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Approved Changes (4)

China

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China Postpones New Cross Border E-Commerce Positive List

China's General Administration of Customs has announced that it will postpone implementation of the country's new list of products eligible for cross border e-commerce (positive list) for one year. The positive list was issued following the introduction of new tax rules for B2C cross border e-commerce in April 2016 (previous coverage). Under the new rules, such supplies are subject to customs duty, value added tax and consumption tax as standard imports, although certain relief thresholds apply.

The positive list includes nearly 1,200 categories of goods that may be imported through e-commerce. In general, most goods listed are eligible for reduced customs clearance requirements, although certain goods are subject to increased requirements. However, both e-commerce companies and officials have been uncertain on how the list applies, and more importantly, how unlisted goods are to be treated. This has led to reports of decreased e-commerce activity, shipments being left unclaimed, and ultimately the one-year postponement. The changes in taxation, however, remain in force.

Colombia

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Colombia Clarifies Payment Obligations of Annual VAT Return Filers

Colombia's Tax Authority (DIAN) recently issued a ruling that clarifies the value added tax (VAT) payment obligations of taxpayers making annual returns. Under Colombia's VAT rules, taxpayers with revenue below 15,000 UVT in the previous year are required to file a VAT return annually (taxpayers with higher revenue file every two or four months). Although the return is filed annually, installment payments must be made every four months as follows:

  • First payment equal to 30% of total VAT paid in the previous year;
  • Second payment equal to 30% of total VAT paid in the previous year; and
  • Final payment made with the annual return equal to the actual balance of VAT due for the year.

In the event no transactions subject to VAT are carried out in the four-month period corresponding to the first and second installment payments, no payment is due. However, the annual return, and payment if any, is always due.

Note - UVT (tax value unit or unidad de valor tributario) for 2016 is COP 29,753 (~USD 10.1 June 2016). The value is adjusted annually based on the accumulated variation in the retail price index.

European Union-Luxembourg-United States

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European Commission Publishes Public Version of Letter to Luxembourg on Formal Investigation into Illegal State Aid Provided to McDonald's

On 6 June 2016, the European Commission published a public version (confidential information removed) of the letter sent to the Luxembourg government on the Commission's decision to initiate a formal State aid investigation into tax rulings provided to McDonald's (previous coverage).

The tax rulings in question include a March 2009 ruling in which Luxembourg confirmed that McDonald's Europe Franchising (Luxembourg subsidiary through which McDonald's European franchising royalties are funneled) was not due to pay corporate tax in Luxembourg on the grounds that the profits were subject to taxation in the U.S. based on provisions of the Luxembourg-U.S. tax treaty. The ruling included the condition that McDonald's provide proof each year that the profits were subject to U.S. tax. However, McDonald's was unable to provide such proof, because the profits were in fact not subject to tax in the U.S. This is due to differing interpretations of what constitutes a taxable presence under Luxembourg and U.S. law. As a result, Luxembourg issued a second ruling in September 2009 that removed the condition that proof be provided, while still allowing the exemption from Luxembourg corporate tax.

Click the following link for the letter and the case page on the European Commission website.

United States

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U.S. IRS Issues Interest Rates on Overpaid and Underpaid Tax for Q3 2016

On 6 June 2016, the IRS issued the interest rates for overpaid and underpaid tax for the third quarter of the year beginning 1 July 2016, which are unchanged from the revised rates for Q2. The rates are 4% for both underpayment and overpayment by individuals, and 3% and 4% for corporate overpayments and underpayments respectively.

The rate for a corporate overpayments exceeding USD 10,000 in a tax period is 1.5% on the portion exceeding that amount, and the rate for large corporate underpayments exceeding USD 100,000 is 6%.

Proposed Changes (1)

European Union

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European Parliament Welcomes Proposed Anti Tax Avoidance Directive with Recommended Changes

The European Parliament has announced that it has welcomed the European Commission's proposed anti tax avoidance directive (previous coverage) in a resolution voted on 8 June 2016, with certain recommended changes/additions. The recommendations include:

  • Setting a minimum tax rate of 15% on foreign income as part of the switch-over clause, with any difference between a lower foreign rate being payable;
  • Limiting the deductibility of borrowing costs to 20% of EBITDA or EUR 2 million, whichever is higher;
  • Drawing up an exhaustive 'black list' of tax havens and countries, including those in the EU, complemented with a list of sanctions for non-cooperative jurisdictions and for financial institutions that operate within tax havens;
  • Prohibiting the use of letterbox companies;
  • Swiftly introducing a common consolidated corporate tax base (CCCTB);
  • Increasing the transparency of trust funds and foundations;
  • Introducing a common method for calculating the effective corporate tax rate in each member state to allow for comparison across the EU;
  • Introducing a cross-border tax dispute resolution mechanism with clearer rules and timelines by January 2017; and
  • Creating a harmonized, common European taxpayer identification number (TIN) to serve as a basis for effective automatic exchange of information between Member States.

The anti tax avoidance directive is to be decided on by the EU Economic and Financial Affairs Council (ECOFIN) during their upcoming 17 June meeting.

Treaty Changes (4)

Albania-Macedonia

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SSA between Albania and Macedonia has Entered into Force

The social security agreement between Albania and Macedonia entered into force on 1 June 2016. The agreement, signed 17 March 2015, is the first of its kind between the two countries.

Armenia-Sweden

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Update - Tax Treaty between Armenia and Sweden

The income and capital tax treaty between Armenia and Sweden was signed on 9 February 2016. The treaty is the first of its kind directly between the two countries, although the 1981 income and capital tax treaty between Sweden and the former Soviet Union had applied in respect of Armenia, but was terminated.

Taxes Covered

The treaty covers Armenia profit tax, income tax, and property tax. It covers the following Swedish taxes:

  • National income tax;
  • Withholding tax on dividends;
  • Income tax on nonresidents;
  • Income tax on nonresident artistes and athletes;
  • Municipal income tax; and
  • Net wealth tax

Residence

If a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be considered a resident of either State for the purpose of claiming any benefits provided by the treaty, except those provided by Articles 22 (Elimination of Double Taxation), 23 (Non-Discrimination) and 24 (Mutual Agreement Procedure).

Withholding Tax Rates

  • Dividends -
    • 0% if the beneficial owner is a company holding at least 25% percent of the capital or voting power of the paying company for a period of at least 2 years;
    • 5% if the beneficial owner is a company holding at least 10% percent of the capital or voting power of the paying company;
    • Otherwise 15%
  • Interest - 5%
  • Royalties - 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 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 generally apply the credit method for the elimination of double taxation. However, in respect of dividends paid by an Armenian company to a Swedish company, Sweden will apply the exemption method in accordance with the provisions of Swedish law.

Limitation of Benefits

Article 26 (Limitation of Benefits) includes that an exemption or reduction of tax provided by the treaty will not apply to the income of companies:

  • That derive income primarily from other states:
    • from banking, shipping, financing or insurance activities, or
    • from being the headquarters, co-ordination centre or similar entity providing administrative services or other support to a group of companies which carry on business primarily in other states; and
  • The income from such activities bears a significantly lower tax burden due to a preferential regime for such activities in the other states.

Dividends paid by such companies will also not qualify for an exemption or reduction of tax provided by the treaty.

MFN Clause

The protocol to the treaty, signed the same date, includes the provision that if Armenia signs an agreement with a current OECD member state (as of the date of signature of the protocol) that provides for a lower rate or exemption from tax on interest, such lower rate or exemption will automatically apply to interest covered by the Armenia-Sweden treaty.

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.

Turkey-Kenya-Uganda

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Turkey to Negotiate Tax Treaties with Kenya and Uganda

According to an update from the Turkish government, Turkey has agreed during recent official meetings to begin negotiations for income tax treaties with Kenya and Uganda. Any resulting treaties would be the first of their kind between Turkey and the respective countries, and must finalized, signed and ratified before entering into force.

United States-OECD

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U.S. IRS Commissioner Urges Congress to Enact Legislation for the Implementation of CRS

While speaking at an OECD International Tax Conference on 7 June 2016, IRS Commissioner John Koskinen stated that he is urging congress to enact legislation as soon as possible to allow the U.S. to implement the OECD's Common Reporting Standard (CRS), which would involve expanding the level of information the IRS could share. The CRS provides for the automatic exchange of financial account information and was developed by the OECD based on U.S. FATCA, but unlike FATCA, provides for full reciprocal exchange between jurisdictions that have adopted the standard.

To date, over 100 countries have committed to the implementation of CRS.

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