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Worldwide Tax News

Approved Changes (4)

France

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Court Finds French 75% Withholding Tax on Dividends Paid to Non-Cooperative Jurisdictions is Constitutional

On 25 November 2016, the French Constitutional Council (Conseil Constitutionnel) issued its decision that the 75% withholding tax on dividends paid to a non-cooperative state or territory is constitutional. In particular the Court found that the provisions of the Tax Code regarding the withholding tax are consistent with the constitution, provided that the taxpayer is allowed to prove that the distribution does not have the purpose or the effect of allowing tax evasion by locating such income in a non-cooperative state or territory. In cases where non-evasion purposes are proven, the taxpayer may be exempted from the 75% rate.

Click the following link for the decision (French language).

Spain

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Spanish Cabinet Approves 2017 Budget

On 2 December 2016, it was announced that the Spanish Cabinet has approved the submission of the 2017 Budget to parliament. According to the announcement and a summary of measures, the main tax-related aspects of the Budget include:

  • Maintaining the 25% corporate tax rate;
  • Changes in loss treatment, including:
    • Disallowing the deduction of losses on the transfer of shares in entities eligible for exemption from tax on dividends and capital gains income;
    • Disallowing the deduction of losses generated by participations in entities located in tax havens or territories that do not have an adequate level of taxation; and
    • Limiting the offset of loss carryforwards to 50% for companies with net turnover between EUR 20 and 60 million, and limiting offset to 25% for companies with net turnover in excess of EUR 60 million;
  • Limiting double taxation credits to 50% for companies with net turnover exceeding EUR 20 million;
  • Increasing excise taxes on certain alcohol and tobacco products;
  • Introducing measures to combat fraud, mainly in the area of VAT, including a new online settlement system for value added tax (VAT);
  • Improving administration and collection, including restricting the possibility to delay payment of certain tax debts; and
  • Introducing a tax on carbonated and sugary drinks.

Click the following link for the announcement and a summary of the budget measures, which are in Spanish.

Note - Certain measures, including the loss and double taxation credit restrictions, were brought into force on 3 December 2016 via Royal Decree Law 3/2016 and generally apply for tax periods beginning on or after 1 January 2016 . However, the measures must still be approved by parliament within 30 days to remain in force (Update - parliament approved on 15 December 2016).

Ukraine

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Ukraine Clarifies Information Source for Transfer Pricing Comparables

Ukraine's State Fiscal Service (SFS) recently published guidance letter No. 24927/6/99-99-15-02-02-15, which clarifies the SFS's position on information sources it may use for transfer pricing comparables. According to the letter, the SFS must use the same sources of information as used by the taxpayer unless it can be shown that other sources provide more accurate/reliable information for the comparability of business operations and financial conditions. In such case, the SFS is limited to using sources of information that are publically available. While the SFS is not allowed to specify which sources may be used, the letter states that Bureau Van Dijk (Orbis, Amadeus, RUSLANA) and Interfax (Spark) are considered sources of information that meet the condition of being publically available.

United States

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U.S. Treasury List of International Boycott Countries Published

On 2 December 2016, the U.S. Treasury notice on the current list of countries that may require participation in, or cooperation with, an international boycott was published in the Federal Register. The countries listed include Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, the United Arab Emirates, and Yemen.

Any person or a member of a controlled group with operations in or related to a country on the list, or with the government, a company, or a national of a listed country is required to file Form 5713 (International Boycott Report). Form 5713 must also be filed by any person with operations in a non-listed country that requires participation in, or cooperation with, an international boycott as a condition of doing business with the country.

Taxpayers required to file the form may lose certain tax benefits, including:

  • The foreign tax credit (section 908(a));
  • Deferral of taxation of earnings of a CFC (section 952(a)(3));
  • Deferral of taxation of IC-DISC income (section 995(b)(1)(F)(ii));
  • Exemption of foreign trade income of a FSC (section 927(e)(2), as in effect before its repeal); and
  • Exclusion of extraterritorial income from gross income (section 941(a)(5), as in effect before its repeal).

The exact limits on benefits are determined through the completion of Form 5713.

Proposed Changes (1)

Brazil

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Brazil Consults on Exchange of Tax Ruling Information

Brazil's Federal Revenue Department (RFB) has launched a public consultation on amendments to Normative Instruction RFB No. 1,396 of 2013 in regard to the automatic exchange of information on tax rulings in line with BEPS Action 5 and additional related information that may be required from taxpayers. The exchange will include information on tax rulings in relation to transfer pricing, preferential regimes, permanent establishment issues, and any other rulings that may be considered harmful and erode the tax base. The amendments would enter into force once published in the Official Gazette.

Click the following link for the consultation announcement and the consultation document, which are in Portuguese. The consultation runs from 30 November to 16 December 2016.

Treaty Changes (5)

Andorra-Portugal

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Update - Tax Treaty between Andorra and Portugal

The income tax treaty between Andorra and Portugal was signed on 27 September 2015. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Andorran corporate income tax, personal income tax, tax on income of non-residents, and capital gains tax on immovable property transfers. It covers Portuguese personal income tax, corporate income tax, and surtaxes on corporate income tax.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company that has directly held at least 10% of the paying company's capital for a period of at least 12 months ending the date entitlement to the dividends is determined; otherwise 15%
  • Interest - 10%
  • Royalties - 5%

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 or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other State (exemption for shares listed on a recognized stock exchange of one or both of the Contracting States where such shares do not represent 25% or more of the capital of the listed company).

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 28 (Entitlement to Benefits) includes a number of provisions regarding entitlement to the benefits of the treaty, including that:

  • The treaty does not prevent the application of domestic anti-avoidance provisions;
  • The treaty does not prevent the application of domestic controlled foreign company (CFC) rules;
  • The benefits of the treaty will not be granted to a resident of Contracting State if it is not the beneficial owner of the income derived from the other State;
  • The provisions of the treaty will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the property or right in respect of which the income is paid was to take advantage of those provisions by means of such creation or assignment;
  • If an item of income is only taxable in a Contracting State under the treaty, it may still be taxable in the other State if it has not been subject to tax in the first-mentioned State; and
  • 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 reduction or exemption from tax provided for the income by the treaty in the other State will be limited to the amount taxed by 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.

Canada-Madagascar

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Tax Treaty between Canada and Madagascar Signed

On 24 November 2016, officials from Canada and Madagascar signed an income tax treaty. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Canadian income taxes imposed by the Government of Canada under the Income Tax Act. It covers Malagasy tax on income, synthetic tax, direct tax on hydrocarbons, tax on salaries and assimilated income, tax on income from movable assets, and tax on gains from immovable property.

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 not be entitled to claim any relief or exemption from tax provided by the treaty.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company that directly or indirectly controls at least 25% of the voting power in the paying company; otherwise 15%
  • Interest - 10%
  • Royalties -
    • 5% for copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical or other artistic work (but not including royalties in respect of motion picture films nor royalties in respect of works on film or videotape or other means of reproduction for use in connection with television broadcasting);
    • 5% for royalties for the use of, or the right to use, computer software or any patent or for information concerning industrial, commercial or scientific experience (but not including any such royalty provided in connection with a rental or franchise agreement);
    • Otherwise 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;
  • 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 an interest in a partnership, trust, the value of which is derived principally 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.

Limitation on Benefits

Article 27 (Miscellaneous Rules) includes the provision that the treaty will not apply to any company, trust, or other entity that is resident of a Contracting State if:

  • The company, trust, or other entity is beneficially owned or controlled, directly or indirectly, by one or more persons who are not residents of that State; and
  • The amount of the tax imposed on the income or capital of the company, trust, or other entity by that State is substantially lower than the amount that would be imposed by that State if all the shares or interests were beneficially owned by residents of that State.

Article 27 also includes the provision that the treaty will not apply to a company or other entity that is entitled to income tax benefits pursuant to any legislation in either Contracting State relating to promotion of increased economic activity (including legislation providing for tax-free zones), unless:

  • The company or other entity is a resident of the Contracting State providing the income tax benefits and is wholly-owned directly by individuals who are residents of that State or indirectly by such individuals through one or more entities provided that all such entities are resident of that State; or
  • 90% or more of the income eligible for such benefits are derived exclusively from the active conduct of a trade or business carried on by the company or other entity other than an investment business.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

Georgia-Korea, Rep of

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Tax Treaty between Georgia and South Korea has Entered into Force

The income tax treaty between Georgia and South Korea entered into force on 17 November 2016. The treaty, signed 31 March 2016, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Georgian profit tax and income tax, and covers Korean income tax, corporation tax, special tax for rural development, and local income tax.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 10%
  • Interest - 0% if paid in connection with the sale on credit of any industrial, commercial or scientific equipment, or paid in connection with the sale on credit of any merchandise to an enterprise of a Contracting State, and beneficially owned by a resident of the other Contracting State; or where the beneficial owner is a pension fund; otherwise 10%
  • 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;
  • 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.

Limitations on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties), 13 (Capital Gains), and 21 (Other Income) will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims, or other rights in respect of which the income is paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation. In respect of dividends received by a Korean resident company that owns at least 10% of the voting shares or capital stock of the paying company, Korea will also provide a credit for the Georgian tax payable on the profits out of which the dividends are paid.

Effective Date

The treaty applies from 1 January 2017.

Liechtenstein-Monaco

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Negotiations for Tax Treaty between Liechtenstein and Monaco Concluded

According to an announcement from the Liechtenstein government, officials from Liechtenstein and Monaco concluded negotiations with the initialing of an income and capital tax treaty on 30 November 2016. The treaty is the first of its kind between the two countries, and must be signed and ratified before entering into force. According to the announcement, the treaty is in line with OECD standards and takes into account the results of the OECD BEPS project.

Additional details will be published once available.

Switzerland-Israel-New Zealand-San Marino

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Switzerland Signs Joint Declarations on the Automatic Exchange of Financial Account Information with Israel, New Zealand, and San Marino

Switzerland has signed joint declarations on the automatic exchange of financial account information under the OECD Common Reporting Standard (CRS) with Israel, New Zealand, and San Marino. The joint declaration with Israel was signed 27 November 2016, the joint declaration with New Zealand was signed 2 December 2016, and the joint declaration with San Marino was signed 30 November 2016. Switzerland and the respective countries intend to start collecting data in 2018 and to exchange it from 2019.

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