issue 263 | november 23, 2017 a closer look/media/files/press-room/2017/11/globaltax...taxation...

GLOBAL TAX WEEKLYa closer look

ISSUE 263 | NOVEMBER 23, 2017

SUBJECTS TRANSFER PRICING INTELLECTUAL PROPERTY VAT, GST AND SALES TAX CORPORATE TAXATION INDIVIDUAL TAXATION REAL ESTATE AND PROPERTY TAXES INTERNATIONAL FISCAL GOVERNANCE BUDGETS COMPLIANCE OFFSHORE

SECTORS MANUFACTURING RETAIL/WHOLESALE INSURANCE BANKS/FINANCIAL INSTITUTIONS RESTAURANTS/FOOD SERVICE CONSTRUCTION AEROSPACE ENERGY AUTOMOTIVE MINING AND MINERALS ENTERTAINMENT AND MEDIA OIL AND GAS

EUROPE AUSTRIA BELGIUM BULGARIA CYPRUS CZECH REPUBLIC DENMARK ESTONIA FINLAND FRANCE GERMANY GREECE

HUNGARY IRELAND ITALY LATVIA LITHUANIA LUXEMBOURG MALTA NETHERLANDS POLAND PORTUGAL ROMANIA SLOVAKIA SLOVENIA SPAIN SWEDEN SWITZERLAND UNITED KINGDOM EMERGING MARKETS ARGENTINA BRAZIL CHILE CHINA INDIA ISRAEL MEXICO RUSSIA SOUTH AFRICA SOUTH KOREA TAIWAN VIETNAM CENTRAL AND EASTERN EUROPE ARMENIA AZERBAIJAN BOSNIA CROATIA FAROE ISLANDS GEORGIA KAZAKHSTAN MONTENEGRO NORWAY SERBIA TURKEY UKRAINE UZBEKISTAN ASIA-PAC AUSTRALIA BANGLADESH BRUNEI HONG KONG INDONESIA JAPAN MALAYSIA NEW ZEALAND PAKISTAN PHILIPPINES SINGAPORE THAILAND AMERICAS BOLIVIA CANADA COLOMBIA COSTA RICA ECUADOR EL SALVADOR GUATEMALA PANAMA PERU PUERTO RICO URUGUAY UNITED STATES VENEZUELA MIDDLE EAST ALGERIA BAHRAIN BOTSWANA DUBAI EGYPT ETHIOPIA EQUATORIAL GUINEA IRAQ KUWAIT MOROCCO NIGERIA OMAN QATAR SAUDI ARABIA TUNISIA LOW-TAX JURISDICTIONS ANDORRA ARUBA BAHAMAS BARBADOS BELIZE BERMUDA BRITISH VIRGIN ISLANDS CAYMAN ISLANDS COOK ISLANDS CURACAO GIBRALTAR GUERNSEY ISLE OF MAN JERSEY LABUAN LIECHTENSTEIN MAURITIUS MONACO TURKS AND CAICOS ISLANDS VANUATU

COUNTRIES AND REGIONS

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CONTENTS

FEATURED ARTICLES

NEWS ROUND-UP


US Tax Court Frustrates IRS Attempt To Expand Privilege Waiver Robin L. Greenhouse, Roger J. Jones, Andrew R. Roberson, Kevin Spencer and Jeffrey M. Glassman, McDermott Will & Emery 5Highlights Of The Senate Tax Reform Plan The Global Tax Weekly Editorial Team 8The Losses That Flow? Keith R. Hennel, Partner, Dentons Canada LLP, Edmonton 15

Code Sec. 385 In Limbo Wade Sutton, PwC, Washington DC, US 22Topical News Briefing: At The Fintech Frontier The Global Tax Weekly Editorial Team 28Recent Tax Developments In Uruguay Martín Soca, Ferrere, Montevideo, Uruguay 30Topical News Briefing: A Mandate Too Far? The Global Tax Weekly Editorial Team 33

Tax Law 35UK Lawmakers Reject Following ECJ Case Law After Brexit

Amid Gig Economy Tax Debate, Deliveroo Wins Key Ruling

International Trade 38EFTA, Turkey Move Closer To Concluding Free Trade Deal

EU Takes Stock Of Efforts To Boost Trade With Ukraine

EU Parliament Agrees New Anti-Dumping Rules

US Tax Reform 41US Tax Reform Bills Advanced By Senate Committee, House

US Senate Tax Bill 'Could Kill Off S Corporations'

Country Focus: China 44Shanghai FTZ To Pilot More Business-Friendly Reforms

Hong Kong Considers Easing Stamp Duty Refund Restrictions

China Mulls Implementing Property Taxes Nationwide

For article guidelines and submissions, contact [email protected]

© 2017 CCH Incorporated and its affiliates. All rights reserved.

VAT, GST, Sales Tax 46India Slashes List Of Items Subject To 28 Percent GST

New Zealand To Remove GST Exemption For Low-Value Imports

HMRC Delays VAT Change On Pension Fund Management Services

UAE Releases Executive Regulation On VAT

BEPS 51BEPS Package A Mixed Bag For South Africa: DTC

Guernsey Guides On BEPS Tax Ruling Info Exchange

Compliance Corner 53OECD Global Forum Discusses Tax Transparency Progress

HSBC Settles French Falciani Files Tax Investigation

US Security Summit Undertaking 'Taxpayer Awareness Week'

Australia Seeks To Plug Property Tax Holes

TAX TREATY ROUND-UP 56CONFERENCE CALENDAR 58IN THE COURTS 68THE JESTER'S COLUMN: 76 The unacceptable face of tax journalism

FEATURED ARTICLES ISSUE 263 | NOVEMBER 23, 2017

US Tax Court Frustrates IRS Attempt To Expand Privilege Waiverby Robin L. Greenhouse, Roger J. Jones, Andrew R. Roberson, Kevin Spencer and Jeffrey M. Glassman, McDermott Will & Emery

Contact: [email protected], Tel: +1 202 756 8204; [email protected], Tel: +1 312 984 2731; [email protected], Tel: +1 312 984 2732; [email protected], Tel: +1 202 756 8203; [email protected], Tel: +1 214 295 8089

In Estate of Levine v. Commissioner,1 the US Tax Court (Tax Court) rejected an Internal Revenue Service (IRS) attempt to expand upon the privilege waiver principles set forth in AD Inv. 2000 Fund LLC v. Commissioner. As background, the Tax Court held in AD Investments that asserting a good-faith and reasonable-cause defense to penalties places a taxpayer's state of mind at issue and can waive attorney-client privilege. We have previously covered 2 how some courts have narrowly applied AD Investments.

In Estate of Levine, the IRS served a subpoena seeking all documents that an estate's return pre-parer and his law firm had in their files for a more-than-ten-year period, beginning several years before the estate return was filed and ending more than four years after a notice of deficiency (i.e., which led to the Tax Court case) was issued. The law firm prepared the estate plan and the estate tax return in issue. The law firm represented the estate during the audit, and after the notice of deficiency was issued, the law firm was engaged to represent the estate in "pending litigation with the IRS."

The petitioner sought a protective order to limit the scope of the IRS subpoena to the period prior to the issuance of the notice of deficiency. Indeed, the petitioner had also served a subpoena on the return preparer and his law firm, but the subpoena was limited to the period ending on the date the estate tax return was filed. With respect to the law firm's files created after the notice of deficiency was issued, the petitioner claimed work product protection.

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The IRS did not argue that the post-notice of deficiency files were not protected work product, but argued that raising a reasonable-cause defense resulted in a waiver of work-product protec-tions with respect to all materials prepared by the tax return preparer and the law firm.

The Tax Court concluded that the IRS was not entitled to any documents from the period after the notice of deficiency was issued. The Tax Court first agreed that a good-faith and reasonable-cause defense can waive work production for opinion letters and transfer pricing decisions before a return is filed, but the IRS had cited no authority supporting its position that the waiver extended to work product prepared after litigation begins.

Second, the Tax Court concluded that the "substantial need" exception, which it found was even more limited, did not apply; under that exception, a party can get otherwise protected work product if it has a "substantial need" for it. The Tax Court found no reason why any documents prepared after the estate filed its return could possibly lead to evidence that was relevant to the de-ficiency, and thus admissible for a reasonable-cause defense.

At the conclusion of its order, the Tax Court made clear that subpoenas are not for broad-based "fishing expeditions," stating that, although "a well-placed baited hook or cast net may well be okay, this kind of large-scale drift-netting is not."

Conclusion

In cases where privilege is waived by asserting a reasonable-cause defense, the question is the scope of the waiver. Some courts have applied a fairness test to limit the scope of the waiver to reasonably contemporaneous documents, thereby not extending the scope of the waiver to legal advice rendered at a later date.

Estate of Levine is consistent with a recent pattern of the IRS aggressively arguing against the asser-tion of privilege and work-product protections in tax audits. Taxpayers should carefully scrutinize IRS attempts to obtain privileged documents, and resist the IRS's attempts to expand the waiver concept beyond reason and principle. Sometimes taxpayers may be able to narrow the scope of an IRS request informally, but other times taxpayers may need to protect their rights in court. Indeed, courts are rightly reluctant to vitiate protections against disclosure, especially when the government's arguments are full of holes.

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ENDNOTES1 https://www.ustaxcourt.gov/InternetOrders/DocumentViewer.aspx?IndexSearchableOrdersID=24259

6&Todays=Y2 https://www.taxcontroversy360.com/2017/08/the-irs-is-struck-down-again-in-privilege-dispute/

7


Highlights Of The Senate Tax Reform Planby the Global Tax Weekly Editorial Team

First unveiled by Senate Finance Com-mittee Chairman Orrin Hatch (R – Utah) on November 9, the Senate's version of the tax reform bill, which like the House of Representatives version is titled the Tax Cut and Jobs Act (TCJA), was approved by the Senate Finance Committee on November 16 – the same day that the TCJA cleared a vote in the House – with some amendments.

While the Senate TCJA mirrors the House bill in many ways, it also departs from it substantially in other areas, notably with regards to individual income tax rates, and the taxation of individual business income. The core Senate proposals are summarized here.

Corporate Tax

Under current law, there is a complex graduated rate structure for the taxable income of corpora-tions of 15 percent, 25 percent, 34 percent, and 35 percent. Two additional surtaxes can apply. The first eliminates the benefits of the 15 percent and 25 percent rates for taxable income between USD100,000 and USD335,000. The second eliminates the benefit of the 34 percent rate for tax-able income between USD15m and USD18,333,333.

Like the House proposals, the Senate bill simplifies and reduces corporate tax by introducing a flat rate of 20 percent. The key difference is that the Senate envisages this taking effect at the be-ginning of 2019, a year later than the House proposals.

Business Deductions

In a similar vein to the House proposals, certain business deductions are repealed by the Senate bill, notably the Section 199 domestic manufacturing production deduction for taxable years beginning after December 31, 2018, and deductions related to the provision of fringe benefits.

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The research and development tax credit is retained.

Business Expensing

The Senate proposal provides that the maximum amount a taxpayer may expense, for taxable years beginning after 2017, is USD1m of the cost of qualifying property placed in service for the taxable year. The USD1m amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds USD2.5m. These limits are considerably lower than those provided in the House bill.

The Senate bill also extends and modifies the additional first-year depreciation deduction, in-creasing the 50 percent allowance to 100 percent for property placed in service after September 27, 2017, and before January 1, 2023.

Interest And Losses

Under the Senate bill, the deduction for business interest is generally limited to the sum of busi-ness interest income plus 30 percent of the adjusted taxable income of the taxpayer for the taxable year. The amount of any interest not allowed as a deduction for any taxable year may be carried forward indefinitely. The limitation applies at the taxpayer level, except in the case of a partner-ship, where it applies at the partnership level.

The limitation does not apply if the taxpayer's average annual gross receipts for the three prior taxable periods do not exceed USD15m.

Under an amendment to the net operating loss (NOL) deduction provisions, the Senate bill limits this deduction to 80 percent of taxable income in taxable years beginning after December 31, 2023. The initial draft included a 90 percent NOL deduction, applicable to losses arising in taxable years beginning after December 31, 2017.

In addition, the proposal repeals the two-year carryback provisions, but provides a two-year car-ryback in the case of certain losses incurred in the trade or business of farming.

The House bill retains the NOL deduction at 90 percent of income, and generally repeals all car-rybacks but provides a special one-year carryback for small businesses and farms in the case of certain casualty and disaster losses.

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International Tax And Foreign Corporate Income

Like the House proposal, the Senate also proposes a "quasi-territorial" corporate tax system, whereby the foreign income of certain multinational corporations is no longer effectively subject to US corporate tax.

At present, foreign income earned by a foreign subsidiary of a US corporation is not subject to US tax until it is distributed to the US parent corporation as a dividend. Such dividends, minus credits for foreign taxes paid, are considered taxable income for the US parent corporation. But because the US corporate tax rate is relatively high, this has led multinationals to stockpile foreign earnings abroad, and it is hoped that the new proposals will encourage companies to repatriate a substantial portion of this income to invest in the US economy.

The Senate bill therefore provides for an exemption for certain foreign income, by means of a 100 percent deduction (the "dividend-received deduction", or DRD) for the foreign-source portion of dividends received from specified 10 percent owned foreign corporations by domestic corpora-tions that are US shareholders of those foreign corporations. For these purposes, a "specified 10 percent owned foreign corporation" is defined as any foreign corporation (other than a passive foreign investment company that is not also a controlled foreign company (CFC)) with respect to which any domestic corporation is a US shareholder.

The DRD is not available for any dividend received by a US shareholder from a CFC if the dividend is a hybrid dividend (a provision not included in the House bill). A hybrid dividend is defined as an amount received from a CFC for which a DRD would otherwise be allowed and for which the specified 10 percent owned foreign corporation received a deduction (or other tax benefit) from taxes imposed by a foreign country.

No foreign tax credit or deduction is permitted for any taxes paid or accrued with respect to a dividend that qualifies for the DRD.

The proposal is effective for taxable years of foreign corporations beginning after December 31, 2017, and for taxable years of US shareholders in which or within which such taxable years of foreign corporations end.

Again in line with the House bill, the Senate bill also proposes that any US shareholder of a speci-fied foreign corporation (SFC) must include in income its pro rata share of the undistributed,

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non previously taxed post-1986 foreign earnings of the corporation. For the purposes of this proposal, an SFC is any foreign corporation that has at least one US shareholder, not including Passive Foreign Investment Companies (PFICs) that are not also CFCs. The portion of earnings comprising cash or cash equivalents is taxed at a reduced rate of 10 percent, while any remaining earnings are taxed at a reduced rate of 5 percent (as opposed to 14 and 7 percent, respectively, in the House bill).

Individual Tax Rates

The House and Senate bills differ considerably on new individual tax rates. Under current law, the individual tax code includes seven brackets for the individual income tax system, of 10, 15, 25, 28, 33, 35, and 39.6 percent. The Senate retains a seven-tier system, albeit with different rates, with thresholds proposed for each rate in accordance with whether the taxpayer is a single individual or a head of household.

Following amendments to the bill, for single individuals, the proposed rates and thresholds are:

Not over USD9,525 – 10 percent of the taxable incomeOver USD9,525 but not over USD38,700 – 12 percentOver USD38,700 but not over USD60,000 – 22 percentOver USD60,000 but not over USD170,000 – 24 percentOver USD170,000 but not over USD200,000 – 32 percentOver USD200,000 but not over USD500,000 – 35 percentOver USD500,000 – 38.5 percent.

For heads of household, the proposed tax rates and thresholds are:

Not over USD13,600 – 10 percent of the taxable incomeOver USD13,600 but not over USD51,800 – 12 percentOver USD51,800 but not over USD60,000 – 22 percentOver USD60,000 but not over USD170,000 – 24 percentOver USD170,000 but not over USD200,000 – 32 percentOver USD200,000 but not over USD500,000 – 35 percentOver USD500,000 – 38.5 percent

The House bill would effectively pare this back to five brackets, of 0, 12, 25, 35, and 39.6 percent.

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Both bills double the standard deduction to USD24,000 for joint filers (and surviving spouses) and to USD12,000 for individual filers.

There are also some variations between the bills in the politically sensitive area of individual tax deductions. The Senate version controversially does away with the state and local income tax and mortgage interest deductions for individual taxpayers, and permits deduction of state and local property and sales taxes only when paid or accrued in carrying on a trade or business.

The House bill also repeals the deduction for state and local income taxes, but retains the deduc-tion for property taxes up to a maximum of USD50,000. It also limits the mortgage interest deduction to a maximum of USD500,000, half the present ceiling.

An important distinction between the two is that most tax measures in the Senate bill, includ-ing the new rates, standard deduction, and changes to other deductions, are temporary, and are due to sunset in 2026 in order to meet budgetary rules. The corresponding House provisions are proposed to be permanent.

Pass-Through Business Income

On the taxation of income from pass-through businesses (including partnerships, S corporations, and sole proprietorships), which are taxed at the level of the individual owners and partners at individual rates of tax, the Senate proposals differ substantially from the House bill.

The Senate bill opts for a 17.4 percent deduction of domestic qualified business income from pass-through businesses. Under an amendment to the original version, pass-through income up to USD500,000 for joint filers (USD250,000 for individual taxpayers) from services business-es also fully qualify for the 17.4 percent deduction, up from USD150,000 for joint filers and USD75,000 for other individuals, in the first draft of the chairman's mark.

For the purposes of the deduction, qualified business income for a taxable year is the net amount of domestic qualified items of income, gain, deduction, and loss with respect to the taxpayer's qualified businesses, from any trade or business other than specified service trades or businesses. These include the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputa-tion or skill of one or more of its employees.

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Dividends from a real estate investment trust (other than any portion that is a capital gain divi-dend) are qualified items of income for this purpose. However, qualified business income does not include any amount paid by an S corporation that is treated as reasonable compensation of the taxpayer. Qualified business income or loss also does not include certain investment-related income, gain, deductions, or loss.

By contrast, the House aligns with the unified tax reform framework adopted by Republican leaders in September whereby pass-through business income are subject to a maximum rate of 25 percent, with income up to USD75,000 paying tax at 9 percent.

Furthermore, the Senate pass-through income deduction is also due to sunset in 2026.

Estate Tax

The Senate and House also take different approaches with respect to estate and gift taxes. Whereas the Senate bill reduces the scope of these taxes by doubling the exclusion amount from USD5m to USD10m and indexing it to inflation from 2018, the House repeals these taxes from 2023 after also doubling the exclusion amount from 2018. The Senate changes would expire in 2026.

Alternative Minimum Tax

Like the House measures, the Senate bill proposes to repeal the individual and corporate alternative minimum taxes (AMTs) effective for taxable years beginning after December 31, 2017. However, following an amendment to the Senate proposals, individual AMT repeal would expire in 2026.

Obamacare Individual Mandate

In an interesting twist to the tax reform process, the Senate Finance Committee appeared to up the stakes for Republicans and President Trump by adding in provisions to repeal the individual mandate of the Affordable Care Act.

The individual mandate requires individuals to maintain a minimum level of health care insurance coverage or face paying a fine to the Internal Revenue Service on their annual tax return, known as a "shared responsibility payment." The proposal eliminates the mandate after December 31, 2018.

Hatch argues that the requirement is not only burdensome to those on low incomes but costs the Government revenue because it encourages low-income taxpayers to purchase Government-subsidized health care. Therefore, striking down the individual mandate achieves two objectives

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for the Republicans: the removal of a key facet of Obamacare; and cutting expenditure to pay for tax cuts while ensuring tax reform legislation stays in line with budget rules to enable a bill to be adopted through the reconciliation process.

The Next Steps

The Senate proposal will now move to a vote in the full chamber. The House and Senate must then work together to agree a unified version of the tax reform bill, which lawmakers hope to present to President Trump before the Christmas recess.

However, given the differences between the two bills, objections to various provisions from Re-publican lawmakers, narrow voting margins in both Chambers (but especially in the Senate), and the expectation of no support for the tax reform plans from the Democrats, this is already looking like an ambitious deadline.

Until a final bill is agreed, we can only speculate over the changes it will contain. Indeed, as mat-ters stand, it would be wrong to assume that these differences will be resolved, even though major legislative steps forward have been taken recently.

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The Losses That Flow?by Keith R. Hennel, Partner, Dentons Canada LLP, Edmonton

This article was previously published in "Tax Topics," No. 2383, November 9, 2017.

Introduction

In a business structure whereby you have a limited partnership (the "bottom-tier partnership") of which one or more partners is itself a partnership (the "top-tier partnership"), the question of the ability to use losses allocated by the bottom-tier partnership to the top-tier partnership is a complicated one and one that has, until recently, been somewhat unclear. The Canada Revenue Agency's (the "CRA's") long-standing published administrative position 1 states that losses allocated by the bottom-tier partnership to a top-tier partnership in excess of that partner's at-risk amount are deemed to be limited partner-ship losses by virtue of paragraph 96(2.1)(e) of the Income Tax Act 2 (the "Act"). The limited part-nership losses cannot be used by the top-tier partnership because a partnership is not a taxpayer for purposes of paragraph 111(1)(e) of the Act and the allocation of limited partnership losses are not contemplated in Subdivision j of the Act.3 In the CRA's view, these losses are essentially trapped in the top-tier partnership with no ability to use them against income allocated by the bottom-tier partnership in the future or to allocate them to its partners.

This position results in a different treatment of limited partnership losses for members of a limited partnership which are partnerships themselves as compared to an individual, trust, or corporation that is a member of a limited partnership.

In Her Majesty the Queen v. Green et al.4 ("Green"), the Federal Court of Appeal looked at the is-sues of the ability of a top-tier partnership to use losses in a tiered limited partnership structure, and the ability of those losses to retain their character as business losses as opposed to being lim-ited partnership losses. The Federal Court of Appeal affirmed the decision of the Tax Court of Canada,5 which went against the CRA's long-standing published position. This article discusses the case and its impact.

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Background

Subsection 96(1) of the Act sets out the general rules for the computation of the income of a member of a partnership from a partnership. While a partnership is not a separate legal entity for tax purposes, subsection 96(1) of the Act requires that the income of a partner from a partnership be computed as if the partnership were a separate legal person and as if each partnership activ-ity were carried on by the partnership as a separate person. The partnership then calculates each taxable capital gain and allowable capital loss from the disposition of partnership property and the income and loss of the partnership from each of its sources of income for each taxation year of the partnership. The income or loss is then allocated among the partners to the extent of each partner's interest in the partnership and any applicable terms set out in the relevant partnership agreement.

Tiered partnerships are contemplated by subsection 102(2) of the Act, which provides that, for purposes of Subdivision j of Division B of Part I of the Act (which are the provisions related only to partnerships and their members), "a reference to a person or a taxpayer who is a member of a particular partnership shall include a reference to another partnership that is a member of the particular partnership." 6

Subsection 96(2.1) is part of the at-risk rules found in the Act. In general, subsection 96(2.1) of the Act provides that, notwithstanding section 96(1), any losses of the limited partner will be deductible only to the extent of the partner's at-risk amount. To the extent that the loss is not deductible by the limited partner in the taxation year in which it is incurred, it is deemed by paragraph 96(2.1)(e) of the Act to be a limited partnership loss, and can be carried forward and deducted to the extent of the limited partner's at risk amount at the end of any subsequent taxa-tion year pursuant to paragraph 111(1)(e) of the Act.

In Green, during the period 1996 to 2009, the taxpayers in question (the "Appellants") were lim-ited partners of the Monarch Entertainment 1994 Master Limited Partnership (the "MLP") and, during the same period, the MLP was a limited partner in 31 limited partnerships (the "PSLPs"). Each PSLP incurred annual business losses from 1996 to 2009. Pursuant to the relevant PSLP partnership agreements, 99.999 percent of the losses of each of the PSLPs were allocated to the MLP at the end of each fiscal period (December 31) of the PSLPs. Pursuant to the MLP partner-ship agreement, 99.999 percent of the losses of the MLP were allocated to the Appellants and the other limited partners of the MLP at the end of each fiscal period (December 31) of the MLP. At

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the end of each of the PSLPs' fiscal periods from 1996 to 2008 the at-risk amount of the MLP in each of the PSLPs was nil, and at the end of each of the MLP's fiscal periods from 1996 to 2008 the at-risk amount of the Appellants in the MLP was nil.

At the end of 2009, the Appellants' at-risk amounts in the MLP were increased by an allocation of capital gains from the MLP to each of them as partners of the MLP. In their respective tax returns for the 2009 taxation year, each of the Appellants claimed, as a deduction in computing taxable income, accumulated limited partnership losses of prior years in respect of the MLP.

The CRA reassessed each of the Appellants to deny the deduction of the accumulated limited partnership losses.

Tax Court Of Canada

At the Tax Court of Canada (the "TCC"), the issue was whether, for tax purposes, where the top-tier partnership had no at-risk amount in respect of the lower-tier partnership at the end of a particular fiscal period, business losses realized by the lower-tier partnership in the particular fiscal period re-tained their character as business losses of the top-tier partnership, and were therefore available to be allocated to the partners of the top-tier partnership as business losses (which would then be subject to the application of the at-risk rules in the hands of the partners of the top-tier partnership).

The Crown argued that since the top-tier limited partnership has no at-risk amount, the top-tier partnership's share of the business losses of the bottom-tier partnership is deemed to be a limited partnership loss of the top-tier partnership pursuant to paragraph 96(2.1)(e) of the Act and ceases to be a business loss. Further, they argued that the deemed limited partnership loss would not flow up to the partners of the top-tier partnership because there is no provision for allocating the top-tier partnership's limited partnership loss to the partners of the top-tier partnership.

The TCC applied a textual, contextual, and purposive analysis of the relevant provisions of the Act and rejected the Crown's arguments, finding in favor of the Appellants. The TCC found that the text, context, and purpose of subsection 96(2.1) all supported the Appellants' position that the business losses of the bottom-tier partnership flowed out to the top-tier partnership and to the partners of the top-tier partnership, and retain their character as business losses at each step.

The Crown appealed the TCC's decision.

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Federal Court Of Appeal

On appeal to the Federal Court of Appeal ("FCA"), the issue was whether the TCC was correct in determining that business losses could be flowed through from one limited partnership to an-other limited partnership and then to the partners of that second limited partnership, retaining their character as business losses throughout.

The FCA started by stating:7

"As noted above, partnerships (including limited partnerships) are not persons and, except as provided in subsection 102(2) of the ITA, are not taxpayers for purposes of the ITA. Subsection 102(2) of the ITA only applies for the purposes of Subdivision j of Division B of Part I (sections 96 to 102 inclusive)."

The FCA agreed with the TCC in discussing the analysis to be conducted as follows:8

"As noted by the Tax Court Judge, the provisions of the ITA are to be interpreted based on a textual, contextual and purposive analysis (Canada Trustco, at paragraph 10). In this case, in my view, the text of the provision should not be read in isolation. Rather the context and purpose are important in interpreting the words that are used."

In conducting its analysis the FCA stated:9

"Since a partnership does not pay tax, the purpose of section 96 of the ITA is not to determine the income of a partnership for the purposes of determining the amount of tax payable by that partnership. The purpose of section 96 is to ensure that any income or loss realized by the partnership is allocated to its partners and that the source of that income or loss is maintained to allow the members of that partnership to identify the source of income or loss for the purposes of section 3 of the ITA."

In the FCA's view:10

"When the instructions in computing income and non-capital loss contained in para-graphs 96(2.1)(c) and (d) of the ITA are read in context, in my view, they again are only intended to apply to taxpayers who are required to compute those amounts under sec-tions 3 and 111, respectively. Since partnerships are not taxpayers for the purposes of sections 3 and 111, these sections do not apply to partnerships."

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Further, the FCA stated:11

"It should also be noted that generally the ITA provides that limited partnership losses will be deductible in the future if the at-risk amount of the partner in the limited part-nership increases. However, the provision allowing the future deduction is paragraph 111(1)(e) of the ITA which does not apply to partnerships since this deduction is only available 'for the purpose of computing the taxable income of a taxpayer for a taxation year …' It does not seem to me that Parliament would have intended to apply the re-striction on limited partnership losses to partnerships (MLP) as members of another limited partnership (PSLP) but deny such partnerships (MLP) the benefit of the de-duction in the future if the limited partnership (PSLP) should earn income resulting in an increase in the at-risk amount of that partnership (MLP) in the limited partnership (PSLP). Therefore, in my view, paragraph 96(2.1)(e) of the ITA would also not apply to a partnership that is a member of a limited partnership."

The FCA went on to comment that Parliament intended that either the computation of income would be done for all partnerships who are members of other partnerships, or none at all.12 Howev-er, if the former was intended, the FCA noted that the computation of income for a partnership that is a member of another partnership would cause problems when that top-tier partnership attempts to allocate its income on a source-by-source basis to its partners. As such, in the FCA's view:13

"… Parliament did not intend for a partnership that is a member of another partnership to compute income. Rather, Parliament intended for the sources of income (or loss) to be kept separate and retain their identity as income (or loss) from a particular source as they are allocated from one partnership to another partnership and then to the partners of that second partnership (and so on as the case may be). This would mean that losses from a business incurred by a particular PSLP would still be losses from a business in MLP and then allocated by MLP to its partners as losses from that business."

Accordingly, the Crown's appeal was dismissed and it appears that the limited partnership at-risk rules in subsection 96(2.1) do not apply to top-tier partnerships in their capacity as members of a bottom-tier partnership.

In dismissing the appeal the FCA commented on the Crown's concerns:14

The Crown argued that if the losses incurred by a particular partnership (PSLP) retain

19

their character as business losses when flowed through another partnership (MLP), there could be a possibility that losses by one limited partnership could be claimed against income from another limited partnership. The Crown also submitted that the at-risk rules could be avoided entirely if the top-tier partnership (MLP) were a general partnership. However, in my view, these concerns do not outweigh the concerns that arise based on the Crown's interpretation."

The FCA went on to say that Parliament could deal with the Crown's concerns by amending the Act, if it so wished, and depending on the particular facts of another case, the CRA could try to apply the general anti-avoidance rule (the "GAAR") in section 245 of the Act.15

What's Next?

Based on the FCA's decision in Green, it appears that the limited partnership at-risk rules in sub-section 96(2.1) of the Act do not apply to top-tier partnerships in their capacity as members of a bottom-tier partnership.

While the FCA's sympathies toward the Appellants are understandable, the result in Green ap-pears to have been motivated by the unfair result that could flow from the "trapping" of losses in a top-tier partnership. In the Court's eyes, accepting the Crown's argument could result in top-tier partnerships accumulating limited partnership losses which could never be used to reduce income allocated to those partnerships in subsequent taxation years.

This case is an example whereby the plain text of the legislation was not sufficient to determine the result. In the Court's view, a textual, contextual, and purposive analysis was required to deter-mine the proper treatment of the losses.

While the Crown has not appealed the FCA's decision in Green, it remains to be seen whether Parliament will take any steps to amend the legislation to restrict the flow-through of losses in a tiered partnership structure involving limited partnerships. It is also unclear whether the CRA will attempt to apply the GAAR in similar cases. For now, however, this decision represents a significant victory for tiered-partnerships and their partners.

A number of tax lawyers from Dentons Canada LLP write commentary for Wolters Kluwer's Cana-dian Tax Reporter and sit on its Editorial Board as well as on the Editorial Board for Wolters Kluwer's Income Tax Act with Regulations, Annotated. Dentons Canada lawyers also write the commentary

20

for Wolters Kluwer's Federal Tax Practice reporter and the summaries for Wolters Kluwer's Window on Canadian Tax. Dentons Canada lawyers wrote the commentary for Canada – US Tax Treaty: A Practical Interpretation and have authored other books published by Wolters Kluwer: Canadian Transfer Pricing (Second Edition, 2011); Federal Tax Practice; Charities, Non-Profits, and Phi-lanthropy under the Income Tax Act; and Corporation Capital Tax in Canada. Tony Schweitzer, a Tax Partner with the Toronto office of Dentons Canada LLP and a member of the Editorial Board of Wolters Kluwer's Canadian Tax Reporter, is the editor of the firm's regular monthly feature articles appearing in Tax Topics.

ENDNOTES

1 See CRA documents no.: 2004-0062801E5, May 14, 2004; 2004-0107981E5, February 25, 2005; and

2012-043652IE5, May 31, 2012.2 R.S.C. 1985 (Fifth Supp.), c.1.3 Supra note 1.4 2017 DTC 5068 (FCA).5 The Queen v. Green et al., 2016 DTC 1018 (TCC).6 Subsection 102(2) of the Act.7 Supra, note 4, at para. 12.8 Id, at para. 17.9 Id, at para. 18.10 Id, at para. 22.11 Id, at para. 23.12 Id, at para. 28.13 Id, at para. 29.14 Id, at para. 31.15 Id, at para. 31.

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Code Sec. 385 In Limboby Wade Sutton, PwC, Washington DC, US

Wade Sutton is a principal with PwC's Nation-al Tax Services office in Washington, DC.

The views expressed herein should not be at-tributed to PwC.

This article is reprinted with the publisher's permission from Taxes – The Tax Magazine, a monthly journal published by Wolters Kluwer. Copying or distribution without the publisher's permission is prohibited. To subscribe to Taxes – The Tax Magazine or other Wolters Kluwer journals, please call 800 449 8114 or visit https://www.cchgroup.com/. All views expressed in the articles and columns are those of the author and not necessarily those of Wolters Kluwer.

There are two important preconditions for most tax planning: a clear understanding of the cur-rent rules and a view as to how those rules might change in the future. Both of these requirements have been in short supply recently, whether on the international front with the European Union's focus on State Aid and the BEPS process, or in the United States with the prospect of tax reform and significant regulatory changes. This column focuses on one such source of uncertainty: the US Code Sec. 385 regulations.

One of the most coherent themes of the early Trump Administration has been a desire to decrease regulatory burdens. For example, in a campaign speech in late 2016, the President said "[w]e're going to cancel every needless job-killing regulation and put a moratorium on new regulations until our economy gets back on its feet." 1 That campaign rhetoric translated into a series of executive orders that is beginning to have an impact in the tax field. For example, Executive Order 13771 established the much-discussed two-for-one rule, and Executive Order 13777 directed each federal agency to appoint a regulatory reform officer to oversee the process of peeling back burdensome regulations.

Executive Order 13789, issued on April 21, 2017, was the first tax-specific action in this effort.2 That executive order instructed the Secretary of the Treasury to identify regulations that were unduly burdensome, complex or invalid and to provide the President with recommendations

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for amending or revoking such rules within a specified period. On July 7, Treasury published an interim report in Notice 2017-38, which identified eight regulations that were candidates for re-form, including the recently finalized Code Sec. 385 regulations.3 On October 4, 2017, the Trea-sury Department released its final report in response to Executive Order 13789 (the "Report").4

Readers likely will be familiar with the Code Sec. 385 rules, which were proposed by the Obama administration in April 2016 as part of an effort to stymie inversion transactions.5 Given their complexity, compliance burdens and potentially drastic impacts, the proposed regulations cre-ated significant controversy during the summer of 2016.6 After months of speculations and com-ments, final regulations were issued on October 21, 2016, which were narrowed significantly relative to the proposed regulations.7

The rules provide that related party instruments that would otherwise qualify as debt for US tax purposes will instead be treated as equity in certain circumstances. For example, the documenta-tion rules, contained in Reg. §1.385-2, require issuers to document and file certain information with their tax return in order for an instrument to be respected as debt. Those rules originally would have applied only to debt instruments issued on or after January 1, 2018, but this effec-tive date was later delayed by a year in Notice 2017-36 to provide taxpayers with adequate time to comply with the rules.8

The recast rules (or "distribution rules") are contained in Reg. §§1.385-3, -3T and -4T. These rules recharacterize debt as equity depending on the circumstances in which it was issued. The regulations essentially target debt issuances that are not associated with infusions of new capital into the issuer. A paradigmatic example of such issuances is the distribution of a debt instrument as a dividend with respect to the stock. The regulations also target economically similar transac-tions, including issuances of debt instruments in exchange for property close in time with a dis-tribution of property (the so-called "funding rule").

The two sets of rules serve ostensibly different purposes. The documentation rules were intended to support the IRS's audit function by removing information asymmetries between taxpayers and the government.9 The distribution rules, on the other hand, were focused on preventing earnings stripping, a common tactic employed to reduce US tax after an inversion.10

As a result of their disparate purposes, the Report took different approaches with respect to each set of regulations. The documentation rules, on the one hand, will likely be repealed with no

23

imminent replacement. The report notes that multiple commentators had argued that the com-pliance burdens associated with such regulations grossly exceeded any potential revenue gains resulting from the documentation rules. The Report does not explicitly validate these concerns, but one has to imagine that many people within the government agreed with them given the outcome. Although the Report mentions that Treasury is actively considering the development of revised documentation rules that would be streamlined and simplified, it promises that such rules will only apply prospectively. Thus, for the foreseeable future, taxpayers need not worry about the documentation rules. Given the many current demands on the Treasury Department and IRS's attention (e.g., tax reform, EU and OECD activity, etc.), the author doubts that the documenta-tion rules will be a priority.

One may wonder why the government did not simply revoke the documentation rules in connec-tion with the Report? Although the Report does not specify a reason, I suspect that the govern-ment will formally propose to revoke the regulations to provide an opportunity for notice and comment and otherwise satisfy the procedural requirements of Code Sec. 553 of the Administra-tive Procedure Act.11 Given the recent government losses in the Chamber of Commerce and Altera cases due to APA foot faults, the Treasury Department likely will be much more circumspect in its administrative practices in the future.12

On the other hand, the distribution rules will remain in effect. The Report notes that the distri-bution rules are principally aimed at preventing earnings stripping, which the Report describes as a "tax artifice." 13 Thus, it was important to retain the distribution rules in order to prevent fur-ther earnings stripping (and, by extension, inversions), which is also consistent with the Trump Administration's goal of leveling the playing field between US- and foreign-owned businesses.

The Report does offer the possibility of repealing the distribution rules, however, in the event that future tax reform contains sufficient earnings stripping limitations that obviate the need for them. No parameters are given for this determination, and the Report suggests that the distribu-tion rules may be retained but simplified "[i]f legislation does not entirely eliminate the need for the distribution regulations." 14

As of the time of this article, it is unclear what Congress has in mind with respect to earnings stripping limitations. There has been talk regarding a potential German-style limitation on interest expense equal to a percent of earnings (e.g., 30 percent of EBITDA). This approach might resem-ble a stricter version of Code Sec. 163(j), which imposes a 50 percent limitation on related party

24

indebtedness. Congress may instead adopt a flat disallowance of a percentage of a company's inter-est expense (e.g., 30 percent of all interest expense). Alternatively, Congress could adopt a limitation similar to that found in H.R. 1 (i.e., the "Camp" bill), which disallowed interest expense for taxpay-ers with high debt ratios in the United States relative to worldwide indebtedness.15 It is furthermore unclear whether any of these proposals would obviate the need for Code Sec. 385 and who will make that determination.16 Finally, it is uncertain whether Congress will be able to get a tax reform bill through both houses of Congress, especially given the potential for such a bill to significantly add to the deficit, which could cause the effort to lose support among fiscal conservatives.

Thus, we know that the Code Sec. 385 distribution rules are here for now, but may be repealed in the near future, pending a number of uncertain contingencies. For taxpayers, this makes assessing the potential impact of the Code Sec. 385 regulations quite difficult. Adding to this difficulty is the fact that the rules were hastily crafted and, consequently, are rife with ambiguity and glitches. Given the many other demands on Treasury's attention and the expectation that the Code Sec. 385 rules will eventually be repealed, I doubt that the agency will invest significant time in addressing these issues.

This is a suboptimal state of affairs. The uncertainty surrounding these rules does not merely inhibit earnings stripping, but also legitimate business transactions. We provide an example to illustrate this point below.

For example, consider a spin-off in which a domestic distributing corporation transfers assets to a controlled corporation in exchange for stock and instruments that would ordinarily qualify as "securities" for purposes of Code Sec. 355. The distributing corporation thereafter distributes the controlled stock to its shareholders and the controlled securities to non-security creditors that are members of the expanded group. Provided that the requirements of Code Sec. 355 are otherwise met, such transactions ordinarily would qualify for non-recognition.

Suppose, however, that these securities are treated as equity as a result of the funding rule under Reg. §1.385-3(b)(3) such that the instruments are recast immediately after the spin-off.17 A number of questions abound. For example, did the distributing company distribute control within the mean-ing of Code Sec. 368(c) or should the recharacterized debt instrument qualify as a separate class of non-voting equity that would violate the control requirement? One might point to Rev. Rul. 98-27 for the proposition that the step transaction doctrine shall not be applied such that post-dis-tribution restructurings of the controlled corporation violate the control requirement of Code Sec. 368(c).18 Presumably, the recast of debt into equity pursuant to Reg. §1.385-3 would qualify as a

25

"restructuring" for such purposes, but that point is not clear. Also unclear is whether the IRS would extend Rev. Rul. 98-27 to such a fact pattern given recent statements regarding certain "drop-spin-liquidate" transactions and recapitalizations in and out of Code Sec. 368(c) control.19

Another question raised by the Code Sec. 385 recast is whether the controlled securities should in fact be respected as "securities" for Code Sec. 355 purposes. Ordinarily, this determination is made based on a number of factors, most importantly the maturity of an instrument, with only longer-term instruments qualifying as securities.20 How should one evaluate this requirement when the debt instruments will be deemed repaid in exchange for equity immediately after their issuance?

And, finally, suppose that the spin-off described above is the first step in a disposition process that will ultimately result in distributing and controlled ceasing to be members of the same expanded group, thereby terminating their successor–predecessor relationship.21 Does that termination re-sult in the recharacterized equity becoming debt again, given that the funding rule had only been triggered by the successor–predecessor relationship? All of these are unanswered questions.

The discussion above should illustrate the uncertainty created by the distribution rules in a very com-mon and benign context. We hope and expect that the IRS will try to resolve such issues through the private letter ruling process, although that can often be time consuming and, thus, infeasible for transactions under a tight deadline. Otherwise, the distribution rules may impede ordinary business transactions. Until then, we can only hope that the tax reform process resolves itself expeditiously.

ENDNOTES

1 Donald Trump, Speech in Tampa, FL, available online at http://thehill.com/blogs/pundits-blog/

presidential-campaign/292520-full-speech-donald-trump-in-tampa-florida (August 24, 2016).2 Executive Order 13789 (April 21, 2017).3 Notice 2017-38, 2017-30 IRB 147 (July 7, 2017).4 Second Report to the President on Identifying and Reducing Tax Regulatory Burdens

(October 4, 2017), available online at https://www.treasury.gov/press-center/press-releases/

Documents/2018-03004_Tax_EO_report.pdf5 81 Fed. Reg. 20912 (April 8, 2016).6 See PwC Comment Letter on Section 385 (July 7, 2016), available online at http://image.

edistribution.pwc.com/lib/fe9813707560007f73/m/1/pwc-385-comment-letter.pdf ("[T]he Proposed

Regulations are problematic in several respects. They were proposed on the basis of questionable

regulatory authority. They fail to take into account practices with respect to comparable third-party

26

loans. They apply to an incredibly broad range of ordinary business transactions, although they were

issued to target specific perceived abuses. They will impose significant uncertainty and compliance

burdens on taxpayers. Their impacts are often unforeseeable and counterintuitive. For these and many

other reasons discussed herein, we recommend that the Proposed Regulations be withdrawn.")7 T.D. 9790 (October 21, 2016).8 Notice 2017-36, 2017-33 IRB (July 27, 2017).9 "The documentation rules apply principally to domestic issuers and are generally concerned with

establishing certain minimum standards of practice so that the tax character of an interest can be

objectively evaluated." Report, at 6.10 "The distribution regulations, on the other hand, principally affect interests issued to related-party

non-US holders and are the rules that limit earnings-stripping, including in the context of inversions

and foreign takeovers." Id.11 In a recent interview with Tax Notes, Dana Trier, the Treasury Department's Deputy Assistant Secretary

for Tax Policy, confirmed as much. 2017 Tax Notes Today 204-3 (October 24, 2017). Furthermore,

proposed removal of the documentation rules was included as an item in the 2017–2018 Priority

Guidance Plan, which is available online at http://www.irs.gov/pub/irs-utl/2017-2018_pgp_initial.pdf12 Chamber of Commerce, No.1:16-CV-944-LY (W.D. Tex. 2017); Altera Corp., 145 TC 91, December

60,354 (2015).13 Report, at 7.14 Id, at 8.15 H.R. 1, Tax Reform Act of 2014 (December 10, 2014).16 In the Tax Notes Today interview described above, Mr. Trier stated that the anti-earnings stripping and

anti-base erosion provisions currently drafted by the tax committees in Congress would be sufficiently

robust to revoke Section 385.17 Ordinarily, an instrument is recharacterized under the funding rule at the time it is issued. Reg.

§1.385-3(d)(1). However, a debt instrument might be recast immediately after the spin-off if, for

example, the distributing and controlled corporations were members of the same consolidated group.

Reg. §1.385-4T.18 Rev. Rul. 98-27, 1998-1 CB 1159.19 See IRS statement regarding private letter rulings on certain corporate transactions (October 13,

2017) (providing for enhanced scrutiny of "drop-spin-liquidate" transactions) and Rev. Proc. 2016-

40, 2016-32 IRB 228 (providing a limited safe harbor regarding recapitalizations to obtain Code Sec.

368(c) control).20 Pinellas Ice & Cold Storage Co., 287 US 462, 53 SCt 257 (1933).21 See Reg. §1.385-3(g)(24)(iii).

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Topical News Briefing: At The Fintech Frontierby the Global Tax Weekly Editorial Team

Corporate tax cuts might be making the headlines in the world of taxation, as countries all over the globe attempt to meet the competing objectives of aligning with the OECD's BEPS recom-mendations and stealing a competitive march on their neighbors. However, quietly behind the scenes, another tax battle seems to be taking place: one to win the hearts of those in the financial technology sector, otherwise known as fintech.

Fintech is a general term used for any technology applied to financial services. This includes technology employed by financial services organizations and new consumer products, where technology is the key enabler. And in recent months jurisdictions of all sizes have been an-nouncing improvements to their regulatory and tax regimes to make them more conducive for fintech companies.

It is fair to say that offshore and low-tax jurisdictions have taken the lead here, as they seek to diversify their offerings away from the provision of traditional services like trusts, banking, and corporate services – services which are increasingly having reputational consequences for compa-nies in the wake of the Panama and Paradise Papers leaks.

Guernsey was one of the earliest to position itself as a fintech center, announcing back in July 2015 a new strategy document, prepared by PwC, to guide growth in this sector. Just over a year later, new rules and guidance were proposed relating to consumer credit and innovative financial service businesses, including those in the fintech space.

Shortly thereafter, in September 2016, Jersey introduced a new regulatory regime for virtual cur-rencies, intended to give the island more control over the way individuals and businesses exchange virtual and physical currencies, while mitigating the potential risk of financial crimes. The regime was also intended to create a business environment that is attractive to fintech start-up businesses.

Abu Dhabi was also an early entrant into fintech regulatory territory, and was soon to be joined by other jurisdictions in the Gulf. Notably, the Dubai International Financial Centre launched the region's first fintech "accelerator" earlier this year, designed to catalyze growth and efficiency

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in a variety of areas including trade finance, alternative finance such as peer-to-peer payments, and Sharia-compliant services.

Gibraltar and Malta have made fintech-related announcements in recent months. Gibraltar noted the issuance of an e-money license to bitcoin storage company Xapo (Gibraltar) Limited, indicating this as evidence of strong interest already in the territory's "blockchain" regulatory regime. Malta announced the creation of a taskforce to help implement the island's national blockchain strategy

Elsewhere, the larger, perhaps less nimble economies have been slow to catch up. But, there, some recent developments suggest that key emerging and developed economies are keen for a slice of the fintech pie.

Last month, for example, Australia launched a public consultation on draft legislation to enhance tax breaks for angel and venture capital investors, with access to venture capital investment tax concessions for fintech start-ups a particular focus.

Meanwhile, China has since 2014 been experimenting with a preferential tax regime for cer-tain enterprises, on the condition that at least 50 percent of their income is derived from a "technologically advanced" services-focused business; it announced last month that the scheme would be expanded.

And earlier this month, the Malaysian Government announced via state news agency Bernama that tech start-ups could receive an up to ten-year tax holiday to support the Government's efforts to foster the development of the e-commerce sector.

It may be the case that the large economies will find it difficult to compete with the low-tax and offshore jurisdictions on the fintech front, which have been very good at attracting niche financial services industries, and where tax and regulatory regimes are finely tuned to capture such busi-ness. However, as countries continue to compete – seemingly aggressively – on tax, it could be that new tax breaks for this growth industry will become something of a trend.

29


Recent Tax Developments In Uruguayby Martín Soca, Ferrere, Montevideo, Uruguay

Budget Law

On September 25, 2017, the Uruguayan Executive Branch passed the Law on Bud-get Adjustment and Execution of the 2016 Budget Balance (No. 19,535). The most important tax changes are discussed below.

International-source income: services provided via internet

As of January 1, 2018, income from commercial operations in Uruguay involving production, dis-tribution or intermediation of motion pictures and tapes, as well as direct television or similar broad-casts, will be considered entirely Uruguayan-source for purposes of the non-resident income tax. This will also apply for income of non-resident entities that provide services directly via the Internet, technological platforms, IT applications or similar, when the customer is in Uruguayan territory.

The law establishes a rebuttable presumption with regard to location: the customer is considered to be in national territory when payment for the service is made via electronic means of payment administered from Uruguay, such as e-money, credit or debit cards, bank accounts, or similar instruments, to be established by future regulations.

The law also determines that the percentage of deemed Uruguayan-source income from activi-ties of mediation and intermediation in supply or demand of services, rendered via the Internet, technological platforms, IT applications or similar, is set at:

(i) 100 percent when the provider and the customer of the service (primary transaction) are in Uruguayan territory; and

(ii) 50 percent when the provider or customer of the service (primary transaction) is located abroad. The same presumption is established for the location of the customer.

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Finally, for value-added tax (VAT) purposes, services of direct or indirect mediation or interme-diation in supply or demand of services rendered via the Internet, technological platforms, IT applications or similar will be considered fully performed in Uruguay when they are destined to be used, or are consumed or economically used, in the country.

Research and development (R&D) in biotechnology, bioinformatics and production of software

The law modifies the exemption from Business Income Tax (Impuesto a las Rentas de las Activi-dades Economicas, or IRAE) for income deriving from R&D in biotechnology, bioinformatics and production of software, adjusting the benefits for activities actually taking place in Uruguay. When they are commercially used entirely abroad, the income deriving from same will be exempt on the amount reflecting the ratio between direct development expense (increased by 30 percent) and the total expenses incurred to develop them.

Increase in consular fee

The law provides for an increase in the consular fee: imports will be taxed at 5 percent on the customs value of the imported goods. Imports of products covered by the Partial Scope Economic Complementation Agreement No. 18 (Mercosur) will be subject to a 3 percent tax on the cus-toms value of the imported goods.

Exempted from the tax are goods brought into Uruguayan territory under the Temporary Admis-sion system, crude oil, and capital goods for exclusive use in industrial, farm and fishing sectors, whose extra-zone Global Tariff Rate is from 2 percent to 0 percent.

Tax fraud rules altered

The law adds Article 110 bis to the Tax Code, establishing an aggravating circumstance to the crime of tax fraud: use of invoices or any equivalent documents that are materially falsified or al-tered, or whose facts are totally or partially misrepresented. In such cases the penalty will be from two to eight years imprisonment.

Tax Information Exchange Agreements With South Africa And Guernsey

The Legislature passed Law No. 19,527 approving the Agreement between Uruguay and the Re-public of South Africa on the Exchange of Tax Information, signed August 7, 2015.

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Also passed was Law No. 19,526 approving the Agreement between Uruguay and the States of Guernsey on the Exchange of Tax Information, signed August 7, 2017.

The provisions of both treaties follow the OECD model for tax information exchange agreements.

Approval Of International Agreements On Mutual Assistance In Customs Matters

The Legislature approved various agreements on mutual assistance in customs matters with Israel (Law No. 19,520), China (Law No. 19,521), Egypt (Law No. 19,522), South Korea (Law No. 19.523), and Finland (Law No. 19,537).

Under these instruments, the parties will provide assistance with a view to ensuring proper ap-plication of customs legislation, exact assessment of customs duties and other taxes on imports and exports of goods, as well as correct determination of the classification, valuation and origin of such merchandise. They will also provide mutual assistance on customs crime prevention, in-vestigation, combating fraud, and enforcement.

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Topical News Briefing: A Mandate Too Far?by the Global Tax Weekly Editorial Team

In something of an unexpected move, the US Senate Finance Committee has decided to hitch the effective repeal of a key plank of the Affordable Care Act – the individual mandate – to the tax reform train which is currently winding its way through Congress.

However, with his amendment to the tax proposals passed last week by the committee, its chair-man, Orrin Hatch (R – Utah), hopes to kill several birds with one stone.

To recap, the individual mandate effectively obliges people without health insurance to purchase a minimum level of coverage. Those who refuse must make a "shared responsibility payment" on their annual tax return.

For those opposed to Obamacare from the start – and the overwhelming majority of Republicans were and still are – this was one of the most disliked aspects of former President Obama's health care reforms. In general, Obamacare has long been seen as unwarranted intrusion by the federal government into the health care markets and the decisions of private individuals, and the pres-ence of the individual mandate has merely reinforced this view.

Republicans have spent the period since 2010, when Obamacare was signed into law, unsuccess-fully trying to overturn it, both legislatively and through the courts. But even when the 2016 election put Donald Trump into the White House, and gave the Republicans a congressional majority, the anti-Obamacare faction still simply didn't have enough votes to repeal it.

But Hatch's move could be a shrewd one. President Trump and Republican leaders are determined to win a major legislative victory in 2017, and as things stand, tax reform looks the most likely candidate. And if the Senate's tax reform proposals meet rules allowing the legislation to pass as a budget reconciliation bill, they will only need a simple majority in the upper house to proceed.

At first glance, measures setting the individual mandate at zero – akin to repealing a tax – look like a counter-intuitive idea, since they would reduce revenue and make it harder for the tax re-form bill to meet budgetary rules. But, in fact, according to Hatch, it will achieve the opposite.

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It is believed that the individual mandate pushes more individuals into taking out government-subsidized health care, and its overall effect is budget negative, rather than vice versa – or at least, that's what the Joint Committee on Taxation claims.

The flip side is that more people could be left without health insurance. If figures from the Con-gressional Budget Office are to be believed, the measure would reduce the number of insured individuals by 13 million. These figures are, of course, disputed, and other analyses suggest that far fewer individuals would become uninsured. Nevertheless, the proposal is controversial politi-cally, and is certain to be a weak point in the Republicans' tax reform defenses which could draw attacks in Congress, as well as in the mainstream media, where public opinion may be shifted.

Indeed, as if many of the tax reform proposals weren't already controversial enough, the inclu-sion of a new rule to hobble a central pillar of Obamacare could raise the stakes considerably as Republicans seek their one landmark legislative achievement this year.

Furthermore, the fact that equivalent provisions aren't included in the version of the Tax Cuts and Jobs Act passed by the House of Representatives last week could make the process of reconcil-ing House and Senate proposals even harder, given that there are already considerable differences to be resolved on several fronts.

Hatch's amendment was certainly unexpected. Will it be an inspired move for Republicans, or a reckless one?

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ISSUE 263 | NOVEMBER 23, 2017NEWS ROUND-UP: TAX LAW

UK Lawmakers Reject Following ECJ Case Law After BrexitLawmakers in the UK have voted against a proposed amendment to Brexit legislation that would replace a clause seen as "ambiguous" for a clear message that UK courts should tempo-rarily follow rulings from the European Court of Justice (ECJ) after Brexit.

Prime Minister Theresa May has made clear that one of the Government's main priorities in leaving the EU is for the interpretation of law to no longer be provided by judges in Lux-embourg but instead by courts in the UK.

The European Union (Withdrawal) Bill in-cludes provisions to end the "direct" jurisdic-tion of the ECJ. These provisions were subject to a parliamentary debate on November 15.

The Government has released guidance on the content of the Bill and in particular its provi-sions on the future role of the ECJ's rulings in the UK in a report titled "The European Union (Withdrawal) Bill: Supremacy and the Court of Justice," released on November 7.

It notes concern from legal professionals and from the President of the UK's Supreme Court about the wording of clause 6(2) in particular, on how UK courts should treat rulings pro-vided by the ECJ after Brexit.

According to the report, clause 6(1)(a) pro-vides that domestic courts are not bound to follow ECJ judgments handed down after exit day. However, it does not prevent domestic courts from treating them as "persuasive au-thority," as they may currently treat judgments given by courts in other jurisdictions.

Clause 6(2) expressly permits a domestic court to refer to a post-exit ECJ judgment "if it con-siders it appropriate to do so," without defin-ing a test for appropriateness.

The report notes the numerous concerns that have been raised about this provision, stating: "Sir Ste-phen Laws, Former First Parliamentary Counsel, described clause 6(2) as 'unhelpfully vague,' as it gives no indication of what might be considered 'appropriate.' Laws adds that 'silence would be better than the creation, as in clause 6(2), of a new, but imprecise, statutory test of appropriateness'."

"The Bar Council has argued that clause 6(2) would not be effective, as it reflects neither the 'UK courts' approach to rulings on foreign law by courts of competent jurisdiction' nor their approach to judgments of the ECJ. The Bar Council suggested that the subsection should be deleted and replaced with a provision which instructs domestic courts 'may take account of but is not bound by' the ECJ's post-exit case law," the report noted.

35

The Institute for Government, meanwhile, has argued that ambiguity on this point "would risk leaving judges stranded on the front line of a fierce political battle."

Lord Neuberger, the President of the Supreme Court, likewise has warned that such broad discretion will leave judges in the UK open to political attack.

Other notable provisions in clause 6 of the Bill currently include:

Clause 6(3), which provides that ECJ judg-ments given before exit day will be binding on most domestic courts when interpreting retained EU law;Clause 6(3)(b), which instructs the courts to have regard to the limits of EU competences when interpreting retained EU law; andClause 6(4), which exempts the Supreme Court from the duty to follow existing EU case law, and in certain cases the High Court of Justiciary in Edinburgh. They have been instructed to treat prior EU case law as though it were their own case law.

The UK will continue to follow prior EU case law after Brexit, since it provides jurispru-dence through which UK law is interpreted. However, the report notes Parliament could enact legislation to expressly repeal retained EU case law.

During a November 14 parliamentary debate on the matter, Stuart McDonald of the Scot-tish National Party (SNP) argued in favor of following future ECJ case law for a period after Brexit, stating: "In the first months and years after exit, few cases in the ECJ will concern new EU rules that have nothing to do with the UK. Most will continue to relate to rules that existed before exit and that will in fact have been incor-porated into the UK statute book by this Bill. In essence, such decisions by the ECJ are about how the law always was and should have been applied, including immediately prior to exit."

On November 15, UK lawmakers only nar-rowly decided to vote down a proposed amend-ment to clause 6(2), put forward by the SNP in Amendment 137, that stipulated: "when interpreting retained EU law after exit day a court or tribunal shall pay due regard to any relevant decision of the European court."

Amid Gig Economy Tax Debate, Deliveroo Wins Key RulingFollowing a UK ruling against gig economy ride-hailing service Uber, which provided that its drivers are entitled to rights typically re-served for employees, Deliveroo has success-fully argued that its gig economy delivery driv-ers, of takeaway food, are self-employed.

Uniquely in the case of Deliveroo, it was agreed that its relationship with its riders does not

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constitute an employer-employee relationship. Special importance was given to the fact that riders can substitute themselves by asking an-other rider to take a job, even after accepting it. The ruling came from the UK's Central Ar-bitration Committee on November 14, 2017.

An earlier ruling against Uber from the London Employment Tribunal, upheld this month on appeal, had raised concerns that digital econ-omy companies could face footing taxes nor-mally borne by traditional employers on behalf of those making a living by offering services to users through their gig economy, web-based applications. Uber is expected to appeal again.

The Uber case was seen as a major setback for the development of the gig economy, which has appealed to individuals as it has all but elimi-nated the barriers to entry in many markets, such as the provision of accommodation ser-vices, or slashed associated operating costs. The Tribunal decided that Uber drivers are entitled to receive holiday pay and a guaranteed mini-mum wage, and to breaks. It was decided that Deliveroo need not provide the same benefits.

Although the Uber ruling did not discuss tax implications, the ruling could open the door to Uber becoming liable to taxes in the UK for its drivers, such as National Insurance (social security) contributions. It could also poten-tially result in a change to its VAT treatment.

The Good Law Project has launched legal ac-tion concerning Uber's VAT arrangements. Jolyon Maugham QC is seeking a decision from the High Court over whether the sup-plies facilitated by Uber should be liable to VAT – specifically he is asking whether a sup-ply is made by an Uber driver, or whether the supply is made by Uber, by asking questions about his eligibility to an input tax credit for VAT that would be liable on a fare paid.

Given the potential tax advantages that could potentially be lost by gig economy firms as a result of the Uber ruling, the ruling in fa-vor of Deliveroo will be welcomed by many business owners.

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ISSUE 263 | NOVEMBER 23, 2017NEWS ROUND-UP: INTERNATIONAL TRADE

EFTA, Turkey Move Closer To Concluding Free Trade DealDelegations from the European Free Trade Asso-ciation (EFTA) states – Norway, Iceland, Liech-tenstein, and Switzerland – and Turkey met in Ankara on November 14–16 for the sixth round of negotiations on the modernization and ex-pansion of their existing free trade agreement.

According to EFTA, "very productive" discus-sions were held in several areas, including rules of origin, trade facilitation, trade remedies, trade in services, intellectual property rights, and legal and horizontal matters including dispute settlement.

"Very good progress was achieved and all areas under negotiation were finalized in substance, subject to follow-up work regarding a few re-maining open points," EFTA said.

The work will be carried out in parallel with the legal review of the texts of the agreement, it added.

Bilateral merchandise trade between the EFTA states and Turkey has increased steadily since 2001, and reached EUR6bn (USD7bn) in 2016. EFTA's main exports to Turkey are pre-cious metals, pharmaceutical products, ma-chinery, and mineral fuel. Merchandise imports from Turkey consist mainly of precious metals, apparel articles and accessories, and vehicles.

EU Takes Stock Of Efforts To Boost Trade With UkraineThe EU has released a report on reform progress in Ukraine, under an agenda intended, among other things, to more deeply align Ukraine's economic policy, legislation, and regulations with the EU.

The report notes that thanks to the Deep and Comprehensive Free Trade Area, Ukrainian and EU businesses have received stable, pref-erential market access to each other's market since January 1, 2016. Ukraine's overall trade with the EU increased by 28.4 percent year-on-year in the period January to July 2017, the report said.

"Since last year's report, we have seen a number of long-awaited achievements. Our Association Agreement entered into force, and Ukrainian citizens were granted visa-free travel for short stay visits to the Schengen area. We now expect the implementation of reforms to be accelerated so that Ukrainian citizens can fully reap the ben-efits of our partnership. Ukraine can count on the European Union's continued support in or-der to make this possible," said European Com-mission Vice President Federica Mogherini.

Commissioner for European Neighbourhood Policy and Enlargement Negotiations, Jo-hannes Hahn, said: "We remain convinced of

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the fundamental commitment of the Ukrainian President, Government, and Rada (the parlia-ment) to deep-seated reform of the country. Of course this has not been a straightforward process: corruption is deep-rooted and there are vested interests that need to be overcome; natu-rally there are setbacks along the way that we must contend with. We are at times critical, and we insist on certain conditions, yet we are aware of how much Ukraine has already changed, with much more having been achieved in the past three years than in the decades before that, and under very challenging circumstances. The European Union will stick with Ukraine."

The report follows another from the EU as-sessing how outbound trade flows have been impacted by older trade agreements. It said the reduction or elimination of tax and non-tax barriers to trade provided by these agreements have resulted in substantial increases to trade, of 416 percent with Mexico, since the imple-mentation of a free trade deal in 2000; of 170 percent with Chile since 2003; of 59 percent with South Korea since 2011; and 62 percent with Serbia since 2013.

The report said it is often the EU agricultur-al and motor vehicle sectors that benefit the most. For example, exports of cars to South Korea have increased by 244 percent since 2011, and in the case of the agreement with Colombia and Peru there was a 92 percent and

73 percent increase, respectively, in the exports of EU agricultural goods.

EU Parliament Agrees New Anti-Dumping RulesMembers of the European Parliament (MEPs) have voted in favor of new rules on dumped and subsidized goods from outside the EU.

Dumping occurs when goods are sold into a foreign market at below the prevailing market rate in the exporter's domestic market. Coun-tries can respond by levying taxes on imports to prevent unfair competition for their domes-tic producers, known as anti-dumping duties. To counteract unfair subsidies, countries may also introduce countervailing duties.

A statement from the European Parliament said: "EU jobs and firms have real difficulty in competing with cut-price imports from third countries that have excess production capacity and subsidized economies." The new rules will "enable the EU to respond to such unfair trade practices by targeting imports where prices are not market-based, due to state interference."

Last month, Parliament endorsed an informal agreement on the new rules, reached by MEPs and European Council negotiators.

Under such agreement, a single methodology will be used for calculating dumping margins for imports from third countries in the case

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of significant market distortions or evidence of state influence on the economy. The EU will use the same anti-dumping methodology for all World Trade Organization members.

Several criteria will be considered in determin-ing distortions, including state policies and influence, the widespread presence of state-owned enterprises, discrimination in favor of domestic companies, and a lack of indepen-dence in the financial sector. Respect of inter-national labor and environmental standards in the manufacture of products will also be taken into account.

The Commission will monitor circumstances in exporting countries, and EU firms may rely upon the Commission's reports when lodging complaints. There will be no additional burden of proof on EU companies in anti-dumping cas-es, on top of the current procedure, and small

and medium-sized enterprises will be given help when dealing with the necessary procedures.

International Trade Committee Chair Bernd Lange said: "We have made our trade defense stronger and ensured that for the first time worldwide trade defense legislation takes ac-count of respect for labor and environmental standards. We've given our industries a future-proof system to effectively protect themselves from unfair practices."

The new rules will enter into force once they have been formally approved by the European Council.

MEPs are also negotiating further plans to up-date the EU's trade defense instruments, with a view to raising tariffs against dumped or sub-sidized imports from countries that do not in-terfere extensively in the economy.

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ISSUE 263 | NOVEMBER 23, 2017NEWS ROUND-UP: US TAX REFORM

US Tax Reform Bills Advanced By Senate Committee, HouseBoth the House of Representatives and the Senate Finance Committee passed their re-spective US tax reform bills on November 16.

The Tax Cuts and Jobs Act was approved by the House of Representatives by 227 votes to 205, despite opposition from all House Dem-ocrats and 13 House Republicans.

The Senate Finance Committee passed its own version of the bill following a week's mark-up. The bill passed by 14 to 12, with all committee members voting along partisan lines.

The Senate proposal will now move to a vote in the full chamber, where Republicans have a much slimmer majority than in the House. With 52 Republicans, 46 Democrats, and two independents, the party cannot afford similar Republican dissent.

Providing the Senate bill is approved, lawmak-ers from both houses would then work to ar-rive at a consolidated bill. Republicans hope to have this unified framework tabled before the President by Christmas.

"This is a historic moment for the American people," said House Ways and Means Commit-tee Chairman Kevin Brady (R – Texas) following

the passage of the House bill. "This vote is a big step forward – but it is not the last step. We will continue to strengthen this legislation and, working with the Senate, we will put tax reform on the President's desk by the end of the year."

"This is a historic moment and one we should all be proud of," said Senate Finance Commit-tee Chairman Orrin Hatch (R – Utah) after the bill advanced through committee stage. "While we've cleared a major hurdle tonight, there is still much work to be done and I look forward to working with my colleagues to get this across the finish line."

The passage of the bill through the House was welcomed by representatives from the US busi-ness community. "Today, the House took a big step toward tax cuts that will help America's small businesses grow and create jobs," said the National Federation of Independent Busi-ness in a statement.

Business Roundtable, the CEO association, said: "We thank members of the House of Representatives for taking a historic step to-ward making America's tax code an advantage, not an obstacle, for American workers, fami-lies and businesses of all sizes. The Business Roundtable is committed to working with the US Senate to advance pro-growth, pro-worker tax reform for the American people."

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The US Chamber of Commerce said: "Today the House voted on the first major tax reform legislation in 31 years, and the majority voted in favor of growth. Stronger, faster, sustainable economic growth will create jobs, lift incomes, and help middle class families. The House tax plan advanced today will boost our economy – to everyone's benefit – and we applaud lawmak-ers for prioritizing growth. This legislation lev-els the playing field for American job creators, lowers tax rates for businesses of all sizes, and encourages investment within our borders."

"We've got this one shot to do this and do it right, so let's keep working on it. We urge the Senate to continue moving toward the goal of putting America back on a path to long-term prosperity."

US Senate Tax Bill 'Could Kill Off S Corporations'S-Corp, a lobby group for America's small and family-owned businesses, has said the US Sen-ate Committee on Finance has failed to pro-vide equality for pass-through businesses in its new tax proposal.

S-Corp was set up in 1996 to promote the in-terests of the 4.7m businesses in the US classi-fied as S corporations, which are taxed under Subchapter S of Chapter 1 of the Internal Rev-enue Code. Income derived or losses incurred by S corporations are "passed through" to the

owners or shareholders, who report it on their own tax filings and pay any tax liable under the individual income tax regime.

A C corporation, on the other hand, is treated as a separate taxable entity, with its own tax re-turns. Income is taxed under the corporate tax regime. However, shareholders are also taxed on their dividend income at the individual in-come tax level.

In a statement released on November 11, S-Corp said the Senate plan "abandons any no-tion of equity for pass-through businesses."

While the original Unified Framework released in September 2017 called for a rate differential of 5 percent, and previous suggestions looked at eliminating the double corporate tax (the taxation of already taxed C corporation profit distributed to and taxed in the hands of share-holders), S-Corp said the Senate bill does not fulfill either of these promises.

It said: "Under the plan, no successful pass-through business will receive the promised 25 percent rate or anything close to it, while the new, larger tax rate gap between pass-through businesses and C corporations will result in a migration of business activity out of the cor-rect, single layer tax approach and into the harmful, double corporate tax. The economy will suffer as a result – there will be fewer jobs and less investment than if pass-through

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businesses could continue as a viable alterna-tive for family businesses."

S-Corp said it has specific concerns about the package, including:

The unfair rate differential: the top rate for C corporations is reduced to 20 per-cent while the top rate for S corporations is reduced to 38.5 percent – higher than promised in the original Framework. Al-though the bill includes a 17.4 percent deduction for eligible pass-through busi-nesses, S-Corp said: "That is not the rate most S corporations will pay."State and local deductions will be repealed for individuals and pass-through businesses but will continue to apply for C corpora-tions. "Depending on which state(s) an S corporation resides in, the repeal of this business expense will increase the marginal rate of S corporations by as much as five percentage points," said S-Corp.Failure to repeal the Net Investment Income Tax (NIIT), which taxes income from S cor-porations earned by inactive shareholders: "The failure of health care reform, coupled with the decision by leadership to not repeal the NIIT in tax reform, means marginal rates on S corporation income for inactive shareholders will be even 3.8 percentage

points higher, resulting in a top marginal rate for S corporations of 40 percent or more," said S-Corp.The inclusion of "extensive base-broadening initiatives," including loss limitation rules, the repeal of miscellaneous deductions, and the repeal of the individual Alternative Mini-mum Tax. According to S-Corp: "Many of these base-broadening provisions apply to pass-through businesses only, while all the base broadening will hurt S corporations more, since their marginal rate is so much higher than the C corporation rate."

The group also complained that the move from a worldwide to a territorial tax system would unfairly disadvantage S corporations, as the new international tax treatment is reserved for C corporations only. "This exclusion puts S corporations with overseas operations at a dis-tinct disadvantage," said S-Corp.

It said, if enacted, the bill could provoke a large-scale migration from S corporations to C corporations in order to avoid the pass-through rate, which could hurt economic growth.

The group urged the Senate and the House to "pursue tax reform that balances the importance of the pass-through community with the legiti-mate need to reduce the C corporation rate."

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ISSUE 263 | NOVEMBER 23, 2017NEWS ROUND-UP: COUNTRY FOCUS — CHINA

Shanghai FTZ To Pilot More Business-Friendly ReformsThe Shanghai Pilot Free Trade Zone (FTZ) has been chosen by the Mainland as the site to trial ten new customs and quaran-tine measures, which were recently unveiled by the Shanghai Entry-Exit Inspection and Quarantine Bureau.

The measures are intended to help the FTZ's companies and include a one-stop service for company registration and filing, an intelligent service center in the Zhangjiang cross-border technology and innovation center, a rating sys-tem of inspection and quarantine risk classifi-cations, and eco-origin product recognition.

The new measures have been introduced at the direction of President Xi Jinping, who said the country's free trade zones should be given further autonomy to implement re-forms. The new measures have been tailored to the needs of companies in the Shanghai Pilot FTZ and, once they have proven suc-cessful, will be rolled out to China's other free trade zones.

The Shanghai Pilot FTZ was founded in 2013 and offers a number of tax preferences. It com-prises a bonded area, a high-tech park, a finan-cial area, and an export processing zone.

Hong Kong Considers Easing Stamp Duty Refund RestrictionsHong Kong is planning to re-table legislation that would increase the period of time allowed for Hong Kong taxpayers to apply for a stamp duty refund.

Hong Kong allows certain taxpayers to claim a partial refund of ad valorem stamp duty if they are a Hong Kong Permanent Resident and they sell the only home they owned subsequent to purchasing a new one. However, eligible tax-payers have only six months to sell their exist-ing property and make an application to the Hong Kong tax agency.

It has been proposed that the six-month dead-line should be extended to nine months or 12 months, through the Stamp Duty (Amend-ment) Bill 2017, which had been tabled for parliamentary consideration in October 2017, but then deferred.

Financial Secretary Paul Chan, announc-ing the measure on November 19, noted that during the previous debate some law-makers said the six-month time limit for a stamp duty refund was too much of a rush for homebuyers.

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China Mulls Implementing Property Taxes NationwideChina is considering the introduction of a property tax to curb real estate speculation and increase the supply of property for rent, according to a senior government official.

Speaking at an event hosted by business media company Caixin, Vice Chairman of the Chi-nese Congress's Financial and Economic Af-fairs Committee, Huang Qifan, suggested that the Government could launch the tax within the next few years.

"Generally speaking, this is an important re-form arrangement for a healthy and sustain-able housing market. You won't have to wait for 10 years or 20 years. The Government will start [levying] the tax in the next few years," he was reported by Caixin as saying.

The tax is said to be in response to concerns about the country's over-heated real estate market, and is intended also to diversify local authorities' tax bases away from indirect taxes.

In January 2011, the Government approved pilots of a property tax on second-home pur-chases in the cities of Shanghai and Chongqing.

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ISSUE 263 | NOVEMBER 23, 2017NEWS ROUND-UP: VAT, GST, SALES TAX

India Slashes List Of Items Subject To 28 Percent GSTIndia is to alter the goods and services tax (GST) treatment of more than 200 goods and services, mainly to narrow the scope of the top 28 percent rate.

In a statement following the GST Council's 23rd meeting, the Central Board of Excise and Customs explained that "the Council has recommended major relief in GST rates on certain goods and services. These recom-mendations spread across many sectors and across commodities."

"As per these recommendations, the list of 28-percent-GST-rated goods is recommend-ed to be pruned substantially, from 224 tariff headings … to only 50 tariff headings includ-ing four headings which have been partially reduced to 18 percent."

Additionally, the Council recommended changes in GST rates on a number of goods, in order to rationalize the rate structure with a view to minimizing classification disputes.

Goods on which the Council has recom-mended reduction in the GST rate from 28 percent to 18 percent include: wire, cables, and certain electrical supplies; certain wooden and furniture items; travel supplies, detergents

and toiletries; lamps, light fittings, and certain types of batteries; fixtures, fittings, and deco-rative supplies; broadcasting and recording equipment of various types; and certain build-ing and construction supplies.

Reports in national media suggested that the changes were possible after better than expect-ed revenue collections in August, to provide relief for taxpayers critical of the new regime.

New Zealand To Remove GST Exemption For Low-Value ImportsNew Zealand's new Revenue Minister, Stuart Nash, has said the country will reduce or elim-inate the goods and services tax (GST) exemp-tion for low-value imports.

Presently, goods worth no more than either NZD226 (USD155.6) or NZD400 (depend-ing on if they are subject to duty) are not sub-ject to GST on import. In essence, the tax au-thority waives liability to GST if the amount of tax at stake is not more than NZD60.

In an interview with Newstalk ZB radio, he said the policy would "absolutely" change.

Retail NZ welcomed the announcement, with Greg Harford, the association's General Man-ager for Public Affairs, stating on November

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15: "For many years, New Zealand retailers have been disadvantaged by the fact that they have to [levy] tax in New Zealand while foreign websites don't, even though they compete in the New Zealand market. This is the first time that a Revenue Minister has committed to fix-ing this issue, and we want to congratulate Mr. Nash on his leadership. While the timeline has yet to be finalized, we are really pleased that Minister Nash is taking the issue seriously, and we urge him to implement a GST registration requirement from July 1, 2018, in line with the Australian Government."

"GST is a key component of government rev-enue streams, and a GST registration require-ment [on foreign firms, to account for sup-plies to New Zealand] will net the government around NZD5.8bn over the next ten years. Closing the current tax loophole will also mean that New Zealand businesses are no longer dis-advantaged by government tax policy."

"The issue is becoming more pressing as online shopping grows in popularity, and as Amazon is about to move into Australia. It's just not right that Kiwi businesses that employ New Zea-landers and keep our communities vibrant are taxed, while massive foreign corporations don't pay their share of tax for doing business here."

In its base erosion and profit shifting (BEPS) Action 1 report, on tackling the tax challenges of the digital economy, the OECD proposed

that countries should eliminate such exemp-tion for low-value consignments and tax cross-border business-to-consumer supplies of broadcasting, telecommunications, and elec-tronic services in the location of the consumer.

HMRC Delays VAT Change On Pension Fund Management ServicesThe UK tax authority is to delay changes to the VAT rules for pension fund management services and amend its recent guidance.

HM Revenue & Customs (HMRC) has re-leased a statement confirming that following meetings with industry representatives, it will delay implementation.

HMRC said: "We have engaged with and taken on board the feedback from industry represen-tatives around the timescales for implement-ing the changes proposed in the Revenue and Customs Brief 3 (2017) policy paper [("R&C Brief 3")] on VAT treatment of pension fund management services. The revised implemen-tation date will be notified shortly and the HMRC VATINS guidance will be updated to include these changes in due course."

In R&C Brief 3, "VAT – treatment of pension fund management services," published October 5, 2017, HMRC had confirmed that it would repeal the exemption from VAT provided to all

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pension fund management services provided by regulated insurance companies from January 1, 2018. This is in response to earlier rulings on the subject matter, such as the European Court of Justice's (ECJ's) landmark ruling in Card Protection Plan ("CPP") in 1999.

HMRC explained in R&C Brief 3 that the current exemption is the result of the UK's original application of the insurance exemp-tion to all of an insurer's regulated insurance activities, including the management of pen-sion funds. Following the CPP judgment, UK law was amended from January 1, 2005, to re-move any link between an insurer's regulatory status and the entitlement to VAT exemption on its supplies. The CPP judgment makes clear that the EU insurance exemption applies only to the underwriting of risk and does not apply to other supplies made by insurers.

However, UK policy continued to allow insur-ers to exempt their supplies of pension fund management services. The initial retention of this policy followed from an earlier HMRC consultation entitled "Consultation on the VAT Treatment of Pension Fund Management," published in November 2002. The responses to this consultation were inconclusive, and, as a result, the then government announced it would not make any immediate changes to the VAT treatment of fund management services, but would keep the issue under review.

Since then, this treatment has been reviewed regularly and maintained. HMRC said this had reflected the ongoing uncertainty con-cerning the current and future treatment of pension fund management services. "Initially this uncertainty arose from the EU Commis-sion's review of the VAT treatment of finan-cial services, which began in 2006, and which created an expectation that it would result in a future exemption for all pension fund man-agement services. However, after several years of discussion, the EU Commission withdrew its proposal in its 2016 Work Programme, as no agreement appeared likely. Continuing ECJ litigation in this area has created further uncertainty," HMRC said.

In ATP Pension Services (C-464/12) ("ATP"), the ECJ found that a pension fund that pooled investments from a number of defined contri-bution occupational pension schemes quali-fied as a special investment fund (SIF) for the purposes of the VAT exemption for fund man-agement services.

This case specifically concerned defined contri-bution (otherwise known as money purchase) pensions and did not concern the VAT treat-ment of services supplied in connection with defined benefit pensions. Services supplied in connection with defined benefit pensions schemes were found by the ECJ in Wheels Common Investment Fund Trustees and Others

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(C-424/11) to fall outside the fund manage-ment exemption on the basis that the invest-ment fund (which pools the assets of such a scheme) was not a SIF.

Prior to the ATP judgment, HMRC did not consider pension funds of any kind to be SIFs, and therefore treated services provided in con-nection with all types of pension fund as falling outside the specific VAT exemption for the man-agement of SIFs. In light of ATP, HMRC has said it now accepts that pension funds that have all of the required characteristics are SIFs for the purposes of the fund management exemption, so that the services of managing and adminis-tering those funds are, and always have been, exempt from VAT. Pension funds that do not have all those characteristics are not SIFs, and so are not within the scope of the exemption.

Turning to discuss HMRC policy, R&C Brief 3 announced that, now the relevant court cas-es on this issue have been concluded, and it is clear that there will be no further review of the EU rules in this area before the UK exits the EU, it is appropriate that HMRC updates its policy to reflect the settled case law. Conse-quently, the policy of allowing insurers to treat their supplies of non-SIF pension fund man-agement services as VAT exempt insurance is to be discontinued.

HMRC said, however, it acknowledges that the great majority of pension fund

management services provided by insurers are supplied for defined contribution pen-sion funds and therefore qualify (and have always qualified) for exemption as SIFs fol-lowing the ATP judgment.

HMRC has further clarified the policy changes in R&C Brief 3 in a statement to the Institute of Chartered Accountants in England and Wales (ICAEW), which said: "Pension fund management services pro-vided by insurers to defined benefit occupa-tional pension funds will change from being VAT exempt (as insurance) to being subject to VAT at the standard rate. This will bring them in line with the same services provided by non-insurers."

"This does not affect pension fund manage-ment services provided by insurers in respect of defined contribution occupational and per-sonal pension funds which are generally ex-empt from VAT (as the management of 'Spe-cial Investment Funds' – see VATFIN5120 Exemption for the management of 'special in-vestment funds': Pension Funds)."

"This does not affect intermediary services supplied to insurers (or to their policyholders) in respect of pensions (or annuities) provided by them under contracts of insurance (e.g., SIPPS) – the introduction and administration of these contracts will continue to be exempt under the insurance exemption."

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UAE Releases Executive Regulation On VATThe United Arab Emirates (UAE) has released regulations setting out key elements of the rules surrounding value-added tax (VAT), which will be implemented from January 1, 2018.

The Executive Regulation for the Federal De-cree-Law No. (8) of 2017 on Value Added Tax was unveiled at a Cabinet meeting on Novem-ber 7, the Government said in a November 11 statement, which explained its provisions.

According to the Ministry of Finance, among other things, the Regulation defines terms used; discusses how to categorize supplies and a taxable event; and discusses mixed supplies and deemed supplies.

The Regulations set out administrative rules, such as the requirement to register and voluntary reg-istration; related parties; conditions to be met to register a tax group and appointing a representa-tive member; deregistration; exceptions from the requirement to register; transitional registration rules; and the rules surrounding reregistration.

The Regulation also looks at how to determine when a supply takes place; the place where a supply is deemed to have occurred; the place of supply of services connected with immovable property; the treatment of transport services, telecommunications services, and electronic

services, and intra-GCC supplies; rules con-cerning valuation of supplies; and pricing rules, including rules concerning discounts, subsidies, and vouchers.

It also discusses reverse charges; reporting and documentation rules; and the treatment of cross-border supplies.

The Regulations are available on the Ministry of Finance's and the tax agency's websites.

Commenting, Minister of Finance Hamdan bin Rashid Al Maktoum said: "The release of [this Regulation] is a new stage in the imple-mentation of an effective tax system in the UAE – one that measures up to the highest in-ternational standards. We extend our hand in partnership to all concerned parties, inviting them to work together for the advancement, progress, and prosperity of the UAE."

Businesses are required to register to collect and remit VAT if at any time during the past 12 months the value of their taxable supplies exceeded the mandatory registration thresh-old of AED375,000 (USD102,000), or if the entity anticipates it will exceed the threshold within the next 30 days.

Taxpayers can register voluntarily if the to-tal value of their taxable supplies exceeded AED187,500, or if the business expects to ex-ceed that threshold, within the next 30 days.

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ISSUE 263 | NOVEMBER 23, 2017NEWS ROUND-UP: BEPS

BEPS Package A Mixed Bag For South Africa: DTCOn November 13, 2017, South Africa's Davis Tax Committee (DTC) released its final re-port setting out recommendations on how the country should incorporate the OECD's min-imum standards, best practice guidelines, and international standards on base erosion and profit shifting (BEPS) into its international tax framework.

The DTC was set up in 2013 to comprehen-sively review the country's tax system. The newly released report replaces an earlier interim report issued by the DTC in December 2014.

The report states: "It is important that any rec-ommendations to curtail BEPS and any laws enacted to curtail the same are not crafted from reactionary approach to what was going on globally, but these ought to evolve from an international tax policy that takes cognizance of the special circumstances of South Africa's economy (that portray aspects of both a devel-oped and developing economy), its status as an emerging economy on the African continent, its administrative capacity, trade partners, as well as its socio-geo-political circumstances."

The report adds: "This is important because the 15 Actions of the OECD's BEPS project deal with different dimensions in the international

tax planning practices of multinational enter-prises which could affect countries in different ways, depending on whether the country is a predominately source-based country (largely attracts foreign direct investment) or a pre-dominately residence country (from which in-vestments flow to other countries). South Af-rica's economy falls in both categories. In many respects, South Africa is a source country where activities of multinationals are being carried out as it still relies heavily on foreign direct invest-ment. However, South Africa is also a residence state to many homegrown MNEs, and it is a base country to many intermediate MNEs for further investment into the rest of Africa."

The report notes that as a residence country, BEPS Actions 2, 3, 5, and 8–10 contain pro-posals that have serious implications for South Africa as a home to multinational groups; while as a source country, BEPS Actions 1, 4, 6, and 7 contain proposals that South Africa may have to adopt to address its base erosion concerns.

The report states: "Providing recommenda-tions to address BEPS in South Africa is thus dependent on analyzing a range of internation-al tax policy considerations, which are likely to be particularly challenging for an emerging economy like South Africa that has a signifi-cant group of home-grown multinational en-terprises while still relying heavily on foreign

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direct investments for its access to technology and capital. Thus in South Africa, the adop-tion and implementation of BEPS Action Points contains important trade-offs that re-quire careful considerations. South Africa will have to develop a balanced approach as it re-sponds to BEPS challenges."

Guernsey Guides On BEPS Tax Ruling Info ExchangeOn November 14, 2017, the Government of Guernsey published guidance on how it is responding to OECD recommendations in BEPS Action 5, which proposes the compul-sory and spontaneous exchange of informa-tion on tax rulings.

The guidance notes that Action 5 covers the fol-lowing six categories of taxpayer-specific rulings: rulings relating to preferential regimes (of which Guernsey considers it offers none); unilateral ad-vance pricing agreements or other cross-border unilateral rulings in respect of transfer pricing; cross-border rulings providing for a downward adjustment of taxable profits; rulings relating to permanent establishment issues; related-party conduit rulings; and any other types of ruling agreed by the OECD Forum on Harmful Tax Practices to give rise to BEPS concerns.

The Government said: "Rulings falling with-in the six categories above will be considered to be of interest to a tax authority in another jurisdiction, i.e. have a cross-border flavor, where any of the parties to the transaction are not resident in Guernsey or where the imme-diate or ultimate parent entity is not resident in Guernsey."

However, the guidance notes that any deci-sion to adjust the tax computations during the annual review and inquiry phase of the processing of returns would not meet the definition of a "ruling," unless that decision affected the treatment of future profits and falls within one of the six categories and is of a cross-border nature.

Under the OECD recommendations, all past rulings should be exchanged with the relevant tax authorities by December 31, 2017. "Past rulings" include rulings made between Janu-ary 1, 2015, and April 1, 2017; and rulings made between January 1, 2012, and January 1, 2015, if they are in force as on January 1, 2015. Rulings issued on or after April 1, 2017, should be reported to the relevant tax authorities no later than three months after they have been determined.

52

ISSUE 263 | NOVEMBER 23, 2017NEWS ROUND-UP: COMPLIANCE CORNER

OECD Global Forum Discusses Tax Transparency ProgressTwo hundred delegates from more than 90 delegations met in Yaounde, Cameroon, on November 15–17, 2017, for the 10th meeting of the Global Forum on Transparency and Ex-change of Information for Tax Purposes, which now includes 147 countries and jurisdictions.

At the meeting, the Global Forum adopted the first report on the status of implementation of the OECD's new standard on the automat-ic exchange of tax information (AEOI), the Common Reporting Standard (CRS), with 50 countries recently having begun exchanging information and a further 53 countries to start exchanging data in September 2018.

The Global Forum published peer reviews of Curacao, Denmark, India, Isle of Man, Italy, and Jersey in relation to their compliance with the OECD's earlier standard, providing for tax information exchange between countries on request. The publications bring to a total of 16 the number of second round reviews of the Global Forum's 147 member countries and jurisdictions based on its international stan-dard of transparency and exchange of financial account information on request (EOIR stan-dard). These phase two reviews look at how the territories exchange tax information with

other countries in practice to support efforts to tackle fiscal crime.

The standard was reinforced last year to tackle tax evasion more effectively, particularly in areas covering the concept of beneficial ownership.

The Isle of Man, Italy, and Jersey were all deemed to be compliant with the standard, with Jersey singled out for praise for making changes to its framework to move from be-ing largely compliant to compliant and being compliant in all rated areas.

India and Denmark were rated largely com-pliant, while Curacao received a partially compliant rating.

Delegates at the Yaounde meeting also agreed that the countries and jurisdictions working within the Global Forum, as well as within the Inclusive Framework on Base Erosion and Profit Shifting (BEPS), could provide sup-port to the EU on its current listing exercise to identify third country jurisdictions that fail to comply with tax governance standards.

It was agreed that the key focus of the Global Forum in 2018 will be on the full and timely delivery of the commitments made by the juris-dictions scheduled to commence CRS exchang-es in 2018, the development of the framework for the full AEOI peer reviews, and progress

53

towards implementation of the CRS by devel-oping-country members. Furthermore, in rela-tion to the EOIR Standard, the Global Forum will deliver further reports in the second round of EOIR peer review. Ensuring progress in the availability of and access to beneficial owner-ship information will also be at the center of the Global Forum's EOIR and AEOI assess-ments and technical assistance work.

The Global Forum agreed that its next meet-ing will take place in October or November 2018 in Uruguay. This was therefore the last meeting of the Global Forum before AEOI is fully rolled out. Only four countries that have agreed to AEOI will implement automatic in-formation exchange later: Peru, in 2019; and Albania, Maldives, and Nigeria, in 2020.

HSBC Settles French Falciani Files Tax InvestigationHSBC has agreed to pay a sum of EUR300m (USD352m) to settle an investigation by the French authorities into its alleged involvement in tax evasion schemes.

As a result, HSBC will not face trial over alle-gations that it helped French taxpayers to con-ceal assets from the tax authorities.

The decision to settle is not an admission of guilt. The bank confirmed in a widely quoted statement: "The investigation regarding HSBC Holdings has been dismissed."

Closure of the investigation, which involved HSBC's Swiss arm, was also confirmed by France's financial prosecutor's office.

The settlement is the first use of a new legal pro-cedure intended to allow companies under in-vestigation for alleged involvement in financial crimes to settle out of court by paying a fine.

The investigations stemmed from information leaked by Hervé Falciani, a former employee of HSBC in Switzerland, which led to investi-gations by tax authorities in several countries.

Falciani copied information on more than 100,000 HSBC clients onto an encrypted de-vice while employed as an IT specialist at the bank, before fleeing to France, his country of nationality, in 2008.

He was later sentenced to five years in prison in absentia by the Swiss Federal Criminal Court.

US Security Summit Undertaking 'Taxpayer Awareness Week'The US Internal Revenue Service (IRS) will join forces with state tax agencies and the tax industry to hold a second annual National Tax Security Awareness Week.

Starting November 27, the initiative is intend-ed to encourage both individual and business taxpayers to take additional steps to protect

54

their tax data and identities, in advance of the 2018 filing season.

The IRS, state tax agencies, and the tax indus-try – each partners to the Security Summit ini-tiative – will focus on a different issue each day of the Awareness Week, covering issues that pose a threat to individuals and businesses and offering steps that taxpayers can take to better protect themselves from cybercriminals.

"While the Summit partners continue to im-prove defenses, they also recognize that they need help from taxpayers, tax preparers and businesses to continue progress against iden-tity theft," said the IRS.

A series of over 20 events will be held by Sum-mit partners and other consumer, business, and community groups in order to raise awareness. "This is especially timely as the holiday season brings out not only online shoppers but online thieves seeking to trick people into disclosing sensitive information that could be used to help file fraudulent tax returns," the IRS said.

The Awareness Week will focus on the nec-essary steps taxpayers should take to protect themselves and their tax data online, such as using security software, strong passwords, and data encryption. It will discuss how cybercrim-inals use phishing emails to bait taxpayers into disclosing information. Employers will also be warned about the dangerous W-2 scam that

has resulted in thousands of employees becom-ing the victim of identity theft.

Australia Seeks To Plug Property Tax HolesThe Australian Parliament has passed legisla-tion to tighten the property tax rules for inves-tors in residential property.

The Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 implements the fol-lowing measures:

An annual vacancy charge on foreign owners of residential real estate where the property is not occupied or genuinely available on the rental market for at least six months in a 12-month period. It applies to foreign persons who make a foreign investment ap-plication for residential property from 19:30 (AEST) on May 9, 2017 (Budget night).From July 1, 2017, travel costs for individual investors inspecting and maintaining resi-dential investment properties will no longer be deductible. The aim is to prevent residen-tial property investors from taking holidays at taxpayers' expense.A new limit on plant and equipment deduc-tions to assets not previously removed, to remove existing opportunities for items to be depreciated by multiple owners in excess of their actual value.

55

TAX TREATY ROUND-UP ISSUE 263 | NOVEMBER 23, 2017

ARMENIA - IRAN

Negotiations

According to preliminary media reports, Ar-menia and Iran are to enter into negotiations to revise their DTA.

BAHAMAS - FINLAND

Signature

The Bahamas and Finland signed a Protocol to amend their TIEA on October 19, 2017.

BARBADOS - ITALY

Ratified

Barbados and Italy have exchanged instruments of ratification in respect of a DTA, which will become effective from January 1, 2018.

CANADA - ANTIGUA AND BARBUDA

Signature

Canada and Antigua and Barbuda signed a TIEA on October 31, 2017.

CYPRUS - MAURITIUS

Signature

Cyprus and Mauritius signed a DTA Protocol on October 23, 2017.

DENMARK - JAPAN

Signature

Denmark and Japan signed a DTA Protocol on October 11, 2017.

GIBRALTAR - UNITED KINGDOM

Negotiations

Gibraltar and the United Kingdom are consid-ering launching negotiations towards a DTA, according to recent comments from the UK's Economic Secretary to the Treasury.

INDIA - NEW ZEALAND

Ratified

India ratified a third Protocol to its DTA with New Zealand on November 2, 2017, publish-ing a Notice in its Official Gazette.

56

NETHERLANDS - ZAMBIA

Forwarded

The Dutch lower house of Parliament on Oc-tober 24, 2017, approved the ratification of a DTA signed with Zambia.

PAKISTAN - LATVIA

Initialed

Pakistan and Latvia initialed a DTA on Octo-ber 25, 2017.

SPAIN - PORTUGAL

Signature

Spain and Portugal signed a DTA on October 18, 2017.

SPAIN - ROMANIA

Signature

Spain and Romania signed a DTA on October 18, 2017.

SWITZERLAND - KOSOVO

Forwarded

Swiss lawmakers on November 15, 2017, ap-proved a new DTA with Kosovo.

SWITZERLAND - PAKISTAN

Forwarded

Switzerland's Government on October 25, 2017, adopted a dispatch on a DTA conclud-ed with Pakistan, enabling its ratification.

UNITED KINGDOM - UKRAINE

Signature

The United Kingdom and Ukraine signed a DTA Protocol on October 9, 2017.

57

CONFERENCE CALENDAR

A guide to the next few weeks of international tax gab-fests (we're just jealous - stuck in the office).


THE AMERICAS

Trusts 101

11/28/2017 - 11/28/2017

NBI

Venue: Holiday Inn & Suites Mansfield-Conference Ctr, 116 Park Avenue West, Mansfield, OH 44902, USA

Key speakers: James S. Adray (Adray & Grna), Adriann S. Mcgee (Reminger Co., LPA), Michael P. Morley (Brennan Manna & Diamond, LLC), John R. Riccardi (U.S. Bank), among numerous others

https://www.nbi-sems.com/ProductDetails/Trusts-101/Seminar/77065ER?N=63943

25th Annual Cayman Captive Forum

11/28/2017 - 11/30/2017

IMAC

Venue: Ritz-Carlton Grand Cayman, Seven Mile Beach, KY1-1209, Cayman Islands

Key speakers: TBC

http://www.imac.ky/ccf-home.aspx

US Accounting (ASC 740) for Income Taxes – New York

11/29/2017 - 11/30/2017

Bloomberg BNA

Venue: AMA Conference Center, 1601 Broadway (at 48th and Broadway), 8th Floor, New York, NY 10019, USA

Key speakers: TBC

https://www.bna.com/accounting-ny17/

The New Era of Taxation: How to Remain on Top in a World of Constant Evolution

11/30/2017 - 12/1/2017

International Bar Association

Venue: Hilton Buenos Aires Hotel, Buenos Aires, Argentina

Co-Chairs: Mariana Eguiarte Morett (Sanchez DeVanny, Mexico City), Leandro Passarella (Passarella Abogados, Buenos Aires)

http://www.ibanet.org/Conferences/conf835.aspx

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FATCA and CRS Boot Camp

12/4/2017 - 12/4/2017

Financial Research

Venue: The Harmonie Club, 4 E 60th St, New York, NY 10022, USA

Key Speakers: TBC

http://events.frallc.com/events/fatca-and-crs-boot-camp-b1064-/event-summary-5295ecd2e4384b04a418b935fe19d96f.aspx?dvce=1

Trusts From A to Z

12/4/2017 - 12/4/2017

NBI

Venue: Holiday Inn University Plaza Hotel, 1021 Wilkinson Trace, Bowling Green, KY 42103, USA

Key speakers: Christopher Clendenen (Murphy & Clendenen, PLLC), C. Shawn Fox (Seiller Waterman LLC), Stephanie L. Mcgehee-Shacklette (Berry & McGehee PLLC), Leah A. Morrison (English, Lucas, Priest & Owsley, LLP), among numerous others

https://www.nbi-sems.com/ProductDetails/Trusts-From-A-to-Z/Seminar/77373ER?N=63943

36th Institute on State and Local Taxation

12/4/2017 - 12/5/2017

NYU School of Professional Studies

Venue: Grand Hyatt New York, 109 E 42nd St, New York, NY 10017, USA

Co-Chairs: Bruce P. Ely, Esq. (Bradley Arant Boult Cummings), Carolynn S. Kranz, Esq. (Industry Sales Tax Solutions)

http://www.sps.nyu.edu/academics/departments/finance-tax-and-law/conferences-events/institute-on-state-and-local-taxation.html

Introduction to US International Tax – Arlington, VA

12/4/2017 - 12/5/2017

Bloomberg BNA

Venue: Bloomberg BNA, 1801 S. Bell Street, Arlington, VA 22202, USA

Key speakers: TBC

https://www.bna.com/intro-va17/

Trusts: The Ultimate Guide

12/4/2017 - 12/5/2017

NBI

Venue: Le Meridien, 333 Battery Street, San Francisco, CA 94111, USA

59

Key speakers: Susanne Lee Chung (Legacy Law Office), Francis B. Doyle (WealthPLAN), Ryan M. Janisse (Gilmore Magness Janisse), Roxanne T. Jen (Rodnunsky & Associates), among numerous others

https://www.nbi-sems.com/ProductDetails/Trusts-The-Ultimate-Guide/Seminar/77262ER?N=63943

Intermediate US International Tax Update – Arlington, VA

12/6/2017 - 12/8/2017

Bloomberg BNA

Venue: Bloomberg BNA, 1801 S. Bell Street, Arlington, VA 22202, USA

Key speakers: TBC

https://www.bna.com/inter-VA17/

Tax Strategies for Corporate Acquisitions, Dispositions, Spin-Offs, Joint Ventures, Financings, Reorganizations & Restructurings 2017

12/6/2017 - 12/8/2017

Practising Law Institute

Venue: Intercontinental Los Angeles Century City, 2151 Avenue of the Stars, Los Angeles, CA 90067, USA

Chairs: Linda E. Carlisle (Miller & Chevalier Chartered), Eric Solomon (EY)

http://www.pli.edu/Content/Seminar/Tax_Strategies_for_Corporate_Acquisitions/_/N-4kZ1z10oic?ID=306525

Hedge Fund Tax 101 and K-1 Boot Camp

1/24/2018 - 1/25/2018

Financial Research

Venue: The Princeton Club, 15 W 43rd St, New York, NY, USA

Key Speakers: TBC

http://events.frallc.com/events/hedge-fund-tax-101-and-k-1-boot-camp-b1079-/event-summary-22badeb84b1c456a9f91595d120eba96.aspx?dvce=1

STEP Cayman Conference 2018

1/29/2018 - 1/30/2018

STEP

Venue: Kimpton Seafire Resort and Spa, 60 Tanager Way, Grand Cayman, Cayman Islands, KY1-9008

Key speakers: Sherice Arman (Maples and Calder), Maxine Bodden TEP (Maples and Calder), Sarah Cormack (Withers LLP), Oliver Court TEP (Withers LLP), Andrew De La Rosa (ICT Chambers), Antony Duckworth TEP (Collas Crill), among numerous others

http://www.step.org/cayman2018

60

STEP Orange County 7th Annual Institute on Tax, Estate Planning and The Economy

2/15/2018 - 2/16/2018

STEP

Venue: Island Hotel Newport Beach, 690 Newport Center Drive, Newport Beach, California, 92660, USA

Key speakers: Lawrence Brody (Bryan Cave LLP), Keith Schiller (Schiller Law Group), Jane Peebles (Karlin & Peebles LLP), Paul Lee (Northern Trust), Justin Miller (BNY Mellon), among numerous others

http://www.step.org/events/save-date-step-orange-county-7th-annual-institute-tax-estate-planning-and-economy

In-Depth HST/GST Course

5/27/2018 - 6/1/2018

CPA

Venue: 48 John Street, Niagara-on-the-Lake, ON LOS 1J0, Canada

Key speakers: David Robertson (CPA), Janice Roper (Deloitte)

https://www.cpacanada.ca/en/career-and-professional-development/courses/core-areas/taxation/indirect-tax/in-depth-hst-gst-course

ASIA PACIFIC

International Taxation Conference 2017

12/7/2017 - 12/9/2017

IBFD

Venue: ITC Maratha Hotel, Sahar Elevated Rd, Sahar, Airport Area, Andheri East, Mumbai, Maharashtra 400099, India

Chair: Pascal Saint-Amans (OECD)

https://www.ibfd.org/sites/ibfd.org/files/content/pdf/International-Taxation-Conference-2017.pdf

CENTRAL AND EASTERN EUROPE

CIS Wealth Moscow 2018

2/19/2018 - 2/20/2018

CIS Wealth

Venue: Marriott Moscow Grand, 26/1 Tverskaya Street, Moscow, 125009, Russia

Key speakers: Svetlana Hohlova (Bell Moore S), Ekaterina Varadi (LAVECO Ltd), Maxim Simonov (Duvernoix Legal), Anna Modyanova (PwC)

http://cis-wealth.com/en/konferencii/19-cis-wealth-moscow-2018.html

61

MIDDLE EAST AND AFRICA

Tax-Effective Global Value Chain – Post-BEPS

11/26/2017 - 11/28/2017

IBFD

Venue: Hilton Dubai Jumeirah Hotel, Jumeirah Beach Road, Dubai Marina, Dubai

Key speakers: Anuschka Bakker (IBFD), Jeroen Kuppens (KPMG Meijburg & Co)

https://www.ibfd.org/Training/Tax-Effective-Global-Value-Chain-Post-BEPS-1

WESTERN EUROPE

STEP Italy Conference

11/23/2017 - 11/23/2017

STEP

Venue: The Westin Excelsior Rome, Via Vittorio Veneto, 125, Rome, 00187, Italy

Key speakers: Professor Stefania Bariatti (Chiomenti), Maurizio Bernardo (Italian Parliament), Fabrizia Lapecorella (Ministry of Finance), Achille Gennarelli (J.P Morgan International Bank Ltd.), Antonio Martino (DLA Piper Studio Legale Associato e Trbutario), among numerous others

http://www.step.org/italy2017

Annual Conference on European VAT Law 2017

11/23/2017 - 11/24/2017

IBFD

Venue: ERA Conference Centre, Metzer Allee 4, Trier, Germany

Key speakers: Christian Amand (Xirius), Jeremy Cape (Squire Patton Boggs), Stephen Dale (PwC), Professor Mariken van Hilten (Supreme Court of the Netherlands), among numerous others

https://www.ibfd.org/IBFD-Tax-Portal/Events/Annual-Conference-European-VAT-Law-2017

STEP Europe Conference

11/24/2017 - 11/25/2017

STEP

Venue: The Westin Excelsior Rome, Via Vittorio Veneto, 125, 00187 Roma RM, Italy

Chairs: Gregorio De Felice (Intesa Sanpaolo), Enrico Deluchi (Atandia Srl.)

http://www.step.org/sites/default/files/ItalyEurope_Conference/Europe_Rome_2017_Programme_7.pdf

62

Topical Tax Issues

11/27/2017 - 11/27/2017

Mercia

Venue: Ramside Hall Hotel, Nr Durham, Carrville, DH1 1TD, UK

Key speaker: Norman Allison (Mercia)

http://www.mercia-group.co.uk/GetEvent/TopicalTaxIssues/10234

Transfer Pricing and Substance Masterclass

11/29/2017 - 12/1/2017

IBFD

Venue: IBFD head office, Rietlandpark 301, 1019 DW Amsterdam, The Netherlands

Key speakers: Clive Jie-A-Joen (DLA Piper), Eric Vroemen (PwC), Sandra Esteves (SABIC), Monica Erasmus-Koen (Tytho), Eduard Sporken (KPMG Meijburg & Co)

https://www.ibfd.org/Training/Transfer-Pricing-and-Substance-Masterclass

Special Interest Spotlight Sessions 2017

11/30/2017 - 11/30/2017

STEP

Venue: The Montcalm London Marble Arch, 2, Wallenberg Place, London, W1H 7TN, UK

Key speakers: TBC

http://www.step.org/special-interest-spotlight-sessions-2017

Advanced VAT Optimization

12/7/2017 - 12/8/2017

IBFD


Key speakers: Shima Heydari (EY), Wilbert Nieuwenhuizen (University of Amsterdam), Caspar Jansen (EY)

https://www.ibfd.org/Training/Advanced-VAT-Optimization

Current Issues in VAT

12/13/2017 - 12/13/2017

Mercia

Venue: RAF Museum, London, Grahame Park Way, London, NW9 5LL, UK

Key speaker: Simone Hurst (VATease)

http://www.mercia-group.co.uk/GetEvent/CurrentIssuesinVAT/9554

7th Annual IBA Tax Conference

1/29/2018 - 1/30/2018


63

Venue: etc.venues, 8 Fenchurch Pl, London, EC3M 4PB, UK

Speakers: TBC

https://www.ibanet.org/Conferences/conf856.aspx

Swiss & Liechtenstein STEP Federation Alpine Conference

1/31/2018 - 2/1/2018

STEP

Venue: Congress Centre Kursaal Interlaken, Strandbadstrasse 44, 3800 Interlaken, Switzerland

Key speakers: Mark Barmes (Lenz & Staehelin), Professor Hans Peter Beck (CERN), Juerg Birri (KPMG), Nicholas Capt (Capt & Wyss Attorneys), among numerous others

http://www.step.org/events/save-date-swiss-liechtenstein-step-federation-alpine-conference-31-january-1-february-2018

Current Issues in International Tax Planning

2/21/2018 - 2/23/2018

IBFD


Key speakers: Emma Barrögård (IBFD), Premkumar Baldewsing (IBFD)

https://www.ibfd.org/Training/Current-Issues-International-Tax-Planning-0

Principles of International Taxation

2/26/2018 - 3/2/2018

IBFD


Key speakers: Bart Kosters (IBFD)

https://www.ibfd.org/Training/Principles-International-Taxation

23rd Annual International Wealth Transfer Practice Conference

3/5/2018 - 3/6/2018


Venue: Claridge's, Brook Street, Mayfair, London, W1K 4HR, UK

Key Speakers: TBC

https://www.ibanet.org/Conferences/conf839.aspx

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IBFD Seminar: The Future of VAT

3/13/2018 - 3/13/2018

IBFD


Key speakers: Robert van Brederode (Crowe Horwath), Werner Engelen (LEGO Group), Toon Beljaars (Uber)

https://www.ibfd.org/IBFD-Tax-Portal/Events/IBFD-Seminar-Future-VAT#tab_program

European Value Added Tax – Selected Issues

3/14/2018 - 3/16/2018

IBFD


Key speakers: TBC

https://www.ibfd.org/Training/European-Value-Added-Tax-Selected-Issues-1

Transfer Pricing Masterclass

3/28/2018 - 3/29/2018

IBFD


Key speakers: TBC

https://www.ibfd.org/Training/Transfer-Pricing-Masterclass

Principles of Transfer Pricing

4/9/2018 - 4/13/2018

IBFD


Key speakers: TBC

https://www.ibfd.org/Training/Principles-Transfer-Pricing-0

Global VAT

4/17/2018 - 4/20/2018

IBFD


Key speakers: TBC

https://www.ibfd.org/Training/Global-VAT

Global VAT – Specific Countries

4/19/2018 - 4/20/2018

IBFD


Key speakers: TBC

65

https://www.ibfd.org/Training/Global-VAT-Specific-Countries-1

US Corporate Taxation

4/24/2018 - 4/26/2018

IBFD


Key speakers: John G. Rienstra (IBFD)

https://www.ibfd.org/Training/US-Corporate-Taxation-0

3rd International Conference on Taxpayer Rights

5/3/2018 - 5/4/2018

IBFD


Key speakers: TBC

https://www.ibfd.org/IBFD-Tax-Portal/Events/3rd-International-Conference-Taxpayer-Rights

Tax and Technology

5/3/2018 - 5/4/2018

IBFD


Key speakers: Bart Janssen (Deloitte), Aleksandra Bal (IBFD), Monica Erasmus-Koen (Tytho)

https://www.ibfd.org/Training/Tax-and-Technology

International Tax, Legal and Commercial Aspects of Mergers & Acquisitions

5/7/2018 - 5/9/2018

IBFD


Key speakers: TBC

https://www.ibfd.org/Training/International-Tax-Legal-and-Commercial-Aspects-Mergers-Acquisitions

66

Transfer Pricing and Intra-Group Financing

5/24/2018 - 5/25/2018

IBFD


Key speakers: TBC

https://www.ibfd.org/Training/Transfer-Pricing-and-Intra-Group-Financing

Introduction to European Value Added Tax

6/5/2018 - 6/8/2018

IBFD


Key speakers: TBC

https://www.ibfd.org/Training/Introduction-European-Value-Added-Tax-0

67

IN THE COURTS

A listing of recent key international tax cases.


THE AMERICAS

Brazil

Brazil's Petrobras, the part-state-owned petroleum company, has said it will appeal an adverse ruling on its tax affairs, four days after it welcomed a sep-arate ruling in its favor in a different tax matter.

On October 23, the company said that, in a trial held on October 19, 2017, the Third Class of the Federal Regional Court of the 2nd Region rendered an unfavorable decision to the company, which said remittances for payment of chartering of mo-bile oil platforms, from 1999 to 2002, should be subject to withholding income tax (IRRF).

The case concerns the legality of a normative act of the Federal Revenue Service that Petro-bras argues guarantees a zero rate for said remittances. The case is said to be worth BRL8.8bn (USD2.72bn) and Petrobras has confirmed it will appeal.

In a separate October 19 announcement, the company said the Administrative Board of Tax Ap-peals (CARF) had issued a decision unanimously in favor of the company, in a fiscal administra-tive proceeding in the amount of BRL7.8bn, related to the deductibility of expenses incurred by Petrobras during the 2010 fiscal year on the development of oil and gas production operations when calculating Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL) liability.

Both judgments are unavailable in English.

http://www.investidorpetrobras.com.br/en/press-releases/decision-federal-regional-court-2nd-region-concerning-withholding-income-tax-remittances-platform

Federal Regional Court of the 2nd Region: Petrobras v. Federal Revenue Service

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WESTERN EUROPE

Poland

The European Court of Justice (ECJ) has provided another ruling on the value-added tax (VAT) treatment of pastry goods and cakes.

A Polish court sought clarification from the ECJ after a taxpayer questioned a Polish legal provi-sion providing that the 8 percent reduced VAT rate should apply only to those pastry goods or cakes that have a use-by date or best-before date not exceeding 45 days.

In a preliminary ruling, the ECJ said that states have discretion to set the limitations for the ap-plication of a reduced VAT rate to foodstuffs for human consumption, providing such provisions do not contravene the principle of fiscal neutrality.

The ECJ ruled that it is for the national court to assess whether, in the Polish market, there are pastry goods or cakes whose shelf life does not exceed 45 days but which nevertheless are similar in the eyes of that consumer to pastry goods and cakes which have a best-before date exceeding 45 days, such as those produced by the taxpayer, and which are interchangeable with the latter. In such cases, the principle of fiscal neutrality would preclude such a provision and Poland would be required to amend its VAT law.

The ECJ ruled:

"Article 98 of Council Directive 2006/112/EC of November 28, 2006, on the common system of value-added tax, must be interpreted as meaning that it does not preclude – provided that the principle of fiscal neutrality is complied with, which is for the refer-ring court to ascertain – national legislation, such as that at issue in the main proceed-ings, which makes the application of the reduced VAT rate to fresh pastry goods and cakes depend solely on the criterion of their 'best-before date' or their 'use-by date'."

The preliminary ruling was delivered on November 9, 2017.

http://curia.europa.eu/juris/document/document.jsf?text=&docid=196498&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=2446652

European Court of Justice: AZ v. Polish Finance Minister (Case C-499/16)

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United Kingdom

The European Court of Justice (ECJ) has ruled that the card game of duplicate bridge is not a "sport" for the purposes of the EU VAT Directive and cannot therefore be exempt as such.

The case came to the ECJ after the English Bridge Union (EBU), a national body responsible for regulating and developing duplicate bridge in England, had its application for repayment of VAT on bridge tournament entry fees rejected by the UK tax authority, HMRC, on the ground that, because the activity lacked a significant physical element, it was not a "sport" within the meaning of the Directive.

The EBU lodged an appeal against HMRC's decision, which was also rejected. However, stating that duplicate bridge involves the use of high-level mental skills, the Upper Tribunal (Tax and Chancery Chamber) asked the ECJ to clarify whether it constitutes a "sport" within the meaning of the directive.

In its decision, the ECJ found that under a strict interpretation of the VAT exemptions, "sport" is limited to "activities satisfying the ordinary meaning of that concept, which are characterized by a not negligible physical element."

"While admitting that duplicate bridge involves logic, memory and planning, and may constitute an activity beneficial to the mental and physical health of regular participants, the court finds that the fact that an activity promotes physical and mental health is not, of itself, a sufficient element for it to be concluded that that activity is covered by the concept of 'sport' within the meaning of that same provision," an ECJ statement explained.

The judges concluded that an activity such as duplicate bridge has a physical element that appears to be negligible, and therefore "is not covered by the concept of 'sport' within the meaning of the VAT Directive."

However, the ECJ ruling did not preclude member states from regarding duplicate bridge as com-ing under the concept of "cultural services" within the meaning of the VAT directive.

The ECJ's decision was issued on October 26, 2017.

https://curia.europa.eu/jcms/upload/docs/application/pdf/2017-10/cp170113en.pdf

European Court of Justice: English Bridge Union Limited v. HMRC (Case C-90/16)

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United Kingdom

A London-based Employment Appeal Tribunal ruling has raised the potential for gig economy companies such as Uber to face increased employment tax liabilities in the same way as for "tra-ditional" employers.

Uber had appealed against a November 2016 ruling by London's Employment Tribunal (LET) that it should offer its drivers the same employment rights as traditional taxi service operators, rather than its drivers being unconnected self-employed persons. That case had been brought by professional drivers' union the GMB on behalf of two drivers. The Tribunal had determined that Uber had acted unlawfully in not providing the drivers with basic workers' rights, and that they are entitled to receive holiday pay, a guaranteed minimum wage, and breaks.

Uber appealed on the basis that:

There was no contract between them and the drivers, but the agreements in place between them were inconsistent with the existence of a worker relationship;The LET had erred in relying on regulatory requirements as evidence of worker status;The LET had made numerous internally inconsistent and perverse findings of fact in concluding the claimants were required to work for Uber; andThe LET had further failed to take into account relevant matters relied on by Uber as inconsistent with worker status and as strongly indicating that the claimants were carrying on a business undertaking on their own account.

The Appeal Tribunal held that the LET had been entitled to reject the characterization of the relationship between the drivers and Uber as stated in the written contractual documentation. It found in the context of an agency relationship that:

"the reality of the situation was that the drivers were incorporated into the Uber business of providing transportation services, subject to arrangements and controls that pointed away from their working in business on their own account in a direct contractual relationship with the passenger each time they accepted a trip. Having thus determined the true nature of the parties' bargain, the [LET] had permissibly rejected the label of agency used in the written contractual documentation. The [LET] had not thereby disregarded the principles of agency law but had been enti-tled to consider the true agreement between the parties was not one in which [Uber] acted as the drivers' agent.

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… In particular, the [LET] had permissibly concluded there were obligations upon Uber drivers that they should accept trips offered by [Uber] and that they should not cancel trips once accepted (there being potential penalties for doing so). It was, further, no ob-jection that the [LET's] approach required the drivers not only to be in the relevant ter-ritory, with the app switched on, but also to be 'able and willing to accept assignments'; that was consistent with Uber's own description of a driver's obligation when 'on-duty'. These findings had informed the [LET's] conclusions not just on worker status but also on working time and as to the approach to be taken to their rights to minimum wage."

Although the ruling did not discuss tax implications for Uber, the ruling could open the door to Uber becoming liable to taxes in the UK for its drivers, such as National Insurance (social se-curity) contributions. It could also potentially result in a change to its VAT treatment. Uber has since indicated that it is considering an appeal to the Supreme Court.

The Good Law Project has launched legal action concerning Uber's VAT arrangements. Jolyon Maugham QC is seeking a decision from the High Court over whether the supplies facilitated by Uber should be liable to VAT – specifically he is asking whether a supply is made by an Uber driver, or whether the supply is made by Uber, by asking questions about his eligibility to an in-put tax credit for VAT that would be liable on a fare paid.

The Employment Appeal Tribunal ruling was handed down on November 10, 2017.

https://assets.publishing.service.gov.uk/media/5a046b06e5274a0ee5a1f171/Uber_B.V._and_Others_v_Mr_Y_Aslam_and_Others_UKEAT_0056_17_DA.pdf

London Employment Appeal Tribunal: Uber v. Mr Aslam and others (UKEAT/0056/17/DA)

United Kingdom

HM Revenue & Customs (HMRC) has said that a ruling from the UK's Supreme Court on November 15, 2017, against users of a failed tax avoidance film partnership scheme will save taxpayers over GBP1bn.

HMRC explained that the scheme sought to use legitimate investment in the film industry as a hook for tax avoidance.

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HMRC had previously defeated the avoidance scheme in HMRC v. De Silva and another ([2016] EWCA Civ 40). The appellants sought to argue on a technicality that HMRC could not overturn their loss relief claims. However, the Supreme Court disagreed, and ruled in favor of HMRC.

Summarizing the ruling, the Supreme Court said the appellants had invested in and became limited partners of various partnerships in implementing marketed tax avoidance schemes. The schemes were aimed at accruing substantial trading losses through investment in films.

The partnerships had claimed they had suffered such losses in several tax years and claimed relief for film expenditure by taking advantage of tax incentives under section 42 of the Finance (No. 2) Act 1992. In the early years of trading, a limited partner could use the provisions of sections 380 and 381 of the Income and Corporation Taxes Act 1998 to set off his allocated share of trading losses of a partnership against his general income for that year, or any of the previous three years of assessment.

HMRC did not accept the claims for relief and initiated inquiries into their tax returns under sec-tion 12AC(1) of the Taxes Management Act 1970 (TMA). HMRC disallowed the partnerships' claims for expenditure funded by non-recourse or limited recourse loans to individual partners and also expenditure paid as fees to the promoters of the schemes. The partnerships appealed.

Thereafter, on August 22, 2011, the partnership losses were stated at much reduced levels in a part-nership settlement agreement. Between September and November 2011, HMRC wrote to the ap-pellants to intimate that their carryback claims in their personal tax returns would be amended in line with the lower figures for the partnership losses stated in the partnership settlement agreement.

The appellants raised judicial review proceedings against HMRC's decisions. They asserted that HMRC was entitled to inquire into their claims only under Schedule 1A to the TMA and that, because the statutory time limit for such an enquiry had expired, the appellants' claims to carry back the partnership losses in full had become unchallengeable. The Upper Tribunal rejected the appellants' claim, and the Court of Appeal dismissed their appeal. The appellants then appealed to the Supreme Court, which has unanimously dismissed the appeal.

HMRC Director General for Customer Strategy and Tax Design, Jim Harra, said: "This is an-other great success in HMRC's drive against tax avoidance. HMRC defeated [the appellants'] tax avoidance scheme but they still argued on a technicality that the department could not collect the tax. The Supreme Court's decision in favor of HMRC on this point will ensure that these taxpay-ers and others waiting behind their case will have to pay what they owe."

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The Supreme Court judgment was delivered on November 15.

https://www.supremecourt.uk/cases/docs/uksc-2016-0053-judgment.pdf

UK Supreme Court: De Silva and another v. HMRC ([2017] UKSC 74)

United Kingdom

HM Revenue & Customs (HMRC) has secured a major ruling from the UK's Supreme Court that it should not have to pay Littlewoods compound interest worth GBP1.25bn (USD1.66bn) on historic tax overpayments.

A ruling in favor of Littlewoods could have had a devastating impact on UK revenues, as it could have resulted in other taxpayers also claiming entitlement to compound interest.

Littlewoods overpaid value-added tax (VAT) to HMRC between 1973 and 2004. Between 2005 and 2008, HMRC repaid the principal sum of GBP205m, together with simple interest of GBP268m.

In bringing legal action, Littlewoods sought additional interest, calculated on a compound basis as GBP1.25bn, on the ground that such interest is due under the common law of restitution, either as restitution for a mistake of law, or as restitution of tax unlawfully demanded (a so-called "Woolwich" claim).

The Supreme Court's judgment dealt with two separate issues.

First, it considered whether Littlewoods' common law claims are excluded by Sections 78 and 80 of the Value Added Tax Act 1994 as a matter of English law, and without reference to EU law. The lower court had ruled they were barred by the Act, and Littlewoods appealed on this issue. The Supreme Court likewise ruled against Littlewoods.

Second, the Supreme Court considered whether such exclusion is contrary to EU law, in light of the European Court of Justice's (ECJ's) judgment in Littlewoods (Case C-591/10). The lower courts had found that denying compound interest was contrary to EU law. The Supreme Court allowed HMRC's appeal on this issue.

On the ECJ's ruling in Littlewoods, the Supreme Court said the ECJ's judgment does not require reimbursement of the losses constituted by the unavailability of money. It said the ruling provides member state courts discretion to provide reasonable redress in the form of interest in addition to

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the principal sum. However, the Supreme Court ruled that the lower courts read too much into the phrase "adequate indemnity" in the ECJ judgment. It noted, among other things, that there is a widespread practice among EU member states of awarding taxpayers simple interest on the recovery of taxes that were unduly paid. It said: "If the ECJ had sought to outlaw that practice, one would have expected clear words to that effect."

It highlighted that "the prior and subsequent case law of the ECJ is consistent with the principle that there is an EU right to interest, but that the rate and method of calculation of interest are matters for the member states."

The Court concluded: "In summary, the payment of interest in this case cannot realistically be regarded as having deprived Littlewoods of an adequate indemnity."

Commenting on the ruling, Dominic Stuttaford, Head of Tax, Europe, Middle East, Asia, and Brazil at global law firm Norton Rose Fulbright, observed that: "In one of the largest tax disputes to go to court to-date, HMRC will unsurprisingly be pleased with today's outcome; it is not only the amount at stake in this particular instance but also the number of other EU-related claims for compound interest."

"The saving for the Exchequer will be enormous, estimated to be over GBP17bn for claims relat-ing to VAT repayments standing behind this case. Notwithstanding that, if the judgment had gone against HMRC, the effect would have been diluted by the fact that the interest would have been subject to 45 percent tax."

This judgment was released on November 1, 2017.

https://www.supremecourt.uk/cases/docs/uksc-2015-0177-press-summary.pdf

UK Supreme Court: Littlewoods Ltd and others v. HMRC ([2017] UKSC 70)

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THE ESTER'S COLUMN ISSUE 263 | NOVEMBER 23, 2017

Dateline November 23, 2017

Supporters of US tax reform legislation currently making their way (plural, because there are still two bills in each of the two houses) through the Congress would have us believe that their tax reform proposals are all about simplification. There's a lean and mean new corporate tax, and when tax reform is all signed and sealed, Form 1040 will be the size of a postcard.

That may be the case, but let's not kid ourselves. These tax reform bills are complex. And if you look beyond the headline measures, you'd probably be inclined to agree. For example, if you're brave enough to browse through the scores of amendments made to the Senate Finance Com-mittee Chairman's mark prior to committee approval, you'll find such essential measures as those related to services performed by certain individuals in the Sinai Peninsula, the replanting of citrus plants, and the craft brewing trade – the latter being a major theme in the package of amendments. I can't help but connect the dots – is there a US citizen making a tangy beverage in the deserts of Egypt? So much for ending the practice of pandering to special interests!

In one way, this is indicative of just how far the tax code's tentacles have spread over the past 30 years, to the point where virtually no form of economic activity is left untouched. But perhaps it also tells us that simplification can only go so far. Modern economies are complex. Life is com-plex. So tax, I'm afraid to say, will be complex too. Not that we shouldn't guard against unneces-

sary complexity. Indeed, something is clearly wrong when it can take hundreds of hours for a business or an individual with complex financial affairs to discharge their tax obligations – and even then inadvertently arrive at the wrong amount.

Tax reform is expected to not only have a transformative effect on the US itself, but also interna-tionally, as US and foreign investors shift more investment to America. And Ireland is one coun-try worried about the impact of the proposed corporate tax cuts and foreign dividend exemption in the US.

Brexit is often identified as the greatest danger to the Irish economy, given its strong commer-cial links to the United Kingdom. But, with Ireland's trade and investment links to the United

States arguably even more significant, the economic fallout from the US could be more serious than a hard Brexit.

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Statistics attest to how Ireland's economic fortunes are intertwined with those of US investors. US investment in Ireland totals USD343bn, and while Ireland represents just 1 percent of the European economy, it attracted 20 percent of all US FDI investment to Europe in 2015. Some 150,000 people are now employed by American firms in Ireland – around 7 percent of the work-force. So it almost goes without saying that if substantial numbers of US investors began pulling out of Ireland, this could be disruptive for the economy.

But perhaps the risks are being overblown. The US may become more competitive relative to Ireland if its tax reforms go through. But this won't necessarily diminish Ireland's competitive-ness: its low corporate tax is unlikely to change any time soon, its EU membership makes it a convenient entry point into the EU markets, and there is a range of other factors beyond these two key advantages that attract foreign investors from the US. Fergal O'Brien, Director of Policy and Public Affairs at Ibec, put it well recently when he said that US firms "will still find Ireland a compelling investment location."

It's become something of a cliché in the world of taxation these days to say that tax systems have been left trailing in the wake of the digital economy. But it's true nonetheless. After all, the whole point of the OECD's BEPS work is to bring tax laws up to date with the early 21st-century economy. One wonders though, if we'll need another BEPS project for the mid-21st-century economy, and then another one for the late 21st-century economy, and so on, such is the pace of technological development. But then again perhaps not. Human beings will probably be ren-dered economically obsolete soon anyway.

In the here and now, the "collaborative" economy, which encompasses the sharing economy and the gig economy, is one of the toughest legal and tax riddles to be solved, not only by govern-ments and tax authorities, but by societies at large.

It seems that the gig economy is particularly incompatible with legal frameworks which are largely rooted in the latter decades of the 20th century. But it's uncertain yet which should adapt – the laws to the gig economy, or the gig economy to the laws. Probably a bit of both is required, I suspect. But we need only to look at the United Kingdom to see how murky the waters are. On the one hand, Uber is required, as a result of employment tribunal rulings, to treat drivers as employees, decisions which could have huge tax ramifications for company. But on the other hand, take-away food provider Deliveroo doesn't have an employer-employee relationship with its riders, according to a November 14 ruling by the Central Arbitration Committee.

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Digital economy, collaborative economy, sharing economy, gig economy – whatever next? One thing's for sure. As the famous Bill Clinton campaign slogan went, it's the economy, stupid. We just don't know what the economy is anymore. And tax authorities aren't stupid!

The Jester

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