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Worldwide Tax News

Approved Changes (7)

Ecuador

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Ecuador Individual Income Tax Brackets and Rates for 2016

Ecuador's tax administration has published the individual income tax brackets for 2016. The brackets and rates are as follows:

  • up to USD 11,171 - 0%
  • over USD 11,171 up to 14,240 - 5%
  • over USD 14,240 up to 17,800 - 10%
  • over USD 17,800 up to 21,370 - 12%
  • over USD 21,370 up to 42,740 - 15%
  • over USD 42,740 up to 64,090 - 20%
  • over USD 64,090 up to 85,470 - 25%
  • over USD 85,470 up to 113,940 - 30%
  • over USD 113,940 - 35%

The number of brackets and rates are unchanged, while the thresholds for each bracket are all increased.

Ecuador

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Update - Ecuador Public Works Investment Incentives Law Published

Ecuador's Organic Law of Incentives for Public-Private Partnership and Foreign Investment has been signed by the president and was published in the Official Gazette on 18 December. The law introduces incentives for foreign investment in public works development projects through public-private partnerships (previous coverage). It applies from the date it was published.

France

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France Issues Interest Rate Limits for Shareholder Loan Interest Payment Deductions for Tax Years Ending 31 December 2015 to 30 March 2016

On 29 December 2015, France published the interest rates used in determining the deductibility of interest payments to shareholders for companies whose tax year ends between 31 December 2015 and 30 March 2016.

The portion of interest payments exceeding the following rates are generally not deductible unless documentation is provided demonstrating that the interest rate applied is at arm's length. The period in which the tax year ends and the applicable rates are as follows:

  • Between 31 December 2015 and 30 January 2016 - 2.15%
  • Between 31 January 2016 and 28 February 2016 - 2.14%
  • Between 29 February 2016 and 30 March 2016 - 2.13%

The interest rate limits 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.

Israel

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Israel's Corporate Tax Rate Reduced to 25% for 2016

Israel's proposed reduction in the corporate tax rate from 26.5% to 25% was approved by the Ministerial Committee on Legislation on 6 December 2015, and given final approval by the Knesset (parliament) on 5 January 2016. The rate reduction also applies for the withholding tax on dividends, interest, royalties and capital gains, unless lower rates apply under a tax treaty.

The 25% rate applies from 1 January 2016.

Malaysia

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Malaysia Publishes Finance Act 2015

On 30 December 2015, Malaysia published Finance Act 2015, which received Royal Assent on 29 December and includes the measures in the Budget for 2016. The main tax-related measures concern individual income tax, tax incentives, and Goods and Services Tax.

Individual Income Tax

Two new upper individual income tax brackets and rates are added, resulting in the following brackets and rates for 2016:

  • up to MYR 5,000 - 0%
  • over MYR 5,000 up to 20,000 - 1%
  • over MYR 20,000 up to 35,000 - 5%
  • over MYR 35,000 up to 50,000 - 10%
  • over MYR 50,000 up to 70,000 - 16%
  • over MYR 70,000 up to 100,000 - 21%
  • over MYR 100,000 up to 250,000 - 24%
  • over MYR 250,000 up to 400,000 - 24.5%
  • over MYR 400,000 up to 600,000- 25%
  • over MYR 600,000 up to 1 million - 26%
  • over MYR 1 million - 28%

Tax Incentives

  • Companies whose reinvestment incentive period has expired (15-year period with 60% allowance for qualifying reinvestments in existing operations) are allowed a special reinvestment allowance (60%) up to 2018 as follows:
    • If expired in 2015 or previous years, special allowance will be given for 2016, 2017 and 2018;
    • If expired in 2016, special allowance will be given for 2017 and 2018; and
    • If expired in 2017, special allowance will be given for 2018
  • A double deduction is introduced for R&D project expense of up to MYR 50,000 for SMEs for the 2016, 2017 and 2018 tax years;
  • The 100% income tax exemption for tour operators is extended to 31 December 2018; and
  • The availability of incentives for food production industries is extended for investments made until 2020, including:
    • A full tax deduction for amounts invested by companies in subsidiaries that engaged in food production projects;
    • A 10-year income tax exemption for new companies engaged in food production projects; and
    • A 5-year tax exemption for existing companies that invest in expanding food production projects.

Goods and Services Tax (GST)

The following changes are made regarding GST:

  • GST zero rating is introduced for certain controlled and over-the-counter medicines, and for foods including soy and organic milk products for children, and certain staples;
  • GST relief is introduced for:
    • Imports by aerospace companies involved in maintenance and repair;
    • Re-importation of goods temporarily exported for the purpose of promotion, research or exhibition;
    • Re-importation of oil and gas industry equipment temporarily exported for rental or leasing; and
    • Teaching materials and equipment acquired for vocational training by providers of approved programs.

Effective Date

The changes generally apply from 1 January 2016.

Netherlands

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Netherlands Individual Income Tax Brackets and Rates for 2016

The Netherlands's individual income tax brackets and rates for box 1 income (employment income and certain other income) of individuals younger than 65 years and 6 months for 2016 are as follows:

  • up to EUR 19,922 - 36.55% (8.4% rate + 28.15% social security)
  • over EUR 19.922 up to 33,715 - 40.40% (12.25% rate + 28.15% social security)
  • over EUR 33,715 up to 66,421 - 40.40%
  • over EUR 66,421 - 52%

For individuals older than 65 years and 6 months, the social security portion of the first and second brackets is reduced to 10.25%. The rates apply from 1 January 2016.

Poland-Switzerland

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Prior Lack of Information Exchange with Switzerland Limits Withholding Tax Exemption for Dividends from Poland

In a recent decision, Poland's Supreme Administrative Court clarified that the withholding tax exemption provided by Poland for dividends based on the EU Parent-Subsidiary Directive may not be provided if sufficient information exchange does not exist. The decision concerns dividend payments made in 2011 by a Polish subsidiary of a Swiss Company.

Under Poland's 1992 Corporate Income Tax Law, any deduction or exemption for tax envisaged by the EU Parent-Subsidiary Directive will only be available if a tax treaty or other agreement is in effect that provides for the exchange of tax information between the country of the taxpayer and Poland. Because the addition of Article 25A (Exchange of Information) to the1991 Poland-Swiss tax treaty by the 2010 protocol was not effective until 2012, the 2011 dividend payment is not eligible for the withholding tax exemption.

Although the Court's decision is only in regard to the Swiss case, the same interpretation would likely apply in similar cases.

Note - An agreement with the EU allows Switzerland to benefit from rules similar to the EU Parent-Subsidiary Directive.

Proposed Changes (1)

Norway

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Norway Launches Public Consultation on CbC Reporting Requirements

The Norwegian Ministry of Finance has reportedly launched a public consultation on the introduction of Country-by-Country (CbC) reporting requirements. The Proposed requirements are in line with the guidelines developed as part of Action 13 of the OECD BEPS Project.

As proposed, the CbC reporting requirement would apply to Norwegian companies that are part of an MNE group with consolidated annual revenue of NOK 6.5 billion (~USD 725 million). If the ultimate parent entity of the group is resident in Norway, it would be required to file the CbC report. If the ultimate parent entity is not resident in Norway, a local Norwegian subsidiary would be required to file if:

  • The parent is not required to submit a CbC report in its jurisdiction of residence;
  • The parent's jurisdiction of residence has not signed an agreement with Norway for the exchange of CbC reports; or
  • Norway is otherwise unable to obtain the report.

The requirements would apply for tax years beginning on or after 1 January 2016. Additional details will be published once available.

Treaty Changes (3)

Germany-Ireland

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Protocol to the Tax Treaty between Germany and Ireland has Entered into Force

According to an update from Irish Revenue, the protocol to the 2011 income and capital tax treaty with Germany has entered into force. The protocol, signed 3 December 2014, is the first to amend the treaty. The amendments include:

  • Article 2 (Taxes Covered) is amended by replacing Irish "income levy" with "universal social charge";
  • Article 3 (General Definitions) is amended by replacing the definition of "Germany";
  • Article 7 (Business Profits) is replaced, bringing it line with the 2010 OECD Model Tax Convention;
  • Paragraph 3 of Article 8 (Shipping, Inland Waterways Transport and Air Transport) is replaced concerning profits covered (wording clarified); and
  • A reference to paragraph 3 of Article 26 (Exchange of Information) under Article 23 (Elimination of Double Taxation) is corrected so that it refers to paragraph 3 of Article 25 (Mutual Agreement Procedure).

The protocol applies from 1 January 2016.

Ireland-Zambia

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New Tax Treaty between Ireland and Zambia has Entered into Force

According to an update from Irish Revenue, the new income and capital tax treaty with Zambia has entered into force. The treaty, signed 31 March 2015, replaces the 1971 income tax treaty between the two countries.

Taxes Covered

The treaty covers Irish income tax, universal social charge, corporation tax and capital gains tax. It covers Zambian income tax.

Permanent Establishment

The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise furnishes services in 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.

An installation or structure used for the exploration for natural resources will also be considered a permanent establishment provided that the installation or structure continues for a period of at least 183 days.

Withholding Tax Rates

  • Dividends - 7.5%
  • Interest - 10%
  • Royalties - 8% for royalties paid in respect of any copyright of scientific work, any patent, trade mark, design or model, plan, secret formula or process, or information concerning industrial, commercial or scientific experience; 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 or trust deriving more than 50% of their value directly or indirectly from immovable property situated in the other State (an exemption applies for shares listed on a recognized stock exchange)

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. Where a Zambian company pays a dividend to an Irish company that directly or indirectly controls at least 5% of the voting power in the paying company, Ireland will also take into account the Zambian tax paid in respect of the profits out of which the dividend is paid.

Effective Date

The new treaty applies from 1 January 2016. The 1971 income tax treaty between Ireland and Zambia ceases to have effect from that date.

Sweden-United Kingdom

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New Tax Treaty between Sweden and the United Kingdom has Entered into Force

On 31 December 2015, the new income and capital tax treaty between Sweden the United Kingdom entered into force. The treaty, signed 26 March 2015, replaces the 1983 income and capital tax treaty between the two countries.

Taxes Covered

The treaty covers Swedish national income tax, withholding tax on dividends, income tax on non-residents, income tax on non-resident artistes and athletes, and municipal income tax. It covers UK income tax, corporation tax and capital gains tax.

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 the benefits of the treaty, except those provided by Articles 21 (Elimination of Double Taxation), 22 (Non-Discrimination) and 23 (Mutual Agreement Procedure).

Withholding Tax Rates

  • Dividends -
    • 0% if the beneficial owner is a company directly or indirectly controlling at least 10% of the paying company's voting power;
    • 15% if paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Article 6 (Income from Immovable Property) by an investment vehicle that distributes most of this income annually and whose income from such immovable property is exempted from tax;
    • Otherwise 5%.
  • 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 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 regularly traded on a stock exchange); 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 generally apply the credit method for the elimination of double taxation. However, for dividends paid by a company of one Contracting State to a company of the other State, the exemption method is applied if the conditions for an exemption under the law of the other State are met. An exemption may also apply for profits of a permanent establishment in Sweden of a UK company if the conditions for an exemption under UK law are met.

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 20 (Other Income) will not apply if it was 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 dividends, interest, royalties or other income are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

In addition, Article 27 (Preferential Regimes) includes the provision that the benefits of the treaty providing for an exemption or a reduction of tax will not apply for the income of a company resident in a Contracting State, when the company:

  • Derives income primarily from other states:
    • from shipping and financial activities, or
    • from being a headquarters, coordination center or similar entity providing administration and other support to group members primarily carrying on business in other states, and
  • The income from such activities bears a significantly lower tax burden due to a preferential regime.

Dividends paid by such a company will also not qualify for the reduced withholding tax rate (0%/5%) provided in Article 10 (Dividends) or the credit or exemption provided by Article 21 (Elimination of Double Taxation).

Effective Date

The treaty applies in Sweden from 1 January 2016. In the UK, the treaty applies:

  • From 1 January 2016 in respect of withholding taxes;
  • From 1 April 2016 in respect of corporation tax; and
  • From 6 April 2016 in respect of income tax and capital gains tax.

The provisions of Article 23 (Mutual Agreement Procedure) and Article 24 (Exchange of Information) apply from the date of the treaty's entry into force, 31 December 2015.

The provisions of the 1983 income and capital gains treaty between Sweden and the UK cease to have effect for the relevant taxes on the dates the new treaty applies, and terminates on the last such date.

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