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International
Tax News
Edition 33
November 2015
Keeping up with the constant flow of
international tax developments worldwide
can be a real challenge for multinational
companies. International Tax News is a monthly
publication that offers updates and analysis
on developments taking place around the
world, authored by specialists in PwC’s global
international tax network.
We hope that you will find this publication
helpful, and look forward to your comments.
Brazil
China
Changes to the calculation
basis and withholding tax
rates applicable to interest on
net equity payments
Localisation of BEPS Actions
in China - discussion draft of
Implementation Measures of
Special Tax Adjustment
Netherlands
France
Practical and business
friendly implementation of the
updated EU Parent-Subsidiary
Directive in Dutch law
EU case law - Restriction to
the freedom of establishment
Shi‑Chieh ‘Suchi’ Lee
Global Leader International Tax Services Network
T: +1 646 471 5315
E: [email protected]
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In this issue
Tax legislation
Proposed Tax Legislative Changes
Tax Administration and Case Law
EU Law
Treaties
Brazil
Changes concerning the capital gains tax
rates for non-residents
China
Localisation of BEPS Actions in China discussion draft of Implementation Measures
of Special Tax Adjustment
Netherlands
Landmark decision of the Supreme Court on
the anti-base erosion rules
France
EU case law - Restriction to the freedom of
establishment
Canada
Canada - Spain 2014 protocol
Brazil
Changes to the calculation basis and
withholding tax rates applicable to interest
on net equity payments
Netherlands
Dutch government reaction to OECD’s BEPS
United States
Internal Revenue Service LB&I Commissioner
announces reorganisation of division
China
China introduces self-assessment mechanism
to facilitate tax treaty benefits claims
Italy
Legislative Decree 147/2015 on
Internationalisation of Italian enterprises
published in the Italian Official Gazette
Netherlands
Government announced further integration of
R&D incentives
Netherlands
Protocol to the double tax treaty with
Indonesia updated collaboration in tax matters
Poland
GAAR clause regarding taxation of dividends
and interest adopted by the Parliament
Netherlands
Practical and business friendly
implementation of the updated EU ParentSubsidiary Directive in Dutch law
United States
IRS Chief Counsel treats intercompany
referral fee as foreign base company sales
income and allocates expenses to nonsubpart F income
Netherlands
Double tax treaties signed with Kenya and
Zambia
Norway
National budget 2016
Spain
Treaty ratified with Oman
Norway
Norwegian Tax Reform Proposals
Spain
Treaty ratified with Uzbekistan
United Kingdom
UK Autumn Statement
United Kingdom
Country-by-country reporting - Draft UK
Regulations
United States
New Sections 367 and 482 regulations tax
foreign goodwill, limit the active trade or
business exception, and apply Section 482
to aggregate transactions
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Tax Legislation
Brazil
Changes concerning the capital gains tax rates for
non‑residents
On September 22, 2015, the Executive Branch of the
Brazilian government released Provisional Measure
692/2015 (PM 692). Among other items, PM 692 amends
the tax rates applicable to individuals and certain
companies on the capital gains deriving from the sale of
assets and rights of any nature.
By way of background, in principle, non-resident companies are subject
to the rules applicable for individuals when calculating their Brazilian
capital gains tax liability under the current law. Therefore, although
PM 692 is in substance addressed toward individuals in Brazil, the
implications extend to non-resident companies.
Broadly, the previous rules provided that such capital gains should be
subject to tax at the rate of 15%. Pursuant to PM 692, the rates should
apply as follows:
• 15% in relation to the portion of gains that do not surpass 1 million
Brazilian real (BRL).
• 20% in relation to the portion of gains that exceed BRL 1 million
and do not surpass BRL 5 million.
• 25% in relation to the portion of gains that exceed BRL 5 million
and do not surpass BRL 20 million.
• 30% in relation to the portion of gains that surpass BRL 20 million.
Durval Portela
São Paulo
T: +55 11 3674 2522
E: [email protected]
Michela Chin
São Paulo
T: +55 11 3674 2247
E: [email protected]
In the event of alienation of a part of the same asset or right, as from
the second transaction/operation, the capital gain should be summed
with capital gain from previous transactions for the purposes of
determining the relevant tax, deducting the amount of tax paid on the
previous transaction(s).
Further, pursuant to PM 692, capital gains derived by a company
arising on the alienation of non-current assets or rights should also
be subject to the above rates, except for companies which apply the
actual, presumed, or arbitrary profit methods (being the key methods
of calculating tax for Brazilian entities).
A Provisional Measure is a provisionary law issued by the Executive
Branch of the Brazilian government which has the authority of law
until it is acted upon by the Brazilian Congress within a prescribed 60day period. If Congress does not act within this initial period, then it
expires unless it is extended for an additional 60-day period.
PM 692 enters in effect on the date of publication, however the rates
outlined above for capital gains taxation would only take effect from
January 1, 2016.
PwC observation:
It is important to note that changes to provisional measures
during the process of conversion into law are relatively common.
Therefore, it will be important to monitor the developments of PM
692 during the conversion process.
Further, there have already been a number of issues identified with
the current text, such as how the rules should apply to non-residents
located in ‘tax havens’ (subject to withholding tax [WHT] at 25%).
Over the coming days, as the PM is analysed in greater detail, more
questions/issues are expected to follow.
Mark Conomy
São Paulo
T: +55 11 3674 2519
E: [email protected]
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Brazil
Changes to the calculation basis and withholding tax
rates applicable to interest on net equity payments
On September 30, 2015, the Executive Branch of the
Brazilian government released Provisional Measure
694/2015 (PM 694). Among other items, PM 694 amends
the relevant legislation concerning the withholding tax
(WHT) applicable to payments of interest on net equity
(INE) as well as introduces a further limitation in relation
to the calculation base for such payments.
By way of background, INE is an alternative way of remunerating
the shareholder for the investment made in Brazilian companies,
calculated based on their net equity. INE is conditioned to the existence
of profits and deductible up to an amount limited to the greater of:
• 50% of net income before corporate income tax (and after social
contribution on net income) for the current year, or
• 50% of retained earnings and profit reserves.
Such payments of INE are determined based on the pro-rated
calculation of the company’s net equity accounts (with certain
adjustments), multiplied by the Long Term Interest Rate (TJLP).
Prior to the introduction of PM 694, INE payments should generally
be subject to a 15% WHT rate unless the recipients are located in tax
havens in which case the WHT rate should generally be 25%.
(increasing to 7% for October 2015 to December 2015). Further, the
PM also increases the WHT rate to 18% (previously 15%). For foreign
shareholders that cannot take advantage of the credit for the WHT, this
increase could result in a further tax leakage. Treaty benefits should be
considered.
It is important to emphasise that a Provisional Measure is a
provisionary law issued by the Executive Branch of the Brazilian
government which has the authority of law until it is acted upon by the
Brazilian Congress within a prescribed 60-day period. If Congress does
not act within this initial period, then it expires unless it is extended
for an additional 60-day period.
PM 694 enters in effect on the date of publication, however the changes
outlined above should only take effect from January 1, 2016.
PwC observation:
It is important to note that amendments to provisional measures
during the process of conversion into law are very common.
Therefore, it will be important to monitor the developments of PM
694 during the conversion process.
Pursuant to PM 694, the calculation basis for INE payments should
consider a pro-rated calculation of the company’s net equity accounts
multiplied by TJLP or 5% per year, whichever is lower. This limitation
is potentially significant given the TJLP for September 2015 was 6.5%
Durval Portela
São Paulo
T: +55 11 3674 2522
E: [email protected]
Michela Chin
São Paulo
T: +55 11 3674 2247
E: [email protected]
Mark Conomy
São Paulo
T: +55 11 3674 2519
E: [email protected]
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Italy
Legislative Decree 147/2015 on Internationalisation
of Italian enterprises published in the Italian Official
Gazette
On September 22, 2015, the Law Decree 147/2015 (the
‘Legislative Decree’) was published in the Italian Official
Gazette, aimed at promoting investment in Italy by
supplying a clearer and consistent tax framework for
investors.
• The Italian ‘exit tax’ deferral regime (i.e. the possibility for Italian
company to defer the payment upon migrating to an European
Union [EU] or European Economic Area [EEA] country) is
extended to the indirect migration to an EU/EEA country arising
from extraordinary transactions, such as merger, demerger, and
contribution of going concern (art. 7).
• For foreign companies migrating to Italy, the value of the assets
and liabilities recognised for Italian tax purposes is equal to the
fair market value of the latter, regardless the application of any
‘exit tax’ levied abroad. The provision applies only to companies
migrating from ‘white-listed’ countries (art. 12).
The Legislative Decree provides for a number of tax reforms, mostly
applicable from 2015, that could be relevant for multinational
enterprises (MNEs) operating in Italy, in particular:
• The possibility for non-Italian companies that are intended to
carry out a relevant investment in Italy (higher than 30 million
euros [EUR]) to file an advance ruling with Italian tax authorities
in order to assess the possible effects deriving from the envisaged
investment (art. 2).
• The costs incurred with ‘black-listed’ entities are deductible in
the hands of Italian companies according to the fair market value
principle (art. 3).
• Controlled foreign companies (CFCs) regime is reformed in order
to, inter alia, repeal the application of the regime to ‘related’ CFCs
and in the determination of the CFC’s income (art. 8).
• The taxable income of Italian permanent establishments (PEs)
is computed on the basis of the Authorised Organisation for
Economic Co-operation and development (OECD) Approach
(art. 7).
Franco Boga
Milan
T: +39 02 9160 5400
E: [email protected]
Alessandro Di Stefano
Milan
T: +39 02 9160 5401
E: [email protected]
Pasquale Salvatore
Milan
T: +39 02 9160 5810
E: [email protected]
PwC observation:
Legislative Decree 147/2015 introduces relevant changes in
Italian tax framework mostly in relation to companies operating in
the international market. Furthermore, the possibility for foreign
investors to have in advance a clear framework of the possible
consequences related to relevant investments in Italy could
enhance the attractiveness of Italy as destination country.
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Poland
GAAR clause regarding taxation of dividends and
interest adopted by the Parliament
On October 9, 2015, new legislation regarding changes in
corporate income tax (CIT) and personal income tax (PIT)
Act and some other acts was adopted by the Parliament.
The adopted legislation introduces e.g. a general anti-abuse
rule (GAAR) clause related to applying the participation
exemption for dividends and other profit-sharing
payments. Moreover, the aim of the draft legislation is to
adjust the Polish tax provisions to the changes in the EU law
in the scope of taxation of income from savings.
The new legislation implements the anti-abuse clause to the ParentSubsidiary Directive introduced by the Council Directive no. 2015/21
dated January 27, 2015.
According to the adopted provisions, the participation exemption on
dividends and other profit-sharing payments will not apply to legal
transaction or series of legal transactions which, having been put into
place for the main purpose or one of the main purposes of obtaining a
tax advantage, are not genuine having regard to all relevant facts and
circumstances.
Based on the adopted CIT provisions, not genuine legal transaction
is a transaction which is undertaken in order to benefit from the tax
exemption and which does not reflect economic reality, i.e. it is not
conducted for valid commercial reasons and its result is, in particular,
transfer of shares in a company paying the dividend or achieving by a
company income (revenue) paid further in the form of dividend.
Agata Oktawiec
Warsaw
T: +48 22 746 4864
E: [email protected]
Weronika Missala
Warsaw
T: +48 502 18 4863
E: [email protected]
PwC observation:
The actions of the European Union (EU) to tighten European tax
systems become more and more intensive. The tax authorities are
being equipped with additional tools allowing them to prevent tax
planning, and to stop tax schemes which allow taxpayers to subject
their earnings to taxation in countries different than those where
the earnings were generated.
To avoid potential negative consequences arising from the
introduction of the discussed regulations, the taxpayers should
review their structures and instruments used to assess the impact
on potential tax risk.
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Proposed Tax Legislative Changes
China
Localisation of BEPS Actions in China - discussion draft
of Implementation Measures of Special Tax Adjustment
In September 2015, China’s State Administration of Taxation
(SAT) released a discussion draft of Implementation
Measures of Special Tax Adjustment (Discussion Draft) to
revise its prevailing counterpart (widely known as Circular
2) which was issued in 2009. The Discussion Draft proposes
a new landscape on the administration of related party
transaction reporting, contemporaneous documentation,
transfer pricing method, special tax adjustment and
investigation, intangibles, intercompany services, advance
pricing arrangement, cost sharing agreement (CSA),
controlled foreign corporations (CFC), thin capitalisation,
general anti-avoidance rule (GAAR), profit level monitoring,
corresponding adjustment and mutual agreement, etc. It also
makes reference to the recommendations in the Organisation
for Economic Co-operation and Development’s (OECD’s) Base
Erosion and Profit Shifting (BEPS) Action Plans.
In particular, the following points should be noted for cross-border
investments:
Contemporaneous documentation and Country-by-Country
Reporting (CbCR)
The Discussion Draft follows the approach set out in the BEPS Action
Plan 13 (Guidance on Transfer Pricing Documentation and CbCR)
and introduces the requirements in master file, local file and CbCR,
as well as ‘special issues file’ which covers intercompany services,
CSA and thin capitalisation. Generally, the threshold for preparing
Matthew Mui
China
T: +86 10 6533 3028
E: [email protected]
the master file and local file is total annual related party purchases and
sales of 200 million renminbi (CNY) or greater, or total other related
party transactions of CNY 40 million or greater. As for the CbCR, if
‘the enterprise is the ultimate holding company of the group and the
consolidated revenue of the group exceeds CNY 5 billion in the last
fiscal year’, or ‘the ultimate holding company of the group is located
outside China but the Chinese company is appointed by the group as the
Reporting Entity of CbCR’, the CbCR should be prepared and submitted
to Chinese tax authorities. There is no exemption threshold for special
issue files.
New administration rules on intangibles and intercompany services
The Discussion Draft introduces two new chapters on intangibles and
intercompany services. For intangibles, it puts forth the principle that
‘the income arising from intangibles shall be allocated in accordance
with the value creation of each party’, which is in line with the core
principle for allocation of profits arising from intangibles as set out in
the relevant BEPS Action report. In addition, value creation factors
such as Location Specific Advantages (LSAs), group synergies, etc.
should also be considered for the determination of the income arising
from intangibles. The Chapter ‘Intercompany Services’ reiterates that
the intra-group transactions should be in line with the arm’s-length
principle, including (i) the beneficial nature of the intercompany
services, and (ii) the services are charged in a way that independent
entities would be willing to pay or charge in the same or similar
circumstances. If domestic taxpayers make payments for non-beneficial
services, the in-charge tax authorities shall make tax adjustments
to deny the deduction of the payment for corporate income tax
(CIT) purpose.
CFC taxation
The Discussion Draft provides more interpretation on important
concepts in the CFC rules (e.g. ‘effective tax burden’, ‘individually
holding’) and adopts the recommendations proposed in the report
of BEPS Action Plan 3 to assess ‘reasonable business needs’ and the
‘nature of income’. Moreover, it also clarifies the assessment criteria and
calculation of the ‘attributable income’ of a CFC (i.e. the portion of the
CFC’s profits that are attributable to the resident enterprise).
PwC observation:
The finalised version of the Implementation Measures of Special
Tax Adjustment is expected to be released by the end of 2015 and
probably take effect from January 1, 2016. The revision of Circular
2 earmarks one of the most important moves for the SAT to localise
BEPS Action Plans and contains lots of most updated concepts in
the area of anti-tax avoidance. Therefore, we strongly recommend
that taxpayers (especially multinational enterprises [MNEs])
should study the changes in the Discussion Draft as well as the
potential impact on their business and tax control in advance and
get prepared for the new challenges.
One of the most eye-catching changes in the Discussion Draft
is LSA, which has been referred to in many chapters. MNEs are
suggested to conduct LSA analysis when designing their group
transfer pricing policies so as to ensure the group transfer pricing
policy conform to China’s standards.
Another key change of the Discussion Draft to MNEs may be
the preparation of the master file, local file, special issues file,
and CbCR. On one hand, MNEs are suggested to assess their
capability in preparing the files, set-up an efficient system to collect
information and better allocate the resources. On the other hand,
MNEs may consider reviewing and updating the group’s transfer
pricing policies as soon as possible to adapt to the new standards
and requirements of various tax administrations in charge of their
subsidiaries in the globe (including the new requirements reflected
in the revision of Circular 2).
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Netherlands
Dutch government reaction to OECD’s BEPS
The Dutch government sent its view on the results
of the Organisation for Economic Co-operation and
Development’s (OECD’s) Base Erosion and Profit Shifting
(BEPS) project to Dutch parliament. The letter also
included an overview of the envisaged legislative changes.
Key message is that the attractiveness of the Dutch tax
system will be maintained and further strengthened.
Currently, the Netherlands offers a tax attractive environment for
multinational companies due to the broad participation exemption,
the lack of a withholding tax on royalties and interest payments,
an extensive tax treaty network and a cooperative and efficient
relationship with the Dutch tax authorities. The Dutch government
states that these advantages remain unchanged.
Regarding hybrid mismatches, controlled foreign company (CFC) rules
and interest deductions (i.e. actions 2, 3, and 4), the Dutch government
firmly believes that only multilateral initiatives can effectively address
these issues. It emphasises the role of the European Union to formulate
binding legislation in order to create a level playing field. Therefore,
the Netherlands has no plans to unilaterally tighten regulations in
these areas.
Jeroen Schmitz
Amsterdam
T: +31 88 79 27 352
E: [email protected]
Ramon Hogenboom
Amsterdam
T: +31 88 79 26 717
E: [email protected]
In other areas, such as for action 6 (prevention of treaty abuse), action
7 (artificial avoidance of permanent establishment [PE] status),
action 13 (Country-by-Country Reporting) and action 14 (dispute
resolution), the Netherlands already have or will update its legislation.
Furthermore, the Netherlands is a strong advocate for increased
transparency, and will start exchanging rulings with tax authorities of
other countries as of 2016. Finally, the Dutch innovation box regime
will be adjusted per January 1, 2017 to reflect the modified nexus
approach as outlined in action 5.
PwC observation:
The Netherlands has an attractive fiscal climate, and the Dutch
government stressed that this will remain to be the case. The
outcome of the BEPS project will result (or has already resulted)
in some changes in domestic legislation, but the Netherlands will
not unilaterally tighten regulations in most areas. From January 1,
2016 onwards, the presidency of the Council of the European Union
will be held by the Netherlands for six months. It seems reasonable
to expect that the Dutch government will use this period to bring
multilateral initiatives in areas like interest deductions to the
next level.
Pieter Ruige
New York
T: +1 212 805 6681
E: [email protected]
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Netherlands
Government announced further integration of R&D
incentives
The Dutch system of research and development (R&D)
incentives will be integrated to further increase its
effectiveness. On Budget Day 2016, it was announced to
integrate the existing 160% ‘R&D super deduction’ for R&D
investments into the R&D subsidy for salary costs. Apart
from the administrative simplification, this will bring the
incentive for R&D investments ‘above the line’.
In 2015, the R&D incentives in the Netherlands are three-fold: (1)
innovation box regime taxing R&D related profits to be taxed at 5%
instead of 25%; (2) R&D subsidy for salary costs, equal to 35% of R&D
salaries for the first 250,000 euros [EUR] and 14% for anything above
this amount, realised via a reduction of the wage tax payable (called
‘WBSO’) and (3) 160% ‘super deduction’ for R&D investments (other
than salaries) leading to 15% net benefit realised through a corporate
tax reduction (called ‘RDA’).
Jeroen Schmitz
Amsterdam
T: +31 88 79 27 352
E: [email protected]
Ramon Hogenboom
Amsterdam
T: +31 88 79 26 717
E: [email protected]
For 2016, the innovation box regime will not be amended, but the
‘WBSO’ and ‘RDA’ will be integrated. The benefit will amount to 32%
of the first EUR 350,000 of R&D costs (both salary and investments).
For start-ups, this percentage amounts to 40%. For R&D costs above
EUR 350,000, the percentage amounts to 16%. The maximum benefit
cannot exceed the total amount of wage tax due. Instead of applying
for the real costs and expenses (non-salary costs), the taxpayer may
choose to take into account a fixed amount based on R&D hours. The
fixed amount is EUR 10 per hour as far as the total R&D hours do not
exceed 1,800, and EUR 4 for every hour above.
PwC observation:
The integration of the wage tax reduction for R&D labour and the
RDA will reduce the administrative burden for companies, as only
one application is required. Furthermore, another positive effect
of this change in the fiscal scheme is that the benefit will now be
expressed in the profit before taxes (‘above the line’), which has
a direct impact on the company’s earnings before interest, taxes,
depreciation, and amortisation (EBITDA) and allows companies
that are for instance still in a loss position due to start-up costs, to
still receive a cash benefit from the incentive. With this integration
together with the existing innovation box regime, the Netherlands
continues to provide a strong fiscal environment for highly
innovative companies.
Pieter Ruige
New York
T: +1 212 805 6681
E: [email protected]
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Netherlands
Practical and business friendly implementation of the
updated EU Parent-Subsidiary Directive in Dutch law
Following the amended European Union (EU) ParentSubsidiary Directive (which included the introduction of
a general anti-abuse rule [GAAR]), draft legislation has
been published on Budget Day 2016 regarding the Dutch
participation exemption regime, the substantial interest
rules and the dividend withholding tax (WHT) exemption
in relation to Dutch Coops. The main features of these three
regimes would remain unchanged, and, therefore, the
consequences for current and future structures should be
limited.
Main features of the Dutch participation exemption remains
the same
Based on the published draft legislation, the main features of the Dutch
participation exemption will remain the same. Under this regime,
income derived from (foreign) participations is exempt from Dutch
corporate income tax (CIT) at the level of the Dutch shareholder.
However, in line with the amended EU Parent-Subsidiary Directive,
income from participations which is tax deductible in another
jurisdiction will no longer fall into the scope of the participation
exemption (or Dutch participation credit system, if the participation
exemption is not applicable). The effect will be that such income
is subject to Dutch CIT. This will also apply to dividends and other
advantages included in the acquisition price of a participation, which
have earlier been deducted in another jurisdiction. This measure could
for instance impact structures with hybrid loans or preferred shares.
Jeroen Schmitz
Amsterdam
T: +31 88 79 27 352
E: [email protected]
Ramon Hogenboom
Amsterdam
T: +31 88 79 26 717
E: [email protected]
Substantial interest rule aligned with GAAR
To recap, under the Dutch substantial interest rules, which may apply
in abusive structures, foreign companies can be subject to Dutch CIT
on income derived from a Dutch subsidiary. In the published (draft)
legislation, the Dutch substantial interest rules are triggered if tax
avoidance is one of the foreign company’s main purposes for owning its
substantial (5% or more) shareholding in the Dutch subsidiary and the
Dutch subsidiary is not put into place for sound business reasons.
Such sound business reasons, for instance, exist if the foreign
shareholder conducts business activities and the substantial
shareholding is attributable to that business, or if the foreign
shareholder is the ultimate holding company (head office). Another
case of sound business reasons is that if the foreign shareholder entity
is an intermediate holding company that acts as a link between the
ultimate holding company and the lower tier business, and such
foreign entity meets the minimum Dutch substance requirements.
Coops remain exempt from dividend WHT
Under current Dutch domestic law, Dutch Coops are not subject to
Dutch dividend WHT, unless specific anti-abuse rules apply. Under the
introduced (draft) legislation, this principle remains unchanged.
The only change is that Dutch Coops will now be obligated to
withhold dividend tax on dividends distributed to its members if tax
avoidance is one of the main purposes and the structure is not put into
place for sound business reasons. These sound business reasons for
instance exist if the Coop has economic relevance or if it functions as
intermediate holding platform, whereby there is a link between the
ultimate holding company and the lower tier foreign business. Under
certain circumstances, a minimum level of substance may be required
at the level of the foreign member(s) of the Coop.
Pieter Ruige
New York
T: +1 212 805 6681
E: [email protected]
PwC observation:
All EU Member States must implement the recent changes to the
Parent-Subsidiary Directive into their national law by the end of
2015. The Netherlands has chosen for a practical and business
friendly implementation. Therefore, the changes should have a
limited impact on the current structures.
The envisaged legislation regarding the Dutch participation
exemption should not have a material impact on existing and/or
new structures. Most Dutch head offices and intermediate holding
companies will still be able to benefit from the advantages of the
Dutch participation exemption, such as the absence of a holding
period and the 100% exemption to dividends and capital gains.
Further, it is not anticipated that the envisaged change in the
substantial interest rule will have a (significant) impact on current
structures. To the extent this is not already the case, the substance
of foreign intermediate holding companies of Dutch entities may
need to be brought in line with the Dutch minimum substance
requirements. Moreover, the Dutch tax authorities already
confirmed that no material changes in relation to current tax
practice are foreseen.
Finally, the newly introduced anti-abuse rules with respect to
Dutch Coops should neither have a significant impact to existing
structures, nor to newly setup structures. As such, Dutch Coops in
conjunction with other Dutch tax incentives such as the generous
participation exemption regime and the extensive double tax
treaty network, remain an attractive holding platform for (foreign)
operations worldwide. Accordingly, the Dutch tax authorities
confirmed that no material changes in relation to current tax
practice are foreseen.
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Norway
National budget 2016
On October 7, 2015, the Norwegian government submitted
its proposal for the national budget for 2016. The national
budget contains proposals for several amendments of the
Norwegian tax legislation which, if approved, will enter
into force in 2016.
The key corporate tax proposals included in the national budget are as
follows:
• The corporate income tax (CIT) rate is reduced from 27% to 25%.
• The rule limiting the deductibility of interest paid to associated
companies is tightened. At present, deductions for interest
payments to associated companies are limited to 30% of tax
earnings before interest, taxes, depreciation and amortisations (tax
EBITDA). The proposal entails a reduction of the deduction limit
from 30% to 25%.
• The participation exemption method for dividends is excluded to
the extent the distributing company is granted a deduction for the
distribution. The background for the proposal is to avoid double
non-taxation due to different classifications of financial instruments
or legal entities in different jurisdictions (hybrid situations).
• Due to the reduction in the CIT rate, the government proposes to
increase the resource rent tax on income from hydroelectric power
production and the surtax on petroleum activity with 2% points to
33% and 53%, respectively. The natural resource tax threshold will
be increased to 10 MVA with effect from the 2015 tax year.
• The tax on dividends to personal shareholders, and on gains upon
personal shareholders’ realisation of shares is increased through an
adjustment of the basis for taxation with an upwards adjustment
factor of 1.15.
Hilde Thorstad
Oslo
T: +47 95 26 05 48
E: [email protected]
Cecilie Beck
Oslo
T: +47 90 09 95 75
E: [email protected]
• A company’s loan to a personal shareholder shall be taxed as
dividends at the level of the shareholder. The rules are proposed
entered into force with effect for loans rendered as from October 7,
2015.
A company’s loan to a personal shareholder shall be taxed as dividends
at the level of the shareholder. The rules are proposed entered into force
with effect for loans rendered as from October 7, 2015.
PwC observation:
The reduction in the CIT rate will be welcomed by the Norwegian
industry and represents a positive step towards aligning the
CIT rate with our neighbouring countries. However, for the
hydroelectric power and upstream petroleum industries, the CIT
rate reduction is substituted by an increased tax rate within the
special tax regimes. Further reductions of the CIT rate and changes
in the tax system are expected when the tax reform is introduced.
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Norway
Norwegian Tax Reform Proposals
On October 7, 2015, the Norwegian Ministry of Finance
presented a tax reform report. The report includes several
proposals for amendments of the rules on corporate
taxation. The proposals are a follow-up of the Scheel
committee’s proposal of December 2, 2014. The proposals
will be subject to a political process and, in large parts,
consultation processes during 2016. The date of entry into
force of the proposals, if approved, is uncertain; however,
this is likely to be in 2017.
The main proposals in the tax reform report are as follows:
• Reduction of the corporate income tax (CIT) rate to 22% during
a three-year period (2016-2018). Further reductions are to be
assessed in light of the international development.
• The interest deduction limitation rule is proposed amended so that
it also hits profit shifting through interest payments to third party
lenders (external interests). However, the Ministry emphasises
that deduction for ‘genuine interests’ (i.e. interest costs in ordinary
lending situations where there is no risk for profit shifting) should
not be limited. The Ministry will review alternative solutions to
prevent this. This will also be assessed in light of Organisation
for Economic Co-operation and Development’s (OECD’s)
recommendations on national interest deduction limitation rules.
Hilde Thorstad
Oslo
T: +47 95 26 05 48
E: [email protected]
Cecilie Beck
Oslo
T: +47 90 09 95 75
E: [email protected]
• Introduction of withholding tax (WHT) on royalties, interest,
and certain lease payments is proposed introduced. The Ministry
emphasises that any legal basis for WHT should go as far as the
European Economic Area (EEA) law allows. The Ministry also
finds that it should be assessed whether income from bareboat
chartering should be exempt from the tonnage tax regime so that
these payments may also be comprised by the WHT.
• Amendment of the tax residency definition for companies so that
companies established in Norway are automatically regarded
resident in Norway for tax purposes. The amendment will entail
that companies established in Norway will always be regarded
resident here, unless a tax treaty with the other state leads to a
different result. Furthermore, companies established in Norway
will never be ‘state-less’. The Ministry of Finance will review the
definition with a view to submitting a consultation proposal.
• The Ministry of Finance will review the controlled foreign
company (CFC) rules with a view to submitting a consultation
proposal. An important goal for this work is to make the rules more
practicable. The Ministry will also assess whether the present
distinction between active and passive income is appropriate.
• The Ministry of Finance emphasises that it may be relevant to
consider the need for further anti-hybrid rules and that it will
assess this in light of the final recommendations from OECDs Base
Erosion and Profit Shifting (BEPS) project, of which the main
feature is the so-called ‘linking rules’.
• An introduction of rules on country-by-country reporting (CbCR)
is considered proposed. The Ministry considers this a useful
tool in the tax authorities’ supervision work. The Ministry also
emphasises that it is important that Norway contributes to the
international process by introducing CbCR in group relations
within the frames agreed upon by the member states in the BEPS
project. The Ministry will submit a consultation proposal regarding
an amendment of the law with associated regulations.
PwC observation:
Changes in the corporate tax rules within the mentioned areas are
expected and the situation should be monitored closely as more
detailed proposals will be presented. Any detailed planning ideas
and structural changes should be awaited until more definite
details on any amendments are available.
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UK Autumn Statement
Country-by-country reporting - Draft UK Regulations
The UK Chancellor of the Exchequer, George Osborne, has
announced that there will be an Autumn Statement forecast
alongside the Spending Review on November 25, 2015.
Draft Regulations (together with an explanatory
memorandum) were published for consultation by the UK
tax authority, HM Revenue & Customs (HMRC) on October
5, 2015, to implement country-by-country reporting
(CbCR) for accounting periods commencing on or after
January 1, 2016.
PwC observation:
We anticipate the Bill will include clauses to implement the
recommendations of certain Organisation for Economic Cooperation and Development’s (OECD’s) Base Erosion and Profit
Shifting (BEPS) Action points (e.g. Action point 2 on neutralising
the effect of hybrid mismatch arrangements).
The Regulations are made in accordance with guidance published
by the Organisation for Economic Co-operation and Development
(OECD) on October 5, 2015 in pursuance of Action 13 (transfer pricing
documentation and CbCR) of their action plan to address base erosion
and profit shifting. Comments on the consultation are invited by
November 16, 2015.
PwC observation:
Corporate groups should plan now to ensure they can comply
with the new CbCR requirements. Consideration should be given
to how the guidance should be interpreted, how this data will be
reported, whether current finance systems have the necessary
capabilities to gather the required data and the extent of ongoing
additional resource required to support the implementation and
ongoing compliance. In addition, companies should consider how
the information will be viewed, confirm that it is consistent with
other disclosures made to tax authorities (including the new master
file and country specific local files which now require detailed
disclosures of material inter-company transactions) and that it is
in line with the organisation’s business and tax strategy and wider
approach to transparency.
Jonathan Hare
London, Embankment Place
T: +44 20 7804 6772
E: [email protected]
Chloe Paterson
London, Embankment Place
T: +44 20 7213 8359
E: [email protected]
Stuart T MacPherson
London, Embankment Place
T: +44 20 7212 6377
E: [email protected]
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United Kingdom
Draft Finance Bill 2016 clauses are expected to be published alongside
or shortly afterwards the Autumn Statement.
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Peter C Barlow
London, Embankment Place
T: +44 20 7212 5556
E: [email protected]
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New Sections 367 and 482 regulations tax foreign
goodwill, limit the active trade or business exception,
and apply Section 482 to aggregate transactions
On September 14, 2015, Treasury and the Internal Revenue
Service (IRS) issued proposed regulations under Section
367 (REG-139483-13) (the ’Proposed Regulations’) and
temporary regulations under Section 482 (T.D. 9738) (the
’Temporary Regulations’).
This guidance would fundamentally shift the government’s application
of the law by taxing outbound transfers of foreign goodwill and
going concern value under Section 367, restricting the active trade
or business (ATB) exception under Section 367(a) from applying
to goodwill and going concern value, and providing for aggregate
valuation of interrelated transactions that are covered in part by
Section 482 and in part by other Code sections (such as Section 367).
In doing so, the Proposed Regulations would subject a US transferor
to current gain recognition under Section 367(a)(1), or periodic
income recognition under Section 367(d), on outbound transfers that
previously have not resulted in taxable income under Section 367
or 482.
PwC observation:
Although the Proposed Regulations would not apply until finalised,
they are intended to apply to transfers made on or after September
14, 2015. Consequently, once finalised, the Proposed Regulations
would have retroactive effect. Among other significant changes,
transfers of foreign goodwill would now be subject to taxation
under Section 367(a) or Section 367(d), a fundamental change to
the taxation of even the most basic foreign branch incorporations.
Taxpayers engaging in outbound transfers on or after September
14, 2015, should review carefully the Proposed Regulations to
determine their potential applicability.
Furthermore, the Temporary Regulations are effective for taxable
years ending on or after September 14, 2015, even with respect
to transactions entered into force before September 14, 2015.
Consequently, taxpayers with transactions involving multiple
controlled transactions or subject to multiple Code provisions
should consider the potential applicability of the Temporary
Regulations to those transactions.
The Temporary Regulations are effective for taxable years ending on
or after September 14, 2015. The Proposed Regulations, once finalised,
would apply to transfers occurring on or after September 14, 2015.
Treasury and the IRS have requested comments with respect to these
regulations by December 15, 2015.
Tim Anson
Washington, D.C.
T: +1 202 414 1664
E: [email protected]
Charles S Markham
Washington, D.C.
T: +1 202 312 7696
E: [email protected]
Gregory J Ossi
Washington, D.C.
T: +1 202 414 1409
E: [email protected]
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Tax Administration and Case Law
Netherlands
Landmark decision of the Supreme Court on the antibase erosion rules
On June 5, 2015, the Supreme Court provided further
clarity on the scope of the Dutch anti-base erosion rules,
thereby answering some essential open questions on the
Dutch base erosion rules in relation to the deductibility of
interest expenses.
Dutch anti-base erosion rules at a glance
The Dutch base erosion rules limit the deductibility of interest
expenses on intercompany debts that are connected to so-called
‘tainted transactions’. These rules do, however, not apply if the
taxpayer demonstrates business reasons both for the transaction
and the financing thereof or if the corresponding interest income is
sufficiently taxed according to Dutch tax standards (‘counter evidence
rules’). Tainted transactions include capital contribution, dividend
distribution, and acquisitions.
The case at hand
The case concerns two Dutch taxpayers, belonging to a South African
multinational group. In 2007, the listed parent company of this group
issued shares and lent part of these proceeds to its South African
subsidiary. This latter holding company contributed the funds to a
Mauritius-based holding company, which subsequently on-lent the
funds to another Mauritius-based company (the financing company of
the group).
The two Dutch taxpayers financed several (external) acquisitions
with the funds lent from the Mauritius-based financing company of
the group. Arguing that both the acquisition and the financing thereof
was based on sound-business reasons, the Dutch companies claimed a
deduction of interest on the loans to the Mauritius finance company.
The Dutch Supreme Court denied the deduction of these expenses in
relation to the funds originating from the share issuance.
Reasoning of the Dutch Supreme Court
As a starting point, the Dutch Supreme Court states that a Dutch
taxpayer is free in its choice how to finance its transactions, either
with debt or with equity. It then stated that in order to successfully
claim counter evidence if the corresponding interest income is not
sufficiently taxed (which was the case in the case at hand), business
motives should be available both for the transaction and the financing
thereof, even if the transaction is an external acquisition (which was
the case in the case at hand). The Dutch taxpayer bears the burden of
proof in relation to substantiating the business motives for both the
transaction and the financing thereof. When assessing the availability
of such business reasons in relation to the financing by way of intragroup debt, all parties involved in such financing should be taken into
account.
Due to the fact that it was not demonstrated that all financing in the
transaction was based on business reasons, the Supreme Court denied
the interest deduction in relation to the funds originating from the
share issuance.
In addition to the above, the Mauritius-based financing company
received funds by way of debt from its Mauritius parent company,
which in turn derived these funds from its foreign participations by
way of dividend distributions.
Jeroen Schmitz
Amsterdam
T: +31 88 79 27 352
E: [email protected]
Ramon Hogenboom
Amsterdam
T: +31 88 79 26 717
E: [email protected]
Pieter Ruige
New York
T: +1 212 805 6681
E: [email protected]
PwC observation:
In this landmark judgement, the Supreme Court clarified some
essential elements of the Dutch base erosion regulations on
limitations on interest deductions. The Supreme Court reconfirmed
that Dutch companies can freely decide how to fund their
subsidiaries, either by way of debt or by way of equity. In our view,
this rule implies that a direct funding by any (low-taxed) group
finance company seems acceptable for purposes of demonstrating
the sound business motives of such financing (i.e. no double-dips
in relation to the same interest expenses). If, however, re-routing
of group debt takes place (either inside or outside the Netherlands),
the Dutch taxpayer needs to demonstrate the sound business
motives in relation to such scheme in order to claim an interest
deduction.
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United States
Internal Revenue Service LB&I Commissioner
announces reorganisation of division
Douglas O’Donnell, Commissioner of the Large Business &
International Division (LB&I), announced that LB&I would
be reorganised around ‘Practice Areas’ at a Tax Executives
Institute presentation on September 17, 2015.
Commissioner O’Donnell indicated the new LB&I structure was ‘largely
final’ and scheduled to be implemented in early calendar year 2016.
Additional changes could be made as LB&I continues to build out the
structure to all levels of employees. Acting LB&I Deputy Commissioner
(Domestic) Sergio Arellano elaborated on LB&I’s plans at a discussion
panel at the American Bar Association Section of Taxation’s fall
meeting on September 18, 2015.
PwC observation:
The goals and design of the LB&I reorganisation are not wholly
unexpected considering the several-year push by LB&I towards
‘issue-focused’ examinations. With the prior creation of Issue
Practice Groups (IPGs) and Issue Practice Networks (IPNs) and
the new Information Document Request procedures, LB&I has
been laying the groundwork for an organisational change to align
with issue-focused examinations. Left unanswered at this point
are details regarding implementation of the new structure in the
field and how audits will be managed in an environment where
several Practice Areas may be involved with a single taxpayer.
Additionally, the definition of ‘campaign’ appears to remain fluid
and open to additional description either prior to the reorganisation
implementation or during the reorganisation implementation.
Training of employees is emphasised in the reorganisation,
however, with current budgetary constraints, it remains to be
seen how this will be implemented. And although Commissioner
O’Donnell indicated that the CIC designation for large case
taxpayers will be phased out, some taxpayers will remain under
continuous examination.
As the implementation of the new structure, principles, processes
are slated for early 2016, it will be some time before the real-world
effects of the reorganisation are experienced by taxpayers, as
taxpayers and practitioners alike will be formulating their own
conclusions on the reorganisation’s effectiveness in the upcoming
months. Taxpayers should familiarise themselves with the new
structure and be prepared to re-evaluate their preparedness for
examinations as anticipated new examination procedures are
implemented.
Kevin M Brown
Ruth Perez
Linda Stiff
Washington D.C.
Washington D.C.
Washington D.C.
T: +1 202 346 5051
E: [email protected]
T: +1 202 346 5181
E: [email protected]
T: +1 202 312 7587
E: [email protected]
IRS Chief Counsel treats intercompany referral fee
as foreign base company sales income and allocates
expenses to non-subpart F income
The Internal Revenue Service (IRS) released CCM
20153301F (the CCM) on August 14, 2015, challenging a
taxpayer’s characterisation of intercompany referral fees as
part sales income and part services income.
The CCM concludes that the taxpayer erred in splitting the income
between sales and services income, because all of the activities, if actually
performed by the controlled foreign corporation (CFC), relate to sales and
should be classified as foreign base company sales income (FBCSI), and
the taxpayer did not properly substantiate the portion of the referral fees
attributable to the services. The CCM also concludes that the taxpayer
erred in allocating and apportioning the intercompany referral fee
expense (referral expense) to all income when that expense was definitely
related only to third-party customer sales that were not subpart F income.
PwC observation:
CCM 20153301F signals that the Internal Revenue Service (IRS)
may take a strong position with respect to taxpayers seeking to
bifurcate income between sales and services. Good documentation
is likely to be essential in substantiating such a bifurcation, but may
not prevent the IRS from pursuing the issue.
Charles S Markham
Washington D.C.
T: +1 202 312 7696
E: [email protected]
Michael A DiFronzo
Washington D.C.
T: +1 202 312 7613
E: [email protected]
Phyllis E Marcus
Washington D.C.
T: +1 202 312 7565
E: [email protected]
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EU Law
France
EU case law - Restriction to the freedom of
establishment
In its case law dated on September 2, 2015 (European
Court of Justice [ECJ], 2 September 2015, C-386/14,
Groupe Steria SCA), the ECJ has settled that the French
tax legislation governing the dividends payment made
by subsidiaries to their parent company constitutes a
restriction to the freedom of establishment provided for
in the Treaty on the Functioning of the European Union
(TFEU).
Steria requested for the repayment of the proportion of this
corporation tax corresponding to the costs and expenses based on the
incompatibility of the French national rules with article 49 of TFEU.
French tax authorities as well as the Administrative Court of Montreuil
declined this request. Steria brought the case before the Administrative
Court of Appeal of Versailles which referred to the ECJ the question
whether the French rules infringed the EU freedom of establishment.
The ECJ has ruled in favour of the company Steria in its dispute,
considering that the French tax legislation hinders Article 49 of TFEU
‘since, under such rules, only resident companies can be part of a tax
integrated group, the tax advantage at issue in the main proceedings is
reserved to dividends of national regime’.
Under the French participation exemption regime, dividends
distributed by a subsidiary to a parent company are in principle tax
exempt at the level of the latter, to the exclusion of a fixed amount of
5% representing the charges incurred in relation to the holding in the
subsidiary (Article 216 of the French Tax Code). However, the French
group taxation regime (Article 223 of the French Tax Code) allows the
deduction of this fixed 5% add-back if both the parent company and the
subsidiary are jointly taxed and part of a single ‘tax integrated group’.
Emmanuelle Veras
Marseille
T: +33 4 91 99 30 36
E: [email protected]
• The French government may remove from the tax participation
exemption regime the exclusion of the fixed amount of 5%,
representing the charges incurred in relation to the holding in
the subsidiary.
• The French government may otherwise remove the right of
deduction of the fixed 5% add-back within the tax integrated
group regime.
• Finally, the French government could deeply recast the current
tax integrated group regime.
In the meantime, French companies member of a tax integrated
group, holding subsidiaries established within other European
Union (EU) Member states which comply with the conditions of the
tax integrated group regime, could request for the repayment of the
corporate income tax paid with respect to the corresponding 5%
share of costs and expenses paid for the dividends received.
Furthermore, this case may also have a significant impact on other
EU-states fiscal unity regime. E.g. regarding the Dutch fiscal entity
regime, one may argue that certain of its advantages should also
be offered to Dutch parent companies with EU subsidiaries, which
may result in several notable advantages for Dutch taxpayers. This
could for example lead to the improvement of interest deductibility
positions and re-qualification of holding/financing losses to
operational losses (offsetting the latter type of losses is subject
to less strict conditions). This case can be relevant for tax years
that are still open to correction/appeal, i.e. cases where no final
assessment has been issued yet or within six weeks after a final
assessment has been imposed. We therefore recommend affected
taxpayers to take action as soon as possible.
Groupe Steria SCA company is the parent company of a tax integrated
group as provided for in Article 223. Steria is a member of that group
and holds at 95% subsidiaries established in France and in other EU
Member States. In accordance with Article 216, the dividends received
by Steria from subsidiaries established in other Member States were
deducted from its net profits, except for the 5% representing the
charges borne by Steria as a parent company.
Renaud Jouffroy
Paris
T: +33 1 56 57 42 29
E: [email protected]
PwC observation:
It is likely that French law will be amended to take into account this
ECJ case. The main following scenarios may be anticipated:
Jeroen Schmitz
Amsterdam
T: +31 88 79 27 352
E: [email protected]
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China
Canada - Spain 2014 protocol
The protocol between Canada and The Kingdom of Spain
amending the convention between Canada and Spain for
the avoidance of double taxation and the prevention of
fiscal evasion with respect to taxes on income and on capital
(the ‘2014 Protocol’) was signed on November 18, 2014 and
will enter into force on December 12, 2015. The convention
and initial protocol were originally signed on November 23,
1976.
Under the 2014 Protocol, the regular 15% withholding tax (WHT) rate
on dividends is reduced to 5% where the beneficial owner is a company
(other than a partnership) that holds directly at least 10% of the
payer’s capital, and down to 0% where dividends are paid or credited
to certain pension or retirement plans. The regular 15% WHT rate on
interest is reduced to 10% generally and down to 0% in limited cases
(including where the beneficial owner is dealing at arm’s length with
the payer).
PwC observation:
The reduced WHT rates on dividends and interest are applicable to
amounts paid or credited to non-residents on or after December 12,
2015.
The 2014 Protocol further includes provisions reflecting the
standard developed by the Organisation for Economic Co-operation
and Development (OECD) for the exchange of tax information.
Kara Ann Selby
Toronto
T: +1 416 869 2372
E: [email protected]
EU Law
Maria Lopes
Toronto
T: +1 416 365 2793
E: [email protected]
China introduces self-assessment mechanism to
facilitate tax treaty benefits claims
China’s State Administration of Taxation (SAT) recently
released a new Administrative Measures on Non-resident
Taxpayers Claiming Tax Treaty Benefits (the Measures),
introducing a new mechanism of self-assessment on the
eligibility for tax treaty benefits to replace the prevailing
pre-approval/record-filing acknowledgement procedures.
The Measures will take effect from November 1, 2015.
Self-assessment mechanism
Under the new mechanism, non-resident taxpayers shall perform selfassessment on their eligibility for tax treaty benefits while filing their tax
returns. Where there is a withholding agent, it shall also check whether
the tax treaty benefits should apply for the non-resident taxpayer.
Document wise, the new mechanism requires non-resident taxpayers
and their withholding agents (if applicable) to provide more information
(e.g. the tax residency, types of income, beneficial ownership) to the
Chinese tax authorities than before to substantiate the claim of tax
treaty benefits.
More stringent post-tax filing examination
With the removal of the pre-approval process and record-filing
acknowledgement, the Chinese tax authorities will place more focus
on post-tax filing examinations. For instance, they could request for
supplementary information in the examination process, invoke the
general anti-avoidance rules (GAAR) in accordance with the relevant tax
treaty provisions or domestic regulations to investigate the claims, etc. It
should be noted that once the GAAR is triggered, the statutory limitation
of the case can be extended to as long as ten years.
Matthew Mui
China
T: +86 10 6533 3028
E: [email protected]
PwC observation:
The new mechanism provided by the Measures will speed up
the repatriation of funds from China to overseas. However, the
self-assessment process also imposes greater responsibilities on
non-resident taxpayers and even their withholding agents, and
may also give rise to uncertainties to both. To make an appropriate
assessment, they should possess profound knowledge of the tax
treaty and tax filing procedures. Also, proper documentation
and early communication with the in-charge tax bureaus are
advisable in order to avoid potential controversies after their treaty
benefit claims.
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Netherlands
Protocol to the double tax treaty with Indonesia
updated
On July 30, 2015, the protocol to the double tax treaty
(DTT) between the Netherlands and Indonesia has been
updated. On the basis of the revised protocol, lowered
withholding tax (WHT) rates may apply in relation
to dividend distributions and interest payments, and
provisions on the exchange of information and the
assistance in the collection of taxes have been included.
The DTT still does not include any general anti-treaty
shopping rules.
The following WHT rates apply under the revised DTT:
• Although the general WHT rate on dividend distributions has been
increased to 15%, a reduced rate of 5% applies if the beneficial
owner holds directly more than 25% of the capital of the dividend
paying entity. A reduced dividend WHT rate of 10% applies to
pension funds.
• The general WHT rate on interest payments remains 10%. This
rate is however lowered to 5% in respect of interest payments to
the Netherlands, if either the loan has a duration of more than two
years, or the payment is connected to a credit sale of industrial,
commercial, or scientific equipment. The Netherlands, however, do
not levy WHT on interest on the basis of Dutch domestic tax law.
• The maximum WHT rate on royalties remains unchanged at 10%.
The Netherlands, however, do not levy WHT on royalties on the
basis of Dutch domestic tax law.
In addition to the above, the protocol provides for a new clause on the
exchange of information, which is in line with the latest Organisation
for Economic Co-operation and Development (OECD) Model Tax
Convention. Furthermore, the protocol provides for the assistance of
one contracting state in the collection of taxes of the other.
The updated protocol will enter into force subsequently to the
ratification by both the Netherlands and Indonesia.
PwC observation:
The protocol update of the DTT between the Netherlands and
Indonesia contains several changes. This brings the DTT more in
line with the OECD Model Tax Convention, which increases the
clarity for taxpayers. In addition, more favorable WHT rates may
apply on the basis of this DTT. Although the Dutch international
fiscal policy offers general anti-abuse clauses to certain countries
including Indonesia, the protocol update of the DTT between the
Netherlands and Indonesia does not include such a DTT provision.
Jeroen Schmitz
Ramon Hogenboom
Pieter Ruige
Amsterdam
Amsterdam
New York
T: +31 88 79 27 352
E: [email protected]
T: +31 88 79 26 717
E: [email protected]
T: +1 212 805 6681
E: [email protected]
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Double tax treaties signed with Kenya and Zambia
The Netherlands have concluded two double tax treaties
(DTTs) with Kenya and Zambia, both aimed at avoiding
double-taxation and supporting the fiscal and economic
environment of Kenya and Zambia. In line with Dutch
treaty policy, both treaties contain an anti-abuse clause
with respect to the applicability of the reduced withholding
tax (WHT) rate on dividends, interest, and royalties.
According to this clause, any treaty benefits will be denied
if the main purpose is to obtain those treaty benefits. Both
treaties also include an exchange of information clause.
The specifics in relation to the double tax treaties are
outlined below.
DTT Netherlands - Kenya
By signing this treaty, Kenya becomes part of the extensive Dutch tax
treaty network consisting of more than 100 DTTs. The treaty between
the Netherlands and Kenya provides for the following WHT rates:
• No WHT on dividends if the beneficial owner is a company that
holds directly 10% or more of the company distributing the
dividend. In all other cases, dividend distributions from Kenya are
subjected to 10% WHT and distributions from the Netherlands to
15%.
• 10% WHT on interest.
• 10% WHT on royalties.
Jeroen Schmitz
Amsterdam
T: +31 88 79 27 352
E: [email protected]
Ramon Hogenboom
Amsterdam
T: +31 88 79 26 717
E: [email protected]
DTT Netherlands - Zambia
The treaty between the Netherlands and Zambia will replace the DTT
of 1977. This renewed DTT provides for the following WHT rates:
• 5% WHT on dividends if the beneficial owner is a company
that holds directly 10% or more of the capital in the company
distributing the dividend. In all other cases the WHT is 15%.
• 10% WHT for interest.
• 7.5% WHT for royalties.
PwC observation:
These treaties are in line with the new Dutch international fiscal
policy, which is aimed at supporting developing countries in
their efforts to improve their tax systems and the organisation
of their tax administrations. For bilateral treaties, one of the
main changes is the introduction of an anti-abuse clause. The
first treaty in which such clause was introduced is the treaty with
Malawi, concluded in April 2015. Other countries to which such a
treaty modification is offered are: Ghana, Kyrgyzstan, Pakistan,
Morocco, Egypt, Bangladesh, the Philippines, Uganda, Moldavia,
Nigeria, Sri Lanka, Vietnam, Zimbabwe, Georgia, Uzbekistan,
Ukraine, Indonesia, Mongolia, and India.
Peter Ruige
Amsterdam
T: +1 212 805 6681
E: [email protected]
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The income and capital gains double tax treaty (DTT)
between Spain and Oman and the accompanying protocol,
signed on April 30, 2014, has entered into force on
September 19, 2015 as the Spanish government announced
in Official Gazette No. 215, published on September 8,
2015.
The main features of the DTT are:
• Dividends are exempt from withholding tax (WHT) if its beneficial
owner is a company (other than a partnership) that directly holds
at least 20% of the capital of the distributing company. A 10% WHT
applies in all other cases.
• WHT on interest is capped at 5% when the beneficial owner is a
resident of the other contracting state.
• WHT on royalties is capped at 8% when the beneficial owner is a
resident of the other contracting state.
• Capital gains arising from
• the alienation of shares deriving more than 50% of their value,
directly or indirectly, from immovable property, may be taxed
in the state where the property is located,
• the alienation of shares or similar or other rights that grant the
right to their owner to enjoy immovable property situated in a
contracting state may be taxed in that state,
• the alienation of movable property that is part of a permanent
establishment (PE) or the sale of such PE may be taxed in the
resident state of the PE,
Ramón Mullerat
Madrid
T: +34 915 685 534
E: [email protected]
• the alienation of ships or aircrafts shall be taxable only in the
country of the company’s effective management, and
• in all other cases, capital gains are taxable only in the state of
the transferor’s residence.
• The protocol includes a number of limitations on benefits
provisions aimed at preventing certain tax-driven structures.
PwC observation:
The Spain-Oman DTT adds to the growing number of Spanish tax
treaties in the Asian continent and should help in promoting crossborder investments.
Carlos Concha
Madrid
T: +34 915 684 365
E: [email protected]
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Treaty ratified with Oman
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Spain
Treaty ratified with Uzbekistan
The income and capital gains tax treaty (DTT) between
Spain and Uzbekistan and the included protocol, signed on
July 8, 2013, has entered into force on September 19, 2015
as the Spanish government announced in Official Gazette
No. 217, published on September 10, 2015.
PwC observation:
The Spain-Uzbekistan DTT adds to the growing number of Spanish
tax treaties in the Asian continent and should help in promoting
cross-border investments.
The main features are:
• Withholding tax (WHT) on dividends is capped at 5% in case
the recipient is the beneficial owner and a company (other than
a partnership) that directly holds at least 25% of the distributing
company, whereas a 10% WHT rate applies in all other cases.
Nevertheless, the treaty foresees in its protocol an exemption for
dividends distributed by a company residing in Uzbekistan to a
company in Spain, as long as under the Spanish corporation tax the
Spanish company is not taxed for such dividends.
• WHT rate on interest is 5%, provided the recipient is the beneficial
owner. A 0% WHT rate would apply for certain public or financial
institutions.
• WHT on royalties is capped at 5% when the recipient is the
beneficial owner.
• Capital gains may be taxed in the state the disposed property is
situated, when they arise from:
• the alienation of a permanent establishment (PE) (or movable
property forming part of it) located in that state,
• the alienation of shares or comparable interests deriving more
than 50% of their value, directly or indirectly, from immovable
property situated in such state, and
• the alienation of shares or other rights which, directly or
indirectly, entitle their owner to the enjoyment of immovable
property situated in that state.
Ramón Mullerat
Madrid
T: +34 915 685 534
E: [email protected]
Carlos Concha
Madrid
T: +34 915 684 365
E: [email protected]
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Contact us
For your global contact and more information on PwC’s
international tax services, please contact:
Anja Ellmer
International tax services
T: +49 69 9585 5378
E:[email protected]
Worldwide Tax Summaries:
Corporate taxes 2015/16
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the myriad tax rates in all the jurisdictions where you
operate? If not, we can help – download the eBook of our
comprehensive tax guide, or explore rates in over 150
countries using our online tools, updated daily.
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