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Worldwide Tax News

Approved Changes (1)

Croatia

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Croatia Publishes Guidance on Tax Rulings

On 17 July 2015, the Croatian tax authority published guidance on tax rulings in the Official Gazette. According to the guidance, a binding tax ruling can be obtained by filing a request to the tax office or the large taxpayers office on issues concerning:

  • The tax treatment of investment projects with a value of at least HRK 20 million (~USD 2.9 million);
  • The tax base for a corporate restructuring, such as mergers, divisions, etc.;
  • The application of tax treaties;
  • The determination of Input VAT deductions; and
  • Certain other business matters where tax treatment is unclear

When a ruling is requested, the tax authorities are to issue the ruling with 60 days with a possible extension of 30 days for complex cases. In general, once a ruling is issued, it will remain valid unless the factual circumstances change, the relevant legislation changes, or it is found that the taxpayer did not present factual information to the tax office when the request was made.

Proposed Changes (4)

Indonesia

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Indonesia to Expand Scope of Industries Eligible for Pioneer Incentives

Indonesia's Ministry of Finance has announced plans to expand the scope of industries eligible for the "Pioneer" industry tax holiday incentives to include manufacturers of agricultural product and marine transportation, manufacturing in general if in a special economic zone, and certain infrastructure projects. Currently, the incentive is available for the following industries:

  • Basic metals production;
  • Petroleum refining and/or organic basic chemicals derived from petroleum and natural gas;
  • Industrial machinery;
  • Renewable resources; and
  • Telecommunication equipment

The incentives is an income tax exemption holiday for 5 to 10 years with the condition of a minimum capital investment of IDR 1 trillion (approximately USD 120 million).

Ireland

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Ireland Publishes Knowledge Development Box Feedback Statement

On 30 July 2015, the Ireland Department of Finance published the Knowledge Development Box feedback statement. The statement follows a public consultation held on the implementation of a knowledge development (patent) box in Ireland (previous coverage).

Some of the main issues covered in the feedback statement include:

  • Qualifying Assets would include intellectual property, other than marketing related intellectual property, that is the result of research and development activities;
  • Qualifying Expenditure would generally follow the OECD Frascati Manual, but with a specific exclusion for buildings, and would include a maximum 30% uplift for intra-group outsourcing and acquisitions;
  • Qualifying Income would include only income that is derived from the qualifying asset and calculated in a way that is proportionate with the benefits that are attributable to the qualifying asset;
  • Method of Calculation of Profits would include knowledge development activity as a separate trade with normal expenses taken into account when determining the profits that could avail of the knowledge development box treatment; and
  • Calculation of Income Eligible for the Benefits would be the ratio of qualifying expenditure and overall expenditure to develop the IP asset, multiplied by the income from the IP asset

The Department of Finance will continue to consider the issues through the end of August 2015, and will then finalize the approach and draft legislation to be included in Finance Bill 2015.

Click the following link for the full Knowledge Development Box feedback statement.

Italy

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Italian Government Planning to Cut Corporate Tax Rate to 24%

Italian Prime Minister Metteo Renzi has reportedly stated the government's intention to cut the standard corporate tax (IRES) rate to 24% in 2017. The cut would be included in a series of tax reforms to reduce the tax burden in the country over the next three years, including cuts to individual income tax rates, a reduction in the levy or IRAP (regional production tax) and other measures. Currently, Italy's general effective tax rate is 31.4%, including 27.5% IRES and 3.9% IRAP.

United States

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U.S. IRS Publishes Initial Version of the 2015-2016 Priority Guidance Plan

The U.S. Internal Revenue Service published the Initial version of the 2015-2016 Priority Guidance Plan on 31 July 2015. The guidance covers the 12-month period beginning July 2015 through June 2016 (the plan year). The fourth quarter update of the 2014-2015 plan was also published the same day.

The U.S. Treasury Department's Office of Tax Policy and the IRS use the Priority Guidance Plan to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. It also sets out the schedule for routine publications for each month of the plan year. The 2015-2016 Plan includes 277 projects covering a wide range of issues. In regard to cross border (international) taxation, the plan includes 39 regulation and guidance projects, covering:

  • Subpart F/Deferral;
  • Inbound transactions;
  • Outbound transactions, including inversions;
  • Foreign tax credits;
  • Transfer pricing;
  • Sourcing and expense allocation;
  • Treaties; and
  • Other matters

The 2015-2016 Priority Guidance Plan and the fourth quarter update of the 2014-2015 plan can be found on the IRS Priority Guidance Plan webpage.

Treaty Changes (1)

United Kingdom-Zambia

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Tax Treaty between the UK and Zambia has Entered into Force

On 20 July 2015, the new income and capital tax treaty between the UK and Zambia entered into force. The treaty, signed 4 February 2014, replaces the 1972 tax treaty between the two countries.

Taxes Covered

The treaty covers UK income tax, corporation tax and capital gains tax, and covers Zambian income tax.

Residence

If a company is resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If the authorities cannot reach mutual agreement, the company will not be entitled to the benefits of the treaty aside from those covered in Articles 23 (Elimination of Double Taxation), 24 (Non-Discrimination), and  25 (Mutual Agreement Procedure).

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through employees or other engaged personnel if the activities continue 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 - 15% when paid out of income derived directly or indirectly from immovable property by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempted from tax; otherwise 5%
  • Interest - 10%
  • Royalties - 5%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 21 (Other Income) 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 dividends, interest or royalties are 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;
  • 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 comparable interests 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 generally apply the credit method for the elimination of double taxation. However, the UK may apply the exemption method in the case of dividends and the profits of a permanent establishment if the conditions for an exemption under UK law are met.

Effective Date

The treaty applies from 1 January 2016.

The provisions of the 1972 treaty between the two countries will cease to have effect for the relevant taxes on the dates the new treaty applies and will terminate on the last such date.

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