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Approved Changes (2)

United States

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IRS Releases Practice Unit on Failure to File Information Return with Respect to Certain Foreign Corporations

The U.S. IRS has released an international practice unit: Failure to File the Form 5471 – Category 2 and 3 Filers – Monetary Penalty. Form 5471 is an information return of U.S. persons with respect to certain foreign corporations under IRC 6046(a) and is filed by attaching it to an individual income tax return, a partnership return, a corporation return, an estate return, or a trust return. The practice unit covers the process for determining whether the filing requirement applies, and if it applies, the process for determining the penalty for failing to file.

Untd A Emirates

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U.A.E. Sets Initial VAT Registration Deadlines

The United Arab Emirates Federal Tax Authority has reportedly set the initial deadlines for value added tax (VAT) registration as follows:

  • 31 October 2017 if turnover is above AED 150 million;
  • 30 November 2017 if turnover is between AED 10 million and AED 150 million; and
  • 4 December 2017 if turnover is below AED 10 million.

The U.A.E. VAT regime will be effective 1 January 2018 (previous coverage). Under the VAT registration requirements, a business must register if its taxable supplies exceeded the mandatory registration threshold (AED 375,000) over the previous 12-month period or is expected to exceed the threshold in the next 30 days.

Proposed Changes (3)

Hong Kong

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Hong Kong Planning New Two-Tiered Profits Tax System and R&D Incentive

According to an announcement from the Hong Kong Government, Chief Executive Carrie Lam outlined plans to diversify Hong Kong's economy and create more opportunities for the city in her policy address on 11 October 2017. As part of the plans, a new tax measure is proposed that would introduce a two-tiered profits tax system with an 8.25% tax rate on profits up to HKD 2 million and the standard 16.5% tax rate on profits exceeding that amount. To ensure the tax benefit targets SMEs, only one enterprise in a group may benefit from the lower rate. Further, the plans include a tax measure that would provide for a 300% tax deduction on the first HKD 2 million in eligible R&D expenditure, with a 200% deduction for expenditure exceeding that amount.

A bill to implement the two initiatives will be submitted to the Legislative Council as soon as possible.

Poland

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Income Tax Amendment Bill Submitted to Polish Parliament

On 4 October 2017, legislation was submitted to Poland's lower chamber of parliament (Sejm) with a number of personal and corporate income tax measures, including measures to counter BEPS. Main measures include:

  • Separate tax treatment for capital income (gains) and business activity income, with revenue and costs for both sources settled separately;
  • An interest deduction limit equal to 30% of EBITDA for net interest expense, with a PLN 3 million safe harbor threshold;
  • Modification of the controlled foreign company (CFC) rules to bring them in line with the EU Anti-Tax Avoidance Directive;
  • Modification of the tax rules governing the functioning of tax capital groups in order to counter aggressive tax optimization;
  • A deduction limit equal to 5% of EBITDA for expenses exceeding PLN 3 million for payments to related parties and tax haven entities for certain intangible services and licensing agreement fees, with exemptions for costs directly related to the production of goods and rendering of services, costs re-invoiced by the taxpayer, and costs incurred between members of the same tax capital group;
  • A minimum tax in respect of taxable persons with commercial real estate of significant value (more than PLN 10 million), with a rate of 0.035% of the real estate value per month;
  • A restriction on the deduction of interest expense incurred for the acquisition of shares to counter acquisitions where the debt is pushed down to the acquired company; and
  • An increase in the immediate write-off threshold for fixed and intangible assets from PLN 3,500 to PLN 10,000.

The measures are to generally apply from 1 January 2018.

United Kingdom

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UK Publishes White Paper on Customs, VAT, and Excise Regimes Post Brexit

On 9 October 2017, UK HM Treasury published Customs Bill White Paper that covers plans for the customs, VAT, and excise regimes the UK will need once it leaves the EU. According to a related release, the white paper confirms that the UK’s new legislation will, as far as possible, replicate the effect of existing EU customs laws. It also covers provisions for the implementation of customs, VAT and excise regimes in the event that no deal with EU is reached. In particular, the Customs Bill will give the UK the power to:

  • Charge customs duty on goods; define how goods will be classified, set and vary the rates of customs duty and any quotas;
  • Amend the VAT and excise regimes so that they can function effectively post-exit;
  • Set out the rules governing how HMRC will collect and enforce the taxes and duties owed; and
  • Implement tax-related elements of the UK’s future trade policy.

The Customs Bill will be brought before parliament later in the year.

Treaty Changes (6)

Croatia-Untd A Emirates

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Update - Croatia Approves Pending Tax Treaty with the U.A.E.

On 5 October 2017, the Croatian government approved the pending income tax treaty with the United Arab Emirates. The treaty, signed 13 July 2017, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Croatian profit tax, income tax, and the local income tax and any surcharges. It covers U.A.E. income tax and corporate tax.

Income from Hydrocarbons

Article 3 (Income from Hydrocarbons) provides that the treaty will not affect the right of either one of the Contracting States 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 State.

Withholding Tax Rates

  • Dividends - 5%
  • Interest - 5%
  • Royalties - 5%

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; 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 from 1 January of the year following its entry into force.

Lithuania-Colombia

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Lithuania Looking to Sign Tax Treaty with Colombia

According to a release from the Lithuanian Ministry of Foreign Affairs, officials from Colombia and Lithuania met 4 October 2017 to discuss bilateral relations, including Lithuania's desire to sign 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.

Saudi Arabia-Slovak Republic

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Tax Treaty between Saudi Arabia and the Slovak Republic to be Signed

On 10 October 2017, the Saudi Cabinet authorized the Ministry of Finance to sign an income tax treaty with the Slovak Republic. The treaty will be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

South Africa-Uruguay

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TIEA between South Africa and Uruguay has Entered into Force

According to an update from the South African Revenue Service, the tax information exchange agreement with Uruguay entered into force on 6 October 2017. The agreement, signed 7 August 2015, is the first of its kind between the two countries. It applies for criminal tax matters on the date of its entry into force and for other matters in respect of taxable periods beginning on or after that date or, where there is no taxable period, all charges to tax arising on or after that date.

Spain-Finland

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Spain Approves Pending Tax Treaty with Finland

On 6 October 2017, the Spanish Cabinet approved the pending income tax treaty with Finland (previous coverage). The treaty, signed 15 December 2015, will enter into force three months after the ratification instruments are exchanged and will generally apply from 1 January of the year following its entry into force, although the articles on mutual agreement procedure and exchange of information will apply from the date of the treaty's entry into force. Once in force and effective, the treaty will replace the 1967 income and capital tax treaty between the two countries.

Ukraine-United Kingdom

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Protocol to Tax Treaty between Ukraine and the UK Signed

On 9 October 2017, officials from Ukraine and the United Kingdom signed an amending protocol to the 1993 income and capital tax treaty between the two countries. The protocol reportedly replaces Article 27 (Exchange of Information) and amends Articles 10 (Dividends), 11 (Interest), and 12 (Royalties) to provide for the following withholding tax rates:

  • Dividends - 5% if the beneficial owner is a company that directly holds at least 20% of the paying companies capital; otherwise 15% (increase from current 10%)
  • Interest - 5% (increase from current 0%)
  • Royalties - 5% (increase from current 0%)

The protocol is the first to amend the treaty and will enter into force after the ratification instruments are exchanged. Additional details will be published once available.

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