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Approved Changes (8)

Austria

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Austrian Parliament Approves Tax Law Amendment Act 2015

On 17 December 2015, Austria's Federal Council (Bundesrat) approved the Tax Law Amendment Act 2015, which includes new exit tax and equity contributions repayment rules. This completes the parliamentary process as the National Council (Nationalrat) approved the legislation on 9 December 2015.

New Exit Tax Rules

The exit tax rules are amended by replacing the exit tax deferral option with a payment in installments option in cases where Austrian business assets are transferred to an EU or EEA Member State with which Austria has entered into an information exchange and enforcement agreement. If elected, installments are made over 7 years for fixed assets and 2 years for current assets. If the assets are subsequently transferred to a non-EU/EEA country, the outstanding amount of exit tax becomes due.

Repaying Equity Contributions

The rule introduced in the Tax Reform Act 2015/16 (previous coverage) that requires companies to first distribute operating profits before repaying equity contributions is repealed. However, certain conditions apply:

  • In order to repay equity contributions, a positive amount of tax equity is required; and
  • In order to distribute operating profits, a positive amount of internal financing is required.

The repayment of equity contributions is exempt from withholding tax, while the distribution of profits is subject to 25% withholding.

Hong Kong

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Hong Kong IRD Publishes Guidance on Court-Free Company Amalgamations

On 30 December 2015, the Hong Kong Inland Revenue Department published guidance on the treatment of court-free company amalgamations. The guidance is as follows.

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Court-free Company Amalgamations

1. Profits tax consequences of a court-free amalgamation under the Companies Ordinance (Cap. 622) may not be the same as those in specific private merger ordinances in Hong Kong or in universal succession cases under foreign laws, which are not carried out for the purpose of obtaining tax benefits.

2. If the Commissioner is satisfied that the court-free amalgamation is not carried out for the purpose of obtaining tax benefits, the provisions in sections 61A or 61B will not be made applicable to the amalgamation (e.g. the denial of losses carried forward from the amalgamating company to the amalgamated company) and the amalgamated company will generally be treated as far as possible as if it is the continuation of and the same person as the amalgamating company for the purposes of the Inland Revenue Ordinance.

3. Pending the decision to amend the provisions in the Inland Revenue Ordinance to provide for a statutory framework to address the issues relating to court-free amalgamations, the Assessor will make assessment in accordance with the following practice:

Amalgamation with sale of assets

4. If the court free amalgamation is structured with a sale of assets on an arm’s length basis, the provisions relating to sale of assets will be applied to such amalgamation to assess any deemed trading receipts and to make balancing adjustments.

Amalgamation without sale of assets

5. The amalgamating company is treated on the day immediately before the amalgamation as having:

  • ceased to carry on its trade, profession or business; and
  • realized its trading stock in the open market.

6. The amalgamated company is treated on the date of amalgamation as having:

  • continued to carry on the trade, profession or business of the amalgamating company by way of succession;
  • qualified for annual allowances in respect of commercial/industrial buildings or structures by way of its entitlement to the relevant interests subject to balancing charges on disposal not exceeding the aggregate of the  allowances made to it and the amalgamating company;
  • qualified for annual allowances in respect of machinery or plant by reference to reducing values still unallowed subject to balancing charges on  disposal not exceeding the aggregate of allowances made to it and the amalgamating company;
  • qualified for any unexpired allowances/deduction in respect of capital expenditure incurred by the amalgamating company under sections 16B, 16E, 16EA, 16F, 16G and 16I subject to the assessment of proceeds as trading receipts on sale;
  • entitled to deductions that the amalgamating company would have been allowed but for the amalgamation; and
  • earned the amount that would have been income or trading receipt of the amalgamating company but for the amalgamation.

Tax losses

7. Tax losses are specific to a company and cannot be transferred to other group companies. Group loss relief and deduction for acquired losses through court-free amalgamation procedure are not to be allowed.

8. Tax losses can be used to set off against profits of the amalgamated company on the following conditions:

  • tax losses are incurred after the amalgamating company and the amalgamated company have become wholly owned subsidiaries of the same group;
  • tax losses are carried forward by the amalgamating or amalgamated company in a trade or business, which continues until amalgamation;
    • tax losses if brought forward in the amalgamated company, the amalgamated company has adequate financial resources (excluding intra-group loans) to purchase the trade or business if not via amalgamation;
    • tax losses brought forward from the amalgamating company can only be used to set off against the profits of the amalgamated company derived from the same trade or business succeeded from the amalgamating company.

9. The amalgamating company and the amalgamated company should seriously consider applying for an advance ruling under section 88A if tax losses available for set off on amalgamation are material in quantum.

Profits tax return

10. The amalgamated company should inform the Commissioner in writing of the amalgamation within one month from the date of the amalgamation and submit a profits tax return for each amalgamating company for the year of assessment in which the date the amalgamating company is regarded as having ceased its business falls.

Rights and obligations

11. The amalgamated company should undertake all obligations imposed on the amalgamating company, in particular record keeping requirement, return filing requirement and provision of information requirement, and shall assume all its tax liabilities, certain or contingent, in respect of the year of assessment in which the amalgamating company is regarded as having ceased its business and all prior years of assessment.

Iceland

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Iceland Adopts 2016 Budget Tax Measures

On 21 December 2015, Iceland's parliament adopted tax measures included in the 2016 Budget. The main measures are as follows.

Individual Income Tax Reduced

From 1 January 2016, the lower individual income tax bracket rate is reduced from 22.86% to 22.68%, and will be further reduced to 22.50% for 2017. The middle tax bracket rate is reduced from 25.30% to 23.90% in 2016, and will be removed in 2017. The top tax bracket rate remains at 31.80% for 2016.

The standard 14.44% municipal rate, which applies in addition to the above income tax rates, is increased to 14.45%.

The changes result in the following brackets and effective rates for 2016:

  • up to ISK 4,032,420 - 37.13%
  • over ISK 4,032,420 up to 10,043,880 - 38.35%
  • over ISK 10,043,880 - 46.25%

Payroll Taxes

Total payroll taxes (social security) are reduced from 7.49% to 7.35%.

Exit Tax

The following changes are made concerning exit tax

  • A bank guarantee is no longer required for the deferral of exit tax, as long as there is adequate information exchange or mutual assistance in the collection of taxes between Iceland and the other country; and
  • Exit tax will no longer be immediately imposed when the registered seat of a company is transferred from Iceland to another EEA state, or when assets are transferred to be used outside Iceland.

Import Duties Canceled

From 2016, the import duties on clothing and footwear are canceled, and from 2017, all import duties will be canceled expect for those imposed on specified foods.

Luxembourg

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Luxembourg Publishes Legislation Implementing Anti-Hybrid Rules, Abolishing IP Regime, Amending Alternative Minimum Tax and other Measures

On 23 December 2015, Luxembourg published legislation implementing a number of measures as approved by parliament on 17 December 2015. The main measures are summarized as follows.

Anti-Hybrid and Anti-Abuse

Amendments to the EU Parent-Subsidiary Directive are incorporated into domestic law concerning the participation exemption. Under the rules, the participation exemption provided for in the Directive will not be granted if:

  • A profit distribution made by a subsidiary to its parent company is deductible in the Member State of the subsidiary; or
  • An arrangement or a series of arrangements are put in place with the main purpose or one of the main purposes of receiving a tax benefit and not for valid commercial reasons that reflect economic reality.

The new rules apply from 1 January 2016.

IP Regime Abolished

Because the current IP regime is not in line with the modified nexus approach of Action 5 of the OECD BEPS Project, it is abolished effective 1 July 2016, with a 5-year grandfathering period ending 30 June 2021.

The grandfathering period is limited in certain cases, including for IP acquired from a related entity after 31 December 2015, but prior to 1 July 2016. In such case,  the grandfathering will be limited unless the IP was already eligible for the Luxembourg IP regime or corresponding foreign regime prior to acquisition as follows:

  • The 80% corporate income tax exemption under the current regime will end 31 December 2016; and
  • The 100% net wealth tax exemption will end 31 December 2017.

A new IP regime will be developed and implemented to replace the old regime.

IP Regime Information Exchange

The Luxembourg tax authorities will exchange information with the competent authorities of other countries on the identity of taxpayers benefiting from the IP Regime. This will apply for qualifying IP created or acquired after 6 February 2015. The information exchange is to take place at the earlier of:

  • 3 months after the date the authorities become aware the benefit was obtained; or
  • 1 year after the tax return for the relevant tax year is filed.

The exchange will take place under the exchange of information provisions of an applicable tax treaty, tax information exchange agreement, the EU Mutual Assistance Directive, or the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters.

Reduced Net Wealth Tax Rate

A reduced net wealth tax rate of 0.05% is introduced for the net wealth of companies exceeding EUR 500 million. With the change, the standard net wealth tax rate of 0.5% applies on the first EUR 500 million and the excess will be subject to the 0.05% rate.

The new rate applies from 1 January 2016.

Minimum Corporate Tax Replaced

The alternative minimum corporate income tax is converted to a minimum tax under the net wealth tax as follows:

  • Fixed minimum tax of EUR 3,210 for specific resident investment vehicles (SICAR, Securitization Vehicle and SEPCAV/ASSEP) if financial assets exceed 90% of its total balance sheet in a given year and such assets exceed EUR 350,000; otherwise
  • Contingent minimum tax based on the net wealth of companies as follows:
    • up to EUR 350,000 - EUR 535
    • over EUR 350,00 up to 2 million - EUR1,605
    • over EUR 2 million up to 10 million - EUR 5,350
    • over EUR 10 million up to 15 million - EUR 10,700
    • over EUR 15 million  up to 20 million - EUR 16,050
    • over EUR 20 million up to - 30 million - EUR 21,400
    • over EUR 30 million - EUR 32,100

With the change, the set minimum taxable net wealth of EUR 12,500 for SAs and SEs and EUR 5,000 for SARLs is abolished.

The minimum tax is reduced by the amount of corporate income tax due in the preceding year and for 2016 with the amount of corporate income tax due in the same year.

The change applies from 1 January 2016.

Net Wealth Tax Reserve Limitation

Under current rules, net wealth tax may be reduced if a net wealth tax reserve is created and maintained for at least five years, and the reserve is only used for increasing share capital. If used for any other purpose, the reduction is added to the net wealth tax of the year of use. An additional limitation is introduced, where the reduction is also added to the net wealth tax if the reserve is used to increase share capital and the share capital is subsequently reduced within five years from the creation of the reserve.

The change applies from 1 January 2016.

Tax Amnesty

A tax amnesty program is introduced for individual taxpayers to promote disclosure prior to the beginning of tax litigation that will likely result from Luxembourg's expanding information exchange obligations with foreign tax administrations.

Under the program, taxpayers that disclose all unreported assets and pay taxes due on related income by the end of 2016 will be subject to a flat penalty of 10% of the tax amount, with no additional penalties imposed for tax evasion or fraud. If disclosed and paid by the end of 2017, the penalty is 20%.

Norway

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Norway 2016 Budget Measures Enacted

Norway enacted legislation for the 2016 Budget measures on 18 December 2015. The main measures include:

  • The corporate tax rate is reduced from 27% to 25% in 2016 (a 22% rate is planned in 2018);
  • The ordinary individual income tax rate is reduced from 27% to 25%, and the surtax is replaced with a new progressive tax with five brackets:
    • up to NOK 159,800 - 0%
    • over NOK 159,800 up to 224,900 - 0.44%
    • over NOK 224,900 up to 565,400 - 1.7%
    • over NOK 565,400 up to 909,500 - 10.7%
    • over NOK 909,500 - 13.7%
  • The 8% reduced VAT rate is increased to 10%;
  • The interest deduction limitation for related party debt is reduced from 30% of EBITDA to 25%;
  • A restriction on the participation exemption for dividends is introduced, where the exemption will not apply if the dividends are deductible for the distributing company (hybrid situations); and
  • The maximum deduction cap for the Skattefunn R&D incentive scheme is increased from NOK 15 million to 20 million for internal R&D costs, and from NOK 33 million to 40 million for costs incurred for R&D work outsourced to approved research institutions.

The changes apply from 1 January 2016.

Sweden

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Sweden to Follow New Transfer Pricing Guidance based on Action 8-10 of the OECD BEPS Project

On 22 December 2015, the Swedish tax authority published a notice in its online transfer pricing guidance (Swedish language) that it will follow the OECD guidelines developed as part of Action 8-10 of the OECD BEPS Project as included in the final report Aligning Transfer Pricing Outcomes with Value Creation. These guidelines cover:

  • Guidance for Applying the Arm's Length Principle;
  • Commodity Transactions;
  • Guidance on the Transactional Profit Split Method;
  • Intangibles;
  • Low Value-adding Intra-group Services; and
  • Cost Contribution Arrangements.

According to the notice, the updated guidance will be incorporated into legal guidance in the spring of 2016, and will be considered along with current legal guidance until the incorporation is complete. The notice also states that the aspects of the new guidance that clarify existing transfer pricing principles may also be applied retroactively.

Turkey

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Turkey Individual Income Tax Rates for 2016

On 25 December 2015, the Turkish Ministry of Finance issued the individual income tax rates applicable for 2016. The brackets and rates for employment income are as follows:

  • up to TRY 12,600 - 15%
  • over TRY 12,600 up to 30,000 - 20%
  • over TRY 30,000 - up to 110,000 - 27%
  • over TRY 110,000 - 35%

For all other non-employment income, the brackets and rates are as follows:

  • up to TRY 12,600 - 15%
  • over TRY 12,600 up to 30,000 - 20%
  • over TRY 30,000 - up to 69,000 - 27%
  • over TRY 69,000 - 35%

The new brackets and rates are effective 1 January 2016.

Ukraine

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Ukraine Clarifies Availability of Foreign Tax Credits

Ukraine's State Fiscal Service recently issued guidance clarifying the availability of tax credits for foreign taxes paid. In general, a foreign tax credit is only available if there is a tax treaty between Ukraine and the relevant foreign jurisdiction and the taxpayer provides official confirmation from the relevant foreign tax authority that the tax was paid. The guidance clarifies that the amount of foreign tax credit is limited to the Ukrainian income tax that would be due on the foreign income for the reporting period, and any excess foreign taxes paid may not be carried forward.

Treaty Changes (6)

Bahrain-Bangladesh

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Update - Tax Treaty between Bahrain and Bangladesh

The income tax treaty between Bahrain and Bangladesh was signed 22 December 2015. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Bahrain income tax and Bangladesh income tax.

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 15%
  • 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; 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.

Entry into Force and Effect

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

Germany-Uzbekistan

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Protocol to the Tax Treaty between Germany and Uzbekistan has Entered into Force

On 29 December 2015, the protocol to the 1999 income and capital tax treaty between Germany and Uzbekistan entered into force. The Protocol, signed 14 October 2014, is the first to amend the treaty. It replaces Article 26 (Exchange of Information), bringing it in line with the OECD standard for information exchange, and adds Article 26A concerning administrative assistance in tax collection. It also amends paragraph 6 of the protocol originally signed with the treaty concerning exchange of information.

The protocol applies from 1 January 2016.

Ireland-Luxembourg

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Protocol to the Tax Treaty between Ireland and Luxembourg has Entered into Force

On 11 December 2015, the protocol to the 1972 income and capital tax treaty between Ireland and Luxembourg entered into force. The protocol, signed 27 May 2014, is the first to amend the treaty. It replaces Article 27 (Exchange of Information), bringing it line with the OECD standard for information exchange.

The protocol applies from 1 January 2016.

Kuwait-Kyrgyzstan

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Update - Tax Treaty between Kuwait and Kyrgyzstan

The income and capital tax treaty between Kuwait and Kyrgyzstan was signed 13 December 2015. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Kuwaiti corporate income tax, income tax of the Neutral Zone, and tax subjected according to the Supporting of National Employees. It covers Kyrgyz tax on profits and income of legal persons, and individual income tax.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • 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; 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.

Entry into Force and Effect

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

Lithuania-Luxembourg

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Protocol to the Tax Treaty between Lithuania and Luxembourg has Entered into Force

On 11 December 2015, the protocol to the 2004 income and capital tax treaty between Lithuania and Luxembourg entered into force. The protocol, signed 20 June 2014, is the first to amend the treaty. It replaces Article 27 (Exchange of Information), bringing it line with the OECD standard for information exchange.

The protocol applies from 1 January 2016.

Macao-Argentina

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TIEA between Macau and Argentina has Entered into Force

According to a notice from the Macau government, the tax information exchange agreement with Argentina entered into force on 6 November 2015. The agreement, signed 5 September 2014, is the first of its kind between the two jurisdictions and generally applies from the date of its entry into force.

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