Worldwide Tax News
On 26 May 2015, the Finnish tax authorities published updated guidelines on the application of real estate property tax. The guidelines cover the types of property subject to tax, valuation, tax determination, rates and other information. The applicable tax rates vary by municipality, but must be within the following ranges for 2015:
- General rate - 0.8% to 1.55%
- Permanent residential buildings - 0.37% to 0.8%
- Electric Power Plants including nuclear waste disposal facilities - up to 2.85%
- Non-profit organization owned property - as low as 0.0%
- Unfinished buildings sites - 1.0% to 3.0%
On 26 May 2015, Ireland Revenue published eBrief No. 53/15 announcing updated guidance on the deferral of exit tax levied on companies ceasing to be tax resident in Ireland. The election for deferral is available for companies migrating to an EU or EEA Member State, and has been available since 1 January 2014. The following is the eBrief including a link to the relevant section of the Tax and Duty Manual.
Tax and Duty Manual Part 20.2.2 (PDF, 126 KB) has been updated and expanded with information regarding procedures for migrating companies that elect to defer their exit tax charge under section 628A of the Taxes Consolidation Act 1997.
Section 628A provides companies migrating to an EU/EEA country with the option of deferring the payment of exit tax by either payment of the tax in equal installments over six years, or deferral of the payment for up to ten years (or until the asset is subsequently disposed of, if sooner).
A migrating company that wishes to defer its exit tax charge is required to select the preferred option in its final tax return. Interest will be charged on the deferred exit tax and Revenue may require a migrating company to provide security to ensure payment, if deemed necessary.
OECD Agreement on Automatic Exchange of Financial Information Signed by Australia, Canada, Chile, Costa Rica, India, Indonesia and New Zealand
The OECD has announced the recent signing of the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information by Australia, Canada, Chile, Costa Rica, India, Indonesia and New Zealand. The signing of the agreement by the seven countries brings the total number of signatories to 61.
India plans to begin the automatic exchange of information by September 2017, while the other six countries intend to begin by September 2018.
The Russian Ministry of Finance recently issued guidance on the rules regarding the tax treatment of bad debts owed by non-residents. According to the guidance, debts may generally be recognized as uncollectable in cases where:
- The term of repayment of the debt has expired;
- The debt obligation has been terminated due to the impossibility of its fulfillment on the basis of an act issued by a state authority or as a result of the liquidation of the debtor;
- It is impossible to ascertain the location of the debtor or its assets, or to obtain information on cash or any other valuables in its accounts, deposits or in the custody of banks; or
- The debtor has no assets which can be used to pay the debt and all legal measures taken to identify the debtor's assets have been unsuccessful
In such cases, the bad debt may be treated as a deductible non-sales expense for corporate income tax purposes. This also applies to bad debts owed by non-residents as long as the general conditions are met.
On 21 May 2015, the Davis Committee of the South African Ministry of Finance issued a media statement requesting input to assist in the Committee's drafting of its second interim report on base erosion and profit shifting (BEPS) issues affecting South Africa. The input should be based primarily on the following actions of the OECD BEPS Project:
- Action 3: Strengthen Controlled Foreign Corporations (CFC) rules;
- Action 4: Limit Base Erosion via Interest Deductions and Other Financial Payments;
- Action 7: Abuse of the Definition of Permanent Establishment (PE) Concept;
- Action 9: Transfer Pricing: Risks and Capital;
- Action 10: Transfer Pricing: Other High-Risk Transactions;
- Action 11: Establish Methodologies to Collect and Analyze Data on BEPS;
- Action 12: Require Taxpayers to Disclose their Aggressive Tax Planning Arrangements;
- Action 14: Make Dispute Resolution Mechanisms more Effective; and
- Action 15: Develop a Multilateral Instrument
Submissions must be made by 31 August 2015.
Click the following links for the first interim report, which covers Actions 1, 2, 5, 6, 8, 13 and 15 of the OECD BEPS Project, and the media statement, which includes instructions for making submissions.
On 19 May 2015, the Ukrainian parliament adopted a law increasing the individual income tax upper rate bracket threshold. The threshold is increased from 10 minimum salaries to 17 minimum salaries. Currently 1 minimum salary is equal to UAH 1,218, although this will increase to UAH 1,378 from 1 December 2015.
The current upper tax rate is 20%, which was increased from 17% effective 1 January 2015.
The new law will enter into force on the first day of the month following the date it's published in the Official Gazette.
On 22 May 2015, the Hungarian government submitted a bill to parliament that would effectively level the application of the country's Advertising Tax. This follows the launch in March of an in-depth investigation by the European Commission into whether Hungary's Advertising Tax complies with EU State aid rules.
Passage of the bill would introduce a flat 5.3% rate on annual advertising revenue exceeding HUF 100 million. Currently, progressive rates apply starting at 1% on revenue of HUF 500 million up to 50% on revenue exceeding HUF 20 billion. The bill would also reduce from 20% to 5% the rate of Advertising Tax levied on the monthly aggregate advertising expenditure of an advertiser, which applies if the taxpayer receiving the advertising revenue has failed to declare its liability and fulfill its tax payment obligations.
On 26 May 2015, officials from Armenia and Sweden met to begin negotiations for an income tax treaty. The treaty will replace the 1981 income and capital tax treaty between Sweden and the former Soviet Union, which currently applies in respect of Armenia.
On 3 June 2015, officials from Belarus and India signed a protocol to the 1997 income tax treaty between the two countries. The protocol is the first to amend the treaty, and will enter into force after the ratification instruments are exchanged.
On 31 March 2015, officials from France and Germany signed a protocol to the 1959 income and capital tax treaty between the two countries. The protocol is the fourth to amend the treaty. Key amendments are summarized as follows:
A sentence is added to Article 1 of the treaty, specifying that the treaty only applies to persons resident in one or both of the Contracting States.
Article 7 of the treaty, which covers certain capital gains, is rewritten in line with Article 13 of the OECD Model, including the provisions that gains from the alienation of immovable property, assets of a permanent establishment and shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State may be taxed by the other State.
The provisions concerning gains in regard to real estate and permanent establishments that are covered in the current treaty under Articles 3 and 4 are replaced by the new Article 7.
Article 9 of the treaty, which covers dividends, is amended with the addition of a new provision that the withholding tax limit on dividends (5%/15%) provided by the treaty will not apply for dividends paid out of income or profits from immovable property if:
- Paid by an investment vehicle that distributes most of the income or profits annually;
- The income or profits from immovable property are tax exempt; and
- The beneficial owner of the dividends directly or indirectly holds 10% or more of the capital of the investment vehicle paying the dividends
In such a case, the dividends may be taxed at the rate provided by the domestic laws of the source State.
A new Article 13(a) is added to the treaty which includes the provision that the State of residence of frontier workers will pay compensation equal to 1.5% of the gross annual remuneration of frontier workers to the State in which the employment is exercised. The compensation is limited to a maximum of 44% of the tax levied by the State of residence of the frontier workers on the total amount of the annual gross remuneration.
A new Article 13(b) is added to the treaty which is based on Article 17 of the OECD Model and includes the provision that income derived from activity exercised in a Contracting State by an entertainer, sportsperson or model that is a resident of the other State will be taxable in the first mentioned State. This applies even if the income is paid to another person.
Article 20, which covers the elimination of double taxation, is amended with the addition of a new paragraph allowing Germany to switch from the exemption method to the credit method in regard to business profits.
In regard to France, the income covered by Article 20 is changed from "profits and other positive income" to "items of income", and a provision is added that the Article does not cover income that is exempt under French domestic law.
Article 23, which covers the assistance in the collection of taxes, is brought in line with Article 27 of the OECD Model.
Articles 25 and 25(a), which cover mutual agreement procedure and arbitration respectively, are replaced with a single new article in line with Article 25 of the OECD Model.
The protocol will enter into force on the first day following the exchange of the ratification instruments, and will generally apply from 1 January of the year following its entry into force.
On 20 May 2015, officials from Indonesia and Japan began negotiations for revisions to the income tax treaty between the two countries. Any resulting amendments will be the first to the treaty, which was signed 3 March 1982, and has been in effect since 1 January 1983.
The income tax treaty between Kazakhstan and Macedonia entered into force on 27 April 2015. The treaty, signed 2 July 2012, is the first of its kind between the two countries.
The treaty covers Kazakhstan corporate income tax and individual income tax, and covers Macedonian personal income tax and profit tax.
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 for the same or connected project for a period or periods aggregating more than 6 months within any 12-month period.
- Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital, otherwise 15%
- Interest - 10%
- Royalties - 10%
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; and
- Gains from the alienation of shares or comparable interests in the capital of a company deriving more than 50% of their value directly or indirectly from immovable property situated 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.
Both countries apply the credit method for the elimination of double taxation.
The treaty applies from 1 January 2016.
On 22 May 2015, officials from Mauritius and South African signed a memorandum of understanding concerning the determination of tax residence in cases of dual residence for the purpose of the 2013 tax treaty between the two countries, which is not yet in force.
Under the treaty, if a company is considered a resident of both Contracting States, the competent authorities of both States will determine its residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will be considered outside the scope of the treaty, except for Article 25 (Exchange of Information).
According to the MOU, the determination of residence will be based on the company's place of effective management, the place in which it is incorporated or otherwise constituted, and any other relevant factors. Such other factors include where the board meetings are held, where senior executives carry on their activities, where accounting records are kept, etc.
The MOU will have effect from the date the treaty enters into force, which is the date the ratification instruments for the treaty are exchanged.