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Worldwide Tax News

Approved Changes (2)

Colombia

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Colombia Clarifies Tax Obligation of Foreign Investors Selling Shares Listed on Colombian Stock Exchange

The Colombian Tax Authority (DIAN) has published Ruling 20916 of 2017, which clarifies the tax obligations for foreign investors when selling shares listed on the Colombian stock exchange. In general, the sale of listed shares is only subject to income tax if the shares sold represent more than 10% of the total shares of the listed company within a single year. Where a foreign beneficial owner exceeds that threshold, a tax return must be submitted within one month following the sale.

Mexico

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Mexico Announces Launch of Electronic Platform for Filing CbC Reports, Master File, and Local File

The Mexican Tax Administration (SAT) has announced the launch of the electronic platform on the SAT website for the filing of the Country-by-Country (CbC) Report, Master file, and Local file (transfer pricing informative declarations). Access to the platform is available from 1 November 2017 and requires the Taxpayers Federal Registry code (Registro Federal de Contribuyentes) and password. The first informative declarations are due 31 December 2017 in respect of the 2016 fiscal year (previous coverage).

Proposed Changes (1)

Costa Rica

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Costa Rica Draft CbC Reporting Requirements

Costa Rica's Directorate General of Taxation has published a draft resolution for the implementation of Country-by-Country (CbC) reporting requirements in line with the BEPS Action 13 guidelines. Key points include:

  • The CbC reporting requirements will apply for MNE groups meeting the standard EUR 750 million consolidated group revenue threshold;
  • The reporting requirement applies for ultimate parent entities and designated surrogate parent entities resident in Costa Rica;
  • The CbC report must be submitted via email as an XML file that complies with the standard OECD schema (email address will be set by the tax administration at least one month prior to the CbC report deadline);
  • The first CbC reports will be due by 31 December 2018 in respect of the 2017 reporting fiscal year;
  • All constituent entities resident in Costa Rica must submit a CbC reporting notification via email to tributacioninternacional@hacienda.go.cr by the end of the reporting fiscal year; and
  • Non-compliance will result in sanctions in accordance with Article 83 of the General Tax Code, which provides for a fine equal to 2% of the offender's gross income in the previous year for non-submission, as well as fines for incorrect information.

Click the following link for the draft resolution (Spanish language), which also includes the standard CbC report table templates and instructions.

Treaty Changes (4)

China-Kenya

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Update - Tax Treaty between China and Kenya

The income tax treaty between China and Kenya was signed on 21 September 2017. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Chinese individual income tax and enterprise income tax, and covers Kenyan income tax chargeable in accordance with the provisions of the Income Tax Act.

Service PE

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 personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 5%
  • Interest - 10%
  • Royalties - 10%
  • Technical fees for any service of a managerial, technical or consultancy nature - 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 or comparable interests deriving more than 50% of their value, at any time during the 12 month period preceding such alienation, directly or indirectly from immovable property situated in the other State (exemption for shares substantially and regularly traded on a 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. In respect of dividends received by a Chinese resident company that owns at least 20% of the shares of the paying Kenyan company, China will also provide a credit for the Kenyan tax paid on the profits out of which the dividends are paid.

Entitlement to Benefits

Article 28 (Entitlement to Benefits) provides that a benefit under the treaty will not be granted in respect of an item of income or capital 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, unless it is established that granting that benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.

Entry into Force and Effect

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

Cyprus-Ethiopia

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Tax Treaty between Cyprus and Ethiopia has Entered into Force

The income tax treaty between Cyprus and Ethiopia entered into force on 19 October 2017. The treaty, signed 30 December 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Cypriot income tax, corporate income tax, special contribution for the Defense of the Republic, and capital gains tax. It covers Ethiopian tax on income and profit, and tax on income from mining, petroleum, and agricultural activities.

Withholding Tax Rates

  • Dividends - 5%
  • Interest - 5%
  • Royalties - 5%

Offshore PE

Article 13 (Offshore Activities) includes the provision that a permanent establishment will be deemed constituted if an enterprise of one Contracting State carries on offshore activities in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in the other State if such activities continue for a period or periods aggregating more than 30 days in any 12 month period. In determining if the 30 days limit has been met, activities of an associated enterprise (30% direct or indirect participation) that are substantially the same will be considered.

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. A provision is also included for a tax sparing credit for tax that would otherwise be payable but has been reduced or exempted for a limited period of time in a Contracting State in accordance with the laws and regulations of that State aimed at promoting economic development.

Effective Date

The treaty applies in Cyprus from 1 January 2018 and in Ethiopia from 8 July 2018.

Ukraine-United Kingdom

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Update - Protocol to Tax Treaty between Ukraine and the UK

The Protocol to the 1993 income and capital tax treaty between Ukraine the UK was signed on 9 October 2017. The amendments made by the protocol are summarized as follows:

  • The preamble is replaced, including new language regarding treaty abuse developed as part of the BEPS project;
  • Article 1 (Personal Scope) is replaced, including a provision addressing the treatment of transparent entities;
  • Article 2 (Taxes Covered) is amended with respect to the Ukraine taxes covered;
  • Article 3 (General Definitions) is amended with respect to a number of terms, including the meaning of "United Kingdom", "Ukraine", "competent authority", and others;
  • Article 4 (Resident) is replaced, including the provision that the residence of dual-resident entities for the purpose of the treaty will be determined through mutual agreement between the competent authorities and that if no agreement is reached, treaty benefits will be limited to those provided by Articles 22 (Elimination of Double Taxation), 25 (Non-Discrimination), and 26 (Mutual Agreement Procedure);
  • Article 10 (Dividends) is amended to provide for a 5% withholding tax rate if the beneficial owner is a company directly or indirectly holding at least 20% of the paying company's capital; otherwise 15%;
  • Article 11 (Interest) is amended to provide for a 5% withholding tax rate;
  • Article 12 (Royalties) is amended to provide for a 5% withholding tax rate;
  • Article 23 (Limitation of relief) is replaced with Article 23 (Entitlement to Benefits), which includes a principal purpose test, as well as a provision that limits relief for income derived from one Contracting State to the amount that is actually taxed in the other State in cases where the other State taxes income based on the amount remitted and received and not by reference to the full amount;
  • Article 24 (Partnerships) is deleted;
  • Article 26 (Mutual Agreement Procedure) is amended, including the addition of arbitration provisions, which include that a case may be submitted to arbitration if not resolved within two years;
  • Article 27 (Exchange of information) is replaced to bring it in line with the OECD standard on information exchange; and
  • Paragraph 3 of Article 29 (Entry into Force) is deleted - the paragraph concerns the continued effect of any more beneficial provisions of the 1974 Air Transport Agreement and the 1985 tax treaty for tax periods beginning before the 1993 tax treaty entered into force.

The treaty will enter into force once the ratification instruments are exchanged. It will apply in Ukraine from 1 January of the year following its entry into force. It will apply in the UK from 1 January of the year following its entry into force in respect of withholding taxes, from 1 April next following its entry into force in respect of corporation tax, and from 6 April next following its entry into force in respect of income tax and capital gains tax. Changes to Articles 26 (Mutual Agreement Procedure) and 27 (Exchange of Information), however, will apply from the date of the treaty's entry into force in both countries.

United States-Mexico

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U.S. Publishes CbC Exchange Arrangement with Mexico

The U.S. IRS has published the competent authority arrangement on the exchange of Country-by-Country (CbC) reports with Mexico. The arrangement was signed 19 October 2017 and is operative (effective) from that date.

The arrangement provides that pursuant to Article 4 (Exchange of Information) of the 1989 Mexico-U.S. tax information exchange agreement, as amended, each competent authority intends to automatically exchange CbC reports received from each reporting entity resident for tax purposes in its jurisdiction, provided that, on the basis of the information provided in the CbC report, one or more constituent entities of the MNE group of the reporting entity are resident for tax purposes in the jurisdiction of the other competent authority, or are subject to tax with respect to the business carried out through a permanent establishment situated in the other jurisdiction.

With respect to fiscal years beginning on or after 1 January 2016, CbC reports are to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC report relates. With respect to fiscal years beginning on or after 1 January 2017, reports are to be exchanged no later than 15 months after the last day of the fiscal year.

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