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Approved Changes (6)

Hong Kong

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Hong Kong Business Registration Fee Waiver to Expire

The Hong Kong Inlands Revenue Department has published a notice that the current waiver of the business/branch registration certificate fee will expire 1 April 2017. The waiver was introduced as part of the 2016-17 Budget.

Either a one-year or three-year registration certificate may be obtained, with the registration fee paid along with the business/branch levy. For a one-year business registration certificate the total fee and levy from 1 April 2017 is HKD 2,250 and the total for a three-year certificate is HKD 5,950. For branch certificates, the costs are significantly lower.

India

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India New Place of Effective Management Rules do Not apply for Companies with Turnover of INR 500 million or less

On 23 February 2017, India's Central Board of Direct Taxes issued Circular No. 08 of 2017, which clarifies the application of the final guidelines for the determination of the place of effective management (POEM) of a company provided by Circular No. 06 of 2017 (previous coverage). Circular No. 08 clarifies that the new provisions regarding POEM, which are effective 1 April 2017, do not apply for companies with turnover or gross receipts of INR 500 million or less in a financial year.

Luxembourg-European Union

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Council Implementing Decision Published Approving Luxembourg Increased VAT Registration Threshold

The Council Implementing Decision to authorize Luxembourg's derogation from Article 287 of the VAT Directive (2006/112/EC) with an increased VAT registration threshold was published in Official Journal of the EU on 24 February. The authorization extends the prior derogating measure from 1 January 2017 and authorizes an increase in the threshold from EUR 25,000 to EUR 30,000. The decision applies until the earliest of 31 December 2019 or the entry into force of a Directive amending the provisions of the VAT Directive on a special scheme for small enterprises.

The measure to increase the VAT registration threshold from EUR 25,000 to EUR 30,000 was included in Law 7050, published 27 December 2016 (previous coverage).

Philippines

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Philippine Court of Appeals Holds Tax Treaty Relief may Not be Denied based on Late Treaty Relief Application

A decision of the Philippine Court of Tax Appeals was published 23 February 2017 concerning whether failure to timely file a Tax Treaty Relief Application (TTRA) is grounds for denying treaty relief.

The case involved Toyota Motor Philippines (Toyota P), which on 1 May 2009 entered into a technical assistance agreement granting license to manufacture certain series of motor vehicles and their spare parts in the Philippines. Under the agreement Toyota P paid a royalty of 6% of the net selling price of the motor vehicles and accessory parts it sells, and 3% of the net selling price of the spare parts of the vehicles sold. Royalty payments were made to both Toyota Motor Corporation and Daihatsu Motor Company in Japan and Toyota Motor Asia Pacific Engineering and Manufacturing Co., Ltd. in Thailand.

On 15 November 2010, Toyota P filed a TTRA requesting confirmation that the royalties it paid are subject to income tax at the rate provided by the respective tax treaties (10% Japan, 25% Thailand). The ruling of the tax authority was provided to Toyota P on 1 August 2012, in which treaty relief was denied for royalties paid prior to 16 November. This decision was based on the provisions of Revenue Memorandum Order (RMO) No. 72-2010 and RMO No. 1-2000, which generally require that a TTRA should be filed before treaty relief for a transaction is applied or within 15 days at the latest. The tax authority took the position that since a TTRA was not filed in 2009, treaty relief is not available in 2009 and that the standard domestic rate (30%) should apply.

A review of the decision was requested with the Secretary of Finance, which upheld the tax authorities ruling in December 2012, and after a series of assessment notices and protests, a final formal assessment notice was issued in January 2014 in the amount of approximately PHP 242.2 million (~USD 4.8 million) for deficient tax liabilities on royalties paid in 2009 plus interest penalty. Toyota P then filed a petition for review before the Court of Tax Appeals.

In its decision, the Court of Tax Appeals found in favor of Toyota P. The Court found that the obligation to comply with a tax treaty must take precedence over the objective of the TTRA requirements and that automatically denying treaty relief based on the requirements would constitute a violation of the duty required by good faith in complying with a tax treaty. Based on this, the Court ordered that the deficiency assessment be canceled.

Note - RMO 27-2016 was issued 23 June 2016 (previous coverage), which replaced RMO 72-2010 setting out new procedures for claiming tax treaty benefits on Philippine source income that generally provides for automatic treaty rates on dividends, interest and royalties. However, RMO 27-2016 was then suspended by Revenue Memorandum Circular (RMC) No. 69-2016, pending a review. To date, the suspension of RMO 27-2016 has not been lifted.

Taiwan

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Taiwan Clarifies Tax Overpaid under Treaty not Deductible

On 25 February 2017, the Taiwan Ministry of Finance published a release advising taxpayers to pay attention to the correct amount of withholding tax rate relief available under tax treaties Taiwan has entered into, since Taiwan will not allow a deduction for overpaid foreign tax. The release references the 1999 tax agreement with Thailand for example, which provides a 5% rate on dividends if holding at least 25% of the paying companies capital; otherwise 10%. In the event a Taiwan taxpayer meets the ownership threshold but 10% is still withheld on dividends paid from Thailand, the extra 5% withheld will not be claimable as a deduction in Taiwan.

United States

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U.S. Supreme Court Upholds (Indirectly) Florida Court Position on Sales Tax on Out-of-State Sales

The U.S. Supreme Court has declined to hear an appeal of a decision by the Florida Supreme Court concerning the levy of Florida sales tax on out-of-state sales. The decision to decline, made 21 February 2017, rejects the appeal filed by a Florida-based flower company on the grounds that Florida's taxation of out-of-state deliveries violates the Constitution’s so called dormant Commerce Clause, which restricts individual state action with regard to interstate commerce. This Clause is not actually in the Constitution, but the restrictions on state action have been inferred by the Supreme Court from the Commerce Clause.

Under Florida state law, transactions involving out-of-state floral deliveries are subject to sales tax. In 2014, American Business USA Corp., which takes online orders for flowers that are then fulfilled and delivered outside Florida, won an appeal with the 4th District Court of Appeal that determined that the taxation of such transactions violated the dormant Commerce Clause. However, this decision was overturned by the Florida Supreme Court, which examined four main conditions. The first was whether American Business had substantial nexus in Florida, which the Court determined it did, given that American Business has a physical presence and is operated in the state. For the other three conditions examined, the Court found that the tax was fairly apportioned, the tax does not discriminate against interstate commerce, and American Business benefits from the services provided by the state paid for by the tax.

Proposed Changes (2)

South Africa

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South Africa Issues Q&A on Proposed Tax on Sugary Beverage

On 27 February 2017, the South African Treasury published a Q&A on the proposed tax on sugary beverages. The proposed tax is included as part of 2017 Budget (previous coverage) and would be levied at a rate of 2.1 cents per gram with a tax-free threshold of 4 grams per 100 milliliters. For example, a one-liter bottle of coke has about 106 grams of sugar, less the 40 gram threshold, would be subject to a tax of 138.6 cents.

Sweden

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Swedish Government Withdraws Proposed Financial Activities Tax

According to recent reports, the Swedish government has announced that it has decided to withdraw its proposed financial activities tax, but that a new proposal will be drafted. The proposed tax, which was strongly opposed by the financial sector, was meant to offset the tax advantage the sector receives from its general exemption from value added tax (VAT) (previous coverage). The government now hopes to draft and implement a new proposal before the September 2018 elections.

Treaty Changes (3)

France-Panama

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France and Panama Agree to Revise Tax Treaty

Panama's Ministry of Foreign Relations has announced that officials from Panama and France met 24 February to discuss revisions to the 2011 income tax treaty between the two counties. The revisions are mainly in relation to the exchange of information and will likely be made through an amending protocol, which would be the first to amend the treaty. The announcement also notes that Panama should be removed from the French blacklist of non-cooperative states or territories in the near future since the conditions for removal have been met (previous coverage).

Netherlands-Uzbekistan

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Update - Protocol to Tax Treaty between Netherlands and Uzbekistan

The protocol to the 2001 income and capital tax treaty between the Netherlands and Uzbekistan was signed on 6 February 2017. The main amendments made by the protocol include:

  • The title and preamble of the treaty are replaced to introduce language developed under BEPS Action 6 that the Contracting States have a common intention to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through evasion or avoidance;
  • Paragraph 3 of Article 2 (Taxes Covered) is updated with respect to the taxes covered for both the Netherlands and Uzbekistan;
  • Article 4 (Resident) is Replaced;
  • Article 24A (Entitlement to Benefits) is added, which provides that a benefit under the treaty will not be granted in respect of an item of income or capital if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty;
  • Article 28 (Exchange of Information) is replaced to bring it in line with the OECD standard for information exchange;
  • Article 29 (Assistance in the Collection of Taxes) is replaced;
  • Article 30 (Limitation of Articles 28 and 29) is deleted;
  • Article 32 (Territorial Extension) is amended to replace references to the Netherlands Antilles or Aruba with references to any part of the Kingdom of the Netherlands;
  • The final protocol to the treaty is amended, including the removal of the limitation on benefits provision with respect to the 0% withholding tax on interest and royalties provided under the protocol (dependent upon Netherlands maintaining 0% rate under its national legislation).

The protocol will enter into force on the last day of the month following the month in which the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

Singapore-Australia-Korea, Rep of-Italy-Canada-Lithuania

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Singapore Agreements for Exchange of Financial Account Information Enter into Force with Australia, Korea, Italy, Canada and Latvia

On 27 February 2017, Singapore's agreements for the automatic exchange of financial account information entered into force with Australia, Korea, Italy, Canada and Latvia. With the entry into force of the agreements, Singapore financial institutions are now required to transmit financial account information with respect of residents from those countries to the Inland Revenue of Singapore for exchange purposes by 31 May 2018.

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