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Approved Changes (1)

Algeria

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Algeria Issues Ruling Clarifying Application of Corporate Tax Rates as Amended in 2015

Algeria's tax authority recently issued a ruling that clarifies the application of the country's corporate tax rates as amended by the Additional Finance Law 2015 in July 2015.

Applicable Rates

Algeria's corporate tax rates of 19% and 25% (depending on sector) were originally replaced by Finance Law 2015 with a single tax rate of 23% effective 1 January 2015. However, the Additional Finance Law 2015 increased the standard rate to 26%, and set reduced rates for certain sectors.

The ruling clarifies that the amended rates apply for the whole of 2015 and future years, with reduced rates applying as follows:

  • 23% for companies engaged in:
    • Construction, including real estate and public works (rate may also apply for permanent establishments of foreign companies); and
    • Tourism services, including accommodation along with restaurants, entertainment, etc., but excluding hotels that only provide accommodation and travel agencies; and
  • 19% for manufacturing activities, including extraction, production, shaping and transformation, but excluding packaging and commercial display for resale purposes.

The standard 26% rate applies for all other sectors.

Mixed Activities

According to the ruling, when a company is engaged in multiple activities that would be subject to different rates, the method for determining the applicable rate(s) depends on whether the activities are specifically stated in the company's registration documents or not.

If the activities are specifically stated in the company's registration documents, the profits from each activity are determined separately using separate accounting records. To allocate common costs, the taxpayer is to apportion the costs to each activity based on the amount of revenue from that activity in relation to total revenue. For losses that have been carried forward to 2015, the same apportionment approach may be used, but from 2016, only losses related to a specific activity may be used offset profits of that activity.

If the activities are not specifically stated in the company's registration documents, the tax rate applicable for the company's principal business will apply for all profits.

Proposed Changes (1)

European Union

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European Commission Issues Action Plan on VAT

On 7 April 2016, the European Commission issued its proposed Action Plan on VAT. The plan covers four main areas summarized as follows:

Removing VAT Obstacles to E-Commerce in the Single Market

As part of its strategy for the EU Digital Single Market, the Commission will issue a legislative proposal by the end of 2016 to simplify VAT for cross border e-commerce, which will include:

  • Extending the Mini One-Stop Shop (MOSS) used to report and pay VAT on supplies of electronic services to also cover online sales of tangible goods to final consumers in the EU for both EU and non-EU suppliers;
  • Introducing EU-wide simplifications measures (VAT registration threshold) to help small start-up e-commerce businesses;
  • Streamlining audits in the e-commerce sector by allowing for home country checks, including a single audit of cross-border businesses; and
  • Removing the VAT exemption for the importation of small consignments from non-EU suppliers.

The Commission will also finalize a comprehensive simplification package to be issued in 2017 to support SMEs, which currently bear proportionally higher VAT compliance costs than large businesses due to the complexity and fragmentation of the EU VAT system.

Urgent Measures to Tackle the VAT Gap

The plan includes a number of actions to tackle the VAT gap due to fraud in the near term, which include.

  • Improving cooperation within the EU and with non-EU countries by strengthening the role and impact of Eurofisc (network for exchange of information on VAT fraud), and strengthening mutual assistance for the recovery of tax debts in the EU and with international organizations and non-EU countries;  
  • Developing a common agenda for tax administrations in order to build trust and to strengthen tax administrations’ capacity to tackle fraud and adapt to economic developments;
  • Improving voluntary compliance by running or sponsoring projects for effective dispute prevention and resolution mechanisms under the EU VAT Forum, and facilitating agreements between tax administrations and business sectors;
  • Introducing new approaches to tax collection that may include new reporting tools, new auditing tools, and defining new roles for certain market intermediaries; and
  • Allowing EU Member States to derogate from the EU VAT Directive by temporarily implementing reverse charge systems to address endemic VAT fraud.

Final proposals for the various actions will be made in 2016 and 2017.

Implementing a Single European VAT Area

The plan includes a major proposed change in the EU VAT system that would treat cross border B2B transactions in the same way as domestic transactions. Under the current system, B2B sales of goods are treated as a VAT exempt transaction in the Member State of origin and as a taxable purchase in the Member State of destination. Under the proposed system, the VAT exemption would no longer apply and VAT on cross border transactions would be collected by the State of origin and transferred to the State of destination.

The final proposal for the new system will be issued in 2017.

Relaxing Rules on Reduced VAT Rates

The Commission has developed two options to provide EU Member States more autonomy in the application of reduced rates of VAT. The options include:

  1. Extending the possibility to grant reduced rates and regularly review the list of goods and services that may benefit from reduced rates, while maintaining all currently existing reduced rates, including derogations (e.g. zero rates) already legally granted to certain Member States; and
  2. Abolishing the current list of goods and services that may benefit from reduced rates and allowing Member States to have full control on the number of reduced rates and the level of the rates, while implementing safeguards needed to avoid unfair competition and to prevent fraud.

The final proposal on reduced rates will be issued in 2017.

Next Steps

The Action Plan now goes to the European Parliament and the Council for political guidance before the final proposals are drafted. Click the following links for the communication on the Action Plan and a factsheet - Q&A on the plan.

Treaty Changes (5)

Italy-Liechtenstein-Monaco-Holy See

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Italy's Chamber of Deputies Approves TIEA with Liechtenstein, Monaco, and the Vatican (Holy See)

The Italian Chamber of Deputies (lower house of parliament) approved for ratification the pending tax information exchange agreements with Monaco on 30 March 2016 and with Liechtenstein and the Vatican (Holy See) on 31 March. The agreements are the first of their kind between Italy and the respective jurisdictions and will enter into force after the ratification instruments are exchanged.

Jordan-Saudi Arabia

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Jordan Approves Signing of Tax Treaty with Saudi Arabia

On 21 February 2016, the Jordanian Cabinet approved the signing of an income tax treaty with Saudi Arabia. Negotiations for the treaty were concluded in April 2015, at which time it was initialed by officials from both countries. The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force.

Jordan-Untd A Emirates

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Tax Treaty between Jordan and the U.A.E. Signed

Jordan's government announced on 6 April 2016 that an income tax treaty has been signed with the United Arab Emirates. The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

Morocco-Slovenia

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Tax Treaty between Morocco and Slovenia Signed

On 5 April 2016, officials from Morocco and Slovenia signed an income tax treaty. Withholding taxes under the treaty are reportedly as follows:

  • Dividends - 7% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 10%
  • Interest - 10%
  • Royalties - 10%

The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

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OECD Publishes Comments Received on Discussion Draft on the Treaty Residence of Pension Funds

On 6 April 2016, the OECD published comments received on a discussion draft on the treaty residence of pension funds that was issued in February 2016 as part of the follow-up work for BEPS Project Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances). The discussion draft includes draft changes to Articles 3 (General Definitions) and 4 (Resident) of the OECD Model Tax Convention, and the commentary for those articles, that will ensure that a pension fund is considered to be a resident of the State in which it is constituted for the purposes of tax treaties.

Click the following links for the discussion draft and the comments received.

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