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Approved Changes (4)

Canada

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Newfoundland and Labrador Increases HST Rate in 2016

The Department of Finance of the Canadian province of Newfoundland and Labrador has announced that its Harmonized Sales Tax (HST) will be increased from 13% to 15% effective 1 January 2016. HST is comprised of the federal Goods and Services Tax (GST), which remains 5%, and the provincial GST, which is increased from 8% to 10%.

In general, the change applies for any supplies of goods or services where consideration has become due without having been paid, or is paid without having become due, on or after 1 January 2016. If consideration becomes due or is paid before that date, the 13% rate continues to apply.

Greece

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Greece Extends Deadline for VAT Sales and Acquisitions List Submission

On 4 August 2015, the Greek Public Revenue Authority published Circular POL 1173/2015, extending the deadline for submitting the VAT Sales and Acquisitions List to 30 September 2015. In past years, the list was submitted along with the annual VAT return by the last working day of seventh month following the calendar year. However, Greece abolished the annual VAT return requirement in 2014 for tax years beginning on or after 1 January 2014.

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OECD Publishes 2015 Report on Tax Administration

On 11 August 2015, the OECD published the sixth edition of its report on tax administrations, which covers the performance, best practices and trends of the tax administration of 56 advanced and emerging economies.

The main findings as published in the OECD release include:

  • Significant organisational change - 40% of revenue bodies reported that they are currently managing the addition of new business activities, amalgamation with other government service providers, and consolidation of work and their office network, at a time when 60% saw reductions in staffing, with significant reductions in Australia, the United Kingdom and the United States.
  • Strong investment in digital services - driven by customer expectation and productivity demands revenue administrations have invested significantly in digital on-the-go services. Average IT expenditure as a percentage of the total budget remained constant at 9.5%. Notable exceptions were Austria, Finland, Singapore and Norway where approximately 25% of the total budget is spent on IT.
  • Better connected e-services, and future opportunity - while 95% of all revenue bodies offer the opportunity to file returns electronically, and over two thirds achieve usage over 75%, more could be done to move other aspects of the end-to-end process, including assessment, amendment and payment into a more integrated digital service.
  • Improving outstanding tax debt position - Total tax debt for OECD member countries rose marginally in 2011 to 2013, from around 22% to just over 24% of net annual revenue collections. This ratio is however significantly impacted by two abnormal “outliers” which when removed change the results for OECD countries to show a decrease from 12.7% in 2011 to 11.1% of annual net revenue collections in 2013. Notably seven revenue bodies: Estonia, Ireland, Japan, Korea, Norway, Sweden and Switzerland have a collection to debt ratio of less than 5%. Improvements in collection performance can generally be attributed to:
    • Strong management information systems;
    • Well-developed analytics tools to guide use of extensive enforcement powers;
    • Extensive use of tax withholding at source arrangements;
    • Wide use of electronic payment methods; and
    • Significant investment in information technology.
  • Improving management of large taxpayers - over 85% of revenue bodies have adopted the structured ‘co-operative compliance model’ recommended by the OECD, for managing their largest taxpayers. One-third use similar arrangements to manage the tax affairs of High Net Worth Individuals.
  • Tax gap measurement on the increase - 43% of revenue bodies report they undertake or are researching estimates of the aggregate tax gap for some or all of the major taxes administered.
  • Greater use of disclosure policies to improve tax compliance and bolster tax revenues - despite two-thirds of OECD member countries reporting that their tax law permits voluntary disclosures only 40% have a policy to encourage taxpayers to use these. Further only 11 member countries were able to report the results achieved from their voluntary disclosure programme. With the imminent implementation of automatic exchange of financial account information, it is expected that there will be greater interest in these programmes.
  • Electronic matching of VAT invoices continues to expand – with growing concerns about the VAT non-compliance, a relatively large number of revenue bodies, including many in Europe and Latin America, are successfully  using systems to process bulk VAT invoice data for compliance risk management and fraud detection.

Click the following links for the report Tax Administration 2015: Comparative Information on OECD and Other Advanced and Emerging Economies, and an OECD flyer introducing the report.

United States

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U.S. IRS Publishes Procedures for Competent Authority Assistance and APAs

On 12 August 2015, the U.S. IRS published revenue procedures for Requesting Competent Authority Assistance under Tax Treaties (Rev. Proc. 2015-40) and Advance Pricing Agreements (Rev. Proc. 2015-41).

Requesting Competent Authority Assistance

This revenue procedure provides guidance on the process of requesting and obtaining assistance under U.S. tax treaties from the U.S. competent authority. This revenue procedure updates and supersedes Rev. Proc. 2006-54, 2006-2 C.B. 1035.

A proposed version of this revenue procedure was released for public comment in Notice 2013-78, 2013-50 I.R.B. 633. The principal differences between this final revenue procedure and the proposed version in Notice 2013-78 are as follows:

  • The scope of requests to which mandatory pre-filing procedures apply is limited to requests involving taxpayer-initiated positions.
  • Taxpayers will not be required to expand the scope of a competent authority request to include interrelated issues as a condition of receiving competent authority assistance. Taxpayers may still be required to provide information that will allow the U.S. competent authority to evaluate the appropriateness of the relief sought under the applicable U.S. tax treaty in light of the taxpayer's positions on interrelated issues.
  • The U.S. competent authority may consult with taxpayers with respect to certain additional issues that may arise in connection with competent authority requests, such as issues relevant to the determination of foreign tax credits and repatriation payments.
  • Additional guidance is provided on requesting discretionary determinations under the limitation on benefits articles of U.S. tax treaties, including time frames for taxpayers to provide notification of material changes in fact or law and the introduction of a triennial statement procedure to maintain a favorable grant of discretionary benefits.
  • The U.S. competent authority will not condition assistance on the taxpayer's notification of the U.S. competent authority, or on obtaining its concurrence, with respect to signing a standard Form 870 with IRS Examination. Similarly, a taxpayer will not be required to obtain the U.S. competent authority's agreement prior to entering into a closing agreement or similar agreement with IRS Examination, but in these cases the assistance provided by the U.S. competent authority will be limited to seeking correlative relief from the foreign competent authority, thus potentially not eliminating double taxation.
  • Additional information is provided about the process followed by the U.S. competent authority in conducting its review under the simultaneous appeals procedure.
  • The bases on which the U.S. competent authority may decline to accept a competent authority request or cease providing assistance are clarified.
  • The user fee for requests for discretionary LOB relief are increased from USD 27,500 to USD 37,000, with an initial increase to USD 32,500 for requests filed on or after October 30, 2015 and prior to September 30, 2016, and a further increase to USD 37,000 for requests filed on or after September 30, 2016.
  • The proposed guidance in Notice 2013-78 is restructured to improve clarity, readability, and organization.

Advance Pricing Agreements

This revenue procedure provides guidance on the process of requesting and obtaining advance pricing agreements (APA) from the Advance Pricing and Mutual Agreement program (APMA), and provides guidance on administration of executed APAs. This revenue procedure updates and supersedes Rev. Proc. 2006-9, 2006-1 C.B. 278, as modified by Rev. Proc. 2008-31, 2008-1 C.B. 1133, which is also superseded.

A proposed version of this revenue procedure was released for public comment in Notice 2013-79, 2013-2 C.B. 653. The principal differences between this final revenue procedure and the proposed version in Notice 2013-79 are summarized as follows:

  • If APMA requires, as a condition of continuing with the APA process, that the taxpayer expand the proposed scope of its APA request to cover interrelated matters (interrelated issues in the same years, covered issues or interrelated issues in other years, and covered issues or interrelated issues in the same or other years as applied to other countries), APMA will do so with due regard to considerations of principled, effective, and efficient tax administration after considering the views of the taxpayer and the applicable foreign competent authority.
  • Rollback years may be formally covered within an APA and included when a rollback is either requested by the taxpayer and approved after coordination and collaboration between APMA and other offices within the IRS or, in some cases, is required by APMA, after coordination and collaboration with other offices within the IRS, as a condition of beginning or continuing the APA process.
  • Expanded guidance is provided as to when an APA request will be considered complete.
  • The required contents of APA requests that were specified in the Appendix of the proposed revenue procedure have been refined but generally retained.
  • Taxpayers are required to execute consent agreements to extend the period of limitations for assessment of tax for each year of the proposed APA term, and the required consent could be either general or restricted. APMA will coordinate and collaborate with other offices within the IRS and with the taxpayer on the type of consent the taxpayer will be instructed to execute, which, if restricted, will follow standardized language provided by APMA. In certain cases, only general consents will be used.
  • The user fees for APA requests are increased (standard USD 60,000 per request, USD 30,000 for eligible small case), while total user fees may be reduced for multiple APA requests filed by the same controlled group within a sixty-day period.
  • The proposed guidance in Notice 2013-79 is restructured to improve clarity, readability, and organization.

Click the following links for the Procedures for Requesting Competent Authority Assistance under Tax Treaties (Rev. Proc. 2015-40 PDF) and the Procedures for Advance Pricing Agreements (Rev. Proc. 2015-41 PDF).

Treaty Changes (3)

Belize-Switzerland

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TIEA between Belize and Switzerland Signed

On 10 August 2015, officials from Belize and Switzerland signed a tax information exchange agreement. The agreement is the first of its kind between the two countries, and is in line with the OECD standard for information exchange. It will enter into force once the ratification instruments are exchanged, and will apply for requests made on or after the date of its entry into force concerning tax periods beginning on or after 1 January of the following year.

India-United Kingdom

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Indian Court Holds Interest on Tax Refund Treated as Business Income under UK Tax Treaty

In a decision issued in May 2015, the High Court of Uttarakhand, India held that interest on an income tax refund should be treated as business income under Article 7 (Business Profits) of the 1993 tax treaty with the UK. In addition, the Court held that such interest income could not benefit from the presumptive tax provisions of Section 44BB of the Tax Code (taxable income equal to 10% of the amount paid or payable).

The case involved a UK tax resident that was engaged in providing services and facilities in connection with the exploration, extraction and production of mineral oils in India. During the year at issue, the company received a refund of excess Indian tax paid, including interest. The UK company paid 15% tax on the interest, as per the beneficial provisions of Article 12 (Interest) of the treaty. Upon review by the tax authorities, the authorities determined that the interest income should instead be assessed as business income because the company's activities in India constituted a fixed place of business (permanent establishment). The company appealed to the Court, arguing that the lower tax rate for interest should apply, and if not, then the presumptive tax provisions of Section 44BB should apply.

In its decision, the Court held that because the tax overpaid was originally paid in connection to the company's fixed place of business in India, the interest on the overpaid tax is also effectively connected to that fixed place of business and therefore subject to the provisions of Article 7 (Business Profits) as provided for in the treaty. Concerning the presumptive tax provisions, the Court held that the provisions could not apply because the interest income was not paid or payable directly in connection with the exploration, extraction or production of mineral oils.

Iran-Vietnam

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Update - Tax Treaty between Iran and Vietnam

The income tax treaty between Iran and Vietnam was signed 14 October 2014. The treaty is the first of its kind between the two countries and will enter into force once the ratification instruments are exchanged.

Taxes Covered

The treaty covers Iranian income taxes on real estate, agriculture, salary, occupation (business), and legal persons. It covers Vietnam personal income tax and business income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through employees or other engaged personnel if the activities continue for the same or connected project for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 10%
  • Fees for technical, consultancy and managerial services - 8%

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;
  • Gains from the alienation of shares or other corporate rights in company, the assets of which directly or indirectly consist mainly of immovable property situated in the other State; and
  • Gains from the alienation of shares, other than those mentioned above, in a company resident 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 Iran from 21 March of the year following its entry into force, and in Vietnam from 1 January of the year following its entry into force.

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