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Approved Changes (1)

Colombia

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Colombia Publishes Ruling that Recently Increased Non-Resident Tax Rates do not Affect Specific Withholding Tax Rates

On 29 April 2015, the Colombian tax authority (DIAN) issued Ruling 0601, which clarifies the tax authority's position on whether the increase of the general non-resident tax rate under Colombia's Tax Reform Act (Law 1739) affects specific withholding tax rates included in the Tax Code.

Under Law 1739, which was signed into law the end of 2014 and is generally effective from 1 January 2015, the rate of income tax on Colombia source income derived by nonresidents without a permanent establishment or branch in the country is increased from 33% to the following rates:

  • 2015 - 39%
  • 2016 - 40%
  • 2017 - 42%
  • 2018 - 43%

Although Law 1739 did not directly amend specific withholding tax rates set out in the Colombian Tax Code, there was debate as to whether the increased rates should apply, in particular to the items of income subject to 33% withholding. Income types subject to 33% withholding tax under the Tax Code include:

  • Dividends, when the underlying profits have not been taxed (including branch remittance);
  • Interest, when the term of the loan does not exceed 12 months;
  • Royalties (base reduced for software licenses); and
  • Management service fees, if performed in Colombia

According to Ruling 0601, since Law 1739 does not specifically refer to changing the rates of withholding tax specified in the Tax Code, the tax authorities' position is that those specified rates have not changed.

Proposed Changes (2)

European Union

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European Commission Lays out Plans for a Digital Single Market in the EU

On 6 May 2015, the European Commission announced its plans for a Digital Single Market for Europe, including 16 initiatives under 3 main pillars. The initiatives are to be completed by the end of 2016, and include the following:

Pillar I: Better access for consumers and businesses to digital goods and services across Europe

The Commission will propose:

1. rules to make cross-border e-commerce easier. This includes harmonized EU rules on contracts and consumer protection when you buy online: whether it is physical goods like shoes or furniture; or digital content like e-books or apps. Consumers are set to benefit from a wider range of rights and offers, while businesses will more easily sell to other EU countries. This will boost confidence to shop and sell across borders.

2. to enforce consumer rules more rapidly and consistently, by reviewing the Regulation on Consumer Protection Cooperation.

3. more efficient and affordable parcel delivery. Currently 62% of companies trying to sell online say that too-high parcel delivery costs are a barrier.

4. to end unjustified geo-blocking – a discriminatory practice used for commercial reasons, when online sellers either deny consumers access to a website based on their location, or re-route them to a local store with different prices. Such blocking means that, for example, car rental customers in one particular Member State may end up paying more for an identical car rental in the same destination.

5. to identify potential competition concerns affecting European e-commerce markets. The Commission therefore launched today an antitrust competition inquiry into the e-commerce sector in the European Union (press release).

6. a modern, more European copyright law: legislative proposals will follow before the end of 2015 to reduce the differences between national copyright regimes and allow for wider online access to works across the EU, including through further harmonization measures. The aim is to improve people's access to cultural content online – thereby nurturing cultural diversity – while opening new opportunities for creators and the content industry. In particular, the Commission wants to ensure that users who buy films, music or articles at home can also enjoy them while travelling across Europe. The Commission will also look at the role of online intermediaries in relation to copyright-protected work. It will step up enforcement against commercial-scale infringements of intellectual property rights.

7. a review of the Satellite and Cable Directive to assess if its scope needs to be enlarged to broadcasters' online transmissions and to explore how to boost cross-border access to broadcasters' services in Europe.

8. to reduce the administrative burden businesses face from different VAT regimes: so that sellers of physical goods to other countries also benefit from single electronic registration and payment; and with a common VAT threshold to help smaller start-ups selling online.

Pillar II: Creating the right conditions and a level playing field for digital networks and innovative services to flourish

The Commission will:

9. present an ambitious overhaul of EU telecoms rules. This includes more effective spectrum coordination, and common EU-wide criteria for spectrum assignment at national level; creating incentives for investment in high-speed broadband; ensuring a level playing field for all market players, traditional and new; and creating an effective institutional framework.

10. review the audiovisual media framework to make it fit for the 21st century, focusing on the roles of the different market players in the promotion of European works (TV broadcasters, on-demand audiovisual service providers, etc.). It will as well look at how to adapt existing rules (the Audiovisual Media Services Directive) to new business models for content distribution.

11. comprehensively analyze the role of online platforms (search engines, social media, app stores, etc.) in the market. This will cover issues such as the non-transparency of search results and of pricing policies, how they use the information they acquire, relationships between platforms and suppliers and the promotion of their own services to the disadvantage of competitors – to the extent these are not already covered by competition law. It will also look into how to best tackle illegal content on the Internet.

12. reinforce trust and security in digital services, notably concerning the handling of personal data. Building on the new EU data protection rules, due to be adopted by the end of 2015, the Commission will review the e-Privacy Directive.

13. propose a partnership with the industry on cyber security in the area of technologies and solutions for online network security.

Pillar III: Maximizing the growth potential of the digital economy

The Commission will:

14. propose a 'European free flow of data initiative' to promote the free movement of data in the European Union. Sometimes new services are hampered by restrictions on where data is located or on data access – restrictions which often do not have anything to do with protecting personal data. This new initiative will tackle those restrictions and so encourage innovation. The Commission will also launch a European Cloud initiative covering certification of cloud services, the switching of cloud service providers and a "research cloud".

15. define priorities for standards and interoperability in areas critical to the Digital Single Market, such as e-health, transport planning or energy (smart metering).

16. support an inclusive digital society where citizens have the right skills to seize the opportunities of the Internet and boost their chances of getting a job. A new e-government action plan will also connect business registers across Europe, ensure different national systems can work with each other, and ensure businesses and citizens only have to communicate their data once to public administrations, that means governments no longer making multiple requests for the same information when they can use the information they already have. This "only once" initiative will cut red tape and potentially save around €5 billion per year by 2017. The roll-out of e-procurement and interoperable e-signatures will be accelerated.

Click the following links for a graphical roadmap of the plan and a Q&A on the Digital Single Market Strategy.

India

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India's GST Bill Passed by Lower House of Parliament

On 6 May 2015, India's lower house of parliament, Lok Sabha, passed the bill amending the constitution to allow for the introduction of a national goods and services tax (GST). The amendments confer powers to the country's federal and state governments to create GST legislation, and to create a GST council to advise on tax rates, threshold limits, and exemptions.

The bill also includes an overview of how GST would function, summarized as follows:

  • GST will be a destination-based tax levied simultaneously by federal and state governments, with the former collecting central GST and the latter collecting state GST on all transactions in a state;
  • For interstate supplies, the federal government will collect an integrated goods and services tax (IGST), and then distribute the IGST proportionately to the states

GST will initially apply to all goods and services except liquor, while petroleum and petroleum products will remain subject to the current tax system and later transitioned under the scope of GST. Certain federal and state taxes will be replaced by GST, including central excise duty, service tax, additional customs duty, VAT/sales tax, central sales tax, and luxury tax.

As previously announced and reiterated in the 2015-2016 Union Budget, the new GST is intended to be implemented April 2016. A standard GST rate has not yet been set, although a rate of 27% has been proposed in order to remain revenue neutral.

The bill must now be approved by the upper house of parliament, Rajya Sabha, and then ratified by at least 15 of the 29 Indian states.

Treaty Changes (3)

Azerbaijan-Saudi Arabia

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Tax Treaty between Azerbaijan and Saudi Arabia has Entered into Force

The income and capital tax treaty between Azerbaijan and Saudi Arabia entered into force on 1 May 2015. The treaty, signed 13 May 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Azerbaijan tax on profit of legal persons, income tax of physical persons, tax on property, and land tax. It covers Saudi Zakat and income tax, including the natural gas investment tax.

Service PE

The treaty includes the provision that a service 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 projects for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% when the beneficial owner has invested at least USD 300,000 or equivalent in another currency in the capital of the company paying the dividends, otherwise 7%
  • Interest - 7%
  • Royalties - 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 corporate rights 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. A provision is also included for a tax sparing credit whereby tax which was subject to exemption or deduction for a limited period under the provisions of encouragement of investment laws of either Contracting State shall still be deemed to have been paid and allowed as a deductible credit in the other State.

Non-Discrimination

The treaty does not include a non-discrimination article. However, a protocol to the treaty, signed the same date, includes the provision that if Saudi Arabia introduces an income tax applicable to its nationals who are residents of Saudi Arabia, or the existing tax will be modified accordingly, then the two Contracting States shall enter into negotiations in order to introduce in the tax treaty an article on non-discrimination.

Entry into Force and Effect

The treaty applies from 1 January 2016.

Croatia-Portugal

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Tax Treaty between Croatia and Portugal has Entered into Force

According to a recent update published by the Croatian Ministry of Foreign and European Affairs, the income tax treaty with Portugal entered into force on 28 February 2015. The treaty, signed 4 October 2013, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Croatian profits tax, income tax, local income tax, and any other surcharges on these taxes. It covers Portuguese personal income tax, corporate income tax, and surtaxes on corporate income tax.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital, otherwise 10%
  • Interest - 10%
  • Royalties - 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 a comparable interest directly or indirectly deriving more than 50% of their value 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

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

Effective Date

The treaty applies from 1 January 2016.

India-Korea, Rep of

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India Approves Revisions to the Tax Treaty with South Korea

On 6 May 2014, the Indian government issued a press release stating that the Indian Cabinet had approved the revision of the 1985 income tax treaty with South Korea. Several revisions will be made, including:

  • Providing for source based taxation of capital gains;
  • Adding provisions for making adjustments to profits of associated enterprises on the basis of arm's length principle;
  • Providing for residence based taxation of shipping income;
  • Adding provisions for service permanent establishments;
  • Adjusting the withholding tax rates for dividends, interest and royalties and fees for technical services;
  • Incorporating new provisions for exchange of information and tax collection assistance; and
  • Adding limitation on benefits provisions

Further details of the revisions will be published once available.

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