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Approved Changes (3)

Belarus

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Belarus Issues Guidance on Recent Tax Code Amendments including Expanded Transfer Pricing Rules

Belarus has recently issued guidance on amendments made to the Tax Code, which were adopted on 30 December 2015. The main changes are summarized as follows.

Transfer Pricing Reporting and Documentation

One of the biggest changes to the Tax Code is the expansion of the transfer pricing rules. This includes the obligation for taxpayers to submit an annual transfer pricing report along with their tax return for the following transactions:

  • Transactions involving the purchase or sale of immovable property;
  • Transactions exceeding BYR 1 billion (~USD 50,000) carried out with:
    • A non-resident related party or resident of a government specified offshore zone, whether related or not (including transactions involving unrelated intermediaries); or
    • A resident related party, if that party is exempt from tax in the year concerned due to the application of special tax regime or ruling (including transactions involving unrelated intermediaries); and
  • Transactions carried out with a non-resident exceeding BYR 10 billion, if the taxpayer is considered a large taxpayer or the transaction involves government specified strategic goods.

For transactions meeting the above conditions, transfer pricing documentation must be prepared and submitted within 15 days of a request by the tax authorities, including:

  • Details of the taxpayer's business activities
  • Details of the counter party to the transaction, including its country of incorporation and primary business activities;
  • Details of the transaction, including a description of the relevant goods, works or services, the delivery and payment terms, etc.;
  • Details of the comparables and transfer pricing method used to determine the price; and
  • Any other relevant information.

The changes also include the addition of the profit-split method as an acceptable transfer pricing method when other acceptable methods are not applicable, including the comparable uncontrolled price method, the resale price method, the cost-plus method, and the comparable profits method.

Electronic Tax Return Filing

From 1 July 2016, companies employing more than 15 persons must file tax returns electronically.

Non-Deductible Expenses

The list of non-deductible expenses is expanded to include:

  • Penalties payable for breach of investment contracts;
  • Employee bonuses based on annual results; and
  • Remuneration paid to members of boards of directors (supervisory councils).

Loss Carry Forward Limitation

In the event of an audit, any losses that were not reported prior to the audit, or are discovered or increased during the audit, may not be carried forward.

Thin Capitalization

Thin capitalization rules are expanded to include that expenses incurred in connection with controlled debt transactions will not be deductible if the taxpayer's ratio of assets to liabilities is negative or zero. In addition, any exchange rate differences in connection with such non-deductible expenses will not be deductible.

Effective Date

Unless otherwise mentioned, the changes generally apply from 1 January 2016.

Hong Kong

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Hong Kong Updates List of Debt Instruments Eligible for Profits Tax Concessions or Exemption

On 22 January 2016, the Hong Kong Inland Revenue Department (IRD) updated the list of debt instruments eligible for profits tax concessions (50% reduction) and long-term debt instruments eligible for profits tax exemption. The list mainly includes debt instruments issued by financial institutions in the Asia-Pacific region, as well as certain UK financial institutions.

Click the following link for the list of qualifying debt instruments on the IRD website.

United States

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U.S. Treasury Publishes List of International Boycott Countries

On 27 January 2016, the U.S. Treasury Department published in the Federal Register the current list of countries that may require participation in, or cooperation with, an international boycott. The countries listed include:

  • Iraq;
  • Kuwait;
  • Lebanon;
  • Libya;
  • Qatar;
  • Saudi Arabia;
  • Syria;
  • United Arab Emirates; and
  • Yemen

Any person or a member of a controlled group with operations in or related to a country on the list, or with the government, a company, or a national of a listed country is required to file Form 5713 (International Boycott Report).

Form 5713 must also be filed by any person with operations in a non-listed country that requires participation in, or cooperation with, an international boycott as a condition of doing business with such country.

Taxpayers required to file the form may lose certain tax benefits, including:

  • The foreign tax credit (section 908(a));
  • Deferral of taxation of earnings of a CFC (section 952(a)(3));
  • Deferral of taxation of IC-DISC income (section 995(b)(1)(F)(ii));
  • Exemption of foreign trade income of a FSC (section 927(e)(2), as in effect before its repeal); and
  • Exclusion of extraterritorial income from gross income (section 941(a)(5), as in effect before its repeal).

The exact limits on benefits are determined through the completion of the form.

Treaty Changes (5)

Albania-Israel

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Tax Treaty between Albania and Israel to be Negotiated

According to a release from the Albanian Embassy in Israel, officials from Albania and Israel expressed their intent to negotiate an income tax treaty following the signing of a joint declaration on 21 December 2015. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

China-OECD

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Mutual Assistance Convention has Entered into Force for China

On 1 February 2016, the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol entered into force for China. The Convention, signed by China on 27 August 2013, generally applies from 1 January 2017. However, it may apply for earlier periods between China and another signatory if agreed to, and applies in relation to any period regarding criminal matters.

Japan-Slovenia

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Japan and Slovenia Agree on Tax Treaty

On 29 January 2016, Japan's Ministry of Finance announced that officials from Japan and Slovenia have negotiated and agreed to an income tax treaty. The treaty will be the first of its kind between the two countries, and must be signed and ratified by both countries before entering into force.

Additional details will be published once available.

Mozambique-Vietnam

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Tax Treaty between Mozambique and Vietnam has Entered into Force

According to a recent update from the Vietnamese government, the income and capital tax treaty with Mozambique entered into force on 3 July 2014. The agreement, signed 3 September 2010, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Mozambique personal income tax and corporate income tax. It covers Vietnamese personal income tax, business income tax, and capital tax.

Service PE

The treaty includes provisions 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 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 10%
  • Fees for Technical Services (services of a technical, managerial or consultancy nature) - 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 movable property forming part of the business property of a permanent establishment in the other State;
  • Gains from the alienation of shares of the capital stock of a company, or of an interest in a partnership, trust or estate, the property of which consist directly or indirectly principally (30%) of immovable property situated in the other Contracting State; and
  • Gains from the alienation of shares, other than those mentioned above, in a company resident 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. A provision is also included for a tax sparing credit for tax that would otherwise be payable but has been reduced or exempted under legal provisions of a Contracting State for the promotion of economic development.

Effective Date

The treaty applies from 1 January 2015.

Switzerland-Japan

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Switzerland Signs Joint Statement on Automatic Exchange of Information with Japan

On 29 January 2016, the Swiss Federal Council published a press release announcing that Switzerland has signed a joint statement on the automatic exchange of information in tax matters on a reciprocal basis with Japan. The information exchange will be implemented under the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information and the Convention on Mutual Administrative Assistance in Tax Matters. Switzerland and Japan intend to begin the automatic exchange of financial account information in 2018.

Click the following link for the press release.

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