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Approved Changes (3)

Belarus

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Belarus Publishes Decree on Improving Special Regime for the Great Stone Industrial Park

Belarus has published Presidential Decree No. 166 of 12 May in the Official Gazette of 25 May 2016. The Decree provides for the improvement of the special regime for the Belarus-China "Great Stone" Industrial Park, including measures to simplify park administration and to expand the tax incentives for companies resident in the park. The tax incentive changes include:

  • A change in the effective start date for the 10-year corporate tax exemption from the date a company is registered to the tax period when a company first generates a gross profit from the sale of goods, works, or services;
  • An extension of the 50% corporate tax exemption from a 10-year period following the end of the full exemption period to a permanent exemption; and
  • A value added tax exemption for goods produced in the newly introduced free trade zone, for the sale and lease of real estate between residents of the park, and for services acquired from non-residents.

The decree also expands the eligible activity types for investment and reduces the minimum investment amount to USD 500,000 for research and development projects. The minimum investment is also reduced to USD 500,000 for other projects, provided that the investment amount is made within three years. Otherwise, minimum investment is USD 5 million.

The Great Stone Industrial Park is being jointly developed under the framework of the China-Belarus intergovernmental cooperation with a focus on high-tech and export-oriented production, including in the areas of electronics and telecommunications, pharmaceuticals, biotechnology, engineering, new materials, integrated logistics, e-commerce related to the storage and handling of large amounts of data, and other research and development and technological works.

Denmark

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Denmark to Reorganize and Expand Tax Authority

Danish Prime Minister Lars Løkke Rasmussen has announced that the government will reorganize and expand the tax authority, which will include replacing the current centralized tax authority (SKAT) with seven regional agencies and adding 1,000 new tax staff positions overall. The planned changes follow a number of tax evasion/avoidance issues in recent years that have resulted in billions in lost tax revenue, including in relation to dividend fraud and the use of offshore structures as revealed in the Panama papers. While speaking on the changes, Rasmussen is quoted as saying, "Enough is enough. We have to restore the Danish citizens' trust in the tax system. That trust is the foundation for our welfare state."

Gibraltar-United Kingdom-European Union

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CJEU Finds that Gibraltar and the UK to be Treated as a Single Member State with Regard to the Freedom to Provide Services

On 13 June 2017, a judgment of the Court of Justice of the European Union (CJEU) was published concerning the treatment of Gibraltar and the UK as a single Member State with regard to the freedom to provide services as enshrined under Article 56 of the Treaty on the Functioning of the European Union (TFEU). The case concerns a challenge brought by the Gibraltar Betting and Gaming Association, which argued that the UK's tax regime for gambling duties violated the freedom to provide services in relation to the remote gaming duty that must be paid by Gibraltar operators in order to provide remote gambling services to persons established in the UK. (previous coverage of AG opinion on the case).

In coming to its decision, the Court first looked at whether Article 56 TFEU applies to Gibraltar as a territory of the UK, which the Court found that it does by virtue of the extension of the provisions of EU law granted to territories of Member States by Article 355(3) TFEU. However, Article 56 TFEU only prohibits restrictions on the freedom to provide services by a national established in a Member State to a national established in another Member State, and does not apply to a situation which is confined within a single Member State. In this respect, the Court found that no factors could justify the conclusion that relations between Gibraltar and the UK may be regarded, for the purpose of Article 56 TFEU, as akin to those existing between two Member States. Based on this, the Court ruled:

Article 355(3) TFEU, in conjunction with Article 56 TFEU, is to be interpreted as meaning that the provision of services by operators established in Gibraltar to persons established in the United Kingdom constitutes, as a matter of EU law, a situation confined in all respects within a single Member State.

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

Proposed Changes (2)

Malawi

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Malawi 2017/18 Budget Statement Published

The Malawi Ministry of Finance has published the 2017/18 Budget Statement, which was delivered by Finance Minister Goodall Gondwe on 19 May 2017. The tax-related measures of the Budget include:

  • The introduction of 10% excise tax on TV subscriptions fees;
  • Removal of the import duty exemption for buses and minibuses provided by Customs Procedure Code 443, which will be replaced with an exemption for Buses and Minibuses less than five years old and progressive excise tax rates, a 15% customs duty, and 16.5% VAT rate for those older than five years;
  • Value added tax (VAT) measures, including:
    • An amendment to the VAT Act to introduce stiff penalties to would-be-offenders to curb the malpractice of using fake or unlicensed electronic fiscal devices (cash registers) for VAT purposes;
    • The reintroduction of the VAT exemption for milk (was made subject to standard VAT rate as part of 2016/2017 Budget);
  • An increase in the tax free individual income tax bracket from MWK 20,000 to MWK 30,000 per month (uncertain how the current 30% bracket will be adjusted, given that it currently applies for income exceeding MWK 25,000 per month)
  • The introduction of a new individual income tax bracket of 35% on salary/wage income exceeding MWK 3 million per month;
  • A change in the term "bank interest" under the Taxation Law to just "interest" in order to increase coverage of withholding tax to nonbank institutions; the
  • The standardization of interest on overdue tax and the harmonization of penalties on late submission of returns and late payment for all tax types in order to reduce non-compliance and reduce administration cost.

Click the following links for the 2017/18 Budget Statement and a related press release. Subject to approval, the measures will generally apply from 1 July 2017, although the customs and excise tax measure are effective from midnight of 19 May 2017.

Portugal

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Portugal Planning Changes in Black List to a Non-Cooperative List

The Portuguese government has announced plans to move away from the country's current black list of jurisdictions to a list of non-cooperative jurisdictions focused on information exchange, which is seen as more important and the best way to discover and tax income that is hidden through privileged tax regimes. Government defined criteria include:

  • The existence of information exchange mechanisms;
  • A positive assessment of exchange practices by the OECD; and
  • The absence of obstacles to fiscal cooperation.

According to the announcement, the change in approach is seen as needed given the relative ease of avoiding the current black list by passing income through a third jurisdiction, which can be resolved through information exchange, as well as the difficulties in diplomatic and economic relations that have resulted with jurisdictions currently black-listed. The announcement also notes a proposed amendment so that aggravated taxes may be applied to jurisdictions with privileged tax regimes in certain cases, even if the jurisdiction is not listed.

Residents of jurisdictions included in Portugal's black list are subject to certain tax consequences, including an increased withholding tax rate of 35% for dividends, interest, and royalties, and ineligibility for Portugal's participation exemption.

Treaty Changes (4)

Cuba-Luxembourg

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Tax Treaty between Cuba and Luxembourg to be Negotiated

According to a release from the from the Luxembourg Ministry of Foreign and European Affairs, officials from Cuba and Luxembourg met 12 to 13 June 2017 to discuss bilateral relations, including the desire to begin negotiations for an income tax treaty. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Kyrgyzstan-United Kingdom

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Tax Treaty between Kyrgyzstan and the UK Signed

On 13 June 2017, officials from Kyrgyzstan and the UK signed an income tax treaty. The treaty is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged. Additional details will be published once available.

Latvia-Moldova

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SSA between Latvia and Moldova under Negotiation

On 6 to 9 June 2017, officials from Latvia and Moldova met for the negotiation of a social security agreement. Any resulting agreement would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

Russia-Netherlands

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Russia Clarifies Taxation of Gains Resulting from Withdrawal from an LLC under Tax Treaty with the Netherlands

The Russian Ministry of Finance has issued Letter No. 03-08-05/31309 concerning the taxation of gains derived by a Dutch resident following withdrawal from a Russian limited liability company. As per Russian law, if a member of an LLC ceases its membership, its stake passes to the LLC and the LLC is generally required to pay the member the actual value of the stake as determined by the LLC's financial statements for the period preceding the date the application to cease membership is made. The letter clarifies that in such case, a corporate tax liability may arise on any gains, but taxation of such gains should be determined based on the provisions of an applicable tax treaty. As per paragraph 4 of Article 13 (Gains from the Alienation of Property) of the 1996 Netherlands-Russia tax treaty, gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3 (immovable properly, movable property of a PE, and ships or aircraft) is only taxable in the State of residence of the alienator. Therefore gains from the alienation of a stake in an LLC by a Dutch resident are only taxable in the Netherlands.

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