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Approved Changes (2)

Argentina

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Argentina Provides Financial Transactions Tax Exemption for Financial Leasing Companies

On 31 July 2017, Argentina published Decree No. 588/2017 in the Official Gazette to provide an exemption for financial leasing companies. In particular, the Decree provides an exemption for accounts used exclusively by companies whose main objective is the conclusion of leasing contracts, including with respect to the movement of funds directly linked to the financing business. The Decree is effective from the date it was published.

Argentina's financial transactions tax is generally levied on debits and credits to current accounts at a rate of 0.6% per transaction.

Austria

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Austria Increases R&D Expense Credit to 14%

Austria has published an amendment law in the 14 July 2017 edition of the Official Gazette that increases the premium (credit) for R&D expenses from 12% to 14%. The premium generally applies for expenses for R&D carried out in Austria, as well as certain R&D performed in other EEA countries, subject to conditions. The 14% rate applies for tax years beginning on or after 1 January 2018, although for years beginning in 2017 and ending in 2018, the 12% and 14% rates will apply based on the number of months in the respective year.

Proposed Changes (3)

Korea, Rep of

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South Korea Plans to Increase Taxes on Large Companies and High-Income Individuals and Introduce Hybrid Mismatch and Interest Restrictions Measures

On 2 August 2017, South Korea's Ministry of Strategy and Finance published the government's proposed tax reforms, which include several initiatives meant to support employment and lower-income individuals, as well as SMEs. These include credits for increased employment, increased deduction for social insurance premiums, a new retained employee condition for M&A tax relief, increased tax relief for wage growth, and additional start-up relief in relation to employment, among others.

The initiatives are to be funded by increased tax revenue from large companies and high-income individuals, including through:

  • A new corporate tax rate bracket of 25% for companies with taxable income exceeding KRW 200 billion (rates for income below that amount unchanged); and
  • An increase in the top individual income tax brackets, including:
    • The addition of a 40% rate bracket for income over KRW 300 million up to 500 million; and
    • An increase in the rate for income over KRW 500 million from 40% to 42%.

Further to the rate increases, the government is also planning to reduce certain tax credits for large companies, including the R&D expense credit and the capital investment credit with respect to facilities for improved productivity, environmental protection, and safety equipment.

In addition to the employment and tax rate measures, the government is also planning to introduce certain BEPS measures, including:

  • Cost deduction restrictions in relation to hybrid mismatch instruments where amounts are not taxed in the other country within one year (BEPS Action 2); and
  • Related party interest deduction restrictions (30% of EBITDA) in relation to both domestic and foreign related party interest expense (BEPS Action 4).

The legislation for the proposals is to be finalized and submitted to parliament on 1 September and, subject to approval, would generally apply from 2018. Additional details will be published once available.

Russia

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Russian Information Exchange Legislation Submitted to Parliament including CbC Reporting and Master/Local File Requirements

Russian legislation (Bill No. 231414-7) on introducing amendments to the Tax Code for the exchange of financial account information and documentation was submitted to the State Duma (lower house of parliament) on 20 July 2017 and is currently pending consideration. Aside from the exchange of financial account information under the OECD Common Reporting Standard, the main provisions of the legislation are in relation to the introduction of Country-by-Country (CbC) report, Master file, and Local file documentation requirements based on of BEPS Action 13. Overall, the requirements in the legislation are in line with the proposal consulted on (previous coverage). However, there are few key changes, including:

  • The Country-by-Country report and Master/Local file requirements will be effective for fiscal years beginning on or after 1 January 2018 (instead of 2017 as originally proposed), although voluntary (parent surrogate) filing of CbC reports in Russia will still be available for prior years;
  • The right of the tax authority to request the Master file (global documentation), is changed to no earlier than 12 months and no later than 36 months following the financial year (requirement to submit within 3 months of request maintained);
  • Penalties for failing to submit the Master file (global documentation) and Local file (national documentation) are reintroduced in the amount of RUB 100,000 (had been removed in previous draft), and the initial penalty exemption period is shifted in relation to 2018 to 2020, including for CbC reporting and notification penalties.

Click the following link for Bill No. 231414-7 (Russian language) on the State Duma website.

Taiwan

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Taiwan Consulting on CbC, Master File, and Local File Documentation Requirements

Taiwan's Ministry of Finance has announced the launch of a public consultation on amendments to the country's transfer pricing rules, including the introduction of the three-tiered documentation requirements included as part of BEPS Action 13: Country-by-Country report, Master file, and Local file. The requirements will be based on the OECD guidelines and are to apply from the 2017 fiscal year.  

Click the following link for the consultation details (Chinese language). The consultation runs from 28 July to 25 September 2017. Additional details will be published once available.

Treaty Changes (5)

Algeria-Netherlands

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Algeria and the Netherlands to Negotiate Tax Treaty

The Algerian Ministry of Finance has announced that officials from Algeria and the Netherlands met on 31 July 2017 to discuss bilateral relations, including the strengthening of relations through the conclusion of an income tax treaty. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

Argentina-Mexico

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Tax Treaty between Argentina and Mexico to Enter into Force

The income and capital tax treaty between Argentina and Mexico will enter into force on 23 August 2017. The treaty, signed 4 November 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Argentine income tax, presumptive minimum income tax, and personal assets tax. It covers Mexican federal income tax.

Residence

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 the benefits of the treaty.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise furnishes services in a Contracting State through employees or other engaged personnel if such activities continue for a period or periods aggregating more than 6 months within any 12-month period.

Substantially similar activities carried on in a Contracting State by an associated enterprise will be considered in determining if the period limit has been met.

Hydrocarbon PE

Article 21 (Hydrocarbons) includes the provision that a permanent establishment will be deemed constituted if an enterprise carries on business consisting of, or relating to, the exploration, production, refining, processing, transportation, distribution, storage or marketing of hydrocarbons situated in the other Contracting State for a period or periods aggregating more than 30 days within any 12-month period.

Substantially similar activities carried on by an associated enterprise will be considered in determining if the period limit has been met.

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% (note - the final protocol to the treaty provides that the reduced rates will not apply with respect to Argentine withholding tax on distributions exceeding accumulated taxable income)
  • Interest - 12%
  • Royalties - 10% for royalties paid for the use of, or the right to use, any copyrights of literary, dramatic, musical, artistic or scientific work, any patents, designs and models, plans, secret formulas or processes, computer programs, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience, as well as for the rendering of technical assistance services; otherwise 15%

Note - A maximum rate of 10% is included in Article 10 (Dividends) for the additional taxation of repatriated profits attributed to a permanent establishment.

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;
  • Gains from the alienation of shares or other participation rights deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
  • Gains from the alienation of shares or participations, other than the above, in the capital or property of a company resident in the other State, with the rate limited to 10% if the direct participation in the capital of the company is at least 25%, otherwise 15%.

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. Mexico also allows a credit for Argentine tax paid on profits out of which dividends are paid if the beneficial owner holds at least 10% of the Argentine company paying the dividends.

Limitation on Benefits

The treaty includes a substantial limitation on benefits article (Article 28). The provisions of the article are summarized as follows.

The benefits of the treaty will only apply for a company incorporated in a Contracting State if:

  • The company's shares are listed on a recognized stock exchange; or
  • At least 50% of the company's voting rights or shares are directly or indirectly held by one or more individuals resident in a Contracting State and/or other persons incorporated in a Contracting State (the voting rights or shares in such other persons must also be directly or indirectly held by one or more individuals resident in a Contracting State).

Notwithstanding the above, the benefits will be denied if:

  • More than 50% of a company's gross income is paid directly or indirectly to persons that are not resident in either Contracting State; and
  • Such payments are deductible in computing a tax covered by the treaty in the person's state of residence.

However, the above limitations will not apply if the competent authorities agree that the company claiming the benefits carries on an active business in a Contracting State, and the conduct of its operations do not have the principle purpose of obtaining the benefits of the treaty.

In any of the above cases, the competent authorities of the Contracting States will consult each other before the treaty benefits are denied.

In addition, the article includes the provision that a tax benefit under the treaty will not be granted if it is established that one of the main purposes of any arrangement or transaction was to obtain a benefit, unless it is granted in accordance with the object and purpose of the relevant provisions of the treaty.

Effective Date

The treaty applies from 1 January 2018. Once in force and effect, the 1997 shipping and air transport agreement between the two countries is terminated.

Canada-Korea, Rep of

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SSA between Quebec and South Korea to Enter into Force

The social security agreement between Quebec, Canada and South Korea will enter into force on 1 September 2017 and generally applies from that date. The agreement, signed 24 November 2015, is the first of its kind between Quebec and South Korea, although an agreement between Canada and South Korea was signed in 1997 and is in force.

United States-Australia-Estonia

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U.S. Signs CbC Exchange Arrangements with Australia and Estonia

According to an update to the IRS Country-by-Country Reporting Jurisdiction Status Table, the U.S. signed competent authority arrangements on the exchange of Country-by-Country (CbC) Reports with Australia and Estonia on 1 August 2017 and 26 July 2017, respectively. The arrangements were not yet published at the time of writing, but will likely be published on the IRS competent authority arrangements web page in the near future and are expected to apply for fiscal years beginning on or after 1 January 2016.

United States-Brazil

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U.S. Publishes CbC Exchange Arrangement with Brazil

The U.S. IRS has published the bilateral competent authority arrangement signed with Brazil on the exchange of Country-by-Country (CbC) reports. The agreement was signed 20 July 2017 and is effective from that date.

The arrangement provides that pursuant to the provisions of Article I (Scope of the Agreement) of the 2007 tax information exchange agreement between the two countries, each competent authority will automatically exchange CbC reports received from each reporting entity resident for tax purposes in its jurisdiction, provided that, on the basis of the information provided in the CbC report, one or more constituent entities of the MNE group of the reporting entity are resident for tax purposes in the jurisdiction of the other competent authority, or are subject to tax with respect to the business carried out through a permanent establishment situated in the other jurisdiction.

With respect to fiscal years beginning on or after 1 January 2016, CbC reports are to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC report relates. With respect to fiscal years beginning on or after 1 January 2017, reports are to be exchanged no later than 15 months after the last day of the fiscal year.

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