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Worldwide Tax News

Approved Changes (2)

Bulgaria

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Bulgaria Adopts PE Transparency Measures

Measures to increase transparency in relation to permanent establishments (PE) in Bulgaria were published in the Office Gazette on 27 September 2016. With effect from that date, non-resident entities operating in the country through a PE are required to disclose in their annual tax declaration the identification of any owners/shareholders with a participation of at least 10%.

France

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France Publishes Implementing Decree for CbC Reporting

On 1 October 2016, France published Decree No. 2016-1288 of 29 September 2016 in the Official Gazette. The decree implements the country's Country-by-Country (CbC) reporting requirements, which were introduced as part of the Finance Act 2016 (previous coverage). The CbC reporting requirements apply for fiscal years beginning on or after 1 January 2016 for MNE groups meeting the standard EUR 750 million annual consolidated revenue threshold.

The implementing decree sets out the content requirements of the CbC report, which are in line with BEPS Action 13. Values included in the report are to be in Euros or the currency used to prepare the consolidated financial statements. The decree also includes that notification of the reporting entity must be included with the annual tax return.

Click the following link for Decree No. 2016-1288 (French language).

Proposed Changes (1)

United Kingdom

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UK Labour Party Leader Pledges to Increase Corporation Tax

The UK Labour Party is planning to increase the corporation tax as part of efforts to improve the country's education system. While speaking at an annual conference in Liverpool on 28 September 2016, Labour Party leader Jeremy Corbyn announced that the party is pledging to raise corporation tax by less than 1.5% to fund a national education service to provide allowances for students and grants to universities to help cover education costs. As framed by Corbyn in his speech, businesses should contribute to improving education since they will be benefit from the economic success of a skilled workforce.

Click the following link for the full text of the speech.

Treaty Changes (6)

Bulgaria-Montenegro

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SSA between Bulgaria and Montenegro has Entered into Force

The social security agreement between Bulgaria and Montenegro entered into force on 1 October 2016. The agreement, signed 1 February 2016, replaces the 1957 social security agreement between Bulgaria and the former Yugoslavia as it applies in respect of Montenegro.

Estonia-Kyrgyzstan

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Estonia Authorizes Signature of Draft Tax Treaty with Kyrgyzstan

On 22 September 2016, the Estonian government authorized the signature of the draft income tax treaty with Kyrgyzstan, which was initialed on 20 April. The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force.

Additional details will be published once available.

European Union-Poland

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European Commission Asks Poland to Implement Financial Account Information Exchange Rules

The European Commission has announced as part of its September infringements' package: key decisions that it has requested Poland to fully transpose Council Directive 2014/107/EU. The Directive amends the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) to provide for the mandatory automatic exchange of financial account information and expands the scope of information to be exchanged to include interest, dividends, gross proceeds from the sale of financial assets and other income, and account balances. Although EU Member States were required to transpose the rules by 1 January 2016, Poland has not yet informed the Commission that it has implemented the necessary measures. If Poland does not adequately respond within two months, the country may be referred to the Court of Justice of the EU.

Hungary-Turkmenistan

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Hungary Approves Tax Treaty with Turkmenistan

According to a release by the Hungarian Ministry of National Economy, the National Assembly approved the pending income and capital tax treaty with Turkmenistan on 26 September 2016. The treaty, signed 1 June 2016, is the first of its kind between the two countries. It will enter into force 30 days after the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

Click the following link for details of the treaty.

Japan-Slovenia

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Tax Treaty between Japan and Slovenia Signed

On 30 September 2016, officials from Japan and Slovenia signed an income tax treaty. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Japanese income tax, corporation tax, special income tax for reconstruction, local corporation tax and local inhabitant taxes. It covers Slovenian tax on income of legal persons and tax on income of individuals.

Resident

Article 4 (Resident) includes the provision that 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. If no agreement is reached, the company will not be entitled to any relief or exemption from tax provided by the treaty.

In addition, Article 4 includes the provision that if a resident of a Contracting State is subject to tax in that State only on income remitted to or received in that State, then any relief or exemption from tax provided for by the treaty in the other State will be limited to the amount remitted to or received in the first-mentioned State.

Withholding Tax Rates

  • Dividends - 5% (the final protocol to the treaty includes that the rate will be 10% if the paying company is entitled to a deduction for dividends paid to its beneficiaries, or liable to tax on its income at a reduced rate if it distributes its profits)
  • Interest - 5%
  • Royalties - 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 shares or comparable interests if, at any time during the 365 days preceding the alienation, the shares or comparable interests derived at least 50% of their value directly or indirectly from immovable property situated in the other State (exemption if the shares or comparable interests are traded on a recognized stock exchange and the alienator together with related parties own in the aggregate less than 5%); and
  • Gains from alienation of any property, other than immovable 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.

Limitation on Benefits

Article 21 (Limitation on Benefits) includes the provision that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit. However, a benefit may still be granted if it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Double Taxation Relief

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

Enter into Force and Effect

The treaty will enter into force 30 days after the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force. However, Articles 25 (Exchange of Information) and 26 (Assistance in the Collection of Taxes) will apply from the date the treaty enters into force.

Latvia-Switzerland-Vietnam

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Latvia Approves Signing of Tax Treaty Protocol with Switzerland and Tax Treaty with Vietnam

On 20 September 2016, Latvia’s Prime Minister approved the signing of a protocol to the 2002 income and capital tax treaty with Switzerland and the signing of an income tax treaty with Vietnam. The protocol to the Latvia-Switzerland income tax treaty was initialed on 3 December 2015 and will be the first to amend the treaty. The Latvia-Vietnam treaty was initialed on 9 October 2015 and will be the first of its kind between the two countries.

Additional details of the protocol and the treaty will be published once available.

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