October 2020 Welcome

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International Tax News

Edition 91 October 2020 Welcome

Keeping up with the constant flow of Featured articles international tax developments worldwide can be a real challenge for multinational companies. International Tax News is a monthly publication that offers updates and analysis on developments taking place around the world, authored by specialists in PwC’s global international tax network.

We hope that you will find this publication helpful, and look forward to your comments.

Responding to the potential business impacts of COVID-19 Bernard Moens COVID-19 can cause potentially significant people, Global Leader International Tax Services Network social and economic implications for organisations. T: +1 703 362 7644 This link provides information on how you E: [email protected] can prepare your organisation and respond. In this issue

Legislation Administrative EU/OECD Treaties Legislation

Argentina

Argentina adopts broad informative • strategies that result in stateless income regime requiring domestic and (‘supuesto de doble no imposición’), international tax planning disclosures allocation of taxable income to other jurisdictions, or avoidance of disclosure requirements through any Argentinian The Argentine Tax Authorities (AFIP) issued informative regime Resolution 4838/2020 (‘the Resolution’) • planning that involves non-cooperative on October 19. The Resolution, which jurisdictions or jurisdictions that are follows BEPS Action 12 (Mandatory considered to be low or no-tax • taking advantage of tax asymmetries or Disclosure Rules), was effective as of utilizing hybrid instruments, and October 20, and creates an informative • pursuing a tax-planning strategy specifically listed regime with respect to domestic and on the tax authorities’ website (not yet published). international tax planning strategies (‘the Regime’). The new reporting For more information see our PwC Insight. requirements may apply retroactively. PwC observation: The Regime requires taxpayers to report any agreement, scheme, plan, or other action resulting While numerous OECD jurisdictions have in a tax advantage or any other benefit with respect enacted similar disclosure rules, the Argentine to any Argentine federal tax (not only income tax), Regime appears to broaden the scope to or any informative regime in place in Argentina, domestic planning and does not appear to either in a domestic or cross-border context. be limited to ‘aggressive’ planning. Argentine Examples of cross-border tax planning strategies taxpayers should monitor further clarification subject to the Regime include: and developments regarding covered situations and transactions. Taxpayers also • using legal entity vehicles to take advantage of should evaluate existing and new structuring tax treaty benefits involving Argentina to determine whether they • adopting strategies that prevent the creation of are subject to the new requirements. a permanent establishment in Argentina

Ignacio Rodriguez Juan Magadan Argentina Argentina T: +54 11 5115-9626 T: +54 11 3120-9953 E: [email protected] E: [email protected] Australia France

Australian Federal Budget proposes Tax measures in 2021 French significant business tax incentives PwC observation: draft budget aim to improve PwC observation: Australia’s Budget was designed to stimulate companies’ competitiveness Multinational entities (MNEs) should consider Australia’s Federal Budget (‘the Budget’) economic recovery and employment growth. the impact of the proposed draft budget with for the 2020-21 year was announced To this end, it includes a range of tax The French government on September respect to their operations or subsidiaries in on October 6. Consistent with its goal changes that could provide opportunities 28 released the draft budget for fiscal France, as well as the potential related IFRS of stimulating economic growth and to taxpayers with Australian operations, year 2021 (‘the draft budget’). The draft or GAAP tax accounting impacts. including potential cash refunds, significant employment, the Budget includes accelerated deductions, and R&D and budget focuses on economic recovery tax measures designed to encourage employment incentives. and job creation. Notably, it includes business investment. Measures tax measures designed to increase the potentially relevant for multinational attractiveness of the French business groups include: environment and local companies’ competitiveness. The Finance • immediate deductions for certain Commission of the French Assemblée capital expenditures Nationale (French House) finished its • a new temporary loss carryback regime • expansion of the research and development review of the first part of the draft budget (R&D) tax incentive and its preliminary amendments on • incentives for business to employ staff and October 8. Parliamentary debates began • amendments to the corporate residency rules. on October 12. The draft budget will move back and forth between the French For more information see our PwC Insight. Senate and the French House before a vote on the final draft, with enactment expected before the end of 2020.

For more information see our PwC Insight.

Chris Morris Magnus Morton Guillaume Glon Guillaume Barbier Australia Australia France United States T: +61 418 496 220 T: +61 497 417 786 T: +33 1 56 57 40 72 T: +1 (347) 276-7441 E: [email protected] E: [email protected] E: [email protected] E: [email protected] Ireland Luxembourg

Ireland’s 2020 Finance Bill amends Luxembourg budget retains tax rates, For more information see our PwC Insight. provisions impacting multinationals PwC observation: adds anti-avoidance measures Finance Bill 2020 introduced legislative reform PwC observation: Following the introduction of the 2021 which, once enacted, will result in action The Luxembourg government, on October Irish Budget, on October 22, the Irish points for many companies. MNEs with an Irish 14, advanced the 2021 State Budget Bill The government has recognized that while Finance Minister published the draft tax presence may welcome the anti-hybrid (n°7666). The Bill contains a number of the pandemic will weigh heavily on the State 2020 Finance Bill (‘Finance Bill 2020’). provisions in particular, while groups that have proposed tax changes. Prime Minister budget, it would not be desirable to reduce IP in Ireland or have loans between Irish entities purchasing power by increasing taxes. Stability Once enacted, Finance Bill 2020 will will need to evaluate the potential impacts of Xavier Bettel had already mapped out the at this time is seen as essential. Therefore, give legislative effect to the Budget’s the updates to the IP amortization and transfer major items in his annual (but delayed) no major tax reforms will be undertaken in provisions. Legislative changes likely pricing provisions on their structures. State of the Nation speech on October 13. 2021, even though the current government’s to affect MNEs include amendments programme had foreseen such activity. to: (1) balancing charge provisions For the 2021 tax year, all corporate tax rates are to Proposed changes mainly target very specific related to specified intangible assets remain unchanged – the headline overall effective corporate tax rate thus remains 24.94%. areas where unfairness in the existing regime under Ireland’s intangible property is perceived, and to enhance sustainability (IP) amortization regime and (2) Irish Tax regimes for fund vehicles will remain stable. and environmental protection. Liabilities under transfer pricing rules on certain non- Fund vehicles (Part I and II UCI) investing in the proposed real estate levy on Luxembourg trading transactions. Finance Bill 2020 sustainable assets will begin to benefit from the real estate income and gains accruing directly subscription tax rate, which is reduced from the to investment fund vehicles will be of very also contains several helpful technical standard 0.05% rate. One long-foreseen and limited and local application. amendments in areas such as the Irish sharply-focused anti-avoidance measure will target controlled foreign company (CFC) rules non-tax transparent Luxembourg fund vehicles and the anti-hybrid provisions. The Bill investing directly in Luxembourg real estate, also extends certain relief, including the subjecting both gross rental income and disposal gains arising as of January 1, 2021 to a new knowledge development box. 20% real estate levy (‘prélèvement immobilier’). The new anti-avoidance measure is expected to For more information see our PwC Insight. affect a small number of fund vehicles. Also, the levy does not apply to fully taxable corporate (i.e., non-transparent) entities owning Luxembourg real estate, even when owned by Luxembourg fund vehicles. The Bill does not impact Luxembourg funds holding foreign real estate assets.

Andrew Dunne Harry Harrison Sami Douénias United States Ireland PwC Luxembourg T: +1 347 225-6717 T: +353 87 372 0882 T: +352 49 48 48 3060 E: [email protected] E: [email protected] E: [email protected] Panama

Panama introduces tax incentive For more information see our PwC Insight. regime for intragroup manufacturing services PwC observation: Panama recently introduced a new MNEs should evaluate whether the EMMA special regime, effective December regime could benefit their current or proposed 1, that contains tax incentives for global operational structure. They should also consider the labour conditions required companies that execute intragroup to obtain a license. Furthermore, they services related to manufacturing also should consider the regime’s non-tax activities. The law is designed to incentives, such as immigration benefits. promote foreign investment, create jobs, and enhance the Panamanian tax environment’s competitiveness.

Panama published Law 159 in the Panamanian Official Gazette on September 1. The law, which will be effective three months after publication (i.e., December 1), introduces a special regime for the provision of services related to manufacturing by multinational companies (the ‘EMMA’ regime). Under the EMMA regime, a company may provide the following (non-exhaustive) intragroup services:

• services related to the manufacture of products, machinery, and equipment • assembly • maintenance and repair • remanufacturing • product conditioning • development, innovation, or research • analysis, laboratories, or tests, and • logistics.

Francisco Barrios Luis Vargas Maria Bel Panama United States United States T: +507 206-9217 T: +1 (347) 325-4171 T: +1 646 637-2461 E: [email protected] E: [email protected] E: [email protected] Portugal

2020 State Budget law proposal – Relevant activities, fixed installation, dependent d) The use of facilities or the maintenance of a Furthermore, within five years, the investment Tax measures agent PE, and preparatory or ancillary activities stock of goods or merchandise belonging to fund is effectively required to invest in companies the enterprise solely for the purpose of delivery dedicated to R&D activities, and in turn, these The PE concept has been expanded to include (currently this is an exception to the recognition companies must effectively invest in R&D activities. additional situations not already foreseen in The 2021 State Budget law proposal was of a PE as a preparatory or ancillary activity) Otherwise, the CIT liability of the relevant tax year domestic tax law. A PE shall be deemed to be presented to the Parliament on October increases by the amount of unpaid CIT resulting recognized in the following circumstances: e) A fixed place of business or stock of goods 12. The key corporate tax proposed from the tax incentive’s misuse (proportionally if or merchandising, used or maintained by an applicable), plus late assessment interest. changes are highlighted below: a) Business activities derived from services, enterprise if the same enterprise or a closely including consulting services, performed related enterprise constitutes complementary I – Corporate income tax (CIT) Lack of job maintenance prevents use of by an enterprise, through its own staff or functions that are part of a cohesive business tax incentives Permanent establishment (PE) subcontractors hired for the purpose of operation and carries on business activities at the conducting such activities in the Portuguese same place or at another place in the Portuguese In 2021, The budget proposes that the access to The domestic PE concept in general reflects an territory; provided that such activities are territory, in order to prevent the fragmentation of certain tax benefits and public support measures alignment with BEPS Action 7, the OECD Model performed for a period or periods exceeding activities between related parties. would depend on job maintenance. This shall Tax Convention on Income and on Capital dated in the aggregate 183 days in any twelve-month apply to entities engaged mainly in agricultural, November 21, 2017, and respective Commentaries, period starting or ending in the relevant tax year The budget would introduce, in Article 5 of the commercial, or industrial activities (micro, small and as well as with the Portuguese position on the CIT Code, a definition of a “person or enterprise medium-size companies are excluded) that assess OECD Multilateral Convention. The proposed b) Installations, platforms or ships in general closely related to an enterprise” that would align positive net profit in 2020. amendments also follow the UN Model Convention. (currently, reference is made to drilling ships) with BEPS Action 7 and the OECD Multilateral The proposed amendments include: used in prospection or exploitation of natural Convention. Among the tax benefits and public support resources, when the activity exceeds 90 days measures covered are credit facilities with State Force of attraction (currently, 6 months) II – Use of existing tax incentives – Additional guarantee, the regime of conventional remuneration Article 5 of the Portuguese CIT code already c) Broadening dependent agent PE (DAPE) requirements proposed of share capital (‘Remuneração Convencional includes a limited force of attraction principle for scenarios to prevent the artificial avoidance of do Capital Social’), the tax regime for investment R&D (‘SIFIDE II’) PEs. However it is proposed to further clarify that PE status. DAPE will now apply to contracts that support (‘Regime Fiscal de Apoio ao Investimento,’ the taxable profit of a non-resident entity’s PE in are substantially negotiated in a State but not Eligibility for the R&D tax incentives (‘Sistema de or ‘RFAI’), the SIFIDE II, and the extraordinary Portugal includes income derived from the sale concluded in that State and instead are finalized incentivos fiscais em investigação e desenvolvimento regime for investment (‘Crédito Fiscal Extraordinário of goods and services made by the head office to or authorized abroad. DAPE also will apply empresarial II,’ or ‘SIFIDE II’) of equity investments ao Investimento II,’ or ‘CFEI II’). Further regulations natural or legal persons that are resident for tax to contracts where the person that habitually in R&D institutions or contributions made to private are expected. purposes in Portugal, provided that such goods exercises an authority to conclude contracts or public investment funds will require effective and services are identical or similar to those sold constitutes an ‘independent agent’ (and thus an investment in equity or quasi-equity instruments of through the PE. exception would apply), even though it is closely R&D companies. related to the foreign enterprise on behalf of which it is acting. III – Real estate transfer tax – Taxation of the acquisition of shares in land-rich joint stock companies

Under the Budget proposal, the acquisition of shares corresponding to at least 75% of the share capital of a non-listed joint stock company (‘sociedade anónima’) shall be subject to Real Estate Transfer Tax. This rule shall apply to companies whose assets consist of more than 50% of real estate located in Portugal. An exception applies in case the real estate is allocated to a commercial, industrial or agricultural activity (except for buy-sell activities). Currently, this rule applies only to private limited liability companies (‘sociedades por quotas’) as well as to general and limited partnerships.

PwC observation: Expanding the PE concept in Portugal’s domestic law may ultimately lead to increased taxation in Portugal. When assessing these PE changes, any applicable tax treaty eventually affected by the Multilateral Convention should be considered. Entities enjoying tax incentives should carefully review the potential tax impacts of failing to comply with the additional proposed requirements.

An additional tax burden, the real estate transfer tax, would be levied on the acquisition of shares in land-rich joint stock companies and should be considered in business restructurings.

Rosa Areias/PT/TLS/PwC Jorge Figueiredo/PT/TLS/PwC Lisbon Lisbon T: + 351 22 543 3197 T: +351 21 359 9618 E: [email protected] E: [email protected] Spain Ukraine

Spanish coalition government New Ukrainian tax laws mean • owns more than 10% of foreign company proposes significant corporate PwC observation: significant changes for multinationals shares (25% for 2021 and 2022), provided other tax changes Ukrainian residents hold at least 50% of the Since the government does not have a shares, or majority in either house of Parliament, it will New Ukrainian laws (Law 466) • exercises actual control over the foreign The 2021 budget approved by the need the support of several other political introducing significant international tax company. Spanish cabinet seeks to enact parts groups in order to secure passage of both and transfer pricing changes, mostly of the political agreement reached by pieces of legislation. Some of these measures implementing BEPS initiatives, enter into For more information see our PwC Insight. therefore could be dropped or modified during both parties of the current coalition the legislative process. MNEs with operations force January 1, 2021. However, many of government. Consistent with that in Spain or with Spanish holding companies Law 466’s provisions became effective PwC observation: agreement, the draft budget includes should assess the impact of the proposed May 23, 2020. Law 466 introduces CFC several tax increases that would help changes on their investments in Spain and rules into the tax code, under which a The new laws contain a variety of new prepare to respond accordingly. concepts, terms, and obligations affecting fund some of the agreement’s public Ukraine-resident company or individual Ukrainian businesses and multinational spending proposals. The October 13 bill may be taxed on a portion of the profits companies. Existing financing or corporate includes several tax measures aimed at of certain foreign entities that are owned structures may appear inefficient under the improving tax compliance and reducing or controlled by such Ukrainian residents. new rules. Further analysis to understand tax litigation. In this context, the bill the impact of these laws is advisable as noncompliance might result in material transposes into domestic legislation The CFC profits are included in the controlling person’s taxable income and are taxed at standard fines for businesses. MNEs doing business some of ATAD’s provisions by amending income tax rates, with specific tax rates for in Ukraine should consider immediately existing exit tax and CFC rules. individuals. An entity is deemed to be a CFC if it is not adopting new measures intended to achieve a Ukrainian resident for tax purposes or permanent compliance while maintaining efficiency in For more information see our PwC Insight. establishment (PE) in Ukraine but is controlled by their business. a Ukrainian tax resident. Foreign establishments without legal entity status (such as partnerships, trusts, funds, and foundations) are considered entities for CFC purposes. A foreign company’s controlling person is a person who:

• holds more than 50% of foreign company shares, or

Roberta Poza Cid Carlos Concha Carballido Slava Vlasov Anna Nevmerzhytska Spain Spain Ukraine Ukraine T: +34 915 684 365 T: +34 915 684 145 T: +044 354 04 04 T: +044 354 04 04 E: [email protected] E:[email protected] E: [email protected] E: [email protected] Uruguay

Regulations on investment promotion • Weight of the indicators matrix: increase in the nominal weight of four indicators The provisions set forth by Law 16,906 (job creation, export increase, decentralization and sectorial indicator), with a decrease in support the investment promotion the weight of the research, development, regime. Under the regime, relevant tax and innovation indicator. benefits are granted to CIT taxpayers • Simplified matrix: all investment projects who make eligible investments and could be assessed through a simplified generate certain positive externalities. matrix with only one indicator: job creation. Furthermore, an additional point is awarded The Executive Power (EP) released to the job creation indicator for all projects Decree 268/020 on September 30, submitted up to 12/31/2020. introducing modifications to the current • Compliance assessment: the compliance regulations on investment promotion. assessment for indicators will be conducted once the compliance schedule ends (three Although the Decree does not alter the regime’s fiscal years). basic objectives (i.e., job creation, decentralization, exports increase, clean technologies, research, development and innovation), it eliminates the PwC observation: matrix of indicators and delegates the method for determining each one’s rating to the COMAP Decree 268/020 modifies the investment (the administrative commision). promotion regime in Uruguay, emphasizing job creation as the pandemic continues to affect The new regulation includes the following the country’s economy. modifications:

• Computable investment: elimination of the 20% cap applicable to the calculation of investment projects previously executed and extension of the calculation period. • CIT exemption: increases the maximum exemption cap to apply each fiscal year and extends the minimum exemption period.

Patricia Marques Eliana Sartori Carolina Techera Uruguay Uruguay Uruguay T: +598 291 60 463 T: +598 291 60 463 T: +598 291 60 463 E: [email protected] E: [email protected] E: [email protected] Administrative

Australia Australia

ATO guidance on ‘foreign income tax The ATO reiterates disclosure offset’ limit and capital gains PwC observation: requirements related to hybrid PwC observation: The Taxation Determination only applies to restructures. Currently, the ATO considers all outbound The Australian Taxation Office (ATO) capital gains derived where no foreign income interest-free loans as ‘high’ or ‘very high’ risk, released final Taxation Determination tax has been paid. Capital gains may still be Taxpayers are required to make certain and the new guidance may allow a lowering of TD 2020/7 which provides that when disregarded where foreign income tax has disclosures regarding hybrid mismatch the risk rating in some cases. This will affect a taxpayer has not paid any foreign been paid. arrangements in the International tax return disclosures in many cases. income tax, their capital gains should Dealings Schedule (IDS), which is not be included when calculating the included in the annual income tax foreign income tax offset (FITO) limit return. A specific disclosure is required (which operates to reduce Australian where a ‘restructure’ occurred during income tax otherwise payable on either the FY18 or FY19 income tax amounts where foreign tax has also year that had the potential to give rise been paid). to a hybrid mismatch arrangement. The ATO has observed varying levels The FITO limit calculation compares the total of disclosure (with omission of certain Australian tax payable to the Australian tax that details) in recently submitted IDSs. would be payable if certain amounts (including income from non-Australian sources) were The ATO intends to follow up with disregarded. Per the Taxation Determination, taxpayers who have not met the ATO’s the Commissioner views that because a ‘net level of required disclosure. The ATO is capital gain’ is an amount of statutory income mandating disclosure of each step of (rather than each component capital gain) that any arrangements that have effectively does not have a source, it cannot be disregarded in the FITO limit calculation. The relevant provisions replaced previous arrangements, which also do not allow taxpayers to disaggregate would have been subject to the hybrid a net capital gain to identify capital gains that mismatch rules had they not been were included in calculating the net capital gain. unwound, restructured, or replaced. The Taxation Determination applies both before and after August 26, 2020.

Peter Collins/AU/TLS/PwC David Earl/AU/TLS/PwC Peter Collins/AU/TLS/PwC David Earl/AU/TLS/PwC Sydney Melbourne Sydney Melbourne T: +61 (0) 438 624 700 T: +61 (0) 403 416 958 T: +61 (0) 438 624 700 T: +61 (0) 403 416 958 E: [email protected] E: [email protected] E: [email protected] E: [email protected] EU/OECD

OECD

OECD release on taxing virtual currencies: An overview of tax PwC observation: treatments and emerging tax policy While the report didn’t provide specific recommendations, it highlighted a few key The OECD released its report OECD 2020: areas for further considerations: the need Taxing Virtual Currencies: An Overview for clearer, consistent and regularly updated of Tax Treatments and Emerging Tax guidance for this rapidly emerging asset class, the importance of simplified rules that Policy Issues. The report addresses consider the different use cases and the the rapid change in this emerging asset types of users (individuals vs. traders, funds, class, as well as the breadth of virtual exchanges, etc.), and the benefits of better currency applications. In addition, the aligning the existing and future tax guidance increased interest in virtual currencies with broader policy objectives. from tax authorities and other regulators The taxation of virtual currencies continues demonstrates that this asset class to evolve on a global scale. Regulators in is receiving serious attention from various jurisdictions are focused not only policymakers. on questions of characterization and timing, but also enforcement. Staying in the forefront of these emerging issues is key for any The report was prepared for the October company navigating this space. 2020 G20 Finance Ministers and Central Bank Governors meeting. It provides key insights and considerations to help policymakers wishing to improve their tax policy frameworks for virtual currencies. The report is an important development in the evolution of tax guidance regarding virtual currencies internationally. For more information, see our PwC Insight and PwC’s annual global crypto tax report 2020.

For more information see our PwC Insight and PwC’s annual global crypto tax report 2020.

Mazhar Wani Peter Brewin United States United Kingdom T: +1 (415) 515 4451 T: +852 2289 3650 E: [email protected] E: [email protected] Treaties

Australia

Memorandum of Understanding for Australia-Swiss tax treaty’s arbitration process

The competent authorities of the Swiss Confederation and Australia have entered into mutual arrangements (Memorandum of Understanding) to establish the method for applying the arbitration process provided in paragraph 5 of Article 24 of the Australia--Switzerland tax treaty. Subject to certain conditions, independent and binding arbitration is now available under the Australia- Switzerland tax treaty for issues arising from a MAP case that remains unresolved after three years.

PwC observation: The Memorandum of Understanding (MoU) was effective September 15, 2020.

Peter Collins/AU/TLS/PwC David Earl/AU/TLS/PwC Sydney Melbourne T: +61 (0) 438 624 700 T: +61 (0) 403 416 958 E: [email protected] E: [email protected] Glossary

Acronym Definition Acronym Definition

AFIP Argentine Tax Authorities FITO foreign income tax offset

ATAD anti-tax avoidance directive GAAP generally accepted accounting principles

ATO Australian Tax Office IFRS International Financial Reporting Standards

BEPS Base Erosion and Profit Shifting ITA income tax act

CFC controlled foreign corporation MNE Multinational enterprise

CIT corporate income tax PE permanent establishment

DAPE dependent agent permanent establishment OECD Organisation for Economic Co-operation and Development

DST digital services tax R&D Research & Development

DTT double tax treaty REICOs Real Estate Investment Companies

ETR effective tax rate VAT value added tax

EU European Union WHT withholding tax Contact us

For your global contact and more information on PwC’s international tax services, please contact:

Bernard Moens Global Leader International Tax Services Network T: +1 703 362 7644 E: [email protected]

Geoff Jacobi International Tax Services T: +1 202 414 1390 E: [email protected]

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