Implementation of “Base Erosion and Profit Shifting” (BEPS) Nexia Survey Questionnaire Implementation of “Base Erosion and Profit Shifting” (BEPS) BEPS survey summary 2016

Selected Action Plans with major impact expected for small and medium sized businesses

Introduction Governments all over the world have started to implement Globalization is not new but the pace of integration of these recommendations into national law. Although this national economies and markets has increased substantially will not be a smooth and unified process, there is a clear in recent years. As the economy has become more globally commitment by the participating countries to change their integrated, so have corporations. Globalization impacts national rules for taxation of international operating business. countries corporate income tax regimes. The governments The speed of the project from the idea to the deliveries of the G20 states are of the opinion that these developments was astonishing. This survey shows that the rules already have opened up opportunities for multinational enterprises implemented are broad, but these rules are under review. to greatly minimize their tax burden by base erosion and profit Not all countries will implement the recommendations shifting (BEPS). immediately, but rather pick up a view or take a wait and see approach for others. This will not make a tax practitioner’s life Therefore the G20 finance ministers called on the OECD to easy, but certainly interesting. develop an Action Plan to address base erosion and profit shifting (BEPS) issues in a coordinated and comprehensive Aim of the survey on BEPS manner. Specifically this Action Plan should provide countries Several countries have already introduced comprehensive with domestic and international instruments that will better tax regulations in the past that are in line with the align rights to tax with economic activity. The OECD/G20 recommendations of the OECD in order to avoid BEPS. BEPS Project aims to create a single set of consensus based However, the implementation of regulations in order to international tax rules to address BEPS, in order to protect prevent BEPS differs across countries. tax bases while offering increased certainty and predictability to taxpayers. A key focus of this work is to eliminate double The aim of this survey is to summarize the current status non-taxation. However in doing so, new rules should not of anti-abuse regulations already existing as well as specific result in double taxation, unwarranted compliance burdens, or amendments planned to bring the tax laws in the respective restrictions to legitimate cross-border activities. countries in line with the measure proposed in the OECD Action Plans on BEPS. At the end of 2015, the OECD published a full set of reports and recommendations to address all fifteen actions in the BEPS Action Plan. With the adoption of this set of deliverables and the implementation of the relevant measures by national governments, hybrid mismatches will be neutralized; treaty shopping and other forms of treaty abuse will be addressed; abuse of transfer pricing rules in the key area of intangibles will be greatly minimized; country-by-country reporting will provide governments with information on the global allocation of the profits, economic activity and taxes of multinational enterprises.

2 | BEPS survey summary 2016 This survey is focusing on selected action points rather Five parts cover the expected major changes in the than trying to cover all. The selection has been made by the international tax environment for small and medium sized expected key changes for internationally operating small and businesses. After a short introduction, lead questions provide medium sized business. It covers anti-abuse regulations in the a clear structure to each part related to the respective Action different countries which aim to prevent double non-taxation, Plan of the OECD: double deduction of expenses, cases of no or low taxation I. Neutralization of the effects of hybrid mismatch associated with practices to artificially segregate taxable arrangements (Action plan 2) income and shift this income to low tax jurisdictions, as well II. Strengthen CFC rules (Action plan 3) as treaty shopping and other forms of treaty abuse. From an III. Limit base erosion via interest deductions (Action plan 4) OECD perspective such regulations primarily relate to Action IV. Counter harmful tax practices (Action plan 5) Plans 2, 3, 4, 5, 6 on BEPS. V. Prevention of treaty abuse (Action plan 6).

The existing Nexia survey regarding the implementation of In addition you get access to the tax experts of the the new Authorized OECD-Approach on the attribution of contributing Nexia member firms at a fingertip. profits to permanent establishments has been subject to an update as of May 1, 2016. Therefore this survey does not Status address the impact of BEPS on the definition of permanent All country reports reflect the status as of May 1, 2016 and establishments. Moreover, the impact of BEPS on transfer have been prepared and checked by the participating member pricing was not included in this survey as this would go beyond firms in the respective countries. In case of any mistakes the scope. please get in touch with the contacts below.

Structure It is intended to arrange for an update by April 2017 at the This survey has been prepared by international tax experts latest. This update is open for additional member firms all within the Nexia network. Each member was provided with over the world. the same setup of pre-selected questions. This helps to get a quick understanding of recent developments, as well as in Contacts comparing the status of legislation around the globe. Sten Guensel E [email protected] T +49 711 2049 1258

Christof Zondler E [email protected] T +49 711 2049 1463

BEPS survey summary 2016 | 3 Action plan 2 Neutralization of the effects of hybrid mismatch arrangements

Characteristics of the Action Plan Questions On September 16, 2014, the OECD published its report on 1. Are there any D/NI or DD mismatches regulations in hybrid mismatch arrangements (Action Plan 2). In this report force or planned in the near future in order to avoid the OECD defines a hybrid mismatch arrangement to be an double non-taxation, double deduction of expenses or arrangement that exploits differences in the tax treatment long term tax deferrals (e.g. any linking-rules providing of an entity or instrument to produce a D/NI mismatch or a that payments are tax deductible only to the extent the DD mismatch in tax outcomes. corresponding income is not tax exempt at the level of the receiving party, etc.)? A D/NI (deduction/no inclusion) mismatch generally occurs when the proportion of a payment that is deductible under the If yes, please answer the following questions: laws of one country does not correspond to the proportion that is included in ordinary income by any other country. A DD 2. Are the regulations already in force? (double deduction) mismatch arises to the extent that all or part of the payment gives rise to duplicate deductions for the 3. Please describe the (planned) regulations briefly, taking same payment (without “dual inclusion” of the corresponding into account the following aspects: income the deductible expenses relate to). • requirements/preconditions and consequences of the regulation • (expected) entry into force and/or (expected) first-time application.

4. How have the regulations been implemented, e.g. by domestic tax law provisions or by provisions agreed in Double Tax Conventions with other countries?

5. Do the provisions only cover intra group arrangements, i.e. payments from or to affiliated companies, or also payments made to or received from third parties?

6. Please describe shortly which types of income (e.g. interest, dividends, etc.) are covered by the regulations.

4 | BEPS survey summary 2016 – Action plan 2 Country Australia Austria Belgium

Date last update April 2016 April 2016 April 2016

D/NI or DD mismatch Yes Yes Yes regulations in force or planned

Regulations entered Yes Yes Yes into force Brief description of Australia has a 100% participation A: D/NI – received dividends or Disallowance of deductions for regulations exemption for dividends received other payments from equity certain payments of interests and from a foreign company in whom instruments are subject to royalties (counterproof possible); the Australian company holds a corporate income tax (instead dividends received from low tax minimum of 10% voting power; of 100% tax exemption jurisdictions cannot enjoy tax due to recent changes in law, under general participation exemption. now only instruments which will exemption), if the dividend is be categorized as equity under tax deductible at the level of the Australia’s specific debt/equity distributing company rules will qualify. B: Interest and royalties to related parties are not deductible, if the payment at the level of the recipient i) does not qualify as taxable income or ii) the income is exempt or iii) the income is taxed at a rate lower than 10%

How regulations have Domestic Law A: Domestic Law Domestic Law been implemented B: Domestic Law Type of income covered Only instruments that fall A: Interest, royalties Interest, dividends & royalties by regulations under specific debt/equity rules B: Dividends or other payments will qualify for participation in from equity instruments exemption

Scope of regulations Both related & non-related party A: Only related-party transactions Both related & non-related party transactions covered covered transactions covered B: Only related-party transactions covered

BEPS survey summary 2016 – Action plan 2 | 5 Country Canada China Denmark

Date last update April 2016 May 2016 April 2016

D/NI or DD mismatch Yes No (Amendments are expected Yes regulations in force or in domestic tax laws to reflect planned outcome of BEPS reports)

Regulations entered Yes (Renegotiated in 2007) No Yes (amendment to participation into force exemption rules in force since March 2015)

Brief description of D/NI – benefits of double tax treaty N/A A: D/NI – dividends from regulations will be denied if receipt subsidiaries are tax exempt, of payments will be treated if they are received from a differently for tax purposes in subsidiary resident in an EU the country of residence because member state or a state with the entity receiving or making the which Denmark has a double payment is not regarded in the tax treaty; subsidiary dividends same way in both countries. are taxable at the level of the Danish parent company, if the distributing subsidiary can deduct the dividends B: In case of debts to group enterprises or controlling personal shareholders, where debts with the creditor are fiscally considered as equity, there is no deduction for interest and exchange losses in the Danish enterprise How regulations have Double tax treaty with the United Domestic tax law Domestic tax law been implemented States

Type of income covered Any payment subject to N/A Dividends by regulations non-resident withholding tax History suggests that most, if not all, forms of passive income will be targeted

Scope of regulations Both related & non-related party N/A A: Both related & non-related party transactions covered transactions covered B: Only related party transactions

6 | BEPS survey summary 2016 – Action plan 2 Country Finland France Germany

Date last update April 2016 April 2016 May 2016

D/NI or DD mismatch Yes Yes Yes regulations in force or planned

Regulations entered No (planned amendments to Yes A: Yes (amendments to into force the Business Income Tax Act based A: Amendments to participation participation exemption rules) on the changes in EU parent- exemption regime in force since B: No (planned implementation of subsidiary directive) January 1st, 2016 hybrid mismatch rules expected B: Amendments to interests in 2015) deduction rules in case of hybrid mismatch rules since September 25, 2013 Brief description of D/NI – dividends received by A: Under the general participation A:  D/NI – received dividends are subject regulations companies would be taxable in rule the dividends received by to corporate income tax (instead Finland if the respective payments a qualifying holding company of 95% tax exemption under were tax deductible by are exempt up to 95% from general participation exemption), the payer French Corporate Income Tax. if the dividend is deductible at the However, such payments will level of the distributing company no longer qualify for the French B: not yet clear; possibly participation exemption regime non-deduction of business if they are deductible in the expenses on financing jurisdiction of the issuer instruments if those are not B: Under the general French tax taxed at the recipient based rules, interest expenses are on different qualification and deductible from the French non-deduction of business Corporate income tax. However, expenses cross border in case such expenses are no longer of double deduction deductible if the corresponding interest income is not taxable at the level of the recipient at a minimum rate of of the current French Corporate Income tax rate (i.e. 8.33%) How regulations have Domestic tax law A: Implementation by domestic tax A: Domestic tax law been implemented law. Amendment to Art. 145 of B: Domestic tax law (anticipated) the General Tax Code entered into force as of 30th December 2014 B: Implementation by domestic tax law. Amendment to Art. 212 of the General Tax Code entered into force as of 1st January 2014

Type of income covered Dividends A: Payments received from A: Dividends or other payments by regulations affiliated companies from equity instruments B: Payments received from B: Not yet clear; possibly business affiliated companies expenses of all kind Scope of regulations Both related & non-related party A: Dividends distributions A: Dividends or other payments transactions covered B: Interest payments from equity instruments B: Not yet clear; possibly business expenses of all kind

BEPS survey summary 2016 – Action plan 2 | 7 Country Greece Hungary Ireland

Date last update April 2016 April 2016 April 2016

D/NI or DD mismatch Yes Yes Yes regulations in force or planned

Regulations entered A: Yes (limitations to expense A: Yes (limitations to participation No (Planned revisions expected in into force deductibility effective January exemption rules effective 2016 to reflect BEPS development) 2014) January 2012) B: Yes (limitation to participation B: Yes (implementation of hybrid exemptions and implementation mismatch rules introduced in of hybrid mismatch rules 2015) introduced in April 2016 to be effective as of 1.1.2016) Brief description of A: Non deduction of costs and A: D/NI – exemption is only Not yet clear regulations expenses for corporate income applicable if the payments are tax payers incurred from legal not deducted as an expense entities or individuals who are from the pre-tax profit of residents of non-cooperative the payer and have not been countries or countries with a received from a controlled “privileged tax regime” foreign company B: D/NI – received dividends are B: In case of relationships affected subject to corporate income tax by international treaties, (instead of 100% tax exemption wherein consequence of under general participation differences in law interpretation, exemption), if the dividend is neither of the affected states deductible at the level of the considers such income as distributing company. In April taxable, such payment will not 2016, by amendement of the be exempted from taxation in tax law, it is stressed that the Hungary general anti-abuse rule “for non genuine arrangements for valid business reasons” applies also to tax exemptions for dividends under general participation exemptions rules

How regulations have Domestic tax law A: Domestic tax law Domestic tax law (anticipated) been implemented B: Domestic tax law Type of income covered Various. Clarifications for A: Dividends or other payments Not yet clear by regulations implementation are pending from equity instruments B: All types Scope of regulations Both related & non-related party A: Both related & non-related party Not yet clear transactions covered transactions covered B: Both related & non-related party transactions covered

8 | BEPS survey summary 2016 – Action plan 2 Country Italy Korea Luxembourg

Date last update April 2016 April 2016 April 2016

D/NI or DD mismatch Yes No (However, revisions are Yes regulations in force or expected in domestic tax laws planned to reflect BEPS reports)

Regulations entered Yes N/A No (planned implementation of into force hybrid mismatch rules expected before January 2016)

Brief description of The participation exemption rules N/A Deduction at the level of the regulations concerning the exemption of paying company will be denied, if dividends as well as the exemption the recipient country does not tax for capital gains from the sale of the payment as ordinary income; participations will not be granted if if this treatment is not applied certain requirements are fulfilled. and the paying country allows the deduction, the recipient country must either tax income (if D/NI situation) or deny the deduction (D/D situation).

How regulations have Domestic tax law N/A Domestic tax law (anticipated) been implemented

Type of income covered Dividend distributions and capital N/A Dividend distributions & other by regulations gains from disposals of shares payments (e.g. interest)

Scope of regulations Both related & non-related party N/A Both related & non-related party transactions covered transactions covered

BEPS survey summary 2016 – Action plan 2 | 9 Country Malta Mexico Netherlands

Date last update May 2016 April 2016 May 2016

D/NI or DD mismatch Yes Yes Yes regulations in force or planned

Regulations entered Yes (amendments to participation Yes (in force since January 2014) Yes into force exemption rules will enter force January 2016)

Brief description of D/NI – when the planned A: Mexican tax authorities may A: Participation exemption: a regulations amendments come into force, the request proof of double taxation subject-to-tax test must be participation exemption will only where tax treaty benefits are met for portfolio investments; apply to Malta holding companies claimed Dutch corporate income tax law where the parent subsidiary B: The deduction of certain also provides for rules limiting directive has been applied, when payments is restricted, if the the deduction of interest, taking such profits are not deductible by payment is considered non- into account the tax treatment the relevant subsidiary in another existent or non-taxable for the of the interest received by the EU member state. recipient, if the recipient is a creditor pass through entity and there B: DD mismatches: there is is double non-taxation or if the specific language addressing payment is made to a related qualification differences of party which can also deduct hybrid entities in tax treaties; it, unless such payment is also also individual cases in mutual a taxable income in the same agreement procedures are fiscal year or the following one addressed for the recipient

How regulations have Domestic tax law Domestic tax law A: Domestic tax law been implemented B: Double tax treaties with other countries

Type of income covered Dividends Interest, royalties and A: Interest and dividend by regulations remuneration for technical distributions or other payments assistance from equity instruments B: Any income

Scope of regulations Only related-party transactions Only related-party transactions A: Only related-party transactions covered covered B: Both related & non-related party transactions covered

10 | BEPS survey summary 2016 – Action plan 2 Country Poland Portugal Singapore

Date last update April 2016 April 2016 May 2016

D/NI or DD mismatch Yes Yes No regulations in force or planned

Regulations entered Yes (amendments to participation Yes N/A into force exemption entered force January 2015; additional amendments expected to enter force January 2016)

Brief description of D/NI – dividend distributions Portugal has a participation N/A regulations or other payments from equity exemption regime for dividends instruments will no longer qualify and capital gains obtained from for the Polish participation qualified shareholdings – 10% exemption, if such payments are direct or indirect shareholding (or deductible in the jurisdiction of the voting rights) held for a minimum issuer (deduction from income, tax 12 month period. The Participation base or tax). Exemption is not applicable if the Newly introduced amendments dividend is deductible at the level of to obtain exemption – taxpayers the distributing company. are required to confirm that the dividend received does not come from an artificial activity lacking factual substance. How regulations have Domestic tax law Domestic Law N/A been implemented Type of income covered Dividends or other payments from Dividends N/A by regulations equity instruments Scope of regulations Both related & non-related party Both related & non-related party N/A transactions covered transactions covered

BEPS survey summary 2016 – Action plan 2 | 11 Country Slovenia Spain Switzerland

Date last update April 2016 April 2016 April 2016

D/NI or DD mismatch Yes Yes Yes regulations in force or planned

Regulations entered Yes (amendments to participation Yes (both regulations entered force A: Yes (amendments to into force exemption entered into force in January 2015) participation exemption rules November 2015, however applies for corporate income tax payers) as of January 2015) B: No (ongoing discussion of a probable implementation of hybrid mismatch rules started in 2015)

Brief description of D/NI – Dividend distributions A: Expenses derived from A: Under the general participation regulations or other payments from equity transactions between related exemption rule, dividends instruments no longer qualify for parties will not be deductible, if received by a corporation participation exemption, if such the payment at the level of the (holding an interest of at payments are deductible at the recipient i) does not qualify as least 10% in the capital of the level of the payer. taxable income or ii) the income distributing corporation) are is exempt or iii) the income is at the bottom line exempt taxed at a nominal rate less from Swiss corporate income than 10% tax. Dividend distributions or B: D/NI – dividend distributions other payments from equity or other payments from instruments do in principle equity instruments will no not qualify for the Swiss longer qualify for participation participation exemption, if such exemption, if such payments are payments are tax deductible in deductible in the jurisdiction of the jurisdiction of the issuer the issuer B: Wording of the draft proposal not yet clear How regulations have Domestic tax law Domestic tax law A: Domestic tax law been implemented B: Domestic tax law (anticipated) Type of income covered Dividends or other payments from A: All payments between related A: Dividends or other payments by regulations equity instruments parties from equity instruments B: Only dividends or other B: Not yet clear payments from equity instruments

Scope of regulations Both related & non-related party A: Related parties only A: Both related & non-related party transactions covered B: Related parties only transactions covered B: Not yet clear

12 | BEPS survey summary 2016 – Action plan 2 Country Turkey UK USA

Date last update May 2016 May 2016 April 2016

D/NI or DD mismatch No Yes Yes regulations in force or Although Turkey is one of the planned signees of the BEPS Project as one of the member countries Regulations entered of OECD, it has not yet taken A: Yes (anti-arbitrage rules in force A: Yes (hybrid entities rules in force into force any legal tangible step on this since 2005) since late 90’s) topic. On the other hand, we B: Yes (diverted profits tax (DPT) B: Yes (withholding tax avoidance have of course heard that the rules in force since April 2015) rules in force since 2010) bureaucracy of the Turkish Revenue administration are working on the legal infrastructure to some extent but unfortunately there are actually Brief description of no specific explicit legal initiatives A: Denies deduction of expenses Denial of treaty benefits for certain regulations publicly disclosed regarding the where hybrid instruments or interest payments relating to implementation of the package hybrid entities are used disregarded entities. The provision of measures against BEPS. But on B: DPT applies in two situations: also authorized the US Treasury to the other hand, please be informed i. Arrangements between a issue regulations to combat other that classic (old style) transfer non-resident and a related- “hybrid” payment scenarios pricing regulations, CFC rules and party with a place of business disguised capital regulations are in the UK to avoid a PE of the still in effect since 2006 with the non-resident implementation of new corporate ii. Resident company makes Income tax Law. Turkey also has payments to a non-resident prevention of double taxation company with insufficient agreements with 82 countries. substance, and pays tax at But again we haven’t seen any new a low rate, the payment is amendment or proposal regarding subject to DPT BEPS action plans yet. How regulations have A: Domestic tax law Domestic tax law; several new been implemented B: Domestic law (view of UK tax US tax treaties also include authorities that DPT is not anti-hybrid type provisions covered by UK tax treaties)

Type of income covered A: Mostly financing arrangements A: Deductible interest and royalty by regulations B: Various payments B: Dividend payments

Scope of regulations A: Both related & non-related party A: Principally related party transactions covered transactions B: Only related party transactions B: Both related & non-related party transactions covered

BEPS survey summary 2016 – Action plan 2 | 13 w

Action plan 3 Strengthen CFC rules

Characteristics of the Action Plan Questions One of the concerns of BEPS is the possibility of creating 1. Are there any CFC rules in force in your country or are affiliated non-resident taxpayers in a low tax jurisdiction amendments to or the introduction of CFC rules planned and shifting of profit from a resident enterprise to the non- in the near future? resident affiliate. Controlled foreign company (CFC) and other anti-deferral rules have been introduced in many countries to If yes, please answer the following questions: address this issue. However, the OECD is of the opinion that the CFC rules of many countries do not always counter BEPS 2. Please describe the CFC rules or planned amendments in a comprehensive manner. Therefore, in connection with briefly, taking into account the following aspects: Action Plan 3 the OECD intends to develop recommendations • requirements/preconditions and consequences of the regarding the design of CFC rules in order to strengthen them. regulation • (expected) entry into force and/or (expected) first- time application.

3. Does your domestic law contain any limitations to the application of the CFC rules with regard to holdings in the EU/EEA due to the Cadbury Schweppes decision of the ECJ (C-196/04) dated September 12, 2006?

14 | BEPS survey summary 2016 – Action plan 3 w

Country Australia Austria Belgium

Date last update April 2016 April 2016 April 2016

CFC rules in force or Yes No Belgium does not have a CFC planned regime, but issued in 2015 the Program Law, implementing the so-called ‘Cayman Tax’ Regulations entered Yes (repeal & replacement with N/A August 10, 2015 into force Foreign Accumulation Fund (FAF) rules have been proposed & debated over past 3-4 years, but are stalled in political process)

Brief description of Currently, qualifying Australian N/A A transparency tax on income regulations SH’s (> 10% holdings) of CFC’s are derived from assets owned by subject to accrual basis taxation individuals or legal entities through on their share of “attributable certain foreign legal arrangements. income”, only certain passive The Cayman Tax does not apply to income; Under the proposed companies subject to corporate rules, the Australian SH’s of a FAF income tax, or to income paid (must satisfy an investment or to third-party beneficiaries accumulation test) will be subject established in a European to an accrual basis tax on realized Economic Area (‘EEA’) country or in gains of the fund. a country that exchanges income tax information based on a tax treaty entered into with Belgium.

Limitations of the CFC N/A N/A N/A rules with regard to holdings in the EU/EEA due to the Cadburry Schweppes decision of the ECJ

BEPS survey summary 2016 – Action plan 3 | 15 Country Canada China Denmark

Date last update April 2016 May 2016 April 2016

CFC rules in force or Yes Yes (amendments planned) Yes planned Regulations entered Yes Yes Yes into force Brief description of Certain non-active business CFC rules applicable to income that Danish parent company is regulations income earned by a “controlled is considered as dividend, taxed at a taxable of a proportionate share foreign affiliate” (equivalent of a low level in a foreign tax regime and of subsidiary’s taxable profit CFC) is immediately taxable to derived by a foreign corporation calculated in accordance with a Canadian taxpayer as “foreign that is controlled by a resident Danish rules, if the subsidiary is accrual property income”, subject enterprise or an individual in China. controlled by a Danish parent to a deduction in respect of foreign A given investor should hold at company, more than half of the taxes paid. least 10% of the foreign company subsidiary’s income is financial and the total of the investments income and more than 10% of its by China entities should be 50% or assets are financial assets. more of voting shares. If tax rate in the foreign jurisdiction is less than 50% of China’s tax rate (12.5%), profits are deemed as a dividend to the Chinese investors and taxed in China. Limitations of the CFC N/A N/A N/A rules with regard to holdings in the EU/EEA due to the Cadburry Schweppes decision of the ECJ

16 | BEPS survey summary 2016 – Action plan 3 Country Finland France Germany

Date last update April 2016 April 2016 May 2016

CFC rules in force or Yes Yes Yes planned Regulations entered Yes (in force since 2009) Yes (since early 1980’s with several Yes (since 1972 with several into force amendments); regulated in Foreign amendments); regulated in Foreign Tax Act Tax Act

Brief description of CFC rules are applicable if the CFC rules are applicable if an CFC rules are applicable to income regulations shareholder is fully liable to tax in entity subject to French corporate that is considered as passive Finland, the shareholder owns at income tax operates a business in income and taxed at a low level least 25% of the CFC’s equity, the a country having a privileged tax (i.e. the tax burden on the profits CFC is subject to low taxation (less regime or directly/indirectly holds of the foreign corporation is less than 3/5 of Finnish level) and a DTT more than 50% of the shares in a than 25%) and derived by a foreign does not prevent Finland from taxing company established in a country corporation that is controlled by the CFC´s income as the income of having a privileged tax regime and persons subject to unlimited tax the shareholder; with CFC status, the the income is taxed at a low level liability in Germany. company itself is disregarded and the (i.e. less than 50% of the French company’s income is taxed as the corporate income tax). income of the shareholder.

Limitations of the CFC It is possible to prove that the CFC rules are not applicable to If it is proved that the foreign rules with regard to foreign company resident in an EU/ entities established or constituted company resident in an EU/ holdings in the EU/EEA EEA member state carries on an within the EU, except where the EEA member state carries on an due to the Cadburry effective and genuine activity in EU structure can be regarded effective and genuine activity, the Schweppes decision this foreign state. as constituting an artificial German CFC rules do not apply of the ECJ arrangement intending to (subject to further conditions). circumvent French tax law; the notion of artificial arrangement should be interpreted in the light of the Cadbury Schweppes decision.

BEPS survey summary 2016 – Action plan 3 | 17 Country Greece Hungary Ireland

Date last update April 2016 April 2016 April 2016

CFC rules in force or Yes Yes No planned Regulations entered Yes (applicable as of 1 January Yes N/A into force 2014) Brief description of CFC rules provide the inclusion CFC rules are applicable to foreign N/A regulations in taxable income of the Greek entities in which a Hungarian taxpayer (individual or legal entity) shareholder holds at least a 10% of “passive” income “resting” interest or to foreign entities undistributed in other jurisdictions, deriving more than 50% of their provided that all of the following income from Hungarian business conditions are met: a) the taxpayer, activities and if the foreign entity is on his/her own or jointly with established in a country that does related persons, holds, directly or not impose corporate income tax indirectly, shares or voting rights > on the income of that corporation, than 50% of the said entity, b) the or income tax burden is less than foreign legal entity is subject to 10%. taxation in a non-cooperative state or in a state with a “privileged” tax regime, i.e. with tax rates < 50% of corresponding Greek rates c) it is not a public/listed company d) a percentage exceeding 30% of the net income before taxes realized by the foreign entity is investment income (interest, dividends, royalties, real estate etc) AND 50% of each such category is income from a related party.

Limitations of the CFC Yes, the Greek Tax Law provides CFC rules are not applicable to N/A rules with regard to that it is possible to prove that companies having a real economic holdings in the EU/EEA the foreign company resident in presence in EU or OECD member due to the Cadburry an EU/EEA member state with states or in a DTT country. Schweppes decision an exchange of information of the ECJ agreement, carries on an effective and genuine activity in this foreign state (“counterproof”, substance requirements).

18 | BEPS survey summary 2016 – Action plan 3 Country Italy Korea Luxembourg

Date last update April 2016 April 2016 April 2016

CFC rules in force or Yes Yes No planned Regulations entered Yes (CFC rules have been amended Yes (no amendments planned) N/A into force with effect as of 7 Oct 2015) Brief description of Italian CFC rules with regard to CFC rules applicable to Korean N/A regulations foreign controlled subsidiaries do companies that have invested in not apply, if (a) the CFC carries on a company (10% or more of the an actual industrial or commercial voting shares) incorporated in a activity; or (b) the CFC income foreign jurisdiction with an average is subject to adequate levels of effective tax rate of 15% (or less) taxation in white listed jurisdictions. on the taxable income for the past Due to the last amendments three years; exceptions apply (e.g. to the CFC rules, the fulfillment of if the company actively engages in one of these requirements must business operations). no longer be confirmed by the tax authorities in advance but can also be proven by the taxpayer during a tax audit. Parent resident companies are obliged to report, in the annual tax return, all participations in CFCs in order to avoid penalties.

Limitations of the CFC N/A N/A N/A rules with regard to holdings in the EU/EEA due to the Cadburry Schweppes decision of the ECJ

BEPS survey summary 2016 – Action plan 3 | 19 Country Malta Mexico Netherlands

Date last update May 2016 April 2016 May 2016

CFC rules in force or No Yes (reforms expected, but via No. Howeyer, Netherlands applies planned DTT instead of Federal Laws) a domestic rule which says that in case of >25% stakes in passive low taxed portfolio investments a Dutch parent has no access to the participation exemption and in addition there is an obligatory valuation of this stake. In fact this means that the profit of this non resident company can be taxed in the Netherlands.

Regulations entered N/A Yes (since 1996 with several N/A into force amendments) Brief description of N/A CFC rules applicable to income N/A regulations that is taxed at a low level or not taxed (entities: tax rate lower than 22.5%, individuals: 26.25%) and to transparent entities (even if not taxed at low level), if passive income exceeds 20% of total income.

Limitations of the CFC N/A N/A N/A rules with regard to holdings in the EU/EEA due to the Cadburry Schweppes decision of the ECJ

Country Poland Portugal Singapore

Date last update April 2016 April 2016 May 2016

CFC rules in force or Yes Yes No planned Regulations entered Yes (since 1 January 2015) Yes N/A into force Brief description of CFC rules applicable to passive Corporate profits (whether or N/A regulations income taxed at low levels (less not distributed) of subsidiaries than 14.25%) and derived by resident in blacklisted jurisdictions a foreign corporation that is may be attributed to Portuguese- controlled by persons subject to resident corporate shareholders unlimited tax liability in Poland. having a substantial interest in the subsidiary. Such shareholders will be taxed on their proportionate share of their holdings in the nonresident company. Limitations of the CFC It is possible to claim that the Yes. The rule is only aplicable to N/A rules with regard to foreign company resident in an EU/ holdings in blacklisted jurisdictions holdings in the EU/EEA EEA member state carries on an due to the Cadburry effective and genuine activity in Schweppes decision this foreign state (“counterproof”, of the ECJ substance requirements).

20 | BEPS survey summary 2016 – Action plan 3 Country Slovenia Spain Switzerland

Date last update April 2016 April 2016 April 2016

CFC rules in force or No Yes No. However, based on general planned rules, a foreign subsidiary may become subject to Swiss taxation nonetheless. Regulations entered N/A Yes (since 1995; strengthening N/A into force amendments effective as of 1 January 2015)

Brief description of N/A CFC rules applicable to passive The following general Swiss regulations income taxed at a low levels (less taxation rules may have a similar than 75% of the taxation it would effect as classic CFC rules have suffered in Spain) and is • Place of effective management: controlled by a persons subject to Income derived by a foreign unlimited tax liability in Spain. corporation that is controlled by persons subject to unlimited tax liability in Switzerland may become subject to Swiss taxation • Permanent establishment: Income derived by a Swiss permanent establishment (PE) of a foreign corporation is subject to Swiss taxation. Such PE may occur accidentally through central functions executed in Switzerland • Tax evasion: Income derived by a foreign entity that is considered part of a tax evasive scheme from a Swiss tax perspective is subject to Swiss taxation (so called “look through approach”)

Limitations of the CFC N/A As of 1 January 2015, CFC rules The Swiss CFC rules are applicable rules with regard to will also be applicable to EU irrespective of the place of the holdings in the EU/EEA resident companies unless the holdings due to the Cadburry taxpayer can prove that: it’s Schweppes decision incorporation and operatives of the ECJ responds to valid economic reasons and that performs effective economic activities, or it’s an UCIT (Undertaking for Collective Investment in Transferable Securities) as per the EU Directive on UCITs.

BEPS survey summary 2016 – Action plan 3 | 21 Country UK USA

Date last update May 2016 April 2016

CFC rules in force or Yes Yes planned Regulations entered Yes Yes (since 1962) into force Brief description of CFC rules apply to overseas CFC rules: Current income regulations subsidiaries, but are subject to inclusions for US shareholders of “gateway tests” and entity-level CFCs where the CFC earns certain exemptions; these “gateway types of income that is considered tests” are designed to remove as being easily manipulable (e.g. profits, which are attributable to passive income, related party activities carried on outside the UK; sales income and related party exemptions for specified countries, services income). high taxes and low profits. Anti-deferral regime for so- called passive foreign investment companies: applicable to any direct or indirect interests in such entities held by any US person, no matter how small the interest.

Limitations of the CFC No specific exclusions, but the N/A rules with regard to “gateway tests” and exemptions holdings in the EU/EEA are considered to be compatible due to the Cadburry with the ECJ decision. Schweppes decision of the ECJ

22 | BEPS survey summary 2016 – Action plan 3 Action plan 4 Limit base erosion via interest deductions

Characteristics of the Action Plan Questions Another issue raising BEPS concerns is the excessive 1. Are there any thin capitalization rules or other deduction deduction of payments such as interest and other financial limitation rules with regard to interest or other financial payments. The concern is that the interest payments payments in force or planned in the near future? are deducted against the taxable profits of the operating companies while the interest income is taxed favourably If yes, please answer the following questions: or not at all at the level of the recipient, although the group as a whole may have little or no external debt. Therefore, in 2. Are the regulations already in force? connection with Action Plan 4 the OECD intends to develop recommendations regarding the design of rules in order to 3. Please describe the (planned) regulations briefly, taking prevent base erosion through the use of related party and into account the following aspects: third party debts to achieve excessive interest deductions or • requirements/preconditions and consequences of the to finance the production of exempt or deferred income. regulation • (expected) entry into force and/or (expected) first- time application.

4. Are these rules only applicable to interest and financial payments made to shareholders and affiliated companies or also to payments made to third parties?

5. Please describe shortly which types of income (e.g. interest, other financial payments, etc.) are covered by the regulations.

BEPS survey summary 2016 – Action plan 4 | 23 w

Country Australia Austria Belgium

Date last update April 2016 April 2016 April 2016

Thin capitalization rules Thin capitalization rules No thin Capitalization Rules but General interest expense limitation (or other deduction other deduction limitation rules rules limitation rules) in force or planned Regulations entered Yes Yes Yes into force Brief description of Thin Capitalization Rule: A: Limitation of the deductibility A: The deduction of certain payments regulations Historically, deductions were of financial expenses related to (e.g. interest, royalties) made directly allowed for interest on borrowings the acquisition of a substantial or indirectly to low-tax jurisdictions to the extent that they did not participation from related is rejected; there is a rebuttable breach a 3:1 debt:equity ratio; debt parties presumption that such payments do and equity are formally defined in B: Interest and royalties to not meet the arm’s length test legislation which takes a substance related parties are not B: The “5:1” rule: Interest paid on over form approach; however, the deductible, if the payment loans to: ratio has just been lowered to 1.5:1 at the level of the recipient • a beneficiary that is not subject ratio to tighten up the amount of i) does not qualify as taxable to income tax or is subject to a debt deductions in Australia and income or ii) the income is tax regime that is substantially protect the tax base. exempt or iii) the income is more advantageous than the taxed at a rate lower than 10% normal tax regime in Belgium • group companies is not tax deductible for the part of the loans that exceeds five times the paid-in capital and taxed reserves of the Belgian company C: The “1:1” rule: Interest paid on loans granted by an individual shareholder or a foreign corporate director of the company is tax deductible only to the extent that the total loans do not exceed the company’s paid-in capital and taxed reserves. The excess interest is requalified as a dividend distribution and is generally subject to a 27% withholding tax

Type of income covered Total interest expense deductions Interest expense payments Interest expense payments by regulations in excess of $2M, or if less than 90% of company’s assets are foreign (offshore) Scope of regulations Only related-party transactions Only related-party transactions Both related-party & non-related party covered covered transactions (N/A for banks)

24 | BEPS survey summary 2016 – Action plan 4 w

Country Canada China Denmark

Date last update April 2016 May 2016 April 2016

Thin capitalization rules Thin capitalization rules Thin capitalization rules Thin capitalization rules and general (or other deduction interest expense limitation rules limitation rules) in force or planned

Regulations entered Yes Yes (since 1 January 2008) Yes into force

Brief description of Limitation of interest expense Financial institutions are allowed a A: Thin capitalization rule: regulations deductions where a non-resident debt:equity ratio of 5:1, whereas deduction for interest on shareholder holds interest-bearing non-financial institutions are loans for controlling parent or debt and the entity’s debt-to- allowed a debt to equity ratio of 2:1. group company is limited if the equity ratio exceeds 1.5-to-1 If the ratio is exceeded, interest is company is undercapitalized (“debt” only includes debt to non- not deductible unless the interest (equity less than 25% of debt) residents, which are generally non- is determined by arm’s length B: General interest expense residents that have at least a 25% principle or if the tax rate of the limitation rule: (Partial) limitation interest in the corporation; other lender country is equal to or greater of interest deduction, if interest debt is not included); to the extent than China. In practice, regardless and other financial expenses the debt-to-equity of a Canadian of debt:equity ratio, if interest is exceed 21.3M DKK annually, corporation exceeds 1.5-to-1, all or paid to a related party, the interest interest expenses exceed a portion of the interest payments rate must be determined at arm’s a calculated return on non- will be considered a dividend paid length (rate should be similar financial assets and where by the corporation to the non- to what can be obtained from a the taxable income before resident shareholder. financial institution). Failure to deduction of interest, etc. meet the requirements may result subsequently is reduced by in non-deductibility of the interest more than 80% as a result of payments. interest expenses (EBIT rules)

Type of income covered Interest expense payments Interest expense payments Interest expense and other by regulations financial payments

Scope of regulations Only related-party transactions Only related-party transactions A: Only related party transaction covered; rules also apply to covered B: Both related and non-related partnerships and to trusts transactions covered

BEPS survey summary 2016 – Action plan 4 | 25 Country Finland France

Date last update April 2016 April 2016

Thin capitalization rules General interest expense limitation Yes. Thin capitalization rules, general interest expense limitation rules, (or other deduction rules and other limitations of financial expenses with stricter documentation limitation rules) in force rules than the current BEPS project. or planned Regulations entered Yes (since 1 January 2013, Yes (modify by Finance Bill amendment for 2015) into force applicable as of tax year 2014) A: Late 70’ B: 1st January 2014 C: 1st January 2013 D: 1st January 2012 E: Late 80’ F: Late 70’

Brief description of If the net interest expense (interest A: Limitation of the deductible interest rate for loans granted by regulations expense exceeding interest shareholders. Financial expenses paid or incurred are only deductible income) is greater than €500,000 if the share capital has been fully paid-up and in any case up to a limit in the fiscal year, the amount calculated on the basis of the annual average interest rate practised by exceeding 25% of adjusted EBITDA banks and financial institutions is not deductible; however, the B: Limitation of the deductibility of interest expenses based on their non-deductible amount is always taxation in the country of the recipient. Interest expenses are not at most the amount of the intra- deductible if the corresponding interest income is not taxable at the group net interest expense. level of the recipient at a minimum rate of of the current French Corporate Income tax rate (i.e. 8.33%) C: General interest expense limitation rule: if net financial expense amount is greater than €3M, interest expenses are deductible within the limit of 75% of their amount D: Limitation of the deductibility of financial expenses related to the acquisition of a participation in a French company eligible to the participation exemption regime (the so-called “Carrez amendment”). The deductibility of such interest expenses is not allowed, unless it is proven that: • the center of decisions regarding the shares is located in France; and • the control or the influence over the target company is actually exercised in France E: Limitation of the interest deduction on debt related to the acquisition of shares in a company that becomes a member of the same tax consolidated group from a person controlling directly or indirectly the tax consolidated group (the so-called “Charasse”) F: Thin capitalization rules: The deduction of interest payments on debt owed to affiliated parties is limited to the highest of the following three ratios: • interest accruing on an amount equal 1.5 times the share capital (the so-called debt-to-equity ratio); • 25% of the adjusted ordinary income; and • interest received from related parties

Type of income covered Interest expense payments These rules are mainly applicable to interest and financial payments made by regulations to shareholders and affiliated companies. However, the “Amendment Carrez” and the general interest limitation rules are also applicable to bank loans. Scope of regulations Both related-party & non-related These regulations cover interest and other financial payments party transactions covered

26 | BEPS survey summary 2016 – Action plan 4 Country Germany Greece Hungary

Date last update May 2016 April 2016 April 2016

Thin capitalization rules General interest expense limitation General interest expense limitation Thin capitalization rules (or other deduction rules rules limitation rules) in force or planned Regulations entered Yes Yes Yes into force Brief description of If the net interest expense is A: General rule: interest expense Interest paid on significant loan regulations greater than €3M, the deduction is deductible to the extent that amounts is not recognized if it is is limited to 30% of taxable the interest does not exceed incurred in the company’s ordinary earnings before (net) interest, tax, the interest rate of credit lines course of business. depreciation and amortization to non-financial corporations If the debt to equity ratio (EBITDA); the rule applies to at the date closest to the loan exceeds 3:1, the proportional businesses resident in Germany, contract date extent of the interest paid by the companies residing abroad B: EBITDA rule: deduction of taxpayer on loans is not deductible. but maintaining a permanent the net interest expense (i.e. In respect of the determination establishment in Germany and interest expense exceeding of the debt to equity ratio all partnerships with a German interest income) is limited liabilities should be taken into branch; there are certain further to a percentage of 60% of consideration (with the exception limited exemptions under which taxable earnings before (net) of debts and loans from credit the German interest limitation will interest, tax, depreciation and institutions or financial companies not apply. amortization (EBITDA) for the and liabilities to suppliers deriving year 2014 (50% of EBITDA for from supply of goods or provision 2015, 40% for 2016 and 30% of services). onwards); N/A if net interest is less than exemption threshold Type of income covered Interest expense payments Interest expense payments Interest expense payments by regulations Scope of regulations Both related-party & non-related Both related-party & non-related Both related-party & non-related party transactions covered party transactions (N/A for banks) party transactions (N/A for banks)

BEPS survey summary 2016 – Action plan 4 | 27 Country Ireland Italy Korea

Date last update April 2016 April 2016 April 2016

Thin capitalization rules No General interest expense limitation Thin capitalization rules (or other deduction rules limitation rules) in force or planned Regulations entered N/A Yes (last amendments provided Yes (amendments entered into into force through the International Decree force on 1 January 2015) effective 7 Oct 2015; new rules apply for FYE 2016) Brief description of N/A Net interest expense may be If a Korean subsidiary or Korean regulations deducted each year up to 30% of branch of a foreign corporation relevant EBITDA; foreign-sourced borrows from its controlling dividends distributed by controlled shareholders overseas (CSO), any foreign subsidiaries will be added interest expense in excess of two to the relevant EBITDA (instead times the equity held by CSOs is of including the EBITDA of the non-deductible. subsidiary). Under certain circumstances a full deduction of accrued interest expense on secured mortgage loans related to purchases of properties to be leased to 3rd parties is allowed. Type of income covered N/A Interest expense payments Interest expense payments by regulations Scope of regulations N/A Both related-party & non-related Only related-party transactions party transactions (N/A for banks) covered

28 | BEPS survey summary 2016 – Action plan 4 Country Luxembourg Malta Mexico

Date last update April 2016 May 2016 April 2016

Thin capitalization rules General thin capitalization rules No Thin capitalization rules (or other deduction limitation rules) in force or planned Regulations entered Yes N/A Yes (in force since 2005) into force Brief description of Thin Capitalization Rule: N/A A: (Partial) disallowance of regulations Historically, deductions were interest expenses and currency allowed for interest on borrowings exchange losses if a company to the extent that they did not makes no interest bearing loans breach a 85:15 debt:equity ratio. to third parties or if the loans have lower interest rates than the ones paid by the company of reference B: Disallowance of interest exceeding the equivalent of three times its shareholders’ equity, if derived from loans granted by foreign resident related parties Type of income covered Interest expense payments N/A Interest and currency exchange by regulations rate losses, which are treated as interest

Scope of regulations Only related-party transactions N/A A: Both related-party & non- covered related party transactions covered B: Related-party transactions only

BEPS survey summary 2016 – Action plan 4 | 29 Country Netherlands Poland Portugal

Date last update May 2016 April 2016 April 2016

Thin capitalization rules General interest expense limitation Thin capitalization rules General interest expense limitation (or other deduction rules rules limitation rules) in force or planned Regulations entered A: Yes (in force since 1 January Yes (new regulations in force since Yes into force 2013) 1 January 2015) B: Yes (in force since 1 January 2012) Brief description of A: Non-deductibility for corporate Taxpayers are allowed to choose Portugal adopted an interest barrier regulations income tax purposes of between two methods: rule which limits the deductibility of excessive participation interest A: General method: deduction net financial expenses to the higher expense relating to loans taken limitation applicable to interest of the following: (i) Euro 3 million or out from both affiliated as well on loans received from (ii) 30% of EBITDA. as third party creditors related entities, while total B: Restrictions to the deductibility indebtedness to all related of interest payable on debt companies is compared with related to the acquisition of a the company’s equity (i.e. Dutch target company against proportion 1:1) the taxable profit of the target B: Alternative method: limitation is company within a Dutch tax calculated for all interest costs consolidated group (fiscal unity) incurred by the company (i.e. for all related and unrelated entities)

Type of income covered Interest expense payments Interest expense payments Net financial expenses by regulations Scope of regulations Both related-party & non-related A: Only related-party transactions Both related & non-related party party transactions covered covered transactions covered B: Both related-party & non- related party transactions covered

30 | BEPS survey summary 2016 – Action plan 4 Country Singapore Slovenia Spain

Date last update May 2016 April 2016 April 2016

Thin capitalization rules No Thin capitalization rules and general General interest expense limitation (or other deduction interest expense limitation rules rules limitation rules) in force or planned Regulations entered N/A In force since 2005 Yes (in force since 2012) into force Brief description of N/A A: Deduction of interest expense A: General interest expense regulations on loans from related parties by limitations: deduction of net capital participation that exceed interest expense is limited to multiple of 4 to equity is not 30% of taxable earnings before allowed (net) interest, tax, depreciation B: Deduction of interest expense and amortization (EBITDA) on related party loans that B: Leveraged intra-group exceed referential interest transactions: interest expense rate is not allowed. Referential is non-deductible on financing interest rate generally consists that is entered into for i) of actual EURIBOR or LIBOR acquisition of shares in entities rates, increased for a certain when seller belongs to same mark up group of companies, and ii) the capitalization of entities belonging to the same group as the borrower (unless taxpayer justifies a valid economic reason); several exemption rules in place Type of income covered N/A Interest expense payments Interest expense payments by regulations Scope of regulations N/A Only related-party transactions Both related-party & non-related covered party transactions covered

BEPS survey summary 2016 – Action plan 4 | 31 Country Switzerland UK USA

Date last update April 2016 May 2016 April 2016

Thin capitalization rules Thin capitalization and interest Thin capitalization rules (transfer Thin capitalization rules (or other deduction expense limitation rule pricing) and world-wide debt cap limitation rules) in force or planned Regulations entered Yes (in force since 1997) Yes Yes into force Brief description of Under the thin capitalization rule, A: Thin capitalization rules: A: Debt/Equity rules: IRC § 385 regulations the maximum debt financing incorporated into transfer lays out general principles when is calculated based on the pricing rules; interest expense distinguishing a debt vs equity indebtedness of all of the assets. on excessive debt is disallowed arrangement; only interest For each type of asset, only a B: Worldwide debt cap: limits the on debt incurred by US corp is specified percentage may be UK tax deduction for financing deductible financed with debt from related expenses to the level of the B: Matching rules: IRC § 267 denies parties. Hence, the debt-to-equity group’s external financing the deductibility of related- ratio results from the sum of the expenses party interest that is accrued maximum amount of indebtedness but unpaid, unless the recipient of all of the assets. The following The rules only apply to “large” would be subject to US taxation are examples of the maximum groups and there is a de minimis C: Earnings stripping rules: IRC percentages of indebtedness for exemption for loans below £3 § 163 defers a deduction for asset categories: cash (100%), million or interest expense below interest on related-party accounts receivables (85%), £500,000. debts if the debt to equity ratio participations (70%), real estate exceeds 1.5:1 & there is excess (80%) and intangibles (70%). Any interest expense debt from related parties exceeding the accepted amount calculated under the thin capitalization rule cannot be interest bearing for tax purposes. The rule applies to businesses resident in Switzerland and businesses residing abroad but maintaining a permanent establishment in Switzerland. Furthermore, there are save harbor interest rates for intra-group financing issued by the Swiss tax authorities.

Type of income covered Interest expense payments Interest expense or other financial Interest expense payments by regulations payments Scope of regulations Only related-party transactions A: Mostly related-party Only related-party transactions covered transactions covered covered B: Only applies to UK “large” groups

32 | BEPS survey summary 2016 – Action plan 4 Action plan 5 Counter harmful tax practices

Characteristics of the Action Plan Questions Some countries provide a preferential taxation of specific 1. Does your country have any privileged tax regimes (i.e. types of incomes (such as income from financial activities or reduced tax rates or tax exemptions, e.g. patent-box) for from the provision of intangibles). According to the opinion specific types of incomes other than dividend income (e.g. of the OECD, preferential tax regimes lead to a harmful tax interest income, royalties, etc.) or does your country plan competition between the countries. The BEPS report (OECD, to introduce or amend such preferential tax regimes in the 2013a) calls for proposals to develop “solutions to counter near future? harmful regimes more effectively, taking into account factors such as transparency and substance.” If yes, please answer the following questions:

2. Are the regulations already in force?

3. Please describe the (planned) preferential tax regime and, if applicable, the (planned) amendments briefly, taking into account the following aspects: • requirements/preconditions and consequences of the regulation • types of income covered • (expected) entry into force and/or (expected) first-time application.

4. Is the preferential tax regime only applicable to companies performing a genuine economic activity (e.g. production of goods, rendering of services, etc.) in your country or also to e.g. holding companies and asset management companies?

5. Is the preferential tax regime only applicable to companies performing a genuine economic activity that generates the preferentially taxed income in your country?

BEPS survey summary 2016 – Action plan 5 | 33 Country Australia Austria Belgium

Date last update April 2016 April 2016 April 2016

Preferential taxation of Yes (R&D) No Yes specific types of incomes (other than dividends) in force or planned Regulations entered Yes N/A A – B: Yes into force C: From fiscal year 2015 if the European Commission agrees that it does not qualify as an incompatible state aid

Brief description of Tax deductions for research and N/A A: Patent income regime: 80% of regulations development activities qualifying gross patent income is deductible from the tax base. New regime is planned in line with OECD recommendations on nexus approach B: Tonnage tax regime: replaces corporate tax by a lump sum amount calculated on the basis of the tonnage of the fleet operated C: Diamond regime: replaces corporate/income tax by a lump sum amount calculated on the diamond trade

Type of income covered R&D expenses incurred N/A A: IP income by regulations B: Earned income C: Earned income

Scope of regulations Taxpayers that perform genuine N/A A: Corporate taxpayers in Belgium research and development and Belgian permanent activities are eligible to benefit establishments (PE’s) of foreign from these tax incentives companies that are involved in the further improvement of patents B: Corporate taxpayers in Belgium and Belgian PE’s of foreign companies active in shipping C: Registered diamond dealers (personal and corporate taxpayers in Belgium and Belgian permanent establishments of foreign companies)

34 | BEPS survey summary 2016 – Action plan 5 Country Canada China Denmark

Date last update April 2016 May 2016 April 2016

Preferential taxation of Yes (R&D) Yes (various) No specific types of incomes (other than dividends) in force or planned Regulations entered Yes Yes (in force since 1 January 2008) N/A into force Brief description of Tax deductions for research and 1) Companies that qualify for High/ N/A regulations development activities New Technology classification are eligible for a 15% enterprise income tax rate. Qualification is difficult and requires certain thresholds for the amount of R&D performed in China 2) Companies that perform R&D and meet certain thresholds may deduct 150% of the R&D expenses (super deduction) if all related criteria are met 3) Another category of companies eligible for a 15% tax rate includes companies in encouraged industries that are set up in certain western provinces and earn most of the annual income from business conducted in the western province Type of income covered R&D expenses incurred In practice, only income from N/A by regulations the sales of qualified goods and/ or services is qualified for the deduction, although royalty income directly related to the transfer of technology may qualify. Scope of regulations Taxpayers that perform genuine Applicable to high technology N/A research and development and new technology enterprises activities are eligible to benefit if certain criteria are met and from these tax incentives; no also applicable to the enterprise limitations as to where the benefits that generates income or of research and development incurs expenses that qualify for activities can be exploited. preferential tax treatment.

BEPS survey summary 2016 – Action plan 5 | 35 Country Finalnd France Germany

Date last update April 2016 April 2016 May 2016

Preferential taxation of No Yes (long-term capital gain rates) No specific types of incomes Preferential tax rates for gains (other than dividends) in deriving from the disposal of IP force or planned products and royalties. Regulations entered No Yes N/A into force Brief description of N/A Favorable taxation (15%) of certain N/A regulations long-term capital gains deriving from the transfer of a patent license (not between related companies) or the fees deriving from the leasing or subleasing of patent license, subject to conditions. Type of income covered N/A The favourable taxation (15%) N/A by regulations regime of certain capital gains applies both to companies performing a genuine economic activity as well as to holding companies and asset management companies.

Scope of regulations N/A Applicable to companies N/A performing an economic activity & holding companies

36 | BEPS survey summary 2016 – Action plan 5 Country Greece Hungary Ireland

Date last update April 2016 April 2016 April 2016

Preferential taxation of Yes (shipping income, R&D Yes (IP box regime) Yes (Knowledge Development Box specific types of incomes approved regime) “KDB” regime) (other than dividends) in force or planned Regulations entered Yes Yes (in force since 2003; updated Yes (in force since 1 January 2016) into force 2012) Brief description of A: Shipping income is tax free or Under Hungary’s IP box regime: Under Ireland’s KDB regime: regulations subject to reduced tax rates, A: Royalty income exemption: 50% Profits arising from certain IP under special shiiping tax regime of royalty income is deductible assets which are the result of B: Qualified R&D expenses get a from the corporate income tax qualifying R&D activities will tax deduction credit at 130% of base (capped at 50% of the be entitled to a reduced rate of their cost pre-tax profit) corporate tax of 6.25%. B: Capital gains exemption: capital gains are tax-exempt if the company makes an election within 60 days following transaction, and the company held the asset for at least one year C: Double deduction of R&D expenses

Type of income covered N/A IP income IP income resulting from R&D by regulations expenses Scope of regulations A: Shipping income must derive N/A R&D activities must be carried within a qualified shipping out in Ireland; KDB should apply to structure any profits that are earned from B: R&D expenses incurred over a accounting periods commencing on tax year must be reported to the or after 1 January 2016. General Secretariat of Research and Technology for approval

BEPS survey summary 2016 – Action plan 5 | 37 Country Italy Korea Luxembourg

Date last update April 2016 April 2016 April 2016

Preferential taxation of Yes (Patent box regime) No Yes (IP tax regime) specific types of incomes (other than dividends) in force or planned Regulations entered Yes (in force since 2015) N/A Yes (in force since 1 January 2008; into force amendments planned 30 June 2016)

Brief description of Under Italy’s Patent box regime: N/A Special tax regime for income and regulations Qualifying income derived from capital gains generated from IP’s; intangible assets is partially amendments planned to follow exempted (30% for 2015, 40% for the so-called “nexus approach” 2016 and 50% from 2017 onwards) (as supported by the OECD) with from corporate income tax (27.5%) a grand fathering period until 30 and from regional tax on productive June 2021. activities (3.9%); full exemption for capital gains derived from the disposal of the intangible if 90% of the proceeds (i.e. the sum received) are reinvested in other intangible assets before the end of the second fiscal year after the sale of the assets.

Type of income covered IP income N/A IP income by regulations Scope of regulations Attract foreign capital in Italy and N/A N/A boost R&D expenses of domestic companies

38 | BEPS survey summary 2016 – Action plan 5 Country Malta Mexico Netherlands

Date last update May 2016 April 2016 May 2016

Preferential taxation of Yes (patent and copyright box) Yes (Maquiladoras preferential Yes (IP tax regime) specific types of incomes taxation) (other than dividends) in force or planned Regulations entered Yes (amendments expected, but Yes (amendments in force since Yes (in force since 1 January 2007) into force not yet inforce) 2014) Brief description of Persons carrying out IP licensing A: Income tax stimulus: adverse Dutch innovation box regime: regulations activities from Malta may effects of amendment are effective tax rate 4% to 5%, benefit from a tax exemption in mitigated by allowing a applicable to the extent the respect of royalties, advances qualifying Maquiladora to IP related profit exceeds the and similar income derived from reduce its taxable income by a development costs. qualifying IP; in addition, certain portion of employee-exempt incentives relating to research and compensation development activities carried out B: VAT on sales by foreign parties from Malta should apply. to Maquiladoras: adverse effect of amendment is mitigated by allowing a request to refund VAT paid

Type of income covered IP income Income earned by manufacturing IP income by regulations companies Scope of regulations N/A Only applicable to qualifying Applicable to taxpayers that are the maquiladoras (special registered and beneficial owner of manufacturing companies) the patents; the taxpayer is obliged to coordinate and manage the R&D-activities if they are performed outside the Netherlands.

BEPS survey summary 2016 – Action plan 5 | 39 Country Poland Portugal Singapore

Date last update April 2016 April 2016 May 2016

Preferential taxation of Yes (tax regime for Polish Special Yes (R&D) (IP) Yes (privileged tax treatment of specific types of incomes Economic Zones) certain economic activities) (other than dividends) in force or planned Regulations entered Yes (planned amendments) Yes Yes into force Brief description of There is a corporate income tax Tax deductions for research and Tax exemptions and reduced regulations exemption for investments located development activities; Special tax rates for certain economic in the special economic zones; patent box regime: 50% of activities like R&D, start-up however, due to the limitations qualifying gross patent income is businesses, international in public aid resulting from EU deductible from the tax base. headquarter incentives, shipping, regulations, it is planned to abolish IP and global trade. the privileged tax regime in the future. Type of income covered Corporate income tax R&D expenses incurred; IP income Various business and trade income by regulations Scope of regulations Only applicable to companies Corporate taxpayers that perform Only applicable to companies performing a genuine economic genuine research and development performing a genuine economic activity in the special economic activities are eligible to benefit activity and not applicable between zone may benefit from the from these tax incentives. group entities; qualifying IP rights exemption; a special permit is comprise exclusively of certain required and certain conditions technological IP: patents, secret have to be fulfilled. formula or processes, designs or models, plans, or information concerning industrial, commercial or scientific experience.

40 | BEPS survey summary 2016 – Action plan 5 Country Slovenia Spain

Date last update April 2016 April 2016

Preferential taxation of Yes Yes specific types of incomes (other than dividends) in force or planned Regulations entered Yes (in force since 2007) Yes (in force since 2007) into force Brief description of There is no privileged income Net income derived from either the regulations regime, however double deduction cession or the transfer of the right of R&D expenditure in a form to use certain qualifying intellectual of 100% R&D tax allowance for property (IP) rights enjoys a 60% expenditure in R&D activities. tax exemption.

Type of income covered Corporate income tax IP income by regulations Scope of regulations Applicable to companies Only applicable to companies performing genuine R&D activities. performing a genuine economic Labour costs and service costs activity and not applicable between apply, however not for the purchase group entities; qualifying IP rights of IP. comprise exclusively of certain technological IP: patents, secret formula or processes, designs or models, plans, or information concerning industrial, commercial or scientific experience.

BEPS survey summary 2016 – Action plan 5 | 41 Country Switzerland UK

Date last update April 2016 May 2016

Preferential taxation of Yes Yes (patent box regime) specific types of incomes a) The following privileged tax regimes are currently available: domicile (other than dividends) in company, mixed company, holding company, principal company, force or planned finance branch. Switzerland contemplates to abolish all of them b) Switzerland contemplates to introduce a patent box

Regulations entered The abolition of the currently available tax regimes and the introduction of Yes (in force since 2013) into force the patent box have not yet entered into force Brief description of The contemplated patent box is a stimulus for R&D output which is largely Patent box: Companies holding regulations based upon the British patent box. It is envisaged that income from qualifying patents pay tax at 10% qualifying intellectual property rights will be included in the calculation on profits from the exploitation of taxable income on cantonal level with a maximum reduction of 80%. of those patents, including sale The following are to be regarded as qualifying intellectual property rights: of products or services which patents, supplementary protection certificates, exclusive licences for incorporate those patents. patents and first applicants’ provisional rights under Swiss Federal Law on medicinal products and medical devices. However, trademark rights are among those not expected to be included in this. The patent box is only intended for legal entities which are owners or usufructuaries of the intel-lectual property right. Furthermore, they must have contributed substantially to the development of the underlying invention. This is to be understood in the sense of the internationally accepted modified nexus approach. The political discussion in Switzerland regarding the abolition of the currently available tax regimes and the introduction of the patent box (the so called “Corporate Tax Reform III”) is currently underway. However, the scale on which the reform will take place is not yet clear. The earliest date of implementation is expected to be 2018, although a protracted legislative process is generally expected and, consequently, a later date is expected. Type of income covered Investment & IP income IP income by regulations Scope of regulations Applicable to companies contributing actively to research and development Applicable to all companies services holding qualifying intellectual property, provided some (limited) development is undertaken.

42 | BEPS survey summary 2016 – Action plan 5 Country USA

Date last update April 2016

Preferential taxation of Yes (Privileged tax treatment for specific types of incomes R&D and manufacturing) (other than dividends) in force or planned Regulations entered Yes into force Brief description of Special tax credits for research regulations and development activities in the USA and special deductions for manufacturing activity that occurs within the USA.

Type of income covered R&D expenses and income earned by regulations by manufacturing companies Scope of regulations Applicable to companies performing a genuine economic activity that generates the preferentially taxed income

BEPS survey summary 2016 – Action plan 5 | 43 Action plan 6 Prevention of treaty abuse

Characteristics of the Action Plan Questions The OECD is of the opinion that treaty abuse is one of the 1. Is there any Double Tax Convention concluded by your most important sources of BEPS concerns. The Commentary country including any LOB rules? on Article 1 of the OECD Model Tax Convention already • If yes, do you know whether your country commonly includes a number of examples of provisions that could uses this or similar LOB rules in Double Tax be used to address treaty-shopping situations as well as Conventions? other cases of treaty abuse, which may give rise to double • If no, do you know whether it is planned in the non-taxation. near future to include LOB rules in the double tax conventions? On September 16, 2014 the OECD issued its first report on Action Plan 6 – Preventing the Granting of Treaty Benefits in 2. Is there any Double Tax Convention concluded by your Inappropriate Circumstances. This report includes proposed country including any other general anti-abuse rules (PPT changes to the OECD Model Tax Convention to prevent treaty rules) in order to avoid treaty shopping situations? abuse. In this report the OECD recommends to include in tax • If yes, do you know whether your country commonly treaties a specific anti abuse rule based on the limitation-on- uses this or similar PPT rules in Double Tax benefits (LOB) provisions included in treaties concluded by Conventions? the United States and a few other countries. The proposed • If no, do you know whether it is planned in the near LOB rule provides that a resident of a Contracting State shall future to include any general anti-abuse rules in double not be entitled to the benefits of the Convention unless it tax conventions? fulfills a complex test and constitutes as a so called “qualified person” or unless the income is derived in connection with the 3. Does the domestic law of your country contain any active conduct of a trade or business in that person’s State of (general or specific) anti-abuse rules in order to avoid residence (subject to certain exceptions). treaty shopping situations? • If yes, we would be grateful if you could provide us with In order to address other forms of treaty abuse, including a short summary of the anti-abuse rules. treaty shopping situations that would not be covered by the • If no, do you know whether it is planned in the near LOB rule described above, it is recommended in the OECD future to implement any general anti-abuse rules by report to add to tax treaties a more general anti-abuse domestic law? rule based on the principal purposes of transactions or arrangements (the principal purposes test or “PPT” rule). The PPT rule included in the report incorporates principles already recognized in the Commentary on Article 1 of the Model Tax Convention.

44 | BEPS survey summary 2016 – Action plan 6 Country Australia Austria Belgium

Date last update April 2016 April 2016 April 2016

Double Tax Treaties (DTT) LOB rules in DTT with USA LOB rules in DTT with USA LOB rules in DTT with USA Including LOB rules concluded or planned

Double Tax Treaties (DTT) N/A N/A No general anti-abuse rules but including other general specific anti-abuse rules (see DTT Anti-Abuse Rules (PPT) with USA) concluded or planned Domestic law Including N/A General anti-avoidance rule: A: General rule: Transactions general or specific the rule defines Abuse of Law as made by taxpayers to non- anti-abuse rules transactions without economic residents established in low tax substance, instrumental in jurisdictions are disregarded obtaining an undue tax advantage under certain conditions B: Specific rules: Arm’s length principle in cross border situations; disallowance of deductions for certain payments of interests and royalties (counterproof possible), dividends received from low tax jurisdictions cannot enjoy tax exemption

BEPS survey summary 2016 – Action plan 6 | 45 Country Canada China Denmark

Date last update April 2016 May 2016 April 2016

Double Tax Treaties (DTT) Extensive LOB rules in DTT N/A LOB rules in DTT with USA; only Including LOB rules with USA; some modified LOB few other agreements include LOB concluded or planned provisions in DTT with other rules countries Double Tax Treaties (DTT) Recently-negotiated treaties Some general anti-abuse Special anti-avoidance rule (law no. including other general contain an anti-treaty shopping provisions in DTTs with several 540 of 29 April 2015) in force as of Anti-Abuse Rules (PPT) rule (e.g. Article 29 (3) DTT with countries, e.g. Article 29 DTT (new 1 July 2015 that includes abuse of concluded or planned Hong Kong) DTT) with Germany. EU directives and DTT agreements. However, China has had extensive anti-abuse and GAAR rules in place since 2008 (with many modifications made to the rules since that time) but in general, such rules are not provided in detail in double tax treaties/agreements. The rules are part of the domestic laws, regulations and guidance issued to tax bureaus. Domestic law Including General anti-avoidance rule in China examples include: General anti-avoidance rule in general or specific domestic tax law (Income Tax Act) 1) Conditions on “beneficial Danish Tax Assessment Act anti-abuse rules to deny the tax benefits to a person ownership” of China-sourced with regard to treaty shopping resulting from an abuse or misuse income were described in situations of its tax laws. Circular [2009] 601. Treaty benefits are not awarded unless the beneficial owner in a low tax jurisdiction operates substantial business independent of holding a China entity 2) 2009 Circular 698 and 2015 Announcement 7 outline tax and reporting requirements for offshore parties that indirectly transfer (via transfer of offshore holding companies) equity in China-based entities 3) Conditions/definitions on Permanent Establishments are loosely defined in double tax agreements but are elaborated in regulations issued to in-charge tax bureaus 4) Treaty benefits are not automatic; application for benefits is required and evidence of qualification must be provided

46 | BEPS survey summary 2016 – Action plan 6 Country Finland France Germany

Date last update April 2016 April 2016 May 2016

Double Tax Treaties (DTT) LOB rules in DTT with USA LOB rules in DTT with USA LOB rules in DTT with USA; usually Including LOB rules Germany does not include LOB concluded or planned rules in DTT

Double Tax Treaties (DTT) PPT rules in DTT with China; PPT rules with China; limitation New DTT with China (not yet in including other general apart from that only information clauses of advantages from DTT force) providing a general anti- Anti-Abuse Rules (PPT) exchange rules (e.g. UK, Andorra) abuse rule and allowing to apply concluded or planned PPT rules in the DDT concluded domestic laws concerning the with Singapore but not in force prevention of tax evasion and (January 2015) or Columbia but not avoidance; newer DTTs contain in force (June 2015). “switch over clauses” and “subject- to-tax clauses”.

Domestic law Including N/A General anti-abuse rules Anti-treaty shopping rule (Sec. general or specific Article L.64 of the French 50d para 3 German Income Tax anti-abuse rules procedure handbook provides Act), Anti-abuse clause relating for the general prohibition of the to employment income (Sec. 50d so-called “abuse of law”. It enables para. 8 German Income Tax Act) the FTA to disregard transactions and general subject-to-tax clause entered into by the taxpayer solely (Sec. 50d para. 9 German Income for tax purposes or in order to Tax Act). circumvent the spirit of the law. Specific anti-abuse rules: • Rules aiming to circumvent arrangements implying the interposition of companies (e.g. rent-a-star company) – Art. 155 A of the French General Tax Code • Rules circumventing the abusive use of tax neutralization regimes in case of corporate restructuring (e.g. a capital contribution followed by a disposal) – Art. 150-0 B ter of the French General Tax Code • Rules aiming to avoid accumulation of tax benefits in case of share disposals (e.g. simultaneous application of dividend exemption and deduction of capital loss) – Art. 219 I a ter of the French General Tax Code • Limitation of deduction rights in case of a capital loss incurred after recapitalisation of a loss- making subsidiary – Art. 39 quaterdecies 2 bis of the French General Tax Code • Limitation of deduction rights in case of capital loss incurred in case of share disposals to affiliated companies – Art. 219 I a) septies of the French General tax code

BEPS survey summary 2016 – Action plan 6 | 47 Country Greece Hungary Ireland

Date last update April 2016 April 2016 April 2016

Double Tax Treaties (DTT) N/A LOB rules in DTT with USA LOB rules in DTT with USA Including LOB rules concluded or planned

Double Tax Treaties (DTT) N/A PTT rules in some of the newly N/A including other general concluded DTTs Anti-Abuse Rules (PPT) concluded or planned Domestic law Including Greek Tax Authorities are allowed General principles: N/A general or specific to ignore or override “any artificial A) Substance over form principle anti-abuse rules arrangement or series of artificial B) In case of relationships affected arrangements which lead to tax by international treaties, avoidance and tax privileges”. wherein as a consequence of differences in facts or in law interpretation neither of the affected states considers such income as taxable, such payment will not be exempted from taxation in Hungary

Country Italy Korea Luxembourg

Date last update April 2016 April 2016 April 2016

Double Tax Treaties (DTT) No N/A LOB rules in DTTs with USA and Including LOB rules Poland; the provisions are target concluded or planned at excluding streams of incomes made or received from artificial arrangements.

Double Tax Treaties (DTT) No N/A No treaty in force containing a including other general general anti-avoidance provision; Anti-Abuse Rules (PPT) several treaties containing anti- concluded or planned avoidance provisions like a general reference to domestic abuse rules, anti-treaty shopping provisions, subject-to-tax and activity clauses.

Domestic law Including General anti-avoidance rules General anti-abuse rules in force General tax rules to counteract tax general or specific (GAAR) were introduced in 2015: to avoid unjust benefits (e.g. from avoidance anti-abuse rules the rule defines Abuse of Law as provisions in a tax treaty; tax treaty transactions without economic shall apply according to economic substance, instrumental in substance of the transaction). obtaining an undue tax advantage; the new rule clarifies that the burden of proof in the case of an abusive conduct is on the tax administration and taxpayers have to demonstrate the existence of proper business purposes supporting the transaction that is being challenged.

48 | BEPS survey summary 2016 – Action plan 6 Country Malta Mexico Netherlands

Date last update May 2016 April 2016 May 2016

Double Tax Treaties (DTT) LOB rules in DTT with Russia LOB rules in DTTs with several LOB rules in DTT with USA; usually Including LOB rules countries the Netherlands do not use LOB concluded or planned rules in DTTs; however, in order to curb treaty shopping specific anti-abuse rules, like a LOB clause, may be included in DTT (official notification of 2011 by the Dutch State Secretary of Finance).

Double Tax Treaties (DTT) N/A N/A PPT test in Article 10 para. 7 including other general DTT 2013 with China denying Anti-Abuse Rules (PPT) application of the dividend article; concluded or planned usually the Netherlands does not use PPT rules in DTTs; however, PTT clauses, may be included in DTT (official notification of 2011 by the Dutch State Secretary of Finance), e.g. anti-abuse rules agreed with several developing countries.

Domestic law Including N/A N/A Rules to combat abusive treaty general or specific shopping, anti-dividend stripping anti-abuse rules rules, anti-abuse provisions mentioning substance and risk requirements regarding Dutch finance, royalty and lease conduit, beneficial owner concept to combat certain abusive situations.

Country Poland Portugal Singapore

Date last update April 2016 April 2016 May 2016

Double Tax Treaties (DTT) LOB rules in DTT with USA (signed N/A Including LOB rules in 2013, not yet ratified by the concluded or planned USA); usually, Poland does not use LOB rules in DTTs; however, some provisions which are similar to LOB rules, are present in a few DTTs.

Double Tax Treaties (DTT) “Switch-Over-Clauses” in several N/A PPT rules in DTT with Israel; PPT including other general D T Ts clauses are not usual Anti-Abuse Rules (PPT) concluded or planned Domestic law Including “Treaty-overriding-rules” A: General anti abuse rule: “any General anti-avoidance provisions general or specific (partially) denying exemption artificial arrangement or series anti-abuse rules from withholding tax on interest of artificial arrangements or royalties between affiliated which lead to tax avoidance companies/related parties; anti- and tax privileges” should be abuse rule with regard to dividend disregarded payments according to which the B: Specific rules: Arm’s length exemption provided in the EU principle; disallowance of Parent-Subsidiary Directive would deductions and punitive not be applied to the artificial withholding tax rates on structures (will enter force payments (interest, dividends, January 2016). royalties, expenses) to blacklisted jurisdictions

BEPS survey summary 2016 – Action plan 6 | 49 Country Slovenia Spain Switzerland

Date last update April 2016 April 2016 April 2016

Double Tax Treaties (DTT) LOB rules in DTT with USA LOB rules in DTT with USA. LOB rules in DTT (Article 22) Including LOB rules with USA. Usually Switzerland concluded or planned does not use LOB rules in Double Tax Conventions. Such a rule is generally not part of the Swiss treaty policy.

Double Tax Treaties (DTT) No PPT rules in some newly concluded Yes. See Article 3 paragraph 1 (l) including other general D T Ts of the Double Tax Convention Anti-Abuse Rules (PPT) between Switzerland and the concluded or planned UK. Similar wording is used in the Double Tax Conventions with Hongkong and Japan. In the past, Switzerland usually did not use written PPT rules in Double Tax Conventions. Recently, however, it is increasingly used in practice.

Domestic law Including A: Provision aimed at preventing A: Provision aimed at preventing Yes. The Federal Council issued an general or specific the unjustified exemption the unjustified exemption anti-abuse decree in 1962 under anti-abuse rules of Slovenian source income of Spanish source income which the use of the Swiss tax (dividends) under the EU (dividends) under the EU treaty network by Swiss companies parent-subsidiary directive. The parent-subsidiary directive that are controlled by foreign exemptions under the Directive B: Provision aimed at preventing residents is restricted: If a Swiss are not granted when the main the unjustified exemption company receives dividends, purpose or one of the main of Spanish source income interest or royalties from sources in purposes of the arrangement (royalties) under the EU interest a country having a double tax treaty is obtaining of tax advantages. and royalties directive with Switzerland and if foreign The rule has been in force since withholding tax is reduced as a November 2015 and is effective result of the double tax treaty, no os of January 2015 more than 50% of this income may B: General anti-avoidance rules be forwarded to persons outside Switzerland. There is substantial easing of this restriction, if the Swiss company is (i) engaged in an active business, (ii) quoted at a Swiss or foreign stock exchange or (iii) a holding company. Furthermore, Switzerland applies a beneficial ownership test for outbound dividends: A foreign corporation claiming the refund (or notification) of Swiss dividend withholding tax based on a double tax treaty with Switzerland needs to provide evidence that it is the beneficial owner of the dividend. A foreign corporation is considered the beneficial owner if certain substance and equity financing requirements are met. Finally, the Federal Court has developed legal practice on the abusive claim of treaty benefits in general and applicable for each double tax treaty. Accordingly, the claim of treaty benefits is abusive if an intermediate company, which receives income taxed at the source, is foreign controlled and has no real economic or active business.

50 | BEPS survey summary 2016 – Action plan 6 Country UK USA

Date last update May 2016 April 2016

Double Tax Treaties (DTT) LOB rules in DTTs with USA and Almost all DTTs contain LOB rules Including LOB rules Japan concluded or planned

Double Tax Treaties (DTT) Beneficial ownership and anti- Most DTTs contain specific rules including other general conduit rules are commonly used, related to payments to entities Anti-Abuse Rules (PPT) in line with the OECD model treated as fiscally transparent for concluded or planned US tax purposes Domestic law Including No specific treaty anti-abuse rules, “Conduit financing rules” allowing general or specific although the General Anti-Abuse the US tax authorities to ignore anti-abuse rules Rule (GAAR) can apply to treaties an intermediary party in a series of “back-to-back” interest and royalty payments, so that the payments are treated as received by the ultimate recipient; as such, the payments made to the intermediary entity will not qualify for treaty benefits.

BEPS survey summary 2016 – Action plan 6 | 51 Globally active with Nexia International

Economic activity for SMEs no longer stops at the national About Ebner Stolz borders. However, the step across the border is accompanied This research project was led by Ebner Stolz. Ebner Stolz is a by numerous international questions. Only companies with member firm of the “Nexia International” network (Nexia) and a strong partner with an international network are on the has representation on important committees within the Nexia safe side. network. The firm actively influences further development of the network. For further information on Ebner Stolz please go About Nexia International to www.ebnerstolz.de. Nexia International is a leading, global network of independent accounting and consulting firms. With over 24,000 employees in more than 120 countries, Nexia is ranked as a top 10 network (source: IAB World Survey 2015).

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52 | BEPS survey summary 2016 BEPS survey summary 2016 | 53 Contacts

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54 | BEPS survey summary 2016 Mexico Singapore Turkey Solloa-Nexia Nexia TS AS Nexia Turkey Alfredo Solloa Lam Fong Kiew M. Salih Özer E [email protected] E [email protected] E [email protected] Cristina E. Camara Tuğrul Özsüt E [email protected] Slovenia E [email protected] Cautela Pros d.o.o. Netherlands Alan Maher United Kingdom Koenen en Co E [email protected] Smith & Williamson Chris Leenders Nadja Ovcar Rajesh Sharma E [email protected] E [email protected] E [email protected] Roger Wentink Saffery Champness E [email protected] Spain Robert Langston Jeroen Lemmens De Andrés y Artinano, Abogados (DAyA) E [email protected] E [email protected] José Ángel Martínez Horlings E [email protected] USA Marc Derks Pablo Gómez-Acebo CliftonLarsenAllen E [email protected] E [email protected] John Berens KroeseWevers Accountants en Laudis Consultor E [email protected] Belastingadviseurs Xavier Cheverria Cohn Reznick Hans Eppink E [email protected] James Wall E [email protected] Audalia Laes Nexia E [email protected] FSV Tax Advisors Victor Alio Louie Wong LLP Bas Opmeer E [email protected] Arthur Louie E [email protected] E [email protected] Switzerland The Wolf Group Poland ABT Treuhandgesellschaft AG Laura Ferrari Advicero Tax Sp. z o.o. Patricia Handschin E [email protected] Katarzyna Klimkiewicz-Deplano E [email protected] Whitley Penn E [email protected] ADB David Neal Katarzyna Bienkowska Fabian Duss E [email protected] E [email protected] E [email protected] Rehmann Slawomir Patejuk Mathias Häni John Pridnia E [email protected] E [email protected] E [email protected] Marc Dietschi Portugal E [email protected] NEXIA, CPLA & Associados, SROC, Lda. T+R AG Pedro Alves Mathias Josi E [email protected] E [email protected] Ricardo Martins Coelho Röthlisberger Martin E [email protected] E [email protected]

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