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Approved Changes (5)

Bolivia

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Amendments to Bolivia's Late Tax Payment Penalties Adopted

On 1 July 2016, Bolivia published Law No. 812 of 30 June 2016 in the Official Gazette. The law is the final version of bill PL-153-16 (previous coverage) as approved by the Chamber of Senators (upper house of the legislative assembly) and amends the country's rules concerning late tax payment penalties. The final law provides for fixed interest penalty rates as follows:

  • 4% per annum for the first 4 years of arrears (beginning the day after the payment is due);
  • 6% per annum from the first day of the 5th year until the last day of 7th year; and
  • 10% per annum beginning the first day of the 8th year until paid.

The final law also changes the standard statute of limitations to eight years, which may be extended by two years if the taxpayer is not registered with tax authority, has committed tax crimes, has transactions with tax havens, and certain other cases.

Poland

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Poland Supreme Administrative Court Holds Thin Capitalization Rules Apply for Former Shareholders

In a recently published decision, Poland's Supreme Administrative Court determined whether the country's thin capitalization rules apply on interest payments made to a former shareholder. The case involved a Polish company that had received a loan from its sole shareholder, which caused the company's debt-to-equity ratio to exceed 3:1 (the limit at the time of the loan - generally 1:1 as of 1 January 2015). Since the 3:1 ratio was exceeded, interest on the loan exceeding the ratio is not deductible. However, before the loan was repaid, the shareholder sold its entire stake in the company. After the sale, the Polish company sought an individual ruling as to whether the interest payments would be fully deductible, arguing that the rules should not apply since the original shareholder no longer held any shares in the company.

In the ruling, the tax authority held that the interest would not be fully deductible given the previous shareholder's status at the time the loan was provided. The company appealed the ruling, which made its way to the Supreme Administrative Court. The Court upheld the tax authority's decision and dismissed the appeal. The Court determined that the thin capitalization rules must be applied based on the debt-to-equity ratio of the company at the time the loan is granted, and continue to apply on the related payments even if the lender is no longer a shareholder in the company.

Romania

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Romania Enacts Measures to Support Agricultural Activities and R&D Personnel

On 30 June 2016, Romania published Government Emergency Ordinance No. 32/2016 in Official Gazette. The Ordinance contains two main measures:

  • The value added tax rate for primary goods used in agricultural productions is reduced from the standard 20% rate to a 9% reduced rate; and
  • Salaries of personnel engaged in R&D activities are exempted from income tax.

The measures apply from 1 August 2016.

Russia

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Russia Introduces Beneficial Ownership Information Requirements for Legal Entities

On 28 June 2016, Russia published Law No. 215-FZ in the Official Gazette, which amends Law No. 115-FZ of 7 August 2001 on combating money laundering and terrorism financing. The amendments introduce beneficial ownership recordkeeping requirements for legal entities. With the requirements, legal entities must collect and update information on all beneficial owners of the entity at least once per year. For this purpose, beneficial owners include individuals that have control over the entity and/or a direct or indirect participation in the entity of at least 25%. The information must be kept for at least five years and be made available to the authorities upon request.

Penalties of RUB 30,000 to 40,000 for failing to comply may be imposed on a legal entity's management, and penalties of RUB 100,000 to 500,000 may be imposed on a legal entity itself.

Sweden

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Sweden Publishes Updated Transfer Pricing Guidance Incorporating BEPS Actions 8-10

The Swedish Tax Agency (Skatteverket) has published updated transfer pricing guidance that incorporates the guidance developed as part of Actions 8-10 (Aligning Transfer Pricing Outcomes with Value Creation) of the OECD BEPS Project. At the end of 2015, the Tax Agency announced that the Action 8-10 guidelines would be considered along with previous guidance until the incorporation is complete, and that aspects of the new guidance that clarify existing transfer pricing principles may be applied retroactively (previous coverage).

Click the following link for the online transfer pricing guidance (Swedish language).

Proposed Changes (3)

Argentina

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Argentina Legislation on Voluntary Disclosure and Tax Settlement and Eliminating Dividends Withholding Tax

On 30 June 2016, Argentina’s Congress approved legislation that introduces measures to promote tax compliance, including:

  • A new voluntary disclosure system for undeclared domestic and foreign currency and assets held by entities during the financial year ending before 1 January 2016, which includes a special tax rate of 5% to 15% depending on the nature of the assets and an exemption from penalties/interest, as well as potential tax exemption if a declaration is made to invest previously undeclared funds in specified instruments; and
  • A new tax debt settlement plan for outstanding debts as of 31 May 2016, which includes a payment plan of up to 90 monthly installments with a monthly interest rate ranging from 1% to 1.5%, as well as a reduction of tax debts by up to 15% depending on the payment conditions applied.

The legislation also provides for the elimination of the 10% withholding tax on dividend distributions.

The legislation must be signed by the president to be enacted. After enactment, specific regulations will be issued on the implementation rules.

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OECD Issues Public Discussion Draft on the Group Ratio Rule under BEPS Action 4

On 11 July 2016, the OECD issued a public discussion draft on follow up work for BEPS Action 4 (Limiting Base Erosion Involving Interest Deductions and Other Financial Payments). The draft concerns the design and operation of the group ratio rule, with a focus on:

  • Approaches to calculate a group’s net third party interest expense;
  • A definition of group-EBITDA; and
  • Approaches to deal with the impact of losses on the operation of the group ratio rule.

The purpose of the group ratio rule is to allow entities in groups that are highly leveraged for non-tax reasons to deduct interest expense that would otherwise be limited by the fixed ratio rule.

Click the following link for the discussion draft. Comments are due by 16 August 2016.

South Africa

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South Africa Draft 2016 Taxation Laws Amendment Bill and Tax Administration Laws Amendment Bill Published for Public Comment

On 8 July 2016, the South African National Treasury published the 2016 Draft Taxation Laws Amendment Bill and 2016 Draft Tax Administration Laws Amendment Bill for public comment. The Bills include the amendments needed to implement several of the tax measures included in the 2016 Budget.

The main measures in the 2016 Draft Taxation Laws Amendment Bill include:

  • Introducing measures to prevent tax avoidance through the use of trusts;
  • Refinement of the taxation of retirement savings;
  • Addressing the circumvention of rules dealing with employee share incentive schemes;
  • Refinement of the anti-avoidance rules dealing with cross border hybrid debt instruments;
  • Extending the renewable energy incentive to include supporting infrastructure used in producing renewable energy;
  • Repeal of the withholding tax on services regime; and
  • Revision of a previous VAT amendment relating to notional input tax on goods containing gold.

The main measures in the 2016 Draft Tax Administration Laws Amendment Bill include:

  • Enhancing the independence and effectiveness of the office of Tax Ombud;
  • Extension of objection and condonation periods;
  • Commercial member to assist presiding officer in tax court;
  • Clarification of pending audit or investigation for purposes of the voluntary disclosure relief;
  • Confirmation that an audit unrelated to the default being disclosed will not disqualify an applicant for full voluntary disclosure relief; and
  • Imposition of understatement penalty in General anti-avoidance rule (GAAR) matters.

Click the following links for the:

Comments are due by 8 August 2016.

Treaty Changes (1)

Untd A Emirates-Uruguay

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Tax Treaty between the U.A.E. and Uruguay has Entered into Force

The income and capital tax treaty between the United Arab Emirates and Uruguay reportedly entered into force on 13 June 2016. The treaty, signed 10 October 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers U.A.E. income tax and corporate tax. It covers Uruguayan business income tax, personal income tax, non-residents income tax, tax for social security assistance and capital (wealth) tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting State 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 (excluding partnerships); otherwise 7%
  • Interest - 10%
  • Royalties and Fees for Technical Services - 5% for payments for the use or right to use industrial, commercial or scientific equipment; otherwise 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 or other rights in a company or trust deriving more than 50% of its value from immovable property situated in the other State (exemption if listed on a recognized stock exchange)

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.

MFN Clause

The protocol to the treaty, signed the same date, includes the provision that if Uruguay grants under an agreement with a third country more favorable treatment with respect to Article 10 (Dividends), then such more favorable treatment will automatically apply in respect of the U.A.E.

Effective Date

The treaty generally applies from 1 January 2017, although Article 25 (Exchange of Information) applies from the date of its entry into force, 13 June 2016.

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