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Approved Changes (4)

Australia

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Australia Issues Tax Ruling on Meaning of 'at the Time the Distribution is Made' when Applying the Participation Test

The Australian Taxation Office has issued Taxation Ruling (TR) 2017/3 on the meaning of 'at the time the distribution is made' when applying the participation test in Subdivision 768-A to work out whether an equity distribution received by an Australian corporate tax entity from a foreign company is not assessable and not exempt (NANE) income. In general, NANE income is exempt provided that the Australia entity receiving the distribution has at least a 10% participation interest in the foreign company. It is the Commissioner's view that:

  • To have a participation interest in the foreign company, an entity must be a registered member of the foreign company at the start of the day the distribution is made;
  • Where the distribution is a dividend or non-share dividend, the distribution is made on the day that the foreign company pays or credits the distribution; and
  • Where the distribution is a deemed dividend, the distribution is made on the day the tax legislation deems the dividend to have been taken to be paid.

For the specific case where a distribution is made under an off market share buy-back, the buy-back is deemed to be a dividend 'on the day the buy-back occurs', which is anytime on the day that the entities enter into the share buy-back contract.

Click the following link for TR 2017/3 for more information and examples. The ruling applies to foreign equity distributions made on or after 17 October 2014, which is the date Subdivision 768-A came into effect.

Egypt

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Egypt's VAT Rate Increased to 14%

Effective 1 July 2017, Egypt's standard value added tax (VAT) rate is increased from 13% to 14%. Egypt's VAT regime was enacted 7 September 2016 (previous coverage) and replaced the country's general 10% sales tax regime. The initial 13% rate for the year ending 30 June 2017 was somewhat of a transitional rate

European Union-Latvia

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CJEU Holds Transport Services Not Supplied Directly to the Consignor or the Consignee are Not Eligible for VAT Exemption

On 29 June 2017, a judgment of the Court of Justice of the European Union (CJEU) was published concerning whether transport services are eligible for a value added tax (VAT) exemption under Council Directive 2006/112/EC on the common system of VAT when not directly supplied to a consignor or consignee. The case involved the transport of goods from Latvia to Belarus, with Atek SIA acting as the carrier based on contracts concluded with several consignors. Under a separate contract, Atek assigned the actual performance of the transport to another company, L.Č., which carried out the transport using vehicles leased from Atek and was responsible for driving the vehicles, repairs, refueling, customs formalities, etc. L.Č., considering that it had supplied services connected with transit, applied a VAT rate of 0% to those services. However, the Latvian tax authorities determined that L.Č. was not eligible for the exemption under the Directive because the company did not have a legal connection with the consignor or the consignee of the transported goods, and did not hold the requisite license under Latvian law to be considered a carrier. The decision was appealed and was eventually referred to the CJEU with respect to whether a direct legal connection is required.

In its judgment, the CJEU found that the provisions of the Directive must be interpreted as meaning that the exemption for the supply of services in relation to the transport of goods does not apply unless the services are provided directly to the consignor or the consignee of those goods. As such, L.Č. is not eligible for the exemption.

Ukraine

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Ukraine Clarifies VAT Exemption for Software Updates

Ukraine's State Fiscal Service recently published guidance clarifying the application of the temporary value added tax (VAT) exemption for the supply of updated software versions. The guidance confirms that prior guidance on the general supply of software also applies in relation to software upgrades, including that such supplies qualify for the temporary VAT exemption from 1 January 2013 to 1 January 2023. Such supplies may also qualify for the general VAT exemption on royalty payments, which includes any payment received as consideration for the use of, or right to use, intellectual property (IP), including software. However, payments will not qualify as royalties if the payments are:

  • For the use of software, if its use is restricted to the functional purpose of the software by the end user and is limited to a certain number of copies for such use;
  • For copies of IP in electronic form for use by the end user according to its functional purpose;
  • For the acquisition of items (media) in which IP is stored; and
  • For the transfer of ownership rights to IP if the conditions of transfer permit the person that obtains the rights to sell or otherwise alienate the IP or make it public.

As such, payments for software, including software upgrades, remain exempt until 1 January 2023, but will not be exempt after that date if not qualifying as royalty payments.

Proposed Changes (2)

Barbados-OECD

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

The OECD announced on 4 July 2017 that Barbados has joined the Inclusive Framework for the global implementation of the BEPS Project, bringing the total number of participants to 101. As a member of the Framework, Barbados 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).

European Union

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EU Parliament Approves Proposal for Directive on Public CbC Reporting

On 4 July 2017, the European Parliament voted in a plenary session to approve the proposal for a directive to require public Country-by-Country (CbC) reporting in the EU. The draft report on the proposal was approved by 534 votes to 98 votes, with 62 abstentions. In the draft approved, MNE groups with operations in the EU and consolidated turnover of EUR 750 million or more will be required to draw up and make publicly available (free of charge) a CbC report in at least one of the official languages of the EU. The reported information will include:

  • The name of the firm and, where applicable, the list of all its subsidiaries, a brief description of the nature of their activities and their respective geographical location;
  • The number of employees on a full-time equivalent basis;
  • The amount of the net turnover;
  • Stated capital;
  • The amount of profit or loss before income tax;
  • The amount of income tax paid during the relevant financial year by the firm and its branches resident for tax purposes in the relevant tax jurisdiction;
  • The amount of accumulated earnings; and
  • Whether undertakings, subsidiaries or branches benefit from a preferential tax treatment

The approved draft also includes provisions to allow a Member State to grant an exemption from the requirement to provide one or more pieces of commercially sensitive information where the disclosure would be seriously prejudicial to the commercial position of the undertakings to which it relates. Such exemption would be temporary and must be applied for annually. Companies that lose their eligibility for an exemption must immediately make the omitted data publicly available. Further, at the end of the non-disclosure period, the tax details must be published retroactively "in the form of an arithmetic average" to cover the period the non-disclosure applied.

The proposal report now goes back to the Committees to start negotiations with the European Council in first reading on the basis of a plenary mandate.

Click the following links for a press release on the vote and a provisional edition of the texts adopted.

Treaty Changes (6)

Guernsey-Singapore

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Guernsey - Singapore Agreement for Automatic Exchange of Financial Account Information Superseded

According to an update to the Guernsey government's Common Reporting Standard (CRS) webpage, the competent authority agreement for the exchange of financial account information with Singapore signed 7 April 2017 has been superseded by Singapore's signing of the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information on 22 June 2017.

Hong Kong-Belarus-Latvia-Pakistan

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Hong Kong Publishes Orders for the Implementation of the Pending Tax Treaties with Belarus, Latvia, and Pakistan

The Hong Kong government announced on 30 June 2017 that the orders to implement the pending tax treaties with Belarus, Latvia, and Pakistan have been published in the Official Gazette. Hong Kong signed the treaty with Belarus on 16 January 2017 (previous coverage), the treaty with Latvia on 13 April 2016 (previous coverage), and the treaty with Pakistan on 17 February 2017 (previous coverage). Each treaty will enter into force after the ratification procedures of the respective jurisdictions are completed and the ratification instruments exchanged.

Liechtenstein-Monaco

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Tax Treaty between Liechtenstein and Monaco Signed

The Liechtenstein government has announced that on 28 June 2017, officials from Liechtenstein and Monaco signed an income tax treaty. The treaty is the first of its kind between the two countries, is in line with OECD standards, and takes into account the results of the BEPS project. Additional details will be published once available.

New Zealand-Fiji

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New Tax Treaty between New Zealand and Fiji under Negotiation

New Zealand Inland Revenue has announced that negotiations are ongoing for a new income tax treaty with Fiji. The treaty must be finalized, signed, and ratified before entering into force, and once in force and effective, will replace the current treaty between the two countries signed in 1976.

Romania-Uzbekistan

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Protocol to Tax Treaty between Romania and Uzbekistan has Entered into Force

On 17 May 2017, the protocol to the 1996 income and capital tax treaty between Romania and Uzbekistan entered into force. The protocol updates Articles 2 (Taxes Covered) and 3 (General Definitions) with respect to both countries, replaces Article 27 (Exchange of Information), adds Article 27A (Assistance in Tax Collection), and adds Article 28A concerning modifications of the treaty through protocols.

The protocol is the first to amend the treaty and applies from 1 January 2018.

Zambia-Norway

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Zambia Ratifies Pending Tax Treaty with Norway

Zambia reportedly ratified the pending income tax treaty with Norway on 30 May 2017. The treaty, signed 17 December 2015 (previous coverage), will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force. Once in force and effective, it will replace the 1971 income tax treaty between the two countries.

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