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Worldwide Tax News

Proposed Changes (2)

Jersey

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Jersey Launches Public Consultation on CbC Reporting

On 22 January 2016, the Jersey government launched a public consultation on the implementation of Country-by-Country (CbC) reporting requirements based on Action 13 of the OECD BEPS Project. The main aspects of the proposed CbC reporting requirements are as follows:

  • The reporting requirement would apply in Jersey for fiscal years starting on or after 1 January 2017;
  • The reporting threshold would be consolidated group revenue of GBP 586 million in the preceding year;
  • Constituent entities in Jersey would be allowed to file the report;
  • The report would be based on the OECD template, including aggregate tax information for each jurisdiction in which the group operates and identification of all constituent entities;
  • The deadline for filing the CbC report would be 12 months following the end of the fiscal year concerned; and
  • Supporting documentation may be required within 14 days to determine the accuracy of the CbC report.

The consultation is based on the draft rules the UK issued in October 2015 (previous coverage), which Jersey plans to closely follow, but may be adjusted based on the outcome of the consultation.

Click the following link for the consultation document. Comments are due by 22 April 2016.

United States

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U.S Congressmen Promises Tax Reform to Support U.S. Businesses following Release of the EU Anti Avoidance Package

Following the release of the European Commission's package of proposed anti avoidance measures based on the outcomes of the OECD BEPS Project (previous coverage), U.S. Congressman Charles W. Boustany, Jr. R-LA issued a release that he will work for international tax reform to support U.S. businesses in a post-BEPS world.

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January 28, 2016

(Lafayette, LA) – Congressman Charles W. Boustany, Jr., MD, (R-Lafayette) released the following statement after the European Commission issued new directives |P related to the Organisation for Economic Cooperation and Development’s (OECD) base erosion and profit shifting (BEPS) project.

As Chairman of the Tax Policy Subcommittee, Boustany convened a hearing on this issue on December 1, 2015, saying: “The OECD’s BEPS project recommendations are deeply troubling on a number of levels, not the least of which is the aggressive attempt to impose substantial tax policy changes on the international community… This is a highly subjective standard set by the OECD that seems to unnecessarily target American companies.”

On December 18, 2015, Boustany co-authored a letter with Tax Policy Subcommittee Ranking Member Richard Neal (D-MA) to David O’Sullivan, the Ambassador of the European Union (EU) to the United States, saying: “We find it deeply problematic, however, that the EU Commission appears to be targeting U.S. firms by ordering its Member States to retroactively tax earnings that, under internationally accepted standards and precedents, no EU Member had a right to tax.”

On December 22, 2015, Congressman Boustany introduced the Bad Exchange Prevention (BEPS) Act delaying country-by-country reporting requirements for U.S. companies and establishing strict protections against abuses by foreign entities.

Boustany said: "Despite significant concerns that have been raised about the fairness of the OECD’s BEPS project for American businesses, the EU is moving forward anyway. We must be doing more to ensure American companies are able to compete in the global marketplace, not slanting the playing field against them. As Chairman of the Tax Policy Subcommittee, I will work with Chairman Brady to pursue international tax reform that makes it easier for American companies to invest, grow, and succeed both at home and abroad."

Treaty Changes (4)

Azerbaijan-Vietnam

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Tax Treaty between Azerbaijan and Vietnam has Entered into Force

According to a recent update from the Vietnamese government, the income tax treaty with Azerbaijan entered into force on 11 November 2014. The treaty, signed 19 May 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Azerbaijan individual income tax, corporate income tax, property tax, and land tax. It covers Vietnamese personal income tax, business income tax, agricultural land-use tax, and non-agricultural land-use tax.

Service PE

The treaty includes provisions that a permanent establishment will be deemed constituted if an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected projects for a period or periods aggregating more than 6 months within any 12-month period.

A permanent establishment will also be deemed constituted when a person conducts activities in a Contracting State (including offshore activities) related to the exploration for and exploitation of natural resources located in that State.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 10%
  • Fees for Technical Services (services of a technical, managerial or consultancy nature) - 10%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State;
  • Gains from the alienation of shares of the capital stock of a company, or of an interest in a partnership, trust or estate, the property of which consist directly or indirectly principally (50%) of immovable property situated in the other Contracting State; and
  • Gains from the alienation of shares, other than those mentioned above, in a company resident in the other State

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Effective Date

The treaty applies from 1 January 2015.

Hong Kong-Poland

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TIEA between Hong Kong and Poland under Negotiation

According to a recent update from the Hong Kong Inland Revenue Department, negotiations are underway for a tax information exchange agreement with Poland. Any resulting agreement will be the first of its kind between the two jurisdictions, and must be finalized, signed and ratified before entering into force.

Israel-Macedonia

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Update - Tax Treaty between Israel and Macedonia

The income tax treaty between Israel and Macedonia was signed 9 December 2015. It is the first of its kind between the two countries.

Taxes Covered

The treaty covers Israeli income tax and company tax (including tax on capital gains), and tax imposed on gains from the alienation of property according to the Real Estate Taxation Law. It covers Macedonian personal income tax and profit tax.

Residence

If a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be entitled any relief or exemption from tax provided by the treaty.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 15%
  • Interest - 10%
  • Royalties - 5%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of shares, or an interest in a partnership, trust or other entity, deriving more than 50% of its value directly or indirectly from immovable property situated in the other Contracting State (at any time during the 12-month period preceding the alienation); and
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State, with the condition that the resident was a beneficial owner of the alienated property for the whole period for which the capital gains are calculated.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Limitation of Benefits

Article 26 (Limitation of Benefits) includes the provision that a resident of a Contracting State will not receive any reduction in or exemption from tax provided for in the treaty if the main purpose or one of the main purposes for the creation or existence of the resident or any person connected to the resident was to obtain the benefits of the treaty that would not otherwise be available.

In addition, a resident of a Contracting State will only be entitled to tax relief from the other State under the treaty if:

  • More than 50% of the beneficial interest or shares in the resident are owned directly or indirectly by one or more individual residents in the first-mentioned Contracting State; and
  • The gross income of such resident is not used in substantial part, directly or indirectly, to meet liabilities of residents of a State other than one of the Contracting States.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged, and will generally apply from 1 January of the year following its entry into force. However, Article 25 (Exchange of Information) will apply from the date of the treaty's entry into force and for any date within three years prior to the date of its entry into force.

New Zealand-Samoa

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Tax Treaty between New Zealand and Samoa has Entered into Force

The income tax treaty between New Zealand and Samoa entered into force on 23 December 2015. The treaty, signed 8 July 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers New Zealand income tax and Samoa income tax.

Residence

If a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement based on its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. If no agreement is reached, the company will not be entitled to claim any relief or exemption from tax provided by the treaty.

Permanent Establishment

A permanent establishment will be deemed constituted if an enterprise for more than 183 days:

  • Carries on activities which consist of, or which are connected with, the exploration for or exploitation of natural resources, including standing timber, situated in a Contracting State; or
  • Operates substantial equipment in a Contracting State.

A permanent establishment will also be deemed constituted when an enterprise performs services within a Contracting State:

  • Through an individual who is present in that other State for a period or periods aggregating more than 183 days within any 12-month period, and the services performed in that other State through that individual are professional services or other activities of an independent nature; or
  • For a period or periods aggregating more than 183 days within any 12-month period, and the services are performed for the same project or for connected projects through one or more individuals who are present and performing such services in that other State.

Connected and identical or substantially similar activities of an associated enterprise are included in determining if the 183-day duration is met.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the voting power of the company paying the dividends; otherwise 15%
  • Interest - 10%
  • Royalties - 10%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State

Entitlement to Benefits

Article 21 (Entitlement to Benefits) includes the provision that a benefit under the treaty will not be granted if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in the benefit.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation. Provisions are also included for a tax sparing credit whereby New Zealand will treat as Samoan tax paid any tax that would have been payable but was reduced or exempted under Samoan law. Such credit will only apply in relation to years of income agreed by the Governments of both Contracting States in letters exchanged for this purpose.

Entry into Force and Effect

The treaty applies in respect of withholding tax in both countries from 1 February 2016. In respect of other taxes, it applies in New Zealand from 1 April 2016 and applies in Samoa from 1 January 2016.

The treaty replaces the 2010 tax information exchange agreement between the two countries.

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