A Closer Look

GLOBAL TAX WEEKLY ISSUE 288 | MAY 17, 2018 a closer look

SUBJECTS TRANSFER PRICING INTELLECTUAL PROPERTY VAT, GST AND SALES TAX CORPORATE TAXATION INDIVIDUAL TAXATION REAL ESTATE AND PROPERTY TAXES INTERNATIONAL FISCAL GOVERNANCE BUDGETS COMPLIANCE OFFSHORE

SECTORS MANUFACTURING RETAIL/WHOLESALE INSURANCE BANKS/FINANCIAL INSTITUTIONS RESTAURANTS/FOOD SERVICE CONSTRUCTION AEROSPACE ENERGY AUTOMOTIVE MINING AND MINERALS ENTERTAINMENT AND MEDIA OIL AND GAS

COUNTRIES AND REGIONS EUROPE AUSTRIA BELGIUM BULGARIA CYPRUS CZECH REPUBLIC DENMARK ESTONIA FINLAND FRANCE GERMANY GREECE HUNGARY IRELAND ITALY LATVIA LITHUANIA LUXEMBOURG MALTA NETHERLANDS POLAND PORTUGAL ROMANIA SLOVAKIA SLOVENIA SPAIN SWEDEN SWITZERLAND UNITED KINGDOM EMERGING MARKETS ARGENTINA BRAZIL CHILE CHINA INDIA ISRAEL MEXICO RUSSIA SOUTH AFRICA SOUTH KOREA TAIWAN VIETNAM CENTRAL AND EASTERN EUROPE ARMENIA AZERBAIJAN BOSNIA CROATIA FAROE ISLANDS GEORGIA KAZAKHSTAN MONTENEGRO NORWAY SERBIA TURKEY UKRAINE UZBEKISTAN ASIA-PAC AUSTRALIA BANGLADESH BRUNEI HONG KONG INDONESIA JAPAN MALAYSIA NEW ZEALAND PAKISTAN PHILIPPINES SINGAPORE THAILAND AMERICAS BOLIVIA CANADA COLOMBIA COSTA RICA ECUADOR EL SALVADOR GUATEMALA PANAMA PERU PUERTO RICO URUGUAY UNITED STATES VENEZUELA MIDDLE EAST ALGERIA BAHRAIN BOTSWANA DUBAI EGYPT ETHIOPIA EQUATORIAL GUINEA IRAQ KUWAIT MOROCCO NIGERIA OMAN QATAR SAUDI ARABIA TUNISIA LOW-TAX JURISDICTIONS ANDORRA ARUBA BAHAMAS BARBADOS BELIZE BERMUDA BRITISH VIRGIN ISLANDS CAYMAN ISLANDS COOK ISLANDS CURACAO GIBRALTAR GUERNSEY ISLE OF MAN JERSEY LABUAN LIECHTENSTEIN MAURITIUS MONACO TURKS AND CAICOS ISLANDS VANUATU GLOBAL TAX WEEKLY a closer look

Global Tax Weekly – A Closer Look

Combining expert industry thought leadership and team of editors outputting 100 tax news stories a the unrivalled worldwide multi-lingual research week. GTW highlights 20 of these stories each week capabilities of leading law and tax publisher Wolters under a series of useful headings, including industry Kluwer, CCH publishes Global Tax Weekly –– A Closer sectors (e.g. manufacturing), subjects (e.g. transfer Look (GTW) as an indispensable up-to-the minute pricing) and regions (e.g. asia-pacific). guide to today's shifting tax landscape for all tax Alongside the news analyses are a wealth of feature practitioners and international finance executives. articles each week covering key current topics in Unique contributions from the Big4 and other leading depth, written by a team of senior international tax firms provide unparalleled insight into the issues that and legal experts and supplemented by commentative matter, from today’s thought leaders. topical news analyses. Supporting features include a round-up of tax treaty developments, a report on Topicality, thoroughness and relevance are our important new judgments, a calendar of upcoming tax watchwords: CCH's network of expert local researchers conferences, and “The Jester's Column,” a lighthearted covers 130 countries and provides input to a US/UK but merciless commentary on the week's tax events.

FEATURED ARTICLES New US Withholding on Sales of US UK Parliament Votes For Public Registers Partnership Interests by Non-US Partners In Offshore Jurisdictions Christie Galinski, Chapman and Cutler LLP 5 Phil Munroe and Chris Groves, Withers 31 "e European Union Anti-Avoidance Directives Brazil Enters Into New Tax Treaties With Stuart Gray, Senior Editor, Global Tax Weekly 16 Switzerland And Singapore Matheus Piconez and Raphael Furtado, District Court Broadens Scope Of Willful BMA Advogados, Brazil 33 Requirement In Applying Enhanced FBAR Penalties Topical News Briefing: Ephraim Moss, Esq. and Joshua Ashman, CPA, "e Nine Lives Of "e FTT Expat Tax Professionals 26 &e Global Tax Weekly Editorial Team 38 Topical News Briefing: "e Information Exchange Age &e Global Tax Weekly Editorial Team 29

NEWS ROUND-UP

Tax Transparency 40 Other Taxes 43 Swiss Council Approves New Exchange Agreements EU10 Expects Revenue Windfall From FTT SIFMA Urges Delay To FATCA Withholding Hong Kong Government Studying Vacant Property Tax Macau To Sign OECD Multilateral Information Portugal Legislates For Tonnage Tax Regime Exchange Treaty IMF Urges Ireland To Broaden Tax Base Swiss Tax Agency Exchanges Information On Advance Tax Rulings Bene(cial Ownership 46 Transfer Pricing 53 EU Council Adopts Directive To Make Company OECD Consults On Changes To Transfer Pricing Guidelines Ownership Data Public Cayman Launches CbC Reporting Portal Barbados Rejects UK Push For Public Bene$cial Saint Lucia Commits To BEPS Minimum Standards Ownership Register HMRC Announces Launch Of CbC Reporting Service Isle Of Man Studying Public Bene$cial Ownership Register Options

VAT, GST, Sales Tax 56

Country Focus: Australia 49 IMF Calling For Sub-Saharan African VAT Reforms Australia Budget Cuts Personal Income Tax South Africa Invites Comment On VAT Zero-Rate Review Australia To Crack Down On Black Economy Australia Defers Release Of New International Tax Guidance TAX TREATY ROUND-UP 58

CONFERENCE CALENDAR 60

IN THE COURTS 72

THE JESTER'S COLUMN 81 (e unacceptable face of tax journalism

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Brazil Enters Into New Tax Treaties With Switzerland And Singapore by Matheus Piconez and Raphael Furtado, BMA Advogados, Brazil

On May 3 and May 7, 2018, Brazil entered into two bilateral conventions for the avoidance of double taxation ("DTT") with Switzerland and Singapore respectively.

Curiously, both countries were, in the past, blacklisted by Brazilian authorities as tax havens (Switzerland until June 18, 2014 1 and Singapore until December 21, 2017).

While not completely following OECD's model convention, both DTTs incorporate a number of provisions that follow the BEPS framework to combat tax avoidance, including Principal Pur- pose Test ("PPT") and substantive business activities Limitation on Bene1ts ("LOB") clauses.

Unlike other, older DTTs Brazil has entered into, these new DDTs do not contain a tax sparing clause – a tax treaty provision whereby a contracting state agrees to grant relief from taxation with respect to source taxes that have not actually been paid (taxes that have been "spared"). 3is is in line with OECD's latest recommendation to abandon the use of such clauses since they have been used for tax avoidance purposes and could indicate, in the future, that other countries that have DTTs with Brazil could be willing to renegotiate DTTs with tax sparing clauses.

Note that both DTTs will only enter into force in Brazil after rati1cation by the Brazilian Con- gress, which will enact a Legislative Decree. Subsequently, a Decree issued by the Executive Branch will make the DTT e4ective. 3ere is history of DTTs that took many years to enter into force in Brazil. But we hope that this time the process will be quicker, especially in the current international tax climate, which requires greater cooperation between jurisdictions in order to combat tax avoidance and provide tax transparency.

33 We present below a summary of the main aspects of both treaties.

Brazil–Switzerland DTT Article Comments 1 (Persons covered) Art. 1.2 expressly includes in the DTT's scope of fiscally transparent entities or arrangements as long as they are taxed in the country of residence. The protocol exemplifies the contractual fund or investment entity as defined in Articles 25 and 36 of the Swiss Federal Act on Collective Investment Schemes and the Brazilian investment funds regulated by the Securities and Exchange Commission of Brazil ( Comissão de valores Mobiliários ). 2 (Taxes covered) Art. 2.1.a(i) expressly includes in the DTT's scope the Brazilian Social Contribution on Net Revenue (Contribuição Social sobre o Lucro Líquido) . Usually this provision is included only in the Protocol. 3 (General definitions) Art. 3.j expressly defines the concept of "pension fund," which faces special tax rules under Arts 10 and 11 of the tax treaty. 4 (Residence) In line with the majority of DTTs signed by Brazil, the tiebreaker clause for legal entities favors the Place of Effective Management. 5–9 These provisions are similar to most DTTs signed by Brazil. 10 (Dividends) Taxation at source is restricted (i) to 10% if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends throughout a 365-day period, and (ii) to 15% in all other cases. 11 (Interest) Taxation at source is restricted (i) to 10% if the beneficial owner is a bank and the loan has been granted for at least five years for the financing of the purchase of equipment or of investment projects, and (ii) to 15% in all other cases. Moreover, if the beneficiary is a governmental entity of the other contracting state, taxation at source is not allowed. Protocol prescribes that the payment of Brazilian interest on net equity (juros sobre capital próprio – which allows notional interest deduction) qualifies as interest for the DTT's purpose. 12 (Royalties) Taxation at source is restricted (i) 15% in relation to the use or the right to use trademarks, and (ii) 10% in other cases. Usually the DTT Protocol extends the scope of Article 12 to include technical services and technical assistance. In this DTT, an autonomous article was included to deal with technical services (see Art. 13 below), aligned with the suggestion of the Committee of Experts on International Cooperation in Tax Matters (14th session, New York, April 3–6) as a revised commentary to Art. 12-A of the United Nations Double Taxation Model. 13 (Fees for technical Taxation at source is restricted to 10% for technical services (as defined services) in the DTT). 14 (Capital gains) Art. 14.5 uses an "arising" rule, permitting source country tax for gains on the sale of property that "arise in the other Contracting State". Since the term "arising" is not defined in the DTT, the meaning can be supplied by domestic law, under Art. 3.2 provisions. 15–21 These provisions are similar to most tax treaties. There is no "teachers and researchers" Article.

34 Brazil–Switzerland DTT Article Comments 22 (Other income) Unlike previous Brazilian DTTs, which allow both countries to tax "other income," this treaty allows taxation only in the resident state. Art. 22.3 uses an "arising" rule, permitting source country tax on items of income (other income) "arising in the other Contracting State". Since the term "arising" is not defined in the DTT, the meaning can be supplied by domestic law, under Art. 3.2 provisions. 23 (Elimination of The provision contains a credit method to relieve double taxation in Brazil and double taxation) an exemption method in Switzerland (except for dividends, interest, royalties or fees for technical services). There are no sparing or matching credit clauses. 24 In the Protocol, it is clarified that in the case of Brazil, the obligation to pay (Non-discrimination) taxes and reporting requirements under the Brazilian Tax Code and the Income Tax Regulations imposed on Brazilian companies held by Swiss residents are not deemed to be discriminatory. 25 (Mutual agreement This clause contains a three-year statute of limitations, unlike other Brazilian procedure) DTTs, which left it to domestic law to define such limitations. There is no commitment to solve disputes via arbitration. 26 (Exchange of Brazil and Switzerland signed a tax information exchange agreement (TIEA) in information) November 2015. Similar to Art. 5 of the TIEA, the Protocol of the DTT states that an exchange of information will only be requested once the requesting contracting state has exhausted all regular sources of information available under the internal taxation procedure. 27 (Entitlement Art. 27.1 contains a PPT)clause and 27.3 contains a LOB clause for legal to benefits) entities held by third countries (50% or more of the beneficial interest). While not specifically mentioning Controlled Foreign Companies (CFC) or thin capitalization rules, the Protocol states that the provisions of the DTT shall not prevent the parties from applying the provisions of its domestic legislation aimed at countering tax evasion and avoidance ( e.g., GAAR and SAAR provisions). 29 (Entry into force) Once the DTT enters into force, the Swiss–Brazil Air and Naval Transportation Convention signed in 1956 shall be suspended and shall not have effect.

Brazil–Singapore DTT Article Comments 1 (Persons covered) Art. 1.2 expressly includes in the DTT's scope ﬁscally transparent entities or arrangements as long as they are taxed in the country of residence. The Protocol has no additional provisions on this topic. 2 (Taxes covered) Art. 2.1.a.(i) expressly includes in the DTT's scope the Brazilian Social Contribution on Net Revenue ( Contribuição Social sobre o Lucro Líquido ). Usually this provision is included only in the Protocol. 3 (General These provisions are similar to most DTTs signed by Brazil. deﬁnitions)

35 Brazil–Singapore DTT Article Comments 4 (Residence) In line with the majority of DTTs signed by Brazil, the tiebreaker clause for legal entities favors the Place of Effective Management and, if it cannot be determined, the question should be settled by mutual agreement. 5 (Permanent Art. 5.4 prescribes that a Permanent Establishment will arise as a result of the establishment) rendering of services by an enterprise through employees or other personnel engaged by the enterprise for such purpose if activities of that nature continue (for the same or a connected project) within the other contracting state for an aggregated period higher than 183 days in any 12-month period. 6–9 These provisions are similar to most DTTs signed by Brazil. 10 (Dividends) Taxation at source is restricted (i) to 10% if the beneficial owner is a company (other than a partnership) which holds directly at least 25% of the capital of the company paying the dividends throughout a 365-day period, and (ii) to 15% in all other cases. 11 (Interest) Taxation at source is restricted (i) to 10% if the beneficial owner is a bank and the loan has been granted for at least five years for the financing of the purchase of equipment or of investment projects, and (ii) to 15% in all other cases. Moreover, if the beneficiary is a government entity (as defined in the DTT) of the other contracting state, taxation at source is not allowed. The Protocol prescribes that the payment of Brazilian interest on net equity ( juros sobre capital próprio) qualifies as interest for the DTT's purpose. 12 (Royalties) Taxation at source is restricted to (i) 15% in relation to the use or the right to use trademarks, and (ii) 10% in other cases. Usually the DTT Protocol extends the scope of Art. 12 to include technical services and technical assistance. In this DTT, an autonomous article was included to deal with technical services (see Art. 13 below), aligned with the suggestion of the Committee of Experts on International Cooperation in Tax Matters (14th session, New York, April 3–6) as a revised commentary to Art. 12-A of the United Nations Double Taxation Model. 13 (Fees for technical Taxation at source is restricted to 10% for technical services (as defined in services) the DTT). 14 (Capital gains) Art. 14.5 uses an "arising" rule, permitting source country tax for gains on the sale of property that "arise in the other Contracting State". Since the term "arising" is not defined in the DTT, the meaning can be supplied by domestic law, under Art. 3.2 provisions. 15–22 These provisions are similar to most tax treaties. 23 (Other income) Unlike previous Brazilian DTTs, which allowed both countries to tax "other income", this treaty allows taxation only in the resident state. Art. 23.3 uses an "arising" rule, permitting source country tax on items of income (other income) "arising in the other Contracting State". Since the term "arising" is not defined in the DTT, the meaning can be supplied by domestic law, under Art. 3.2 provisions.

36 Brazil–Singapore DTT Article Comments 24 (Elimination of A credit system is applied for both countries. Singapore allows an indirect credit double taxation) for Brazilian companies receiving dividends from Singaporean companies that hold 10% or more of capital in such companies. 25 Art. 25.5 clarifies that tax incentives given to promote economic and social (Non-discrimination) development shall not be construed as discrimination. 26 (Mutual This Article contains a three-year statute of limitations, unlike other Brazilian agreement procedure) DTTs, which left it to domestic law to define such limitations. There is no commitment to solve disputes via arbitration. 28 (Entitlement to The DTT contains provisions very similar to the standard LOB provisions con- benefits) tained in the Multilateral Instrument (MLI). Art. 28.1 contains an LOB clause for persons deemed "qualified" under Art. 28.2 (with the difference that it does not include pension funds). It also contains PPT clauses (Arts 28.5 and 28.8). 30 (Entry into Force) Art. 30.2(c) does not allow retrospective exchange of information (Art. 27).

ENDNOTE

1 After June 18, 2014, the Brazilian Federal Revenue Service listed as a "ﬁscal privileged regime" ("graylisted" regimes) Swiss legal entities "incorporated as a holding company, a domiciliary company, an auxiliary company, a mixed company and an administrative company" or other legal forms that under rulings issued by tax authorities are taxed at a rate lower than 20 percent of corporate income tax.