Article 9(B) of the Income Tax Law 2002 (as amended) provides for a notional interest deduction for tax purposes on new equity capital injected into companies and permanent establishments of foreign companies on or after January 1 2015 to finance business assets, calculated by applying a reference rate to the new equity. The Tax Department recently announced the 10-year government bond yields for December 31 2017, which will be used as the basis for the notional interest deduction for the 2018 tax year.
The Process of Adjustment of Tax Arrears Law 2017 establishes a procedure for settling tax arrears by monthly instalments and provides a waiver of interest and penalties of up to 95% for all nationally imposed taxes. Although the law was enacted in February 2017, it did not take effect immediately in order to allow time for the necessary payment systems to be implemented. The deadline for submitting applications to participate in the scheme was originally set at three months, but was recently extended.
Cyprus and Saudi Arabia recently signed an agreement for the avoidance of double taxation with respect to taxes on income and the prevention of tax evasion. The agreement provides for the exchange of financial and other information in accordance with the relevant article of the Organisation for Economic Cooperation and Development Model Convention for the Avoidance of Double Taxation on Income and on Capital. It will take effect once formal ratification procedures have been completed.
The Tax Department recently issued Interpretative Circular 14, which has clarified the application of the Income Tax Law regarding a deemed benefit which is to be assessed on any drawings, loan or other financial facilities granted by a company to a non-resident director or shareholder or their spouse or close relatives. The circular clarifies that the deemed benefit is taxable in full, regardless of the period of residence of the individual in question.
The Cyprus Tax Department recently clarified the treatment of additional taxes imposed under the Assessment and Collection of Taxes Law. The department has specified that any additional tax is to be treated as such, meaning that penalties and interest will be imposed if they are not paid on time. The taxes are included under the term 'corporation tax' and are deductible from accounting profits for the purpose of calculating the deemed distribution for special defence contribution tax.
After the recent economic slowdown mainly caused by ISIS-related security concerns and the reduction in oil prices, the Kurdistan regional government has taken several measures to ensure that all taxes are being collected. These measures include a recent public notice announcing that all companies that fail to file their audited financial statements and pay their taxes before June 30 2016 will be taken to court.
The recently approved Budget Law has harmonised the taxation of dividends and capital gains earned by non-business individuals on substantial and non-substantial participation held in Italian and foreign companies, among other things. Companies and partnerships will be unaffected by these changes, as the distinction between substantial and non-substantial participation is irrelevant.
The notional interest deduction (NID) regime has been in effect since the 2011 fiscal year. Under this regime, Italian resident companies and permanent establishments of non-resident companies may deduct notional interest from their corporate income taxable base. The NID is calculated according to the equity increase (ie, new equity rate) from the end of the 2010 fiscal year, multiplied by a rate determined annually.
Articles 1(145) and (146) of Law 208/2015 provide that the parent company of a multinational group resident in Italy must file a country-by-country report with the tax authorities within the specified time limit. The secondary legislation enacted by the Ministry of Finance's February 2017 decree-law provides further details on country-by-country reporting requirements and application rules, considering Organisation for Economic Cooperation and Development recommendations and EU Directive 2016/881/EU.
The Budget Law 2017 has introduced an innovative tax regime based on a substitute flat tax reserved for new eligible individuals who transfer their tax residency to Italy. The new tax regime is based on the non-domiciled resident approach already adopted in the United Kingdom and other EU countries and aims to attract high-net-worth individuals and their relatives to Italy and increase foreign investment.
The Tax Authority recently issued Circular Letter 35/E, which clarifies Italy's controlled foreign companies (CFC) regime in light of recent changes under Budget Laws 190/2014 and 208/2015 and Decree-Law 147/2015. The black-list criteria provided for CFC purposes have been significantly revised and, if a CFC is deemed to exist, material clarifications have been provided with regard to the taxation of dividends paid which are – in principle – fully taxable in the hands of the Italian receiving company.
At the end of 2017, a number of amendments to the Tax Code came into force which significantly increased the scope of information and documents that Russian divisions of some international companies must submit to the tax authorities. Russian companies and foreign companies subject to taxation in Russia must now provide a notice of participation in an international group of companies and so-called 'country information'.
The legislature is in the process of adopting a number of tax benefits intended to stimulate the development of innovative companies and marquee investments in Russia. A new law has expanded the list of expenses that can be excluded from taxable profits. Further, recently passed draft bills have introduced a new investment tax deduction and determined the terms for enforcing the concessionary income tax rates available to investors implementing large investment projects in certain areas.
Article 54.1 of the Tax Code recently came into force. It introduces new rules and definitions regarding legitimate tax optimisation and aims to clarify what is considered legitimate optimisation and what is considered tax evasion. Further, the new rules require the tax authorities to use a less formal approach when assessing the reasonableness of a tax benefit and strive to understand the economic intent of the relevant taxpayer's operations.
Russia recently signed the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (BEPS), which was developed to implement Action 15 of the BEPS Plan. Ratification of the convention will be a serious step towards implementing the measures envisaged in the BEPS Plan, which will change the existing double tax treaty system and have a significant impact on the functioning of international groups of companies in Russia.
The Federal Tax Service recently issued a notification entitled On Identifying the Circumstances of an Unjustified Tax Benefit, which summarises the law enforcement practice associated with assessing the validity of a tax benefit in disputes relating to bad-faith contracting parties. The notification will contribute to the reduction of companies' tax risks relating to an assessment of the validity of their tax benefit when dealing with contracting parties.
The South African Revenue Service (SARS) recently published a binding private ruling on the application of Paragraph 38(1) of the Eighth Schedule to the Income Tax Act to the distribution of shares by a trust to beneficiaries in the context of an employee share scheme. Although SARS stated that Paragraph 38(1) was not applicable to the trust's distribution of shares, the matter is complicated by the interaction between Section 8C of the act and the rules contained in the Eighth Schedule.
The South African Revenue Service (SARS) recently released a binding class ruling which addressed, among other things, the eligibility of a partner in an en commandite partnership to claim a deduction in respect of venture capital shares acquired by the partnership. SARS ruled that subject to the Income Tax Act, each class member will be entitled to claim the deduction pro rata to its proportionate share of the investment in the partnership.
The Tax Court recently delivered a judgment that will be of interest to any taxpayers involved in prolonged disputes with the South African Revenue Service (SARS), particularly where there are delays on the part of SARS. The case involved an application by the taxpayer for default judgment and an application by SARS for condonation for the late filing of its answering affidavit opposing the default judgment application.
For the purposes of determining a party's taxable income derived from carrying on a trade, the Income Tax Act provides for the deduction of legal expenses which arise during or by reason of its ordinary trading operations. However, in order for a taxpayer to deduct legal expenses, they must relate to a claim, dispute or action at law. Further, they must have arisen during or by reason of the taxpayer's ordinary operations undertaken in the course of its trade and must not be of a capital nature.
The process of applying for a value added tax (VAT) ruling is quite efficient and comes at no cost to the applicant. Such a ruling provides guidance as to the South African Revenue Service's views on certain transactions before entering into them and therefore mitigates the risks of proposed transactions. As there is virtually no risk in applying for a VAT ruling, it is advisable to apply for such a ruling in cases of uncertainty.