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Approved Changes (2)

United Kingdom

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UK Parliamentary Group Issues Report on the OECD BEPS Project

The UK All-Party Parliamentary Group on Responsible Tax has issued a report providing an examination of the OECD’s Base Erosion and Profit Shifting (BEPS) project. The report finds that the OECD has done well to build international consensus and to develop rules to counteract immediate harmful issues, but overall has failed to provide solutions to address corporate tax avoidance in the long-term. In addition to the examination of the BEPS project and related measures, the report also provides recommendations focused primarily on transparency as a means to address avoidance.

Click the following link for the report: A more responsible global tax system or a ‘sticking plaster’?

United States-Iraq-Kuwait-Lebanon-Libya-Qatar-Saudi Arabia-Syria-Untd A Emirates-Yemen

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U.S. Treasury List of International Boycott Countries Published

On 5 August 2016, the U.S. Treasury notice on the current list of countries that may require participation in, or cooperation with, an international boycott was published in the Federal Register. The countries listed include Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, the United Arab Emirates, and Yemen.

Any person or a member of a controlled group with operations in or related to a country on the list, or with the government, a company, or a national of a listed country is required to file Form 5713 (International Boycott Report). Form 5713 must also be filed by any person with operations in a non-listed country that requires participation in, or cooperation with, an international boycott as a condition of doing business with the country.

Taxpayers required to file the form may lose certain tax benefits, including:

  • The foreign tax credit (section 908(a));
  • Deferral of taxation of earnings of a CFC (section 952(a)(3));
  • Deferral of taxation of IC-DISC income (section 995(b)(1)(F)(ii));
  • Exemption of foreign trade income of a FSC (section 927(e)(2), as in effect before its repeal); and
  • Exclusion of extraterritorial income from gross income (section 941(a)(5), as in effect before its repeal).

The exact limits on benefits are determined through the completion of Form 5713.

Proposed Changes (1)

Mauritius

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Mauritius 2016-2017 Budget Presented

The Mauritian Minister of Finance and Economic Development Pravind Jugnauth has presented the country's Budget 2016-2017. The budget includes a number of measures to promote economic development and incentivize investment in the country.

Incentives

The main incentive measures include:

  • An eight-year corporate tax holiday for global administrative headquarters licensed by the Financial Services Commission (FSC) that meet minimum employment and substance conditions;
  • A five-year corporate tax holiday for enterprises that meet minimum employment and substance conditions and hold one of the following licenses from the FSC:
    • Treasury management center license;
    • Asset and fund management license;
    • Investment banking and corporate advisory license;
    • Global legal advisory services license; and
    • Certain others
  • Amendments to the three-year 5% investment tax credit for new plant and machinery for qualifying manufacturing and film production, which include:
    • Removing the minimum annual investment requirement of MUR 100 million;
    • Extending the number of years any unused credit may be carried forward;
    • Extending the eligible period of investment to the 2019-2020 tax year; and
    • Increasing the credit to 15% for enterprises engaged in the manufacture of textiles, clothing, ships and boats, computers, or pharmaceuticals, and those engaged in film production;
  • Eligibility for the eight-year tax holiday for registered SMEs is extended to include new enterprises established by qualifying individuals and cooperative societies;
  • A four-year tax holiday beginning from the 2016-2017 tax year for existing registered SMEs that have turnover of less than MUR 10 million; and
  • An eight-year tax holiday for industrial fishing companies.

Administrative Measures

The Budget also includes a number of administrative measures including:

  • An alternate dispute resolution mechanism will be established for appeals involving cases that exceed MUR 10 million, with cases to be resolved within six months;
  • The meaning of fraud is redefined to include non-submission of tax returns, in which case the tax authorities may extend the statute of limitations for an assessment beyond the current three-year limit, subject to approval;
  • A two-year time limit is introduced for the submission of amended tax returns;
  • Tax deduction at source is introduced for services provided by accountants and tax advisors, and for management fees paid to individuals; and
  • A penalty will be introduced for over-claimed losses and refunds.

Other Measures

Other measures include:

  • Customs duties will be abolished on 368 tariff lines to bring the percentage of duty-free products to 95% (Mauritius plans to eventually be a duty-free island);
  • A number of goods will no longer be subject to value added tax, including breakfast cereals, photovoltaic inverters/batteries, 3D printers, plant, machinery and equipment used in the exploration and mining of seabed minerals, and others; and
  • A number of measures are introduced to support individuals, including an increase in the individual income tax exemption threshold by MUR 10,000 for all taxpayer categories (single, married, etc.).

Click the following link for the Budget 2016-2017 speech and the related annex and supplement.

Treaty Changes (5)

Chile-Guernsey

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TIEA between Chile and Guernsey has Entered into Force

The tax information exchange agreement between Chile and Guernsey entered into force on 2 August 2016. The agreement, signed 4 April 2012, is the first of its kind between the two jurisdictions and is in line with the OECD standard for information exchange. It generally applies from the date of its entry into force.

Hong Kong-Romania

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Hong Kong Ratifies Tax Treaty with Romania

Hong Kong ratified the pending income tax treaty with Romania on 29 July 2016. The treaty, signed 18 November 2015, is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Hong Kong profits tax, salaries tax and property tax. It covers Romanian tax on income and tax on profit.

Withholding Tax Rates

  • Dividends - 3% if the beneficial owner is a company directly holding at least 15% of the paying company's capital; otherwise 5%
  • Interest - 0%, as long as Hong Kong does not levy a withholding tax on interest under its internal legislation (currently does not) - if Hong Kong does introduce a withholding tax on interest, the rate under the treaty will be 3%
  • Royalties - 3%

Capital Gains

The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:

  • Gains from the alienation of immovable property situated in the other Party;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other Party

Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 20 (Other Income) 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 dividends, interest, royalties, or other income are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

Double Taxation Relief

Both Parties 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.

Note - this article has been amended to reflect that the treaty was only ratified by Hong Kong on 29 July 2016 and did not enter into force as initially reported.

Hong Kong-Turkey

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Tax Treaty between Hong Kong and Turkey to be Negotiated

The Hong Kong Inland Revenue Department has announced that the first round of negotiations for an income tax treaty with Turkey will take place on 10-12 August 2016. Any resulting treaty will be the first of its kind between the two jurisdictions, and must be finalized, signed and ratified before entering into force.

Kyrgyzstan-Kuwait

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Kyrgyzstan Ratifies Tax Treaty with Kuwait

On 2 August 2016, Kyrgyzstan President Almazbek Atambaev signed the law for the ratification of the pending income and capital tax treaty with Kuwait. The treaty, signed 13 December 2015, is the first of its kind between the two countries and will enter into force once the ratification instruments are exchanged.

Click the following link for previous coverage of the treaty.

Macedonia-Saudi Arabia

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Tax Treaty between Macedonia and Saudi Arabia has Entered into Force

According to a recent update from the Macedonian Ministry of Finance, the income tax treaty with Saudi Arabia entered into force on 1 May 2016. The treaty, signed 15 December 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Macedonian personal income tax and profit tax, and covers Saudi Zakat and income tax including the natural gas investment tax.

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 - 5%
  • 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; and
  • Gains from the alienation of shares that constitute a share in 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.

Non-Discrimination

The treaty does not include non-discrimination provisions.

Effective Date

The treaty applies from 1 January 2017.

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