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Approved Changes (2)

Belarus

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Belarus Clarifies Withholding Tax Obligations on Fees Deducted from Online Sales Proceeds and Related Treaty Benefits

The Belarus Ministry of Taxes and Levies has recently issued guidance concerning withholding tax obligations and the application of relevant treaty benefits for fees paid to non-residents by Belarusian sellers for access to online sales platforms. In general, when Belarus sourced income derived by a non-resident is not attributed to a Belarusian PE, it is then subject to withholding tax, with the Belarusian payer required to withhold the tax due. This also applies where a Belarusian resident sells goods or services via an online platform and the non-resident operator collects a fee from the sales price before sending the sales proceeds to the seller. Depending on the nature of the goods or services, the seller must calculate and remit the amount of tax due on the fees.

In the event an effective tax treaty would apply, the seller may use the applicable treaty rates (or exemption) with the condition that the non-resident operator provides confirmation of its tax residence in the relevant treaty country. However, such confirmation is not required if the tax residence of the non-resident can be confirmed through available information such as in international directories and catalogs and this information is provided to the tax authority.

Poland-European Union

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CJEU Holds Property Transfer to Settle Polish Tax Debt Not Subject to VAT

On 11 May 2017, a judgment of the Court of Justice of the European Union (CJEU) was published concerning whether a transfer of immovable property from a company to a local authority to settle a tax obligation can be considered a taxable supply subject to value added tax (VAT). The case involved Polish real estate company Posnania Investment SA, which in order to settle a tax obligation, negotiated a transfer of immovable property to the municipality of Czerwonak, Poland. Posnania then applied for a tax ruling from the Polish tax authorities, which determined that because the transfer was negotiated and Czerwonak acquired all rights to the property as owner, the transfer is therefore considered a supply of goods under Polish law and subject to VAT. Posnania appealed before the Regional Administrative Court, which annulled the ruling. This decision was then appealed by the Ministry of Finance before the Supreme Administrative Court, which referred to the CJEU on the following:

Does the transfer of ownership of land (tangible property) by a person taxable for VAT purposes to:

(a) the State Treasury — in settlement of tax arrears in respect of taxes constituting State budget revenues, or

(b) a municipality, district or regional authority — in settlement of tax arrears in respect of taxes constituting their budget revenues, resulting in the discharge of tax liabilities,

constitute a transaction that is subject to tax (supply of goods for consideration) within the meaning of Article 2(1)(a) and Article 14(1) of the ] Directive?

In the judgment, the CJEU found that while most of the conditions for a supply to be taxable are met, the main question is whether the transfer can be considered to have been made for consideration. The CJEU notes that a supply of goods is made for consideration, within the meaning of Article 2(1)(a) of the VAT Directive, only if there is a legal relationship between the supplier and the purchaser entailing reciprocal performance - the price received by the supplier constituting the value actually given in return for the goods supplied.

In the current case, although a legal relationship exists between the supplier of the immovable property and the beneficiary of that property, the obligation of the taxpayer is unilateral in nature as the payment of tax by the taxpayer results only in the statutory discharge of its tax debt and does not result in any performance on the part of the public authority or, therefore, in any corresponding performance on the part of the taxable person. As such, there is no legal relationship entailing reciprocal performance in the transaction of providing property in lieu of payment to discharge a tax debt and it cannot be considered to be a transaction effected for consideration.

In conclusion, the answer to the question referred is that Articles 2(1)(a) and 14(1) of the VAT Directive must be interpreted as meaning that the transfer of ownership of immovable property by a person subject to VAT, for the benefit of the State Treasury or a local authority of a Member State, occurring, as in the main proceedings, in payment of tax arrears, does not constitute a supply of goods for consideration that is subject to VAT.

Click the following link for the full text of the judgment.

Proposed Changes (3)

Denmark

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Denmark Draft Guidance on Loss Transfer Restrictions for Tax-Free Demergers and Assets Transfers

The Danish tax authority (SKAT) has published draft guidance resulting from binding tax rulings issued in 2016 that tax losses incurred by the transferring company may not be distributed among the transferring and the receiving company in a tax-free demerger, but must remain in the transferring company. The guidance also applies in the case of a tax-free asset transfers and supersedes past guidance on the issue. Comments on the draft guidance may be submitted up to 26 May 2016.

European Union

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EU Preparing to Move Forward on Public CbC Reporting Directive with Compromises

According to recent reports, the EU Council and Parliament are preparing to move forward on the proposed directive to require public Country-by-Country reporting, with the next round of negotiations scheduled 17 May 2017. A revised draft of the directive was released in December 2016 with certain compromises (previous coverage) and a further proposal with stricter requirements was put forward by an EU Parliament committee in February 2017, which includes using the EU Accounting Directive threshold for large companies (just EUR 40 million revenue) and expanding the amount of information to be reported (previous coverage). Changes being discussed to reach a compromise include:

  • A phased in approach with an initial reporting threshold of EUR 750 million net consolidated turnover for the first three years, followed by a threshold of EUR 500 million for three years, EUR 250 million for three years, and then EUR 40 million;
  • Removing the requirement to disclose information on public subsidies received and preferential tax treatment; and
  • Allowing a disclosure exemption for branches and subsidiaries in third countries if established for less than two years and carrying out R&D investment or new market development.

Additional details of the next compromise draft for public CbC reporting will be published once available.

United States

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Trump Interview on U.S. Tax Plans

The Economist magazine has published a transcript of a recent interview with U.S. President Trump, Treasury Secretary Steven Mnuchin, and National Economic Director Gary Cohn. The interview covers various issues, including Trump's tax plans (previous coverage). Some items of note include:

  • A reciprocal tax is being considered to address trade deficit issues;
  • An initial increase in the deficit is acceptable with the tax cuts in order to "prime the pump" for economic growth;
  • The planned rate for repatriation of offshore profits is 10%, and the process for repatriation will be simplified;
  • Tax reform may be aligned with infrastructure investments in order to gain support from Democrats;
  • There is a preference to keep the business interest deduction (House Republican's plan would limit interest expense deduction to interest income amount per year);
  • There is interest in a value added tax system, although it is unlikely such a system could be implemented; and
  • The border-adjustment tax proposed by House Republicans is not really being considered.

Details of the tax plan are to be developed throughout the month of May and will be published once available.

Treaty Changes (4)

China-Spain

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SSA between China and Spain to be Signed

On 12 May 2017, the Spanish Cabinet approved the signature of a draft social security agreement with China. The agreement will be the first of its kind between the two countries, and must be signed and ratified before entering into force.

Japan-Lithuania

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Tax Treaty between Japan and Lithuania to be Signed

According to a recent release from the Lithuanian Ministry of Foreign Affairs, officials from Japan and Lithuania met 10 May 2017 to discuss bilateral relations, including the signing of income tax treaty, which is to take place in the near future. The treaty will be the first of its kind between the two countries and must be signed and ratified before entering into force. Additional details will be published once available.

Lebanon-OECD

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Lebanon Signs Mutual Assistance Convention and Multilateral Agreement on Financial Account Information Exchange

The OECD has announced that on 12 May 2017, Lebanon signed the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol, as well as the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information. The same day, Lebanon deposited the ratification instrument for the Convention, which will enter into force for the country on 1 September 2017. With regard to financial account information exchange, Lebanon intends to begin the first exchange by September 2018.

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

Somalia-Turkey

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Update - Tax Treaty between Somalia and Turkey

The pending income tax treaty between Somalia and Turkey was signed on 3 June 2016. The treaty is the first of its kind between the two countries, and the first ever for Somalia with any country.

Taxes Covered

The treaty covers the incomes tax and corporate taxes of both countries.

Withholding Tax Rates

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

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.

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