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Worldwide Tax News

Approved Changes (3)

Greece

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Greek Supreme Administrative Court Final Ruling that Extension of Statute of Limitations Period is Unconstitutional

On 28 June 2017, the Greek Supreme Administrative Court in a plenary session ruled that the retroactive application of rules extending the statute of limitations within which a tax assessment may be issued is unconstitutional. The decision generally upholds an earlier decision that an extension is only permitted within the conditions for the retroactive application of tax rules in Article 78(2) of the Constitution, which provides that a tax may only be applied retroactively if the relevant legislation has entered into force no later than one year following the year in which the liability arose. As such, the ruling essentially mandates a five-year statute of limitations, unless the tax authorities obtain additional information regarding tax evasion/avoidance during the five-year period, in which case an additional five years will be allowed.  

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OECD Publishes Comments Received on Hard-to-Value Intangibles Discussion Draft

The OECD has published the comments received on the discussion draft on implementation guidance for hard-to-value intangibles (HTVI), which is based on the approach developed as part of BEPS Action 8 and described in Chapter VI of the Transfer Pricing Guidelines. The discussion draft presents the principles that should underlie the implementation of the HTVI approach and provides a number of examples to clarify the implementation of the HTVI approach in different scenarios. The discussion draft also includes a section explaining the interaction between the HTVI approach and access to the mutual agreement procedure under applicable tax treaties.

Click the following link for the over 250 pages of comments received. No public consultation is planned for the discussion draft.

Vietnam

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Vietnam Guidance on New Transfer Pricing Requirements including CbC Reporting

The Vietnam Ministry of Finance has released Circular 41/2017/TT-BTC (Circular 41) of 28 April 2017, which provides guidance on the application of Decree No. 20/2017/ND-CP (previous coverage). The Decree introduced principles, methods, and procedures for determining transfer pricing, including the adoption of guidance and documentation requirements resulting from the BEPS Project. Some of the main points of the Circular 41 guidance include:

  • In general, where a transaction price, profit margin, or profit allocation falls within the arm's length range, no adjustment will be made, but if the taxpayer is otherwise non-compliant with its transfer pricing obligations, an adjustment to the median point of the arm's length range will be made;
  • Clarification that local Vietnamese comparable data is preferred, but if local data is not sufficient, regional data may be used and must be adjusted for local factors and considerations;
  • Confirmation that ultimate parent entities of MNE groups resident in Vietnam must prepare a CbC report if consolidated revenue meets or exceeds VND 18 trillion;
  • Clarification that local constituent entities of an MNE group required to prepare a CbC report should have the CbC report available within 90 days following the financial year, but if unable to submit the report for the year under review (for example, not yet prepared by parent), then the previous year's CbC report may be submitted instead, along with an explanation;
  • Clarification that when a local constituent entity is jointly owned (joint venture), the local entity must make available both a Master file and CbC report for each MNE group that consolidates the financial statements of the local entity; and
  • Clarification that for the purpose of the operating margin based safe harbor thresholds for taxpayers only performing routine operations (at least 5% for distributors; 10% for (non-toll) manufactures; and 15% for toll manufacturers), if the taxpayer performs multiple functions, each separate business division may be segmented and the percentage thresholds applies accordingly - if cannot be segmented reliably, the higher applicable percentage threshold may be applied.

Click the following link for Circular 41 (Vietnamese language). The Circular is effective the same date as Decree No. 20/2017/ND-CP; 1 May 2017.

Proposed Changes (2)

Slovak Republic

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Slovak Government Planning for Introduction of Patent Box Regime and Anti-Avoidance Measures

According to recent reports, the Slovak government is currently planning a number of corporate tax changes, including the introduction of a new patent box regime in line with the modified nexus approach developed as part of BEPS Action 5. The government is also planning for the introduction of measures to comply with the EU Anti Tax Avoidance Directive (Council Directive (EU) 2016/1164), including new exit taxation rules, controlled foreign company (CFC) rules, and hybrid mismatch rules, as well as new transfer pricing rules regarding intangibles and measures against VAT fraud. The draft legislation for the measures must still be finalized and submitted to parliament for approval. Additional details will be published once available.

Thailand

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Thailand's New Transfer Pricing Legislation Close to Final Approval

The Thai government has completed its consultations on new transfer pricing legislation, and the legislation will now go to the National Assembly (parliament) for final approval. The legislation, which was first approved by the Thai Cabinet in May 2015 (previous coverage), will serve to further formulize transfer pricing requirements in the country. Currently, general transfer pricing rules are provided through various provisions and guidelines. Specific transfer pricing provisions that will be introduced include:

  • The tax authority will be explicitly allowed to adjust reported income or allowed deductions when it is determined that a related party transaction was not entered into under commercial and financial conditions that would be entered into by independent parties;
  • Related parties are defined to include when an entity directly or indirectly holds at least 50% of the total share capital of another entity; when a common shareholder or partner directly or indirectly holds at least 50% of the capital in two (or more) entities; and when entities are otherwise related by capital or management, or where one controls the other;
  • Taxpayers are allowed to claim a tax refund that may arise following an adjustment, which must be claimed within three years of the relevant tax return deadline or within 60 days of the adjustment notice;
  • An annual disclosure requirement will be introduced for information on related party transactions for the year, which will be due by the annual tax return deadline (a minimum income threshold will be set for this purpose);
  • The tax authority will be allowed to request transfer pricing documentation within five years following the deadline for the annual disclosure, with documentation to be submitted within 60 days of request, with a possible extension of up to 60 days;
  • A penalty of up to THB 200,000 will be introduced for failing to comply with the disclosure and documentation requirements, including for the submission of incomplete or incorrect information.

Additional details will be published after the transfer pricing legislation is approved and enacted.

Treaty Changes (7)

Dominica-Sweden

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TIEA between Dominica and Sweden to Enter into Force

The tax information exchange agreement between Dominica and Sweden will enter into force on 1 August 2017. The agreement, signed 19 May 2010, is the first of its kind between the two countries and applies from the date of its entry into force for criminal tax matters and for tax periods beginning on or after the date of its entry into force for other matters (from the date of entry into force if there is no taxable period).

Hungary-Ecuador

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Hungary Looking to Sign Tax Treaty with Ecuador

According to a release from the Hungarian Ministry of Foreign Affairs and Trade, Deputy State Secretary Szilveszter Bus asked for support on the signing of any income tax treaty from Ecuadorian officials during a meeting on bilateral relations held 30 June 2017. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Indonesia-Switzerland

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Indonesia and Switzerland Sign Joint Declaration on the Automatic Exchange of Financial Account Information

The Indonesian Ministry of Finance has announced the signing of a joint declaration on the automatic exchange of financial account information with Switzerland on 4 July 2017. The information exchange will be carried out under the OECD Common Reporting Standard (CRS). Indonesia and Switzerland intend to start collecting data in 2018 and begin exchange from 2019.

Japan-Latvia

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Tax Treaty between Japan and Latvia has Entered into Force

The income tax treaty between Japan and Latvia entered into force on 5 July 2017. The treaty, signed 18 January 2017, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Japanese income tax, corporation tax, special income tax for reconstruction, local corporation tax, and local inhabitant taxes. It covers Latvian enterprise income tax and personal income tax.

Residence

If a company is considered resident in both Contracting States, the competent authorities of both States will determine its residence for the purpose of the treaty through mutual agreement based on its place of head or main office, its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. If no agreement is reached, the company will not be entitled to any relief or exemption from tax provided by the treaty.

Withholding Tax Rates

  • Dividends - 0% if beneficially owned by a person other than an individual; otherwise 10%
  • Interest - 0% if beneficially owned by a person other than an individual; otherwise 10%
  • Royalties - 0%

Note - The exemption provided for dividends will not apply if the paying company is entitled to a deduction for dividends paid to its beneficiaries in computing its taxable income. The exemption provided for interest will not apply for interest that is determined by reference to receipts, sales, income, profits, or other cash flow of the debtor or a related person, to any change in the value of any property of the debtor or a related person, or to any dividends, partnership distribution, or similar payment made by the debtor or a related person.

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 alienation of any property, other than immovable property, forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares or comparable interests if, at any time during the 365 days preceding the alienation, the shares or comparable interests derived at least 50% of their value directly or indirectly from immovable property situated in the other State (exemption if the shares or comparable interests are traded on a recognized stock exchange and the alienator together with related parties own in the aggregate 5% or less of the shares or comparable interests).

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Entitlement to Benefits

Article 22 (Entitlement to Benefits) includes substantial provisions regarding a resident's entitlement to benefits under the treaty. This includes that a resident of a Contracting State will only be entitled to the withholding tax exemptions provided under Articles 10 (Dividends), 11 (Interest), and 12 (Royalties) if the resident is a qualified person, which includes:

  • An individual;
  • A qualified governmental entity;
  • A company, if its principal class of shares is listed or registered and is regularly traded on one or more recognized stock exchanges;
  • A pension fund or pension scheme, subject to certain conditions;
  • A person established and operated exclusively for a religious, charitable, educational, scientific, artistic, cultural, or public purpose, subject to certain conditions; and
  • A person other than an individual, if at least 50% of its voting power or other beneficial interests is owned, directly or indirectly, by residents of either Contracting State that meet the conditions for qualified persons above during the twelve month period including the date of the payment.

Provisions are also included whereby a resident of a Contracting State will be entitled to the exemption benefits if:

  • The resident is carrying on business in that Contracting State (other than the business of making or managing investments for the resident's own account, unless the business is banking, insurance, or securities business carried on by a bank, insurance company or securities dealer); and
  • The item of income is derived in connection with, or is incidental to, that business.

Additional conditions apply regarding the above in relation to associated enterprises and partnerships.

Provisions are also included whereby the benefits may still apply for a resident that is not a qualified person or does not meet the conditions above, provided that the competent authority of the Contracting State to which the benefit is claimed determines that the establishment, acquisition, or maintenance of such resident and the conduct of its operations did not have as one of the principal purposes the obtaining of such benefit.

Lastly, a general anti-abuse provision is included, which provides that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.

Double Taxation Relief

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

Effective Date

The treaty generally applies from 1 January 2018, although Article 26 (Exchange of Information) and Article 27 (Assistance in the Collection of Taxes) apply from 5 July 2017, without regard to the date on which the taxes are levied or the taxable year to which the taxes relate.

Kyrgyzstan-United Kingdom

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Update - Tax Treaty between Kyrgyzstan and the UK

The income and capital tax treaty between Kyrgyzstan and the UK was signed on 13 June 2017. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Kyrgyzstan tax on income and profits of legal persons, and income tax on individuals. 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 by mutual agreement. If no agreement is reached, the company will not be considered a resident of either Contracting State for the purposes of claiming any benefits provided by the treaty, except for those provided by Articles 22 (Elimination of Double Taxation), 23 (Non-Discrimination), and 24 (Mutual Agreement Procedure).

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting State performs services in the other State for a period or periods exceeding in the aggregate 183 days in any 12-month period, and these services are performed for the same project or connected projects through one or more individuals who are present and performing such services in that other State.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly or indirectly holding at least 25% of the paying company's capital; otherwise 15%
  • Interest - 5%, with an exemption interest paid in respect of the sale on credit of any equipment, merchandise or services
  • Royalties - 5%

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 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 21 (Other Income) will not apply if 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 income is 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 a Kyrgyzstan 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 Kyrgyzstan of a UK company if the conditions for an exemption under UK law are met. Where a dividend paid by a Kyrgyzstan company does not qualify for exemption in the UK, the UK credit will take into account the Kyrgyzstan tax payable in respect of the profits out of which such dividend is paid, provided that the UK resident controls directly or indirectly at least 10% of the voting power in the Kyrgyzstan company.

Entry into force and Effect

The treaty will enter into force once the ratification instruments are exchanged. It will apply in Kyrgyzstan from 1 January of the year following its entry into force. It will apply in the UK from 1 January of the year following its entry into force in respect of withholding taxes, from 1 April next following its entry into force in respect of corporation tax, and from 6 April next following its entry into force in respect of income tax and capital gains tax. Articles 24 (Mutual agreement procedure) and 25 (Exchange of information), however, will apply from the date of the treaty's entry into force in both countries.

Lithuania-Vietnam

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Lithuania and Vietnam to Conclude Tax Treaty Negotiations

According to a release from the Lithuanian Ministry of Foreign Affairs, officials from Lithuania and Vietnam met 4 July 2017 to discuss bilateral relations, including the conclusion of negotiations for an income tax treaty. The treaty will be the first of its kind between the two countries and must be finalized, signed, and ratified before entering into force.

Norway-OECD

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OECD Publishes Norway's Provisional List of Reservations and Notifications for BEPS MLI

The OECD has published Norway's provisional list of reservations and notifications for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). Norway signed the BEPS MLI during the signing ceremony on 7 June 2017 (previous coverage), but had not submitted its provisional list at that time. The list includes that Norway wishes to have 28 of its tax treaties covered by the MLI. For the MLI to become effective for a particular treaty, the other jurisdiction must also include the treaty as a covered agreement, and both sides must have completed the required procedures for the ratification of the MLI.

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