Summary: 1. Japan: Earnings stripping rule • Earnings stripping rule will apply to income year commencing on or after 1 April 2013 • Formula: “Net interest expense” > 50% of “adjusted income” • Excess “net interest expense” is non-deductible in current year, but is carried forward to next year (and the formula repeated in the next year) • Maximum carry forward: 7 years • “Net interest expense” means gross interest expense minus gross interest income − Only counting interest paid to or received from related parties − Treatment of guarantees − Interest subject to full Japanese income tax (and not just withholding tax) is excluded − Interest under repo transactions is excluded • “Adjusted income” = Taxable income + “Net interest expense” ± Other adjustments • Interaction with existing thin cap rule: whichever rule results in the greater amount of non-deductible interest will apply • Speculation: possible limitation on earnings stripping rule from Article 24(4) (non-discrimination) of relevant double tax treaties • For more information: − Jun Takahara (Tokyo): jun.takahara@tohmatsu.co.jp − Linda Ng (New York): ling@deloitte.com 2. China • Guangdong Case − Company A: profitable − Company B: tax losses − No transfer of tax losses or tax consolidation − B transfers business to A, generating capital gain on goodwill (sheltered by tax losses) − A claims deductions for goodwill amortization − Attacked by tax authorities • Shanxi case − French company sells shares in Chinese company to unrelated, non-resident buyer − Consideration is in the form of shares in buyer’s parent company − Tax authorities assert that the assigned price was “too low”, based on benchmarking of similar transactions − Tax authorities therefore deem a higher price, which causes a higher capital gain for French company − For more information: > Vicky Wang (Shanghai): vicwang@deloitte.com.cn 3. Treaties • Indonesia / Belarus treaty signed on 19 March • Singapore / Belarus treaty signed on 21 March • Mongolia / Luxembourg: − Luxembourg government confirms unilateral termination of the treaty by Mongolia 4. Base erosion and profit shifting (BEPS) • OECD is trying to manage expectations in regard to its BEPS action plan (due in June) • Pascal Saint-Amans: − No “concrete guidance” − Merely “valuable sense of direction”
