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Approved Changes (3)

Colombia

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Colombia Provides Clarification on Timing of New Transfer Pricing Documentation Requirements

According to recent reports, Colombia's National Tax Authority (DIAN) has provided some clarification regarding the applicable years and deadlines for the new transfer pricing documentation requirements based on BEPS Action 13 that were introduced in Law No. 1819 of 2016 (previous coverage):

  • Local File - applies for tax year 2016 and must be submitted by the same deadline as the transfer pricing informative return - typically due in July with exact date depending on taxpayer's tax ID number (between 11 July and 25 July in 2017);
  • Master File - applies from tax year 2017 and will be due in 2018 - submission deadline not yet specified;
  • Country-by-Country (CbC) report - applies for tax year 2016 - submission deadline not yet specified, but will be no earlier than 31 December 2017.

As Per Law No. 1819, the requirement to submit a Local and Master file applies for taxpayers with gross equity exceeding UVT 100,000 (~USD 991,000) as of the last day of the respective year or gross revenue exceeding UVT 61,000 (~USD 605,000) in the respective year. CbC reporting requirements apply for Colombian ultimate parents of MNE groups meeting a consolidated group revenue of UVT 81 million (~USD 803 million), as well as non-parent local entities when that threshold and certain other conditions are met.

Additional details will be published once available.

Note - UVT (tax value unit or unidad de valor tributario) for 2016 is COP 29,753 (~USD 9.91 December 2016). For 2017, the UVT value is COP 31,859.

India

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India Tax Tribunal Holds No Notional Income Attribution based on Increased Brand Value

A recent decision of the Chennai Income Tax Appellate Tribunal has been published concerning whether an increase in an MNE's global brand value may result in the attribution of notional income for its Indian subsidiary for local brand development activities. The case involves Hyundai Motor India Limited and three sets of appeals for the assessment years 2009-10, 2010-11 and 2011-12. Hyundai India is engaged in the business of manufacturing cars in India under the Hyundai brand.

For the years concerned, the transfer pricing officer attributed notional income to Hyundai India on account of compensation for deemed brand development. The general basis for the assessments was that because Hyundai India used the Hyundai badge on the cars it manufactured, it therefore contributed to the development of the Hyundai brand as an intangible asset in India and should be compensated with an arm’s length amount. Further, because Hyundai India was contractually obligated to use only the Hyundai brand, it had been deprived, without benefit, of developing its own brand and logo. In determining the notional income amount, the transfer pricing officer looked at the year-on-year increase in the Interbrand valuation of the Hyundai brand and attributed the increase in brand value to Hyundai India based on its percentage of sales compared with global Hyundai sales.

In its decision, the Income Tax Appellate Tribunal rejected the transfer pricing officers attempt to attribute notional income. In coming to its decision, the Tribunal looked at whether such an incidental benefit, if any, to the Hyundai parent company can be considered as an international transaction under the Indian transfer pricing legislation (Section 92B(1)) and potentially subject to an arm's length adjustment. The Tribunal found that while the case deals with an intangible that has increased in value, the increase is a byproduct of the business model employed and not on account of a sale, purchase, or lease of an intangible, which is the condition for an intangible transaction to be considered an international transaction. With regard to other conditions under Section 92B(1), such as provision of service and transactions affecting profits, the Tribunal also found no basis for such an incidental benefit to be considered an international transaction.

Russia

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Russia Clarifies Participation Exemption for Foreign Entities Treated as Russian Tax Residents

The Russian Ministry of Finance recently published Letter No. 03-03-06/1/8891, which clarifies whether a foreign legal entity treated as tax resident in Russia can qualify for the participation exemption on dividends. The exemption is provided under Article 284 section 3 of the Tax Code, which in general grants an exemption for dividends received by a Russian company if the company has held at least 50% of the paying company's capital for an uninterrupted period of at least 365 days. For tax residence purposes, conditions for the treatment of a foreign entity as tax resident in Russia are provided under Article 246.2 of the Tax Code, which include when recognized as resident under a tax treaty, when place of effective management is Russia, and certain other cases, including when the foreign entity operates in Russia through a stand-alone division and elects to recognize itself as a Russian tax resident (Article 246.2 section 8).

According to the letter, based on amendments to Article 284 section 3 made by Federal Law No. 32-FZ (effective 15 February 2016), foreign legal entities treated as tax resident in Russia under Article 246.2 cannot claim the exemption, except in cases where the foreign entity elected to be treated as a Russian tax resident under section 8.

Proposed Changes (3)

Finland

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Finnish Government Issues Positions on Combating Tax Evasion and Public Reporting

On 9 May 2017, the Finnish Government published a release on political positions adopted by the Cabinet Committee on Economic Policy on work to combat tax evasion and aggressive tax planning and on measures taken by Finland, and increasing the reporting of companies’ income tax information. The Government is strongly committed to working against tax evasion and aggressive tax planning, including in cooperation with the EU and the OECD. On the basis of national and international measures, Finland already has in place recent provisions and procedures that improve the possibilities to tax income generated in Finland and several additional laws on the prevention of tax avoidance are currently under preparation. The Government is also strongly committed to promoting the tax reporting and openness of companies, including support for open reporting on income taxation and tax payments of companies that can be assessed publically.

Click the following link for the full positions on work to combat tax evasion and aggressive tax planning and increasing the reporting of companies’ income tax information.

Hungary

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Hungary Budget Bill Submitted to Parliament

The Hungarian 2018 Budget Bill was submitted to parliament on 2 May 2017. Tax-related changes in the Bill are reportedly limited to a reduction of the small business flat tax (KIVA) rate to 13% and a reduction in the value added tax rate to 5% for catering services, internet services, and fish.

Thailand

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Thailand Planning PE Amendments to Tax E-Commerce

The Thailand government is considering the introduction of amendments to the country's permanent establishment rules in order to tax e-commerce sales by non-resident suppliers. Under current domestic law, and tax treaties, a non-resident without a branch in Thailand may only be deemed to be carrying on business in Thailand if it derives profits or gains from Thailand through an employee, a representative, or a dependent agent. Based on these rules, a non-resident supplier can easily avoid a taxable presence in Thailand when making e-commerce sales. The legislation would amend the rules by broadening the interpretation to bring e-commerce with Thai consumers within the scope of a taxable presence, which may include conditions for websites targeting Thai customers, such as presentation in Thai language.

Treaty Changes (4)

Austria-India

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Update - Protocol to Tax Treaty between Austria and India

The amending protocol to the 1999 income tax treaty between Austria and India was signed 6 February 2017. The protocol:

  • Replaces Article 26 (Exchange of Information) to bring it in line with the OECD standard;
  • Adds Article 26A (Assistance in the Collection of Taxes); and
  • Adds a new paragraph to the original final protocol to the treaty to clarify the application of the new Article 26 (Exchange of Information).

The protocol, which is the first to amend the treaty, will enter into force on the first day of the third month following the exchange of ratification instruments and will apply from 1 January of the year following its entry into force.

Bulgaria-Tunisia

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SSA between Bulgaria and Tunisia has Entered into Force

The social security agreement between Bulgaria and Tunisia entered into force on 1 May 2017. The agreement, signed 1 October 2015, is the first of its kind between the two countries and generally applies from the date of its entry into force.

Ethiopia-Portugal

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Tax Treaty between Ethiopia and Portugal has Entered into Force

The income tax treaty between Ethiopia and Portugal entered into force on 9 April 2017. The treaty, signed 25 May 2013, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Ethiopian tax on income and profit imposed by the Income Tax Proclamation, and the tax on income from mining, petroleum and agricultural activities imposed by the respective proclamations. It covers Portuguese personal income tax, corporate income tax, and the surtaxes on corporate income.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital, otherwise 10%
  • Interest - 10%
  • Royalties - 5%
  • Technical fees for any services of a technical, managerial, or consultancy nature - 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;
  • 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 a comparable interest 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 apply the credit method for the elimination of double taxation. A provision is also included for a tax sparing credit for tax that would otherwise be payable but has been reduced or exempted under incentive provisions contained in the law of a Contracting State designed to promote economic development in relation to industrial, construction, manufacturing, or agricultural activities carried out within that State. Tax sparring credit limited to first seven years the treaty is effective, but may be extended.

Limitation on Benefits

The final protocol to the treaty provides that the benefits of the treaty 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 property or right in respect of which the income is paid is to take advantage the benefits by means of such creation or assignment.

The final protocol also provides that the treaty does not prevent a Contracting State from applying anti-avoidance provisions in its domestic law, and that the benefits will only be granted to beneficial owners of income.

Effective Date

The treaty generally applies in Ethiopia from 8 July 2017 and in Portugal from 1 January 2018.

Peru-Switzerland

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SSA between Peru and Switzerland under Negotiation

According to recent reports, officials from Peru and Switzerland met 6 to 7 April 2017 for the first round of negotiations for a social security agreement. Any resulting agreement would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

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