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Worldwide Tax News

Approved Changes (3)

European Union

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European Commission 2015 VAT Gap Report finds No Improvement Overall

On 4 September 2015, the European Commission published the Study to quantify and analyse the VAT Gap in the EU Member States - 2015 Report. The report looks at the VAT Gap and Policy Gap in 26 EU Member States during 2013 in comparison to 2012. The report will be used to help address measures to improve VAT compliance and enforcement and serve as a benchmark.

The VAT Gap is the amount of VAT due or expected versus the actual amount collected. According to the report, 15 Member States decreased their VAT Gap in 2013 while 11 saw an increase. Overall, however, the VAT Gap stayed constant at 15.2%. The VAT Gaps in each Member State ranged from a low of 4% in Finland, the Netherlands and Sweden, to a high of 41% in Romania.

The Policy Gap is a measure of the amount of VAT a Member State could collect if it applied a standard rate of VAT for all consumption of goods and services instead of certain reduced rates and exemptions that are actually applied. Overall, the Policy Gap is much larger than the VAT Gap, with an average of 42%.

Click the following links for the Study to quantify and analyse the VAT Gap in the EU Member States - 2015 Report, and a European Commission fact sheet - The VAT Gap: Questions and Answers.

Ireland

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Ireland to Challenge Capital Gains Tax Relief used to Avoid Tax on Ultimate Disposals

On 3 September 2015, Ireland Revenue announced in eBrief No. 82/15 that it will challenge the use of capital gains tax relief for certain reorganizations if used to avoid tax on ultimate disposals. The text of the eBrief is as follows:

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It has come to the attention of Revenue that section 615, Taxes Consolidation Act (TCA) 1997, which provides relief from Capital Gains Tax (CGT) on a transfer of assets under a scheme of reconstruction or amalgamation of companies, is being used, in conjunction with the use of section 617 TCA 1997, which provides relief from CGT on a transfer of assets within a group, as part of a scheme to avoid CGT liabilities on the ultimate disposal of those assets.

Cases, in which section 615 is used as part of a scheme to avoid CGT, may be challenged under section 811 or section 811C TCA 1997, as appropriate, where CGT cannot be imposed under normal CGT rules on the "true" consideration paid on the ultimate disposal of the assets.

Revenue's views on this avoidance scheme are set out in Section 2.8 of Part 20.01.02 (PDF, 133KB) of the Income Tax, Capital Gains Tax, Corporation Tax Manual on the Revenue website.

Sweden

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Sweden Announces that Participation Exemption Not Applicable for Dividends Received from a Tax Haven

On 28 August 2015, the Swedish Tax Agency announced that the country's participation exemption for dividends received does not apply when received from a resident of a tax haven not subject to corporate income tax. The reasoning follows one of the main requirements of the participation exemption that the non-resident distributing the dividend must have a similar form and function as a Swedish limited liability company (AB). If the foreign entity is not subject to corporate income tax, it may not be considered similar to an AB and the dividend is therefore not eligible for the exemption.

Proposed Changes (2)

Brazil

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Brazil Chamber of Deputies Approves Increased Thresholds for Simplified Tax Regime

On 2 September 2015, the Brazilian Chamber of Deputies approved Bill 25/2007, which increases the revenue threshold for Brazils simplified tax regime. Under the simplified tax regime, eligible companies pay a single tax in place of corporate income tax, certain social security contributions, value added tax, and others. The simplified rates range from 4% to 22.90% based on the taxpayer's business classification and annual gross revenue.

Currently, the thresholds are annual gross revenue of BRL 360,000 for micro enterprises and annual gross revenue of BRL 3.6 million for small enterprises. The proposed legislation would increase the thresholds for micro and small enterprises to BRL 900,000 and BRL 14.4 million respectively. The bill as approved by the Chamber includes an effective date of 1 January 2016 for micro enterprises and a transition for small enterprises with an initial increase to BRL 7.2 million in 2017 and an increase to BRL 14.4 million in 2018.

The bill must be examined and approved by the Brazilian Senate before being enacted.

New Zealand

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New Zealand Cabinet Proposes New Rules for Debt Remissions between Related Parties

On 3 September 2015, New Zealand Revenue Minister Todd McClay announced that the Cabinet has approved proposed rules to address issues of over taxation in cases of debt remission between related parties. Over taxation may result because a forgiven debt is treated as taxable income for the debtor, but since the parties are related, does not become deductible as a bad loan for the creditor.

The proposed rules include that there should be no debt remission income for the debtor when the debtor and creditor are in the New Zealand tax base, which includes CFCs, and:

  • They are members of the same wholly owned group of companies; or
  • The debtor is a company or partnership and:
    • All of the relevant debt is owed to shareholders or partners in the debtor; and
    • If the debt remitted was instead capitalized, there would be no dilution of ownership of the debtor following the remission and all owners’ proportionate ownership of the debtor is unchanged.

The new rules must be approved by parliament, and if approved, are intended to apply retrospectively from the beginning of the 2006-2007 tax year.

Click the following links for the media statement from the Revenue Minister and the Technical analysis of certain related parties debt remission issued by Inland Revenue.

Treaty Changes (3)

Chile-United States

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Chilean Senate Approves Tax Treaty with the U.S.

On 1 September 2015, the Chilean Senate approved for ratification the pending income and capital tax treaty with the U.S. The Chilean Chamber of Deputies had approved the treaty in September 2014, and it is pending approval in the U.S.

The treaty, signed 4 February 2010, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Chilean taxes imposed under the Income Tax Act, and U.S. federal income taxes (excluding social security and unemployment taxes), Federal excise taxes imposed on insurance premiums paid to foreign insurers, and taxes imposed with respect to private foundations.

Residence

When a company is considered a resident of both Contracting States, the application of the treaty benefits will be determined through mutual agreement of the competent authorities of both States. If no agreement is reached, the company will not be entitled to any benefits of the treaty, except for those provided by Article 26 (Mutual Agreement Procedure).

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when a resident of one Contacting State performs services in the other State through one or more individuals who are present and performing such services in that other State for a period or periods aggregating 183 days or more within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the voting stock of the paying company; exempt if the beneficial owner is an entity whose activities are principally to provide or administer pensions or other similar benefits and is generally exempt from tax; otherwise 15%
  • Interest - 4% if the beneficial owners is a bank; an insurance company; an enterprise engaged primarily in lending or financing; a seller of machinery or equipment on credit; or an enterprise that in the previous 3 taxable years derived more than 50% of its liabilities from the issuance of bonds in the financial markets or from taking deposits at interest and more than 50% of the assets of the enterprise consist of debt-claims against unrelated persons; otherwise 10% (15% in the first 5 years from the date the provision becomes effective)
  • Royalties - 2% for the use of, or the right to use, industrial, commercial or scientific equipment, but not including ships, aircraft or containers; 10% for the use of, or the right to use, any copyright, patent, trademark, design or model, plan, secret formula or process, or other like intangible property, or for information concerning industrial, commercial, or scientific experience

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, including real property interests;
  • 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 or other rights or interests representing the capital of a company resident in the other State, with the rate of tax limited to 16% of the gain (subject to certain conditions) and exemptions provided for pension funds and shares substantially and regularly traded on a recognized stock exchange

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.

Limitation on Benefits

The treaty includes a comprehensive limitation on benefits article whereby only qualified persons, as defined in the article, are entitled to the benefits of the treaty.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged. It will apply in respect of withholding taxes from the first day of the second month following the date of its entry into force, and for all other taxes from 1 January of the year following its entry into force. Article 27 (Exchange of Information) will apply from the date the treaty enters into force.

Japan-Taiwan

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Negotiations for Tax Agreement between Japan and Taiwan Concluded

According to a recent announcement from the Taiwan government, officials from Japan and Taiwan have concluded negotiations with the initialing of a tax agreement. The agreement is the first of its kind between the two jurisdictions and must be signed and ratified before entering into force.

Additional details will be published once available.

Malaysia-Slovak Republic

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Update - Tax Treaty between Malaysia and Slovakia

The income tax treaty between Malaysia and Slovakia was signed 25 May 2015, and is the first of its kind between the two countries.

Taxes Covered

The treaty covers Malaysian income tax and petroleum income tax, and covers Slovak income tax.

Withholding Tax Rates

  • Dividends - 0% if the beneficial owner is a company directly holding at least 10% of the paying company's capital for an uninterrupted period of at least 12 months; otherwise 5%
  • Interest - 10%
  • Royalties - 10%
  • Fees for Technical Services (any services of a technical, managerial or consultancy nature) - 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 shares deriving more than 50% of their value directly or indirectly from 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.

Provisions are also included for a tax sparing credit whereby Slovakia will treat as Malaysian tax paid any tax that would have been payable but was reduced or exempted through special incentives under Malaysia law for the promotion of economic development of Malaysia. Eligible incentives resulting in the credit includes those that were in force on the date of signature of the treaty and similar incentives subsequently introduced if agreed by the competent authorities of the Contracting States.

Entry into Force and Effect

The treaty will enter into force 60 days after the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

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