Welcome Belgium Mexico United States EMEA news APAC news Americas Transfer Indirect taxes Treaty news Tax policy Who’s who featured article featured article featured article news pricing news news Global tax newsletter Welcome to this edition of the Global You will see in our tax policy tab that the Our transfer pricing tab has an Go to page… tax newsletter where we will look at Organisation for Economic Co-operation interesting discussion of a French case and Development’s (OECDs) Business dealing with the emigration of a treasury 2 Belgium featured article what some of the tax authorities have Advisory Committee (BIAC) issued a centre which could have widespread been up to for the past few months. document covering suggested best practices applicability to many kinds of captive 3 Mexico featured article for engaging with tax authorities in developing special purpose corporate vehicles. countries, and a statement covering tax The indirect tax tab includes the 4 United States featured article principles for international business. Finnish supreme court dealing with the In this edition we also have three question of an input tax credit paid by 5 EMEA news different feature articles: recent changes in the taxpayer’s parent corporation, a Belgium for the taxation of Belgian frequent transaction occurring in any 14 APAC news corporate repatriations; a recent decision multi-national group. in the United States (US) concerning Finally, in our treaty tab there is a 20 Americas news software transactions in foreign discussion of what the Netherlands subsidiaries and the ability to defer such intends to do with its tax transparency 26 Transfer pricing news revenue streams; and finally significant programme in terms of its treaties with new tax proposals in Mexico. developing countries. 29 Indirect taxes news In our regional updates there are a I hope you find this edition of the number of cases recently dealing with exit Global tax newsletter to be both enjoyable 32 Treaty news taxation, controlled foreign corporate regimes, and informative. 34 Tax policy and thin capitalisation developments. It is interesting to note that these are also agenda Francesca Lagerberg Global leader – tax services 37 Who’s who items for the OECD in its Base Erosion Grant Thornton International Ltd Profit Shifting (BEPS) working party. Global tax newsletter No. 9: November 2013 1 Welcome Belgium Mexico United States EMEA news APAC news Americas Transfer Indirect taxes Treaty news Tax policy Who’s who featured article featured article featured article news pricing news news Belgium featured article Belgium recently A summary of the changes includes: reduction would take place before • anti-abuse legislation for reductions enacted new changes • liquidation proceeds to be subject to expiry of that period of 8 (or 4) of share capital to the taxation of a 25% withholding tax (compared to years, an additional withholding tax • the notional interest deduction that liquidation proceeds; withholding the actual 10%) in order to bring it of 15%, 10% or 5% will apply, grants companies a deduction against tax on dividends linked to newly in line with the standard withholding depending on the number of years profits for the cost of equity contributed share capital, the notional tax rate of 25% that applies to which have already expired since • the value of shares held as financial interest deduction and the patent dividend payments the transformation assets should currently be deducted income deduction. • exemptions or reductions based on • anti-abuse legislation has been put from the ‘equity’ on which the notional internal tax law or due to double into place for dividend transactions interest is calculated. As of tax year taxation agreements (DTAs) that • a 20% withholding tax will apply to 2013, that provision will be extended remain in place dividends distributed out of the to the shares held as an investment of • an established transitional regime profit allocation of the second which the dividends benefit from the offering the possibility to transform financial year following the financial participation exemption taxed reserves (ie carried forward year of contributions • the benefit of the patent income Belgium has profits) into share capital whereby a • the rate will be further reduced to deduction (leading to an average tax recently enacted 10% withholding tax will be due 15% for dividends distributed out of rate of 6.8%) is currently subject to new changes to immediately the profit allocation as of the third the requirement that the research • taxed reserves which are transformed financial year following the financial and development (R&D) department taxation. into share capital under this year of the contribution of the company should be structured transitional regime can be distributed • a number of conditions have to be as a branch of activity. That to the shareholders tax free, by way met in order to benefit from the condition will be abolished for of a share capital reduction (subject reduced withholding tax rates small- and medium-sized companies to conditions). Where a share capital as of tax year 2014. Global tax newsletter No. 9: November 2013 2 Welcome Belgium Mexico United States EMEA news APAC news Americas Transfer Indirect taxes Treaty news Tax policy Who’s who featured article featured article featured article news pricing news news Mexico featured article Mexico has submitted amendments to the tax legislation that could be applicable for the 2014 Last September the • a prohibition for the deduction of • to eliminate the tax incentive of tax year . Mexican President payments made to related parties taxpayers dedicated to build and submitted amendments being Mexican residents or residents sell real-estate through which they to the tax legislation that could be abroad, where the corresponding are able to deduct 100% of the applicable for the 2014 tax year. In income is not taxed to such related acquisition cost of the land general terms, it includes the issuance of parties, or if the income is taxed at a • to establish a 10% income tax rate a new income tax law, several lower rate than the 75% income tax over dividends distributed to modifications to other tax laws and that would be generated in Mexico shareholders. The tax will be payable provisions, the repeal of the flat tax law, • with respect to employees by the entity which issues the as well as the repeal of the cash deposits allowances, which are either exempt dividends payment • foreign tax credit carry forwards law. Some of the more significant or partially exempt items, the • that in order to be able to continue can be used for ten years, although new income tax proposals include: deduction for these employer working as a ‘maquila entity’ it must foreign tax credit limitations will be • to repeal the actual Mexican income expenses would be limited to only export at least 90% of the total imposed tax law that has been in force since 41% over such exempt items invoicing of the entity • to eliminate the preferential Value 2002, and issue a new law that will • to eliminate the tax incentive with a • entities of residents abroad which Added Tax (VAT) rate of 11% be in force from 1 January 2014 possibility to apply an accelerated operate through a ‘maquila shelter’ applicable to all transactions and • to include a new procedure which deduction of new asset investments can remain under the terms of such services carried out in the border region will allow the tax authorities to and eliminate the linear tax regime for a maximum period of • to repeal the obligation that certain request information of residents depreciation, 100% deductible, over three tax years, counted when such taxpayers have in regard with filing the abroad for double taxation relief the machinery and special equipment entities start operations in Mexico. tax report (dictamen fiscal) before the under DTAs acquisitions for controlling After that, it is considered that the tax authorities environmental pollution resident abroad will have to • to create substance over form • to eliminate the tax consolidation incorporate a subsidiary in Mexico provisions concerning invoicing for regime non-existent goods and services. Global tax newsletter No. 9: November 2013 3 Welcome Belgium Mexico United States EMEA news APAC news Americas Transfer Indirect taxes Treaty news Tax policy Who’s who featured article featured article featured article news pricing news news United States featured article The Inland Revenue customers; two of those customers were The taxpayer and the IRS agreed to • regularly engaged in the business of marketing (or Service (IRS) issued acquired by the taxpayer when one of its characterise the income stream as rental marketing and servicing) the leased property advice that a controlled affiliates closed. income from the lease of copyrighted • substantial in relation to the amount of rents from foreign corporation’s (CFCs) income The taxpayer had two employees, a articles. This characterisation reflects leasing the property. from software transfers to customers financial controller and a software media that copyright rights in the software nor was foreign personal holding company production assistant, as well as three benefits and burdens of owning the The exception also extends to leases acquired by the CFC income (FPHCI) and as such immediately directors, one of whom (the executive software are transferred under the if the CFC performs active and substantial management, taxable to the US shareholder of the director) was treated as an employee agreements. Unless an exception applies, operational and remarketing functions with respect to the CFC. The advice is important to US based on his duties. At different points rents generally constitute FPHCI, which leased property. based companies in the software of time the taxpayer did not employ the is currently taxable to US shareholders. The IRS found little evidence that the taxpayer regularly industry with offshore subsidiaries.