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Worldwide Tax News

Approved Changes (4)

Brazil

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Brazil Issues Ruling on Taxation of Capital Gains under Simplified Tax Regime

On 6 September 2016, Brazil published private ruling no. 67/2016 on the taxation of capital gains for taxpayers that have opted to apply the simplified tax regime (Simples Nacional). According to the ruling, capital gains under Simples Nacional are subject to capital gains tax at the rate of 15% on the positive difference between the value of the asset at disposal and the acquisition cost, less depreciation, amortization or accumulated depletion. From 1 January 2017, however, capital gains under Simples Nacional will be subject to the new progressive capital gains tax rates of 15% to 22.5% as introduced by Law 13,259/2016 in March (previous coverage).

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OECD Publishes Comments Received on Attribution of Profits to Permanent Establishments and Revised Guidance on Profit Splits

On 8 September 2016, the OECD published comments received on the following two BEPS discussion drafts:

Attribution of Profits to Permanent Establishments (PE), which deals with the follow-up work in relation to BEPS Action 7 ("Preventing the Artificial Avoidance of PE Status") to provide guidance on how the rules of Article 7 of the OECD Model Tax Convention apply to PEs resulting from the changes made by Action 7 to Article 5 of the OECD Model. In particular, the attribution of profits to:

  • Dependent agent PEs, including those created through commissionaire and similar arrangements; and
  • Warehouses as fixed place of business PEs.

Revised Guidance on Profit Splits, which deals with follow-up work in relation to BEPS Actions 8-10 ("Assure that transfer pricing outcomes are in line with value creation") to clarify and strengthen the guidance on the transactional profits split method in the context of global value chains, including two different approaches to splitting profits:

  • Transactional profit splits of actual profits; and
  • Transactional profit splits of anticipated profits.

The comments received on attribution of profits to PEs are split into two parts; click the following for Part I and Part II.

The comments received on profit splits guidance are also split into two parts; click the following for Part I and Part II.

A public consultation on the two discussion drafts will be held on 11 and 12 October 2016 at the OECD Conference Centre in Paris.

Panama

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Panama National Assembly Approves Counter Measures Against Countries Harming Its Economic Interests

On 6 September 2016, Panama's National Assembly approved Law 370 of 2016, which replaces Law 58 of 2002 and strengthens available counter measures that may be taken against countries that have taken discriminatory or restrictive measures against Panama that harm its economic interests. In general, this means measures against countries that have labeled Panama as a non-cooperative jurisdiction, tax haven, etc. Possible counter measures include increased withholding taxes, increased tariffs, labor restrictions, and others (previous coverage).

Click the following link for Law 370 (Spanish language), which is pending publication in the Official Gazette.

Russia

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Russia Issues Guidance on VAT Treatment of Advance Payments to Branch for Goods with a Long Production Cycle

The Russian Federal Tax Service (FTS) recently published Guidance Letter No. SD-4-3/14590, which clarifies the value added tax (VAT) treatment of advance payments received by a Russian branch of a foreign legal entity for the manufacture of goods.

According to the letter, the Tax Code provides that where advance payment or partial payment is received towards the future delivery of goods and the production cycle for the goods exceeds six months, the manufacturer is entitled to calculate the tax base for VAT on the date the goods are delivered (transferred). For this purpose, the manufacturer must keep separate accounting of the goods, works or services used to carry out the operations that involve the long production cycle.

The letter also states that branches of foreign legal entities are treated as separate taxpayers of VAT. As such, branches of foreign entities that receive advance payment on goods with a long production cycle have the same right described above to not calculate VAT until the goods are delivered (transferred).

Proposed Changes (1)

United States

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U.S. Bill Introduced to Repeal FATCA Reporting Obligation

On 7 September 2016, U.S. Representative Mark Meadows R-NC issued a press release announcing the introduction of Bill H.R. 5935, which would repeal provisions of the Foreign Account Tax Compliance Act (FATCA). According to the release, the FATCA requirement for foreign financial institutions to report all account holdings and assets of U.S. taxpayers violates a U.S. citizen’s rights to privacy and harms taxpayers with burdensome regulations to abide by. The provisions of the bill include the repeal of the following:

  • Withholding and reporting with respect to certain foreign accounts;
  • Information reporting with respect to foreign financial assets;
  • Penalties for underpayments attributable to undisclosed foreign financial assets;
  • Reporting of activities with respect to passive foreign investment companies;
  • Reporting requirement for United States owners of foreign trusts; and
  • Minimum penalty with respect to failure to report on certain foreign trusts.

Click the following links for the press release and the text of Bill H.R. 5935.

Treaty Changes (5)

Bermuda-Chile

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TIEA between Bermuda and Chile Signed

A tax information exchange agreement has been signed by Chile on 24 June 2016 and by Bermuda on 21 July 2016. The agreement is the first of its kind between the two countries and will enter into force once the ratification instruments are exchanged. It will generally apply from the date of its entry into force, but will apply in respect of information on banking transactions occurring on or after 1 January 2010 if covered by Article 1 of Chile's Decree Law No. 707 and Article 154 of Chile's Decree Law No. 3.

The agreement also includes that once in force, Bermuda will be removed from Chile's list of tax havens.

Ireland-Montserrat

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TIEA between Ireland and Montserrat has Entered into Force

The tax information exchange agreement between Ireland and Montserrat entered into force on 25 August 2016. The agreement, signed 14 December 2012, is the first of its kind between the two jurisdictions and is in line with the OECD standard for information exchange. It generally applies from the date of its entry into force.

Luxembourg-Turkmenistan

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Tax Treaty between Luxembourg and Turkmenistan to be Negotiated

According to a release from the Luxembourg Ministry of Foreign and European Affairs, officials from Luxembourg and Turkmenistan met on 6 September 2016 to discuss bilateral relations, and agreed on the need to start negotiations for a tax treaty. 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.

Portugal-Saudi Arabia

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Tax Treaty between Portugal and Saudi Arabia has Entered into Force

The income tax treaty between Portugal and Saudi Arabia entered into force on 1 September 2016. The treaty, signed 8 April 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Portuguese personal income tax, corporate income tax, and surtaxes on corporate income tax. It covers Saudi Zakat and income tax, including the natural gas investment 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 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 10%
  • Interest - 10%
  • Royalties - 8%

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 or comparable interest 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, other than those mentioned above, representing a participation of at least 20% in a company resident 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.

Non-Discrimination

The treaty does not include a non-discrimination article.

Limitation on Benefits

Article 27 (Miscellaneous Provisions) includes that the provisions of the treaty will not apply if 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 was to take advantage of the treaty by means of such creation or assignment. Article 27 also includes that the benefits of the treaty will not be granted to a resident of a Contracting State if it is not the beneficial owner of the income derived from the other State.

Effective Date

The treaty applies from 1 January 2017.

Ukraine-Qatar

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Ukraine Cabinet Authorizes Signature of Tax Treaty with Qatar

The Cabinet Ministers of Ukraine have approved an amended order authorizing the signature of a draft income tax treaty with Qatar. According to a note to the order, the treaty will provide for the following withholding tax rates:

  • Dividends - 5% if the beneficial owner is a company holding at least 10% of the paying company's capital; otherwise 10%
  • Interest - 5% for interest paid in connection with the sale on credit of industrial, commercial or scientific equipment, and in respect of any loan provided by a bank; otherwise 10%
  • Royalties - 5% for royalties paid for the use of, or the right to use, any copyright on scientific work, patent, trademark, secret formula or process, or information concerning industrial, commercial or scientific experience; otherwise 10%

The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force. Additional details will be published once available.

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