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Proposed Changes (2)

Brazil

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Brazil's Chamber of Deputies Approves Progressive Capital Gains Tax

On 2 February 2016, Brazil's Chamber of Deputies reportedly approved legislation that would provide for a progressive capital gains tax.  As originally proposed, the flat capital gains tax rate of 15% would be replaced with progressive rates ranging from 10% up to 30%. As approved by the Chamber of Deputies, the top rate would be 22.5%.

The legislation must be examined and approved by the Brazilian Senate before being enacted. If enacted, the new rates would apply for most assets held by individuals or corporations, excluding financial securities.

India

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India's Companies Law Committee Submits Report including Several Proposed Changes

On 1 February 2016, India's Companies Law Committee submitted its report on the implementation of the Companies Act, 2013 to the Indian government. The Committee, which was formed in June 2015, received over 2000 comments through a public consultation and came up with 78 proposed changes to the Companies Act. Some of the main proposals as included in the associated press release are as follows:

  • Modify definition of associate company and subsidiary company to ensure that 'equity share capital' is the basis for deciding holding-subsidiary relationship rather than "both equity and preference share capital".
  • Incorporation process to be made easier and allow greater flexibility to companies: An unrestricted objects clause to be allowed in the Memorandum of Association dispensing with detailed listing of objects, self-declarations to replace affidavits from subscribers to memorandum and first directors; changes also in various Forms.
  • Companies may give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirement.
  • Restriction on layers of subsidiaries and investment companies to be removed.
  • Foreign companies having insignificant/incidental transactions through electronic mode to be exempted from registering and compliance regime under Companies Act, 2013.
  • Recognition of the concept of beneficial owner of a company proposed in the Act. Register of beneficial owners to be maintained by a company, and filed with the Registrar.
  • Provisions with regard to consolidation of accounts to be reviewed and those with respect to attachment of standalone accounts of foreign subsidiaries to be relaxed in certain cases.

Click the following links for the press release, including several other key changes and the full report on the Ministry of Corporate Affairs website.

Treaty Changes (4)

Chile-Italy

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Update - Tax Treaty between Chile and Italy

The income tax treaty between Chile and Italy was signed on 23 October 2015. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Chilean taxes imposed under the Income Tax Act, and Italian personal income tax, corporate income tax and regional tax on productive activities (IRAP).

Residence

The treaty includes the provision that 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 based on 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.

Permanent Establishment

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 individuals when the activities continue for a period or periods aggregating more than 183 days within any 12-month period.

The treaty also includes provisions based on the new language developed as part of Action 7 of the OECD BEPS Project concerning a dependent agent PE. Under the provisions, a permanent establishment will be deemed constituted where a person is acting in a Contracting State on behalf of an enterprise and habitually concludes contracts or plays the principal role leading to the conclusion of contracts that are:

  • In the name of the enterprise; or
  • For the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use; or
  • For the provision of services by that enterprise.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company that directly holds at least 25% of the paying company's capital; otherwise 10% (the rates set in the treaty will not limit Chile's application of the additional tax payable on dividends (35%) provided that the first category tax (FCT) is fully creditable in computing the amount of the additional tax)
  • Interest - 5% for interest on loans granted by banks and insurance companies, bonds or securities that are regularly and substantially traded on a recognized securities market, and a sale on credit of machinery and equipment; otherwise 15%
  • Royalties - 5% for royalties for the use of, or the right to use, any industrial, commercial or scientific equipment; otherwise 10%

Regarding Article 10 (Dividends), the protocol to the treaty states that if the additional withholding tax exceeds 35% or the FCT paid ceases to be fully creditable, the Contracting States shall consult with each other with a view to amending the treaty in order to re-establish the balance of benefits under the treaty.

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 movable property forming part of the business property of a permanent establishment in the other State;
  • Gains from the alienation of shares, comparable interests or other rights if:
    • The alienator at any time during the 365-day period preceding the alienation directly or indirectly owned shares, comparable interests or other rights representing at least 20% of the capital of a company resident in the other State; or
    • At any time during the 365-day period preceding the alienation, the shares, comparable interests or other rights directly or indirectly derived at least 50% of their value from immovable property situated in the other State; and
  • Any other gains from the alienation of shares, comparable interests or other rights representing the capital of a company resident in the other State, but the tax on such gains may not exceed 16%

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 generally apply the credit method for the elimination of double taxation.

Limitation on Benefits

Article 27 (Entitlement to Benefits) includes the provision that a benefit under the treaty will not be granted 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.

Article 27 (Entitlement to Benefits) also includes the provision that the benefits of the treaty will not apply when a resident of one Contracting State derives income from the other State and the first-mentioned State treats the income as attributable to a permanent establishment of that resident in a third state, if:

  • The total tax paid on the income in the first mentioned State and the third state is less than 60% of the tax that would have been paid in the first-mentioned State had the income not been attributable to the permanent establishment; or
  • The third state does not have a tax treaty in force with the other Contracting State from which the benefits of the treaty are being claimed, unless the income attributable to the permanent establishment is included in the tax base of the enterprise in the first-mentioned Contracting State.

In such cases, the income may be taxed in accordance with the domestic law of the other Contracting State. However, any tax on affected dividend, interest or royalty income is limited to 25% (does not limit Chile's application of the additional tax payable on dividends (35%) provided that the FCT is fully creditable in computing the amount of the additional tax).

MFN Clause

The protocol to the treaty, signed the same date, includes the provision that if any agreement or convention between Chile and an OECD member state enters into force after the Chile-Italy treaty enters into force and provides for an exemption on interest or royalties or provides a lower rate than provided for in the Chile-Italy treaty, such exemption or lower rate will automatically apply under the Chile-Italy treaty.

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 following its entry into force.

Estonia-Luxembourg

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Tax Treaty between Estonia and Luxembourg has Entered into Force

According to a recent update from the Estonian Ministry of Foreign Affairs, the income and capital tax treaty with Luxembourg entered into force on 11 December 2015. The treaty, signed 7 July 2014, replaces the 2006 income and capital tax treaty between the two countries.

Taxes Covered

The treaty covers Estonian income tax, and Luxembourg individual income tax, corporation tax, capital tax and communal trade tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise of one Contracting State furnishes services in the other State for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 0% if the beneficial owner is a company directly holding at least 10% of the paying company's capital, otherwise 10%
  • Interest - 0%
  • Royalties - 0%

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 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, although an exemption is provided for shares listed on a stock exchange in any member state of the OECD or the European Economic Area, or any other exchange that may be agreed to by the competent authorities of the Contracting States

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 generally apply the exemption method for the elimination of double taxation. However, in respect of income covered by Article 10 (Dividends), both countries generally apply the credit method. Luxembourg also applies the credit method for income covered by Article 16 (Artistes and Sportsmen).

Effective Date

The treaty applies from 1 January 2016. The 2006 income and capital treaty between the two countries ceases to have effect from that date.

Liechtenstein-Untd A Emirates

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Update - Tax Treaty between Liechtenstein and the U.A.E.

The income and capital tax treaty between Liechtenstein and the United Arab Emirates was signed on 1 October 2015. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Liechtenstein personal income tax, corporate income tax, real estate capital gains tax, wealth tax and, coupon tax. It covers United Arab Emirates income tax and corporate tax.

Withholding Tax Rates

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

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 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

The United Arab Emirates applies the credit method for the elimination of double taxation, while Liechtenstein generally applies the exemption method. However, Liechtenstein applies the credit method in respect of income covered by Articles 14 (Income from Employment), 15 (Directors' Fees), 16 (Entertainers and Sportspersons) and 17 (Pensions).

Limitation on Benefits

Article 28 (Entitlement to Benefits) includes the provision that a resident of a Contracting State shall not receive the benefit of any reduction in or exemption from tax provided for by the treaty if the competent authority of the other State determines that the principal purpose of such resident or a person directly or indirectly controlling such resident was to obtain the benefits.

The limitation may only apply after the competent authorities of both Contracting States have consulted with each other.

Entry into Force and Effect

The treaty will enter into force 30 days after the ratification instruments have been exchanged, and will apply from 1 January of the year following its entry into force.

Switzerland-Canada

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Switzerland Signs Joint Declaration on Automatic Exchange of Information with Canada

On 4 February 2016, officials from Switzerland and Canada signed a joint declaration on the automatic exchange of information in tax matters on a reciprocal basis, according to a press release from the Swiss Federal Council. The information exchange will be carried out under the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information and the Convention on Mutual Administrative Assistance in Tax Matters. Switzerland and Canada intend to begin the automatic exchange of financial account information in 2018.

Click the following link for the press release.

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