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Worldwide Tax News

Approved Changes (3)

Singapore

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Singapore Publishes Updated Guide on Input GST Recovery on Exempt Supplies

On 8 August 2016, the Inland Revenue Authority of Singapore (IRAS) published an updated e-Tax guide on the rules for the recovery of input tax by businesses making both GST-taxable and GST-exempt supplies. Under general rules, no input tax may be claimed on exempt supplies, but in certain cases, recovery of input tax is allowed. These include:

  • When the De Minimis Rule (regulation 28) is satisfied, which includes that the total value of exempt supplies does not exceed an average of SGD 40,000 per month, and does not exceed 5% of the total value of all supplies for the period; and
  • When the exempt supplies made are considered to be necessary and integral to the making of taxable supplies under regulation 33, which generally include financial transactions - However,  recovery of input tax on regulation 33 supplies is restricted if:
    • The business predominantly makes regulation 33 supplies, such as a bank or finance company (regulation 34 businesses); or
    • The value of non-regulation 33 supplies exceeds 5% of total supplies (regulation 35 test).

Click the following link for e-Tax guide GST: Partial Exemption and Input Tax Recovery (Third edition) for additional details and several examples.

Sri Lanka

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Sri Lanka Suspends VAT Rate Increase to 15%

Sri Lanka's Inland Revenue Department has issued a notice announcing that the previous notices on the increase of the value added tax (VAT) rate to 15% effective 2 May 2016 (previous coverage) have been suspended by a Supreme Court ruling issued in July. As a result, the VAT rate remains 11%.

Sri Lanka had replaced the 11% rate with a 12.5% rate and 8% rate effective 1 January 2016, but the rate changes were subsequently suspended and ultimately canceled in favor of an increased single rate of 15%. A final decision on a change in the VAT rate is expected in the near future.

Click the following link for the suspension notice.

United Kingdom

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UK to Cut Late Payment Interest due to Cut in Bank of England Rate

On 5 August 2016, UK HMRC announced that the late payment interest rate will be reduced due to a reduction in the Bank of England base rate to 0.25%. It is the first change in the base rate since March 2009.

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The Bank of England Monetary Policy Committee voted unanimously on 4 August to cut the Bank of England base rate to 0.25%.

HMRC interest rates are linked to the Bank of England base rate.

As a consequence of the change in the base rate, HMRC interest rates for late payment will be reduced.

These changes will come into effect on:

  • 15 August 2016 for quarterly installment payments
  • 23 August 2016 for non-quarterly installment payments

Repayment interest rates remain unchanged.

Information on the interest rates for late payments will be updated shortly.

Proposed Changes (1)

New Zealand

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New Zealand Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill Submitted to Parliament

On 8 August 2016, the New Zealand government submitted to parliament the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill. The legislation provides for:

  • The implementation of measures introduced in the Budget 2016 to simplify compliance for businesses, especially SMEs (previous coverage);
  • The implementation of the OECD's Common Reporting Standard (CRS) for the exchange of financial account information (previous coverage); and
  • The implementation of stronger trust disclosure requirements (previous coverage).

Click the following links for the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill, the Commentary on the Bill, and the Regulatory Impact Statements.

Treaty Changes (5)

Estonia-Japan

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Tax Treaty between Estonia and Japan under Negotiation

According to an announcement from the Japanese Ministry of Finance, officials from Estonia and Japan met 9 August 2016 for the first 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.

Hong Kong-Russia

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Tax Treaty between Hong Kong and Russia has Entered into Force

The income tax treaty between Hong Kong and Russia entered into force on 29 July 2016. The treaty, signed 18 January 2016, 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 Russian tax on profits of organizations and tax on income of individuals.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting Party 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% if the beneficial owner is a company directly holding at least 15% of the paying company's capital; otherwise 10%
  • Interest - 0%
  • 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 of a company deriving more than 50% of its asset value directly or indirectly from immovable property situated in the other Party, with an exemption for:
    • Shares quoted on a stock exchange as may be agreed to by both Parties;
    • Shares alienated or exchanged in the framework of a reorganization of a company, a merger, a scission or a similar operation; and
    • Shares in a company deriving more than 50% of its asset value from immovable property in which it carries on its business

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 13 (Capital Gains) will not apply if it was the main purpose or one of the main purposes of any person concerned with the creation, assignment or alienation of the shares, debt-claims, other rights or property in respect of which the dividends, interest or royalties are paid or gains realized was to take advantage of those Articles by means of that creation, assignment or alienation. The limitation is included in each of those Articles.

Double Taxation Relief

Both Parties apply the credit method for the elimination of double taxation.

Effective Date

The treaty will apply in Hong Kong from 1 April 2017 and in Russia from 1 January 2017.

India-Indonesia-Ireland-United Kingdom-United States

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Indian Tax Tribunal Holds that No Tax is Due on Payments for Taxation and Audit Services Provided Overseas

The Mumbai Income Tax Appellate Tribunal recently issued a decision on whether payments for services rendered overseas are subject to withholding tax in India. The case involved an Indian accounting firm, BSR & Company (BSR).

In the year concerned, BSR made payments for taxation and audit services to service providers in Ireland, Indonesia, the UK and the U.S., which amounted to approximately INR 7.8 million. Because the services were rendered overseas, BSR determined that it did not need to withhold any tax on the payments. However, in auditing the return, the assessing officer determined that the payments were fees for technical services (FTS), and that tax should have been withheld. Since no tax was withheld, the deduction of the payments was disallowed. BSR appealed.

In its decision, the Income Tax Appellate Tribunal sided with BSR. Regarding the payments to the U.S. providers, the tribunal looked at Article 12 (Royalties and Fees for Included Services) of the India-U.S. tax treaty, and found that the service payments could not be considered FTS because there was no evidence to establish that any technical knowledge, skill, etc. had been made available to BSR through the rendering of the services. Since the payments could not be considered FTS and the providers had no permanent establishment in India, no withholding tax was due.

Regarding the payments to the Indonesian, Irish and UK providers, the Tribunal determined that the payments should fall under the articles on independent personal services of the respective treaties between India and those countries. In general, the articles require that the service provider have a permanent establishment in India for service payments to be taxable in India. Since none of the providers had a permanent establishment in India, no withholding tax was due.

The decision of the Tribunal may be further appealed by the tax authorities.

Jersey-Rwanda

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Tax Treaty between Jersey and Rwanda has Entered into Force

The tax treaty between Jersey and Rwanda entered into force on 27 June 2016. The treaty, signed on 26 June 2015, is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Jersey income tax, and Rwandan personal income tax, corporate income tax, withholding taxes and tax on rent of immovable properties.

Residence

If a company is considered resident in both Contracting Parties, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement based on its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. If no agreement is reached, the company will not be entitled to claim any relief or exemption from tax provided by the treaty.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting Party 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 - 10%
  • Interest - 10%
  • Royalties - 10%
  • Management or Professional Fees for services of a technical, managerial, professional or consultancy nature - 12%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) 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 or royalties 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.

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; and
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment 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.

Double Taxation Relief

Both Parties apply the credit method for the elimination of double taxation.

Provisions are also included for a tax sparing credit whereby a credit will be allowed for tax that would have been paid but was exempted or reduced in accordance with laws that establish schemes for the promotion of economic development in Rwanda or Jersey. Such credit will only apply for schemes mutually agreed to by the competent authorities of the Contracting Parties.

Effective Date

The treaty generally applies from 1 January 2017, although in Rwanda, Article 25 (Exchange of Information) applies from 27 June 2016.

Romania-Isle Of Man

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Romania Ratifies TIEA with the Isle of Man

Romania published the decree ratifying the pending tax information exchange agreement with the Isle of Man on 28 July 2016. The agreement, signed 4 November 2015, is the first of its kind between the two jurisdictions and is line with the OECD standard for information exchange. It will enter into force once the ratification instruments are exchanged, and will generally apply from that date.

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