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Worldwide Tax News

Approved Changes (3)

Brazil

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Brazil Converts PERT Tax Regularization Program into Law and Provides Further Application Extension

Brazil's Provisional Measure 783/2017 was converted into Law 13.496/2017 as published in the Official Gazette on 25 October 2017. Provisional Measure No. 783/2017 introduced the program for the regularization of tax (Programa Especial de Regularização Tributária - PERT), which provides varying interest/penalty relief for unpaid tax and non-tax debts up to 30 April 2017 (previous coverage).

Following its conversion into law, additional amendments were made by Provisional Measure No. 807 of 31 October 2017. The amendments extend the deadline for taxpayers to apply for the PERT regime to 14 November 2017 and provide additional terms for the repayment of outstanding debts. Provisional Measure No. 807 applies from 1 November 2017 and replaces the prior extension measure, Provisional Measure 804/2017.

Bulgaria

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Bulgaria Publishes Order on CbC Report and Notification Submission

On 1 November 2017, the Bulgarian National Revenue Agency announced the publication of the Order of 31 October 2017, which sets out the submission requirements for Country-by-Country (CbC) reports and notifications, including the required content. Bulgaria's CbC reporting requirements apply for fiscal years beginning on or after 1 January 2016 for resident parents and 1 January 2017 for non-resident parents (previous coverage). The Order provides that both CbC reports and notifications are submitted via an electronic service that will be made available on the NRA website by 1 December 2017. The first CbC reports and notifications in respect of the 2016 reporting fiscal year are due by 31 December 2017. As per the standard notification requirements, notifications in respect of the reporting fiscal year beginning 1 January 2017 are also due by 31 December 2017 (transitional extension was provided for 2016).

United Kingdom

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UK Updates VAT Guidance on B2C Supplies of Digital Services

UK HMRC has published updated guidance on value added tax (VAT) for businesses supplying digital services (broadcasting, telecommunications, and e-services) to private consumers. The guidance is in relation to the 1 January 2015 change in the EU place of supply rules regarding digital services, which require that VAT be accounted for at the VAT rate applicable in the consumer’s EU Member State. The guidance covers the digital services affected by the rules, the registration requirements, including the VAT Mini One Stop Shop (VAT MOSS), the determination of place of supply, and other related matters.

Proposed Changes (2)

Ireland

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Ireland Publishes eBrief on Transitional Relief for Increased Stamp Duty on Non-Residential Property

Irish Revenue has published eBrief No. 94/2017 on transitional relief for the increase in the stamp duty rate from 2% to 6% on non-resident property transfers as per the 2018 Budget (Finance Bill 2017), which is pending approval (previous coverage).

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New 6% rate of Stamp Duty on non-residential property - transactions eligible for 2% rate under transitional relief measures

The rate of stamp duty on certain property acquisitions was increased from 2% to 6% on 10 October 2017 (Budget night). The provisions were subsequently included in Finance Bill 2017, which was published on October 19th, but these will not become law until the Finance Bill is enacted. This increase was made subject to transitional measures for the retention of the 2% rate in cases where the property acquisition had reached an advanced stage. Revenue has now put arrangements in place for these transitional measures.

The transitional measures apply stamp duty at a rate of 2% on instruments that are executed before 1 January 2018 where there was a contract in place before 11 October 2017 that was binding on the parties to the contract and the instrument contains a certificate to this effect.  

A person who files a stamp duty return before the enactment of the Finance Bill and who is satisfied that the transitional measures would apply if the Finance Bill was enacted, has two options. He or she may-

  1. File a return through the e-stamping system, pay stamp duty at the rate of 6% and be issued with a stamp certificate. On enactment of the Finance Bill, the filer can then request a refund of the difference in the stamp duty paid between the 2% and 6% rates by amending the return and submitting the relevant documentation to Revenue, or  
  2. File a return through the e-stamping system and pay the stamp duty at the rate of 2%, in which case a stamp certificate will not be issued. On enactment of the Finance Bill, Revenue will publish information on how the postponed stamp certificate can be obtained.  

Further details will be published on the Revenue website.

Malaysia

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Malaysia 2018 Budget Presented

On 27 October 2017, Malaysian Prime Minister Najib Razak presented the 2018 Budget. Some of the main tax-related measures of the Budget are summarized as follows:

  • The extension of a number of tax incentive schemes through 2020, including the Principal Hub incentive, the incentive for investment in new 4 and 5 star hotels, the incentives for tour operators, and the incentives for medical tourism (also expanded);
  • The expansion/extension of incentives for venture capital investment, including:
    • An expansion of the income tax exemption to include management and performance fees received by venture capital management companies from 2018 to 2022;
    • A reduction in the minimum invested funds requirement for investment in venture companies from 70% to 50% from 2018 to 2022;
    • The introduction of a tax deduction up to MYR 20 million per year for investment in venture companies; and
    • The extension of the venture capital income tax exemption for angel investors through 2020;
  • The reduction of the second, third, and fourth individual income tax bracket rates as follows:
    • MYR 20,001 to 35,000 - 3% (currently 5%)
    • MYR 35,001 to 50,000 - 8% (currently 10%)
    • MYR 50,001 to 70,000 - 14% (currently 16%)
  • Goods and Services Tax (GST) changes, including:
    • The removal of services provided by local authorities from the scope of GST effective 1 April 2018 or 1 October 2018, according to the choice of the local authority;
    • The treatment of reading materials comprising all types of magazines and comics as zero-rated for GST purposes from 1 January 2018;
    • The introduction of GST relief with respect to:
      • Handling services provided to cruise operators;
      • Construction of school buildings and houses of worship;
      • Imports of oil and gas-related equipment supplied to Malaysia residents under lease agreement by companies in designated areas (Labuan, Langkawi, and Tioman);
      • Imports of certain big-ticket items, including aircraft, ships, and oil rigs and other floating structures; and
      • Management and maintenance services provided by housing developers;
  • Industrial Revolution 4.0 incentives, including:
    • The extension of the 200% accelerated capital allowance on automation equipment from year of assessment through 2020;
    • The extension of the 200% accelerated capital allowance for manufacturing and manufacturing-related services sectors;
    • The introduction of a capital allowance for Information and Communication Technology (ICT) equipment, including for expenditure on computer software development (expenditure claimable of a four-year period); and
  • The establishment of a Digital Free Trade Zone, including an e-Fulfillment Hub, Satellite Services Hub, and e-Services Platform to stimulate growth in electronic trade.

Click the following link for the 2018 Budget Speech for more information.

Treaty Changes (3)

India-United States

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India Supreme Court Holds Contract Service Provider Does Not Constitute PE under India-U.S. Tax Treaty

The Indian Supreme Court has issued its decision on whether two U.S. companies had a permanent establishment (PE) in India as a result of contract services outsourced to a related Indian company. The case involved U.S.-based e-Funds Corporation and its affiliate e-Funds IT Solutions Group Inc. (together e-Funds U.S.), which are engaged in the business of ATM management services, electronic payment services, risk management services, and related IT services. For the purpose of providing IT services, certain services were subcontracted to e-Funds International India Pvt. Ltd. (e-Funds India), including call center services and some software development support. These activities were contracted on an arm's length basis under a cost-plus remuneration model.

In reviewing e-Funds India, the assessing officer performed a functions, assets, and risks analysis and determined that the performance of services by e-Funds India constituted a fixed place PE in India for e-Funds U.S. and that the income attributed to this PE is subject to tax. This determination was based primarily on the assessing officer's findings that e-Funds India was allowed to use e-Funds U.S. technology free of charge, that e-Funds U.S. performed marketing on behalf of e-Funds India, and that e-Funds India bore little risk in performing the services. The determination was appealed and upheld by the Commissioner of Income Tax, which not only found that a fixed-place PE was constituted, but also that a service PE and a dependent agency PE had been constituted. The determination of a fixed-place and service PE was later upheld by the Income Tax Appellate Tribunal, but then reversed by the High Court before going to the Supreme Court.

In its decision, the Supreme Court found in favor of e-Funds U.S. based on an evaluation of whether the conditions were met for the existence of a fixed-place, service, or agency PE under the provisions of the India-U.S. tax treaty. The appeal to the Supreme Court did not include an argument for an agency PE, but was reviewed regardless.

The Court found that there was no basis for a fixed-place PE because e-Funds U.S. did not have the level of access or control of e-Fund India's business premises for the premises to be considered at the disposal of e-Funds U.S. for the purpose of carrying on their business. This conclusion is in line with a recent decision concerning Formula One and the determination of a fixed-place PE (previous coverage). With respect to a Service PE, the Court found that although employees had been sent to India to monitor the performance of the contracted services, the activities of those employees were limited to auxiliary functions and no services were rendered in India, so no service PE could be determined to exist. Lastly, the Court found that there was no evidence to support that e-Funds India has any authority to conclude contracts on behalf of e-Funds U.S., so no agency PE could be determined to exist.

Norway-Zambia

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Tax Treaty between Norway and Zambia has Entered into Force

According to an update from the Norwegian government, the new income tax treaty with Zambia entered into force on 9 August 2017. The treaty, signed 17 December 2015, replaces the 1971 income tax treaty between the two countries.

Taxes Covered

The treaty covers Norwegian national tax on income, county municipal tax on income, municipal tax on income, and national tax on remuneration to non-resident artistes. It covers Zambian income tax.

Residence

If a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement based on its place of effective management, place of incorporation and any other relevant factors. If no agreement is reached, the company will not be entitled to any relief or exemption from tax provided by the treaty unless agreed upon by the competent authorities.

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 a 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 25% of the paying company's capital; otherwise 15%
  • Interest - 10%
  • Royalties - 10%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), and 12 (Royalties) will not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims, or other rights in respect of which the income is paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

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 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.

Effective Date

The treaty applies from 1 January 2018. The 1971 income tax treaty between the two countries is terminated and ceases to have effect from the date the new treaty is effective.

United States-Czech Rep-Finland-Luxembourg

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U.S. Publishes CbC Exchange Arrangements with the Czech Republic, Finland, and Luxembourg

The U.S. IRS has published the competent authority arrangements on the exchange of Country-by-Country (CbC) reports signed with the Czech Republic, Finland, and Luxembourg. The arrangements with the Czech Republic and Luxembourg were signed 28 September 2017 and 18 October 2017 and are operative (effective) from 25 October 2017 and 18 October 2017, respectively. With respect to the Finland arrangement, the signature/operative date has not yet been provided.

The arrangements provide that pursuant to the exchange of information provisions of the 1993 Czech-U.S. tax treaty, the 2006 Finland-U.S. tax treaty, and the 1996 Luxembourg-U.S. tax treaty, each competent authority intends to 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.

Under all three arrangements, CbC reports will be exchanged for fiscal years beginning on or after 1 January 2016, with the first exchange to take place 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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