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Approved Changes (3)

China

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China Allows Wholly Foreign Owned Companies in Shanghai FTZ to Conduct E-Commerce Activities

On 13 January 2015, China's Ministry of Industry and Information Technology issued a circular announcing that wholly foreign owned enterprises established in the Shanghai Free Trade Zone (FTZ) are now allowed to conduct online data and transaction processing activities. Such e-commerce activities may be conducted nation-wide, which has long been restricted to joint ventures limited to 50% foreign ownership. For foreign invested enterprises established outside the Shanghai FTZ the 50% foreign ownership restriction still applies.

The announcement coincides with a number of other changes recently proposed in regard to foreign investment in China, including a new Foreign Investment Law and revised Foreign Investment Catalogue, which includes the opening up of more industries for foreign investment.

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OECD to Provide BEPS Project Update at G20 Meeting and Live Webcast

On 6 February 2015, the OECD announced that the latest developments in the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project will be presented to the G20 Finance Ministers during a G20 meeting 9 to 10 February in Istanbul, Turkey. Some of the key areas to be presented/discussed include:

  • The launch of negotiations for a multilateral instrument to implement the tax treaty-related BEPS measures, which are to begin by July 2015
  • The implementation package for country-by-country reporting, which is to begin 2016
  • The criteria to assess whether preferential treatment regimes for intellectual property (patent boxes) are harmful or not

Following the G20 meeting, the OECD will have a live webcast on 12 February 2015 at 3 PM CET to provide an update on the BEPS Project. The webcast is accessible via http://oecd.streamakaci.com/beps/live/ (free account registration required).

Ukraine

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Ukraine Issues Guidance on New Electronic VAT System Requirements and Other Changes

Ukraine has recently issued guidance on substantial changes in its VAT regime. One of the main changes is the introduction of an electronic VAT system.

The electronic VAT administration system is introduced on a test basis and will be made permanent by 1 July 2015. The system includes electronic VAT settlement accounts for each taxpayer and the introduction of electronic invoices to document transactions subject to VAT. Only funds from the taxpayers own bank accounts may be used for the settlement account.

Under the new system, all VAT invoices will be issued in electronic form only, and must be registered in the Uniform Registry of VAT Invoices. Invoices should be registered within 15 days of being executed or amended, and may not be registered after 180 days from the date of a transaction's execution. However, the restrictions will not apply during the test period.

Other important changes include:

  • The VAT registration threshold is increased to revenue of UAH 1 million from taxable supplies of goods and services in the previous 12 months (increased from UAH 300,000)
  • VAT registered taxpayer no longer meeting the threshold may deregister, while taxpayers not meeting the threshold may still register voluntarily
  • Resident taxpayers that receive services deemed to be provided in Ukraine by a non-resident may deduct the input VAT on the payment as a credit, as long as the relevant invoice is registered in the Uniform Registry of VAT Invoices
  • VAT Exemption is extended, subject to certain conditions, for grains and industrial crops; waste and scrap, including ferrous and nonferrous metal, and recyclable paper and cardboard; and publications, including printed mass media and books, manuals, teaching materials, etc. as long as printed in Ukraine.

The changes generally apply from 1 January 2015.

Proposed Changes (3)

Denmark

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Denmark Issues Draft Anti-Abuse Legislation

On 25 January 2015, Danish tax authorities issued draft anti-abuse legislation including  rules that would deny tax treaty benefits and EU tax directives benefits in cases of abuse. The rules are based on recent anti-abuse rules added to the EU Parent-Subsidiary Directive, and Action 6 of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, which deals with preventing treaty abuse. The rules would apply in regard to the EU Parent-Subsidiary Directive, Interest Royalty Directive and the Merger Directive, and would apply for both current and future tax treaties.

The EU directives anti-abuse rule essentially states that Denmark will not grant the benefits of a directive to an arrangement or a series of arrangements if the arrangement(s) are only put in place to receive a tax benefit and not for valid commercial reasons reflecting economic reality.

The tax treaty anti-abuse rule essentially states that Denmark will not grant the benefits of a tax treaty if it is reasonable to establish that obtaining a tax benefit is one of the main reasons of any arrangement or transaction which directly or indirectly leads to the benefit, unless it can be established that providing the benefit would be in accordance with the content and purpose of the treaty.

If approved the new legislation would enter into force 1 May 2015.

European Union

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European Parliament to Create Special Committee to Investigate Tax Rulings of EU Member States

In a press release dated 5 February 2015, the European Parliament announced that political group leaders have decided to propose a special committee to investigate the tax rulings of EU Member States seen as unfair, especially those given for large multinationals. The proposed special committee is a compromise with certain Parliament members who had wanted a formal inquiry committee, which would have greater investigative powers. However, this was seen as incompatible with the Parliament's rules of procedure and the EU Treaty.

The vote for the creation of the special committee will take place during the next session of Parliament, 9 to 12 February 2015. Assuming its creation is approved, the special committee's report is expected to be delivered within a year's time.

United States

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Foreign Earnings Reinvestment Act Introduced in U.S. Congress

On 5 February 2015, it was announced that Senator John McCain and Congressman Trent Franks introduced the Foreign Earnings Reinvestment Act in the U.S. Senate and House of Representatives.

The legislation provides for a temporary reduced effective tax rate of 8.75% on accumulated foreign earnings received by a U.S. corporation as dividends from a controlled foreign corporation. A further reduced effective rate of 5.25% may apply with the condition that U.S. corporation's annual payroll increases by at least 10%. However, businesses electing for the benefit would be subject to a penalty of $75,000 per full-time position eliminated if average employment levels fall after receiving a distribution compared to average employment levels prior to receiving a distribution.

A similar bill of the same name was introduced in 2011, but was not enacted.

Treaty Changes (2)

Bangladesh-Qatar

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Tax Treaty between Bangladesh and Qatar to be Signed

On 4 February 2015, the Qatari Cabinet authorized the signing of an income tax treaty with Bangladesh. The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force.

Additional details will be published once available.

Liechtenstein-Switzerland

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Negotiations for New Tax Treaty between Liechtenstein and Switzerland Concluded

According to an announcement published by the Swiss Federal Department of Finance on 5 February 2015, negotiations for a new income tax treaty between Liechtenstein and Switzerland have concluded. Once in force and effect, the new treaty will replace the 1995 tax agreement between the two countries which is currently in force, but only governs the taxation of certain income. The new treaty is expected to be signed Summer 2015, and ratification procedures are expected to be completed before 1 January 2017.

Additional details will be published once available.

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