BDO World Wide Tax News, March 2014.

1. CONTENTS
▶▶ CANADA
▶▶ EDITOR’S LETTER
▶▶ ASIA PACIFIC - Singapore
▶▶ EUROPE AND THE MEDITERRANEAN -
European Union - Belgium - Denmark -
Finland - France - Germany - Latvia -
Netherlands - Spain - Switzerland -
United Kingdom
▶▶ LATIN AMERICA - Chile
▶▶ MIDDLE EAST - Kuwait
▶▶ Currency comparison table
CANADA2014 FEDERAL BUDGET: INTERNATIONAL HIGHLIGHTS
F
inance Minister Jim Flaherty tabled the
2014 Federal Budget on 11 February 2014.
Some of the proposed measures of
international interest are summarised below.
IMMIGRATION TRUSTS
If a person resident in Canada contributes
property to a non-resident trust, the “deemed
residence rules” may apply to treat the
non-resident trust as resident in Canada. An
exemption from the application of the deemed
residence rules applies if the contributor
was resident in Canada for a period of not
more than 60 months. These trusts are often
referred to as immigration trusts.
The Budget proposes to eliminate the
60-month exemption for immigration trusts.
This measure will apply in respect of trusts for
taxation years:
–– That end after 2014 if (i) at any time
after 2013 and before 11 February 2014
the 60-month exemption applies in respect
of the trust, and (ii) no contributions
are made to the trust on or after
11 February 2014 and before 2015; or
–– That end on or after 11 February 2014 in any
other case.
It is very important that existing immigration
trust structures be reviewed to determine the
impact of these measures as soon as possible,
and well before the end of 2014.
CONSULTATION ON TAX PLANNING
BY MULTINATIONAL ENTERPRISES
In July 2013 the Organisation for Economic Co-
operation and Development (OECD) published
a report on “base erosion and profit shifting”
(BEPS) at the request of the G20, against the
backdrop of the debate on tax revenues. That
report proposes an action plan to address
perceived weaknesses in the international tax
rules. The Canadian government is committed
to continuing to improve the integrity of its
international tax rules, and as a result it has
invited interested parties to submit comments
on key areas that relate to tax planning by
multinational enterprises.
The government is also inviting comments on
what actions should be taken to ensure the
effective collection of sales tax on e-commerce
sales to residents of Canada by foreign-based
vendors.
CONSULTATION ON TREATY
SHOPPING
In last year’s Budget, the government
announced its intention to consult on possible
measures that would protect the integrity
of Canada’s tax treaties by limiting “treaty
shopping” while still preserving a business
tax environment that is conducive to foreign
investment. A consultation paper was publicly
released on 12 August 2013 to provide
stakeholders with an opportunity to comment
on possible measures until 13 December 2013.
In order to further advance the discussion
in this area, the government has invited
comments from interested parties, within
60 days after 11 February 2014, on a proposed
domestic rule to prevent treaty shopping. A
number of examples in the Budget papers show
the intended application of the proposed rule,
which is intended to address arrangements
identified as an improper use of Canada’s tax
treaties in the consultation paper. A more
detailed summary is available at http://www.
bdo.ca/en/Library/Services/Tax/pages/Tax-
Alert-Treaty-Shopping-Rules-Are-On-the-Way.
aspx
SWITZERLAND
Changes to principal companies requirements
READ MORE 13
KUWAIT
New self-assessment and transfer pricing rules
READ MORE 16
SINGAPORE
Budget 2014 highlights
READ MORE 3
MARCH 2014 ISSUE 34
WWW.BDOINTERNATIONAL.COM
WORLD WIDE TAX NEWS

2. 2 WORLD WIDE TAX NEWS
W
elcome to this issue of
BDO World Wide Tax News.
This newsletter summarises
recent tax developments of international
interest across the world. If you would
like more information on any of the items
featured, or would like to discuss their
implications for you or your business,
please contact the person named under
the item(s). The material discussed in this
newsletter is meant to provide general
information only and should not be acted
upon without first obtaining professional
advice tailored to your particular needs.
BDO World Wide Tax News is published
quarterly by Brussels Worldwide Services
BVBA in Brussels. If you have any
comments or suggestions concerning
BDO World Wide Tax News, please contact
the Editor via the BDO International
Executive Office by e-mail at
mderouane@bwsbrussels.com or by
telephone on +32 (0)2 778 0130.
Read more at www.bdointernational.com
EDITOR’S
LETTER
CANADA - continuation
BACK-TO-BACK LOANS
Some taxpayers have sought to avoid either
or both the thin capitalisation rules and
Part XIII withholding tax through the use of
so-called “back-to-back loan” arrangements.
The Budget proposes to address back-to-back
loan arrangements by adding a specific anti-
avoidance rule in respect of withholding tax
on interest payments, and by amending the
existing anti-avoidance provision in the thin
capitalisation rules. Specifically, a back-to-
back loan arrangement will exist where, as a
result of a transaction or series of transactions,
certain conditions are met.
Where a back-to-back loan arrangement
exists, appropriate amounts in respect of
the obligation, and interest paid or payable
thereon, will be deemed to be owing by the
taxpayer to the non-resident person for
purposes of the thin capitalisation rules.
The taxpayer will, in general terms, also be
deemed to have an amount of interest paid
or payable to the non-resident person that is
equal to the proportion of the interest paid
or payable by the taxpayer on the obligation
owing to the intermediary that the deemed
amount owing is of that obligation. Part XIII
withholding tax will generally apply in respect
of a back-to-back loan arrangement to the
extent that it would otherwise be avoided by
virtue of the arrangement.
This proposed measure will apply in respect of
the thin capitalisation rules, to taxation years
that begin after 2014, and in respect of Part XIII
withholding tax, to amounts paid or credited
after 2014.
CAPTIVE INSURANCE
A specific anti-avoidance rule in the foreign
accrual property income (FAPI) regime is
intended to prevent Canadian taxpayers
(e.g. financial institutions) from shifting income
offshore from the insurance of Canadian
risks. This rule provides that income from the
insurance of Canadian risks is FAPI where 10%
or more of the gross premium income (net of
reinsurance ceded) of a foreign affiliate of the
Canadian taxpayer is premium income from
Canadian risks.
In an attempt to challenge sophisticated
swap arrangements, the Budget proposes
to amend the existing anti-avoidance rule in
the FAPI regime relating to the insurance of
Canadian risks. For taxation years beginning
after 10 February 2014, clarifications will
ensure the rule applies when:
–– Taking into consideration one or more
agreements or arrangements entered into
by the foreign affiliate, or by a person or
partnership that does not deal at arm’s length
with the affiliate, the affiliate’s risk of loss
or opportunity for gain or profit in respect
of one or more foreign risks can – or could if
the affiliate had entered into the agreements
or arrangements directly – reasonably be
considered to be determined by reference
to the returns from one or more other risks
(the tracked risks) that are insured by other
parties; and
–– At least 10% of the tracked risks are Canadian
risks.
Where the anti-avoidance rule applies, the
affiliate’s income from the insurance of the
foreign risks and any income from a connected
agreement or arrangement will be included in
computing its FAPI.
OFFSHORE REGULATED BANKS
Income from an investment business carried
on by a foreign affiliate of a taxpayer is
included in the affiliate’s FAPI. Most financial
services businesses would be considered
investment businesses under the FAPI regime,
but for certain exceptions in the definition
of investment business. One of those
exceptions applies to foreign banks and similar
institutions. Certain Canadian taxpayers that
are not financial institutions purport to qualify
for the regulated foreign financial institution
exception (and thus avoid Canadian tax) by
establishing foreign affiliates and electing to
subject those affiliates to regulation under
foreign banking and financial laws.
The Budget proposes to add new conditions to
qualify under the regulated foreign financial
institution exception. This measure will apply
to taxation years of taxpayers that begin
after 2014.
To ensure that the measure is appropriately
targeted, stakeholders are invited to submit
comments concerning its scope within 60 days
after 11 February 2014.
ROSE CROSS
rcross@bdo.ca
+1 416 369 6054
BRUCE BALL
bball@bdo.ca
+1 416 865 0111

3. 3WORLD WIDE TAX NEWS
SINGAPOREBUDGET 2014 HIGHLIGHTS
S
ingapore Deputy Prime
Minister and Finance Minister
Tharman Shanmugaratnam delivered
the 2014 Budget Speech on 21 February 2014.
We summarise below some of the highlights of
international interest.
PRODUCTIVITY AND INNOVATION
CREDIT (PIC) SCHEME
The changes, which are effective from
1 November 2013, are designed to simplify and
streamline the process for establishing that
companies and individuals applying for relief
under the DTA are resident in Hong Kong for
tax purposes.
The PIC Scheme, under which businesses that
invest in productivity or innovation activities
can claim enhanced tax deductions or cash
payouts, will be extended for three years
until Year of Assessment (YA) 2018. All
existing conditions of the scheme in relation
to expenditure caps and cash payouts remain
unchanged.
Businesses will be able to claim PIC benefits
for training expenses incurred on individuals
hired under centralised hiring arrangements
with effect from YA 2014. Details will be
released by the Inland Revenue Authority of
Singapore (IRAS) by the end of March 2014.
To reinforce the condition that cash payouts
are made to business with active operations,
businesses will have to meet the ‘three local
employees’ condition for a consecutive period
of at least three months prior to claiming the
cash payout. This will be effective for PIC cash
payout applications from YA 2016.
The tax deferral option will lapse with effect
from YA 2015, as the cash payout serves a
similar purpose to help business relieve cash
flow concerns.
NEW PIC+ SCHEME
A PIC+ Scheme will be introduced for qualifying
SMEs. This will increase the expenditure cap
from SGD 400,000 to SGD 600,000 per year
in each of the six qualifying activities from
YA 2015 to YA 2018.
An entity will be a qualifying SME if its annual
turnover is not more than SGD 100 million
or its employment size is not more than
200 workers. This criterion will be applied at
the group level if the entity is part of a group.
The combined expenditure cap under the
PIC+ Scheme will be up to SGD 1.4 million for
YA 2015, and up to SGD 1.8 million for YA 2016
to YA 2018.
The expenditure cap for PIC cash payouts
will remain at SGD 100,000 of qualifying
expenditure per YA.
Details will be released by IRAS by the end of
March 2014.
EXTENDING RESEARCH AND
DEVELOPMENT (R&D) TAX
MEASURES
To continue encouraging R&D activities and
to give certainty to businesses, the additional
50% tax deduction on qualifying expenditure
will be extended for ten years until YA 2025.
Businesses can continue to claim tax
deductions/allowances on R&D expenditure
incurred for R&D in areas unrelated to their
existing trade or business, as long as the R&D is
conducted in Singapore.
The further deduction of up to 300% on
qualifying expenditure will also be available
to businesses until YA 2018, in line with the
extension of the PIC Scheme, as mentioned
above.
Further tax deductions for expenditure incurred
on R&D projects approved by the Economic
Development Board will also be extended for
five years until 31 March 2020.
EXTENDING AND REFINING
THE WRITING DOWN
ALLOWANCE (WDA) SCHEME
To build Singapore as an Intellectual Property
hub, the WDA on the acquisition of qualifying
Intellectual Property Rights (IPR) will be
extended for five years until YA 2020.
The accelerated WDA for Media and Digital
Entertainment (MDE) companies will be
extended for three years until YA 2018.
The two categories of information:
(i) Customer-based intangibles; and
(ii) Documentation of work processes
will be excluded as qualifying IPRs through
a negative list. The negative list will be
published on the IRAS website by the end of
April 2014, and will be legislated by the end of
December 2014. All other existing conditions
of the scheme remain unchanged.
EXTENDING THE TAX DEDUCTION
SCHEME FOR REGISTRATION COSTS
OF IP
The 100% tax deduction scheme for
registration costs of IP will be extended for
five years until YA 2020. The further deduction
of up to 300% on qualifying costs will also
be available to businesses until YA 2018, in
line with the extension of the PIC Scheme, as
mentioned above.
WAIVING THE WITHHOLDING TAX
REQUIREMENT FOR PAYMENTS
MADE TO BRANCHES IN SINGAPORE
To reduce compliance costs for businesses,
payers will not need to withhold tax on
payments under the scope of Section 12(6)
and 12(7) of the Singapore Income Tax
Act (SITA) (i.e. interest, royalties, technical
assistance fees, etc.) made to permanent
establishments that are Singapore branches
of non-resident companies. These branches
in Singapore will continue to be assessed
for income tax on such payments that they
receive, and will be required to declare such
payments in their annual tax returns. This will
be effective for all payment obligations that
arise on or after 21 February 2014.
TREATMENT OF BASEL III
ADDITIONAL TIER 1 INSTRUMENTS
AS DEBT FOR TAX PURPOSES
To provide tax certainty and maintain a level
playing field for Singapore incorporated
banks that issue Basel III Additional Tier 1
instruments, such instruments (other than
shares) will be treated as debt for tax purposes.
Additional Tier 1 instruments are a new type
of capital instrument under the Basel III global
capital standards.
Therefore, distributions on such instruments
will be deductible for issuers and taxable in
the hands of the investors, subject to existing
rules. The above tax treatment will apply to
distributions accrued in the basis period for
YA 2015 and thereafter, in respect of such
instruments issued by Singapore incorporated
banks (excluding their foreign branches)
that are subject to Monetary Authority of
Singapore (MAS) Notice 637. Details will be
released by the MAS by the end of May 2014.

4. 4 WORLD WIDE TAX NEWS
EXTENDING AND REFINING
TAX INCENTIVE SCHEMES FOR
QUALIFYING FUNDS
To continue to grow and strengthen
Singapore’s asset management industry, funds
managed by Singapore-based fund managers
which are currently enjoying tax concessions
under Section 13CA (i.e. trust funds with non-
resident trustee and non-resident corporate
funds), 13R (i.e. resident corporate funds)
and 13X (i.e. enhanced-tier funds) of the SITA
will be extended for another five years to
31 March 2019.
The tax concession under Section 13C of
the SITA for trust funds with resident trustees
will be allowed to lapse after 31 March 2014.
In addition, qualifying funds under
Section 13CA (Section 13CA Scheme),
Section 13R (Section 13R Scheme) and
Section 13X (Section 13X Scheme) will be
refined as follows:
(i) The Section 13CA Scheme will be expanded
to include trust funds with resident
trustees, which are currently covered under
Section 13C. This will take effect from
1 April 2014;
(ii) The investor ownership levels applicable to
the Section 13CA and Section 13R Schemes
will be computed based on the prevailing
market value of the issued securities on that
day (instead of the historical value of the
qualifying funds issued securities). This will
take effect from 1 April 2014;
(iii) The list of designated investments will be
expanded to include loans to qualifying
offshore trusts, interest in certain
limited liability companies and bankers
acceptances. This will apply to income
derived on or after 21 February 2014 from
such investments.
All other existing conditions of the above
schemes remain unchanged. Details will be
released by the MAS by the end of May 2014.
ENHANCING THE FOREIGN
SOURCED INCOME EXEMPTION
SCHEME FOR LISTED
INFRASTRUCTURE REGISTERED
BUSINESS TRUSTS (RBTS)
The specified scenarios under Section 13(12) of
the SITA will be expanded to include dividend
income originating from foreign sourced
interest income, so long as it is related to the
qualifying offshore infrastructure project/asset.
Interest income derived from a qualifying
offshore infrastructure project/asset will
automatically qualify for Section 13(12)
exemption, provided certain conditions are
met.
The IRAS will verify that the qualifying
conditions are met for the above two scenarios
instead of the current case-by-case approval by
the Minister for Finance.
Details, including the effective date of these
enhancements, will be released by the IRAS by
the end of May 2014.
REFINING THE DESIGNATED UNIT
TRUST (DUT) SCHEME
From 21 February 2014, the DUT Scheme will
be limited to retail unit trusts (referred to as a
unit trust that is authorised under Section 286
of the Securities and Futures Act and is open
to the public for subscription, as well as a
unit trust included under the CPF Investment
Scheme). Non-retail unit trusts (other types of
unit trusts targeted at more sophisticated and
institutional investors) will need to consider
other fund schemes.
From 1 September 2014, unit trusts
will automatically enjoy the benefits of
DUT Scheme as long as they fulfil qualifying
conditions.
Details will be released by MAS by end
May 2014.
RECOVERY OF GOODS AND
SERVICES TAX (GST) FOR
QUALIFYING FUNDS
In order to strengthen Singapore’s position
as a centre for fund management and
administration, the GST remission which allows
qualifying funds managed by prescribed fund
managers in Singapore to claim GST incurred
on expenses at a fixed rate, will be extended for
another five years till 31 March 2019.
The fixed rate which is applicable throughout
the calendar year has ranged from 87% to 93%
since the start of GST remission in 2009.
STAMP DUTIES
The stamp duty rate structure has been
streamlined with effect from 22 February 2014,
as summarised in the following table:
Type of transaction Rate of stamp duty
Leases Up to 4 years tenure: 0.4% of the total rental for the entire lease
period.
Over 4 years tenure, or indefinite: 0.4% of four times the average
annual rental for the entire lease period.
Buyer’s stamp duty
for land premiums and
purchase of property
Computed on higher of the purchase price or market value:
First SGD 180,000: 1%
Next SGD 180,000: 2%
Remainder: 3%.
Transfers of stock or shares 0.2% of the higher of the purchase price or market value.
Mortgage instruments Depending on type of instrument, 0.2% or 0.4% of the relevant
amount, capped at SGD 500.
EVELYN LIM
evelynlim@bdo.com.sg
+656 8299 629
HARSH SHAH
harsh@bdo.com.sg
+656 8299 180

5. 5WORLD WIDE TAX NEWS
EUROPEANUNIONEUROPEAN COMMISSION PROPOSES AMENDMENTS TO THE PARENT-SUBSIDIARY DIRECTIVE
PLANS TO TACKLE HYBRID LOAN
ARRANGEMENTS AND INTRODUCE
A COMMON GENERAL ANTI-ABUSE
RULE (GAAR)
O
n 25 November 2013, the European
Commission (EC) proposed
amendments to key EU corporate tax
legislation, namely to the Parent-Subsidiary
Directive (Directive 2011/96/EU). According to
its press release, the EC aims to significantly
reduce tax avoidance and to close loopholes in
the current directive, which some companies
have been using to escape taxation. The
amendments focus on two key issues: tackling
hybrid financial mismatch arrangements and
introducing a general anti-abuse rule (GAAR)
into the Parent-Subsidiary Directive.
BACKGROUND
The Parent-Subsidiary Directive was originally
passed in July 1990 with the aim of avoiding
double taxation for parent companies and their
subsidiaries which operate in different Member
States by exempting dividends and other profit
distributions paid by the subsidiary in the
Member State of the parent company.
Over time, some companies have started
using hybrid loan arrangements to achieve
double non-taxation. These arrangements
have characteristics of both equity and debt.
Due to different qualifications of the loans in
different Member States, the state where the
subsidiary is located will treat the payments as
a tax deductible expense, while the state where
the parent company is located will treat the
payments as tax-exempt distributions of profit.
As a result, these payments are taxed in neither
Member State.
In 2009, the Business Code of Conduct
Group had first identified these financial
hybrid mismatches as a specific example
of double non-taxation. As a solution to
this problem, the Group suggested that the
recipient Member State should follow the tax
qualification given to hybrid loan payments
by the source Member State. However, this
guidance would not be in line with the current
Parent-Subsidiary Directive.
After the European Council and the European
Parliament had stressed the need to develop
concrete ways to improve the fight against tax
evasion, the EC announced its Action Plan from
December 2012 to strengthen the fight against
tax fraud and tax evasion, and identified the
tackling of mismatches between tax systems
as one of the actions to be undertaken in the
short term, i.e. 2013.
PROPOSAL BY THE EC
Consequently, the EC has now published the
proposal of the new wording of Article 4 (1) of
the Parent-Subsidiary Directive which would
avoid distortive effects caused by hybrid loan
agreements.
The suggested wording provides that:
“Where a parent company or its permanent
establishment, by virtue of the association
of the parent company with its subsidiary,
receives distributed profits, the Member State
of the parent company and the Member State
of its permanent establishment shall, except
when the subsidiary is liquidated, refrain from
taxing such profits to the extent that such
profits are not deductible by the subsidiary of
the parent company.”
Secondly, the EC plans to update the existing
anti-abuse rule in the Parent-Subsidiary
Directive in the light of the GAAR proposed
in the Commission’s Recommendation on
aggressive tax planning from December 2012.
In short, the main amendments are:
Amendment of Article 1:
The Parent-Subsidiary Directive shall not
preclude the application of domestic or
agreement-based provisions required for the
prevention of tax evasion.
The GAAR itself is introduced in a new
Article 1a:
1. Member States shall withdraw the benefit
of the Parent-Subsidiary Directive in the
case of an artificial arrangement or an
artificial series of arrangements which has
been put into place for the essential purpose
of obtaining an improper tax advantage
under the directive and which defeats
the object, spirit and purpose of the tax
provisions invoked.
2. A transaction, scheme, action, operation,
agreement, understanding, promise, or
undertaking is an artificial arrangement or
a part of an artificial series of arrangements
where it does not reflect economic reality.
3. In determining whether an arrangement or
series of arrangements is artificial, Member
States shall ascertain, in particular, whether
they involve one or more of the following
situations:
a) The legal characterisation of the
individual steps which an arrangement
consists of is inconsistent with the legal
substance of the arrangement as a
whole;
b) The arrangement is carried out in a
manner which would not ordinarily be
used in a reasonable business conduct;
c) The arrangement includes elements
which have the effect of offsetting or
cancelling each other;
d) The transactions concluded are circular
in nature;
e) The arrangement results in a significant
tax benefit which is not reflected in
the business risks under-taken by the
taxpayer or its cash flows.
In addition, two new eligible companies from
Romanian law are added to Annex I, part A: the
‘societăți în nume colectiv’ and the ‘societăți în
comandită simplă’.
The European Parliament is scheduled
to discuss the proposed amendments in
April 2014. If they enter into force, Member
States shall bring into force the laws,
regulations and administrative provisions
necessary to comply with the Directive
by 31 December 2014.
On a national level, some countries
(e.g. Germany and the UK) have already
passed laws that provide for the same effect
as the proposed wording of Article 4 (1) of
the Parent-Subsidiary Directive to counteract
hybrid loan arrangements. However, these
national wordings do not only have an effect
on distributions within the EU/EEA but on
a worldwide level, since they only grant tax
exemptions for distributed profits insofar as
they were not a deductible expense for the
distributing company – wherever that may be
located.
MARC VERBEEK
marc.verbeek@bdo.be
+32 2 778 01 00
ANDREA BILITEWSKI
andrea.bilitewski@bdo.de
+49 40 302 930

6. 6 WORLD WIDE TAX NEWS
BELGIUMNOTIONAL INTEREST TAX
DEDUCTION AFTER ARGENTA CASE
T
he Belgian tax legislation allows a
notional interest deduction (NID)
for corporate income tax purposes,
consisting of a percentage of the company’s
adjusted equity capital. On 4 July 2013, the
Court of Justice of the European Union (CJEU)
ruled in the Argenta Spaarbank NV case
(C-350/11) that the NID was incompatible
with the European principle of freedom of
establishment. Belgian tax legislation has now
been amended to comply with this court ruling.
The issue was whether or not the equity
attributable to a foreign (EEA) permanent
establishment of a Belgian company should be
taken into account in the calculation base for
the NID.
Under the Belgian tax legislation, a Belgian
company with, for example, a permanent
establishment in France, had to exclude the
equity of this permanent establishment when
calculating the NID. On the other hand, a
Belgian company with a Belgian permanent
establishment was entitled to include the
equity of this permanent establishment when
calculating the NID. For this reason Belgian
companies may have been discouraged from
creating a permanent establishment abroad.
To comply with the CJEU ruling, the Belgian
Income Tax Code has been amended so as
to include own equity belonging to foreign
permanent establishments or immovable
property in the calculation basis for the NID.
However, a compensating measure has also
been provided to restrict the tax benefit. There
can only be an additional tax benefit when a
permanent establishment has its registered
seat in an EEA Member State if the NID on
the permanent establishment’s own equity
is greater than the establishment’s (exempt)
profit. The remainder can then be deducted
from the Belgian profit.
The new measures take effect from assessment
year 2014.
MARC VERBEEK
marc.verbeek@bdo.be
+32 2 778 01 00
DENMARKCOMPANIES CAN POSTPONE
PAYMENT OF EXIT TAXES
O
n 6 February 2014, the Danish
Parliament passed a Bill allowing
companies to postpone payment
of exit tax relating to the transfer of assets/
liabilities to other EU/EEA countries. The
purpose of the Act is to bring the Danish rules
on exit taxation into compliance with EU law.
On 18 July 2013, the European Court of
Justice (CJEU) overruled the Danish rules on
exit taxation applicable to companies that
transfer assets/liabilities to other EU/EEA
countries. Under Danish law, such transfers are
considered disposals of assets/liabilities, and
subject to capital gains taxation.
In its ruling, the CJEU found the Danish rules on
exit taxation to be incompatible with EU law,
because the exit tax was due immediately, with
no option to postpone payment.
The new Act adjusts the Danish rules on exit
taxation so that it is now possible to postpone
payment of the exit tax, subject to the
payment of interest.
Under the new rules, the deferred tax must
be paid in line with the return (income, gains,
dividends) on the transferred assets, which
would have been taxed in Denmark if the
assets had remained in Denmark. However,
the annual payment must always represent at
least 1/7 of the calculated exit tax.
As mentioned above, the Act aims to bring the
Danish rules on exit taxation into compliance
with EU law. However, it remains to be seen
whether the amendments achieve this aim, as
a transfer of assets to other EU/EEA countries
is still treated differently to an internal transfer
in Denmark.
HANS-HENRIK NILAUSEN
hhn@bdo.dk
+45 39 15 52 00
FINLANDCHANGES TO TAXATION OF
DIVIDENDS AND CAPITAL INCOME
RECEIVED BY INDIVIDUALS
O
n 30 December 2013 some changes
were made to the Finnish tax law,
including the following changes in
relation to the taxation of dividends and capital
income received by individuals.
DIVIDENDS FROM LISTED
COMPANIES
Of the dividend distributed by a listed company
to a natural person, the taxable capital amount
will increase from 70% to 85%, with tax rates
of 30% and 32% (see ‘Capital Income’ below).
15% of the dividend will be tax-exempt.
DIVIDENDS FROM NON-LISTED
COMPANIES
–– Up to EUR 150,000: 25% of the dividend
is taxable capital income provided that
the amount does not exceed a notional
8% annual return calculated on the
mathematical value of the share. 75% of the
dividend is tax exempt.
–– Excess over EUR 150,000: 85% of the
dividend amount in excess of EUR 150,000
is taxable capital income provided that
the amount does not exceed a notional
8% annual return calculated on the
mathematical value of the share. 15% of the
dividend is tax exempt.
In each case, if the dividend exceeds an annual
return of 8%, 75% of the excess would be
taxable earned income, which will be taxed in
accordance with the progressive tax rates. The
remaining 25% would be tax exempt.
CAPITAL INCOME
The threshold for the application of the 32%
higher tax rate levied on capital income would
be lowered from EUR 50,000 to EUR 40,000.
Hence, the applicable rate is 30% up to
EUR 40,000 and 32% thereafter.
COMMENCEMENT
These changes came into force on
1 January 2014, and they will apply as a rule to
tax for FY 2014.
HEIKKI MUIKKU
heikki.muikku@bdo.fi
+358 20 743 2920

7. 7WORLD WIDE TAX NEWS
FRANCESOCIAL LEVIES REFUND CLAIM OPPORTUNITY FOR NON-RESIDENTS
CURRENT FRENCH TAX REGIME
U
nder Article 29 of the French Budget
Law n° 2012-958 dated 16 August 2012
(the “Law”), social levies at an effective
rate of 15.5% are now levied on real-estate
income and capital gains realised by non-
resident individuals, in addition to the normal
applicable taxes on income and capital gains.
This provision applies from 1 January 2012 for
rental income (lease payments, etc.), and from
17 August 2012 for capital gains realised on the
sale of real estate in France.
POSSIBLE INFRINGEMENT OF EU
LEGISLATION
EC Regulation 883/2004 provides that when
an employee works in different Member States
(e.g. France and the Netherlands), he should
be subject only to the social security system of
one Member State, under the unity principle,
and should therefore not be liable to payment
of social levies in two different Member States.
In 2000, the European Court of Justice (“ECJ”)
ruled that France contravened the unity
principle by levying the general social
contribution (CSG) and the contribution for the
repayment of the social debt (CRDS) on income
from a profitable activity carried on in another
Member State and subject to social security
contributions in that State.
For the same reasons, the European
Commission (EC) commenced infringement
proceedings against France in August 2013
with regard to the new legislation charging
social levies on French rental income realized
by non-resident. A European taxpayer’s claim
that the levy of social contributions on French
real estate capital gains infringes EU law is also
currently being scrutinised by the EC.
IMPLICATIONS FOR RESIDENTS
IN OTHER MEMBER STATES WHO
RECEIVE FRENCH REAL-ESTATE
INCOME
To safeguard their rights for previous and future
tax years, individuals residing in an EU Member
State other than France should consider filing
requests and protective claims for repayment
of French social levies charged in relation to
real-estate income and capital gains, taking
into account local statutory time limitations.
Once the ECJ rules on this issue, the French
administrative courts and tax authorities will
apply the ruling to all claims that were on hold
pending the outcome.
As (i) social levies have been paid from
15 October 2013, regarding real estate income
earned in 2012, and (ii) social levies have
been withheld on capital gains realised on
the disposal of French real estate since 2012,
we believe that any affected non-resident
individual should contemplate filing a claim in
the forthcoming months, in order to safeguard
their rights.
JACQUES SAINT JALMES
jsaintjalmes@djp-avocats-bdo.fr
+33 1 80 18 10 80
NICOLAS BILLOTTE
nbillotte@djp-avocats-bdo.fr
+33 1 80 18 10 80

8. 8 WORLD WIDE TAX NEWS
GERMANYTAX CHANGE FOR EU/EEA CITIZENS WHO WORK IN GERMANY AND ARE RESIDENT IN SWITZERLAND
I
ndividuals who are living abroad but who
retain German source income are generally
limited taxpayers, which means only
their income from German sources is taxable
in Germany. Under certain circumstances
these individuals can choose to be treated as
unlimited taxpayers in Germany. As such they
would obtain some special tax benefits which
a limited taxpayer does not have. For example,
they would be allowed to deduct insurance
premiums and exceptional costs (e.g. medical
costs) but do remember that in return they
would be subject to tax in Germany on their
worldwide income.
According to German income tax law, citizens
of EU or EEA member states who have are
resident in an EU or EEA member state can
have some additional advantages. If they are
unlimited taxpayers the following can apply at
their request:
–– Joint assessment with splitting approach for
spouses
–– Special discounts can be doubled (deducted
for both spouses)
–– Payments to an ex-spouse can be deducted
–– Special discount for single parents
–– Special discount for parents with a disabled
child.
It is often advantageous for an unlimited
taxpayer’s spouse who has no income of
their own to choose unlimited tax liability in
Germany.
As Switzerland is not a member of the
EU or EEA, persons being citizens of
EU or EEA member states and having their
residence in Switzerland are not allowed to
use these tax advantages according to German
domestic income tax law.
In February 2013 the European Court of
Justice (CJEU) decided that this restriction
is contrary to the Agreement on the
Free Movement of Persons between the
EU and Switzerland. So citizens of an
EU or EEA member state who are resident
in Switzerland but generate their income in
Germany can be unlimited taxpayers upon
request, too, and thus are allowed to benefit
from the above mentioned advantages. In
September 2013 the German Federal Ministry
of Finance issued an announcement that
the respective clause in the German income
tax law has to be interpreted according to
the CJEU’s judgment. This interpretation is
applicable in all open cases.
CHRISTIANE ANGER
christiane.anger@bdo-awt.de
+49 89 769 060

9. 9WORLD WIDE TAX NEWS
LATVIAIMPROVEMENTS TO BUSINESS TAX REGIME
A
fter a new holding regime came into
effect on 1 January 2013, Latvia has
continued to improve the legislation to
become more attractive for foreign private and
corporate investors.
Up to 1 January 2014 the favourable holding
regime provided an exemption from corporate
income tax (CIT) on dividends and income
from sales of shares. A partial exemption
of withholding tax applied to interest
payments and royalties made to entities in
the EU or EEA, or entities resident in countries
with which double tax treaties were in force.
From 1 January 2014, Latvia has improved
the regime, and henceforth distributed
interest income and royalties are not subject
to taxation (except to offshore recipients, to
which a 15% tax rate applies).
Furthermore, a long-awaited opportunity to
pay interim dividends has been introduced,
and companies will be able to pay interim
dividends from 1 July 2014. Interim dividends
will not be subject to taxation, except where
paid to low-tax or tax-free countries, when
they will be subject to 30% withholding tax.
Payment of interim dividends is subject to
certain conditions under the Commercial Law,
for example:
–– The amount of dividends to be distributed
cannot exceed 85% of the current profit
statement;
–– Interim dividends can be distributed once per
quarter; and
–– There must be no overdue or postponed tax
payments, etc.
The introduction of the interim dividends
regulations has made the Latvian holding
regime even more attractive for local and
foreign investors.
In addition, in order to attract foreign
investment, Latvia has extended the tax
allowances for the purchase of new machinery,
and incentives for long-term investment in
approved investment projects, until 2020.
The costs for purchase of new machinery for
CIT purposes can be increased additionally
by 50% of the initial amount , and a 25% CIT
rebate will apply to initial long-term
investments of up to EUR 50 million (15% for
investments exceeding EUR 50 million).
A new form of tax incentive has been
introduced in the CIT legislation to facilitate
research and development (R&D) activities.
Costs for expenses incurred which are directly
related to labour costs, research services
and the development of new products
(certification, testing and calibration) for
CIT purposes can be increased additionally
by 200% of the initial amount. Expenses
can be written off immediately or can be
capitalised. Certain conditions must be met in
order to obtain the enhanced allowance – for
example, the taxpayer must have prepared
the R&D documentation by himself, the
intellectual property rights must be retained
for at least three years, etc. The allowance will
apply to expenses incurred from 1 July 2014.
These amendments have contributed to
the better tax regime that businesses had
been seeking, and Latvia will now be a more
attractive place in which to invest.
INITA SKRODERE
inita.skrodere@bdotax.lv
+371 6722 2237

10. 10 WORLD WIDE TAX NEWS
NETHERLANDSCJEU ADVOCATE GENERAL CONCLUDES THAT THE DUTCH FISCAL UNITY REGIME CONTRAVENES EU LAW
INTRODUCTION
T
he Dutch fiscal unity regime allows
two or more Dutch resident companies
within a group to elect to be treated as
a single taxpayer for Dutch corporation tax
purposes, provided that certain criteria are
met. This regime allows for the consolidation
of profits and losses within the fiscal unity,
and transactions within the fiscal unity
are disregarded for Dutch corporation tax
purposes.
One of the conditions for a fiscal unity is
that a Dutch resident parent company owns
at least 95% of the shares in the issued and
paid up share capital of the Dutch subsidiary.
An intermediary subsidiary should also be
included in the same fiscal unity. The fact that
a Dutch fiscal unity is only allowed between
an uninterrupted chain of Dutch companies
has been subject to discussion, because it is
questionable if this condition is in line with
EU law.
REFERRAL TO EUROPEAN COURT OF
JUSTICE
The Netherlands Court of Appeal has jointly
referred three cases to the European Court of
Justice (CJEU). On 27 February 2014 Advocate
General (AG) Kokott concluded in her opinion
that the Dutch fiscal unity regime contravenes
the freedom of establishment principle in cross
border situations.
The referred cases concern situations where a
subsidiary of a non-Dutch resident applies for
the fiscal unity regime and all other conditions
for the fiscal unity regime are met.
The CJEU procedure covers three cases, which
all concern a fiscal unity within a multinational
group with a foreign interposing or a foreign
mother company:
–– The possibility of a fiscal unity between a
Dutch mother company and a Dutch sub-
subsidiary with a foreign (EU) interposing
company.
–– A situation similar to the above situation, but
with different EU interposing companies in
several EU-countries.
–– The possibility of a fiscal unity of two sister
companies with a foreign (EU) mother
company.
Please note that the tax payers did not request
to include a non-Dutch company in the fiscal
unity.
IMPLICATIONS FOLLOWING CJEU
JUDGMENT
If the CJEU follows the conclusion of the AG,
the Netherlands will have to allow fiscal
unities of Dutch companies when there
are intermediate EU (non-Dutch) holding
companies or if there is a common (non-
Dutch) EU parent company involved. In the
event of this outcome it is likely that the Dutch
government would amend the fiscal unity
legislation.
If a fiscal unity as described in the above cases
would be favourable for a group, it would be
advisable to file the application for the fiscal
unity regime as soon as possible. The group
would then be able to benefit from the fiscal
unity regime if the CJEU judgment follows the
conclusion of the AG.
An application for a fiscal unity can be
retrospective for up to three months.

11. 11WORLD WIDE TAX NEWS
SUPREME COURT GIVES RULINGS ON DEFINITION OF EQUITY
INTRODUCTION
T
he Dutch Supreme Court recently gave
two important decisions regarding
the definition of equity for Dutch
corporation tax purposes. These decisions are
of great importance, as they provide clarity for
the Dutch tax treatment of (hybrid) financing
instruments. The Supreme Court decided that
if an instrument is considered equity from a
legal perspective, it is also to be treated as
equity from a Dutch tax perspective.
The question whether an instrument
is considered equity is relevant, as the
participation exemption often exempts income
from an equity instrument for Dutch tax
payers.
CASE No. 12/04649 DATED
7 FEBRUARY 2014
A bank syndicate had originally provided loan
finance to a holding company. It was later
decided to restructure the financing in order
to realise tax-exempt income for the banks.
This led to the bank syndicate acquiring
‘cumulative preference shares’ (CPS). For the
bank syndicate the CPS, together with some
related call-option rights and security rights,
were economically almost equal to the loan
agreement in terms of remuneration, the
repayment, ranking and control.
The bank syndicate took the position that
the income from the CPS qualified as equity.
As a result of the restructuring, the banks
(as part of the syndicate) each had more
than 5% of the nominal paid-up share capital
of the debtor company, and they took the
position that the dividends were tax-exempt
for corporation tax purposes by virtue of the
participation exemption.
The Dutch Supreme Court decided that with
respect to the qualification of the CPS as
a debt or equity the legal perspective (civil
law) is, in principle, decisive. The Supreme
Court decided that the CPS had the legal
characteristics of equity (share capital) and,
therefore, should qualify as equity for Dutch
corporation tax purposes. As a result, the
income from the CPS was regarded as a
dividend and tax-exempt for the receiving
company.
The Supreme Court also decided that the
conversion of the initial loan instrument,
leading to taxable income, into the equity
instrument, leading to tax-exempt income,
was not considered an abuse of law, as the
taxpayer has freedom to choose the structure
of an investment.
CASE No. 12/03540 DATED
7 FEBRUARY 2014
The Dutch taxpayer had an indirect
16% interest in an Australian company to
which it had granted shareholder loans. After
a refinancing in 2004, the Dutch taxpayer
received newly issued ‘redeemable preference
shares’ (RPS) in the Australian company, and
the shareholder loans were repaid.
The taxpayer claimed the participation
exemption for the remuneration on the RPS.
So in this case too there was a conversion of
an initial loan instrument, leading to taxable
income, into an equity instrument, leading to
tax-exempt income. Under Australian tax law
the remuneration paid on the RPS was tax-
deductible.
The court case revolved around two questions:
1. Should the RPS be reclassified as debt; and,
2. Should the application of the participation
exemption be denied on the basis of the
abuse of law doctrine?
Regarding the first question, the Dutch
Supreme Court decided that with respect to
the qualification of a financial instrument as
a debt or equity, the legal perspective (civil
law) is, in principle, decisive. The Supreme
Court decided that in this specific case
the RPS are very similar to preference shares
and, therefore, the RPS could be considered
as equity for the application of the Dutch
participation exemption (even in the case of
hybrid mismatches).
Regarding the second question, the Supreme
Court decided that the taxpayer did not abuse
the tax law by converting the shareholders
loan into the RPS, as it was not substantiated
that the conversion lacked sufficient economic
substance. Furthermore, the taxpayer had
been entirely free to decide how to invest in
the Australian company (by way of RPS). The
freedom of choice is not limited by the abuse
of law doctrine.
COMMENTS
The Supreme Court decisions provide clarity
on two aspects. Firstly, if an instrument is
considered equity from a legal perspective,
then this also is the case from a tax
perspective. Secondly, the conversion of a
debt instrument into an equity instrument is
in itself not considered an abuse of law, even if
this leads to a hybrid mismatch.
HANS NOORDERMEER
hans.noordermeer@bdo.nl
++31 (0)10 24 24 600

12. 12 WORLD WIDE TAX NEWS
SPAININCOME TAX LIABILITY OF NON-RESIDENT OWNERS OF REAL ESTATE
A
s part of their campaign to tackle tax
evasion, the Spanish tax authorities
are increasingly paying attention to
non-resident individuals who own properties
in Spain.
In addition to the Property Tax payable to the
relevant city council every year, non-resident
property owners must also be made aware that
they are liable to another tax, i.e. Non-Resident
Income Tax, regardless of whether the property
is for their own use or rented out to a third
party. The deadline for payment of this tax is
31 December each year.
Computation of the tax due is based on an
estimated income of 1.1% of the property’s
rateable value (2% if the rateable value has
not been recently updated), applying a tax rate
of 24.75% on the estimated income. Where
a property is leased out, the rent received
from the tenant is chargeable at the same tax
rate (24.75%).
Although companies and other business
organisations are not subject to this tax when
the property they own is not rented out to a
third party, the Spanish Tax Authorities may
look into whether the property is being used
by a stakeholder or director of the company
or organisation in question. Should this be
the case, the owner is taxed on the income,
estimated at arm’s length, which it would have
received from a third party tenant.
For properties not leased out, tax returns
may be submitted at any time during the
following calendar year, so the deadline for
all tax payments due for the tax year 2013 is
31 December 2014.
The tax deadline differs in the event of rental
income. In this case, tax returns must be filed
on a quarterly basis, within the first 20 days of
the months of April, July, October and January
respectively, for the previous quarter in which
the income has accrued.
REPORTING REQUIREMENTS FOR ASSETS AND RIGHTS SITUATED ABROAD
I
n October 2012, as part of its campaign to
tackle tax evasion, Spain passed a bill on
the prevention of fraud. The bill established
new disclosure obligations for tax residents in
Spain who hold assets or rights abroad. There
are three categories of assets and rights for
which certain information must be submitted
to the Spanish tax authorities (on Form 720)
during the first quarter of each year. Form 720
for fiscal year 2013 must be filed no later than
31 March 2014.
The requirement to file Form 720 applies
to entities, individuals and permanent
establishments resident in Spain who hold
assets and rights located in non-Spanish
territory. However, some taxpayers may be
exempt from this obligation, e.g. individuals
who benefit from the special tax regime
for inbound expatriates, also known as the
Beckham Law.
The three categories of the assets and rights
which must be disclosed are:
–– Accounts in financial institutions situated
abroad: information must be submitted on
accounts of any nature, even if they are non-
remunerative.
–– Securities, rights, bonds, loans and similar
financial instruments when managed or
held abroad. This category also includes
insurance policies and lifelong or fixed period
annuities.
–– Real estate and any rights thereon.
It is important to note that assets or rights
not exceeding EUR 50,000 under any of the
above three categories are exempt from
the disclosure requirement. For taxpayers
who have already filed a report for 2012 in
2013, reporting in later years only becomes
compulsory if there is a variance in value
exceeding EUR 20,000.
A specific penalty regime has been established
in the event of failure to report, or for forms
which are incomplete, inaccurate or contain
false information.
Failure to comply with reporting requirements
may also have an impact on Personal Income
Tax liability. If the Spanish tax authorities
discover the existence of assets or rights
abroad which taxpayers have failed to report,
these items may qualify as unjustified capital
gains.
DAVID SARDÁ
david.sarda@bdo.es
+34 932 003 233
MANUEL DOMÍNGUEZ
manuel.dominguez@bdo.es
+34 932 003 233

13. 13WORLD WIDE TAX NEWS
SWITZERLANDCHANGES TO PRINCIPAL COMPANIES REQUIREMENTS
T
he Swiss Federal Tax Administration
(SFTA) has issued new instructions to
the Swiss cantons on the tax treatment
of principal company structures, which
include a Swiss principal company and foreign
distribution companies. Under the principal
company regime, a percentage of profits is
not subject to Swiss tax, and the SFTA wishes
to prevent abuse of the profit allocation
mechanism.
NEW RULES
The main new requirements are that:
–– Affiliated foreign distributors must distribute
goods exclusively on behalf of the principal
company, and must be economically
dependent on it, which will be the case if
at least 90% of their income relates to the
principal company’s business;
–– The gross margin of distributors must not
exceed 3% of sales or higher costs; and
–– Key trading functions and risks must be
allocated to the principal company, and not
outsourced.
IMPLICATIONS
The new requirements must be met by 2015/16
for existing principal companies, but they are
immediately effective for all new applications.
If the new requirements are not met, the
effective tax rate may be increased, reducing
the benefit of the principal company regime.
In the case of existing principal companies,
failure to meet the new requirements could
result in adjustments for previous years.
ACTION REQUIRED
The cantons will be reviewing principal
company structures, and deciding whether any
tax rulings need to be amended, or changes
need to be made to arrangements if a structure
is to comply with the new rules. Existing and
proposed principal companies will therefore
need to review distributors’ activities and gross
margins, and the allocation of key functions
and risks, and make any necessary changes
in order to continue to qualify for principal
company treatment.
THOMAS KAUFMANN
thomas.kaufmann@bdo.ch
+41 44 444 37 15

14. 14 WORLD WIDE TAX NEWS
UNITEDKINGDOMFINALVERDICT ON M&S EU GROUP RELIEF CLAIM
T
he Supreme Court has at last given its
final ruling in the long-running EU cross-
border group relief case brought by
Marks & Spencer plc (M&S). The decision
resolves the position for those companies that
have outstanding EU group relief claims for
pre-April 2006 periods.
Over the course of two hearings, the Supreme
Court has ruled on five issues which needed
to be resolved in order to determine whether
M&S is entitled to claim group relief for losses
sustained by its former subsidiaries in Germany
and Belgium and, if so, the quantum of those
losses
THE ‘NO-POSSIBILITIES’ TEST
(ISSUES 1 & 3)
Under this test, a UK claimant company needs
to be able to demonstrate that there were no
possibilities for utilising the losses made by
its EU subsidiary in its country of residence. In
practical terms, this means that the group relief
claim cannot be reliably made until:
–– The subsidiary has been closed down with
unused losses remaining, and
–– There are no other local group companies
that could utilise that remaining loss.
The Supreme Court held that this test is to be
considered on the date of the claim. This is less
restrictive than the rules introduced in the UK
to apply to losses arising from April 2006
(‘the post-2006 rules’) which require the test
to be considered immediately after the end of
the period in which the loss arose. The post-
2006 rules therefore effectively only provide
relief for losses incurred in a subsidiary’s final
accounting period. The European Commission
referred the UK to the European Court of
Justice (CJEU) in 2009, as it considered that the
post-2006 rules did not adequately implement
the M&S judgement. However, there is no sign
of the UK Government responding to this.
HOW TO CALCULATE THE LOSS
AVAILABLE FOR SURRENDER
(ISSUES 2 & 5)
The Supreme Court has set out the following
method for calculating the losses available to
claim by the UK parent company:
1. Calculate the subsidiary’s results under its
local tax rules to determine whether there
is a loss and how much has been utilised
locally.
2. Convert the results by applying UK tax rules
to determine how much can be claimed by
the UK parent.
3. If the differences in the two sets of tax rules
mean that some of the loss arises under
UK tax rules in a later accounting period,
group relief can be claimed for that later
period.
By contrast, under the post-2006 rules the
surrenderable loss is calculated using UK tax
rules unless the local rules produce a smaller
loss or a gain, in which case the amount of the
surrenderable loss is restricted to that smaller
loss.

15. 15WORLD WIDE TAX NEWS
PRINCIPLE OF EFFECTIVENESS
(ISSUE 4)
The Supreme Court ruled on this final issue
that M&S was not entitled to a period longer
than the usual time limits for making group
relief claims even though, for some periods,
the CJEU judgment had not been made by the
time that limit had passed. This effectively
means that any claims made by companies
prior to 1 April 2010 will only be valid if they
were made within six years of the end of the
accounting period in which the loss arose. After
1 April 2010, this time limit is only four years.
SUMMARY OF THE POSITION
The issues are summarised in the table below,
together with a comparison of the position
under the UK group relief rules as amended
from April 2006.
Issue Supreme Court decision on pre-FA 2006 rules Post-FA 2006 rules
1. At what point must the ‘no possibilities’
test be met?
Date of the claim. Immediately after the end of the period in
which the loss arose.
2. Can sequential claims be made for the
same losses in respect of the same
accounting period?
Yes N/A - Per issue 5, losses can only be claimed
if there is a loss under both UK and overseas
tax rules.
3. If a surrendering company has some losses
which it has or can utilise and others which
it cannot, does the no possibilities test
preclude surrender of that proportion of
the losses which it has no possibility of
using?
No No
4. Can M&S make fresh claims now that ECJ
has identified circumstances in which loss
relief can be claimed?
No N/A
5. What is the correct method for calculating
the surrenderable losses?
Applying local tax rules to determine whether
there is a loss and whether any amount of
that loss is not utilised by local companies.
Then convert that loss using UK tax principles
to calculate how much is surrenderable to
UK companies.
Apply UK tax rules to the results to work out
how much loss can be surrendered. However,
this should not exceed the quantum of the
eligible foreign loss calculated using the rules
of the relevant EEA territory.
CONCLUSION
It is now clear that companies need to have
made EU group relief claims some considerable
time ago, and some outstanding claims may
now be rejected as being out of time.
For groups that made claims within the
time limit, the judgement is good news, as it
allows for full relief for EU subsidiary losses
even where those losses arise under UK tax
principles in later periods. It also means that
companies are not restricted in all cases to only
claiming the last period’s worth of losses from
their failed subsidiaries.
RICHARD MICHAEL JONES
richard.m.jones@bdo.co.uk
+44 20 7893 3086

16. 16 WORLD WIDE TAX NEWS
CHILEFOREIGN TAX CREDIT CHANGES
O
n 31 January 2014, the Chilean Income
Tax Law was amended to introduce
significant changes regarding the
credit in Chile for taxes paid in a foreign
country.
If no tax treaty is applicable, the amendment
increases the foreign tax credit rate from
30% to 32% of profits and dividends income
received in Chile from abroad. Companies must
be domiciled in the country from which profits
are remitted, and must own at least 10% of the
capital of their subsidiaries.
If a tax treaty is applicable, the foreign tax
credit rate increases from 30% to 35% for the
fiscal year. This applies to all types of income.
The changes will apply to income received or
accrued since 1 January 2014.
RODRIGO BENITEZ
rbenitez@bdo.cl
+56 2 27 29 50 00

17. 17WORLD WIDE TAX NEWS
KUWAITNEW SELF ASSESSMENT AND TRANSFER PRICING RULES
T
he Kuwait Income Tax Department
recently issued a revised set of
Executive Rules and Regulations
(the Executive Rules) which apply for tax
periods ending on 31 December 2013 and
thereafter. The revised Executive Rules include
a requirement for tax declarations to be
filed with a report that should be issued by
a firm approved by the Ministry of Finance,
identifying all of the revenue and expenses
items in the tax declaration that do not comply
with the Income Tax Decree and the related
regulations, executive rules and instructions.
Other changes introduced by the Executive
Rules and Regulation are mainly aimed at
reducing the amount of deductions for certain
expenses.
SELF-ASSESSMENT
The Kuwait tax department is moving towards
a self-assessment approach. Under Circular 1
of 2014, companies that file tax declarations
on an actual basis are required to prepare and
file a self-assessment report with the Income
Tax Department within three months from the
date of filing the tax declaration. The self-
assessment report should include a revenue
and expenses analysis, together with an outline
of the expenses items that were adjusted by
the Income Tax Department in the last tax
assessment issued to the company.
For companies which file tax declaration on
an actual basis and comply with Circular 1
of 2014, the tax department will give priority
to issuing the tax assessment and the release of
tax retention within 12 months of submitting
the self-assessment report, unless the tax
department believes that it should carry out an
additional tax audit.
For companies which file tax declaration on
a deemed profit percentage of 30% or more,
as per the last assessment letter, the tax
declaration prepared and filed by the company
will be accepted as filed, and a tax retention
release letter will be issued within six months
from the date of filing the tax declaration
provided that certain conditions are met.
KEY CHANGES RELATING TO
TRANSFER PRICING IMPACTING
FOREIGN COMPANIES OPERATING IN
KUWAIT:
–– Deductions for imported materials will be
restricted as follows:
a) Materials imported from head office: a
maximum of 85% of the corresponding
revenue from the imported materials
(previous limit was 85% to 90% of
corresponding revenue).
b) Materials imported from related entities:
a maximum of 90% of the corresponding
revenue from the imported materials
(previous limit was 90% to 93.5% of
corresponding revenue).
c) Materials imported from third parties: a
maximum of 95% of the corresponding
revenue from the imported materials
(previous limit was 93.5% to 96.5% of
corresponding revenue).
–– Deductions for the cost of design work
carried out outside Kuwait will be limited to:
a) 75% of the design revenue, for design
work carried out by head office
(previously the limit was 75% to 80%).
b) 80% of the design revenue, for design
work carried out by related entities
(previously the limit was 80% to 85%).
c) 85% of the design revenue, for design
work carried out by third parties
(previously the limit was 85% to 90%).
–– Deductions for the cost of consultancy work
carried out outside Kuwait will be limited to:
a) 70% of the consultancy revenue for
costs related to work carried out at the
head office (previously the limit was
70% to 75%).
b) 75% of the consultancy revenue for
costs related to work carried out by
related entities (previously the limit was
75% to 80%).
c) 80% of the consultancy revenue for
costs related to work carried out by
third parties (previously the limit was
80% to 85%)
–– Deductions for lease/rental costs of assets
leased from the head office, subsidiaries
and related entities will be limited to the
depreciation charge on the corresponding
assets, based on the tax depreciation rates
specified in the Kuwait tax regulations.
QAIS M. AL NISF
qais.alnisf@bdo.com.kw
+965 2295 7777
RAMI ALHADHRAMI
rami.alhadhrami@bdo.com.kw
+965 2295 7592

18. 18 WORLD WIDE TAX NEWS
CONTACT
Contact Mireille Derouane in Brussels
on mderouane@bwsbrussels.com or
+32 (0)2 778 0130
for more information.
www.bdointernational.com
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CURRENCY COMPARISON TABLE
The table below shows comparative exchange rates against the euro and the US dollar for the
currencies mentioned in this issue, as at 25 March 2014.
Currency unit Value in euros (EUR) Value inUS dollars (USD)
Singapore Dollar (SGD) 0,56960 0,78586
Euro (EUR) 1.00000 1,37954