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Approved Changes (3)

Korea, Rep of

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Korean National Assembly Approves Tax Reform Legislation Including CbC Reporting from 2016

On 2 December 2016, the South Korean National Assembly approved a number of tax reform bills in relation to income tax, corporate tax, international tax, and other areas. Some of the main measures are summarized as follows:

CbC Reporting and Master and Local File

Country-by-Country (CbC) reporting requirements are introduced. The main aspects of the requirements include:

  • The requirements apply for fiscal years beginning on or after 1 January 2016 for MNE groups meeting a KRW 1 trillion consolidated revenue threshold in the previous year;
  • The requirement applies for ultimate parent entities resident in South Korea, as well as constituent entities resident in the country if the group's ultimate parent is resident in a jurisdiction that does not require CbC reports or the ultimate parent's jurisdiction does not automatically exchange CbC reports with the Korean tax authorities;
  • The required content of the CbC report is in line with BEPS Action 13 guidelines, including aggregate tax information (revenue, taxes paid/accrued, etc.) for each jurisdiction in which the group operates, as well as details of all constituent entities; and
  • When required in South Korea, the CbC report is due within 12 months following the close of the ultimate parent's fiscal year and will be exchanged with other jurisdictions with which South Korea has entered into a competent authority agreement for exchange.

Additional details will be published once available.

In addition to the introduction of CbC requirements, the Master and Local file requirements already in place (previous coverage) are amended to extend the deadline from three months after the fiscal year to 12 months.

Investment and R&D

  • The new growth engine R&D tax credit is restructured to provide up to a 30% tax credit for qualifying activities, with a higher credit applying based on a higher ratio of R&D investments;
  • A tax credit for facility investment to commercialize new growth engine technologies is introduced equal to 5%, 7%, and 10% for large, medium, and small enterprises respectively (7%, 8%, and 10% originally proposed);
  • The tax support given to companies with foreign investment is restructured, with an up to 100% percent foreign investment tax deduction; and
  • A 5% corporate tax credit is introduced for investments in ventures.

Individual Income Tax

  • A new top individual income tax bracket is introduced with a rate of 40% for income exceeding KRW 500 million (~USD 427,000);
  • The 17% income tax rate for foreign workers will be increased to 19% from 2019 (originally proposed to increase from 2020); and
  • A 20% capital gains tax is introduced from 2018 on shares owned by large shareholders if they become non-residents due to emigration regardless of the shares being sold.

Other Important Changes

  • Measures are introduced to improve the Mutual Agreement Procedure (MAP);
  • Foreign corporate branches in Korea are allowed to carry forward losses and offset up to 80% of taxable income per year in line with the loss treatment of domestic companies;
  • Technical services provided overseas will be subject to tax if payments are made in South Korea; and
  • The value limit for the capital gains tax exemption from the sale of shares is reduced to KRW 1.5 billion from 2018 and KRW 1.0 billion from 2020 (current limit of KRW 2.5 billion for KOSPI listed shares and KRW 2.0 billion for KOSDAQ listed shares);

Click the following link for an announcement (Korean language) on the approval from the South Korean Ministry of Strategy and Finance.

Norway

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Norwegian Parliament Approves CbC Reporting Requirements

The Norwegian parliament has reportedly approved legislation for the introduction of Country-by-Country (CbC) reporting requirements based on BEPS Action 13 guidance. Key aspects of the requirements are summarized as follows:

  • The requirements apply for fiscal years beginning on or after 1 January 2016 for MNE groups meeting a NOK 6.5 billion annual consolidated revenue threshold;
  • Where the ultimate parent entity of the group is not resident in Norway, a resident constituent entity will be required to submit a CbC report if:
    • The parent is not required to submit a CbC report in its jurisdiction of residence;
    • The parent's jurisdiction of residence does not have an agreement in force with Norway for the exchange of CbC reports; or
    • An agreement is in place, but there has been a systemic failure to exchange;
  • Resident entities are required to provide notification of the identity and residence of the reporting entity to the Norwegian tax authorities by the deadline for their tax return (generally by 31 May);
  • When required to be submitted in Norway, the deadline for the CbC report is 12 months after the close of the fiscal year concerned, and the report should be submitted in English.

Note - The secondary reporting requirement for a non-parent entity to file locally will apply for fiscal years beginning on or after 1 January 2017. It is expected, however, that this deferral does not apply for the notification requirement, i.e., the first notification will still be due 31 May 2017.

Russia

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Russian Tax Code Amendments Approved Including Loss Carry Forward Changes

Legislation (Law No. 401-FZ) amending Russia's Tax Code was published in the Official Gazette on 30 November 2016. One of the main amendments is a change in the treatment of carried forward losses.

Currently, losses may be carried forward for up to 10 years with no limit on the amount of taxable income that can be offset in a particular year. With the amendments, losses may be carried forward indefinitely but may only offset up to 50% of the taxpayer’s taxable income per year.

The changes in loss treatment also apply for consolidated groups. In this regard, losses of separate group members may be used to offset the consolidated tax base of the group, provided that the total losses do not exceed 50% of the consolidated base. Where this limit is exceed, the loss amount of a specific group member that is not offset against the consolidated tax base for the year is then carried forward by that group member.

Other changes in Law No. 401-FZ include:

  • Exempting the following from being considered a controlled transaction, even when the conditions for being considered controlled are otherwise met:
    • The provision of guarantees if all parties to the transaction are Russian legal entities that are not banks; and
    • The provision of interest-free loans between interdependent persons if the parties and beneficiaries of the transaction are registered or reside in Russia;
  • Increasing the late payment penalty when more than 30 days late from 1/300 to 1/150 of the Russian Central Bank's refinancing rate for each day of delay;
  • Extending the value added tax zero rate for railway transportation to 2030 and introducing the zero rate for related services; and
  • Increasing the mineral extraction tax and certain excise duties.

The changes included in Law No. 401-FZ generally apply from 1 January.

Proposed Changes (2)

Singapore

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Singapore Launches Public Consultation for Budget 2017

On 4 December 2016, the Singapore Ministry of Finance (MoF) announced the launch of a public consultation for the preparation of the Budget 2017. According to the announcement, the MoF is seeking views and suggestions on issues such as how to best develop Singaporeans, support families, and help local companies grow through innovation and internationalization.

Click the following links for the MoF announcement and the Budget 2017 website.

United Kingdom

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UK Publishes Draft Finance Bill 2017 for Consultation

On 5 December 2016, the UK published the draft provisions for Finance Bill 2017, which includes the measures announced as part of the Autumn Statement 2016 (previous coverage).

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What has been published?

The government is publishing draft provisions for Finance Bill 2017 for consultation. Where secondary legislation will give substantive effect to the Finance Bill clause, this has also been published in draft.

Each provision is accompanied by:

  • a tax information and impact note (TIIN) which sets out what the legislation seeks to achieve, why the government is undertaking the change and a summary of the expected impacts
  • an explanatory note which provides a more detailed guide to the legislation

TIINs are published in the overview of legislation in draft document, and are also available individually on the tax information and impact notes page.

Contacts and closing date

If you wish to comment on any of the draft clauses, please use the contact details provided at the end of the relevant explanatory note. The closing date for comments is Wednesday 1 February 2017.

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Click the following link for the consultation page, which includes an overview of the legislation in draft, the draft provisions, and draft explanatory notes.

Treaty Changes (4)

Ethiopia-Korea, Rep of

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Update - Tax Treaty between Ethiopia and South Korea

The pending income tax treaty between Ethiopia and South Korea was signed 26 May 2016. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Ethiopian tax on income and profit imposed by the Income Tax proclamation, and the tax on income from mining, petroleum, and agricultural activities. It covers Korean income tax, corporation tax, special tax for rural development, and local income tax.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 8%
  • Interest - 7.5%
  • 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 movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly 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. In respect of dividends received by a Korean resident company that owns at least 10% of the voting shares or capital stock of the paying company, South Korea will also provide a credit for the Ethiopian tax payable on the profits out of which the dividends are paid.

A provision is also included for a tax sparing credit for tax that would otherwise be payable but has been reduced or exempted for a limited period of time in a Contracting State in accordance with the laws and regulations of that State aimed at promoting economic development. This provision applies for 10 years from the date the treaty is effective.

Limitation on Benefits

Article 28 (Limitation on Benefits) includes the provision that a resident of a Contracting State will not be entitled to the benefits of the treaty in respect of Articles 10 (Dividends), 11 (Interest), 12 (Royalties), 13 (Capital Gains), and 22 (Other Income), if:

  • The resident is controlled directly or indirectly by one or more persons that are not residents of that Contracting State; and
  • The main purpose or one of the main purposes of any person concerned with the creation or assignment of a share, a debt-claim, or a right in respect of which the income is paid is to take advantage of these Articles by means of that creation or assignment.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged. It will apply in Ethiopia from 8 July next following its entry into force and in South Korea from 1 January of the year following its entry into force.

Korea, Rep of-Turkmenistan

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Tax Treaty between South Korea and Turkmenistan has Entered into Force

The income tax treaty between South Korea and Turkmenistan entered into force on 26 November 2016. The treaty, signed 13 April 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Korean income tax, corporation tax, special tax for rural development, and local income tax. It covers Turkmen tax on profits (income) of juridical persons and tax on income of individuals.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or several projects for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 0% on interest paid in connection with the sale on credit of any industrial, commercial, or scientific equipment, or paid in connection with the sale on credit of any merchandise by one enterprise to another enterprise; otherwise 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 deriving more than 50% of their value directly or indirectly 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 2017.

Luxembourg-Philippines

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Luxembourg Ratifies SSA with Philippines

On 2 December 2016, Luxembourg published the law ratifying the pending social security agreement with the Philippines. The agreement, signed 15 May 2015, is the first of its kind between the two countries. It will enter into force on the first day of the fourth month following the exchange of the ratification instruments.

Slovenia-India

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Slovenia Ratifies Pending Protocol to Tax Treaty with India

On 2 December 2016, Slovenia published the law ratifying the pending protocol to the 2003 income tax treaty with India. The protocol, signed 17 May 2016, is the first to amend the treaty. It replaces Article 26 (Exchange of Information) to bring it in line with the OECD standard for information exchange and inserts Article 27 (Assistance in the Collection of Taxes) with the subsequent articles renumbered accordingly.

The protocol will enter into force once the ratification instruments are exchanged and will apply from the first day of the third month next following the date of its entry into force.

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