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Worldwide Tax News

Approved Changes (6)

Australia

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Australia Issues Taxation Ruling on Effective Life of Depreciating Assets

On 29 June 2016, the Australian Taxation Office issued Taxation Ruling (TR) 2016/1 on the effective life of depreciating assets. Under Australian depreciation rules, taxpayers may choose to use the Commissioner's determination of the effective life of a depreciating asset as included in tables A and B of TR 2016/1 or choose to make their own estimate. Table A lists the effective life for industry specific assets and Table B lists the effective life for general assets.

For the use of the listed effective lives, if a depreciating asset is first used or installed ready for use within five years of entering into the contract to acquire the asset, beginning construction of the asset, or otherwise acquiring the asset (relevant time), then the effective life is that which was in force at the relevant time. If an asset is not used or installed ready for use within five years, then the effective life is that which was in force at the time of first use or installed ready for use.

Click the following link for TR 2016/1, which applies from 1 July 2016 and replaces TR 2015/2.

Bahrain-Kuwait-Oman-Qatar-Saudi Arabia-Untd A Emirates

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Gulf Cooperation Council Reaches Final Agreement on VAT

On 16 June 2016, the Finance Ministers of the six members of the Gulf Cooperation Council (GCC) reached a final agreement for the introduction of a value added tax regime by January 2018. Of the six members:

  • Qatar confirmed on 18 June that it will implement VAT at the rate of 5% in 2018;
  • Saudi Arabia's cabinet has approved the adoption of a VAT regime in its the National Transformation Program 2020 (previous coverage); and
  • The United Arab Emirates has confirmed it will implement VAT at the rate of 5% from 1 January 2018 (previous coverage).

The other GCC members, Bahrain, Kuwait and Oman, are expected to announce the adoption of VAT in the near future.

India

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India Issues Notification on Exemption from PAN Requirement for Withholding Tax Purposes

On 24 June 2016, the Indian Central Board of Direct Taxes issued Notification No. 53/2016, which includes a new rule (37BC) to no longer require a permanent account number (PAN) for certain payments to non-residents. Under Indian tax law, payments to both resident and non-residents are subject to increased withholding tax if the recipient of the payments does not provide their PAN to the payer. However, amendments made by Finance Act, 2016 relaxed the requirement for non-residents, subject to a new rule being issued.

Under the new rule, non-residents are no longer subject to the PAN requirement in respect of payments in the nature of:

  • Interest;
  • Royalties;
  • Fees for technical services; and
  • Payments on transfer of any capital asset.

However, the non-resident must still provide certain information to the payer responsible for the withholding of tax, including:

  • Name, email, and contact number;
  • Address in the foreign jurisdiction of the non-resident;
  • A certificate of residence issued by the government of the foreign jurisdiction of the non-resident (if available in the jurisdiction); and
  • The non-resident's tax identification number (TIN) or other identification number issued by the government of the foreign jurisdiction.

Click the following link for Notification No. 53/2016. The new rule generally applies from 1 June 2016.

Nigeria

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Nigeria Revokes Reduced Withholding Tax on Construction Activities

The Nigerian Ministry of Finance has approved the revocation of the reduced withholding tax rate of 2.5% on payments for building, construction, and related activities. The rate had been reduced from 5% effective 1 January 2015 for payments to both residents and non-residents. The change back to 5% will apply once the relevant notice is published in the Official Gazette.

Spain

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Google's Spanish Offices Raided as Part of Tax Investigation

On 30 June 2016, Spanish tax authorities raided the offices of Google Spain in Madrid as part of an investigation into Google's tax practices. The investigation reportedly concerns Google's failure to declare all its Spanish activities resulting in both underpaid value added tax and non-resident tax. The raid follows a recent raid of Google's French offices as part of an investigation into whether Google's activities constitute a permanent establishment subject to tax in France for Google Ireland (previous coverage).

Following the raid, a Google spokesperson stated, "We comply with Spanish tax laws just as we do in all countries where we operate. We are co-operating with the authorities in Spain in order to answer all their questions, as always."

United States

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U.S. CbC Regulations Published in Federal Register

The final regulations for U.S. Country-by-Country reporting were published in the Federal Register on 30 June 2016. The regulations as published do not differ from those released on 29 June 2016 (previous coverage), aside from the insertion of the effective date, 30 June 2016.

With the official publication, the rules apply to reporting periods that begin on or after the first day of a taxable year of ultimate parent entities of U.S. MNE groups that begins on or after 30 June 2016. For this purpose, the reporting period is the period of the ultimate parent entity's applicable financial statement prepared for the 12-month period ending with or within the ultimate parent entity's taxable year. Where financial statements are not prepared, the reporting period is the 12-month period ending on the last day of the ultimate parent entity's taxable year.

Click the following link for the final regulations as published in the Federal Register.

Treaty Changes (4)

Argentina-Curacao-Georgia-Korea, Rep of-Uruguay-OECD

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Multilateral Agreement for the Exchange of CbC Reports Signed by Argentina, Curacao, Georgia, South Korea, and Uruguay

On 30 June 2016, officials from Argentina, Curacao, Georgia, South Korea, and Uruguay signed the Multilateral Competent Authority Agreement (MCAA) for the exchange of Country-by-Country (CbC) reports during the first meeting of the inclusive framework for the implementation of BEPS measures held in Kyoto, Japan. The signing brings the total number of signatories to 44.

As part of the conditions for signing the CbC MCAA, signatories must be a party to the OECD Council of Europe Convention on Mutual Administrative Assistance in Tax Matters and have (or commit to introduce) CbC reporting requirements. South Korea has already announced its intention to implement CbC reporting requirements from 1 January 2017, while the other new signatories are expected to announce their CbC reporting plans in the near future.

Click the following link for the list of the CbC MCAA signatories to date.

Japan-Latvia

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Tax Treaty between Japan and Latvia Agreed in Principle

On 29 June 2016, the Japanese Ministry of Finance issued a release announcing that the governments of Japan and Latvia have agreed in principle on a draft income tax treaty. The treaty will be the first of its kind between the two countries, and will be signed after the necessary internal procedures have been completed.

Additional details will be published once available.

Qatar-Spain

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Update - Tax Treaty between Qatar and Spain

The income tax treaty between Qatar and Spain was signed on 10 September 2015. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Qatari taxes on income and Spanish individual income tax, corporation tax, non-resident income tax and local taxes on income.

Service PE

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

Withholding Tax Rates

  • Dividends - 0% if the beneficial owner is a company directly holding at least 10% of the paying company's capital, or the beneficial owner directly holds at least 1% of the paying company's capital and the paying company's shares are substantially and regularly traded on a Stock Exchange of a Contracting State; otherwise 5%
  • Interest - 0%
  • Royalties - 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;
  • Gains from the alienation of shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other State (excludes immovable property used as offices or for the purposes for industrial activities); and
  • Gains from the alienation of shares or other rights that directly or indirectly entitle the owner of such shares or rights to the enjoyment of immovable property situated 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.

Limitation on Benefits

The protocol to the treaty, signed the same date, includes a number of limitation on benefits provisions, including that:

  • The benefits of the treaty will not be granted to a resident of a Contracting State unless it is the beneficial owner of the income derived from the other State;
  • The provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) will not apply if 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; and
  • A resident of a Contracting State will not receive the benefit of any reduction in or exemption from tax provided for in the treaty by the other Contracting State if the main purpose or one of the main purposes of such resident or a person connected with such resident was to obtain the benefits of the treaty.

Entry into Force and Effect

The treaty will enter into force three months after the ratification instruments are exchanged, and will generally apply from the date of its entry into force.

Turkmenistan-United Kingdom

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Update - Tax Treaty between Turkmenistan and the UK

The income and capital tax treaty between Turkmenistan and the UK was signed on 10 June 2016. The treaty is the first of its kind directly between the two countries, and will replace the 1985 tax treaty between the UK and the former Soviet Union. The 1985 treaty is still generally applied by Turkmenistan, but not by the UK.

Taxes Covered

The treaty covers Turkmen profits tax and individual income tax, and covers UK income tax, corporation tax and capital gains 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 to the benefits of the treaty aside from those covered in Articles 21 (Elimination of Double Taxation), 22 (Non-Discrimination) and 23 (Mutual Agreement Procedure).

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly or indirectly holding at least 25% of the paying company's capital; 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 shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other State (exemption for shares substantially and regularly traded on a stock exchange); 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.

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 20 (Other Income) will not apply 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, royalties or other income are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of the Articles.

Double Taxation Relief

Both countries generally apply the credit method for the elimination of double taxation. However, the UK will exempt dividends paid by a Turkmen company to a company resident in the UK if the conditions for an exemption under UK law are met. Exemption may also apply for profits of a permanent establishment in Turkmenistan of a UK company if the conditions for an exemption under UK law are met.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged. It will apply in Turkmenistan from 1 January of the year following its entry into force. It will apply in the UK:

  • In respect of withholding taxes from 1 January of the year following its entry into force;
  • In respect of corporation tax from 1 April next following the date of its entry into force; and
  • In respect of income tax and capital gains tax from 6 April next following the date of its entry into force.

The provisions of Articles 23 (Mutual Agreement Procedure) and 24 (Exchange of Information) will apply from the date of the treaty's entry into force.

The 1985 tax treaty between the UK and the former Soviet Union will cease to have effect in respect of any tax from the date the new treaty is effective.

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