to these affected companies.
While the government has already
that the collected taxes from all agencies
The circular indicates the length of time
lowered corporate tax from 30% to
between October and February were
that the replacement incentive is to run,
23% last year, and has adjusted the rate
higher than targeted, reflecting an
as well as, which regulations to apply.
even lower to 20% in 2013, there have
economic expansion, especially
The circular also provides guidance
been calls for further help to small-
regarding domestic demand and
on the conversion of CIT incentives in
medium sized entities (SMEs), with
household income.
some special cases and also provides a
annual revenues of up to THB50m
number of specific examples.
(USD1.65m), to counteract the increasedwage costs caused by the introduction ofthe country's THB300 daily minimumwage on 1 January 2013.
Global tax newsletter No. 8: June 2013
The National Tax Administration
Cisco Systems Argentina
challenged some of the expenses
SA (CA) entered into a
incurred by CA outside of Argentina
authorities issued a
contract with Cisco
(and also locally), arguing that they were
Systems Inc (CI) under which CA
unrelated to the activity developed in
regulates the carrying forward of
Government has approved new tax
agreed to promote the sale of Cisco
Argentina and therefore were not
accumulated losses for financial years
breaks to encourage investment in the
products to distributors and customers
deductible from the tax balance. The
2010 and 2011. The resolution has an
nation's internet infrastructure.
located in Argentina and neighbouring
Argentine National Tax Court held that
immediate effect and establishes the
Companies wishing to secure the tax
countries. This promotion included the
expenses a company incurred outside of
period to set off tax losses as follows:
breaks must submit investment plans by
use of advertising, technical support and
Argentina were tax deductible because
• a three year period for:
30 June 2013, outlining proposed
promotional materials.
they were necessary to comply with
– accumulated tax losses generated
improvements to their 3G and 4G
The service fee paid by CI to CA
contractual obligations and were
networks to improve mobile access to
comprised of: (i) an amount equal to the
therefore directly related to the taxable
– tax losses generated as from 2011
the internet. Tax breaks provide for an
sum of the costs incurred by CA, to
stream of income.
• a five year period for:
exemption to PIS/COFINS taxes (social
comply with the contractual marketing
– the hydrocarbon and mining
security levies) and to industrial profits
obligations, including employee salaries,
tax, known as IPI. The concessions will
professional fees, rents, depreciation,
– new businesses registered after 9
not only benefit telecoms providers but
and other expenses; plus (ii) 5% of those
September 2011 with an
also those firms providing the
costs (cost plus).
investment capital that exceeds
equipment and necessary hardware and
software infrastructure to facilitate theimprovements. In order to be eligible forthe tax breaks, companies mustcomplete their proposed projects by theend of 2016, and domestically source atleast 50% of the technologies andcomponents they intend to use.
Global tax newsletter No. 8: June 2013
Imports (PIS) and (COFINS)
According to the court, a grossed up
Any person paying a fee,
Brazil's Supreme Court (STF) has ruled
calculation of PIS-imports and
The Canada Revenue
commission, or other amount to a non-
on a case of interest to Brazilian
COFINS-imports and the inclusion of
resident for services rendered in Canada
importers. The case concerns the tax base
ICMS into the tax base amounted to an
is required to withhold and remit to the
determination of two social welfare taxes
unconstitutional extension of the
withholding obligation arising on
CRA 15% of the payment.
levied on imports (PIS-imports and
definition of customs value and should
remuneration paid by a Canadian
In either case, the CRA may provide
COFINS-imports) as unconstitutional.
employer to a non-resident employee (a
a waiver from withholding tax if it can
The decision is important because it will
The decision is important to foreign
nonbinding technical interpretation). In
be shown that the non-resident is not
reduce the overall tax cost of importing
exporters, local importers and Brazilian
the ruling, the Canadian employer
subject to Canadian tax on the payment
products into the country.
consumers as the overall tax burden on
operated a business that had computer
(for example, under a tax treaty).
In its lawsuit, the Brazilian importer
imports will be reduced by as much as
servers physically located in Canada.
The CRA ruled that a person
argued that the PIS-imports and
5%, depending on the ICMS tax rate in
The non-resident employee was a
performs the duties of his employment
COFINS-imports tax basis was
the state of destination of the goods.
programmer/analyst who performed his
in the place where he is physically
unconstitutionally enlarged and that the
duties from his home country by way of
present. As such, if the employee is
two taxes should be levied only on the
an electronic connection to the
physically located outside Canada when
‘customs value' of the imports, which is
employer's Canadian computer servers.
performing his employment duties, no
legally established and composed of the
Canada's tax system imposes
Canadian tax should be withheld from
cost, insurance, freight (CIF) value, the
withholding obligations on payments
the remuneration paid to that employee.
freight tax (AFRMM), the financial
for services rendered or performed in
transaction tax (IOF) and other customs
Canada. Employers are required to
charges. There was no constitutional
withhold and remit tax to the CRA for
basis to include either a grossed-up
remuneration paid to their employees,
calculation or the ICMS (state sales tax)
subject to exclusion for employees who
in the tax basis for PIS-imports and
are neither resident nor employed in
COFINS-imports, the Brazilian
Canada and whose remuneration does
importer had argued.
not reasonably relate to employmentduties performed in Canada.
Global tax newsletter No. 8: June 2013
Foreign Account Tax Compliance Act
Various banks requested that the
The OECD recently
(FATCA) with the US due to its desire
The Supreme Court held
resolution be declared void based on
released a ‘phase 2' peer
to rid itself of any association with
that financial institutions
general bank law provisions, under
review report in respect
facilitating the evasion of taxes. The
must inform the tax
which banks and financial institutions
of the Caymans' regime, which stated
information disclosed under FATCA
administration (SII) on international
are subject to bank secrecy and bank
that the islands have demonstrated that
will be cross-referenced against
transactions carried out on behalf of
confidentiality. Bank secrecy is
standards for transparency and tax
individuals' tax filings, and as such, if
third parties according to a resolution
applicable with regard to any type of
information have been properly
anyone thought a Cayman bank account
which was upheld as lawful.
bank deposits. This information may be
implemented, and that the territory
could be used to hide US taxes, it will
The resolution issued by the SII
provided only to the holder of the bank
exchanges tax information effectively in
most certainly now be very transparent.
provides that banks, financial
account or its representative. Other
practice. Among the many positive
The Cayman Islands Monetary
institutions and other resident entities
bank transactions are subject to bank
comments in the report, the OECD
Authority has reported that it received
must annually inform the SII on any
confidentiality. This information may be
states the tax information authority's
67 applications for new captive
international transaction carried out on
provided only to those who have a
exchange process is ‘very well organised
insurance licenses in 2012, with 52
behalf of third parties. These
legitimate interest so long as it does not
with many internal processes in place for
licenses granted and the remainder
transactions include remittances, foreign
imply an economic damage for the
handling exchange of information (EOI)
scheduled for approval in 2013. This
payments and capital inflows for an
client. In the case of offshore companies,
requests as well as the unit being well
represents growth in applications of
amount equal to or exceeding USD
the income tax law specifically provides
resourced in personnel, IT and technical
58% year-on-year, the strongest year in
10,000. For this purpose, an affidavit
that the bank secrecy or reserve is not
expertise. As a result, high quality
terms of interest in captives since 2004.
must be filed electronically by 15 March
responses are provided to partner
Although Cayman is widely recognised
The resolution was successfully
jurisdictions and in 87% of cases the
as a leading healthcare captive domicile,
challenged before the lower court and
time in which a final response was
the 52 new formations came from a
the appeals court. However, the
provided was less than 90 days'.
broad range of sectors including life
Supreme Court reversed the decision
The Cayman Islands agreed to enter
reinsurance, property and casualty
and decided that resolution was lawful.
into a ‘Model 1 Intergovernmental
reinsurance, manufacturing and
Agreement (IGA)' under the US
technology, as well as healthcare.
Global tax newsletter No. 8: June 2013
The main provisions that will affect
Costa Rica
Colombia's congress
companies and individuals carrying out
Costa Rica notified the
Mexico, as Chile has done a few years ago, is
recently approved a
business in Colombia include:
OECD that it has ratified
looking to introduce a new tax on mining
comprehensive tax
the ‘Convention on
companies' profits in a bid to raise the
reform that will substantially change the
• permanent establishment
Mutual Administrative Assistance in Tax
country's tax-to-Gross Domestic Product (GDP) ratio, which
international tax rules for individuals
• income tax rate and tax base
Matters', the most comprehensive
remains the lowest among OECD member states.
and for companies carrying out business
• capital gains tax
multilateral agreement available for tax-
A lower house parliamentary committee endorsed the new
• general and specific anti-abuse rules
cooperation and exchange of information.
law, which would impose a 5% levy on pre-tax mining profits,
The tax reform aims to update
• exchange of information
The convention was developed
up from a 4% rate that had previously been under
Colombia's tax rules to align them with
• transfer pricing rules.
jointly by the OECD and the Council
the income tax treaties it has concluded
of Europe, and has been open to all
The royalty would apply to net earnings before interest,
thus far, which are mainly based on the
countries since 1 June 2011. It helps
taxes, depreciation, and amortisation (EBITDA). The
OECD model tax treaty. Specifically, the
counter cross-border tax evasion and
definition of EBITDA in the income tax law refers to the
tax reform amended the transfer pricing
ensures compliance with national tax
company as a whole, without regard to the nature of the
rules, extended the income tax to foreign
laws, while respecting the rights of
income and expenses. The calculation of income and expenses
capital investment portfolio income, and
taxpayers. G20 leaders strongly
would be based on taxable income and deductible expenses
introduced thin capitalisation rules and
encouraged all jurisdictions to sign the
under the income tax law.
provisions to tackle the use of tax
The proposed bill also includes increased penalty
havens, among other things.
The convention provides a
payments for duties or rights that are currently assessed on
multilateral basis for a wide range of
concession holders based on the size of the property. These
administrative assistance, including
penalties are imposed when a concession is not being
information exchange on request,
automatic exchange, simultaneous taxexaminations and assistance in thecollection of tax debts. The conventionwill enter into force for Costa Rica on 1August 2013.
Global tax newsletter No. 8: June 2013
For UK tax purposes, the UK
The tax incentive is granted if any one of
The tax court held that a
counterpart was treated as the owner of
Uruguay has continued
the conditions below is met:
US bank's Structured
the trust and, thus, was able to claim
in issuing industry
• the activity implements a
deductions and credits against its UK
specific tax incentives by
‘programme of development for
Repackaged Securities (STARS)
taxes. However, for US purposes, the
providing tax incentives for the
providers (of biotechnology
transaction with a counterpart in the
transactions were treated as a secured
biotechnology industry.
products and services'
UK lacked economic substance and,
lending arrangement, so that the US
The corporate income tax exemption
• the activity is carried out by a micro,
therefore, did not give rise to foreign tax
bank was the owner of the trust and
applies to income derived from the
small or medium company
credits, deductible expenses or foreign-
could claim foreign tax credits for the
qualified activity as follows:
• the taxpayer is a new company
source income. Through a complicated
UK taxes paid on the trusts income.
• a 90% exemption for tax years that
created ad hoc to produce qualified
system of subsidiaries and special-
While the STARS transaction was
began or will begin between 1
biotechnology products and/or
purpose entities, the US bank
structured to meet the foreign tax credit
January 2012 and 31 December 2017
contributed assets to a trust, the trust
requirements, it was actually an
• a 75% exemption for tax years that
sold its shares to the UK counterpart,
elaborate series of pre-arranged steps
will begin between 1 January 2018
The tax incentive does not apply
and the UK counterpart loaned the US
designed for generating, monetising and
and 31 December 2018
automatically. Taxpayers must file with
bank money through the trust.
transferring the value of the foreign tax
• a 50% exemption for tax years that
the Ministry of Industry, Energy and
credits between the US bank and the
will begin between 1 January 2020
Mining, an affidavit describing the
UK counterpart.
and 31 December 2021.
activity. The requested ministry and aspecial commission have the finaldecision on whether to grant the taxincentive.
Global tax newsletter No. 8: June 2013
Transfer pricing news
Subsequently, the taxpayer filed
According to official
The Czech Supreme
another additional tax return for the
guidance published by an
requiring all transfer
Administrative Court
2007 tax year in which it declared a
advisory committee from
pricing reports to be filed
rendered a decision
substantially lower tax liability. The
HMRC on 15 April 2013, a general anti-
electronically. The Argentine tax
concerning the burden of proof in
taxpayer claimed that there was no
abuse rule, soon to become law in the
authority issued a general resolution
transfer pricing disputes and the
reason for the adjustment of the transfer
UK, will not apply to many of the
which established the new requirements
application of transfer pricing methods.
prices, as claimed in the 2008 additional
recent transfer pricing related
for taxpayers. The resolution states that
The taxpayer was a company
tax return. The tax authorities disputed
controversies. However, abusive
taxpayers must file a transfer pricing
resident in the Czech Republic and they
the reduction of the tax base and the tax
arrangements which try to exploit
report in a digital format through the tax
filed an additional tax return in respect
liability in respect of the 2007 tax year,
particular provisions in a double tax
authority's website,
of its 2007 tax liability. In that return, the
and argued that the taxpayer failed to
treaty may still fall under the rule, which
taxpayer declared that its tax liability for
demonstrate that the transactions with
is included in the 2013 finance bill.
pricing report must be translated by a
2007 should have been higher than
its parent company, resulting in a lower
The General Anti-Abuse Rule
public translator if prepared in a
originally declared, because the transfer
tax liability, were at arm's length. The
(GAAR) received support from the
different language, and must include the
prices in transactions with its parent
lower court upheld the tax authorities'
Prime Minister following public
digital signature of the taxpayer, the
company, were not at arm's length. The
position. The taxpayer then brought the
controversy over alleged tax avoidance
independent certified public accountant,
plaintiff paid the additionally assessed
case before the Supreme Administrative
amid dwindling revenues and slashed
and the accountant's professional board.
corporate income tax in respect of the
social services — including claims that
The new requirement applies to fiscal
large multinational companies were
years ending 31 December 2012, or later.
using transfer pricing as a way to avoid
For years ending 31 December 2012, the
paying corporate income tax in the UK,
deadline for filing a new report is
despite doing substantial business in the
August 2013.
Global tax newsletter No. 8: June 2013
The dispute concerned the following
Accordingly, the taxpayer was expected
• transactions involving a person that
types of controlled transactions:
to provide evidence of both the price in
The Russian Federal tax
is registered or resides for tax
• purchase of raw materials from the
a controlled transaction and the arm's
service released guidance
purposes in countries or territories
parent company – the cost-plus
length price. The court held that the
included in the Russian Finance
taxpayer did not meet its burden of
transactions are controlled transactions
Ministry's list of countries and
• sale of finished goods to the parent
proof in the present dispute.
for Russian transfer pricing purposes
territories that have a preferential tax
company – the profit-split method
The court further held that the
when they are executed by an agent in
regime or do not require the
transfer pricing methods were not
its own name but at the request of and
disclosure of information about
applied correctly. In particular, the court
for the account of a principal.
The court ruled in favour of the tax
found that the costs taken into
The guidance indicates a transaction
authorities. The taxpayer must
consideration for the application of the
is considered to be controlled where:
The guidance indicates that if (under an
substantiate all information stated in his
cost-plus method included the plaintiff's
• transactions involving a sale or
agency contract) an agent at the request
tax return; thus, the burden of proof is
‘share in the losses of the parent
services executed with the
of the principal and in exchange for a
generally on the taxpayer. In an earlier
participation of (or through the
fee, undertakes legal and other acts in
case, the Supreme Administrative Court
In addition, the court found that the
agency of) third persons that are not
the agent's name but for the account of
found that this principle does not apply
application of the profit-split method
considered related for tax purposes
the principal, or in the principal's name
in transfer pricing disputes. In such
resulted in the transfer of 80% of the
• foreign trade transactions involving
and account, a controlled transaction
disputes the burden of proof shifts to
parent company's losses to the plaintiff.
the following commodities traded on
the tax authorities.
The court found that these arrangements
global stock exchanges: oil and oil
In the present case, however, the
were not at arm's length, and effectively
products, fertilisers, ferrous and
burden of proof was on the taxpayer,
resulted in the transfer.
nonferrous metals, precious metals,
rather than the tax authorities, as it was
and precious stones, if the aggregate
the taxpayer who claimed that the
annual amount of income resulting
transfer prices used as a basis for its 2007
from all the transactions between the
tax liability, declared in the 2008
parties exceeds RUB 60 million
additional tax return, should be revised.
(about $1.95 million)
Global tax newsletter No. 8: June 2013
If an agent executes a transaction
To recognise as ‘controlled' a
A Oyj and it did not have any other customers. Still, it was the
with a third party in the agent's name
transaction executed by the agent and a
The case dealt with
largest manufacturer in Europe in its line of production. A
but for the account of the principal, the
third party in the agent's name but for
whether the transfer
Oyj had the ownership of the products manufactured by B AS
agent acquires the respective rights and
the account of the principal, it is
pricing between Finnish
throughout the entire manufacturing process.
obligations and a controlled transaction
necessary to total the income that the
A Oyj and its Estonian subsidiary B AS
A Oyj also had an Irish subsidiary to which it sold at least
exists. If the agent executes a transaction
agent must transfer to the principal in
had been in accordance with the arm's-
a portion of the products made by B AS that required
with a third party on behalf of and for
connection with that transaction under
length principle. A Oyj had included in
finishing. The Irish subsidiary finalised and packed the
the account of the principal, the
an agency contract. The tax service
the remuneration paid to B AS a portion
products and resold them to distributors in its own name.
principal acquires the respective rights
stated that this transaction is subject to
of the calculated location savings caused
The transfer pricing of the manufacturing services
and obligations that arise, a controlled
transfer pricing provisions because a
by the lower price level of Estonia
purchased by A Oyj from B AS had been determined using
transaction exists.
third party incurs expenses as a result of
compared with Finland.
the transactional net margin method. The pricing method by
The tax service said, to recognise a
the transaction's execution.
A Oyj the parent company of the
which the remuneration was paid by A Oyj to B AS was based
transaction executed by the agent and
The tax service also stated that
group operated the group's research and
on a transfer pricing analysis carried out by A Oyj. The
the principal as controlled, it is necessary
taxpayers must notify tax authorities of
development activities and had
remuneration included a ‘location-neutral' cost-plus margin
to total the income the agent received
their controlled transactions executed in
ownership of the technology and
but also a location savings compensation.
from the principal as an agency fee
a calendar year. Therefore, a third party
models used in the group's business
The court held that the location savings principle did not
under an agency contract and the
that entered into a transaction with an
activities. B AS owned the equipment
apply in this particular case because the Finnish company,
income the principal gained from the
agent must notify the tax authorities of
used in its own manufacturing activities
which had transferred its manufacturing operations to Estonia,
transaction executed by the agent with a
that transaction if it is recognised as
and had bought the equipment from A
never had manufacturing activities in Finland that were
Oyj in 2004, before which it had rented
comparable to the operations of its Estonian subsidiary.
the equipment from A Oyj. B ASoperated as a contract manufacturer for
Global tax newsletter No. 8: June 2013
Consequently, Glaxo Canada
Glaxo Canada's income was
• the Supreme Court upheld the order of the court of appeal
The Supreme Court of
purchased ranitidine at prices fixed by
increased by CAD 51 million.
remanding the matter to the tax court for determination of
Canada issued its first
Adechsa (CAD 1,512-1,651 per kg) that
The case has had a long judicial
the arm's length price.
transfer pricing ruling to
were far in excess of the prices paid
(CAD 194-304 per kg) to other
• against the assessment, Glaxo
The Supreme Court held that the purchase price paid by
Glaxo Canada procured ranitidine,
suppliers of ranitidine by other local
Canada appealed to the tax court of
Glaxo Canada for ranitidine under the supply agreement with
an active pharmaceutical ingredient, from
drug manufactures that sold the anti-
Adechsa included a payment for the rights and benefits
Adechsa S.A. Switzerland, as associated
ulcer drug under its generic name.
• the tax court, substantially upheld
received by Glaxo Canada under the licensing agreement with
entity, under a supply agreement. The
However, Glaxo Canada's Zantac sold at
the reassessment made by the
Glaxo Group Ltd. Therefore, the licensing agreement could
ranitidine was used by Glaxo Canada to
a higher price as compared to the other
Minister in the prices paid by Glaxo
not be excluded, as had been done by the tax court, in
manufacture an anti-ulcer drug, which
anti-ulcer drugs that were sold under
Canada to Adechsa
determining the arm's length price under the supply
was sold in the Canadian market under
their generic name of ranitidine.
• Glaxo Canada appealed against this
the Zantac brand name. This brand name
The Minister of National Revenue
order to the court of appeal
The Supreme Court upheld the finding of the court of
was owned by Glaxo Group Ltd. UK;
reassessed Glaxo Canada for the tax
• the court of appeal set aside the
appeal that in determining what should be the arm's length
another associated entity, and was made
years 1990 to 1993, holding that the
order of the tax court and remanded
price for ranitidine purchased at higher than market prices by
available for use by Glaxo Canada under
excess consideration paid by it to
the matter to the tax court to rehear
Glaxo Canada, due regard should also be had to the benefit
a licensing agreement.
Adechsa for purchase of ranitidine was
the matter based on the observations
obtained by Glaxo Canada under the licensing agreement
Under the licensing agreement, Glaxo
not an arm's length payment that was to
of the court of appeal
which imposed a condition to make such purchases, and
Canada was required to pay Glaxo
be considered under section 69(2)
• an appeal was made to the Supreme
consequently remanded the matter to the tax court to make
Group a royalty of 6% on sales in
(subsequently replaced in 1998 with
Court by the Minister against the
that determination.
Canada, and also to procure ranitidine
section 247(2)), and that the excess
order of the court of appeal. A cross-
only from entities nominated by Glaxo
payment was deemed to be a dividend
appeal was also filed by Glaxo
Group. In consideration, Glaxo Canada
paid to Adechsa under section 56(2) and
Canada against the order of the court
obtained the right to use the Zantac
liable to withholding tax under the
of appeal remanding the case to the
brand name and a clutch of other benefits
and support services from Glaxo Group.
Global tax newsletter No. 8: June 2013
In the decision of the Administrative
criteria for a comparable that the
A Brazilian multinational
Council of Tax Appeals (CARF), the
The French court of
administration had not provided. The
company underwent a
majority of counsellors held in favour of
appeal rejected the use of
tax administration provided no precision
the taxpayer, saying that there is no legal
secret comparable in the
about the identity of the comparables or
restructuring in which it contributed
basis to disregard treaty provisions,
case of a large based Swiss multinational.
about how their cash pool management
shares in a number of its offshore
which must take precedence over
Nestle Enterprises, a French
function works, or about whether these
investments to a Spanish holding
national law. The CARF held that the
subsidiary of the Swiss-based Nestle
comparables or these cash pool
company, which was subject to a special
Spanish holding company had economic
group, was appealing a 2011 ruling by
management functions of the
regime, under which revenue derived
substance, evidenced by the fact that it
the lower Administrative Court
comparables include guarantees similar
from controlled foreign corporations
carried out its activities as a holding
regarding the transfer of an internal cash
to the guarantees of Nestle Finance
was not taxed in Spain. The Brazil-Spain
company and was not constituted solely
pooling service to a Swiss affiliate. The
tax treaty ensured that profits from the
for the purposes of tax avoidance. Also,
lower court, siding with the French tax
In France, the government is not
Spanish entity were not taxed in Brazil.
Brazilian CFC rules should only reach
administration, found the relocation of
supposed to use a secret comparable
The Federal Revenue Department
the profits of the directly controlled
the cash pool management function was
because they hamper a taxpayer's ability
(FRD) contended that the new
entities (since the profits accrued by the
a transaction that required arm's-length
to defend itself by disproving the
corporate structure served only as a
indirectly controlled ones should be
validity of the comparables offered by
means to channel profits to Brazil while
consolidated by the treaty). Thus the
In overruling that judgment, the
the tax authority. The court stated that
avoiding tax and therefore lacked
CARF considered the usual investment
Paris appeals court said the tax
one of the reasons why the comparable
economic substance. The FRD
position of a holding company as
administration failed to prove its basis
should not be acceptable is that the tax
attempted to tax the profits accrued by
sufficient evidence of economic
for calculating a compensation amount
authorities have not disclosed to the
the indirectly controlled entities (held by
for Nestle France's transfer of the cash
taxpayer the identity of such
the Spanish holding company). In
pool management activity to the Swiss
essence, the FRD argued that the foreign
Nestle entity. The ruling lists required
subsidiaries profits were taxed as earnedirrespective of any repatriation.
Global tax newsletter No. 8: June 2013
Indirect taxes news
The following products and services
The Dutch tax administration
Although this location is
would be exempt from VAT:
The ECJ found that VAT
determined that the VAT paid on the
popular as a low tax
• healthcare and education services
paid by a group of Dutch
pension services was not deductible by
jurisdiction and often
• transfers and leases of land and
companies for the
the group and issued a reassessment,
referred to as a tax haven, it appears that
residential buildings
management of assets in a pension
against which the taxpayer appealed.
the popular VAT has crept in the back
• financial services
pooling scheme is not deductible for the
The company argued that the VAT was
• social and community services
deductible because it was an expenditure
On 14 February, the Bahamian
• agriculture and fisheries.
The case involves a group of related
made for the benefit of its employees
government issued a white paper on the
companies that created a separate entity
and that it was part of the overhead for
proposed VAT that was announced in
VAT would apply to every supply of
to pool employee pension resources.
the company's taxable activity.
the 2012-2013 budgets. The VAT, which
goods and services made in the Bahamas
The companies were all part of a tax
For VAT to be deductible, the input
would be charged at 15%, 10, or a zero
in the course of a taxable activity carried
group, but for Dutch legal reasons, the
transactions must have a direct and
rate, would be effective from 1 July
on by a VAT registrant. The concept of a
pension fund was a separate legal and
immediate link with the output
2014. The standard VAT rate would be
taxable supply includes a zero rated
transactions, giving rise to a right of
15%, while export sales and
supply for exempt products and
The taxpayer, a member of the
deduction. The right to deduct VAT
international transport of goods and
group, contracted with third parties for
charged on the acquisition of input
passengers would be zero rated. A
pension management, administration,
goods or services presupposes that the
discounted rate of 10% would apply for
auditing, and consulting services and
expenditure incurred in acquiring them
hotel services, including food and drink
paid directly for those services. In 2001
was a component of the cost of the
supplied on their premises. That rate is
and 2002, the company paid an
output transactions that gave rise to the
the same as that of the current hotel
approximate amount of VAT on
right to deduct.
occupancy tax, which the VAT would
pension-related services and sought to
replace. Of course this is a concession to
deduct those invoiced payments against
tourist trade.
Global tax newsletter No. 8: June 2013
The Dutch tax authorities argued
Thus, the ECJ rule that while group
The court agreed that the directive's
that the costs related to the pension fund
has no right to deduct the VAT paid on
The ECJ held that
wording does not limit potential
did not have a direct and immediate link
the management of fund assets, it may
allowing non-taxable
members in a VAT group to taxable
to the outputs of the company while the
deduct VAT paid on fees related to the
persons to join a VAT
persons, writing that the insertion of
taxpayer, joined by the European
setting up of the fund, the enrolment of
group does not violate the VAT directive. ‘any' and the omission of ‘taxable'
Commission, argued that the legal
employees, and the assurance of timely
The case involved a complaint by the
clearly expanded the potential VAT
requirement for providing employees
payments into the fund.
European Commission that Ireland's
group membership to non-taxable
with a pension meant that the costs were
VAT consolidation act allows a non-
entities. The court said that based on the
a necessary component of its business.
taxable person to join a VAT group. The
wording there is no reason to exclude
The UK intervened in the case to
commission argued that this violated the
non-taxable entities from a VAT group.
argue that a limited portion of the costs,
VAT directive and could lead to the
such as those associated with setting up
creation of an entirely non-taxable VAT
the fund, should be deductible, but that
group, a situation contrary to the goals
the costs of the management of the fund
of the VAT system.
assets should not be.
Of key importance in the case is the
The ECJ sided with the argument
wording of VAT directive, which says
raised by the UK and reiterated legal
that member states may allow ‘any
and fiscal separation between the fund
persons' to join a VAT group. The
and the company that created it and held
commission argued that although the
that while the fund could deduct the
word ‘taxable' does not appear between
input VAT paid by group against the
‘any' and ‘persons', it is implicit that
VAT due on its own activities, there is
taxable persons, as defined in the VAT
no direct and immediate link with the
directive, is intended and furthermore,
activities of the group.
that the use of the word ‘grouping'implies that all VAT group membersshould occupy the same VAT category.
Global tax newsletter No. 8: June 2013
The tax authority (CRA) assessed
In response to questions referred to
A recent decision dealt
the taxpayer on the basis that the fees
it by the Supreme Administrative Court,
with automated banking
were simply fees for a license to use real
purchased two aircraft
the ECJ declared that the directive must
machines (ABMs) in the
property, by allowing CIBC to place its
from a manufacturer in
be interpreted as meaning that the zero
taxpayer's convenience stores across
machines in taxpayer stores for a fee.
France and, instead of using them for the
rate for which it provides, also applies to
Canada. The taxpayer lost one issue and
After reviewing the case law on
purpose of carrying out international air
the supply of an aircraft to an operator
won the other at the tax court of
‘arranging for', the judge concluded that
transport for consideration, company A
which is not itself an ‘airline operating
the taxpayer was simply not sufficiently
designated company B as the user of the
for reward chiefly on international
The taxpayer had an agreement with
involved with CIBC' s financial services
aircraft. Company B organised
routes' but which acquires that aircraft
CIBC to place CIBC banking machines
provided through the ABMs. All the
international charter flights. After a
for the purposes of exclusive use thereof
in many of its stores. The taxpayer
taxpayer did was provide space for the
short period of time, A resold the
by such an undertaking. In the light of
received fees from CIBC based on the
machines and this was a taxable supply
aircraft to an undertaking registered in
ECJ judgment, the Finnish Supreme
fees that CIBC charged to non-CIBC
of a license to use real property.
Administrative Court declared that, by
customers who used the machines. The
The administrative court, Helsinki
purchasing the aircraft, company A had
taxpayer did not charge Goods and
decided that, since it did not carry out
not effected an intra-community
Services Tax (GST) on these fees, taking
international air transport itself,
acquisition of goods for which it was
the position that they fell within the
company A had to account for VAT on
liable to pay VAT.
definition of a ‘financial service' because
the intra-community acquisition of the
taxpayer was ‘arranging for' financial
two aircraft.
services that CIBC provided.
Global tax newsletter No. 8: June 2013
treatment of that service would then be
VAT on the amount they received from
Services supplied by an
determined by what is deemed to be the
A hotel business (the
the taxpayer and the taxpayer's services
entity established in
principal element of the service.
taxpayer) had bought
were not subject to any VAT at all. That
The Supreme Court observed that it
accommodation in hotels
result is not consistent with the
resident business customer are zero
could find no arguments for application
established in other member states of the
taxpayer's status as an intermediary.
rated if the services by their nature are
of the zero rate because a larger or
EU and sold the accommodation,
In first instance, the first-tier tribunal
capable of being delivered from a remote
smaller part of the service of
unaltered, to travellers resident in the
concluded that, in this respect, the
location. As the services of lawyers that
representing a client in judicial
UK. The taxpayer argued that it acted as
taxpayer acted as a principal
consist of representing a non-resident
proceedings will often consist of work
an agent for the hotels and,
(commissionaire) and, since it was
client in judicial proceedings before a
that can be done at a distance, but that
consequently, its intermediary services
established in the UK, had to account
Norwegian court are to a certain extent
work forms an integral part of the main
were deemed to be supplied at the places
for UK VAT under the special scheme
linked to a specific place in Norway, in
service. The Supreme Court concluded
where the hotels were located, meaning
for travel agents, i.e. the taxpayer had to
so far as the lawyer represents his client
that services that consist of representing
that no UK VAT was due on its services. account for UK VAT on its margin (the
at the hearing, the question was whether
a client in judicial proceeding including
The contracts under which the
difference between the selling price and
or not the remaining part of the service,
the written preparatory work, must be
taxpayer operated suggested that it acted
purchase price of the rooms). However,
in particular the preparatory work for
considered to constitute a single service
as an agent. However, its behaviour did
the upper tribunal had reversed the first-
the hearing, could be considered to be
and that the principal component of that
not support this position. The taxpayer
tier tribunal's decision on the basis of the
delivered from a distance, i.e. in the case
service is representing the client at the
set the price for which it sold the
contracts under which the taxpayer
of a non-resident business client, could
hearing. Consequently, the entire service
accommodation to the travellers and the
be zero rated. Alternatively, the various
is subject to 25% VAT.
overseas hotels, not know the selling
activities of the lawyer in the framework
price, as the taxpayer only paid the
of representing his client in judicial
hotels an amount that was net of its
proceedings could be considered to
‘variable commission'. Consequently,
constitute a single service and the
the hotels could only account for local
Global tax newsletter No. 8: June 2013
The appeal court decided that the
In addition, the coupon books did
upper tribunal had been wrong to base
A publishing company
not qualify for exemption as goods that
its decision on the contracts alone. It
distributed a free weekly
are consumed or destroyed, or lose their
agreed with the first-tier tribunal that it
local newspaper and once
identity in the manufacture of other
may be necessary to look beyond the
a month, inserted coupon books into the
goods (the newspapers).
written contracts and have regard to all
newspapers. The company also
On those grounds, the Vermont
the facts to establish the actual nature of
distributed the coupon books by placing
Supreme Court decided that the coupon
the supply. On those grounds, the
them on news racks. The coupon books
books were not exempt from Vermont
appeal court restored the decision of the
contained only advertisements and did
sales and use tax under the exemption
first-tier tribunal and concluded that the
not contain any news content. The
for newspapers, which had the effect
taxpayer hotels had to account for UK
publishing company's salespersons
that the publishing company had to pay
VAT on its margin.
solicited advertisements for the coupon
sales tax on the cost price of the free
books as well as for the newspaper.
coupon books.
The coupon books differed from the
newspaper in size, format and method ofdistribution. The coupon books wereprepared and printed separately fromthe newspaper (they were not part of thenewspaper print run) and they were notseparately indexed sections of thenewspaper. Thus, since they werefundamentally different from thenewspaper, the coupon books did notqualify for exemption as a componentpart of the newspaper.
Global tax newsletter No. 8: June 2013
Under the treaty, a permanent
In 2010, the commissioner of
establishment is a fixed place of business
taxation issued RCF a default
through which a resident of a
assessment that included a net capital
contracting state, whether or not a legal
gain from the sale of shares of some
The Ministry of Finance in Russia issued
entity, carries on business activities in
A limited partnership formed in the
AUD 58 million and imposed an
a guidance letter clarifying that the
the other contracting state.
Cayman Islands (RCF), bought shares
administrative penalty of 75% of the tax
profits earned by a US resident legal
The Russian tax code specifies that a
in an Australian company that
liability. In other words, the
entity from the provision of web-based
permanent establishment of a foreign
conducted a gold mining enterprise in
commissioner considered that the profit
intellectual services to Russian clients are
legal entity is a branch, representative
Australia (SBM). In 2007, RCF sold
of RCF was taxable in Australia and in
taxable only in the US unless the
office, division, bureau, agency, any
some of its shares in SBM to unrelated
the absence of an income tax return,
activities result in the creation of a
other structural subdivision, or any
parties and realised a profit on the sale.
issued a default assessment requesting a
permanent establishment in Russia.
other place through which a foreign
RCF has one general partner, which
tax payment at 30% of the gain
The Ministry of Finance indicated
legal entity regularly carries on business
is also a partnership formed in the
calculated by the commissioner. RCF
that the business profits of a resident of
in Russia, including:
Cayman Islands, a number of limited
lodged an objection to the assessment on
a contracting state are taxable only in
• the performance of works and
partners, most of which are US
the basis that the commissioner is not
that contracting state unless the resident
provision of services involving the
residents. RCF's affairs were managed
allowed to tax RCF and the gain was
carries on or has carried on business in
installation, assembly, adjustment,
by a Delaware LLC and neither RCF, its
calculated incorrectly. The
the other contracting state through a
servicing, and operation of
manager or any of the partners were
commissioner reduced the penalty to
permanent establishment situated there.
resident in Australia. It could be
25%, but did not change the default
If the resident carries on or has carried
• the sale of goods from warehouses
assumed that neither RCF nor any of its
assessment. In 2011, the RCF's objection
on such business, its business profits
located in Russia
partners paid income tax in Australia in
to the assessment was deemed to have
may be taxed in the other contracting
• the use of subsoil or other natural
respect of the sale.
been automatically disallowed, as the
state, but only to the extent they are
relevant time period for the amendment
attributable to the assets or activity of
• the performance of other works, the
had expired, and RCF lodged an appeal
that permanent establishment.
provision of other services, and other
against the default assessment to the
activities, except those listed in tax
code article 306, section 4.
Global tax newsletter No. 8: June 2013
The court was asked to rule on two
Capital gains of non-residents are
The treaty allows Australia to tax
The court agreed with RCF and
subject to tax in Australia only if they
gains realised by a US resident from a
ruled that since RCF is not a US treaty
• was the Commissioner able to issue
relate to assets used in the business of a
disposal of shares in a company, assets of
resident, the treaty does not authorise
an assessment to RCF or whether
permanent establishment in Australia or
which consist wholly or principally of
Australia to tax the gain to RCF.
the Australia – United States Income
realised in respect of ‘taxable Australian
real property situated in Australia.
RCF submitted that the gain was
Tax Treaty (1982) (the treaty)
real property' (TARP) assets. Shares in
Thus, if RCF is a US treaty resident,
realised by the limited partners in RCF
precluded him from doing so
an Australian company are a TARP asset
Australia will be allowed to tax the gain.
on the basis of the wording of the treaty,
• was the commissioner able to issue
where the sum of the market values of
The commissioner argued that RCF
the US treasury's technical explanations
the assessment – whether the gain
the company's TARP assets exceeds the
is a US treaty resident on the basis that:
realised by RCF was subject to tax in
sum of the market values of the
– partnerships must be recognised by
Based on the valuations proved by
Australia under the domestic
company's non-TARP assets.
the US as a resident
RCF, the court found that the shares
Australia does not have a tax treaty
– the partnerships' income must be
disposed by RCF were not a TARP
with the Cayman Islands, but has a
taxed in the hands of US resident
asset and therefore the domestic
Under the domestic law, RCF, by virtue
comprehensive treaty with the US,
provisions should exempt the gain from
of being a limited partnership formed
which says that a partnership will be a
taxation in Australia.
and operating overseas, is treated as a
treaty US resident if the partnership is
RCF, on the other hand, argued that as
As such, the commissioner lost on
non-resident corporate entity. Under the
resident in the US for the purposes of its
RCF is a foreign partnership and a flow-
both questions. It is expected that the
domestic rules, RCF was the taxpayer
tax, provided that income is subject to
through entity under the US tax law, it is
commissioner will appeal to the full
that realised the gain. The gain realised
US tax as income of a resident, either in
not a US tax resident, and the first
Federal Court.
by RCF was a capital gain.
the hands of the partnership or in the
residence requirement in the treaty
hands of its partners.
cannot be met and therefore RCF is nota treaty US resident.
Global tax newsletter No. 8: June 2013
The interest is determined by
If the income was classified
calculating an annual fictitious income
according to this article, the state of
The Ministry of Finance
on the deferred capital gains. This
residence – Finland in this example –
published a ‘letter ruling'
fictitious income is calculated as 1.67%
would have an exclusive taxing right on
clarifying whether a Russian
Administrative Court (SAC) delivered a
of the deferred capital gains at the end of
that income. Presumably, no other
entity may deduct all the advertising costs incurred in 2012
judgment regarding the capital gains
the tax year in question. That income is
country except Sweden taxes deferred
further to advertising services, provided by one of its
taxation of privately owned houses and
taxed at the general capital income tax
capital gains with an additional fictitious
shareholders resident in Germany.
apartments. The judgment addressed the
rate, which is 30%.
income that is calculated as 1.67% of the
The Ministry of Finance concluded that advertising costs
tax treatment of fictitious income –
The litigation involved a couple who
deferred capital gain, and the
incurred by a Russian company could be tax deductible
namely, interest charged on deferred
had moved from Sweden to Finland.
consequence would be double non-
They had sold their home in Sweden
• the participation requirement provided for in article 3 of
According to Swedish tax law, the
and bought a new one in Finland. They
The SAC interpreted the concept of
the protocol is fulfilled at the moment when the respective
deferral of capital gains on privately
were granted tax deferral in Sweden on
fictitious income according to the
expenses are recognised as tax deductible
owned houses and apartments is
the capital gains but were taxable
Nordic tax treaty, concluding that it was
• the respective deductible expenses are set at arm's length
possible if the capital gain is used to buy
annually on the fictitious income
not income. The court stated that the
a new home. From a fiscal point of view,
calculated on the capital gains.
fictitious income was merely a ‘technical
this system permits considerable tax
The SAC had to decide how this
construction' created to allow the state
However, in case the Russian tax authorities find out that the
revenue to be deferred. Interest is
income should be classified under the
to earn interest on a deferred capital
sole purpose of participation in the Russian entity pursued by
imposed on the tax deferral.
multilateral Nordic tax treaty, which
the German shareholder is to obtain the treaty benefits, the
includes Finland and Sweden. The court
above-mentioned provisions should not apply.
concluded that the only potentiallyapplicable classification was ‘otherincome' (which is similar to article 21 ofthe OECD model tax convention).
Global tax newsletter No. 8: June 2013
South African tax treaties
From 1 April 2012, the STC was
The SARS ruled that:
The South African
repealed and replaced by a dividends tax.
• dividends tax is a tax on an ‘element
Revenue Service (SARS)
Unlike an STC, a dividends tax is levied
issued a binding general
at 15% of a dividend paid by a company
• dividends tax is similar to STC since
ruling dealing with the question as to
(exemptions apply). In the case of a
it is also a tax on income
B (Holdings) Limited is a company
whether the ‘dividends tax' introduced
dividend (other than a dividend in kind),
• therefore, that dividends tax is
incorporated in the British Virgin
on 1 April 2012 is covered under South
the liability for the dividends tax falls on
covered under article 2 of the tax
Islands. Its sole shareholder is HSBC
Africa's tax treaties that were signed
the beneficial owner of the dividend,
Trustee (Guernsey) Limited (HSBC
before that date.
even though the tax is withheld by the
trustee), a company incorporated under
Prior to 1 April 2012, South Africa
company paying the dividend. In the
Thus, the SARS has taken the view that
the laws of Guernsey. HSBC trustee
had a secondary tax on companies
case of a dividend in kind, the liability
dividends tax is an ‘identical and
holds the shares of B in trust for a
(STC). An STC was imposed at the
for dividends tax falls on the company
substantially similar tax' to STC and that
discretionary trust established under the
second stage on a resident company on
paying the dividend.
all treaty partner states were informed of
laws of Guernsey (G Trust). The
the amount by which a dividend
The question addressed, was
both the introduction of the dividends
beneficiaries of the G Trust include Mr
declared exceeded the sum of incoming
whether dividends tax is covered by
tax and its similarity with STC.
K, a UK citizen, but a long-time resident
dividends accrued during the ‘dividend
South Africa's tax treaties even though it
of South Africa. Although Mr K is only
cycle' – the dividend cycle being a
may not be specifically named as a
one of the beneficiaries under the trust,
period that begins and ends each time a
he controls the entire structure. Mr K
dividend is declared. An STC was
was charged with tax evasion and other
therefore a tax on a company declaring a
criminal offences in South Africa for the
dividend and not a tax on the recipient
years following those involved in this
Global tax newsletter No. 8: June 2013
B owed tax, interest and penalties to
‘. an amount owed in respect of
The defendants made several
the SARS, totalling approximately USD
taxes of every kind and description
arguments including, that the request for
350 million for the years 1998-2000. The
imposed on behalf of the contracting
assistance was invalid, as it was made in
amounts owing were the subject of
states, or of their political subdivisions
respect of years before the treaty became
appeals in South Africa that were finally
or local authorities, insofar as the
A recent treaty case involved a Swiss-
decided in 2010. The SARS alleged that
taxation thereunder is not contrary to
The tax treaty became effective with
resident company involved in
Mr K arranged for B to transfer its assets
the convention or any other instrument
regard to South African taxes (other
international shipping through an agent
to another BVI company. The SARS
to which the contracting states are
than withholding taxes) for tax years
in India for the years 1998-99 to 2003-
became aware that this other company
parties, as well as interest, administrative
beginning on or after 1 January 2003.
04. The Swiss company's profits were
had over USD 10 million in a London
penalties and costs of collection or
The request for assistance made by the
taxable under Indian income tax law, so
bank account and requested assistance
conservancy related to such amount'.
SARS related to unpaid taxes for the
the only issue was whether or not the
from HMRC in collecting this amount
The treaty provides that a
1998-2000 tax years, before the tax
provisions of the India-Switzerland
under the assistance-in-collection-of-tax
contracting state receiving a request for
treaty became effective.
Income Tax Treaty (the treaty)
provision of the South Africa-United
assistance must accept the request and
The UK High Court rejected the
prevented India from taxing the profits.
Kingdom income tax treaty (the treaty) .
collect the claim as if it were a revenue
defendants' argument. The court noted
Until 2001, the treaty excluded
The treaty was amended to provide
claim involving its own taxes. The
that the UK legislation implementing
international shipping profits from the
that the contracting states will provide
revenue claim must be enforceable in the
the protocol recited it was ‘for the
scope of articles 7 and 8. Before 2001,
assistance to each other ‘in the collection
requesting state and the taxpayer must
purpose of assisting international tax
the tax treaty did not contain an ‘other
of revenue claims' and that such
not have any right to prevent the
income' article. The combined effect of
assistance is not limited to the taxes
collection of the claim in the requesting
According to the court, this
these provisions was that the tax treaty
covered by the tax treaty or to persons
state, i.e. any appeal rights have been
expression of purpose indicated the
did not deal at all with international
resident in one of the contracting states.
absence of any intention to impose a
shipping, with the result that profits
The treaty defines the term ‘revenue
temporal limitation with regard to the
from international shipping were taxable
enforcement of revenue claims other
in accordance with the domestic law of
than the condition that the claims must
the contracting states.
be enforceable in the requesting state.
Global tax newsletter No. 8: June 2013
The situation changed in 2001 with
The Indian Income Tax Appellate
The ITAT found that the Indian
the addition of the ‘other income' article.
Tribunal (ITAT) rejected these
agent of the Swiss company was legally
Article 22 of the treaty conforms to
arguments. According to the ITAT, the
and economically dependent on the
article 21 of the OECD model, except
intentions of the contracting states
Swiss company. The Indian agent
for the references to fixed base and
changed with the addition of article 22
cleared inbound cargo and booked
The taxpayer, an American citizen, had
of the treaty and, according to the plain
outbound cargo on the Swiss company's
worked for Ontario Power Generation
The Indian tax authorities made the
meaning of article 22(1), the exclusion of
ships. Accordingly, the agent could be
(OPG) at its nuclear facility in Ontario
argument that article 22 of the treaty did
international shipping profits from
considered to have and habitually
for four years from 2000 to 2003. He
not apply to international shipping
articles 7 and 8 meant that such profits
exercise the authority to conclude
spent over 330 days in Canada in each of
were not dealt with in those articles.
contracts binding on the Swiss company. those years. The taxpayer did not have a
The tax authorities also argued that
Having concluded that article 22 of
However, the ITAT found that the
post-secondary degree, but had worked
the intentions of the contracting states
the treaty applied to international
ships owned by the Swiss company
at nuclear facilities in the US for many
were originally clear that international
shipping profits, the ITAT turned its
were not assets of the deemed agency
years, although it is not clear in what
shipping profits should be taxable in
attention to whether the Swiss company
permanent establishment in India or
capacity. He worked on a contract basis
accordance with domestic law,
had a permanent establishment in India
effectively connected to that permanent
for Onsite Engineering (Onsite), a US
unconstrained by the tax treaty and that
and whether the right or property in
establishment, as the agents had no
company. Onsite arranged a contract
this explicit understanding was not
respect of which the profits were paid
control of the ships. According to the
with OPG for the taxpayer to provide
altered by the addition of article 22 in
was effectively connected with the
ITAT, for the ships to be effectively
engineering and management services on
permanent establishment.
connected to the permanent
a boiler-cleaning project. The taxpayer
establishment, it had to have economic
and his wife bought a condo in Ontario
ownership of the ships.
in June 2000, but sold it in December of
Accordingly, the tribunal held that
the same year when his wife returned to
the international shipping profits of the
the US for medical care. The taxpayer
Swiss company were taxable only in
immediately bought another condo. His
wife visited and stayed with him
Global tax newsletter No. 8: June 2013
occasionally. In November 2002, he
Capital Tax Treaty. The taxpayer was
The tribunal agreed with the
bought a home in Canada and continued
clearly a resident of Canada for purposes
taxpayer and reinstated the tax
to live and work in Canada until 2005.
of Canadian tax law, and a resident of
deduction. It noted that the websites on
The taxpayer and his wife retained
the United States for purposes of the tax
which the advertising appeared do not
their US home, which he visited once a
treaty because of his US citizenship.
The taxpayer paid Google Ireland and
constitute permanent establishment's in
month and on major holidays. He also
Accordingly, the issue was the
Yahoo US for sponsored search results
India under the applicable tax treaties.
maintained his gun club membership in
application of the tiebreaker rules.
and online advertising. The advertising
The Yahoo and Google servers were
Tennessee so he could continue his
As the taxpayer had a permanent
services offered by the search engines
outside India and the payments were
favourite hobby, skeet shooting. He had
home in both countries and the taxpayer
require the use of software codes and are
made to the service providers outside
bank accounts and credit cards in both
had extensive personal and economic
automated. The advertising server is a
India, the tribunal concluded that those
countries. He maintained his US medical
connections to both countries, his centre
computer or computer programme that
companies' websites cannot be
insurance coverage until November
of vital interests could not be clearly
stores and manages access to the
characterised as permanent establishments
2003, when he became eligible for
determined. Consequently, it became
of Yahoo and Google in India.
Ontario health insurance. On his US tax
necessary to have recourse to the third
The taxpayer withheld no tax on its
The tribunal also ruled that the fees
return, the taxpayer indicated that his
tiebreaker rule, i.e. habitual abode. Based
payments to Google and Yahoo, arguing
were neither royalties nor fees for
‘tax home' was Canada. For Canadian
on the habitual abode test as to where
that the fees were not subject to tax in
technical services. There was no right
tax purposes, the taxpayer claimed to be
the taxpayer stays more frequently, the
India. During the audit of the taxpayer's
given by Yahoo or Google to the taxpayer
tax court found that the taxpayer
tax return, the tax officer said the fees
to use any property. Also, a service that
The only issue in the case was
normally lived in Canada and not in the
were taxable in India as ‘fees for technical
has no element of human intervention or
whether or not the taxpayer was a
United States, primarily because the
services and royalties'. The officer also
interface does not fall within the
resident of Canada for purposes of the
taxpayer worked and spent more time in
disputed the taxpayer's claim that neither
definition of a technical service.
Canada-United States Income and
service provider had a permanent
The tribunal ruled that the fees were
establishment in India. The tax officer
not subject to tax in the hands of Google
disallowed the taxpayer's deduction for
or Yahoo and that the taxpayer had no
the fees. The taxpayer appealed.
obligation to withhold tax. As such, thefees were deductible.
Global tax newsletter No. 8: June 2013
As part of a series of measures to
To preclude conflicts of interest and
South Africa
open up the market and improve
threats to independence, EU audit firms
On 22 March 2013, the
Parliament's Legal
transparency, the committee backed the
would be required to abide by rules
South African Revenue
Affairs Committee has
proposed prohibition of ‘Big 4-only'
mirroring those in effect internationally.
Service (SARS) released a
voted to negotiate changes to a draft law
contractual clauses requiring that the
Most committee members saw the
draft interpretation note that provides
aimed at reforming EU audit services, so
audit be done by one of these firms.
proposed general prohibition on
an indication of how the agency intends
that only non-auditing services that
PIEs would be obliged to issue a call
offering non-auditing services as
to apply thin capitalisation in the
could jeopardise independence would be
for tenders when selecting a new
counterproductive for audit quality.
context of transfer pricing.
prohibited; the law would also require
auditor. To ensure that relations between
They agreed that only non-auditing
The application of thin capitalisation
companies to switch auditors regularly.
the auditor and the audited company do
services that could jeopardise
applies to ‘affected transactions which
The law would require auditors in
not become too cosy, there would be a
independence should be prohibited.
are broadly cross border transactions
the EU to publish audit reports
mandatory rotation rule whereby an
They also approved a list of services that
between connected persons that have
according to international auditing
auditor may inspect a company's books
would be prohibited under the new law.
been concluded on terms and conditions
standards. For auditors of public-
for a maximum of 14 years, which could
For instance, auditing firms would
that would not have existed if the parties
interest entities (PIEs), such as banks,
be increased to 25 years if safeguards are
be able to continue providing
had been independent persons dealing at
insurance companies and listed
put in place. The commission had
certification of compliance with tax
companies, the committee agreed that
proposed six years, but a majority in
requirements, but prohibited from
The range of parties potentially
audit firms would have to provide
committee judged that this would be a
supplying tax advisory services which
falling under thin capitalisation has
shareholders and investors with a
costly and unwelcome intervention in
directly affect the company's financial
increased to include transactions
detailed understanding of what the
the audit market.
statements and may be subject to
between a non-resident and another
auditor did and an overall assurance of
questions from national tax authorities.
non-resident's permanent establishments
the accuracy of the company's accounts.
in South Africa or, alternatively,transactions between a resident andanother resident's permanentestablishments located outside SouthAfrica.
Global tax newsletter No. 8: June 2013
A taxpayer will be considered thinly
In the secondary tax adjustment, the
Over the past two years, income tax
capitalised if it carries a greater quantity
amount of the disallowed deduction
The OECD has recently issued a report
burdens have risen in 23 out of 34
of interest-bearing debt than it could
(which arises as a result of the primary
on personal taxation. New data shows
countries, largely because a higher
sustain on its own, the duration of
adjustment) is deemed to be a loan by
that across OECD countries the average
proportion of earnings were subject to
lending is greater than would be the case
the taxpayer, that constitutes an affected
tax and social security burden on
tax as the value of tax free allowances
at arm's length, or the repayment or
transaction. This means that a taxpayer
employment incomes increased by 0.1%
and tax credits fell relative to earnings.
other terms are not what would have
will have to calculate and account for
to 35.6% in 2012. It increased in 19 out
In 2012, only six countries had higher
been entered into at arm's length. In
interest income at an arm's-length rate
of 34 countries, fell in 14, and remained
statutory income tax rates for workers
selecting cases for audit, SARS will
on the deemed loan. Where the deemed
unchanged in just one.
on average earnings than they did in
adopt a risk-based approach in which a
loan has been repaid to the taxpayer, for
The increases were largest in the
taxpayer is considered to be of a greater
example, by a refund of the excessive
Netherlands, Poland and the Slovak
The report provides details about the
risk if the debt-EBIDTA (Earnings
interest and the repayment took place
Republic (mainly due to increased rates
taxation of employment incomes and
Before Interest, Taxes, Depreciation, and
by the end of the year of assessment in
and other changes to employer social
the associated costs to employers for
Amortisation) ratio exceeds 3 to 1.
which the primary adjustment was
security contribution) as well as Spain
different household types and at
The effect of thin capitalisation is
made, the primary adjustment will not
and Australia (due to higher statutory
different earnings levels on an
addressed by means of two adjustments:
be treated as a loan.
income tax rates).
internationally comparable basis, key
the primary adjustment and the
This follows substantial increases in
factors in whether individuals seek
secondary adjustment. In the primary
2011 and since 2010, the tax burden has
employment and businesses hire
adjustment, any interest, finance
increased in 26 OECD countries and
charges, or other consideration for or in
fallen in seven, partially reversing the
relation to that portion of the non-
reductions between 2007 and 2010.
arm's-length portion of the debt must bedisallowed as a deduction in determiningthe taxpayer's taxable income.
Global tax newsletter No. 8: June 2013
The tax burden is measured by the
The following information would be
‘tax wedge as a percentage of total
On 3 April 2013, the
The commission has set up the ‘Platform
labour costs' or the total taxes paid by
Australian Treasury
• the company's name and Australian
for Tax Good Governance, Aggressive
employees and employers, minus family
released a discussion
Tax Planning and Double Taxation' (the
benefits received, divided by the total
paper outlining three steps to give effect
• the company's total revenue
labour costs of the employer. Taxing
to the government's intention to
(including amounts that are exempt
The platform will allow for a
wages also breaks down the tax burden
improve the transparency of the
from tax or receive other
dialogue on issues related to good
between personal income taxes,
country's business tax system.
concessional treatment)
governance in tax matters, fighting
including tax credits, and employee and
Under the first measure, the
• the company's taxable income and
aggressive tax planning and preventing
employer social security contributions.
Australian revenue authorities would be
the amount of tax payable (meaning
double taxation in which experience and
required to publish each year
presumably just the Australian tax
expertise are exchanged and the views of
information taken from the tax returns
all stakeholders are heard.
of companies with annual revenue of
The platform will comprise of
AUD 100 million or more and
The second proposal would amend
member states' tax authorities and up to
companies liable for minerals resource
legislation to protect the publication of
fifteen business, civil society and tax
rent tax (MRRT) or petroleum resource
aggregate revenue figures in cases where
practitioner organisations.
rent tax (PRRT) – that is, companies
the identity of specific taxpayers could
involved in the extraction of coal, iron
be guessed from that information.
ore, oil and gas.
The third measure involves adjusting
the current information sharingarrangements between Australiangovernment agencies.
Global tax newsletter No. 8: June 2013
EU and internet taxation
Efforts are underway to try to make
Several European governments are
The OECD Secretary-General, Angel
Tax authorities across Europe are
the diverse national corporate tax
actively exploring additional taxes
Gurría, has presented a report to G20
exploring a variety of modifications to
policies across Europe more uniform to
directed toward internet companies. For
Finance Ministers and Central Bank
tax laws in an effort to derive greater
prevent companies from moving to
example, French and Italian tax
Governors that highlights measures to
revenues from taxes on internet activities
jurisdictions that provide the most
authorities are reportedly investigating
ensure that all taxpayers pay their fair
and transactions. Challenging economic
favourable tax structure. At present,
major internet companies to determine
conditions have led those governments
Ireland is viewed by many companies as
if they have been systematically
The report covers three strategic
to pursue all available options to
the most attractive tax haven in Western
underreporting their income.
generate greater revenues. Many
Europe and applies the lowest corporate
• progress reported by the ‘Global
European governments believe that
tax rate in Western Europe. It also
Forum on Transparency and
more aggressive taxation of online
permits companies to shift a substantial
Exchange of Information for Tax
corporate earnings provides an
portion of their profits to other low tax
Purposes' including the upcoming
extremely attractive vehicle for
jurisdictions, such as Bermuda, a
ratings of jurisdictions' compliance
enhancing revenues. These European tax
strategy not permitted by most other
with the forum's standards on
initiatives are primarily directed towards
European nations.
exchange of information on request
large internet companies such as
• efforts by OECD to strengthen
Amazon and Google. They can also
automatic exchange of information
significantly affect smaller businesses
• latest developments to address tax
operating in Europe.
base erosion and profit shifting, apractice that can give multinationalcorporations an unfair tax advantageover domestic companies andcitizens.
Global tax newsletter No. 8: June 2013
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Ian Evans
Regional tax resources
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Global tax newsletter No. 8: June 2013
Source: http://www.grantthornton.tg/spub-9-global_tax_newsletter_8.pdf
Nano Research DOI 10.1007/s12274-015-0935-3 New approach for the treatment of CLL using Sara Capolla1,§ (*), Nelly Mezzaroba1,§, Sonia Zorzet1, Claudio Tripodo2, Ramiro Mendoza-Maldonado3, Marilena Granzotto4, Francesca Vita1, Ruben Spretz5, Gustavo Larsen5,6, Sandra Noriega5, Eduardo Mansilla7, Michele Dal Bo8, Valter Gattei8, Gabriele Pozzato4, Luis Núñez5,6, and Paolo Macor1,9 (*)
DICTAMEN Nº. 122/2010, de 7 de julio.* Expediente relativo a reclamación de responsabilidad patrimonial de la Administra-ción Sanitaria a instancia de D. K, D.ª C, D.ª T, D. Z, D.ª J y D.ª Q, como consecuencia de la asistencia sanitaria recibida por su hijo y hermano respectivamente, D. X, en el Área de Salud Mental del Servicio de Salud de Castilla-La Mancha (SESCAM).
