EU Direct Tax Group

The following topics are covered in this issue of EU Tax News:

CJEU Cases

  • Finland – CJEU judgment on the compatibility of the Finnish legislation implementing Article 10(2) of the Merger Directive with EU law
  • Germany – CJEU judgment in Deister Holding and Juhler Holding
  • Germany – CJEU referral of German dividend withholding tax regime in the case of a Canadian pension fund
  • Germany – AG Opinion on the compatibility of German at arm’s length legislation with EU law

National Developments

  • Cyprus – Public consultation on the EU’s Anti-Tax Avoidance Directives (ATAD1 & ATAD2)
  • Finland – Central Tax Board advance ruling on taxation of income from Luxembourg SICAV (UCITS)
  • Finland – Central Tax Board advance ruling on tax treatment of Finnish source real estate income
  • Italy – Final approval of the 2018 Finance Bill
  • Lithuania – Increased investment tax relief measures
  • Spain – Appeal before the Spanish Supreme Court on the rules to eliminate international double taxation

EU Developments

  • EU – ECOFIN Council publishes EU list of third country non-cooperative jurisdictions in tax matters
  • EU – ECOFIN Council Report to the European Council on tax issues
  • EU – European Parliament Recommendation to the Council and the Commission following the inquiry into money laundering, tax avoidance and tax evasion (PANA)

Fiscal State aid

  • Italy – Italian Supreme Court decision on recovery of illegal State aid granted to multi-utilities owned by municipalities
  • Netherlands – European Commission opens formal investigation into the Netherlands’ tax treatment of Inter IKEA
  • United Kingdom – European Commission publishes detailed opening decision regarding its State aid investigation into the financing income exemption within the UK’s CFC regime

Read the full newsletter

This bi-monthly newsletter is prepared by members of PwC’s pan-European EU Direct Tax Group (EUDTG) network.

To receive this newsletter and our newsalerts automatically and free of charge, please send an e-mail to: eudtg@nl.pwc.com with “subscription EU Tax News”. For previous editions of PwC’s EU Tax News see: www.pwc.com/eudtg

Contact Us

Armin Marti
Partner Tax & Legal Services, Leader Tax Policy
+41 58 792 43 43
armin.marti@ch.pwc.com

EMEA Webcast: EMEA ITS US Tax Reform Series – Practical Guidance for European Multinationals – Episode 4: State tax implications of federal tax reform

State tax implications of federal tax reform

Wednesday, 7 February 2018, 4.00 – 5.00 pm CET

While US tax reform is focused on measures at federal level, it will lead to a diverse and wide-ranging number of state tax implications as a result of how/whether states conform to the federal Internal Revenue Code provisions. There are accordingly a number of critical elements that have the potential to significantly affect state tax and financial statements, such as deemed repatriation toll charge; interest expense limitations; and the international provisions discussed on our previous calls, namely BEAT, GILTI and FDII.

Episode 4 of our webcast series will therefore look in more detail at the state tax implications, with particular focus on the international measures and the tax accounting implications.

We will be joined by our state tax and tax accounting specialists in order to provide an overview of the key areas you should be considering.

Please follow the link below to register for episode 4 and note that recordings will be available if you register and you cannot join the live session itself.

To register for Episode 4: Click Here

In case you were not able to join our previous episodes and would like to view the recording, find hereafter the required links (you will need to register to watch the recording):

Contact Us

Richard Brunt
Tel.+41 58 792 81 82
richard.brunt@ch.pwc.com

Grasiele Teixeira Neves
Tel.+41 58 792 98 25
grasiele.neves@ch.pwc.com

Circular letter 13 on securities lending and repo transactions

Amendments to preclude dividend stripping transactions (applicable as of 1 January 2018)

On Friday 29 December 2017 the Federal Tax Administration (FTA) issued a revised version of Circular Letter 13 on securities lending and repo transactions. The amended circular letter contains important changes to the previous practice of the FTA, notably with regard to the Swiss Withholding Tax (WHT) refund position of foreign resident borrowers of Swiss securities.

The issue:

Under the previous circular letter issued in September 2006, Swiss and foreign borrowers of Swiss securities receiving a dividend or interest payment were able to claim for a full or partial refund of WHT levied at a rate of 35% either on the basis of Swiss domestic law in case of Swiss borrowers or on the basis of an applicable double tax treaty.

This rule was perceived by the FTA as a cause of a market behaviour, which was not intended. Indeed, the old practice was intended by the FTA as a pragmatic approach to solve situations where a borrower had “over-borrowed” a position over the dividend ex-date. From the FTA’’s perspective, the old practice was, however, being abused deliberately by lending Swiss securities to foreign borrowers over the dividend ex-date, which in several cases led to perceived dividend stripping cases.

The impact for foreign borrowers:

As of 1 January 2018, the old practice, which generally provided for the possibility of refunding WHT to foreign borrowers of Swiss securities, is no longer applicable, irrespective of whether the transaction is a long borrowing transaction (i.e. the borrower or the last borrower in a chain of several borrowers keeps the share) or if the shares sourced under a securities lending transaction are sold or delivered to a third party (e.g. to cover delivery obligations from a short sale).

The new rules stipulate that a WHT refund in case of long borrowing (including in chain transactions where the last borrower keeps the shares) can only be claimed by the original lender. The original lender is, in our view, to be understood as the party that held the long position and that initiated the first transfer of the Swiss securities under a securities lending transaction. Further to this rule and as only the original lender can claim for a refund, he will receive a compensatory payment of 65% of the income payment subject to WHT. In order to be in the position to claim a refund of WHT under an applicable double tax treaty, the new circular letter introduces a new requirement, which is that the original lender can prove that the payment received from the borrower is effectively the original dividend. Although the circular letter does not further define this proof, it is the common understanding that this burden of proof can only be fulfilled if the borrower (or, in case of chain transactions, the ultimate borrower) provides the lender with the original dividend payment advice received by the borrower. Under this procedure, the borrower would no longer dispose of the original dividend payment advice enabling him to make a refund claim; instead, only the original lender now holding the original dividend payment advice would have this opportunity. This new procedure also requires the whole chain of the lending transactions to be disclosed, which may be a difficult task.

In transactions where the foreign borrower has sold or delivered the Swiss securities sourced via securities lending to a third party, e.g. to cover a short sale, the circular letter precludes both the original lender as well as the borrower from filing a claim for a Swiss WHT refund. In such circumstances only the final buyer of the shares shall be seen as entitled to a Swiss WHT refund under the applicable double tax treaty. This new practice may put the lender in a difficult situation, notably in chain transactions where his borrowing counterparty becomes lender to a subsequent securities lending transaction without his knowledge, as the original lender may no longer have control over whether his shares remain in the securities lending chain (resulting in a long borrowing situation for the final borrower) or if the shares are sold by the final borrower to a third party. In the first case, the lender may file for a refund claim, assuming that he is provided with the original payment advice by the final borrower (or through the chain of borrowers); in the second case no such dividend payment advice should be available, as the third party would have this document and the entitlement to a refund claim. Lenders should therefore review their contractual arrangements to either preclude delivery of lent shares to third parties in order to ensure their own right to file a refund claim.

The takeaway:

The old practice of Circular Letter 13 applying to foreign resident borrowers has been changed. Under the new practice, the right to claim a WHT refund would lie with the original lender to the extent that the borrower (or the last borrower in a chain of securities lending transactions) held a long position on dividend day, the whole lending chain was disclosed and the lender proved that he had received the original dividend payment from the borrower. If the securities were sold or delivered to a third party by the borrower, only the third party would be entitled to file a claim for a WHT refund, with no possibility for the original lender or the borrower to do so.

It is worth noting that the old rules have not changed in cases where the borrower is resident in Switzerland, as the borrower has to levy a second WHT on any manufactured payment he makes to a lender in order to be in the position to claim the WHT levied on the original dividend payment received. In addition, the circular letter also contains amended rules with regard to the Swiss individual and corporate income tax treatment of the different income flows resulting from securities lending transactions, including a general corporate income tax anti-abuse clause in connection with participation relief.

Do not hesitate to contact us, should you wish to further discuss.

Contact Us

Luca Poggioli
Director, Corporate Tax
luca.poggioli@ch.pwc.com
+41 58 792 44 51

Victor Meyer
Partner, Tax & Legal
victor.meyer@ch.pwc.com
+41 58 792 43 40

Martin Büeler
Partner, Tax & Legal
martin.bueeler@ch.pwc.com
+41 58 792 43 92

Sandra Barke-Baumgartner
Partner, Tax & Legal
sandra.barke.baumgartner@ch.pwc.com
+41 58 792 94 34

Geneva International VAT Breakfast – New Year and new challenges in Indirect Taxes

International VAT Breakfast

In the fever of December’s last moment, many VAT topics such as the GST implementation in India or the change of the Swiss VAT rates across systems before New Year could have gone unspotted. For those who manage indirect taxes, it is clear that unnoticed changes can have significant consequences.

As a New Year’s resolution, during our next VAT Breakfast, we will look into recent topics that enable strategic development as well as those that are less game-changing but nevertheless require your attention in the start of 2018.

From a strategic perspective, we will address the latest progress in Brexit negotiations, the implementation of GST in India and the introduction of VAT in the GCC. We will also discuss the latest updates about the EU Commission initiatives and the upcoming end of the Cross Boarder Ruling pilot. Sharing feedback from various European countries, we will focus on reporting developments in 2017/2018 in Poland, Hungary and Serbia; the introduction of anti-fraud measures such as split payment in Romania, Poland and Italy; the reporting of imported e-services in Turkey as well as the Polish transport package.

Finally, we want to share with you the lessons learned and the biggest challenges faced in the first months after the Swiss VAT reform and the recent Swiss / EU case law. We hope to receive your views in return.

To register for this event: Click Here

Contact Us

Patricia More
Tel.+41 58 792 95 07
patricia.more@ch.pwc.com

EMEA Webcast: US Tax Reform practical guidance for European Multinationals – Episode 1: US Tax Reform and Tax Accounting Implications

Impact of US Tax Reform on European Multinationals

 Wednesday, 10 January, 4.00- 5.00 pm CET

On December 22 2017, President Trump signed the ‘Tax Cuts and Jobs Act of 2017’ (2017 Act) marking the completion of the U.S. tax reform legislative process.

The 2017 Act will have a significant impact for European multinationals. In a series of three webcast sessions we will focus on the areas of the 2017 Act likely to have the biggest impact on European Multinationals:

  • Episode 1: US Tax Reform and Tax Accounting Implications
  • Episode 2: US Tax Reform Base Erosion Measures, focus on interest deductibility and base erosion and anti-avoidance tax (BEAT)
  • Episode 3: US Tax Reform Outbound Measures, focus on CFC rules and participation exemption

PwC specialists will provide insights and practical guidance on these key topics, focusing on what they mean for European Multinationals.

The first session, on Wednesday 10 January, will focus on the tax accounting implications of the 2017 Act and we will be joined by specialists from our tax accounting and assurance teams to discuss the key considerations for European groups, including specific consideration for IFRS.

Speakers for this webcast will include:

  • Monica Cohen-Dumani – Partner, International Tax Services, EMEA ITS Leader, PwC Switzerland
  • Graham Partner – Director, Tax Reporting & Strategy, PwC UK
  • Steven Mendez – Director, US Desk Leader, PwC Switzerland
  • Tom Patten – Partner, US Tax, PwC UK
  • Bernard Moens – US International Inbound Tax Services Leader, PwC US

To register for the WebEx Session: Click Here 

Contact Us

Richard Brunt
Tel.+41 58 792 81 82
richard.brunt@ch.pwc.com

Grasiele Teixeira Neves
Tel.+41 58 792 98 25
grasiele.neves@ch.pwc.com

US Tax Reform – The Final Tax Legislation as approved for enactment

In brief

Congress on December 20 gave final approval to the House and Senate conference committee agreement on tax reform legislation (HR 1) also called “Tax Cuts and Jobs Act” that would lower business and individual tax rates, modernize US international tax rules, and provide the most significant overhaul of the US tax code in more than 30 years.

The only remaining uncertainty is whether President Trump will sign the legislation into law before the end of this year, or if the signing might be delayed until January 2018.

The final conference committee agreement for HR 1 (the ‘Conference Agreement’ or the ‘Agreement’) will lower permanently the US federal corporate income tax rate from 35 percent to 21 percent. The Conference Agreement will further temporarily reduce the current 39.6-percent top individual income tax rate to 37 percent and revise other individual income tax rates and brackets. Both the new corporate tax rate and revised individual tax rates shall be effective for tax years beginning after December 31, 2017. The Agreement will repeal the corporate alternative minimum tax (AMT), while retaining a modified individual AMT with higher exemption amounts and phase-out thresholds.

In short, the Conference Agreement provides for the most significant overhaul of US international tax rules in more than 50 years by moving the United States from a ‘worldwide’ system to a 100-percent dividend exemption ‘territorial’ system. As part of this change, the Agreement includes two minimum taxes aimed at safeguarding the US tax base from erosion, along with other international tax provisions.

The Agreement further includes a broad range of tax reform proposals affecting businesses and individuals, including a new 20-percent deduction for certain pass-through business income. In addition, the Agreement repeals or modifies many current-law tax provisions to offset part of the cost of the proposed tax reforms. The Joint Committee on Taxation (JCT) staff have estimated that the net revenue effect of HR 1 will be to increase the on-budget federal deficit by $1.456 trillion over 10 years.

Highlights of the US tax reform bill

The final US tax bill appears to attract investments, jobs and business in the US and increases the attractiveness of the US by introducing a 21% federal income tax rate, participation relief on foreign subsidiary dividend income (though not on capital gains) or an incentive for US production for sale to “foreign” customers (Foreign Derived Intangible Income – FDII). On the other hand, the above benefit come with a toll charge tax on foreign untaxed profits of US controlled foreign companies (CFCs) and many new rules that enlarge the US tax base such as interest deduction limitation, a new Base Erosion Anti Abuse Tax (BEAT), expanded controlled foreign company (CFC) definitions and new foreign profit inclusion (Sub F) rules such as the global intangible low-taxed income (GILTI) and the anti-hybrid rules.

One can for sure say that cross border group transactions with the US become more complex. So do US compliance and reporting obligations, which especially for non-US groups increase significantly. The Trump campaign planned to create an easy and simple US tax code under which the US tax return should have the format of a “postcard”. Though the new rules will significantly increase the complexity. The final US tax legislation also has international discussion potential as WTO and EU already address incompatibility concerns for the new BEAT and FDII rule. The US tax reform as passed should be reviewed carefully in international context or unilateral reactions and measures as well.

The new rules are complex and impact of the US tax reform is to be reviewed on a case by case basis by every company. For a detailed summary of HR1 rules, see PwC Tax Insight

What to do now?

While the new tax legislation wording may not be precise in all details or results in unintended consequences, treasury and IRS now have to present underlying regulations and practice notices as guidance for application and interpretation. Such details are only expected to become available over the next weeks and months.

The immediate implication of the US tax reform is however its impact on 2017 financial reporting and tax accounting. For both, US GAAP and IFRS the enactment date is the signing date by President Trump. Accordingly, in case of signing in 2017, respective tax accounting entries and in case of signing in 2018, disclosure requirements need to be considered for the financial statements 2017.

Relevance of the US tax reform for Swiss companies and economy

The US tax reform will increase global tax competitiveness for US business. Switzerland and the US have very strong trading relations. With USD 224 billion of cumulative direct investments, Switzerland is the 7th largest investor into the US. Many Swiss companies have a significant US footprint either by US manufacturing or with sales and distribution functions or services rendered and are impacted by the new legislation as the US is an important export market. On the other hand, Switzerland is also a key trading partner of the US as it is the 7th largest export market for services, the 17th largest for goods and is an important location for European headquarters of US multinational groups. Switzerland as well as Swiss companies will thus for sure be impacted by the US tax reform.

The most important considerations from a Swiss perspective:

  • Review global supply & value chain as well as pricing approaches considering the new foreign profit inclusion and anti-base erosion rules
  • Review US funding and investment & acquisition plans considering the interest limitation rules and expensing rules
  • Increase of international tax competitiveness for US business and Switzerland
  • Review international and Swiss tax developments in the light of US tax reform

The rules in more detail

HR 1 is proposed generally to be effective for tax years beginning after 2017. Certain provisions have separate effective dates, while others are effective after the date of enactment and some are effective for tax years beginning after 2016. The bill also proposes some temporary measures and provides transition rules for certain proposals. The below summarizes the most important general provisions. Many exemptions and special rules however exist for specific facts or certain industries in the more than 500 pages of tax legislation that are to be considered in detail on a case by case basis.

Corporate rate reduction
The current 35% top federal corporate rate is reduced permanently to 21% for tax years beginning after 2017. The current corporate alternative minimum tax is repealed. State taxes are to be added and thus the combined US tax rate will be in average around some 26%. This rate will still be slightly higher than the 23.75% average rate for all other OECD nations in 2017.

Tax location competition for Switzerland will increase not only with the US but especially also the EU to attract US business. Passing Swiss tax reform is an important measure to maintain Switzerland’s competitiveness and business location attractiveness.

Interest expense limitation
Interest expenses both for related and unrelated party debt is limited to the sum of business interest income plus 30% of the “adjusted taxable income”. Adjusted taxable income is defined similar to EBITDA for taxable years beginning after December 31, 2017 and before January 1, 2022, and is defined similar to EBIT for taxable years beginning after December 31, 2021. Disallowed interest is allowed to be carried forward indefinitely.

US companies are typically highly debt leveraged under today’s rules favoring debt over equity. Accordingly companies should reconsider the US operation’s funding structure in detail.

Cost recovery / full expending of certain property
100% full expensing for investments in new and used property made after Sept. 27, 2017 and before January 1, 2023 is introduce. A five-year phase down of full expensing will begin in 2023.

This rule intends to attract investments into the US. Swiss groups that plan investments into the US should (re-)consider the funding and expensing of US investments as well as timing of planned investments under this rule.

NOL’s / Tax loss carry forward
NOLs are limited to 80% of income for losses arising in taxable years beginning after December 31, 2017. Indefinite carryforward but no carryback for losses arising in taxable years ending after December 31, 2017 will be applicable. For insurance companies special rules will apply.

Companies with tax loss carry forwards in the US will need to assess the impact on deferred tax positions for financial reporting purposes. In future, companies with NOLs will have to pay US cash tax in years with taxable profit as only 80% of income per year can be set off with NOLs.

R&D Credit / Domestic Production Credit
The R&D credit as per the current rules remain in place to maintain the jobs and attractiveness of the US for research and development activities. This measure combined with the new “foreign derived intangible income” rule shall increase the attractiveness to keep intangible property in the US. On the other hand, domestic production credits for taxable years beginning after December 31, 2017 are repealed.

Participation Relief and Toll Charge Tax
A territorial tax system providing a 100% dividends received deduction (DRD – participation relief) for certain qualified foreign-source dividends (10% shareholding and 1 year holding period required) received by US corporations from foreign subsidiaries is introduced effective for distributions made after 2017.

The territorial system is introduced only for foreign dividends while for any other activities, the current CFC (controlled foreign company) and Sub F (inclusion of CFC foreign profit for US taxation) is maintained.

Under DRD, no more tax credits are available for dividend income. From a Swiss perspective, dividends from a Swiss subsidiary to a US parent are subject to Swiss withholding tax resulting generally in a 5% residual Swiss withholding tax under the Swiss – US double tax treaty. Any foreign withholding tax will become a final tax cost as no more tax credit available in the US.

As a consequence of the change to a territorial tax system, previously untaxed foreign earnings of US CFCs (foreign subsidiaries of US companies) are subject to repatriation toll charge tax at 15.5% for cash & cash-equivalents and 8% on non-cash assets. Such toll charge tax will be payable over 8 years.

Any US company owning shares in foreign subsidiaries will be subject to the toll charge tax resulting in an immediate impact on its tax accounting and financial reporting.

Expanded CFC definition and new Sub F Rules
In general, the current CFC (controlled foreign companies) and Subpart F rules (inclusion of foreign CFC’s profit into the US tax base) are generally maintained. Under the current CFC attribution rules, foreign subsidiaries of non-US parented groups that are not held by US entities are not treated as CFCs. Under the new expanded CFC definition, if a non-US parented group has at least one US subsidiary or an interest in a US partnership, any other non-US subsidiary would generally be treated as CFC. Although there would be no income pick up or attribution of profit to US tax base as long as the US entity does not have a direct or indirect interest in such foreign entities. However, there may be a reporting requirement (reporting 5471) for all of the foreign entities under the non-US parent. Such expanded CFC definition is effective the last taxable year before January 1, 2018 (effectively already for 2017).

Under these rules, a Swiss parent group that owns one US subsidiary would have a tax reporting duty in the US for all its subsidiaries.

The new tax code also adopts a deduction for ‘foreign derived intangible income’ (FDII) and the global intangible low-taxed income’ (GILTI) provisions, as well as the ‘base erosion and anti-abuse tax’ (BEAT).

BEAT

The BEAT targets US base erosion payments from US companies to any group entities abroad resulting in higher US taxes. The intention of such rules is to create an incentive to provide such activities in the US rather than “outsourcing” to non-US group companies and avoid base erosion payments. The US base erosion with payments of interest, royalties or other transfer prices such as management fees, services etc. should be limited. A big relief for many Swiss companies is the fact that the BEAT does not include payments for costs of goods sold (except for former US groups that inverted abroad). A Swiss company selling goods to US customers directly or via a US distribution company should not be adversely impacted.

The BEAT is a new add-on minimum tax that is imposed in addition to the corporate tax liability. Subject to BEAT are generally corporations with average annual gross receipts of at least $500 million and that make certain base-eroding payments to related foreign persons for the taxable year exceeding 3% (2% for certain banks and securities dealers) of all their deductible expenses.

The BEAT is a comparable calculation and the additional tax is imposed if
(i) 10% of taxable income (5% in 2018 and 12.5% for tax years after 12/31/2025, 6% for certain banks and securities dealers) generally determined without regard to amounts paid or accrued to a foreign related party (other than COGS and certain services), including amounts includible in the basis of a depreciable or amortizable asset;
exceeds
(ii) regular tax liability (consideration of available credits apply based on specific rules).

The BEAT of $1 is levied on top of the regular US tax charge of $21.

The BEAT will result in higher taxes in the US and impacts Swiss groups rendering services, licensing intangible assets or financing activities to US group companies. Swiss groups as well as US multinational groups need to review the cross border value chain and transaction flows to assess the extra US tax to become due under the BEAT.

From an international point of view, the BEAT is not undisputed and both the WTO and the EU have addressed to the US government concern whether such tax is permitted under international trade and double tax treaty rules. Further expert assessment is expected. In case deemed to be a concern, potential international counter measures might result.

Foreign derived intangible income’ FDII) and global intangible low-taxed income’ (GILTI)
The FDII should create an incentive to keep the IP in the US for domestic production in the US and sale of goods and services abroad by allowing a 37.5% deduction on foreign-derived intangible income from a US trade or business. The deduction is reduced to 21.875% for taxable years beginning after 12/31/2025.

Income eligible for such deduction would be taxed at a 13.1% effective tax rate (21% federal tax less 37.5% deduction) effective for tax years beginning after 2017.

Such rule is comparable to a patent / IP box and shall intensify to keep and relocate IP to the US. The US legislation is silent on modified nexus approach as defined as OECD and EU standard and thus, such rule also triggers discussion on an international level for compatibility with new OECD BEPS international standards. While it appears to be a benefit to transfer IP into the US, Swiss groups should consider such a step carefully also in the light of sustainability of US tax legislation as well as future US exit taxes and the overall value chain and operational set up. For location Switzerland, this means that US companies have less of an incentive to transfer IP abroad. To assess the most competitive IP and business location, any of the existing and new rules as well as international developments should be considered holistically to assess overall pros and cons. Especially the combination with any other base erosion and US tax base enlargement rule and the comparison of tax impacts on a holistic basis may differ significantly from case to case.

The GILTI introduces a new Subpart F category in which US shareholders of CFCs become subject to current US tax on “global intangible low-taxed income”. GILIT is defined as income in foreign CFCs that generate a 10% margin or more on certain products. If so, such profit of CFCs exceeding the 10% margin is to be included in the US tax base under consideration of a 50% deduction and an 80% foreign tax credit.

The GILTI rule will only impact structures where a US company owns foreign subsidiaries. As long as the US subsidiary however does not own any shares or partnership interests in foreign entities, such rules would not apply. Thus a Swiss group that holds a US distribution or manufacturing subsidiary, which itself is not invested in foreign entities should not be impacted by GILTI. Considering the 80% foreign tax credit that is available in the GILTI calculation, GILIT tax is as an approximation only expected to result in an additional tax burden if the foreign tax rate of the CFC is below 13.125%.

Anti-Hybrid Rules
New anti-hybrid rules inspired by the OECD BEPS rules are introduced. Accordingly, a US company will not be allowed a tax deduction in the US for interest or royalty payments if the income is not taxed or results in a double deduction in the recipient’s jurisdiction. This rule applies to hybrid entities or hybrid instruments and also applies to the newly introduced US participation relief. Since the rule largely follows OECD BEPS wording, further explanations, on how the rule will be applied in detail, are expected to be included in upcoming IRS and Treasury regulations and practice notices.

Accordingly, any payment of US companies have to be reviewed whether paid to a hybrid entity or whether the instrument as such is qualified as hybrid.

State Taxes
The US tax reform covers federal income tax. How and at what point in time the States adopt the new US tax code matters is unclear at this stage. Companies should carefully monitor State tax interactions under the new rules as well.

Individual Tax Matters
The US tax reform legislation includes many rules for individual tax payers and aims to reduce the tax burden for low and middle calls families. However, the rules are highly complex and impact depends literally on very specific individual facts which define allowed deductions, incentives and applicable tax rates. Whether you are a winner or not so lucky individual tax payer under the new rules has to be assessed personally.

The following shows a few of the important provisions that will impact individual taxpayers living and working abroad.

The following rules do not change and continue to apply:

  • US citizens and residents taxed on worldwide income
  •  409A rules (Nonqualified Deferred Compensation Plans)
  • Taxation of nonqualified stock options at exercise
  • Net investment income tax
  • 401(k), qualified plan pre-tax contribution limits
  • Foreign earned income exclusions for taxpayer living and working abroad
  •  Foreign tax credit rules
  • Gift tax
  • Qualified dividend and Capital gain rates and holding periods
  • Charitable contribution deduction

The following rules will change:

  • Standard deduction increase to $24K for married taxpayers
  •  Limit on property tax deduction, combined with state and local tax deductions to $10K
  • Mortgage interest deduction, limited to $750K including the repeal of deduction on home equity indebtedness
  • Relocation costs paid directly to the vendor by an Employer may become taxable to the employee
  • Increase in lifetime estate and gift tax exemption to $11M per donor
  • Sale of US Partnership interest by a foreigner is considered US effectively connected income
  •  Taxation of income from tax-transparent entities (i.e. LP, LLP, LLC) at the entity level rather than the individual owner, except for certain personal services businesses
  •  Increase of the current AMT exemption
  • A ‘toll tax,’ which would subject certain individuals and trusts to a one-time reduced tax on the undistributed foreign earnings and profits (E&P) in US-owned foreign corporations.

Depending on your personal tax situation, there are certain actions you may take before the end of the year to benefit from the existing provisions that are subject to change or that are expected to be completely repealed from the tax code.

Questions & How can PwC help you?

PwC would be pleased to assist you with:

    • Any questions on how the US tax reform may impact yours and your company’s US tax position;
    •  Assist with modelling US tax reform impact. PwC has developed specific financial modelling tools;
    •  Support you for any tax accounting questions for your financial report;
    • Support assessment of global value chain and US related business transactions;
    • Follow our publications and blogs via:

a. https://news.pwc.ch/category/managing-taxes/
b. https://www.pwc.com/us/en/washington-national-tax/us-tax-reform.html
c. https://twitter.com/PwC_Tax

  • PwC will present a series of webcast in January 2018 explaining several of the new rules in more detail
  • Our US experts are available for individual meetings and discussions upon request.

Contact Us

Corporate and business tax

Martina Walt
PwC | Partner – International Tax Services
Office: +41 58 792 68 84 | Mobile: +41 79 286 60 52
Email: martina.walt@ch.pwc.com
PricewaterhouseCoopers Ltd
Birchstrasse 160, 8050 Zurich
http://www.pwc.ch

Stefan Schmid
PwC | Partner, International Tax Services
Office: +41 58 792 44 82 | Main: +41 58 792 44 00
Email: stefan.schmid@ch.pwc.com
PricewaterhouseCoopers AG
Birchstrasse 160 | Postfach | CH-8050 Zürich
http://www.pwc.ch

Monica Cohen-Dumani
PwC | Partner, International tax services, Central Cluster ITS Leader
Office: +41 58 792 97 18 | Mobile: +41 79 652 14  77
Email: monica.cohen.dumani@ch.pwc.com
PricewaterhouseCoopers SA
Avenue Giuseppe-Motta 50 | Case postale | CH-1211 Genève 2, Switzerland
http://www.pwc.ch

Pascal Buehler
PwC | Partner on Secondment – Swiss Tax Desk
Office: +1 646 471 14 01 | Mobile: +1 917 459 8031
Email: buehler.pascal@us.pwc.com
PricewaterhouseCoopers LLP
300 Madison Avenue, New York, NY 10017
http://www.pwc.com/us

Individual tax

Richard Barjon, CPA
PwC | Director
Office: +41 58 792 13 53 | Mobile: +41 79 419 55 16
Email: richard.barjon@ch.pwc.com
PricewaterhouseCoopers AG
Birchstrasse 160 | Postfach | CH-8050 Zürich
http://www.pwc.ch

CRS Updates – December 2017

OECD Seeking Public Comments Regarding Mandatory Disclosure Model

On 11 December 2017, the Organisation for Economic Co-operation and Development (“OECD”) published a press release containing a mandatory disclosure consultation document which is open for comments from interested parties and stakeholders until 15 January 2018. Through the consultation document, the OECD is seeking input for a model requiring mandatory disclosure rules, and which ultimately intends to target promoters and service providers with a material involvement in the design, marketing or implementation of Common Reporting Standard (“CRS”) avoidance arrangements and offshore structures.

While tax transparency has significantly improved over the past decade, issues remain in regards to the widespread use of offshore structures to circumvent CRS reporting requirements, as highlighted by the release of both the “Panama” and “Paradise” papers. With the OECD’s proposed model, the rules would require intermediaries to disclose information on potential schemes to their local tax authority. Said information would then be made available to other tax authorities in accordance with the applicable information exchange agreement.

The OECD is now seeking public input from interested parties and stakeholders via the consultation document. The deadline for comments is 15 January 2018.

Please refer to the link for access to the OECD’s press release and consultation document.

Swiss CRS Update: Additional Agreements Approved by Chambers of Parliament

On 6 December 2017, the Swiss Parliament announced their approval of 41 additional partner jurisdictions starting on 1 January 2018 for the Automatic Exchange of Information (“AEOI”) under the CRS. After an initial rejection from one chamber of parliament, Saudi Arabia and New Zealand were also approved and are part of the 41 new partner jurisdictions. In addition to this announcement, the Swiss Parliament outlined strict and detailed requirement criteria for existing and potential Swiss partner jurisdictions. As part of this, the Swiss Federal Council will evaluate whether Swiss partner jurisdictions are compliant with the OECD CRS before Switzerland will exchange any information or data with them. The results of said testing will be communicated to the chambers of parliament.

Please refer to the link for additional details regarding the Swiss Parliament and Federal Council’s AEOI-related decisions.

Additionally, please refer to the link for a list of Switzerland’s current AEOI partner jurisdictions.

Contact

Bruno Hollenstein
Partner, Operational Tax
+41 58 792 43 72
bruno.hollenstein@ch.pwc.com

US Tax Reform: House and Senate negotiators reached agreement in principle

House and Senate negotiators (​’conferees​’​) have reached an agreement in principle on a compromise US tax reform bill that would reduce the US corporate tax rate to 21​% beginning in 2018 and fully repeal the corporate alternative minimum tax (AMT). On interest expense deduction limitations, it seems that a worldwide leverage test might have been eliminated in the conference agreement and that foreign repatriation rates for the toll charge may be increased. The House-Senate conference agreement is preliminary and therefore subject to change.

Details are still emerging and bill text is not yet available. ​The conference report is expected to be filed late tonight Friday, December 15.

The House and Senate next week are expected to hold up-or-down votes on the conference report, which is not amendable. The Senate is expected to begin up to 10 hours of floor debate on on Monday, December 18. A Senate vote could occur on Tuesday, December 19 followed by a House vote on Wednesday, December 20, which would clear the measure to go to the White House​.

To register for the WebEx Session: Click Here

Look out for PwC’s newsletters and coming webcasts to be announced soon.

Contact Us

Martina Walt
PwC | Partner – International Tax Services
Office: +41 58 792 68 84
Email: martina.walt@ch.pwc.com

 

EU-black listed jurisdictions: what you need to know in a nutshell

On 5 December 2017, the ECOFIN Council published the conclusions on the EU common list of (third country) non-cooperative jurisdictions in tax matters, also referred to as the EU ‘blacklist’. In this blacklist 17 jurisdictions are included. For the blacklisted jurisdictions the Council proposes EU Member States to adopt certain non-tax and tax defensive measures. Among the proposed tax measures would be e.g. increased audits, disallowance of deductibility of costs, withholding tax measures, application of CFC rules, reversal of the burden of proof, limitation of participation exemptions and switch-over clauses among others.

Switzerland and Liechtenstein appear on a “grey list”

In addition to the black list there is a “grey” list where Switzerland and Liechtenstein are included. The grey list inclusion means, that such jurisdictions still have certain harmful tax regimes (e.g. Swiss cantonal tax regimes). However, these jurisdictions have been determined as cooperative and committed to amend or cancel such regimes.

Swiss Tax Proposal 17

From a timing perspective, the Council Conclusions mention, that these jurisdictions “are committed to amend or abolish the identified regimes by 2018”. In context of the Tax Proposal 17, the existing cantonal tax privileges for holding, domiciliary and mixed companies will be abolished, but realistically only the legislative process at federal level can be completed during 2018 (but this we consider to be the relevant step). The finalisation of the legislative process at cantonal level will take more time and go well into 2019.

In our view and since the EU acknowledges Switzerland’s efforts to abolish the mentioned regimes we do not expect that the EU Council will include Switzerland into the black list, after an updated dialogue and assuming due progress regarding the Tax Proposal 17 is made during 2018.

Please also refer to the PwC EUDTG newsletter in this respect which you can read here.

For more insights and to understand the implications for your organisation, please contact Armin Marti.

NPO VAT Community breakfast: How will the VAT law revision impact your organisation?

On 1 January 2018, the VAT law revision will enter into force with many impacts for Swiss companies, associations and foundations, as well as foreign companies and non-profit organizations. VAT regulations rules and relevant turnover for determining threshold will change.

Are you wondering what this revision means for your organization?
Join our next NPO VAT community breakfast, which will take place on Tuesday 16 January at the PwC Geneva office from 8.30 – 11.00 am.

Details and registration

What should you expect from this event?

  • Get a first overview on the law revision’s impacts
  • Study comparative cases and examples
  • Discuss your current concerns & challenges
  • Get insight and recommendations from our PwC experts
  • Network with VAT peers from non-profit organizations