International Tax News February 2020

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International Tax News

Edition 83 February 2020

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Keeping up with the constant flow of international tax developments worldwide can be a real challenge for multinational companies. International Tax News is a monthly publication that offers updates and analysis on developments taking place around the world, authored by specialists in PwC's global international tax network.

We hope that you will find this publication helpful, and look forward to your comments.

Featured articles

Argentina Argentina ? New government approves major tax reform

Australia Australia's hybrid mismatch rules: tweaks and uncertainties

India India 2020 budget: Impact on foreign investors and multinationals

OECD OECD/G20 Inclusive Framework moves forward on new tax rules

Bernard Moens Global Leader International Tax Services Network T: +1 703 362 7644 E: bernard.moens@

Responding to the potential business impacts of COVID-19 COVID-19 can cause potentially significant people, social and economic implications for organisations. This link provides information on how you can prepare your organisation and respond.

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In this issue

Legislation

Argentina Argentina ? New government approves major tax reform

Australia Australia's hybrid mismatch rules: tweaks and uncertainties

Belgium Circular letter Belgian group contribution regime

India India 2020 budget: Impact on foreign investors and multinationals

Uruguay Thematic zone for audio-visual services

Judicial

France Abrogation of French anti-hybrid provisions results in possible litigation

EU/OECD

OECD OECD/G20 Inclusive Framework moves forward on new tax rules

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China Tax Treaty between China and New Zealand enters into force

China Fifth Protocol to the Mainland China and Hong Kong tax treaty enters into force

United Kingdom Arrival of Brexit puts treaty claims at risk

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Argentina

Argentina ? New government approves major tax reform

The Argentine Congress, on December 23, 2019, approved the Social Solidarity and Productive Reactivation Law (`the Law') with the intent to align public accounts, boost the economy, and reduce social inequalities. The Law introduces relevant changes to the Argentine tax system, including a suspension of the 2018 corporate income tax rate reduction, an increase in the wealth tax rate, the reinstatement of certain tax exemptions on investment income in Argentine securities, and a new tax on outbound payments for specific transactions. The Law includes changes to customs duties rules on exports of goods and services and also to employment taxes.

The 2018 tax reform introduced a two-step corporate tax rate reduction from 35% to 30% for taxable years 2018 and 2019 and a further reduction to 25% from 2020 onwards. The rate reduction was offset by a withholding tax on dividend distributions at a 7% rate for 2018 and 2019 and 13% for 2020 onwards. The Law suspends the 25% rate reduction until fiscal years beginning on or after January 1, 2021.

Therefore, the 30% corporate income tax rate and the 7% withholding tax on dividend distributions will continue to apply to fiscal year 2020. The Law provides that the tax adjustment for inflation for the first two taxable years starting on or after January 1, 2019 must be allocated 1/6 to the taxable year in question and the remaining 5/6 in equal parts over the following five taxable years. Under the prior rule, 1/3 of the inflation adjustment had to be allocated in the first taxable year and the remaining 2/3 in the following two taxable years.

PwC observation:

While taxpayers are still digesting the 2018 tax reform, these latest tax law changes represent a significant challenge since the new rules amend, postpone, roll-back or even repeal the 2018 changes.

The recent changes to the tax law require analysis of the potential impact on the day-to-day operations of local and multinational companies in Argentina.

Ignacio Rodr?guez

Argentina T: +5411 4850 6714 E: ignacio.e.rodriguez@

Juan Manuel Magadan

Argentina T: +5411 4850 6847 E: juan.manuel.magadan@

Luis Vargas

United States T: +1 646 471 0582 E: maximo.l.vargas@

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Australia

Australia's hybrid mismatch rules: tweaks and uncertainties

The Australian hybrid mismatch rules were released in draft form in late 2017, legislated in August 2018 and took effect for tax periods commencing on or after January 1, 2019. However, the Australian Treasury, on December 13, 2019, released Exposure Draft legislation which proposes to `tweak' the enacted Australian hybrid mismatch rules. Public consultation on these proposed amendments closed on January 24, 2020.. The hybrid mismatch rules may affect taxpayers with a December 31 year-end; such taxpayers should account for any adverse impacts that these rules may have on their financial statements.

The ATO also has indicated publicly that the following issues have been the subject of detailed consideration and likely will be addressed by ATO guidance:

rules (Section 1503), and treatment of hybrid dividends (Section 245A(e)). ? How intra-group payments between members of a US tax consolidated group should be treated ? in particular, whether the payments are disregarded for purposes of the Australian hybrid mismatch rules or treated as offsetting deductions and income inclusions.

PwC observation:

Taxpayers with related-party cross-border deductible payments (or hybrid entities, including Australian entities that may be `disregarded' for foreign tax purposes) should review the potential impact of the hybrid mismatch rules, including the imported mismatch and low-tax lender rules. Taxpayers with cross-border transactions may be caught off guard as the hybrid mismatch rules do not have a tax avoidance purpose test, a de minimis carve-out, or transitional provisions. The rules will be important for year-end tax provisioning for accounting purposes, as well responding to extensive questions on the annual Australian income tax return.

? Whether the US tax laws correspond to, or have substantially the same effect as, the Australian hybrid mismatch rules. This takes into consideration the combined effect of US tax laws, including its anti-hybrid rules (Section 267A), dual consolidated loss

Stuart Landsberg

New York T: +1 646 675 4713 E: stuart.ross.landsberg@

Phil Strauss

Australia T: +1 347 387 7421 E: philip.s.strauss@

Peter Collins

Australia T: +61 3 8603 6247 E: peter.collins@

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Belgium

Circular letter Belgian group contribution regime

The group contribution (tax consolidation) regime, applicable as of FY2019, enables Belgian companies and Belgian branches of entities located in the European Entrepreneurial Region to transfer taxable profits to other affiliated Belgian companies/branches with the aim of offsetting these profits against current-year tax losses. The regime's scope is limited to qualifying companies that have concluded a group contribution agreement that meets certain conditions. The circular letter provides clarifying examples on the application of the regime in view of eligible and excluded companies, minimal holding period, application after a business restructuring, final foreign PE losses, and the mandatory compensation to be paid. Simultaneously, a template version of the group contribution agreement (which needs to be included in the tax return in order to confirm that the conditions to justify the regime's application have been fulfilled) has been published.

PwC observation:

Multinational groups with multiple Belgian companies or branches can benefit from the group contribution regime if they fulfill the conditions. Monitoring during the year is necessary to see whether a group contribution will occur, as these elements also will impact prepayments for the year (and other tax aspects). Companies should timely assess such matters in order to fulfil the necessary formalities (agreement, payments, etc.).

India

India 2020 budget: Impact on foreign investors and multinationals

The Indian Finance Minister presented the Union Budget 2020 of the Modi government on February 1. Budget 2020 includes measures aimed at making India a USD five trillion economy by 2024. Budget 2020 was drafted around three principles ? aspirational India, economic development, and caring society, focusing on `ease of living' for all citizens. As expected, the Budget focuses on the agricultural sector, education and skills, infrastructure, rural economy, and climate change. Continuing previously enacted reform measures, the Budget's direct tax proposals focus on reforms to stimulate growth, simplify the tax structure, lessen the compliance burden, and reduce litigation. Key tax proposals include a reduction in tax rates for lower-income individual taxpayers, abolishment of the dividend distribution tax (DDT), introduction of a safe harbor and Advance Pricing Arrangement (APA) to attribute profits, and a corporate tax litigation amnesty.

Currently, dividends distributed by an Indian domestic company are subject to DDT, payable by the distributing Indian company. Such dividend is exempt from income tax in the hands of the nonresident shareholders. The Budget proposes the taxation of dividends received by shareholders at the applicable rates. Correspondingly, the Indian domestic company would not be required to pay any additional tax on the income distribution. The budget also proposes an interest expense deduction equal to 20% of such dividend income. Companies are required to withhold tax on dividends paid at the following rates:

? to resident shareholders ? 10% ? to non-resident shareholders ? 20%, subject to

tax treaty benefits

The rates exclude applicable surcharge and cess. Please see our PwC Insight for more information.

PwC observation:

The Budget proposal focuses on widening the tax base with increased reforms in all sectors and provides a foundation for the Indian economy to become more resilient and to achieve a high growth rate. Abolishment of DDT may attract equity investment. Other proposals, such as extension of lower withholding tax rate of 5% for interest income, and corporate tax dispute resolution mechanism, also may help India achieve its goals.

Evi Geerts

Belgium T: +32 492 743970 E: e.geerts@

Tamara Geboers

Belgium T: +32 494 475312 E: t.geboers@

Sriram Ramaswamy (Sri)

New York T: +1 646 901 1289 E: ramaswamy.sriram@

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Uruguay

Thematic zone for audio-visual services

The update of the Free Zones Law (December, 2017), introduced the concept of Thematic Zones of Services (TZS). TZS are instruments for the provision of audio-visual, leisure, and entertainment services (except for gambling). They must be located outside the metropolitan area (i.e., 40 km away from Montevideo's downtown). Under these provisions, the Executive Branch authorized the first TZS for the audio-visual industry.

Companies authorized to manage and develop these zones (TZS developers) are also exempt from all national taxes, including those taxes for which a specific legal exemption is required, except for Corporate Income Tax and Social Security Contributions.

PwC observation:

These zones help create high-qualified employment in Uruguay, attract significant investments, and generate added value, incorporating new and developing technologies and innovation.

Since the TZS are free zones, companies operating within them can utilize the broad tax benefits granted by this regime. Generally,, companies are exempt from all national taxes, including those taxes for which a specific legal exemption is required, in connection with the activities performed within the zone (guaranteed by the Uruguayan State).

TZS users may also perform film activities in Uruguayan non-TZS territory, to the extent that the cost of these activities do not exceed 25% of the total annual costs of the user.

Patricia Marques

Uruguay T: +598 291 60 463 E: patricia.marques@

Eliana Sartori

Uruguay T: +598 291 60 463 E: eliana.sartori@

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France

Abrogation of French anti-hybrid provisions results in possible litigation

The former French anti-hybrid provisions prohibited the tax deduction of interest if the related company (whether established in France or not) which loaned the funds was not subject to a tax on the corresponding interest that was at least equal to a quarter of the French CIT.

Prima facie these provisions were applicable to all lenders, established in France or abroad. In practice, French lenders falling within the scope of these provisions were very rare (e.g. innovative companies subject to a preferential tax regime). Therefore, doubts appeared on their conformity with EU law since the Court of Justice of the EU sanctions texts what are a priori of general application, but which de facto discriminate between internal operations and crossborder operations.

as a disproportionate restriction of European freedoms. These concerns were amongst the reasons why the Finance Act for 2020, which implemented the ATAD 2 anti-hybrid provisions, repealed the former French anti-hybrid provisions.

PwC observation:

Companies having been subject to the former French anti-hybrid provisions should assess the opportunity to challenge these provisions and obtain a refund of the corresponding corporate income tax.

These provisions could be considered to introduce an indirect discrimination contrary to the European freedoms, since the minimum tax condition favors in practice the activity of related lenders established in France and encourages borrowers to use their services rather than those of non-resident related lenders. The explanatory statement of the Draft Finance Act for 2020 confirmed this rationale as it stated that these provisions could be regarded

Guilhem Calzas

Paris T: +33 0 1 56 57 15 40 E: guilhem.calzas@avocats.

Farah Slimani

Paris T: +33 0 1 56 57 44 05 E: farah.slimani@avocats.

Renaud Jouffroy

Paris T: +33 0 1 56 57 42 29 E: renaud.jouffroy@avocats.

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