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Approved Changes (6)

Belgium-European Union

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Belgian Parliament Approves Legislation to Transpose EU Directives on CbC Report and Tax Ruling Exchange

On 20 July 2017, the Belgian parliament adopted legislation to transpose into domestic law the amendments made to the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) concerning the exchange of Country-by-Country (CbC) reports (Council Directive (EU) 2016/881) and the exchange of information on cross border tax rulings and advance pricing agreements (APA) (Council Directive (EU) 2015/2376).

With regard to CbC reports, the changes introduced are mainly limited to certain exchange provisions, including that the first reports are to be exchanged within 18 months after the close of the reporting fiscal year and within 15 months for subsequent years. Otherwise, Belgium's CbC reporting requirements are already compliant with the EU Directive.

With regard to tax ruling and APA exchange, a number of amendments are made to facilitate automatic exchange. The exchange generally applies for rulings issued, amended, or renewed on or after 1 January 2017, as well as for past rulings issued, amended, or renewed in 2012 and 2013 if still valid on 1 January 2014, and rulings issued, amended, or renewed in 2014 to 2016 whether still valid or not. For those issued, amended, or renewed on or after 1 January 2017, the first exchange is to take place by 30 September 2017. For information on prior rulings and APAs, exchange is to take place by 31 December 2017.

Brazil

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Brazil Clarifies Taxation of Income and Net Gains from Financial and Capital Markets

Brazil has published Normative Instruction 1720 of 20 July 2017 in the Official Gazette, which clarifies the taxation of income and net gains from financial and capital markets. The Normative Instruction provides that legal persons taxed on the basis of the actual taxable income method can deduct withholding tax in the period of calculation in which the withholding of tax occurs even if part of the income on which tax was levied was computed in previous periods in accordance with the accrual basis.

Italy

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Italy Publishes Lists of Companies Subject to VAT Split-Payment

On 26 July 2017, Italy's Department of  Finance published the definitive lists of companies controlled by central and local public bodies, as well as companies listed on the FTSE MIB index of the Italian Stock Exchange for the purpose of the expanded scope of Italy's value added tax (VAT) split-payment system. The scope was expanded by Law Decree No. 50 of 24 April 2017 (converted into law by Law No. 96 of 21 June 2017 - previous coverage) to include additional categories of Italian public bodies, companies controlled by public bodies, and listed corporations.

Under the split-payment system, supplies of goods and services to specified recipients are subject to VAT at normal rates, but the payment is split, with the taxable amount paid to the supplier and the VAT due paid directly to a blocked VAT bank account of the Treasury. The purpose of the system is to counter VAT fraud.

Click the following link for the definitive lists of companies. For the public bodies for which split-payment applies, a separate list is provided at www.indicepa.gov.it.

Mauritius

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Mauritius Publishes Finance Act 2017 Including Lower Tax Rate for Exporters and New Tax Holidays

On 24 July 2017, Mauritius published the Finance (Miscellaneous Provisions) Act 2017 in the Official Gazette. The Act includes measures announced as part of the 2017-2018 Budget. Some of the key measures include:

  • A reduced income tax rate of 3% for companies engaged in the export of goods (tax credit for investment in new plant and machinery prorated accordingly), with the reduced rate applied on the chargeable income attributable to that export based on the following formula: (A x B) / C, where:
    • A is the gross income derived from the export of goods in that income year;
    • B is the gross income derived from all the activities of the company for that income year; and
    • C is the chargeable income of the company for that income year;
  • Eight-year income tax holidays (exemptions) for:
    • Companies set up on or after 1 July 2017 and involved in innovation-driven activities for intellectual property assets which are developed in Mauritius, with the eight-year exemption period beginning from the income year in which the company started its innovation-driven activities;
    • Income derived from the manufacture of pharmaceutical products, medical devices, and high-tech products by a company incorporated after 8 June 2017, with the eight-year exemption period beginning from the income year in which the company starts its operations; and
    • Income derived from the exploitation and use of deep ocean water for providing air conditioning installations, facilities, and services by a company (no incorporation/operations date specified);
  • The elimination of registration duty and land transfer tax on any transfer of a building or of land for construction of a building that will be used for qualifying high-tech manufacturing activities;
  • Measures to promote R&D expenditure, including:
    • Accelerated depreciation of 50% per annum in respect of capital expenditure on R&D (effective from 1 July 2017);
    • A double deduction effective 1 July 2017 to 30 June 2022 in respect of qualifying expenditure on R&D that is directly related to a company's existing trade or business, is carried out in Mauritius, and for which no annual allowance deduction has been claimed (tax authority may also allow if not directly related to existing trade or business) - Qualifying expenditure includes:
      • Any expenditure relating to research and development;
      • Expenditure incurred on innovation, improvement or development of a process, product or service; and
      • Staff costs, consumable items, computer software directly used in research and development and subcontracted research and development
  • New change of ownership rules for manufacturing companies, which provide that where there is a change in the shareholding of more than 50% in a manufacturing company that has accumulated unrelieved losses, the losses may be carried forward, provided the Minister – (a) certifies that the change in the shareholding is in the public interest; and (b) is satisfied that the conditions relating to safeguarding employment are complied with.
  • Measures related to individual income tax, including:
    • A new negative income tax of up to MUR 1,000 per month for full-time employees earning MUR 9,900 or less per month (effective date to be fixed by proclamation
    • An increase in the individual income tax exemption thresholds to: MUR 300,000 if no dependents; MUR 410,000 if one dependent; MUR 475,000 if two dependents; MUR 520,000 if three dependents; and a new threshold of MUR 550,000 if four or more dependents (different thresholds apply for retired persons); and
    • A new 5% solidarity levy on a resident individual's chargeable income plus dividends in excess of MUR 3.5 million due at the time of filing the tax return. Applies from 1 July 2017 for Mauritius resident individuals only;
  • Tax administration measures, including:
    • The reintroduction of the tax arrears payment scheme for tax outstanding as at 8 June 2017, which includes the waiver of up to 100% of interest and penalties due if the taxpayer makes an application by 31 March 2018 to settle the debt and the full amount is settled by 31 May 2018; and
    • A new requirement for companies to electronically submit an annual statement by 15 August in every year if a dividend exceeding MUR 100,000 was paid to an individual, société or succession in the preceding year, which includes the following information: (a) the name and surname of every shareholder; (b) the NIC number of every shareholder or, in the case of a non-citizen, the identification number issued to him by the immigration officer; and (c) the amount of dividend paid.

Click the following link for the Finance (Miscellaneous Provisions) Act 2017 as published.

Nigeria

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Nigeria Ministry of Finance Confirms Interest Rate for Late Tax Payment in 2017

Nigeria's Federal Ministry of Finance has issued a release confirming a new interest rate spread on unpaid taxes of 5% over the Central Bank of Nigeria’s Minimum Re-Discount Rate (MRR) effective 1 July 2017. During the Central Bank's Monetary Policy Committee meeting held 24 to 25 July 2017, the Committee voted to keep the rate at 14%, resulting in a 19% interest rate on unpaid taxes.

Ukraine

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Ukraine Clarifies Treatment of Gratuitous Transfer as Controlled Transactions

The Ukraine State Fiscal Service (SFS) has recently published an individual consultation on the treatment of gratuitous transfers as controlled transactions for transfer pricing purposes. Although the consultation is only valid for the particular case to which it relates, it does provide the SFS's general position on the matter.

The guidance clarifies that there are two main conditions for a transaction to be considered controlled. The first is that as per Article 39.2.1.1. of the Tax Code, controlled transactions include:

  • Transactions with related non-residents;
  • Transactions involving the sale and/or purchase of goods and/or services through a non-resident commission agent;
  • Transactions with residents of jurisdictions that have been included in the Cabinet of Ministers tax haven list; and
  • Transactions with non-residents that are not subject to tax, including on income from outside the jurisdiction in which they are based, or are not resident for tax purposes in the country in which they are registered.

The second condition is that a transaction affects the taxation of the taxpayer. With respect to the gratuitous transfer of goods, the SFS takes the position that taxation is affected because the value of goods donated is accounted for in accordance with the accounting rules, and accordingly, affects the financial result before taxation, and as a consequence, affects taxation of the taxpayer. Given this position, a transaction involving the gratuitous transfer of goods and meeting one of the four condition listed above is considered controlled for transfer pricing purposes.

Proposed Changes (1)

United States- IMF

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IMF Releases Report on U.S. Economic Developments and Policies Including Tax Reform Recommendations

The International Monetary Fund (IMF) has released a Staff Report prepared following discussions that ended on 16 June 2017 with U.S. officials on economic developments and policies. The report includes policy recommendations in several areas, including fiscal policy, monetary policy, tax reform, infrastructure, trade, and others. With respect to tax reform, the report includes the following:

Business tax. The U.S. corporate income tax could move to a rent tax (either a cash flow tax or an allowance for corporate capital tax) with a somewhat lower marginal rate. This would incentivize business investment and lessen the existing bias toward debt finance. Such a reform could be combined with an elimination of the various corporate tax preferences that currently complicate the system, making the tax code more equitable and efficient. Naturally, such a change would have important domestic effects (on activity and investment) and sizable international spillovers (including effects on both international investment location and changing incentives for profit shifting).

Taxing offshore profits. Transitioning to a territorial system, as has been proposed by the administration, merits consideration but ought to be combined with a minimum tax for profits earned in low tax jurisdictions to limit the scope of profit-shifting. The administration’s proposal to enact a one-time tax on the stock of unrepatriated profits of multinationals deserves support as part of a comprehensive tax reform package. Such profits could be taxed at a rate that is modestly lower than the current corporate tax rate. Providing only moderate tax relief would be efficient (since it is a tax on past profits) particularly given that the existing system of tax deferral has already conveyed significant benefits to those taxpayers that have chosen not to repatriate profits. Such a policy would generate a temporary, front-loaded uplift in fiscal revenues, which can help fund near-term expenditure needs (e.g. infrastructure, paid family leave, healthcare) before the full tax reform is in effect. Payment of the resulting tax liability could be spread over several years to address liquidity concerns of affected corporations.

Individual income tax. Providing tax relief for low- and middle-income groups, as has been proposed by the administration, would help alleviate income polarization and encourage labor force participation. The bulk of itemized deductions can be eliminated alongside an increase in the standard deduction. Any remaining deductions (e.g., for mortgage interest and charitable contributions) should be capped. Consideration could also be given to limiting the tax preference that is given to employer-provided health insurance plans. The authorities should expand eligibility and increase the generosity of the earned income tax credit (EITC) to support lower-income households and incentivize work. To lessen the risk that an expanded EITC leads to a decline in pre-tax wages at the bottom of the income distribution, the EITC expansion ought to be combined with an increase in the federal minimum wage.

Pass-through entities. Any tax rate reductions for pass-throughs need to take revenue implications into account. Setting the effective rate on pass-throughs below the effective rate on distributed corporate profits and/or the top marginal personal income tax rate creates important incentives for some firms to become pass-throughs and for high income employees to become independent contractors in order to lessen their tax burden. Putting in place anti-avoidance provisions could help limit such a recharacterization of income but would add significantly to administration burdens with uncertain implications for revenues

Consumption taxes. To ensure the overall tax reform is revenue-gaining, the U.S. has the scope to rely more on other revenue sources, including a federal level consumption tax, a broad-based carbon tax, and a higher federal gas tax. To give a sense of what is feasible, a broad-based, 5 percent consumption tax would generate around 1½ percent of GDP per year in revenues, a carbon tax of around US$45 per ton of CO2 would generate 0.5 percent of GDP per year, and each 50 cents increase in the gas tax would raise revenues by around 0.3 percent of GDP per year. Such a move from direct to indirect taxes is likely to be positive for long-run growth. If the reductions in personal income tax are designed to be progressive and targeted toward low- and middle-income households, they will also help lessen income polarization.

Click the following link for the full IMF report.

Treaty Changes (3)

Ecuador-Switzerland

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Protocol to Tax Treaty between Ecuador and Switzerland Signed

The Swiss Federal Department of Finance has announced the signing of an amending protocol on 26 July 2017 to the 1994 income and capital tax treaty with Ecuador. The protocol inserts a new Article 25 bis (Exchange of Information), which is in line with the OECD standard for exchange of information upon request. The protocol will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

Qatar-Brunei

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Qatar Ratifies Pending Tax Treaty with Brunei

On 27 July 2017, Qatar's Emir Sheikh Tamim bin Hamad Al Thani approved for ratification the pending income tax treaty with Brunei. The treaty, signed 17 January 2012, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Brunei income tax imposed under the Income Tax Act and petroleum profits tax imposed under the Income Tax (Petroleum) Act, and covers Qatari income tax.

Service PE

The treaty includes the provision 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 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • 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; 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.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation. The treaty also provides for a tax sparing credit for tax that is exempted or reduced in accordance with the laws and regulations of a Contracting State.

Entry into Force and Effect

The treaty will enter into force 30 days after the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

Samoa-South Africa

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TIEA between Samoa and South Africa has Entered into Force

According to a 31 July 2017 update from the South African Revenue Service, the tax information exchange agreement with Samoa entered into force on 28 May 2017. The agreement, signed 26 July 2012, is the first of its kind between the two countries. It applies for criminal tax matters on the date of its entry into force and for other tax matters in respect of taxable periods beginning on or after that date or, where there is no taxable period, all charges to tax arising on or after that date.

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