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Approved Changes (2)

Malaysia

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Malaysia Publishes Public Ruling on Venture Capital Tax Incentives

On 9 May 2016, the Inland Revenue Board of Malaysia published Public Ruling No. 2/2016 - Venture Capital Tax Incentives.

Tax Exemption Incentive

A qualifying Malaysian venture capital company (VCC) is eligible for a tax exemption on statutory income from all sources of income, excluding interest income arising from savings or fixed deposits and profits from syariah-based deposits. The exemption may apply for a period of ten years of assessment or for the life of the fund established for the purpose of investing in a venture company, whichever is the lesser.

In order to qualify, the VCC must obtain certification from the Securities Commission for each year of assessment confirming that:

  • The VCC has invested at least 70% of its invested funds in a venture company, or at least 50% in the case of seed capital investment;
  • The VCC has not invested in a venture company that was a related party at the point of investment; and
  • The VCC has provided financing at the seed capital or start-up stage of a venture company for cases where:
    • The VCC provides financing to the venture company to increase production capacity, marketing, or product development, or to list on a stock exchange; and
    • The venture company is not engaged in a specified technology-based business activity (prescribed list).

Tax Deduction Incentive

A qualifying individual or company, including a VCC, is entitled to claim a tax deduction for a year of assessment equal to the value of an investment in shares (cost of investment) in a venture company to finance products and activities that are:

  • Promoted under the Promotion of Investment Act 1986 ct 327] where a venture company has been granted tax incentives such as pioneer status or investment tax allowance;
  • Listed in the Venture Capital Tax Incentives Guidelines issued by the Securities Commission;
  • Developed under the Industrial Research and Development Grant Scheme, granted by the Ministry of Science, Technology and Innovation; or
  • Developed under the MSC Research and Development Grant Scheme granted by the Multimedia Development Corporation.

Except for the percentage of invested capital condition, the conditions for eligibility include the conditions for the tax exemption incentive above, as well as the condition that the individual or company has obtained certification from the Securities Commission confirming that:

  • The venture company's shares were not listed on a stock exchange at the time of initial investment;  
  • The investment was made for start-up, seed capital or early stage financing; and
  • The investment was made at least two years prior to disposal.

Click the following link for Public Ruling No.29/2016 on the Inland Revenue Board of Malaysia website for additional information and several examples.

United Kingdom-Afghanistan-Anguilla-Austria-Belgium-Bermuda-Bulgaria-Cayman Islands-Croatia-Cyprus-Czech Rep-Denmark-Estonia-Finland-France-Gibraltar-Germany-Greece-Hungary-Iceland-Ireland-Isle Of Man-Italy-Jersey-Latvia-Lithuania-Luxembourg-Malta-Mexico-Montserrat-Netherlands-Nigeria-Poland-Portugal-Romania-Slovak Republic-Slovenia-Spain-Sweden-Untd A Emirates

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UK Publishes List of Countries Committed to the Exchange of Beneficial Ownership Information

On 13 May 2016, UK Treasury published a list of 40 jurisdictions that have committed to the initiative for the automatic exchange of beneficial ownership information (previous coverage) during the recent Anti-corruption Summit: London 2016. The jurisdictions include:

Afghanistan, Anguilla, Austria, Belgium, Bermuda, Bulgaria, Cayman Islands, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Gibraltar, Germany, Greece, Hungary, Iceland, Ireland, Isle of Man, Italy, Jersey, Latvia, Lithuania, Luxembourg, Malta, Mexico, Montserrat, Netherlands, Nigeria, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Arab Emirates, and United Kingdom.

The initiative is in its early stages with the system for the automatic exchange still under development.

Proposed Changes (3)

Austria

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Austrian Government Submits Draft Legislation for CbC Reporting and Exchange of Tax Rulings

On 10 May 2016, the Austrian Ministry of Finance submitted a draft version of the EU Tax Amendment Act 2016 (205 / ME) to parliament for review. The legislation provides for the implementation of the three-tiered transfer pricing documentation requirements developed under Action 13 of the OECD BEPS Project, as well as for the exchange of tax rulings as developed under Action 5 and required under amended Directive 2011/16/EU on administrative cooperation in the field of taxation (previous coverage).

Transfer Pricing Documentation

The draft legislation includes that MNE groups operating in Austria will be required to submit a Country-by-Country (CbC) report when consolidated group revenue in the previous year meets the reporting threshold of EUR 750 million. The reporting requirements will apply for fiscal years beginning on or after 1 January 2016, with the CbC report due within 12 months following the end of the year concerned.

The filing obligation is to be met by the ultimate parent company of a group if resident in Austria, or a constituent entity of the group resident in Austria if the report is not available to the Austrian tax authorities through exchange with the parent's jurisdiction of residence. The content of the CbC report is in line with the guidelines developed as part of Action 13, and failure to file or filing an incorrect report will be subject to penalties of up to EUR 80,000.

The draft legislation also includes Master and Local file documentation requirements for Austria group members with revenue exceeding EUR 50 million in the previous year or intra-group commission income exceeding EUR 5 million in the previous year. In addition, regardless of meeting the thresholds, a Master file must be made available to the Austrian tax authorities if prepared by a group member in another jurisdiction. When required, the Master and Local file must be submitted within 30 days of request.

Click the following link for the Tax Amendment Act 2016 (205 / ME) page on the Austrian parliament website (German language). Additional details will be published when the legislation is finalized and adopted.

European Union

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EU Parliament Welcomes Proposal for Exchange of CbC Reports and Recommends Additional Safeguards

On 12 May 2016, the European Parliament issued a press release stating that the European Commission's proposal for automatic exchange of Country-by-Country (CbC) reports was welcomed by Parliament, but that further safeguards are needed. Parliament's safeguard recommendations, which were approved by 567 votes to 30 with 53 abstentions, include:

  • That the Commission have full access to the information exchanged among member states' tax authorities, to enable it to assess whether member states’ tax practices comply with EU rules on State aid; and
  • That member states introduce sanctions to be imposed on multinational companies that fail to file their CbC report within the deadline of 12 months following the end of the fiscal year concerned.

The proposed automatic exchange of CbC reports in the EU will be implemented through amendments to the administrative cooperation Directive (Directive 2011/16/EU).

Pending final adoption by the Council, all EU Member States will be required to adopt CbC reporting requirements by the end of 2016 that will apply for fiscal years beginning on or after 1 January 2016 for MNE groups with consolidated annual revenue of EUR 750 million in the previous year. Overall, the requirements are to be in line with Action 13 of the OECD BEPS project, although the exchange of CbC reports will be made under the directive, without the need for any additional tax information exchange agreement or competent authority agreement between the exchanging EU Member States.

Jamaica

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Jamaica's 2016/2017 Budget Includes Changes in Personal Income Tax, Special Contribution Tax and Departure Tax

On 12 May 2016, Jamaica's Finance and Public Service Minister Audley Shaw presented the 2016/2017 Budget for debate. The Budget includes changes in personal income tax including:

  • A two-phase increase in the personal income tax exemption threshold to JMD 1,000,272 effective 1 July 2016, and JMD 1,500,000 effective 1 January 2017; and
  • The introduction of a 30% personal income tax rate for income in excess of JMD 6,000,000 (standard rate 25%).

Other changes include increases in the Special Consumption Tax (SCT) for petrol, heavy fuel oil, cigarettes and other tobacco products, the introduction of an SCT regime for liquefied natural gas, and an increase in the departure tax.

Click the following link for additional details of the measures as published by the Ministry of Finance and Public Service.

Treaty Changes (3)

Bahrain-Switzerland

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Bahrain and Switzerland Conclude Tax Treaty Negotiations

On 12 May 2016, officials from Bahrain and Switzerland concluded negotiations with the initialing of an income tax treaty. The treaty is the first of its kind between the two countries, and must be signed and ratified before entering into force.

India-Mauritius

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Update - Protocol to the Tax Treaty between India and Mauritius

The protocol to the 1982 income and capital tax treaty between India and Mauritius was signed on 10 May 2016. The protocol is the first to amend the treaty. Details of the amendments made by the protocol are summarized as follows.

Service PE

Article 5 (Permanent Establishment) is amended with the addition of the provision that a permanent establishment will be deemed constituted if an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 90 days within any 12-month period.

Interest Withholding Tax

Article 11 (Interest) is amended to include that the rate of withholding tax on interest shall not exceed 7.5% (originally no rate specified), and the general exemption originally provided for banks is limited to interest arising from debt-claims existing on or before 31 March 2017.

Technical Fees Withholding Tax

Article 12A (Fees for Technical Services) is added, which provides for a 10% withholding tax on payments of any kind as consideration for managerial, technical or consultancy services, including the provision of services of technical or other personnel, except for those mentioned in Articles 14 (Independent Personal Services) and 15 (Dependent Personal Services).

Capital Gains from Shares

Article 13 (Capital Gains) is amended to include that gains from the alienation of  shares acquired on or after 1 April 2017 in a company resident in a Contracting State may be taxed in that State. For gains arising between 1 April 2017 and 31 March 2019, the tax rate may not exceed 50% of the tax rate applicable on such gains in the State of residence of the company whose shares have been alienated.

Other Income

Article 22 (Other Income) is amended to include the provision that items of income of a resident of a Contracting State not dealt with in the other Articles of the treaty and arising in the other Contracting State may also be taxed in that other State.

Exchange of Information

Article 26 (Exchange of Information) is replaced to bring it in line with the OECD standard for information exchange.

Assistance in the Collection of Taxes

Article 26A (Assistance in the Collection of Taxes) is added to the treaty.

Limitation of Benefits

Article 27A (Limitation of Benefits) is added to the treaty concerning the benefit of the 50% reduction in the tax rate that was added to Article 13 (Capital Gains). Article 27A's provisions include:

  • A resident of a Contracting State will not be entitled to the benefit (50% reduction) if its affairs were arranged with the primary purpose of obtaining the benefit;
  • A shell/conduit company (negligible or nil business operations or with no real and continuous business activities) that claims it is a resident of a Contracting State will not be entitled to the benefit (50%);
  • A resident of a Contracting State is deemed to be a shell/conduit company if its expenditure on operations in that Contracting State is less than MUR 1.5 million or INR 2.7 in the respective Contracting State as the case may be in the 12-month period immediately preceding the date the gains arise; and
  • A resident of a Contracting State is deemed not to be a shell/conduit company if:
    • It is listed on a recognized stock exchange of the Contracting State; or
    • Its expenditure on operations in that Contracting State is equal to or more than the above MUR 1.5 million or INR 2.7 million thresholds in the respective Contracting State

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged, and will generally apply in India from 1 April next following its entry into force and in Mauritius from 1July next following its entry into force. However, changes in Article 13 (Capital Gains) will apply from the 2018-19 year of assessment, and the new articles on exchange of information and assistance in tax collection will apply from the date of the protocol's entry into force.

Mozambique-Untd A Emirates

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Mozambique and the U.A.E. to Negotiate Tax Treaty Protocol

On 8 May 2016, officials from Mozambique and the United Arab Emirates agreed to negotiate a protocol to the 2003 income and capital tax treaty between the two countries. Any resulting protocol would be the first to amend the treaty, and must be finalized, signed and ratified before entering into force.

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