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Worldwide Tax News

Approved Changes (3)

Algeria

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Algerian parliament Approves Finance Law 2016

On 30 November 2015, Algeria's parliament approved the Finance Law 2016. Two of the key measures include:

  • Mining companies will be subject to the 23% reduced corporate income tax rate that was introduced along with an increased standard rate of 26% in the Additional Finance Law 2015 approved in July; and
  • The deduction of R&D expenses, which is limited to 10% of taxable profits with a cap of DZD 100 million, will also require the submission of an expert report prepared by the relevant government body.

The law must now be signed by the president and published in the Official Gazette before entering into force.

Click the following link for (previous coverage on the measures of the law).

European Union

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EU Council Adopts Directive on Automatic Exchange of Information on Tax Rulings and APAs

On 8 December 2015, the Council of the European Union adopted a directive for the mandatory automatic exchange of information between EU Member States on advance cross-border tax rulings and advance pricing agreements (APA). The automatic exchange was proposed by the European Commission in March 2015 and is also related to recommendations on tax rulings under Action 5 (Countering Harmful Tax Practices) of the OECD BEPS Project.

The automatic exchange will apply from 1 January 2017, including for information on rulings and APAs issued prior to that date as follows:

  • Rulings and APAs issued, amended or renewed between 1 January 2012 and 31 December 2013 must be exchanged if still valid on 1 January 2014; and
  • Rulings and APAs issued, amended or renewed between 1 January 2014 and 31 December 2016 must be exchanged whether still valid or not.

EU Member States will have the option to exclude information on rulings or APAs issued, amended or renewed before 1 April 2016 if the annual net revenue of the relevant group concerned is less than EUR 40 million. However, this will not apply for rulings or APAs concerning companies conducting mainly financial or investment activities.

EU Member States will need to adopt and publish the laws, regulations and administrative provisions necessary to comply with the information exchange rules by 31 December 2016.

Click the following links for the Council Directive and a press release from the EU Council.

Kazakhstan

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Kazakhstan Sets MCI for 2016

Kazakhstan has set the monthly calculation index (MCI) for 2016 at KZT 2,121. The law setting the amount was signed 30 November 2015. MCI is used for a number of purposes in Kazakhstan, including minimum capital, depreciation, VAT registration requirements, advance tax payment requirements, tax penalty determination and others.

Proposed Changes (3)

France

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France Amends Rules Regarding Dividends Participation Exemption Regime

The French National Assembly has reportedly adopted an amendment to the Amending Finance Bill for 2015 that will change the rules regarding the dividends participation exemption regime. The amendment:

  • Abolishes the allowed deduction (neutralization) of the taxable 5% proportion for costs and expenses under the participation exemption regime for qualifying dividends from French subsidiaries; and
  • Changes the taxable proportion from 5% to 1% for all dividends that qualify for the participation exemption (95% or greater holding), whether the subsidiary is established in France or another EU/EEA Member State.

The amendment follows the ruling of the Court of Justice of the European Union in September 2015 that allowing the deduction for dividends from French subsidiaries but not from subsidiaries established in other EU Member States is in violation of EU law concerning freedom of establishment (previous coverage).

If enacted, the changes will apply from 1 January 2016.

Hungary

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Legislation to Reduce Hungarian Bank Tax and Introduce a Tax Liability Cap Submitted to Parliament

The Hungarian government has recently submitted draft legislation to parliament to cut the bank tax rate as approved in the 2016 Budget. The bank tax rate on the adjusted balance sheet total exceeding HUF 50 billion will be reduced from 0.53% to 0.31% in 2016 and further reduced to 0.21% in 2017. The amount under HUF 50 billion will remain subject to the 0.15% rate. The legislation also includes a cap that would limit the 2016 tax liability to 45% of the 2015 liability, and further reduced to 30% if a certain level of increased lending is met in 2016. Caps would also apply for 2017 and 2018 based on the 2016 tax liability.

United States

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U.S. Tax Extenders Bill Sent to House Rules Committee

On 7 December 2015, U.S. House Ways and Means Chairman Kevin Brady R-TX sent the Tax Increase Prevention and Real Estate Investment Act of 2015 to the House Rules Committee. The bill was tabled as an amendment to a Senate amendment to Bill H.R.34, and would extend, and in some cases modify, tax provisions that expired at the end of calendar year 2014. It is seen as a backup in case negotiations fail for a broader bill that would make certain extenders permanent.

Some of the key provisions related to business taxation that would be extended/modified, include:

  • Extension and modification of research credit (Sec. 111) - The provision extends through 2016 the research and development (R&D) tax credit and modifies the R&D credit to increase the alternative simplified credit from 14% to 20% percent;
  • Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements placed in service during 2015 or 2016 (Sec. 122);
  • Extension and modification of bonus depreciation (Sec. 125) - The provision extends the 50% bonus depreciation for property acquired and placed in service during 2015 or 2016 (2016 or 2017 for certain property with a longer production period) and modifies the AMT credits rules by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation;
  • Extension and modification of increased expensing limitations and treatment of certain real property as section 179 property (Sec. 127) - The provision extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 (USD 500,000 and USD 2 million) to property placed in service during 2015 or 2016, and modifies the expensing limitation by indexing both the USD 500,000 and USD 2,000,000 limits for inflation beginning in 2016;
  • Extension of pass-through treatment of interest-related dividends and short-term capital gains dividends from regulated investment companies (RICs) to foreign investors through 2016 (Sec. 132);
  • Extension of RIC qualified investment entity treatment under the Foreign Investment in Real Property Tax Act (FIRPTA) through 2016 (Sec. 133);
  • Extension of subpart F exception for active financing income through 2016 (Sec. 134); and
  • Extension of look-through treatment of payments between related controlled foreign corporations under foreign personal holding company rules through 2016 (Sec. 135).

The bill also includes provisions related to:

  • Individual Tax Extenders;
  • Energy Tax Extenders;
  • Real Estate Investment Trusts;
  • Internal Revenue Service Reforms; and
  • Taxpayer's Tax Court Access.

Click the following link for the Tax Increase Prevention and Real Estate Investment Act of 2015.

Treaty Changes (4)

China-Zimbabwe

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Update - Tax Treaty between China and Zimbabwe

The income tax treaty between China and Zimbabwe was signed 1 December 2015. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Chinese individual income tax an enterprise income tax. It covers Zimbabwean income tax, non-resident shareholders' tax, non-residents' tax on fees, non-residents' tax on royalties, capital gains tax, and residents' tax on interest.

Service PE

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

Withholding Tax Rates

  • Dividends - 2.5% if the beneficial owner is a company that directly or indirectly controls at least 25% of company paying the dividends; otherwise 7.5%
  • Interest - 7.5%
  • Royalties - 7.5%

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 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;
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
  • Gains from the alienation of shares representing a participation of at least 50% in a company that is a resident of 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.

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.

European Union-San Marino

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Automatic Financial Account Information Exchange Agreement between the EU and San Marino Signed

On 8 December 2015, officials from the European Union and San Marino signed an agreement for the automatic exchange of financial account information. Under the agreement, information on the financial accounts of residents of EU Member States and San Marino will be automatically exchanged from 2017. The agreement is similar to agreements the EU has signed with Liechtenstein and Switzerland.

Hungary-Liechtenstein

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Tax Treaty between Hungary and Liechtenstein to Enter into Force

According to an announcement from the Liechtenstein government, the income and capital tax treaty between Hungary and Liechtenstein will enter into force on 24 December 2015. The agreement, signed 29 June 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Hungarian personal income tax, corporate income tax, land parcel tax and building tax. It covers Liechtenstein personal income tax, corporate income tax, real estate capital gains tax, wealth tax and coupon tax.

Withholding Tax Rates

  • Dividends - 0% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 10%
  • Interest - 0%
  • Royalties - 0%

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 or comparable interests 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 exemption with progression method for the elimination of double taxation. However, both countries will apply the credit method in regard to income covered by Article 10 (Dividends). Hungary will also apply the credit method in regard to income covered by Article 7 (Business Profits).

Entitlement to Benefits

Article 28 (Entitlement to Benefits) of the treaty includes the provision that a resident of a Contracting State shall not receive the benefit of any reduction in or exemption from tax provided for by the treaty if the competent authority determines that one of the principal purposes of such resident or a person connected with such resident was to obtain the benefits of the treaty.

The limitation may only apply after the competent authorities of both Contracting State have consulted with each other.

Effective Date

The treaty applies from 1 January 2016.

Qatar-Turkey

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New Tax Treaty between Qatar and Turkey under Negotiation

According to a joint statement published by the Qatar government, officials from Qatar and Turkey have agreed to resume negotiations for a new income tax treaty. Any resulting treaty would replace the 2001 income tax treaty between the two countries, which currently applies.

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