GLOBAL TAX WEEKLY ISSUE 104 | NOVEMBER 6, 2014 a closer look SUBJECTS TRANSFER PRICING INTELLECTUAL PROPERTY VAT, GST AND SALES TAX CORPORATE TAXATION INDIVIDUAL TAXATION REAL ESTATE AND PROPERTY TAXES INTERNATIONAL FISCAL GOVERNANCE BUDGETS COMPLIANCE OFFSHORE SECTORS MANUFACTURING RETAIL/WHOLESALE INSURANCE BANKS/FINANCIAL INSTITUTIONS RESTAURANTS/FOOD SERVICE CONSTRUCTION AEROSPACE ENERGY AUTOMOTIVE MINING AND MINERALS ENTERTAINMENT AND MEDIA OIL AND GAS COUNTRIES AND REGIONS EUROPE AUSTRIA BELGIUM BULGARIA CYPRUS CZECH REPUBLIC DENMARK ESTONIA FINLAND FRANCE GERMANY GREECE HUNGARY IRELAND ITALY LATVIA LITHUANIA LUXEMBOURG MALTA NETHERLANDS POLAND PORTUGAL ROMANIA SLOVAKIA SLOVENIA SPAIN SWEDEN SWITZERLAND UNITED KINGDOM EMERGING MARKETS ARGENTINA BRAZIL CHILE CHINA INDIA ISRAEL MEXICO RUSSIA SOUTH AFRICA SOUTH KOREA TAIWAN VIETNAM CENTRAL AND EASTERN EUROPE ARMENIA AZERBAIJAN BOSNIA CROATIA FAROE ISLANDS GEORGIA KAZAKHSTAN MONTENEGRO NORWAY SERBIA TURKEY UKRAINE UZBEKISTAN ASIA-PAC AUSTRALIA BANGLADESH BRUNEI HONG KONG INDONESIA JAPAN MALAYSIA NEW ZEALAND PAKISTAN PHILIPPINES SINGAPORE THAILAND AMERICAS BOLIVIA CANADA COLOMBIA COSTA RICA ECUADOR EL SALVADOR GUATEMALA PANAMA PERU PUERTO RICO URUGUAY UNITED STATES VENEZUELA MIDDLE EAST ALGERIA BAHRAIN BOTSWANA DUBAI EGYPT ETHIOPIA EQUATORIAL GUINEA IRAQ KUWAIT MOROCCO NIGERIA OMAN QATAR SAUDI ARABIA TUNISIA LOW-TAX JURISDICTIONS ANDORRA ARUBA BAHAMAS BARBADOS BELIZE BERMUDA BRITISH VIRGIN ISLANDS CAYMAN ISLANDS COOK ISLANDS CURACAO GIBRALTAR GUERNSEY ISLE OF MAN JERSEY LABUAN LIECHTENSTEIN MAURITIUS MONACO TURKS AND CAICOS ISLANDS VANUATU GLOBAL TAX WEEKLY a closer look Global Tax Weekly – A Closer Look Combining expert industry thought leadership and team of editors outputting 100 tax news stories a the unrivalled worldwide multi-lingual research week. GTW highlights 20 of these stories each week capabilities of leading law and tax publisher Wolters under a series of useful headings, including industry Kluwer, CCH publishes Global Tax Weekly –– A Closer sectors (e.g. manufacturing), subjects (e.g. transfer Look (GTW) as an indispensable up-to-the minute pricing) and regions (e.g. asia-pacifi c). guide to today's shifting tax landscape for all tax practitioners and international fi nance executives. Alongside the news analyses are a wealth of feature articles each week covering key current topics in Unique contributions from the Big4 and other leading depth, written by a team of senior international tax fi rms provide unparalleled insight into the issues that and legal experts and supplemented by commentative matter, from today’s thought leaders. topical news analyses. Supporting features include a round-up of tax treaty developments, a report on Topicality, thoroughness and relevance are our important new judgments, a calendar of upcoming tax watchwords: CCH's network of expert local researchers conferences, and “The Jester's Column,” a lighthearted covers 130 countries and provides input to a US/UK but merciless commentary on the week's tax events. GLOBAL TAX WEEKLY ISSUE 104 | NOVEMBER 6, 2014 a closer look CONTENTS FEATURED ARTICLES Th e Implications Of Th e Latest Russian Topical News Briefi ng: De-Off shorization Proposals For Users Grand Ambition Or Grand Gesture? Of Cyprus Holding And Finance Structures Th e Global Tax Weekly Editorial Team 18 Philippos Aristotelous and Stavros Supashis, Andreas Neocleous & CO LLC 5 Recent Transfer Pricing Developments Duff & Phelps Corp. 19 Canada Repeals Immigration Trust Rules — Restructuring Options Topical News Briefi ng: Taxing Th e Net Ron Choudhury, Aird & Berlis LLP 10 Th e Global Tax Weekly Editorial Team 23 OECD Releases Finalized Proposals On Taxation In Rousseff ’s Brazil Key Tax Base Erosion Concerns Stuart Gray, Senior Editor, Global Tax Weekly 24 Patricia G. Lewis, J. Clark Armitage, Peter A. Barnes and Neal M. Kochman of Caplin France — Transfer Pricing: More Information and Drysdale, Chartered 13 To Provide To Th e Tax Authorities Bruno Gouthière, Partner with CMS Bureau Francis Lefebvre 33 NEWS ROUND-UP Digital Taxation 36 International Trade 38 Spain Approves Controversial ‘Google Tax’ African Blocs To Start Talks On Grand Free Trade Area Hungary Backs Down On Internet Tax Plan Europe Seeks To Streamline FTA Negotiation Process Report Charts Global Tax Rates On IT Goods China Planning Additional Free Trade Zones And Services EU Seeks WTO Mediation In Tax Disputes Compliance Corner 41 Individual Taxation 50 Automatic Info Exchange Moves A Step Closer Accountants Warn Against UK 50 Percent Income Tax Rate South Africa Issues Tax Dispute Resolution Guide Taxpayers Warned On Obamacare Tax Credits Italy Approves Pre-Compiled Tax Returns US Savers Advised To Plan Now To Gain Tax Credit Australia Passes Law To Cut Red Tape Canada Planning Substantial Family Tax Cuts Tax Policy 45 TAX TREATY ROUND-UP 55 Puerto Rico To Introduce Tax Reform In 2015 CONFERENCE CALENDAR 56 Italy In EU Defi cit Compromise IN THE COURTS 65 New Indonesian Government Seeks More Revenue THE JESTER'S COLUMN 74 Th e unacceptable face of tax journalism VAT, GST, Sales Tax 48 Maldives Hikes GST On Tourism Services IMF Urges Suriname To Install VAT For article guidelines and submissions, contact [email protected] FEATURED ARTICLES ISSUE 104 | NOVEMBER 6, 2014 The Implications Of The Latest Russian De-Offshorization Proposals For Users Of Cyprus Holding And Finance Structures by Philippos Aristotelous and Stavros Supashis, Andreas Neocleous & CO LLC In September 2014, the Russian Ministry of Fi- proposals in the law submitted to the Duma and nance published a third version of the draft law on consider their possible implications. the package of tax initiatives generally referred to as "de-off shorization". Th e fi rst draft law was of- Th e Current Proposal fi cially published in March 2014, for consultation, Th e main proposed changes are as follows: and based on the results of the consultation, a sec- ond version was published towards the end of May Defi nition Of A CFC 2014. Th e third draft diff ered from its predecessors Th e latest draft law defi nes a CFC as a foreign com- in areas including the controlled foreign company pany that is not tax resident in Russia and that is ("CFC") rules (particularly, but not only, the pa- controlled by organizations or individuals that are rameters for classifying companies as CFCs), crite- Russian tax residents. ria for determining tax residence of foreign compa- nies, and penalties for non-disclosure. A number of categories of company are excluded from the defi nition of CFC. Th ese are as follows: Towards the end of October, a draft law was pre- non-commercial organizations that do not dis- sented to the Russian State Duma for consideration, tribute their profi t; which diff ers in several respects from the third draft companies resident in the Eurasian Economic published by the Ministry of Finance. Union; companies resident in jurisdictions that exchange Since Cyprus is one of the principal portals for information with Russia for tax purposes and im- investment into Russia (in 2013 it accounted for pose an eff ective tax rate in excess of 75 percent USD22.7bn, more than 13 percent of Russian in- of the entity's average Russian tax rate on income ward investment), the proposed changes are of great calculated in accordance with the formula set out potential importance for users of Cyprus structures. in the CFC legislation. In most cases this will In the following paragraphs we set out the main equate to 15 percent; 5 companies resident in jurisdictions that exchange own right or in conjunction with close relatives information with Russia for tax purposes, at least (his or her spouse and minor-age children) and 80 percent of whose income comprises active other associates (as defi ned in the transfer pricing income. Passive income is defi ned in the draft rules set out in cl 2 of Art 105.1 of the Tax Code); legislation and includes dividends, royalties, and ownership of a participating interest (direct, indirect, proceeds from the sale of shares or real estate; or direct and indirect combined) of more than 10 foreign companies involved in projects under percent in the organization in his or her own right production-sharing, concession and similar agree- or in conjunction with close relatives (his or her ments in their country of incorporation, provided spouse and minor-age children) and other associates, that income from such activities represents at least if Russian tax residents, alone or jointly with their 90 percent of total income; spouses, minor children and other associates directly foreign structures in which there is no formation or indirectly have an interest of over 50 percent. of a legal entity, such as trusts, as long as they are unable to distribute profi t to participants or Th e latest draft also introduces a transition peri- benefi ciaries; od ending on January 1, 2017, during which the banks or insurance companies operating in a terri- threshold for both tests will be 50 percent. In ad- tory that exchanges information with the Russian dition, an individual or entity may be treated as Federation; a controlling person despite these conditions not issuers of listed bonds or organizations authorized being met if they exercise a decisive infl uence on to receive interest on listed bonds issued by an- the distribution policy of a CFC either due to their other foreign company, if the interest on them is participation in its share capital under an agree- at least 90 percent of the issuer's income; ment governing its functions, or due to implica- the company is an operator or a direct shareholder tions of their relationship with the CFC. of newly developed sea-based hydrocarbon deposits. As in the preceding draft, control over a structure Control Criteria other than a company is assessed by reference to As in the previous draft laws, the CFC rules will the degree of infl uence the person concerned exer- apply to all Russian tax residents, whether legal cises over the person who manages the assets of the entities or individuals.