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Approved Changes (4)
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OECD Releases Discussion Draft for BEPS Project Action 8 (Hard-to-Value Intangibles)

On 4 June 2015, the OECD released a discussion draft for Action 8 (Hard-to-value intangibles) of the Base Erosion and Profiting Shifting (BEPS) Project.

The discussion draft sets out an approach to hard-to-value intangibles and proposes revisions to the guidance in Section D.3 of the 2014 BEPS Report “Guidance on Transfer Pricing Aspects of Intangibles”. The revised guidance explains the difficulties faced by tax administrations in verifying the arm’s length basis on which pricing was determined by taxpayers for transactions involving a specific category of intangibles.

The discussion draft also proposes an approach based on the determination of the arm’s length pricing arrangements, including any contingent pricing arrangements that would have been made between independent enterprises at the time of the transaction. This approach is applied when specific conditions are met and it is intended to protect tax administrations against the negative effects of information asymmetry.

Click the following link for the Action 8 (Hard-to-value intangibles) discussion draft.

Comments should be submitted by 18 June 2015. A public consultation meeting will be held on 6 -7 July 2015 at the OECD Conference Centre in Paris.

Russia

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Russia Clarifies when a Foreign Company is Tax Resident in Russia and the Tax Return Requirements

The Russian Ministry of Finance recently issued guidance clarifying when a foreign company is treated as a Russian resident for tax purposes and the associated tax return requirements. According to the guidance, a foreign company is treated as a Russian tax resident if:

  • It is considered as a resident based on the provisions of an applicable tax treaty;
  • It is effectively managed in Russia, unless an applicable tax treaty provides otherwise; or
  • It is resident in a foreign jurisdiction with which Russia has entered into an effective tax treaty, it carries on activities in Russia through a branch or other subdivision, and has elected to be treated as Russian tax resident

If the conditions to be treated as a Russian tax resident are met, the foreign company will be treated the same as a Russian company for tax purposes and must file corporate tax returns at the end of each tax period using the same forms as a Russian company.

Taiwan

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Taiwan Approves New Tax Regime on Gains from Property Sales

On 5 June 2015, Taiwan's Legislative Yuan approved a new capital gains tax regime for immovable property sales with a top rate of 45% in order to curb speculation in the residential market.

The new regime replaces the existing regime, which is based on an assessed property value at the time of sale, as well as a 10%-15% luxury tax for properties held less than 2 years. For resident taxpayers, the rate is 45% of the actual gain if the property is held less than 1 year, 35% if held 1 to 2 years, 20% if held 2 to 10 years, and 15% if held more than 10 years. For non-resident taxpayers, the rate is 45% if held less than 1 year, and 35% if held for longer periods.

The new regime applies for property purchased on or after 1 January 2016.

United States

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U.S. Substantial Business Activities Regulations for an Expanded Affiliated Group Issued

On 3 June 2015, the U.S. IRS and U.S. Treasury issued Final Regulations T.D. 9720 concerning when an expanded affiliated group (EAG) will be considered to have substantial business activities in a foreign country. As included in the 2012 temporary regulations, the final regulations maintain that an EAG will be considered to have substantial business activities in the relevant foreign country only if at least 25% of its group employees, group assets, and group income are located or derived in the relevant foreign country.

The substantial business activities test is used in regard to corporate inversions, where there is a continuity of U.S. ownership of at least 60% but less than 80%. In such case, unless the substantial activities test is met, the inversion gain from the transfer of assets to the foreign entity is subject to tax which may not be offset by foreign tax credits or net operating losses. If there is a continuity of ownership of 80% or more, the activity test is not relevant as the inverted foreign company is treated as a U.S. domestic company and taxed on worldwide income.

The final regulations apply to acquisitions completed on or after 3 June 2015.

Click the following link for the full Final Regulations T.D. 9720

Treaty Changes (4)

Belize-South Africa

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TIEA between Belize and South Africa has Entered into Force

On 23 May 2015, the tax information exchange agreement between Belize and South Africa entered into force. The agreement, signed 6 May 2014, is the first of its kind between the two countries.

The agreement applies for criminal tax matters from the date of its entry into force, and for other matters for taxable periods beginning on or after that date.

Kosovo-United Kingdom

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Tax Treaty between Kosovo and the UK Signed

On 4 June 2015, officials from Kosovo and the United Kingdom signed an income and capital tax treaty. Once in force and effective, the treaty will replace the 1981 income tax treaty between the UK and the former Yugoslavia as it applies in respect of Kosovo.

Taxes Covered

The treaty covers Kosovo personal income tax and corporation tax, and 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 through mutual agreement. If the authorities cannot reach mutual agreement, the company will not be entitled to the benefits of the treaty aside from those covered in Articles 21 (Elimination of Double Taxation), 23 (Non-Discrimination) and 24 (Mutual Agreement Procedure).

Withholding Tax Rates

  • Dividends - Generally exempt, although a 15% rate applies if paid out of income derived directly or indirectly from immovable property by an investment vehicle that distributes most of this income annually and whose income from such property is tax exempt
  • Interest - 0%
  • Royalties - 0%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) will not be available 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 the articles.

The same limitation applies for other income (Article 20) not dealt with by 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 the alienation of shares or comparable interests directly or indirectly deriving more that 50% of the value from immovable property situated in the other State (exemption for shares in which there is substantial and regular trading 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.

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 company resident in Kosovo to a company resident in the UK if the conditions for an exemption under UK law are met. Exemption will also apply for profits of a permanent establishment in Kosovo of a UK company if the conditions for an exemption under UK law are met.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged.

For withholding taxes, the treaty will apply in both countries from 1 January of the year following its entry into force. For other taxes, the treaty will apply in Kosovo from 1 January of the year following its entry into force. In the UK it will apply for corporation tax from 1 April next following its entry into force, and for income tax and capital gains tax from 6 April next following its entry into force.

The provisions of Articles 24 (Mutual Agreement Procedure), 25 (Exchange of Information) and 26 (Assistance in the Collection of Taxes) will apply from the date of the treaty's entry into force.

The provisions of the 1981 income tax treaty between UK and the former Yugoslavia will cease to have effect for the relevant Kosovo or UK taxes on the dates the new treaty applies.

Kuwait-Macedonia

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Tax Treaty between Kuwait and Macedonia has Entered into Force

According to a recent announcement from Macedonia's Ministry of Finance, the income and capital tax treaty with Kuwait entered into force on 20 February 2015. The treaty, signed 20 March 2012, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Macedonian personal income tax, profit tax and property tax. It covers the following Kuwaiti taxes:

  • Corporate income tax;
  • The contribution from the net profits of the Kuwaiti shareholding companies payable to the Kuwait Foundation for Advancement of Science (KFAS);
  • The Zakat; and
  • The tax subjected according to the supporting of national employee law

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months in any 12-month period.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • Royalties - 15%

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.

Effective Date

The treaty applies from 1 January 2016.

Portugal-Vietnam

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Tax Treaty between Portugal and Vietnam Signed

On 3 June 2015, officials from Portugal and Vietnam signed an income tax treaty. 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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