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Approved Changes (4)

Ecuador

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Ecuador Introduces Cap on Automatic Tax Treaty Benefits for 2016

On 14 June 2016, Ecuador published Resolution NAC-DGERCGC16-00000204 in the Official Gazette, which introduces a cap on the automatic application of tax treaty benefits for payments to non-residents. With immediate effect, total payments in excess of USD 223,400 per non-resident are not eligible for automatic treaty benefits, but instead subject to domestic withholding rates. However, the non-resident may still apply for a refund of the excess tax withheld, if any.

The whole of 2016 is considered in determining if the threshold has been met. If the threshold has already been exceeded as of the date of the Resolution's entry into force (14 June), tax must be withheld at domestic rates on any payments on or after that date. Failure to withhold will result in penalties equal to 100% of the tax not withheld.

France

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France Issues Interest Rate Limits for Shareholder Loan Interest Payment Deductions for Fiscal Years Ending 30 June 2016 to 29 September 2016

On 24 June 2016, France published the interest rates used in determining the deductibility of interest payments to shareholders for companies whose fiscal year ends between 30 June 2016 and 29 September 2016.

The portion of interest payments exceeding the following rates are generally not deductible unless documentation is provided demonstrating that the interest rate applied is at arm's length. The period in which the fiscal year ends and the applicable rates are as follows:

  • Between 30 June 2016 and 30 July 2016 - 2.13%
  • Between 31 July 2016 and 30 August 2016 - 2.12%
  • Between 31 August 2016 and 29 September 2016 - 2.12%

The interest rate limits are determined by the Central Bank of France based on the average annual interest rates charged by financial institutions on medium-term variable rate loans of 2 years or more.

India

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India Sets GAAR Effective Date

India's Central Board of Direct Taxes issued Notification No. 49/2016 on 22 June 2016, which sets the effective date for the country's General Anti-Avoidance Rule (GAAR) at 1 April 2017. The GAAR will not apply to any income accruing, arising or received (or deemed to be) before that date, but will apply for any tax benefit received on or after that date regardless of when the relevant arrangement was entered into.

United Kingdom

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UK Updates Notices on VAT Registration and De-Registration

On 30 June 2016, UK HMRC published updated versions of the notices on value added tax (VAT) registration (Notice 700/1) and de-registration (Notice 700/11). Notice 700/1 describes when and how to register for VAT, while Notice 700/11 describes when and how VAT registration may be canceled.

The updates to Notice 700/1 reflect:

  • The introduction of the new online system for registering for VAT; and
  • The removal of the VAT registration threshold for non-established taxable persons.

The update to Notice 700/11 provides additional information on how to cancel VAT registration using the online service.

Click the following links for VAT Notice 700/1: should I be registered for VAT? and VAT Notice 700/11: cancelling your registration.

Proposed Changes (3)

France

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France 3% Contribution on Distributed Profits Referred to Constitutional Court and CJEU

On 27 June 2016, issues regarding France's 3% income tax contribution on profits distributed by a resident company and the exemption for French tax-consolidated groups were referred to both the French Constitutional Court and the Court of Justice of the European Union (CJEU). The provisions for the 3% contribution are included under Article 235 ter ZCA of the General Tax Code.

The referral to the Constitutional Court is based on the argument that the exemption for distributions within tax-consolidated groups is in breach of constitutional principles because:

  • The differing treatment cannot be justified by any objective difference of situation or by any reason of general interest;
  • A taxpayer's ability to pay taxes must be appreciated with regard to their financial situation rather than their legal structure; and
  • The fact that the exemption does not apply for a non-resident parent company, even if the conditions for tax consolidation would be met if the parent company were resident in France (discriminatory treatment).

The referral to the CJEU concerns:

  • Whether the EU Parent-Subsidiary Directive (2011/96/EU) precludes such a tax as provided under Article 235 ter ZCA; and
  • If the Directive does not preclude such a tax, whether the tax should be treated as a withholding tax that would be exempt under the Directive.

The decisions of the respective courts will be published once available.

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OECD Consultations on Attribution of Profits to Permanent Establishments, Revised Guidance on Profit Splits, and Changes to Chapter IX of the Transfer Pricing Guidelines

On 4 July 2016, the OECD published two discussion drafts and one review document for public comment. These include:

Attribution of Profits to Permanent Establishments (PE), which deals with the follow-up work in relation to BEPS Action 7 ("Preventing the Artificial Avoidance of PE Status") to provide guidance on how the rules of Article 7 of the OECD Model Tax Convention apply to PEs resulting from the changes made by Action 7 to Article 5 of the OECD Model. In particular, the attribution of profits to:

  • Dependent agent PEs, including those created through commissionaire and similar arrangements; and
  • Warehouses as fixed place of business PEs.

Revised Guidance on Profit Splits, which deals with follow-up work in relation to BEPS Actions 8-10 ("Assure that transfer pricing outcomes are in line with value creation") to clarify and strengthen the guidance on the transactional profits split method in the context of global value chains, including two different approaches to splitting profits:

  • Transactional profit splits of actual profits; and
  • Transactional profit splits of anticipated profits.

Conforming Amendments to Chapter IX of the Transfer Pricing Guidelines, which deals with needed changes following the approval of amendments to the Transfer Pricing Guidelines based on BEPS Actions 8-10 and 13 (previous coverage). The main changes concern:

  • Conforming the existing general guidance in Chapter IX on risk and recognition of controlled transactions to the guidance contained in the revised Chapter I resulting from the 2015 BEPS Reports; and
  • Refining the existing in guidance in Chapter IX with the updates to the rest of the Guidelines resulting from the 2015 BEPS Reports.

Comments on the attribution of profits to PEs and revised guidance on profit splits are due by 5 September 2016. Comments on conforming amendments of the Transfer Pricing Guidelines are due by 16 August 2016.

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82 Countries Committed to Implementation of Four Minimum Standards of OECD BEPS Project under Inclusive Framework

The inaugural meeting of the inclusive framework for the global implementation of the BEPS Project was held 30 June to 1 July 2016 in Kyoto, Japan. The inclusive framework includes 82 countries/jurisdictions that have committed to the implementation of 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).

In total, 82 countries and jurisdictions took part in the inaugural meeting, including 61 of the countries/jurisdiction that have committed, as well as 21 invitees that have not yet committed.

Click the following link for the list of participants.

Treaty Changes (4)

Armenia-Germany

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Tax Treaty between Armenia and Germany Signed

On 29 June 2016, officials from Armenia and Germany signed an income and capital tax treaty. The treaty is the first of its kind directly between the two countries, and once in force and effective, will replace the 1981 tax treaty between Germany and the former Soviet Union as it applies in respect of Armenia and Germany.

Additional details will be published once available.

Brazil-San Marino

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TIEA between Brazil and San Marino Signed

According to recent reports, officials from Brazil and San Marino signed a tax information exchange agreement on 31 March 2016. The agreement is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

China-Macao

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Protocol to Tax Arrangement between China and Macau to be Signed

On 29 June 2016, Macau published in the Official Gazette the order authorizing the signature of a protocol to the 2003 income tax arrangement with China. The protocol will be the third to amend the arrangement, and must be finalized, signed and ratified before entering into force.

Cyprus-India

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Negotiations for Revised Tax Treaty between Cyprus and India Concluded

According to recent announcements from both the Cypriot and Indian Ministries of Finance, negotiations concluded for a revised income and capital tax treaty between the two countries on 29 June 2016. The main revision is allowing for source-based taxation on capital gains from the transfer of shares. However, a grandfathering clause is provided for investments made prior to 1 April 2017, in respect of which capital gains would be taxed in the country of which the taxpayer is a resident.

As a result of the revisions, the Indian authorities will proceed with retrospectively rescinding the classification of Cyprus as the 'Notified Jurisdictional Area' as from 1 November 2013.

Additional details will be published once available.

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