EU/OECD, France, Netherlands, United
States of America, Brazil
March 12, 2014
International Tax
Webcast Series
on Country Tax
Updates
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The information contained herein is of a general nature and based on authorities that are subject
to change. Applicability of the information to specific situations should be determined through
consultation with your tax adviser.
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Agenda
■ EU and OECD update
■ Base Erosion and Profit Shifting (BEPS)-related changes in France under the Finance Act
2014
■ Substance requirements for conduit finance, license and holding companies in the
Netherlands
■ Proposals for tax reform in the United States and Foreign Account Tax Compliance Act
(FATCA) update
■ New tax rules in Brazil and their implications on taxpayers
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member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
KPMG Contacts
Jennifer Sponzilli
Principal, seconded to KPMG
in the UK
T. +44 (0) 20 7311 1878
Carlos Toro
Director, KPMG in Brazil
T. +55 11 21836569
Jaap Bellingwout
Partner, KPMG Meijburg & Co
T. +31 (0)20 656 10 58
Thierry Pons
Partner, Fidal
T. +33 1 55 68 17 89
Vinod Kalloe
Of Counsel, KPMG Meijburg & Co
T. +31 (0)20 656 16 57
Franz zu Hohenlohe
Partner, KPMG in Germany
T. +49 89 92821186
Fidal is an independent legal entity that is separate from KPMG International and KPMG member firms.
OECD: Fight against Base
Erosion and Profit Shifting
and the
EU: Fight against
Aggressive Tax Planning
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OECD Base Erosion Profit Shifting 15 Point Action Plan
Action 1 Address the tax challenges of the digital economy (Sept. 2014)
Action 2 Neutralize the effects of hybrid mismatch arrangements (Sept. 2014)
Action 3 Develop recommendations regarding the design of CFC rules (Sept. 2015)
Action 4 Limit base erosion via interest deductions/other financial payments (Dec. 2015)
Action 5 Counter harmful tax practices
Including compulsory spontaneous exchange of rulings (Sept. 2014 - Dec. 2015)
Action 6 Prevent treaty abuse (Sept. 2014)
Action 7 Prevent artificial avoidance of PE status (Sept. 2015)
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OECD Base Erosion Profit Shifting 15 Point Action Plan
Action 8 Ensure that profits associated with the transfer and use of intangibles are appropriately
allocated in accordance with value creation
Action 9 Prevent BEPS by transferring risks, or allocating excessive capital to group members,
align returns with value creation
Action 10
Other high risk transactions: recharacterize transactions, management fees and head
office expenses (Sept. 2015)
Action 11 Establish methodologies to collect and analyze data on BEPS (Sept. 2015)
Action 12 Recommendations for mandatory disclosure rules for aggressive tax planning and design
model for exchange of information of tax schemes between tax administrations (Sept.
2015)
Action 13 Re-examine transfer pricing documentation: and include CBCR (Sept. 2014)
Action 14 Make dispute resolution mechanisms more effective (Sept. 2015)
Action 15 Develop a multilateral instrument (Dec. 2015)
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OECD BEPS Action Point 13 – Discussion Draft 30 January 2014
Nature of Reporting EU Accounting &
Transparency Dir.
Dodd - Frank
Act CRD IV BEPS Action 13
Names of entities, nature of activities and geographical
location O O P P
Pa
ym
en
ts to
go
ve
rnm
en
t
En
title
me
nts
Host government's production entitlements P P O O
National state-owned company production
entitlement P P O O
Royalties P P O O
Dividends P P O O
Bonuses (signature, discovery, production etc.) P P O O
Fees (license, rental, service etc.) P P O O
Infrastructure improvements P P O O
Payments in-kind P P O O
Taxes on profit or loss Accrual basis ? ? ? O
Cash basis P ? ? P!
Withholding tax paid! O O ? P!
Other taxes on income, profit or production P P ? O
Profit or loss before tax O O P P
Revenues O O P P
Number of employees O O P P
Total employee expense O O O P
Stated capital and accumulated earnings O O O P
Tangible assets other than cash or cash equivalents O O O P
Public subsidies O O P O
Intercompany payments O O O P
France
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Significant Tax Changes under the Finance Act 2014
Corporate Income Tax Rate
Temporary 5% surcharge on corporate income tax (CIT) increased to 10.7%
Companies liable to CIT that have annual turnover of over €250 million are subject to temporary
surcharge equal to 10.7% (previously 5%) of the standard rate CIT on their taxable income for Fiscal
Years (FY) ending December 30, 2015 (i.e. for FY closing on 31 Dec: including 2013 and 2014, but
not, in principle 2015 ). This surcharge is not tax deductible
Turnover <€250 million(a) Turnover >€250 million(a)
CIT <€763,000 CIT >€763,000 CIT <€763,000 CIT >€763,000
Standard rate 33.33% 33.33% 33.33% 33.33%
3.3% surcharge (b) 1.10% 1.10%
10.7% surcharge (b) 3.57% 3.57%
Total CIT rate 33.33% 34.43% 36.9% 38%
(a) For tax consolidated groups: Turnover assessed at the group level
(b) On the fraction of CIT >€763,000
(c) Calculation on the CIT as determined before offsetting tax reductions, tax credits and tax receivables of any kind
Additional 3% tax applies on net distributed income (except within consolidated group and
distributions by branches of EU companies), i.e. marginal CIT rate approx. 40%
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Significant Tax Changes under the Finance Act 2014
Deductibility of Interest
New BEPS limitation on deduction for financial expenses
■ Source: Finance Bill for 2014 (Art. 14), entry into force: FYs ended on or after Sept 25, 2013
■ Context: BEPS Report/BEPS Action plan
■ Introduction of an additional condition for the tax deductibility of interest on loans received from
related parties: the Administration may require taxpayer to demonstrate that the lender is
subject, during the same FY, to income tax (on the interest received) at a rate of at least 25%
of the standard French rate (i.e.: 33,33%*25%=8,33%)
■ If the lender is a foreign tax resident: comparison with the theoretical income tax that would have
been due in France, had it been a French tax resident
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Deductibility of Interest
New BEPS limitation on deduction for financial expenses (continued)
■ Practical difficulties/expected clarifications:
– Nature/content of supporting documentation?
– How to determine the effective tax rate on the interest income at lender’s level, e.g.:
– Should the effective taxation be appraised on a net basis, or after deduction of other
expenses?
– Should the 25% threshold be considered before or after the offset of tax losses or tax credits?
Action: Anticipate the requests from the tax authorities in the event of tax audit and prepare,
each year, a file documenting and justifying that the interest deductibility conditions are met
Note: the draft bill (art. 60 quindecies) required a report by the Administration on hybrid
entities: more restrictions to come.
Significant Tax Changes under the Finance Act 2014
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Deductibility of Interest
■ Previous Finance Acts:
– General limitation on deduction for financial expenses: 75% of net interest charge, except if net
financial expense < €3 million
– Debt push down: anti-abuse mechanism for financial expenses relating to the acquisition of
substantial shareholdings (Article 209 IX of the FTC), if the company whose shares are acquired
is not actually managed or controlled in France
Action: check level of interest deduction, de-leverage if necessary to avoid double taxation,
check consequence of limited €3 million threshold especially for consolidated groups, check
governance to avoid debt push down rules
Significant Tax Changes under the Finance Act 2014
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Significant Tax Changes under the Finance Act 2014
Transfer Pricing
■ Increased documentation obligations for companies with greater than €400 million turnover or
assets, or which are owned by or controlling a company meeting this definition, or which are part of a
tax consolidated group in which one of the companies meets this definition
■ Previous Finance Acts: The TP documentation must be at the tax inspector’s disposal as from the 1st
day of the tax audit
– 2013 Law against tax fraud : new obligation for the same companies = compulsory annual
reporting, within 6 months after due date for filing of annual return (ie November 5, 2014 if
FY December, 31 2013)
– Finance Bill: Obligation in case of tax audit to provide to the Administration management
accounts (if any) and consolidated accounts + obligation to provide information on rulings
and APAs from other foreign administrations
Action: check documentation and consistency with documentation available to the
Administration
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■ Based on the Finance Act 2014 companies liable to CIT that have annual turnover of over
€250 million are subject to a marginal rate of
a) approx. 40%
b) 33.33%
c) 10.7%
■ The new increased transfer pricing documentation obligations apply to
a) companies with greater than €400 million turnover or assets
b) companies which are owned by or controlling a company with greater than €400 million
turnover or assets, or which are part of a tax consolidated group in which one of the
companies meets this definition
c) all of the above
Questions 1 & 2
Netherlands
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Substance Requirements for Conduit Finance, License and Holding
Companies
■ Existing substance requirements for conduit finance companies apply at a wider scale as of 2014:
– Up to and including 2013, substance requirements were only formally imposed on conduit
finance/license companies in light of an advance pricing agreement (APA)
– As of 2014, these requirements are also imposed on qualifying conduit finance/license companies
that do not have an APA
– Also, as of 2014, these requirements are imposed on holding companies, but only if they want to
obtain an advance tax ruling (ATR)
New Rules as of 2014
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Substance Requirements for Conduit Finance, License and Holding
Companies
■ For conduit finance/license companies, this expanded scope of substance requirements is combined
with:
(i) disclosure requirements, and
(ii) spontaneous exchange of information (EOI)
■ Without an APA :
Qualifying conduit finance/license companies will be required to declare in their Dutch corporate
income tax return (as of FY 2014) whether they comply with the substance requirements (subject to a
fine of EUR 20,050)
In case they do not comply with the substance requirements:
– additional information needs to be disclosed to the Dutch tax authorities (also subject to the file
mentioned above)
– spontaneous EOI will take place with the relevant tax treaty countries
■ With an APA :
Conduit finance/license companies that wish to obtain an APA, are obliged to meet the substance
requirements anyway. But if, from the perspective of the group the conduit finance/license company
belongs to, no other (operational) nexus with the Netherlands exists, the contents of the APA will be
exchanged with the relevant countries
Disclosure and Exchange of Information
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Substance Requirements for Conduit Finance, License and Holding
Companies
Dutch Substance Requirements
■ With reference to the previous slide, please find below an overview of the minimum Dutch substance requirements:
– At least half of the combined statutory and authorized decision-making directors live or are resident in the
Netherlands
– The directors who live or are resident in the Netherlands have the necessary professional skills to carry out their
responsibilities properly. These responsibilities should include, at a minimum, independent decision-making in
relation to transactions to be entered into by the taxpayer (within the parameters of normal group involvement),
as well as ensuring that such transactions are properly carried out. The taxpayer can call upon qualified
personnel (either internally or externally) to ensure that these transactions are properly carried out and recorded
– The board decisions should be taken in the Netherlands
– The bank account (or main bank accounts as the case may be) is held in the Netherlands, albeit that foreign
bank accounts may be used
– The bookkeeping must be kept in the Netherlands
– The taxpayer’s registered office is located in the Netherlands
– As far as the taxpayer is aware, it is not regarded as a tax resident in another country
– The taxpayer runs a real risk within the meaning of the law
– The amount of equity held by the taxpayer is at least appropriate for the required risk
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■ Which companies do not officially have the obligation to comply with the minimum Dutch
substance requirements as of 2014
a) conduit finance/license companies requesting an APA
b) holding companies requesting an advance tax ruling
c) holding companies in general
Question 3
United States
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Sunset of Tax Provisions
Sunset of Tax Provisions
Major Expired Provisions
■ The CFC look-through rule that permits a CFC to receive dividends, interests, rents, and
royalties form a related CFC without that income being taxed currently to US shareholders
■ The active-financing exception that exempts interest received by CFCs engaged in active
financing income from anti-deferral rules
■ The 20% credit for research and experimental activities
■ Various provisions permitting accelerated depreciation of certain assets
■ More than 50 taxpayer-favorable provisions expired for calendar year taxpayers at the end of
2013
■ Taxpayers may extend the life of some of these provisions for up to 11 months by changing to
a non-calendar tax year
Prospects for Reenactment
■ Many of these provisions have expired and been reenacted several times in the past
■ When the U.S. Congress will pass a bill extending some or all of these provisions is unclear
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Proposals for Tax Reform
Proposals for U.S. Tax Reform
■ There are 2 main current proposals for tax reform: the House Ways and Means Committee’s
and the Obama Administration’s budget proposal for 2015
■ Certain parts of old reform proposals may be relevant to future tax reform efforts
Prospects for Fundamental Tax Reform
■ A variety of factors will make achieving fundamental tax reform in 2014 difficult
– The U.S. has a split government, with a Democratic President, a Democratic-controlled
Senate, and a Republican-controlled House
– Mid-term elections will be held this November
– Max Baucus, the former Chairman of the Senate Finance Committee, and a key player in
the US tax reform debate recently left the to become the U.S. ambassador to China
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Main Elements of Current Proposals
Ways and Means Reform proposal Administration budget
Corporate Tax Rate 25% No rate reduction; new “Fair Share Tax”
on upper-income taxpayers
Tax Base changes Broadening of tax base
■ Eliminate specific deductions, e.g.,
for domestic manufacturing
■ Eliminate or modify accelerated
cost recovery
No major reform proposed
■ Permanent R&E, renewable energy,
and employment credits
■ Increased mark-to-market for
derivatives
■ Eliminate fossil fuel preferences
International “Territorial” system
■ Dividends from CFC excluded from
personal holding company income,
and eligible for 95% dividends
received deduction
■ measures to prevent the offshore
shifting of profits, e.g., excessive
debt in the US
■ Transition rules
■ Eliminating deductions for
“excessive” interest
■ Expand subpart F application to
intangibles and sales of digital
goods and services
■ Restricting the use of hybrid
arrangements that create “stateless
income”
Foreign Tax Credit ■ No FTC for taxes paid or accrued
with respect to exempt dividends
■ Limit deductions allocation against
foreign-source income.
■ FTCs limited by determining an
amount proportionate to taxpayer’s
pro rata share of the consolidated
foreign E&P that is repatriated
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FATCA Update
FATCA Basics
■ The United States enacted the FATCA in 2010 to ensure that U.S. taxpayers accurately report
their income from foreign investment accounts
■ FATCA requires foreign financial institutions (FFIs) to report to the IRS information about
financial accounts held by U.S. taxpayers, or non-financial foreign entities (NFFEs) in which
U.S. taxpayers hold a substantial ownership interest
■ FFIs and NFFEs that do not comply with FATCA will be subject to 30% withholding on certain
U.S. source payments
■ To avoid being withheld upon under FATCA, a participating FFI will have to enter into an
agreement with the IRS to:
– Identify U.S. accounts,
– Report certain information to the IRS regarding U.S. accounts,
– Verify its compliance with its obligations pursuant to the agreement, and
– Ensure that a 30-percent tax on certain payments of U.S. source income is withheld when
paid to non-participating FFIs and account holders who are unwilling to provide the
required information
■ FFIs may provide the required FATCA reporting to their home tax authority (rather then the
IRS) if their tax authority has entered into an intergovernmental agreement (IGA) with the
United States providing for the automatic exchange of that information
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FATCA Update
FATCA Timeline
■ Regulations issued in January 2013 provided for a phased implementation of FATCA
beginning January 1, 2014 and continuing through 2017
■ In July 2013, the IRS announced that the beginning implementation date was being pushed
back to July 1, 2014
■ For FFIs to be included in the first IRS FFI list, they must be registered on the IRS portal by
25 April 2014
IGAs
■ The United States has signed and released IGAs with the following countries:
Mauritius
Mexico
The Netherlands
Norway
Spain
Switzerland
United Kingdom
Bermuda
Canada
Cayman Islands
Costa Rica
Denmark
France
Germany
Guernsey
Germany
Hungary
Ireland
Isle of Man
Italy
Japan
Jersey
Malta
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FATCA Update
Recently Released Guidance and Forms
■ Regulations:
– Regulations intending to harmonize the information reporting and withholding rules under
chapters 3 and 61 (issued as final and temporary regulations)
– Regulations containing more than 50 “discrete amendments and clarifications” to the
existing FATCA regulations (issued as proposed, final, and temporary regulations)
■ FFI Agreement for Participating FFI and Reporting Model 2 FFI, Rev. Proc. 2014-13
■ Forms released in final form:
– Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
– Form W-8ECI, Certificate of Foreign Person’s Claim that Income is ECI, and Instructions
– Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for US Tax Withholding,
and Instructions
Forthcoming Guidance?
■ Qualified Intermediary agreement
■ Forms to be updated or created for FATCA: Form W-8IMY (Rev. February 2006), Form W-
8EXP (draft released 23 May 2013), Form 8966 (draft released 4 March 2014), Form W-
8BEN-E (draft released 20 May 2013)
■ Additional IGAs
■ Global Automatic Exchange of Information (G20/OECD initiative)
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■ The United States has signed and released IGAs with Switzerland and the United Kingdom
a) True
b) False
Question 4
Brazil
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New Tax Rules
■ In 2007 Brazil enacted legislation making first steps towards the adoption of international
accounting standards – IFRS (Law 11,638/07)
■ Transitory tax Regime (RTT) was introduced by Law 11,638/07 and Law 11,941/09 to provide
a temporary tax neutrality for the new accounting rules
■ As RTT proved to be not efficient as planned, there has been significant pressure to revoke
the RTT and regulate the tax impacts of IFRS (specific tax law changes)
■ Conversations among tax authorities, taxpayers and tax advisors resulted in a 100-article
Provisional Measure (MP 627/13) enacted on 12 November, 2013 that revoked the RTT
Provisional Measure 627/13
■ Main impacts of Provisional Measure 627/13 can be summarized as follows:
– Goodwill: (i) amortization of goodwill generated as a result of transactions with related
parties and involving exchange of shares is no longer allowed; (ii) goodwill allocation must
follow IFRS: first it must be allocated to fair value of assets/liabilities and intangibles and
the remaining portion is allocated as goodwill (based on future profitability)
– Dividends: 2008 to 2013 dividends may be taxed on any profits exceeding old-GAAP
profits
– Gross Revenue Taxes: changes in the concept of gross revenues
– CFC rules: relevant changes in Brazilian CFC rules
New Tax Rules & their Implications on Taxpayers
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■ Based on the Provisional Measure 627/13 dividends from 2008-2013
a) may be taxed on any profits calculated under the new-GAAP rules
b) may be taxed on any profits exceeding old-GAAP profits
c) may be not taxed at all
Question 5
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KPMG Contacts
Jennifer Sponzilli
Principal, seconded to KPMG
in the UK
T. +44 (0) 20 7311 1878
Carlos Toro
Director, KPMG in Brazil
T. +55 11 21836569
Jaap Bellingwout
Partner, KPMG Meijburg & Co
T. +31 (0)20 656 10 58
Thierry Pons
Partner, Fidal
T. +33 1 55 68 17 89
Vinod Kalloe
Of Counsel, KPMG Meijburg & Co
T. +31 (0)20 656 16 57
Franz zu Hohenlohe
Partner, KPMG in Germany
T. +49 89 92821186
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