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Approved Changes (3)

Australia

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Australia Clarifies Local File Requirements with High Level Design

On 7 July 2016, the Australian Taxation Office issued a release on the high level design for the new Local file requirements for significant global entities, which include entities that are part of an MNE group meeting an AUD 1 billion revenue threshold in the previous year. The Local file requirements and content are based on BEPS Action 13 and include standard Local file and a short form version. The standard Local file includes details of the reporting entity and controlled transactions, while the short form includes only details of the reporting entity.

The high level design sets out the criteria for filing the standard or short form Local file, the information content to be included in the Local file (previous coverage), and an exclusion list of agreements that do not need to be included in the Local file.

Short Form Criteria

In order to qualify for the short form Local file, the reporting entity must meet at least one of the following criteria:

  • The aggregate value of its international related party dealing (IRPDs) is less than AUD 2 million and it has no IRPDs on the Short Form Exceptions List;
  • It meets the Simplified Transfer Pricing Record Keeping (STPRK) criteria for Small Taxpayers (revenue not exceeding AUD 25 million and other conditions) and it has no IRPDs on the Short Form Exceptions List; or
  • It meets the STPRK criteria for Materiality (IRPDs not exceeding 2.5% of revenue and other conditions) and it has no IRPDs on the Short Form Exceptions List.

The Short Form Exceptions List includes:

  • Any derivative including without limitation any swap, forward, future or option in respect of values determined in connection with interest rates, currency, commodities or other assets;
  • Any legal or equitable assignment of trademark, patent, design, copyright, other intellectual property or similar property or rights, or any part thereof;
  • Any license or other grant of use or right to use a trademark, patent, design, copyright, other intellectual property, secret formula or process or similar property or rights; and
  • IRPDs of a capital nature.

Exclusion List

The following do not need to be included in the Local file, subject to certain conditions:

  • Agreements relating to transactions eligible for Simplified Transfer Pricing Record Keeping;
  • Reimbursement under Employee Secondment Agreements;
  • Low Value / Low Risk Service Agreements;
  • Low Value/ Low Risk Sale and Purchase Tangible Trading Stock Agreements; and
  • Issue of ordinary shares

Click the following links for the Local File – High Level Design for more information.

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OECD Webcast on BEPS Developments and Ongoing Work

On 12 July 2016, the OECD held a webcast to provide updates on developments and ongoing work regarding the BEPS Project. The following is a summary some of the main items discussed during the webcast.

Inclusive Framework on BEPS

The first meeting of the Inclusive Framework for the implementation of BEPS measures was held 30 June to 1 July (previous coverage). The main outcomes of the meeting include:

  • The steering group was established;
  • Mandates were set for the peer review of the implementation of the four minimum standards and for the monitoring of the implementation of other BEPS measures; and
  • Discussion drafts were approved.

Discussion Drafts

The discussion drafts approved during the Inclusive Framework include:

  • Discussion drafts on Attribution of Profits to Permanent Establishments (Action 7), Revised Guidance on Profit Splits (Actions 8-10), and Conforming Amendments to Chapter IX of the Transfer Pricing Guidelines (Actions 8-10), which were released on 4 July 2016 (previous coverage); and
  • A discussion draft on the design and operation of the group ratio rule to limit interest expense deductions (Action 4), which was released on 11 July 2016 (previous coverage).

Ongoing Transfer Pricing Work

Other areas the OECD is continuing to work on include:

  • Developing guidance on the approach for hard to value intangibles;
  • Providing a forum for countries to announce their position on applying the low value-adding intragroup services approach; and
  • Determining the scope and defining the relevant characteristics for the development of guidance on transfer pricing aspects of financial transactions.

Country-by-Country (CbC) reporting

Additional guidance on CbC reporting, which was issued on 29 June 2016 (previous coverage) and covers:

  • Transitional (voluntary) filing options for MNEs;
  • The application of CbC reporting to investment funds
  • The application of CbC reporting to partnerships; and
  • The impact of currency fluctuations on the agreed EUR 750 million filing threshold.

Click the following link to view a recording of the webcast on the OECD website.

Russia

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Russia Clarifies VAT Treatment of Cross Border Marketing Services Supplied to Non-Residents

The Russian Ministry of Finance recently published Letter No. 03-07-08/31814, which clarifies the value added tax (VAT) treatment of marketing services provided by a Russian entity to a non-resident. According to the letter, the place of supply for marketing services is not considered to be in Russia unless the non-resident recipient operates within Russia. For this purpose, a non-resident is generally deemed to operate in Russia if it is registered in Russia or Russia is specified in its constituent documents, or it has a permanent establishment in Russia to which the services are connected. If the non-resident is not deemed to operate in Russia, the supply of marketing services is exempt from VAT.

Proposed Changes (2)

Angola-Seychelles-OECD

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Angola and the Seychelles Join Inclusive Framework for Implementation of BEPS Measures

The OECD has announced that on 7 July 2016 Angola and the Seychelles joined the Inclusive Framework for the global implementation of the BEPS Project, bringing the total number of participants to 84. As members of the Framework, the countries have committed to the implementation of four minimum standards, including those developed under Action 5 (Countering Harmful Tax Practices), Action 6 (Preventing Treaty Abuse) and Action 14 (Dispute Resolution), as well as Country-by-Country (CbC) reporting under Action 13 (Transfer Pricing Documentation).

Click the following link for the list of participants.

Singapore

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Singapore Launches Public Consultation on Automatic Exchange of Financial Account Information in Tax Matters

On 11 July 2016, Singapore's Ministry of Finance (MoF) published a public consultation on draft Income Tax (International Tax Compliance Agreements) (Common Reporting Standard) Regulations 2016, which provides for the implementation in Singapore of the OECD Common Reporting Standard for the automatic exchange of financial account information. Singapore has committed to begin automatic exchange in 2018.

Click the following link for the consultation page on the MoF website for additional information. Comments are due by 29 July 2016.

Treaty Changes (4)

Barbados-OECD

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Barbados Deposits Ratification Instrument for Mutual Assistance Convention

On 4 July June 2016, Barbados deposited the ratification instrument for the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. Barbados signed the convention as amended on 28 October 2015.

According to the OECD overview of signatories to the convention, the convention will enter into force in Barbados on 1 November 2016.

Chile-OECD

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Update - Chile Deposits Ratification Instrument for Mutual Assistance Convention

According to a 12 July 2016 update to the status overview of signatories to the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters, the Convention will enter into force in Chile on 1 November 2016, and not 1 October 2016 as previously indicated.

Ethiopia-Untd A Emirates

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Update - Tax Treaty between 2015 Ethiopia and the U.A.E.

The income tax treaty between Ethiopia and the United Arab Emirates was signed on 12 April 2015. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Ethiopian tax on income and profit, and tax on income from mining, petroleum and agricultural activities. It covers U.A.E. income tax and corporate 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 personnel in a Contracting State, provided that the activities continue for the same project for a period or periods aggregating more than 6 months within any 12-month period.

Income from Hydrocarbons

Article 7 (Income from Hydrocarbons) includes the provision that the treaty will not affect the right of either Contracting Party to apply their domestic laws and regulations related to the taxation of income and profits derived from hydrocarbons and its associated activities situated in the territory of the respective Contracting Party.

Withholding Tax Rates

  • Dividends - 5%
  • Interest - 5%
  • Royalties -
    • 0% in respect of royalties for the use of, or the right to use any copyright of scientific work, patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience
    • 5% in respect of royalties for the use of, or the right to use, any copyright of literary, artistic work (including cinematograph films and works or tapes for radio or television broadcasting

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 shares in a company or interest in a partnership or trust deriving more than 50% of its value from immovable property situated in the other State (exemption for shares listed on a recognized stock exchange); and
  • 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 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.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged, and will apply in Ethiopia from 8 July next following its entry into force and in the U.A.E. from 1 January of the year following its entry into force.

India-Kenya

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Tax Treaty between India and Kenya Signed

On 11 July 2016, officials from India and Kenya signed an income tax treaty. The treaty will enter into force after the ratification instruments are exchanged, and once in force and effective, will replace the 1985 tax treaty between the two countries, which is currently in force.

Additional details will be published once available.

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