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Approved Changes (3)

New Zealand

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New Zealand Publishes Special Reports on Simplified Business Tax Processes and Automatic Exchange of Information

New Zealand Inland Revenue's Policy and Strategy group has published two special reports in relation to the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill, which was passed by parliament on 14 February 2017 and received Royal assent on 21 February.

The Special report on simplified business tax processes covers changes made by the Bill to:

  • Modify the application of use-of-money interest (UOMI) for taxpayers who make all but their last installment of provisional tax using the standard “uplift” method;
  • Increase the safe harbor from UOMI from NZD 50,000 to NZD 60,000 of residual income tax and extend the safe harbor to non-individual taxpayers;
  • Allow contractors subject to the schedular payment rules to elect their own withholding rate;
  • Extend the schedular payment rules to contractors who work for labor-hire firms;
  • Allow contractors not covered by the schedular payment rules to enter voluntary withholding agreements;
  • Prevent taxpayers from transferring tax to an earlier period that exceeds the amount in debt or in dispute in that period, and to clarify when UOMI starts and when a transfer takes effect for GST refunds and GST overpayments;
  • Enable the Commissioner to offset any credits or refunds the taxpayer has against the taxpayer’s tax liability arising from a new or increased assessment by the Commissioner;
  • Confirm that information required under a prescribed form can be provided verbally when the Commissioner of Inland Revenue considers it to be appropriate;
  • Enable Inland Revenue to continue to administer the late payment penalty grace period during the period in which tax types are transitioned between Inland Revenue’s old FIRST system and new START software systems; and
  • Modify the cancellation of interest rules, in certain circumstances.

The Special report on automatic exchange of information provides early information on the measures to implement the OECD Common Reporting Standard (CRS) for the automatic exchange of financial account information. CRS obligations are to apply in New Zealand from 1 July 2017 with the first exchanges to take place by 30 September 2018.

A special report on the new foreign trust disclosure rules included in the Bill will be published in the future.

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Update - Oman Royal Decree to Enact Income Tax Law Changes Published in Official Gazette

Royal Decree 9/2017, which was issued by the Sultan of Oman on 19 February 2017, was published in the Official Gazette on 26 February. The Decree enacts major tax reforms, which are summarized as follows:

  • An increase in standard corporate tax rate from 12% to 15%;
  • The removal of the OMR 30,000 tax-free threshold;
  • The removal of the 10-year tax exemption for mining, export of locally manufactured goods, hotels and certain tourism activities, agriculture, fishing, and other industries, with only the exemption for manufacturing maintained, but reduced to five years without possibility of renewal;
  • The introduction of a 3% flat tax rate is introduced for small business meeting certain conditions, including that registered capital does not exceed OMR 50,000 and gross income does not exceed OMR 100,000 - anti-avoidance provisions apply for taxpayers that may split operations to obtain the 3% rate;
  • The introduction of a 10% withholding tax on interest, dividends, and all service fee payments to non-residents not carrying out activity through a permanent establishment in Oman (withholding obligation also extended to Ministries and other public bodies);
  • The amendment of the definition of permanent establishment (PE) for a building site, place of construction, or assembly project to provide that a PE would be deemed constituted after a 90-day period (previously, no time period specified);
  • The introduction of a new tax card system under which all taxpayers will be issued a tax card with an identifying number that must appear on all contracts, invoices, and tax authority correspondence;
  • The introduction of a self-assessment regime and the requirement that tax returns be filed electronically;
  • The reduction of the time limit for a final return to be assessed by the tax authority from five years to three years, except in the case of non-filing or fraud, in which case the limit is reduced from ten years to five years;
  • The introduction of strengthened tax-related penalties, including:
    • An increase in the maximum penalty for failing to file a return by the due date to OMR 2,000;
    • An increase in the maximum penalty for failing to furnish requested information/documentation to OMR 5,000;
    • A fine up to OMR 3,000 for failing to comply with executive regulations and administrative decisions;
    • A minimum penalty of 1% of the difference in taxable income resulting from an incorrect return (maximum 25% maintained);
    • A fine of OMR 500 to OMR 20,000 and/or imprisonment of one to six months for principal officers that intentionally refuse to submit a return or requested information/documentation (increased to OMR 2,000 to 30,000 and/or imprisonment of three to twelve months for repeated violation);
    • A fine of OMR 5,000 to OMR 50,000 and/or imprisonment of six months to three years for principal officers that intentionally submit an incorrect return or intentionally conceal or destroy information/documentation.

The changes generally apply for fiscal years beginning on or after 1 January 2017, although the new withholding tax provisions and changes in available industry exemptions apply from 27 February 2017. Tax exemptions already granted will continue to apply.

Vietnam

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Vietnam Issues Decree on New Transfer Pricing Rules Including CbC Reporting

The Vietnamese government has announced the issuance of Decree No. 20/2017/ND-CP, which sets out the principles, methods, and procedures for determining transfer pricing, including the adoption of guidance resulting from the BEPS Project. The Decree also introduces new transfer pricing documentation requirements based on BEPS Action 13. Key points of the decree include:

  • A new definition of related parties, including an increase in the direct or indirect ownership threshold from 20% to 25%;
  • More detailed requirements with regard to comparability analysis, source of comparables, and transfer pricing methods used, as well as stricter requirements regarding intangible assets;
  • New restrictions in relation to the deduction of expenses, including
    • Restrictions on payments that are not at arm's length or do not contribute value to the business activities of the taxpayer, including:
      • Payments to related parties that do not conduct business activities related to the taxpayer's activities;
      • Payments to related parties where the value of the related party's assets, number of employees, and functions performed are not commensurate with the value of the transaction;
      • Payments to related parties that do not have the right to and responsibility for the property, goods, and services provided to the taxpayer; and
      • Payments to related parties that are resident in a jurisdiction that does not impose corporate income tax and that do not contribute to generating revenue or adding value to the taxpayer’s business activities;
    • Restrictions on payments for intragroup services unless meeting specified conditions, including that the services add value, independent parties would be willing to pay for such services, the services are at arm's length, and supporting documentation is maintained; and
    • Restrictions on interest expense deductions, which are limited to 20% of EBITDA (not applicable for taxpayers subject to the Law on Credit Institutions and the Insurance Business Law);
  • New transfer pricing (TP) documentation requirements, including:
    • A related party transaction disclosure form (Form No. 01), which includes information on the transactions, the related parties, the methods used, etc.; and
    • A new transfer pricing documentation package based on BEPS Action 13, including a Local file (Form No. 02), Master file (Form No. 03), and Country-by-Country (CbC) report (Form No. 04);
  • The CbC report requirement applies for ultimate parent entities resident in Vietnam where the annual consolidated revenue of the group meets a VND 18 trillion threshold (~EUR 748 million), and also applies for non-parent entities where the group's ultimate parent is resident in a foreign jurisdiction and is required to file a CbC Report in its jurisdiction;
  • The new Form No. 01 is submitted with annual corporate tax return (90 days after financial year), while the Forms included in the TP documentation package must be prepared by the return deadline;
  • The TP documentation package must be submitted within 30 days of a request with a possible 15 day extension (within 15 days of a request if under specific transfer pricing audit);
  • Certain exemptions from the transfer pricing documentation requirements apply, including where:
    • Revenue does not exceed VND 50 billion and total related party transactions do not exceed VND 30 billion;
    • The taxpayer performs only routine functions, does not generate revenue or incur expenses from exploitation and use of intangibles, has annual revenue not exceeding VND 200 billion, and has an operating margin exceeding:
      • 5% for distributors;
      • 10% for (non-toll) manufactures; and
      • 15% for toll manufacturers; and
    • The transactions are covered by an advance pricing agreement (APA) and annual reporting obligations in relation to the APA are met (would require all transactions to be covered);

Click the following link for Decree No. 20/2017/ND-CP (Vietnamese language), which will take effect on 1 May 2017 and generally applies from the 2017 fiscal year. It is expected that further guidance on the application of the rules will be issued by the tax authorities. Additional details will be published once available.

Proposed Changes (2)

European Union

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EU Parliament Committees Adopt Proposed Amendments to Anti-Money Laundering Directive to Further Open Public Access to Beneficial Ownership Information

On 28 February 2017, the European Parliament's Committee on Economic and Monetary Affairs and Committee on Civil Liberties, Justice and Home Affairs adopted draft amendments to the EU Anti-Money Laundering Directive to broaden public access to beneficial ownership registries.

Access to beneficial ownership information formed part of the fourth anti-money laundering directive approved in May 2015 (previous coverage), which requires that all EU Member States establish a central registry of beneficial ownership information for companies and trusts. These central registries must be accessible to competent authorities, financial intelligence units, and obliged entities such as banks as part of customer due diligence. Other persons or organizations that can demonstrate a legitimate interest are to be allowed access to the registries as well, but not in regard to trusts.

The latest draft amendments adopted by the Parliament committees would remove the legitimate interest conditions and also expand the scope of public access to cover trusts and other types of legal arrangements having a structure or functions similar to trusts. Member States would have the option, however, to restrict access on a case-by-case basis where access would expose the beneficial owner to the risk of fraud, kidnapping, blackmail, violence or intimidation, or where the beneficial owner is a minor or otherwise incapable.

According to the press release on the draft amendments, Parliament as a whole must now give the go-ahead in the March plenary session for MEPs to start three-way talks with the EU Commission and Council.

European Union

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European Commission Publishes Report on Addressing National Barriers to Capital Flows

On 27 February 2017, a Report from The European Commission to the Council and the European Parliament was published on addressing national barriers to capital flows. The report was prepared following a call by the ECOFIN Council of June 2015 to map national barriers to cross-border capital flows and find the best ways of tackling those that are either not justified by public interest considerations or are disproportionate. The report identified five main areas where issues exist and provides a roadmap of proposed actions:

Investment funds - proposed actions:

  • Continue reviewing national rules, in view of promoting common understanding and regulatory convergence of pre-marketing and reverse solicitation;
  • Further map administrative arrangements;
  • Ensure that all fund notification-related fees are published in a comprehensive and user-friendly manner on a single website; and
  • Consider setting up a single public domain for fee-related information, in the form of a comparative website or a central repository.

Pension funds - proposed action: Identify the drivers in cross-border investment, promote best practices in the Member States and raise awareness of new opportunities under the Investment Plan for Europe, involving national promotional banks.

Residence requirements - proposed action: Remove residence requirements from legislation and administrative practices in respect of managers residing in the EU, where unjustified and disproportionate.

Financial literacy - proposed action: Exchange best practices on financial literacy programs, taking into account the cross-border dimension.

Withholding tax - proposed actions:

  • Confirm the relevance of the nine withholding best practices identified, which include:
    • Having a quick refund procedure in place;
    • Effectively providing a refund in a short period (< 6 months);
    • Simplifying documentation requirements (e.g. allow proof other than a certificate of tax residence, extend the certificate’s validity to more than a year);
    • Setting up a single point of contact for handling refund claims;
    • Replacing claim forms by a single document;
    • Making claim forms available online;
    • Allowing completion of the whole refund process online;
    • Allowing foreign financial institutions to handle the withholding tax procedure (i.e. no need to have a local agent); and
    • Allowing foreign financial institutions to claim relief on behalf of their clients;
  • Agree on a list of best practices that could be reflected in a scoreboard;
  • Discuss the way forward in a tax working group, with a view to each Member State committing to a list of best practices to improve the status quo by 2019; and
  • Work with national tax experts on a code of conduct on withholding tax relief principles.

Click the following link for the full report: Accelerating the capital markets union: addressing national barriers to capital flows.

Treaty Changes (4)

Belgium

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Belgian Council of Ministers Approves Ratification of CbC MCAA

The Belgian Council of Ministers approved draft legislation on 24 February 2017 for the ratification of the Multilateral Competent Authority Agreement (MCAA) on the exchange of Country-by-Country (CbC) reports. The CbC MCAA, signed by Belgium on 27 January 2016, provides for the exchange of CbC reports under the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol, which has been in force as amended in Belgium since April 2015. Belgium will exchange reports received with respect to the 2016 fiscal year in the beginning of 2018.

Russia-Cyprus

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Russia Clarifies Income from Reduction in Additional Paid-In Capital Not Taxable under Tax Treaty with Cyprus

The Russian Ministry of Finance recently published Letter No. 03-08-05/6035 concerning the taxation of income paid by a Russian entity to its sole Cyprus shareholder in connection with the reduction of the entity's additional paid-in capital formed from the shareholder's investment. The letter clarifies that under the Russian Tax Code, income paid to a sole shareholder due to a reduction of additional paid-in capital would be considered taxable income in Russia, but where a tax treaty is in force, the provisions of the tax treaty apply.

The letter states that under the 1998 Cyprus-Russia tax treaty, such income would not be covered by Article 10 (Dividends) since it is paid out of assets and not profits, and because no other special rules apply under the treaty, the income would be covered by Article 22 (Other Income). Because Article 22 provides that other income is taxable only in the Contracting State in which the recipient is resident, the income received by the Cyprus shareholder would only be taxable in Cyprus. However, in order to claim the benefit of the treaty, the Cyprus resident must provide confirmation of its residence and that it has the actual right to receive the income. Where confirmation is not provided, the income would be taxable in Russia.

Singapore-Uruguay

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Tax Treaty between Singapore and Uruguay to Enter into Force

The income and capital tax treaty between Singapore and Uruguay will enter into force on 14 March 2017. The agreement, signed 15 January 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Singapore income tax, and Uruguayan business income tax, personal income tax, non-resident income tax, social security assistance tax, and capital tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 10%
  • Interest - 10% (exemption for interest paid between financial institutions)
  • Royalties - 5% for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films, or films or tapes used for radio or television broadcasting; otherwise 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; and
  • Gains from the alienation of shares or other corporate rights in a company deriving more than 50% of their value directly or indirectly from immovable property situated in the other State (exemption for shares or other corporate rights listed on a recognized stock exchange of one or both Contracting States); and
  • Gains from the alienation of shares or other corporate rights that entitles the owner to the enjoyment of immovable property situated in a Contracting 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.

MFN Clause

The final protocol to the treaty includes MFN clauses with reference to Article 10 (Dividends) and Article 11 (Interest). The clauses provide that if after the entry into force of the treaty, Uruguay provides for an exemption or a lower withholding tax rate on dividends or interest under an agreement with any other jurisdiction, such exemption or lower rate will then automatically apply to dividends or interest governed by the provisions of the Singapore-Uruguay tax treaty.

Effective Date

The treaty applies in Singapore from 1 January 2018 in respect of taxes withheld at source and from 1 January 2019 for other taxes. The treaty applies in Uruguay from 1 January 2018. Article 26 (Exchange of Information) applies from 14 March 2017 in both countries for requests relating to tax periods beginning on or after 1 January 2018.

Vietnam-United States

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Vietnam Ratifies Tax Treaty with the U.S.

The Vietnam Ministry of Finance has announced the issuance of Resolution No. 29/NQ-CP by Prime Minister Nguyễn Xuân Phúc for the ratification of the pending income tax treaty with the United States. The treaty, signed 7 July 2015, is the first of its kind between the two countries and will enter into force once the ratification instruments are exchanged. Click the following link for details of the treaty.

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