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Worldwide Tax News

Approved Changes (1)
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Upcoming OECD Webcast on BEPS Inclusive Framework and G20 Tax Policy Symposium

The OECD will hold a webcast on 12 July 2016 to provide updates on recent and upcoming developments, including:

  • Outcomes from the inaugural meeting of the Inclusive Framework on BEPS, including the latest discussion drafts and progress on implementation; and
  • The upcoming G20 Tax Policy Symposium.

Click the following link to the OECD webcast page to register.

Proposed Changes (5)

European Union

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EU Commission Adopts Proposal to Strengthen Transparency and Announces Related Plans

On 5 July 2016, the European Commission adopted proposed transparency rules concerning terrorism financing, tax avoidance and money laundering. The proposed changes regarding tax avoidance and money laundering would involve amendments to the Fourth Anti-Money Laundering Directive (Directive (EU) 2015/849/EU) and the Administrative Directive (Directive 2011/16/EU). These include:

  • Full public access to the beneficial ownership registers: Member States will make public certain information of the beneficial ownership registers on companies and business-related trusts. Information on all other trusts will be included in the national registers and available to parties who can show a legitimate interest. The beneficial owners who have 10% ownership in certain companies that present a risk of being used for money laundering and tax evasion will be included in the registries. The threshold remains at 25% for all other companies.
  • Interconnection of the registers: the proposal provides for the direct interconnection of the registers to facilitate cooperation between EU Member States.
  • Extending the information available to authorities: The Commission has proposed that existing, as well as new, accounts should be subject to due diligence controls. This will prevent accounts that are potentially used for illicit activities from escaping detection. Passive companies and trusts, such as those highlighted in the Panama Papers, will also be subject to greater scrutiny and tighter rules.

On the same date, the Commission also announced its plans to boost tax transparency in order to fight tax evasion and avoidance in the EU, which includes the propose rules above and certain other actions.

Click the following link for the Commission press release on the adopted proposals and the press release on the plans to boost tax transparency for additional information.

India

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India to Include Stewardship Functions as Part of Place of Effective Management Guidelines

According to recent reports, the Indian government is planning to introduce the concept of stewardship functions in the guidelines for determining place of effective management (PoEM) (previous coverage). The importance of PoEM is in regard to the determination of corporate residence in India, which was changed under Finance Act, 2015 from being based on when an entity is wholly controlled and managed in India, to instead being based on whether PoEM is in India (the residence test based on incorporation in India is unchanged). The change was to apply from 1 April 2016 (FY 2015-16), but has been postponed to 1 April 2017 (FY 2016-17).

The concept of stewardship functions concerns activities carried out by a company in relation to its subsidiary for its own ownership interest. The expected additions to the PoEM guidelines include the definition of which activities constitute stewardship functions and clarification that the carrying out of such activities by a company in India in relation to its subsidiary would not necessarily result in the subsidiary being deemed to have its PoEM in India.

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OECD Agrees on Non-Cooperative Jurisdiction Criteria

The OECD's Committee on Fiscal Affairs has reportedly reached agreement on objective criteria to assess jurisdictions as non-cooperative with regard to tax transparency during the recent meeting in Kyoto, Japan on 30 June to 1 July 2016. The criteria include:

  • Whether the jurisdiction has signed and ratified the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol;
  • Whether the jurisdiction has committed to implement automatic exchange of financial account information in line with the OECD Common Reporting Standard; and
  • Whether the jurisdiction has received a compliant peer review rating from the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes (the Forum).

In general, a jurisdiction would not be assessed as non-cooperative if meeting at least two of the three criteria, but would automatically be considered non-cooperative if it has received a non-compliant peer review rating from the Forum.

The final criteria and approach will be presented at the upcoming G-20 Finance Ministers meeting held in Chengdu, China on 23 to 24 July 2016.

United Kingdom

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UK Publishes Legislation for the Taxation of Profits of Non-Residents from Trading in and Developing UK Land

On 6 July 2016, UK HMRC published the legislation for the taxation of profits of non-residents from trading in and developing UK land, which includes seven clauses introduced in Finance Bill 2016.

The legislation introduces a specific income tax or corporation tax charge on profits from dealing in or developing land and other immovable property in the UK. The charge is income tax or corporation tax depending on which of those charges applies to the business, and the calculation of profits follows the normal rules for calculation of trading profits. The charge overrides the corporation tax rules that charge tax only on profits attributable to a permanent establishment in the UK, or the equivalent for income tax. It does not duplicate existing charges, and includes a specific provision to ensure that it only applies to profits not already charged to income tax or corporation tax as income.

The new rules will apply from 5 July 2016, the date the legislation was introduced to parliament. However, to prevent avoidance of the new rules and attempts to crystallize profits on existing projects, the legislation contains a targeted anti-avoidance rule that has effect from 16 March 2016.

Click the following links for an information and impact note on the new rules and explanatory notes for each of the relevant clauses.

United States

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U.S. Senators Urge Treasury to Delay Proposed Debt-Equity regulations under IRC section 385

In a letter dated 1 July 2016, seven U.S. Senators from the Senate Finance Committee urge Treasury Secretary Jacob Lew to delay the proposed debt-equity regulations under Internal Revenue Code section 385 (REG-108060-15). The regulations are mainly intended to counter corporate inversions and earnings stripping by allowing the IRS to recharacterize certain related-party interests as equity or part debt / part equity. The regulations also include documentation and financial analysis requirements for debt instruments to be treated as indebtedness for federal tax purposes when issued to a related party.

In the letter, the Senators list a number of issues to be addressed before the regulations are finalized, which include changes to:

  • Ensure that S corporations do not lose their S corporation tax status by virtue of having their debt re-characterized as equity and are not penalized for their domestic-to-domestic transactions;
  • Ensure that non-tax motivated cash management techniques, such as cash pooling or revolving credit arrangements, are exempted;
  • Exempt foreign-to-foreign transactions from the scope of the proposed regulations;
  • Address the "cascading effect" of the currently drafted regulations, where a single tainted transaction funded with intercompany debt can create a multitude of additional tainted transactions;
  • Extend the 30-day deadline for meeting the documentation requirements;
  • Expand the USD 50 million intercompany debt threshold so that more small businesses will be exempt from the rules;
  • Ensure the regulations take into account the global economic and regulatory environment in which regulated financial groups operate; and
  • Ensure that local interest deductions for U.S. multinational businesses are not eliminated under the OECD BEPS hybrid transaction concepts.

In order to allow the time needed to address the issues, the Senators request that Treasury:

  1. Extend the comment period deadline to at least 5 October 2016;
  2. Consider the comments and feedback received through the extended comment period; and
  3. Change the effective date for the rules so that they would apply to debt instruments issued, or deemed issued, no sooner than 90 days after the date the regulations are issued in final form.

Click the following link for the full text of the letter.

Treaty Changes (2)

Algeria-United Kingdom

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Tax Treaty between Algeria and the UK has Entered into Force

The income and capital tax treaty between Algeria and the UK entered into force on 16 June 2016. The treaty, signed 18 February 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Algerian tax on global income, tax on the profits of companies, tax on professional activity, and royalties and taxes on results relating to activities of prospecting, research, exploitation and transport of hydrocarbons by way of pipelines. 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 aside from those covered in Article 21 (Elimination of Double Taxation) and Article 23 (Mutual Agreement Procedure).

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 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital, otherwise 15%
  • 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 shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other State, other than immovable property in which the company or the holders of the interests carry on their business (exemption provided for shares substantially and 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.

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 the Articles.

Double Taxation Relief

Both countries generally apply the credit method for the elimination of double taxation. However, the UK will exempt dividends paid by an Algerian company to a company resident in the UK if the conditions for an exemption under UK law are met. Exemption may also apply for profits of a permanent establishment in Algeria of a UK company if the conditions for an exemption under UK law are met.

Effective Date

The treaty applies in Algeria from 1 January 2017. It applies in the UK:

  • In respect of withholding taxes from 1 January 2017;
  • In respect of corporation tax from 1 April 2017; and
  • In respect of income tax and capital gains tax from 6 April 2017.

The provisions of Articles 23 (Mutual Agreement Procedure), 24 (Exchange of Information) and 25 (Assistance in the Collection of Taxes) apply from 16 June 2016.

The 1981 air transport agreement between Algeria and the UK ceases to have effect from the date the tax treaty is effective.

China-Romania

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New Tax Treaty between China and Romania Signed

On 4 July 2016, officials from China and Romania signed a new income tax treaty. The treaty will enter into force after the ratification instruments are exchanged, and once in force and effective, will replace the 1991 tax treaty between the two countries.

Additional details will be published once available.

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