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Approved Changes (3)

European Union

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EU List of Non-Cooperative Jurisdictions Published

On 5 December 2017, a release was issued announcing that the Council of the EU had approved and published conclusions containing an EU list of non-cooperative jurisdictions in taxation matters. Inclusion in the list is based on three main criteria, including tax transparency, fair taxation, and implementation of anti-BEPS measures. The list contains 17 jurisdictions that did not commit (or clearly commit) to addressing their respective issues by 31 December 2018, including: American Samoa, Bahrain, Barbados, Grenada, Guam, Macau, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, South Korea, Trinidad and Tobago, Tunisia, and the United Arab Emirates.

The list will be reviewed and updated regularly, with the jurisdictions appearing on the list encouraged to make the changes requested of them. Until such changes are made, the EU and the Member States could apply defensive measures, including both taxation measures and measures outside the field of taxation. As provided in the Council conclusion document, the implementation of taxation measures is left to the competence of the Member States. These potential measures are summarized as follows:

To ensure coordinated action, Member States should apply at least one of the following administrative measures in tax area:

  • Reinforced monitoring of certain transactions;
  • Increased audit risks for taxpayers benefiting from the regimes at stake;
  • Increased audit risks for taxpayers using structures or arrangements involving these jurisdictions.

Without prejudice to the respective spheres of competence of the Member States to apply additional measures, defensive measures of a legislative nature in tax area that could be applied by the Member States are:

  • Non-deductibility of costs;
  • Controlled Foreign Company (CFC) rules;
  • Withholding tax measures;
  • Limitation of participation exemption;
  • Switch-over rule;
  • Reversal of the burden of proof;
  • Special documentation requirements;
  • Mandatory disclosure by tax intermediaries of specific tax schemes with respect to cross-border arrangements.

Lastly, Member States could consider using the EU list of non-cooperative jurisdictions for tax purposes as a tool to facilitate the operation of relevant anti-abuse provisions when implementing Council Directive (EU) 2016/1164 of 12 July 2016 (ATAD1), which lays down rules against tax avoidance practices that directly affect the functioning of the internal market. For example, where, in accordance with that Directive, Member States use "black" lists of third countries in transposing CFC rules into their national law, such lists could cover at least the jurisdictions listed in the EU list of non-cooperative jurisdictions for tax purposes.

Further to the list of non-cooperative jurisdictions, the conclusions document also includes the jurisdictions identified as potentially non-cooperative, but have committed to implementing relevant tax good governance principles in certain areas. These include: Albania, Andorra, Armenia, Aruba, Belize, Bermuda, Bosnia and Herzegovina, Botswana, Cabo Verde, Cayman Islands, Cook Islands, Curaçao, Faroe Islands, Fiji, Former Yugoslav Republic of Macedonia, Greenland, Guernsey, Hong Kong SAR, Isle of Man, Jamaica, Jersey, Jordan, Liechtenstein, Malaysia and Labuan Island, Maldives, Mauritius, Montenegro, Morocco, Nauru, New Caledonia, Niue, Oman, Peru, Qatar, Saint Vincent and the Grenadines, San Marino, Serbia, Seychelles, Swaziland, Switzerland, Taiwan, Thailand, Turkey, Uruguay, Vanuatu, and Vietnam.

France

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France Announces Transitional Measure to Relieve Local Filing if CbC Reports Filed Voluntarily

On 4 December 2017, the French tax administration published a release announcing a transitional measure to relieve constituent entities of an MNE from a local CbC report filing obligation if a CbC report has been voluntarily filed by the MNE group's parent for the 2016 fiscal year and such report will be transmitted by the foreign tax authority to the French authority. The release notes that this transitional relief is in accordance with the OECD guidance for voluntary (parent surrogate) filing.

Singapore

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Singapore Publishes Revised R&D Tax Measures e-Tax Guide

On 1 December 2017, the Inland Revenue Authority of Singapore published a revised e-Tax guide on research and development (R&D) tax measures. The guide covers:

  • Qualifying R&D Projects, including the three main requirements: (a) The objective is to (i) Acquire new knowledge, (ii) Create new products or processes, or (iii) Improve existing products or processes; (b) It involves novelty or technical risk; and (c) It is a systematic, investigative and experimental ("SIE") study in a field of science or technology;
  • R&D tax deductions, including the eligibility requirements, qualifying R&D expenditure,  and capital allowances for plant and machinery used for R&D purposes; and
  • Administrative procedures, including how claims are made, the documentation requirements, etc.

Changes made in the revised guide include:

  • Deletion of paragraph 4.1(h) due to amendment to the definition of "research & development" from YA 2012;
  • Addition of paragraphs 8.3 to 8.7 on the type of qualifying expenditure for S14D and S14DA(1) deduction;
  • Insertion of Chart C to provide an overview of the tax deduction for CSA payment with effect from YA 2018;
  • Incorporation in Section 8 of Part B, Annex D and Annex E the relevant enhancements relating to the tax treatment for payment made under R&D CSA;
  • Insertion of a footnote to paragraph 13.1 of the R&D review process;
  • Revision to paragraph 13.4 and insertion of a footnote to the flowchart in paragraph 13.6 of the R&D review process; and
  • Insertion of a definition for large and complex R&D projects for the purpose of the pre-claim scheme in paragraph 14.1.

Click the following link for the revised e-Tax guide: Research and Development Tax Measures (Fifth edition).

Treaty Changes (6)

Brazil-Korea, Rep of

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Brazil Chamber of Deputies Approves Pending Protocol to Tax Treaty with South Korea

Brazil's Chamber of Deputies approved the ratification of the pending protocol to the 1989 income tax treaty with South Korea on 30 November 2017. The protocol, signed On 24 April 2015, replaces Article 26 (Exchange of Information) to bring it in line with the OECD standard for information exchange. The protocol will enter into force once the ratification instruments are exchanged, and will apply from that date.

Colombia-Japan

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Tax Treaty between Colombia and Japan under Negotiation

Japan's Ministry of Finance has announced that the first round of negotiations for an income tax treaty with Colombia began 5 December 2017. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

Ghana-Latvia

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Tax Treaty between Ghana and Latvia to be Negotiated

On 28 November 2017, officials from Ghana and Latvia met to discuss bilateral relations, including the negotiation of an income tax treaty. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

Liechtenstein-Monaco

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Tax Treaty between Liechtenstein and Monaco to Enter into Force

The income and capital tax treaty between Liechtenstein and Monaco will enter into force on 21 December 2017. The treaty, signed 28 June 2017, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Liechtenstein personal income tax, corporate income tax, real estate capital gains tax, and wealth tax. It covers Monaco profit tax on commercial income levied from individual persons and profit tax levied from companies.

Withholding Tax Rates

  • Dividends - 0%
  • 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.

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

Double Taxation Relief

Liechtenstein applies the exemption method for the elimination of double taxation, while Monaco applies the credit method.

Arbitration

Article 24 (Mutual Agreement Procedure) includes the provision that where the competent authorities are unable to resolve a MAP case within two years, any unresolved issues arising from the case shall be submitted to arbitration if the person that presented the case so requests.

Entitlement to Benefits

Article 27 (Entitlement to Benefits) provides that a benefit under the treaty shall not be granted in respect of an item of income or capital if it is reasonable to conclude that obtaining that 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 that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Effective Date

The treaty applies from 1 January 2018. However, requests for information under Article 25 (Exchange of Information) may be made in relation to taxable periods for which requests for information may have been made under the 2009 agreement for the exchange of information in tax matters between Liechtenstein and Monaco (taxable periods beginning on or after 1 January 2010).

Netherlands-Uzbekistan

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Protocol to Tax Treaty between Netherlands and Uzbekistan to Enter into Force

The protocol to the 2001 income and capital tax treaty between the Netherlands and Uzbekistan will enter into force on 31 December 2017. The protocol, signed 6 February 2017, is the first to amend the treaty and includes the following changes:

  • The title and preamble of the treaty are replaced to include language developed under BEPS Action 6 that the Contracting States have a common intention to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through evasion or avoidance;
  • Paragraph 3 of Article 2 (Taxes Covered) is updated with respect to the taxes covered for both the Netherlands and Uzbekistan;
  • Article 4 (Resident) is Replaced;
  • Article 24A (Entitlement to Benefits) is added, which provides that a benefit under the treaty will not be granted in respect of an item of income or capital if it is reasonable to conclude that obtaining that 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 that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty;
  • Article 28 (Exchange of Information) is replaced to bring it in line with the OECD standard for information exchange;
  • Article 29 (Assistance in the Collection of Taxes) is replaced;
  • Article 30 (Limitation of Articles 28 and 29) is deleted;
  • Article 32 (Territorial Extension) is amended to replace the reference to the Netherlands Antilles or Aruba with a reference to any part of the Kingdom of the Netherlands situated outside Europe;
  • The final protocol to the treaty is amended, including:
    • The removal of the limitation on benefits provision with respect to the 0% withholding tax on interest and royalties provided under the protocol (dependent upon Netherlands maintaining 0% rate under its national legislation); and
    • The addition of the provision that the benefits of the treaty shall not apply to a Dutch tax exempt investment institution (Vrijgestelde beleggingsinstelling), and the provision that, notwithstanding the provision for Dutch investment institutions, the competent authorities shall decide by mutual agreement to which extent a resident of a Contracting State that is subject to a special regime shall not be entitled to the benefits of the treaty.

The protocol applies from 1 January 2018.

Slovak Republic-Ethiopia

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Slovak Republic Ratifies Pending Tax Treaty with Ethiopia

On 29 November 2017, President of the Slovak Republic, Andrej Kiska, ratified the pending income tax treaty with Ethiopia. The treaty, signed 30 November 2016, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Ethiopian tax on income of individuals and legal persons and tax on income from mining, petroleum, and agricultural activities. It covers Slovak tax on income of individuals and tax on income of legal persons.

Service PE

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

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 by a resident of the other State if the same or similar goods or merchandise are sold through a PE maintained by that resident in the first-mentioned Contracting State.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner holds at least 10% of the paying company's capital; otherwise 10%
  • Interest - 5%
  • 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; 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.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Limitation on Benefits

Article 27 ( Miscellaneous Provisions) includes the provision that the competent authority of a Contracting State may, after consultation with the competent authority of the other Contracting 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 Agreement according to its purposes.

Entry into Force and Effect

The treaty will enter into force 60 days after the ratification instruments are exchanged. It will apply in the Slovak Republic from 1 January of the year following its entry into force and will apply in Ethiopia in respect of withholding taxes from 1 January of the year following its entry into force and in respect of other taxes from 8 July of the year following its entry into force.

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