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International Tax News. Edition 30 August 2015

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International Tax News. Edition 30 August 2015 Welcome Keeping up with the constant flow of international tax developments worldwide can be a real challenge for multinational International companies. International Tax News is a monthly publication that offers updates and analysis Tax News on developments taking place around the world, authored by specialists in PwC’s global international tax network. Edition 30 We hope that you will find this publication August 2015 helpful, and look forward to your comments. Shi-Chieh ‘Suchi’ Lee Global Leader International Tax Services Network T: +1 646 471 5315 E: [email protected] www.pwc.com/its In this issue Tax legislation Proposed legislative changes Administration & case law Treaties Tax Legislation www.pwc.com/its Tax Legislation Cyprus Introduction of a notional interest deduction (NID) on A taxpayer may annually elect not to claim part or all of the new corporate equity available NID. In order to tackle possible abuse of the NID, the law contains a general New corporate equity injected into a company as of anti-avoidance provision for non-commercial transactions as well January 1, 2015 in the form of paid-up share capital or as a number of specific anti-avoidance provisions which may restrict the NID. share premium is eligible for an annual notional interest deduction (NID). The NID applies to Cyprus tax resident companies and to permanent establishments (PEs) in Cyprus of non-resident companies and is New equity may be contributed in cash or in assets in kind. In the case effective as of January 1, 2015. of assets in kind, the amount of new equity may not exceed the market value of the asset. In a similar way that an interest expense on debt financing is generally PwC observation: calculated as an interest rate on loan principal, the annual NID is The aim of the amendment is to encourage new equity which in calculated as an interest rate on the eligible share capital / share turn should increase the economic robustness of Cyprus companies premium. The NID interest rate is the yield on ten-year government through less reliance on debt financing, whilst keeping their bonds (as at December 31 of the prior tax year) of the country where competitiveness. Corporations should now consider how this the funds are employed in the business of the company plus a 3% amendment may impact the structure of their financing. premium. This is subject to a minimum amount which is the yield of the ten-year Cyprus government bond (as at the same date) plus a This amendment is part of a package of measures aiming to 3% premium. enhance the corporate and personal tax competitiveness of Cyprus. Also included within this package are proposals for a simpler tax The NID is tax deductible in a similar manner as actual interest treatment of foreign exchange differences and fairer treatment expense, i.e. the NID is available for tax purposes when new equity is of arm’s-length adjustments (refer to the Proposed Legislative utilised to finance most types of business assets, with the proviso that Changes section) as well as enacted law to exempt certain income the NID cannot exceed 80% of the taxable profit (as calculated prior of non-domiciled individuals from tax in Cyprus and proposals to the NID). to improve the exemptions available for high-earning expatriates working in Cyprus. Marios Andreou Stelios Violaris Joanne Theodorides Nicosia Nicosia Nicosia T: +357 22 555 266 T: +357 22 555 300 T: +357 22 553 694 E: [email protected] E: [email protected] E: [email protected] Proposed Legislative Changes www.pwc.com/its Proposed legislative changes Brazil Further changes to the application of PIS/COFINS on certain financial revenues PwC observation: Brazilian taxpayers accruing On May 20, 2015, Decree No. 8,451/2015 was published financial revenues should consider the impact of amending Decree No. 8,426/2015 (issued at the beginning Decree 8,426/2015 and of April 2015) in relation to the application of Social 8,451/2015 on their particular Integration Program (PIS) and the Contribution for Social circumstances to determine Security Financing (COFINS) on financial revenues earned whether PIS/COFINS will by companies subject to the non-cumulative system to apply to their transactions from July 1, 2015. calculate PIS/COFINS. Prior to Decree No. 8,426/2015, the PIS and COFINS rate on financial revenues was equal to 0%. On April 1, 2015, Decree No. 8,426/2015 reintroduced PIS/COFINS on financial revenue at the rate of 0.65% and 4% respectively. Decree No. 8,451/2015 provides that the 0% rate will continue to apply on financial revenues resulting from foreign exchange inflation adjustments relating to the export of goods and services to foreign operations. Foreign exchange derived from contractual obligations including loans and financing are also covered by the 0% rate. Decree No. 8,451/2015 also provides that the 0% rate should apply to financial revenues arising from hedging transactions conducted on stock exchanges, commodities and futures markets or contracted ‘over- the-counter’ for the purpose of protecting against risks associated with fluctuations related to the operating activities of the entity and which can be allocated to the protection of such rights or obligations. Decree 8451/2015 will apply from July 1, 2015 (the same date as the earlier Decree restoring the 4.65% rate will take effect). Durval Portela Alvaro Pereira Mark Conomy São Paulo Salvador São Paulo T: +55 11 3674 2522 T: +55 71 3319 1912 T: +55 11 3674 2519 E: [email protected] E: [email protected] E: [email protected] Proposed Legislative Changes www.pwc.com/its Cyprus Tax neutral treatment of foreign currency exchange Further, in cases where two related Cyprus taxpayers transact and the differences (forex) and extension of the arm’s‑length Cyprus tax authorities make an upwards arm’s-length adjustment to one of the taxpayers, it is proposed that there will be a corresponding principle to downwards adjustments downwards adjustment for the other taxpayer. A bill concerning the tax treatment of foreign currency It is expected that the Parliament will discuss and vote on these proposals this coming September following the summer recess with exchange differences (forex) has been sent to the Cyprus their expected effective date to be January 1, 2015. Parliament for discussion and voting. The bill proposes for all forex to be tax neutral from a Cyprus income tax perspective (i.e. gains not taxable / losses not tax deductible) with the exception of forex arising from trading PwC observation: in forex, which remains taxable / deductible. Businesses with cross-border transactions usually incur forex. Forex is often difficult to predict, especially in the current global The definition of forex includes gains / losses on foreign currency economic climate. The above proposal aims to simplify the income rights or derivatives. tax treatment of forex. Further the above proposals aim to be fairer to businesses in the tax treatment of their related party dealings. Regarding trading in forex, which remains subject to tax, this proposal introduces an option for taxpayers to make an irrevocable election This amendment is part of a package of measures aiming to whether to be taxed only upon realisation of forex rather than on an enhance the corporate and personal tax competitiveness of Cyprus. accruals / accounting basis. Also included within this package are amendments which have already been enacted in relation to the introduction of notional Regarding the arm’s-length adjustments, the income tax law currently interest deduction (NID, refer to Tax Legislation section) and only provides for unilateral upwards adjustments to profits in cases exemption of certain incomes of non-domiciled individuals as well where taxable profits earned on related party transactions are below as proposals to improve the exemptions available for high-earning an arm’s length (i.e. market value) amount. expatriates working in Cyprus. The bill sent to Parliament also contains proposals to introduce the possibility for a downwards adjustment in cases where expenses / losses incurred with related parties are not at arm’s length. Marios Andreou Stelios Violaris Joanne Theodorides Nicosia Nicosia Nicosia T: +357 22 555 266 T: +357 22 555 300 T: +357 22 553 694 E: [email protected] E: [email protected] E: [email protected] Proposed Legislative Changes www.pwc.com/its Latvia Administrative burden on Latvian tax residents However, Latvian tax residents having derived any other type of working in EU to ease income, such as deposit interest, dividends or capital gains, will still have to file the annual income tax return in Latvia. Proposals for amending the personal income tax (PIT) It is also important to note that the proposals provide for removing Act that were presented to Parliament on May 27, 2015 the administrative burden from Latvian tax residents employed only in the EU, given the automatic EoI among the member states. Latvian providing for exempting Latvian tax residents that have tax residents having earned employment income in a country that earned employment income elsewhere in the European has concluded an effective double tax treaty (DTT) with Latvia (e.g. Union (EU) from the obligation to file the annual income Russia, Switzerland, or Norway) will still have to file the annual tax return in Latvia. income tax return in Latvia and confirmation from the foreign tax authorities. Under current tax law, Latvian tax residents that have earned The proposals have been presented to the Parliamentary Budget and employment income outside Latvia must file the annual income tax Finance (Taxation) Committee and are to be debated by Parliament return in Latvia.
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