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Approved Changes (2)

South Africa

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South Africa has Published 2015 Tax Administration Laws Amendment Act and Taxation Laws Amendment Act

On 8 January 2015, South Africa published the 2015 Tax Administration Laws Amendment Act (Act No. 23 of 2015) and the 2015 Taxation Laws Amendment Act (Act No. 25 of 2015), as assented by the president. The laws give effect to tax measures included in the 2015 Budget (previous coverage) in addition to those included in the 2015 Rates and Monetary Amounts and Amendment of Revenue Laws Act, which was assented and published in November 2015 (previous coverage).

Some of the main measures include:

  • Relaxing capital gains tax rules applicable to the cross-issue of shares and introducing counter measures for tax-free corporate migrations;
  • Withdrawing special foreign tax credits for service fees sourced in South Africa;
  • Enabling the collection of information by South African financial institutions and an associated obligation on the financial institutions to register with SARS; and
  • Clarifying qualifying persons for voluntary disclosure, relaxing the requirements for voluntary disclosure and broadening the ambit of voluntary disclosure relief.

In addition, although South Africa has not yet implemented Country-by-Country (CbC) reporting requirements, it has included language in the Tax Administration Laws Amendment Act concerning standards for the exchange of CbC reports.

Click the following links for the 2015 Tax Administration Laws Amendment Act and the 2015 Taxation Laws Amendment Act as published.

United Kingdom

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UK Publishes Revenue and Customs Brief on VAT MOSS Simplifications for Businesses Trading under the VAT Threshold

On 8 January 2015, the UK HMRC published a Revenue and Customs Brief that provides an overview of the simplifications made for the use of the Mini One Stop Shop (MOSS) by businesses trading under the UK value added tax (VAT) registration threshold (GBP 82,000). The simplifications include the ability to register for MOSS without being subject to UK VAT and reduced evidence requirements for determining consumer locations.

The MOSS system was introduced in the UK as part of the change in the place of supply rules in the EU for B2C telecommunications, broadcasting and e-service supplies. The change, effective 1 January 2015, shifted the place of supply from the country of the supplier to the country of the consumer. The MOSS system allows the supplier to account for VAT due in each country where its customers are located without having to register in each country.

Click the following link for the Revenue and Customs Brief 4 (2016): VAT MOSS - Simplifications for businesses trading below the VAT registration threshold.

Proposed Changes (3)

European Union

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EU Tax Commissioner on Tax Reform in 2016

During a European Parliament hearing held 11 January 2016, the Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici spoke on the introduction of tax reform measures in 2016 to counter tax avoidance and improve transparency. The main aspects covered during the hearing are as follows:

  • An anti-tax avoidance package to counter base erosion and profit shifting (BEPS) will be presented by the end of January;
  • Implementation of a Consolidated Common Corporate Tax Base (CCCTB) will be achieved in two phases, starting with a common corporate tax base in phase one and consolidation in phase two; and
  • A proposal for EU-wide country-by-country reporting of profits made, taxes paid and subsidies received by multinationals will be issued in the Spring of 2016, taking into account the results of an impact assessment that is currently being carried out.

The Commissioner also spoke on recent State aid decisions involving Benelux countries, the feasibility of minimum effective tax rates, and the exchange of tax rulings.

Click the following link for the hearing press release from the European Parliament.

Finland

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Finland Issues Proposed CbC Reporting Requirements

Finland's Ministry of Finance on 21 December 2015 issued draft legislation that includes revisions to the country's transfer pricing documentation rules to require Country-by-Country (CbC) reports. The proposed revisions are based on the guidelines developed as part of Action 13 of the OECD BEPS Project, including Master File, Local File and CbC report requirements.

The CbC reporting requirements would apply for ultimate parent entities of MNE groups resident in Finland where the annual consolidated group revenue exceeds EUR 750 million. If the ultimate parent entity is resident in a jurisdiction that has not implemented CbC reporting requirements or Finland is otherwise unable to obtain the report, a Finnish subsidiary of the group would be required to file. Failure to file when required will result in a penalty of up to EUR 25,000.

The new requirements are reportedly to apply from 1 January 2017.

India

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India Draft Guidelines on Determining Place of Effective Management

In draft guidelines dated 23 December 2015, India's Central Board of Direct Taxes (CBDT) sets out proposed methods for determining place of effective management. The guidelines are needed following India's change in the definition of corporate residence from being based on when an entity is wholly controlled and managed in India, to instead being based on whether the place of effective management (PoEM) is in India. This change was included in the Finance Act, 2015 and is effective 1 April 2016 (may also apply for previous years). The residence test based on incorporation in India remains unchanged.

In determining PoEM, the first step involves determining whether a company has active business outside India. The company will be considered to have active business outside India if:

  • Its passive income does not exceed 50% of total income;
  • Less than 50% of its total assets are located in India;
  • Less than 50% of its total employees are situated or resident in India; and
  • Less than 50% of its total payroll expense is incurred on its India-based employees.

If these conditions are met and a majority of the company's board meetings are held outside India, the company will generally be considered to have its PoEM outside India. However, the final determination will be based on the facts and circumstances of a particular case.

When a company is not considered to have active business outside India, the determination of PoEM will be made in two stages:

  • First - identification of the person or persons who actually make the key management and commercial decisions; and
  • Second - determination of where the decisions are in fact being made.

The guidelines set out several factors that will be considered in determining where the decisions are being made, including the location of board meetings, the location of members of an executive committee (if applicable), the location of the company's head office, and others.

Click the following link for the draft PoEM guidelines issued by the CBDT.

Treaty Changes (4)

China-Hong Kong

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Protocol to the Tax Arrangement between China and Hong Kong has Entered into Force

On 29 December 2015, the protocol to the 2006 income tax arrangement between China and Hong Kong entered into force. The protocol, signed 1 April 2015, is the third to amend the arrangement. The protocol:

  • Replaces paragraph 1 of Article 8 (Shipping, Air and Land Transport), clarifying that the tax exemption for income from operation of ships, aircraft or land transport also includes exemption from value added tax and other similar taxes;
  • Reduces the withholding tax on royalties paid to aircraft and ship leasing businesses from 7% to 5% under Article 12 (Royalties);
  • Replaces paragraph 6 of Article 13 (Capital Gains), which includes that gains from the alienation of shares in company resident in one Contracting Party by a resident of the other Party will be taxable only in that other Party if the shares are bought and sold on the same recognized stock exchange; and also clarifies the conditions under which an investment fund would be qualified as a resident of either Party;
  • Adds an anti-abuse provision concerning Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 13 (Capital Gains), where the benefits of those Articles will not apply if the main purpose of the creation or disposal of the relevant interest was to take advantage of those Articles; and
  • Expands the tax types covered by Article 24 (Exchange of information) to include value added tax, consumption tax, business tax, land appreciation tax and real estate tax.

The protocol applies from the date of its entry into force, 29 December 2015.

Lithuania-Iran-Malaysia

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Lithuania to Negotiate Tax Treaties with Iran and Malaysia

On 7 January 2016, the Lithuanian Minister of Foreign Affairs authorized the negotiation of income tax treaties with Iran and Malaysia. Any resulting treaties would be the first of their kind between Lithuania and the respective countries, and must be finalized, signed and ratified before entering into force.

Norway-Zambia

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Update - New Tax Treaty between Norway and Zambia

The new income tax treaty between Norway and Zambia was signed on 17 December 2015. Once in force and effective, the treaty will replace the 1971 income tax treaty between the two countries, which currently applies.

Taxes Covered

The treaty covers Norwegian national tax on income, county municipal tax on income, municipal tax on income, and national tax on remuneration to non-resident artistes. It covers Zambian income tax.

Residence

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 based on its place of effective management, place of incorporation and any other relevant factors. If no agreement is reached, any relief or exemption from tax provided by the treaty will not apply unless agreed upon by the competent authorities.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or a connected project for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 15%
  • Interest - 10%
  • Royalties - 10%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) will not apply if it was 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 those Articles.

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 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 exchange, and will apply from 1 January of the year following its entry into force.

The 1971 income tax treaty between the two countries will terminate and cease to have effect from the date the new treaty is effective.

Qatar-Sweden

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TIEA between Qatar and Sweden has Entered into Force

According to a recent update from the Swedish Tax Agency, the tax information exchange agreement with Qatar entered into force on 1 May 2015. The agreement, signed 6 September 2013, is the first of its kind between the two countries and is in line with the OECD standard for information exchange. It generally applies from the date of its entry into force.

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