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Approved Changes (4)

China

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China Issues Reporting Rules for Cost Sharing Agreements

On 16 June 2015, China's State Administration of Taxation issued Announcement No. 45 (2015), which contains new reporting rules for cost sharing agreements (CSA). Under the new rules, Chinese enterprises that have entered into a CSA with a related party must submit a copy of the CSA to the competent tax authority with 30 days of signing of the agreement and include in the related-party transaction form with the annual tax return. However, a review of the CSA by the tax authorities is no longer required.

If there is a mismatch between the shared costs and the actual benefits, the tax authorities will require a compensation adjustment to be paid by the enterprise, and if not paid, the authorities will begin the special tax audit and adjustment process.

The new rules apply from 16 July 2015.

Ecuador

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Ecuador Sets Transfer Pricing Reporting Requirement Thresholds

The Ecuador tax administration has issued a resolution setting the related party transaction value thresholds for transfer pricing documentation reporting. The thresholds are as follows:

  • If the total amount of domestic and cross border related party transactions exceeds USD 3 million in a tax year, the taxpayer must file a transfer pricing informative return (annex) detailing the transactions, including the methods applied for analyzing each; and
  • If the total amount of domestic and cross border related party transactions exceeds USD 15 million, the taxpayer must file, in addition to the annex, a full transfer pricing report substantiating the analysis made for all transactions reported in the annex

The resolution entered into force on 30 May 2015, and taxpayers must comply with the filing requirements by September 2015 in regard to the 2014 tax year.

Lebanon

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Lebanon Issues Implementing Rules for Industrial Exports Incentive

On 4 June 2015, the Lebanon Minister of Finance issued decision No. 519/1 (2015), which provides implementing rules for the 50% tax exemption on profits from exported industrial products introduced in 2014.

The decision clarifies that the exemption only applies for industrial products where the final (or entire) substantial manufacturing or conversion process takes place in Lebanon. In addition, exporters must provide origin certificates as proof. Other exports not qualifying for the 50% tax exemption include imported industrial products repackaged for export, exports of services, and exports of extracted hydrocarbon resources and natural resources.

The decision applies from the date of issue.

United Kingdom

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UK Issues Guidance on Stamp Tax and the Prohibition of Cancellation Schemes of Arrangement for Takeovers

On 24 June 2015, the United Kingdom HMRC published Stamp Duty and Stamp Duty Reserve Tax: transfer schemes of arrangement, which provides guidance following the introduction of Companies Act 2006 (Amendment of Part 17) Regulations 2015.

Under the regulations, a company takeover may no longer be effected through a cancelation scheme of arrangement, which involves the cancelation of a company's share capital and the issuance of new shares to different owners. Under such a scheme, the arrangement would be exempt from stamp tax due to EU Capital Duties Directive (2008/7/EC), which prohibits the taxation of newly issued shares. Instead, companies effecting a takeover or merger must now use a transfer scheme of arrangement or a contractual offer, on which stamp tax on shares is payable (0.5%).

The Regulations were introduced 4 March 2015, and apply for schemes of arrangement for company takeovers from that date.

Proposed Changes (1)

Romania

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Romanian Chamber of Deputies Approves Draft Tax Reform for 2016

On 25 June 2015, the Romanian Chamber of Deputies (lower house) approved draft revisions to the Tax Code and Fiscal Procedures Code to be included in 2016 Budget legislation. The approved revisions generally follows measures introduce by the government in February 2015 with some changes, including:

  • The standard value added tax (VAT) rate is reduced from 24% to 19% instead of 20%; and
  • The withholding tax on dividends is reduced to 5% instead of 0%.

The above measures are to apply from 1 January 2016 and are part of Romania's Plan for Fiscal Relaxation 2016-2020, which also includes a reduction in social security contributions in 2017 and a reduction in the corporate tax rate in 2019. Click the following link for previous coverage of the plan.

Treaty Changes (4)

Canada-New Zealand

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New Tax Treaty between Canada and New Zealand has Entered into Force

On 26 June 2015, a new income tax treaty between Canada and New Zealand entered into force. The treaty, signed 3 May 2012, replaces the 1980 income tax treaty between the two countries, which is currently in force. A 2014 protocol to the treaty amending Article 17 (Pensions) entered into force the same date.

Taxes Covered

The treaty covers Canadian taxes imposed by the Government of Canada under the Income Tax Act, and New Zealand 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 the authorities cannot reach mutual agreement, the company will not be entitled to claim any relief or exemption from tax provided by the treaty.

Permanent Establishment

The treaty includes the provision that a permanent establishment (PE) will 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 exceeding in the aggregate 183 days in any 12-month period, and more than 50% of the gross revenues attributable to active business activities of the enterprise during this period or periods are derived from the services performed in that other State through that individual; or
  • For a period or periods exceeding in the aggregate 183 days in any 12‑month period, and these 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.

A PE will also be deemed constituted if an enterprise:

  • 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.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the voting power in the company paying the dividends; otherwise 15%
  • Interest - 10%
  • Royalties -
    • 5% for copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical or other artistic work (excluding royalties in respect of motion picture films and royalties in respect of works on film, videotape or other means of reproduction for use in connection with television broadcasting);
    • 5% for royalties for the use of, or the right to use, computer software or any patent or for information concerning industrial, commercial or scientific experience (but not including any such royalty provided in connection with a rental or franchise agreement);
    • Otherwise 10%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) will not be available if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest or royalties are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

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 or an interest in a partnership, trust or other entity deriving more than 50% of their value from immovable property situated in the other State

Double Taxation Relief

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

Effective Date

The treaty applies in Canada from 1 August 2015 for withholding tax, and from 1 January 2016 for other taxes. It applies in New Zealand from 1 August 2015 for withholding tax and from 1 April 2016 for other taxes.

The 1980 tax treaty will cease to have effect on the dates the new treaty applies, and will terminate on the last such date.

Croatia-Kazakhstan-Libya-Saudi Arabia

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Croatia Negotiating Tax Treaties with Kazakhstan, Libya and Saudi Arabia

Croatia has reportedly begun negotiations for tax treaties with Kazakhstan, Libya and Saudi Arabia. Any resulting treaties will be the first of their kind between Croatia and the respective countries, and must be finalized, signed and ratified before entering into force.

India-Thailand

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Tax Treaty between India and Thailand Signed

On 29 June 2015, officials from India and Thailand signed an income tax treaty. The treaty will enter into force after the ratification instruments are exchanged, and once in force an effective will replace the 1985 income tax treaty between the two countries, which is currently in force.

Additional details will be published once available.

Switzerland-Iceland

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Switzerland Approves Tax Treaty with Iceland

On 19 June 2015, the Swiss parliament announced that it has approved for ratification the pending income and capital tax treaty with Iceland. Once in force and effective, the treaty will replace the 1988 tax treaty between the two countries, which is currently in force.

Taxes Covered

The treaty covers the Icelandic income taxes to the state and to the municipalities, and Swiss federal, cantonal and communal taxes on income and capital.

Withholding Tax Rates

  • Dividends - 0% if the beneficial owner is a company directly holding at least 10% of the paying company's capital for at least 1 year prior to the payment, or is a pension fund; otherwise 15%
  • Interest - 0%
  • Royalties - 5% for the use of or the right to use any patent, trademark, design or model, plan, secret formula or process, otherwise 0%

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 directly or indirectly deriving more than 50% of their value from immovable property situated in the other State; although an exemption is provided if:
    • The shares are quoted on a recognized stock exchange; or
    • The company carries on its business in the property

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

Double Taxation Relief

Iceland generally applies the credit method for the elimination of double taxation, but if income is only taxable in Switzerland, Iceland will apply the exemption method.  Switzerland generally applies the exemption method, but in the case of income covered by Articles 10 (Dividends) and 12 (Royalties) Switzerland may apply the credit method, a lump sum reduction, or a partial exemption.

Limitation on Benefits

A protocol to the treaty includes a limitation on benefits provision whereby the benefits of the treaty provided by Articles 10 (Dividends), 11 (Interest), 12 (Royalties), and 21 (Other Income) will not apply for income paid under a transaction or derived by an entity if the main purpose of the transaction or establishment of the entity was to obtain the benefits of the treaty.

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.

Once in force, the new treaty will replace the 1988 income and capital tax treaty between the two countries, which currently applies. The 1988 treaty will continue to apply for tax years and periods that have ended before the new treaty applies.

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