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Worldwide Tax News

Approved Changes (2)

European Union

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European Commission Publishes Report: Tax Reforms in EU Member States 2015

On 28 September 2015 the European Commission published a report: Tax Reforms in EU Member States 2015 - Tax policy challenges for economic growth and fiscal sustainability. The report covers a number of areas concerning the tax systems of EU Member States, including:

  • Recent reforms of tax systems in the EU, including main trends, labor taxation and fighting tax fraud, tax evasion and tax avoidance;
  • Challenges related to fiscal sustainability and the tax burden on labor;
  • Challenges related to broadening tax bases and other design issues, including VAT issues, property and housing taxation, financial sector taxation and R&D incentives;
  • Tax governance and redistribution, including improving tax governance and tax compliance, and wealth and inheritance tax issues; and
  • An overview of potential tax policy changes.

Click the following link for the full report.

India

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India Extends MAT Exemption to All Foreign Companies Meeting Certain Conditions

On 25 September 2015, the Indian Ministry of Finance announced that the Indian Income Tax Act would be amended so all foreign companies would be exempt from Minimum Alternate Tax (MAT) subject to certain conditions. The change follows a recent announcement that India would not retroactively levy MAT on foreign institutional and portfolio investors (previous coverage).

The conditions for MAT exemption for all foreign companies include:

  • The foreign company is resident in a jurisdiction with which India has entered into a tax treaty, and the company does not have a place of business/permanent establishment in India; or
  • The foreign company is resident in a jurisdiction with which India has not entered into a tax treaty, and the company is not required to register under Section 592 of the Companies Act 1956 or Section 380 of the Companies Act 2013.

The change will be made effective from 1 April 2001.

Click the following link for the Ministry of Finance announcement.

Treaty Changes (5)

Australia-Netherlands

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New MoU on Automatic Exchange of Information Signed between Australia and the Netherlands

The Dutch government has recently announced the signing of new memorandum of understanding (MoU) for the automatic exchange of tax information under the Australia-Netherlands tax treaty. The MoU was signed by the Netherlands on 20 August 2015, and by Australia on 29 August 2015 and entered into force on that date. The new MoU sets out the categories of information that may be automatically exchanged, and replaces the MoU signed in 2002.

Canada-Spain

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Protocol to the Tax Treaty between Canada and Spain to Enter into Force

On 29 September 2015, the Canadian Department of Finance announced that the protocol to the 1976 income and capital tax treaty with Spain will enter into force on 12 December 2015. The protocol, signed 18 November 2014, is the first to amend the treaty. Key changes are summarized as follows.

Dividends

  • A reduced withholding tax rate of 5% on dividends is added if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise a 15% rate applies (same as current rate);
  • A maximum rate of 5% is added for the taxation of repatriated profits attributed to a permanent establishment; and
  • An exemption from withholding tax is added if the beneficial owner is a qualifying pension or retirement plan owning 5% or less of the capital or voting stock of the paying company, and the paying company's shares are traded on an approved stock exchange.

Interest

  • The maximum withholding tax rate on interest is reduced from 15% to 10%; and
  • An exemption from withholding tax is added where interest arising in a Contracting State is paid to a beneficial owner resident in the other State as long as the beneficial owner is dealing at arm's length with the payer, although the exemption does not apply if the interest is paid or payable on an obligation that is:
    • Contingent or dependent on the use of or production from property;
    • Computed by reference to revenue, profit, cash flow, commodity price or any other similar criterion; or
    • Computed by reference to dividends paid or payable to shareholders of any class of shares of the capital stock of a company.

Mutual Agreement Procedure

Article 25 (Mutual Agreement Procedure) is replaced.

Exchange of Information

Article 26 (Exchange of Information) is replaced in line with the OECD standard for information exchange.

Assistance in the Collection of Taxes

A new Article 26-A (Assistance in the Collection of Taxes) is added to the treaty.

Effective Date

The protocol generally applies from the date of its entry into force, 12 December 2015. However, the new Articles 25 and 26 apply for any relevant matters, including matters pre-dating the entry into force of the protocol, and the new Article 26-A applies to revenue claims that are in respect of a tax year that commences after a date that is four years before the entry into force of the protocol.

Chile-Japan

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Tax Treaty between Chile and Japan under Negotiation

On 29 September 2015, the Japanese Ministry of Finance announced that officials from Chile and Japan will meet on 1 October 2015 to begin negotiations for an income tax treaty. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Estonia-Vietnam

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Tax Treaty between Estonia and Vietnam Signed

On 26 September 2015, officials from Estonia and Vietnam signed an income tax treaty. The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

United States-Switzerland

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U.S. Court Holds Denial of Discretionary Tax Treaty Benefits subject to Judicial Review

On 18 September 2015, the U.S. District Court for the District of Columbia issued a memorandum opinion that the denial of discretionary tax treaty benefits may be subject to judicial review.

The case involved Swiss-domiciled Starr International Company (Starr), once the largest shareholder of American International Group (AIG). In 2007, Starr petitioned the IRS for discretionary treaty benefits on dividends received from AIG for that year, which is provided for under the U.S.-Swiss treaty. The IRS denied the request for benefits for 2007, but subsequently issued a refund for 2008. Starr filed suit, claiming that the IRS abused its discretion because:

  • Starr was not treaty shopping when it relocated to Switzerland;
  • The IRS failed to consult with the Swiss Competent Authority before denying Starr’s request; and
  • The IRS had no legal basis for issuing Starr a 2008 refund while denying its 2007 request based on the same material facts.

In response, the IRS filed a motion to dismiss, arguing that the U.S. Competent Authority’s decision is committed to agency discretion by law, and under the political-question doctrine, the Court lacks jurisdiction to review the case.

Regarding the argument that the decision is committed to agency discretion by law, the Court found that the IRS's decision is subject to judicial review because:

  • The IRS did not meet its burden to present clear and convincing evidence to overcome the presumption of judicial review of federal agency action;
  • The treaty does not clearly reflect an intent to exclude judicial review; and
  • The Technical Explanation of the treaty supplies a meaningful standard for determining whether a Swiss company qualifies for treaty benefits.

Regarding the argument that the Court lacks jurisdiction to review the case under the political-question doctrine, the court found that the argument does not apply because the decision to award or deny tax-treaty benefits does not require policy determinations or diplomatic value judgments.

Based on this, the Court concluded that it may review Starr's claim that the IRS abused its discretion. It will dismiss Starr’s claim that the IRS violated the Convention by failing to consult with the Swiss Competent Authority, but denies the motion to dismiss Starr’s claim in all other respects.

Click the following link for the full text of the Court Opinion.

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