The most important international tax developments in 2015 that have significantly influenced the international tax practice.
The past year has seen many changes in international taxation signifying one more step towards the new tax reality for both taxpayers and tax authorities globally.
On the eve of the coming year 2016, we are glad to present you a review of the main changes in international taxation. Our final communication this year contains the most important international tax developments in 2015 that have significantly influenced the international tax practice.
Undoubtedly, one of the key events in 2015 was the OECD’s publication of the final version of actions to be taken under the Base Erosion and Profit Shifting Project (BEPS Project). As a result, many countries embarked on modifying their national laws in accordance with the BEPS Project, while at the supranational level changes were made to the EU Parent-Subsidiary Directive.
Given the dynamics of the evolution and reformation of international tax rules, tax professionals need to actively monitor all the changes in order to manage newly emerging tax risks effectively and ensure the stability of existing and new group structures amid the new fiscal reality in the coming 2016.
On 5 October 2015, the OECD published the final version of the BEPS Action Plan. The project was first launched in 2013 and supported by G20 countries; 7/15 action reports were published in September 2014. In 2015 previously issued reports were consolidated with remaining reports and the final version of recommendations was approved.
The full text of the OECD’s recommendations as part of the BEPS Project for all actions can be found at: http://www.oecd.org/tax/beps-reports.htm
Finalization of the OECD reports on the BEPS Project actions is a fundamental shift from the advisory stage of the project to the stage of its practical implementation. The efficiency of developed actions will be determined by coherent and consistent adoption of the action plan by all states. In this regard, such taxpayers as international groups should evaluate the effect of innovations on existing structures and consider necessary changes to ownership, financing, operation structures, intellectual property ownership structures, etc. that will provide a balance between the tax efficiency and stability in terms of the impact of the BEPS measures adopted in the jurisdictions where the group operates.
EU Parent-Subsidiary Directive
Changes made to the EU Parent-Subsidiary Directive require EU member states to introduce rules corresponding to the new provisions of the Directive before 31 December 2015:
General Anti-Avoidance Rules, GAAR
Changes made to the Directive could potentially complicate the use of companies being EU tax residents when establishing / operating holding and financial structures, in particular:
Automatic Information Exchange
In 2014, the OECD in response to the G20 request developed the Standard for Automatic Exchange of Financial Account Information which includes a model Competent Authority Agreement (CAA) and the Common Reporting Standard (CRS).
In October 2014, more than 50 states signed the Multilateral Competent Authority Agreement pursuant to Art. 6 of the Convention on Mutual Administrative Assistance in Tax Matters (currently more than 70 countries have signed the agreement). The Russian Federation declared that it would join the system of automatic information exchange starting from 2018.
In 2015, more than 40 countries that committed to early adoption of the automatic information exchange started to implement the CRS provisions into national laws. These states will be able to initiate their first automatic exchanges of financial account information starting from 2016.
Thus, financial account information becomes more and more transparent for tax authorities worldwide. As opposed to the FATCA program which focuses on American taxpayers, the CRS is a global international platform for automatic exchange of information between all states.
Main Changes in Tax Laws of Certain Jurisdictions
As a result of the 2013 financial crisis and active implementation of the BEPS Project worldwide, the Government of Cyprus is taking active steps to modernize its tax laws in order to maintain the competitiveness and attractiveness of the tax climate in this jurisdiction. At the same time, Cyprus is experiencing some pressure from the EU, which inevitably leads to the need for compliance of the Cyprus tax laws with the EU requirements and the BEPS Project:
Currently, the Dutch tax legislation is undergoing active changes aimed at aligning it with the requirements of the BEPS Project and the European Union. These changes should be taken into account when structuring holding and financing activities using Dutch companies:
The Government of Luxembourg actively supports the BEPS Project, paying special attention to the fact that all states should follow uniform rules that would ensure implementation of the new standards worldwide. Some of the changes required for this (including those provided for by the EU Directive) have already been introduced into national laws of Luxembourg:
Currently, Switzerland continues implementing Swiss Corporate Tax Reform III and the process has not been completed yet. This reform is separate from the BEPS Project and its main goal is to abolish the regime of holding and mixed companies, as well as principal companies. At the same time, Switzerland has repeatedly declared its commitment to the BEPS Project and willingness to implement its provisions into national laws:
We will be glad to discuss the impact of the above-mentioned tax initiatives on current and planned structures of your groups
Should you have any questions, please do not hesitate to contact us.