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Global tax accounting services newsletter
Focusing on tax accounting issues affecting businesses today
April-June 2018
Global tax accounting services newsletter
Introduction In this issue Accounting and reporting updates Recent and upcoming major tax law
changes Contacts and primary authors
Introduction
Andrew Wiggins Global and UK Tax Accounting Services Leader +44 (0) 121 232 2065 [email protected]
The Global tax accounting services newsletter is a
quarterly publication from PwC’s Global Tax
Accounting Services (TAS) group. In the
newsletter we highlight issues that may be of
interest to tax executives, finance directors, and
financial controllers.
In this issue, we provide an update on some of the
recent activity by regulatory bodies, including a discussion of the IFRIC’s recent tax related activity.
In addition, we draw your attention to certain
significant tax law and tax rate changes that
occurred around the globe during the quarter
ended June 2018. We continue to see a number of
territories proposing or introducing legislation in
response to the OECD’s BEPS initiative and the
European Union’s Anti-Tax Avoidance Directives.
There are also attempts to address the taxation of
the digital economy, including changes to laws
dealing with intellectual property (IP), and further
updated guidance on some aspects of the 2017 US
tax reform.
This newsletter, tax accounting guides, and other
tax accounting publications are also available
online. You can also register and access
quarterly TAS webcasts for periodic updates on the
latest developments.
If you would like to discuss any of the items in this
newsletter, tax accounting issues affecting
businesses today, or general tax accounting
matters, please contact your local PwC team or the
relevant Tax Accounting Services network member
listed at the end of this document.
You should not rely on the information contained
within this newsletter without seeking professional
advice. For a thorough summary of developments,
please consult with your local PwC team.
Senior tax buyers name PwC as their first choice
provider for tax accounting services globally*
*These results are based on an independent survey of 2,649 primary buyers of tax accounting services globally, conducted by research agency Jigsaw Research (Q1–Q4 2016).
Global tax accounting services newsletter
Introduction In this issue Accounting and reporting updates Recent and upcoming major tax law
changes Contacts and primary authors
In this issue
Accounting and reporting updates
ESMA issues annual enforcement report
The IFRIC considers tax issues
EU adopts DAC 6
Recent and upcoming major tax law changes
Notable tax rate changes and other important tax law changes
Contacts
Global and regional tax accounting leaders
This section focuses on major changes in the tax law that may be of interest to multinational
Primary authors
Global tax accounting services newsletter
Introduction In this issue Accounting and reporting updates Recent and upcoming major tax law
changes Contacts and primary authors
Continued
Accounting and reporting updates
This section offers insight into the most recent developments in accounting standards and financial reporting, along with the tax accounting implications.
ESMA issues annual enforcement report
On 3 April 2018, the European Securities and
Markets Authority (ESMA) issued its annual
report on Enforcement and Regulatory Activities
of Accounting Enforcers in 2017.
ESMA is an independent European Union (EU)
Authority, whose predominant role is to serve as
the EU’s securities market regulator (similar to the
Securities and Exchange Commission (SEC) in the
US). One of ESMA’s areas of responsibility is to
promote the effective and consistent application of
the European Securities and Markets legislation
with respect to financial reporting.
The report notes that national enforcers reviewed
the final statements of around 1,100 issuers and
took enforcement action against 328
(approximately 30%) of those issuers. This
represents an increase from approximately 25% in
the previous year’s report.
Income taxes were not one of the priorities
identified by ESMA this year; however, the report
noted that accounting for the impact of the UK’s
withdrawal from the EU (which is expected to take
place in March 2019) on income taxes was a topic
of significant discussion at the European Enforcers’
Coordination Sessions. ESMA had previously urged
companies affected by this issue to consider
whether disclosures are required about major
sources of risks and uncertainties whose resolution
will depend on the outcome of the Brexit
negotiations.
The report also discloses that income tax related
matters accounted for 5% of enforcement actions
taken in 2017 which is the same percentage
reported in 2016.
In terms of actions for 2018, ESMA notes that
efforts will be focused on the new standards IFRS 9
and IFRS 15. These are likely to have significant tax
accounting implications (see our Q2 2017
publication, here).
The IFRIC considers tax issues
During the second quarter of 2017, the IFRS
Interpretations Committee considered the
following tax-related issues:
The accounting for payments relating to taxes
other than income tax; and
The recognition of deferred tax when a lessee
recognises an asset and liability at the
commencement date of a lease.
Global tax accounting services newsletter
Introduction In this issue Accounting and reporting updates Recent and upcoming major tax law changes
Contacts and primary authors
Continued
Accounting and reporting updates
We outline below the Interpretations Committee’s
conclusions on these issues.
Accounting for payments relating to taxes
other than income tax
This issue arises, for example, where an entity is in
dispute with a tax authority. The entity determines
that it is probable (i.e. more likely than not) that it
does not have an obligation for the disputed
amount, so should not recognise a liability
according to IAS 37 Provisions, Contingent
Liabilities and Contingent Assets. However, in
order to enter into the dispute resolution process,
or to prevent the accrual of penalties and interest,
the entity makes a payment to the tax authority of
the disputed amount. When the dispute is later
resolved, the money is either returned to the entity
or retained by the tax authority, depending on the
outcome.
The Committee previously observed, in its March
2018 meeting, that such a payment would gave rise
to an asset for the company – not a contingent
asset. This conclusion is in line with the position
that many in the profession had historically taken
on similar.
However, in its May 2018 meeting, the Committee
considered whether the new Conceptual
Framework for Financial Reporting (issued by the
IASB in March 2018) would change the observation
made at the earlier meeting. It concluded that it
would not; however, it noted that the matter had
raised questions about the roles of the new
Conceptual Framework. The Committee will
consult with the IASB about the questions raised.
Deferred tax: tax base of assets and
liabilities
The Committee continued to discuss the issue of
how to recognise deferred tax when an asset and
liability are recognised at the commencement date
of a lease. Similar issues arise in circumstances
where an entity recognises a liability and includes
in the cost of an item of property, plant and
equipment the costs of decommissioning that asset
(for example in the oil and gas or mining sectors).
The issue was discussed at the Committee’s March
2018 meeting, and our Q1 2018 newsletter includes
coverage of that discussion. There was further
discussion of the issue in the June 2018 meeting.
The Committee considered a recommendation
from the staff that the deduction connected to a
lease be allocated either to the lease liability or the
lease asset, depending on the way the tax law of the
country dealt with assets and loans. The Committee
rejected this suggestion on the basis that it might
lead to arbitrary decisions as to how to account for
the issue.
Instead, the Committee agreed the better solution
was to narrow the initial recognition exception so
that it would not apply to scenarios in which an
equal and opposite asset and liability were
established in a transaction. The solution will be
formalised by the staff into a proposed amendment
to IAS 12. This will need to go through due process,
which will take some time, but could possibly be
adopted in 2019 with effect from 1 January 2020.
It is unclear at the moment what transition
arrangement will be applied but experience of
recent changes to IFRS standards suggests that
recording the effect of the change through the
opening retained earnings of the year of the
change, without restating comparatives, is likely to
be an option.
Global tax accounting services newsletter
Introduction In this issue Accounting and reporting updates Recent and upcoming major tax law
changes Contacts and primary authors
Continued
Accounting and reporting updates
The takeaway
The proposed amendment to IAS 12 will take some
time to be formally adopted; it may indeed not be
adopted at all. However, entities which have
applied the initial recognition exception in their
accounting for leases and/or decommissioning
assets and liabilities may wish to consider the
implications of the proposals and begin to
contemplate the systems changes that might be
required to implement the potential amendment.
EU adopts DAC 6
On 25 May 2018, the EU adopted a Council
Directive that sets out requirements for reporting
particular cross-border arrangements to tax
authorities. It was published in the Official Journal
of the European Union on 5 June 2018 and entered
into force on 25 June 2018. Member States must
implement DAC6 into their domestic law by
31 December 2019, and the first automatic
exchange of information among Member States will
occur by 31 October 2020.
The ‘Directive on Administration’ (commonly
referred to as ‘DAC6’) is intended to strengthen
transparency and deter aggressive tax planning,
which it aims to achieve through a system of
hallmarks. If such hallmarks are present, the
arrangement could be reportable.
Although the directive is not effective until 1 July
2020 (from which date reporting might be
required), taxpayers and intermediaries need to
monitor their EU cross-border arrangements as of
25 June 2018, as transactions from that date may
need to be reported once the directive becomes
effective.
Global tax accounting services newsletter
Introduction In this issue Accounting and reporting updates Recent and upcoming major tax law
changes Contacts and primary authors
Continued
Recent and upcoming major tax law changes
This section focuses on major changes in the tax law that may be of interest to multinational companies and can be helpful in accounting for income taxes. It is intended to increase readers’ awareness of the main global tax law changes during the quarter, but does not offer a comprehensive list of tax law changes that should be considered for financial statements.
Notable tax rate changes and other important tax law changes
We have commented briefly on some of the tax
accounting implications of the law changes set out
below, particularly where these go beyond the
requirement to adjust the current tax provision
calculation or adjust deferred tax balances for rate
changes. However, companies should not treat the
tax accounting analysis in these summaries as
exhaustive and should consider the implications for
their particular circumstances.
Argentina
The Argentine tax authority on 12 April 2018,
issued General Resolution No. 4227 (the General
Resolution), establishing a mechanism for
nonresidents to pay the capital gains tax on
transfers of Argentine shares and other securities.
The General Resolution, which took effect on 26
April 2018, applies to taxable transactions entered
into after 23 September 2013, the date on which
the capital gains tax was introduced.
Withholding agents and nonresident taxpayers
should consider reviewing transactions going back
to 23 September 2013 to determine whether they
owe tax and therefore need to report and pay it via
the new mechanism.
Australia
On 24 May 2018, legislation was introduced into
the Australian parliament to give effect to the
OECD’s recommended anti-hybrid rules, together
with various other changes, including to thin
capitalization rules. Although the law was originally
expected to be enacted by 30 June 2018 this did
not occur and enactment now appears likely to
come in the second half of 2018.
Austria
On 9 April 2018 The Austrian government
published a draft 2018 tax law. The proposed
measures include a CFC rule which could result in
the inclusion of passive income of non-Austrian
companies controlled by Austrian companies in the
taxable income of those Austrian companies.
Changes to exit tax rules are also proposed.
The rules are expected to be enacted in the next few
months.
Canada
The Canadian government enacted legislation in
June to extend eligibility for the 50% accelerated
depreciation rate for specified clean energy
generation and conservation equipment. The
Worldwide tax summaries
Global tax accounting services newsletter
Introduction In this issue Accounting and reporting updates Recent and upcoming major tax law
changes Contacts and primary authors
Continued
Recent and upcoming major tax law changes
extension is for five years, meaning that it is
available for property acquired before 2025.
China
A number of Circulars have been issued by the
Chinese authorities in recent months to give effect
to measures introduced in a government work
report earlier this year. Changes include:
Increasing the one-off deductible amount
related to research and development ("R&D")
instruments and equipment newly acquired
between 1 January 2018 to 31 December 2020
for Corporate Income Tax ("CIT") purpose
(issued on 7 May 2018);
Starting from 1 January 2018, Removing the
restriction of disallowing super deduction on
enterprises' subcontracted overseas R&D
expenses; (issued on 25 June 2018); and
Starting from 1 January 2018, extending the
loss carry-forward period of high/new
technology enterprises ("HNTEs"), and small
and medium sized technological enterprises
(issued on 11 July 2018).
Hong Kong
On 29 June 2018 the Hong Kong government
enacted a law amending the Inland Revenue
Ordinance to expand the scope of tax deductions
for capital expenditure on the purchase of IP rights
(IPRs) to cover protected layout-design
(topography) rights in respect of integrated
circuits, protected plant variety rights and
performer’s economic rights (the additional IPRs.
The capital expenditure incurred on the purchase
of the additional IPRs can be deducted over five
years on a straight-line basis starting from the year
of purchase.
Luxembourg
On 19 April 2018 the Luxembourg government
enacted a new IP regime, which takes effect
retrospectively from 1 January 2018. The new
regime is based on the modified nexus approach
and allows for an 80% exemption from tax for
eligible income. Tracking the data required for the
modified nexus approach may be complex.
On 19 June 2018, the Luxembourg government
introduced a draft Bill to implement ATAD 1 as
Luxembourg domestic law. The law has not yet
been enacted; this is expected to happen before the
end of the year. The provisions of the law are
expected to come into force as follows:
Interest limitation rules: 1 January 2019;
Controlled foreign company (CFC) rules: 1
January 2019;
Intra-EU anti-hybrid rule: 1 January 2019;
General anti-abuse rule (GAAR) : 1 January
2019; and
Exit tax rules: 1 January 2020.
The bill will have far reaching consequences for
many multinationals with Luxembourg operations
and companies should consider whether disclosure
is required of significant anticipated effects.
Netherlands
The Dutch government has provided more details
on the emergency response measures it is
proposing (which were discussed in more detail in
our last newsletter). The legislation is not yet
enacted but is expected when enacted to have
retroactive effect to 25 October 2017. Companies
should not account for the effect of the law until it
Global tax accounting services newsletter
Introduction In this issue Accounting and reporting updates Recent and upcoming major tax law
changes Contacts and primary authors
Continued
Recent and upcoming major tax law changes
is enacted/substantively enacted but should
consider disclosure of the expected impact if this is
significant.
New Zealand
The Taxation (Neutralising Base Erosion and Profit
Shifting) Act 2018 received Royal Assent on 27
June 2018 and came into force on 1 July 2018. The
law makes a number of changes to the New
Zealand tax system to address recommendations
from the OECD’s BEPS initiative, including to rules
dealing with thin capitalization, permanent
establishments and hybrid instruments and
entities. There is expected to be some uncertainty
over the effect of many of the provisions in the near
term which may give rise to the need to account for
uncertain tax positions for companies that may be
affected.
Pakistan
The Pakistan government enacted Finance Act
2018 in May 2018. One provision of the law affects
the presumptive/final tax regime that is used by
many multinational investors in the country. Under
the new regime, companies will be required to pay
the higher of a minimum tax calculated based on
5% of the value of their imports and an income tax
calculated at 29% on their taxable profits.
This is likely to be treated as a hybrid tax, with the
implication that companies subject to the regime
should account for the levy as a tax other than
income tax (i.e. not within the IAS 12/ASC 740
framework), and any additional amount above the
levy as an income tax. In certain circumstances it
may be acceptable under IAS 12 to bifurcate the
amount payable under the income tax calculation
as an income tax with the additional amount
payable to make up the ‘minimum tax’ as an
operating expense levy. The hybrid tax approach
can lead to complicated deferred tax calculations
requiring scheduling of reversals of temporary
differences and forecasting of the income tax rate
expected to apply in the relevant period.
Other provisions of Finance Act 2018 include a rate
reduction from 30% to 29%, changes to the tax on
undistributed profits, and changes to the capital
gains tax regime to bring offshore transfers of
Pakistan located assets within the charge to
Pakistan tax.
Singapore
On 4 May 2018 Singapore enacted a new IP regime
known as the IP Development Incentive (IDI),
which will incorporate the BEPS-compliant
modified nexus approach. Relevant income will be
removed from the scope of various other incentives
in the future, although grandfathering will apply
until 30 June 2021. The regime will apply a
concessionary rate of tax to relevant income, which
will start at 5% or 10%, subject to negotiation, and
will increase after ten years and thereafter every 5
years by at least 0.5%. This is likely to require
scheduling of the reversal of related deferred tax
assets and liabilities.
Sweden
On 14 June 2018 the Riksdag enacted significant
changes to the country’s tax system, including a
reduction in the corporate income tax rate, from
22% to 21.4% in 2019 and then to 20.6% from
2021.
Interest restriction rules will also change in line
with the requirements of the EU’s Anti-Tax
Avoidance Directives (ATAD) I. New anti-hybrid
provisions will be introduced, as will updates to the
CFC rules.
Global tax accounting services newsletter
Introduction In this issue Accounting and reporting updates Recent and upcoming major tax law
changes Contacts and primary authors
Continued
Recent and upcoming major tax law changes
Changes to the country’s tax allocation reserve
system are also proposed. The tax allocation
reserve allows entities to set aside 25% of their
taxable earnings into a reserve which is not taxed
until the reserve is ended (a period of up to six
years). Interest at a favourable rate is charged on
the income reserved in this way.
The proposed changes will mean that amounts that
are allocated to the tax allocation reserve will
reverse at 103%, 104% or 106% depending on the
timing of the allocation and reversal. Companies
should note this complexity and take care in
calculating the deferred tax associated with these
reserves.
United Kingdom
Prudential decision
On 25 July 2018 the UK Supreme Court dismissed
HMRC’s appeal in the Prudential case. Prudential
is a test claimant in the CFC & Dividend Group
Litigation Order (GLO). The case concerns the
taxation of overseas portfolio dividends (i.e.
dividends on shareholdings of less than 10
percent). With the dismissal of HMRC’s appeal, the
appropriate UK tax treatment of foreign portfolio
dividends for periods prior to the introduction of
the dividend exemption on 1 July 2009 is that they
should be taxed with a credit set by reference to the
foreign nominal rate, not to the actual tax paid.
The legal mechanisms by which any claim can be
made in connection with the decision are complex
and may influence whether the claim is accounted
for under IAS 12 or IAS 37. However, previous
Court rulings have specifically acknowledged that
the recovery is that of tax, so companies may
consider it more appropriate to apply IAS 12 given
the specificity of the ruling. A similar analysis is
likely to apply under US GAAP as to whether ASC
740 applies.
For June period end IFRS reporters, this post
balance sheet event is an adjusting event.
Therefore, preparers should take into account the
ruling in determining the amounts to be recognised
and measured for these claims in their June
quarterly, interim or year-end accounts. US GAAP
reporters should only reflect the decision in the
period containing the date on which it became
effective (i.e. 25 July 2018).
USA
Wayfair decision
On 21 June 2018 the US Supreme Court
overturned its previous decision in Quill and
ruled that a physical presence is not required for
the imposition of sales and use tax.
While the case addresses sales and use taxes that are accounted for under ASC 450 or IAS 37, companies should consider whether there is any impact from the decision on existing state income tax positions. ASC 740 and IAS 12 require tax positions to be reassessed at each balance sheet date to determine whether a benefit should be recognized, and how much, based on any new information. As such, a careful analysis should be performed to ensure that existing tax positions are properly reassessed during the financial statement period that includes the date of the decision. Determination of the impact will vary by state and will be based on a company’s specific facts. S965 guidance
The IRS has issued further guidance to assist
taxpayers with calculating their 2017 ‘toll tax’ due
upon the mandatory deemed repatriation of certain
deferred foreign earnings.
Global tax accounting services newsletter
Introduction In this issue Accounting and reporting updates Recent and upcoming major tax law
changes Contacts and primary authors
Continued
Recent and upcoming major tax law changes
Publication 5292 was published on 6 April 2018 to
provide guidance on the calculation of the toll tax
and on certain administrative matters
Notice 2018-26 was released on 2 April 2018 and
announced future regulations would be issued for
anti-avoidance purposes. It also provided further
guidance on certain aspects of the calculation of the
toll tax.
IR-2018-53 was updated on 13 April 2018,
addressing certain questions and answers relating
to the toll tax. The update specifically addressed
payments of tax in respect of 2017 and how they
will be allocated against the toll tax liability (even if
this is payable in instalments) and will not be able
to be refunded or credited against liabilities of
future periods.
On 1 August 2018 the IRS and Treasury released
proposed regulations under Section 965. The
proposals are not yet final and comments have
been invited. They incorporate the rules described
in prior guidance and set forth additional guidance
on a range of issues relating to the implementation
of Section 965.
S163(j) guidance
On 2 April 2018, Treasury issued Notice 2018-28,
providing initial guidance regarding certain
Section 163(j) issues. The Notice provides that
Treasury intends to issue regulations allowing
interest disallowed under ‘old section 163(j)’ to be
carried forward from a company’s last tax year
beginning before 1 January 2018, to its first tax
year beginning after 31 December 2017.
European Union
On 20 June 2018 the European Commission (EC)
issued a press release concerning its final
decision in the State aid investigation into tax
rulings granted by the Luxembourg tax authorities
to GDF Suez group (now Engie) in relation to the
treatment of certain financing transactions. The EC
considered that Engie received an undue advantage
and requested recovery of up to EUR 120 million of
tax. The decision is expected to be appealed.
The Court of Justice of the European Union (CJEU)
has issued a number of tax related decisions.
On 28 June 2018, the CJEU annulled an EC
decision that a provision of German tax law related
to loss carryforwards amounted to State Aid. The
law was introduced in response to the 2009
financial crisis, which allowed loss carryforwards to
be retained on a change of ownership in certain
circumstances. Affected companies may need to
make claims to recover sums paid or to restore
losses and should not neglect the associated
accounting.
Global tax accounting services newsletter
Introduction In this issue Accounting and reporting updates Recent and upcoming major tax law
changes Contacts and primary authors
Continued
Contacts
For more information on the topics discussed in this newsletter or for other tax accounting questions, contact your local PwC engagement team or your Tax Accounting Services network member listed here.
Global and regional tax accounting leaders
Global and United Kingdom
Andrew Wiggins
Global and UK Tax Accounting Services Leader
+44 (0) 121 232 2065
EMEA
Tjeerd van den Berg
EMEA Tax Accounting
Services Leader
+31 (0)88 792 10 19
Latin America
Mario Alfredo Arteaga
Latin America Tax Accounting
Services Leader
+52 (999) 948 2957
USA
Rick Levin
US Tax Accounting Services Leader
+1 (312) 298 3539
Asia Pacific
Dervis Pajo
Asia Pacific Tax Accounting Services Leader
+86 21 2323 1577
Global tax accounting services newsletter
Introduction In this issue Accounting and reporting updates Recent and upcoming major tax law
changes Contacts and primary authors
Contacts
Tax accounting leaders in major countries
Country Name Telephone Email
Australia Ronen Vexler +61 (2) 8266 0320 [email protected]
Belgium Koen De Grave +32 (3) 259 3184 [email protected]
Brazil Manuel Marinho +55 (11) 3674 3404 [email protected]
Canada Spence McDonnell +1 (416) 869 2328 [email protected]
China Dervis Pajo +86 (21) 2323 1577 [email protected]
Finland Iain McCarthy +358 (0) 20 787 7975 [email protected]
France François Ladousse +33 (1) 56 57 40 09 [email protected]
Germany Heiko Schäfer
Andrea Vitale
+49 (69) 9585 6227
+49 (21) 1981 7215
Hungary David Williams +36 (1) 461 9354 [email protected]
India Pallavi Singhal +91 (80) 4079 6032 [email protected]
Italy Marco Meulepas +39 (02) 9160 5501 [email protected]
Japan Nobuko Yamashita +81 (3) 5251 2340 [email protected]
Mexico Mario Alfredo Arteaga +52 (999) 948 2957 [email protected]
Netherlands Tjeerd van den Berg +31 (0)88 792 10 19 [email protected]
Poland Jan Waclawek +48 (22) 746 4898 [email protected]
Singapore Paul Cornelius +65 6236 3718 [email protected]
Spain Alberto Vila +34 (915) 685 782 [email protected]
Switzerland Reto Inauen
Gil Walser
+41 (58) 792 4216
+41 (58) 792 6781
United Kingdom Andrew Wiggins +44 (0) 121 232 2065 [email protected]
United States Rick Levin +1 (312) 298 3539 [email protected]
Global tax accounting services newsletter
Introduction In this issue Accounting and reporting updates Recent and upcoming major tax law
changes Contacts and primary authors
Primary authors
Andrew Wiggins
Global and UK Tax Accounting
Services Leader
+44 (0) 121 232 2065
Alan Allkins
Global and US Tax Accounting
Services Director
+1 (312) 298 6491
Rick Levin
US Tax Accounting Services Leader
+1 (312) 298 3539
www.pwc.com
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