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Approved Changes (3)

France

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France Issues Interest Rate Limits for Shareholder Loan Interest Deductions for Fiscal Years Ending between 30 September 2017 and 30 December 2017

France has published the interest rates used in determining the deductibility of interest payments to shareholders for companies whose fiscal year ends between 30 September 2017 and 30 December 2017. The portion of interest payments exceeding the following rates is 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 September 2017 and 30 October 2017 - 1.73%
  • Between 31 October 2017 and 30 November 2017 - 1.71%
  • Between 31 August 2017 and 30 December 2017 - 1.69%

The interest rates 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.

Germany

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German Maximum Income Basis for Social Security Contributions for 2018

On 27 September 2017, the German Federal Cabinet approved the maximum annual income basis for social security contributions for 2018. For pension and unemployment insurance, the maximum basis will be:

  • EUR 78,000 for Western Federal States (old States); and
  • EUR 69,600 for Eastern Federal States (new States).

For health insurance and nursing insurance for disability and old age, the maximum |P annual basis will be EUR 53,100 for all Federal States.

Pending final approval from the German Federal Council (upper house of parliament - Bundesrat), the changes apply from 1 January 2018.

Liechtenstein

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Liechtenstein Approves VAT Rate Reduction for 2018

On 3 October 2017, The Liechtenstein government announced that amendments to the Value Added Tax (VAT) Act have been adopted as a result of the reduction of Swiss VAT rates from 1 January 2018. The amendments are required in Liechtenstein because of its VAT union with Switzerland (Liechtenstein effectively adopted Swiss law for VAT purposes). As a result, the standard VAT rate in Liechtenstein will be reduced from 8.0% to 7.7% and the special rate for accommodation services will be reduced from 3.8% to 3.7%, while the reduced rate will be maintained at 2.5%.

Proposed Changes (1)

United Kingdom

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Wales Announces Budget Plans for 2018-19 and 2019-20 including Rates for Land Transaction Tax and Landfill Disposals Tax

On 3 October 2017, the Welsh government announced its budget plans for 2018-19 and 2019-20. The budget plans include two new taxes, the land transaction tax (LTT) and the landfill disposals tax (LDT), which will replace the UK stamp duty land tax and landfill tax from April 2018 under taxing powers devolved to Wales. The planned bands and rates are as follows:

Residential LTT rates

  • GBP 0 to 150,000 - 0%
  • GBP 150,000 to 250,000 - 2.5%
  • GBP 250,000 to 400,000 - 5%
  • GBP 400,000 to 750,000 - 7.5%
  • GBP 750,000 to 1.5 million - 10%
  • over GBP 1.5 million - 12%

Non-residential LTT rates

  • GBP 0 to 150,000 - 0%
  • GBP 150,000 to 250,000 - 1%
  • GBP 250,000 to 1 million - 5%
  • over GBP 1 million - 6%

Non-residential LTT lease rates (net present value threshold)

  • GBP 0 to 150,000 - 0%
  • GBP 150,000 to 2 million - 1%
  • over GBP 2 million - 2%

LDT rates (2018-19)

  • Standard rate - GBP 88.95
  • Lower rate - GBP 2.80
  • Unauthorized disposals rate - GBP 133.45

In addition to the two new taxes, the Welsh government is also considering additional tax ideas to be developed, including a levy to support social care, a vacant land tax, a disposable plastic tax, and a tourism tax.

Treaty Changes (6)

Albania-Luxembourg

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Albania and Luxembourg to Update Pending Tax Treaty

According to a release from the Luxembourg government, officials from Albania and Luxembourg met on 3 October 2017 and agreed on the need to update the pending tax treaty between the two countries in accordance with the latest OECD standards. Any updates would be the first to the treaty, which was signed 14 January 2009 but has not yet entered into force.

Iraq-Untd A Emirates

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Tax Treaty between Iraq and the U.A.E. Signed

The United Arab Emirates Ministry of Foreign Affairs and International Cooperation has announced that an income tax treaty with Iraq was signed on 3 October 2017. The treaty is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged. Details of the treaty will be published once available.

Mexico-Philippines

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Update - Mexico Approves Pending Tax Treaty with the Philippines

On 3 October 2017, Mexico's Senate approved the pending income tax treaty with the Philippines. The treaty, signed 17 November 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Mexican federal income tax and all income taxes under the Philippine National Internal Revenue Code.

Service PE

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

Substantially similar activities carried on in a Contracting State by an associated enterprise will be considered in determining if the period limit has been met.

Limited Force of Attraction Provision

Article 7 (Business Profits) includes a limited force of attraction provision whereby taxing rights are granted to a Contracting State on profits attributable to the sale of goods or merchandise or other business activities carried on in that Contracting State by a resident of the other State if the same or similar goods or merchandise or business activities are also sold or carried out by a PE maintained by that resident in the first-mentioned Contracting State. The provision will not apply, however, if the resident of the other State can prove that the sales or business activities were carried out for reasons other than obtaining benefits under the treaty.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is company holding at least 70% of the paying company's capital; 10% if the beneficial owner is a company holding at least 10% of the paying company's capital; otherwise 15%
  • Interest - 12.5%
  • Royalties - 15%

Note - A maximum rate of 5% is included in Article 10 (Dividends) for the additional taxation of repatriated profits attributed to a permanent establishment.

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 shares or other participation rights deriving more than 50% of their value directly or indirectly from immovable property situated in the other State, with an exemption if the alienation takes place between members of the same group (resident in the same Contracting State) to the extent that the remuneration received by the transferor consists of shares or other rights in the capital of the transferee, or of another company resident in a Contracting State that owns directly or indirectly at least 80% of the voting rights and value of the transferee, and certain other conditions are met;
  • Gains from the alienation of shares, interests, or other rights in the capital of a company resident in the other State, if the alienator has held (together with related persons) at least 20% of the capital of the company at any time in the 12-month period preceding the alienation; and
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment 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.

Taxation of Hydrocarbons

Article 20 (Taxation of Hydrocarbons) provides that the treaty will not affect the right of either one of the Contracting States to apply their domestic laws and regulations related to the taxation of income derived from hydrocarbons, including wages, salaries, or other similar remuneration derived from employment related to the exploration or exploitation of hydrocarbons.

Limitation on Benefits

Article 22 (Miscellaneous Provisions) includes the provision that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting the benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.

Article 22 also provides that the benefits of the treaty will not apply for a resident of a Contracting State if:

  • The income of that resident is exempt or subject to tax at a lower rate than would be applicable to the same income earned by other residents of that State; or
  • That resident receives concessions or benefits in regard to foreign taxes paid that are not provided for other residents of that State.

In any case, the competent authorities of the Contracting States will consult each other before the treaty benefits are denied.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation. Mexico also allows a credit for Philippine tax paid on profits out of which dividends are paid if the beneficial owner holds at least 10% of the capital of the Philippine company paying the dividends.

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.

Pakistan-Canada-Qatar-Korea, Rep of

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Pakistan Approves Negotiations to Amend Tax Treaties with Canada, Qatar, and South Korea

According to a government release on 3 October 2017, Pakistan's Federal Cabinet has approved the negotiation of amendments to the 1976 tax treaty with Canada, the 1999 tax treaty with Qatar, and the 1987 tax treaty with South Korea. Amendments to the treaties with Canada and Qatar would include updates to the exchange of information articles, while the amendments to the treaty with South Korea are not specified. Any resulting amendments would be the first to the respective treaties, and must be finalized, signed, and ratified before entering into force.

Peru-OECD

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Peru to Sign Mutual Assistance Convention

Peru's tax administration (SUNAT) has announced that Peru is planning to sign the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. Pending approval from the OECD, the signing is to take place in November 2017. Once signed, Peru will need to complete the necessary ratification procedures and deposit the ratification instrument before the Convention will enter into force in the country.

United States-Czech Rep-Finland-Sweden

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U.S. Signs CbC Exchange Arrangements with the Czech Republic, Finland, and Sweden

According to a 5 October update to the IRS Country-by-Country Reporting Jurisdiction Status Table, the U.S. has signed competent authority arrangements on the exchange of Country-by-Country (CbC) Reports with the Czech Republic, Finland, and Sweden. The arrangements were not yet published at the time of writing, but will likely be published in the near future and are expected to apply for fiscal years beginning on or after 1 January 2016.

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