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Worldwide Tax News

Approved Changes (3)

Malaysia

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Malaysia Publishes Public Ruling on Taxation of REITs and Property Trust Funds

On 8 September 2017, the Inland Revenue Board of Malaysia published Public Ruling No. 5/2017 to explain the tax treatment accorded to a real estate investment trust or a property trust fund (REIT/PTF) in Malaysia. The Public Ruling covers:

  • The basis year for a year of assessment of a REIT/PTF;
  • The special tax treatment for rental income, which was introduced from the year of assessment 2005;
  • The deduction of expenses against rental income of a REIT/PTF;
  • The deduction of capital allowances and industrial building allowances against adjusted rental income;
  • The transitional provision for the tax treatment of losses and capital allowances of a REIT/PTF, which were treated as a unit trust prior to 2005;
  • The full tax exemption from the year of assessment 2007 for a REIT/PTF that distributes at least 90% of its income to unit holders, which from year of assessment 2017, is limited to a REIT/PTF that is listed on Bursa Malaysia;
  • The tax exemptions for interest and dividend income;
  • The treatment of a special purpose vehicle (SPV) established by a REIT/PTF solely for the issuance of sukuk (Islamic bonds);
  • The distribution of income to unit holders and the deduction/payment of withholding tax when distributions are made to non-resident unit holders; and
  • The filing of income tax returns, which are due seven months following the close of the accounting period.

Click the following link for the full text of Public Ruling No. 5/2017, which includes several examples for each area covered.

Sri Lanka

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Sri Lanka Passes Legislation for New Inland Revenue Act

On 7 September 2017, the Sri Lankan Parliament reportedly passed legislation for a new Inland Revenue Act, including changes meant to simplify the country's tax system, expand the tax base, and increase revenue as agreed with the IMF in order to secure funding under a credit agreement. The overall focus of the new Act is to increase revenue from direct taxes while reducing the indirect tax burden. One of the main changes is the removal of several corporate tax exemptions and the consolidation of the various corporate tax rates to include a standard rate of 28%, an increased rate of 40% for companies with income from betting, gaming, liquor or tobacco, and a reduced rate of 14% for SMEs, exporters, agricultural businesses, and certain others. The rate changes are to apply from 1 April 2018. Additional details will be published once available.

United States

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U.S. Interest Rates on Overpaid and Underpaid Tax for Q4 2017

The U.S. IRS has announced the interest rates for overpaid and underpaid tax for the calendar quarter beginning 1 October 2017, which are unchanged from the previous quarter. The rates are 4% for both underpayment and overpayment by individuals, and 3% and 4% for corporate overpayments and underpayments, respectively.

The rate for corporate overpayments exceeding USD 10,000 in a tax period is 1.5% on the portion exceeding that amount, and the rate for large corporate underpayments exceeding USD 100,000 is 6%.

Proposed Changes (2)

Canada

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Canada Consulting on Draft GST/HST and Income Tax Proposals

On 8 September 2017, Canada's Department of Finance announced the launch of public consultations on draft proposals relating to Goods and Services Tax/Harmonized Sales Tax (GST/HST) and excise duty, as well as draft income tax proposals. The proposals as provided in the announcement are as follows:

GST/HST and Excise Duty Proposals

New proposals include amendments to:

  • Revise the timing requirements for GST/HST rebate applications by public service bodies to provide them with improved flexibility and administrative simplicity;
  • Extend the application of the GST/HST rules applicable to selected listed financial institutions to include investment limited partnerships, and provide GST/HST relief to investment limited partnerships with non-resident investors where certain conditions are met; and
  • Revise the federal excise framework to ensure that beer made from concentrate is taxed in a manner that is consistent with other beer products.

Previously released proposals, which have been modified where appropriate to take into account consultations and deliberations since their release, include amendments to:

  • Revise the GST/HST rules applicable to pension plans to ensure that they apply fairly and effectively to pension plans that use master trusts or master corporations;
  • Improve the clarity and effectiveness of the GST/HST rules applicable to certain pension plans and financial institutions by introducing clarifications and technical improvements to those rules;
  • Extend the application of the GST/HST rules applicable to selected listed financial institutions to include group trusts for registered education savings plans;
  • Revise and modernize the GST/HST drop shipment rules to enhance the effectiveness of these rules and introduce technical improvements;
  • Clarify the application of the GST/HST to supplies of municipal transit services to accommodate the modern ways in which those services are provided and paid for; and
  • Introduce housekeeping amendments to improve the accuracy and consistency of the GST/HST legislation and regulations.

Income Tax Proposals

With regard to income tax, the Department is re-releasing draft legislative proposals announced in Budget 2017, along with explanatory notes. These proposals would implement a range of these measures respecting:

  • The Ecological Gifts Program;
  • Clean energy generation equipment: geothermal energy;
  • The Canadian exploration expense: oil and gas discovery wells;
  • The reclassification of expenses renounced to flow-through share investors;
  • The meaning of factual control; and
  • Extending the base erosion rules to foreign branches of life insurers.

The draft income tax proposals also include other Budget 2017 tax measures, which have been revised based on feedback and deliberations since the tabling of Budget 2017, respecting:

  • The anti-avoidance rules for registered plans;
  • Investment fund mergers;
  • The timing of recognition of gains and losses on derivatives;
  • Billed-basis accounting; and
  • Nurse practitioners.

With respect to billed-basis accounting, the draft legislative proposals released today reflect a revised coming-into-force period, which would have the effect of phasing in the measure over a five-year period.

The deadline to submit comments on the proposals is 10 October 2017.

Vietnam

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Vietnam Proposed Tax Measures include Corporate Tax and VAT Rate Changes and Thin Cap Rules

According to recent reports, draft legislation has been submitted to Vietnam's National Assembly that would introduce a number of tax changes, including:

  • The introduction of a reduced corporate tax rate of 15% for micro enterprises (less than VND 3 billion annual revenue) and a rate of 17% for small and medium enterprises (less than 200 employees and less than VND 50 billion annual revenue);
  • The introduction of a 1% tax on income from capital transfers in Vietnam by non-residents without a permanent establishment in Vietnam or when the income is not attributed to a permanent establishment;
  • The introduction of new thin capitalization rules, with a 5:1 debt-to-equity ratio for companies in the production sector, 12:1 for credit organizations and banks, and 4:1 ratio for all other sectors;
  • An increase in the standard value added tax (VAT) rate from 10% to 12%, an increase in the 5% reduced VAT rate to 6%, and other VAT rule changes; and
  • An increase in the special consumption (excise) tax rates on tobacco products and automobiles, and the introduction of a 10% rate for soft drinks.

Subject to approval, the proposed measures are to generally apply from 1 January 2019.

Treaty Changes (5)

Brunei-OECD

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Brunei Signs Mutual Assistance Convention

The OECD has announced that on 12 September 2017, Brunei signed the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. The Convention must now be ratified by Brunei and the ratification instrument deposited before entering into force in the country.

Click the following link for the signatories to the Mutual Assistance Convention to date.

India-New Zealand

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Protocol to Tax Treaty between India and New Zealand has Entered into Force

The amending protocol to the 1986 income tax treaty between India and New Zealand entered into force on 7 September 2017. The protocol, signed 26 October 2016, is the third to amend the treaty. It replaces Article 26 (Exchange of Information) to bring it in line with the OECD standard for information exchange and adds Article 26A (Assistance in the Collection of Taxes).

Kyrgyzstan-Turkey

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SSA between Kyrgyzstan and Turkey to be Signed

According to a release published by the Supreme Council (parliament) of Kyrgyzstan, a draft social security agreement with Turkey was approved for signature on 4 September 2017. The agreement will be the first of its kind between the two countries, and must be signed and ratified before entering into force.

Paraguay-Uruguay

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Tax Treaty between Paraguay and Uruguay Signed

On 8 September 2017, officials from Paraguay and Uruguay signed an income and capital tax treaty. The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged. Additional details will be published once available.

Portugal-Sao Tome

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Tax Treaty between Portugal and Sao Tome and Principe has Entered into Force

On 8 September 2017, Portugal published Notice no. 109/2017 in the Official Gazette, announcing the entry into force of the income tax treaty with Sao Tome and Principe on 12 July 2017. The treaty, signed 13 July 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 the Sao Tome and Principe personal income tax and corporate income tax.

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 15%
  • Interest - 10%
  • Royalties - 10%
  • Technical Services (technical, management, or consultancy) - 15%

MFN Clause

Article 13 (Technical Services) includes the provision that if Sao Tome and Principe concludes a tax treaty with a third state that provides for more favorable taxation of technical services, then Portugal must be notified with a view to apply such more favorable taxation under the Portugal-Sao Tome and Principe treaty.

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 comparable interests deriving more than 50% of their value directly or indirectly 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.

Entitlement to Benefits

Article 29 (Entitlement to Benefits) provides that the benefits of the treaty will not be granted to a resident of a Contracting State that is not the beneficial owner of the income derived from the other State. In addition, the benefits of the treaty will not apply if the principal purpose or one of the principal 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 benefits by means of such creation or assignment.

Effective Date

The treaty applies from 1 January 2018.

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