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Proposed Changes (2)

Czech Rep

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Czech Republic to Adopt Amendment to Parent-Subsidiary Directive Concerning Hybrid Mismatches

The Czech government has submitted legislation to parliament to adopt the amendment to the EU Parent-Subsidiary Directive concerning hybrid mismatch arrangements. Under the new rule, the participation exemption provided for under the Directive will be denied if a dividend received is tax deductible for the distributing subsidiary in its country of residence. The additional general anti-abuse provision that was added to the Directive will not be adopted in the Czech Republic, as the country's current general anti-abuse rule is seen as sufficient.

The new rule must be approved by parliament and signed into law by the president before entering into force, and is expected to apply from 1 January 2016.

Luxembourg

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Luxembourg 2016 Tax Proposals Include Abolishing the IP regime, Replacing the Minimum Corporate Tax and Several Net Worth Tax Changes

Luxembourg's Minister of Finance submitted Bill No. 6891 to parliament on 13 October 2015, which includes tax measure for 2016, and presented the budget for 2016 the following day. The main proposals are summarized as follows.

IP Regime Abolished

Because the current IP regime is not in line with the modified nexus approach of Action 5 of the OECD BEPS Project, it will be abolished effective 1 July 2016, with a 5-year grandfathering period. For IP acquired from a related entity after 31 December 2015, the grandfathering will be limited unless the IP was already eligible for the Luxembourg IP regime or corresponding foreign regime prior to acquisition. The limited grandfathering will be as follows:

  • The 80% corporate income tax exemption under the current regime will end 31 December 2016; and
  • The 100% net worth tax exemption will end 31 December 2017

IP Regime Information Exchange

The Luxembourg tax authorities will be required to spontaneously exchange information with the competent authorities of other countries on the identity of taxpayers benefiting from the IP Regime. This will apply for qualifying IP created or acquired after 6 February 2015. The information exchange is to take place at the earlier of:

  • 3 months after the date the authorities become aware the benefit was obtained; or
  • 1 year after the tax return for the relevant tax year is filed.

Reduced Net Wealth Tax Rate

A reduced net wealth tax rate of 0.05% will be introduced for the net wealth of companies exceeding EUR 500 million. With the change, the standard net wealth tax rate of 0.5% will apply on the first EUR 500 million (2.5 million) and the excess will be subject to the 0.05% rate.

The new rate will apply from 1 January 2016

Minimum Corporate Tax Replaced

Currently, Luxembourg resident taxpayers are subject to either a contingent or fixed minimum corporate income tax. The minimum tax will be converted to a minimum net wealth tax as follows:

  • Fixed minimum tax of EUR 3,210 if the financial assets of the resident taxpayer exceeds 90% of its total balance sheet in a given year and such assets exceed EUR 350,000 (same as current fixed minimum corporate tax); otherwise
  • Contingent minimum tax based on the net worth amount, ranging from EUR 535 up to EUR 32,100 for net worth exceeding EUR 30 million. (maximum increased from the current EUR 21,400 tax and EUR 20 million net worth)

The current fixed and contingent minimum net wealth taxes of EUR 25 and EUR 62.5 will be abolished. Specific investment vehicles that are exempt from net wealth tax will be subject to the new minimum net wealth tax (SICAR, Securitization Vehicle and SEPCAV/ASSEP).

The change will apply from 1 January 2016.

Net Wealth Tax Reserve Limitation

Under current rules, net wealth tax may be reduced if a net wealth tax reserve is created and maintained for at least five years, and the reserve is only used for increasing share capital. If used for any other purpose, the reduction is added to the net wealth tax of the year of use. Under the proposed measures, an additional limitation will be introduced, where the reduction is also added to the net wealth tax if the reserve is used to increase share capital and the share capital is subsequently reduced within five years from the creation of the reserve.

The change will apply from 1 January 2016.

Treaty Changes (5)

Bangladesh-Bhutan

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Tax Treaty between Bangladesh and Bhutan under Negotiation

Officials from Bangladesh and Bhutan met 12 to15 October 2015 for the first round of 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.

Cayman Islands-Guernsey

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Protocol to the TIEA between the Cayman Islands and Guernsey Signed

A protocol to the 2011 tax information exchange agreement between the Cayman Islands and Guernsey has been signed. The protocol was signed by the Cayman Islands on 10 September 2015 and by Guernsey on 8 October 2015. It is the first to amend the agreement and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

Guernsey-Turks Caics

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TIEA between Guernsey and Turks and Caicos Islands has entered into Force

The tax information exchange agreement between Guernsey and Turks and Caicos Islands entered into force on 17 August 2015. The agreement, signed 24 July 2014, is the first of its kind between the two countries and applies from the date of its entry into force.

Hungary-Iraq

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Tax Treaty between Hungary and Iraq under Negotiation

Officials from Hungary and Iraq met 28 September to 2 October 2015 for the first round of 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.

India-Israel

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Protocol to the Tax Treaty between India and Israel Signed

On 14 October 2015, officials from India and Israel signed a protocol to the 1996 income and capital tax treaty between the two countries. The protocol amends Article 27 (Exchange of Information), bringing it in line with the OECD standard for information exchange. It is the first to amend the treaty and will enter into force after the ratification instruments are exchanged.

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