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International Tax NewsEdition 33November 2015

WelcomeKeeping up with the constant flow of international tax developments worldwide can be a real challenge for multinational companies. International Tax News is a monthly publication that offers updates and analysis on developments taking place around the world, authored by specialists in PwC’s global international tax network.

We hope that you will find this publication helpful, and look forward to your comments.

Shi‑Chieh ‘Suchi’ LeeGlobal Leader International Tax Services NetworkT: +1 646 471 5315E: [email protected]

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In this issue

Tax Administration and Case LawTax legislation EU Law TreatiesProposed Tax Legislative Changes




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Tax LegislationBrazil

Changes concerning the capital gains tax rates for non‑residents

On September 22, 2015, the Executive Branch of the Brazilian government released Provisional Measure 692/2015 (PM 692). Among other items, PM 692 amends the tax rates applicable to individuals and certain companies on the capital gains deriving from the sale of assets and rights of any nature.

By way of background, in principle, non-resident companies are subject to the rules applicable for individuals when calculating their Brazilian capital gains tax liability under the current law. Therefore, although PM 692 is in substance addressed toward individuals in Brazil, the implications extend to non-resident companies.

Broadly, the previous rules provided that such capital gains should be subject to tax at the rate of 15%. Pursuant to PM 692, the rates should apply as follows:

• 15% in relation to the portion of gains that do not surpass 1 million Brazilian real (BRL).

• 20% in relation to the portion of gains that exceed BRL 1 million and do not surpass BRL 5 million.

• 25% in relation to the portion of gains that exceed BRL 5 million and do not surpass BRL 20 million.

• 30% in relation to the portion of gains that surpass BRL 20 million.

In the event of alienation of a part of the same asset or right, as from the second transaction/operation, the capital gain should be summed with capital gain from previous transactions for the purposes of determining the relevant tax, deducting the amount of tax paid on the previous transaction(s).

Further, pursuant to PM 692, capital gains derived by a company arising on the alienation of non-current assets or rights should also be subject to the above rates, except for companies which apply the actual, presumed, or arbitrary profit methods (being the key methods of calculating tax for Brazilian entities).

A Provisional Measure is a provisionary law issued by the Executive Branch of the Brazilian government which has the authority of law until it is acted upon by the Brazilian Congress within a prescribed 60-day period. If Congress does not act within this initial period, then it expires unless it is extended for an additional 60-day period.

PM 692 enters in effect on the date of publication, however the rates outlined above for capital gains taxation would only take effect from January 1, 2016.

PwC observation:It is important to note that changes to provisional measures during the process of conversion into law are relatively common. Therefore, it will be important to monitor the developments of PM 692 during the conversion process.

Further, there have already been a number of issues identified with the current text, such as how the rules should apply to non-residents located in ‘tax havens’ (subject to withholding tax [WHT] at 25%). Over the coming days, as the PM is analysed in greater detail, more questions/issues are expected to follow.

Durval PortelaSão PauloT: +55 11 3674 2522E: [email protected]

Michela ChinSão PauloT: +55 11 3674 2247E: [email protected]

Mark ConomySão PauloT: +55 11 3674 2519E: [email protected]

Tax Legislation




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Brazil

Changes to the calculation basis and withholding tax rates applicable to interest on net equity payments

On September 30, 2015, the Executive Branch of the Brazilian government released Provisional Measure 694/2015 (PM 694). Among other items, PM 694 amends the relevant legislation concerning the withholding tax (WHT) applicable to payments of interest on net equity (INE) as well as introduces a further limitation in relation to the calculation base for such payments.

By way of background, INE is an alternative way of remunerating the shareholder for the investment made in Brazilian companies, calculated based on their net equity. INE is conditioned to the existence of profits and deductible up to an amount limited to the greater of:

• 50% of net income before corporate income tax (and after social contribution on net income) for the current year, or

• 50% of retained earnings and profit reserves.

Such payments of INE are determined based on the pro-rated calculation of the company’s net equity accounts (with certain adjustments), multiplied by the Long Term Interest Rate (TJLP). Prior to the introduction of PM 694, INE payments should generally be subject to a 15% WHT rate unless the recipients are located in tax havens in which case the WHT rate should generally be 25%.

Pursuant to PM 694, the calculation basis for INE payments should consider a pro-rated calculation of the company’s net equity accounts multiplied by TJLP or 5% per year, whichever is lower. This limitation is potentially significant given the TJLP for September 2015 was 6.5%

(increasing to 7% for October 2015 to December 2015). Further, the PM also increases the WHT rate to 18% (previously 15%). For foreign shareholders that cannot take advantage of the credit for the WHT, this increase could result in a further tax leakage. Treaty benefits should be considered.

It is important to emphasise that a Provisional Measure is a provisionary law issued by the Executive Branch of the Brazilian government which has the authority of law until it is acted upon by the Brazilian Congress within a prescribed 60-day period. If Congress does not act within this initial period, then it expires unless it is extended for an additional 60-day period.

PM 694 enters in effect on the date of publication, however the changes outlined above should only take effect from January 1, 2016.

PwC observation:It is important to note that amendments to provisional measures during the process of conversion into law are very common.

Therefore, it will be important to monitor the developments of PM 694 during the conversion process.

Durval PortelaSão PauloT: +55 11 3674 2522E: [email protected]

Michela ChinSão PauloT: +55 11 3674 2247E: [email protected]

Mark ConomySão PauloT: +55 11 3674 2519E: [email protected]

Tax Legislation




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Tax Legislation

Italy

Legislative Decree 147/2015 on Internationalisation of Italian enterprises published in the Italian Official Gazette

On September 22, 2015, the Law Decree 147/2015 (the ‘Legislative Decree’) was published in the Italian Official Gazette, aimed at promoting investment in Italy by supplying a clearer and consistent tax framework for investors.

The Legislative Decree provides for a number of tax reforms, mostly applicable from 2015, that could be relevant for multinational enterprises (MNEs) operating in Italy, in particular:

• The possibility for non-Italian companies that are intended to carry out a relevant investment in Italy (higher than 30 million euros [EUR]) to file an advance ruling with Italian tax authorities in order to assess the possible effects deriving from the envisaged investment (art. 2).

• The costs incurred with ‘black-listed’ entities are deductible in the hands of Italian companies according to the fair market value principle (art. 3).

• Controlled foreign companies (CFCs) regime is reformed in order to, inter alia, repeal the application of the regime to ‘related’ CFCs and in the determination of the CFC’s income (art. 8).

• The taxable income of Italian permanent establishments (PEs) is computed on the basis of the Authorised Organisation for Economic Co-operation and development (OECD) Approach (art. 7).

• The Italian ‘exit tax’ deferral regime (i.e. the possibility for Italian company to defer the payment upon migrating to an European Union [EU] or European Economic Area [EEA] country) is extended to the indirect migration to an EU/EEA country arising from extraordinary transactions, such as merger, demerger, and contribution of going concern (art. 7).

• For foreign companies migrating to Italy, the value of the assets and liabilities recognised for Italian tax purposes is equal to the fair market value of the latter, regardless the application of any ‘exit tax’ levied abroad. The provision applies only to companies migrating from ‘white-listed’ countries (art. 12).

Franco BogaMilanT: +39 02 9160 5400E: [email protected]

Alessandro Di StefanoMilanT: +39 02 9160 5401E: [email protected]

Pasquale SalvatoreMilanT: +39 02 9160 5810E: [email protected]

PwC observation:Legislative Decree 147/2015 introduces relevant changes in Italian tax framework mostly in relation to companies operating in the international market. Furthermore, the possibility for foreign investors to have in advance a clear framework of the possible consequences related to relevant investments in Italy could enhance the attractiveness of Italy as destination country.




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Poland

GAAR clause regarding taxation of dividends and interest adopted by the Parliament

On October 9, 2015, new legislation regarding changes in corporate income tax (CIT) and personal income tax (PIT) Act and some other acts was adopted by the Parliament. The adopted legislation introduces e.g. a general anti-abuse rule (GAAR) clause related to applying the participation exemption for dividends and other profit-sharing payments. Moreover, the aim of the draft legislation is to adjust the Polish tax provisions to the changes in the EU law in the scope of taxation of income from savings.

The new legislation implements the anti-abuse clause to the Parent-Subsidiary Directive introduced by the Council Directive no. 2015/21 dated January 27, 2015.

According to the adopted provisions, the participation exemption on dividends and other profit-sharing payments will not apply to legal transaction or series of legal transactions which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage, are not genuine having regard to all relevant facts and circumstances.

Based on the adopted CIT provisions, not genuine legal transaction is a transaction which is undertaken in order to benefit from the tax exemption and which does not reflect economic reality, i.e. it is not conducted for valid commercial reasons and its result is, in particular, transfer of shares in a company paying the dividend or achieving by a company income (revenue) paid further in the form of dividend.

Agata OktawiecWarsawT: +48 22 746 4864E: [email protected]

Weronika MissalaWarsawT: +48 502 18 4863E: [email protected]

PwC observation:The actions of the European Union (EU) to tighten European tax systems become more and more intensive. The tax authorities are being equipped with additional tools allowing them to prevent tax planning, and to stop tax schemes which allow taxpayers to subject their earnings to taxation in countries different than those where the earnings were generated.

To avoid potential negative consequences arising from the introduction of the discussed regulations, the taxpayers should review their structures and instruments used to assess the impact on potential tax risk.

Tax Legislation




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Proposed Tax Legislative ChangesChina

Localisation of BEPS Actions in China ‑ discussion draft of Implementation Measures of Special Tax Adjustment

In September 2015, China’s State Administration of Taxation (SAT) released a discussion draft of Implementation Measures of Special Tax Adjustment (Discussion Draft) to revise its prevailing counterpart (widely known as Circular 2) which was issued in 2009. The Discussion Draft proposes a new landscape on the administration of related party transaction reporting, contemporaneous documentation, transfer pricing method, special tax adjustment and investigation, intangibles, intercompany services, advance pricing arrangement, cost sharing agreement (CSA), controlled foreign corporations (CFC), thin capitalisation, general anti-avoidance rule (GAAR), profit level monitoring, corresponding adjustment and mutual agreement, etc. It also makes reference to the recommendations in the Organisation for Economic Co-operation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS) Action Plans.

In particular, the following points should be noted for cross-border investments:

Contemporaneous documentation and Country-by-Country Reporting (CbCR) The Discussion Draft follows the approach set out in the BEPS Action Plan 13 (Guidance on Transfer Pricing Documentation and CbCR) and introduces the requirements in master file, local file and CbCR, as well as ‘special issues file’ which covers intercompany services, CSA and thin capitalisation. Generally, the threshold for preparing

the master file and local file is total annual related party purchases and sales of 200 million renminbi (CNY) or greater, or total other related party transactions of CNY 40 million or greater. As for the CbCR, if ‘the enterprise is the ultimate holding company of the group and the consolidated revenue of the group exceeds CNY 5 billion in the last fiscal year’, or ‘the ultimate holding company of the group is located outside China but the Chinese company is appointed by the group as the Reporting Entity of CbCR’, the CbCR should be prepared and submitted to Chinese tax authorities. There is no exemption threshold for special issue files.

New administration rules on intangibles and intercompany servicesThe Discussion Draft introduces two new chapters on intangibles and intercompany services. For intangibles, it puts forth the principle that ‘the income arising from intangibles shall be allocated in accordance with the value creation of each party’, which is in line with the core principle for allocation of profits arising from intangibles as set out in the relevant BEPS Action report. In addition, value creation factors such as Location Specific Advantages (LSAs), group synergies, etc. should also be considered for the determination of the income arising from intangibles. The Chapter ‘Intercompany Services’ reiterates that the intra-group transactions should be in line with the arm’s-length principle, including (i) the beneficial nature of the intercompany services, and (ii) the services are charged in a way that independent entities would be willing to pay or charge in the same or similar circumstances. If domestic taxpayers make payments for non-beneficial services, the in-charge tax authorities shall make tax adjustments to deny the deduction of the payment for corporate income tax (CIT) purpose.

CFC taxationThe Discussion Draft provides more interpretation on important concepts in the CFC rules (e.g. ‘effective tax burden’, ‘individually holding’) and adopts the recommendations proposed in the report of BEPS Action Plan 3 to assess ‘reasonable business needs’ and the

‘nature of income’. Moreover, it also clarifies the assessment criteria and calculation of the ‘attributable income’ of a CFC (i.e. the portion of the CFC’s profits that are attributable to the resident enterprise).

PwC observation:The finalised version of the Implementation Measures of Special Tax Adjustment is expected to be released by the end of 2015 and probably take effect from January 1, 2016. The revision of Circular 2 earmarks one of the most important moves for the SAT to localise BEPS Action Plans and contains lots of most updated concepts in the area of anti-tax avoidance. Therefore, we strongly recommend that taxpayers (especially multinational enterprises [MNEs]) should study the changes in the Discussion Draft as well as the potential impact on their business and tax control in advance and get prepared for the new challenges.

One of the most eye-catching changes in the Discussion Draft is LSA, which has been referred to in many chapters. MNEs are suggested to conduct LSA analysis when designing their group transfer pricing policies so as to ensure the group transfer pricing policy conform to China’s standards.

Another key change of the Discussion Draft to MNEs may be the preparation of the master file, local file, special issues file, and CbCR. On one hand, MNEs are suggested to assess their capability in preparing the files, set-up an efficient system to collect information and better allocate the resources. On the other hand, MNEs may consider reviewing and updating the group’s transfer pricing policies as soon as possible to adapt to the new standards and requirements of various tax administrations in charge of their subsidiaries in the globe (including the new requirements reflected in the revision of Circular 2).

Matthew MuiChinaT: +86 10 6533 3028E: [email protected]

Proposed Tax Legislative Changes




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Netherlands

Dutch government reaction to OECD’s BEPS

The Dutch government sent its view on the results of the Organisation for Economic Co-operation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS) project to Dutch parliament. The letter also included an overview of the envisaged legislative changes. Key message is that the attractiveness of the Dutch tax system will be maintained and further strengthened.

Currently, the Netherlands offers a tax attractive environment for multinational companies due to the broad participation exemption, the lack of a withholding tax on royalties and interest payments, an extensive tax treaty network and a cooperative and efficient relationship with the Dutch tax authorities. The Dutch government states that these advantages remain unchanged.

Regarding hybrid mismatches, controlled foreign company (CFC) rules and interest deductions (i.e. actions 2, 3, and 4), the Dutch government firmly believes that only multilateral initiatives can effectively address these issues. It emphasises the role of the European Union to formulate binding legislation in order to create a level playing field. Therefore, the Netherlands has no plans to unilaterally tighten regulations in these areas.

In other areas, such as for action 6 (prevention of treaty abuse), action 7 (artificial avoidance of permanent establishment [PE] status), action 13 (Country-by-Country Reporting) and action 14 (dispute resolution), the Netherlands already have or will update its legislation. Furthermore, the Netherlands is a strong advocate for increased transparency, and will start exchanging rulings with tax authorities of other countries as of 2016. Finally, the Dutch innovation box regime will be adjusted per January 1, 2017 to reflect the modified nexus approach as outlined in action 5.

PwC observation:The Netherlands has an attractive fiscal climate, and the Dutch government stressed that this will remain to be the case. The outcome of the BEPS project will result (or has already resulted) in some changes in domestic legislation, but the Netherlands will not unilaterally tighten regulations in most areas. From January 1, 2016 onwards, the presidency of the Council of the European Union will be held by the Netherlands for six months. It seems reasonable to expect that the Dutch government will use this period to bring multilateral initiatives in areas like interest deductions to the next level.

Jeroen Schmitz Ramon HogenboomAmsterdam AmsterdamT: +31 88 79 27 352E: [email protected]

T: +31 88 79 26 717E: [email protected]

Pieter RuigeNew YorkT: +1 212 805 6681E: [email protected]





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Netherlands

Government announced further integration of R&D incentives

The Dutch system of research and development (R&D) incentives will be integrated to further increase its effectiveness. On Budget Day 2016, it was announced to integrate the existing 160% ‘R&D super deduction’ for R&D investments into the R&D subsidy for salary costs. Apart from the administrative simplification, this will bring the incentive for R&D investments ‘above the line’.

In 2015, the R&D incentives in the Netherlands are three-fold: (1) innovation box regime taxing R&D related profits to be taxed at 5% instead of 25%; (2) R&D subsidy for salary costs, equal to 35% of R&D salaries for the first 250,000 euros [EUR] and 14% for anything above this amount, realised via a reduction of the wage tax payable (called ‘WBSO’) and (3) 160% ‘super deduction’ for R&D investments (other than salaries) leading to 15% net benefit realised through a corporate tax reduction (called ‘RDA’).

For 2016, the innovation box regime will not be amended, but the ‘WBSO’ and ‘RDA’ will be integrated. The benefit will amount to 32% of the first EUR 350,000 of R&D costs (both salary and investments). For start-ups, this percentage amounts to 40%. For R&D costs above EUR 350,000, the percentage amounts to 16%. The maximum benefit cannot exceed the total amount of wage tax due. Instead of applying for the real costs and expenses (non-salary costs), the taxpayer may choose to take into account a fixed amount based on R&D hours. The fixed amount is EUR 10 per hour as far as the total R&D hours do not exceed 1,800, and EUR 4 for every hour above.

PwC observation:The integration of the wage tax reduction for R&D labour and the RDA will reduce the administrative burden for companies, as only one application is required. Furthermore, another positive effect of this change in the fiscal scheme is that the benefit will now be expressed in the profit before taxes (‘above the line’), which has a direct impact on the company’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) and allows companies that are for instance still in a loss position due to start-up costs, to still receive a cash benefit from the incentive. With this integration together with the existing innovation box regime, the Netherlands continues to provide a strong fiscal environment for highly innovative companies.








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Netherlands

Practical and business friendly implementation of the updated EU Parent‑Subsidiary Directive in Dutch law

Following the amended European Union (EU) Parent-Subsidiary Directive (which included the introduction of a general anti-abuse rule [GAAR]), draft legislation has been published on Budget Day 2016 regarding the Dutch participation exemption regime, the substantial interest rules and the dividend withholding tax (WHT) exemption in relation to Dutch Coops. The main features of these three regimes would remain unchanged, and, therefore, the consequences for current and future structures should be limited.

Main features of the Dutch participation exemption remains the sameBased on the published draft legislation, the main features of the Dutch participation exemption will remain the same. Under this regime, income derived from (foreign) participations is exempt from Dutch corporate income tax (CIT) at the level of the Dutch shareholder. However, in line with the amended EU Parent-Subsidiary Directive, income from participations which is tax deductible in another jurisdiction will no longer fall into the scope of the participation exemption (or Dutch participation credit system, if the participation exemption is not applicable). The effect will be that such income is subject to Dutch CIT. This will also apply to dividends and other advantages included in the acquisition price of a participation, which have earlier been deducted in another jurisdiction. This measure could for instance impact structures with hybrid loans or preferred shares.

Substantial interest rule aligned with GAARTo recap, under the Dutch substantial interest rules, which may apply in abusive structures, foreign companies can be subject to Dutch CIT on income derived from a Dutch subsidiary. In the published (draft) legislation, the Dutch substantial interest rules are triggered if tax avoidance is one of the foreign company’s main purposes for owning its substantial (5% or more) shareholding in the Dutch subsidiary and the Dutch subsidiary is not put into place for sound business reasons.

Such sound business reasons, for instance, exist if the foreign shareholder conducts business activities and the substantial shareholding is attributable to that business, or if the foreign shareholder is the ultimate holding company (head office). Another case of sound business reasons is that if the foreign shareholder entity is an intermediate holding company that acts as a link between the ultimate holding company and the lower tier business, and such foreign entity meets the minimum Dutch substance requirements.

Coops remain exempt from dividend WHT Under current Dutch domestic law, Dutch Coops are not subject to Dutch dividend WHT, unless specific anti-abuse rules apply. Under the introduced (draft) legislation, this principle remains unchanged.

The only change is that Dutch Coops will now be obligated to withhold dividend tax on dividends distributed to its members if tax avoidance is one of the main purposes and the structure is not put into place for sound business reasons. These sound business reasons for instance exist if the Coop has economic relevance or if it functions as intermediate holding platform, whereby there is a link between the ultimate holding company and the lower tier foreign business. Under certain circumstances, a minimum level of substance may be required at the level of the foreign member(s) of the Coop.

PwC observation:All EU Member States must implement the recent changes to the Parent-Subsidiary Directive into their national law by the end of 2015. The Netherlands has chosen for a practical and business friendly implementation. Therefore, the changes should have a limited impact on the current structures.

The envisaged legislation regarding the Dutch participation exemption should not have a material impact on existing and/or new structures. Most Dutch head offices and intermediate holding companies will still be able to benefit from the advantages of the Dutch participation exemption, such as the absence of a holding period and the 100% exemption to dividends and capital gains.

Further, it is not anticipated that the envisaged change in the substantial interest rule will have a (significant) impact on current structures. To the extent this is not already the case, the substance of foreign intermediate holding companies of Dutch entities may need to be brought in line with the Dutch minimum substance requirements. Moreover, the Dutch tax authorities already confirmed that no material changes in relation to current tax practice are foreseen.

Finally, the newly introduced anti-abuse rules with respect to Dutch Coops should neither have a significant impact to existing structures, nor to newly setup structures. As such, Dutch Coops in conjunction with other Dutch tax incentives such as the generous participation exemption regime and the extensive double tax treaty network, remain an attractive holding platform for (foreign) operations worldwide. Accordingly, the Dutch tax authorities confirmed that no material changes in relation to current tax practice are foreseen.








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Norway

National budget 2016

On October 7, 2015, the Norwegian government submitted its proposal for the national budget for 2016. The national budget contains proposals for several amendments of the Norwegian tax legislation which, if approved, will enter into force in 2016.

The key corporate tax proposals included in the national budget are as follows:

• The corporate income tax (CIT) rate is reduced from 27% to 25%. • The rule limiting the deductibility of interest paid to associated

companies is tightened. At present, deductions for interest payments to associated companies are limited to 30% of tax earnings before interest, taxes, depreciation and amortisations (tax EBITDA). The proposal entails a reduction of the deduction limit from 30% to 25%.

• The participation exemption method for dividends is excluded to the extent the distributing company is granted a deduction for the distribution. The background for the proposal is to avoid double non-taxation due to different classifications of financial instruments or legal entities in different jurisdictions (hybrid situations).

• Due to the reduction in the CIT rate, the government proposes to increase the resource rent tax on income from hydroelectric power production and the surtax on petroleum activity with 2% points to 33% and 53%, respectively. The natural resource tax threshold will be increased to 10 MVA with effect from the 2015 tax year.

• The tax on dividends to personal shareholders, and on gains upon personal shareholders’ realisation of shares is increased through an adjustment of the basis for taxation with an upwards adjustment factor of 1.15.

• A company’s loan to a personal shareholder shall be taxed as dividends at the level of the shareholder. The rules are proposed entered into force with effect for loans rendered as from October 7, 2015.

A company’s loan to a personal shareholder shall be taxed as dividends at the level of the shareholder. The rules are proposed entered into force with effect for loans rendered as from October 7, 2015.

PwC observation:The reduction in the CIT rate will be welcomed by the Norwegian industry and represents a positive step towards aligning the CIT rate with our neighbouring countries. However, for the hydroelectric power and upstream petroleum industries, the CIT rate reduction is substituted by an increased tax rate within the special tax regimes. Further reductions of the CIT rate and changes in the tax system are expected when the tax reform is introduced.

Hilde ThorstadOsloT: +47 95 26 05 48E: [email protected]

Cecilie BeckOsloT: +47 90 09 95 75 E: [email protected]





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Norway

Norwegian Tax Reform Proposals

On October 7, 2015, the Norwegian Ministry of Finance presented a tax reform report. The report includes several proposals for amendments of the rules on corporate taxation. The proposals are a follow-up of the Scheel committee’s proposal of December 2, 2014. The proposals will be subject to a political process and, in large parts, consultation processes during 2016. The date of entry into force of the proposals, if approved, is uncertain; however, this is likely to be in 2017.

The main proposals in the tax reform report are as follows:

• Reduction of the corporate income tax (CIT) rate to 22% during a three-year period (2016-2018). Further reductions are to be assessed in light of the international development.

• The interest deduction limitation rule is proposed amended so that it also hits profit shifting through interest payments to third party lenders (external interests). However, the Ministry emphasises that deduction for ‘genuine interests’ (i.e. interest costs in ordinary lending situations where there is no risk for profit shifting) should not be limited. The Ministry will review alternative solutions to prevent this. This will also be assessed in light of Organisation for Economic Co-operation and Development’s (OECD’s) recommendations on national interest deduction limitation rules.

• Introduction of withholding tax (WHT) on royalties, interest, and certain lease payments is proposed introduced. The Ministry emphasises that any legal basis for WHT should go as far as the European Economic Area (EEA) law allows. The Ministry also finds that it should be assessed whether income from bareboat chartering should be exempt from the tonnage tax regime so that these payments may also be comprised by the WHT.

• Amendment of the tax residency definition for companies so that companies established in Norway are automatically regarded resident in Norway for tax purposes. The amendment will entail that companies established in Norway will always be regarded resident here, unless a tax treaty with the other state leads to a different result. Furthermore, companies established in Norway will never be ‘state-less’. The Ministry of Finance will review the definition with a view to submitting a consultation proposal.

• The Ministry of Finance will review the controlled foreign company (CFC) rules with a view to submitting a consultation proposal. An important goal for this work is to make the rules more practicable. The Ministry will also assess whether the present distinction between active and passive income is appropriate.

• The Ministry of Finance emphasises that it may be relevant to consider the need for further anti-hybrid rules and that it will assess this in light of the final recommendations from OECDs Base Erosion and Profit Shifting (BEPS) project, of which the main feature is the so-called ‘linking rules’.

• An introduction of rules on country-by-country reporting (CbCR) is considered proposed. The Ministry considers this a useful tool in the tax authorities’ supervision work. The Ministry also emphasises that it is important that Norway contributes to the international process by introducing CbCR in group relations within the frames agreed upon by the member states in the BEPS project. The Ministry will submit a consultation proposal regarding an amendment of the law with associated regulations.

PwC observation:Changes in the corporate tax rules within the mentioned areas are expected and the situation should be monitored closely as more detailed proposals will be presented. Any detailed planning ideas and structural changes should be awaited until more definite details on any amendments are available.

Hilde ThorstadOsloT: +47 95 26 05 48E: [email protected]

Cecilie BeckOsloT: +47 90 09 95 75 E: [email protected]





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United Kingdom

UK Autumn Statement

The UK Chancellor of the Exchequer, George Osborne, has announced that there will be an Autumn Statement forecast alongside the Spending Review on November 25, 2015.

Draft Finance Bill 2016 clauses are expected to be published alongside or shortly afterwards the Autumn Statement.

United Kingdom

Country‑by‑country reporting ‑ Draft UK Regulations

Draft Regulations (together with an explanatory memorandum) were published for consultation by the UK tax authority, HM Revenue & Customs (HMRC) on October 5, 2015, to implement country-by-country reporting (CbCR) for accounting periods commencing on or after January 1, 2016.

The Regulations are made in accordance with guidance published by the Organisation for Economic Co-operation and Development (OECD) on October 5, 2015 in pursuance of Action 13 (transfer pricing documentation and CbCR) of their action plan to address base erosion and profit shifting. Comments on the consultation are invited by November 16, 2015.

PwC observation:We anticipate the Bill will include clauses to implement the recommendations of certain Organisation for Economic Co-operation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS) Action points (e.g. Action point 2 on neutralising the effect of hybrid mismatch arrangements).

PwC observation:Corporate groups should plan now to ensure they can comply with the new CbCR requirements. Consideration should be given to how the guidance should be interpreted, how this data will be reported, whether current finance systems have the necessary capabilities to gather the required data and the extent of ongoing additional resource required to support the implementation and ongoing compliance. In addition, companies should consider how the information will be viewed, confirm that it is consistent with other disclosures made to tax authorities (including the new master file and country specific local files which now require detailed disclosures of material inter-company transactions) and that it is in line with the organisation’s business and tax strategy and wider approach to transparency.

Jonathan HareLondon, Embankment PlaceT: +44 20 7804 6772E: [email protected]

Stuart T MacPhersonLondon, Embankment PlaceT: +44 20 7212 6377E: [email protected]

Chloe PatersonLondon, Embankment PlaceT: +44 20 7213 8359E: [email protected]

Peter C BarlowLondon, Embankment PlaceT: +44 20 7212 5556E: [email protected]





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United States

New Sections 367 and 482 regulations tax foreign goodwill, limit the active trade or business exception, and apply Section 482 to aggregate transactions

On September 14, 2015, Treasury and the Internal Revenue Service (IRS) issued proposed regulations under Section 367 (REG-139483-13) (the ’Proposed Regulations’) and temporary regulations under Section 482 (T.D. 9738) (the ’Temporary Regulations’).

This guidance would fundamentally shift the government’s application of the law by taxing outbound transfers of foreign goodwill and going concern value under Section 367, restricting the active trade or business (ATB) exception under Section 367(a) from applying to goodwill and going concern value, and providing for aggregate valuation of interrelated transactions that are covered in part by Section 482 and in part by other Code sections (such as Section 367). In doing so, the Proposed Regulations would subject a US transferor to current gain recognition under Section 367(a)(1), or periodic income recognition under Section 367(d), on outbound transfers that previously have not resulted in taxable income under Section 367 or 482.

The Temporary Regulations are effective for taxable years ending on or after September 14, 2015. The Proposed Regulations, once finalised, would apply to transfers occurring on or after September 14, 2015. Treasury and the IRS have requested comments with respect to these regulations by December 15, 2015.

PwC observation:Although the Proposed Regulations would not apply until finalised, they are intended to apply to transfers made on or after September 14, 2015. Consequently, once finalised, the Proposed Regulations would have retroactive effect. Among other significant changes, transfers of foreign goodwill would now be subject to taxation under Section 367(a) or Section 367(d), a fundamental change to the taxation of even the most basic foreign branch incorporations. Taxpayers engaging in outbound transfers on or after September 14, 2015, should review carefully the Proposed Regulations to determine their potential applicability.

Furthermore, the Temporary Regulations are effective for taxable years ending on or after September 14, 2015, even with respect to transactions entered into force before September 14, 2015. Consequently, taxpayers with transactions involving multiple controlled transactions or subject to multiple Code provisions should consider the potential applicability of the Temporary Regulations to those transactions.

Tim Anson Charles S MarkhamWashington, D.C. Washington, D.C.T: +1 202 414 1664E: [email protected]

T: +1 202 312 7696E: [email protected]

Gregory J OssiWashington, D.C.T: +1 202 414 1409E: [email protected]





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Tax Administration and Case Law

Tax Administration and Case LawNetherlands

Landmark decision of the Supreme Court on the anti‑base erosion rules

On June 5, 2015, the Supreme Court provided further clarity on the scope of the Dutch anti-base erosion rules, thereby answering some essential open questions on the Dutch base erosion rules in relation to the deductibility of interest expenses.

Dutch anti-base erosion rules at a glanceThe Dutch base erosion rules limit the deductibility of interest expenses on intercompany debts that are connected to so-called ‘tainted transactions’. These rules do, however, not apply if the taxpayer demonstrates business reasons both for the transaction and the financing thereof or if the corresponding interest income is sufficiently taxed according to Dutch tax standards (‘counter evidence rules’). Tainted transactions include capital contribution, dividend distribution, and acquisitions.

The case at handThe case concerns two Dutch taxpayers, belonging to a South African multinational group. In 2007, the listed parent company of this group issued shares and lent part of these proceeds to its South African subsidiary. This latter holding company contributed the funds to a Mauritius-based holding company, which subsequently on-lent the funds to another Mauritius-based company (the financing company of the group).

In addition to the above, the Mauritius-based financing company received funds by way of debt from its Mauritius parent company, which in turn derived these funds from its foreign participations by way of dividend distributions.

The two Dutch taxpayers financed several (external) acquisitions with the funds lent from the Mauritius-based financing company of the group. Arguing that both the acquisition and the financing thereof was based on sound-business reasons, the Dutch companies claimed a deduction of interest on the loans to the Mauritius finance company.

The Dutch Supreme Court denied the deduction of these expenses in relation to the funds originating from the share issuance.

Reasoning of the Dutch Supreme CourtAs a starting point, the Dutch Supreme Court states that a Dutch taxpayer is free in its choice how to finance its transactions, either with debt or with equity. It then stated that in order to successfully claim counter evidence if the corresponding interest income is not sufficiently taxed (which was the case in the case at hand), business motives should be available both for the transaction and the financing thereof, even if the transaction is an external acquisition (which was the case in the case at hand). The Dutch taxpayer bears the burden of proof in relation to substantiating the business motives for both the transaction and the financing thereof. When assessing the availability of such business reasons in relation to the financing by way of intra-group debt, all parties involved in such financing should be taken into account.

Due to the fact that it was not demonstrated that all financing in the transaction was based on business reasons, the Supreme Court denied the interest deduction in relation to the funds originating from the share issuance.

PwC observation:In this landmark judgement, the Supreme Court clarified some essential elements of the Dutch base erosion regulations on limitations on interest deductions. The Supreme Court reconfirmed that Dutch companies can freely decide how to fund their subsidiaries, either by way of debt or by way of equity. In our view, this rule implies that a direct funding by any (low-taxed) group finance company seems acceptable for purposes of demonstrating the sound business motives of such financing (i.e. no double-dips in relation to the same interest expenses). If, however, re-routing of group debt takes place (either inside or outside the Netherlands), the Dutch taxpayer needs to demonstrate the sound business motives in relation to such scheme in order to claim an interest deduction.







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United States

Internal Revenue Service LB&I Commissioner announces reorganisation of division

Douglas O’Donnell, Commissioner of the Large Business & International Division (LB&I), announced that LB&I would be reorganised around ‘Practice Areas’ at a Tax Executives Institute presentation on September 17, 2015.

Commissioner O’Donnell indicated the new LB&I structure was ‘largely final’ and scheduled to be implemented in early calendar year 2016. Additional changes could be made as LB&I continues to build out the structure to all levels of employees. Acting LB&I Deputy Commissioner (Domestic) Sergio Arellano elaborated on LB&I’s plans at a discussion panel at the American Bar Association Section of Taxation’s fall meeting on September 18, 2015.

United States

IRS Chief Counsel treats intercompany referral fee as foreign base company sales income and allocates expenses to non‑subpart F income

The Internal Revenue Service (IRS) released CCM 20153301F (the CCM) on August 14, 2015, challenging a taxpayer’s characterisation of intercompany referral fees as part sales income and part services income.

The CCM concludes that the taxpayer erred in splitting the income between sales and services income, because all of the activities, if actually performed by the controlled foreign corporation (CFC), relate to sales and should be classified as foreign base company sales income (FBCSI), and the taxpayer did not properly substantiate the portion of the referral fees attributable to the services. The CCM also concludes that the taxpayer erred in allocating and apportioning the intercompany referral fee expense (referral expense) to all income when that expense was definitely related only to third-party customer sales that were not subpart F income.

PwC observation:The goals and design of the LB&I reorganisation are not wholly unexpected considering the several-year push by LB&I towards ‘issue-focused’ examinations. With the prior creation of Issue Practice Groups (IPGs) and Issue Practice Networks (IPNs) and the new Information Document Request procedures, LB&I has been laying the groundwork for an organisational change to align with issue-focused examinations. Left unanswered at this point are details regarding implementation of the new structure in the field and how audits will be managed in an environment where several Practice Areas may be involved with a single taxpayer. Additionally, the definition of ‘campaign’ appears to remain fluid and open to additional description either prior to the reorganisation implementation or during the reorganisation implementation. Training of employees is emphasised in the reorganisation, however, with current budgetary constraints, it remains to be seen how this will be implemented. And although Commissioner O’Donnell indicated that the CIC designation for large case taxpayers will be phased out, some taxpayers will remain under continuous examination.

As the implementation of the new structure, principles, processes are slated for early 2016, it will be some time before the real-world effects of the reorganisation are experienced by taxpayers, as taxpayers and practitioners alike will be formulating their own conclusions on the reorganisation’s effectiveness in the upcoming months. Taxpayers should familiarise themselves with the new structure and be prepared to re-evaluate their preparedness for examinations as anticipated new examination procedures are implemented.

Kevin M Brown Ruth Perez

Washington D.C. Washington D.C.



Linda Stiff

Washington D.C.

T: +1 202 312 7587 E: [email protected]

Tax Administration and Case Law

PwC observation:CCM 20153301F signals that the Internal Revenue Service (IRS) may take a strong position with respect to taxpayers seeking to bifurcate income between sales and services. Good documentation is likely to be essential in substantiating such a bifurcation, but may not prevent the IRS from pursuing the issue.

Charles S Markham Phyllis E MarcusWashington D.C. Washington D.C.T: +1 202 312 7696E: [email protected]


Michael A DiFronzoWashington D.C.T: +1 202 312 7613E: [email protected]




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EU LawFrance

EU case law ‑ Restriction to the freedom of establishment

In its case law dated on September 2, 2015 (European Court of Justice [ECJ], 2 September 2015, C-386/14, Groupe Steria SCA), the ECJ has settled that the French tax legislation governing the dividends payment made by subsidiaries to their parent company constitutes a restriction to the freedom of establishment provided for in the Treaty on the Functioning of the European Union (TFEU).

Under the French participation exemption regime, dividends distributed by a subsidiary to a parent company are in principle tax exempt at the level of the latter, to the exclusion of a fixed amount of 5% representing the charges incurred in relation to the holding in the subsidiary (Article 216 of the French Tax Code). However, the French group taxation regime (Article 223 of the French Tax Code) allows the deduction of this fixed 5% add-back if both the parent company and the subsidiary are jointly taxed and part of a single ‘tax integrated group’.

Groupe Steria SCA company is the parent company of a tax integrated group as provided for in Article 223. Steria is a member of that group and holds at 95% subsidiaries established in France and in other EU Member States. In accordance with Article 216, the dividends received by Steria from subsidiaries established in other Member States were deducted from its net profits, except for the 5% representing the charges borne by Steria as a parent company.

Steria requested for the repayment of the proportion of this corporation tax corresponding to the costs and expenses based on the incompatibility of the French national rules with article 49 of TFEU. French tax authorities as well as the Administrative Court of Montreuil declined this request. Steria brought the case before the Administrative Court of Appeal of Versailles which referred to the ECJ the question whether the French rules infringed the EU freedom of establishment.

The ECJ has ruled in favour of the company Steria in its dispute, considering that the French tax legislation hinders Article 49 of TFEU ‘since, under such rules, only resident companies can be part of a tax integrated group, the tax advantage at issue in the main proceedings is reserved to dividends of national regime’.

PwC observation:It is likely that French law will be amended to take into account this ECJ case. The main following scenarios may be anticipated:

• The French government may remove from the tax participation exemption regime the exclusion of the fixed amount of 5%, representing the charges incurred in relation to the holding in the subsidiary.

• The French government may otherwise remove the right of deduction of the fixed 5% add-back within the tax integrated group regime.

• Finally, the French government could deeply recast the current tax integrated group regime.

In the meantime, French companies member of a tax integrated group, holding subsidiaries established within other European Union (EU) Member states which comply with the conditions of the tax integrated group regime, could request for the repayment of the corporate income tax paid with respect to the corresponding 5% share of costs and expenses paid for the dividends received.

Furthermore, this case may also have a significant impact on other EU-states fiscal unity regime. E.g. regarding the Dutch fiscal entity regime, one may argue that certain of its advantages should also be offered to Dutch parent companies with EU subsidiaries, which may result in several notable advantages for Dutch taxpayers. This could for example lead to the improvement of interest deductibility positions and re-qualification of holding/financing losses to operational losses (offsetting the latter type of losses is subject to less strict conditions). This case can be relevant for tax years that are still open to correction/appeal, i.e. cases where no final assessment has been issued yet or within six weeks after a final assessment has been imposed. We therefore recommend affected taxpayers to take action as soon as possible.

Renaud JouffroyParisT: +33 1 56 57 42 29E: [email protected]

Emmanuelle VerasMarseilleT: +33 4 91 99 30 36E: [email protected]

Jeroen SchmitzAmsterdamT: +31 88 79 27 352E: [email protected]

EU Law




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Treaties

TreatiesCanada

Canada ‑ Spain 2014 protocol

The protocol between Canada and The Kingdom of Spain amending the convention between Canada and Spain for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital (the ‘2014 Protocol’) was signed on November 18, 2014 and will enter into force on December 12, 2015. The convention and initial protocol were originally signed on November 23, 1976.

Under the 2014 Protocol, the regular 15% withholding tax (WHT) rate on dividends is reduced to 5% where the beneficial owner is a company (other than a partnership) that holds directly at least 10% of the payer’s capital, and down to 0% where dividends are paid or credited to certain pension or retirement plans. The regular 15% WHT rate on interest is reduced to 10% generally and down to 0% in limited cases (including where the beneficial owner is dealing at arm’s length with the payer).

PwC observation:The reduced WHT rates on dividends and interest are applicable to amounts paid or credited to non-residents on or after December 12, 2015.

The 2014 Protocol further includes provisions reflecting the standard developed by the Organisation for Economic Co-operation and Development (OECD) for the exchange of tax information.

Kara Ann Selby Maria LopesToronto TorontoT: +1 416 869 2372E: [email protected]


China

China introduces self‑assessment mechanism to facilitate tax treaty benefits claims

China’s State Administration of Taxation (SAT) recently released a new Administrative Measures on Non-resident Taxpayers Claiming Tax Treaty Benefits (the Measures), introducing a new mechanism of self-assessment on the eligibility for tax treaty benefits to replace the prevailing pre-approval/record-filing acknowledgement procedures. The Measures will take effect from November 1, 2015.

Self-assessment mechanismUnder the new mechanism, non-resident taxpayers shall perform self-assessment on their eligibility for tax treaty benefits while filing their tax returns. Where there is a withholding agent, it shall also check whether the tax treaty benefits should apply for the non-resident taxpayer.

Document wise, the new mechanism requires non-resident taxpayers and their withholding agents (if applicable) to provide more information (e.g. the tax residency, types of income, beneficial ownership) to the Chinese tax authorities than before to substantiate the claim of tax treaty benefits.

More stringent post-tax filing examinationWith the removal of the pre-approval process and record-filing acknowledgement, the Chinese tax authorities will place more focus on post-tax filing examinations. For instance, they could request for supplementary information in the examination process, invoke the general anti-avoidance rules (GAAR) in accordance with the relevant tax treaty provisions or domestic regulations to investigate the claims, etc. It should be noted that once the GAAR is triggered, the statutory limitation of the case can be extended to as long as ten years.

PwC observation:The new mechanism provided by the Measures will speed up the repatriation of funds from China to overseas. However, the self-assessment process also imposes greater responsibilities on non-resident taxpayers and even their withholding agents, and may also give rise to uncertainties to both. To make an appropriate assessment, they should possess profound knowledge of the tax treaty and tax filing procedures. Also, proper documentation and early communication with the in-charge tax bureaus are advisable in order to avoid potential controversies after their treaty benefit claims.

Matthew MuiChinaT: +86 10 6533 3028E: [email protected]




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Netherlands

Protocol to the double tax treaty with Indonesia updated

On July 30, 2015, the protocol to the double tax treaty (DTT) between the Netherlands and Indonesia has been updated. On the basis of the revised protocol, lowered withholding tax (WHT) rates may apply in relation to dividend distributions and interest payments, and provisions on the exchange of information and the assistance in the collection of taxes have been included. The DTT still does not include any general anti-treaty shopping rules.

The following WHT rates apply under the revised DTT:

• Although the general WHT rate on dividend distributions has been increased to 15%, a reduced rate of 5% applies if the beneficial owner holds directly more than 25% of the capital of the dividend paying entity. A reduced dividend WHT rate of 10% applies to pension funds.

• The general WHT rate on interest payments remains 10%. This rate is however lowered to 5% in respect of interest payments to the Netherlands, if either the loan has a duration of more than two years, or the payment is connected to a credit sale of industrial, commercial, or scientific equipment. The Netherlands, however, do not levy WHT on interest on the basis of Dutch domestic tax law.

• The maximum WHT rate on royalties remains unchanged at 10%. The Netherlands, however, do not levy WHT on royalties on the basis of Dutch domestic tax law.

In addition to the above, the protocol provides for a new clause on the exchange of information, which is in line with the latest Organisation for Economic Co-operation and Development (OECD) Model Tax Convention. Furthermore, the protocol provides for the assistance of one contracting state in the collection of taxes of the other.

The updated protocol will enter into force subsequently to the ratification by both the Netherlands and Indonesia.

PwC observation:The protocol update of the DTT between the Netherlands and Indonesia contains several changes. This brings the DTT more in line with the OECD Model Tax Convention, which increases the clarity for taxpayers. In addition, more favorable WHT rates may apply on the basis of this DTT. Although the Dutch international fiscal policy offers general anti-abuse clauses to certain countries including Indonesia, the protocol update of the DTT between the Netherlands and Indonesia does not include such a DTT provision.

Jeroen Schmitz Ramon Hogenboom

Amsterdam Amsterdam



Pieter Ruige

New York


Treaties




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Netherlands

Double tax treaties signed with Kenya and Zambia

The Netherlands have concluded two double tax treaties (DTTs) with Kenya and Zambia, both aimed at avoiding double-taxation and supporting the fiscal and economic environment of Kenya and Zambia. In line with Dutch treaty policy, both treaties contain an anti-abuse clause with respect to the applicability of the reduced withholding tax (WHT) rate on dividends, interest, and royalties. According to this clause, any treaty benefits will be denied if the main purpose is to obtain those treaty benefits. Both treaties also include an exchange of information clause. The specifics in relation to the double tax treaties are outlined below.

DTT Netherlands - Kenya By signing this treaty, Kenya becomes part of the extensive Dutch tax treaty network consisting of more than 100 DTTs. The treaty between the Netherlands and Kenya provides for the following WHT rates:

• No WHT on dividends if the beneficial owner is a company that holds directly 10% or more of the company distributing the dividend. In all other cases, dividend distributions from Kenya are subjected to 10% WHT and distributions from the Netherlands to 15%.

• 10% WHT on interest.• 10% WHT on royalties.

DTT Netherlands - Zambia The treaty between the Netherlands and Zambia will replace the DTT of 1977. This renewed DTT provides for the following WHT rates:

• 5% WHT on dividends if the beneficial owner is a company that holds directly 10% or more of the capital in the company distributing the dividend. In all other cases the WHT is 15%.

• 10% WHT for interest.• 7.5% WHT for royalties.



Peter RuigeAmsterdamT: +1 212 805 6681E: [email protected]

PwC observation:These treaties are in line with the new Dutch international fiscal policy, which is aimed at supporting developing countries in their efforts to improve their tax systems and the organisation of their tax administrations. For bilateral treaties, one of the main changes is the introduction of an anti-abuse clause. The first treaty in which such clause was introduced is the treaty with Malawi, concluded in April 2015. Other countries to which such a treaty modification is offered are: Ghana, Kyrgyzstan, Pakistan, Morocco, Egypt, Bangladesh, the Philippines, Uganda, Moldavia, Nigeria, Sri Lanka, Vietnam, Zimbabwe, Georgia, Uzbekistan, Ukraine, Indonesia, Mongolia, and India.

Treaties




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Spain

Treaty ratified with Oman

The income and capital gains double tax treaty (DTT) between Spain and Oman and the accompanying protocol, signed on April 30, 2014, has entered into force on September 19, 2015 as the Spanish government announced in Official Gazette No. 215, published on September 8, 2015.

The main features of the DTT are:

• Dividends are exempt from withholding tax (WHT) if its beneficial owner is a company (other than a partnership) that directly holds at least 20% of the capital of the distributing company. A 10% WHT applies in all other cases.

• WHT on interest is capped at 5% when the beneficial owner is a resident of the other contracting state.

• WHT on royalties is capped at 8% when the beneficial owner is a resident of the other contracting state.

• Capital gains arising from • the alienation of shares deriving more than 50% of their value,

directly or indirectly, from immovable property, may be taxed in the state where the property is located,

• the alienation of shares or similar or other rights that grant the right to their owner to enjoy immovable property situated in a contracting state may be taxed in that state,

• the alienation of movable property that is part of a permanent establishment (PE) or the sale of such PE may be taxed in the resident state of the PE,

• the alienation of ships or aircrafts shall be taxable only in the country of the company’s effective management, and

• in all other cases, capital gains are taxable only in the state of the transferor’s residence.

• The protocol includes a number of limitations on benefits provisions aimed at preventing certain tax-driven structures.

Ramón Mullerat Carlos ConchaMadrid MadridT: +34 915 685 534E: [email protected]


PwC observation:The Spain-Oman DTT adds to the growing number of Spanish tax treaties in the Asian continent and should help in promoting cross-border investments.

Treaties




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Ramón Mullerat Carlos ConchaMadrid MadridT: +34 915 685 534E: [email protected]


Spain

Treaty ratified with Uzbekistan

The income and capital gains tax treaty (DTT) between Spain and Uzbekistan and the included protocol, signed on July 8, 2013, has entered into force on September 19, 2015 as the Spanish government announced in Official Gazette No. 217, published on September 10, 2015.

The main features are:

• Withholding tax (WHT) on dividends is capped at 5% in case the recipient is the beneficial owner and a company (other than a partnership) that directly holds at least 25% of the distributing company, whereas a 10% WHT rate applies in all other cases. Nevertheless, the treaty foresees in its protocol an exemption for dividends distributed by a company residing in Uzbekistan to a company in Spain, as long as under the Spanish corporation tax the Spanish company is not taxed for such dividends.

• WHT rate on interest is 5%, provided the recipient is the beneficial owner. A 0% WHT rate would apply for certain public or financial institutions.

• WHT on royalties is capped at 5% when the recipient is the beneficial owner.

• Capital gains may be taxed in the state the disposed property is situated, when they arise from:• the alienation of a permanent establishment (PE) (or movable

property forming part of it) located in that state, • the alienation of shares or comparable interests deriving more

than 50% of their value, directly or indirectly, from immovable property situated in such state, and

• the alienation of shares or other rights which, directly or indirectly, entitle their owner to the enjoyment of immovable property situated in that state.

PwC observation:The Spain-Uzbekistan DTT adds to the growing number of Spanish tax treaties in the Asian continent and should help in promoting cross-border investments.

Treaties




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