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Approved Changes (5)

European Union

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EU Joint Transfer Pricing Forum Publishes Adopted Report on the Use of Comparables in the EU

The EU Joint Transfer Pricing Forum (JTPF) has published the Report on the Use of Comparables in the EU as adopted during the JTPF meeting held 9 March 2017. The report establishes best practices and pragmatic solutions by issuing various recommendations for both taxpayers and tax administrations in the EU and aims at increasing in practice the objectivity and transparency of comparable searches for transfer pricing. It covers:

  • The comparables search;
  • Specific aspects dealing with internal comparables;
  • Specific aspects dealing with external comparables;
  • Specific aspects of comparability adjustments;
  • State of play and way forward on pan-European comparables; and
  • Assessing the reliability of the comparability analysis.

In addition to the report on comparables, the JTPF also published the summary record of the meeting, which includes that a report on the use of economic valuation techniques for transfer pricing in the EU is to be redrafted and adopted in June.

Ireland

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Ireland eBrief on Offshore Funds Regime Guidance

Irish Revenue has published eBrief 40/2017 on guidance updates to clarify the operation of the offshore funds regime

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Offshore funds regime

Since 1990, interests in offshore companies, offshore unit trusts and offshore co-ownerships (known as "offshore funds") have been subject to a specific tax regime. The tax treatment on income from these offshore funds, or gains on the disposal of an interest in these offshore funds, depends on a number of factors.

Revenue have updated two Tax and Duty Manuals to provide greater clarity on the operation of the offshore funds regime.

  • Tax and Duty Manual Part 27-02-01 (PDF, 628KB) provides details on the regime as a whole, and includes a number of decision trees to determine whether or not an offshore investment is subject to the offshore funds regime.
  • Tax and Duty Manual Part 27-04-01 (PDF, 520KB) looks specifically at offshore funds located in the EU, the EEA or OECD member states with whom we have a double tax agreement.

Saudi Arabia-Bahrain-Kuwait-Oman-Qatar-Untd A Emirates

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Saudi Arabia Publishes GCC VAT Agreement

On 20 April 2017, Saudi Arabia published the Gulf Cooperation Council (GCC) Unified Agreement for Value Added Tax (VAT) as approved by the Cabinet in January 2017. The agreement sets out the framework for the introduction of VAT as agreed to by all GCC States, while providing some flexibility for local implementation. Key points of the agreement include:

  • The standard VAT rate for the supply of goods and services is 5%;
  • The standard VAT registration threshold is annual turnover of USD 100,000 (SAR 375,000), while suppliers meeting at least 50% of the threshold may voluntarily register;
  • Suppliers will be allowed to recover input VAT;
  • Each GCC State will determine the methods and conditions for VAT refunds and/or carry forward to future periods;
  • Each GCC State is allowed to determine the VAT period (minimum one month), the applicable group treatment (if any), and the required content of invoices and issuance deadlines;
  • Each GCC State has the option to zero-rate or exempt the following sectors:
    • Education;
    • Healthcare;
    • Real estate; and
    • Local transport
  • Each GCC State has the option to zero-rate the following supplies with conditions set by each Sate:
    • Essential food products, such as milk, bread, etc.;
    • Oil, oil derivatives, and gas;
    • Medical equipment and medicines;
  • The following supplies are zero-rated:
    • Intra-GCC and international transport of goods and passengers (including associated ancillary services);
    • The export of goods to outside the GCC territory; and
    • The supply of goods placed under suspension arrangements as per GCC Common Customs Law.
  • Each GCC State may exempt financial services or determine other VAT treatment; and
  • The reverse charge mechanism will apply for the supply of goods or services in a GCC State when provided by a non-resident supplier (recipient accounts for VAT due).

Each GCC State is to implement VAT for 2018, although to date, only Saudi Arabia and the United Arab Emirates have indicated a 1 January 2018 effective date. The other GCC States include Bahrain, Kuwait, Oman, and Qatar.

Sweden

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Sweden Clarifies Requirements for VAT Exemption on Intragroup Services

The Swedish Tax Agency (Skatteverket) published a decision statement on 20 April 2017 concerning the requirements for the value added tax (VAT) exemption on intragroup services. The statement notes that five conditions must be met for the exemption to apply:

  1. The existence of an independent group formed to cooperate and to allocate costs within the group, which can include both Swedish and foreign members;  
  2. The service activities of the members of the independent group must not create a tax liability;
  3. The services provided must be directly necessary for the activities of the group;
  4. The services must be provided at cost with no markup in proportion to each member's share of the common costs of providing the services; and
  5. The use of the exemption must not lead to a distortion of competition.

Click the following link for the full text of the decision statement (Swedish language).

Venezuela

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Venezuela Increases Minimum Monthly Salary Again

On 30 April 2017, the Venezuelan government announced a 60% increase in the country's minimum monthly salary from VEF 40,638.15 to VEF 65,021.04 to be effective 1 May 2017. This follows several increases in recent years, including a 50% increase in January 2017, and is the result of major inflation problems in the country and mounting protests in recent weeks.

The minimum salary is used in determining the basis cap for social security contributions, unemployment insurance, and other benefits. For employer social security contributions, the rates are 9%, 10%, or 11% based on the risk qualification of the company with a basis cap of five minimum monthly salaries. For employer unemployment insurance contributions, the rate is 2% with a basis cap of 10 minimum monthly salaries.

Treaty Changes (5)

Bahrain-Thailand

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Update - Protocol to Tax Treaty between Bahrain and Thailand

The protocol to the 2001 income tax treaty between Bahrain and Thailand was signed on 25 April 2017. The protocol, which is the first to amend the treaty, clarifies that the State of Bahrain became known as the Kingdom of Bahrain as of 14 February 2002 and adds a new Article 26A (Exchange of Information) in line with the OECD standard for information exchange (original treaty has no exchange provisions). The protocol will enter into force once the ratification instruments are exchanged and will apply from the first day of the month following the month in which it enters into force.

Germany-Finland

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Germany Ratifies Pending Tax Treaty with Finland

On 28 April 2017, Germany published in the Official Gazette the law ratifying the pending income tax treaty with Finland (previous coverage). The treaty, signed 19 February 2016, 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. Once in force and effective, it will replace the 1979 tax treaty between the two countries.

Mexico-Spain

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Mexico Approves Pending Protocol to Tax Treaty with Spain

On 27 April 2017, Mexico's Senate approved for ratification the pending protocol to the 1992 income and capital tax treaty with Spain (previous coverage). The protocol, signed 17 December 2015, will enter into force three months after the ratification instruments are exchanged and will generally apply from the date of its entry into force.

Russia-Kazakhstan

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Russia Ministry of Finance Clarifies No Tax Relief for Tax Wrongly Withheld under Tax Treaty with Kazakhstan

The Russian Ministry of Finance recently published Letter No. 03-08-05/21229, which clarifies the tax treatment of income derived by a Russian legal entity from the rendering of consulting services involving the drafting of technical documentation for a resident of Kazakhstan. The letter notes that under the Russian Tax Code, foreign source income is subject to tax in Russia, which may be offset with a credit for foreign tax paid. However, as per Article 7 of the 1996 tax treaty with Kazakhstan, business profits of the Russian entity will only be taxable in Russia unless the income is attributable to a permanent establishment (PE) in Kazakhstan. If the income is not attributable to a PE but tax has been withheld or collected in Kazakhstan, no credit will be provided to offset the Russian tax due on the income and the taxpayer must instead request a refund from the Kazakh authorities.

Ukraine-Malta

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Ukraine Ratifies Pending Tax Treaty with Malta

According to a recent release, Ukrainian President Petro Poroshenko signed the law for the ratification of the pending income tax treaty with Malta on 1 May 2017 (previous coverage). The treaty, signed 4 September 2013, is the first of its kind between the two countries. It will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

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