This update summarizes recent developments relating to OECD BEPS, and how Luxembourg, Poland and Spain are introducing legislation in response.
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On 2-3 November 2015, the OECD’s Task Force on Tax and Development met to review progress during 2015, including the latest on the OECD BEPS project. Representatives of governments, international and regional organizations, non-governmental organizations, and business participated in the discussions. The Task Force welcomed the final BEPS package, which includes measures that could help developing countries address some of the issues related to domestic resource mobilization. The Task Force also has supported the development of practical tools to translate the recommended measures to address BEPS under the various Actions into approaches suitable for deployment in developing countries.
On 3-4 November 2015, the OECD hosted the Global Forum on Tax Treaties, with representatives of more than 100 jurisdictions participating. A focus of the discussions was the treaty-related measures recommended in the OECD final reports on several of the BEPS Actions as ways of addressing double non-taxation. The discussions also confirmed views that double taxation should be avoided and legal certainty should be improved. In addition, the discussions underscored the importance of ensuring that BEPS is addressed with global solutions.
On 5-6 November 2015, the Ad Hoc Group for the development of a multilateral instrument had its inaugural meeting. Currently 94 countries have agreed to participate in the work of the group. At the meeting, decisions were made on organizational matters and on approaches for addressing key substantive matters, with the aim of being able to open the multilateral instrument for signature in 2016. In addition, a sub-group of interested countries was established to develop an optional provision on mandatory binding arbitration as a dispute resolution mechanism under treaty mutual agreement procedures to be included in the multilateral instrument.
Also on 5-6 November, representatives of more than 100 countries participated in the annual meeting of the OECD Global Forum on Value Added Tax (VAT). The countries endorsed the new OECD International VAT/GST Guidelines. Included in the Guidelines is the guidance on the application of VAT to cross-border supplies of services and intangibles that was issued in discussion draft form in December 2014 and that is an element of the OECD’s work on BEPS Action 1 and the tax challenges of the digital economy.
On 14 October 2015, the Minister of Finance presented the draft 2016 Luxembourg budget law. In his speech to the members of Parliament, the Minister emphasized the need to adapt to a new tax environment where key considerations are transparency and exchange of information, as well as the alignment of taxation with economic activities and value creation. In this context, the budget law contains a measure abolishing the existing preferential tax regime for income derived from qualifying intellectual property as of 1 July 2016. However, a grandfathering period of five years will be in place during which it is still possible to benefit from this regime under specific conditions.
On 27 October 2015, Poland adopted amendments to its tax laws including the Corporate Income Tax Act and the Personal Income Tax Act that make significant changes to the transfer pricing documentation rules that are in line with the OECD’s three-tiered approach under BEPS Action 13. The new documentation requirements will include a Local File for taxpayers with turnover exceeding €2 million, a Master File for taxpayers with turnover exceeding €20 million and a CbC report for Polish resident ultimate parent entities of multinational groups with consolidated turnover above €750 million. The new rules do not foresee a secondary filing mechanism such as is included in the Action 13 report. There is no specific penalty regime for not complying with the CbC reporting obligation; rather, the general rules under the Polish Fiscal Penal Code will apply. These new transfer pricing rules generally will enter into force as of 1 January 2017, with the exception of the obligation to prepare the CbC report which is applicable to fiscal years beginning after 31 December 2015.
On 27 October 2015, Poland also adopted amendments to the local exemption regime based on the amended EU Parent-Subsidiary Directive. Under the anti-abuse rule that was enacted, the participation exemption for dividends, as well as the exemption from withholding tax on outbound dividends, will not apply if dividends are connected with an agreement, a transaction or a legal action or multiple linked actions for which the main purpose, or one of main purposes, was benefiting from such exemptions and which do not reflect economic reality. The new rule will be in force as of 31 December 2015.
On 30 October 2015, the Spanish Official Gazette published the General Budget Law for year 2016, including the introduction of the modified nexus approach included in the OECD’s final report under BEPS Action 5 on harmful tax practices and supported by the European Union. The new approach will allow benefits granted with respect to intellectual property income in line with the expenditures linked to generating such income. The amendments will enter into force as from 1 July 2016. Grandfathering provisions will apply to licensing agreements in place before that date.