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Worldwide Tax News

Approved Changes (2)

China

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China Extends Preferential Deduction for Advertising and Promotion Expenses

On 2 June 2017, China's Ministry of Finance issued Circular 41/2017, which extends the preferential tax deductions for advertising and business promotion expenses. Under general rules, such expenses are deductible up to 15% of sales for the year. However, for enterprises engaged in the manufacturer or sale of cosmetics, manufacture of pharmaceuticals, and manufacture of beverages (excluding alcoholic beverages), a deduction up to 30% of sales was allowed through 31 December 2015. Circular 41/2017 extends this preferential deduction for the period 1 January 2016 to 31 December 2020. The Circular also reconfirms that no advertising and promotional expenses for tobacco companies are deductible.

Update - In addition, the Circular allows an enterprise that has entered into a cost-sharing agreement involving advertising and business promotion expenses to claim deduction of the expenses itself up to the 30% limit, or allocate a portion or all the expenses to another enterprise under the agreement, which may deduct the expenses up to its own 30% limit.

Greece

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Greek Publishes Reform Law Including Tax Rate Cuts

Greece published Law 4472 in the Official Gazette of 19 May 2017, which includes several reform measures in relation to the medium-term budget targets for 2018-2021. Measures include tax cuts as follows:

  • A reduction in the corporate tax rate from 29% to 26%, except for credit institutions, which will remain subject to the 29% rate;
  • A reduction in the first bracket individual income tax rate from 22% to 20% resulting in the following brackets and rates:
    • up to EUR 20,000 - 20%
    • over EUR 20,000 up to 30,000 - 29%
    • over EUR 30,000 up to 40,000 - 37%
    • over EUR 40,000 - 45%
  • Adjustments to the special solidarity tax brackets and rates as follows:
    • up to EUR 30,000 (adjusted) - 0%
    • over EUR 30,000 up to 40,000 (adjusted) - 2%
    • over EUR 40,000 up to 65,000 (adjusted) - 5%
    • over EUR 65,000 up to 220,000 (unchanged) - 9%
    • over EUR 220,000 (unchanged) - 10%

The individual income tax and special solidarity tax changes will apply from 1 January 2020, while the corporate tax rate cut will apply from 1 January 2019 provided that the tax cut will not cause significant deviations from the medium-term budget objectives set out in financial stability support program, as determined by an assessment of the IMF, the European Commission, the European Stability Mechanism, and the Greek authorities. The law also provides for various other measures in relation to public pension, social security, employment law, and others.

Proposed Changes (3)

Puerto Rico

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Puerto Rico Budget for 2018 Presented

On 31 May 2017, Puerto Rico Governor Ricardo Rosselló presented the budget for the 2018 fiscal year. As announced by Rosselló, tax-related measures of the budget include a reduction in the B2B sales tax from 4% to 2% and a reduction in the individual income tax burden by USD 200 million through an expansion of the individual income tax brackets and reduction in the effective rate. The budget is subject to approval by the legislature, as well as the Financial Oversight and Management Board, which was established to oversee Puerto Rico's fiscal plan to address its major debt issues.

Switzerland

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Switzerland TP17 Tax Reform Recommendations

On 1 June 2017, the Swiss Federal Council announced that the tax reform steering body has adopted the recommendation for the so-called Tax Proposal 17 (TP17), which is being developed following the failure of the prior reform package (CTR III) to pass a public referendum held in February 2017. The key recommendations of the steering body on TP17 include:

  • Abolition of the arrangements for cantonal status companies;
  • Recommendations as a whole package of balanced tax policy, fiscal policy and social policy measures;
  • Introduction of a mandatory patent box in accordance with the OECD standard at cantonal level;
  • Introduction of additional research and development deductions that are optional at the cantonal level, up to a maximum of 50%;
  • Introduction of a mandatory relief restriction of 70% at cantonal level;
  • Increase in dividend taxation:
    • Direct federal tax: 70%;
    • Cantonal level: minimum 70%;
  • Increase in the cantons' share of direct federal tax from 17% to 21.2%;
  • Clause to take the cities and communes into account in connection with the increase in the cantons' share of direct federal tax; and
  • Increase of CHF 30 in the Confederation's minimum guidelines for child and education allowances.

The Federal Council is to finalize the parameters of TP17 in June, after which a consultation draft will be prepared, with the consultation to be completed by December 2017. The dispatch on the reform package is then to be submitted to parliament in spring 2018.

Thailand-OECD

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Thailand Joins Inclusive Framework for Implementation of BEPS Measures and Global Forum on Transparency and Exchange of Information

The OECD announced on 2 June 2017 that Thailand has joined the Inclusive Framework for the global implementation of the BEPS Project, bringing the total number of participants to 98. As a member of the Framework, Thailand has committed to the implementation of the four minimum standards, including those developed under Action 5 (Countering Harmful Tax Practices), Action 6 (Preventing Treaty Abuse), and Action 14 (Dispute Resolution), as well as Country-by-Country (CbC) reporting under Action 13 (Transfer Pricing Documentation).

Treaty Changes (5)

Andorra-Malta

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Update - Tax Treaty between Andorra and Malta

On 25 May 2017, the Andorran parliament approved for ratification the pending income tax treaty with Malta. The treaty, signed 20 September 2016, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Andorran corporate tax, individual income tax, tax on income of non-residents, and real estate capital gains tax. It covers Malta income tax.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • Royalties - 0%

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; and
  • Gains from the alienation of shares 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.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Entitlement to Benefits

Article 26 (Entitlement to Benefits) of the treaty provides that a resident of a Contracting State will not receive the benefit of any reduction in or exemption from tax provided for by the treaty if it is reasonable to conclude that the principal purposes was to obtain the benefits of the treaty, unless it is established that granting the benefits would be in accordance with the object and purpose of the relevant provisions of the treaty.

Article 26 also provides that if an item income is taxed in a Contracting State by reference to the amount remitted or received in that State and not by reference to the full amount, then any exemption from tax provided for the income by the treaty in the other State will be limited to the amount subject to tax in the first-mentioned State.

Entry into Force and Effect

The treaty 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.

Austria-India

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Austria Approves Pending Protocol to Tax Treaty with India

On 1 June 2017, Austria's Federal Council (Bundesrat) approved the ratification of the amending protocol to the 1999 income tax treaty with India. The protocol, signed 6 February 2017, makes the following amendments:

  • Replaces Article 26 (Exchange of Information) to bring it in line with the OECD standard;
  • Adds Article 26A (Assistance in the Collection of Taxes); and
  • Adds a new paragraph to the original final protocol to the treaty to clarify the application of the new Article 26 (Exchange of Information).

The protocol, which is the first to amend the treaty, will enter into force on the first day of the third month following the exchange of ratification instruments and will apply from 1 January of the year following its entry into force.

Azerbaijan-Kuwait

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Update - Tax Treaty between Azerbaijan and Kuwait

The income and capital tax treaty between Azerbaijan and Kuwait was signed on 10 February 2009 and entered into force on 18 April 2012. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Azerbaijan tax on profit of legal persons, income tax on natural persons, tax on property, and land tax. It covers the following Kuwaiti taxes:

  • Corporate income tax;
  • The contribution from the net profits of the Kuwaiti shareholding companies payable to the Kuwait Foundation for Advancement of Science (KFAS);
  • The Zakat; and
  • The tax subjected according to the supporting of national employee law.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company that directly or indirectly controls at least 15% of the paying company's capital and has invested at least USD 200,000 or equivalent; otherwise 10%
  • Interest - 7%
  • Royalties - 10%

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; and
  • Gains from alienation of movable property forming part of the business property of a permanent establishment 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.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Effective Date

The treaty applies from 1 January 2013.

Ireland-Kosovo

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Tax Treaty between Ireland and Kosovo under Negotiation

According to a release from the Kosovo Ministry of Finance, officials from Ireland and Kosovo met 31 May 2017 to discuss deepening of economic cooperation between the two countries, including reaching agreement on 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.

Romania-OECD

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Romania Approves Signing of BEPS MLI

According to recent reports, the Romanian Government on 11 May 2017 authorized the signing of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The first signing ceremony for the MLI is scheduled to take place in Paris on 7 June 2017.

The BEPS MLI is for the purpose of implementing the treaty-related measures developed as part of the BEPS Project without needing to separately amend each bilateral treaty. This includes measures developed as part of BEPS Action 2 (Hybrid Mismatches), Action 6 (Preventing Treaty Abuse), Action 7 (Preventing Artificial Avoidance of a PE), and Action 14 (Improving Dispute Resolution).

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