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Approved Changes (4)

India

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Indian Court Holds Sale of Foreign-Owned Intellectual Property Registered in India Not Taxable

The Delhi High Court recently issued a decision concerning whether the sale of foreign-owned intangible assets registered and licensed in India is taxable in India. The case involved Australia-based CUB Pty Ltd (formerly Foster's Australia).

In 2006, the Foster's Group underwent a restructuring that involved a sale purchase agreement with SAB Miller, which included the grant of exclusive and perpetual license in relation to Foster’s intellectual property confined to India. As part of the sale purchase agreement, a brand licensing agreement with Foster's Indian subsidiary for the use of trademarks was terminated.

Given that sale involved intellectual property related to India, CUB applied for an advance ruling from India's Authority of Advance Rulings (AAR) on whether income resulting from the transaction was subject to tax. The AAR found that the intellectual property had a tangible presence in India because it was registered in India and because significant goodwill for the brand had been developed in India by the Indian subsidiary. Based on this reasoning, it was determined that the intellectual property was situated in India, and as a capital asset, the sale was subject to tax in India even though it was executed outside the country. CUB appealed the AAR's ruling, arguing primarily that as the owner of the intellectual property at the time, the property must be considered situated in Australia and not taxable in India.

In its decision, the High Court sided with CUB. It determined that because India's tax legislation does not provide for the determination of where intellectual property is situated, it must therefore be determined based on where the owner is situated. In coming to this decision, the Court reasoned that if the legislature had intended to treat intangible property registered and licensed in India as situated in India, it would have specifically provided for such treatment. Based on this, the sale was not subject to tax.

Pakistan

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Pakistan Ordinance Issued on Taxation of Real Estate Capital Gains

On 31 July 2016, a presidential ordinance was issued in Pakistan that amends the taxation of capital gains from the sale of real estate. The main aspects of the ordinance include:

  • The holding period for the capital gains exemption is reduced to three years (had been increased from two years to five years in the 2016 Budget) and the rates based on the holding period for property acquired on or after 1 July 2016 are set as follows:
    • Held for less than one year - 10%;
    • Held for one year or more but less than two - 7.5%;
    • Held for two years or more but less than three - 5%;
  • For property acquired before 1 July 2016 and held less than three years, the rate is set at 5%;
  • The threshold for withholding tax on property purchases is increased from PKR 3 million to PKR 4 million; and
  • The Federal Board of Revenue is made responsible for establishing and publishing property valuation tables.

The ordinance has immediate effect.

Ukraine

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Ukraine Clarifies that Operational Funding Not Subject to Transfer Pricing Rules

Ukraine's State Fiscal Service (SFS) recently published guidance letter No. 15281/6/99-99-15-02-02-15, which clarifies the transfer pricing treatment of operational funding transactions from a non-resident to its permanent establishment in Ukraine. According to the letter, for the 2013 - 2014 tax years, operational funding transactions are not considered controlled transactions as long as the funds were used exclusively to support the activities of the PE. However, the transactions are still included in determining if the UAH 50 million related party transaction threshold is met for transfer pricing purposes in those years. With the amendments to the transfer pricing rules effective from 1 January 2015, a condition for related party transactions to be deemed controlled is that the transaction affects the taxation of the parties. Based on this, the letter states that operational funding transactions are not considered controlled transactions under the new rules as well.

Vietnam

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Vietnam Publishes Release on Investment Tax Incentives

On 1 August 2016, the Vietnam Ministry of Finance published a release on the availability of certain tax incentives governed by Circular 83/2016/TT-BTC (previous coverage). The release covers:

  • The import duty exemption for imported goods as fixed assets that are not produced domestically;
  • The five-year import duty exemption for imported materials, supplies and components not produced domestically; and
  • The non-agricultural land use tax exemption.

The investments incentives are available for:

  • Projects with operational sectors subject to special investment incentives;
  • Projects operating in areas with extremely difficult socio-economic conditions;
  • Projects with capital of VND 6 trillion or more; and
  • Certain other specified projects.

Click the following link for the release.

Proposed Changes (1)

Canada

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Canada Consults on Draft Tax Law Changes Including CbC Reporting

On 29 July 2016, the Canadian Department of Finance published for consultation draft legislative proposals from the 2016 Budget (previous coverage) relating to the Income Tax Act, Excise Tax Act, Excise Act, 2001 and related legislation. The draft proposals include a number of measures addressing evasion/avoidance, transparency and other issues, including Country-by-Country (CbC) reporting.

CbC Reporting

CbC reporting requirements will be implemented based on the guidelines developed as part of Action 13 of the OECD BEPS Project. The requirements will apply for fiscal years beginning on or after 1 January 2016 for MNE groups operating in Canada if the group's consolidated annual revenue meets or exceeds EUR 750 million in the previous year. The ultimate parent of the group must submit the CbC report within 12 months following the close of its fiscal year if resident in Canada. If the ultimate parent is not resident in Canada, a Canadian-resident constituent entity of the group will be required to file by the same deadline if:

  • The ultimate parent is not required to submit a CbC report in its jurisdiction of residence;
  • The ultimate parent's jurisdiction of residence does not have a qualifying competent authority agreement in effect for the automatic exchange of CbC reports with Canada by the date the CbC report is due; or
  • There has been a systemic failure of the ultimate parent's jurisdiction for exchange, and the constituent entity has been notified by the Minister of National Revenue of the failure.

In the case of systemic failure, the deadline for filing by a Canadian-resident constituent entity may be extended up to 30 days after the notification is received. If there are multiple constituent entities, one may be designated to file the CbC report. In addition, if a qualifying surrogate parent entity has been designated in another jurisdiction to file a CbC report and the report is exchanged with Canada, a non-parent Canadian-resident constituent entity will not be required to file.

Failure to submit the CbC report when required will result in a penalty of CAD 500 per month for up to 24 months where no demand has been served, and CAD 1,000 per month if a demand has been served and not complied with.

Other Proposals

Other legislative proposals include those relating to:

  • Alternative arguments in support of assessments;
  • Taxation of switch fund shares;
  • Sales of linked notes;
  • Expanding tax support for clean energy;
  • Emissions trading regimes;
  • Multiplication of the small business deduction;
  • Avoidance of the business limit and taxable capital limit;
  • Life insurance policies;
  • Debt-parking to avoid foreign exchange gains;
  • Valuation for derivatives;
  • Eligible capital property;
  • The Common Reporting Standard penalty and consequential amendments;
  • Cross-border surplus stripping; and
  • Extension of the back-to-back rules.

Click the following link for the legislative proposals and the explanatory notes. The consultation will run through 27 September 2016, after which the legislation will be tabled in parliament.

Treaty Changes (2)

India-Saint Kitts and Nevi

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TIEA between India and St. Kitts and Nevis has Entered into Force

According to a recent update from the Indian Ministry of Finance, the tax information exchange agreement with St. Kitts and Nevis entered into force on 2 February 2016. The agreement, signed 11 November 2014, is the first of its kind between the two countries and is line with the OECD standard for information exchange. It applies from the date of its entry into force.

San Marino-Brazil-New Zealand

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San Marino Ratifies TIEAs with Brazil and New Zealand

On 26 July 2016, San Marino published the decrees ratifying the pending tax information exchange agreements with Brazil and New Zealand. The agreements, signed 31 March 2016 with Brazil and 1 April 2016 with New Zealand, are the first of their kind between San Marino and the respective countries.

The agreement with Brazil will enter into force on the first day of the month following the exchange of the ratification instruments, and will apply for criminal tax matters from the date of its entry into force and for other matters from 1 January of the year following its entry into force. The agreement with New Zealand will enter into force once the ratification instruments are exchanged, and will generally apply from that date.

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