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Approved Changes (1)

Singapore

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Singapore Introduces Related Party Transaction Reporting Requirements from YA 2018

The Inland Revenue Authority of Singapore (IRAS) has announced a new reporting requirement for related party transactions (RPT) that will apply from year of assessment 2018 (tax year 2017).

Under the RPT reporting requirement, a company is to state in the corporate tax return (Form C) whether the value of RPT as disclosed in the audited accounts exceeds SGD 15 million for the relevant year. If the value does exceed SGD 15 million, an RPT Form must be submitted together with Form C.

The values of the following categories of RPT are to be reported in the RPT Form:

  • Sales and purchases of goods;
  • Services income and expense;
  • Royalty and license fee income and expense;
  • Interest income and expense;
  • Other income and expense; and
  • Year-end balances of loans and non-trade amounts.

Where the company has cross-border RPT, details of the top 5 foreign related parties the company transacts with and the amounts transacted must also be reported.

Click the following link for the IRAS notice, which includes a sample RPT Form and a FAQ.

Treaty Changes (7)

Andorra-Italy

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Tax Treaty between Andorra and Italy to be Negotiated

The Andorran government has announced that the first round of negotiations for an income tax treaty with Italy will be held in the first half of 2017. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

Cambodia-China

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Update - Tax Treaty between Cambodia and China

The income tax treaty between Cambodia and China was signed on 13 October 2016. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Cambodian tax on profit, including withholding tax, additional profit tax on dividend distributions and capital gains tax, and tax on salary. It covers Chinese individual income tax and enterprise income tax.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 10%
  • Fees for technical services (managerial, technical or consultancy) - 10%

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 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

Both countries apply the credit method for the elimination of double taxation. In respect of dividends received by a company of a Contracting State that owns at least 10% of the shares of the paying company in the other State, the credit will take into account the tax paid by the paying company to the other State in respect of its income.

A provision is also included for a tax sparing credit, whereby tax payable will be deemed to include the amount of tax that would have been paid if the tax had not been exempted or reduced in accordance with the relevant incentives designed to promote economic development in the domestic laws or connected regulations of either Contracting State. The sparing credit will apply for a period of 10 years from the treaty's entry into force, but may be extended.

Entry into Force and Effect

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

China-Liechtenstein

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Tax Treaty between China and Liechtenstein to be Negotiated

On 26 October 2016, officials from China and Liechtenstein met to discuss plans for the negotiation of an income tax treaty. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Finland-India

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Management Support Fees Not Taxable as FTS under Finland-India Tax Treaty

The Kolkata Income Tax Appellate Tribunal has recently issued a ruling on whether management support services are considered fees for technical services (FTS) under the 2010 Finland-India tax treaty. The case involved Finnish-based Outotec OYJ, a metal and mineral processing technologies company, and its group company, Outotec India Pvt Ltd.

In the 2009-10 tax year, Outotec OYJ received payments for management support and related services provided to Outotec India amounting to approximately INR 8.2 million. Outotec OYJ took the position that the payments were outside the scope of FTS, and were therefore not taxable in India. Based on this position, the company reported zero taxable income in its Indian tax return for the year. However, when reviewing the return, the assessing officer determined that the payments did qualify as FTS and were taxable. The decision was appealed and the case made its way to the Kolkata Tribunal.

In its decision, the Kolkata Tribunal found in favor of Outotec OYJ. The Tribunal held that for the services to qualify as FTS under the Finland-India tax treaty, the services must make available technology knowledge or skills to the recipient. The make available condition of FTS is not clearly set out in the Finland-India tax treaty. As a result, the Tribunal made reference to the definition of FTS in Article 12 of the 1989 India-U.S. tax treaty and the related MoU, which includes that a service must make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Because the services provided did not meet the conditions for FTS and Outotec OYJ had no permanent establishment in India, the services were not taxable as FTS.

India-New Zealand

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Update - Protocol to Tax Treaty between India and New Zealand

The third protocol to the 1986 income tax treaty between India and New Zealand was signed 26 October 2016. The protocol replaces Article 26 (Exchange of Information) to bring it line with the OECD standard for information exchange, and adds Article 26A (Assistance in the Collection of Taxes). The protocol will enter into force once the ratification instruments are exchanged, and will generally apply from that date.

Morocco-Rwanda

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Update - Tax Treaty between Morocco and Rwanda

The income tax treaty between Morocco and Rwanda was signed on 19 October 2016. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Moroccan income tax and corporation tax, and Rwandan income tax and tax on rent of immovable property.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting State for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 8%
  • Interest - 10%
  • Royalties - 10%
  • Fees for technical services (managerial, technical or consultancy) - 10%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), and 12 (Royalties and Fees for Technical Services) 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 income is paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of the 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;
  • 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 the capital stock of a company, the property of which consists directly or indirectly principally of 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

Both countries apply the credit method for the elimination of double taxation. A provision is also included for a tax sparing credit, whereby an exemption or reduction of tax on income in accordance with the domestic legislation of a Contracting State will be deductible from the tax payable on such income in the other State.

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.

Ukraine-Japan

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Ukraine Clarifies Continued Application of PE Provisions under Tax Treaty between Japan and the Soviet Union

Ukraine's State Fiscal Service (SFS) recently published a guidance letter clarifying whether a Japanese resident's supervisory activities carried out at a Ukrainian building site constitutes a permanent establishment (PE). According to the letter, such activities would constitute a PE for a non-resident under Article 14.1.193 of the Tax Code if the activities continue for a period exceeding 6 months. However, where there is a tax treaty between Ukraine and the jurisdiction of the non-resident, the provisions of the tax treaty regarding PEs will apply.

Based on Article 4 of the 1986 tax treaty between Japan and the former Soviet Union, which Ukraine continues to apply in respect of Japan, a building site will constitute a PE if lasting for more than 12 months. According to the SFS letter, this 12-month threshold also applies for supervisory activities.

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