International Tax Webcast Series on Country Tax Updates · Action 4 Limit base erosion via interest deductions/other financial payments (Dec. 2015) Action 5 Counter harmful tax practices

EU/OECD, France, Netherlands, United

States of America, Brazil

March 12, 2014

International Tax

Webcast Series

on Country Tax

Updates

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Agenda

■ EU and OECD update

■ Base Erosion and Profit Shifting (BEPS)-related changes in France under the Finance Act

2014

■ Substance requirements for conduit finance, license and holding companies in the

Netherlands

■ Proposals for tax reform in the United States and Foreign Account Tax Compliance Act

(FATCA) update

■ New tax rules in Brazil and their implications on taxpayers




KPMG Contacts

Jennifer Sponzilli

Principal, seconded to KPMG

in the UK

T. +44 (0) 20 7311 1878

E. [email protected]

Carlos Toro

Director, KPMG in Brazil

T. +55 11 21836569


Jaap Bellingwout

Partner, KPMG Meijburg & Co

T. +31 (0)20 656 10 58


Thierry Pons

Partner, Fidal

T. +33 1 55 68 17 89


Vinod Kalloe

Of Counsel, KPMG Meijburg & Co

T. +31 (0)20 656 16 57


Franz zu Hohenlohe

Partner, KPMG in Germany

T. +49 89 92821186


Fidal is an independent legal entity that is separate from KPMG International and KPMG member firms.

mailto:[email protected]
















OECD: Fight against Base

Erosion and Profit Shifting

and the

EU: Fight against

Aggressive Tax Planning




OECD Base Erosion Profit Shifting 15 Point Action Plan

Action 1 Address the tax challenges of the digital economy (Sept. 2014)

Action 2 Neutralize the effects of hybrid mismatch arrangements (Sept. 2014)

Action 3 Develop recommendations regarding the design of CFC rules (Sept. 2015)

Action 4 Limit base erosion via interest deductions/other financial payments (Dec. 2015)

Action 5 Counter harmful tax practices

Including compulsory spontaneous exchange of rulings (Sept. 2014 - Dec. 2015)

Action 6 Prevent treaty abuse (Sept. 2014)

Action 7 Prevent artificial avoidance of PE status (Sept. 2015)




OECD Base Erosion Profit Shifting 15 Point Action Plan

Action 8 Ensure that profits associated with the transfer and use of intangibles are appropriately

allocated in accordance with value creation

Action 9 Prevent BEPS by transferring risks, or allocating excessive capital to group members,

align returns with value creation

Action 10

Other high risk transactions: recharacterize transactions, management fees and head

office expenses (Sept. 2015)

Action 11 Establish methodologies to collect and analyze data on BEPS (Sept. 2015)

Action 12 Recommendations for mandatory disclosure rules for aggressive tax planning and design

model for exchange of information of tax schemes between tax administrations (Sept.

2015)

Action 13 Re-examine transfer pricing documentation: and include CBCR (Sept. 2014)

Action 14 Make dispute resolution mechanisms more effective (Sept. 2015)

Action 15 Develop a multilateral instrument (Dec. 2015)




OECD BEPS Action Point 13 – Discussion Draft 30 January 2014

Nature of Reporting EU Accounting &

Transparency Dir.

Dodd - Frank

Act CRD IV BEPS Action 13

Names of entities, nature of activities and geographical

location O O P P

Pa

ym

en

ts to

go

ve

rnm

en

t

En

title

me

nts

Host government's production entitlements P P O O

National state-owned company production

entitlement P P O O

Royalties P P O O

Dividends P P O O

Bonuses (signature, discovery, production etc.) P P O O

Fees (license, rental, service etc.) P P O O

Infrastructure improvements P P O O

Payments in-kind P P O O

Taxes on profit or loss Accrual basis ? ? ? O

Cash basis P ? ? P!

Withholding tax paid! O O ? P!

Other taxes on income, profit or production P P ? O

Profit or loss before tax O O P P

Revenues O O P P

Number of employees O O P P

Total employee expense O O O P

Stated capital and accumulated earnings O O O P

Tangible assets other than cash or cash equivalents O O O P

Public subsidies O O P O

Intercompany payments O O O P

France




Significant Tax Changes under the Finance Act 2014

Corporate Income Tax Rate

Temporary 5% surcharge on corporate income tax (CIT) increased to 10.7%

Companies liable to CIT that have annual turnover of over €250 million are subject to temporary

surcharge equal to 10.7% (previously 5%) of the standard rate CIT on their taxable income for Fiscal

Years (FY) ending December 30, 2015 (i.e. for FY closing on 31 Dec: including 2013 and 2014, but

not, in principle 2015 ). This surcharge is not tax deductible

Turnover <€250 million(a) Turnover >€250 million(a)

CIT <€763,000 CIT >€763,000 CIT <€763,000 CIT >€763,000

Standard rate 33.33% 33.33% 33.33% 33.33%

3.3% surcharge (b) 1.10% 1.10%

10.7% surcharge (b) 3.57% 3.57%

Total CIT rate 33.33% 34.43% 36.9% 38%

(a) For tax consolidated groups: Turnover assessed at the group level

(b) On the fraction of CIT >€763,000

(c) Calculation on the CIT as determined before offsetting tax reductions, tax credits and tax receivables of any kind

Additional 3% tax applies on net distributed income (except within consolidated group and

distributions by branches of EU companies), i.e. marginal CIT rate approx. 40%





Deductibility of Interest

New BEPS limitation on deduction for financial expenses

■ Source: Finance Bill for 2014 (Art. 14), entry into force: FYs ended on or after Sept 25, 2013

■ Context: BEPS Report/BEPS Action plan

■ Introduction of an additional condition for the tax deductibility of interest on loans received from

related parties: the Administration may require taxpayer to demonstrate that the lender is

subject, during the same FY, to income tax (on the interest received) at a rate of at least 25%

of the standard French rate (i.e.: 33,33%*25%=8,33%)

■ If the lender is a foreign tax resident: comparison with the theoretical income tax that would have

been due in France, had it been a French tax resident





New BEPS limitation on deduction for financial expenses (continued)

■ Practical difficulties/expected clarifications:

– Nature/content of supporting documentation?

– How to determine the effective tax rate on the interest income at lender’s level, e.g.:

– Should the effective taxation be appraised on a net basis, or after deduction of other

expenses?

– Should the 25% threshold be considered before or after the offset of tax losses or tax credits?

Action: Anticipate the requests from the tax authorities in the event of tax audit and prepare,

each year, a file documenting and justifying that the interest deductibility conditions are met

Note: the draft bill (art. 60 quindecies) required a report by the Administration on hybrid

entities: more restrictions to come.






■ Previous Finance Acts:

– General limitation on deduction for financial expenses: 75% of net interest charge, except if net

financial expense < €3 million

– Debt push down: anti-abuse mechanism for financial expenses relating to the acquisition of

substantial shareholdings (Article 209 IX of the FTC), if the company whose shares are acquired

is not actually managed or controlled in France

Action: check level of interest deduction, de-leverage if necessary to avoid double taxation,

check consequence of limited €3 million threshold especially for consolidated groups, check

governance to avoid debt push down rules






Transfer Pricing

■ Increased documentation obligations for companies with greater than €400 million turnover or

assets, or which are owned by or controlling a company meeting this definition, or which are part of a

tax consolidated group in which one of the companies meets this definition

■ Previous Finance Acts: The TP documentation must be at the tax inspector’s disposal as from the 1st

day of the tax audit

– 2013 Law against tax fraud : new obligation for the same companies = compulsory annual

reporting, within 6 months after due date for filing of annual return (ie November 5, 2014 if

FY December, 31 2013)

– Finance Bill: Obligation in case of tax audit to provide to the Administration management

accounts (if any) and consolidated accounts + obligation to provide information on rulings

and APAs from other foreign administrations

Action: check documentation and consistency with documentation available to the

Administration




■ Based on the Finance Act 2014 companies liable to CIT that have annual turnover of over

€250 million are subject to a marginal rate of

a) approx. 40%

b) 33.33%

c) 10.7%

■ The new increased transfer pricing documentation obligations apply to

a) companies with greater than €400 million turnover or assets

b) companies which are owned by or controlling a company with greater than €400 million

turnover or assets, or which are part of a tax consolidated group in which one of the

companies meets this definition

c) all of the above

Questions 1 & 2

Netherlands




Substance Requirements for Conduit Finance, License and Holding

Companies

■ Existing substance requirements for conduit finance companies apply at a wider scale as of 2014:

– Up to and including 2013, substance requirements were only formally imposed on conduit

finance/license companies in light of an advance pricing agreement (APA)

– As of 2014, these requirements are also imposed on qualifying conduit finance/license companies

that do not have an APA

– Also, as of 2014, these requirements are imposed on holding companies, but only if they want to

obtain an advance tax ruling (ATR)

New Rules as of 2014





Companies

■ For conduit finance/license companies, this expanded scope of substance requirements is combined

with:

(i) disclosure requirements, and

(ii) spontaneous exchange of information (EOI)

■ Without an APA :

Qualifying conduit finance/license companies will be required to declare in their Dutch corporate

income tax return (as of FY 2014) whether they comply with the substance requirements (subject to a

fine of EUR 20,050)

In case they do not comply with the substance requirements:

– additional information needs to be disclosed to the Dutch tax authorities (also subject to the file

mentioned above)

– spontaneous EOI will take place with the relevant tax treaty countries

■ With an APA :

Conduit finance/license companies that wish to obtain an APA, are obliged to meet the substance

requirements anyway. But if, from the perspective of the group the conduit finance/license company

belongs to, no other (operational) nexus with the Netherlands exists, the contents of the APA will be

exchanged with the relevant countries

Disclosure and Exchange of Information





Companies

Dutch Substance Requirements

■ With reference to the previous slide, please find below an overview of the minimum Dutch substance requirements:

– At least half of the combined statutory and authorized decision-making directors live or are resident in the

Netherlands

– The directors who live or are resident in the Netherlands have the necessary professional skills to carry out their

responsibilities properly. These responsibilities should include, at a minimum, independent decision-making in

relation to transactions to be entered into by the taxpayer (within the parameters of normal group involvement),

as well as ensuring that such transactions are properly carried out. The taxpayer can call upon qualified

personnel (either internally or externally) to ensure that these transactions are properly carried out and recorded

– The board decisions should be taken in the Netherlands

– The bank account (or main bank accounts as the case may be) is held in the Netherlands, albeit that foreign

bank accounts may be used

– The bookkeeping must be kept in the Netherlands

– The taxpayer’s registered office is located in the Netherlands

– As far as the taxpayer is aware, it is not regarded as a tax resident in another country

– The taxpayer runs a real risk within the meaning of the law

– The amount of equity held by the taxpayer is at least appropriate for the required risk




■ Which companies do not officially have the obligation to comply with the minimum Dutch

substance requirements as of 2014

a) conduit finance/license companies requesting an APA

b) holding companies requesting an advance tax ruling

c) holding companies in general

Question 3

United States




Sunset of Tax Provisions

Sunset of Tax Provisions

Major Expired Provisions

■ The CFC look-through rule that permits a CFC to receive dividends, interests, rents, and

royalties form a related CFC without that income being taxed currently to US shareholders

■ The active-financing exception that exempts interest received by CFCs engaged in active

financing income from anti-deferral rules

■ The 20% credit for research and experimental activities

■ Various provisions permitting accelerated depreciation of certain assets

■ More than 50 taxpayer-favorable provisions expired for calendar year taxpayers at the end of

2013

■ Taxpayers may extend the life of some of these provisions for up to 11 months by changing to

a non-calendar tax year

Prospects for Reenactment

■ Many of these provisions have expired and been reenacted several times in the past

■ When the U.S. Congress will pass a bill extending some or all of these provisions is unclear




Proposals for Tax Reform

Proposals for U.S. Tax Reform

■ There are 2 main current proposals for tax reform: the House Ways and Means Committee’s

and the Obama Administration’s budget proposal for 2015

■ Certain parts of old reform proposals may be relevant to future tax reform efforts

Prospects for Fundamental Tax Reform

■ A variety of factors will make achieving fundamental tax reform in 2014 difficult

– The U.S. has a split government, with a Democratic President, a Democratic-controlled

Senate, and a Republican-controlled House

– Mid-term elections will be held this November

– Max Baucus, the former Chairman of the Senate Finance Committee, and a key player in

the US tax reform debate recently left the to become the U.S. ambassador to China




Main Elements of Current Proposals

Ways and Means Reform proposal Administration budget

Corporate Tax Rate 25% No rate reduction; new “Fair Share Tax”

on upper-income taxpayers

Tax Base changes Broadening of tax base

■ Eliminate specific deductions, e.g.,

for domestic manufacturing

■ Eliminate or modify accelerated

cost recovery

No major reform proposed

■ Permanent R&E, renewable energy,

and employment credits

■ Increased mark-to-market for

derivatives

■ Eliminate fossil fuel preferences

International “Territorial” system

■ Dividends from CFC excluded from

personal holding company income,

and eligible for 95% dividends

received deduction

■ measures to prevent the offshore

shifting of profits, e.g., excessive

debt in the US

■ Transition rules

■ Eliminating deductions for

“excessive” interest

■ Expand subpart F application to

intangibles and sales of digital

goods and services

■ Restricting the use of hybrid

arrangements that create “stateless

income”

Foreign Tax Credit ■ No FTC for taxes paid or accrued

with respect to exempt dividends

■ Limit deductions allocation against

foreign-source income.

■ FTCs limited by determining an

amount proportionate to taxpayer’s

pro rata share of the consolidated

foreign E&P that is repatriated




FATCA Update

FATCA Basics

■ The United States enacted the FATCA in 2010 to ensure that U.S. taxpayers accurately report

their income from foreign investment accounts

■ FATCA requires foreign financial institutions (FFIs) to report to the IRS information about

financial accounts held by U.S. taxpayers, or non-financial foreign entities (NFFEs) in which

U.S. taxpayers hold a substantial ownership interest

■ FFIs and NFFEs that do not comply with FATCA will be subject to 30% withholding on certain

U.S. source payments

■ To avoid being withheld upon under FATCA, a participating FFI will have to enter into an

agreement with the IRS to:

– Identify U.S. accounts,

– Report certain information to the IRS regarding U.S. accounts,

– Verify its compliance with its obligations pursuant to the agreement, and

– Ensure that a 30-percent tax on certain payments of U.S. source income is withheld when

paid to non-participating FFIs and account holders who are unwilling to provide the

required information

■ FFIs may provide the required FATCA reporting to their home tax authority (rather then the

IRS) if their tax authority has entered into an intergovernmental agreement (IGA) with the

United States providing for the automatic exchange of that information




FATCA Update

FATCA Timeline

■ Regulations issued in January 2013 provided for a phased implementation of FATCA

beginning January 1, 2014 and continuing through 2017

■ In July 2013, the IRS announced that the beginning implementation date was being pushed

back to July 1, 2014

■ For FFIs to be included in the first IRS FFI list, they must be registered on the IRS portal by

25 April 2014

IGAs

■ The United States has signed and released IGAs with the following countries:

Mauritius

Mexico

The Netherlands

Norway

Spain

Switzerland

United Kingdom

Bermuda

Canada

Cayman Islands

Costa Rica

Denmark

France

Germany

Guernsey

Germany

Hungary

Ireland

Isle of Man

Italy

Japan

Jersey

Malta




FATCA Update

Recently Released Guidance and Forms

■ Regulations:

– Regulations intending to harmonize the information reporting and withholding rules under

chapters 3 and 61 (issued as final and temporary regulations)

– Regulations containing more than 50 “discrete amendments and clarifications” to the

existing FATCA regulations (issued as proposed, final, and temporary regulations)

■ FFI Agreement for Participating FFI and Reporting Model 2 FFI, Rev. Proc. 2014-13

■ Forms released in final form:

– Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons

– Form W-8ECI, Certificate of Foreign Person’s Claim that Income is ECI, and Instructions

– Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for US Tax Withholding,

and Instructions

Forthcoming Guidance?

■ Qualified Intermediary agreement

■ Forms to be updated or created for FATCA: Form W-8IMY (Rev. February 2006), Form W-

8EXP (draft released 23 May 2013), Form 8966 (draft released 4 March 2014), Form W-

8BEN-E (draft released 20 May 2013)

■ Additional IGAs

■ Global Automatic Exchange of Information (G20/OECD initiative)




■ The United States has signed and released IGAs with Switzerland and the United Kingdom

a) True

b) False

Question 4

Brazil




New Tax Rules

■ In 2007 Brazil enacted legislation making first steps towards the adoption of international

accounting standards – IFRS (Law 11,638/07)

■ Transitory tax Regime (RTT) was introduced by Law 11,638/07 and Law 11,941/09 to provide

a temporary tax neutrality for the new accounting rules

■ As RTT proved to be not efficient as planned, there has been significant pressure to revoke

the RTT and regulate the tax impacts of IFRS (specific tax law changes)

■ Conversations among tax authorities, taxpayers and tax advisors resulted in a 100-article

Provisional Measure (MP 627/13) enacted on 12 November, 2013 that revoked the RTT

Provisional Measure 627/13

■ Main impacts of Provisional Measure 627/13 can be summarized as follows:

– Goodwill: (i) amortization of goodwill generated as a result of transactions with related

parties and involving exchange of shares is no longer allowed; (ii) goodwill allocation must

follow IFRS: first it must be allocated to fair value of assets/liabilities and intangibles and

the remaining portion is allocated as goodwill (based on future profitability)

– Dividends: 2008 to 2013 dividends may be taxed on any profits exceeding old-GAAP

profits

– Gross Revenue Taxes: changes in the concept of gross revenues

– CFC rules: relevant changes in Brazilian CFC rules

New Tax Rules & their Implications on Taxpayers




■ Based on the Provisional Measure 627/13 dividends from 2008-2013

a) may be taxed on any profits calculated under the new-GAAP rules

b) may be taxed on any profits exceeding old-GAAP profits

c) may be not taxed at all

Question 5




KPMG Contacts

Jennifer Sponzilli

Principal, seconded to KPMG

in the UK

T. +44 (0) 20 7311 1878


Carlos Toro

Director, KPMG in Brazil

T. +55 11 21836569


Jaap Bellingwout

Partner, KPMG Meijburg & Co

T. +31 (0)20 656 10 58


Thierry Pons

Partner, Fidal

T. +33 1 55 68 17 89


Vinod Kalloe

Of Counsel, KPMG Meijburg & Co

T. +31 (0)20 656 16 57


Franz zu Hohenlohe

Partner, KPMG in Germany

T. +49 89 92821186


Fidal is an independent legal entity that is separate from KPMG International and KPMG member firms.

















© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms

of the KPMG network of independent firms are affiliated with KPMG International. KPMG

International provides no client services.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG

International.

The information contained herein is of a general nature and is not intended to address the circumstances of

any particular individual or entity. Although we endeavour to provide accurate and timely information, there

can be no guarantee that such information is accurate as of the date it is received or that it will continue to be

accurate in the future. No one should act on such information without appropriate professional advice after a

thorough examination of the particular situation.

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Documents

International Tax Webcast Series on Country Tax Updates · Action 4 Limit base erosion via interest deductions/other financial payments (Dec. 2015) Action 5 Counter harmful tax practices