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International Tax NewsEdition 49March 2017

WelcomeKeeping 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.

Shi‑Chieh ‘Suchi’ LeeGlobal Leader International Tax Services NetworkT: +1 646 471 5315E: suchi.lee@us.pwc.com

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In this issue

Tax Administration and Case LawTax legislation Proposed Tax Legislative Changes Treaties

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Tax LegislationBelgium

Update on list of non-compliant countries - Circular letter published

A circular letter on January 26, 2017, was published with respect to the updated list of non-compliant countries in light of international standards regarding transparency and exchange of information.

Five new jurisdictions - Guatemala, Marshall Islands, (the Federal States of) Micronesia, Panama, and Trinidad & Tobago have been added to the list of non-compliant countries after the Global Forum meeting on November 4, 2016 in Georgia. Hence, the above-mentioned jurisdictions are considered as not (or not sufficiently) compliant to the international standard with regard to the exchange of information. This outcome has direct consequences on the Belgian reporting obligation for payments as included in article 307, §1 of the Belgian Income Tax Code (BITC) from November 4, 2016, which obliges companies that make direct or indirect payments to recipients established in tax havens, to declare payments in their tax return exceeding EUR 100,000 during the taxable period.

Note that the Marshall Islands and Micronesia were already included on the list of zero-tax jurisdictions and low-tax jurisdictions included in article 179 of the Royal Decree implementing the BITC, i.e. jurisdictions with a nominal corporate tax rate below 10% and were already subject to the reporting obligation before.

PwC observation:Companies should assess the impact of the updated list of non-compliant countries on their business activities going forward and need to make sure to be compliant with the Belgian reporting obligation.

Pascal JanssensAntwerpT: +32 3 259 3119E: pascal.janssens@be.pwc.com

Maarten TemmermanAntwerpT: +32 3 259 3021E: maarten.temmerman@be.pwc.com

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Israel

Israeli budget reduces corporate income tax rates, expands corporate tax incentives

The Israeli Parliament on December 22, 2016, approved the Israeli Budgetary Law for 2017 and 2018 (Budget Law), which, among other changes, reduces the regular corporate tax rate under the Israeli Income Tax Ordinance and expands corporate income tax (CIT) incentives for companies with qualifying operations under the Encouragement of Capital Investments Law, 1959 (Encouragement Law).

The Budget Law reduces the regular CIT rate from 25% to 24% in 2017 and 23% in 2018. The Budget Law also introduces two new tax incentive regimes in addition to several changes to the current tax incentive regimes. The following provides an overview of key tax rate changes and the detailed qualifying rules.

Key changes to the existing incentive regimes The purpose of the Encouragement Law is to attract capital to Israel and encourage economic initiatives and investments by foreign and local investors. Industrial companies, including technology, software companies, and research and development (R&D) centres, generally are eligible for tax incentives under the Encouragement Law upon satisfying detailed operating and export conditions.

The tax rates for the two primary regimes, the Preferred Enterprise (PFE) and Special Preferred Enterprise (SPFE) regimes, have been modified as follows:

PFE regimeThe 2016 PFE CIT rate was 9% for operations in ‘development area A’ and 16% for operations outside ‘development area A’. In 2017 and thereafter, the rate for operations in development area A drops from 9% to 7.5%. R&D centres will not be entitled to a reduced CIT rate if the direct or indirect controlling shareholders or the direct or indirect beneficiaries entitled to 25% or more of the income or profits of the R&D centre are Israeli residents. The withholding tax (WHT) rate applicable to dividends from PFE profits continues to be 20%, which may be reduced under certain double tax treaties (DTT).

SPFE regime The SPFE regime is intended for very large companies with material investments in productive assets, R&D, or in providing new employment opportunities. A company must demonstrate that it will greatly contribute to the Israeli economy to qualify for the SPFE regime. To qualify, an Israeli company must meet certain conditions, such as having SPFE annual revenue greater than or equal to 1.5 billion and being part of a group of companies that generates annual revenues greater than or equal to ILS 20 billion in the same industrial sector in which the Israeli company operates. Due to the stringent eligibility requirements, only one multinational enterprise (MNE) operating in Israel has qualified as an SPFE to date. Beginning January 1, 2017, in an effort to increase the number of companies that may be eligible, the annual revenue threshold test for the company has been reduced from ILS 1.5 billion to ILS 1 billion per year, and the annual revenue threshold test for the group of companies has been reduced from ILS 20 billion to ILS 10 billion per year.

Similar to 2016, the SPFE CIT rate will be 5% for operations in development area A and 8% for operations outside of development area A for ten years. After ten years, the PFE tax rates shall apply unless the company has a new investment program that qualifies the company again for SPFE status. The WHT rate applicable to dividends from SPFE profits continues to be 20%, which may be reduced under certain DTT. Starting in 2017, a 5% WHT rate shall apply to dividends paid to a foreign parent company from SPFE profits. This reduced rate is effective until December 31, 2019.

New tax incentive regimes effective January 1, 2017 The expanded Encouragement Law provides for two new tax incentive regimes i.e. the Preferred Technology Enterprise (PTE) regime and the Special Preferred Technology Enterprise (SPTE) regime.

PTE regime To be eligible for the PTE regime, a company must engage in the technology sector and qualify as a PFE. Further, the company must be part of a group of companies with aggregate annual revenues less than ILS 10 billion and meet one of the following two tests:

• the company’s average R&D expenses in the three years prior to the current tax year must be greater than or equal to 7% of its total revenues or exceed ILS 75 million per year, and

• also must satisfy one of the following conditions: • at least 20% of company’s employees are R&D staff or the

company has at least 200 R&D employees• a venture capital fund has invested at least ILS 8 million in

the company• during the three years prior to the current tax year, the

company grew its revenue each year by an average of 25% in relation to the preceding tax year and the revenue was at least ILS 10 million in each year, or

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• during the three years prior to the current tax year, the company increased its number of employees each year by an average of 25% in relation to the preceding tax year and the company had at least 50 employees in each tax year

• the company obtained an approval from the National Authority for Technological Innovation (formerly known as the Office of the Chief Scientist).

Clarifications may be required to interpret the above conditions.

Under the new PTE regime, reduced CIT rates of 7.5% for operations in development area A or 12% for operations outside of development area A shall apply. These CIT rates shall apply only with respect to the portion of intellectual property (IP) developed in Israel, based on forthcoming rules. Companies that sell IP to a related foreign company will qualify for a reduced 12% capital gains tax rate, provided that the company acquired the IP from a foreign company after January 1, 2017, for at least ILS 200 million, subject to the approval of the National Authority for Technological Innovation. A reduced 4% WHT rate may apply to dividends paid to a foreign parent company holding at least 90% of the shares of the distributing company. For other dividend distributions, the WHT rate shall be 20%, which may be reduced under certain DTT.

SPTE regime To be eligible for the SPTE regime, a company must meet the eligibility conditions of a PTE above and be part of a group of companies with aggregate annual revenues of at least ILS 10 billion. Under the new SPTE regime, a reduced CIT rate of 6% shall apply for a period of at least ten years, subject to detailed qualifying rules. The reduced tax rate shall apply only with respect to the portion of IP developed in Israel, under forthcoming rules. Companies that sell IP to a related foreign company will qualify for a reduced 6% capital gains tax rate,

provided that the company developed or acquired the IP from a foreign company after January 1, 2017, subject to the approval of the National Authority for Technological Innovation. The dividend WHT rates are the same as under the PTE regime, discussed above.

PwC observation:The expansion of the tax incentives under the Encouragement Law provides additional attractive opportunities for multinational technology and software companies considering investing in Israel.

Together with the reduction in the regular CIT rate, these tax incentives reflect the Israeli government’s continuing efforts to encourage the growth of technology development and manufacturing activities in Israel.

Tali BrandTel Aviv, IsraelT: +972 3 795 47 59E: Tali.Brand@il.pwc.com

Shlomit DolaHaifa, IsraelT: +972 4 860 50 26E: Shlomit.Dola@il.pwc.com

Avishay BardugoTel Aviv, IsraelT: +972 3 795 48 33E: Avishay.Bardugo@il.pwc.com

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Portugal

2017 State Budget Law

The 2017 State Budget Law was published in the Official Gazette of December 28, 2016. It generally applies beginning on January 1, 2017. PwC Portugal highlights the following amendments to the tax law:

• Use of carryforward tax losses: the first in first out (FIFO) rule was eliminated, thus allowing a better management of carryforward tax losses in view of the different periods established for different tax years.

• Tax benefits to the increase of equity: now applicable to both cash contributions and conversion of shareholders loans into share capital (including at incorporation), while formerly it only applied to cash contributions; the corporation income tax (CIT) deduction to the taxable profit was increased from 5% to 7% of the contributions made and amounting up to EUR 2 million; all entities (formerly only micro, small, and medium sized companies were eligible) and type of shareholders (formerly only individuals) are eligible; and the tax benefit is no longer limited under European Union (EU) State aid rules.

• Reduced CIT rate: a 12.5% CIT rate applies to small and medium sized companies located in inland regions; the reduced rate applies to the first EUR 15,000 of taxable profit.

• Tax regime for investment support: increase from EUR 5 million to EUR 10 million of the eligible investment that allows a CIT deduction of 25% of the taxable profit.

• Additions to the real estate property tax: it applies to corporate entities that are the owners, usufructuaries or have the right of surface of urban property for residential purposes and land for construction located in Portugal; the tax is due at the rate of 0.4% on the sum of the tax registered value of the relevant property (with reference to January 1 each year); the rate is 7.5% in case of entities that are residents in blacklisted jurisdictions; and the tax paid can be deducted against the fraction of CIT corresponding to income generated by the relevant properties (leasing or lodging), in which case the tax is disallowed as a tax deductible expense.

PwC observation:The 2017 State Budget Law followed the previous year’s government resolution of making little amendments to the tax law, in order to increase stability and confidence of the investors in the Portuguese economy, at the same time increasing tax benefits in specific sectors.

Jorge FigueiredoPortugal, LisbonT: +351 213 599 618E: jorge.figueiredo@pt.pwc.com

Catarina NunesPortugal, LisbonT: +351 213 599 621E: catarina.nunes@pt.pwc.com

Portugal

Jersey, Isle of Man, and Uruguay removed from the Portuguese blacklist of tax havens

Effective January 1, 2017, Jersey, the Isle of Man, and Uruguay have been removed from the Portuguese blacklist of tax havens.

Jersey and Uruguay have been considered largely compliant and the Isle of Man has been considered compliant with the Organisation for Economic Co-operation and Development’s (OECD’s) Global Forum on Tax Transparency and Exchange of Information.

PwC observation:Adding to the changes introduced in 2011, this is the result of the increased international cooperation, exchange of information, and ability to regulate and avoid anti avoidance mechanisms. Despite being removed from the Portuguese blacklist, entities resident in the concerned jurisdictions may still fall under Portuguese controlled foreign company (CFC) rules in view of their activity (passive activities), tax status (not subject or subject but exempt) or tax rate (if lower than 60% of the standard Corporation Income Tax rate, i.e. 12.6%).

Jorge FigueiredoPortugal, LisbonT: +351 213 599 618E: jorge.figueiredo@pt.pwc.com

Catarina NunesPortugal, LisbonT: +351 213 599 621E: catarina.nunes@pt.pwc.com

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Spain

R&D tax deduction in the Basque Country (Bizkaia and Gipuzkoa)

For tax periods starting January 1, 2017 (January 1, 2016 in Gipuzkoa), a new tax deduction mechanism has been introduced in the regional Corporate Income Tax (CIT) law of Bizkaia. The new mechanism allows the transfer of the tax credits related to the deduction of Research and Development (R&D) cost from one taxpayer to another, as long as the taxpayers finances these R&D activities.

In many cases, there are entities that do not have sufficient liquid quota in order to benefit from R&D tax deduction. In addition, many of them usually have financial problems in order to finance their R&D projects.

Due to the above, a new mechanism has been established which aims to solve previous problems, allowing the transfer of the tax credit related to the R&D tax deduction from the taxpayer who executes the project to taxpayers who contribute to the referred project and finance the R&D activities.

Deduction Transfer System Taxpayers of CIT or Non-Residents Income Tax (NRIT), who takes part in the financing of R&D projects held by other taxpayers, have the right to enjoy the R&D tax deduction. However, it is completely or partially incompatible with the deductions to which the contributors executing the project would be entitled.

Thus, when taxpayers choose the application of this regime for tax deduction transfers, the taxpayer who executes the project loses has right to deduct the amount in favour of the other taxpayer who participates in the financing. In this regard, the right for the application of the tax deduction is transferred from one taxpayer to another.

Conditions In order to implement this system, it is necessary to subscribe a financial contract which includes the following requirements:

• Identity of the contributors that participate in the project• Project description• Budget • Forms of funding which must be specified by the taxpayer who

does the project, the one who takes part in it and the credits used to support the undertaking.

In relation to the above, the intellectual, industrial, or any other property related to the project would be of the contributor that is executing the project.

Limits and Obligations The deduction attributable to the taxpayer who finances the project has a maximum limit, which is 1.20 times the amount financed. The limit of 1.20 would be applied in a global manner during the project period. If there is an excess, the contributor that makes the project can benefit from it.

Thus, the tax deduction is not lost; it would be applied by the taxpayer who finances the project or by the taxpayer who executes the project, but the limit of what the taxpayer who finances the project can benefit from, is 120% of what it has contributed.

In order to implement this tax deduction, and before signing the financing contract, the taxpayer should obtain a motivated report in relation with the qualification of the project (report issued by the SPRI or BEAZ, public entities). The financing contract should be signed before the project’s starting date; however, Bizkaia allows to formalise it during the first three months of the execution of the project, as long as the entity has asked for the motivated report and as long as it has not ended in the fiscal year which the execution of the project has started.

Due to the facts noted above, the contributor should inform the Tax Administration about the referred report and the financing contract. The referred communication should be done before the ending of the fiscal year when the R&D project starts.

In addition, the taxpayer who finances the project should take into account the referred tax deduction in order to calculate the minimum taxation. Moreover, the tax deduction applicable by the taxpayer who finances the project would be limited, with the rest of tax deductions subject to tax quota limits, to the 45% of the tax quota. Based on this limit, the taxpayer could use the amounts not deducted due to insufficiency of tax quota in the following 15 years.

Jose Elías Tomé GómezMadrid (Spain)T: +34 616 940 254E: jelias.tome@es.pwc.com

PwC observation:This mechanism is of interest for Financial and CIP clients.

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United States

Treasury and the IRS issue final and temporary Section 7874 ownership fraction regulations

On January 13, 2017, Treasury and the Internal Revenue Service (IRS) issued final regulations and temporary regulations under Section 7874, which identify certain stock of an acquiring foreign corporation that is disregarded in calculating the ownership of the foreign corporation for purposes of determining whether it is a surrogate foreign corporation within the meaning of Section 7874. The New Regulations adopt, with few changes, temporary and proposed regulations issued in 2014, as modified by temporary and proposed regulations issued in 2016. The key changes include: (i) exclusion of intercompany obligations from ‘non-qualified property’ that gives rise to disqualified stock, (ii) expansion of the scope of the ‘associated obligations’ rule, and (iii) modification of certain de minimis exceptions.

PwC observation:Since Section 7874 was enacted in 2004, Treasury and the IRS have consistently sought to expand its reach, through regulations as well as several notices, including several rules that have the effect of excluding certain stock of the foreign acquiring corporation from the denominator of the ownership fraction, with the effect of increasing the ownership fraction. While the exceptions and clarifications provided in the New Regulations are helpful, the expansion of an Associated Obligations Rule adds complexity and may make it more difficult for foreign acquirers to avoid inadvertently triggering Section 7874. Furthermore, the 5% de minimis threshold will continue to be difficult to apply in cases involving complex ownership structures.

Carl DubertWashington, D.CT: +1 202 414 1873E: carl.dubert@pwc.com

Marty CollinsWashington, D.C.T: +1 202 414 1571E: marty.collins@pwc.com

Michael A DiFronzoWashington, D.CT: +1 202 312 7613E: michael.a.difronzo@us.pwc.com

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United States

Final PFIC regulations address PFIC ownership and shareholder reporting obligations

On December 27, 2016, Treasury and the Internal Revenue Service (IRS) issued final regulations that provide guidance on determining the ownership of a passive foreign investment company (PFIC) and on certain reporting obligations for PFIC shareholders. The Final Regulations finalise, with certain changes, proposed regulations and withdraw temporary regulations (the 2013 Regulations). The Final Regulations are effective for tax years ending on or after December 31, 2013. The Final Regulations retain the basic approach and structure of the 2013 Regulations, and implement the Section 1298(f) PFIC reporting requirement added in 2010. The Final Regulations also clarify the application of the PFIC ownership and reporting rules in various common scenarios and provide additional helpful exceptions. The Final Regulations define a PFIC ‘shareholder’ for purposes of Sections 1291 and 1298(f) and both direct and indirect PFIC shareholders.

PwC observation:The Final Regulations underscore the importance of a taxpayer properly identifying its PFIC investments (both direct and indirect) and determining whether it is considered a PFIC ‘shareholder.’ A taxpayer’s failure to meet its Section 1298(f) reporting obligations may result also in an extension of the limitation period. The Final Regulations provide helpful exceptions to the definition of ‘shareholder’ and the reporting requirements under Section 1298(f) in many common investment scenarios. However, the ownership and reporting rules are broad, particularly in the case of a chain of PFICs owned by an individual shareholder and in cases in which an investor is the first United States (US) person in the ownership chain, and can create significant compliance costs.

Charles S MarkhamWashington, D.C.T: +1 202 312 7696E: charles.s.markham@pwc.com

David SotosSan Jose, CAT: +1 408 808 2966E: david.sotos@pwc.com

Ethan A AtticksWashington, D.C.T: +1 202 414 4460 E: ethan.a.atticks@pwc.com

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United States

IRS amendments correct Section 385 regulations

On January 24, 2017, Treasury and the Internal Revenue Service (IRS) released correcting amendments to the final and temporary Section 385 regulations published on October 21, 2016. The corrections contain numerous changes to the regulatory text and the preamble, many of which are minor and non-substantive. The amendments do, however, contain a few consequential changes. The corrections are effective January 23, 2017, and applicable October 21, 2016. Notably, this effective date is after the date of the executive order issued on January 20, 2017, which generally prohibits administrative actions from being submitted to the Office of the Federal Register, from being published by the Federal Register, and from being made effective after 12:00pm on January 20 unless reviewed by the Trump administration. Some of the corrections are listed below:

• The carve-out in Treas. Reg. sec. 1.385-2(c)(2)(ii) for interests with respect to which a creditor need not have superior rights has been extended to include certain interests recharacterised under Treas. Reg. sec. 1.385-2 (previously applied only to interests recharacterised under Treas. Reg. sec. 1.385-3).

• The definition of ‘regulated financial group’ under Treas. Reg. sec. 1.385-3(g)(3)(iv)(B)(1) has been expanded to include expanded groups parented by domestic partnerships and disregarded entities.

• The definition of ‘successor’ under Treas. Reg. sec. 1.385-3(g)(24) has been expanded to include a ‘successor seller,’ generally relating to persons acquiring property from a seller covered by the controlled subsidiary acquisition exception in Treas. Reg. sec. 1.385-3(c)(2)(i). The updated preamble includes an explanation of this rule.

• The expiration date of the temporary regulations has been deferred from October 11, 2019, to October 13, 2019.

PwC observation:Many of the changes made in the correcting amendments are minor and non-substantive, but should still be assessed by taxpayers when going through the implications of the Section 385 regulations.

Bernard E. MoensNew York, NYT: +1 202 414 4302E: bernard.moens@us.pwc.com

Chip HarterWashington, D.C.T: +1 202 414 1308E: chip.harter@us.pwc.com

Krishnan ChandrasekharChicago, ILT: +1 312 298 2567E: krishnan.chandrasekhar@us.pwc.com

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Rudolf KRICKLViennaT: +43 1 501 88 3420E: rudolf.krickl@at.pwc.com

Daniela STASTNYViennaT: +43 1 501 88 3430E: daniela.stastny@at.pwc.com

Proposed Tax Legislative ChangesAustria

Positive signal for R&D in Austria: Further increase of the Austrian research premium

As already informed in May 2016, the research premium had been increased from 10% to 12% in the course of the Tax Reform 2015/2016. Now, only one year later, we again have good news in this respect.

According to the recent government programme the Austrian research premium shall be further increased to 14% of the qualified research and development (R&D) related expenses in 2018. This additional tax incentive of the Austrian federal government aims to stimulate the Austrian research activities as well as to safeguard and generate qualified jobs. The proposed increase of the percentage of the research premium up to 14% shall be applicable for the first time for financial years which begin in 2018. We highly welcome this development and are looking forward to more detailed information. The council of ministers will negotiate hereof in April 2017. We will keep you updated regarding more detailed information to the increase of the Austrian research premium.

Please note that the Austrian research premium is in line with the Nexus-Approach of the Organisation for Economic Co-operation and Development (OECD), which requires qualified R&D expenses as a prerequisite for tax incentives related to R&D.

PwC observation:The proposed increase of the percentage of the research premium up to 14% can be seen as a very favourable aspect of the recent government programme. By international comparison, the Austrian research premium is unique. Additionally, the proposed increase will have a strong signal effect in favour of the Austrian business location. As a result, Austria will become even more attractive to international companies for structuring R&D activities. Furthermore, a PwC Study shows that the Austrian research premium clearly supports the protection and the promotion of highly qualified jobs.

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Hong Kong

Bill to introduce the 15% ad valorem stamp duty rate on residential properties

The Stamp Duty (Amendment) Bill 2017 was gazetted on January 27, 2017.

The Bill seeks to introduce a new flat rate of 15% for the ad valorem stamp duty (AVD) chargeable on residential property transactions, in lieu of the existing Scale 1 rates (i.e. the doubled ad valorem stamp duty rates from 1.5% to 8.5%).

The exemptions and exceptions to the payment of AVD at Scale 1 rates currently provided in the Stamp Duty Ordinance will continue to apply, for example, a Hong Kong permanent resident (HKPR) acquiring a residential property on his/her own behalf who does not own any other residential property in Hong Kong at the time of acquisition will continue to be subject to AVD at Scale 2 rates (i.e. 100 United States dollars [USD] to 4.25%). The refund mechanism under the existing regime for HKPR buyer who changes his/her single residential property will also be retained.

The Bill has to be scrutinised and approved by the Legislative Council before being enacted into law.

Fergus WT WongHong KongT: +852 2289 5818E: fergus.wt.wong@hk.pwc.com

PwC observation:The measures in the Bill aim at further managing the demand for residential properties, combatting short-term speculation and thus stabilising the residential property market in Hong Kong. Upon enactment of the Bill, the new flat rate of 15% will apply retrospectively to transactions of Hong Kong residential property executed on or after November 5, 2016, unless specifically exempted or provided otherwise.

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United Kingdom

Interest deductibility & corporate loss reform: remaining draft UK legislation published

As reported previously, draft legislation for inclusion in the UK Finance Bill 2017 was published by Her Majesty Revenue & Customs (HMRC) on December 5, 2016, on the new rules which will limit the tax deductions that groups can claim for UK interest expense and restrict the use of a company’s carried-forward losses, beginning on April 1, 2017.

The remaining aspects of these new rules were issued by HMRC on January 26, 2017 in revised versions of the Finance Bill legislation. The new corporate loss rules now include new clauses dealing with anti-avoidance provisions, consortium loss reliefs, special rules for life insurance and creative industries and a range of consequential changes. The new corporate interest deductibility rules set out the long awaited details of the public benefit exemption, the remainder of the group ratio provisions and special rules for joint ventures and for real estate groups. Comments on the draft legislation are invited until February 23, 2017.

PwC observation:HM Treasury are looking to raise almost GBP 1 billion in additional tax revenues as a result of these new rules, so clearly the expectation is that many companies are likely to be adversely affected. Any company charged with UK corporation tax that either has tax losses or net interest expense of more than GBP 2 million should model and analyse how it will be impacted before the rules come into effect. Some may want to take action to mitigate the impact before the rules come into force, or to access an exemption, and all will need to plan for the new documentation and compliance requirements the new regime introduces.

Andrew BoucherLondon, Embankment PlaceT: +44 20 7 213 1165E: andrew.boucher@pwc.com

Graham T RobinsonLondon, Embankment PlaceT: +44 20 7 804 3266E: graham.x.robinson@pwc.com

Stephen R PageBirmingham, Cornwall CourtT: +44 12 1 265 5658E: stephen.r.page@pwc.com

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IRS announces LB&I ‘campaigns’

The Internal Revenue Service (IRS) on January 31, 2017, announced the initial rollout of the Large Business and International (LB&I) compliance campaigns. These campaigns, which were first referenced in the September 2015 announcement of LB&I’s reorganization, complement LB&I’s efforts in moving toward issue-based examinations. The January 31 announcement listed 13 initial campaigns (within five subject matter Practice Areas), the respective LB&I Practice Area with jurisdiction over each campaign, and a brief description of each campaign’s issue focus and treatment stream. The five subject matter Practice Areas are as follows:

• Pass-through entities • Enterprise activities • Cross-border activities • Withholding and international individual compliance• Treaty and transfer pricing operations.

Tax Administration and Case LawUnited States

PwC observation:LB&I’s compliance campaigns announcement provides high-level descriptions of each campaign and covers a wide spectrum of issues. LB&I’s announcement confirms its intent to continue an open dialogue with the tax community; therefore, we anticipate further communications on either these campaigns or new focus areas.

Kevin M BrownWashington, D.C.T: +1 202 346 5051E: kevin.brown@pwc.com

Ruth PerezWashington, D.C.T: +1 202 326 5181E: ruth.perez@pwc.com

Sergio ArellanoChicago, ILT: +1 312 298 4220E: sergio.e.arellano@pwc.com

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United States

Rev. Proc. 2017-23, Process for filing Form 8975, Country-by-Country Report

Rev. Proc. 2017-23 describes the process for filing Form 8975, Country-by-Country (CbC) Report, and accompanying Schedules A, Tax Jurisdiction and Constituent Entity Information, by ultimate parent entities of US multinational enterprise (MNE) groups for reporting periods beginning on or after January 1, 2016, but before the applicability date of §1.6038-4 (June 30, 2016). Form 8975 requires the ultimate parent entity of a US MNE group to report information, on a CbC basis, related to the group’s income and taxes paid, together with certain indicators of the location of the group’s economic activity. The CbC reporting regulations apply to reporting periods of ultimate parent entities of US MNE groups that begin on or after the first day of the first taxable year of the ultimate parent entity that begins on or after June 30, 2016. Beginning on September 1, 2017, Form 8975 may be filed for an early reporting period with the income tax return or other return as provided in the Instructions to Form 8975 for the taxable year of the ultimate parent entity of the US MNE group with or within which the early reporting period ends.

PwC observation:This revenue procedure applies to reporting periods of ultimate parent entities of US MNE groups beginning on or after January 1, 2016, and before the applicability date of §1.6038-4 (June 30, 2016). Taxpayers should plan ahead and compile the necessary information required for Form 8975.

Sean O'ConnorWashington, D.C.T: +1 202 414 1518E: sean.m.oconnor@us.pwc.com

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Hong Kong-Belarus double tax treaty signed

China and Chile signed a double tax treaty (DTT) together with its protocol on May 25, 2015. In December 2016, Hong Kong signed a double tax treaty (DTT) with Belarus on January 16, 2017, bringing the number of treaties signed by Hong Kong to 36. The Hong Kong-Belarus DTT has not yet entered into force pending completion of the ratification procedures by both sides.

TreatiesHong Kong

PwC observation:Given that Hong Kong does not currently impose any withholding tax (WHT) on dividends and interest paid to non-residents, one of the major benefits under the Hong Kong-Belarus DTT for Belarusian residents is the reduced WHT rate of 3% on royalties derived from Hong Kong for the use of, or the right to use aircraft. On the other hand, the WHT on service fees and certain other income derived by a Hong Kong resident from Belarus will be eliminated as far as the Hong Kong resident does not have a permanent establishment in Belarus, on the assumption that such incomes fall within the scope of Article 7 on Business Profits of the DTT.

Fergus WT WongHong KongT: +852 2289 5818E: fergus.wt.wong@hk.pwc.com

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Portugal

Portugal tax treaties with Belize, Turks and Caicos, Principality of Andorra, and Montenegro

Agreements for the exchange of information (EOI) on tax matters with Belize and Turks and Caicos Islands Following publication in the Official Gazette of February 14, 2017, the agreements for the EOI on tax matters concluded between Portugal and Belize and between Portugal and Turks and Caicos Islands have been approved by the Parliament and ratified by the President. Both Belize and Turks and Caicos Islands are included in the Portuguese blacklist of tax havens and it is not expected that they be removed as a result of the entry into force of the agreements. The commencement of the agreements is pending on the completion of all formalities as required by both States.

Double tax treaty (DTT) with the Principality of Andorra approved and ratified The DTT between Portugal and the Principality of Andorra has been approved by the Parliament and ratified by the President per the publication in the Official Gazette of February 14, 2017. This DTT limits the withholding tax (WHT) to 15% on dividends (5% if the beneficial owner is a company which directly holds at least 10% of the capital of the company paying the dividends for 12 months prior to the date in which entitlement to the dividends was determined), 10% on interest and to 5% on royalty payments. The commencement of this DTT is pending on the completion of all formalities required by both States.

DTT with Montenegro is approvedThe Council of Ministers on December 7, 2016 approved the DTT with Montenegro. This DTT limits the WHT at source to 10% on dividends (5% if the beneficial owner is a company which directly holds at least 5% of the capital of the company paying the dividends), 10% on

interest, and to 5% on royalty payments derived from any copyright of literary, artistic or scientific work or 10% on royalty payments derived from any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial, or scientific experience. The commencement of this DTT is pending on the completion of all formalities required by both states.

Jorge FigueiredoPortugal, LisbonT: +351 213 599 618E: jorge.figueiredo@pt.pwc.com

Catarina NunesPortugal, LisbonT: +351 213 599 621E: catarina.nunes@pt.pwc.com

PwC observation:Part of a strategic action within a wider objective of capitalising the Portuguese enterprises and allowing them to expand their businesses, the approval of these DTT will continue to grow the Portuguese treaty network, further facilitating the investment to and from foreign markets. On the other hand, the conclusion of agreements for the exchange of information on tax matters with blacklisted jurisdiction is part of the continuous effort of the Portuguese Government of fighting tax fraud and evasion as well-being compliant with international measures on matter of anti-money laundry and financing of terrorism.

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