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Approved Changes (3)

European Union-Hungary

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European Commission Finds Hungarian Advertisement Tax in Breach of EU State Aid Rules

The European Commission has announced that it has found the Hungarian advertisement tax to be in breach of EU State aid rules. The tax, introduced in August 2014, is levied on advertising revenue from various media, including TV, print, online and other ad space/time. It was initially introduced with progressive rates up to 50% on advertising revenue exceeding HUF 20 billion, with certain loss offset rules limited to tax payers whose pre-tax profit in the tax period beginning in 2013 was zero or negative. In July 2015, it was amended to provide a much lower top progressive rate of 5.3%, while the loss offset rules remained.

In its decision, the Commission found that the advertising tax violates State aid rules because its progressive tax rates grant a selective advantage to certain companies (those with lower advertising revenue) without any justification for this differential treatment. The commission also found that the loss offset rules violate State aid rules as they unduly favor certain companies.

As a result of the decision, Hungary is now required to remove the unjustified discrimination between companies and restore equal treatment in the market. This includes recovery of tax from any company that obtained a selective advantage, unless the advantage meets the conditions of the de minimis Regulation (generally EUR 200,000 in aid over three years).

The Hungarian government has already voiced its objection to the decision, announcing that "the Government is committed to retaining the current rules regarding the advertisement tax, and will do everything in order to protect this innovative Hungarian initiative which allows the state budget to collect the taxes that are due from global businesses engaged in advertising activities."

OECD-Peru-Azerbaijan-Brunei-Burkina Faso-Dominica-Dominican Rep-Lesotho-Marshall Isl-Morocco-Panama-Romania-Bulgaria-Lebanon-Nauru-Vanuatu-Barbados-Israel

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OECD Publishes Peer Review Reports on Transparency and Information Exchange for 17 Jurisdictions

During the 2 to 4 November meeting of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, new peer review reports for 17 jurisdictions were published. In addition to the reports, a special fast-track review procedure was agreed to during the meeting that enables the Global Forum to recognize, by mid-2017, progress made and to assess changes being made in various jurisdictions. This procedure is meant to allow jurisdictions to avoid being listed as non-cooperative jurisdiction if they have not received a final rating or have received a non-compliant rating.  

The reports published and their results are as follows:

Phase 1 Report for:

  • Peru - moves on to Phase 2

Phase 2 Reports for:

  • Azerbaijan - found to be Largely Compliant
  • Brunei Darussalam - found to be Largely Compliant
  • Burkina Faso - found to be Largely Compliant:
  • Dominica - found to be Partially Compliant
  • Dominican Republic - found to be Partially Compliant
  • Lesotho - found to be Largely Compliant
  • Marshall Islands - found to be Non-Compliant
  • Morocco - found to be Largely Compliant
  • Panama - found to be Non-Compliant
  • Romania - found to be Largely Compliant

Combined Phase 1 and 2 Report for:

  • Bulgaria - found to be Largely Compliant

Supplementary Phase 1 Reports for:

  • Lebanon - moves on to Phase 2
  • Nauru - moves on to Phase 2
  • Vanuatu - moves on to Phase 2

Supplementary Phase 2 Reports for:

  • Barbados - found to be Largely Compliant
  • Israel - found to be Largely Compliant

The reports are produced as part of a two-phase review process for compliance with the international standard for information exchange. The Phase 1 report includes an evaluation of a jurisdiction's legal and regulatory framework for transparency and exchange of information, and provides recommendations for improvement. Jurisdictions deemed to have a sufficient framework in place move on to Phase 2, which includes an evaluation of the actual implementation of the standard for information exchange, with a compliance rating given along with recommendations for improvement. The compliance ratings include Non-Compliant, Partially Compliant, Largely Compliant, or Compliant.

Click the following links for the details of the 17 reports and an overview of the compliance ratings provided for the 12 jurisdictions that have completed Phase 1 and the 113 jurisdictions that have completed both Phase 1 and Phase 2.

United Kingdom-Panama

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UK Taskforce Launches Criminal and Civil Investigations into Panama Papers

On 8 November 2016, UK HMRC announced that investigations have been launched into more than 30 individuals and companies for criminal or serious civil offences linked to tax fraud and financial wrongdoing uncovered by the Panama Papers Taskforce, and that hundreds more are under review. According to a ministerial update provided by the Chancellor of the Exchequer and the Home Secretary, the cross-agency Panama Papers Taskforce has:

  • Opened civil and criminal investigations into 22 individuals for suspected tax evasion;
  • Led the international acquisition of high-quality, significant and credible data on offshore activity in Panama – ensuring the important work of the Taskforce was not delayed by the ICIJ’s refusal to release all of the information that it holds to any tax authority or law enforcement agency;
  • Identified a number of leads relevant to a major insider-trading operation led by the Financial Conduct Authority and supported by the National Crime Agency;
  • Identified nine potential professional enablers of economic crime – all of whom have links with known criminals;
  • Placed 43 high net worth individuals under special review while their links to Panama are further investigated;
  • Identified two new UK properties and a number of companies relevant to a National Crime Agency financial sanctions enquiry;
  • Established links to eight active Serious Fraud Office investigations;
  • Identified 26 offshore companies whose beneficial ownership of UK property was previously concealed, and whose financial activity has been identified to the National Crime Agency as potentially suspicious;
  • Contacted 64 firms to determine their links with Mossack Fonseca to establish potential further avenues for investigation by the Taskforce; and
  • Seen individuals coming forward to settle their affairs in advance of Taskforce partners taking action.

Click the following link for the full announcement.

Proposed Changes (2)

Australia

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Australia Consultation on Applying GST to Low Value Goods Imported by Consumers

The Australian government has released draft legislation that, from 1 July 2017, will require overseas vendors, electronic distribution platforms, and goods forwarders to account for GST on sales of low value goods to consumers in Australia. Similar legislation for GST on cross border digital supplies has already been adopted (previous coverage).

The changes include:

  • Making supplies of goods valued at AUD 1,000 or less at the time of supply connected with Australia (indirect tax zone - ITZ) if the goods are, broadly, purchased by consumers and are brought to the ITZ with the assistance of the supplier;
  • Treating the operators of electronic distribution platforms as the suppliers of low value goods if the goods are purchased by consumers and brought to the ITZ through the platform;
  • Allowing non-resident suppliers of low value goods that become connected with the ITZ because of these amendments to elect to be limited registration entities; and;
  • Preventing double taxation by making the import of goods non-taxable importations if the supply of the goods is a taxable supply as a result of these amendments.

As a result of the changes, an overseas supplier with turnover for GST purposes exceeding the AUD 75,000 registration threshold will be required to register and remit GST on its supplies.

Click the following link for the consultation page, which includes the draft legislation, the explanatory memorandum, and a Q&A. Submissions are due by 2 December 2016.

Papua N Guinea

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Papua New Guinea Budget for 2017 Includes Standardized Tax Rate Changes and Introduction of CbC Reporting

On 1 November 2016, the Papua New Guinea Treasurer Patrick Pruaitch delivered the 2017 National Budget to parliament. The Budget includes a number of tax-related measures, including:

  • The standardization of the corporate income tax rate at 30% across all sectors;
  • The standardization of the dividend withholding tax rate at 15% across all sectors;
  • The removal of the 15% interest withholding tax exemption for foreign lenders lending to resource companies;
  • The introduction of a flat 15% foreign contractors withholding tax rate (currently a 48% rate applies on 25% of contract value); and
  • The introduction of Country-by-Country (CbC) reporting requirements in line with BEPS Action 13, including:
    • A group revenue threshold of  PGK 2 billion in the year preceding the reporting fiscal year (current draft legislation actually states "2 million", which is assumed to be a typo);
    • A primary requirement for ultimate parent entities resident in Papua New Guinea to file the report, with standard secondary filing requirements for local non-parent constituent entities where the ultimate parent is not required to file or Papua New Guinea is unable to obtain the report through exchange;
    • A CbC reporting notification deadline of the last day of the reporting fiscal year for all constituent entities resident in Papua New Guinea on whether they are the ultimate parent or surrogate parent, or if neither, the identity and tax residence of the reporting entity; and
    • A CbC report filing deadline of 12 months following the close of the reporting fiscal year.

The measures are to apply from 1 January 2017.

Click the following links for the 2017 National Budget and the Budget Appropriation and Tax Bills.

Treaty Changes (3)

Argentina-Untd A Emirates

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Tax Treaty between Argentina and the U.A.E. Signed

On 3 November 2016, officials from Argentina and the United Arab Emirates signed an income tax treaty. The treaty, which has been under negotiation since 2006, 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.

Colombia-United Kingdom

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Update - Tax Treaty between Colombia and the UK

The income and capital tax treaty between Colombia and the UK was signed 2 November 2016. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Colombian income tax and its complementary taxes and CREE tax. It covers UK income tax, corporation tax, and capital gains 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 entitled to the benefits of the treaty aside from those covered in Articles 21 (Elimination of Double Taxation), 23 (Non-Discrimination), and 24 (Mutual Agreement Procedure).

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting State performs services in the other State for a period or periods exceeding in the aggregate 183 days in any 12-month period, and these services are performed for the same project or connected projects through one or more individuals who are present and performing such services in that other State.

For the purpose of determining if the 183 days threshold is met, activities of an associated enterprise performing substantially similar services for the same project(s) will be included.

Withholding Tax Rates

  • Dividends - 0% if the beneficial owners is a pension fund or scheme; 5% if the beneficial owner is a company directly holding at least 20% of the paying company's capital; otherwise 15%
  • Interest - 0% on interest paid to a pension fund or scheme; interest paid on the sale on credit of industrial, commercial or scientific equipment, or on the sale on credit of goods or merchandise by an enterprise to another enterprise; interest paid in respect of any loan or credit of whatever kind granted by a bank, but only if the loan or credit concerned is granted for a period of not less than three years; and interest paid by a financial institution of a Contracting State to a financial institution of the other State; otherwise 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 shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other State (exemption for shares substantially and regularly traded on a recognized stock exchange);
  • 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 in a company resident in the other State if the alienator, at any time during the 12- month period preceding such alienation, held directly or indirectly at least 10% of the capital of that company (the tax is limited to 10% of the net gain, and an exemption applies where the gains are derived in the framework of a tax-free reorganization of a company, a merger, a division or a similar operation)

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, the UK will exempt dividends paid by a Colombian company to a company resident in the UK if the conditions for an exemption under UK law are met. An exemption may also apply for profits of a permanent establishment in Colombia of a UK company if the conditions for an exemption under UK law are met.

Limitation on Benefits

Article 22 (Miscellaneous Provisions) includes that a benefit of the treaty will not be granted in respect of an item of income or a capital gain 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 in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty

Article 22 also includes that if income or gains are taxed in a Contracting State by reference to the amount remitted or received in that State and not by reference to the full amount, then any relief from tax provide for by the treaty in the other State will be limited to the amount taxed by the first-mentioned State.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged. It will apply in Colombia from 1 January of the year following its entry into force. It will apply in 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.

Kosovo-Switzerland

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Kosovo to Sign Tax Treaty with Switzerland

On 31 October 2016, the Kosovo government approved for signature a draft income tax treaty with Switzerland. The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force.

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