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Approved Changes (2)

Jamaica

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Jamaican Parliament Approves New Transfer Pricing Regime

On 8 December 2015, Jamaica's House of Representatives approved Income Tax (Amendment) (No. 2) Act 2015, which introduces new transfer pricing documentation requirements and provides for advance pricing agreements. This completes the parliamentary approval process, as the Senate approved the legislation on 27 November. Key aspects of the new transfer pricing regime include:

  • All companies are required to file a report on related party transactions with their annual tax return (due 15 March following the tax year);
  • Companies with gross annual revenue of JMD 500 million or more are required to prepare transfer pricing documentation in line with OECD standards and be able to submit documentation upon request;
  • Transfer pricing methods prescribed are in line with OECD standards and include:
    • Comparable uncontrolled price method;
    • Resale price method;
    • Cost-plus method;
    • Transactional net margin method;
    • Profit-split method; and
    • Unspecified methods when appropriate; and
  • Advance pricing agreements may be entered into between taxpayers and the Commissioner General of Tax Administration Jamaica.

The requirements apply for the 2015 tax year and subsequent years, with the first transactions report due in March 2016. However, as part of a transition period, there will be no transfer pricing-related audits initiated until 2017.

United States

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U.S. IRS Updates FATCA General FAQs on Compliance Issues

On 7 December 2015, the U.S. IRS updated the general frequently asked questions (FAQs) on the Foreign Account Tax Compliance Act (FATCA). The update adds six questions (Q12-Q17) under the General Compliance issues section of the FAQs.

Click the following links for the FATCA - FAQs General page on the IRS.Gov website.

Proposed Changes (2)

Costa Rica

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Costa Rica to Amend/Retain Annual Registration Tax

On 2 December 2015, legislation was submitted to the Costa Rican Congress to amend the country's annual registration tax rules. Under current rules, companies registered in the Costa Rican Mercantile Registry, including branches, are subject to an annual registration tax equal to 50% of the base salary for active companies and 25% for inactive companies. However, the tax was ruled unconstitutional in February 2015 and is to be abolished from 2016.

In order to continue to levy the registration tax, the following changes will be made:

  • For companies with gross income exceeding 250 base salaries in the previous year, the registration tax will be equal to 60% of the base salary;
  • For companies with gross income not exceeding 250 base salaries in the previous year, the registration tax will be equal to 30% of the base salary; and
  • For holding companies with no active business, the registration tax will be equal to 15% of the base salary.

The current rules continue to apply for 2015 and the new rules, subject to approval, will apply from 2016.

The base salary in 2015 is CRC 403,400 (~USD 760).

Japan

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Japan Planning Greater than Expected Corporate Tax Rate Cut for 2016

Japan's government is reportedly planning to cut the standard effective corporate tax rate to below 30% in 2016. Japan cut the statutory tax rate and local corporate rate in 2015, resulting in an effective rate of 32.11%, and had planned to further reduce the effective rate to 31.33% in 2016. Under the new plan, the effective rate would be cut to 29.97% in 2016 and to 29.74% in 2017. In order to offset the reduced corporate tax revenue, the government is considering additional limits on the use of carried forward losses.

The planned changes will be included in the upcoming budget, which will be submitted to parliament for approval in January 2016.

Treaty Changes (5)

Cape Verde-Senegal

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Tax Treaty between Cape Verde and Senegal under Negotiation

The Government of Cape Verde has announced that negotiations were held 7-11 December 2015 for an income tax treaty with Senegal. 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.

Croatia-United Kingdom

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Tax Treaty between Croatia and the UK has Entered into Force

According to an update from the Croatian Ministry of Foreign and European Affairs, the income and capital tax treaty between Croatia and the United Kingdom entered into force on 19 November 2015. The treaty, signed 15 January 2015, replaces the 1981 tax treaty between the United Kingdom and the former Yugoslavia.

Taxes Covered

The treaty covers Croatian profit tax, income tax, and the local income tax and any surcharges. It covers UK income tax, corporation tax and capital gains tax.

Withholding Tax Rates

  • Dividends -
    • 5% if the beneficial owner is a company directly or indirectly holding at least 25% of the paying company's capital;
    • 15% if the dividends are paid out of income (including gains) derived directly or indirectly from immovable property by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempted from tax (regardless of holding percentage);
    • Otherwise 10%
  • Interest - 0% when paid in connection with the sale on credit of any industrial, commercial or scientific equipment, or of any merchandise by one enterprise to another enterprise, or on any loan granted by a bank; otherwise 5%
  • Royalties - 5%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 21 (Other Income) will not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest, royalties or other income are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

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 interest in a partnership or trust deriving more than 50% of their value directly or indirectly from immovable property in the other State (exemption for shares regularly traded on a Stock Exchange); 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 generally apply the credit method for the elimination of double taxation. However, the UK will exempt dividends paid by a Croatian company to a company resident in the UK if the conditions for an exemption under UK law are met.

Effective Date

The treaty applies in Croatia from 1 January 2016. In the UK, the treaty applies:

  • From 1 January 2016 in respect of withholding taxes;
  • From 1 April 2016 in respect of corporation tax; and
  • From 6 April 2016 in respect of income tax and capital gains tax.

The provisions of the 1981 treaty between the UK and the former Yugoslavia will cease to have effect for the relevant taxes on the dates the new treaty applies.

Hong Kong-Denmark-Faroe Isl-Iceland-Norway

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Hong Kong TIEAs with Denmark, the Faroe Islands, Iceland and Norway have Entered into Force

The tax information exchange agreements between Hong Kong and Denmark, the Faroe Islands, Iceland and Norway entered into force on 4 December 2015. The agreements, signed 22 August 2014, are in line with the OECD standard for information exchange and are the first of their kind between Hong Kong and the respective jurisdictions.

The agreements apply from the date of their entry into force, 4 December 2015.

Kyrgyzstan-Saudi Arabia

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Tax Treaty between Kyrgyzstan and Saudi Arabia has Entered into Force

The income tax treaty between Kyrgyzstan and Saudi Arabia entered into force on 1 October 2015. The treaty, signed 2 December 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Kyrgyzstan individual income tax, and tax on profits and other revenue of legal persons. It covers Saudi Zakat and income tax including the natural gas investment 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 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 - 0%
  • Interest - 0%
  • Royalties - 7.5%

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 movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares 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.

Non-Discrimination

The treaty does not include non-discrimination provisions.

Double Taxation Relief

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

Effective Date

The treaty applies from 1 January 2016.

South Africa-Botswana

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Protocol to the Tax Treaty between South Africa and Botswana has Entered into Force

According to a recent update from the South African Revenue Service, the 2013 protocol to the 2003 income tax treaty between South Africa and Botswana entered into force on 19 August 2015. The protocol, signed 21 May 2013, replaces Article 25 (Exchange of Information), bringing it in line with the OECD standard for information exchange.

The protocol applies from 1 January 2016.

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