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Approved Changes (5)

Costa Rica

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Costa Rican Court Rules Registration Tax Unconstitutional

Costa Rica's Constitutional Court has ruled that the country's registration tax is unconstitutional. The registration tax was introduced in 2011 and applies to every company that is registered in the Costa Rican Mercantile Registry, including branches. The tax is levied yearly in an amount equal to 50% of the base salary for active companies and 25% for inactive companies. For fiscal year 2015 the amount for active and inactive companies is CRC 201,700 and CRC 100,850 respectively.

Although ruled unconstitutional, the tax in 2015 will still apply, including any applicable late fees or penalties. From 2016, however, it will no longer apply.

European Union-United Kingdom

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CJEU Dismisses European Commission's Challenge that UK Group Relief Rules are Incompatible with EU Law

On 3 February 2015, the Court of Justice of the European Union (CJEU) issued its decision finding that the UK's rules on cross border group relief are compatible with EU Law, dismissing a European Commission challenge.

Under the UK rules, group companies are allowed to offset profits and losses among themselves. However, the losses of non-resident group members may only offset profits of a resident group member when the loses are definitive, i.e. there is no possibility of the loss being taken into account for the non-resident in previous, current or future periods.

Prior to 2006, the UK rules did not allow for the use of foreign losses at all, but following a CJEU decision in 2005, the rules were changed to their current form. The current rules were challenged by European Commission as being incompatible with EU Law and the principle of freedom of establishment. The challenge is based on the Commissions view that the rules are too restrictive and make it virtually impossible for a resident parent company to obtain cross-border group relief. The Commission also argued that rules are incompatible because they do not provide for group relief for non-resident losses incurred before the new rules entered into force (1 April 2006).

In coming to its decision, the CJEU found that the Commission failed to show that it is virtually impossible for a successful claim to be made, because the UK had confirmed that it is possible to show that losses are definitive where, immediately after the end of the accounting period in which the losses were sustained, that subsidiary ceased trading and sold or disposed of all its income-producing assets. The CJEU also dismissed the Commission's challenge concerning losses prior to 1 April 2006, because the Commission had not established the existence of situations in which cross-border group relief for losses sustained before that date was not granted.

Russia

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Russian Court Ruling Clarifies Deductibility of Head Office Expenses Allocated to a Permanent Establishment of a Partnership

A recently published Russian Court ruling clarifies the deductibility of head office expenses allocated to a permanent establishment (PE) of a partnership in Russia. In general, Russia's Tax Code does not allow for the allocation of head office expenses to a PE in Russia. Only direct expenses incurred by a PE are typically allowed as a deduction. However, a number of tax treaties entered into by Russia do include the provision that reasonable allocations of administrative costs to a PE are allowed, but this is limited under certain treaties in regard to partnerships.

The ruling was in regard to a case where a UK limited liability partnership allocated a portion of its overhead expenses to its Russian PE based on the provisions of the UK-Russia tax treaty. This was challenged by the tax inspectorate and additional tax was assessed. The basis for the determination was that although provisions of the UK-Russia tax treaty allow for expense allocation, the treaty definition of "person" specifically excludes partnerships.

The taxpayer appealed the decision to the Court, and also tried to reclassify the allocation as a direct cost to the PE, which would be deductible. In its ruling, the Court sided with the tax inspectorate, and the reclassification was denied because the costs were incurred outside Russia, the PE had no primary documents to support the claim, the costs were not recognized in the reporting period they were incurred, and the costs were not treated as direct costs in the original return filed.

Spain

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Spain Publishes Minimum and Maximum Social Security Bases and Contribution Rates for 2015

On 31 January 2015, Spain published the Ministerial Order setting the minimum and maximum bases for social security contributions in 2015, and the applicable rates. The order entered into force 1 February 2015, with effect from 1 January 2015.

For general social security contributions, the minimum based is €756.60 / month and the maximum base €3606.00 / month. For certain occupational groups, such as engineers, technicians and certain senior management, the minimum base is higher, while the maximum base is the same. The employer contribution rate is 23.6% and the employee contribution is 4.7%.

United Kingdom

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UK Publishes Slides Presented on Diverted Profits Tax Open Day

UK HMRC has published the slides presented at the 8 January 2015 open day held to hear views and take questions from stakeholders on the technical aspects of the draft Diverted Profits Tax legislation. The tax was announced in the 2014 Autumn Statement and is part of the Finance Bill 2015.

The open day slides include:

  • A legislative overview
  • Interaction with tax treaties
  • Compliance with EU Law
  • OECD-G20 BEPS Project
  • Numerous examples of its application

The Diverted Profits Tax targets mainly multinational enterprises that divert profits from the UK. The tax will apply to arrangements that erode the U.K. tax base by the avoidance of a U.K. permanent establishment, or by the transfer of profits to entities that pay low amounts of tax in situations where there is a lack of economic substance. The tax will apply at a rate of 25% on the diverted profits arising on or after 1 April 2015.

Click the following link for the open day slides.

Treaty Changes (3)

Hungary-United States

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SSA between Hungary and the U.S. Signed

On 3 February 2015, officials from Hungary and the United State signed a social security agreement. The agreement is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

India-South Africa

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Protocol to the Tax Treaty between India and South Africa has Entered into Force

The Indian government has published a notice dated 2 February 2015, announcing that the protocol to the 1996 income tax treaty between India and South Africa entered into force on 26 November 2014. The protocol, signed 26 July 2013, is the first to amend the treaty and brings the Exchange of Information Article (25) of the treaty in line with the OECD standard for information exchange.

The protocol applies from the date of its entry into force.

Italy-Switzerland

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Protocol to the Tax Treaty between Italy and Switzerland to be Signed

On 16 January 2015, the Swiss Federal Council announced that officials from Italy and Switzerland have reached an agreement on future cooperation on tax matters. The agreement includes the signing of a protocol to the 1976 income and capital tax treaty between the two countries.

The protocol will be the second to amend the treaty, and will bring it in line with the OECD standard for information exchange. The protocol must be finalized, signed and ratified before entering into force.

Also agreed to is a planned second stage of amendments to the treaty including the lowering tax rates on dividends and interest payments, amending the abuse provision and including an arbitration clause.

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