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Worldwide Tax News

Approved Changes (3)

Argentina

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Argentina No Minimum Presumed Income Tax Claims on Taxpayers in a Loss Position

The Argentine tax administration (AFIP) has issued General Instruction 2/2017 of 18 May 2017, which instructs its legal department to drop pending claims for the minimum presumed income tax on assets (Impuesto a la Ganancia Mínima Presunta - IGMP) that have been contested by taxpayers that had a loss for the relevant year as evidenced in the taxpayer's financial statements and claimed in their tax return. In addition, no claims should be made for taxpayers in a loss position for 2016. The General Instruction is a result of a decision of the Federal Supreme Court that it was not appropriate for taxpayers in a loss position to pay the tax.

Note - IGMP has been repealed for SME's effective 1 January 2017, and will be repealed for all companies effective 1 January 2019.

Brazil

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Brazil Opens New Tax Regularization Program

Brazil has published Provisional Measure 783 of 31 May 2017, which provides for a new program for the regularization of tax (Programa Especial de Regularização Tributária - PERT). The PERT program is available for both individuals and legal entities with unpaid tax and non-tax debts up to 30 April 2017. Under the program, taxpayers may settle their debts in one of three main ways:

  1. A cash payment equal to 20% of the debt in five monthly installments from August to December 2017, and settlement of the balance with the use of credits for tax loss carry forwards, the negative calculation base of the Social Contribution on Net Profit - CSLL,  or other federal tax credits, with any remaining balance paid in up to 60 monthly installments;
  2. Payment in up to 120 monthly installments, with the minimum amount based on fixed percentages of the debt: 0.4% for first 12 months, 0.5% for the next 12 months, 0.6% for the next 12 months, and the percentage corresponding to the remaining balance paid from the 37th month in up to 84 monthly payments;
  3. A cash payment equal to 20% of the debt in five monthly installments from August to December 2017, with the remaining balance to be paid:
    • In a single installment in January 2018, with a 90% reduction of default interest and 50% reduction of late penalties/fines;
    • In up to 145 monthly installments, with a 80% reduction of default interest and 40% reduction of late penalties/fines; or
    • In up to 175 monthly installments, with a 50% reduction of default interest and 25% reduction of late penalties/fines, and the installments corresponding to 1% of gross revenue in the previous month (minimum 1/175th of total debt).

For debts below BRL 15 million, an additional payment option is available, where the taxpayer may make a cash payment equal to 7.5% of the debt in five monthly installments from August to December 2017, and settlement of the balance with the use of credits as provided in option 1 above, and any remaining balance to be paid in a single or multiple installments with a reduction in interest and penalties/fines as in option 3 above.

To take part in the PERT program, application and first payment must be made by 31 August 2017. For debts in dispute, taxpayers must give up appeals or objections to take part in the program.

Click the following links for Provisional Measure 783 and a government release on the PERT program.

Russia

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Russia Publishes Guidance on Determination of Beneficial Ownership in Cases of Unlawful Application of Treaty Benefits

The Russian Federal Tax Service has published letter No. CA-4-7/9270, which sets out the approach for local tax authorities in court disputes involving contested findings that a tax agent unlawfully applied preferential tax treatment on income of a foreign entity under an international tax treaty.

In particular, the letter addresses the concept of beneficial ownership, and states that for the purpose of determining if a foreign entity is the beneficial owner of the income in question, the OECD Model Convention and commentaries may be used as a secondary source of interpretation of an international treaty. Further, beneficial ownership should not be understood in the narrow sense of the term, but rather on the basis of the goals and objectives of an international tax treaty, such as the avoidance of double taxation and tax evasion, while taking into account the fundamental principles of a treaty, such as the prevention of abuse of the treaty provisions and the importance of substance over form.

As provided in the letter, treaty benefits should only be granted to foreign companies that:

  • Have economic presence in the country of residence;
  • Have broad powers to dispose of the income; and
  • Use the income received in its business activities (receive economic benefits from the income).

The letter also states that in disputes involving beneficial ownership, the tax authorities should pay special attention to the study and analysis of the issues, including:

  • The independence of the decision-making directors of the foreign company;
  • The power of the company to dispose of the income;
  • The performance of business functions by the company;
  • The economic substance of company's operations (staff, office, business costs);
  • The economic benefits of the income (use in business of the company);
  • The commercial risk related to assets used; and
  • The nature of the cash flows, i.e., presence or absence of legal and factual obligations to further transfer income.

In addition, the letter states that the tax authorities should not only perform an analysis in relation to the disputed transaction and the foreign company, but should also assess the economic activities of the group as a whole.

Proposed Changes (2)

Australia

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Legislation Amending Australian CGT Withholding on Non-Resident Disposals of Australian Real Property

On 1 June 2017, Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Bill 2017 was submitted to the Australian Parliament. The legislation implements measures proposed in the Budget 2017-18 to modify the foreign resident capital gains withholding payments regime by increasing the withholding rate from 10% to 12.5% and reducing the withholding threshold from AUD 2 million to AUD 750,000. Subject to approval, the changes will apply in relation to acquisitions of property on or after 1 July 2017.

Click the following link for the legislation webpage, which includes links to the Bill and the Explanatory Memorandum.

South Africa

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South Africa Opens Consultation on CbC Report, Master File, and Local File Reporting Requirements

The South African Revenue Service has launched a public consultation on a draft public notice on the submission of Country-by-Country (CbC) report, Master file, and Local file information returns under a new business requirement specification reporting schema, BRS: CbC and Financial Data Reporting. The requirements apply for reporting fiscal years and financial years beginning on or after 1 January 2016.

Persons required to submit and the form of return include:

  • A reporting entity (other than a surrogate parent entity) for CbC reporting purposes resident in South Africa must submit a return in the form and containing the information specified in the BRS: CbC and Financial Data Reporting relating to the CbC Report, Master file, and Local file; and
  • A person whose potentially affected transactions for the year of assessment, without offsetting any potentially affected transactions against one another, exceeds or is reasonably expected to exceed ZAR 100 million in the aggregate must submit a return in the form and containing the information specified in the BRS: CbC and Financial Data Reporting relating to the Master file and the Local file.

With respect to a reporting entity, the return must be submitted within 12 months from the last day of the reporting fiscal year. With respect to persons with potentially affected transactions exceeding ZAR 100 million, the return must be submitted within 12 months from the date on which the person’s financial year ends. In both cases, returns must be submitted electronically by using the SARS eFiling platform.

The draft public notice does not specify the information to be reported and the reporting schema has not yet been published, although it is expected this will be issued in the near future.

Click the following link for the draft public notice. Comments are due by 22 June 2017.

Treaty Changes (4)

Japan-Russia

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Japan and Russia to Sign New Tax Treaty in September 2017

According to recent comments from Russian Minister of Economic Development Maxim Oreshkin, officials from Japan and Russia are expected to sign a new income tax treaty in September 2017. Negotiations for the new treaty were concluded in April 2017, and once in force and effective, the treaty will replace the 1986 tax treaty between Japan and the former Soviet Union as it applies in respect of Japan and Russia. The new treaty will reportedly provide for the following withholding tax rates:

  • Dividends - 5% if the beneficial owner holds at least 15% of the paying company's capital; otherwise 15%
  • Interest - 0%
  • Royalties 0%

The new treaty must be signed and ratified before entering into force. Additional details will be published once available.

Kuwait-Senegal

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Update - Pending Tax Treaty between Kuwait and Senegal

The income tax treaty between Kuwait and Senegal was signed on 9 April 2007. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Kuwait corporate income tax, the contribution from the net profits of the Kuwaiti shareholding companies payable to the Kuwait Foundation for Advancement of Science (KFAS), the Zakat, and the tax subjected according to the supporting of national employee law. It covers Senegalese corporate tax, minimum corporate tax, individual income tax, employer-paid premium, and betterment tax on developed and undeveloped land.

Service PE

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 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • Royalties - 20%

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. A provision is also included for a tax sparing credit for tax that is otherwise payable in a Contracting State, but has been waived or reduced in accordance with a special investment incentive law or measures designed to promote economic development in that Contracting State.

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 it was signed (2007).

Montenegro-Slovak Republic

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SSA between Montenegro and the Slovak Republic to Enter into Force

The pending social security agreement between Montenegro and the Slovak Republic will enter into force on 1 July 2017. The agreement, signed 20 May 2016, generally applies from the date of its entry into force and replaces the 1957 social security agreement between the former Czechoslovakia and the former Yugoslavia as it applies in respect of Montenegro and the Slovak Republic.

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Live Broadcast of Signing Ceremony for BEPS Multilateral Instrument and Q&A Webinar

The signing ceremony for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS will take place at 6 PM (CET) on 7 June 2017 at the OECD headquarter in Paris with over 60 countries and jurisdictions expected to sign the Multilateral Convention. The event will be broadcast live, and will be followed by a Q&A webinar on Friday 9 June at 3 PM (CET).

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