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Approved Changes (5)

Australia

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Australia Sets 2015 Benchmark Interest Rate for Private Company Loans to Shareholders

On 15 July 2015, the Australian Commissioner of Taxation issued a taxation determination (TD 2015/15) setting the benchmark interest rate for private company loans at 5.45% for the income year beginning 1 July 2015. The rate is used for determining required repayments of amalgamated private company loans to shareholders. If repayments do not meet or exceed the determined repayment amount, the difference between the required payment and the actual payment made is treated as a deemed dividend.

The benchmark interest rate is relevant to private company loans made or deemed to have been made after 3 December 1997 and before 1 July 2015; and to trustee loans made after 11 December 2002 and before 1 July 2015.

Brazil

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Brazil Introduces a Special Federal Fund to Compensate State Losses from Changes in ICMS that will be Funded by a New Unreported Foreign Asset Program

On 14 July 2015, Brazil published Provisional Measure (PM) No. 683/2015 in the Official Gazette, which creates a special federal fund (FDRI) to compensate Brazilian states for the expected losses resulting from changes in the country's application of ICMS (VAT on interstate sales). The ICMS changes involve shifting ICMS revenue from the state of the supplier to the state of the final consumer (previous coverage).

Under PM 683, the funding of the FDRI will come from penalties imposed under a new repatriation program for unreported foreign assets. Although that program has not yet been finalized, it will reportedly include a special income tax rate of 17.5% as well as a penalty of 17.5% on the previously undeclared asset value. Taxpayer's would have to report the foreign assets within180 days from the date the regulations for the program are issued.

Additional details will be published once available.

Iceland

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Iceland Adopts Legislation implementing 39% One-Off Stability Levy on Certain Financial Undertakings

On 3 July 2015, the Icelandic Ministry of Finance and Economic Affairs announced the adoption of a 39% one-off stability levy on certain financial undertakings to be paid in four installments in 2016.

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The Icelandic parliament Althingi today passed the Bill of the Minister of Finance and Economic Affairs on a stability levy, concerning which a political consensus was achieved in the Althingi. The new Act on a Stability Levy introduces a one-off levy, with the objective of creating the premises for removal of the capital controls introduced in Iceland in the wake of the financial system collapse of 2008.

The objective of the Act is to contribute to the removal of capital controls with economic stability and the interests of the general public the primary concern, by means of a levy which is intended to meet the negative impact in connection with the settlements and fulfillment of obligations by taxable entities following their winding-up proceedings. There was consensus on this matter in the Althingi and the Bill was adopted unanimously.

The newly adopted legislation will impose a levy of 39% on those financial undertakings which previously operated as commercial banks or savings banks and are currently in winding-up proceedings pursuant to the Act on Financial Undertakings or have completed them following a Ruling by a District Court that they are to be placed in liquidation.  If these estates have not concluded composition agreements before the end of this year which satisfy conditions set by the authorities for stability, this tax will be levied on them.

The levy will also be assessed on undertakings which previously operated as commercial banks or savings banks and have concluded their winding-up proceedings but have not been able to fulfill their obligations due to restrictions on foreign currency transactions and cross-border capital movements. The base of the levy is the total assets of the undertakings as of 31 December 2015. From the levy as assessed specified investments by taxable entities in foreign currency may be deducted.

This will be a one-off levy assessed on 15 April 2016 and payable on four due dates spread over that year: 1 May, 1 June, 1 July and 1 August 2016.

The Bill on a Stability Levy was submitted to the Althingi on 8 June this year, following the announcement by the Prime Minister and Minister of Finance and Economic Affairs of a comprehensive action plan for removal of capital controls.  This Bill was drafted in the Ministry of Finance and Economic Affairs in collaboration with the Prime Minister's Office, the Central Bank of Iceland and the Directorate of Internal Revenue.

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Peru Publishes Decree on New R&D Tax Incentive

On 12 July 2015, Peru published Supreme Decree No. 188-2015-EF in the Official Gazette. The decree provides details on an increased deduction for R&D expenses that will be made available for companies engaged in scientific and technological research projects, and technological innovation projects from 1 January 2016.

Projects approved by the National Council of Science, Technology and Technical Innovation (CONCYTEC), will be allowed a 150% or 175% deduction for expenses directly related to the project, including depreciation and amortization of related assets. The increased deduction amount depends on certain factors, including whether the company is conducting the activities itself and whether the project is conducted in Peru or overseas.

A request for approval is to be responded to within 30 days, and once approved, a project will eligible for the increased deduction for up to four years.

United Nations

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U.N. Member States Agree on Addis Ababa Action Agenda including a New Initiative to Improve Tax Systems of Developing Countries

On 15 July 2015, the U.N. announced that agreement had been reached by 193 U.N. Member States on an agenda for a series of measures to overhaul global finance practices and generate investments for tackling a range of economic, social and environmental challenges. The agreement was reached during the U.N. Third International Conference on Financing for Development held in Addis Ababa, Ethiopia. The Action Agenda contains more than 100 measures concerning technology, infrastructure, foreign aid, taxation, climate change and others.

Addis Ababa Tax Initiative

In addition to the Agenda, the Addis Ababa Tax Initiative was launched, which includes a commitment to:

  • Stepping up technical cooperation in tax/domestic revenue mobilization in regard to:
    • Enabling partner countries to take advantage of the progress made on the international tax agenda, such as the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project and tax information exchange including automatic exchange of information (AEoI);
    • Integrating partner countries in the global tax debate; and
    • Improving taxation and management of revenue from natural resources, including concessions and contract negotiations, and a range of matters relating to the international tax agenda;
  • Enhancing domestic revenue mobilization in order to increase the means of implementation for attaining the sustainable development goals and inclusive development; and
  • Ensuring policy coherence for development

The initiative is being supported by a number of global organizations, including the OECD, IMF, World Bank and others, and has so far been signed on to by nearly 30 countries.

Intergovernmental U.N. Tax Body

One important area where agreement was not reached was on the creation of an intergovernmental U.N. tax body. Instead, the Agenda calls for strengthening support for the work of the U.N. Committee of Experts on International Cooperation in Tax Matters to improve its effectiveness and operational capacity.

Click the following link for the Outcome document of the Third International Conference on Financing for Development: Addis Ababa Action Agenda published by the U.N.

Proposed Changes (2)

United Kingdom

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UK Issues Summer Finance Bill 2015

On 15 July 2015 the UK issued the Summer Finance Bill 2015, which includes the measures introduced in the Summer Budget 2015 presented 8 July 2015 (previous coverage). Some of the main measures include reducing the corporation tax rate from 20% to 19% in 2017 and to 18% in 2020, introducing a new 8% charge on banking profits, and no longer allowing a deduction for the acquisition cost of goodwill.

Click the following links for the legislation and supporting documents published by the UK government.

United States

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U.S. Bill introduced in the House of Representatives that would Modify Rules Relating to Inverted Corporations

On 15 July 2015, U.S. Representative Chris Van Hollen D-MD introduced the Generating Renewal, Opportunity, and Work with Accelerated Mobility, Efficiency, and Rebuilding of Infrastructure and Communities Throughout America (GROW AMERICA) Act (Bill H.R. 3064). The legislation includes provisions to modify rules relating to inverted corporations in order to increase tax revenue to fund transportation improvements.

The inversion related provisions of the bill state that when a foreign corporation directly or indirectly acquires substantially all properties or assets of a domestic corporation, the foreign corporation will be treated as an inverted domestic corporation if:

  • 50% or more of the equity or voting stock of the foreign corporation is held by former shareholders of the domestic corporation (or former partners in the case of a domestic partnership); or
  • The management and control of the expanded affiliated group to which the foreign corporation belongs is exercised in the U.S. and the expanded affiliate group has significant business activities in the U.S.

Management and control would be treated as exercised in the U.S if substantially all of the executive officers and senior management of the expanded affiliated group who exercise day-today responsibility for making decisions involving strategic, financial, and operational policies of the expanded affiliated group are based or primarily located within the U.S. Individuals who exercise such day-to-day responsibilities will be considered as "executive officers and senior management" whether they have such a title or not.

Significant business activities are defined as when 25% or more of a group's employees, sales or assets are located in the U.S.

If approved, the changes would apply for inversions completed after 8 May 2014.

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