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Approved Changes (4)

Brazil

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Brazil Confirms Effective Date of New Progressive Capital Gains Tax Rates

On 29 April 2016, Brazil published Interpretative Declaratory Act 3/2016 in the Official Gazette. The Declaratory Act confirms that the new progressive capital gains tax rates of 15% to 22.5% introduced under Law 13,259/2016 (previous coverage) are effective from 1 January 2017. The new rates were originally meant to apply from 1 January 2016, but due to constitutional issues can only apply from 2017 because the law was not passed before the intended effective date.

Denmark

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Denmark to Test Alternative Dispute Resolution Model for Transfer Pricing Cases

On 2 May 2016, the Danish Ministry of Taxation issued a press release announcing that it will begin testing an alternative dispute resolution (ADR) model for transfer pricing cases. The ADR model is intended to relieve the burden of protracted court cases involving transfer pricing issues for both the taxpayer and the Danish tax authorities, which in certain cases can go on for years. The Ministry of Taxation will begin with the use of an internal ADR model, but may also adopt an external model in the long term.

Sri Lanka

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Sri Lanka Clarifies Application of New 15% VAT Rate

Sri Lanka's Inland Revenue Department has issued a notice concerning the country's increase in the value added tax rate from 11% to 15% effective 2 May 2016. According to the notice:

  • The 15% rate also applies for financial services;
  • The standard VAT registration thresholds for any person carrying on taxable activity are LKR 3 million in a 3-month period and LKR 12 million in a 12-month period, including for financial services and wholesale and retail trade (previously the threshold for wholesale and retail was LKR 100 million in a 3-month period)
  • The VAT exemptions provided for the telecom sector, healthcare services, and specified projects are removed.

Click the following link for the notice, which also covers certain changes in the nation building tax.

Ukraine

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Ukraine Issues Guidance on Information Sources for Transfer Pricing Purposes

On 26 April 2016, Ukraine's State Fiscal Service (SFS) published Guidance Letter 8806/6/99-99-19-02-02-15, which clarifies the country's rules regarding information sources for transfer pricing purposes. According to the letter, for periods beginning on or after 1 January 2015, both taxpayers and tax authorities may use the following to compare the commercial and financial conditions of controlled transactions to determine the arms length price:

  • Any information on comparable uncontrolled transactions executed by the taxpayer or its counterparty with other unrelated parties; and
  • Any publicly available information on comparable transactions and the parties involved.

The letter also includes that controlled transactions may be considered comparable if:

  • There are no significant differences between the transaction that could materially affect the financial result in the application of the appropriate transfer pricing method; or
  • Such differences can be eliminated by making adjustments to the conditions and financial results to prevent the differences from affecting the comparison.

In addition to clarifying what information may be used, the letter also notes that the SFS is explicitly disallowed in the Tax Code from using information sources that are not publically available or only available to public authorities.

Proposed Changes (2)

Malta

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Malta States Opposition to Public CbC Reports

In a press release issued 2 May 2016, Malta's Finance Minister states his opposition to public Country-by-Country (CbC) reports.

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The Annual Tax Conference organised by the Malta Institute of Taxation

Finance Minister Professor Edward Scicluna addressed recently the Annual Tax Conference organised by the Malta Institute of Taxation, having the theme “Towards a Fair and Efficient Tax System”.

With reference to Malta’s position on the international dimension of taxation, the Minister reiterated Malta’s stance against international tax avoidance though he warned against the rushing of changes in such a way as to create uncertainty among international companies investing in Europe. He also expressed Malta’s position in favour of country by country reporting though its official position is that it prefers that such reporting should be accessible to tax authorities of the countries rather than the media.

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As an EU Member State, Malta will be required to implement both non-public and public CbC reporting requirements if the proposed EU Directives for the exchange of CbC reports (previous coverage) and for the public disclosure of CbC reports (previous coverage) are adopted.

United Kingdom

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UK Parliament Committee Questions HMRC's Authority to Enforce Anti-Avoidance Regulation Included in CbC Rules

In a recently published report from the UK Parliament Select Committee on Statutory Instruments, the Committee questions whether HMRC has the authority to enforce the anti-avoidance regulation (regulation 21) included in the final Country-by-Country (CbC) reporting regulations issued on 26 February 2016 (previous coverage). Regulation 21 includes that if a person enters into any arrangements with the main purpose, or one of the main purposes, to avoid any obligation under the CbC regulations, the regulations will have effect as if the arrangements had not been entered into. Such anti-avoidance rules are not part of the OECD Action 13 guidance.

In response to the Committee, HMRC cited certain provisions of the Finance Act 2015, which gave HMRC the authority to implement CbC regulations based on OECD guidance, and allows for certain modifications. The provisions include:

  • Section 122(3), which includes that the CbC guidance may be implemented to any extent, subject to such exceptions or other modifications as the Treasury considers appropriate; and
  • Section 122(4)(d), which specifically sets out that the regulations may make provision about contravention of, or non-compliance with, the regulations.

However, the Committee's view is that regulation 21 is a radical departure from the OECD guidance and is not provided for under Section 122(3) as it effectively imposes additional obligations without any specificity or any limitation except for motive. Regarding Section 122(4)(d), the Committee's view is that it could be argued that doing things that do not attract a provision of the regulations is not contravening them or failing to comply with them, but simply ordering ones affairs so as not to engage them.

In addition, the Committee states in the report that even if one or both provisions did provide the authority for regulation 21, its effect would breach the principle of certainty. If people who are satisfied that the terms of the regulations do not apply to them, they will be at constant risk of HMRC concluding that they have attempted to avoid the regulations.

Based on the above views, the Committee has reported regulation 21 to Parliament for necessary amendments. It is important to note that while regulation 21 is disputed, the CbC reporting requirements overall are not.

Click the following link for additional information on the UK Parliament website.

Treaty Changes (2)

Portugal-Bahrain-Ivory Coast-Sao Tome-Vietnam

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Portugal Approves Ratification of Tax Treaties with Bahrain, Ivory Coast, Sao Tome and Principe, and Vietnam

On 28 April 2016, Portugal's Council of Ministers approved for ratification the pending tax treaties with Bahrain, Ivory Coast, Sao Tome and Principe, and Vietnam. The treaties are the first of their kind between Portugal and the respective countries, and will enter into force after the ratification instruments are exchanged.

Details of each tax treaty will be published when they enter into force.

Russia-OECD

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Russia to Sign Multilateral Agreement on Automatic Exchange of Financial Account Information

According to a recent update published by Russia's Federal Tax Service, Russia will sign the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Financial Account Information on 12 May 2016. The MCAA is part of the Common Reporting Standard developed by the OECD. Once signed by Russia, it will need to be ratified before entering into force in the country.

To date, 80 jurisdictions have signed the MCAA, with each committed to begin the exchange of financial account information by either September 2017 or September 2018.

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