CONTENTS ▶ CANADA

▶ EDITOR’S LETTER

▶ ASIA PACIFIC - Singapore

▶ EUROPE AND THE MEDITERRANEAN - European Union - Belgium - Denmark - Finland - France - Germany - Latvia - Netherlands - Spain - Switzerland - United Kingdom

▶ LATIN AMERICA - Chile

▶ MIDDLE EAST - Kuwait

▶ Currency comparison table

CANADA2014 FEDERAL BUDGET: INTERNATIONAL HIGHLIGHTS

Finance Minister Jim Flaherty tabled the 2014 Federal Budget on 11 February 2014. Some of the proposed measures of

international interest are summarised below.

IMMIGRATION TRUSTSIf a person resident in Canada contributes property to a non-resident trust, the “deemed residence rules” may apply to treat the non-resident trust as resident in Canada. An exemption from the application of the deemed residence rules applies if the contributor was resident in Canada for a period of not more than 60 months. These trusts are often referred to as immigration trusts.

The Budget proposes to eliminate the 60-month exemption for immigration trusts. This measure will apply in respect of trusts for taxation years:

– That end after 2014 if (i) at any time after 2013 and before 11 February 2014 the 60-month exemption applies in respect of the trust, and (ii) no contributions are made to the trust on or after 11 February 2014 and before 2015; or

– That end on or after 11 February 2014 in any other case.

It is very important that existing immigration trust structures be reviewed to determine the impact of these measures as soon as possible, and well before the end of 2014.

CONSULTATION ON TAX PLANNING BY MULTINATIONAL ENTERPRISESIn July 2013 the Organisation for Economic Co-operation and Development (OECD) published a report on “base erosion and profit shifting” (BEPS) at the request of the G20, against the backdrop of the debate on tax revenues. That report proposes an action plan to address perceived weaknesses in the international tax rules. The Canadian government is committed to continuing to improve the integrity of its international tax rules, and as a result it has invited interested parties to submit comments on key areas that relate to tax planning by multinational enterprises.

The government is also inviting comments on what actions should be taken to ensure the effective collection of sales tax on e-commerce sales to residents of Canada by foreign-based vendors.

CONSULTATION ON TREATY SHOPPINGIn last year’s Budget, the government announced its intention to consult on possible measures that would protect the integrity of Canada’s tax treaties by limiting “treaty shopping” while still preserving a business tax environment that is conducive to foreign investment. A consultation paper was publicly released on 12 August 2013 to provide stakeholders with an opportunity to comment on possible measures until 13 December 2013.

In order to further advance the discussion in this area, the government has invited comments from interested parties, within 60 days after 11 February 2014, on a proposed domestic rule to prevent treaty shopping. A number of examples in the Budget papers show the intended application of the proposed rule, which is intended to address arrangements identified as an improper use of Canada’s tax treaties in the consultation paper. A more detailed summary is available at http://www.bdo.ca/en/Library/Services/Tax/pages/Tax-Alert-Treaty-Shopping-Rules-Are-On-the-Way.aspx

SWITZERLANDChanges to principal companies requirements

READ MORE 13

KUWAITNew self-assessment and transfer pricing rules

READ MORE 16

SINGAPOREBudget 2014 highlights

READ MORE 3

MARCH 2014 ISSUE 34 WWW.BDOINTERNATIONAL.COM

WORLD WIDE TAX NEWS

2 WORLD WIDE TAX NEWS

Welcome to this issue of BDO World Wide Tax News. This newsletter summarises

recent tax developments of international interest across the world. If you would like more information on any of the items featured, or would like to discuss their implications for you or your business, please contact the person named under the item(s). The material discussed in this newsletter is meant to provide general information only and should not be acted upon without first obtaining professional advice tailored to your particular needs. BDO World Wide Tax News is published quarterly by Brussels Worldwide Services BVBA in Brussels. If you have any comments or suggestions concerning BDO World Wide Tax News, please contact the Editor via the BDO International Executive Office by e-mail at mderouane@bwsbrussels.com or by telephone on +32 (0)2 778 0130.

Read more at www.bdointernational.com

EDITOR’S LETTER

CANADA - continuation

BACK-TO-BACK LOANSSome taxpayers have sought to avoid either or both the thin capitalisation rules and Part XIII withholding tax through the use of so-called “back-to-back loan” arrangements. The Budget proposes to address back-to-back loan arrangements by adding a specific anti-avoidance rule in respect of withholding tax on interest payments, and by amending the existing anti-avoidance provision in the thin capitalisation rules. Specifically, a back-to-back loan arrangement will exist where, as a result of a transaction or series of transactions, certain conditions are met.

Where a back-to-back loan arrangement exists, appropriate amounts in respect of the obligation, and interest paid or payable thereon, will be deemed to be owing by the taxpayer to the non-resident person for purposes of the thin capitalisation rules.

The taxpayer will, in general terms, also be deemed to have an amount of interest paid or payable to the non-resident person that is equal to the proportion of the interest paid or payable by the taxpayer on the obligation owing to the intermediary that the deemed amount owing is of that obligation. Part XIII withholding tax will generally apply in respect of a back-to-back loan arrangement to the extent that it would otherwise be avoided by virtue of the arrangement.

This proposed measure will apply in respect of the thin capitalisation rules, to taxation years that begin after 2014, and in respect of Part XIII withholding tax, to amounts paid or credited after 2014.

CAPTIVE INSURANCEA specific anti-avoidance rule in the foreign accrual property income (FAPI) regime is intended to prevent Canadian taxpayers (e.g. financial institutions) from shifting income offshore from the insurance of Canadian risks. This rule provides that income from the insurance of Canadian risks is FAPI where 10% or more of the gross premium income (net of reinsurance ceded) of a foreign affiliate of the Canadian taxpayer is premium income from Canadian risks.

In an attempt to challenge sophisticated swap arrangements, the Budget proposes to amend the existing anti-avoidance rule in the FAPI regime relating to the insurance of Canadian risks. For taxation years beginning after 10 February 2014, clarifications will ensure the rule applies when:

– Taking into consideration one or more agreements or arrangements entered into by the foreign affiliate, or by a person or partnership that does not deal at arm’s length with the affiliate, the affiliate’s risk of loss or opportunity for gain or profit in respect of one or more foreign risks can – or could if the affiliate had entered into the agreements or arrangements directly – reasonably be considered to be determined by reference to the returns from one or more other risks (the tracked risks) that are insured by other parties; and

– At least 10% of the tracked risks are Canadian risks.

Where the anti-avoidance rule applies, the affiliate’s income from the insurance of the foreign risks and any income from a connected agreement or arrangement will be included in computing its FAPI.

OFFSHORE REGULATED BANKSIncome from an investment business carried on by a foreign affiliate of a taxpayer is included in the affiliate’s FAPI. Most financial services businesses would be considered investment businesses under the FAPI regime, but for certain exceptions in the definition of investment business. One of those exceptions applies to foreign banks and similar institutions. Certain Canadian taxpayers that are not financial institutions purport to qualify for the regulated foreign financial institution exception (and thus avoid Canadian tax) by establishing foreign affiliates and electing to subject those affiliates to regulation under foreign banking and financial laws.

The Budget proposes to add new conditions to qualify under the regulated foreign financial institution exception. This measure will apply to taxation years of taxpayers that begin after 2014.

To ensure that the measure is appropriately targeted, stakeholders are invited to submit comments concerning its scope within 60 days after 11 February 2014.

ROSE CROSSrcross@bdo.ca +1 416 369 6054

BRUCE BALLbball@bdo.ca +1 416 865 0111

3WORLD WIDE TAX NEWS

SINGAPOREBUDGET 2014 HIGHLIGHTS

Singapore Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam delivered

the 2014 Budget Speech on 21 February 2014. We summarise below some of the highlights of international interest.

PRODUCTIVITY AND INNOVATION CREDIT (PIC) SCHEMEThe changes, which are effective from 1 November 2013, are designed to simplify and streamline the process for establishing that companies and individuals applying for relief under the DTA are resident in Hong Kong for tax purposes.

The PIC Scheme, under which businesses that invest in productivity or innovation activities can claim enhanced tax deductions or cash payouts, will be extended for three years until Year of Assessment (YA) 2018. All existing conditions of the scheme in relation to expenditure caps and cash payouts remain unchanged.

Businesses will be able to claim PIC benefits for training expenses incurred on individuals hired under centralised hiring arrangements with effect from YA 2014. Details will be released by the Inland Revenue Authority of Singapore (IRAS) by the end of March 2014.

To reinforce the condition that cash payouts are made to business with active operations, businesses will have to meet the ‘three local employees’ condition for a consecutive period of at least three months prior to claiming the cash payout. This will be effective for PIC cash payout applications from YA 2016.

The tax deferral option will lapse with effect from YA 2015, as the cash payout serves a similar purpose to help business relieve cash flow concerns.

NEW PIC+ SCHEMEA PIC+ Scheme will be introduced for qualifying SMEs. This will increase the expenditure cap from SGD 400,000 to SGD 600,000 per year in each of the six qualifying activities from YA 2015 to YA 2018.

An entity will be a qualifying SME if its annual turnover is not more than SGD 100 million or its employment size is not more than 200 workers. This criterion will be applied at the group level if the entity is part of a group.

The combined expenditure cap under the PIC+ Scheme will be up to SGD 1.4 million for YA 2015, and up to SGD 1.8 million for YA 2016 to YA 2018.

The expenditure cap for PIC cash payouts will remain at SGD 100,000 of qualifying expenditure per YA.

Details will be released by IRAS by the end of March 2014.

EXTENDING RESEARCH AND DEVELOPMENT (R&D) TAX MEASURESTo continue encouraging R&D activities and to give certainty to businesses, the additional 50% tax deduction on qualifying expenditure will be extended for ten years until YA 2025. Businesses can continue to claim tax deductions/allowances on R&D expenditure incurred for R&D in areas unrelated to their existing trade or business, as long as the R&D is conducted in Singapore.

The further deduction of up to 300% on qualifying expenditure will also be available to businesses until YA 2018, in line with the extension of the PIC Scheme, as mentioned above.

Further tax deductions for expenditure incurred on R&D projects approved by the Economic Development Board will also be extended for five years until 31 March 2020.

EXTENDING AND REFINING THE WRITING DOWN ALLOWANCE (WDA) SCHEMETo build Singapore as an Intellectual Property hub, the WDA on the acquisition of qualifying Intellectual Property Rights (IPR) will be extended for five years until YA 2020.

The accelerated WDA for Media and Digital Entertainment (MDE) companies will be extended for three years until YA 2018.

The two categories of information:

(i) Customer-based intangibles; and

(ii) Documentation of work processes

will be excluded as qualifying IPRs through a negative list. The negative list will be published on the IRAS website by the end of April 2014, and will be legislated by the end of December 2014. All other existing conditions of the scheme remain unchanged.

EXTENDING THE TAX DEDUCTION SCHEME FOR REGISTRATION COSTS OF IPThe 100% tax deduction scheme for registration costs of IP will be extended for five years until YA 2020. The further deduction of up to 300% on qualifying costs will also be available to businesses until YA 2018, in line with the extension of the PIC Scheme, as mentioned above.

WAIVING THE WITHHOLDING TAX REQUIREMENT FOR PAYMENTS MADE TO BRANCHES IN SINGAPORETo reduce compliance costs for businesses, payers will not need to withhold tax on payments under the scope of Section 12(6) and 12(7) of the Singapore Income Tax Act (SITA) (i.e. interest, royalties, technical assistance fees, etc.) made to permanent establishments that are Singapore branches of non-resident companies. These branches in Singapore will continue to be assessed for income tax on such payments that they receive, and will be required to declare such payments in their annual tax returns. This will be effective for all payment obligations that arise on or after 21 February 2014.

TREATMENT OF BASEL III ADDITIONAL TIER 1 INSTRUMENTS AS DEBT FOR TAX PURPOSESTo provide tax certainty and maintain a level playing field for Singapore incorporated banks that issue Basel III Additional Tier 1 instruments, such instruments (other than shares) will be treated as debt for tax purposes. Additional Tier 1 instruments are a new type of capital instrument under the Basel III global capital standards.

Therefore, distributions on such instruments will be deductible for issuers and taxable in the hands of the investors, subject to existing rules. The above tax treatment will apply to distributions accrued in the basis period for YA 2015 and thereafter, in respect of such instruments issued by Singapore incorporated banks (excluding their foreign branches) that are subject to Monetary Authority of Singapore (MAS) Notice 637. Details will be released by the MAS by the end of May 2014.

4 WORLD WIDE TAX NEWS

EXTENDING AND REFINING TAX INCENTIVE SCHEMES FOR QUALIFYING FUNDSTo continue to grow and strengthen Singapore’s asset management industry, funds managed by Singapore-based fund managers which are currently enjoying tax concessions under Section 13CA (i.e. trust funds with non-resident trustee and non-resident corporate funds), 13R (i.e. resident corporate funds) and 13X (i.e. enhanced-tier funds) of the SITA will be extended for another five years to 31 March 2019.

The tax concession under Section 13C of the SITA for trust funds with resident trustees will be allowed to lapse after 31 March 2014.

In addition, qualifying funds under Section 13CA (Section 13CA Scheme), Section 13R (Section 13R Scheme) and Section 13X (Section 13X Scheme) will be refined as follows:

(i) The Section 13CA Scheme will be expanded to include trust funds with resident trustees, which are currently covered under Section 13C. This will take effect from 1 April 2014;

(ii) The investor ownership levels applicable to the Section 13CA and Section 13R Schemes will be computed based on the prevailing market value of the issued securities on that day (instead of the historical value of the qualifying funds issued securities). This will take effect from 1 April 2014;

(iii) The list of designated investments will be expanded to include loans to qualifying offshore trusts, interest in certain limited liability companies and bankers acceptances. This will apply to income derived on or after 21 February 2014 from such investments.

All other existing conditions of the above schemes remain unchanged. Details will be released by the MAS by the end of May 2014.

ENHANCING THE FOREIGN SOURCED INCOME EXEMPTION SCHEME FOR LISTED INFRASTRUCTURE REGISTERED BUSINESS TRUSTS (RBTS)The specified scenarios under Section 13(12) of the SITA will be expanded to include dividend income originating from foreign sourced interest income, so long as it is related to the qualifying offshore infrastructure project/asset.

Interest income derived from a qualifying offshore infrastructure project/asset will automatically qualify for Section 13(12) exemption, provided certain conditions are met.

The IRAS will verify that the qualifying conditions are met for the above two scenarios instead of the current case-by-case approval by the Minister for Finance.

Details, including the effective date of these enhancements, will be released by the IRAS by the end of May 2014.

REFINING THE DESIGNATED UNIT TRUST (DUT) SCHEMEFrom 21 February 2014, the DUT Scheme will be limited to retail unit trusts (referred to as a unit trust that is authorised under Section 286 of the Securities and Futures Act and is open to the public for subscription, as well as a unit trust included under the CPF Investment Scheme). Non-retail unit trusts (other types of unit trusts targeted at more sophisticated and institutional investors) will need to consider other fund schemes.

From 1 September 2014, unit trusts will automatically enjoy the benefits of DUT Scheme as long as they fulfil qualifying conditions.

Details will be released by MAS by end May 2014.

RECOVERY OF GOODS AND SERVICES TAX (GST) FOR QUALIFYING FUNDSIn order to strengthen Singapore’s position as a centre for fund management and administration, the GST remission which allows qualifying funds managed by prescribed fund managers in Singapore to claim GST incurred on expenses at a fixed rate, will be extended for another five years till 31 March 2019.

The fixed rate which is applicable throughout the calendar year has ranged from 87% to 93% since the start of GST remission in 2009.

STAMP DUTIESThe stamp duty rate structure has been streamlined with effect from 22 February 2014, as summarised in the following table:

Type of transaction Rate of stamp duty

Leases Up to 4 years tenure: 0.4% of the total rental for the entire lease period.

Over 4 years tenure, or indefinite: 0.4% of four times the average annual rental for the entire lease period.

Buyer’s stamp duty for land premiums and purchase of property

Computed on higher of the purchase price or market value:

First SGD 180,000: 1%

Next SGD 180,000: 2%

Remainder: 3%.

Transfers of stock or shares 0.2% of the higher of the purchase price or market value.

Mortgage instruments Depending on type of instrument, 0.2% or 0.4% of the relevant amount, capped at SGD 500.

EVELYN LIMevelynlim@bdo.com.sg +656 8299 629

HARSH SHAHharsh@bdo.com.sg +656 8299 180

5WORLD WIDE TAX NEWS

EUROPEAN UNIONEUROPEAN COMMISSION PROPOSES AMENDMENTS TO THE PARENT-SUBSIDIARY DIRECTIVE

PLANS TO TACKLE HYBRID LOAN ARRANGEMENTS AND INTRODUCE A COMMON GENERAL ANTI-ABUSE RULE (GAAR)

On 25 November 2013, the European Commission (EC) proposed amendments to key EU corporate tax

legislation, namely to the Parent-Subsidiary Directive (Directive 2011/96/EU). According to its press release, the EC aims to significantly reduce tax avoidance and to close loopholes in the current directive, which some companies have been using to escape taxation. The amendments focus on two key issues: tackling hybrid financial mismatch arrangements and introducing a general anti-abuse rule (GAAR) into the Parent-Subsidiary Directive.

BACKGROUNDThe Parent-Subsidiary Directive was originally passed in July 1990 with the aim of avoiding double taxation for parent companies and their subsidiaries which operate in different Member States by exempting dividends and other profit distributions paid by the subsidiary in the Member State of the parent company.

Over time, some companies have started using hybrid loan arrangements to achieve double non-taxation. These arrangements have characteristics of both equity and debt. Due to different qualifications of the loans in different Member States, the state where the subsidiary is located will treat the payments as a tax deductible expense, while the state where the parent company is located will treat the payments as tax-exempt distributions of profit. As a result, these payments are taxed in neither Member State.

In 2009, the Business Code of Conduct Group had first identified these financial hybrid mismatches as a specific example of double non-taxation. As a solution to this problem, the Group suggested that the recipient Member State should follow the tax qualification given to hybrid loan payments by the source Member State. However, this guidance would not be in line with the current Parent-Subsidiary Directive.

After the European Council and the European Parliament had stressed the need to develop concrete ways to improve the fight against tax evasion, the EC announced its Action Plan from December 2012 to strengthen the fight against tax fraud and tax evasion, and identified the tackling of mismatches between tax systems as one of the actions to be undertaken in the short term, i.e. 2013.

PROPOSAL BY THE ECConsequently, the EC has now published the proposal of the new wording of Article 4 (1) of the Parent-Subsidiary Directive which would avoid distortive effects caused by hybrid loan agreements.

The suggested wording provides that:

“Where a parent company or its permanent establishment, by virtue of the association of the parent company with its subsidiary, receives distributed profits, the Member State of the parent company and the Member State of its permanent establishment shall, except when the subsidiary is liquidated, refrain from taxing such profits to the extent that such profits are not deductible by the subsidiary of the parent company.”

Secondly, the EC plans to update the existing anti-abuse rule in the Parent-Subsidiary Directive in the light of the GAAR proposed in the Commission’s Recommendation on aggressive tax planning from December 2012. In short, the main amendments are:

Amendment of Article 1:The Parent-Subsidiary Directive shall not preclude the application of domestic or agreement-based provisions required for the prevention of tax evasion.

The GAAR itself is introduced in a new Article 1a:1. Member States shall withdraw the benefit

of the Parent-Subsidiary Directive in the case of an artificial arrangement or an artificial series of arrangements which has been put into place for the essential purpose of obtaining an improper tax advantage under the directive and which defeats the object, spirit and purpose of the tax provisions invoked.

2. A transaction, scheme, action, operation, agreement, understanding, promise, or undertaking is an artificial arrangement or a part of an artificial series of arrangements where it does not reflect economic reality.

3. In determining whether an arrangement or series of arrangements is artificial, Member States shall ascertain, in particular, whether they involve one or more of the following situations:

a) The legal characterisation of the individual steps which an arrangement consists of is inconsistent with the legal substance of the arrangement as a whole;

b) The arrangement is carried out in a manner which would not ordinarily be used in a reasonable business conduct;

c) The arrangement includes elements which have the effect of offsetting or cancelling each other;

d) The transactions concluded are circular in nature;

e) The arrangement results in a significant tax benefit which is not reflected in the business risks under-taken by the taxpayer or its cash flows.

In addition, two new eligible companies from Romanian law are added to Annex I, part A: the ‘societăți în nume colectiv’ and the ‘societăți în comandită simplă’.

The European Parliament is scheduled to discuss the proposed amendments in April 2014. If they enter into force, Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with the Directive by 31 December 2014.

On a national level, some countries (e.g. Germany and the UK) have already passed laws that provide for the same effect as the proposed wording of Article 4 (1) of the Parent-Subsidiary Directive to counteract hybrid loan arrangements. However, these national wordings do not only have an effect on distributions within the EU/EEA but on a worldwide level, since they only grant tax exemptions for distributed profits insofar as they were not a deductible expense for the distributing company – wherever that may be located.

MARC VERBEEKmarc.verbeek@bdo.be +32 2 778 01 00

ANDREA BILITEWSKIandrea.bilitewski@bdo.de +49 40 302 930

6 WORLD WIDE TAX NEWS

BELGIUMNOTIONAL INTEREST TAX DEDUCTION AFTER ARGENTA CASE

T he Belgian tax legislation allows a notional interest deduction (NID) for corporate income tax purposes,

consisting of a percentage of the company’s adjusted equity capital. On 4 July 2013, the Court of Justice of the European Union (CJEU) ruled in the Argenta Spaarbank NV case (C-350/11) that the NID was incompatible with the European principle of freedom of establishment. Belgian tax legislation has now been amended to comply with this court ruling.

The issue was whether or not the equity attributable to a foreign (EEA) permanent establishment of a Belgian company should be taken into account in the calculation base for the NID.

Under the Belgian tax legislation, a Belgian company with, for example, a permanent establishment in France, had to exclude the equity of this permanent establishment when calculating the NID. On the other hand, a Belgian company with a Belgian permanent establishment was entitled to include the equity of this permanent establishment when calculating the NID. For this reason Belgian companies may have been discouraged from creating a permanent establishment abroad.

To comply with the CJEU ruling, the Belgian Income Tax Code has been amended so as to include own equity belonging to foreign permanent establishments or immovable property in the calculation basis for the NID.

However, a compensating measure has also been provided to restrict the tax benefit. There can only be an additional tax benefit when a permanent establishment has its registered seat in an EEA Member State if the NID on the permanent establishment’s own equity is greater than the establishment’s (exempt) profit. The remainder can then be deducted from the Belgian profit.

The new measures take effect from assessment year 2014.

MARC VERBEEKmarc.verbeek@bdo.be +32 2 778 01 00

DENMARKCOMPANIES CAN POSTPONE PAYMENT OF EXIT TAXES

On 6 February 2014, the Danish Parliament passed a Bill allowing companies to postpone payment

of exit tax relating to the transfer of assets/liabilities to other EU/EEA countries. The purpose of the Act is to bring the Danish rules on exit taxation into compliance with EU law.

On 18 July 2013, the European Court of Justice (CJEU) overruled the Danish rules on exit taxation applicable to companies that transfer assets/liabilities to other EU/EEA countries. Under Danish law, such transfers are considered disposals of assets/liabilities, and subject to capital gains taxation.

In its ruling, the CJEU found the Danish rules on exit taxation to be incompatible with EU law, because the exit tax was due immediately, with no option to postpone payment.

The new Act adjusts the Danish rules on exit taxation so that it is now possible to postpone payment of the exit tax, subject to the payment of interest.

Under the new rules, the deferred tax must be paid in line with the return (income, gains, dividends) on the transferred assets, which would have been taxed in Denmark if the assets had remained in Denmark. However, the annual payment must always represent at least 1/7 of the calculated exit tax.

As mentioned above, the Act aims to bring the Danish rules on exit taxation into compliance with EU law. However, it remains to be seen whether the amendments achieve this aim, as a transfer of assets to other EU/EEA countries is still treated differently to an internal transfer in Denmark.

HANS-HENRIK NILAUSENhhn@bdo.dk +45 39 15 52 00

FINLANDCHANGES TO TAXATION OF DIVIDENDS AND CAPITAL INCOME RECEIVED BY INDIVIDUALS

On 30 December 2013 some changes were made to the Finnish tax law, including the following changes in

relation to the taxation of dividends and capital income received by individuals.

DIVIDENDS FROM LISTED COMPANIESOf the dividend distributed by a listed company to a natural person, the taxable capital amount will increase from 70% to 85%, with tax rates of 30% and 32% (see ‘Capital Income’ below). 15% of the dividend will be tax-exempt.

DIVIDENDS FROM NON-LISTED COMPANIES – Up to EUR 150,000: 25% of the dividend is taxable capital income provided that the amount does not exceed a notional 8% annual return calculated on the mathematical value of the share. 75% of the dividend is tax exempt.

– Excess over EUR 150,000: 85% of the dividend amount in excess of EUR 150,000 is taxable capital income provided that the amount does not exceed a notional 8% annual return calculated on the mathematical value of the share. 15% of the dividend is tax exempt.

In each case, if the dividend exceeds an annual return of 8%, 75% of the excess would be taxable earned income, which will be taxed in accordance with the progressive tax rates. The remaining 25% would be tax exempt.

CAPITAL INCOMEThe threshold for the application of the 32% higher tax rate levied on capital income would be lowered from EUR 50,000 to EUR 40,000. Hence, the applicable rate is 30% up to EUR 40,000 and 32% thereafter.

COMMENCEMENTThese changes came into force on 1 January 2014, and they will apply as a rule to tax for FY 2014.

HEIKKI MUIKKUheikki.muikku@bdo.fi +358 20 743 2920

7WORLD WIDE TAX NEWS

FRANCESOCIAL LEVIES REFUND CLAIM OPPORTUNITY FOR NON-RESIDENTS

CURRENT FRENCH TAX REGIME

Under Article 29 of the French Budget Law n° 2012-958 dated 16 August 2012 (the “Law”), social levies at an effective

rate of 15.5% are now levied on real-estate income and capital gains realised by non-resident individuals, in addition to the normal applicable taxes on income and capital gains. This provision applies from 1 January 2012 for rental income (lease payments, etc.), and from 17 August 2012 for capital gains realised on the sale of real estate in France.

POSSIBLE INFRINGEMENT OF EU LEGISLATIONEC Regulation 883/2004 provides that when an employee works in different Member States (e.g. France and the Netherlands), he should be subject only to the social security system of one Member State, under the unity principle, and should therefore not be liable to payment of social levies in two different Member States.

In 2000, the European Court of Justice (“ECJ”) ruled that France contravened the unity principle by levying the general social contribution (CSG) and the contribution for the repayment of the social debt (CRDS) on income from a profitable activity carried on in another Member State and subject to social security contributions in that State.

For the same reasons, the European Commission (EC) commenced infringement proceedings against France in August 2013 with regard to the new legislation charging social levies on French rental income realized by non-resident. A European taxpayer’s claim that the levy of social contributions on French real estate capital gains infringes EU law is also currently being scrutinised by the EC.

IMPLICATIONS FOR RESIDENTS IN OTHER MEMBER STATES WHO RECEIVE FRENCH REAL-ESTATE INCOMETo safeguard their rights for previous and future tax years, individuals residing in an EU Member State other than France should consider filing requests and protective claims for repayment of French social levies charged in relation to real-estate income and capital gains, taking into account local statutory time limitations. Once the ECJ rules on this issue, the French administrative courts and tax authorities will apply the ruling to all claims that were on hold pending the outcome.

As (i) social levies have been paid from 15 October 2013, regarding real estate income earned in 2012, and (ii) social levies have been withheld on capital gains realised on the disposal of French real estate since 2012, we believe that any affected non-resident individual should contemplate filing a claim in the forthcoming months, in order to safeguard their rights.

JACQUES SAINT JALMESjsaintjalmes@djp-avocats-bdo.fr +33 1 80 18 10 80

NICOLAS BILLOTTEnbillotte@djp-avocats-bdo.fr +33 1 80 18 10 80

8 WORLD WIDE TAX NEWS

GERMANYTAX CHANGE FOR EU/EEA CITIZENS WHO WORK IN GERMANY AND ARE RESIDENT IN SWITZERLAND

Individuals who are living abroad but who retain German source income are generally limited taxpayers, which means only

their income from German sources is taxable in Germany. Under certain circumstances these individuals can choose to be treated as unlimited taxpayers in Germany. As such they would obtain some special tax benefits which a limited taxpayer does not have. For example, they would be allowed to deduct insurance premiums and exceptional costs (e.g. medical costs) but do remember that in return they would be subject to tax in Germany on their worldwide income.

According to German income tax law, citizens of EU or EEA member states who have are resident in an EU or EEA member state can have some additional advantages. If they are unlimited taxpayers the following can apply at their request:

– Joint assessment with splitting approach for spouses

– Special discounts can be doubled (deducted for both spouses)

– Payments to an ex-spouse can be deducted

– Special discount for single parents

– Special discount for parents with a disabled child.

It is often advantageous for an unlimited taxpayer’s spouse who has no income of their own to choose unlimited tax liability in Germany.

As Switzerland is not a member of the EU or EEA, persons being citizens of EU or EEA member states and having their residence in Switzerland are not allowed to use these tax advantages according to German domestic income tax law.

In February 2013 the European Court of Justice (CJEU) decided that this restriction is contrary to the Agreement on the Free Movement of Persons between the EU and Switzerland. So citizens of an EU or EEA member state who are resident in Switzerland but generate their income in Germany can be unlimited taxpayers upon request, too, and thus are allowed to benefit from the above mentioned advantages. In September 2013 the German Federal Ministry of Finance issued an announcement that the respective clause in the German income tax law has to be interpreted according to the CJEU’s judgment. This interpretation is applicable in all open cases.

CHRISTIANE ANGERchristiane.anger@bdo-awt.de +49 89 769 060

9WORLD WIDE TAX NEWS

LATVIAIMPROVEMENTS TO BUSINESS TAX REGIME

After a new holding regime came into effect on 1 January 2013, Latvia has continued to improve the legislation to

become more attractive for foreign private and corporate investors.

Up to 1 January 2014 the favourable holding regime provided an exemption from corporate income tax (CIT) on dividends and income from sales of shares. A partial exemption of withholding tax applied to interest payments and royalties made to entities in the EU or EEA, or entities resident in countries with which double tax treaties were in force. From 1 January 2014, Latvia has improved the regime, and henceforth distributed interest income and royalties are not subject to taxation (except to offshore recipients, to which a 15% tax rate applies).

Furthermore, a long-awaited opportunity to pay interim dividends has been introduced, and companies will be able to pay interim dividends from 1 July 2014. Interim dividends will not be subject to taxation, except where paid to low-tax or tax-free countries, when they will be subject to 30% withholding tax. Payment of interim dividends is subject to certain conditions under the Commercial Law, for example:

– The amount of dividends to be distributed cannot exceed 85% of the current profit statement;

– Interim dividends can be distributed once per quarter; and

– There must be no overdue or postponed tax payments, etc.

The introduction of the interim dividends regulations has made the Latvian holding regime even more attractive for local and foreign investors.

In addition, in order to attract foreign investment, Latvia has extended the tax allowances for the purchase of new machinery, and incentives for long-term investment in approved investment projects, until 2020. The costs for purchase of new machinery for CIT purposes can be increased additionally by 50% of the initial amount , and a 25% CIT rebate will apply to initial long-term investments of up to EUR 50 million (15% for investments exceeding EUR 50 million).

A new form of tax incentive has been introduced in the CIT legislation to facilitate research and development (R&D) activities. Costs for expenses incurred which are directly related to labour costs, research services and the development of new products (certification, testing and calibration) for CIT purposes can be increased additionally by 200% of the initial amount. Expenses can be written off immediately or can be capitalised. Certain conditions must be met in order to obtain the enhanced allowance – for example, the taxpayer must have prepared the R&D documentation by himself, the intellectual property rights must be retained for at least three years, etc. The allowance will apply to expenses incurred from 1 July 2014.

These amendments have contributed to the better tax regime that businesses had been seeking, and Latvia will now be a more attractive place in which to invest.

INITA SKRODEREinita.skrodere@bdotax.lv +371 6722 2237

10 WORLD WIDE TAX NEWS

NETHERLANDSCJEU ADVOCATE GENERAL CONCLUDES THAT THE DUTCH FISCAL UNITY REGIME CONTRAVENES EU LAW

INTRODUCTION

The Dutch fiscal unity regime allows two or more Dutch resident companies within a group to elect to be treated as

a single taxpayer for Dutch corporation tax purposes, provided that certain criteria are met. This regime allows for the consolidation of profits and losses within the fiscal unity, and transactions within the fiscal unity are disregarded for Dutch corporation tax purposes.

One of the conditions for a fiscal unity is that a Dutch resident parent company owns at least 95% of the shares in the issued and paid up share capital of the Dutch subsidiary. An intermediary subsidiary should also be included in the same fiscal unity. The fact that a Dutch fiscal unity is only allowed between an uninterrupted chain of Dutch companies has been subject to discussion, because it is questionable if this condition is in line with EU law.

REFERRAL TO EUROPEAN COURT OF JUSTICEThe Netherlands Court of Appeal has jointly referred three cases to the European Court of Justice (CJEU). On 27 February 2014 Advocate General (AG) Kokott concluded in her opinion that the Dutch fiscal unity regime contravenes the freedom of establishment principle in cross border situations.

The referred cases concern situations where a subsidiary of a non-Dutch resident applies for the fiscal unity regime and all other conditions for the fiscal unity regime are met.

The CJEU procedure covers three cases, which all concern a fiscal unity within a multinational group with a foreign interposing or a foreign mother company:

– The possibility of a fiscal unity between a Dutch mother company and a Dutch sub-subsidiary with a foreign (EU) interposing company.

– A situation similar to the above situation, but with different EU interposing companies in several EU-countries.

– The possibility of a fiscal unity of two sister companies with a foreign (EU) mother company.

Please note that the tax payers did not request to include a non-Dutch company in the fiscal unity.

IMPLICATIONS FOLLOWING CJEU JUDGMENTIf the CJEU follows the conclusion of the AG, the Netherlands will have to allow fiscal unities of Dutch companies when there are intermediate EU (non-Dutch) holding companies or if there is a common (non-Dutch) EU parent company involved. In the event of this outcome it is likely that the Dutch government would amend the fiscal unity legislation.

If a fiscal unity as described in the above cases would be favourable for a group, it would be advisable to file the application for the fiscal unity regime as soon as possible. The group would then be able to benefit from the fiscal unity regime if the CJEU judgment follows the conclusion of the AG.

An application for a fiscal unity can be retrospective for up to three months.

11WORLD WIDE TAX NEWS

SUPREME COURT GIVES RULINGS ON DEFINITION OF EQUITY

INTRODUCTION

The Dutch Supreme Court recently gave two important decisions regarding the definition of equity for Dutch

corporation tax purposes. These decisions are of great importance, as they provide clarity for the Dutch tax treatment of (hybrid) financing instruments. The Supreme Court decided that if an instrument is considered equity from a legal perspective, it is also to be treated as equity from a Dutch tax perspective.

The question whether an instrument is considered equity is relevant, as the participation exemption often exempts income from an equity instrument for Dutch tax payers.

CASE No. 12/04649 DATED 7 FEBRUARY 2014A bank syndicate had originally provided loan finance to a holding company. It was later decided to restructure the financing in order to realise tax-exempt income for the banks. This led to the bank syndicate acquiring ‘cumulative preference shares’ (CPS). For the bank syndicate the CPS, together with some related call-option rights and security rights, were economically almost equal to the loan agreement in terms of remuneration, the repayment, ranking and control.

The bank syndicate took the position that the income from the CPS qualified as equity. As a result of the restructuring, the banks (as part of the syndicate) each had more than 5% of the nominal paid-up share capital of the debtor company, and they took the position that the dividends were tax-exempt for corporation tax purposes by virtue of the participation exemption.

The Dutch Supreme Court decided that with respect to the qualification of the CPS as a debt or equity the legal perspective (civil law) is, in principle, decisive. The Supreme Court decided that the CPS had the legal characteristics of equity (share capital) and, therefore, should qualify as equity for Dutch corporation tax purposes. As a result, the income from the CPS was regarded as a dividend and tax-exempt for the receiving company.

The Supreme Court also decided that the conversion of the initial loan instrument, leading to taxable income, into the equity instrument, leading to tax-exempt income, was not considered an abuse of law, as the taxpayer has freedom to choose the structure of an investment.

CASE No. 12/03540 DATED 7 FEBRUARY 2014The Dutch taxpayer had an indirect 16% interest in an Australian company to which it had granted shareholder loans. After a refinancing in 2004, the Dutch taxpayer received newly issued ‘redeemable preference shares’ (RPS) in the Australian company, and the shareholder loans were repaid.

The taxpayer claimed the participation exemption for the remuneration on the RPS. So in this case too there was a conversion of an initial loan instrument, leading to taxable income, into an equity instrument, leading to tax-exempt income. Under Australian tax law the remuneration paid on the RPS was tax-deductible.

The court case revolved around two questions:

1. Should the RPS be reclassified as debt; and,

2. Should the application of the participation exemption be denied on the basis of the abuse of law doctrine?

Regarding the first question, the Dutch Supreme Court decided that with respect to the qualification of a financial instrument as a debt or equity, the legal perspective (civil law) is, in principle, decisive. The Supreme Court decided that in this specific case the RPS are very similar to preference shares and, therefore, the RPS could be considered as equity for the application of the Dutch participation exemption (even in the case of hybrid mismatches).

Regarding the second question, the Supreme Court decided that the taxpayer did not abuse the tax law by converting the shareholders loan into the RPS, as it was not substantiated that the conversion lacked sufficient economic substance. Furthermore, the taxpayer had been entirely free to decide how to invest in the Australian company (by way of RPS). The freedom of choice is not limited by the abuse of law doctrine.

COMMENTSThe Supreme Court decisions provide clarity on two aspects. Firstly, if an instrument is considered equity from a legal perspective, then this also is the case from a tax perspective. Secondly, the conversion of a debt instrument into an equity instrument is in itself not considered an abuse of law, even if this leads to a hybrid mismatch.

HANS NOORDERMEERhans.noordermeer@bdo.nl ++31 (0)10 24 24 600

12 WORLD WIDE TAX NEWS

SPAININCOME TAX LIABILITY OF NON-RESIDENT OWNERS OF REAL ESTATE

As part of their campaign to tackle tax evasion, the Spanish tax authorities are increasingly paying attention to

non-resident individuals who own properties in Spain.

In addition to the Property Tax payable to the relevant city council every year, non-resident property owners must also be made aware that they are liable to another tax, i.e. Non-Resident Income Tax, regardless of whether the property is for their own use or rented out to a third party. The deadline for payment of this tax is 31 December each year.

Computation of the tax due is based on an estimated income of 1.1% of the property’s rateable value (2% if the rateable value has not been recently updated), applying a tax rate of 24.75% on the estimated income. Where a property is leased out, the rent received from the tenant is chargeable at the same tax rate (24.75%).

Although companies and other business organisations are not subject to this tax when the property they own is not rented out to a third party, the Spanish Tax Authorities may look into whether the property is being used by a stakeholder or director of the company or organisation in question. Should this be the case, the owner is taxed on the income, estimated at arm’s length, which it would have received from a third party tenant.

For properties not leased out, tax returns may be submitted at any time during the following calendar year, so the deadline for all tax payments due for the tax year 2013 is 31 December 2014.

The tax deadline differs in the event of rental income. In this case, tax returns must be filed on a quarterly basis, within the first 20 days of the months of April, July, October and January respectively, for the previous quarter in which the income has accrued.

REPORTING REQUIREMENTS FOR ASSETS AND RIGHTS SITUATED ABROAD

In October 2012, as part of its campaign to tackle tax evasion, Spain passed a bill on the prevention of fraud. The bill established

new disclosure obligations for tax residents in Spain who hold assets or rights abroad. There are three categories of assets and rights for which certain information must be submitted to the Spanish tax authorities (on Form 720) during the first quarter of each year. Form 720 for fiscal year 2013 must be filed no later than 31 March 2014.

The requirement to file Form 720 applies to entities, individuals and permanent establishments resident in Spain who hold assets and rights located in non-Spanish territory. However, some taxpayers may be exempt from this obligation, e.g. individuals who benefit from the special tax regime for inbound expatriates, also known as the Beckham Law.

The three categories of the assets and rights which must be disclosed are:

– Accounts in financial institutions situated abroad: information must be submitted on accounts of any nature, even if they are non-remunerative.

– Securities, rights, bonds, loans and similar financial instruments when managed or held abroad. This category also includes insurance policies and lifelong or fixed period annuities.

– Real estate and any rights thereon.

It is important to note that assets or rights not exceeding EUR 50,000 under any of the above three categories are exempt from the disclosure requirement. For taxpayers who have already filed a report for 2012 in 2013, reporting in later years only becomes compulsory if there is a variance in value exceeding EUR 20,000.

A specific penalty regime has been established in the event of failure to report, or for forms which are incomplete, inaccurate or contain false information.

Failure to comply with reporting requirements may also have an impact on Personal Income Tax liability. If the Spanish tax authorities discover the existence of assets or rights abroad which taxpayers have failed to report, these items may qualify as unjustified capital gains.

DAVID SARDÁdavid.sarda@bdo.es +34 932 003 233

MANUEL DOMÍNGUEZmanuel.dominguez@bdo.es +34 932 003 233

13WORLD WIDE TAX NEWS

SWITZERLANDCHANGES TO PRINCIPAL COMPANIES REQUIREMENTS

The Swiss Federal Tax Administration (SFTA) has issued new instructions to the Swiss cantons on the tax treatment

of principal company structures, which include a Swiss principal company and foreign distribution companies. Under the principal company regime, a percentage of profits is not subject to Swiss tax, and the SFTA wishes to prevent abuse of the profit allocation mechanism.

NEW RULESThe main new requirements are that:

– Affiliated foreign distributors must distribute goods exclusively on behalf of the principal company, and must be economically dependent on it, which will be the case if at least 90% of their income relates to the principal company’s business;

– The gross margin of distributors must not exceed 3% of sales or higher costs; and

– Key trading functions and risks must be allocated to the principal company, and not outsourced.

IMPLICATIONSThe new requirements must be met by 2015/16 for existing principal companies, but they are immediately effective for all new applications. If the new requirements are not met, the effective tax rate may be increased, reducing the benefit of the principal company regime.

In the case of existing principal companies, failure to meet the new requirements could result in adjustments for previous years.

ACTION REQUIREDThe cantons will be reviewing principal company structures, and deciding whether any tax rulings need to be amended, or changes need to be made to arrangements if a structure is to comply with the new rules. Existing and proposed principal companies will therefore need to review distributors’ activities and gross margins, and the allocation of key functions and risks, and make any necessary changes in order to continue to qualify for principal company treatment.

THOMAS KAUFMANNthomas.kaufmann@bdo.ch +41 44 444 37 15

14 WORLD WIDE TAX NEWS

UNITED KINGDOMFINAL VERDICT ON M&S EU GROUP RELIEF CLAIM

The Supreme Court has at last given its final ruling in the long-running EU cross-border group relief case brought by

Marks & Spencer plc (M&S). The decision resolves the position for those companies that have outstanding EU group relief claims for pre-April 2006 periods.

Over the course of two hearings, the Supreme Court has ruled on five issues which needed to be resolved in order to determine whether M&S is entitled to claim group relief for losses sustained by its former subsidiaries in Germany and Belgium and, if so, the quantum of those losses

THE ‘NO-POSSIBILITIES’ TEST (ISSUES 1 & 3)Under this test, a UK claimant company needs to be able to demonstrate that there were no possibilities for utilising the losses made by its EU subsidiary in its country of residence. In practical terms, this means that the group relief claim cannot be reliably made until:

– The subsidiary has been closed down with unused losses remaining, and

– There are no other local group companies that could utilise that remaining loss.

The Supreme Court held that this test is to be considered on the date of the claim. This is less restrictive than the rules introduced in the UK to apply to losses arising from April 2006 (‘the post-2006 rules’) which require the test to be considered immediately after the end of the period in which the loss arose. The post-2006 rules therefore effectively only provide relief for losses incurred in a subsidiary’s final accounting period. The European Commission referred the UK to the European Court of Justice (CJEU) in 2009, as it considered that the post-2006 rules did not adequately implement the M&S judgement. However, there is no sign of the UK Government responding to this.

HOW TO CALCULATE THE LOSS AVAILABLE FOR SURRENDER (ISSUES 2 & 5)The Supreme Court has set out the following method for calculating the losses available to claim by the UK parent company:

1. Calculate the subsidiary’s results under its local tax rules to determine whether there is a loss and how much has been utilised locally.

2. Convert the results by applying UK tax rules to determine how much can be claimed by the UK parent.

3. If the differences in the two sets of tax rules mean that some of the loss arises under UK tax rules in a later accounting period, group relief can be claimed for that later period.

By contrast, under the post-2006 rules the surrenderable loss is calculated using UK tax rules unless the local rules produce a smaller loss or a gain, in which case the amount of the surrenderable loss is restricted to that smaller loss.

15WORLD WIDE TAX NEWS

PRINCIPLE OF EFFECTIVENESS (ISSUE 4)The Supreme Court ruled on this final issue that M&S was not entitled to a period longer than the usual time limits for making group relief claims even though, for some periods, the CJEU judgment had not been made by the time that limit had passed. This effectively means that any claims made by companies prior to 1 April 2010 will only be valid if they were made within six years of the end of the accounting period in which the loss arose. After 1 April 2010, this time limit is only four years.

SUMMARY OF THE POSITIONThe issues are summarised in the table below, together with a comparison of the position under the UK group relief rules as amended from April 2006.

Issue Supreme Court decision on pre-FA 2006 rules Post-FA 2006 rules

1. At what point must the ‘no possibilities’ test be met?

Date of the claim. Immediately after the end of the period in which the loss arose.

2. Can sequential claims be made for the same losses in respect of the same accounting period?

Yes N/A - Per issue 5, losses can only be claimed if there is a loss under both UK and overseas tax rules.

3. If a surrendering company has some losses which it has or can utilise and others which it cannot, does the no possibilities test preclude surrender of that proportion of the losses which it has no possibility of using?

No No

4. Can M&S make fresh claims now that ECJ has identified circumstances in which loss relief can be claimed?

No N/A

5. What is the correct method for calculating the surrenderable losses?

Applying local tax rules to determine whether there is a loss and whether any amount of that loss is not utilised by local companies. Then convert that loss using UK tax principles to calculate how much is surrenderable to UK companies.

Apply UK tax rules to the results to work out how much loss can be surrendered. However, this should not exceed the quantum of the eligible foreign loss calculated using the rules of the relevant EEA territory.

CONCLUSIONIt is now clear that companies need to have made EU group relief claims some considerable time ago, and some outstanding claims may now be rejected as being out of time.

For groups that made claims within the time limit, the judgement is good news, as it allows for full relief for EU subsidiary losses even where those losses arise under UK tax principles in later periods. It also means that companies are not restricted in all cases to only claiming the last period’s worth of losses from their failed subsidiaries.

RICHARD MICHAEL JONESrichard.m.jones@bdo.co.uk +44 20 7893 3086

16 WORLD WIDE TAX NEWS

CHILEFOREIGN TAX CREDIT CHANGES

On 31 January 2014, the Chilean Income Tax Law was amended to introduce significant changes regarding the

credit in Chile for taxes paid in a foreign country.

If no tax treaty is applicable, the amendment increases the foreign tax credit rate from 30% to 32% of profits and dividends income received in Chile from abroad. Companies must be domiciled in the country from which profits are remitted, and must own at least 10% of the capital of their subsidiaries.

If a tax treaty is applicable, the foreign tax credit rate increases from 30% to 35% for the fiscal year. This applies to all types of income.

The changes will apply to income received or accrued since 1 January 2014.

RODRIGO BENITEZrbenitez@bdo.cl +56 2 27 29 50 00

17WORLD WIDE TAX NEWS

KUWAITNEW SELF ASSESSMENT AND TRANSFER PRICING RULES

The Kuwait Income Tax Department recently issued a revised set of Executive Rules and Regulations

(the Executive Rules) which apply for tax periods ending on 31 December 2013 and thereafter. The revised Executive Rules include a requirement for tax declarations to be filed with a report that should be issued by a firm approved by the Ministry of Finance, identifying all of the revenue and expenses items in the tax declaration that do not comply with the Income Tax Decree and the related regulations, executive rules and instructions. Other changes introduced by the Executive Rules and Regulation are mainly aimed at reducing the amount of deductions for certain expenses.

SELF-ASSESSMENTThe Kuwait tax department is moving towards a self-assessment approach. Under Circular 1 of 2014, companies that file tax declarations on an actual basis are required to prepare and file a self-assessment report with the Income Tax Department within three months from the date of filing the tax declaration. The self-assessment report should include a revenue and expenses analysis, together with an outline of the expenses items that were adjusted by the Income Tax Department in the last tax assessment issued to the company.

For companies which file tax declaration on an actual basis and comply with Circular 1 of 2014, the tax department will give priority to issuing the tax assessment and the release of tax retention within 12 months of submitting the self-assessment report, unless the tax department believes that it should carry out an additional tax audit.

For companies which file tax declaration on a deemed profit percentage of 30% or more, as per the last assessment letter, the tax declaration prepared and filed by the company will be accepted as filed, and a tax retention release letter will be issued within six months from the date of filing the tax declaration provided that certain conditions are met.

KEY CHANGES RELATING TO TRANSFER PRICING IMPACTING FOREIGN COMPANIES OPERATING IN KUWAIT: – Deductions for imported materials will be restricted as follows:

a) Materials imported from head office: a maximum of 85% of the corresponding revenue from the imported materials (previous limit was 85% to 90% of corresponding revenue).

b) Materials imported from related entities: a maximum of 90% of the corresponding revenue from the imported materials (previous limit was 90% to 93.5% of corresponding revenue).

c) Materials imported from third parties: a maximum of 95% of the corresponding revenue from the imported materials (previous limit was 93.5% to 96.5% of corresponding revenue).

– Deductions for the cost of design work carried out outside Kuwait will be limited to:

a) 75% of the design revenue, for design work carried out by head office (previously the limit was 75% to 80%).

b) 80% of the design revenue, for design work carried out by related entities (previously the limit was 80% to 85%).

c) 85% of the design revenue, for design work carried out by third parties (previously the limit was 85% to 90%).

– Deductions for the cost of consultancy work carried out outside Kuwait will be limited to:

a) 70% of the consultancy revenue for costs related to work carried out at the head office (previously the limit was 70% to 75%).

b) 75% of the consultancy revenue for costs related to work carried out by related entities (previously the limit was 75% to 80%).

c) 80% of the consultancy revenue for costs related to work carried out by third parties (previously the limit was 80% to 85%)

– Deductions for lease/rental costs of assets leased from the head office, subsidiaries and related entities will be limited to the depreciation charge on the corresponding assets, based on the tax depreciation rates specified in the Kuwait tax regulations.

QAIS M. AL NISFqais.alnisf@bdo.com.kw +965 2295 7777

RAMI ALHADHRAMIrami.alhadhrami@bdo.com.kw +965 2295 7592

18 WORLD WIDE TAX NEWS

CONTACTContact Mireille Derouane in Brussels on mderouane@bwsbrussels.com or +32 (0)2 778 0130 for more information.

www.bdointernational.com

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained herein without obtaining specific professional advice. Please contact the appropriate BDO Member Firm to discuss these matters in the context of your particular circumstances. Neither the BDO network, nor the BDO Member Firms or their partners, employees or agents accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

BDO is an international network of public accounting firms, the BDO Member Firms, which perform professional services under the name of BDO. Each BDO Member Firm is a member of BDO International Limited, a UK company limited by guarantee that is the governing entity of the international BDO network. Service provision within the BDO network is coordinated by Brussels Worldwide Services BVBA, a limited liability company incorporated in Belgium with its statutory seat in Brussels.

Each of BDO International Limited, Brussels Worldwide Services BVBA and the member firms of the BDO network is a separate legal entity and has no liability for another such entity’s acts or omissions. Nothing in the arrangements or rules of the BDO network shall constitute or imply an agency relationship or a partnership between BDO International Limited, Brussels Worldwide Services BVBA and/or the member firms of the BDO network

BDO is the brand name for the BDO network and for each of the BDO Member Firms.

© Brussels Worldwide Services BVBA, March 2014 1403-05

CURRENCY COMPARISON TABLE

The table below shows comparative exchange rates against the euro and the US dollar for the currencies mentioned in this issue, as at 25 March 2014.

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

Singapore Dollar (SGD) 0,56960 0,78586

Euro (EUR) 1.00000 1,37954