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Approved Changes (5)

El Salvador

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El Salvador Individual Income Tax Brackets for 2016

On 15 December 2015, the Salvadoran government issued Executive Decree No. 95, which sets the individual income tax bracket thresholds for 2016. The brackets and rates are as follows:

  • up to USD 5,664.00 - 0%
  • over USD 5,664.00 up to 10,742.88 - 10%
  • over USD 10,742.88 up to 24,457.20 - 20%
  • over USD 24,457.20 - 30%

The new brackets are effective 1 January 2016.

India

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Indian Court Holds CUP Method may be Applied using Industry Profit-Split Ratios

In a decision published 1 January 2016, the High Court of Delhi ruled on whether profit-split ratios may be used when applying the comparable uncontrolled price (CUP) method to determined the arm's length price. The case involved Toll Global Forwarding India (TGFI) and its split of residual profits earned from its controlled transactions between the exporting and importing members of its affiliated group for the 2006/07 and 2007/08 tax years.

In determining its transfer pricing, TGFI applied the CUP method using a 50/50 profit-split ratio based on the ratio adopted by unrelated parties in the same industry. However, the auditing transfer pricing officer rejected this approach, arguing that the use of the CUP method requires specific pricing data and cannot be based on industry ratios. The officer instead determined that the transactional net margin method should be used, which resulted in a greater return for the taxpayer for the years concerned. The case was heard by the Income Tax Appellate Tribunal, which sided with TGFI, and then made its way to the High Court of Delhi.

In its decision, the High Court also sided with the taxpayer. It held that the term "price" for the purpose of using the CUP method is not limited to specific prices, but can also include a profit-split formula. Whether the CUP method or transactional net margin method was more appropriate, however, was not addressed in the High Court's decision.

Malaysia

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Malaysia Delays Thin Capitalization Rules

On 30 December 2015, Malaysia's Ministry of Finance announced that the application of the country's thin capitalization rules is delayed to 1 January 2018. Malaysia's tax law has included thin capitalization rules since 2009, but the implementation of the rules has been delayed multiple times.

Poland

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Poland to Provide Interest Relief on Voluntary Transfer Pricing Adjustments for 2011 to 2015

Poland's Ministry of Finance has announced that its audit plans for 2016 will include a focus on transfer pricing. Taxpayers that voluntarily file amended returns concerning the tax years 2011 to 2015 will be provided 50% relief on any interest due on tax resulting from transfer pricing adjustments. If the return is amended as the result of an audit, no relief will apply. Inspections are to begin in the second quarter of 2016; therefore, amended returns should be filed by the end of March.

Venezuela

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Venezuela Introduces Increased Corporate Tax Rate for Financial Sector and Eliminates Investment Incentives

On 30 December 2015, Venezuela enacted and published Presidential Decree No. 2,163, which makes amendments to the country's income tax law. One of the main amendments is the introduction of a 40% flat corporate income tax on Venezuelan resident taxpayers engaged in banking, financial or insurance activities. Normal corporate tax rates, which are levied progressively (15%, 22%, 34%), are unchanged. The amendments also include the elimination of all incentives for new investments.

The amendments entered into force on 31 December 2015.

Proposed Changes (1)

Trin & Tobago

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Implementation of Trinidad and Tobago 2016 Budget Measures Delayed

On 30 December 2015, a media release was published by Trinidad and Tobago's Ministry of Finance announcing that the implementation of certain measures included in the Budget for 2016 (previous coverage) has been delayed because the needed legislation has not been enacted. The main measure that will be delayed is the reduction in the standard VAT Rate from 15% to 12.5%, which will apply from 1 February 2016 instead of 1 January 2016 as originally proposed. Other key measures, such as the increase in the Business levy and the Green fund levy and the end of the moratorium on property tax will still be made effective from 1 January 2016.

The legislation needed to make the changes will be introduced into parliament in the coming weeks.

Click the following link for the media release on the Ministry of Finance website.

Treaty Changes (3)

Brunei-Untd A Emirates

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Tax Treaty between Brunei and the U.A.E has Entered into Force

According to a recent update from the Brunei Ministry of Finance, the income and capital tax treaty with the United Arab Emirates entered into force on 21 November 2014. The treaty, signed 21 May 2013, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Brunei income tax imposed under the Income Tax Act (Cap. 35), and covers U.A.E. income tax and corporation tax.

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 a period or periods aggregating more than 9 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • Royalties - 5%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) 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 or royalties are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

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 whereby the credit for tax paid will be deemed to include tax which is otherwise payable but has been reduced or exempted in accordance with special incentive laws designed to promote economic development.

Effective Date

The treaty applies from 1 January 2015.

Georgia-Netherlands

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MoU on Automatic Information Exchange between Georgia and the Netherlands has Entered into Force

On 6 January 2016, the Netherlands published in its Official Gazette the memorandum of understanding (MoU) that provides for the automatic exchange of tax information under the 2002 income tax treaty with Georgia. The MoU was signed by the Netherlands on 23 November 2015 and by Georgia on 2 December 2015. It applies for the exchange of information on income covered by Articles 6 (Income from Immovable Property), 10 (Dividends), 11 (Interest), 12 (Royalties), 13 (Capital gains) and several others.

The MoU entered into force on 2 December 2015, and applies for requests concerning tax periods beginning on or after 1 January 2015.

Japan-Taiwan

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Update - Tax Agreement between Japan and Taiwan

The income tax agreement between Japan and Taiwan was signed on 26 November 2015. It is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Japanese income tax, corporation tax, special income tax for reconstruction, local corporation tax and local inhabitant taxes. It covers Taiwan profit-seeking enterprise income tax, individual consolidated income tax, and income basic tax.

Service PE

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

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 10%

Capital Gains

The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:

  • Gains from the alienation of immovable property situated in the other Party;
  • Gains from alienation of any property, other than immovable property, forming part of the business property of a permanent establishment in the other Party; and
  • Gains from the alienation of shares in a company or of interests in a partnership or trust deriving at least 50% of the value of its property directly or indirectly from immovable property situated in the other Party

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

Double Taxation Relief

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

Limitation on Benefits

Article 26 (Limitation of Relief) includes the provision that the benefit of any reduction in or exemption from tax provided for in the agreement will not be provided to a resident of a Contracting Party if the conduct of operations by such resident or a person connected with such resident had for the main purpose or one of the main purposes to obtain the benefit of the agreement.

Entry into Force and Effect

The agreement will enter into force once the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

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