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Approved Changes (4)

Estonia-European Union

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Proposed Council Implementing Decision to Approve Estonia's Increased VAT Registration Threshold

The European Commission has published a proposal for a Council Implementing Decision dated 7 February 2017 to authorize Estonia's derogation from Article 287 of the VAT Directive (2006/112/EC) by increasing the VAT registration threshold to EUR 40,000 from 1 January 2018. The authorization is to apply until the earliest of 31 December 2020 or the entry into force of a Directive amending the provisions of the VAT Directive on a special scheme for small enterprises.

The measure to increase the VAT registration threshold from EUR 16,000 to EUR 40,000 was already approved by the Estonian parliament in October 2016 (previous coverage).

Greece

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Greece Clarifies Withholding Tax on Dividend Distributions of Taxpayers with both Taxable and Tax-Exempt Income

The Greek Public Revenue Authority has issued Circular 1012/2017 concerning withholding tax on dividend distributions of a taxpayer that derives income from both taxable and tax-exempt activities. According to the circular, because a taxpayer's net profit account, as approved at the annual general meeting, does not distinguish between the underlying income sources, the taxpayer should distinguish and allocate the profits between its taxable and tax-exempt activities and determine the correct amount of withholding tax on the dividends accordingly.

Singapore

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Singapore Requires that Treaty Benefit Certification Applications be E-Filed

On 8 February 2017, the Inland Revenue Authority of Singapore (IRAS) announced that all Certificate of Residence (COR) applications must be e-Filed via myTax Portal from 1 Jun 2017 and that paper application will no longer be accepted from that date. A COR is a letter certifying that a company is a tax resident in Singapore, i.e. controlled and managed in Singapore, and is used for the purpose of claiming tax benefits under tax treaties Singapore has entered into when required by a tax treaty partner.

Click the following link for the COR/ Tax Reclaim Form guidance page on the IRAS website.

Ukraine

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Ukraine Clarifies New Transfer Pricing Provisions

The Ukraine State Fiscal Service (SFS) published guidance letter No. 2376/7/99-99-15-02-01-17 on 7 February 2017, which clarifies recent amendments to the country's transfer pricing regime (previous coverage). Main points of the letter are summarized as follows.

Controlled Transaction Thresholds

The letter confirms that the thresholds for business transactions to be recognized as controlled are increased effective from 1 January 2017 as follows:

  • The taxpayer's annual revenue exceeds UAH 150 million (increased from UAH 50 million); and
  • The value of the annual transactions with a related party exceeds UAH 10 million (increased from UAH 5 million).

Transfer Pricing Report Deadline

The letter confirms that the deadline for submitting the annual transfer pricing report has been extended from 1 May to 1 October. The extended deadline applies in respect of the 2016 and future tax years. For the 2016 tax year, however, the determination of reportable transactions is to be based on the criteria in force for 2016, such as the previous transaction amount thresholds.

In addition, taxpayers are now allowed to submit corrections to transfer pricing reports by submitting a new report before the deadline or submitting a corrected report after the deadline. The filing of corrected reports does not relieve taxpayers from the liability for failing to disclose all transactions in a previous report, and corrected reports may not be filed during a documentation audit.

Transactions with Non-Residents Deemed Controlled

The letter confirms that the types of transactions with non-residents that are deemed controlled is expanded to include transactions with non-residents that are not subject to tax in the jurisdiction in which they are based or not resident for tax purposes in the jurisdiction in which they are registered. A government list of legal forms and jurisdictions will be issued for the purpose of the new rules. Until the list is issued, the UAH 10 million annual transactions threshold will apply.

The letter also clarifies that transactions involving the purchase or sale of goods or services will be deemed controlled if through any non-resident commission agent. The rule applies regardless of the jurisdiction of the non-resident, whether the non-resident is the buyer or seller, or whether the non-resident is a related party.

The new rules apply from 2017.

New Tax Haven List

The letter clarifies the new criteria for the list of low-tax and non-cooperative jurisdictions (tax havens) for transfer pricing purposes. The criteria now include:

  • The jurisdiction's tax rate is more than 5 percentage points lower than the Ukraine rate; or
  • The jurisdiction does not provide timely and full exchange for tax information and financial requests.

Transactions with residents of listed jurisdiction are deemed controlled from 1 January of the year following the calendar year in which a jurisdiction is added to the list. A new list will be finalized in 2017, and will apply from 1 January 2018.

Comparable Legal Entities

The letter clarifies that the use of comparable legal entities to calculate financial indicators is allowed if the following conditions are met:

  • The comparable legal entity conducts activities comparable to the activities of the taxpayer within the controlled transaction and performs comparable functions associated with such activities;
  • The comparable legal entity did not suffer a loss (according to accounting (financial) statements) in more than one reporting period within the periods used for the calculation of profitability;
  • The comparable legal entity does not own directly or indirectly more than 20% of the corporate rights in another legal entity and does not have a legal entity member (shareholder) with a participation of over 20%.

Grouping Controlled Transactions

The letter confirms that taxpayers are allowed to group their controlled transactions with a single party for transfer pricing purposes if the transactions are closely interrelated, are a continuation of each other, or are conducted on a continuous or regular basis.

Grounds for Arm's Length Compliance Audit

The grounds for the tax authority to audit a taxpayer's compliance with arm's length principles are changed to include the initiation of an audit based on the taxpayer's transfer pricing documentation, as well as a taxpayer's failure to submit its transfer pricing report or requested transfer pricing documentation.

Definition of Related Parties Involving Individuals

In addition to the guidance letter summarized above, the Ukraine SFS also recently issued guidance letter No. 1023/М/99-99-15-02-02-14, which clarifies the determination of related parties involving individuals. The letter sets out the conditions for individuals to be deemed related, and includes that if two individuals are related directly or indirectly and own 20% or more of each separate legal entity, then those entities are deemed related for transfer pricing purposes. The letter also notes that individuals or entities may voluntarily designate themselves as related parties if outside the statutory definition, and that the SFS retains the right to designate individuals and entities as related parties based on actual circumstances through a court action.

Proposed Changes (3)

Australia

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Legislation Submitted to Australian Parliament for Diverted Profits Tax, Increased Penalties for SGEs, and Latest OECD Transfer Pricing Guidance

On 9 February 2017, legislation was introduced in the Australian parliament for several BEPS related measures, including:

  • The introduction of a Diverted Profits Tax (DPT) imposed at a rate of 40% on profits that have been artificially diverted from Australia by multinationals with global revenue of AUD 1 billion or more (Significant Global Entities - SGEs), with exemptions for meeting an AUD 25 million turnover test, sufficient foreign tax test, or sufficient economic substance test (previous coverage);
  • An increase in penalties for the failure to lodge certain tax documents by a factor of 100 for SGEs, which results in a maximum penalty of AUD 450,000 (AUD 525,000 with planned increase in the penalty unit from AUD 180 to AUD 210) in relation to income tax returns, activity statements, Country-by-Country reports, and general purpose financial statements (previous coverage); and
  • The update of references to the OECD transfer pricing guidelines in Australia’s transfer pricing rules in Division 815 to include the 2016 OECD amendments to the guidelines resulting from the BEPS project, including in relation to three key areas:
    • Transfer pricing issues relating to transactions involving intangibles;
    • Contractual arrangements including the contractual allocation of risks and corresponding profits, which are not supported by activities actually carried out and the resulting allocation of profits to those risks; and
    • The level of returns to funding provided by a multinational enterprise group member, where those returns do not correspond to the level of activity undertaken by the funding company.

The DPT and increased penalties will generally apply from 1 July 2017, while the updated guidelines will apply from 1 July 2016. Click the following links for the Diverted Profits Tax Bill 2017, the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017, and the Explanatory Memorandum, which covers the measures of both bills.

United Kingdom-European Union

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UK House of Commons Approves Brexit Bill

On 8 February 2017, the UK House of Commons approved the European Union (Notification of Withdrawal) Bill, which confers power on the Prime Minister to notify, under Article 50(2) of the Treaty on European Union, the UK's intention to withdraw from the EU. As part of the legislative process, a number of amendment clauses were proposed, including that the UK maintain all existing EU tax avoidance and evasion legislation and maintain compliance with the EU Code of Conduct on Business Taxation during exit negotiations. These amendments, however, were not included in the version approved by the House of Commons.

The legislation is now before the House of Lords, which may give final approval or make amendments and send it back to the House of Commons. The process is expected to be completed by the end of February. Click the following link for additional information on the legislation on the UK parliament website.

United States

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U.S. House Democrats Oppose Resolution to Repeal Debt-Equity Regs

U.S. Representative Lloyd Doggett (D-TX) published a release on 9 February 2017 announcing that all House Ways and Means Committee Democrats have joined together in urging their colleagues to oppose joint resolution H.J.Res.54, which would effectively repeal the debt-equity regulations introduced under section 385 in October 2016 to address corporate inversions and earnings stripping (previous coverage). According to a letter from Doggett and the other Ways and Means Committee Democrats, "by moving to repeal Treasury’s anti-earnings stripping rules, Republicans in Congress will open the door to more companies renouncing their U.S. citizenship for tax purposes, while still reaping the benefits of doing business in America -- a tax practice President Trump railed against on the campaign trail."

Treaty Changes (3)

Barbados-Qatar

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Tax Treaty between Barbados and Qatar in Force

According to recent reports, the income tax treaty between Barbados and Qatar entered into force on 5 June 2013. The treaty, signed 6 December 2012, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Barbados income tax, corporation tax, and petroleum winning operations tax. It covers Qatari taxes on income.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected projects for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • 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; and
  • 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 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. In respect of dividends received by a Barbados resident company that owns at least 10% of the paying company's capital, Barbados will also provide a credit for the Qatari tax payable on the profits out of which the dividends are paid.

Effective Date

The treaty applies from 1 January 2014.

Finland-Turkmenistan

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Tax Treaty between Finland and Turkmenistan has Entered into Force

The income tax treaty between Finland and Turkmenistan entered into force on 10 February 2017. The treaty, signed 12 December 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Finnish state income tax, corporate income tax, communal tax, church tax, tax withheld from interest, and tax withheld at source from non residents' income. It covers Turkmen tax on profits (income) of juridical persons and tax on income of individuals.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 15%
  • 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 shares or other corporate rights in a company whose assets consist of more than 50% of immovable property situated in the other State; and
  • 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 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, Finland will apply the exemption method for dividends received by a Finnish company that directly controls at least 10% of the voting power in the paying company.

Effective Date

The treaty applies from 1 January 2018.

Netherlands-Uzbekistan

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Protocol to Tax Treaty between Netherlands and Uzbekistan Signed

On 6 February 2017, officials from the Netherlands and Uzbekistan signed a protocol to amend the 2001 income and capital 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.

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