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Approved Changes (2)

India

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Indian High Court Holds Mandatory Stay in India Not to be Included in Determining Tax Residence

On 27 May 2015, the High Court of Delhi issued its decision regarding whether a mandated stay in India may be included when determining whether a non-resident individual's duration of stay in India results in residence for tax purposes.

The case involved a non-resident individual that was compelled to stay in India by an Indian court which confiscated their passport. Since the individual could not leave the country, their duration of stay exceeded the 182 day threshold for determining tax residence. The individual successfully appealed the tax resident status before the Income Tax Appellate Tribunal, and the Tribunal's decision was then appealed by the tax authorities before the High Court.

In its decision, the High Court also sided with the individual, stating that provisions relating to residential status under the Income Tax Act cannot be interpreted literally if it results in unjust or absurdly unreasonable consequences which could never have been intended. Therefore the individual's involuntary stay during the period that the passport was confiscated must be excluded when calculating the period for tax residence purposes.

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OECD Publishes Discussion Draft Comments on BEPS Action 7 (Prevent the Artificial Avoidance of PE Status)

On 15 June 2015, the OECD published comments received in response to the revised public discussion draft for Action 7 (Prevent the Artificial Avoidance of PE Status) of the Base Erosion and Profiting Shifting (BEPS) Project.

The discussion draft is the second released for Action 7. The first was released on 31 October 2014, and described a number of PE avoidance strategies and included a number of alternative options on how to deal with these strategies. Based on the comments that were received on that discussion draft and the subsequent public consultation meeting held on 21 January 2015, the revised discussion draft was issued for public comment and includes preferred proposals with respect to each PE avoidance strategy previously identified.

Click the following links for the discussion draft and the over 320 pages of comments received.

Proposed Changes (1)

Hong Kong

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Hong Kong Proposes Amendments to Tax Appeal Rules

On 12 June 2015, the Hong Kong Inland Revenue Department published Inland Revenue (Amendment) (No. 3) Bill 2015. The amendments included in the Bill are meant to improve the efficiency and effectiveness of the Board of Review, which handles appeals of decisions of the Commissioner. The Bill includes four main amendments:

  • Allowing an appeal against the decision of the Board on a question of law to go directly to the Court of First Instance or, if applicable, the Court of Appeal;
  • Empowering the person presiding at the hearing of an appeal before the Board to give directions on the provision of documents and information for the hearing in order to address the situation of late submissions;
  • Providing privileges and immunities to the Chairman, Deputy Chairmen and other members of the Board, and the parties to a hearing as well as other persons appearing before the Board; and
  • Raising the ceiling of costs to be paid by the appellant as may be ordered by the Board from HKD 5,000 to HKD 25,000 to strengthen the deterrent effect against frivolous appeals

The Bill will be introduced into the Legislative Council on 24 June 2015 for approval.

Treaty Changes (3)

Cyprus-Georgia

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Update - Tax Treaty between Cyprus and Georgia

The income and capital tax treaty between Cyprus and Georgia was signed on 13 May 2015. The treaty is the first of its kind directly between the two countries, although the 1982 income and capital tax treaty between Cyprus and the former Soviet Union had applied but was terminated.

Taxes Covered

The treaty covers Cyprus income tax, corporate income tax, the special contribution for the Defense of the Republic, and capital gains tax. It covers Georgian income tax, profit tax and property tax.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • Royalties - 0%

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; and
  • Gains from 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 apply the credit method for the elimination of double taxation.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

Mauritius-South Africa

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Tax Treaty between Mauritius and South Africa has Entered into Force

According to a recent announcement from the Mauritius Ministry of Finance and Economic Development, the new income tax treaty with South Africa entered into force on 28 May 2015. The treaty, signed 17 May 2013, replaces the 1996 income tax treaty between the two countries.

Taxes Covered

The treaty covers Mauritius income tax and South African normal tax, secondary tax on companies, withholding tax on royalties and tax on foreign entertainers and sportspersons.

Residence

If a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If the authorities cannot reach mutual agreement, the company will be considered outside the scope of the treaty, except for the provisions of Article 25 (Exchange of Information).

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 183 days in any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 10%
  • Interest - 10%, although an exemption applies for interest that arises in respect of any debt instrument listed on a recognized stock exchange
  • Royalties - 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 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 deriving more than 50% 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.

Double Taxation Relief

Both counties apply the credit method for the elimination double taxation. A provision is also included for a tax sparing credit whereby Mauritius will consider the tax payable in South Africa to include the tax which is otherwise payable but has been reduced or waived by South Africa in order to promote economic development.

MFN Clause

A protocol to the treaty, signed the same date, includes the provision that if South Africa enters into a tax treaty with any other state that provides for a lower rate of tax on dividends, South Africa must inform Mauritius and enter into negotiations to provide comparable treatment.

Effective Date

The treaty applies from 1 January 2016.

The 1996 tax treaty between the two countries is terminated with effect from 28 May 2015, and ceases to have effect for any period for which the provisions of the new treaty apply.

Mexico-Saint Lucia

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Mexico Ratifies TIEA with Saint Lucia

On 9 June 2015, Mexico ratified the pending tax information agreement with Saint Lucia. The agreement, signed 9 July 2013, is the first of its kind between the two countries and is in line with the OECD standard for information exchange. It will enter into force after the ratification instruments are exchanged.

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