OECD BEPS action plan report - PKF | Assurance, Audit, … · Jne 2017 3. BPS Acion Plan Sas Uae Reor. Background • Taxation is at the core of countries’ sovereignty, but the

OECD BEPS action plan reportstatus update

June 2017

OECD BEPS Action Plan Status Update Report - June 2017-5.indd 1 8/8/2017 3:24:49 PM


June 2017 3

OECD BEPS Action Plan Status Update Report

Background

• Taxation is at the core of countries’ sovereignty, but the interaction of domestic tax rules can lead to gaps and frictions

• Existing tax rules have revealed weaknesses

• In the changing international tax environment, concern has been expressed as regards the international standards

• The G20 Finance Ministers called on the OECD to develop an Action Plan

• The goal is to make fundamental changes to the current mechanism in order to:

– Prevent double non-taxation

– Prevent no or low taxation

– Develop new harmonized international standards on corporate income taxation at the international level

• This resulted in the OECD BEPS Action Plan Report with 15 action points and corresponding timelines

Objective

• The PKF International Tax Network is pleased to provide you with a status update of the global implementation of the OECD BEPS Action Plan Report

• The PKF International Tax Network commits to update this report on a 6 monthly basis

For your convenience, please find a summary of the 15 Action Points discussed by the OECD BEPS Action Plan Report below:

Status UpdateJune 2017


June 20174


1Action Point

Digital economy

Action 1 aims to identify and

address the main challenges that the

digital economy poses for the

existing international tax

rules

2Action Point

Hybrids

Action 2 aims to neutralize the

effects of hybrid mismatch

arrangements by making changes to

the Model Tax Convention and

providing recommendations

on the design of domestic rules to

prevent hybrids from being a

source of ‘double non – taxation’

3Action Point

CFC’s

Action 3 aims to develop

recommendations regarding the

design and strengthening of

controlled foreign corporation (CFC) rules, to address

concerns over the possibility of

creating affiliated non – resident taxpayers and

routing income of a resident enterprise through the non – resident affiliate or

avoid taxation

4Action Point

Interest deductions

Action 4 aims to limit base erosion

via interest deductions and

other financial payments.

Recommendations are expected to be

published for domestic law

limitations on tax deductions for both

related and unrelated party

interest expense and economically

equivalent payments. The workstream will

also develop guidance for the

transfer pricing of debt arrangements

5Action Point

Harmful tax practices

Action 5 aims to identify and counter

harmful tax practices, taking

into account transparency and

substance. The Action Plan will

look at developing both

recommendations on the definition of

harmful tax practices and a

strategy to expand to non – OECD

members

6Action Point

Prevent treaty abuse

Action 6 aims to prevent treaty

abuse, through developing model

treaty provisions and

recommendations regarding the

design of domestic rules to prevent the

granting of treaty benefits in

inappropriate circumstances

7Action Point

PE status

Action 7 aims to prevent the

artificial avoidance of Permanent Establishment

(“PE”) status, by redefining the threshold for

creating a PE to prevent base

erosion and profit shifting. The work

includes a focus on the use of

commissionaires and keeps some

specific activity exemptions, including for warehousing

8Action Point

TP - intangibles

Action 8 looks specifically at

intangibles and will develop transfer

pricing rules to prevent base

erosion and profit shifting where intangibles are

owned by, used by, contributed to or moved among group members


June 2017 5


9Action Point

TP – capital related high-risk transactions

Action 9 looks specifically at risks and

will develop transfer pricing rules to prevent

base erosion and profit shifting by transferring risks

among, or allocating excessive capital to,

group members

10Action Point

TP – other high-risk transactions

Action 10 looks specifically at other

high-risk transactions and will develop

transfer pricing rules to prevent base erosion and profit shifting by

engaging in transactions which

would not, or would only very rarely, occur between third parties

Action Point

BEPS data collection

Action 11 aims to establish

methodologies to collect and analyse

data on BEPS and the actions to address it. The OECD intends to do this by developing

recommendations regarding indicators

of the scale and economic impact of

BEPS and ensure that tools are available to

monitor and evaluate the effectiveness and economic impact of the actions taken to

address BEPS on an ongoing basis

Action Point

Disclosure of aggressive tax planning

Action 12 aims to require taxpayers

to disclose their aggressive tax planning arrangements. This will be addressed through

the development of recommendations

regarding the design of mandatory disclosure rules for aggressive or abusive transactions,

arrangements or structures, taking

into consideration the administrative costs

for tax administrations and businesses

and drawing on the experiences of the

increasing number of countries that already

have such rules

Action Point

TP – documentation

Action 13 aims to re- examine transfer

pricing documentation and will develop rules

regarding transfer pricing documentation

to enhance transparency for tax

administration, taking into consideration the compliance costs for

business

Action Point

Dispute resolution

Action 14 aims to make dispute

resolution mechanisms more effective,

through developing solutions to address

issues that prevent countries from

resolving treaty- related disputes under mutual agreement procedures

Action Point

Multilateral instrument

Action 15 aims to develop a multilateral instrument to enable

jurisdictions to implement measures

developed in the course of the work on BEPS and to amend

bilateral tax treaties

11 12 13 14 15


June 20176


Country Page

Algeria 10

Australia 12

Austria 14

Azerbaijan Republic 16

Belgium 18

Brazil 20

Bulgaria 22

China 24

Croatia 26

Cyprus 28

Czech Republic 30

Denmark 32

Estonia 34

France 36

Germany 39

Greece 41

Hong Kong 43

Hungary 46

India 48

Ireland 50

Italy 53

Japan 56

Kuwait 59

Latvia 61

Luxembourg 63


June 2017 7


The content of the PKF OECD BEPS Action Plan Status Update Report has been compiled and coordinated by both Kurt De Haen ([email protected]) and Janke Tierens ([email protected]) of PKF-VMB Accountants & Tax Consultants cvba (PKF-VMB). Please contact Kurt or Janke should you have any questions, comments or suggestions.

Country Page

Macedonia 66

Malta 68

Morocco 71

Nepal 73

Netherlands 75

Poland 77

Portugal 80

Qatar 82

Romania 84

Russia 86

Saudi Arabia 88

Slovakia 90

Slovenia 92

South Africa 94

Spain 97

Sultanate of Oman 99

Sweden 101

Switzerland 103

Thailand 106

Turkey 108

United Arab Emirates 110

United Kingdom 112

United States of America 115


June 20178


Abbreviation Description

AEOI Automatic Exchange of (Financial Account) Information

AOA Authorized OECD Approach

APA Advance Pricing Agreement

ATAD Anti-Tax Avoidance Directive

B/S Balance Sheet

B2B Business to Business

CbC Country-by-Country

CFC Controlled Foreign Corporation

CRS Common Reporting Standard

DoTAS Disclosure of Tax Avoidance Scheme

DTT Double Tax Treaty

EBIT Earnings Before Interest and Taxes

EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization

EEA European Economic Area

FATCA Foreign Account Tax Compliance Act

FTA Forum on Tax Administration

GAAR General Anti-Abuse Rule

GST Goods and Services Tax

IP Intellectual Property

LoB Limitation on Benefits


June 2017 9


Abbreviation Description

LSA Location Specific Advantages

MAP Mutual Agreement Procedure

MCAA Multilateral Competent Authority Agreement

MLC Multilateral Controls

MNE Multinational Enterprise

MOF Ministry of Finance

MOSS Mini One Stop Shop

NCST Non-Cooperation State or Territory

NHTE New/High Technology Enterprises

OTD Offshore Taxation Division

PE Permanent Establishment

PPT Principal Purpose Test

PSD Parent Subsidiary Directive

RCS Regulatory Capital Securities

SAT State Administration of Taxation

TCAL Tax Collection and Administration Law

TIEA Tax Information Exchange Agreement

TP Transfer Pricing

VAT Value Added Tax

WHT Withholding Tax


June 201710


Country AlgeriaPKF member firm Cabinet Meguellati

Your contact Anisse Raouf Benmeradi

Email [email protected]

Action Point Status of Action Point “In the pipeline”

1 Digital economy • No specific action taken yet n/a

2 Hybrids • No specific action taken yet n/a

3 CFC’s • There is no CFC legislation in Algeria. n/a

4 Interest deductions• No specific action taken yet. However, in Algeria exchange controls are very strict as multinational

companies rarely use external financing either with related or unrelated parties, so this risk is indirectly neutralized.

n/a

5 Harmful tax practices • No specific action taken yet n/a

6 Prevent treaty abuse • No specific action taken yet n/a

7 PE status • No specific action taken. However, for construction projects domestic tax law obliges foreign companies to create a temporary PE once the contract exceeds an average duration of 6 months.

n/a


June 2017 11



8 TP - intangibles • No specific action taken yet n/a

9 TP – capital related high-risk transactions

• No specific action taken yet n/a

10 TP – other high-risk transactions


11 BEPS data collection

• TP documentation must be prepared and submitted by all specified ‘large entities’ at the DGE along with the annual tax return (no later than 30 April of each year). Even if not a ‘large entity’ it is still necessary to compile supporting documentation to demonstrate the arm’s length nature of related party transactions in case a tax authority audit is conducted. Article 4 of the Decree dated 12 April 2012 states the basic TP information that a group must provide and the specific information that a company must provide.

n/a

12 Disclosure of aggressive tax planning


13 TP – documentation

• All the “Large entities” that are registered within DGE (large-sized taxpayers’ direction) must complete and submit a yearly TP documentation.

• Although Algerian TP legislation does not require any specific pricing method to be applied, the tax authority issued guidelines in 2010 referring to the OECD methods. Broadly, all OECD methods are acceptable where reasonable and relevant. However, in practice, the Algerian tax authorities apply a ‘comparability’ approach. We understand that the tax authority is strengthening its benchmarking / comparability capability by building its own internal database.

n/a

14 Dispute resolution • No specific action taken yet n/a

15 Multilateral instrument • No specific action taken yet n/a


June 201712


Country AustraliaPKF member firm PKF Sydney

Your contact Robert Lynch



1 Digital economy • GST (VAT) is being extended to digital products and services supplied by non-residents to Australian consumers from 1 July 2017.

n/a

2 Hybrids • No specific action taken yet

• The Board of Taxation has been asked to report to Treasury on the implementation of new tax laws to neutralize hybrid mismatch arrangements

3 CFC’s • No specific action taken yet n/a

4 Interest deductions • Australia is unlikely to tighten its existing safe-harbor 60% debt to total asset thin capitalization rules.

n/a


6 Prevent treaty abuse • No specific action taken yet• Australia will act to incorporate the OECD's

recommendations on treaty abuse into Australia's treaty practice

7 PE status• Australia has introduced its own version of the UK’s Google tax to tax certain

non-residents as if they have a PE in Australia where certain steps have been taken which constitute the avoidance of a PE.

n/a


June 2017 13








11 BEPS data collection • No specific action taken yet n/a




• Australian taxpayers with accounting periods commencing on or after 1 January 2016 and where their global revenue exceeds A$ 1 billion will be required to file one or more of the following:

- CbC Report - Master-file - Local-file

n/a

14 Dispute resolution • No specific action taken yet• Australia committed to mandatory binding

arbitration under the MAP

15 Multilateral instrument

• Australia is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201714


Country Austria PKF member firm PKF Österreicher-Staribacher (Vienna)

Your contact Thomas Ausserlechner




2 Hybrids• Austria implemented the July 2014 amendment of the EU PSD disallowing the benefits of the

Directive (in essence participation exemption relief) if the “dividend income” gave rise to a “tax deduction” in the source country.

n/a

3 CFC’s• There is no specific CFC legislation in Austria, but a regime similar to a PPT is in place for deciding

on reliefs for dividends and capital gains from foreign subsidiaries.n/a

4 Interest deductions• Austria has already introduced two specific restrictions for interest deductions within a group, i.e. for

interest on loans to finance intra-purchases of entities and for interest from low tax jurisdictions, but does not apply a general thin capitalization scheme.

n/a


6 Prevent treaty abuse• Regulations regarding the prevention of base erosion and profit shifting were adopted in the DTT

between Austria and Liechtenstein in order to prevent abusive advantages of the DTT.n/a

7 PE status • No specific action taken yet n/a


June 2017 15












• Austria has introduced mandatory CbC-reporting from 2016 onwards for businesses with sales of over EUR 750 million.

• For Austrian tax purposes, TP documentation should not mandatorily be filed but on- demand filing is required within 1 month (new TP documentation law just introduced).

n/a

14 Dispute resolution• Austria has announced to include such clauses in current and future treaties and has already done

so in the past with selected parties, such as Germany.n/a


• Austria is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201716


Country Azerbajian Republic PKF member firm Zenith Audit

Your contact Ziya Husseinzadeh



1 Digital economy

• In accordance with the amendment on Articles 1681.5, 169.1 and 169.3 of Tax Code of Azerbaijan Republic, services and works provided through e-commerce channels require payment of VAT.

• If a non-resident offering the services or works online does not have tax registration in Azerbaijan, the transferring financial institution must accept VAT from a customer and pay it to the state budget.

• The VAT is not creditable.

n/a


3 CFC’s

• New rules approved by parliament on 23 December 2016 and generally applied since 1 January 2017 reflect amendments on TP rules with offshore companies. The new rules are in line with the OECD’s TP guidelines. The TP rules apply to “controlled transactions”, which mean transactions that take place between the following parties:

- An Azerbaijani resident and non-resident related party; - An Azerbaijani PE of a non-resident and the non-resident (or its PE, branch office or any other

division in a foreign country); and - An Azerbaijani resident or Azerbaijan PE of a non-resident and an entity established (registered) in a

country with a preferential regime.• Parties (whether individuals or legal persons) will be considered to be related in the following situations:

- One person directly or indirectly holds at least 20% of the shares or voting power in the other person; - One person reports to, or is under the direct or indirect control of, the other person; - Both persons are under the direct or indirect control of a third person; - Both persons have direct or indirect control of a third person; or - The persons are family members, as defined in the tax code.

n/a


June 2017 17



3 CFC’s (Continued)• A taxpayer must submit a report on its controlled transactions where the aggregate amount of such

transactions in a calendar year exceeds AZN 500.000. The report must be submitted by 31 March of the year following the year of the transactions.

n/a

4 Interest deductions• The earlier 3-year exemption period from Taxes of Interest on Bank Deposits and Dividends from

Investment Securities has been extended to seven years. This means that the exemption will be valid until 1 February 2023.

n/a












13 TP – documentation • No specific action taken yet n/a




June 201718


Country Belgium PKF member firm PKF VMB Brussels

Your contact Kurt De Haen




2 Hybrids• New Belgian tax law disallowing the benefits of the EU PSD (in essence participation exemption

relief) if the “dividend income” gave rise to a “tax deduction” in the source country.n/a

3 CFC’s • There is no CFC legislation in Belgium. n/a

4 Interest deductions • No specific action taken yet n/a

5 Harmful tax practices

• Belgian tax ruling commission only signs off on upfront tax ruling decisions if the transaction is embedded with relevant substance.

• Belgian tax ruling decisions regarding cross-border structures that were concluded as of 1 January 2015 are spontaneously shared with other jurisdictions.

• Pursuant to Belgian “Cayman tax” legislation, low-tax (<15%) foreign legal structures lacking both any genuine business rationale and local substance are considered transparent for Belgian tax purposes so that individuals subject to Belgian (non) resident personal income tax and entities subject to Belgian non-for-profit income tax are taxable in Belgium on the income derived by the foreign legal structure.

• Current Belgian patent income deduction abolished with grandfathering period until 2021 and introduction of “85% innovation deduction” as of 1 July 2016.

• Upgraded Belgian IP tax legislation expected

6 Prevent treaty abuse• New Belgian tax law disallowing the benefits of the EU PSD (in essence 0% Belgian dividend WHT)

if “artificial structure”.n/a

7 PE status• Belgian tax ruling commission only signs off on upfront tax ruling decisions if the transaction is

embedded with relevant substance.n/a


June 2017 19








11 BEPS data collection• Belgian tax ruling decisions regarding cross-border structures that were concluded as of 1 January

2015 are spontaneously shared with other jurisdictions.n/a


• Individuals subject to Belgian (non) resident personal income tax have to report in their Belgian personal tax return if they are the founder, holder or beneficiary of a foreign legal structure and to what extent such structure is embedded with relevant business substance.

n/a

13 TP – documentation• As of 2016, mandatory TP documentation filing requirements (local file, master file and CbC report) if

conditions are satisfied.n/a



• Belgium is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201720


Country BrazilPKF member firm PKF Brazil

Your contact Paulo Crepaldi



1 Digital economy • No specific action taken yet • See * below

2 Hybrids • No specific action taken yet • See * below

3 CFC’s • No specific action taken yet. However, Brazilian Law contains some procedures similar to CFC rules. • See * below

4 Interest deductions • No specific action taken yet • See * below

5 Harmful tax practices • No specific action taken yet • See * below

6 Prevent treaty abuse • No specific action taken yet • See * below

7 PE status • No specific action taken yet • See * below


June 2017 21



8 TP - intangibles • No specific action taken yet • See * below


• No specific action taken yet • See * below



11 BEPS data collection• No specific action taken yet. Although ECF is an electronic version of an Income Tax Return in Brazil

as from calendar year 2017 to inform CbC Report if Braco is the ultimate or controlled company of affiliates in countries subject to BEPS.

• See * below



13 TP – documentation • No specific action taken yet • See * below

14 Dispute resolution • No specific action taken yet • See * below

15 Multilateral instrument • No specific action taken yet • See * below

* Whilst Brazil is not a member of the OECD, and will not specifically follow the 15 point action plan, it is taking steps towards OECD’s recommendations, promulgating domestic laws enforcing transparency in business relations. E.g. the Brazilian IRS has issued a Normative Instruction enforcing the communication, through an ancillary obligation named ECF, of business transactions with companies that are members of the OECD, and therefore, subject to BEPS. In this CbC report, companies will be required to inform the IRS about controlling or controlled companies abroad and their operations with them and key aspects of the companies to cross-reference that information with the Country’s Tax Authorities that said company is established. In June 2016, the Standard for A in Tax Matters, edited in 1988, was ratified and will be enforced in Brazil as from 1 January 2017.


June 201722


Country BulgariaPKF member firm PKF Bulgaria

Your contact Venzi Vassilev





3 CFC’s • There is no CFC legislation in Bulgaria n/a



• The Act on the Economic and Financial Relations with Companies Registered in Preferential Tax Regime Jurisdictions, the Persons Related to Them and their Beneficial Owners (the “Act”) entered into force on 3 January 2014. The Act imposes a prohibition for companies registered in preferential tax regime jurisdictions, and the persons related to them, to be directly or indirectly involved in the following activities: banking, insurance, pension & investment funds, mobile operators, mining, obtaining public procurement, concessions, public-private partnerships.

• Such companies are also disallowed to participate in privatization transactions, as well as in companies with state or municipal ownership, in companies carrying out activities under the Independent Financial Audit Act, the Independent Valuators Act and the Renewable Energy Act, acquisition of state or municipal property, as well as ownership over land and forests from the state forest fund.

• The prohibition is also applicable to any persons related to those companies that are registered in preferential tax regime jurisdictions, including companies that have (in)direct control over such legal entities, as well as their subsidiaries.

n/a




June 2017 23











13 TP – documentation • For Bulgarian tax purposes, TP documentation should not mandatorily be filed. • See * below



• Bulgaria is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a

* Bulgaria has to adopt the CbC reporting requirements in its legislation by June 2017. The CbC reports should be filed by the ultimate parent company of a multinational group to the tax authorities in its home jurisdiction. If the parent company is not required to file CbC reports (e.g. as it is based outside the EU), a designated group member or all group members located in the EU would be obliged to file (i.e. a secondary reporting mechanism will apply). Once filed, the CbC reports will be subject to AEOI among the tax administrations of the Member States in which the group operates. As a result, the respective tax administrations will have an overview of the business activities of the group in all tax jurisdictions, allowing them to assess whether profits are taxed where the substance and people are located or instead profit shifting techniques are used (e.g. shifting profits to low tax jurisdictions without having substance there). In Bulgaria, the first reports should be prepared for financial year 2016, filed by 31 December 2017 and exchanged within the EU tax administrations by 30 June 2018. The filing deadline for the secondary reporting could be extended by one year (i.e. applying for financial year 2017 onwards).


June 201724


Country ChinaPKF member firm PKF China

Your contact Josephine Yanagi





3 CFC’s

• In process of improving CFC rules (e.g., elaborate the definition of “control” and clarify how to determine the attributable income, etc.)

• The OTD was established by the SAT in early 2015. OTD establishment is aiming to provide more services and enhance information collection capabilities

• Revised CFC rules are reflected in the Discussion Draft of the revised Implementation Measures of the Special Tax Adjustment (Guoshuihan 2009 No. 2, Circular). The Discussion Draft is still open for public consultation, but expected to apply to fiscal year 2016

4 Interest deductions

• Thin capitalization rules are improved (e.g. scope of interest expenses clarified, a more reasonable debt/equity ratio and specific features of certain industries considered, and the carry forward or carry back of non-deductible interest expenses considered, etc.)

• Difficult to localize all BEPS recommendations at this stage; limitation only applied on interest deduction to related party loans

• May apply limitation to interest deduction to both related party and non-related party loans when there is an opportunity to revise the CIT law in the future


• Action point 5 Report was released in 2014, domestic interest on China’s CIT incentives provided to NHTE was high

• China considers the NHTE incentive a harmful tax practice; however, it will not be suspended as China applies a more strict assessment method than BEPS recommends “Nexus approach”

n/a


7 PE status • The SAT work plan in relation to PE will focus on improving PE administrative rules and strengthening the administrative practice

• The SAT will establish a PE information sharing system between local-level state tax bureaus and local tax bureaus and enhance information with exit and entrance (immigration) administrations


June 2017 25



8 TP - intangibles

• In process of improving TP rules

• The SAT is of the view that it is necessary to analyze the contributions made by local Chinese enterprises to intangibles so as to ensure contributions are reasonably compensated by foreign related parties, especially where the legal owner of the intangibles resides outside China

• The SAT is also of the view that LSA also create values, and LSA has been well recognized in comparability analysis, contribution analysis and profit split consideration.

• Capital related risks are rather difficult to identify but easy to transfer. Consequently, in TP analysis, risks should not be assessed alone, without considering the functions.

• The Discussion Draft does not provide safe harbour rules on low value-adding services

• The Discussion Draft is still open for public consultation, expected to be officially released in later 2016, and apply to fiscal year 2016


• See action point 8 • See action point 8





• The SAT task force member disclosed that in the revision of the TCAL, the SAT plans to bring in the mandatory disclosures regime under which taxpayers or scheme promoters are obliged to disclose their aggressive tax planning information to the tax authorities

n/a


• The SAT has introduced the new TP documentation requirements in the Discussion Draft

• There are indeed additional requirements which are not found in the BEPS recommendations, for example, the addition of the value chain analysis in China’s TP documentation requirements

• The Discussion Draft is still open for public consultation, expected to be officially released in later 2016, and apply to fiscal year 2016

14 Dispute resolution

• China does not accept the mandatory binding arbitration under MAP in action point 14 Report

• The SAT still supports action point 14 and will try its best to improve the efficiency of the MAP process in China

n/a


• China is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201726


Country CroatiaPKF member firm Tax advising Anticic – Jakovljevic – Kuseta Ltd

Your contact Diana Anticic




2 Hybrids

• The Croatian tax regulations stipulate that the rights related to tax cuts, exemptions, tax exemptions and tax deductions or reductions in tax liability may not be used by the taxpayer for arrangements or a range of non-authentic arrangements.

• Arrangements (or series of arrangements) are not considered authentic if it is established that the taxpayer has established them for the exercise of the aforementioned rights as a principal purpose or as one of the main purposes

n/a

3 CFC’s

• Croatian tax regulations have implemented provisions aimed to combat tax evasion and transfer of state profits. This refers to the calculation of withholding tax that Croatian companies have to account for in the following cases: (i) payment of profits (dividends) to legal entities at a rate of 12%; (ii) license at a rate of 15%, (iii) interest at a rate of 15%, (iv) market research, tax and business consulting services and auditing services, paid to foreigners at a rate of 15% or (v) services not listed above, but they are paid to legal entities from countries considered as tax haven at a rate of 20%.

n/a


• Interest paid on loans is not recognized for tax purposes (to the payer, domestic company) which are received from a shareholder or a member of a company holding at least 25% of the shares or equity or voting rights of the taxpayer, if at any time in the taxable period these loans exceed the amount of four times the shareholder’s or a member’s share in the capital or voting rights.

n/a




June 2017 27



7 PE status• The definition of PE for Croatian tax purposes follows in general terms the wording of article 5 of the

OECD Model Tax Convention.n/a






11 BEPS data collection• Regulation regulating CbC reports, Law on administrative cooperation in the field of taxation (NN

115/16) and the Rulebook on AEOI in the field of taxation (NN 18/17.) has been in force since 2017.n/a


• In 2017, the Rulebook on AEOI in the area of taxation was adopted and applies to EU Member States. Croatia also applies the AEOI within the framework of Directives 2003/48 / EC and Directive 2011/16 / EU.

• Croatia applies the Convention on mutual administrative assistance in tax matters in relation to VAT, Income Tax, Profit Tax and Real Property Tax.

n/a


• Croatian taxpayers are required to have the appropriate documentation (TP study) that provides data and information about affiliated persons and business relationships with those persons, the methods used to determine comparable market prices and the reasons for choosing specific methods.

• Since 2017, a regulation has been passed that enables the conclusion of the previous TP agreement between the taxpayer and the Tax Administration.

n/a


• As from 1 January 2015, Croatia applies the EU Arbitration Convention on TP. The purpose of the Convention is to improve the procedures of the competent authorities in solving such cases so that if the competent authorities (tax authorities of a particular country) cannot resolve the double taxation case within two years, the Advisory Committee makes this opinion in the concrete case and is binding.

n/a


• Croatia joined FATCA and CRS agreements which are aimed to fight tax evasion through the AEOI between the countries.

• Croatia is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201728


Country CyprusPKF member firm PKF Savvides & Co Ltd

Your contact Nicholas Stavrinides




2 Hybrids• Cyprus approved the July 2014 amendment of the EU PSD disallowing the benefits of the Directive

(in essence participation exemption relief) if the “dividend income” gave rise to a “tax deduction” in the source country.

n/a

3 CFC’s• Cyprus has CFC rules saying that overseas dividend income is only tax-exempt in Cyprus if the

dividend distributing company derives its income (in)directly from non-investment activities or if substantially low tax has been paid on those profits.

n/a

4 Interest deductions• Cyprus has existing interest expense restriction criteria where borrowings exist to finance non-

business assets.n/a


• The Cyprus Parliament voted on 14 October 2016 a number of amendments to the Cyprus IP Box regime in order to fully comply from now on with the relevant OECD recommendations relating to BEPS Action 5.

• The amendments do not materially affect the existing IP tax regime, which will be valid until 30 June 2021, nor do they alter the current effective tax rate of 2,5%. They actually introduce a new IP regime, which is based on the Modified Nexus Approach (see New Cyprus IP Box Regime (c) below) in calculating the amount of profits which will be subject to the 80% exemption.

• They concentrate on the application of this nexus approach and provide guidance on what constitutes a qualifying IP asset, qualifying income and qualifying expenditure. They further enhance the Cyprus position as a jurisdiction for R&D as businesses may benefit from the preferential regime within the framework agreed internationally.

n/a



June 2017 29



7 PE status • No specific action taken yet other than the definitions followed in OECD model DTT. n/a

8 TP - intangibles• No specific action taken yet other than application of arm’s length principle on

related party transactions and the actions taken referred to Action point 5.n/a


• No specific action taken yet other than application of arm’s length principle on related party transactions.

n/a



• The Ministry of Finance announced that the acceptable taxable net profit margins on back-to-back financing arrangements will be set through TP rules and possibly the submission by the taxpayer of TP documentation that should be prepared by an independent advisor. Although those TP rules have not yet been finalized or published by the Commissioner of Taxation, they are expected to be consistent with the OECD guidelines.





• Cypriot Ministry of Finance issued a Decree pursuant to Article 6 (16) of Assessment and Collection of Taxes Law on CbC Reporting (the Decree). The Decree is in accordance with an EU Directive of 25 May 2016 requiring all EU Member States to implement a CbC Reporting obligation in their national legislation in accordance with the recommendations on CbCR of action point 13. All Cypriot tax resident entities that are part of an MNE Group with consolidated group revenue of EUR 750 million and above will need to comply with the CbCR requirements for financial years starting on or after 1 January 2016.

n/a



• Cyprus is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201730


Country Czech RepublicPKF member firm APOGEO, s.r.o.

Your contact Jaroslava Hanková




2 Hybrids • The implementation is expected in 2020. The rules are at the stage of the consultation. n/a

3 CFC’s • The deadline for the implementation is not determined. The rule is at the stage of the consultation. n/a


• Czech income tax law specifies the rules for interest deductions between related parties

• Thin capitalization rules exist in the Czech Republic:

- The thin capitalization rules apply to related-party loans only and the test captures not only interest but ‘financial costs’ on loans as well;

- The debt-to-equity ratio for related-party loans is 4:1 (6:1 for financial services industry); - Interest on profit-participating loans is not tax deductible.

• Change in the tax legislation specifying the rules for interest deduction will be implemented in 2019. The legislation process will begin in 2018.

n/a


6 Prevent treaty abuse

• The Czech tax law includes a clause which prevents the benefits of DTT’s or favorable tax regimes. Upon mutual agreement, the competent authorities may deny the benefits to any person, or to any transaction undertaken by such a person, if in their view the main purpose of the creation or existence of such a person was to obtain the latter benefits that would otherwise not have been available. The rule is applied in administrative procedures and practice of the court. The new implementation is not needed.

n/a



June 2017 31



8 TP - intangibles• Since 2015 taxpayers are obliged to file a separate attachment to the income tax return to declare

selected transactions with related persons.n/a


• Since 2015 taxpayers are obliged to file a separate attachment to the income tax return to declare selected transactions with related persons

n/a


• Since 2015 tax payers are obliged to file a separate attachment to the income tax return to declare selected transactions with related persons. The scrutiny of transfer prices has been increased

n/a



• New TP requirements n/a

13 TP – documentation• TP documentation should not be filed mandatorily but it is recommended. Since 2015 taxpayers are

obliged to file a separate attachment to the income tax return to declare selected transactions with related persons

n/a



• MLC tax audit under Council Directive

• Cyprus is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201732


Country DenmarkPKF member firm PKF Munkebo Vindelev

Your contact Kasper Vindelev




2 Hybrids• Denmark has approved and implemented the July 2014 amendment of the EU PSD

disallowing the benefits of the Directive (in essence participation exemption relief) if the “dividend income” gave rise to a “tax deduction” in the source country.

n/a

3 CFC’s

• No specific action taken lately – however in January 2016 the Legal Guide 2016-1 from the Danish tax authorities was issued, providing information on the Danish CFC rules. It is required for Danish companies to include income from foreign and domestic subsidiaries and foreign PE’s if the Danish parent company owns more than 50% of the capital or has more than 50% of the voting rights in the PE or subsidiary, if more than half of the subsidiary’s taxable income is from passive forms of income such as interest, royalty, capital gains etc. and if the subsidiary’s assets generating the passive income are more than 10% of the subsidiary’s total assets.

n/a


• No specific action taken lately – however Denmark has existing interest deduction restrictions. Its thin capitalization rules follow three main criteria:

- A debt-to-equity ratio of 4:1; - An asset-based rule that applies in relation to financing costs that remain after the

thin cap limitation; and; - An EBIT based rule which restricts the deductibility of financing costs which remain

following the thin cap-test and the asset-based rule to an amount equating to 80% of the Danish company’s/tax group’s taxable EBIT income

n/a

5 Harmful tax practices • No specific action taken yet• This agreement contains actions for

increased advisory responsibility.


June 2017 33




• Denmark has implemented legislation to meet action point 6 to prevent treaty abuse by introducing a new international anti-abuse tax rule (GAAR), which denies tax treaty and EU tax directive benefits in cases of deemed abuse. However, if the arrangement or transaction(s) is consistent with the contents and purpose of the relevant article, the taxpayer can still receive the benefit.

• This agreement contains a statement that the government in June 2017 will sign OECD’s Multilateral Convention for the implementation of the BEPS elements relating to DTTs.


8 TP - intangibles • Denmark’s TP rules generally meet the 2010 OECD TP Guidelines• When the OECD’s TP Guidelines are

updated, the Danish rules will follow





11 BEPS data collection • No specific action taken yet

• This agreement contains a statement that Denmark as of September 2017 will begin exchanging CRS-data about financial accounts and as of 2018 country-by-country reporting.


• No specific action taken yet

• This agreement contains actions for increased advisory responsibility as well as other planned actions against aggressive tax planning.

13 TP – documentation• Denmark has implemented legislation including requirements regarding a Master

File, Local File and for MNE’s to file a CbC report.n/a



• MLC tax audit under Council Directive

• Denmark is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a

* In May 2017, the Danish government signed an agreement with a majority of other parties in the Danish Parliament about strengthened efforts against international tax evasion.


June 201734


Country EstoniaPKF member firm PKF Estonia

Your contact Rein Ruusalu





3 CFC’s • There is no CFC legislation in Estonia n/a






June 2017 35














• Estonia has expressed the intention to sign the MLI. The MLI, which has been signed by 68 jurisdictions on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201736


Country FrancePKF member firm PKF Cogeparc

Your contact Stéphane Michoud




2 Hybrids • French tax law provides that the benefit of the PSD regime does not apply to hybrid instruments n/a

3 CFC’s

• CFC rules apply to resident companies that directly or indirectly hold a participation of more than 50% in a foreign legal entity or PE that is established or incorporated in a country with an effective tax rate that is at least 50% lower than that of France

• EU companies are outside the scope of the CFC rules (unless the structure was put in place to avoid tax), and the CFC rules also may not apply to a CFC that is outside the EU in certain circumstances

• An anti-abuse provision reduces the participation threshold to 5% where more than 50% of the shares in the foreign entity are owned by French companies or by foreign entities directly or indirectly controlled by a French company

• A similar set of rules applies to individuals

n/a


• As a general rule, tax deduction of interest is limited to the average bank interest rate for corporate loans with a duration of more than 2 years; or to the higher market rate

• Other traditional limitations on the deductibility of interest apply only to specific, potentially abusive transactions. The rule commonly known as the Charasse amendment limits the deductibility of interest on debt incurred to acquire related party shares followed by the inclusion of both entities in the same tax group. French tax law disallows an interest deduction on a loan granted by an affiliated company if the interest is not subject to a tax at the level of lending company that is equal to at least 25% of the tax that would have been due under the normal French rules

• Interest expenses due by a French company in relation to intragroup loans and also third party loans guaranteed by an affiliated company are not fully tax deductible if three ratios are cumulatively exceeded in the relevant fiscal year (when excess interest equals max EUR 150,000):

n/a


June 2017 37



4 Interest deductions (Continued)

- The debt/equity ratio: the average amount of intragroup loans must not exceed 1.5 times the amount of the net equity (or the amount of share capital if this is a higher amount) of the French company

- The earnings ratio: the amount of interest expenses relating to qualified loans must not exceed 25% of the current-year EBITDA

- The interest income test: the amount of interest expenses relating to qualified related party loans must be less than the amount of interest income received by the company from related entities

• Interest on shareholding loans is only deductible if the decisions were taken in France

• If accrued interest exceeds EUR 3 million, tax deduction is capped at 75% of the net interest charges

n/a


• A French resident having a min. 10% shareholding or having operations with an entity located in a NCST is taxed on that entity’s income, even though the revenue has not been distributed or effectively received by the French resident

• Sums received by a nonresident for services rendered by a French resident or for services rendered in France by a nonresident are taxable in France in the hands of the service provider if certain conditions are met

• Not at arm’s length payments are disallowed if the beneficiary is subject to a privileged fiscal regime i.e. if it is not subject to taxes on profits or income or if it is subject to a tax rate lower than 50% of the French rate

• Dividends, interest, royalties and service fees paid to companies located in a NCST may be subject to a 75% WHT

• Dividends received from NCST entities cannot benefit from the participation exemption, except if business drivers can be demonstrated

n/a

6 Prevent treaty abuse • Some tax treaties with France comprise a GAAR rule while others contain a specific LoB rule, or PPT rules.

n/a

7 PE status • Specific rules to compute duration of “construction site” PE and introduction of a service PE n/a

8 TP - intangibles • No specific action taken since current TP rules should suffice n/a






June 201738




• All French entities with turnover or gross assets on the B/S exceeding EUR 400 million, or with a >50% direct or indirect subsidiary meeting this threshold are subject to the updated French TP documentation requirements

• This includes the obligation to disclose foreign tax rulings to the French tax ruling authorities

n/a


• The French tax administration has posted an updated list of “abusive” practices or arrangements on its website

n/a


• All French entities with turnover or gross assets on the B/S exceeding EUR 400 million, or with a >50% direct or indirect subsidiary meeting this threshold are subject to the updated French TP documentation requirements.

• Parent companies of multinational groups with annual revenue exceeding EUR 750 million would be required to file a CbC report within 12 months following the end of the fiscal year. Failure to file this report would be subject to a EUR 100,000 penalty.

• The tax administration in France would then transmit the CbC reports to other countries where the group has its operations, via an information exchange mechanism provided for by the DTTs, under the condition of reciprocity.

• The CbC reporting requirement would also apply to French subsidiaries of MNEs whose “head company” is established in a country or territory that does not share CbC reports with France.

• The CbC disclosure would be made public

14 Dispute resolution • A dispute resolution rule is included in the majority of the French DTTs. n/a


• France is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 2017 39


Country GermanyPKF member firm PKF Fasselt Schlange

Your contact Wolfgang van Kerkom




2 Hybrids

• Applying the correspondence principle Germany installed a set of effective linking rules granting tax exemption of dividend income only if there is no deductibility in the state of source and vice versa tax deductibility of interest expenses and losses from tax group companies are only granted if there is no deductibility in the source state.

• The same applies to the tax deductibility of interest expenses inside transparent structures.

• Implementation of a general clause into domestic tax law stipulates a non-deductibility of expenses, if the corresponding income is not subject to tax for the recipient.

3 CFC’s

• The German CFC regime exists for decades. It is in principle applicable if more than 50% of the shares in a foreign entity are controlled by German residents and the income of the entity qualifies as passive and is taxed below an effective rate of 25%. The CFC regime is regarded to require modernization to be in line with the final OECD report.

• The Foreign Tax Act (AStG) will be assessed whether there is a need for amendment. The modernization of the Act is deemed necessary by the German authorities

4 Interest deductions• The German interest barrier regime comprising a de minimis threshold, an EBITDA based

limitation and carry forward regulations has proved to be an effective instrument in preventing base erosion through interest expenses

n/a


• The legal basis is implemented to adopt an ordinance on the obligation to grant transparency among tax administrations of EU member states by AEOI on tax rulings and APAs.

• AEOI with OECD member states is based on the bilateral Tax Treaties with Germany or on the Convention on Mutual Administrative Assistance in Tax Matters.

• In Germany, there is no preferential IP regime, except for tonnage tax for domestic shipping companies.

• The existing rules regarding “transfer of functions” make it difficult to transfer valuable assets such as IP out of Germany.

n/a


June 201740



6 Prevent treaty abuse• Limitations to Treaty Benefits in case of Treaty Shopping and other situations are

stipulated in national German provisions.

• Germany seeks to install LoB, switch-over and subject-to-tax clauses in treaties.

n/a

7 PE status • German tax law already addresses the issue of artificial avoidance of a PE• Definition of PE under national law will

be reviewed

8 TP - intangibles • Tight examination of TP under existing German rules and regulations in tax audits n/a


• Tight examination of TP under existing German rules and regulations in tax audits n/a


• Tight examination of TP under existing German rules and regulations in tax audits n/a


• The German Federal Council (Bundesrat) approved the Combating Tax Evasion Law, obliging tax subjects to disclose detailed and far reaching facts relevant for potential taxation.

• At national level, certain BEPS relevant data is collected and evaluated by Federal Central Tax Office.

n/a


• No specific action taken yet• Under review by the federal

government.


• The legal basis to adopt an ordinance on the obligation to document TP in a Master and a Local File is implemented.

• CbC Reporting obligation is implemented: it has to be filed annually and by 31 December 2017 for the first time.

• TP Documentation Ordinance including details on Master and Local files is in the legislative procedure.



• Germany is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

• Implementation into German law is expected soon.


June 2017 41


Country GreecePKF member firm PKF Euroauditing SA

Your contact Andreas Pournos, George Starakis

Email [email protected], [email protected]


1 Digital economy• No specific action taken yet. The primary legislative source is the VAT regulation with regard to

e-commerce transactionsn/a

2 Hybrids• Greece has transposed into national legislation the EU Directive 2011/98. The approval of the

86/2014 amendment is still pending. The deadline for adoption is common to all member states (31 December 2019, extended to 31 December 2021 for hybrid provisions).

n/a

3 CFC’s• Greece has put in place rules to restrict profit shifting, i.e. posing quantitative and qualitative criteria

to quantify taxable non-distributed income. However, the exact application of the rules remains problematic.

n/a

4 Interest deductions• Interest is only tax-deductible if at arm’s length or subject to a thin cap rule determined with respect

to the taxable profits before EBITDA. Interest expenses are not deductible where the surplus of interest expenses over interest income exceeds 30% of EBITDA

n/a


• Greece has rules and procedures to facilitate the exchange information on (in)direct tax issues.

• The EU PSD, introduced in March 2016, prohibits the exemption of dividend income and the relative WHT exemption in case of artificial transactions.

• There is a list of jurisdictions with preferential tax regimes as well as jurisdictions considered harmful as they have not adhered to the OECD Model DTT.

n/a


7 PE status• According to the current legislation, there are specific criteria to restrict the possibility to avoid the

PE statusn/a


June 201742



8 TP - intangibles• With the L 4172/2013, OECD guidelines for TP are introduced as the application tool and

interpretation framework. Any changes to OECD guidelines have immediate effect.n/a


• See action point 8. n/a


• See action point 8. n/a





• The current legislation requires full TP documentation and increased disclosure requirements not only for MNEs but also for domestic groups.

• Minor changes and corrections have taken place mainly regarding deadlines for the submission of relevant documentation to the tax authorities.

• Greece has signed the MCAA for the automatic exchange of CbC reports.

n/a

14 Dispute resolution• The new procedural tax code contains a provision for the implementation of appeals to the

administrative and tax authorities.n/a


• Greece is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 2017 43


Country Hong KongPKF member firm PKF Hong Kong

Your contact Candice Ng




2 Hybrids

• The Hong Kong Inland Revenue Department (“IRD”) noted that the BEPS project has an action plan to neutralize the effects of hybrid mismatch arrangements and is considering issuing a practice note regarding this action plan in light of the release of the BEPS final reports

• A bill was passed on 26 May 2016 to clarify the profits tax and stamp duty treatment of RCS including certain hybrid instruments issued by financial institutions to meet the Basel III capital adequacy requirements

n/a

3 CFC’s• As Hong Kong adopts a source-based taxation system, there are no CFC rules and no specific

action is expectedn/a


• The IRD has been heavily regulating the deduction of interest expenses in Hong Kong. The IRD considered that the current rules and practices are effective in defending against potential abusive deduction of interest expenses

• Hong Kong currently has no group ratio, fixed ratio or thin capitalization rules

n/a


• Hong Kong has extended the offshore fund exemption regime to private equity funds. Also, a bill was passed on 26 May 2016 which introduces a concessionary profits tax rate for certain qualifying corporate treasury activities and a deduction for interest on certain intra-group lending transactions.

• However, the requirements to be satisfied in order to be able to benefit from the above treatments are stringent. Such policies are only levelling Hong Kong with its major competitors in the Asia Pacific region and should not result in any harmful tax practices.

• The IRD will review provisions which are found to be harmful and will consider making appropriate amendments.

• As Hong Kong has become a BEPS associate, it is committed to comply with BEPS minimum standards including Action 5.

• The Government is expected to introduce relevant amendment bills in mid-2017.


June 201744




• The IRD is taking a more prudent approach in granting tax resident certificates. The IRD would consider whether the applicants are eligible for treaty benefits before issuance of the certificates. The IRD is considering issuing a practice note to clarify the tax treatment in this regard.

• Hong Kong has been approached by certain treaty partners to incorporate the LoB and PPT into the relevant tax treaties. The IRD considers that the LoB and PPT may be included in Hong Kong tax treaties in the future.


• The IRD plans to amend future DTTs and issue a relevant practice note in respect of granting tax resident certificates.

7 PE status • The IRD is considering issuing a practice note to provide more guidelines and amend the legislation. n/a

8 TP - intangibles

• The IRD would treat TP as a high priority and intends to issue a further practice note regarding Actions 8 to 10.

• HKSAR government might propose codifying the international TP standard into Hong Kong’s domestic legislation, requiring enterprises operating in Hong Kong to transact with their associated enterprises at arm’s length.








• The legislation on AEOI as promulgated by the OECD was introduced and came into effect on 30 June 2016.

• Financial institutions are expected to report financial accounts held by tax residents of overseas reportable jurisdictions to the IRD on an annual basis.

• A new anti-avoidance provision is also introduced in tax laws, which voids any arrangement entered into by a person, if the aim of such arrangement is to avoid any AEOI due diligence or reporting obligations.

• Reporting financial institutions should register with the IRD by September 2017 and the first AEOI returns will be issued by the IRD in early 2018.


June 2017 45




• IRD may revise documentation approach recommended by the OECD.

• The Consultation paper published by the Government on 26 October 2016 suggested to introduce the three-tier TP documentation requirements stipulated in BEPS Action 13.

• Multinational Enterprise Groups are required to file CbC reports in Hong Kong for the accounting periods commencing on or after 1 January 2018.

• On 22 December 2016, the IRD announced that it will accept voluntary filing of CbC reporting for taxpayers with ultimate parent entities located in Hong Kong. Voluntary filings will cover accounting periods commencing between 1 January 2016 and 31 December 2017

• CbC reports are required to be filed within 12 months after the end of the relevant accounting period.



• The IRD views that improvements in cross-border tax dispute resolutions would be treated as a high priority.




• The MLI is considered by the IRD as a high priority.

• In order to modify the current 35 comprehensive DTTs in a synchronized manner, Hong Kong is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201746


Country HungaryPKF member firm PKF Consulting Kft.

Your contact Vadkerti Krisztián



1 Digital economy n/a n/a

2 Hybrids n/a n/a

3 CFC’s

• Hungary has introduced CFC legislation. In Hungary, a foreign entity qualifies as a CFC if among the ultimate owners there are Hungarian tax resident private persons (in any proportion), or if the majority of the income of the entity is generated from Hungary, provided that, in both cases, the corporate income tax paid by the foreign entity doesn’t reach the 9% threshold. The rule is not applicable to foreign entities which are resident in the EU or in a country with which Hungary has a DTT, provided that the entity has substantial activity in its country of registration.

• In order to apply CFC rules, equity should be held during the majority of the tax year.

4 Interest deductions n/a n/a

5 Harmful tax practices n/a n/a

6 Prevent treaty abuse n/a n/a

7 PE status n/a n/a


June 2017 47


n/a Status of Action Point “In the pipeline”

8 TP - intangibles n/a n/a


n/a n/a


n/a n/a

11 BEPS data collection• CbCR liability has been published on 15 May 2017. First CbCR must be

submitted pertaining to financial year 2016, within 12 months after the last day of financial year 2016.

n/a


n/a n/a

13 TP – documentation n/a n/a

14 Dispute resolution n/a n/a


• Hungary is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201748


Country IndiaPKF member firm PKF Sridhar & Santhanam Chennai India

Your contact S Hariharan



1 Digital economy• Equalization Levy of 6% enacted with effect from 1 June 2016, is chargeable on the gross payment,

for specified digital services and facilities, received or receivable by a non-resident who does not have a PE in India.

n/a


3 CFC’s• The rules of residence were already changed to vest residency in India for foreign companies whose

effective place of management is in India. These rules have been made applicable from financial year beginning on 1 April 2016.

n/a

4 Interest deductions• Thin capitalization rules introduced. Interest to associated enterprises allowable only to the extent

other interest payments fall short of 30% of EBITDA from 1 April 2017.n/a


• GAAR have been enacted and would be enforced from financial years beginning on 1 April 2017.

• To ensure nexus approach between income arising from exploitation of IP and expenditure incurred for substantial Research & Development, royalty income earned by Indian resident patentee from a royalty developed and registered in India is taxable at a beneficial rate.

• India has notified protocols amending the provisions of DTT wherever used as a tool to shift profits to tax havens. (example Mauritius, Cyprus and Singapore)

n/a

6 Prevent treaty abuse• GAAR should address this.

• In addition to GAAR India itself has amended its DTTs with Mauritius and Cyprus to prevent abuse of the DTT. India’s DTT with Singapore is also impacted as the same linked with Mauritius DTT.

n/a


June 2017 49



7 PE status • This is governed by tax treaty rules. n/a

8 TP - intangibles • TP provisions are used to deal with this n/a






• Transactions between related parties are required to be certified as being at arm’s length. CbC reporting provisions have been implemented from financial year beginning on 1 April 2016 for group entities whose consolidated revenue exceeds a specified threshold. The exchange of information clause in the DTTs is available.

n/a




• TP documentation is mandatory for all persons having transactions with associated enterprises. CbC reporting implemented with effect from April 2016. A three-tier approach documentation has been implemented:

- Master File - Local File - CbC Report

n/a

14 Dispute resolution• Recourse available such as Advance rulings, APAs, Safe Harbor rules, Dispute Resolution Panel and

MAP.n/a


• India is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201750


Country IrelandPKF member firm PKF FPM

Your contact Paddy Harty



1 Digital economy

• The European commission’s work on the VAT system in Europe is progressing in tandem with the BEPS Project, e.g. the introduction of the MOSS scheme applies the destination principle of taxation. Since 1 January 2015 Ireland has treated the place of consumption as the place where VAT arises. Ireland has implemented the VAT MOSS scheme for digital supplies as per EU VAT Directive.

• Ireland will continue to follow the European commission proposals with regard to VAT and applying the destination principle to taxation of digital services

2 Hybrids

• No specific action taken yet other than to note that hybrids are mainly used for genuine reasons, such as regulatory requirements or funding structures however where such structures are used to gain a tax advantage and to supports the work undertaken in relation to hybrids. Ireland is keen to ensure that any proposals do not result in unintended consequences that have a detrimental commercial effect in which case it will make its position known through commentary on any such proposed new rules.

• Ireland will continue to follow and comply with international developments on hybrids.

3 CFC’s• Currently, Ireland has no CFC legislation but by 31 December 2018 at the latest

Ireland is required to adopt these rules as an EU member state under the EU Anti-Tax Avoidance Directive (“EU ATAD”). Ireland currently taxes once monies are remitted.

• Ireland will continue to monitor requirements for CFC legislation.


• There is existing legislation regarding deductibility of interest, and it is noted that any further recommendations would need to be brought in line with other potential reforms. There are no thin capitalization rules in Ireland. EU ATAD does require interest restriction rules to be implemented where existing national rules are deemed to be not as effective as Action Point 4.

• Ireland already has significant legislation in place in this regard. However, if this is found to not be effective, Ireland may be required to introduce new legislation by 31 December 2018.


• Ireland is fully implementing OECD exchange of information requirements in respect of tax rulings as agreed in BEPS Action 5. The Knowledge Development Box was introduced in Finance Act 2015 in a manner that fully complies with the international best practice agreed in BEPS Action 5.

n/a


June 2017 51




• It appears Ireland has concerns over the wording of the specific model articles for inclusion as it could cause significant issues for smaller countries. The OECD has acknowledged these concerns and it has been agreed further work is needed in this area.

• Action 6 is due to be implemented towards the end of 2016, early 2017 by way of Action 15 which is concerned with the multilateral instrument. Having a PPT included in DTT’s is Ireland’s preferred option.

7 PE status

• Finance (No 2) Act 2013 and Finance Act 2014 resulted in new Irish incorporated companies having default Irish tax residence. In July 2016, Ireland agreed to adopt the European Commission’s Anti-Tax Avoidance Directive.

• As yet nothing concrete although Action 7 is due to be implemented towards the end of 2016, early 2017 by way of Action 15.

8 TP - intangibles

• Ireland’s regime is in line with arm’s length principle. The definition of intangibles has expanded and there have been significant changes governing which group company is entitled to the income from intangibles. Income on intangibles will be determined based on where the developing, enhancing, maintaining, protecting and exploiting activities are carried out

• Patent Box/Knowledge Development Box introduced in Finance Act 2015.

• In May 2016, new TP rules were agreed at the OECD. Ireland is now considering what changes are needed to ensure that Ireland’s TP rules meet the standards set out in the OECD TP guidelines.


• Ireland’s Companies Act 2014 places greater responsibility on Directors over the tax compliance of certain companies. Ireland has agreed in July 2016 to adopt the European Commission’s Anti-Tax Avoidance Directive.

• In May 2016, new TP rules were agreed at the OECD. Ireland is now considering what changes are needed to ensure that Ireland’s TP rules meet the standards set out in the OECD TP guidelines.


• See Action Point 9 • See Action Point 9


• Ireland has adopted a Mandatory Disclosure regime under which promoters and taxpayers must provide information to Revenue on certain transactions which give rise to a tax advantage. Irish Revenue has also signed up to a number of different international information sharing initiatives with the EU, OECD and US including the EU’s DAC on tax transparency.

• Irish Revenue is continuing to work on the implementation of DAC 3 dealing with exchange of information.


• Ireland has concluded TIEA with 25 Countries.• Ireland will continue to adopt best practice

approach as stipulated by OECD.


June 201752




• CbC legislation was implemented in Finance Act 2015 and provides for mandatory reporting for multinationals as a result of the BEPS recommendations. Ireland signed a Multilateral Competent Authority Agreement in January 2016 to share these reports with other tax authorities. In 2015, Ireland adopted the Commission’s fourth AML Directive which provides for greater transparency on beneficial ownership of companies and trusts.

On 23 June 2016 Revenue published FAQs on CbC reporting to clarify the requirements of Action 13. Some of the issues covered by the documents are (i) the interpretation of CbC reporting legislation, (ii) filing obligations, (iii) the appointment of surrogate parent entities, (iv) the information to be included in a report, (v) the secondary reporting mechanism and (vi) equivalent CbC reporting.

n/a


• Ireland’s bilateral APA program is effective from 1 July 2016 and applies to bilateral APA applications made to Revenue on or after this date. Therefore, the Revenue guidelines do not apply to: (i) Bilateral APAs signed before 1 July 2016; (ii) Formal bilateral APA applications that have been submitted to Revenue before 1 July 2016 (but in respect of which an APA has not been concluded as of 1 July 2016) and (iii) Unilateral APAs, i.e. agreements solely between the taxpayer and Revenue and not involving another competent authority.

• The program applies only to TP issues (including the attribution of profits to a PE) and is conducted within the legal framework of the DTT that Ireland has entered into with the other jurisdiction concerned. An application may be made by a company that is tax resident in Ireland for the purpose of the relevant treaty and also by a PE in Ireland of a non-resident company in accordance with the provisions of the relevant treaty. The bilateral APA program is intended to apply in respect of a transactions where the TP issues are complex, e.g. where there is significant doubt about the appropriate application of the arm’s-length principle or where there would otherwise be a high likelihood of double taxation.

• Where the TP issues involve more than two tax jurisdictions, of which Ireland is one, the Revenue will consider entering into a series of bilateral APAs. The bilateral APA program is voluntary: taxpayers can choose whether or not to enter into it.

• Action 14 is due to be implemented towards the end of 2016, early 2017 by way of Action 15 concerning multilateral instruments.


• Ireland is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a

On 11 October 2016, the MoF presented Budget 2017 and committed to meeting the best new international tax standards. A review of Ireland's CIT code was also announced and will include consideration of what further actions Ireland may need to take to ensure it is fully compliant with the OECD BEPS recommendations. The Finance Bill was published on 20 October 2016 and the Finance Act is expected to be published in late December / early January. The Finance Act will give legislative effect to changes announced in the Budget.


June 2017 53


Country ItalyPKF member firm PKF MGP Studio Tributario e Societario

Your contact Marco Giuliani



1 Digital economy

• An amendment to a law decree introduced a “transitory web tax” applicable to multinationals with total revenues of more than EUR 1 billion per year and sales worth more than EUR 50 million in Italy. Despite the literal wording, such a tax is the outcome of an “assessment” procedure the aforementioned MNEs may opt for. In other words, MNEs may appraise with the Tax Agency the existence of a PE in Italy and consequently attribute to the PE the “proper” taxable income accordingly.

• The Italian tax authorities are taking a strict approach towards global technology companies doing business in Italy. The Italian government reiterated the promise to introduce, as soon as general consent will be found in the EU, a “digital tax” affecting online purchases of goods and services from not residents.

2 Hybrids

• Italian tax rules already prevent the mentioned effects under said mismatch arrangements.

• In July 2016, the Italian Tax Code has introduced an anti-avoidance provision whereby foreign hybrid instruments can be treated in Italy as debt/equity only if the relevant proceeds are fully/partially taxable in the foreign Jurisdiction (or the same proportion if the deduction is partial)

n/a

3 CFC’s

• According to the already in force Italian CFC rules, the profits realized by a non-resident company with tax residence in a tax haven country are taxable on accrual basis unless at least one of the two following exceptions are met: (i) the ultimate Italian shareholder is able to prove that the CFC “mainly and effectively” carries on an effective trading or industrial business in its country of tax residence (ii) the Italian shareholder can prove that the establishment of the CFC in the low-tax country was not tax-motivated

• New definition of tax haven country for CFC purposes which applies to all jurisdictions (other than an EU or EEA country that has concluded an exchange of information agreement with Italy) having a nominal CIT rate lower than 50% of the Italian tax rate

n/a


June 201754




• Interest expenses are deductible up to an amount equal to interest income accrued in the same tax period. Any excess over that amount is deductible up to 30% of EBITDA of the company.

• There is no possibility to transfer the surplus of non-deductible interest expenses within an Italian fiscal unit for foreign companies which meet the requirements for the national consolidation.

• Italian relevant tax rules are already in line with those recommended by BEPS.


• On 24 April 2017, Italy’s Council of Ministers enacted a Law Decree which provides the exclusion of trademarks and logos from the patent box regime to align the rules with BEPS Action 5. This Decree is already in force although it must be converted into a final Law by the Italian Parliament within 60 days.

n/a


• Generally, in order to prevent abuse, the DTTs signed by Italy are applicable only if the recipient of the payment is the beneficial owner as defined by OECD guidelines.

• No specific provisions have been included yet to tackle the double tax exemption, which may arise under certain circumstances.

n/a

7 PE status• The definition of PE for Italian tax purposes follows in general terms the wording of

article 5 of the OECD Model Tax Convention

• In all likelihood, the BEPS changes brought at EU level will be reflected in domestic tax legislation

8 TP - intangibles

• On 24 April 2017, Italy’s Council of Ministers enacted a Law Decree which provides a change in the definition of the arm’s length principle for TP purposes and the introduction of new downward adjustment mechanisms to align the definition with article 9 of OECD Model. This Decree is already in force although it must be converted into a final Law by the Italian Parliament within 60 days.

n/a





11 BEPS data collection • As of 2016, a new mandatory documentation CbC Reporting will apply to MNEs.

• Detailed instructions on the CbC reporting data will be communicated by the Tax Authorities - expected to be published by end of 2016


June 2017 55




• No specific action taken yet. However, it is expected that this will be implemented as soon as results from initiative under action point 11 will be available.

n/a


• From 2010, taxpayers are required to keep TP documentation evidencing how the TP were set forth.

• If, during the TP audit, the taxpayer provides duly kept and accurate TP documentation as set forth by the Italian tax authorities, no penalty will be charged even in case of TP adjustments.

• As of 2016, a new mandatory documentation CbC Reporting will apply to MNEs.

• On March 2017, a decree specified requirements, deadlines and information needed for CbC Reporting in line with the guidelines provided by the EU Directive no. 2016/881.

n/a

14 Dispute resolution• Italy implemented the possibility to apply for MAP in order to amicably resolve

disputes about double taxations under DTT or TP rulesn/a


• Italy joined the FATCA and CRS agreements which are aimed to fight tax evasion through the AEOI between the countries

• Italy is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201756


Country JapanPKF member firm PKF HIBIKI Audit Corporation

Your contact Seiji Doko, Hironori Okada



1 Digital economy

• In accordance with the Act for Partial Revision of the Income Tax Act and Other Acts (Act No. 9 of 2015), the Consumption Tax Act was partially amended with the revision of consumption taxation on cross-border supplies of services such as digital content distribution.

• The criterion for determining either domestic or foreign transactions has been revised from the location of the office of the service provider associated with providing such services to address of the service recipients.

n/a

2 Hybrids• In accordance with 2015 tax reforms in Japan, foreign dividend exclusion rule was revised

based on the BEPS action plan. Purpose of this reform is avoidance of double non-taxation for dividends between countries

n/a

3 CFC’s • In accordance with 2015 tax reforms in Japan, the CFC rule (Anti-Tax Haven rule) was revised.

• There is CFC regulation in Japan. Income earned by CFCs must be included in the taxable income of the Japan shareholder under certain circumstances.


• The following rules for interest deductions apply in Japan: (i) TP taxation; (ii) Thin capitalization rule: the thin capitalization rule will disallow deductions for the portion of gross interest to foreign shareholders applicable to debt which exceeds three times the amount of capital and (iii) Earnings stripping rule: the earnings stripping rules will disallow deductions for net interest payments to foreign related persons in excess of 50% of adjusted taxable income. If both the earnings stripping rules and the thin capitalization rules are applicable in a fiscal year, only the higher of the disallowed amounts will be applied.

n/a


June 2017 57





• In accordance with 2015 tax reforms in Japan, special measures to impose income tax on unrealized capital gains on financial assets held by an individual at the time of departure from Japan were adopted.

• There are LoB rules or PPT rules in tax treaties with certain countries.

7 PE status• In accordance with 2014 tax reforms in Japan, the AOA for

attribution of profits to a PE was adopted• PE is defined by tax law.

8 TP - intangibles • No specific action taken yet

• Intangibles are defined by tax law

• There are TP administrative guidelines for (i) intangible properties to consider in examinations; (ii) contribution to the formation, maintenance or development of intangible properties and (iii) cost contribution arrangement.




• No specific action taken yet• There are TP administrative guidelines for (i) transaction for the

licensing of intangible property and (ii) treatment of intra-group services.





• In accordance with 2016 tax reforms outlined in Japan, TP documentation rules were introduced based on the BEPS action plan 13 regarding following issues: - CbC Report - Master file - Local file

• There are TP administrative guidelines for the following documentation: (i) documents that describe the capital relationship and details of business of the corporation and each foreign-related party, (ii) documents containing the details of foreign-related transactions and (iii) documents used by the corporation for the calculation of arm’s length prices.

• Documents used by the corporation for the calculation of arm’s length prices


June 201758



14 Dispute resolution • No specific action taken yet• Revised DTT with some countries includes treaty arbitration

clauses


• Signed “Convention on Mutual Administrative Assistance in Tax Matters” in November, 2011

• Japan is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 2017 59


Country KuwaitPKF member firm PKF Bouresli & Co.

Your contact Tariq M Bouresli



1 Digital economy• Bilateral exchange relationships for automatic exchange of CbC reports between tax authorities are

not established.n/a

2 Hybrids • Kuwait does not have the proposed legislation. n/a

3 CFC’s • Kuwait does not have the proposed legislation. n/a

4 Interest deductions • Kuwait IT Law limits the deductibility of interest in certain cases. n/a

5 Harmful tax practices • Kuwait does not have any preferential tax regimes. n/a


7 PE status

• In January 2016, the draft IT Law implementing the Business Profit Tax in Kuwait was submitted by the Kuwait Ministry of Finance to Parliament for discussion and approval. The draft law includes provisions which signal the intent of the Ministry of Finance to align with the global community to address BEPS, focusing on artificial avoidance of PE status as well as addressing tax arbitrage gained through the use of harmful tax practices.

n/a


June 201760



8 TP - intangibles • Kuwait IT Law regulates the TP between associated enterprises. n/a





11 BEPS data collection• Kuwait signed the MLI on mutual administrative assistance in tax matters. This will enable Kuwait to

fulfill the commitment to begin the first of such exchanges by 2018.n/a


• Kuwait lacks rules in this area. n/a




• Kuwait is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 2017 61


Country LatviaPKF member firm PKF Latvia SIA

Your contact Maruta Zorgenfreija




2 Hybrids • No specific action taken yet. n/a


4 Interest deductions• No specific action taken yet recently, however Latvia has existing general thin capitalization rules;

interest deductions are restricted based on two criteria: interest rate applied to average interest-bearing liabilities and debt-equity ratio.

n/a





June 201762











13 TP – documentation • No specific action taken yet

• The Ministry of Finance has prepared amendments to the Law on Taxes and Duties which is in line with EU Directive on AEOI in the field of taxation and also corresponds to BEPS Action point 13. It is proposed to require the taxpayers to file with the State Revenue Service an MNE group’s CbC report.



• Latvia is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 2017 63


Country LuxembourgPKF member firm PKF HRT

Your contact Paul Leyder




2 Hybrids• Luxembourg implemented in 2015 the July 2014 amendment of the EU PSD

disallowing the benefits of the Directive (in essence participation exemption relief) if the “dividend income” gave rise to a “tax deduction” in the source country

• Like all EU member states, Luxembourg will be required to implement the regulations of the EU ATAD I and ATAD II on hybrid mismatches into Luxembourg income tax law within the required timeframe.

3 CFC’s • No specific action taken yet. There are no CFC rules in Luxembourg

• Like all EU member states, Luxembourg will be required to implement the regulations of the EU ATAD I and ATAD II on CFC rules into Luxembourg income tax law within the required timeframe.



• The IP regime is abolished with effect as of 1 July 2016. The existing IP regime will, however, remain available during a transitional period which ends on 30 June 2021 for: (i) Qualifying IP rights which have entered the IP regime before 1 January 2016, and; (ii) Qualifying IP rights which have been acquired during the period from 1 January 2016 till 30 June 2016 to the extent that the qualifying IP rights have been acquired from unrelated parties, or if they are acquired from related parties, the IP rights benefitted upon their acquisition from the Luxembourg IP regime or from a similar foreign IP regime and (iii) Qualifying IP rights that are acquired from related parties between 31 December 2015 and 1 July 2016 and that did not benefit from the Luxembourg IP regime or a similar foreign IP regime, the benefits provided for by the IP regime will only be available for 2016 income tax and 2017 net worth tax.

n/a


June 201764



5Harmful tax practices (Continued)

• Moreover, the Luxembourg tax authorities spontaneously inform competent foreign tax authorities about the persons benefitting from the Luxembourg IP regime in relation to qualifying IP acquired or constituted on or after 6 February 2015.

• The advance tax ruling process has been formalized as of the tax year 2015 and advance tax rulings are reviewed by a ruling commission.

• As of 1 January 2017, Luxembourg will automatically exchange all advance tax rulings and unilateral APAs covering cross-border transactions or situations, as well as under certain conditions, advance tax rulings and unilateral APAs covering cross-border transactions or situations that were issued, amended or renewed by the Luxembourg tax authorities between 1 January 2010 and 31 December 2016.

n/a




8 TP - intangibles

• The advance tax ruling process has been formalized as of the tax year 2015 and advance tax rulings are reviewed by a ruling commission.


• With effect as of 1 January 2017, Luxembourg has introduced new legislation clarifying that the arm’s length remuneration between related parties is to be determined based on the key principles included in the OECD TP Guidelines, as revised by the actions n° 8-10 of the OECD BEPS action plan.

n/a

9TP – capital related high-risk transactions

• With effect as of 1 January 2017, Luxembourg has introduced new legislation clarifying that the arm’s length remuneration between related parties is to be determined based on the key principles included in the OECD TP Guidelines, as revised by the actions n° 8-10 of the OECD BEPS action plan.

• By the end of December 2016, the Luxembourg tax authorities issued new guidance on the determination of arm’s length remuneration for intra-group financing transactions. The main differences compared to previous guidance issued are that:

- the equity required to carry out the activity needs to be determined based on the equity at risk taking into account all facts and circumstances; previous safe haven rules (i.e. equity of 1% with a max. of EUR 2 million) have been abolished

- Unilateral APAs granted based on previous guidance will not be applicable anymore.

- In principle, the arm’s length remuneration needs to be determined based on a TP analysis, except if the functions and risk profile of the Luxembourg entity is comparable to functions and risk profile of certain regulated activities.

n/a


June 2017 65




• With effect as of 1 January 2017, Luxembourg has introduced new legislation clarifying that the arm’s length remuneration between related parties is to be determined based on the on the key principles included in the OCED Transfer Pricing Guidelines, as revised by actions n° 8-10 of the OECD BEPS action plan.

n/a


• Luxembourg tax authorities spontaneously inform competent foreign tax authorities about the persons benefitting from the Luxembourg IP regime in relation to qualifying IP acquired or constituted on or after 6 February 2015.


n/a




• On 23 December 2016, Luxembourg has introduced CbC Reporting by transposing the EU Directive 2016/881. CbCR will be applicable for the first time for the fiscal years ending on 31 December 2016. Thus, Luxembourg companies that are part of a multinational group that realizes consolidated revenues of at least EUR 750 million (or an equivalent amount in a currency other than EUR) have to notify the Luxembourg tax authorities whether they are the parent entity of the multinational group, the surrogate parent entity, an EU constituent entity or a non-reporting constituent entity. Notifications should have been done until 31 December 2016. As the CbCR regulations have been introduced shortly before calendar year end, the deadline for the notification to the tax authorities has been extended until 31 March 2017. For following fiscal years, notification must be done before the end of the reportable fiscal year.

• Finally, if the Luxembourg entity is the parent entity, the surrogate parent entity or the constituent reporting entity, it will in addition to the notification to the tax administration also be required to file a CbC report in line with the requirements of the EU Directive 206/881 within 12 months after the end of the fiscal year covered by the CbC report.

• Companies that do not comply with the CbCR regulations may imposed fines up to EUR 250,000.

n/a



• Luxembourg is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201766


Country MacedoniaPKF member firm Effect plus

Your contact Nikolaki Miov , Kristina Tilik





3 CFC’s • No specific action taken yet • See * below






June 2017 67








11 BEPS data collection • No specific action taken yet • See * below






* After a year and a half with technical government, the new Government is expected to be elected by the end of May 2017. The BEPS action plan is considered to be a part of the government platform.


June 201768


Country MaltaPKF member firm PKF Malta

Your contact Donna Greaves




2 Hybrids

• In 2015, an amendment has been effected to the applicability of the participation exemption on dividends derived from a participating holding in order to implement the provisions of article 1(1) of EU Directive 2014/86/EU. The participation exemption applicable to dividends derived from a participating holding will continue to apply. However, where such profits benefit from the exemption from WHT set out in article 5 of EU Directive 2011/96/EU, the participation exemption would only apply to the extent that such profits are not deductible by the relevant subsidiary distributing the dividend in that other EU Member State. The same applies to a PE situated in Malta of a parent that is established in another EU Member State.

• Malta agreed to Anti-Avoidance Directive 1, rules addressing hybrid mismatches have also been included, whereby it is stated that deduction shall be given only in the Member State where such payment has its source.

• Malta agreed to the ATAD II proposal, aimed at combating hybrid mismatches with regard to non-EU countries, given that intra-EU hybrid mismatches are already addressed by ATAD 1.

• Limitation of the scope: a carve-out for hybrid regulatory capital (limited in time till 31 December 2022) and financial traders; and

• Date of implementation: a longer timeline for coming into force as of 1 January 2020 (with certain exceptions for reverse hybrid mismatches rules that must come into force as of 1 January 2022).

3 CFC’s • No specific action taken yet

• Malta agreed to the Anti-Avoidance Directive 1, Through a CFC Rule, Member States can treat an entity or a PE as a CFC, and thus have the right to tax such profits as per domestic tax rules. These rules apply where the following conditions are met: (i) the tax payer or together with their associated enterprises hold a direct or indirect participation of more than 50% of the voting rights, capital, or right to profit distribution; and (ii) the actual corporate tax paid on the profits of an entity or a PE is lower than the difference between the corporate tax that would have been charged on the entity or PE under the domestic tax system and the actual tax paid on its profits by the PE or entity. Member states may apply certain carve outs, such as cases of substantive economic activity and certain de minimis cases.


June 2017 69




• No specific action, however as a general rule, in ascertaining profits shall be deducted all outgoings and expenses incurred to the extent they were wholly and exclusively incurred in the production of the income, including (a) sums payable by such person by way of interest upon any money borrowed by him, where the Commissioner is satisfied that the interest was payable on capital employed in acquiring the income.

• Malta agreed to ATAD I, where by 2018 has to implement the interest limitation rule. The Interest Limitation Rule limits the borrowing costs to 30% of EBIDTA. However, by way of derogation, a taxpayer may be given the right to deduct exceeding borrowing costs up to a threshold of EUR 3 million or to fully deduct exceeding borrowing costs if the taxpayer is a standalone entity. Under this rule, Member States also have the following options: (i) new loans or those loans used to fund long term public infrastructure within the EU may be excluded from this rule; (ii) to allow taxpayers to deduct in full or in part exceeding borrowing costs subject to the satisfaction of group gearing ratio conditions; (iii) to carry forward or backwards exceeding borrowing costs; and (iv) to exclude financial undertakings from the scope of this rule.


• In Malta, there is no preferential IP-regime.

• Malta has procedures to facilitate the exchange information on direct tax issues;

• Malta has anti-abuse provisions in place to combat harmful tax practices, where any scheme which reduces the amount of tax payable by any person is artificial or fictitious or is in fact not given effect to, the Commissioner shall disregard the scheme and the person concerned shall be assessable accordingly.

• Malta agreed to ATAD 1, where by 2018 through a GAAR, Member States have the right to ignore any arrangements which have been put into place for the main purpose of obtaining a tax advantage that defeats the objects of the applicable tax law and are not genuine.

6 Prevent treaty abuse• Some DTTs with Malta comprise a GAAR rule while others

contain a specific LoB rule.n/a






June 201770











• Malta is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 2017 71


Country MoroccoPKF member firm PKF Maroc

Your contact Abdellatif Zarkal







• Interest accrued or invoiced by third parties or by accredited organization as a payment for credit or borrowing is tax deductible.

• Limitation is applied for deductibility of interest rate regarding associate current account. Thus, the amount should neither exceed company’s share capital nor the said interest rate which is set yearly by the Ministry of Finance. For reference, the deductible interest rate is set at 2,21% in 2017.

n/a



7 PE status• PE was dealt with in Circular No 717 (issued in April 2011). Hence, the PE status varies depending

on the company’s legal status (e.g. Liaison Office vs Coordination Centre) as well as on the existence or not of DTT.

n/a


June 201772



8 TP - intangibles

• Morocco does follow the arm’s length principle and broadly accepts references to the OECD Guidelines; notably, all intercompany transactions must be conducted at arm's length.

• APA procedure was introduced in January 2015 in Moroccan Tax Code. Typically, an APA can take up to 12 months to conclude and is normally for a term of four years. The Tax Authorities cannot challenge the TP method agreed under an APA.

n/a




• The APA (Refer to Action Point 8) was introduced to avoid any misinterpretation of TP applied regarding intercompany transactions.

n/a

11 BEPS data collection• The DTT concluded between Morocco and other countries stipulates the possibility of exchanging

information of their taxpayers between the tax authorities within the framework of preserving both parties’ interests.

n/a



13 TP – documentation• No specific action taken yet other than application of arm’s length principle on related party

transactions as well as introducing the APA as highlighted in the content of Action Point 8. n/a

14 Dispute resolution• In DTTs concluded with many countries such as Croatia, Finland, Turkey, UK, USA, and Vietnam…

etc., an amicable dispute resolution mechanism is included. n/a

15 Multilateral instrument• In May 2013, Morocco has proceeded for signature of the Convention on Mutual Administrative

Assistance in Tax Matters. It aims to combat tax avoidance through cooperation that ranges from exchange of information, including automatic exchanges, to the recovery of foreign tax claims.

• Domestic procedures must be completed for the ratification of the said Convention.


June 2017 73


Country NepalPKF member firm T R Upadhya & Co.

Your contact Shashi Satyal





3 CFC’s

• Nepal has CFC provisions which tax the income earned by foreign entities controlled by Nepalese resident persons. A CFC is an entity not residing in Nepal, in which a resident person holds an interest and controls or may benefit from 50% or more of the rights to income, capital or voting power alone or with not more than four other residents.

• A CFC should distribute dividends to its beneficiaries in accordance with the beneficiaries' rights. This dividend is taxable as income of the beneficiary. Other dividends distributed by a CFC are exempt from tax.

n/a


• Interest is deductible if incurred in the course of conducting a business or investment. This is the case if the borrowed funds, for which interest is paid, are used in that production or used to acquire an asset used in that production. The deductibility of interest paid by resident entities to controlling entities is limited. Controlling entities are organizations or persons, which are tax exempt, or non-resident persons, or associates of exempt organizations, or non-resident persons that own or control at least 25% of the resident entity.

• Where interest is paid to a controlling entity the deduction must not exceed the sum of all interest that is to be included in the entity’s taxable income plus 50% of the entity’s taxable income (taxable income is calculated without including any interest derived by the entity and not deducting interest expenses).

• Any interest for which a deduction is denied may be carried forward and treated as incurred during the next income year.

n/a



June 201774




7 PE status

• Specific criteria are set to recognize any entity as PE under section 2 of ITA. PE means a place from where a person fully or partially conducts his business. The term also includes place of fully or partially conducting business through agents (other than independent agents), place where main equipment or machinery is kept or installed or used, places where a person has provided any technical, professional, or consultancy service through his employees or otherwise for more than 90 days (at once or severally) in a 12 months period and a place where a person is engaged in a construction, assembly, or establishment project for 90 days or more, and the place of supervision of such project.

n/a

8 TP - intangibles• Briefly mentioned in the ITA which shall be as per internationally recognized TP rules where cross

border trading and financial transactions between affiliated entities have to be conducted in arm’s length transaction. No specific action plan to prepare detailed TP guidelines.

n/a


• Briefly mentioned in the ITA which shall be as per internationally recognized TP rules where cross border trading and financial transactions between affiliated entities have to be conducted in arm’s length transaction. No specific action plan to prepare detailed TP guidelines.

n/a


• Briefly mentioned in the ITA which shall be as per internationally recognized TP rules where cross border trading and financial transactions between affiliated entities have to be conducted in arm’s length transaction. No specific action plan to prepare detailed TP guidelines.

n/a








June 2017 75


Country NetherlandsPKF member firm PKF Wallast

Your contact Ruud van der Linde en Jeroen van Strien




2 Hybrids

• The Netherlands implemented the July 2014 amendment of the EU PSD effectively from 1 January 2016 disallowing the benefits of the Directive (in essence participation exemption relief) if the “dividend income” gave rise to a “tax deduction” in the source country

• On 29 May 2017, the EU Member States reached agreement on the amendment of the original ATAD. The new/amended Directive (ATAD 2) includes the coverage of hybrid mismatches, also between EU-member states and non-member states.

• The implementation in domestic law has to take place before 31 December 2019. For reverse hybrids implementation is due 31 December 2021.

3 CFC’s • No specific action taken yet• The implementation of the EU ATAD, which includes

additional CFC legislation requirements, is required before 1 January 2019.

4 Interest deductions • No specific action taken yet

• The implementation of the EU ATAD, which includes additional measures to restrict interest deductions, is required before 1 January 2019.

• A transition period may apply. The transition period will end by 31 December 2023.

• It is expected that a “consultation” document will be circulated in 2017 or early 2018.

• It is not clear to which extend the current targeted rules relating to the deduction of interest expenses will be withdrawn. Furthermore, it is not clear whether or not a transition period will apply.


June 201776




• As of 2017, the access to the innovation box regime will be limited to patented IP and certain software only. Small caps (member of a group with < EUR 50 million revenue) will, within certain limits, remain permitted to apply the innovation box also with regard to non-patented (but otherwise qualifying) R&D. In addition, the nexus approach will be implemented meaning that the tax advantage will be limited to IP which is sufficiently developed in The Netherlands only.

• The EU Directive on AEOI between EU Member States has been implemented with effect as per 1 January 2017.

n/a

6 Prevent treaty abuse • No specific action taken yet • The Dutch government has announced to welcome specific anti-abuse measures in new DTT negotiations.

7 PE status • No specific action taken yet • The Dutch government has announced to welcome the enhanced definition of PE in new DTT negotiations

8 TP - intangibles • Implemented in the Dutch TP Decree n/a


• Implemented in the Dutch TP Decree n/a


• Implemented in the Dutch TP Decree n/a





• The Netherlands implemented additional TP documentation requirements as of 1 January 2016, including CbC-reporting requirements for large caps (member of a group with > EUR 750 million revenue) and minimum standards as regards TP documentation (master file, country file) for mid-caps (member of a group with > EUR 50 million revenue) and large caps.

n/a

14 Dispute resolution • No specific action taken yet• The Dutch state secretary of Finance has the intention

to implement the proposed measures for dispute resolution in tax treaties via the MLI.


• The Netherlands is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 2017 77


Country PolandPKF member firm PKF Consult Spółka z ograniczoną odpowiedzialnoącią Sp.k.

Your contact Agnieszka Chamera




2 Hybrids

• Dividends received from another Polish company, an EU/EEA or a Swiss company are exempt from taxation if certain holding and participation requirements are met (the EC PSD).

• According to new regulation from 1 January 2016 the provisions concerning the tax exemption on dividend payment does not apply if: - receipt of dividends occurs in connection with the transactions or activities, which are not real (actual),

meaning that arrangements have been introduced to obtain a tax advantage only; - and these transactions have been put into place without reflecting economic reality.

n/a

3 CFC’s

• Since 1 January 2015 Polish taxpayers are subject to Polish tax on income earned by their CFCs even if the income is not distributed by the non-Polish company. The tax rate for such income is 19%.

• A CFC is defined as: - a foreign company having residence in a tax haven or - a foreign company having residence in a state, with whom the Republic of Poland or EU has not

concluded the international TIEA or - a foreign company: (i) in which the Polish resident has at least 25% of the shares or 25% of the voting

rights or 25% of the shares related to the right to participation in profits; (ii) in which at least 50% of income is of the passive nature (financial), ie. dividends, capital gains, interest, royalties; (iii) in which at least one type of passive income is subject to tax at a rate lower by 25% than the Polish CIT (which gives a rate of 14,25% limit) or tax exempt (with the exception of exemptions under EU PSD.

n/a


• New thin capitalization rules were introduced and became effective from 1 January 2015 and apply not only to loans between direct related parties (“mother” company to “daughter” company) but also to transactions between indirect related parties - it means that parties which possess indirectly no less than 25% of share capital of taxpayer or of share capital of lender.

• The new thin capitalization ratio is 1:1, but the subject to verification is a total value of debt to the related parties to the value of equity (not only to the shareholder capital).

• The term “total value of debt to the related parties” does not only include the value of loan, but also other debts (for example from trade transaction).

n/a


June 201778




• The CIT Act allow a taxpayer to use an alternative method to determine the limit on tax-deductible interests. According to alternative method, deductible interests may not exceed the value of the taxpayer assets multiplied by the reference published by Poland Central Bank. If a taxpayer decides to use the alternative method, must be used for both: related party and 3rd party loans for at least 3 tax years.

n/a



• Part of double avoidance agreements taxation has been changed over last years to: - eliminate the specified tax planning possibilities or - introduce the mechanisms of making tax avoidance impossible (eg contract with Luxembourg, Cyprus,

Malta, Singapore),• Poland has concluded 14 TIEAs, including the so-called tax havens.

n/a

7 PE status• The increase in the number of tax audits of foreign companies conducting business activity in Poland

through the PE in the scope of fulfilling the tax obligation of PE in Poland and the principles of determining the tax income of PE and making financial settlements between foreign company and their PE in Poland.

n/a

8 TP - intangibles • Polish TP rules generally meet the 2010 OECD TP Guidelines. n/a


• Polish TP rules generally meet the 2010 OECD TP Guidelines. n/a


• Polish TP rules generally meet the 2010 OECD TP Guidelines. n/a



• The anti-tax avoidance clause exists since July 2016 in Polish tax system. The purpose of this clause is to prevent fictitious transactions that taxpayers carry out primarily to achieve tax advantages. Practically speaking, this means transactions which are hardly justifiable from an economic or business point of view. The Tax Ordinance Act which includes this regulation also defines what a tax advantage means, namely avoidance, deferral or reduction of a tax liability; creation or overstatement of a tax loss; creation or overstatement of a tax overpayment or a reclaimed amount.

• The legislation sets a threshold of PLN 100,000 which, if exceeded, entitles the tax authorities to invoke the anti-tax avoidance clause. According to the Amending Act the anti-tax avoidance clause is also apply to tax consequences arising after its entry into force even if the transactions that brought about those consequences took place before the clause's effective date.

• The MoF in Poland has begun to publish a series of news/statements containing cautions about the possibility of applying a tax evasion clause for selected type of transactions implemented without economic justification/substance.

n/a


June 2017 79




• New regulations concerning TP documentation were introduced and became effective as from 1 January 2017. According to these new regulations: - the requirement to prepare documentation (local file) depends on the income or costs of the taxpayer in a

given financial year. - taxpayers whose income or costs, pursuant to accounting regulations, exceeded EUR 2,000,000. - documentation has to be prepared not only for transactions in the strict sense, but also for other events

recorded in accounting books, as long as they have a significant influence on the taxpayer’s income or loss and were agreed on by the affiliated entities.

- one of the changes most beneficial to taxpayers with respect to the scope of documentation is the introduction of materiality thresholds for transactions; their value will be EUR 50-500 thousand, and they will be established for each taxpayer individually, depending on their income.

- the threshold level for equity links is to be raised from 5% to 25%. - the main novelty is the requirement to provide a statement of concordance of the terms of transactions

and events with the market conditions. So far, taxpayers have not been obliged to demonstrate that transactions are made in accordance with the market conditions, but only to indicate the actual settlement method.

• Taxpayers whose income or loss exceeds EUR 20 million in a given year will also be obliged to prepare a master file demonstrating the settlement mechanisms from the perspective of the group.

• If the taxpayer’s income in a given year exceeds EUR 10 million, they are obliged to prepare benchmark studies in order to verify whether the terms of their transactions with affiliated entities follow the market price rule.

• CbC Report: the largest Polish groups of companies (with consolidated income exceeding EUR 750 million) will be obliged to draw up statements of income, tax paid, and places of business. Based on the template form published, taxpayers will have to provide a list of entities in the group, countries where they have their seats, their main business activity, the tax paid and profit earned, the number of employees, and fixed assets.

n/a



• Poland is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a

* Poland is working on the implementation of Council Directive 2014/107 / EU of 9 December 2014 amending Directive 2011/16 / EU on compulsory AEOI on taxation (OJ L 359, Volume 57, 16.12. 2014, pp. 1-30), which enables the exchange of information at EU level and the OECD CRS, which provides for a similar solution.


June 201780


Country PortugalPKF member firm PKF & Associados, SROC, Lda.

Your contact José Ramos




2 Hybrids• Portugal transposed into domestic tax law the July 2014 amendment of the EU PSD disallowing the

benefits of the Directive (in essence participation exemption relief) if the “dividend income” gave rise to a “tax deduction” in the source country

n/a

3 CFC’s• Portugal has adopted CFC legislation: profits of subsidiaries located in low-tax jurisdictions are

imputed and taxed at the level of the Portuguese shareholder, irrespective of dividend distributionsn/a

4 Interest deductions • Maximum allowed interest deduction: either EUR 1 million or 30% of adjusted EBITDA n/a


• GAAR allowing the tax authorities to ignore the legal form of an operation/structure and to tax according to substance.

• Portugal transposed into domestic tax law the January 2015 amendment of the EU PSD, disallowing the benefits of the Directive if arrangements or a series of arrangements are considered not genuine taking into account all relevant facts and circumstances.

• The Portuguese Patent Box Regime, which provides tax benefits for IP revenues and expenses, requires a nexus element in line with the “modified nexus approach”.

n/a


• The transposition into domestic tax law of the January 2015 amendment of the EU PSD (see action point 5) also affects treaty abuse, to the extent that participation exemption rules (exempting dividend income and capital gains) are also applicable when the subsidiary / shareholder is resident in a country that has signed a DTT with Portugal.

n/a



June 2017 81








11 BEPS data collection• No specific action that we are aware of. However, the Portuguese tax authorities are used to

exchange information with other tax administrationsn/a


• Portuguese legislation imposes promotors (lawyers, tax consultants, accountants) involved in potentially aggressive tax planning schemes to communicate such schemes to the tax authorities (without identifying the client)

n/a


• Portuguese companies are required to maintain a local TP file

• CbC tax documentation must be prepared by Portuguese ultimate holding companies. CbC reporting is also required for Portuguese subsidiaries or a Portuguese branch, if such documentation is not prepared by another group company elsewhere

• Portuguese subsidiaries belonging to a group must identify the group company and country where CbC reporting is presented

n/a



• Portugal is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201782


Country QatarPKF member firm PKF LLC

Your contact Tareq Ayoub





3 CFC’s

• Qatari Tax Law No. 21 of 2009 states that subject to the provisions of tax agreements, payments made to non-residents with respect to activities not connected with a PE in the State shall be subject to a final withholding tax, as follows:

- 5% of the gross amount of royalties and technical fees. - 7% of the gross amount of interest, commissions, brokerage fees, director’s fees, attendance fees and any other payments for services carried out wholly or partly in the State.

n/a


• Qatari Tax Law No. 21 of 2009 states that where the taxpayer enters into arrangements or carries on operations or transactions one of the main purposes of which is to avoid the payment of the tax due, the Department may counteract the tax advantage the taxpayer obtained because of such arrangements, operations or transactions, in accordance with the provisions of the executive regulations of the law. The Department may, in any of the instances provided for in the previous paragraph, take all or some of the following measures:

- Apply the arm’s length value to a deed or an economic event subjected to a different value by the taxpayer.

- Re-characterize the deed where the form of such a deed does not reflect the substance thereof; and. - Adjust the amount of the tax due by the taxpayer or any other person involved in the type of

arrangements, operations or transactions provided in this Article

n/a



June 2017 83





8 TP - intangibles

• Qatari Tax Law No. 21 of 2009 states that where the taxpayer enters into arrangements or carries on operations or transactions one of the main purposes of which is to avoid the payment of the tax due, the Department may counteract the tax advantage the taxpayer obtained because of such arrangements, operations or transactions, in accordance with the provisions of the executive regulations of the law. The Department may, in any of the instances provided for in the previous paragraph, take all or some of the following measures:

- Apply the arm’s length value to a deed or an economic event subjected to a different value by the taxpayer.

- Re-characterize the deed where the form of such a deed does not reflect the substance thereof; and.

- Adjust the amount of the tax due by the taxpayer or any other person involved in the type of arrangements, operations or transactions provided in this Article.

n/a












June 201784


Country RomaniaPKF member firm PKF Finconta SRL

Your contact Florentina Susnea, Cristina Saulescu












June 2017 85













• Romania is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a

* There is a Law project in Romania for adhering to the BEPS Action Plan, but no concrete measures have yet been taken in this regard. However, the exchange of information with other tax authorities has been intensified, but without the implementation of legislative measures in this respect. In addition, we are informed that the tax authorities are working to amend and complete the current legislation to adapt it to the requirements of the BEPS Plan, but untill now nothing has been published. Regarding the affiliation of Romania to the BEPS Plan: the law in this respect was already voted by the Chamber of Deputies and the Senate, but has not yet been published.


June 201786


Country RussiaPKF member firm PKF MCD

Your contact Tatiana Gavrilova, Ekaterina Batalova



1 Digital economy • No specific action taken yet

• In order to allow AEOI with foreign countries for taxation purposes, in 2018 Russia plans to start implementing the MCAA on AEOI prescribed by the CRS.


3 CFC’s

• CFC rules were introduced into the Russian Tax Code on 1 January 2015. The new rules oblige individuals and legal entities to notify the Russian tax authorities in case they control foreign companies, as well as to report and confirm CFC retained earnings which will be subject to taxation.

• Article 129.5 of the Tax Code of Russia will come into force as from 2018 (in case of failure to pay or partial payment of tax due to exclusion of CFC profit from tax base). This article was not in effect for the 2015-2017 tax periods.

• The Tax Code of Russia allows inclusion of companies in the CFC list based on information obtained from foreign countries.

• Starting from September 2018 Russia plans to start implementing the MCAA on AEOI

• Russia plans to sign bilateral agreements on exchange of tax information with several offshore territories.

• Several bylaws are to be approved.

4 Interest deductions• Thin capitalization rules and TP rules which limit interest deductions on loan

transactions between related parties are applicable in Russia. Payables to fellow subsidiaries are automatically recognized as controlled liabilities.

n/a

5 Harmful tax practices • Not available to the public n/a

6 Prevent treaty abuse• It is forbidden to enjoy treaty concessions in case a company receiving money

from Russia is an intermediary which then transfers the earnings to offshore territories.

n/a


June 2017 87











• Taxpayers are obliged to disclose information about beneficial owners and CFCs. n/a

13 TP – documentation • No specific action taken yet

• The MoF of Russia has proposed a bill on preparation and presentation of CbC reporting. According to this bill, Russian taxpayers will have to file notifications if they are members of international groups. Taxpaying parent companies or authorized members of international groups will have to prepare and present CbC financial statements.

14 Dispute resolution• Russia takes part in FTA MAP Forum to deliberate on general matters affecting

programs for conducting MAPs.• Work in progress.


• In order to take respective measures, Russia takes part in meetings of Ad Hoc Group on the MLI.

• Russia is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

• Work in progress.


June 201788


Country Saudi ArabiaPKF member firm PKF Al-Bassam & Al-Nemer Allied Accountants

Your contact Ibrahim AlBassam, Jaber Nassr




2 Hybrids • No specific action taken for neutralizing the effects of hybrid mismatch arrangements. n/a

3 CFC’s • No specific action taken yet for CFC Rules n/a

4 Interest deductions • Saudi Tax Law determined a specific formula for loan interests to be accepted as an expense. n/a

5 Harmful tax practices • No specific action taken yet for countering harmful tax practices. n/a

6 Prevent treaty abuse • No specific action taken yet for preventing the granting of DTT benefits. n/a

7 PE status• Some regulations are in place for PE status even according to the signed DTTs, but no action yet for

preventing the artificial avoidance of PE Status.n/a


June 2017 89















June 201790


Country SlovakiaPKF member firm PKF Slovensko s.r.o.

Your contact Soňa Ugróczy



1 Digital economy • The EU VAT directive applies and is already implemented into domestic law. n/a

2 Hybrids

• Effective 1 January 2016, Slovakia implemented new CFC rules. In general, dividends paid from the distribution of profits after 2003 are not subject to taxation in Slovakia, but only to the extent that such profits are not deductible for the subsidiary distributing such profits.

• Implementation is expected in 2018 or 2019.

• Effective 1 January 2017, dividends paid to individuals and legal entities will be taxed (for legal entities only income paid by or to non-treaty countries). The following will be subject to taxation: - Dividends and other distribution of profits including income paid to

“silent partners” in the tax period beginning at earliest 1 January 2017 - Assets remaining after liquidation of a company or cooperative if either

of them is being liquidated from 1 January 2017 or if a court rules on the dissolution of a company after 1 January 2017

- Any settlement defined in the regular separate financial statements for the reporting period beginning 1 January 2017

• The personal tax rate is 7%, 35% for non-treaty countries or according to the relevant DTT

3 CFC’s

• Implementation is expected in 2018 – 2019.

• As an EU member state, Slovakia is subject to the ATAD, which must be implemented into its domestic law by 31 December 2018. The ATAD includes a CFC rule.

n/a


• Thin capitalization rules were reintroduced on 1 January 2015, although not directly, as part of the implementation of the OECD BEPS Action Plan. Between 2004 and 2014 there were no limitations on tax deductions for both related and unrelated party interest expense and economically equivalent payments. As of 1 January 2015, there is a limitation of tax-deductible interest from loans provided by local and foreign related parties and hereto related expenses equal to 5% of EBIDTA

n/a


June 2017 91




• No carry-over of “excess interest” is allowed n/a

5 Harmful tax practices• R&D super deduction (25% of eligible costs) has already been implemented into

domestic law (1 January 2015).

• Implementation is expected in 2017 or 2018.

n/a


7 PE status• Slovak tax law already addresses the issue of artificial avoidance of a PE.

• Implementation is expected in 2017 – 2018 – 2019.n/a

8 TP - intangibles • No specific action taken yet • Implementation is expected in 2017 - 2018 - 2019.


• No specific action taken yet • Implementation is expected in 2017 - 2018 - 2019.


• No specific action taken yet • Implementation is expected in 2017 - 2018 - 2019.





• In Slovakia, all the taxpayers conducting related-party transactions (either domestic or cross-border) are obliged to prepare and maintain TP documentation to a certain extent.

• An approved law introducing so-called "CbC-reporting”. On 1 February 2017, the Parliament finally approved the government bill amending Act no.442/2012 Coll. On international assistance and co-operation in tax administration. The law became effective on 1 March 2017.

• Multinational companies will be obliged to include CbCR into their Master and Local files, if their consolidated turnover exceeds EUR 750 million.



• Slovakia is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

• Implementation is expected in 2017 - 2018 - 2019.


June 201792


Country SloveniaPKF member firm PKF d.o.o., Ljubljana

Your contact Tomaž Lajnšček, Primož Pečnik











June 2017 93











13 TP – documentation• Council Directive (EU) 2016/881 has been adopted in May 2016. It has

also been implemented into Slovenian Tax Procedure Law with effect from January 2017 and first CbC reporting instructions have been issued.

• Slovenia signed the MCAA for the automatic exchange of CbC reports on 27 January 2016. The MCAA will enable consistent and swift implementation of new TP reporting standards developed under Action 13 of the BEPS Action Plan.



• Slovenia is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 201794


Country South AfricaPKF member firm PKF Durban

Your contact Paul Gering



1 Digital economy• As from 1 June 2014, VAT legislation has been enacted to impose an obligation on

foreign suppliers of electronic services to register and charge VAT

• As this is fairly new legislation, its effectiveness will have to be reviewed before any significant changes can be made

2 Hybrids• Various complex anti-avoidance provisions exist which deal with hybrid

instruments aimed at particular transactions

• The Davis Tax Committee has recommended that the anti-avoidance provisions be broadened to cover a range of transactions without undue technicality

3 CFC’s • South Africa has extremely complex and constantly evolving CFC legislation• Simplifying the aforesaid highly complex

legislation

4 Interest deductions• As from 1 January 2015, income tax legislation has been enacted to limit the

interest deduction in respect of certain transactions where the recipient of interest is not subject to tax in South Africa

n/a


• South Africa currently has a headquarter regime as well as an incentive for companies operating in special economic zones

• The Davis Tax Committee express concern with these regimes and recommend minimum substance requirements have to be incorporated into these regimes


• GAAR exist which prohibit treaty abuse such as treaty shopping etc.

• Various DTT’s are being renegotiated by the South African Government with various countries such as Germany, Malawi, Namibia and Zambia.

7 PE status• The Interpretation Note dealing with PEs was revised to bring it in line with the

recommendations of the OECD. n/a


June 2017 95



8 TP - intangibles

• General TP rules anti-avoidance provisions exist to ensure prices are at arm’s length.

• Specific anti-avoidance provisions exist which deny the deduction of royalty payments where the IP is licensed in South Africa but has been exported.

• Exchange control regulations also limit the exporting of IP and require approval of royalty rates payable abroad. The approvals process has been relaxed to an extent as approval is only required from the Department of Trade and Industry. No longer is approval required from the Financial Surveillance Department of the South African Reserve Bank.

n/a


• General TP rules/thin capitalization anti-avoidance provisions exist to ensure prices are at arm’s length n/a


• General TP rules anti-avoidance provisions exist to ensure prices are at arm’s length n/a


• The USA FATCA Intergovernmental Agreement is an agreement between the governments (tax administrations) of the USA and the Republic of South Africa to exchange information automatically under the provisions of the DTT between these countries.

• The Standard for AEOI in tax matters (CRS) is the Global Model for AEOI under the MCAA of which South Africa is a signatory

• The CRS is a standardized automatic exchange model, which builds on the FATCA IGA to maximize efficiency and minimize costs, except that the ambit is now extended to all foreign held accounts and not only those of US citizens. South Africa is also one of the early adopters of the CRS and is committed to commence exchange of information automatically on a wider front from 2017, together with over 90 other jurisdictions.

• For years of assessment commencing 1 January 2016, the ultimate parent company of a MNE group that is tax resident in South Africa will be required to file a CbC report to SARS. The threshold for reporting to SARS is a consolidated MNE group turnover of at least R10 billion in the fiscal year prior to the year in which the CbC report must be submitted.

n/a


• South Africa legislation places an obligation on facilitators of tax schemes to disclose certain types of transactions to the revenue authority. These transaction types are listed as reportable arrangements.

• The list of reportable arrangements has been extended to encompass additional transaction types that the revenue authority views as being high risk.

n/a


June 201796




• For years of assessment commencing on or after 1 October 2016, companies which transact cross-border with connected persons whereby such transactions exceed or are reasonably expected to exceed R100 million are required to maintain TP policy documentation.

n/a

14 Dispute resolution• MAP is contained in the majority of DTTs and can be followed to resolve

international tax disputes.n/a


• A multilateral convention on mutual administrative assistance on tax matters (as amended by the protocol) was entered into with date of entry into force of 1 March 2014.

• A multilateral African Tax Administration Forum Agreement on Mutual Assistance in Tax Matters and a multilateral Southern African Development Community Agreement on Assistance in Tax Matters was also signed and ratified in South Africa but has not yet come into effect.

• Various tax exchange of information agreements have also been entered into. These include Argentina, Bahamas, Barbados, Belize, Bermuda, Cayman Islands, Cook Islands, Gibraltar, Guernsey, Jersey, Liberia, Liechtenstein, San Marino and St Kitts and Nevis.

• South Africa is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

• New tax information exchange of information is in the process of negotiation with Andorra, Brunei Darussalam, Costa Rica, Dominica, Grenada, Isle of Man, Jamaica, Macao SAR, Maldives, Marshall Islands, Monaco, Panama, Samoa, St. Lucia, Turks and Caicos Islands and Uruguay.


June 2017 97


Country SpainPKF member firm PKF Attest

Your contact Gonzalo Vélez, Álvaro Beñarán, Cecilia Flores

Email [email protected], [email protected], [email protected]


1 Digital economy • No specific action taken yet• PE consideration will

include “significant digital activities” definition

2 Hybrids

• Expenses derived from controlled transactions will not be deemed as tax deductible in case the related counterparty considers the related income as tax exempt or with an effective tax rate below 10%.

• Exemption for avoiding double taxation will not apply to dividends where the distribution gives rise to a tax-deductible expense.

• EU PSD amendment has been implemented, disallowing the benefits of the Directive when transactions are only aimed to achieve a tax relief.

• Specific rule against profit-participating loans interest deduction.

n/a

3 CFC’s

• Income derived from foreign subsidiaries is imputed provided that:

- A participation >50% is held. - A source tax rate applicable to such income is <75% of the applicable Spanish tax rate.

• UCITs under Directive 2009/65/CE are excluded if incorporated and domiciled in a EU Member State.

• A deep review of CFC legislation is expected


• Net financial expenses are only tax deductible up to the higher of EUR 1,000,000 or 30% of EBITDA

• Financial expenses within groups of companies aimed to (i) acquire shares of other companies or (ii) perform capital contributions to other companies of the group, will not be tax deductible unless a valid economic reason other than achieving a tax relief is proved

n/a


• New measures aimed at specifically fighting harmful tax practices and artificial instruments leading to tax savings or designed for tax purposes n/a

6 Prevent treaty abuse • “Beneficial owner” clauses are being negotiated in new DTTs n/a


June 201798



7 PE status • No specific action taken yet• PE consideration / definition

will be reviewed










• TP documentation (Master and CbC files) should not be mandatorily filed but should be held at the disposal of the tax authorities if required.

• Documentation requirements have been simplified for groups with a global turnover below EUR 45 million.

• CbC report will be mandatory as of 2016 for groups with a global turnover exceeding EUR 750 million.

• On 27 January 2016, Spain has signed the MCAA for the automatic exchange of CbC reports.

n/a



• Spain is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 2017 99


Country Sultanate of OmanPKF member firm PKF L.L.C.

Your contact Percy R. Bhaya





3 CFC’s • No specific action taken yet • See * below






June 2017100














* Please note that Oman is not an OECD member state. Further, the Oman Income tax law doesn’t provide for any of the 15 action plan laid down under the OECD’s action plan on BEPS. Hence, no specific action has been taken and/or is in the pipeline on any of the 15 action points laid down under the BEPS action plan in Oman.


June 2017 101


Country SwedenPKF member firm PKF Revidentia AB

Your contact Karin Rosén



1 Digital economy • No specific action taken yet. No changes in Swedish law until the EU VAT Directive will be changed n/a

2 Hybrids• Sweden does not have the proposed legislation. The MoF is working on the question whether there

should be changes in Swedish law or not.n/a

3 CFC’s• Sweden already has legislation in this area. It differs somewhat from the report’s recommendations.

It is not clear whether the Swedish rules will be changed. The issue lies with the MoF.n/a

4 Interest deductions• Sweden has rules that limit the deductibility of interest in some cases. A review of these rules is

ongoing within the framework of the so-called Corporate Tax Committee’s work. A proposal will probably be given during spring 2016. No proposal has yet been published.

n/a


• Sweden does not have any preferential tax regimes and does not provide any such preliminary covered by the report. Sweden will not send any information. However, Sweden will receive information on advance notice, as provided in other countries, where there is a transaction that affects one in Sweden and the preliminary decision includes a favorable tax regime. Information will be subject to confidentiality in Sweden.

n/a

6 Prevent treaty abuse• No specific action taken yet. No matter how minimum standard becomes a part of the DTTs

between Sweden and other countries, it is required that new treaties or amendments to treaties are approved by new legislation for it to apply in Sweden.

n/a

7 PE status• No specific action taken yet other than the definitions followed in OECD Model DTT. However, there

is a need for a change in Swedish law. The issue lies with the MoF.n/a

8 TP - intangibles• Sweden has laws about how pricing will take place between associated enterprises. The legislation

is based on the arm’s length principle. No need for change in law.n/a


June 2017102




• See action point 8 n/a



11 BEPS data collection• The Tax Agency will monitor the area and developments to ensure that the

BEPS implications are reflected in Swedish taxationn/a


• Sweden currently lacks rules on mandatory reporting for companies or advisers. The issue of such rules to be introduced lies with the MoF.

n/a

13 TP – documentation• Sweden has implemented BEPS Action 13, and requires the master and

local file documentation format for TP documentation.

• Financial years starting on or after 1 April 2017.

• CbC reporting has been introduced. Certain larger groups (i.e. groups with a consolidated turnover of over 7 billion SEK / 750 million EUR) will have to file a CbC report by 31 December 2017, covering the financial year 2016. Swedish entities are expected to notify the STA regarding the identity and jurisdiction of the reporting entity within the reporting fiscal year.

• Financial years that begin on or after 1 January 2016.

14 Dispute resolution• Sweden meets the minimum standard. New amendments to tax treaties

need to be approved by new legislation for it to apply in Swedenn/a


• Sweden participates in the group that will present a proposal on the joint agreement. Whether Sweden signs a joint agreement or renegotiates its individual tax agreements needs to be approved by legislation to take effect in Sweden.

• Sweden is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

n/a


June 2017 103


Country SwitzerlandPKF member firm PKF Consulting AG

Your contact Margarita Baeriswyl



1 Digital economy• No specific action taken yet and not yet known

whether and how this will be implemented.n/a

2 Hybrids• No specific action taken yet. The current view is

that existing Swiss tax law is sufficient to prevent hybrid structures.

• Plan to implement the MLI to "automatically" amend existing CH tax treaties, to adapt to BEPS Actions 2 (also 6, 7 and 14).

3 CFC’s• No specific action taken yet. Switzerland does not

have CFC legislation and there is no intention to introduce a CFC regime at the moment.

n/a

4 Interest deductions• No specific action taken yet. The current view is that

the existing thin capitalization rules are sufficient to prevent unreasonable interest deductions.

n/a

5 Harmful tax practices • No specific action taken yet

• Swiss tax reform III including BEPS was rejected by public vote taken place on 12 February 2017. After the Federal Council discusses and agrees to a new law, the Swiss parliamentary process will start. For the implementation of a new package additional two years are required. As part of the legislative process for a revised corporate tax reform, preferential tax regimes are expected to be abolished and a new patent box regime implemented in line with Action 5 recommendations. According to this timetable, new Switzerland federal tax law is expected not earlier than January 2019 while new Switzerland cantonal tax law is expected not earlier than 2020.


June 2017104



5 Harmful tax practices (Continued)

• No specific action taken yet

• The Federal Council adopted the total revision of the Tax Administrative Assistance Ordinance and brought it into force on 1 January 2017. The new ordinance defines the framework and the procedures required for the spontaneous exchange of information including those that apply for the exchange of information on advance tax rulings. The first spontaneous exchanges of information with Switzerland will take place from 1 January 2018 onwards and will apply for tax periods starting from then. For the specific case of the advance tax rulings, the ordinance defines which categories are subject to spontaneous exchanges and which countries have to be informed. Regarding the relevant timeframe and scope:

• All new rulings (falling in one of the defined categories) will be subject of the spontaneous exchange of information as of 1 January 2018.

• Tax rulings (falling in one of the defined categories) issued after 1 January 2010 and still effective on 1 January 2018 (or 2017 in case of specific agreements) would be subject to the spontaneous exchange of information.

6 Prevent treaty abuse• No specific action taken yet. Switzerland already has

either PPT or LoB clauses in some tax treaties.

• More treaties and the multilateral treaty are expected to include such clauses in the future. Plan to implement the MLI to "automatically" amend existing CH tax treaties, to adapt to BEPS Actions 6 (also 2, 7 and 14).

7 PE status• No specific action taken yet; but any changes are

expected to be subject to the MLI.• Plan to implement the MLI to "automatically" amend existing CH tax

treaties, to adapt to BEPS Actions 7 (also 2, 6 and 14).

8 TP - intangibles

• In the absence of specific TP rules in domestic law, the OECD TP guidelines form the basis for determining the arm’s length nature of intragroup transactions for Swiss tax purposes. As such, the new guidelines are valid with immediate effect.

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June 2017 105



11 BEPS data collection• The Federal Council has tasked the Federal Department of Finance

with assessing possible changes to national legislation that should be considered based on the BEPS recommendations.

n/a


• No specific action taken yet. Switzerland has declared that it is currently not considering participating in this action.

n/a


• Switzerland does not plan to make transfer pricing documentation compulsory, but it is expected to monitor the situation. Taxpayers may need to make available the Masterfile that already must be prepared as part of tax audits.

• Switzerland has introduced legislation to make CbC reporting mandatory for Swiss-based multinational companies if the group revenue exceeds the threshold defined by the OECD and signed the MCAA for the automatic exchange of CbC reports regarding the financial year 2017 going forward (data will need to be reported in financial year 2018).

n/a

14 Dispute resolution• No specific action taken yet. Switzerland has committed to binding

arbitration (subject to implementation of MLI; see below).



• The Federal Council has already approved this roadmap, and the Federal Department of Finance has been instructed to take into account the BEPS actions when negotiating new DTTs.

• Switzerland is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.



June 2017106


Country ThailandPKF member firm PKF Thailand

Your contact John Casella





3 CFC’s • There is no CFC legislation in Thailand n/a






June 2017 107










• Thailand has signed a memorandum of understanding concerning the compliance with the Foreign Account Tax Compliance Act (FATCA) with the US government

n/a

13 TP – documentation• There are no mandatory TP documentation requirements. Closely align with the OECD TP

guidelines, the domestic TP guidelines assist Thai tax authorities when conducting a TP audit.

• The domestic TP legislation is currently in draft and has not yet entered into force




June 2017108


Country TurkeyPKF member firm PKF İstanbul

Your contact Kadir Sayici, Mehmet Caltekin





3 CFC’s• CFC rules exist in Turkey. They apply where a resident company has at least a 50% interest in a

non-resident company and certain other conditions applyn/a



• Any payment made in cash or via a bank account to a corporation (including a branch of a resident corporation) that is operational or established in a country regarded by the Turkish Council of Ministers to undermine fair tax competition (through other practices or taxation) may be taxed in Turkey through the application of withholding tax at a rate of 30%. The Turkish Council of Ministers has not yet determined which countries receiving payments will be considered as ‘tax havens’. With respect to withholding tax, the Council of Ministers is granted the authority to determine the rate of taxation and specify the scope of work to be done with respect to payments made to purchase goods or participation stocks, for rent, for sea or air transportation, and payments which must be made for the completion of work done. However, while the authority is given to the Council of Ministers, there are two fundamental criteria regarding the determination of the countries which will be under the scope of such application. These are:

- Whether or not the taxation system of the other country where the payments are transferred to provides taxation opportunities at the same level as the Turkish tax system; or;

- The information exchange mechanism

• The Council of Ministers has not yet issued such a list of countries

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June 2017 109





8 TP - intangibles• No specific action taken yet other than application of arm’s length principle on related party

transactionsn/a


• No specific action taken yet other than application of arm’s length principle on related party transactions

n/a



n/a




13 TP – documentation• No specific action taken yet other than application of arm’s length principle on related party

transactionsn/a



• Turkey is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies

n/a


June 2017110


Country United Arab EmiratesPKF member firm PKF UAE

Your contact Sarika Dhameja



1 Digital economy • No specific action taken yet

• VAT is proposed to be introduced from 1 January 2018 and is expected to extend to all goods and services, including digital products and services as per the provisions of the law.





• With a view to improving transparency and ensuring AEOI in the near future, the UAE has taken a few measures:

- The UAE Signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC) on 21 April 2017, that would enable the UAE to fulfill its commitment to begin AEOI furthering the aim of preventing tax evasion. The convention is not yet in force in the UAE.

- The UAE has also signed the MCAA, to activate the system of exchange of tax information in accordance with the CRS.

- The country has signed 104 DTT agreements, 8 agreements on the exchange of information for tax purposes, in addition to an agreement with the US on FATCA.

- The UAE has joined the Global Forum on Transparency and Exchange of Information for Tax Purposes which is the key international body working on the implementation of information exchange international standards.

- The UAE MoF signed a Memorandum of Understanding with the OECD to build a partnership with regard to taxation matters, whereby the UAE has become a training hub for MENA for the exchange of information and is building a qualified and active network of tax experiences among the countries of the region.

• Based on the above measures, one can say that ground work is being laid out to ensure that the UAE’s commitment to AEOI is progressing.


June 2017 111




• A tax residency certificate issued by the UAE Ministry of Finance is mandatory for claiming benefit under UAE DTTs. To ensure that only genuine assesses can claim a benefit, a minimum threshold of 180 days physical presence has been set by MOF to be able to apply for a tax residency certificate. This action was implemented by MOF in the First quarter of 2016.

n/a











• On 21 April 2017, the UAE signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MCA), which includes provisions that would make it easier for the UAE to implement automatic exchange of CbC reports on the tax affairs of multinational corporations with other countries’ tax administrations under action 13. The convention is not yet in force in the UAE.

n/a




June 2017112


Country United KingdomPKF member firm PKF Cooper Parry

Your contact Stephen Bryan



1 Digital economy

• The UK implemented measures to treat the country of consumption as the place of supply of digital supplies for VAT purposes with effect from 1 January 2015

• The UK’s responses to action points 3 (CFCs), 7 (PE’s) and 8-10 (TP) are intended to also address other aspects of action point 1

• The UK’s Task Force for the Digital Economy will consult on other aspects of action point 1 to determine whether supplementary rules to tackle specific tax challenges are necessary and participate in future work with the OECD. A further report is expected by OECD in 2020.

2 Hybrids

• The UK has enacted new measures through legislation contained in Finance Act 2016 to address hybrid mismatch arrangements with effect from 1 January 2017

• The UK Government published certain amendments to the anti-hybrid rules which were contained in Finance Bill 2017. The timetable for Finance Bill 2017 was accelerated due to the UK general election to be held on 8 June 2017. The government shortened Finance Bill 2017 significantly and it is the shortened version that has been enacted into Finance Act 2017. The shortened version did not contain the amendments to the anti-hybrid legislation which were dropped. There is no indication when the delayed provisions would have effect from.

3 CFC’s

• The UK modernized its CFC rules in 2012 and the changes made at that time used elements of the various approaches referred to in the OECD report, so no further changes are considered to be necessary

n/a


• Following consultation, the UK intends to introduce new legislation which will take effect from 1 April 2017 to restrict relief for interest to 30% of EBITDA - a higher threshold will apply to groups of companies where their external borrowing exceeds 30% of EBITDA. Exemptions may apply where the total UK interest expense is less than £2,000,000 per annum.

• The UK Government published the Finance Bill 2017 in March 2017 which contained legislation to introduce the new interest deduction rules and modified debt cap to take effect from 1 April 2017. The timetable for Finance Bill 2017 was accelerated due to the UK general election to be held on 8 June 2017. The government shortened Finance Bill 2017 significantly and it is the shortened version that has been enacted into Finance Act 2017. The shortened version did not contain the new interest deduction rules. There is no indication when the delayed provisions would have effect from.


June 2017 113



5 Harmful tax practices• Revisions to the Patent Box regime have been included in Finance Act

2016 to implement ‘nexus principle’ in action point 5, with effect from 1 July 2016.

• The UK Government published the Finance Bill 2017 in March 2017 which included legislation to amend the patent box regime and ensure that when two or more companies collaborate to undertake research and development under a cost sharing agreement that they are treated fairly. These clauses were also dropped from the Finance Bill when the general election was announced but they are expected to be enacted at a future date. There is no indication when these delayed provisions would have effect from.


• The scope of UK WHT on royalties has been changed for payments made on or after 28 June 2016. The new legislation makes changes to the definition of royalties as well as changes to whether a payment has a UK source. DTT relief will be denied for certain IP royalty (or similar) payments made to connected persons under DTT avoidance arrangements.

• On 1 November 2016, Colombia and the United Kingdom signed a DTT. The treaty includes provisions consistent with the treaty-based recommendations from the BEPS project.

• The MLI opened for signature in December 2016 and the first signing ceremony is expected take place in June 2017. Implementation of the anti-abuse provisions is dealt with in article 7 of the MLI where countries must adopt a PPT, a simplified LoB test or negotiate their own detailed LoB provision.

• The UK position was set out in an open event held by HM Treasury on 12 December 2016. The UK intends to opt for the PPT except where the treaty partner wants to opt out and seek to negotiate a detailed LoB provision instead.

7 PE status

• The Diverted Profits Tax took effect from 1 April 2015 which counters certain arrangements where a foreign entity creates a presence in the UK which falls short of PE status.

• On 1 November 2016, Colombia and the United Kingdom signed a Treaty to Avoid Double Taxation. In relation to Action 7, the Treaty contains an anti-fragmentation rule and a paragraph addressing on the splitting-up of contracts applicable to both the construction PE and the service PE clauses, but it does not contain, nevertheless, the new language on the agency PE clause.

• a presence in the UK which falls short of PE status

• The MLI opened for signature in December 2016 and the first signing ceremony is expected take place in June 2017. The UK position on the PE provisions within the MLI was set out in an open event held by HM Treasury on 12 December 2016. The UK does not plan to adopt most of the provisions targeting abuse involving PEs, other than the anti-fragmentation rule and the revised definition of closely related persons.

8 TP - intangibles • Finance Act 2016 includes legislation which maintains the link between the UK tax legislation and the OECD’s updated TP guidelines.

n/a






June 2017114





• UK legislation constantly evolving in this area, notable developments include:

- New legislation has been introduced requiring certain UK companies to formally publish their tax strategy. The measure applies if in the previous tax year, the company has turnover above £200 million or a balance sheet over £2 billion. For groups and sub-groups, it’s the combined totals of all the relevant bodies that are considered. The first tax strategy needs to be published by the end of the first financial year after 15 September 2016.

- On 17 October 2016, the UK HM Revenue & Customs (HMRC) released updated guidance on Disclosure of tax avoidance schemes.

- On 5 September 2016 HMRC launched the Worldwide Disclosure facility. This is perceived as the final chance to encourage taxpayers to come forward before the AEOI under the CRS.

• From 30 September 2018, the UK will impose new and stricter sanctions under the Requirement to Correct.


• The UK has implemented CbCR reporting regulations to give effect to the recommendations in Action 13. CbCR is mandatory in the UK for accounting periods beginning on or after 1 January 2016 and therefore the first accounting periods impacted by the reporting are for the year ended 31 December 2016.

• An annual notification requirement applies to fiscal reporting on or after 1 January 2016 and needs to be submitted by the end of the reporting fiscal period. The first notifications must be received by the later of the end of the reporting fiscal period or 1 September 2017. The notifications must be emailed to HMRC and include the name and tax reference of the entity which will file the CbC report and the names and tax references for all the MNE group’s entities that are resident in the UK, are UK PEs or are UK partnerships.

n/a


• The MLI opened for signature in December 2016 and the first signing ceremony is expected take place in June 2017. The UK position on the dispute resolution provisions within the MLI was set out in an open event held by HM Treasury on 12 December 2016. The UK intends to adopt the provisions to amend/improve the MAP in their entirety and also to adopt the optional provisions on mandatory binding arbitration (without making a reservation either as to the scope of such arbitration or to exclude issues from arbitration where a decision has previously been made by a court).

n/a


• UK is one of the 68 signatories of the MLI. The MLI, which has been signed on 7 June 2017, offers concrete solutions for jurisdictions to close the gaps in their existing bilateral DTTs. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies

• Although the ad hoc group that developed the Instrument was chaired by Mike Williams of HM Treasury, the UK has already indicated an intention to make a number of reservations regarding certain provisions of the instrument. These have been set out under the relevant actions above

n/a


June 2017 115


Country United StatesPKF member firm PKF O’Connor Davies, LLP

Your contact Leo Parmegiani



1 Digital economy • No specific action taken yet, as the US does not follow OECD n/a

2 Hybrids • No specific action taken yet, as the US does not follow OECD n/a

3 CFC’s • No specific action taken yet, as the US does not follow OECD n/a

4 Interest deductions • No specific action taken yet, as the US does not follow OECD n/a

5 Harmful tax practices • No specific action taken yet, as the US does not follow OECD n/a

6 Prevent treaty abuse• On 17 February 2016, the U.S. Treasury Department released a revised Model Treaty which is the

baseline text when it negotiates tax treaties. In the preamble, the 2016 Model Treaty incorporates recommendations of action point 6

n/a

7 PE status • No specific action taken yet, as the US does not follow OECD n/a


June 2017116



8 TP - intangibles • No specific action taken yet, as the US does not follow OECD n/a


• No specific action taken yet, as the US does not follow OECD n/a



11 BEPS data collection • No specific action taken yet, as the US does not follow OECD n/a




• Final CbC Regulations were issued in June 2016 designed to coordinate with the model CbC reporting template and instructions as per Action Item 13. The CbC information will be reported on new Form 8975 for periods beginning on or after 30 June 2016 and will be required for Ultimate Parent Entities of Multinational Enterprise groups that had on a consolidated basis, revenue of $850 million or more in the immediately preceding reporting period. IRS will allow voluntary filings called a “parent surrogate filing” for an earlier period to conform with the OECD start date.

• On 6 April 2017, the US Internal Revenue Service published two model competent authority agreements (CAAs) for the exchange of CbC reports. One CAA is based on the double tax convention and the other arrangement is based on a TIEA.

• In June 2017, the IRS has published 5 CAAs signed by the US and Iceland, the Netherlands, New Zealand Norway and South Africa

n/a

14 Dispute resolution • No specific action taken yet, as the US does not follow OECD n/a

15 Multilateral instrument • No specific action taken yet, as the US does not follow OECD n/a



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