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Approved Changes (4)

Brazil

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Brazil Restores PIS/COFINS on Financial Income

On 1 April 2015, Brazil published Decree No. 8426/2015 in its Official Gazette, which restores the rates of Program for Social Integration contribution (PIS) and Contribution for the Financing of Social Security (COFINS) on financial income for companies subject to the non-cumulative calculation system for such contributions. This includes financial income arising from transactions for hedging purposes.

The rates are restored to 0.65% for PIS and 4% for COFINS. The rates had been reduced to 0% for financial income by Decree No. 5164/2004, which was expanded to included income from hedging operations by Decree No. 5442/2005.

For income from interest on capital, the new decree states that the PIS and COFINS contributions rates of 1.65% and 7.6% are maintained.

The change is effective 1 July 2015.

Greece

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Greece Introduces Tax Leniency Program

Greece has recently introduced a tax leniency program providing potential relief from penalties, interest and surcharges in relation to outstanding tax liabilities, including those in dispute. The program applies for tax debts that have become overdue up to 1 March 2015, and tax debts that will be assessed up to 26 May 2015.

Subject to certain conditions, taxpayers will be subject to 3% annual interest on the tax due (standard interest penalty is 1.5% per month), and be eligible for full or partial relief from the penalties, interest and surcharges that have been or otherwise would be imposed.

Italy

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Italy Removes Several Jurisdictions from Black Lists

On 1 April 2015 Italy issued two new black lists which were amended based on new provisions included in the Stability Law for 2015 and other developments.

CFC Black List

The black list in regard to Italy's CFC regime includes jurisdictions that:

  • have a corporate tax rate that is lower than 50% of the effective rate that would apply in Italy, and
  • have not entered into an agreement with Italy providing for adequate exchange of information.

Based on these conditions, Malaysia, the Philippines and Singapore have been removed from the CFC black list.

Non-Deductible Expenses Black List

Expenses incurred in transactions with companies resident in jurisdictions listed in this black list require an additional burden of proof in order to be deductible. Jurisdictions listed are those that have not entered into an agreement with Italy providing for adequate exchange of information. Prior to the Stability Law for 2015, the level of taxation was also considered.

Based on the relaxed conditions, 21 jurisdictions were removed from the black list, including Alderney, Anguilla, former Netherlands Antilles, Aruba, Belize, Bermuda, Costa Rica, United Arab Emirates, the Philippines, Gibraltar, Guernsey, Herm, Isle of Man, Cayman Islands, Turks and Caicos, British Virgin Islands, Jersey, Malaysia, Mauritius, Montserrat and Singapore.

Jurisdictions that have signed an exchange of information agreement with Italy but the agreement is not yet in force remain in the list, including Hong Kong, Liechtenstein, Monaco and Switzerland.

The amended lists generally apply from 1 January 2015.

Latvia

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Latvia to Extend Reduced Tax Rate for Small Businesses

The Latvian parliament has voted to extend the reduced tax rate for small business. For businesses with no more than 5 employees and annual revenue of up to EUR 100,000, a reduced tax rate of 9% may be applied. The reduced rate was to be phased out by 2017, with the standard corporate tax rate of 15% then applying. It is expected that changes will be made in the future, including possibly limiting the reduced rate to certain industries.

Proposed Changes (1)

Australia

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Australia Releases Report Including Proposed Amendments to the Rules for Aggregating Related Financing Schemes for Tax Purposes

On 2 April 2015, the Australian government released the Board of Taxation's accelerated report, which identifies and recommends reforms that would address uncertainty and practical difficulties in regard to the related scheme provisions included in the comprehensive debt and equity tax rules contained in Division 974 introduced in July 2001.

The related scheme is based on rules in Division 974 for determining when financing schemes are deemed to be related and should be aggregated as a notional scheme. Depending on the combined effect and certain conditions, the notional scheme is then characterized as debt or equity and any return paid by the issuing entity is taken to be paid in respect of that debt or equity interest, and not in respect of any component scheme or element.

The report recommends that the issues of uncertainty and practical difficulties be addressed by replacing the existing rules with new rules for determining when financing schemes should be aggregated as a notional scheme. The proposed rules as introduced in the report include:

Two or more schemes should be aggregated and taken as one scheme where:

  • there is a dependency or interconnectedness between two or more schemes such that the pricing, terms and conditions of one or more schemes operate in a way which would alter or affect the economic consequences of the pricing, terms and conditions of one or more other schemes in a manner which would affect the application of the debt test or the equity test to one or more of those schemes; and
  • the issuer and others participate in a way that demonstrates that the schemes are designed to operate in this way in combination to secure their combined result.

For the first condition, two or more schemes will be aggregated and taken to be one scheme if the pricing, terms and conditions applicable under one scheme:

  • are dependent upon or linked to the pricing, terms and conditions applicable under one or more other schemes in a manner which would affect the application of the debt test or the equity test to one or more of those schemes; or
  • operate in a way which would alter the economic consequences of the pricing, terms and conditions of one or more other schemes in a manner which would affect the application of the debt test or the equity test to one or more of those schemes.

For the second condition, to test whether the issuer and others participate in a way that demonstrates that the schemes are designed to operate together in a particular way to secure their combined result, the Board recommends that consideration be given to the following relevant factors:

  • the nature and extent of the common involvement of the parties to, or arrangers of, any of the schemes in one or more of the other schemes;
  • the manner in which the schemes were entered into or carried out; and
  • the nature and extent of any non-arm’s length relationship or dealing between one or more of the parties to, or arrangers of, any of the schemes in all or part of the schemes.

The Government will consult on exposure draft legislation to implement the Board of Taxation’s recommended approach in the coming months.

Click on the following link for a full copy of the Board of Taxation Report.

Treaty Changes (2)

Canada-China

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SSA between Canada and China Signed

On 2 April 2015, officials from Canada and China signed a social security agreement. According to a news release by the Canadian government, the agreement will provide for continuity of social security coverage for employees sent by their Canadian employers to work temporarily in China and eliminate situations in which such individuals and their Canadian employers will have to contribute to both the Canada Pension Plan and the comparable pension program of China for the same work. The same applies for employees sent by Chinese employers to work temporarily in Canada.

The agreement is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

Luxembourg-Singapore

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Update - New Tax Treaty between Luxembourg and Singapore

On 2 April 2015, Luxembourg approved for ratification the pending income and capital tax treaty with Singapore. The treaty, signed 9 October 2013, will replace the 1993 income and capital tax treaty between the two countries, which is currently force.

Taxes Covered

The treaty covers Luxembourg income tax on individuals, corporation tax, capital tax and the communal trade tax. It covers Singapore income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise from one Contracting State furnishes services in the other State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 365 days in any 15 month period.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • Royalties - 7%
  • Capital gains - generally exempt, except for gains from the alienation of immovable property and gains from the alienation of movable property forming part of the business property of a permanent establishment

Double Taxation Relief

Singapore applies the credit method for the elimination of double taxation while Luxembourg generally applies the exemption method. However, in the case of royalty income, entertainer and sportspersons income, and other items of income not dealt with in the treaty, Luxembourg generally applies the credit method.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged. It will apply in Luxembourg from 1 January of the year following its entry into force. It will apply in Singapore in respect of withholding taxes from 1 January of the year following its entry into force, and for other taxes from 1 January of second year following its entry into force.

The provisions of the 1993 income and capital gains treaty between Luxembourg and Singapore will terminate and cease to have effect for the relevant taxes on the dates the new treaty applies.

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