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Approved Changes (6)

Brazil

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Brazil Suspends Mandatory Social Security Contribution on Services Received from Cooperatives

On 31 March 2016, Brazil published Senate Resolution No. 10/2016, which suspends the 15% mandatory social security contribution on the gross amount of an invoice for services provided by cooperatives. The contribution, which is due by the legal entity receiving the services under Article 22 of Law No. 8,212/1991, was recently found unconstitutional by the Federal Supreme Court.

El Salvador

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El Salvador Announces Return Deadline for New 5% Special Contribution for National Security

On 4 April 2016, El Salvador's Directorate General of Internal Revenue issued a notice announcing that the initial deadline for the annual return for the Special Contribution for National Security is 2 May 2016. The Special Contribution was adopted in October 2015, and is levied at a rate of 5% on the net profits of large taxpayers with annual net profits of USD 500,000 or more. This is in addition to the standard 30% corporate tax, and applies for both resident and non-resident taxpayers.

India

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Indian Supreme Court Finds that Payments for Certain Automated Services Should no Longer be Considered Fees for Technical Services

In a recent ruling, the Indian Supreme Court found that the past interpretation of technical services is no longer adequate because of the effects of modern technology and automation, and that a new interpretation must be adopted. The case involved Kotak Securities Ltd. (Kotak) and its payments of transactions fees to the Bombay Stock Exchange, which the assessing officer determined were fees for technical services (FTS) and subject to tax withholding at source. Because Kotak did not withhold the tax, the assessing officer disallowed the deduction of the payments for determining Kotak's taxable income.

In its decision, the Supreme Court focused on whether the transaction fees should be considered FTS. It found that technical services are services rendered by human efforts that cater to the special and exclusive needs of individual customers or users. Because the transaction services provided by the Bombay Stock Exchange are fully automated and made available for all of the Exchange's clients, the services should instead by termed as facilities provided by the Exchange on payment. As a result, the transaction fees paid by Kotak could not be considered FTS and there was no need for tax to be withheld. Given that the decision was given at the Supreme Court level, it will influence the interpretation of FTS in all Indian courts going forward, including for cases involving foreign companies receiving or using services in India.

Click the following link for the full decision.

Indonesia

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Indonesia Investigates PE Status of Online Advertisers

On 7 April 2016, Indonesia's Ministry of Finance announced that it is investigating the tax status of large online advertisers doing business in the country, including Facebook, Google and Twitter. According to the announcement, these companies have business units in Indonesia that should be considered permanent establishments, and should be registered and taxed as such on their advertising income. Regarding Indonesia's position on the taxation of the digital economy overall, the announcement states that if a company benefits from a country it should be taxed in that country, including the obligation to pay taxes in Indonesia.

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OECD Announces that Tax administrations Ready to Act on "Panama Papers"

The OECD has announced the a special project meeting of the Joint International Tax Shelter Information and Collaboration (JITSIC) Network will be held on 13 April 2016 in Paris to address issue revealed in the "Panama Papers". The meeting will bring together senior tax administration officials from countries worldwide to explore possibilities of co-operation and information sharing, identify tax compliance risks, and agree on collaborative actions that can be taken.

Russia

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Russia Clarifies Taxation of Dividends Received by Foreign Companies that have Elected to be Treated as a Resident Company

The Russian Federal Tax Service recently issued guidance clarifying the taxation of dividends received by a foreign company that is considered a Russian tax resident. A foreign company may be considered a Russian tax resident in a few different cases, but the guidance specifically refers to cases where a foreign company is domiciled in a country with which Russia has an effective tax treaty, the company carries on activities in Russia through a branch or other subdivision, and it has elected to be treated as a Russian tax resident.

According to the guidance, when a foreign company receives dividend income from Russia after electing to be treated as a Russian tax resident, the dividend income will be subject to tax at the standard rate for domestic companies of 13% (standard rate for non-residents is 15%). The participation exemption (0% rate) may also apply if the foreign company holds at least 50% of the paying company's capital for an uninterrupted period of at least 365 days. The guidance clarifies that in determining if the participation exemption conditions are met, the determination is made on the date the decision to pay the dividends is made and the period of ownership is from the date the foreign company acquired the shares, without regard to the date the foreign company becomes a Russian tax resident. As long as the foreign company is considered a Russian tax resident on the date the dividends are paid, the exemption will apply.

Treaty Changes (4)

Bahrain-China

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Protocol to the Tax Treaty between Bahrain and China has Entered into Force

The Protocol to the 2002 income tax treaty between Bahrain and China entered into force on 1 April 2016. The protocol, signed 16 September 2013, is the first to amend the treaty.

Changes Made

The protocol makes the following main changes:

  • Amends Article 10 (Dividends) by increasing the withholding tax rate for from 5% to 10%;
  • Amends Article 23 (Methods for the Elimination of Double Taxation) in respect of China by adding the provision that when a resident of China directly or indirectly holds at least 20% of the capital of a Bahrain company paying a dividend, the credit for the tax paid will take into account the tax paid to Bahrain by the dividend paying company; and
  • Replaces Article 26 (Exchange of Information) to bring it in line with the OECD standard for information exchange.

The protocol also amends Article 2 (Taxes Covered) in respect of China, amends Article 3 (General Definitions) to change the meaning of the term "competent authority" in respect of Bahrain, and amends Article 4 (Resident) to expand the meaning of the term "resident of Contracting State".

Effective Date

The protocol applies from 1 January 2017.

Ecuador-Untd A Emirates

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Tax Treaty Negotiations between Ecuador and the U.A.E. to be Restarted

On 23 March 2016, officials from Ecuador and the United Arab Emirates met to discuss restarting negotiations for an income tax treaty, which stalled in 2012. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Ivory Coast-Morocco

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Tax Treaty between Ivory Coast and Morocco has Entered into Force

The income tax treaty between Ivory Coast and Morocco reportedly entered into force on 7 March 2016. The treaty, signed 20 July 2006, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Moroccan general income tax and corporation tax, and covers the following Ivory Coast taxes:

  • Tax on business and agricultural profits;
  • Tax on non-commercial profits;
  • Tax on wages, salaries, pensions and annuities;
  • Tax on income from movable capital;
  • Real estate tax (built and undeveloped); and
  • General income 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 2 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties, including technical assistance and services - 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 in a company whose assets consist principally directly or indirectly of 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 apply the credit method for the elimination of double taxation. In addition, a tax sparing credit is provided for tax that would have otherwise been paid, but has been reduced or exempted for a specified period as part of a tax incentive under the domestic law of a Contracting State.

Effective Date

The treaty applies from 1 January 2017.

Montenegro-Slovak Republic

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Montenegro and Slovak Republic Conclude SSA Negotiations

According to a recent announcement from the government of Montenegro, officials from Montenegro and Slovakia have concluded negotiations for a social security agreement (SSA). The agreement will be the first of its kind directly between the countries, and will replace the 1957 SSA between the former Czechoslovakia and former Yugoslavia, which currently applies in respect of Montenegro and Slovakia. The new SSA must be signed and ratified before entering into force

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