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Approved Changes (4)

Brazil

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Brazil Monthly Individual Income Tax Brackets for 2015

On 11 March 2015, Brazil published in the Official Gazette Provisional Measure (PM) 670/2015, increasing the monthly individual income tax bracket thresholds for 2015. The number of brackets and rates are not changed.

The new monthly income brackets and rates are as follows:

  • up to BRL 1,903.98 - 0%
  • over BRL 1,903.98 up to 2,826.65 - 7.5%
  • over BRL 2,826.65 up to 3,751.05 - 15.0%
  • over BRL 3,751.05 up to 4,664.68 - 22.5%
  • over BRL 4,664.68 - 27.5%

The new bracket thresholds apply from 1 April 2015. PM 670/2015 must be approved by the National Congress within 60 days to remain in effect.

Canada

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Canadian Court Rules on Interest Deductions for Intragroup Loan

The Tax Court of Canada has recently ruled on whether a Canadian Subsidiary of the Wendy's/Tim Horton group was allowed interest deductions for an intragroup loan made in 2002. The case involved a series of transactions between 18 March 2002 and 27 March 2002 as follows:

  • Wendy's International Inc. ("Wendy's"), the ultimate parent of the group loaned CAD 234,000,000 (USD 147,654,000 US) to its U.S. subsidiary, Delcan Inc. ("Delcan") at an interest rate not to exceed 7 percent.
  • Delcan in turn loaned the full amount to TDL Group, the Canadian Appellant, at a rate of 7.125 percent pursuant to a loan agreement and subsequently assigned this loan receivable to another affiliate in the group.
  • The Appellant in turn used the full amount of the loan from Delcan to purchase 1,840 additional common shares in its already wholly-owned U.S. subsidiary, Tim Donut U.S. Limited, Inc. ("Tim's U.S.")
  • Tim's U.S. in turn made an interest-free loan to Wendy's, evidenced by a promissory note

The Appellant took the position that the purchase of shares in its subsidiary Tim's U.S. using the funds from the loan from Delcan was a garden variety transaction that capitalized the subsidiary to allow it to acquire capital assets and operate its business for the Appellant's ultimate benefit. Further, the Appellant argued that the actual use of the funds by Tim's U.S. should not be considered in determining if the interest on the loan should be deductible.

The tax authorities took the position that the transactions were nothing more than a series of predetermined steps to lend money to Wendy's interest free while at the same time giving the Appellant an interest expense. The tax authorities also took the position that the Appellant's use of the loan to purchase shares in Tim's U.S. had no purpose of earning income from the investment.

The Tax Court sided with the tax authorities. The Tax Court could not find any reasonable expectation of earning income of any kind at the time of the Appellant's purchase of additional shares in Tim's U.S., and found that the sole purpose of the borrowed funds was to facilitate an interest free loan to Wendy's while creating an interest deduction for the Appellant. Since the Appellant failed to meet the earning income purpose test, the interest expense is not deductible.

Ireland

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Irish Revenue Publishes New Tax and Duty Manual on Arrangements for Implementing EU Spontaneous Exchange of Information

On 12 March 2015, Irish Revenue published Revenue eBrief No. 30/15 concerning arrangements for implementing Council Directive 2011/16/EU  for the spontaneous exchange of information of Revenue opinions on cross-border transactions or situations.

Council Directive 2011/16/EU on administrative cooperation in the field of taxation provides for the exchange of information between the tax authorities of EU Member States. The Directive applies to all taxes other than value-added tax, EU excise duties and customs duties. It was transposed into Irish law by the European Union (Administrative Cooperation in the Field of Taxation) Regulations 2012.

Under Regulation 4 of the Regulations, the Revenue Commissioners are the competent authority for Ireland for the purposes of the Directive. Arrangements for implementing the Directive, insofar as it requires the communication to other Member States of information in respect of Revenue opinions which are foreseeably relevant to tax administration and collection in those other Member States, are set out in a new Tax and Duty Manual (PDF). Examples of opinions that are subject to spontaneous exchange and the details of the information to be exchanged are presented in the manual. The arrangements for implementing the Directive apply with immediate effect.

Morocco

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Moroccan Tax Changes for 2015

Morocco's Finance Law 2015 was published 25 December 2014. Changes are made in regard to both individual and corporate taxation. The key changes are summarized as follows:

  • Employees of companies established in Casablanca Finance City subject to the flat 20% individual income tax rate, may now elect to be subject to the flat tax rate or the standard progressive tax rate, which range from 0% to 38% - the election is irrevocable
  • Resident individuals are required to pay income tax on income derived from foreign-source dividends, interest and capital gains by 1 April of the year following the year in which the income was realized instead of within 30 days, and when the income is received through a Moroccan bank, the income tax must be withheld and remitted by the bank with the same deadline
  • An employment income tax exemption for up to 24 months is introduced for employees (max 5) newly recruited by qualifying enterprises created between 1 January 2015 and 31 December 2019, with the conditions that the employee has an indefinite labor contract and their gross monthly salary does not exceed MAD 10,000
  • Representative offices of nonresident companies established in Casablanca Finance City are made subject to a reduced tax rate of 10%, based on either taxable income or 5% of operating expenses (operating expense basis required in a loss-making year)
  • The registration duty levied on the sale of shares in joint-stock companies or economic interest groups is increased from 3% to 4%
  • An advance pricing agreement procedure is introduced, although the exact process has not yet been published

The changes generally apply from 1 January 2015.

Proposed Changes (2)

Costa Rica

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Costa Rica Issues Discussion Draft on Proposed VAT Changes

On 11 March 2015, the Costa Rican Ministry of Finance released a public discussion draft of proposed legislation for a new VAT regime. Costa Rica currently has an imperfect VAT system. Proposed changes include:

  • The scope of VAT will be expanded to cover all supplies of goods and services in Costa Rica, with exceptions for education and health services, medicines, exports, certain financial fees, books (excluding electronic media), and others
  • The VAT rate will be increased from the current 13% to 14% in 2016, and 15% in 2017
  • Exemptions will be granted for supplies of companies operating in free trade zones
  • A 5% reduced rate will be introduced for certain raw materials, services related to agricultural goods production, commissions paid to qualifying pensions, and airfares for national or international flights originating in Costa Rica
  • A transition period will apply for certain currently exempt tourism services and civil works project services, where a 5% rate will apply in the second year of the law, a 10% rate in the third year, and the standard 15% rate in fourth

Following the public consultation, the government plans to submit the proposed changes to the legislative assembly by 13 April 2015.

New Zealand

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New Zealand Releases Government Tax Policy Work Programme 2015-16 Including Actions on BEPS and International Tax Reform

On 13 march 2015, New Zealand's Minister of Revenue Todd McClary announced the Government's tax policy work programme for 2015-2016. The work programme focuses on three key areas, including:

  • Inland Revenue’s transformation programme;
  • Base erosion and profit shifting (BEPS) and international tax reform; and
  • Further improvements and enhancements to tax and social policy within the broad-base, low rate (BBLR) policy framework

Some of the key items of the programme concerning BEPS and international tax reform include:

  • Negotiation of new double tax agreements with Samoa, Luxembourg, Portugal and Slovak Republic, and negotiations to renew existing agreements with Norway, China, Korea and Australia
  • Consideration of hybrid instruments and entities in light of the OECD’s recommendations as part of the BEPS Action Plan
  • Consideration of New Zealand’s interest limitation rules in light of the OECD’s recommendations as part of the BEPS Action Plan
  • Domestic implementation of the new global standard on the automatic exchange of financial bank account information with treaty partners
  • On-going work to bring the Multilateral Convention on Mutual Administrative Assistance in Tax Matters into force for New Zealand
  • Work to clarify the relationship between the general anti-avoidance rules and double tax agreements
  • Contributing to the OECD work on imports of services, intangibles and low-value goods and considering what the work means for New Zealand

Click the following link for a full list of the items included in the Government tax policy work programme 2015-16.

Treaty Changes (3)

Cameroon-South Africa

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Tax Treaty between Cameroon and South Africa Signed

An income tax treaty between Cameroon and South Africa was signed on 19 February 2015. The treaty is the first of its kind between the two countries, and must be ratified before entering into force.

Additional details will be published once available.

China-Pakistan

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Protocol to the Tax Treaty between China and Pakistan to be Negotiated

Officials from China and Pakistan have reportedly agreed to begun negotiations for a protocol to the 1989 income tax treaty between the two countries. Any resulting protocol will be the third to amend the treaty, and must be finalized, signed and ratified before entering into force.

Additional details will be published once available.

Liechtenstein-United States

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Liechtenstein Expresses Interest in Negotiating a Tax Treaty with the U.S.

On 12 March 2015, Liechtenstein published a press release concerning Foreign Minister Aurelia Frick visit to Washington, DC. According to the release, the Foreign Minister expressed Liechtenstein's interest in concluding a tax treaty with the U.S. during a meeting with Senator Ron Johnson, Chairman of the Subcommittee on Europe and Regional Security Cooperation of the Senate Committee on Foreign Relations.

Any details on the negotiation of a treaty will be published once available.

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