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Approved Changes (3)

Nigeria

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Nigeria Sets 19% Interest Rate for Late Tax Payment in 2017

According to recent reports, the Nigerian Ministry of Finance has set the interest rate for unpaid tax at 5% over the monetary policy rate of the Nigerian Central Bank. The Central Bank rate is currently 14%, which if left unchanged, results in a 19% interest rate for taxpayers in default. The 19% rate is to be applied from 1 July 2017.

Paraguay

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Paraguay Makes Electronic Tax Payment Mandatory for Large and Medium-Sized Taxpayers and Withholding Agents

The Paraguay tax authority (SET) has published General Resolution No. 115, which provides that from 1 August 2017, all large and medium-sized taxpayers assigned to the jurisdiction of the General Directorate of Large Taxpayers and the General Directorate of Collection and Regional Offices respectively must pay their tax obligations exclusively through the electronic payment system now available through banking entities. Electronic payment is also mandatory for withholding agents in respect of income tax and value added tax. For small taxpayers making tax payments of at least PYG 20 million (~USD 3,500), the electronic payment system may be used or payment can be made with the office of General Directorate of Large Taxpayers.

Poland

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Poland Supreme Administrative Court Holds Services Paid for by Polish Residents Subject to Tax Regardless of where Performed

Poland's Supreme Administrative Court has reportedly issued a decision on whether payments made by Polish residents for services may be taxed in Poland if the services are performed overseas. The decision is in relation to amendments to Poland's income tax laws regarding the meaning of Polish-source income (previous coverage). The amendments, effective 1 January 2017, serve to clarify the meaning of Polish-source income, including that income from contractual payments paid by individuals or corporate or non-corporate entities resident in Poland are automatically deemed to be Polish-source income, unless covered by a tax treaty. The Supreme Administrative Court has ruled that this includes payments for services under contract, regardless of where the contract was entered into or where the services are performed, and that such payments are subject to tax in Poland, unless a tax treaty provides otherwise.

The decision of the Court is not binding in general, although it will likely influence decisions of other courts, which in certain past cases ruled services performed outside Poland were not subject to tax. Affected services generally include those specified in the Corporate Income Tax Act: advisory, accounting, market research, legal, advertising, management and control, data processing services, services related to personnel recruitment and solicitation, guarantees and sureties, and other services of a similar nature.

Proposed Changes (2)

Brazil-OECD

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Brazil Formally Requests to Join OECD

According to recent reports, Brazil's Minster of Finance has submitted an official request to begin the process for joining the OECD. The accession process, which could take several years, involves a rigorous review process and may require legislative changes in Brazil to comply with OECD tax and transparency rules.

Pakistan

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Pakistan Budget 2017/18 Presented to Parliament

On 26 May 2017, Pakistan Minister of Finance Ishaq Dar presented the 2017/2018 Budget to parliament. The main tax-related measures are summarized as follows:

  • Reducing the income tax rate for companies from 31% to 30% for the 2018 tax year (already planned);
  • Introducing a three-year tax exemption for qualifying start–ups with annual turnover up to PKR 100 million that have been registered and certified by the Pakistan Software Export Board (PSEB) as an information technology entity engaged in offering technology driven products or services to any sector of the economy;
  • Extending the tax credit for companies that list on the Pakistan stock exchange from the current 20% credit for two years to a 20% credit for two year plus a 10% credit for an additional two years;
  • Increasing the limit on deductible sales promotion, advertisement and publicity expense for pharmaceutical companies from 5% of turnover to 10% of turnover;
  • Amending the levy of the 10% tax on the amount of retained earnings (undistributed reserves) in excess of 100% of a public company's paid up capital by removing the exemption that applies when dividends distributed amount to at least 50% of paid up capital (exemption maintained when at least 40% of after-tax profits have been distributed), and changing the tax base to the undistributed profits for the year instead of the reserves;
  • Reducing withholding tax rates on fast moving consumer goods from 3% and 3.5% to 2% and 2.5% for companies and non-companies respectively;
  • Increasing the standard dividends tax rate from 12.5% to 15%, and increasing the rate for dividends received from mutual funds from 10% to 12.5% (including with respect to withholding tax);
  • Simplifying the rate structure for capital gains tax on listed securities from the current three-tier structure based on holding period to a flat /single rate of tax of 15% for filers and 20% for non-filers from 2018;
  • Increasing the standard minimum tax rate on turnover from 1.0% to 1.25%;
  • Repealing the fixed tax regime for builders and developers, with the normal tax regime reintroduced for such taxpayers with certain transitional provisions;
  • Extending the 3% super tax for taxpayers with income exceeding PKR 500 million (4% for banks regardless of income) for the tax year 2017;
  • Establishing a new Directorate-General of Transfer Pricing to conduct transfer pricing audits for the determination of arm's length pricing between associated parties (separate from general tax audit);
  • Introducing new penalties in relation to the documentation requirements introduced by the Finance Act 2016/17 (previous coverage) for taxpayers that have entered into transactions with associated parties (Master/Local file, CbC report, and other documentation) including:
    • A penalty of PKR 2,000 per day for failure to furnish information or CbC report with a minimum of PKR 25,000; and
    • A penalty of 1% of the value of transactions for failure to maintain documentation and information;
  • Implementing regulations for the exchange of financial account information under the OECD Common Reporting Standard (CRS); and
  • Various sales tax, federal excise and customs duty adjustments.

Note - The transfer pricing documentation requirements mentioned above have not yet been regulated.

Click the following link for the 2017/2018 Budget webpage, which includes links to the main features, the Finance Bill, and other information. Pending approval of the Finance Bill, the measures will generally apply from 1 July 2017 unless otherwise indicated.

Treaty Changes (6)

Andorra-OECD

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Andorra Approves Signing of BEPS MLI

Andorra’s Executive Council has reportedly approved the signing of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The country's Minister of Finance will sign the MLI during the signing ceremony scheduled to take place in Paris on 7 June 2017.

The BEPS MLI is for the purpose of implementing the treaty-related measures developed as part of the BEPS Project without needing to separately amend each bilateral treaty. This includes measures developed as part of BEPS Action 2 (Hybrid Mismatches), Action 6 (Preventing Treaty Abuse), Action 7 (Preventing Artificial Avoidance of a PE), and Action 14 (Improving Dispute Resolution).

Azerbaijan-Denmark

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Update - Azerbaijan Approves Pending Tax Treaty with Denmark

On 31 May 2017, the Azerbaijan parliament approved the law for the ratification of the pending income tax treaty with Denmark. The treaty, signed 17 February 2017, is the first of its kind between the two countries, although the 1986 tax treaty between Denmark and the former Soviet Union had applied in respect of Azerbaijan, but was terminated.

Taxes Covered

The treaty covers Azerbaijani tax on profit of legal persons and income tax on natural persons. It covers Danish income tax to the state and income tax to the municipalities.

Service PE

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

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company that directly holds at least 20% of the paying company's capital and has invested at least EUR 1 million or equivalent; otherwise 15%
  • Interest - 8%
  • Royalties - 5% for royalties paid for the use of patent, design or model, plan, secret formula or process, or information concerning industrial, commercial or scientific experience; 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 shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
  • Gains from 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.

Entry into Force and Effect

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

Bahamas-OECD

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Bahamas to Sign Mutual Assistance Convention

The Bahamas Ministry of Finance has issued a release announcing that on 29 May 2017 the Government formally indicated to the OECD its intent to accede to the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. The OECD welcomed the decision by the Bahamas on 1 June. Once signed, the Bahamas must complete the necessary ratification procedures and deposit the ratification instrument before the Convention will enter into force in the country.

Germany-OECD

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Germany Approves Signing of BEPS MLI

According to a recent announcement from the German Ministry of Finance, the German Federal Government has approved the signing of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). Germany plans to sign the MLI during the first signing ceremony scheduled to take place in Paris on 7 June 2017.

The BEPS MLI is for the purpose of implementing the treaty-related measures developed as part of the BEPS Project without needing to separately amend each bilateral treaty. This includes measures developed as part of BEPS Action 2 (Hybrid Mismatches), Action 6 (Preventing Treaty Abuse), Action 7 (Preventing Artificial Avoidance of a PE), and Action 14 (Improving Dispute Resolution).

Ukraine-Cyprus

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Ukraine Clarifies Requirements for Reduced Dividends Withholding under Tax Treaty with Cyprus

Ukraine's State Fiscal Service (SFS) recently published a guidance letter on the eligibility of a Cyprus resident for treaty benefits on dividends received from a wholly-owned legal entity in Ukraine. Under the 2012 Cyprus-Ukraine tax treaty, a 5% withholding tax rate applies if the beneficial owner holds at least 20% of the paying company's capital or the beneficial owner has invested the equivalent of at least EUR 100,000 in the acquisition of shares or other rights in the paying company. Otherwise, the rate under the treaty is 15%, which is also Ukraine's withholding rate under domestic law.

Given that the ownership condition for the 5% rate has been met, the Cyprus resident may avail of the reduced rate if it is the actual beneficial owner of the income and has provided a certificate of residence in Cyprus to the tax agent (the paying company). To qualify as the beneficial owner, the recipient must not only have the right to receive the income, but must also have the power to determine the further economic fate of that income. Recipients with only the right to receive the income, such as an agent, nominal holder, or intermediary, may not qualify as the beneficial owner and are therefore are not eligible for the treaty benefit.

Although the guidance addresses eligibility for benefits under the tax treaty with Cyprus, Ukraine generally takes this approach with respect to all its tax treaties.

United States-Iceland-New Zealand

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U.S. Competent Authority Agreements on the Exchange of CbC Reports with Iceland and New Zealand

On 31 May 2017, the U.S. IRS published the competent authority agreements on the exchange of Country-by-Country (CbC) reports with Iceland and New Zealand. The agreements as published do not indicate their respective signed dates, although it is assumed they were signed prior to the date they were published (31 May), and are therefore effective as provided in the respective agreement.

Iceland Agreement

The agreement with Iceland provides that pursuant to the provisions of Article 25 (Exchange of Information and Administrative Assistance) of the 2007 Iceland-U.S. income tax treaty, each competent authority will automatically exchange CbC reports received from each reporting entity resident for tax purposes in its jurisdiction, provided that, on the basis of the information provided in the CbC report, one or more constituent entities of the MNE group of the reporting entity are resident for tax purposes in the jurisdiction of the other competent authority, or are subject to tax with respect to the business carried out through a permanent establishment situated in the other jurisdiction.

With respect to fiscal years beginning on or after 1 January 2017, CbC reports are to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC report relates. With respect to fiscal years beginning on or after 1 January 2018, reports are to be exchanged no later than 15 months after the last day of the fiscal year.

New Zealand Agreement

The agreement with New Zealand provides that pursuant to the provisions of Article 25 (Exchange of Information and Administrative Assistance) of the 1982 New Zealand-U.S. income tax treaty, as amended, each competent authority will automatically exchange CbC reports received from each reporting entity resident for tax purposes in its jurisdiction, provided that, on the basis of the information provided in the CbC report, one or more constituent entities of the MNE group of the reporting entity are resident for tax purposes in the jurisdiction of the other competent authority, or are subject to tax with respect to the business carried out through a permanent establishment situated in the other jurisdiction.

With respect to fiscal years beginning on or after 1 January 2016, CbC reports are to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC report relates. With respect to fiscal years beginning on or after 1 January 2017, reports are to be exchanged no later than 15 months after the last day of the fiscal year.

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