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Worldwide Tax News

Approved Changes (3)

Belarus

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Update - Belarus VAT on Foreign E-Service Supplies

As published in the Belarus Official Gazette, the final text of Law No. 432-3 of 18 October 2016 includes an effective date of 1 January 2018 for the new value added tax (VAT) requirements for foreign e-service suppliers (2017 originally proposed). Under the new requirements, foreign suppliers making e-service supplies to individuals in Belarus (B2C) are required to register for VAT in Belarus, file returns, and pay the amount of VAT due at the standard 20% rate (previous coverage).

India

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Indian Tribunal Holds Rental, Advertising, and Exhibition Fees Not Subject to Withholding Tax

The Delhi Income Tax Appellate Tribunal recently issued a decision concerning whether tax withheld on payments for advertising and exhibition services should be refunded. The case involved BrahMos Aerospace, an India-Russia Joint Venture based in India.

In the year concerned, BrahMos made payment to foreign entities for foreign office rental, foreign exhibitions, and advertising of its products in foreign journals. BrahMos withheld tax on the payments, but later determined that the payments should not have been subject to withholding tax and requested a refund. The tax authority rejected the request, and BrahMos appealed. The case was first heard by the commissioner for appeals, which accepted BrahMos position, and was then further appealed by the tax authority to the Delhi Tribunal.

In its decision, the Delhi Tribunal found in favor of BrahMos. The Tribunal held that the payments made were in the nature of business receipts for the foreign entities, and because none of the foreign entities were determined to have a permanent establishment in India, the business receipts were not taxable in India. Since the BrahMos had no obligation to withhold tax on the payment in the first place, a refund of the tax withheld must be provided.

Norway

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Norway Updates List of Low Tax Jurisdictions for Tax Purposes

Norway has published an updated list of low-tax jurisdictions for tax purposes. The list applies primarily in relation to the application of Norway's CFC rules and the exemptions provided for dividends received and capital gains on shares.

The updated list of low-tax jurisdictions includes:

Andorra; Anguilla; Bahamas; Bahrain (exception for taxable oil sector companies); Belize; Bermuda; BES Islands; Cayman Islands; United Arab Emirates; Hong Kong; Isle of Man; Virgin Islands (US); Virgin Islands (British); Channel Islands (Jersey, Guernsey, and others); Kosovo; Liberia; Macao; Marshall Islands; Maldives; Mauritius; Micronesia; Moldova; Monaco; Montenegro; Nauru; Oman (exception for taxable oil sector companies); Paraguay; Palau; Qatar (exception for taxable oil sector companies); St. Barthelemy; Serbia; St. Kitts and Nevis; St. Vincent and the Grenadines; Uzbekistan; and Vanuatu.

The list of non-low-tax jurisdictions, except for companies that are taxed at a reduced rate, includes:

Australia; Canada; Chile; India; Japan; China; New Zealand; South Africa; and the United States.

Click the following link for the regulation of the list (Norwegian language), which is effective from 1 January 2017.

Proposed Changes (1)

Sri Lanka

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Sri Lanka Budget for 2017

Sri Lanka Minister of Finance Ravi Karunanayake has delivered the country's 2017 Budget. The main tax-related measures of the Budget include:

  • The corporate tax rate structure will be amended as follows:
    • 14% for exporters of goods and services, Agricultural sector, and Education sector;
    • 40% for liquor, tobacco, lottery, betting, and gaming;
    • 28% for all others, including banking, finance, manufacturing, and trading;
  • The current 10% corporate tax rate that applies for income from funds, dividends, treasury bills, and bonds will be increased to 14%;
  • The exemption for income from listed securities, unit trusts, and other instruments will be repealed;
  • Exporters with an increase of at least 15% in foreign currency earnings for the year of assessment 2016/17 compared to 2015/16 will be granted a rebate equal to the 75% of the tax attributable to the increased earnings;
  • The tax incentive to encourage listings will be continued, with new firms that list on the stock exchange in the year 2017/18 entitled to a grant equal to 25% of the total income tax paid by that firm for the last year prior to listing;
  • The period of depreciation of capital assets will be revised for buildings, plant, and machinery;
  • A new Financial Transaction Levy will be introduced at rate of LKR 5 per 10,000 on cash transactions;
  • A Capital Gain Tax (CGT) will be introduced with effect from 1 April 2017 at a rate of 10%;
  • Mechanisms will be put in place to tax e-commerce transactions, including the creation of a common platform to facilitate online firms such as Amazon, eBay, etc. to be able to collect taxes on behalf of the government for transactions carried out within Sri Lanka;
  • The Telecommunication Levy on internet services will be increased to 25%; and
  • The individual income tax rate structure will be revised, including a tax free threshold and progressive rates of 4% to 25% with LKR 600,000 bracket increments.

Click the following link for the Budget speech. Tax-related items begin at page 82.

Treaty Changes (5)

Austria-Switzerland

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Withholding Tax Agreement between Austria and Switzerland to be Terminated

The Swiss Federal Council has announced that an agreement has been signed with Austria in relation to the termination of the Austria-Switzerland withholding tax agreement. The withholding tax agreement, which entered into force 1 January 2013, allows for the regularization of assets held in Switzerland by Austrian taxpayers and the taxation of income generated by these assets. However, with the entry into force of the agreement between Switzerland and the EU on the automatic exchange of information in tax matters on 1 January 2017, the withholding tax agreement is no longer needed and will be terminated on that date.

Chile-China

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Tax Treaty between Chile and China has Entered into Force

According to a recent update from China's State Administration of Taxation, income tax treaty with Chile entered into force on 8 August 2016. The treaty, signed 25 May 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Chilean taxes imposed under the Income Tax Act (Ley sobre Impuesto a la Renta), and covers Chinese individual income tax and enterprise 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. If no agreement is reached, any relief or exemption from tax provided by the treaty will not be available.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through one or more individuals who are present and performing such services in that other State for a period or periods aggregating more than 183 days within any 12-month period.

For determining whether the 183-day threshold is exceeded, activities carried on by a connected enterprise that are substantially the same are included.

Withholding Tax Rates

  • Dividends - 10% (the rate set in the treaty will not limit Chile's application of the additional tax payable on dividends (35%), provided that the first category tax (FCT) is fully creditable in computing the amount of the additional tax)
  • Interest - 4% in respect of interest derived from loans granted by banks, insurance companies, and other financial institutions; otherwise 10% (interest subject to the 10% rate will instead be subject to a 15% rate for the first 2 years from the date the treaty is effective)
  • Royalties - 2% in respect of royalties for the use of or the right to use, industrial, commercial or scientific equipment; otherwise 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;
  • 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 rights directly or indirectly deriving more than 50% of their value from immovable property situated in the other State at any time during the 3-year period preceding the alienation; and
  • Gains from the alienation of shares or other rights or interests representing the capital of a company resident in the other State - subject to certain conditions, an exemption is available for shares sold on a recognized stock exchange in the other State or in a public offer for the acquisition of shares.

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.

Entitlement to Benefits

Article 26 (Entitlement to Benefits) includes that the benefits of the treaty will only be available for a resident of a Contracting State if the resident is a qualified person at the time the benefits would apply. A qualified person includes:

  • An individual;
  • A Contracting State;
  • A person other than an individual, if
    • More than 50% of the beneficial interest in such person is directly or indirectly owned by any combination of one or more individuals resident in one of the Contracting States; a Contracting State or local authority; or another company meeting these conditions; and
    • Less than 50% of the gross income of such person is paid or accrued to a person not meeting these conditions in the form of payments that are deductible for the purpose of the taxes covered by the treaty (excluding arm's length payments in the ordinary course of business for services or tangible property); or
    • It is a company that is a resident of a Contracting State and its principal class of shares is substantially and regularly traded on a recognized stock exchange.

However, if a resident does not meet the conditions above, the benefits may still apply if the competent authority, upon request, determines that the establishment, acquisition or maintenance of the resident and the conduct of its operations does not have as one of its principal purposes the obtaining of benefits under the treaty.

Article 26 also includes that a benefit provided by the treaty will not be granted if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of any arrangement or transaction the resulted directly or indirectly in the benefit, unless it is established that granting that benefit would be in accordance with the object and purpose of the relevant provisions of treaty.

Lastly, Article 26 includes the benefits of the treaty will not apply when:

  • A resident of one Contracting State derives income from the other State which is attributable to a permanent establishment of that resident in a third jurisdiction; and
  • The total tax actually paid on the income in the first mentioned State and the third jurisdiction is less than 60% of the tax that would have been paid in the first mentioned State if the income was not attributed to the permanent establishment.

In such case, the income will be subject to tax under the provisions of the domestic law of the other State, although for interest and royalty income, the tax is limited to 15%.

MFN Clause

The final protocol to the treaty, signed the same date, includes the provision that if Chile enters into an agreement with another country that provides for a lower rate of tax on interest, such lower rate will automatically apply for the purpose of the Chile-China tax treaty from the date such other agreement applies.

Effective Date

The treaty applies from 1 January 2017.

Cyprus-Latvia

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Tax Treaty between Cyprus and Latvia has Entered into Force

The income tax treaty between Cyprus and Latvia entered into force on 27 October 2016. The treaty, signed 24 May 2016, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Cyprus income tax, corporation tax, special contribution for the Defence of the Republic, and capital gains tax. It covers Latvian enterprise income tax and personal income tax.

Withholding Tax Rates

  • Dividends - 0% if the beneficial owner is a company (other than a partnership); otherwise 10%
  • Interest - 0% if paid by a company that is a resident of a Contracting State to a company (other than a partnership) that is a resident of the other Contracting State and is the beneficial owner of the interest; otherwise 10%
  • Royalties - 0% if paid by a company that is a resident of a Contracting State to a company (other than a partnership) that is a resident of the other Contracting State and is the beneficial owner of the royalties; otherwise 5%

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 shares or comparable interests of any kind in a company or other entity deriving more than 50% of their value directly or indirectly from 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.

Offshore Activities

Article 21 (Offshore Activities) includes that a permanent establishment will be deemed constituted if an enterprise of one Contracting State carries on offshore activities in the other State in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in that other State if such activities continue for a period or periods aggregating more than 30 days in any 12-month period. In determining if the 30-day threshold has been met, activities of an associated person that are substantially the same will be included.

Article 21 also includes that gains from the alienation of the following by a resident of one Contracting State may be taxed by the other State:

  • Exploration or exploitation rights;
  • Property situated in the other State and used in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in that other State; and
  • Shares deriving their value or the greater part of their value directly or indirectly from such rights or such property or from such rights and such property taken together.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Effective Date

The treaty applies from 1 January 2017.

Laos-Singapore

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Tax Treaty between Laos and Singapore has Entered into Force

The income tax treaty between Laos and Singapore entered into force on 11 November 2016. The treaty, signed 21 February 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Lao tax on profits (income) of enterprises and organizations and tax on income of individuals. It covers Singapore income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting State for a period or periods aggregating more than 300 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 8%
  • Interest - 5%
  • Royalties - 5%

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. Both countries will also provide a credit for the tax paid on the profits out of which a dividend is paid if the company receiving the dividend owns at least 10% of the company paying the dividend.

Effective Date

The treaty applies from 1 January 2017.

Slovenia-Morocco

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Slovenian Government Approves Pending Tax Treaty with Morocco

On 11 November 2016, the Slovenian government approved the law for the ratification of the pending income tax treaty with Morocco. The treaty, signed 5 April 2016, is the first of its kind between the two countries (previous coverage). It 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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