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Approved Changes (2)

China

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China Amends Rules Concerning Special Tax Treatment for Corporate Reorganizations

On 8 January 2015, China's Ministry of Finance and State Administration of Taxation released Circular (2014) 109. Changes introduced in Circular 109 include providing special tax treatment for qualified internal share and asset transfers, and lowering of the threshold percentage of total shares or assets for non-taxable general reorganizations.

Internal Share and Asset Transfers

Prior to Circular 109, an internal transfer of shares or assets was generally subject to recognition of all gains or losses in the tax year of the transfer. With Circular 109, such transfers are now eligible for special tax treatment subject to certain conditions.

For the special tax treatment to apply, both the transferor and transferee must be resident companies and one must have 100% direct ownership of the other, or both must be 100% directly owned by another resident enterprise(s). In addition the following conditions must be met:

  • The transfer price must be equal to the net book value of the shares or assets in the hands of the transferor,
  • The transfer must have a reasonable business purpose, and not with the main purpose of reducing, avoiding, or deferring tax payments,
  • The original business activities relating to the transferred shares or assets may not be changed for at least 12 consecutive months following the transfer; and
  • Neither the transferor nor the transferee may recognize a gain or loss on the transfer for accounting purposes

When the conditions are met, the tax basis of the transferred shares or assets in the hands of the transferee will be based on the net book value of the shares or assets in the hands of the transferor. The depreciation of the transferred assets will then be calculated by the transferee on the basis of that net book value.

Non-Taxable General Reorganization Threshold Percentage

Circular 109 reduces the threshold percentage for the "substantially all test" from 75% to 50% in regard to non-taxable general reorganizations. The test is one of five which must be met for the special tax treatment. When all tests are met, no gain or loss is recognized in the reorganization. The tests include:

  • Business purpose test - the reorganization must have reasonable business purposes and the main purpose is not to reduce, avoid or defer tax
  • Substantially all test - the shares or assets acquired are not less than 50% (changed from 75%) of the total shares or assets of the target
  • Equity consideration test - no less than 85% of the total consideration must be in equity form
  • Continuity of business test - the substantial operations of the target must not change within 12 consecutive months after the reorganization
  • Continuity of proprietary interest test - the main shareholders receiving equity as consideration must not transfer such equity within 12 consecutive months after the reorganization

The changes introduced by Circular 109 apply from 1 January 2015, including for ongoing reorganizations not yet settled before that date.

Tunisia

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Tunisian Finance Law 2015 Signed

On 26 December 2014, the Tunisian Finance Law 2015 was signed by the president. The key changes introduced by the law include:

  • A 5% branch profits tax is introduced on the after-tax profits of Tunisian permanent establishments of non-resident companies
  • The final withholding tax regime for non-residents carrying on activities in Tunisia through a building site, a construction or installation project or connected supervisory activities is extended to other activities, and non-residents may choose to be taxed on net profits or revenues at the following rates:
    • 5% for building activities,
    • 10% for assembly activities, and
    • 15% for other services
  • The exceptional temporary surtax introduced under the Supplementary Finance Law for 2014 will continue to apply in 2015 for companies with tax years falling between the 2013 and 2014 financial years, and for oil and gas companies whose petroleum tax on net profits was due before the entry into force of the Supplementary Finance Law for 2014 - the surtax rates is 15% of advance corporate tax payments and 10% of the tax on net profits of oil and gas companies
  • The rate of VAT on electricity supplied for households, irrigation equipment for agricultural activities, and certain oil products is reduced from 18% to 12%
  • A 1% levy will be applied for payments in cash exceeding TND 10,000 to tax collection offices, and for payments exceeding TND 5,000 in 2016
  • The penalty for submitting non-compliant tax returns or supporting documentation to the tax authorities is changed from a penalty of ranging from TND 100 to TND 5,000, to a proportional penalty equal to 0.5% of the amount of tax due , with a minimum penalty of TND 1
  • The maximum periods for taxpayers to respond to the tax authority or file an opposition are increased from 10 to 20 days in regard to requests for information, clarification or additional evidence; and from 30 to 45 days in regard to tax assessment notifications

The changes introduced by the Finance Law generally apply from 1 January 2015.

Proposed Changes (1)

United Kingdom

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The U.K. Publishes Corporation Tax (Northern Ireland) Bill

On 8 January 2015, the U.K. government published the Corporation Tax (Northern Ireland) Bill. The bill provides for the devolution of tax powers to the Northern Ireland Executive to set a different rate of corporation tax from the rest of the U.K. Power over the corporation tax base, including reliefs and allowances, will remain with the U.K . Parliament.

Although the rate of corporation tax that will be applied has not yet been set, the current tax rate in Northern Ireland of 21% will be reduced to be more in line with the Republic of Ireland tax rate of 12.5%. Northern Ireland should be able to set its own rate of corporation tax from April 2017.

The bill is expected to reach its final stages in March 2015 and achieve Royal Assent before May’s General Election.

Click the following link for the full Corporation Tax (Northern Ireland) Bill (PDF).

Treaty Changes (4)

Andorra-Spain

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Tax Treaty between Andorra and Spain Signed

On 8 January 2015, officials from Andorra and Spain 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.

Bahrain-Pakistan

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Protocol to the Tax Treaty between Bahrain and Pakistan Signed

On 7 January 2015, officials from Bahrain and Pakistan signed a protocol to the 2005 income tax treaty between the two countries. The protocol is the first to amend the treaty and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

Cameroon-Morocco

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Cameroon Ratifies Pending Tax Treaty With Morocco

On 31 December 2014, Cameroon ratified the pending income tax treaty with Morocco. The treaty, signed 7 September 2012, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Cameroonian personal income tax plus surcharges, company tax and the minimum tax on companies plus surcharges, the special tax on income paid to persons resident out of Cameroon, and the housing loans fund tax and other taxes based on salaries. It Covers Moroccan income tax and corporation tax.

Service PE

The treaty includes the provision that a permanent establishment (PE) will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 3 months in any 12 month period.

A PE will also be deemed constituted when an enterprise provides services, or supplies equipment and machinery on hire used or to be used, in exploration for, extraction of, or exploitation of mineral resources in a Contracting State. No particular time period is set for a PE in such case.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties, including fees for technical services - 10%
  • Capital Gains - generally exempt, except for gains for the alienation of immovable property, gains from the alienation of movable property forming party of the business property of a permanent establishment or fixed base, and gains from the alienation of shares of the capital stock of a company, the property of which consists directly or indirectly principally of immovable property situated in a Contracting State

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Entry into Force and Effect

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

Denmark-Ireland

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Protocol to the Tax Treaty between Denmark and Ireland has Entered into Force

The protocol to the 1993 income tax treaty between Denmark and Ireland entered in to force on 23 December 2014, and applies from 1 January 2015.

The protocol, signed 22 July 2014, is the first to amend the treaty and adjusts the wording of the article on Methods For Elimination Of Double Taxation in the case of Denmark. The change is meant to ensure that Danish citizens who work with Irish airlines will be taxed in Denmark.

Under the treaty, Denmark generally applies the credit method for the elimination of double taxation, which remains unchanged with the protocol.

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