Worldwide Tax News
According to recent reports, the implementation of India's new Goods and Services Tax (GST) regime may be delayed to September 2017. The government is hoping to implement the new as the GST regime from 1 April 2017, but the GST Council (previous coverage) has encountered difficulties in finalizing certain issues, including how the audit and enforcement powers would be shared between the federal government (Centre) and the States.
Sri Lanka's Inland Revenue Department has issued a notice announcing that effective 1 November 2016, the value added tax (VAT) registration threshold has been reduced LKR 12.5 million per quarter for retail and trade sectors and to LKR 3 million per quarter for all other sectors. The registration threshold for Nation Building Tax (NBT) is also reduced to LKR 3 million per quarter.
Click the following link for the notice.
U.S. IRS Publishes Practice Units on Portfolio Debt Exemption, Employee Share of Employment Taxes, and Self-Employment Taxes
The U.S. IRS recently published three international practice units:
- Portfolio Debt Exemption – Requirements and Exceptions, which discusses U.S. source interest income that qualifies for the portfolio debt exemption and the qualification requirements, as well as the types of interest and foreign recipients that will not qualify for the exemption;
- Employee Share of Employment Taxes - U.S. Citizens and Resident Aliens Working Abroad, which discusses the Social Security and Medicare (FICA taxes) payment obligations for U.S. citizens and resident aliens working abroad for an American employer and when working abroad for a foreign affiliate of an American employer; and
- Self-Employment Taxes - U.S. Citizens and Resident Aliens Working Abroad, which discusses the self-employment tax (similar to FICA taxes) payment obligations for self-employed U.S. citizens and resident aliens working abroad, including individuals that are a sole proprietor, independent contractor, partner in a partnership, member of a limited liability company (including a single member limited liability company that is disregarded for tax purposes), member of a qualified joint venture, or otherwise in business for him or herself.
International practice units are developed by the Large Business and International Division of the IRS to provide staff with explanations of general international tax concepts as well as information about specific transaction types. They are not an official pronouncement of law and cannot be used, cited, or relied upon as such.
Click the following link for the International Practice Units page on the IRS website.
A proposal has reportedly been submitted to the Brazilian Senate to reopen the Currency and Tax Compliance Special Regime (Regime Especial de Regularização Cambial e Tributária, RERCT) (previous coverage). As proposed, the regime would be reopened in 2017 with a 17% tax on disclosed assets plus a 17% penalty.
The Finance Committee of the French National Assembly has approved draft measures to introduce a diverted profits tax targeting profits connected to activities in France. The measure is based on the diverted profits tax introduced in the UK and includes a punitive tax rate of 5% in addition to the standard rate. In particular, it targets large foreign digital service providers, while exempting SMEs as defined in the EU Accounting Directive (Directive 2013/34/EU).
The draft measures will be sent to the full chamber of the National Assembly for consideration as part of the Finance Bill 2017, and if approved, is to apply from 1 January 2018.
The draft law for the introduction of Country-by-Country (CbC) reporting requirements in the Slovak Republic was submitted to parliament on 4 November 2016. The reporting requirements are in line BEPS Action 13 and Council Directive (EU) 2016/881 (previous coverage).
The requirements include that a CbC report must be submitted by MNE groups operating in the Slovak Republic that meet a EUR 750 million consolidated group revenue threshold in the previous year. The requirements will apply for fiscal years beginning on or after:
- 1 January 2016, if the ultimate (or surrogate) parent of the group is resident in the Slovak Republic; and
- 1 January 2017, if the ultimate parent is not resident in the Slovak Republic.
When required, the CbC report must be submitted within 12 months following the end of reporting fiscal year. In addition, group entities resident in the Slovak Republic must provide notification to the tax authority on whether they are the ultimate parent or surrogate parent, or if neither, the identity and tax residence of the reporting entity. This notification is due by the tax return deadline (three months after the year-end).
Failure to submit the CbC report will result in a penalty of up to EUR 10,000, while failure to submit the reporting notification will result in a penalty of up to EUR 3,000.
Click the following link for the draft CbC law and related documentation (Slovak language).
The Azerbaijan government has authorized the signature of an income tax treaty with Ireland. The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force.
Details of the treaty will be published once available.
The tax information exchange agreement between Belize and Switzerland reportedly entered into force on 13 October 2016. The agreement is the first of its kind between the two countries and applies for requests made on or after the date of its entry into force concerning tax periods beginning on or after 1 January 2017.
On 14 November 2016, officials from Ecuador and Russia 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.
The income tax treaty between Estonia and Vietnam entered into force on 13 November 2016. The treaty, signed 26 September 2015, is the first of its kind between the two countries.
The treaty covers Estonian income tax and Vietnamese personal income tax and business income tax.
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 183 days within any 12-month period.
- Dividends - 5% if the beneficial owner is a company directly holding at least 70% of the paying company's voting power; otherwise 10%
- Interest - 10%
- Royalties - 10%
- Fees for Technical Services (managerial, technical or consultancy) - 7.5%
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, participations or comparable interests deriving more than 30% of their value directly or indirectly from immovable property situated 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.
Vietnam applies the credit method for the elimination of double taxation, while Estonia generally applies the exemption method. However, Estonia will apply the credit method in respect of income covered by Articles 10 (Dividends), 11 (Interest), and 12 (Royalties and Fees for Technical Services). For dividends, application of the credit method is limited to dividends that would be subject to the 10% withholding tax rate.
A provision is also included for a tax sparing credit, whereby Estonia will deem tax paid in Vietnam to include any amount which would have been payable as Vietnamese tax for any year but was exempted or reduced under specified provisions of Vietnamese law. The tax sparring credit will be available for a period of 10 years beginning the date the treaty becomes effective.
The final protocol to the treaty includes the provision that, in respect of Articles 10 (Dividends) and 11 (Interest), if after the Estonia-Vietnam treaty enters into force, Vietnam signs an agreement with a third state that is a member of the EU or the OECD and such agreement provides for a lower rate of withholding tax and lower participating percentages than provided in the Estonia-Vietnam treaty, then such lower rates and percentages will automatically replace those provided in the Estonia-Vietnam treaty from the date such other agreement enters into force.
The treaty applies from 1 January 2017.
The French Public Finances General Directorate has published a notice on the effect of the most-favored nation (MFN) clauses of nine tax treaties. The effects of the clauses and the triggering tax treaties are summarized as follows:
1994 Tax Treaty with Bolivia:
- 10% withholding tax rate for dividends if the beneficial owner is a company directly holding at least 25% of the paying company's capital (1997 Bolivia-Spain treaty);
- Withholding tax exemption for interest paid in connection with the sale on credit of industrial, commercial, or scientific equipment (1997 Bolivia-Spain treaty); and
- Withholding tax exemption for royalties paid for the use, or the right to use, a copyright in a literary, dramatic, musical, or artistic work (excluding royalties paid for motion pictures, video tapes for television, or magnetic tapes or video disks or tapes) (1997 Bolivia-Spain treaty).
2004 Tax Treaty with Chile:
- 10% top withholding tax rate on interest (2010 Chile-Australia tax treaty) - 5% rate continues to apply for interest paid in respect of loans granted by bank and insurance companies, bonds or securities traded on recognized exchange, and the sale on credit of machinery and equipment.
1980 Tax Treaty with Egypt:
- Withholding tax exemption for payments related to contracts for studies and consultants paid to a resident of France or Egypt (1996 France-Uzbekistan treaty and 1997 Egypt-Bahrain treaty).
1997 Tax Treaty with Estonia:
- Withholding tax exemption for interest paid in respect of any loan granted by a bank (2014 Estonia-Luxembourg treaty); and
- Withholding tax exemption for all royalties (2014 Estonia-Luxembourg treaty).
1992 Tax Treaty with India:
- The exclusion of "films or tapes for radio or television broadcasts" from the definition of royalties and the deletion of "the use of, or right to use, industrial, commercial or scientific equipment" (1997 India-Sweden treaty); and
- Changes to the scope of fees for technical services (1998 India-Portugal treaty).
2005 Tax Treaty with Libya:
- Withholding tax exemption for royalties (2008 Libya-UK treaty).
1982 Tax Treaty with Saudi Arabia:
- Independent personal services may be taxed if the period of stay in a Contracting State exceeds 183 days in a 12-month period (2007 Saudi Arabia-Turkey treaty);
- PE for building/construction/assembly site and related supervisory activities if continue for more than 12 months in a Contracting State (2007 Saudi Arabia-Turkey treaty); and
- PE for furnishing services in a Contracting State for more than 6 months in a 12-month period (2006 Saudi Arabia-Austria treaty).
1996 Tax Treaty with Uzbekistan:
- 8% withholding tax rate on dividends (2013 Uzbekistan-Slovenia treaty) - 5% rate continues to apply if the beneficial owner holds at least 10% of the paying company's capital.
1993 Tax Treaty with Vietnam:
- 5% withholding tax rate on dividends paid by a Vietnam company if the beneficial owner is a company directly holding at least 50% of the paying company's capital (1996 Vietnam-Belgium treaty);
- 10% withholding tax rate on dividends paid by a Vietnam company in other cases (2008 Vietnam-Ireland treaty);
- 5% withholding tax rate on royalties paid for the use of, or right to use, a patent, design or model, plan, secret formula or process, or for information concerning industrial or scientific experience (1995 Vietnam-Netherlands treaty);
- 5% withholding tax rate on royalties paid for the use of, or the right to use, industrial, commercial, or scientific equipment involving the transfer of know-how (1995 Vietnam-Denmark treaty); and
- The application of non-discrimination provisions in line with the Article 24 of the OECD Model (1994 Vietnam-UK treaty, 1995 Vietnam-Netherlands treaty, 1995 Vietnam-Germany treaty, and 1995 Vietnam-Denmark treaty).
Click the following link for the notice (French language), which includes links to additional information on the MFN clauses in the respective tax treaties.