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Worldwide Tax News

Approved Changes (3)

Brazil

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Brazil Reduces Maximum Tax Refund for Exporters for 2018

Brazil has published Decree No. 9,148 of 28 August 2017 in the Official Gazette, which amends Decree No. 8,543/2015 with regard to the maximum tax relief (refund) under the REINTEGRA regime for exporters. Instead of increasing the maximum refund rate to 3% of gross export revenue in 2018 as previously provided by Decree No. 8,543, the maximum rate will be kept at the 2017 maximum of 2%. The actual refund rate available varies, depending on the type of goods exported.

Guatemala

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Guatemala Extends Short-Term Fine, Interest, and Penalty Relief for Outstanding Tax Obligations

The Guatemalan tax authority (SAT) has announced a one-month extension of its fine, interest, and penalty relief program for outstanding tax obligations to 19 September 2017 (previous coverage 5.16.2017). Taxpayers that fulfill their outstanding tax obligations during the one-month extension are eligible for 90% relief.

Russia

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Russia Provides Guidance to Tax Authorities on Application of New GAAR

A guidance letter from the Russian Federal Tax Service was recently issued to the heads of the FTS departments and the chiefs of the FTS inspectorates on the application of Russia's new general anti-avoidance rule (GAAR), which was introduced in July 2017 (previous coverage). The guidance clarifies that in applying the GAAR, the tax authorities must ensure that the evidence proves the intentional participation of the audited taxpayer in the purposeful creation of conditions aimed exclusively at obtaining tax benefits. The deliberate intent of a taxpayer may be evidenced by established facts of legal, economic and other control, including on the basis of:

  • The interdependence of the counter party to the audited taxpayer;
  • The established facts of transit transactions between interdependent or affiliated parties, including transactions through intermediaries, using special calculations and terms of payment; and
  • Evidence indicating concerted actions of participants in economic activities.

Where the intent of the taxpayer is proven, the tax liabilities resulting from such actions are to be corrected in full.

The letter also states that a formalistic approach should not be taken in proving tax avoidance and points out that, under the law, the following may not be used as an independent basis for applying the GAAR:

  • Primary documents are signed by unidentified or unauthorized persons;
  • The counterparty failed to pay taxes; and
  • The taxpayer could have obtained the same economic result through other transactions not prohibited by law.

Further, the letter clarifies that the illegal actions of a counter party or a failure to exercise due diligence cannot be used as an independent basis for applying the GAAR in the absence of other evidence that the taxpayer failed to comply with the GAAR conditions.

Proposed Changes (3)

Denmark

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Denmark to Introduce Allowance for Corporate Equity and Increased R&D Deductions

According to recent reports, the Danish government is planning tax measures to promote equity investment and R&D. To promote equity investment, the government is planning to introduce an allowance for corporate equity that would provide a notional interest deduction on incremental capital increases. To promote R&D, the government is planning a modest phased-in increase in R&D expense deductions from the current 100% to 103% for 2020, 105% for 2021 and 2022, 108% for 2023 to 2025, and 110% for 2026 and future years. A further increase in deductions for R&D expenses in life sciences is also planned. Additional details of the measures will be published once available.

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France

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France Planning 25% Corporate Tax Rate by 2022 and Standard 30% Capital Gains Rate

According to recent comments from French Finance Minister Bruno Le Maire, the Government's draft plans for the 2018 Budget include a phased in reduction of the corporate tax rate to 25% by 2022 for all corporate taxpayers, as well as a fixed capital gains tax rate of 30% from 2018. The plan also includes the elimination of the 7% competitiveness and employment tax credit (crédit d’impôt pour la compétivité et l’emploi - CICE) from 2019, which will be replaced by a reduction in payroll charges.

United Nations

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United Nations Planning to Publish New Model Tax Treaty in October

The United Nations is planning to publish a new version of its Model Double Taxation Convention between Developed and Developing Countries during the next session of Committee of Experts on International Cooperation in Tax Matters in October 2017. The new version includes changes meant to address BEPS and other issues. The changes discussed during Committee sessions over the past year include new preamble language, changes regarding permanent establishments, a 365-day holding period for reduced dividends withholding rates, new limitation on benefits provisions, a new article on fees for technical services, and other changes (previous coverage).

Treaty Changes (2)

Cameroon-South Africa

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Tax Treaty between Cameroon and South Africa has Entered into Force

The South African Revenue Service has announced that the income tax treaty with Cameroon entered into force on 13 July 2017. The treaty, signed 19 February 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Cameroon personal income tax, company tax, minimum tax on companies and individuals, special tax on income, and the housing loans fund tax and employment fund tax. It covers South African normal tax, secondary tax on companies, withholding tax on royalties, and the tax on foreign entertainers and sportspersons.

Residence

If a company is considered resident in both Contracting States, the competent authorities will determine the company's 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 the provisions of Article 27 (Exchange of Information).

Permanent Establishment

The treaty includes the provision that a permanent establishment (PE) will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 183 days in any 12-month period.

A PE will also be deemed constituted when an enterprise provides services, or supplies equipment and machinery on hire used or to be used, in exploration for, extraction of, or exploitation of mineral resources in a Contracting State, but only when such activities continue for the same or connected project for a period or periods aggregating more than 183 days in any 12-month period.

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company holding at least 25% of the paying company's capital, otherwise 15%
  • Interest - 10%
  • Royalties - 10%
  • Fees for technical services (technical, managerial, or consultancy) - 10%

Note - Article 10 (Dividends) also provides that where a company that is a resident of a Contracting State has a permanent establishment in the other Contracting State, the profits taxable under Article 7 (Business Profits) may be subject to an additional tax in that other State, in accordance with its laws, but the additional charge may not exceed 10% of the amount of those profits, after deducting the corporate tax imposed on such profits by that State.

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

South Africa applies the credit method for the elimination of double taxation, while Cameroon generally applies the exemption method. However, Cameroon applies the credit method with respect to items of income covered by Articles 10 (Dividends), 11 (Interest), and 12 (Royalties).

MFN Clause

The final protocol to the treaty includes the provision that if Cameroon enters into a tax treaty with any other state that provides for a lower rate of tax than provided in Articles 11 (Interest), 12 (Royalties), or 14 (Fees for Technical Services), Cameroon must inform South Africa and enter into negotiations to provide comparable treatment.

The protocol also includes the unique provision that if South Africa enters into a tax treaty with any other state that provides for a higher rate of tax than provided in Articles 11 (Interest), 12 (Royalties), or 14 (Fees for Technical Services), South Africa must inform Cameroon and enter into negotiations to provide comparable treatment.

Effective Date

The treaty generally applies from 1 January 2018.

Russia-Japan

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Russia Approves Signature of Draft Tax Treaty with Japan

On 30 August 2017, the Russian Government announced that it has approved the order for the signature of a draft income tax treaty with Japan. Once in force and effective, the new treaty will replace the 1986 tax treaty between Japan and the former Soviet Union as it applies in relations between Japan and Russia. Details of the new tax treaty will be published after it is signed.

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