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Approved Changes (6)

El Salvador

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El Salvador Adopts New 5% Special Contribution for National Security

On 29 October 2015, El Salvador's parliament approved a law implementing a 5% Special Contribution for National Security that will be levied on the net profits of large taxpayers with annual net profits of USD 500,000 or more. The contribution applies for taxpayers whether domiciled or not and is in addition to the standard 30% corporate tax. The law will enter into force 8 days after it is published in the Official Gazette, and the contribution will apply for a period of five years.

European Union-Austria-Bulgaria-Czech Rep-Slovak Republic

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EU Commission Rejects Member States' Request to Apply Reverse Charge for VAT on All Transactions over EUR 10,000

The European Commission has rejected a request by a number of EU Member States to apply the reverse charge for value added tax (VAT) for all domestic supplies exceeding EUR 10,000. The rejection is included in a communication to the EU Council dated 28 October 2015.

The request was made by Austria, Bulgaria, the Czech Republic and the Slovak Republic in order to combat VAT fraud. In the Commission's view, such broad application of the reverse charge is beyond the scope of derogation allowed under the EU VAT Directive. Furthermore, such changes would affect the principles of the EU VAT system and should be decided at the EU level in the context of VAT reform, and not at the level of individual Member States.

Click the following link for the Communication from the Commission to the Council.

Greece

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Greece Further Extends Deadline for VAT Sales and Acquisitions List Submission (Again)

On 29 October 2015, the Greek Public Revenue Authority announced that the deadline for submitting the VAT Sales and Acquisitions List for 2014 would be extended by an additional month to 30 November 2015, with any amending statements due by 31 December 2015. This follows an August circular that set the deadline at 30 September 2015 and was subsequently extended to 30 October (previous coverage).

Panama

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Panama Postpones Introduction of New VAT Withholding Requirements

On 30 October 2015, Panama published Executive Decree 470 in the Official Gazette. The decree amends the effective date of the new value added tax withholding requirements that apply for taxpayers that have acquired goods or services of at least PAB 10 million in the previous year, and for credit and debit card companies (previous coverage). The effective date is postponed to 1 January 2016.

Spain

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Spain Publishes 2016 Budget Law

On 30 October 2015, Spain published the Budget Law for 2016 (Law 48/2015) in the Official Gazette. The main tax-related measure is a change in the patent box regime to bring it in line with modified nexus approach as developed under Action 5 of the OECD BEPS Project.

Under Spain's current patent box regime, taxpayers are allowed a 60% tax exemption on net income after amortization derived from granting the rights to use qualified IP and on capital gains from the sale of qualified IP to unrelated parties. Conditions for the exemption include:

  • The taxpayer must have incurred at least 25% of the cost of creating the IP;
  • The assignee cannot be located in a tax haven; and
  • A related party assignee cannot generate revenue from the sale of products using the IP to the taxpayer.

With the amendments to the patent box regime, the 25% cost requirement is removed and the 60% exemption is instead adjusted based on a ratio of direct expenses incurred in the creation of the IP. The exemption percentage is determined as follows:

Total direct expenses less payments to related parties multiplied by 130%, divided by direct expenses including payments to related parties, multiplied by 60% to determine the exemption percentage.

The change applies from 1 July 2016. However, grandfathering will apply up to 30 June 2021

Other Measures

Other important tax-related measures of the Budget Law for 2016 include:

  • The threshold for the small business tax return filing exemption for tax years beginning on or after 1 January 2016 is increased to revenue not exceeding EUR 75,000, and exempt rental income not exceeding EUR 2,000 provided such rental income has been subject to withholding tax;
  • A limitation is introduced for the deferred assets' monetization regime, where deferred tax assets (DTA) to be converted cannot exceed the tax due corresponding to the fiscal year in which it was generated;
  • The revenue thresholds to apply the simplified VAT regime are set at EUR 250,000 for 2016 and 2017, and 150,000 for 2018 - same thresholds apply for the amount of goods and services imported;
  • The value added tax (VAT) exemption for export-related services is expanded to include services of freight forwarders and consignees;
  • The VAT exemption for imported goods is expanded to cover goods intended for tax-free shops; and
  • The tax exemption for employer-paid healthcare premiums and the available deduction of employee-paid health care premiums are both increased from EUR 500 to EUR 1,500.

Unless otherwise indicated, the above generally apply from 1 January 2016.

Sri Lanka

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Sri Lanka Adopts Interim Budget 2015 Including Super Gain Tax

On 20 October 2015, Sri Lanka's parliament adopted the interim budget for 2015. The main measure is a Super Gain Tax at the rate of 25% on the profits of companies exceeding LKR 2 billion (~USD 14.1 million) during the 2013/2014 tax year, which is payable in three equal installments by the end of October, November and December 2015. The interim budget also includes a number of one-off levies on various industries that are payable by 15 November 2015, including an LKR 1 billion levy on casino operators and an LKR 250 million levy on mobile telephone operators.

Treaty Changes (4)

China-Germany

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Update - New Tax Treaty between China and Germany

On 16 October 2015, Germany's Bundesrat (upper house of parliament) approved the pending income and capital tax treaty with China. The treaty, signed 28 March 2014, will replace the 1985 income and capital tax treaty between the two countries that currently applies.

Taxes Covered

The treaty covers Chinese individual income tax an enterprise income tax. It covers German income tax, corporation tax, trade tax and capital tax.

Service PE

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

Withholding Tax Rates

  • Dividends - 5% if the beneficial owners is a company directly holding at least 25% of the paying company's capital; 15% for dividends paid out of income or gains derived directly or indirectly from immovable property by an investment vehicle which distributes most of this income or gains annually and is exempt from tax; otherwise 10%
  • Interest - 0% for interest paid in connection with a sale on credit of commercial or scientific equipment; otherwise 10%
  • Royalties - 6% (10% on 60% of the amount) for royalties paid for the use of, or the right to use, industrial, commercial or scientific equipment; 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;
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
  • Gains from the alienation of shares of a company resident in the other State if the direct or indirect ownership of the shares amounted to at least 25% of the total shares at any time during the 12-month period preceding the alienation, with an exception for shares substantially and regularly traded on a recognized stock exchange, provided the total of the shares alienated during the fiscal year of alienation does not exceed 3% of the quoted shares

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

China applies the credit method for the elimination of double taxation, while Germany generally applies the exemption method. However, Germany may apply the credit method for dividends, interest, royalties and certain other items of income in accordance with German tax law.

Limitation on Benefits

Article 29 (Miscellaneous Rules) includes a limitation on benefits provision, whereby the benefits of the treaty will not be available if the main purpose for entering into certain transactions or arrangements was to secure the treaty benefits and obtaining those benefits would be contrary to the object and purpose of the relevant provisions of the treaty.

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.

Once the new treaty is in force, the 1985 income and capital tax treaty between China and Germany will expire. However, the provisions of the 1985 treaty will continue to apply to all tax cases prior to the entry into force of the new treaty, and will continue to apply until the new treaty is effective.

Cyprus-Switzerland

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Tax Treaty between Cyprus and Switzerland has Entered into Force

On 15 October 2015, the income and capital tax treaty between Cyprus and Switzerland entered into force. The treaty, signed 25 July 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Swiss federal, cantonal and communal taxes on income and capital, and covers the following Cyprus taxes:

  • Income tax;
  • Corporate income tax;
  • Special contribution for the defense of the republic;
  • Capital gains tax; and
  • Immovable property tax

Withholding Tax Rates

  • Dividends - 0% if the beneficial owner is a company whose capital is divided into shares and directly holds at least 10% of the paying company's capital for an uninterrupted period of at least 1 year (this condition may be considered fulfilled after the dividends are paid); 0% if the beneficial owner is a qualifying pension fund; otherwise 15%
  • Interest - 0%
  • Royalties - 0%

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; although an exemption is provided if:
    • The shares are quoted on a recognized stock exchange in either Contracting State or other exchange agreed to by both States;
    • The company whose shares are alienated carries on its business in the property; or
    • The alienated shares are derived in the course of a corporate reorganization, amalgamation, division or similar transaction

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Cyprus applies the credit method for the elimination of double taxation, while Switzerland generally applies the exemption with progression method. However, in respect of income covered by Article 10 (Dividends), Switzerland may apply the credit method, a lump sum reduction, or a partial exemption.

Anti-Abuse

A protocol to the treaty, signed the same date, includes the provision that the benefits of the treaty will not apply in cases of abuse.

Arbitration Clause

The treaty's article on mutual agreement procedures does not include an arbitration clause. However, the protocol to the treaty includes the provision that if Cyprus later enters into an agreement with another State that does include an arbitration clause, then such a clause will be added to the Cyprus-Swiss treaty.

Effective Date

The treaty applies from 1 January 2016.

Czech Rep-Pakistan

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Tax Treaty between the Czech Republic and Pakistan has Entered into Force

According to recent reports, the income tax treaty between the Czech Republic and Pakistan entered into force on 30 October 2015. The treaty, signed 2 May 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers the Czech tax on income of individuals and the tax on income of legal persons. It covers Pakistani income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through employees or other engaged personnel for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital, otherwise 15%
  • Interest - 10%
  • Royalties - 10%
  • Service fees for technical, consultancy and managerial services - 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 other interests in a company resident 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 Provisions) of the treaty includes the provision that  the competent authority of a Contracting State may, after consultation with the competent authority of the other State, deny the benefits of the treaty to any person, or with respect to any transaction, if in its opinion the granting of those benefits would constitute an abuse of the treaty.

Effective Date

They treaty applies in the Czech Republic from 1 January 2016 and in Pakistan from 1 July 2016.

Denmark-Untd A Emirates

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TIEA between Denmark and the U.A.E Signed

According to recent reports, officials from Denmark and the United Arab Emirates signed a tax information exchange agreement on 4 November 2015. The agreement is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

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