BDO World Wide Tax News. August 2013 ISSUE 32

8/22/2019 BDO World Wide Tax News. August 2013 ISSUE 32

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Contents THE OECDs ACTION PLAN TO REFORMINTERNATIONAL TAX

EDITORS LETTER

NEW INTERNATIONAL MEASURES TO COMBATTAX AVOIDANCE AND EVASION

ASIA PACIFIC - Australia - China -New Zealand

EUROPE AND THE MEDITERRANEAN -European Union - Belgium - Denmark -Netherlands - Spain - Switzerland -United Kingdom

LATIN AMERICA - Argentina

MIDDLE EAST - United Arab Emirates

NORTH AMERICA AND THE CARIBBEAN -Canada - United States o America

Holding companies table

Currency comparison table

tHe oeCDs ACtIonPLAn to ReFoRMInteRnAtIonAL tAX

The OECD has released its Action Planon Base Erosion and Prot Shiting,promised in its February 2013 report.The Action Plan sets out 15 areas or studyleading to potential international taxreorms. Businesses should be aware othese developments to determine how anyrecommendations, i enacted, will impact theircurrent or proposed tax strategy and transerpricing policies.

BAse eRosIon AnD PRoFIt

sHIFtIng BACkgRounDThe OECD published a report on Base Erosionand Prot Shiting (BEPS) in February 2013 atthe request o the G20 against the backdropo the debate on tax revenues. That reportpromised an action plan to address perceivedweaknesses in the international tax rules. This

Action Plan was published on 19 July 2013with the support o G20 nance ministersand an invitation or non-OECD members toparticipate in discussions.

Globalisation o the economy and operatingmodels adopted by businesses have openedup opportunities or multinational enterprises(MNEs) to greatly reduce their tax burden,according to the OECD. They take the viewthat this is harmul to government revenues,uncompetitive to domestic taxpayers whocannot access these opportunities, andpotentially damaging to MNEs themselves

through reputational risk.

euRoPeAn unIonEuropean Parliament votes in avour ofnancial transaction tax

ReAD MoRe 10

InteRnAtIonALHolding companies table

ReAD MoRe 18

neW ZeALAnDGuidance on law on tax avoidance

ReAD MoRe 6

August 2013 ISSUE 32WWW.BDoInteRnAtIonAL.CoM

WoRLD WIDe tAX neWs


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2 WORLD WIDE TAX NEWS

Welcome to this issue oBDOWorld Wide Tax News. Thisnewsletter summarises recenttax developments o international interest

across the world. I you would like moreinormation on any o the items eatured,or would like to discuss their implicationsor you or your business, please contactthe person named under the item(s). Thematerial discussed in this newsletter ismeant to provide general inormation onlyand should not be acted upon withoutrst obtaining proessional advice tailoredto your particular needs. BDO WorldWide Tax News is published quarterly byBrussels Worldwide Services BVBA inBrussels. I you have any comments orsuggestions concerning BDO World WideTax News, please contact the Editor viathe BDOInternational Executive Oce bye-mail at [email protected] orby telephone on +32 (0)2 778 0130.

Read more at www.bdointernational.com

eDItoRsLetteR

tHe ACtIon PLAn oveRvIeWThe OECD have set out 15 actions or studyover the next 18 months to two years.Most o these will result either in changesto OECD guidance, or example on transerpricing or the OECD Model Tax Treaty, orrecommendations to support domesticgovernments in consistent, multilateralreorms. An instrument is also proposed to

enable amendment o tax treaties without theneed or renegotiation.

The key areas covered in the Action Plan are:

Digital economyExamining the diculties o taxing activitiesin the digital economy under the currentsystem and how corporate and indirecttaxes might be better aligned with valuecreation through both sales activities and thecollection and use o customer lists and data.

Hybrid mismatch arrangementsNeutralising the eects o arrangements

that are not treated consistently by two taxauthorities, or example by double deductionor deduction without corresponding incomerecognition. Hybrid arrangements, interestand nancial instruments are specied.

Harmful tax practices and treaty abuseEvaluating preerential tax regimes andtackling treaty abuse through anti-abuseprovisions in treaties and addressing thepractice o treaty shopping (i.e. interposingthird countries into otherwise bilateralarrangements to reduce taxes).

Controlled Foreign Companies (CFC) rules

Developing recommendations regarding thedesign o CFC rules in order to counter BEPSand in co-ordination with other Action Planitems.

Permanent establishment (PE)Developing changes to the denition opermanent establishment to prevent articialavoidance o PE status, or example throughthe use o commissionaire arrangements orspecic activity exemptions.

Transfer pricingDeveloping rules to ensure that transactions

refect value in accordance with the armslength standard, with particular ocus onintangibles, contractually assigned risksand high risk transactions not or only rarelyseen between third parties (including wherecapital is allocated within a group withoutappropriate commercial rationale). Howeverthe OECD rejects ormulary apportionment.

Disclosure and transparencyDeveloping recommendations or the designo consistent mandatory disclosure rules oraggressive or abusive transactions and awider denition o tax benet. Transer

pricing documentation will also be reviewedto include a requirement to show the globalallocation o income, economic activities andtax across the value chain using a commontemplate.

ReCoMMenDAtIonsWhile the Action Plan may not lead tolegislative change or some time, it doesprovide an indication o tax authority thinkingand as a result where they will ocus theirattention in the coming months and years.

Businesses should especially pay immediateattention to the potential impact o the ActionPlan where:

A business is reliant on any o thearrangements identied in the Action Plan tomanage its group eective tax rate.

The implementation o a business transerpricing model involves either the contractualmovement o risk to another groupentity, commissionaire arrangements, ordependence on value attributed to intangibleassets.

A new or changed tax and transer pricingmodel is being designed or implemented thatwill need to be robust in the longer term.

An immediate impact o the OECDsannouncement may be that tax authoritiesrequest more inormation rom internationalbusinesses about their tax and transer pricingpolicies. Where these arrangements aresupported by the economic activity o thebusiness, are supportable under law and areeectively implemented, tax and transerpricing risk should not increase.

All businesses should review their current taxplanning arrangements and transer pricingpolicies to ensure that the resulting eective

tax rate o the group is sustainable in thelonger term.

I you have any queries, or to discuss any othese issues in detail, please contact your usualBDO advisor or

JOHN WONFORGlobal Head o Tax, BDO International [email protected]+1 416 319 3105


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3WORLD WIDE TAX NEWS

neW InteRnAtIonAL MeAsuResto CoMBAt tAX AvoIDAnCe AnDevAsIon

In addition to the OECD Action Plan on BaseErosion and Prot Shiting (see main article),several new international proposals havebeen announced over the last ew months,refecting increasing international cooperationin combating tax avoidance and evasion, andwe summarise these below.

eXtenDIng tHe AutoMAtIC

eXCHAnge oF InFoRMAtIon

WItHIn tHe euRoPeAn unIonOn 12 June 2013 the European Commissionproposed that the existing Directive 2011/16/EU

on the automatic exchange o inormation (theAdministrative Cooperation Directive) shouldbe extended.

Currently, the Administrative CooperationDirective provides that rom 1 January 2015Member States must automatically exchangethe ollowing types o inormation in relationto taxable periods rom 1 January 2014:

Income rom employment;

Directors ees;

Lie insurance products not already covered

by existing exchange measures; Pensions; and

Ownership o and income rom immovableproperty.

The proposed new Directive would extendthe scope o the Administrative CooperationDirective to include (also in relation to taxableperiods rom 1 January 2014):

Dividends;

Capital gains;

Any other income generated in respect o

assets held in a nancial account;

Any amount in respect o which a nancialinstitution is the debtor or obligor; and

Account balances.

The EU Savings Tax Directive has, since 2005,provided or the automatic exchange oinormation between Member States onthe savings o non-resident individuals. TheCommission believes that the new measureswill give the EU the most comprehensivesystem o automatic inormation exchangein the world. Perhaps anticipating that someindividuals will move unds and assets to otherjurisdictions, the European Council has alsorequested an extension o automatic exchangeo inormation at a global level.

The extension o automatic inormationexchange measures also underlines theimportance o the OECD Action Plan pointson wider disclosure, and businesses shouldbe prepared to receive requests rom taxauthorities or greater disclosure o their protsacross the value chain even beore conclusionsare reached by the OECD.

euRoPeAn unIon AgReeMents

WItH non-eu CountRIesOn 14 May 2013 the European UnionCouncil adopted a mandate or the European

Commission to negotiate updated savings taxagreements with Switzerland, Liechtenstein,Monaco, Andorra and San Marino.

The aim is to ensure that these countriescontinue to apply measures that are equivalentto those in the EU.

CountRy By CountRy RePoRtIng

oF CoRPoRAte PRoFIts WItHIn

tHe euRoPeAn unIonOn 21 May 2013 the European Parliamentcalled on the European Commission totake immediate action with regard to the

transparency o companies tax paymentsby obliging all multinational companies topublish a simple, single gure or the amounto tax paid in each Member State in which theyoperate.

This proposal would need to be agreed bythe European Parliament and the MemberStates in order to be implemented, but largemultinational companies should note theintention to move to country-by-countryreporting, and begin to consider the possibleimplications.

g8DeCLARAtIonThe Lough Erne Declaration signed by theleaders o the G8 countries on 18 June 2013included the ollowing aspirations (in theirwords):

"1. Tax authorities across the world should

automatically share inormation to fght the

scourge o tax evasion.

2. Countries should change rules that let

companies shit their profts across borders to

avoid taxes, and multinationals should report

to tax authorities what tax they pay where.

3. Companies should know who really owns

them and tax collectors and law enorcers

should be able to obtain this inormation

easily.

4. Developing countries should have the

inormation and capacity to collect the taxes

owed them and other countries have a duty

to help them.

suMMARyThese additional proposals and declarationshighlight the increasing determination o

governments to clamp down on tax evasion,aggressive tax planning and prot shiting, andto cooperate more eectively to help achievethis.

The extension o automatic inormationexchange measures will be relevant toindividuals with undeclared income and anysuch individuals should take proessional adviceand bring their tax aairs into order as soon aspossible, using a tax disclosure acility whereavailable.

Companies should monitor the proposalsand consider whether they should make

any changes to their trading models or taxstrategy in light o the proposals and likelydevelopments.

NICK [email protected]+44 20 7893 2410


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AustRALIAFeDeRAL BuDget 2013 InteRnAtIonAL tAX MeAsuRes

Treasurer Wayne Swan delivered the2013 Federal Budget on 14 May 2013.The proposed measures which are ointernational interest are summarised below.

CHAnges to tHe tHInCAPItALIsAtIon PRovIsIonsThe thin capitalisation provisions imposelimits on debt deductions (mostly interestexpenses) incurred by Australian entitiesthat are controlled by non-residents, aswell as Australian entities that have oreignsubsidiaries and/or branches. The provisionsimpose a cap on the amount o debt that theseAustralian entities can carry. In most cases,the cap is calculated on a debt to equity ratioo 3:1, namely, or every AUD 1 o equity, anentity can have up to AUD 3 o deductibledebt. I the relevant cap is exceeded, intereston the excess debt is not deductible.

The Government announced that rom1 July 2014, the ollowing changes will apply:

The debt to equity ratio o 3:1 applicableto general entities will be reduced to 1.5:1(eectively 60% gearing rather than 75%gearing);

The debt to equity ratios in respect o non-bank nancial entities and banks will also bereduced signicantly;

The alternative method or calculating the

cap, the worldwide gearing ratio, will bereduced rom 120% to 100%; and

The other alternative method or calculatingthe cap, the arms length test, will bereerred to the Board o Taxation to makeit easier to comply with and clariy in whatcircumstances the test should apply.

On the positive side, the Government alsoannounced that:

The debt deductions threshold, belowwhich the thin capitalisation provisionsdo not apply, will increase eight-old rom

AUD 250,000 to AUD 2 million, therebyexempting many Small & Medium Enterprises(SMEs) rom the provisions altogether; and

The alternative method or calculating thecap, the worldwide gearing ratio, will alsobe available to inbound entities (not justoutbound entities).

While the changes to the thin capitalisationprovisions have been expected or quite sometime, they are still likely to trigger a majorre-thinking o how oreign-owned Australianentities are unded. The tax savings o

AUD 1.5 billion that the Government is expectingrom this measure are signicant. However,the signicant increase o the threshold underwhich the thin capitalisation provisions will notapply is a welcome announcement in respect oSMEs who incur signicant costs in complyingwith these provisions.

non-PoRtFoLIo DIvIDenD

eXeMPtIonCurrently, Australian companies that own anon-portolio shareholding (i.e. at least 10%) ina oreign company are exempt rom Australianincome tax on dividends paid by the oreigncompany. The Government re-announced itsintention to reorm the exemption so that:

It is only available to returns on equityholdings (rather than debt holdings) and onlythose that are non-portolio in nature (e.g. asubstance over orm test); and

It will allow the exemption to fow throughtrusts and partnerships (which is currentlynot available).

InteRest DeDuCtIons In ResPeCt

oF FoReIgn eXeMPt InCoMeUnder the current provisions, Australianentities are allowed a deduction or interestexpenses (subject to thin capitalisation) even tothe extent they derive exempt oreign income(e.g. non-portolio dividends). The Governmentis proposing to remove this concession. Thiswill require Australian entities to apportiontheir interest expenses, and to the extent theseexpenses relate to the derivation o exemptoreign income, they will not be deductible.

ContRoLLeD FoReIgn CoMPAny

PRovIsIons

The long-awaited reorms to the Australiancontrolled oreign company provisions andother oreign source attribution provisions havebeen urther deerred, to be reconsidered ateran Organisation or Economic Co-operationand Development analysis on these provisionsis completed.

AMenDMents to tHe CAPItAL

gAIns tAX RegIMe FoR FoReIgn

ResIDentsThe Government has announced two broadchanges to the taxation o Capital GainsTax (CGT) assets or oreign residents:

A tightening o the principal asset testin Subdivision 855-A o the Income TaxAssessment Act 1997, to prevent what wouldotherwise be taxable Australian real propertyrom escaping CGT; and

A 10% non-nal withholding tax on thedisposal o certain taxable Australianproperty by a oreign resident.

tHe PRInCIPAL Asset testThe changes to the principal asset testcomprise two components. The rst is toignore inter-company dealings betweenentities within the same tax consolidated groupor the purposes o determining whether theentity being disposed o passes the principalasset test. The principal asset test only looks atthe assets o the entity being disposed o. It iscurrently possible to articially infate the grossassets o the entity being disposed o in orderto ail the principal asset test and, thereore,come under the CGT exemption availableunder Subdivision 855-A.

The second component is to take certainintangible assets, such as mining inormationand goodwill which are currently notconsidered taxable Australian real property,and treat them as taxable Australian realproperty provided they are attributable totaxable Australian real property such as theexploration and mining rights.

According to the Governments press release,a number o oreign owned mining companieshave been disposed o, and the oreignowner had not been taxed on the basis thatthe non-taxable Australian real property,including mining inormation, exceeded thevalue o the taxable Australian real property.In these cases the principle asset test wouldbe ailed and the oreign owner would beexempt under Subdivision 855-A. Under thisexample o the proposed amendments, themining inormation will be included as taxableAustralian property, which may result in theprinciple asset test being passed and, thereore,the Subdivision 855-A exemption would not beavailable. These amendments will apply romBudget night.


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The change to the principal asset test, totreat mining inormation as a CGT asset ordetermining whether a sale o a CGT assetshould be taxed, is perceived to be a specicmeasure against the mining industry. This

measure has the capacity to signicantly aectthe fow o oreign capital investment into themining industry.

FoReIgn ResIDent WItHHoLDIng

tAXA 10% non-nal withholding tax will apply tothe disposal o taxable Australian property byoreign residents. The purchaser will be obligedto withhold and remit 10% o the proceeds othe sale o the property to the Australian TaxOce. Similar regimes have been implementedin other major countries (i.e. USA and Canada)to overcome the diculties o tax collection.

The withholding tax obligation will notapply to residential property transactionsbelow AUD 2.5 million. The design andimplementation o the regime will bedeveloped through public consultation tominimise compliance cost.

This new regime will impose a greatercompliance burden to Australian residentpurchasers who will be required to explaintheir withholding tax obligations to a oreignresident seller, and this may well be a contractnegotiation point similar to gross-up clauses

or interest withholding tax.

MARCUS [email protected]+61 2 9251 4100

CHInAneW guIDAnCe on eMPLoyee seConDMent In CHInA By

non-ResIDent enteRPRIses

On 19 April 2013 the China StateAdministration o Taxation issuedPublic Notice (2013) No. 19(Notice 19) to provide urther guidance ondetermining the existence o an establishmentand place o a non-resident enterprise inChina or the purposes o the EnterpriseIncome Tax (EIT) levy, with respect to thesecondment o employees working in China.Under the relevant EIT regulations, incomederived by a non-resident enterprise rom itsestablishment and place in China is subjectto EIT, generally at 25%. Notice 19 becameeective on 1 June 2013 and its salient eaturesare summarised below.

FACtoRs FoR DeteRMInIng tHe

eXIstenCe oF An estABLIsHMent

AnD PLACe In CHInABasic factorsAccording to Notice 19, a non-residententerprise that assigns personnel to renderservices in China will be viewed as havingan establishment and place in China torender services i it bears part or all o theresponsibilities and risks o the work resulto the assigned personnel, and normallyevaluates and assesses their work perormance.I the non-resident enterprise is resident in acountry/region which has a double tax treaty/agreement with China, and the establishment

and place at which the services are rendered isrelatively xed and permanent in nature, suchan establishment and place will constitute apermanent establishment in the context o thedouble tax treaty/agreement.

Additional factorsThe ollowing additional actors will also beconsidered when determining the existence oan establishment and place in China:

1. Payment by the PRC enterprise (PRC entity)receiving the services o a management orservice ee to the non-resident enterprise

which assigns personnel.2. Payment by the PRC entity o an amount to

the non-resident enterprise in excess o thesalary, social security ees and other ees oassigned personnel paid by the non-residententerprise.

3. Retention by the non-resident enterpriseo part o the ees paid by the PRC entity,instead o passing the ull amount to theassigned personnel.

4. Payment by the non-resident enterprise oindividual income tax (IIT) on less than the

ull salaries o assigned personnel.5. Decisions by the non-resident enterprise

with regard to the number, qualication,salary and work location o assignedpersonnel.

I any o the above ve actors is present inaddition to the basic actors or determiningthe existence o an establishment and place inChina, the non-resident enterprise is generallyregarded as having an establishment and placein China or EIT purposes.

eXCLusIon oF sHAReHoLDeR

seRvICesAccording to Notice 19, the provision oshareholder services at the premises othe PRC entity will not by itsel constitutean establishment and place o the non-resident enterprise (i.e. shareholder) in China.Shareholder services include the provisiono advice in respect o the PRC entitysinvestment, and attendance at shareholders

or board o directors meetings, etc. o thePRC service recipient.

tAX CoMPLIAnCe RequIReMentsAccording to Notice 19 and the relevantPRC tax regulation, i a non-resident enterpriserenders services in China, it must register withthe PRC in-charge Tax Bureau within a speciedperiod, and perorm record-ling and taxreporting/ling procedures, where applicable.Notice 19 requires the non-resident enterpriseto accurately calculate the actual incomeattributable to the PRC establishment andplace or EIT reporting and payment purposes.

I the non-resident enterprise ails to calculateand report the actual income or EIT levypurposes, the PRC tax authority may deem ataxable income or these purposes.

ConCLusIonNon-resident enterprises which have seconded(or are considering seconding) employees inChina should review their current or proposedarrangements in light o Notice 19.

Whilst Notice 19 provides urther guidance ondetermining the existence o an establishmentand place in China, certain aspects remain tobe claried. For example, what i the assigned

personnel were taxed on a time apportionmentbasis or IIT purposes i the individual perormsnon-China duties outside China? Would this becaught under the additional actor i IIT has notbeen paid on the entire salary and wage o theassigned personnel borne by the non-residententerprise? We anticipate that local variationsin practice would exist when Notice 19 becameeective on 1 June 2013.

ALFRED [email protected]

+852 2218 8213

KATHERINE [email protected]+852 2218 8299


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neW ZeALAnDCoMMIssIoneR oF InLAnD Revenue PRovIDes guIDAnCe on LAW on tAX AvoIDAnCe

IntRoDuCtIon

The Commissioner o Inland Revenue hasissued its long-awaited InterpretationStatement Tax Avoidance and theinterpretation o section BG 1 and GA 1 o theIncome Tax Act 2007 (IS 13/01). The Statementreplaced Inland Revenues previous statementon the general anti-avoidance rule (GAAR)which was released in 1990.

The nalised Statement comes at a time whena number o countries are introducing a similarGAAR, so the Statement may be o interest tothe wider tax community.

In New Zealand the Inland Revenue has takena more expansive approach by to the scope othe tax avoidance provisions, and has won aseries o Court cases, the most infuential o

which is the Supreme Court decision in BenNevis Forestry Ventures Ltd v CIR. This hascreated signicant uncertainty or businessesas to what is tax avoidance and what isacceptable tax planning. The Statement isintended to relieve some o that uncertainty.

Following the Ben Nevis case, theCommissioners new approach to the GAARis the so-called Parliamentary contemplationtest. Hence the GAAR could be applied wherea taxpayer alls within the relevant specic taxprovisions but the Inland Revenue considersthat the Act has been used in a manner that is

inconsistent with Parliaments purpose.

There is a risk that the test will become either:

A hindsight test (which asks what wouldParliament have contemplated, i.e. whatwould the law have been had Parliamentconsidered this arrangement); or

An economic substance test (which askswhether the tax consequences are refectiveo the arrangements economic substance).

The Interpretation Statement contains workedexamples, one o which is considered to besubject to the GAAR and two o which arenot. The examples are not intended to beclose to the line and have been included todemonstrate how Inland Revenues rameworkapplies. The useulness o the examples isthereore limited.

HoW tHe CoMMIssIoneR WILL

DeCIDe IF seCtIon Bg 1 APPLIesThe suggested approach to the applicationo both section BG 1 and GA 1 is illustrated inthe attached fowcharts, reproduced rom theInterpretation Statement.


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1 You may need toreturn to this stepi your subsequentanalysis o thearrangement identies

additional potentiallyrelevant provisions.

2 You may alsoneed to considerParliaments purposeor combinations oprovisions at this step.

3 These do not includepurposes or eectsthat are not achievedby the arrangement(otherwise than as a

result o unoreseenactors).

4 Tax avoidancepurposes or eectswill not be merelyincidental to otherpurposes or eectswhere the otherpurposes or eects: Fail to explain theparticularstructure

o the arrangement,but instead are moregeneral in nature; or Are underpinnedby tax avoidancepurposes or eects.

Section BG 1: a suggested approach

Arrangement

The arrangement and its tax effects

Identiy all o the steps and transactions that make up the arrangement.

Gain an understanding o the commercial, private and other (including tax)objectives o the arrangement, including the role o each o its individual steps.

Idendity the tax eects o the arrangement, the provisions o the Act that apply to

it, and any potentially relevant provisions that do not apply.1

Merely incidental

Other purposes or effects

Identiy any other (ie, non-tax avoidance) purposes or eects o the arrangementthat are not integral to the tax avoidance purpose or eect.3

Does the tax avoidancepurpose or eect merely ollow naturally

rom the other purposes or eects (rather than beingan end in itsel)?4

The arrangement has tax avoidance as a purpose or effect

Section BG 1 applies

Tax avoidance

Parliaments purpose

Ascertain Parliaments purpose or the relevant provisions rom their text, thestatutory context (including the statutory scheme relevant to the provisions), caselaw and any relevant extrinsic material.2

Identiy any acts, eatures and attributes that need to be present (or absent) togive eect to that purpose.

Commercial reality and economic effects

Examine the whole arrangement rom the point o view o its commercial realityand economic eects, having particular regard to the acts, eatures and attributesthat need to be present (or absent) to give eect to Parliaments purpose.

Does the arrangement,

viewed in a commercially andeconomically realistic way, use (or circumvent) the relevantprovisions in a manner that is consistent with

Parliaments purpose?

s BG 1does not apply

Your considerationo the commercialreality andeconomic eectso the arrangementmay raise urtherquestions as toParliaments purposein the context

o this particulararrangement.I necessary, repeatthese steps until youare satised thatyou have sucientlyascertainedParliaments purpose.

Yes

No

Yes

No


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* Legitimate taxoutcomes do notinclude tax outcomesthat are integral to thetax avoidance.

The Commissioner will apply s GA1(as required) to ensure that: The tax advantages rom the taxavoidance are appropriately counteracted. Legitimate tax outcomes are reinstated.* Appropriate consequential adjustmentsare made.

Approach to s GA 1

Section BG 1 applies

Application of s GA 1 is not required

Yes

Yes

Yes

No

No

No

Has the voiding effect of s BG 1 completelycounteracted the tax advantages from the

tax avoidance?

Has the voiding effect of s BG 1 removedany legitimate tax outcomes?*

Are any consequential adjustmentsrequired to ensure appropriate outcomes?


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The Statement provides that determiningwhether a tax avoidance arrangement existsinvolves considering various actors, includingthe:

Manner in which the arrangement is carriedout;

Role o all relevant parties and theirrelationships;

Economic and commercial eect odocuments and transactions;

Duration o the arrangement;

Nature and extent o the nancialconsequences;

Presence o articiality or contrivance;

Presence o pretence;

Presence o circularity;

Presence o infated expenditure or reducedlevels o income;

Undertaking o real risks by the parties; and

Relevance o an arrangement being pre-taxnegative.

The relevance o these actors will dependon the provisions used or circumvented andwhat acts, eatures and attributes Parliamentwould expect to be present (or absent). Thus,despite the arrangement meeting the lettero the law, the presence o the above actorswill mean that the Inland Revenue will seek toascertain Parliaments purpose or the relevantprovisions and then determine whether thearrangement is subject to section BG 1.

HoW tHe CoMMIssIoneR

WILL APPRoACH MAkIng An

ADjustMent unDeR seCtIon gA 1The Statements section on Reconstruction

addresses a concern that the application osection BG 1 might in some cases eliminateperectly legitimate tax consequences aswell as the tax avoidance elements. TheStatement conrms that Inland Revenue willexercise its discretion to reinstate legitimatetax advantages where these have beenrendered void by section BG 1. In particular,the Statement says that Inland Revenue isrequired to exercise the section GA 1 powerand reconstruct i:

1. Section BG 1 has not appropriatelycounteracted the tax advantage;

2. Section BG 1 has removed legitimate taxoutcomes; or

3. It is necessary to make some consequentialadjustments.

Thus some comort has been provided thattaxpayers will be protected rom the voidingeect o section BG 1 when an arrangementthat is void under that section also gives riseto tax advantages that are legitimate (that is,being within Parliaments contemplation, orbeing merely incidental).

Determining whether a particular tax

advantage obtained under a tax avoidancearrangement is legitimate may be dicult insome cases. Where the particular advantageis so interdependent and interconnected withthe tax avoidance parts to be integral to them,the tax advantage will not be consideredlegitimate and so would not be reinstatedunder section GA 1.

ConCLusIonThe release o the Statement is viewed as apositive development in that it describes theramework Inland Revenue should apply whenconsidering tax avoidance questions. However,many remain concerned as to whether it trulyremoves the uncertainty. Many businesses willneed to continue to obtain guidance on the taxconsequences o particular transactions and,where necessary, seek a binding ruling rom theInland Revenue.

IAIN [email protected]+64 9 373 9612


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euRoPeAn unIoneuRoPeAn PARLIAMent votes In FAvouR oF FInAnCIAL tRAnsACtIon tAX

Contrary to previous reports, theEU Financial Transaction Tax (FTT)is now rmly back on the Europeanagenda. On 3 July 2013 the EuropeanParliament (EP) voted in avour o

implementing the FTT, but with somepotentially signicant amendments to theoriginal proposals issued by the Commissionon 14 February 2013. The legislator (ECOFIN)is not obliged to accept the EPs amendments,but we can expect the nal version othe FTT to include some (i not all) o therecommendations, in one orm or another.

The proposed FTT will cover a wide range onancial instruments including stocks, bondsand derivatives, with recommended minimumtax rates o 0.01% or transactions in relationto derivative contracts and 0.1% or other

transactions.

The amendments proposed by the EP are amixed bag. The nancial services industry willwelcome proposals to:

Introduce an exemption or market makers;

Permanently reduce to 0.01% theFTT rate applicable to repo and reverserepo agreements with a maturity o up tothree months; and

Until 1 January 2017, reduce the rates ortrades in sovereign bonds (to 0.05%) andtrades o pension unds (0.05% or stockand bond trades and 0.005% or derivativestrades).

However, there are also amendments whichextend the scope o the FTT, bolster its extra-territoriality and potentially increase rates.

These include: An extension o the FTT to include currencyspots on the FX markets;

The option or FTT zone members to imposehigher tax rates or OTC trades; and

More robust anti-avoidance mechanisms,including making payment o the FTT acondition or the transer o legal ownershiprights.

Unortunately, the EP proposals do little toaddress growing concerns that the FTT willhave a damaging impact on national economies both inside and outside the FTT zone andthat certain types o institutions may relocate

rom Europe to avoid the tax. O particularconcern is the extra-territorial application othe FTT and its potential ability to tax certaintransactions twice. Unhelpully, the EP alsoailed to explore in detail the mechanics orFTT compliance and enorcement.

11 Member States have expressed an intentionto proceed with the FTT - Austria, Belgium,Estonia, France, Germany, Italy, Greece,Portugal, Slovakia, Slovenia and Spain.Following the EPs avourable vote, the nextstep is or the European Council to considerand vote on the FTT. Assuming the Council also

votes avourably, the 11 Member States willthen have to transpose the agreed EuropeanDirective into their national legislation.According to the Commission, agreement atthe European level by the end o 2013 mightmean implementation o the FTT towards themiddle o 2014.

ANGELA [email protected]+44 20 7893 2475

BeLgIuMnotIonAL InteRest DeDuCtIon vIoLAtes eu LAW

In theArgenta Spaarbank NV v BelgischeStaat case (C-350/11), the EuropeanCourt o Justice (CJEU) has ruled thatthe Belgian notional interest deductioninringes the European principle o reedom oestablishment.

The notional interest deduction is a taxdeduction that is calculated based on acompanys net equity (including capital andreserves) and by applying a xed rate. (For theassessment year 2013, the normal rate is 3%and the increased rate amounts to 3.5%).Certain items should be excluded rom thebasis or computing the notional interestdeduction, including the net equity o a oreignbranch o the Belgian company located in atreaty country.

The discrimination, when determining the basisor calculating the notional interest deduction,relates to the dierence in treatmentbetween a Belgian company with a Belgianestablishment and a Belgian company with aoreign establishment.

The legislation requires the part o the Belgiancompanys net equity (share capital andreserves) which is attributable to a permanentestablishment located in a tax treaty countryto be excluded. Such an exclusion does notapply in relation to a Belgian establishment.In the case at hand, the Belgian companyArgenta Spaarbank NV had to exclude thepart o its net equity attributable to its Dutchpermanent establishment.

The CJEU concluded that the Belgian rulesare incompatible with the European principleo reedom o establishment, and rejected alljustications brought orward by the Belgiangovernment.

Belgium will now have to amend its legislation,and companies will be able to make a ormalcomplaint or request or ex ocio tax relie,in order to obtain a revision o their initial taxassessment, or periods o up to ve years ago.

MARC [email protected]+32 2 778 0100


11/20


DenMARkCoRPoRAte InCoMe tAX RAtes to Be ReDuCeD

The Danish Parliament has voted toreduce the rate o corporate incometax over the next ew years, in line withinternational trends and to assist growth andemployment and attract oreign investors.

The proposed rates are as ollows:

Tax year Rate

2013 25%

2014 24.5%

2015 23.5%

2016 22%

The reduced rates will not apply to businessesin the oil and gas industry, and nancialbusinesses will not benet rom the reductions,as they will be oset by correspondingincreases in payroll duty.

It is anticipated that the changes will resultin tax savings or companies o aboutDKK 700 million in 2014 and DKK 4.3 billionby 2016.

HANS-HENRIK [email protected]+45 39 15 52 00

netHeRLAnDsPARtICIPAtIon eXeMPtIon: CoMPARtMentALIsAtIon AnD CHAnges In LAW

The Dutch Supreme Court has previouslyruled that capital gains on the sale oa subsidiary are only exempted underthe participation exemption regime insoaras the increase in value o the subsidiaryoccurred in a period in which the participationexemption applied. I, due to a change o acts,the subsidiary did not qualiy as an exemptedparticipation during a certain period, valueaccrued during this period is not exemptedwhen a gain is realised, irrespective o

whether the participation exemption regimeapplies at the time o realisation. This time-apportionment o results to the respectiveexempted and non-exempted periods becameknown as compartmentalisation.

On 14 June 2013, in case 11/04538, theSupreme Court made a urther ruling withregard to compartmentalisation. The Courtruled that when the participation exemptionregime commences to apply due to a changein the legislation, the compartmentalisationo results is not mandatory. This decisionoverrules the explicit intention o the

legislator, who, in Parliament, stated thatcompartmentalisation should apply in thisscenario. The Supreme Court stated that inapplying the law, one must in principle assumedirect applicability o newly issued legislation.I the legislator intends to deviate rom thisprinciple, grandathering legislation shouldbe issued in which such an intention is giveneect.

On the same day the State Secretary oFinance announced new legislation to minimisethe consequences o the Supreme Courtdecision. The announced law should have

eect as rom 14 June 2013. We expect thisnew legislation will be in accordance with thelegislators intention as stated in parliament,and as such will introduce rules or applyingcompartmentalisation ollowing changes in therules o the participation exemption regime.

DeFeRRAL oF PAyMent oF eXIt

tAXAtIonOn 29 May 2013 the Dutch Tax CollectionAct 1990 (Invorderingswet) was amendedin relation to unrealised gains arising on therelocation o a companys place o eectivemanagement. Under the new rules thepayment o exit tax may be postponed tothe uture. This amendment results rom theruling o the European Court o Justice on29 November 2011 in the National Grid Induscase which concerned Dutch exit tax imposedon a company that relocated its place oeective management rom the Netherlands tothe United Kingdom.

In the meantime the deerral o payment wasgoverned by a policy statement. I a companytransers its place o eective managementoutside the Netherlands to a member stateo the EU or EEA, or a country that hasconcluded a tax treaty with the Netherlands,then generally it is deemed to have alienatedits assets and liabilities at air market valueand deemed to have released its reserves andprovisions, unless and to the extent that suchassets and liabilities remain attributable to aDutch permanent establishment.

The new rules provide that the related taxliability (exit tax charge) does not need to bepaid immediately. Instead, upon the taxpayerselection, payment can either be postponeduntil the relevant inherent gains and goodwillare realised, or be paid in 10 equal annualinstalments. Various rules and conditionsapply. The new legislation has retrospectiveeect to 29 November 2011.

HANS [email protected]+31 10 24 24 600


12/20


sPAIneuRoPeAn CouRt oF justICe RuLes AgAInst sPAnIsH CoRPoRAte eXIt tAX RuLes

The European Court o Justice (CJEU), inthe European Commission v Kingdomo Spain case (C-64/11), has ruled thatthe Spanish exit tax rules or companies arein breach o the reedom o establishment

principle (Article 49, Treaty o the Functioningo the European Union).

The current Spanish rules require immediatepayment o tax on unrealised capital gains on atranser to another Member State o the placeo residence o a company established in Spainor o the assets o a permanent establishment

situated in Spain. These rules will now haveto be amended, as the CJEU decided thatthey discriminate against transers to anotherMember State, as no immediate payment otax is required or comparable transers withinSpain.

Aected companies may now be able tosubmit tax repayment claims, i they have notalready done so.

This is part o a general trend we noted

in World Wide Tax News (May 2012) that,ollowing the CJEUs decision in the NationalGrid Indus case, the Netherlands and Italy werealso amending their corporate exit tax rulesto allow or the deerral o payment o tax onunrealised gains, as is the UK (see World WideTax News, May 2013).

CARLOS [email protected]+34 914 364 190

sWItZeRLAnDCoRPoRAte tAX ReFoRM - eu InCReAses PRessuRe on sWItZeRLAnD

Switzerland positioned itsel over the pastdecades as an attractive location ormultinational companies. A continuous

development o its tax attractivenessencouraged many companies to move theirbusiness or some activities to Switzerland.For many years, this successul developmentgenerated substantial tax revenues and createda high number o workplaces. The controversybegan back in 2005 when the EU criticised itstax policy regarding holding, administrationand mixed companies (privileged companies),due to unequal treatment o domestic andoreign income o the privileged companies.

Ater a ailed arrangement or an amendmentproposed by Switzerland in 2009, and withoutachieving a compromise solution in thedialogue about the application o the EUs codeo conduct to Switzerlands corporate taxationsystem during 2010, talks ended in 2012without any signicant results.

Since September 2012 the EU has increased itspressure on Switzerlands corporate taxationsystem, and threatens new blacklists or suchtax havens, including Switzerland. Despite theact that Switzerland is not a member state,the EU wants it to align its corporate taxationto EU-conormity in the ollowing areas:

Taxation arrangements with principalcompanies;

The Swiss participation deduction rules; and

Prohibition o granted tax relies.

The negotiations with the EU concerningtaxation rules o privileged companies are ogreat importance or Switzerland due to themobile nature o such companies. Severalmultinational companies have their domicile,R&D department and/or nancial and salesactivities located in Switzerland, whichgenerate a direct eect and also a positiveindirect impact on the economy. Thereoreit is even more important or Switzerlandto strengthen its attractiveness in theinternational tax competition. In recent yearsnumerous European as well as internationalcompeting destinations have sought to attract

mobile multinational companies with theirown tax regimes. Eective tax rates rom 2%to 10 %, depending on the activity, degree andcountry, reveal that Switzerland needs to act tostill be perceived as one o the most attractivetax locations.

Even though it is realistic that Switzerlandsprivileged holding taxation cannot bemaintained in uture, it is important tosaeguard its strong position in the longrun. Thereore, substitute tax measures arerequired, such as the introduction o an EU-compatible licence box and a general reductiono corporate income tax. A dierent way tomaintain tax attractiveness is the eliminationo tax obstacles, especially the ollowing ones:

The abolition o stamp tax on the issue oequity;

Improvements in external group nancing(withholding tax); and

Enhancement o participation deduction.

There will need to be simultaneousconsideration o a controversial politicaldecision-making process and o legal andplanning certainty or the groups concerned,and reasonable transitional periods arerequired until concrete provisions enter intoorce in our or ve years.

THOMAS KAUFMANN

[email protected]+41 44 444 37 15


13/20


unIteD kIngDoMsuPReMe CouRt RuLes on CRoss BoRDeR Loss ReLIeF test

The long-running saga concerningwhether Marks & Spencer Plc (M & S)is entitled to claim relie or losses o itsGerman and Belgian subsidiaries rom 1998 to2002 has moved one step nearer its conclusion.

BACkgRounDIn 2005 the European Court o Justice (CJEU)ruled that it was contrary to EU law toprevent the surrender o losses by a non-resident subsidiary which had exhausted thepossibilities or obtaining relie in its state oresidence. The UK then amended its rules toallow such a surrender, but imposed conditionswhich made it almost impossible or relie to beclaimed in practice.

One o the points at issue was the time atwhich a company was required to demonstrate

that there was no possibility o obtaining reliein its own state o residence, in any previousor uture accounting period. HM Revenue& Customs (HMRC) contended that thishad to be demonstrated on the basis o thecircumstances existing at the end o theaccounting period in which the losses inquestion arose. The taxpayer argued thatthe appropriate time was the date on whichthe company made a claim to surrender therelevant loss.

DeCIsIonThe Supreme Court ruled that the appropriatetime was the date on which the company madea claim, as the exercise was a actual one, andthe claimant company should be given theopportunity to deal with it in as realistic amanner as possible. HMRCs approach meantthat there would be no realistic chance osatisying the conditions it would hardlyever be possible, based on circumstances atthe end o the relevant accounting period, toexclude the possibility that the surrenderingcompany could obtain loss relie in its ownMember State.

IMPLICAtIonsM & S (and other companies who have madesimilar claims) have overcome another hurdlein their long quest to obtain loss relie, but theSupreme Court still has to rule on the ollowingpoints:

Can sequential/cumulative claims be made bythe same company or the same losses o thesame surrendering company in respect o thesame accounting period?

Does the principle o eectiveness requireM & S to be allowed to make resh pay andle claims now that the CJEU has identiedthe circumstances in which losses may betranserred cross-border, when at the timeM & S made those claims there was no meanso oreseeing the test established by the

court?

What is the correct method o calculating thelosses available to be transerred?

It is expected that the next Supreme Courthearing to decide these issues will be towardsthe end o 2013, with judgement being givenin 2014.

NICK [email protected]+44 20 7893 2410


14/20


ARgentInAneW DeFInItIon oF tAX HAvens

DetAILs oF tHe CHAnge

On 30 May 2013 a Decree o theExecutive Power was published in theOcial Bulletin o the Republic oArgentina, modiying the list o countries andjurisdictions considered as tax havens in theArgentine legislation.

Previously, the list included jurisdictionswhich had low or zero taxation, but now theguiding parameter is their collaboration insharing tax inormation with the ArgentineTax Authority. A territory will thereore notnow be considered a tax haven as long as itsgovernment has started negotiations with theRepublic o Argentina with the aim o signingan agreement to share tax inormation or anagreement to avoid double taxation, with abroad inormation exchange clause.

IMPLICAtIonsThis change may alter the tax treatment ocertain transactions with oreign parties.

For example, the Argentine Income Taxlegislation establishes that local taxpayers whoown shares in an overseas corporation mustrecognise their income when it is distributed,whether in cash or in kind. Under this criteriono prot recognition, the tax liability thereorearises at the time o dividend distribution.

However, taxpayers must also recogniseannually (i.e. even when they were notdistributed) prots o companies located inlow or zero taxation countries, when 50% ormore o their revenues come rom activities

considered as passive, which in general termsare:

Renting property;

Loans;

The sale o shares, quotas or participations,including interests in trusts or other similarentities;

Deposits in banks or nancial institutions,government bonds, instruments and/orcontracts which do not constitute hedgeunds;

Dividends; or

Royalties.

In such cases the new categorisation ojurisdictions may have the result that income previously recognised on the cash basis mustnow be recognised on the accruals basis. Themere reclassication o jurisdictions couldthereore mean that the income must berecognised earlier.

It should also be noted that the Income TaxLaw restricts the deduction o certain expensespaid to persons residing in countries consideredas tax havens. It specically provides thatexpenses paid by local companies which

may result in prots o Argentine sourceto persons or entities located, constituted,residing or domiciled in jurisdictions o low orzero taxation, can only be taken into accountor tax purposes when paid in cash or in kind, orput at disposal in any orm (such as a credit toan account).

It particularly important to point out thatbeyond other more specic impacts that thischange might have, there are also TranserPricing implications and implications orpersons who obtain unds rom such countries.Any transaction entered into involving

jurisdictions classed as tax havens mustundergo Transer Pricing analysis; persons whoobtain unds rom such jurisdictions must alsoirreutably demonstrate the source thereo.

Finally, it should also be noted that the TaxAuthority establishes the assumptions ordetermining whether there is eective sharingo inormation, and the conditions or startingnegotiations or the signing o inormationsharing agreements, so we look orward to theregulations that the Tax Authority may deliver.

ALBERTO F. [email protected]+54 11 5274 5100


15/20


unIteD ARAB eMIRAtesDuBAI ConsuLts on neW tAX LegIsLAtIon

Apublic consultation on a number olegislative amendments has beenlaunched by the regulator o theDubai International Financial Center (DIFC).Included within this consultation is the

consideration as to whether to bring thetax-ree zones regulatory regime in line withinternational tax transparency standards.

The DIFC Authority has proposed to amend anumber o DIFC laws and regulations to ensurethey are compliant with the requirementsas set out by the Organisation or EconomicCooperation and Developments GlobalForum on Transparency and the Exchange oInormation or Tax Purposes. In addition tothis they have proposed amendments to theArbitration Law to align it with the New YorkConvention.

The DIFC intends to make amendments tothe Companies Law, the General PartnershipLaw, the General Partnership Regulations,the Limited Partnership Law, and the LimitedLiability Partnership Law in order to meet beststandards on tax transparency.

The DIFC Authority is also proposing to includetransitional provisions in the Non-ProtIncorporated Organisations Law, to enableexisting Non-Prot organisations to becomeNon-Prot Incorporated Organisations withouthaving to dissolve and re-incorporate.

PRIYESH [email protected]+971 4 2222 869


16/20


CAnADAneW oFFsHoRe PRoPeRty AnD InCoMe RePoRtIng RequIReMents

On 25 June 2013 the ParliamentarySecretary Cathy McLeod announcedthe launch o a strengthened ForeignIncome Verication Statement (Form T1135),one o the Economic Action Plan 2013

measures to crack down on international taxevasion and aggressive tax avoidance.

Starting with the 2013 taxation year, Canadianswho hold oreign property with a cost o overCAD 100,000 will be required to provideadditional inormation to the CanadianRevenue Agency (CRA). The criteria or thosewho must le a Foreign Income VericationForm (T1135) has not changed; however, thenew orm has been revised to include moredetailed inormation on each specied oreignproperty.

Increased reporting requirements include: The name o the specic oreign institution orother entity holding unds outside Canada;

The specic country to which the oreignproperty relates; and

The income generated rom the oreignproperty.

The CRA will use the additional inormationto ensure all taxpayers comply with Canadiantax laws, through activities including educationand audit.

Economic Action Plan 2013 also proposesto extend the reassessment period or a taxyear by three years i a taxpayer has ailedto report income rom a oreign property ontheir income tax return and Foreign IncomeVerication Form (T1135) was not led,late-led, or included incorrect or incompleteinormation concerning a oreign property.

The Financial Secretary stated: Thestrengthened reporting requirements are justone example o the actions being taken by ourGovernment to crack down on tax cheats.

STAN [email protected]+1 416 369 6038


17/20


unIteD stAtes oF AMeRICAHoW FAtCA WILL AFFeCt eveRy BusIness MAkIng CRoss-BoRDeR PAyMents WItH tHe unIteD stAtes

IntRoDuCtIon

Beginning in 2014, cross-border paymentswith the United States will be generallysubject to additional reportingobligations under the Foreign Account TaxCompliance Act (FATCA).

FATCA is generally viewed as imposing aheavy burden on United States and oreignnancial institutions. Such nancial institutionswill be required to undergo rigorous duediligence procedures to identiy and reportUnited States persons and their oreignnancial accounts. However, the legislationsimpact is much broader, and will aectmultinational corporations and all personsmaking or receiving United States withholdablepayments.

As evidenced by the recently released dratForm 1042-S, Foreign Persons U.S. SourceIncome Subject to Withholding, as well asthe new W-8 series (also still in drat), uturewithholdable payments by any United Stateswithholding agent to any oreign recipient mustsatisy FATCA documentation requirements orsuer the 30% withholding tax.

FAtCA BRoADeR tHAn It seeMsThe ollowing two examples illustrate the widerimpact o the FATCA requirements:

In the case o a dividend or interest paymentto a oreign parent company, or a royaltyto a oreign licensor, a United States payer(withholding agent) will have to obtain thenecessary FATCA-related certicationsrom the payee (typically a Form W-8BEN,Certicate o Status o Benecial Owner orUnited States Tax Withholding, or W-8BEN-E,Certicate o Status or Benecial Owner orUnited States Tax Withholding (Entities)).I the payee is not properly identied, a30% withholding tax will apply, even i therecipient is otherwise entitled to a lower taxrate under a tax treaty.

When a United States subsidiary pays adividend to its oreign parent company,the parent must determine i it is a oreignnancial institution (FFI) or a nonnancialoreign entity (NFFE), and, i it is an NFFE,whether it has an active business or perhapssubstantial United States owners. There aremore than 30 entity categories to chooserom, and one should not expect the oreignpayee to nd these rules sel-explanatory.

nonFInAnCIAL FoReIgn entItIesAn NFFE is dened as any non-United Statesentity that is not a nancial institution (suchas a bank, investment und, or investmententity). Unless the NFFE is a publicly-tradedcorporation (or aliated with a publicly-tradedcorporation) it must determine whether it isactive or passive. An active NFFE is an NFFEwhose passive income is less than 50% o itsgross income and whose passive assets areless than 50% o its total assets. To avoidwithholding under FATCA, a passive NFFE mustcertiy to the withholding agent that it doesnot have any substantial United States ownersor, i it does, it must disclose the identities osuch owners.

Assuming that, outside the nancial servicesindustry, most payments will be betweenUnited States and oreign nonnancial entities,oreign payees should still understand thata company with an active business maynevertheless qualiy as an FFI i it has alsoa large investment portolio. On the otherhand, a amily-owned company that is notproessionally managed should be a passiveNFFE even i its sole purpose is to makeinvestments. Such a passive NFFE must thendisclose its substantial United States owners(i any).

WItHHoLDABLe PAyMentsThe withholding obligations under FATCA applyto withholdable payments, which are:

1. United States source xed or determinableannual or periodical income, such asdividends, interest, rents, royalties, etc.(subject to withholding beginning on1 July 2014); and

2. Gross proceeds rom the sale or redemptiono securities that produce or could produceUnited States source interest or dividends(subject to withholding beginning on1 January 2017).

FoRM 1042-sOn 2 April 2013, the Service published the newdrat 2014 Form 1042-S, in order to refectthe new reporting requirements. A key changerom the current Form 1042-S is that therecipient has to determine its status separatelyor purposes o Chapter 3 (general non-resident withholding) and Chapter 4 (FATCA).Likewise, the exemption codes are to be splitinto those applicable to Chapter 3 and thoseapplicable to Chapter 4.

Important status codes or NFFEs include:Code 21 (passive NFFE identiying substantialUnited States owners), Code 22 (passive NFFEwith no substantial United States owners), andCode 24 (active NFFE). By qualiying under andcomplying with one o the aorementionedstatus codes, the NFFE should not be subject tothe 30% withholding tax and the withholdingagent should not have an obligation towithhold under FATCA. (There may, ocourse, still be a withholding obligation underChapter 3.)

Inormation return reporting on Chapter 4reportable amounts is set to begin on15 March 2015. Form 1042-S is led by theUnited States withholding agent. However, thestatus and exemption categories should mirrorthe inormation provided by the oreign payeewith the new Forms W-8BEN and W-8BEN-E.

MARTIN [email protected]+1 212 885 8000


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CONTACTContact Mireille Derouane in Brusselson [email protected] or+32 (0)2 778 0130or more inormation.

www.bdointernational.com

This publication has been careully prepared, but it has been writtenin general terms and should be seen as broad guidance only. Thepublication cannot be relied upon to cover specic situations and youshould not act, or rerain rom acting, upon the inormation containedherein without obtaining specic proessional advice. Please contactthe appropriate BDO Member Firm to discuss these matters in thecontext o your particular circumstances. Neither the BDO network,nor the BDO Member Firms or their partners employees or agents

BDO is an international network o public accounting rms, the BDOMember Firms, which perorm proessional services under the nameo BDO. Each BDO Member Firm is a member o BDO InternationalLimited, a UK company limited by guarantee that is the governingentity o the international BDO network. Service provision within theBDO network is coordinated by Brussels Worldwide Services BVBA, alimited liability company incorporated in Belgium with its statutoryseat in Brussels.

Each o BDO International Limited, Brussels Worldwide ServicesBVBA and the member rms o the BDO network is a separate legalentity and has no liability or another such entitys acts or omissions.Nothing in the arrangements or rules o the BDO network shallconstitute or imply an agency relationship or a partnership betweenBDO International Limited, Brussels Worldwide Services BVBA and/orthe member rms o the BDO network

CuRRenCy CoMPARIson tABLe

The table below shows comparative exchange rates against the euro and the US dollar or thecurrencies mentioned in this issue, as at 29 July 2013.

Currency unit Value in euros (EUR) Value in US dollars (USD)

Australian Dollar (AUD) 0.69679 0.92533

Canadian Dollar (CAD) 0.73215 0.97243

Danish Krone (DKK) 0.13410 0.17816

Euro (EUR) 1.00000 1.32764

US Dollar (USD) 0.75290 1.00000

Documents

BDO World Wide Tax News. August 2013 ISSUE 32