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Approved Changes (6)

Algeria

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Algeria Finance Act for 2017 Signed into Law

On 28 December 2016, the Algerian President Abdelaziz Bouteflika signed into law the Finance Act for 2017. The main tax measures include an increase in the standard value added tax (VAT) rate from 17% to 19%, and an increase in the reduced VAT rate from 7% to 9%. The law also increases that consumption taxes on tobacco and alcoholic beverages, and increases the tax on petroleum products.

Click the following link for an overview of the measures (French language) released by the Ministry of Finance. The measures generally apply from 1 January 2017.

France

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French Court Holds New Diverted Profits Tax Unconstitutional

In its review of the Finance (Budget) Law for 2017 (previous coverage), the French Constitutional Council (Conseil Constitutionnel) has ruled that the new diverted profits tax (DPT) regime is unconstitutional. The DPT measures were introduced to mainly target large multinationals such as Google to allow the taxation of profits derived from France.

In its review of the DPT provisions, the Court focused on the fact that the tax authority has the power to choose, among taxpayers falling within the scope of the DPT provisions, those that will actually be subject to tax. The Court found that if the legislature modifies the scope of corporation tax in order to tax profits made in France by companies established outside the country, it cannot, without disregarding the scope of its jurisdiction, make the liability of tax subject to the decision of the tax authorities. As such, the provision granting that power is unconstitutional. Further, the Court found that because the effects of invalidating that specific provision would not correspond with the intent of the DPT provisions as a whole, all the DPT provisions must be declared unconstitutional.

Click the following links for the full text of the Court's decisions (French language) and a related press release (French language), which provides a brief summary.

Iceland

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Iceland Publishes CbC Regulation

On 27 December 2016, Iceland published the Country-by-Country (CbC) reporting Regulation No. 1166. The CbC reporting requirements were introduced in the legislation on government actions against tax evasion (previous coverage), with the regulation providing additional details of the requirements, including:

  • The CbC reporting requirement applies for MNE groups operating in Iceland meeting an ISK 100 billion (~USD 875 million) consolidated annual revenue threshold;
  • The submission requirement applies to ultimate parent entities resident in Iceland;
  • The submission requirement also applies to non-parent constituent entities resident in Iceland if:
    • The foreign parent is not required to submit a CbC report in its jurisdiction of residence;
    • The foreign parent's jurisdiction of residence does not have an information exchange agreement with Iceland that provides for the exchange of CbC reports; or
    • The tax authority has notified the Icelandic constituent entity that there was a failure to exchange;
  • In the case of non-parent filing, if the required information has not been made available by the parent to the constituent entity, a report must be submitted based on available information, and the tax authority must be informed that all required information was not provided by the parent;
  • The required content included in the CbC report is in line with the guidance developed as part of BEPS Action 13, including profit/loss before tax, taxes accrued, taxes paid, etc., as well as information on constituent entities and their business activity;
  • The CbC form and instruction for completion is based on the OECD guidelines; and
  • The form should be completed in English and Icelandic (uncertain if English only would be accepted).

Regulation No. 1166 does not provide details on notification requirements, although the primary legislation includes that the tax authority should be notified of the reporting entity for the MNE group.

Click the following link for Regulation No. 1166, which entered into force on 1 January 2017.

Latvia

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Latvia Increases Micro-Enterprise Regime Rate to 15%

The Latvian parliament has approved an increase in the micro-enterprise regime tax rate from 9% to 15% effective 1 January 2017. Initially it was planned to reduce the rate to 5%, while also requiring micro-enterprises to pay social contributions. As approved at 15%, micro-enterprises are exempt from social security contributions.

Poland

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Poland Publishes Social Security Basis Cap for 2017

Poland has published the social security basis cap for 2017, which is increased from PLN 121,650 to PLN 127,890 with effect from 1 January 2017. The basis cap applies for pension and disability fund contributions by both employers and employees.

Total employer social security contribution rates range from 19.48% to 22.14%. The range is due to the accident fund contribution, which varies by sector. For salary amounts exceeding the basis cap, contributions are still required for the illness fund, accident fund, labor fund, and others at combined rates ranging from 3.22% to 6.41%.

United States

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U.S. Releases Final and Temporary FATCA Regulations

On 30 December 2016, the U.S. Treasury Department and IRS released final and temporary FATCA regulations that are scheduled to be published in the Federal Register on 6 January 2017.

Final and temporary regulations TD 9808 contain regulations regarding withholding of tax on certain U.S. source income paid to foreign persons, information reporting and backup withholding with respect to payments made to certain U.S. persons, and portfolio interest paid to nonresident alien individuals and foreign corporations. The document finalizes (with minor changes) certain proposed regulations under chapters 3 and 61 and sections 871, 3406, and 6402 of the Internal Revenue Code of 1986 (Code), and withdraws corresponding temporary regulations.

TD 9808 also includes temporary regulations providing additional rules under chapter 3 of the Code regarding withholding of tax on certain U.S. source income paid to foreign persons and requirements for certain claims for refund or credit of income tax made by foreign persons. The text of the temporary regulations serves as the text of the proposed regulations (REG-134247-16).

Final and temporary regulations TD 9809 contains final and temporary regulations under chapter 4 of Subtitle A (sections 1471 through 1474) of the Code regarding information reporting by foreign financial institutions (FFIs) with respect to U.S. accounts and withholding on certain payments to FFIs and other foreign entities. The document finalizes (with changes) certain proposed regulations under chapter 4, and withdraws corresponding temporary regulations.

The final and temporary regulations will be effective from the date they are published in the Federal Register.

Proposed Changes (1)

Zimbabwe

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Zimbabwe 2017 Budget Measures

Zimbabwe's Ministry of Finance Patrick Chinamasa presented the 2017 Budget to parliament on 8 December 2016. The main tax measures are summarized as follows:

  • Extending the formula based limit on the deduction of administration and management expenses incurred by a subsidiary or local branch on transactions with parent companies to also limit the deduction of such expenses incurred on transactions with associated companies;
  • Removing the general capital gains tax exemption for intangibles by amending the definition of specified assets (subject to capital gains tax) to include income accruing from the disposal of prescribed property of any description, whether tangible or intangible, including whatever nature of rights to such property;
  • Excluding deemed dividends arising from disallowed interest expense as per the thin capitalization rules (3:1) from the income tax exemption for dividends paid by companies incorporated in Zimbabwe;
  • Introducing the definition of permanent establishment in the Income Tax Act in order to protect the tax base and eliminate non-taxation of income accruing to some foreign business enterprises;
  • Introducing a number of new incentives for businesses in Special Economic Zones, including:
    • An exemption from Corporate Income Tax for the first 5 years of operation, followed by a corporate tax rate of 15%;
    • A special initial allowance on capital equipment to be allowed at the rate of 50% of cost from year one and 25% in each of the two subsequent years;
    • A flat tax rate of 15% for specialized expatriate staff ;
    • An exemption from non-residents tax on fees on services that are not locally available;
    • An exemption from non-residents tax on royalties;
    • An exemption from non-residents tax on dividends;
    • An import duty exemption for capital equipment; and
    • An import duty exemption for raw materials and intermediate products that are not locally available.

Click the following link for the 2017 budget statement. Subject to approval, the measures are to generally apply from 1 January 2017.

Treaty Changes (4)

Ethiopia-Morocco

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Update - Tax Treaty between Ethiopia and Morocco

The income tax treaty between Ethiopia and Morocco was signed on 19 November 2016. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Ethiopian tax on income and profit, and the tax on income from mining, petroleum, and agricultural activities. It covers Moroccan income tax and corporation tax.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 10%
  • Interest - 10%
  • Royalties - 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 deriving more than 50% of their value directly or indirectly from immovable property situated 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 for a limited period of time in a Contracting State in accordance with the laws and regulations of that State for tax incentives.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged. It will apply in Ethiopia from 8 July next following the date of its entry into force and will apply in Morocco from 1 January of the year following its entry in to force.

India-Singapore

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Protocol to Tax Treaty between India and Singapore Signed

On 30 December 2016, officials from India and Singapore concluded negotiations with the signing of a new protocol to the 1994 income tax treaty between the two countries. The protocol is the third to amend the treaty. The main revision to the treaty is the removal of the capital gains tax exemption, which was contingent upon the exemption under the 1982 India-Mauritius tax treaty remaining in effect. The India-Mauritius treaty was amended via a protocol signed in May 2016, which included the removal of the exemption (previous coverage).

With the new protocol, the taxation of capital gains will be transitioned as follows:

  • Shares acquired before 1 April 2017: Gains will remain taxable only in the residence state of the alienator, subject to the condition that the expenditure on operations of the alienator in its residence State is at least SGD 200,000 if Singapore resident or INR 5 million if Indian resident for each of the 12-month periods in the immediately preceding 24 months from the date on which the gains arise (these are conditions for the alienator to not be deemed a shell/conduit company);
  • Shares acquired on or after 1 April 2017:
    • For gains that arise during the period 1 April 2017 to 31 March 2019, the tax rate imposed on such gains will be limited to 50% of the tax rate applicable on such gains in the State in which the company whose shares are alienated is resident, subject to meeting the above annual expenditure condition for the immediately preceding 12 months from the date on which the gains arise;
    • For gains that arise after 31 March 2019, the gains will be taxable in the State in which the company whose shares are alienated is resident.

The protocol also includes that the benefits of the transition (exemption / 50% taxation) will not apply if the alienator's affairs were arranged with the primary purpose to take advantage of the benefits.

In addition to the capital gains revisions, the new Protocol also:

  • Amends Article 9 (Associated Enterprises) to provide for both countries to enter into bilateral discussions for the elimination of double taxation arising from transfer pricing or pricing of related party transactions; and
  • Adds Article 28A (Miscellaneous), which includes the provision that the treaty will not prevent a Contracting State from applying its domestic law and measures concerning the prevention of tax avoidance or tax evasion.

The protocol will enter into force after the ratification instruments are exchanged. However, if it is not in force by 31 March 2017, it will automatically enter into force on 1 April 2017.

Malta-Vietnam

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Tax Treaty between Malta and Vietnam has Entered into Force

The income tax treaty between Malta and Vietnam entered into force on 25 November 2016. The treaty, signed 15 July 2016, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Malta income tax and covers Vietnamese personal income tax and business income tax.

Residence

If a company is considered resident in both Contracting States and its place of effective management cannot be determined or its place of effective management is in neither State, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be entitled to any relief or exemption from tax provided by the treaty.

Service PE

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

Natural Resources Exploitation PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise conducts activities that relate to the exploration for and exploitation of natural resources located in a Contracting State (including offshore activities).

Withholding Tax Rates

  • Dividends -
    • If paid from a Malta company to a beneficial owner in Vietnam, the tax is limited to the amount of Malta tax on the profits out of which the dividends are paid; and
    • If paid from a Vietnamese company to a resident in Malta, 5% if the beneficial owner directly holds at least 50% of the voting power in the paying company; otherwise 15%
  • Interest - 10%
  • Royalties -
    • 5% for royalties paid for the use of, or the right to use, any patent, design or model, plan, secret formula or process, or for information concerning industrial or scientific experience;
    • 10% for royalties paid for the use of, or the right to use, a trade mark or for information concerning commercial experience;
    • Otherwise 15%
  • Technical Fees for technical, managerial or consultancy services - 7.5%

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 deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
  • Gains from the alienation of shares, other than the above, in a company that is resident of the other State, if the alienator directly or indirectly held at least 15% of the capital of the company at any time in the 12-month period preceding the alienation.

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 2017.

Poland-Taiwan

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Update - Tax Treaty between Poland and Taiwan in Force

The income tax treaty (agreement) between Poland and Taiwan was signed on 21 October 2016. The agreement is the first of its kind between the two jurisdictions.

Taxes Covered

The agreement covers Polish personal income tax and corporate income tax. It covers Taiwan profit-seeking enterprise income tax, individual consolidated income tax, and income basic tax.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 3% for royalties paid as a consideration for the use of, or the right to use, industrial, commercial, or scientific equipment; otherwise 10%

Capital Gains

The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:

  • Gains from the alienation of immovable property situated in the other Party;
  • Gains from alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other Party.

Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.

Double Taxation Relief

Both parties apply the credit method for the elimination of double taxation.

Limitation on Benefits

Article 23 (Limitation on Benefits) includes the provision that a resident of a Contracting Party will not receive any benefit provided for in the agreement if the main purpose or one of the main purposes of such resident or a person connected with such resident was to obtain the benefits of the agreement.

Entry into Force and Effect

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

Update - the agreement entered into force on 30 December 2016, and applies from 1 January 2017.

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