Quarterly tax developments - EY

 
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Quarterly tax developments - EY
In this issue:
                                         Tax developments ........................ 2
                                         Other considerations .................... 6
                                         Things we have our eyes on .......... 9

Quarterly tax
developments
Things to know about this
quarter’s tax developments and related
US GAAP accounting implications
September 2018
Quarterly tax developments - EY
Tax developments
Welcome to our September 2018        Legislation enacted in the third quarter
Quarterly tax developments
                                     Companies are required to account for the effects of changes in tax laws in the period the legislation is
publication.
                                     enacted. These changes are included in a company’s estimate of its annual effective tax rate in the first
Here we describe certain tax         interim period that includes the effective date of the rate change, but not earlier than the period that
developments previously              includes the enactment date. If an interim change is significant, temporary differences may need to be
summarized in Tax Alerts or          estimated as of the enactment date.
other EY publications or
identified by EY tax professionals   Federal, state and territories
or EY foreign member firms.
                                     Alaska — On 13 July 2018, Alaska enacted legislation requiring public utilities to use an equally weighted,
These developments may affect
                                     three-factor formula to apportion income to the state, unless specified otherwise. The change is effective
your tax provision or estimated
                                     1 January 2019. See the State and Local Tax Weekly for 27 July 2018.
annual effective tax rate.
We compile this information          District of Columbia — On 30 July 2018, the District of Columbia enacted emergency legislation allowing
because we recognize that, for       pass-through businesses to claim a 20% deduction for qualified business income. The change applies
many companies, the most             retroactively to tax periods beginning on or after 1 January 2018. Absent congressional action, the
challenging aspect of accounting     legislation will expire on 27 October 2018. See the State and Local Tax Weekly for 17 August 2018.
for income taxes is identifying
changes in tax law and other         New Jersey — On 1 July 2018, New Jersey enacted sweeping changes to its corporation business tax (CBT).
events when they occur so the        Changes include:
accounting can be reflected in
the appropriate period.              •   Mandating combined reporting for US members of a unitary business for tax years beginning on or
However, this publication is not         after 1 January 2019, with the option to elect to include foreign members in the combined group
a comprehensive list of all
changes in tax law and other
                                     •   Imposing a temporary surtax on certain companies’ CBT liability, with a rate of 2.5% for periods
                                         beginning on or after 1 January 2018 through 31 December 2019, and a rate of 1.5% for periods
events that may affect income
tax accounting.                          beginning on or after 1 January 2020 through 31 December 2021

This edition covers certain          •   Overhauling New Jersey’s net operating loss (NOL) carryforward rules so they align with the new,
enacted and effective tax                mandatory combined-reporting requirement (e.g., granting companies a 20-year carryforward for
legislation, as well as regulatory       post-apportioned NOLs incurred during tax years beginning on or after 1 July 2019, and converting
developments, legislative                pre-apportioned NOLs incurred before tax years beginning on or after 1 January 2019, to post-
proposals and other items                apportioned NOL carryforwards)
identified through 26 September
2018, except as noted.               •   Reducing the state’s dividends received deduction to 95% from 100% for 80%-or-more-owned
                                         companies for tax years beginning after 31 December 2016
We list EY publications that you
can access through our Client        •   Requiring companies to use market-based sourcing when apportioning service income to New Jersey,
Portal if you are registered.            beginning 1 January 2019
Anyone interested in registering
should contact Joan Osborne at       •   Adopting the federal business interest expense limitation but applying it on a pro rata basis, effective
joan.osborne@ey.com.                     for tax years beginning after 31 December 2017
See our previous editions for
additional tax developments.
                                     •   Decoupling the CBT from some aspects of the new federal transition tax

                                     •   Allowing companies to deduct either the net increase in deferred tax liabilities or the net decrease in
                                         deferred tax assets that they incurred when New Jersey switched to combined reporting rules

                                     The changes have varying effective dates, and some are retroactive to tax years beginning 1 January 2017.
                                     See Tax Alert 2018-1342, dated 2 July 2018.

2 | Quarterly tax developments September 2018
International
                              Australia — On 24 August 2018, Australia enacted legislation tightening its rules for hybrid mismatch
                              arrangements (i.e., cross-border arrangements that allow an entity to benefit from differences in how
                              two countries treat certain financial instruments and entities) to make it more difficult for foreign investors
                              to use certain entities to circumvent the rules. The changes are generally effective 1 January 2019,
                              though some effective dates vary. See Tax Alert 2018-1645, dated 16 August 2018.

                              Belgium — On 30 July 2018, Belgium enacted legislation modifying how the notional interest deduction
                              is calculated. The legislation also modifies the previously enacted controlled foreign corporation (CFC),
                              interest limitation and hybrid mismatch rules to further align Belgium’s income tax laws with the Anti-Tax
                              Avoidance Directive (ATAD) of the European Union (EU). The changes to the notional interest deduction
                              are effective for financial years beginning on or after 1 January 2018; the other changes are effective for
                              financial years beginning on or after 1 January 2019. See Tax Alert 2018-1707, dated 28 August 2018.

                              Denmark — On 13 September 2018, Denmark enacted legislation eliminating the double taxation of
                              dividends distributed from so-called portfolio share companies to Danish permanent establishments (PEs)
                              by allowing the PEs to credit withholding tax paid on the dividends against their corporate income tax
                              liability. The change is effective retroactively for tax year 2015 and onward.

                              The legislation also extends Denmark’s current tax exemption for interest income and capital gains to
                              controlled loans granted to foreign debtor companies, provided certain conditions are met. The new rule
                              applies from 1 July 2018, but tax authorities are expected to issue guidance that could apply the new
                              rule to prior tax years. See Tax Alert 2018-1754, dated 6 September 2018.

                              Ecuador — On 21 August 2018, Ecuador enacted a temporary corporate income tax exemption for
                              income from new investment in specific industries, provided the investment generates a certain level of
                              employment. The length of the exemption depends on the industry and the location of the investment.
                              Other changes include:

                              •   Broadening the scope of the 28% corporate income tax to apply to companies that have not reported
                                  information about their shareholders, partners, participants, constituents or beneficiaries to the
                                  Government (previously applied only to companies with shareholders or beneficiaries in tax havens or
                                  lower-tax jurisdictions)

                              •   Lowering the corporate income tax rate to 15% from 25% for income reinvested in the Government’s
                                  priority-rated programs and projects and to 17% from 25% for income reinvested in all other programs
                                  and projects

                              •   Exempting certain dividends and profits from withholding income tax

                              •   Exempting certain cross-border payments from the 5% outflow (i.e., withholding) tax

                              The changes are effective upon enactment. See Tax Alert 2018-1723, dated 30 August 2018.

                              Hong Kong — On 13 July 2018, Hong Kong enacted legislation extending the foreign tax credit carryover
                              period to six years from two years. Other changes include:

                              •   Establishing criteria for claiming a foreign tax credit

                              •   Taxing foreign-source income received from a treaty country

                              •   Denying deductions for withholding tax paid on foreign-source income from a treaty country

                              The changes are effective for tax years beginning on or after 1 April 2018. See Tax Alert 2018-1432,
                              dated 17 July 2018.

                              Mauritius — On 9 August 2018, Mauritius enacted legislation aligning its corporate income tax system with
                              the Base Erosion and Profit Shifting (BEPS) project of the Organisation for Economic Co-operation and
                              Development (OECD) . Under the new law, all tax resident companies, including CFCs with a global business
                              license, may exempt 80% of their foreign dividends, foreign interest and PE income from corporate income
                              tax if they meet certain requirements. The exemption also applies to certain leasing and service-related
                              income. Other changes include taxing foreign companies whose principal business and place of effective
                              management is outside Mauritius only on their Mauritian-source income. The changes, among others, are
                              generally effective 1 January 2019. See Tax Alert 2018-1658, dated 20 August 2018.

3 | Quarterly tax developments September 2018
Peru — On 2 August 2018, Peru enacted legislation allowing Peruvian companies to deduct royalties and
                              service payments made to nonresidents in the tax year in which the payment is made, regardless of
                              whether the nonresident recognized the payment in a different tax year. The legislation also allows real
                              estate investment trusts (REITs) and funds investing in real estate (which have the same tax benefits as
                              REITs) to depreciate the real estate transferred to them. The changes are effective 1 January 2019. See
                              Tax Alert 2018-1582, dated 7 August 2018.

                              On 24 August 2018, Peru enacted legislation extending its transfer pricing rules to transactions entered
                              into with residents in “non-cooperating jurisdictions,” as well as transactions with residents whose
                              revenue or income is subject to a “preferential tax regime.” The legislation also amends the definition of
                              tax havens and preferential tax regimes for Peruvian tax purposes. Other changes include amending the
                              transfer pricing rules on the treatment of certain import and export transactions. The changes are
                              effective 1 January 2019. See Tax Alerts 2018-1732, dated 4 September 2018, and 2018-1746,
                              dated 5 September 2018.

                              On 13 September 2018, Peru enacted legislation extending the limit on interest deductibility (3:1 debt/equity
                              ratio) to unrelated parties. Previously, this limitation only applied to interest paid to related parties.
                              Beginning 1 January 2021, however, the thin capitalization rules will limit interest deductibility to 30%
                              of earnings before interest, taxes, depreciation and amortization (EBITDA) of the preceding year.
                              Interest that is not deducted may be carried forward for up to four years, but will always be subject to
                              the EBITDA limitation.

                              Other changes include:

                              •   Identifying the circumstances under which a PE exists in Peru

                              •   Identifying the circumstances under which Peru’s indirect transfer rules apply to a transfer of shares
                                  in a foreign company

                              •   Allowing Peruvian companies receiving dividends or profits from their foreign subsidiaries to deduct
                                  foreign income taxes paid by those subsidiaries, provided certain requirements are met

                              The changes are effective 1 January 2019. See Tax Alert 2018-1831, dated 17 September 2018.

                              Poland — On 4 September 2018, Poland enacted legislation allowing companies to apply for a corporate
                              income exemption on income from certain investments made anywhere in Poland. The exemption is
                              available for 10 to 15 years, depending on the investment location. To qualify, companies must meet
                              certain requirements and apply for the exemption. The change is effective 5 September 2018. See Tax
                              Alert 2018-1817, dated 14 September 2018.

                              Russia — On 3 August 2018, Russia enacted legislation exempting certain domestic transactions from
                              the country’s transfer pricing rules and increasing the transfer pricing control threshold for cross-border
                              transactions. The change is effective for transactions for which income and expenses are recognized on or
                              after 1 January 2019, regardless of when the relevant contract was concluded. See Tax Alert 2018-1627,
                              dated 13 August 2018.

                              Uruguay — On 13 July 2018, Uruguay enacted corporate income tax exemptions for R&D-related income
                              from biotechnology, bioinformatics and software production. The exemptions apply to service-related
                              income in those industries if more than 50% of costs were incurred in Uruguay. The changes are
                              effective 5 August 2018 for income in tax years beginning 1 January 2018. See Tax Alert 2018-1489,
                              dated 25 July 2018.

                              Legislation effective in the third quarter
                              Federal, state and territories
                              Indiana — Effective 1 July 2018, the corporate income tax rate decreases to 5.75% from 6.00% for one
                              year. The change was enacted 25 March 2014. See the State and Local Tax Weekly for 24 March 2014.

                              Louisiana — Effective 1 July 2018, companies may claim 100% of certain corporate income tax exclusions
                              and deductions that were limited to 72% of taxable income under prior law. The change was enacted
                              12 June 2018. See Tax Alert 2018-1361, dated 9 July 2018.

4 | Quarterly tax developments September 2018
International
                              New Zealand — Effective 1 July 2018, new rules apply in New Zealand that are designed to counter base
                              erosion and profit shifting. The changes, which were enacted 27 June 2018, include:

                              •   A new PE anti-avoidance rule

                              •   New hybrid and branch mismatch rules (i.e., rules aimed at cross-border arrangements that benefit
                                  from differences between two countries in the tax treatment of certain transactions and entities)

                              •   Modifications to thin capitalization rules to lower many companies’ debt capacity

                              •   Alignment of transfer pricing rules with the OECD’s Transfer Pricing Guidelines and the addition of
                                  new rules limiting the pricing of certain related-party debt

                              See Tax Alert 2018 -1380, dated 11 July 2018.

                              Tanzania — Effective 1 July 2018, the corporate alternative minimum tax increases to 0.5% from 0.3%
                              while the corporate income tax rate for new investors in the pharmaceutical and leather industries
                              decreases to 20% from 30% for five consecutive years, starting in the year when production begins.
                              Other changes include imposing withholding tax on previously exempt rent and dividend payments from
                              investments in Export Processing Zones and Special Economic Zones. These changes were enacted on
                              30 June 2018. See Tax Alert 2018-1379, dated 11 July 2018.

                              Treaty changes
                              Tax treaties are agreements between countries that typically address withholding tax rates or exemptions
                              on dividends, interest and royalties paid in multiple jurisdictions. Exceptions may apply based on the tax
                              treaty (for instance, reduced rates may apply to certain categories of investors, capital gains from
                              immovable property or property-rich companies may be taxable). All of the following tax treaty changes
                              were effective in the third calendar quarter, except where indicated.

                               Countries involved                        Summary of changes
                               Ethiopia           Poland                 Provides general withholding tax rates of 10% on dividends,
                                                                         interest and royalties; exempts capital gains from tax
                                                                         (effective January 1, 2019 in Poland)
                               United Kingdom Uzbekistan                 Provides general withholding tax rates of 10% on dividends,
                                                                         5% on interest and royalties; exempts capital gains from tax

5 | Quarterly tax developments September 2018
Other considerations
Court decisions, regulations      Federal, state and territories
issued by tax authorities and
                                  Federal — The Government finalized regulations on designating a partnership representative under the
other events may constitute
                                  US Internal Revenue Code (IRC). The regulations also outline the partnership representative’s authority
new information that could
                                  under the new centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015. See
trigger a change in judgment in
recognition, derecognition or     Tax Alert 2018-1606, dated 9 August 2018. For a discussion of related regulations, see the “Things we
measurement of a tax position.    have our eyes on” section of this publication.
These events also may affect
                                  The Tax Court held that an upper-tier CFC with no current or accumulated earnings and profits did not
your current or deferred
                                  have to pay income tax on loan proceeds it received from a lower-tier CFC and subsequently distributed
tax accounting.
                                  to its US shareholders. The Tax Court found that the upstream loan was bona fide debt and that the
                                  US shareholders had sufficient tax basis in the upper-tier CFC to treat the distribution as a nontaxable
                                  return of capital. See Tax Alert 2018-1665, dated 21 August 2018.

                                  The US Court of Appeals for the Eighth Circuit vacated a Tax Court opinion in which the Tax Court
                                  substituted its own transfer pricing analysis for those prepared by the Government and the taxpayer.
                                  Concluding that the Tax Court failed to provide sufficient factual findings to enable the appellate court to
                                  evaluate the transfer pricing determination, the Eighth Circuit remanded the case to the Tax Court for
                                  reconsideration. See Tax Alert 2018-1713, dated 29 August 2018.

                                  State — The following states have released guidance for state corporate income tax purposes on certain
                                  provisions as indicated under the Tax Cuts and Jobs Act (P.L. 115-97 ) (TCJA):

                                  •   Connecticut (global intangible low-taxed income (GILTI))

                                  •   Idaho (repatriated income under the new federal transition tax)

                                  •   Kentucky (GILTI)

                                  •   Massachusetts* (repatriated income under the new federal transition tax)

                                  •   Michigan (repatriated income under the new federal transition tax, GILTI and the base erosion and
                                      anti-abuse tax (BEAT))

                                  •   Minnesota (repatriated income under the new federal transition tax)

                                  •   New York (repatriated income under the new federal transition tax)

                                  •   North Carolina (repatriated income under the new federal transition tax, GILTI and foreign-derived
                                      intangible income (FDII))

                                  •   North Dakota (repatriated income under the new federal transition tax, GILTI, FDII and BEAT)

                                  •   Rhode Island (repatriated income under the new federal transition tax)

                                  •   Utah (repatriated income under the new federal transition tax)

                                  •   Vermont (GILTI)

                                  See the State and Local Tax Weeklies dated 10 August 2018, 17 August 2018, and 24 August 2018.

                                  *
                                      A Tax Alert has not been published on this development.

6 | Quarterly tax developments September 2018
Minnesota — The state Supreme Court held that the Minnesota Revenue Commissioner could determine
                              a multistate bank’s Minnesota net taxable income by applying an alternative apportionment formula
                              that included income from two related non-financial institutions. The Court reasoned that the bank’s
                              apportionment method did not fairly reflect its income from Minnesota sources, while the Commissioner’s
                              apportionment method did. See Tax Alert 2018-1452, dated 19 July 2018.

                              Oregon — The state Supreme Court held that a financing company must include in its Oregon consolidated
                              tax return income derived from Oregon residents by two affiliated, out-of-state banks. The Court reasoned
                              that Oregon law does not require that banks be physically present in Oregon to be subject to the state’s
                              corporate income tax. See the State and Local Tax Weekly for 24 August 2018.

                              Tax amnesties
                              This table shows tax amnesties that were announced or went into effect in the third quarter of 2018.

                               Jurisdiction      Amnesty period              Taxes covered                Reference
                               New Jersey        Lasting up to 90 days and   State taxes, including       Tax Alert 2018-1390,
                                                 ending no later than        corporate income taxes,      dated 12 July 2018
                                                 15 January 2019             previously due from
                                                                             1 February 2009 through
                                                                             1 September 2017
                               Ecuador           21 August 2018–             All taxes, including         Tax Alert 2018-1723,
                                                 20 October 2018             corporate income taxes,      dated 30 August 2018
                                                                             administered by the
                                                                             Ecuadoran Internal
                                                                             Revenue Service and due
                                                                             before 2 April 2018
                               Tanzania          1 July 2018 through         Corporate income taxes,      Tax Alert 2018-1414,
                                                 30 November 2018            among others, owed by        dated 13 July 2018
                                                                             “eligible persons”

                              International
                              Belgium — The Government provided guidance and practical insights on claiming income tax benefits
                              under its intellectual property (IP) regime. See Tax Alert 2018-1702, dated 27 August 2018.

                              Cambodia — In an instruction, the Government required companies to use an arm’s-length interest rate to
                              determine transfer prices on related-party loans. See Tax Alert 2018-1775, dated 10 September 2018.

                              China — In a circular, the Government extended the NOL carryforward period to 10 years from five years
                              for certain technology companies. The change is retroactive to 1 January 2018. See Tax Alert 2018-1519,
                              dated 27 July 2018.

                              Colombia — In an official opinion, the Government interpreted Colombia’s 5% withholding tax on dividends
                              as applying to investors in the foreign capital portfolio regime (i.e., a special tax regime for foreign
                              investors acting through Colombian custodians). See Tax Alert 2018-1822, dated 14 September 2018.

                              Denmark — The EU Court of Justice held that Denmark violated EU law by prohibiting a Danish group of
                              companies from claiming a loss from a Swedish subsidiary’s PE in Denmark, even though the Swedish
                              company could not claim the loss for Swedish income tax purposes. See Tax Alert 2018-1347, dated
                              9 July 2018.

                              European Union — The European Commission announced that Luxembourg did not violate EU state aid
                              rules by exempting from Luxembourg tax profits received by a domestic company from its US branch,
                              even though the profits were not taxed in the US. Luxembourg had argued that the profits were exempt
                              under the terms of the US-Luxembourg income tax treaty. The Commission concluded that Luxembourg
                              did not misapply the treaty’s terms and that differences in US and Luxembourg law explained why the
                              profits were not taxed in either country. See Tax Alert 2018-1883, dated 25 September 2018.

7 | Quarterly tax developments September 2018
Israel — In two circulars, the Government identified the appropriate transfer pricing methods companies
                              should use for transactions related to distribution, marketing and sales (including presales) activities in
                              Israel. Additionally, the Government outlined the appropriate profitability ranges companies should use to
                              set transfer prices for transactions related to low- value-added services, marketing and low-risk distribution
                              activities. See Tax Alert 2018-1803, dated 13 September 2018.

                              In a separate circular, the Government extended eligibility for reduced corporate income tax and withholding
                              tax rates to companies that invest in the development of blockchain technologies and cryptocurrencies
                              in Israel, provided certain requirements are met. See Tax Alert 2018-1818, dated 4 September 2018.

                              Luxembourg — In a circular, the Government stated that Luxembourg considers virtual currencies to be
                              intangible assets for income tax purposes. It also said that companies must pay corporate income tax on
                              income from trading or mining virtual currencies. See Tax Alert 2018-1557, dated 2 August 2018.

                              Nigeria — The Government revised Nigeria’s transfer pricing regulations to align them with the OECD’s
                              Transfer Pricing Guidelines. The regulations are retroactively effective to tax years beginning after
                              12 March 2018. See Tax Alert 2018-1774, dated 10 September 2018.

                              Turkey — In a presidential decision, the Government temporarily increased withholding tax rates on interest
                              paid by banks on foreign exchange-denominated deposit accounts with less than a year’s maturity. The
                              new rates are 20% (up from 18%) and 16% (up from 15%). The Government also temporarily reduced
                              withholding tax rates on interest paid by banks on Turkish lira-denominated deposit accounts. The new
                              rates are 5% (down from 15%), 3% (down from 12%) and 0% (down from 10%). See Tax Alert 2018-1788,
                              dated 11 September 2018.

                              Uruguay — The Government issued regulations that apply Uruguayan income tax to income foreign
                              internet providers earn for providing audiovisual services (e.g., streaming) and “intermediation and
                              mediation” activities in the provision of services (e.g., passenger transport) to Uruguayan customers.
                              See Tax Alert 2018-1819, dated 14 September 2018.

8 | Quarterly tax developments September 2018
Things we have our eyes on
National, state and local       Federal, state and territories
governments continue to seek
                                Technical corrections — US House of Representatives Speaker Paul Ryan said that companies should
to increase their revenues.
                                expect an international tax technical corrections bill related to the TCJA after the 2018 mid-term
Companies should continue to
                                elections. See Tax Alert 2018-1392, dated 12 July 2018.
monitor developments in this
area. Some of these potential
                                TCJA guidance — The Government proposed regulations designed to implement and provide guidance on
tax law changes are
                                various TCJA provisions. The regulations address:
summarized here.
                                •   The one-time transition tax on untaxed foreign earnings of US CFCs, under IRC Section 965

                                •   The additional first-year depreciation deduction under amended IRC Section 168(k)

                                •   The new 20% deduction for pass-through businesses under new IRC Section 199A

                                •   The GILTI regime

                                See Tax Alerts 2018-1571, dated 5 August 2018, 2018-1602, dated 8 August 2018, 2018-1611, dated
                                9 August 2018, 2018-1619, dated 10 August 2018, 2018-1620, dated 10 August 2018, 2018-1634,
                                dated 15 August 2018, 2018-1824, dated 16 September 2018, and 2018-1835, dated 17 September 2018.

                                Partnership audit regime — The Government updated proposed regulations under the centralized
                                partnership audit regime to reflect technical corrections included in Title II of the Consolidated Appropriations
                                Act of 2018 and certain other clarifications. See Tax Alert 2018-1648, dated 16 August 2018.

                                Cost-sharing agreements — The US Court of Appeals for the Ninth Circuit withdrew a 24 July 24 2018
                                opinion holding that the IRS could adjust payments made by a subsidiary to its parent company under a
                                cost-sharing agreement to include stock-based compensation paid by the parent to the parent’s employees.
                                The Court decided to review the opinion following the replacement of a judge who sided with the majority
                                in the 2-1 decision. See Breaking Tax News 2018-9018, dated 7 August 2018, and Tax Alert 2018-1536,
                                dated 31 July 2018.

                                New Jersey — The Government proposed technical corrections and substantive changes to its recent
                                reform of New Jersey’s corporate income tax. Proposed changes include:

                                •   Modifying the NOL and dividend received deduction (DRD) ordering rules to require companies to
                                    apply NOLs to entire net income before applying the DRD

                                •   Expanding the definition of a combined group to include “all business entities” rather than “corporations”

                                •   Requiring US members of a unitary business to include income from certain foreign companies in their
                                    combined return, such as income from related companies that operate in tax havens or pay less than
                                    18.9% on non-treaty income

                                See Tax Alert 2018-1734, dated 4 September 2018.

                                International
                                Australia — The Government proposed tightening Australia’s thin capitalization rules further by:

                                •   Requiring companies to value their assets using the value of the assets and liabilities in their
                                    financial statements

                                •   Applying the less-favorable thin capitalization rules to intercompany transactions between an
                                    Australian company and its foreign subsidiary if the Australian company also has a foreign parent

                                Additionally, the Government released a draft tax determination (TD) that would require companies to value
                                certain debt capital in its entirety, as required under Australian accounting standards. A separate draft TD

9 | Quarterly tax developments September 2018
outlines the Government’s views on the types of costs that would qualify as debt deductions when determining
                               debt capital for thin capitalization calculations. See Tax Alert 2018-1568, dated 3 August 2018.

                               Finally, the Government proposed increasing to 30% from 15% the current withholding tax rate on rental
                               income received by an asset-owning managed investment trust (MIT) from an operating entity when the
                               following conditions exist:

                               •   Both entities are stapled (i.e., the MIT’s unit and the operating entity’s stock must be sold together).

                               •   The operating entity sold the rental property to the MIT.

                               •   The MIT leased the rental property back to the operating entity.

                               The proposal includes certain exceptions for currently stapled companies and specific industries. See Tax
                               Alert 2018-1598, dated 8 August 2018.

                               Belgium * — The Government proposed to move up the effective date of the new interest limitation rule
                               from 2020 to 2019 (i.e., financial years beginning on or after 1 January 2019).

                               Chile — The Government proposed comprehensive tax reform. Proposed income tax changes include:

                               •   Modifying several aspects of income tax calculation rules, including taxable base and shareholder tax credit

                               •   Eliminating the optional tax transparency regime under which certain companies are taxed on annual
                                   corporate profits when they are earned, rather than when they are distributed

                               •   Establishing a temporary depreciation regime (24 months) in which 50% of acquired or built fixed assets
                                   may be depreciated immediately

                               •   Relaxing expense deductibility rules

                               •   Allowing accounts receivable, or a percentage thereof, to be written off after 365 days

                               •   Applying the capital gains tax rules for stock transfers to other asset transfers and modifying the rules
                                   for taxing capital gains on real estate, mining concessions, water rights, bonds and debt instruments

                               •   Broadening the types of taxes to which foreign tax credits could apply and establishing a new method
                                   of calculating foreign tax credits

                               See Tax Alert 2018-1710, dated 28 August 2018.

                               Colombia — The Government proposed reducing the general corporate income tax rate to 30% from 33%
                               and to 10% in some cases (e.g., agricultural income). The Government also proposed exempting income
                               from foreign portfolio investments from corporate income tax. Other proposals include:

                               •   Allowing taxpayers to treat all taxes that they have paid as deductible expenses when determining
                                   taxable income subject to the corporate income tax

                               •   Allowing taxpayers to offset their corporate income tax liability with certain value added taxes and
                                   debit and turnover taxes

                               •   Applying thin capitalization rules only to debt obligations contracted by Colombian taxpayers with
                                   their foreign related parties

                               •   Allowing Colombian taxpayers to carry forward NOLs indefinitely (currently the carryforward is
                                   limited to 12 years)

                               •   Eliminating the 5% tax on dividends remitted abroad while taxing at a 30% rate dividends paid from
                                   profits that are not taxed at the corporate level

                               See Tax Alert 2018-1663, dated 20 August 2018.

                               *
                                   A Tax Alert has not been published on this development.

10 | Quarterly tax developments September 2018
Finland — The Government proposed amending Finland’s CFC rules to align them with the EU ATAD.
                               Proposed changes include:

                               •   Broadening the definition of a CFC, which may subject more foreign-source income to Finnish income tax

                               •   Exempting foreign companies within and outside the European Economic Area from CFC status only if
                                   they meet certain requirements, such as conducting significant economic activity in a specific field in
                                   the jurisdiction in which they are tax resident

                               See Tax Alert 2018-1661, dated 20 August 2018.

                               Germany — The Government proposed taxing capital gains realized by a nonresident shareholder from
                               the disposition of shares in a nonresident company holding German real estate if the shareholder owned
                               1% or more of the company at any time during the five years before the disposition. Other proposals
                               include allowing companies that change ownership following a restructuring to keep their loss attributes
                               (loss carryforwards, current losses and interest carryforwards) if the restructuring aimed to remove
                               financial hardship caused by the loss corporation and meets certain conditions. See Tax Alert 2018-1585,
                               dated 7 August 2018.

                               Gibraltar — The Government proposed allowing companies to transfer tax losses to related companies under
                               a group restructure, provided certain requirements are met. See Tax Alert 2018-1346, dated 9 July 2018.

                               Ireland — The Government published Ireland’s Corporate Tax Roadmap for 2018 in which it announced
                               its timetable for implementing EU ATAD provisions and the 2015 OECD Final Report on BEPS, as well as
                               incorporating recommendations from the 2017 independent review of Ireland’s corporate tax code into
                               Irish tax law. Provisions to be implemented include:

                               •   The EU ATAD interest limitation rules (effective 1 January 2024)

                               •   The EU ATAD CFC rules (effective 1 January 2019)

                               •   The EU ATAD hybrid mismatch rules (effective 1 January 2020)

                               •    The OECD’s Transfer Pricing Guidelines (effective 1 January 2020), along with some of the
                                   independent review’s transfer pricing recommendations

                               •   The EU ATAD interest limitation rules (effective, at the latest, 1 January 2024)

                               See Tax Alerts 2018-1751, dated 6 September 2018, and 2018-1761, dated 6 September 2018.

                               Panama — The Government proposed amending Panama’s multinational headquarters regime (MHQ
                               regime) to align with Action 5 of the OECD’s BEPS project. Proposed amendments include:

                               •   Applying a 5% tax rate to net taxable income that companies with an MHQ license derive from
                                   rendering services

                               •   Applying Panama’s transfer pricing rules to transactions conducted by companies with an MHQ license
                                   and their related parties domiciled in Panama, abroad or under a preferential Panamanian regime

                               •   Applying a 2% tax rate on gains from transactions conducted by companies with an MHQ license and
                                   allowing the 1% tax withheld by the buyer on the total value of the sale to be treated as capital gains
                                   tax paid in advance

                               See Tax Alert 2018-1636, dated 15 August 2018.

                               Separately, the Government proposed modifying Panama’s IP preferential tax regimes to align with the
                               OECD’s BEPS standards. See Tax Alert 2018-1699, dated 27 August 2018.

                               The Government also proposed an income tax exemption for income generated by certain call centers. A
                               5% dividend tax would still apply, as well as a 2% complementary tax on net profits when no dividend
                               distribution is made. Other proposals include applying Panama’s transfer pricing rules to transactions
                               between call centers and related parties domiciled in Panama, abroad or under a Panamanian
                               preferential regime. See Tax Alert 2018-1733, dated 4 September 2018.

11 | Quarterly tax developments September 2018
Poland — The Government proposed restricting eligibility for preferential tax treaty rates and withholding
                                              tax exemptions for dividends, interest income, royalties and payments for certain services. It also
                                              proposed a new IP tax regime in line with the OECD’s BEPS standards that would tax, at a preferential 5%
                                              rate, income from IP that a company creates, develops or improves in Poland. Other proposals include:

                                              •   Exempting income from certain corporate bonds offered to foreign investors from withholding and
                                                  capital gains taxes

                                              •   Introducing new rules on the tax treatment of debt that is converted into equity

                                              •   Allowing companies to deduct virtual interest on certain types of equity

                                              See Tax Alerts 2018-1696, dated 24 August 2018, 2018-1718, dated 29 August 2018, 2018-1728,
                                              dated 4 September 2018, and 2018-1786, dated 11 September 2018.

                                              South Africa — The Government proposed changes that would affect how the anti-avoidance rules for dividend
                                              stripping and the corporate reorganization rules interact. It also proposed, among other things, modifying
                                              the rules for converting debt to equity and reducing the depreciation period for electronic communications
                                              cables. See Tax Alerts 2018-1441, dated 18 July 2018, and 2018-1518, dated 27 July 2018.

                                              South Korea — The Government proposed aligning its foreign investment tax incentive rules with global
                                              standards by eliminating corporate income tax exemptions for certain foreign investment companies.
                                              Other proposals include:

                                              •   Narrowing the definition of a foreign corporation

                                              •   Clarifying the circumstances under which South Korean income tax will apply to an offshore
                                                  investment vehicle’s income

                                              •   Adopting new rules designed to prevent misuse of exceptions to the PE rules

                                              •   Broadening the circumstances under which a foreign company will be deemed to have a PE in South Korea

                                              •   Limiting usage of NOL carryforwards to 60% (rather than 80%) of taxable income for South Korean
                                                  branches of foreign companies

                                              See Tax Alert 2018-1639, dated 15 August 2018.

                                              United Kingdom — The Government proposed the following changes, among others, to further align UK
                                              income tax laws with the EU ATAD:

                                              •   Broadening the definition of a CFC to comply with the ATAD

                                              •   Taxing certain non-trading finance profits

                                              •   Disallowing deductions for payments made by UK companies to foreign disregarded PEs

                                              Other proposals include taxing gains made by nonresidents on UK immovable property and imposing
                                              corporate income tax on income from non-UK resident property. See Tax Alerts 2018-1359, dated 9 July
                                              2018 and 2018-1370, dated 10 July 2018.

                                              Separately, the Government recommended steps for UK businesses to take if the UK and the EU fail to
                                              agree on terms for the UK’s withdrawal from the EU. See Tax Alert 2018-1694, dated 24 August 2018.

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12 | Quarterly tax developments September 2018
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