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Approved Changes (4)

Argentina

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Argentina Extends Deadline for Installment Payment Facility for Outstanding Tax Debts

Earlier in the year, Argentina introduced an installment payment facility for outstanding tax, customs duty, and social security contributions that were due up to 28 February 2015. The facility allows payers to pay off the liability in monthly installments over a period of up to 120 months with an interest rate of 1.9% per month (the standard rate is 3% per month).

The initial payment deadline to make use of the facility was 31 May 2015, including a down payment of 7% of the amount due. This was recently extended to 30 June 2015.

China

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China Clarifies Rules Concerning Special Tax Treatment for Corporate Reorganizations

On 3 June 2015, China's Ministry of Finance and State Administration of Taxation issued Public Notice (2015) 40, which clarifies the special tax treatment for qualified internal equity and asset transfers as provide for by Circular (2014) 109, released 8 January 2015.

Prior to Circular 109, an internal transfer of equity 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 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 equity 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; and
  • The original business activities relating to the transferred equity or assets may not be changed for at least 12 consecutive months following the transfer

When the conditions are met, neither the transferor nor the transferee recognizes a gain or loss on the transfer for accounting purposes, and the tax basis of the transferred equity or assets in the hands of the transferee is based on the net book value of the equity or assets in the hands of the transferor. The depreciation of the transferred assets is then calculated by the transferee on the basis of that net book value.

Public Notice 40 clarifies that the special tax treatment provided in Circular 109 only covers the following cases:

  • The transfer of equity or assets by a parent company to its wholly-owned subsidiary where the parent receives from the subsidiary an equity payment equal to the net book value of the transferred equity or assets. In this case, the parent company's tax basis for the equity received is determined on the basis of the original price of the equity or assets;
  • The transfer of equity or assets by a parent company to its wholly-owned subsidiary in which the parent receives no equity and no non-equity payment. In this case, the parent is presumed to contribute its capital in kind to the subsidiary and its paid-in capital, including capital surplus, is decreased by the net book value of the transferred equity or assets;
  • The transfer of equity or assets by a wholly-owned subsidiary to its parent company in which the subsidiary receives no equity and no non-equity payment. In this case, the subsidiary is presumed to contribute its capital in kind to the parent or the parent is presumed to withdraw its capital from its subsidiary. The subsidiary's paid-in capital, including capital surplus, is decreased by the net book value of the transferred equity or assets and the parent's tax basis for the investment in the subsidiary is decreased by the net book value of the transferred equity or assets; and
  • The transfer of equity or assets between two subsidiaries that are wholly-owned by the same parent company or companies in which the transferor receives no equity and no non-equity payment. In this case, the owner's equity in the transferor is decreased by the net book value of the transferred equity or assets, while the equity in the transferee is increased by the net book value of the transferred equity or assets.

Other matters covered by the Notice are as follows:

  • For the special tax treatment to apply, both parties to the transaction must apply the same tax treatment;
  • For determining the 12-month period following the transfer, during which the original business activities relating to the transferred equity or assets may not be changed, the transfer date is the date on which the transfer agreement or the approval of the transfer has taken effect and both parties to the transaction have completed the accounting treatment of the transaction;
  • If the original business activities are not maintained, both parties to the transaction must report the change to the tax authorities and the transaction will then be treated as a taxable sale and retroactive tax adjustments applied;
  • Net book value as the tax basis of the transferred equity or assets in the hands of the transferee is clarified as meaning the original tax basis of the equity or assets in the hands of the transferor;
  • The rule that depreciation of the transferred assets is calculated by the transferee on the basis of the net book value of the assets is adjusted to say that the depreciation or amortization of the transferred assets will be calculated by the transferee on the original tax basis of the assets.

The changes introduced by Circular 109 and the clarifications provided by Public Notice 40 apply from 1 January 2015, including for ongoing reorganizations not yet settled before that date.

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OECD releases Implementation Package for BEPS Country-by-Country Reporting

On 8 June 2015, the OECD released the implementation package for the country-by-country (CbC) reporting requirements developed as part of Action 13 of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project.

CbC reporting requirements will require MNEs to provide aggregate information annually, in each jurisdiction where they do business, relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group, as well as information about which entities do business in a particular jurisdiction and the business activities each entity engages in.

The new implementation package consists of model legislation requiring the ultimate parent entity of an MNE group to file the CbC report in its jurisdiction of residence, including backup filing requirements when that jurisdiction does not require filing. The package also contains three Model Competent Authority Agreements to facilitate the exchange of CbC reports among tax administration. The model agreements are based on the Multilateral Convention on Administrative Assistance in Tax Matters, bilateral tax conventions and Tax Information Exchange Agreements (TIEAs).

Several countries have already begun preparations to implement the new CbC reporting requirements, including Australia, Spain, the UK and others.

Thailand

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Thailand Enacts New Incentives Regimes for International Headquarters and International Trading Centers

Thailand enacted a new tax regime for International Headquarters (IHQ) and International Trading Centers (ITC) under Royal Decree No. 586 on 1 May 2015. The regime replaces the previous regime for Regional Operating Headquarters and International Procurement Centers, relaxing certain foreign ownership and activity limitations. Companies operating under the previous regimes may apply for the new regime incentives without claw back provisions.

Under the regime a company may be considered an IHQ and ITC depending on the qualifying activities it performs. The conditions are essentially the same and the benefits apply based on the activities of the company.

An IHQ is a company that provides management, technical and support services or treasury center services to associated companies or branches overseas. An ITC is engaged in trade and trade-related services.

Tax Benefits

The tax benefits provided include:

  • Tax exemption for 15 years on certain income derived from an overseas associated company or branch, including:
    • Income from providing management, technical, and support services;
    • Income from providing treasury center services;
    • Royalty income;
    • Dividend income;
    • Capital gains from the sale of shares of an associated company;
    • International trade, where the goods are not imported into Thailand (may be brought in as in transit or transshipment);
    • Trade related services; and
    • Other income generated by overseas branches
  • Reduced 10% income tax rate on certain income derived from an associated company or branch in Thailand, including income from:
    • Income from providing management, technical, and support services;
    • Income from providing treasury center services;
    • Royalty income;
  • Exemption from withholding tax on dividends distributed to nonresidents if paid out of exempt profits;
  • Exemption from business tax and withholding tax on intercompany loans; and
  • A reduced individual income tax flat rate of 15% for expatriate (foreign) employees

Qualifying management, technical and support services include:

  • General administration, business planning and coordination;
  • Procurement of raw materials and components;
  • Research and development of products;
  • Technical support;
  • Marketing and sales promotion planning;
  • Personnel management and regional training;
  • Financial advisory services;
  • Economics or investment research and analysis;
  • Credit control and administration; and
  • Other managerial services

Qualifying treasury center services include:

  • Services of a Treasury Centre as permitted under the Exchange Control Act; and
  • Borrowing from a Thai financial institution or associated enterprises in Thailand and re-lending in Thai currency the amount received from the above permitted activities to associated enterprises in Thailand

Qualifying trade and trade-related services include:

  • Procurement of goods;
  • Maintenance of goods in transit;
  • Packaging of goods;
  • Delivery of goods;
  • Insurance of goods;
  • Advisory and technical support services and training on goods; and
  • Other related services

Conditions

In order to qualify as an IHQ or ITC and obtain the benefits, a company must submit an application to the Director-General of the Thai Revenue Department, and meet the following conditions:

  • The company must be incorporated in Thailand;
  • It must have paid-up capital of at least THB 10 million at the end of each accounting period;
  • It must provide qualifying services to overseas associated companies or branches; and
  • It must incur local operating expenses in Thailand of at least THB 15 million annually

Unlike the previous regime, if a company fails to meet the conditions in a particular year, the benefits will not apply for that year only. Under the previous regime, failure to meet the conditions would result in the benefits being clawed back from the first accounting year.

Proposed Changes (1)

Switzerland

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Swiss Federal Council Adopts Corporate Tax Reform Dispatch

On 5 June 2015, the Swiss Federal Council announced that it has adopted the dispatch on the Corporate Tax Reform Act III. The reform dispatch will be sent for parliamentary deliberation.

Major changes include abolishing special corporate tax regimes that are not in keeping with international standards and the introduction of a patent box regime at the cantonal level. The headline corporate tax rates of several cantons will be reduced to offset the effects of terminating the beneficial regimes (current rates range from 12% to 24%), although the changes are not part of the reform, as only the cantons have the authority to make such decisions.

The following is the appraisal of the reform as provided in the announcement.

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The reform will give corporate taxation a foundation that is in line with the current international standards. It will ensure a competitive environment for companies operating in Switzerland, particularly for activities associated with a high degree of innovation, value creation and jobs. It respects the cantons' tax and fiscal policy autonomy while guaranteeing that inter-cantonal competition remains balanced and that the financial impact is bearable for the Confederation, the cantons and the communes.

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Click the following link for previous coverage on the Announcement on Corporate Tax Reform III, which provides an overview of the measures.

Treaty Changes (4)

Andorra-Portugal

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Tax Treaty between Andorra and Portugal under Negotiation

On 3-4 June 2015, officials from Andorra and Portugal met for the second round of negotiations for an income tax treaty. 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.

Georgia-Liechtenstein

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Update - Tax Treaty between Georgia and Liechtenstein

The income and capital tax treaty between Georgia and Liechtenstein was signed 13 May 2015. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Georgian profit tax, income tax and property tax. It covers Liechtenstein personal income tax, corporate income tax, capital gains tax, wealth tax, and coupon tax.

Withholding Tax Rates

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

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 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

Georgia applies the credit method for the elimination of double taxation, while Liechtenstein generally applies the exemption method. However, in the case of income covered by Articles 14 (Income from Employment), 15 (Directors' Fees), and 16 (Artistes and Sportsmen), Liechtenstein applies the credit method.

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.

Ivory Coast-Tunisia

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Ivory Coast Approves Ratification of the Tax Treaty with Tunisia

On 3 June 2015, the Ivory Coast government approved for ratification the pending income tax treaty with Tunisia. The treaty, signed 14 May 1999, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Tunisian individual income tax and corporation tax, and covers the following Ivory Coast taxes:

  • Tax on industrial, commercial, handicraft and farming profits;
  • Tax on non-commercial profits;
  • Tax on wages, salaries, pensions and annuities;
  • Tax on income from movable capital;
  • Real estate tax; and
  • General income tax

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 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;
  • Gains from the alienation of shares or other participation of the capital of a company the assets of which consist directly or indirectly of more than 50% of immovable property situated in the other State; and
  • Gains from the alienation of shares or other participation of at least 25% of the capital of a company resident 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.

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.

Nigeria-Taiwan

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Tax Treaty between Nigeria and Taiwan to be Negotiated

According to a recent announcement by the Taiwanese trade mission in Nigeria, the two countries are planning to begin negotiations for a tax treaty. 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.

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