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Worldwide Tax News

Approved Changes (1)

India

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Indian Courts Hold that Taxpayers Must Be Given Valid Reasons for an Assessment to be Reopened

In two recent decisions of the Karnataka High Court and the Delhi High Court, published 4 November and 5 November 2015 respectively, the courts found that the tax authorities could not reopen assessments without providing a valid reason.

In the Karnataka case, the tax authorities issued a notice for reopening the assessment of a taxpayer. In response, the taxpayer asked the tax authority to treat the return for the year concerned as having been filed in response to the notice, and asked for an explanation as to why the notice was issued. However, the tax authority proceeded to reopen the assessment without providing the taxpayer any explanation.

In its decision, the Karnataka High Court held that under Indian tax law, an assessee is entitled to be furnished the reasons for the reopening of an assessment, which can be challenged independently. Because no reasons were given, the proceedings for reassessment could not have been taken further.

The Delhi decision involved two cases where the tax authorities reopened assessments four years after the initial years of assessment without stating any particular reasons to believe that income had escaped assessment.

In its decision, the Delhi High Court cited a previous decision that an assessment may only be reopened after four years from the end of the relevant assessment year if it can be concluded with a certain level of certainty that the assessee failed to truly and fully disclose all material facts. Because the tax authorities failed to meet the conditions, the assessments should not have been reopened. The Court also stated that reopening assessments in such cases is considered unnecessary harassment of the assessee.

Proposed Changes (2)
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OECD Holds Inaugural Meeting for the BEPS Multilateral Instrument

On 5-6 November 2015, the OECD held the inaugural meeting for the negotiation of the Multilateral Instrument for the implementation of the treaty-related provisions developed as part of the BEPS Project. According to a release from the OECD, the ad-hoc group for the development of the instrument includes 94 members, including both OECD and non-OECD countries. A sub-group of approximately 25 members will also be formed to develop an optional provision on mandatory binding mutual agreement procedure (MAP) arbitration.

Further negotiations will take place in 2016, with public consultations to be launched before the next meeting, which will likely be in February or March. The Multilateral Instrument is to be finalized and open for signature by December 2015.

Click the following link for a list of the participating countries.

United States

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U.S. Lawmakers Introduce Legislation Intended to Prevent Inversions by Limiting Interest Expense Deductions and Terminating CFC Active Income Deferral

On 5 November 2015, two new bills were introduced into the U.S. House of Representatives that include provisions targeted at preventing corporate inversions. The legislation is currently before the House Committee on Ways and Means.

The Corporate Fair Share Tax Act (H.R. 3934)

H.R. 3934 targets interest deductions related to debt owed to affiliated foreign companies. It would amend Section 163 of the Internal Revenue Code to include provisions to limit the interest deduction for excessive interest of members of financial reporting groups for tax years beginning after 31 December 2015. Under the provisions of the bill, no deduction will be allowed for interest expense that exceeds the sum of:

  • The amount of interest on indebtedness of the corporation includible in the corporation’s gross income for the taxable year, plus
  • The corporation’s proportionate share of the financial reporting group’s net interest expense for the taxable year.

Alternatively, the interest expense deduction may be limited to 10% of a corporation's adjusted gross income if:

  • The corporation fails to substantiate its proportionate share of the financial reporting group’s net interest expense for a taxable year, or
  • The corporation elects to apply the alternative limit.

The interest deduction restrictions will not apply for:

  • Corporations predominantly engaged in the active conduct of a banking, financing, or similar business, or
  • Corporations with less than USD 5 million net interest expense for the taxable year.

The Putting America First Corporate Tax Act (H.R. 3935)

H.R. 3935 targets the deferral of foreign income. It would amend Section 952 (Subpart F Income) of the Internal Revenue Code by adding a new subsection that would terminate the deferral of active income of controlled foreign corporations (CFC) for tax years beginning after 31 December 2015.

Treaty Changes (4)

Argentina-Mexico

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Automatic Information Exchange Agreement between Argentina and Mexico Signed

The Argentine government has announced that officials from Argentina and Mexico signed a competent authority agreement for the automatic exchange of information in tax matters on 4 November 2015. The agreement is based on Article 28(6) of the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol, which allows signatories to the convention to agree that the convention has effect for tax periods prior to the convention's entry into force in the respective country. The Mutual Assistance Convention as amended has been in force in Argentina since 1 January 2013 and in Mexico since 1 September 2012.

Barbados-Greece

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Tax Treaty between Barbados and Greece to be Negotiated

On 4 November 2015, officials from Barbados and Greece met to discuss the negotiation of an income 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.

Croatia-Turkmenistan

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Tax Treaty between Croatia and Turkmenistan has Entered into Force

According to a recent update from the Croatian Ministry of Foreign and European Affairs, the income tax treaty between Croatia and Turkmenistan entered into force on 6 April 2015. The treaty, signed 29 April 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Croatian profit tax, income tax, local income tax, and any other surcharges. It covers Turkmen tax on profits (income) of juridical persons, and tax on income of individuals.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 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 directly or indirectly deriving more than 50% of their value 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.

Effective Date

The treaty applies from 1 January 2016.

Italy-Bermuda-Turkmenistan

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Italy's Council of Ministers Approves TIEAs with Bermuda and Turkmenistan

On 6 November 2015, Italy's Council of Ministers approved for ratification the pending tax information exchange agreements with Bermuda and Turkmenistan. The agreement with Bermuda was signed 23 April 2012 and the agreement with Turkmenistan was signed 4 May 2015. The agreements are the first of their kind between Italy and the respective countries, and will enter into force after the ratification instruments are exchanged.

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