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Approved Changes (1)

India

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India Issues New Administrative Guidelines for Transfer Pricing Assessments

On 10 March 2016, India's Central Board of Direct Taxes issued Instruction No. 3/2016 on guidelines for implementation of transfer pricing provisions. The instruction is to improve the transfer pricing assessment process by settings out when an assessing officer (AO) should refer a case to a transfer pricing officer (TPO) and defines the roles of each. The following is a summary of the instruction.

Cases selected for scrutiny on the basis of transfer pricing risk parameters must be referred to a TPO after obtaining the approval of the jurisdictional Principal Commissioner of Income-tax (PCIT) or Commissioner of Income-tax (CIT). Cases selected on the basis of non-transfer pricing risk parameters should also be referred to a TPO if including international transactions or specified domestic transactions in the following situations:

  • When the AO is made aware that the taxpayer has entered into international transaction or specified domestic transactions, but has not filed the required Accountant’s report, or has filed the report but failed to disclose the transaction(s) in question;
  • When there has been a transfer pricing adjustment of INR 100 million or more in a previous assessment year and such adjustment has been upheld by the judicial authorities or is pending an appeal; and
  • When search and seizure or survey operations have been carried out and findings regarding transfer pricing issues in respect of international transactions or specified domestic transactions have been recorded.

In cases involving the above three situations, the AO must provide the taxpayer the opportunity to object and consider the objections, if any, before referring the case to a TPO. As with cases selected on the basis of transfer pricing risk parameters, approval of the PCIT or CIT is required before referral is made.

When a case is referred to a TPO, the AO must explicitly specify the transactions in question to the TPO, and the TPO should only review those transactions to determine the arm's length price. The price must be determined by selecting and applying the most appropriate method as provided for under law. Once determined, the TPO must pass an order to the AO that includes the details of the data used, reasons for arriving at a certain price, the applicability of the methods, and any other relevant information needed to substantiate the adjustment in a way that would pass judicial scrutiny.

Click the following link for the full text of Instruction No. 3/2016.

Proposed Changes (2)

United States

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Colorado and Maine Targeting Tax Havens

On 9 March 2016, the houses of representatives of Colorado and Maine approved legislation targeting tax havens. The legislation of both states now moves to the respective senates.

Colorado Legislation

The Colorado legislation (HB 16-1275) would require corporate taxpayers filing a combined report to include any income of affiliates incorporated in a tax haven. It does not include a list of jurisdictions considered as tax havens, but rather sets out a list of conditions that would result in a jurisdiction being considered a tax haven for this purpose. A jurisdiction would be considered a tax haven if meeting any of the following:

  • Its laws or practices prevent effective exchange of tax information with other governments;
  • Its tax regime lacks the transparency needed to determine if it is consistently applied or to determine a taxpayer's correct tax liability;
  • It facilitates the establishment of foreign-owned entities without the need for a local substantive presence;
  • It excludes resident taxpayers from taking advantage of its tax regime's benefits or excludes enterprises that benefit from the regime from operating in its domestic market; or
  • It has created a tax regime that is favorable for tax avoidance based on an overall assessment of relevant factors.

If adopted into law, the new rules would apply from 1 January 2017.

Maine Legislation

The Maine legislation (HP 1110) defines net income to include taxable income under the laws of the U.S. as well as taxable income or loss of any corporation that is a member of a unitary group that is incorporated in any jurisdiction (tax haven) listed in the legislation. The list includes 38 jurisdictions:

The Principality of Andorra, Anguilla, Antigua and Barbuda, Aruba, the Commonwealth of the Bahamas, the Kingdom of Bahrain, Barbados, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Cook Islands, the Republic of Cyprus, the Commonwealth of Dominica, Gibraltar, Grenada, the Bailiwick of Guernsey, the Isle of Man, the Bailiwick of Jersey, the Republic of Liberia, the Principality of Liechtenstein, the Grand Duchy of Luxembourg, Malta, the Republic of the Marshall Islands, the Republic of Mauritius, the Principality of Monaco, Montserrat, the Republic of Nauru, the Caribbean Netherlands, Niue, the Independent State of Samoa, the Republic of San Marino, the Republic of Seychelles, the Federation of St. Christopher and Nevis, St. Lucia, St. Vincent and the Grenadines, the Turks and Caicos Islands, the United States Virgin Islands and the Republic of Vanuatu.

If adopted into law, the new rules would apply from 1 January 2016.

United States-European Union

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U.S. Official Says No Exchange of CbC Reports with Countries that Make Information Public In Response to EU Plans

During a recent tax policy conference organized by the Irish Tax Institute in Dublin, Ireland, U.S. Treasury Deputy Assistant Secretary Robert Stack said that the U.S. would have the right to stop exchanges of Country-by-Country (CbC) reports with countries that choose to make the information public. The comments reportedly followed an announcement from the European Commission that a proposal for the public disclosure of CbC reporting information would be finalized in April 2016. This public CbC report is related to but separate from the CbC reporting requirements being implemented based on guidelines developed as part of the OECD BEPS Project. It is expected to include the disclosure of less information than a non-public CbC report and include a lower reporting threshold of EUR 40 million.

The requirements of the proposed public CbC report on non-EU MNEs is not yet clear. However, if the implementation of public CbC reporting requirements in the EU results in the U.S. stopping exchanges, the non-public CbC reporting obligations in various EU countries would still apply and U.S. MNEs would need to meet those obligations by filing through surrogate reporting entities or through local entities directly.

Treaty Changes (5)

Andorra-Luxembourg

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Tax Treaty between Andorra and Luxembourg has Entered into Force

The income and capital tax treaty between Andorra and Luxembourg entered into force on 7 March 2016. The treaty, signed 2 June 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Andorran corporation tax, individual income tax, tax on income from economic activities, tax on income of non-residents, and real estate capital gains tax. It covers Luxembourg individual income tax, corporation tax, capital tax, and communal trade tax.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital (0% if the beneficial owner has held 10% of the capital for an uninterrupted period of at least 12 months, and has invested at least EUR 1.2 million in the paying company), otherwise 15%
  • Interest - 0%
  • Royalties - 0%

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 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 similar rights in a company where more than 50% of the company's assets are comprised of 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

Andorra applies the credit method for the elimination of double taxation, while Luxembourg generally applies the exemption with progression method. However, Luxembourg applies the credit method in respect of income covered by Articles 10 (Dividends) and 16 (Artistes and Sportspersons).

Effective Date

The treaty applies from 1 January 2017.

Bulgaria-Morocco

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SSA between Bulgaria and Morocco to be Signed

The Bulgarian Ministry of Labor and Social Policy has announced the negotiations are nearly completed for a social security agreement with Morocco. The agreement will be the first of its kind between the two countries, and must be signed and ratified before entering into force.

New Zealand-Antigua-Aruba-Grenada-Macao-Monaco-Montserrat-Nauru-Saint Lucia-San Marino-Seychelles

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New Zealand Negotiating TIEAs with 10 Jurisdiction

According to an update recently published by New Zealand Inland Revenue, negotiations are underway for tax information exchange agreements with ten jurisdictions, including Antigua and Barbuda, Aruba, Grenada, Macao, Monaco, Montserrat, Nauru, St Lucia, San Marino, and Seychelles. Any resulting agreements would be the first of their kind between New Zealand and the respective jurisdictions, and must be finalized, signed and ratified before entering into force.

Tanzania-Vietnam

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Tax Treaty between Tanzania and Vietnam under Negotiation

On 9 March 2016, the Vietnam government announced that negotiations are underway for an income tax treaty with Tanzania. 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.

Untd A Emirates-Paraguay

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U.A.E. to Negotiate Tax Treaty with Paraguay

The United Arab Emirates Ministry of Economy has announced that it has expressed its interest in negotiating an income tax treaty with Paraguay during an 8 March 2016 meeting on increasing trade and investment 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.

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