8 January 2018, Apple Europe Ltd, a wholly owned subsidiary of Apple Inc., stated it had paid an extra £136 million, covering several years leading up to 2015, following an “extensive audit” by HMRC.
In its end-of-year accounts filed at Companies House, the firm said: "Following an extensive audit by HMRC, the company agreed to pay a corporate income tax adjustment of £136 million covering prior years up to 26 September 2015.
“This payment of additional tax and interest reflects the company's increased activity and is recognised in the financial period which ended on 1 April 2017. As a result of this adjustment the company's corporate income tax payments will increase going forward."
Apple Europe provides sales support, marketing, financial and administrative services to other group companies. HMRC is understood to have argued that the subsidiary, which performs marketing services for an Irish sister company, had not received a large enough commission on the sales it helped secure.
21 December 2017, the Ministry of Finance (MOF), State Administration of Taxation (SAT), National Development and Reform Committee (NDRC) and Ministry of Commerce (MOFCOM) jointly issued a new circular – Circular 88 – which sets out formal guidance on the withholding tax deferral incentive for foreign investors. This will apply to qualified reinvestment made after 1 January 2017.
Before 2008, foreign investors were generally exempt from withholding tax (WHT) on dividend income derived from their investment in China under the prior PRC Enterprise Income Tax Law for Foreign Invested Enterprises and Foreign Enterprises. This preferential treatment was abolished by the new PRC Enterprise Income Tax Law, which generally subjects foreign investors to 10% WHT on their dividend income, unless a more favourable rate can be accessed through a relevant tax treaty.
Last year, China's premier Li Keqiang announced that China would be rolling out a series of new policies and incentives to further boost foreign investments. Under Circular 88, if foreign investors directly reinvest their profits distributed by China resident enterprises to some “Encouraged Industries” and meet certain prescribed conditions, then the 10% WHT on the distributed profits may be deferred until the foreign investors' disposal of such reinvestment in China.
A reinvestment can be effected through the following types of equity investment:
“Encouraged Industries” are those listed as encouraged for foreign investment under either the Catalogue for the Guidance of Foreign Investment Industries or the Catalogue of Priority Industries for Foreign Investment in the Central-Western Region. These were both updated in 2017.
Circular 88 is retroactively effective as of 1 January 2017. A foreign investor may apply for a tax refund within three years of the WHT payment, if it is eligible for the WHT deferral treatment but has not received the benefit.
17 January 2018, the Advocate General of the Court of Justice of the European Union (ECJ) opined that, in the context of the ECJ’s Marks & Spencer group relief decision, the existence of an optional Danish scheme for joint taxation was insufficient to meet the requirement to provide relief for the terminal losses of a foreign PE.
In A/S Bevola & Jens W. Trock ApS v Skatteministeriet (C-650/16), Bevola, a Danish company, sought to deduct losses incurred at the level of its permanent establishment (PE) in Finland from its taxable base in Denmark. It argued that the PE had ceased to exist during the same year and therefore loss relief could not be claimed in Finland.
The Danish tax authority denied the deduction on the grounds that revenue or expenses attributable to a foreign PE were not deductible, unless the company has opted for the Danish international joint taxation regime. This permits a Danish company to integrate the benefits and losses of all its branches and PEs for a period of at least 10 years, regardless of their residence. Losses incurred by domestic branches, however, are deductible, with or without the joint taxation scheme.
Bevola appealed to the Danish Eastern Regional Court, which decided to refer the case to the ECJ. In particular, Bevola pointed to the ECJ’s decision in Marks & Spencer (C-446/03) that, where a member state allowed a parent company to deduct the losses of a domestic subsidiary, it was a restriction on its freedom of establishment to deny a deduction for the losses of a foreign subsidiary.
In delivering his opinion, Advocate General Campos Sánchez-Bordona noted the decision of in Marks & Spencer that final losses should be taken into account to ensure that the balance is preserved between the tax burden supported by a taxpayer incurring losses and its actual contributing capacity. In this respect, he concluded that a resident and a non-resident PE with final losses were in a comparable situation.
Following the CJEU decision in Lidl Belgium (C-414/06), he also observed that the tax treatment of non-resident subsidiaries and PEs must be the same, if the incurred losses were final and the PE was unable to deduct them in its state of residence.
The Advocate General further noted that although the Danish international group relief regime was optional, it was disproportionately restrictive as regards both its scope and its minimum application period, making it practically impossible for groups of companies operating globally to opt-in.
As a result, he concluded that the Danish legislation was incompatible with the freedom of establishment because it prevented a Danish company from deducting, in accordance with the ‘Marks & Spencer exception’, final losses incurred by its PE in Finland.
16 January 2018, the General Court of the European Union, the second-highest EU court, upheld the European Commission’s decision ordering France to recover €1.37 billion in the context of state aid granted to utility group EDF.
In 2003, the Commission adopted a decision finding that, in the context of the restructuring of EDF’s balance sheet and increasing of its capital in 1997, the French government had waived a corporation tax assessment valued at €888.89 million. At the material time, EDF was a public undertaking, wholly owned by the French state.
According to the Commission, the effect of that waiver had been to strengthen EDF’s competitive position in relation to its business rivals and the waiver constituted State aid incompatible with the common market. The Commission calculated that the aid to be paid back by EDF amounted in total to €1.217 billion, including interest. EDF has repaid that sum to the French government.
EDF initially won an appeal against the order in 2009 and 2012 court rulings, but the Commission issued a new order to repay the money in 2015. EDF repaid the amount that year, but then brought a challenge to the General Court.
In EDF v Commission (Case T-747/15), the General Court rejected EDF’s contention that the measure at issue should be classed as a recapitalisation and the French government had acted in its capacity as shareholder, which should have led the Commission to declare the private investor test applicable. Rather the Court found it was a waiver of the tax on the reclassification of the grantor’s rights in capital.
The Court therefore concluded that the Commission was right to find that the private investor test was not applicable, given that neither EDF nor France submitted evidence to establish unequivocally that the French government had, before or at the same time as conferring the advantage at issue, taken the decision to make an investment in EDF and had evaluated, as a private investor would have done, the profitability of the investment that would be made by conferring such an advantage on EDF.
1 January 2018, new rules obliging EU member states to give tax authorities access to data collected under anti-money laundering legislation were brought into force.
National tax authorities will have direct access to information on the beneficial owners of companies, trusts and other entities, as well as customer due diligence records of companies. Member states will have to transpose, if they have not already done so, the EU’s Fourth Anti-Money Laundering Directive in national law.
Council Directive (EU) 2016/2258 of 6 December 2016 amended the Directive on Administrative Co-operation (Directive 2011/16/EU) such that authorities with anti-money laundering responsibilities in any EU member state will be required to automatically share certain information.
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "We want to give tax authorities crucial information on the individuals behind any company or trust. This is essential for them to be able to identify and clamp down on tax evaders. To do this, tax authorities will now have access to anti-money laundering information.”
23 January 2018, the Economic and Financial Affairs Council (ECOFIN) agreed to remove eight countries from the European Union’s list of non-cooperative jurisdictions for tax purposes, which was announced on 5 December. It followed political commitments to remedy EU concerns.
The eight jurisdictions – Barbados, Grenada, the Republic of Korea, Macao SAR, Mongolia, Panama, Tunisia and the United Arab Emirates – were moved from Annex I of the conclusions (non-cooperative jurisdictions) to Annex II (cooperation with respect to commitments taken).
The Council agreed that delisting was justified in the light of an expert assessment of the commitments made by these jurisdictions to address deficiencies identified by the EU. In each case, letters signed at a high political level backed their commitments.
The decision leaves nine jurisdictions on the list of non-cooperative jurisdictions – American Samoa, Bahrain, Guam, Marshall Islands, Namibia, Palau, Saint Lucia, Samoa and Trinidad and Tobago.
The EU strongly encouraged jurisdictions that remain on the list to make the changes requested in respect of their tax legislation, policies and administrative practices. Pending such changes, the EU and the member states could apply defensive measures.
1 January 2018, Gibraltar’s Digital Ledger Technology (DLT) Regulatory Framework was brought into force. Any firm carrying out by way of business, in or from Gibraltar, the use of DLT for storing or transmitting value belonging to others (DLT activities), will need to be authorised by the Gibraltar Financial Services Commission (GFSC) as a DLT Provider.
Firms and activities that are subject to another regulatory framework will continue to be regulated under that framework. Firms who are currently licensed under existing financial services legislation, but use DLT in order to improve their controls, procedures and processes, will not need to obtain a separate licence under the DLT framework, unless the activities are not currently caught within the scope of the licence they hold.
The GFSC has laid out nine principles for DLT Providers that are designed to protect consumers and Gibraltar’s reputation, and ensure that the regulatory outcomes are achieved. A DLT Provider must:
Nicky Gomez, GFSC’s head of risk and innovation, said: “Working closely and collaboratively with the financial services industry and the government of Gibraltar has resulted in the GFSC becoming the first regulator to introduce a DLT Regulatory Framework – it is a very encouraging time and we are also looking forward to the challenge.”
Generally, Initial Coin Offerings (ICOs) or token sales will not be caught under the DLT framework. However, there may be instances where, depending on how a token is used and how the token issue is structured, the token may fall within existing financial services legislation. The Gibraltar government and GFSC are working on developing a legal and regulatory framework, which will be aligned to the DLT framework, for the sale, promotion or distribution of tokens.
16 January 2018, the Internal Revenue Service announced that it is to begin implementation of new procedures affecting individuals with “seriously delinquent tax debts” – taxpayers that owe more than US$51,000 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired or the IRS has issued a levy.
The new procedures implement provisions of the Fixing America’s Surface Transportation (FAST) Act, which was signed into law in December 2015. It requires the IRS to notify the State Department of taxpayers certified by the IRS has as owing a seriously delinquent tax debt. The FAST Act also requires the State Department to deny their passport application or deny renewal of their passport. In some cases, the State Department may revoke their passport.
Taxpayers can avoid having the IRS notify the State Department under the FAST Act by:
A passport will not be at risk under this programme for any taxpayer who:
The IRS said that, in general, taxpayers behind on their tax obligations should come forward and pay what they owe or enter into a payment plan with the IRS. It also noted that taxpayers frequently qualify for one of several relief programmes.
11 January 2018, the Luxembourg Court of Cassation overturned a previous verdict of a six-month suspended jail sentence and a €1,500 fine against Antoine Deltour, a French whistleblower involved in the ‘Luxleaks’ scandal.
The court found that Deltour had to be recognised as a ‘whistleblower’, as defined by the European Court of Human Rights. However it upheld the sentence of a €1,000 fine against Deltour’s former colleague Raphael Halet, also a French national, finding that he did not meet the necessary criteria.
The two men, former employees of accountants PricewaterhouseCoopers (PwC), were accused of stealing documents from their employer in 2014 that detailed how the firm helped several multinationals to evade taxes in Luxembourg from 2002 to 2010.
At their first trial in 2016, Deltour received a 12-month suspended sentence and a fine of €1,500. Halet was fined €1,000 and given a nine-month suspended sentence. Deltour’s jail sentence was halved on appeal in March 2017, while Halet had his suspended sentence lifted.
Edouard Perrin, a French journalist who was the first to reveal the documents, was originally acquitted twice.
The Court of Cassation also ordered a retrial in Deltour's case in respect of the appropriation of some internal PwC's training documents, which were not disclosed.
24 January 2018, Prime Minister Joseph Muscat said Malta has generated €518 million from its citizenship by investment scheme since the launch of its Individual Investor Programme (IIP) in 2014. He was replying to a parliamentary question.
Under the IIP, qualifying high net worth individuals can obtain Maltese citizenship after paying a fee of €650,000, as well as an investment of €150,000 in government bonds and €350,000 in property investment. A physical presence is not required for applicants to maintain residency.
Muscat said that of the total revenue generated, €363 million had gone into the National Development and Social Fund, which was set up in 2016. The fund receives 70% of IIP contributions.
26 January 2018, the Dutch Ministry of Finance issued an update on its Dutch tax treaty negotiation programme for 2018. It will attempt to begin tax treaty talks with at least seven countries this year, including Australia, Colombia, Costa Rica, Ecuador, Morocco, Austria and Portugal.
It will also continue discussions for new or updated treaties with several other jurisdictions, including Andorra, Belgium, Brazil, Chile, France, Liechtenstein, Mozambique, Uganda, Pakistan, Senegal, Sri Lanka and the US.
The programme has recently focused on agreeing new or updated treaties with developing countries as part of a plan to prevent tax treaty abuse. Treaties have been negotiated or renegotiated with 23 developing countries but the ministry confirmed this strategy would end with Uganda, Sri Lanka and Pakistan.
The statement also confirmed that the BEPS multilateral instrument, signed by the Netherlands in June 2017, had been submitted to the House of Representatives on 20 December. It is designed to enable countries to incorporate BEPS-related amendments to their tax treaties without having to renegotiate bilateral treaties on a piecemeal basis.
15 January 2018, Panama’s Director General of Revenue Publio Ricardo Cortés signed the CRS Multilateral Competent Authority Agreement (CRS MCAA). Panama is the 98th jurisdiction to join the CRS MCAA, which is the primary international agreement for implementing the automatic exchange of financial account information under the Multilateral Convention on Mutual Administrative Assistance.
Panama’s first exchanges of financial account information under the OECD/G20 Common Reporting Standard (CRS) are set to commence in September 2018. The signing of the CRS MCAA will allow Panama to activate bilateral exchange relationships with the other 97 jurisdictions that have so far joined the CRS MCAA.
1 January 2018, Saudi Arabia and the United Arab Emirates (UAE) commenced charging VAT on goods and services, becoming the first two states to implement the new tax, which has been agreed in principle by the six-member Gulf Cooperation Council (GCC)
Traditionally Gulf states have offered a tax-free environment to attract foreign workers, but falling oil prices led to the decision to introduce VAT at 5% across the region. The new tax applies to fuel, food, clothes, utility bills and hotel accommodation, but not financial services, medical treatment or public transport.
In the UAE, mandatory registration will be required of all companies, businesses or entities with an annual taxable supply of goods and services of over AED 375,000 (US$ 100,000). Businesses that were not yet required to register but whose supplies will exceed this threshold within a period of 30 days must register.
In Saudi Arabia, mandatory registration will be required of all companies, businesses or entities with an annual taxable supply of goods and services of over SAR 375,000 (USD 100,000). Taxable persons whose annual taxable supplies exceed the mandatory registration threshold but not SAR 1 million (USD 266,667) are however exempted from the mandatory requirement to register until 20 December 2018.
Special rules apply to businesses that did not anticipate VAT in existing contracts. In the UAE the price will automatically be deemed to be inclusive of VAT. If a contract was concluded prior to the implementation date and a part of the supply is made after the implementation date, suppliers will be able to pass on the VAT to the customer, but only if the customer is registered for and can recover VAT.
In Saudi Arabia, for contracts that were entered into before 31 May 2017 the supply can be treated as zero-rated until the completion of the contract or 31 December 2018. This only applies where the customer is registered for VAT and is entitled to deduct the VAT incurred on their purchases.
Guidance on the new VAT regimes has been released by Saudi Arabia's General Authority of Zakat and Tax (GAZT) and the UAE's Federal Tax Authority.
The other GCC states - Kuwait, Bahrain, Oman, and Qatar – have agreed to introduce VAT but have not yet announced a specific timeline.
3 January 2018, the governments of Cyprus and Saudi Arabia signed a tax treaty in Riyadh. The new treaty is based on the OECD model treaty, and includes provisions on exchange of financial and other information for tax purposes.
Under the treaty, no withholding tax will be levied on dividends paid by a Cypriot company to a non-resident company that is the beneficial owner of the dividends and that holds directly or indirectly at least 25% of the capital of the company paying the dividends. The rate in all other cases will be 5%.
No withholding tax will be levied on interest payments provided the recipient of the interest is the beneficial owner of the income.
Withholding tax on royalties may not exceed 5% of the gross amount of royalties that are paid for the use of, or the right to use, industrial, commercial or scientific equipment, if the recipient is the beneficial owner of the royalties. The rate in all other cases will be 8%.
The treaty will enter into force following ratification by both countries and will apply in both contracting states on or after 1 January following the date the treaty enters into effect.
The Saudi Cabinet authorised the Ministry of Finance, on 24 January, to sign a draft income and capital tax treaty with the United Arab Emirates. The proposed agreement will include provisions on exchange of financial and other information for tax purposes.
24 January 2018, six more countries – Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia – signed the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS). It brings the total number of signatories to 78.
The Convention provides a mechanism for signatories to modify their existing bilateral tax treaties to implement the tax treaty measures developed in the course of the OECD/G20 BEPS Project. These include measures on hybrid mismatch arrangements, treaty abuse and permanent establishment, and dispute resolution, including an optional provision on mandatory binding arbitration, which has been taken up by 28 jurisdictions.
The Convention was developed through inclusive negotiations involving more than 100 countries and jurisdictions under a mandate delivered by G20 Finance Ministers and central bank governors. It was adopted on 24 November 2016.
At present, four jurisdictions – Austria, the Isle of Man, Jersey and Poland – have ratified the Convention, which will enter into force three months after a fifth jurisdiction deposits its instrument of ratification.
31 January 2018, the Swiss Federal Council announced the parameters for the dispatch to be submitted on Tax Proposal 17 (TP17). The most significant change is an increase in the cantonal share of direct federal tax income from the 20.5% proposed to 21.2%. It is currently 17%.
TP 17 aims to replace current preferential tax regimes with new tax measures in line with international standards. The Federal Council's parameters are to closely aligned with the September 2017 consultation draft and include:
The final proposal is scheduled for introduction to parliament at the end of March, so that parliamentary deliberation can be finalised in the 2018 autumn session. If no referendum is called, the first measures could come into force at the start of 2019 and the main part of the reform by 2020.
3 January 2018, the Swiss Federal Supreme Court ruled against the transfer of details of third parties such as bank employees and other third parties in response to a request for information from the IRS under the exchange of information clause of the US-Swiss double tax treaty.
The decision (2C_640/2016) addressed the issue of whether the Swiss Federal Tax Administration (FTA) should have to redact the names of bank employees and other third parties involved in the management of accounts maintained by a US taxpayer at Swiss banks that were participating as Category 2 banks under the US government’s Swiss Bank Programme.
The ruling by the Federal Supreme Court upheld an earlier decision in a case brought by an unnamed US taxpayer living in Switzerland, who challenged the transfer by the FTA of information from his bank to foreign prosecutors. In addition to client data, the US had also sought related materials from banks to illustrate a pattern, find connections between financial firms and track the movement of money.
In its decision, the Court noted that, under the applicable standards of information exchange in tax matters, requested information should be provided to the IRS only if that information was likely to be relevant – “vraisemblablement pertinente” – for the assessment of the tax obligation of a US taxpayer. This standard aligned with the “foreseeably relevant” provision under exchange of information agreements in the OECD Model Treaty.
It stated that there might be situations where contributing acts of third parties, including bank employees, could have a bearing on the assessment of a taxpayer's tax obligations, and information about them should be disclosed. As a rule, however, information about the identity of such third parties was not required.
It further noted that a distinction should be made between the assessment and enforcement of tax obligations of taxpayers and the criminal prosecution of third parties, such as bank employees. The identity of employees and third parties might be disclosed to the IRS, but only if the IRS specifically requested such information and it was certain that the information is necessary for the assessment of the tax obligation of a US taxpayer.
The Court found that the FTA had not provided a convincing argument that the information was indispensable for building the case against the evader. Furthermore, it said, even if the third parties were involved in the infraction, specific details about their identities should still not be requested through this channel, which involves administrative assistance and not a case of prosecution.
17 January 2018, the Swiss Federal Council launched a consultation on the recommendations of the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum). The bill proposes converting bearer shares into registered shares as well as a system of sanctions for breaches of duty.
The Global Forum published its ‘Phase 2’ peer review report on Switzerland in 2016. It rated Switzerland "largely compliant" but contained various recommendations in respect of the transparency of legal entities and the exchange of information.
The bill proposes converting bearer shares into registered shares and a system of sanctions to apply to shareholders who fail to comply with their duty to report beneficial ownership or to companies that breach their obligation to keep a register of shareholders and beneficial owners.
The legislation will also provide for the right of authorities and financial intermediaries to examine such registers pursuant to their statutory roles, as well as ensuring the confidentiality of administrative assistance requests and setting out the information that can be requested in administrative assistance proceedings.
The consultation will close on 24 April. The dispatch based on the results of the consultation will also regulate the handling of stolen data. The proposed legislation is due to be debated in parliament in winter 2018. The next Global Forum peer review of Switzerland is scheduled to start in the second half of 2018.
The Federal Council also announced that it has decided not to progress proposals for a Federal Act on the Unilateral Application of the OECD Standard on the Exchange of Information (EoISA), which was submitted for consultation in October 2014. It said that Switzerland had since concluded compliant double tax agreements and tax information exchange agreements with a large number of other countries. The Administrative Assistance Convention, applicable from 1 January 2018, had also increased the number of partner countries with which Switzerland can exchange information upon request.
18 January 2018, the State Secretariat for International Financial Matters (SIF) established a blockchain/ICO working group. It will work with the involvement of the Federal Office of Justice (FOJ), the Swiss Financial Market Supervisory Authority (FINMA) and in close consultation with the sector.
The working group will evaluate the legal framework for financial sector-specific applications of blockchain technology, with a particular focus on initial coin offerings (ICOs). It will identify potential needs for action and present courses of action
The aim of this work is to increase legal certainty, maintain the integrity of the financial centre and ensure technology-neutral regulation. The working group is to report to the Federal Council by the end of 2018.
18 January 2018, the UK government announced that it is to introduce a new public register that will compel foreign companies that own or acquire property in the UK to disclose their ultimate owners. The government proposed to publish draft laws this summer and the register is scheduled to go live by early 2021.
The register, it said, would help to reduce opportunities for criminals to use shell companies to buy properties in London and elsewhere to launder their illicit proceeds by making it easier for law enforcement agencies to track criminal funds and take action.
According to a statement, more than £180 million worth of property in the UK has been brought under criminal investigation as the suspected proceeds of corruption since 2004. Over 75% of properties currently under investigation use offshore corporate secrecy.
The register will also provide the government with greater transparency on overseas companies seeking public contracts.
“We are committed to protecting the integrity and reputation of our property market to ensure the UK is seen as an attractive business environment,” said Business Secretary Greg Clark. “This world-first register will build on our reputation for corporate transparency as well as helping to create a hostile environment for economic crimes like money laundering.”
2 January 2018, the US Tax Court decided that the expanded six-year statute of limitations period in respect of the FBAR reporting requirements for “specified foreign financial assets” could only be effective for tax years to which the reporting requirement was applicable.
In Rafizadeh v Commissioner 150 T.C. No. 1 (2018), the taxpayer filed his federal income tax returns for 2006, 2007, 2008 and 2009 but did not report income earned on a foreign account that he held. The IRS issued a “John Doe summons”, which was resolved in November 2010. In late 2014, the IRS issued a notice of deficiency that included accuracy-related penalties on underpayments of tax for 2006-2009.
The Hiring Incentives to Restore Employment Act (HIRE Act) amended the statute of limitations period under section 6501(e)(1)(A)(ii) on 18 March 2010. Tax returns filed on or before the date of enactment were also subject to the expanded six-year limitations period if the limitations period under section 6501 had not previously expired. At issue, was whether the expanded six-year limitations period could apply for tax years for which the reporting requirement under section 6038D did not apply.
The taxpayer argued that the wording of the law meant it could only apply to years where there was a reporting requirement under section 6038D because the defining phrase in section 6501(e)(1)(A)(ii) – “assets with respect to which information is required to be reported under section 6038D” – also limited application of the six-year limitations statute to assets for which there was a reporting requirement under section 6038D at the time the income was omitted.
The Court agreed, noting: “While the effective date of section 6038D was not imported by the cross-reference to section 6038D, we conclude that the most natural reading of this phrase is that the six-year statute of limitations applies only when there is a section 6038D reporting requirement (or would be barring an exception that is to be disregarded).
“Section 6501(e)(1)(A)(ii) does not simply incorporate the definition of assets in section 6038D; it also specifies that the assets are subject to the reporting requirement (or would be but for an exception that is disregarded). We agree with petitioner that had Congress intended simply to incorporate the definition in section 6038D of the assets to be covered, Congress could have used other more straightforward wording, such as the defined term itself.”