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Approved Changes (3)

Brazil

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Brazil Amends Simplified Tax Regime

On 28 October 2016, Complementary Law No. 155 of 2016 was published in Brazil's Official Gazette. The Law makes certain amendments to the country's simplified tax regime (Simples Nacional), including:

  • The threshold for qualifying small businesses is increased to annual gross income of at most BRL 4.8 million (for individuals, the threshold is increased to BRL 81,000);
  • The scope of the regime is expanded to include businesses producing or selling alcoholic beverages, subject to certain conditions; and
  • Qualifying taxpayers under the regime are allowed to pay outstanding tax debts as of 31 May 2016 in up to 120 installments.

The changes to the simplified regime generally apply from 1 January 2018, except for the installment payment option, which applies from 28 October 2016.

Click the following link for Complementary Law No. 155 as published in the Official Gazette.

Estonia

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Estonian Parliament Approves VAT Registration Threshold Increase

On 27 October 2016, the Estonian parliament approved amendments to the Value Added Tax (VAT) Act. The main changes include an increase in the registration threshold to support smaller businesses and the introduction of the reverse charge for certain metal products to reduce fraud. The changes apply as follows:

From 1 January 2018, the VAT registration threshold will be increased from the current EUR 16,000 in annual sales to EUR 40,000. Businesses below the threshold may still register voluntarily in order to claim input VAT deductions. The change does not affect the distance-selling threshold of EUR 35,000.

From 1 January 2017, the reverse charge will apply for metal products used in the construction and engineering sectors, including sheet metal, water and gas pipes, metal beams, and certain other products.

United States

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U.S. IRS Releases 2016-2017 Priority Guidance Plan First Quarter Update

The U.S. IRS released the first quarter update of the 2016-2017 Priority Guidance Plan on 31 October 2016. The initial 2016-2017 plan was released 15 August and included 281 projects. The first quarter update includes six additional projects that have become priorities.

The U.S. Treasury Department's Office of Tax Policy and the IRS use the Priority Guidance Plans to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. The plans also set out the schedule for routine publications for each month of the plan year.

Both the initial and updated Priority Guidance Plan versions for current and prior years can be found on the IRS Priority Guidance Plan webpage.

Proposed Changes (3)

European Union-Austria-Belgium-France-Germany-Greece-Italy-Portugal-Slovak Republic-Slovenia-Spain

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Council of the European Union Publishes Note on the State of Play of the Financial Transaction Tax

The Council of the European Union has published a note from the General Secretariat concerning the state of play of the ongoing enhanced cooperation procedure for the introduction of a Financial Transaction Tax (FTT).

According to the note, the participating Member States have indicated that further negotiations on FTT and drafting of a compromise text of the future Directive will be made against the basis of the agreed upon broad lines relating to a number of the building blocks of FTT (the "Core Engine"). As provided in the note, this "Core Engine" includes the following:

I. Territoriality

  • Shares: Cumulation of residence, issuance principles. As a first step, harmonized taxation shall only be applied to shares of the participating Member States. After a transition period, it shall be extended to all shares unless participating Member States decide otherwise.
  • Derivatives: as in Commission proposal.

II. Tax base for derivatives

  • For option-type derivatives, the tax base should preferably be based on the option premium.
  • For products others than option-type derivatives and coming with a maturity, a kind of term-adjusted notional amount/market value (where available) might be considered as the appropriate taxable base.
  • For products others than option-type derivatives and not coming with a maturity, the notional amount/market value (where available) might be considered as the appropriate taxable base.
  • In some cases, adjustments to the tax rates or to the definition of the tax base might be necessary in order to avoid distortions.

III. Scope of derivatives

  • Repos/reverse repos and transactions of public debt managers and their counterparties shall be exempt from the scope of the Directive.
  • Apart from that, all derivatives shall be taxed; however, certain products with directly underlying public debt should be exempt during a transition period that may be extended if agreed to.

IV. Market Making (for shares markets)

A reduced minimum rate (80% of normal tax rate) can be applied for market makers bound by a contract with a specific trading venue to carry out market making activities with regard to specific shares, irrespective of whether it is proprietary trading or market making.

V. Taxable event for securities

Taxation of gross transactions.

VI. Transaction chain

Taxation of all transactions in the chain except agents and clearing members (when acting as facilitators) according to Commission proposal.

VII. Real economy and pension funds

Further analysis with regard to real economy and pension funds is required.

Currently, 10 EU Member States are participating in the enhanced cooperation procedure for the FTT: Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovak Republic, Slovenia, and Spain.

Finland

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Finland Planning Extension for First Year CbC Notification

According to recent reports, the Finnish government is planning to provide a deadline extension for the Country-by-Country (CbC) reporting notification for the first year. Although Finland's CbC reporting requirements have not yet been approved, the country is required and has proposed to implement the requirements from fiscal year 2016 as per Council Directive (EU) 2016/881 (previous coverage). This includes the requirement that notification of the reporting entity be submitted with the tax authorities by the end of the fiscal year being reported on, which for the first year, would be 31 December 2016. The planned extension in Finland would allow companies to file the CbC notification by 1 June 2017 for the first year.

United Kingdom

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UK OTS Report on Simplifying the Corporation Tax Computation

On 1 November 2016, the UK Office of Tax Simplification (OTS) issued a progress report and call for evidence on simplifying the Corporation Tax computation. The report covers the main areas identified where simplification could be considered, and where there is potential for reducing the differences between accounting profit and tax profit, including:

  • The many adjustments between accounting profit and CT profit: burden vs. value;
  • Ways of relieving or incentivizing capital expenditure: complexity and certainty;
  • The ‘Schedular’ system – including whether the distinction between trading and investment companies is still relevant, and the extent to which capital gains are paid by companies;
  • Making Tax Digital – where this creates opportunities for a simpler regime;
  • Reporting and compliance processes that could be simplified; and
  • The distinction between small and large companies:
    • Simpler tax for smaller companies; and
    • Streamlining tax processes for large and complex companies.

Click the following link for the OTS CT Review - Progress Report. The consultation ends 31 December 2016.

Treaty Changes (2)

Bahrain-Portugal

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Tax Treaty between Bahrain and Portugal has Entered into Force

The income tax treaty between Bahrain and Portugal entered into force on 1 November 2016. The treaty, signed 26 May 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Bahrain income tax payable under Amiri Decree No. 22/1979, and Portuguese personal income tax, corporate income tax, and surtaxes on corporate income tax.

Hydrocarbon PE

The treaty includes the provision that a permanent establishment will be deemed constituted if, for a period of more than 90 days, an enterprise of one Contracting State is directly engaged in the exploration for or production of crude oil or other natural hydrocarbons arising from the ground in the other State, or when refining crude oil in its facilities in the other State.

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 15%
  • Interest - 10%
  • 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 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 apply the credit method for the elimination of double taxation.

Limitation on Benefits

Article 27 (Limitation on Benefits) includes the provision that the benefits of the treaty will not be granted to a resident of a Contracting State that is not the beneficial owner of the income derived from the other State. In addition, the benefits of the treaty will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the property or right in respect of which the income is paid was to take advantage of the benefits by means of such creation or assignment.

Effective Date

The treaty applies from 1 January 2017.

Untd A Emirates-Slovak Republic

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U.A.E. Approves Pending Tax Treaty with Slovakia

On 30 October 2016, the United Arab Emirates Cabinet approved the pending income tax treaty with Slovakia. The treaty, signed 21 December 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Slovak tax on income of individuals and tax on income of legal persons. It covers U.A.E. income tax and corporate tax.

Income from Hydrocarbons

Article 5 (Income from Hydrocarbons) includes the provision that the treaty will not affect the right of either one of the Contracting States to apply their domestic laws and regulations related to the taxation of income and profits derived from hydrocarbons and its associated activities situated in the territory of the respective Contracting State.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other personnel in a Contracting State, provided that 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 - 0%
  • 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 shares in a company or interest in a partnership, trust or estate, if deriving at least 50% of their value from immovable property situated in the other State (exemption for shares listed on a recognized stock exchange); and
  • 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 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.

Limitation on Benefits

Article 27 (Limitation on Benefits) includes the provision that the relief from taxation provided for by the treaty will only apply for specified persons, including an individual, a Contracting State, a person engaged in the active conduct of a trade or business, a company whose share are listed on a recognized stock exchange, etc. However, persons that are not specified may still be granted the benefits of the treaty if so determined by the competent authority of the State in which the income arises.

Entry into Force and Effect

The treaty will enter into force on the first day of the third month following the exchange of the ratification instruments, and will apply from 1 January of the year following its entry into force.

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