Worldwide Tax News
New Zealand Parliament Passes Legislation for Residential Land Withholding Tax and GST on Online Services
On 10 May 2016, New Zealand's parliament passed the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill following its third and final reading (previous coverage). The main measures of the legislation include:
- A residential land withholding tax (RLWT) that applies for offshore sellers (vendors) of New Zealand residential property if acquired and sold within two years, with an applicable rate equal to the lower of:
- 33% of the gain if the vendor is an individual or company acting as a trustee (top progressive individual rate) or 28% of the gain if the vendor is a company not acting as a trustee (statutory corporate rate); or
- 10% of the current purchase price.
- The levy of GST (15%) on cross border supplies of online "remote" services and intangibles by offshore suppliers, with the requirement to register if taxable supplies to New Zealand residents exceeds NZD 60,000 in a 12-month period (requirement will generally not apply for supplies made to recipients registered for GST, which are subject to reverse charge).
The RLWT applies from 1 July 2016 for property purchased on or after 1 October 2015, and GST on cross border online services applies from 1 October 2016. The legislation will be enacted once it receives Royal assent.
Click the following link for the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill as passed.
Venezuela Increases Minimum Monthly Salary
On 29 April 2016, the Venezuelan government increased the country's minimum monthly salary from VEF 11,577.80 to VEF 15,051.15 effective 1 May 2016. This is the second increase so far in 2016 and follows several increases in 2015.
The minimum salary is used in determining the basis cap for social security contributions, unemployment insurance, and other benefits. For employer social security contributions, the rates are 9%, 10% or 11% based on the risk qualification of the company with a basis cap of five minimum monthly salaries. For employer unemployment insurance contributions, the rate is 2% with a basis cap of ten minimum monthly salaries.
EU Greens/EFA Publish Report on the Role of the U.S. as a Tax Haven
On 11 May 2016, the Greens / European Free Alliance of the EU Parliament published its report on the role of the U.S. as a tax haven and the implications for Europe. While acknowledging the recent Customer Due Diligence (CDD) Final Rule and other proposals issued by U.S. Treasury to increase transparency (previous coverage), the report highlights the following main issues:
- The ability of non-residents to incorporate companies in several U.S. states without providing any beneficial ownership information;
- The lack of requirements for U.S. financial institutions to obtain and update beneficial ownership information of customers (aside from the recent CDD Final Rule when opening accounts);
- The exchange of information by the U.S. under FATCA, which lacks reciprocity and includes one-sided penalties, instead of the OECD common reporting standard for automatic exchange of financial account information.
In order to address the issues of the U.S. as a tax haven, the report includes five recommendations that the EU should promote in all countries:
- Establishing central public registries of beneficial ownership information for all types of legal persons (i.e. companies) and legal arrangements (i.e. trusts);
- Committing to global automatic exchange of information pursuant to the OECD common reporting standard;
- Publishing aggregate information on the financial assets held by non-residents (according to country of residence) in their financial institutions;
- Carefully screening the U.S. according to the criteria that will be developed for a common European black list of tax havens; and
- Establishing a withholding tax scheme, on all EU-sourced payments against non-compliant financial institutions, similar to what the U.S. did with FATCA.
Click the following link for the full report published on the Greens/EFA website.
Sweden Publishes Action Plan for Counteracting Tax Evasion, Tax Avoidance and Money Laundering
On 11 May 2016, the Swedish government published its action plan to counteract tax evasion, tax avoidance and money laundering. The plan includes 10 actions that will be a priority for the government:
- Including more countries in the global standards for transparency and exchange of information;
- Introducing automatic exchange of information on beneficial owners;
- Introducing mandatory disclosure rules for tax advisers;
- Establishing a global black list of non-cooperative jurisdictions and introducing tough defensive measures;
- Enhancing measures against VAT fraud;
- Reinforcing the deterrent effect of tax surcharges;
- Reinforcing the resources of the Swedish Tax Agency;
- Putting tax issues on the agenda at company board meetings;
- Supporting capacity building in developing countries; and
- Continuing to take action against domestic tax evasion and undeclared work.
Click the following link for the action plan published on the Swedish government website.
Senegal to Negotiate Tax Treaty with Algeria
According to recent reports, Senegal's Minister for Foreign Affairs Mankeur Ndiaye announced Senegal's intent to negotiate an income tax treaty with Algeria following a 23 to 25 April meeting on bilateral cooperation between the two countries. 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.
Belgium and Japan Agree in Principle on New Tax Treaty
On 10 May 2016, Japan's Ministry of Finance published a press release announcing that the governments of Japan and Belgium have agreed in principle on a new tax treaty that will replace the 1968 income tax treaty between the two countries. A previous announcement indicated the current treaty would be amended.
According to the press release, the main differences between the current and new treaty will include:
- Reduced taxation in the source country on investment income (dividends, interest and royalties);
- An updated article concerning taxation on business profits;
- The introduction of arbitration proceedings to the mutual agreement procedure; and
- The introduction of an article concerning assistance in the collection of taxes.
The new treaty must be finalized, signed and ratified before entering into force. Additional details will be published once available.
Multilateral Agreement for the Exchange of CbC Reports Signed by Canada, China, Iceland, India, Israel and New Zealand
On 12 May 2016, officials from Canada, China, Iceland, India, Israel and New Zealand signed the Multilateral Competent Authority Agreement (MCAA) for the exchange of Country-by-Country (CbC) reports during a signing ceremony in Beijing. The signing brings the total number of signatories to 39.
As part of the conditions for signing the CbC MCAA, signatories must be a party to the OECD Council of Europe Convention on Mutual Administrative Assistance in Tax Matters and have (or commit to introduce) CbC reporting requirements. Of the six new signatories, most have already announced plans to introduce CbC requirements for fiscal years beginning on or after 1 January 2016, while those that have not, are expected to in the near future.
Click the following link for the list of the CbC MCAA signatories to date.
Chile Approves Tax Treaty with South Africa
On 5 May 2016, Chile's Chamber of Deputies approved for ratification the pending income and capital tax treaty with South Africa. The treaty, signed 11 July 2012, is the first of its kind between the two countries.
The treaty covers Chilean taxes imposed under the Income Tax Act, and South African normal tax, secondary tax on companies and withholding tax on royalties.
The treaty includes the provision that if a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be entitled to any relief or exemption from tax provided by the treaty.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.
- Dividends - 5% if the beneficial owner is company directly holding at least 25% of the paying company's capital; otherwise 15% (the rates set in the treaty will not limit Chile's application of the additional tax payable on dividends (35%) provided that the first category tax (FCT) is fully creditable in computing the amount of the additional tax)
- Interest - 5% for interest on loans granted by banks and insurance companies, bonds or securities that are regularly and substantially traded on a recognized securities market, and a sale on credit of machinery and equipment; otherwise 15%
- Royalties - 5% for royalties for the use of, or the right to use, any industrial, commercial or scientific equipment; otherwise 10%
The provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest or royalties are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of the Articles.
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 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 representing the capital of a company, or comparable interests or rights in any other person, 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.
Both countries apply the credit method for the elimination of double taxation.
The treaty will enter into force once the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.
Dutch Court Holds Non-Discrimination Provision of Treaty with Israel May be Used as Claim for Fiscal Unity of Dutch Subsidiaries
On 6 May 2016, a decision of the Dutch Court of Appeals Arnhem-Leeuwarden was published concerning the formation of a fiscal unity (consolidation) by Dutch subsidiaries where the parent company is neither resident in the Netherlands or in an EU/EEA Member State. The case involved four Dutch subsidiaries jointly held by two Israeli companies and ultimately an Israeli parent. The initial issues addressed were:
- Whether the four Dutch subsidiaries can form a fiscal unity whereby one of them acts as the group parent, and
- If not, whether they can form a fiscal unity with an Israeli parent.
Under Dutch rules, the Dutch subsidiaries may not form a fiscal unity because none of the subsidiaries could be considered the parent of the tax group (95% ownership of the others). In addition, a fiscal unity cannot be formed with an Israeli parent, because there is no permanent establishment in the Netherlands to which their shareholdings could be attributed. However, it was argued that not allowing the formation of a fiscal unity amounted to discriminatory treatment against the Israeli joint parents under Article 27 (Non-Discrimination) of the 1973 Israel-Netherlands income and capital tax treaty, which includes the provision that:
Enterprises of one of the States, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of that first-mentioned State are or may be subjected.
In its decision, the Court agreed that the non-discrimination provision of Article 27 of the Israel-Netherlands treaty could apply in this case, and that the fiscal unity between the four Dutch subsidiaries is to be allowed. In coming to its decision, the Court reasoned that not being able to form fiscal unity is tantamount to "other or more burdensome" treatment, despite the fact that 2008 changes to the Commentary on Article 24 of the OECD Model Convention (includes a very similar provision) specifically excludes claims for consolidation. Regarding the specific exclusion, the Court reasoned that the exclusion did not apply for claims for consolidation under the Israel-Netherlands treaty because it pre-dates the 2008 Commentary.
It is expected that decision will be appealed to the Supreme Court.