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Approved Changes (1)

Ukraine

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Ukraine Transfer Pricing Rules Amendments have Entered into Force

The amendments to Ukraine's transfer pricing rules (previous coverage) entered into force on 13 August 2015, following publication in the country's Official Gazette. The amendments include:

  • The non-application of the rules to VAT is clarified;
  • The thresholds for transactions to be considered controlled is increased;
  • The transfer pricing penalties are adjusted;
  • The transfer pricing annex requirement is canceled;
  • The period to reply to an information request is extended; and
  • The conditions considered for a jurisdiction to be included in the CMU tax haven list are reduced.

The amended rules apply for transactions performed in 2015 and subsequent years.

Proposed Changes (3)

Brazil

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Brazilian Senator Proposes Higher CSLL Rate on Financial Institutions and Abolishing JCP Deduction

Brazilian Senator Gleisi Hoffmann has proposed revising Provisional Measure 675/2015 to include a higher increase in the social contribution on profits (CSLL) rate for financial institutions from 15% to 23%, instead of the increase to 20% that is to take effect 1 September 2015 (previous coverage). Except for credit cooperatives, which would be subject to the 20% rate, the proposed 23% rate would apply to:

  • Banks of any kind;
  • Stock and securities distributors;
  • Stock, securities, and currency brokers;
  • Credit, financing, and investment societies;
  • Real estate credit companies;
  • Credit card companies;
  • Leasing companies; and
  • Savings and loan associations.

In addition, to the higher CSLL rate, the Senator has also proposed abolishing the interest on equity capital (JCP) deduction for corporate income tax (IRPJ) and CSLL purposes. The proposal includes a transition period where 50% of the JCP deduction would be allowed in 2016, 25% in 2017, and completely abolished from 2018.

The proposals must first be approved by a special commission and then put to a vote in the Senate and Chamber of Deputies.

Finland

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Finland Publishes Budget Proposal for 2016

On 12 August 2015, Finland's Ministry of Finance published an overview of the budget proposal for 2016. The tax related measures of the proposal focus on shifting taxation from labor and business to excise duties and other indirect taxes. Measures include:

  • Reducing individual income taxation by increasing the earned income deduction by EUR 450 million in 2016;
  • Easing the earned income tax basis in 2016 in line with the change in the Index of Wage and Salary Earnings;
  • Reducing car taxation by EUR 200 million over four years beginning in 2016; and
  • Increasing the tobacco tax, motor vehicle tax, waste tax, and the tax on heating, power plant and working machine fuels by a total of approximately EUR 200 million in 2016.

Click the following links for the overview published by the Ministry of Finance and the full 2016 budget proposal (Finnish Language).

Isle Of Man

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Isle of Man Launches Public Consultation on Lowering the Individual Income Tax Burden and Simplifying Administration

On 14 August 2015, the Isle of Man Income Tax Division of the Treasury launched a public consultation on a number of measures to reduce the tax burden on lower income individuals and simplifying the administration of individual income tax overall. The measures are to apply from the 2016/2017 tax year, and include:

  • Removing the 10% rate band for individual income tax;
  • Increasing the personal allowance to GBP 14,000 (GBP 14,750 if revenue receipts allow);
  • Removing the individual tax return filing requirement for lower income individuals and certain other cases; and
  • Other changes to simplify administration.

Click the following link for the public consultation including instruction for submitting comments, which must be submitted by 9 October 2015.

Treaty Changes (3)

Ethiopia-Poland

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Update - Tax Treaty between Ethiopia and Poland

The income tax treaty between Ethiopia and Poland was signed 23 July 2015. The treaty is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.

Taxes Covered

The treaty covers Ethiopian tax on income and profit, and tax on income from mining, petroleum and agricultural activities. It covers Polish personal income tax and corporate income tax.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 10%
  • Fees for technical, managerial and consultancy services - 10%

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 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 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 countries apply the credit method for the elimination of double taxation.

Limitation of Benefits

The treaty includes a limitation on benefits provision (Article 28), which states that the benefits of the treaty will not be available if the main purpose or one of the main purposes for entering into an arrangement was to obtain the benefits that would not otherwise be available.

Entry into Force and Effect

The treaty will enter into force three months following the exchange of the ratification instruments, and will apply in Ethiopia from 8 July next following the date of its entry into force and in Poland from 1 January of the year following its entry into force.

Hong Kong-Italy

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Tax Treaty between Hong Kong and Italy has Entered into Force

The income tax treaty between Hong Kong and Italy entered into force on 10 August 2015. The treaty, signed 14 January 2013, is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Hong Kong profits tax, salaries tax and property tax. It covers Italy's personal income tax, corporate income tax and the regional tax on productive activities (IRAP).

Residence

If a company is considered resident in both Contracting Parties, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement based on its place of effective management. If the authorities cannot reach mutual agreement, the company will not be entitled to claim any relief or exemption from tax provided for by the treaty.

Construction / Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted if a building site, a construction, assembly or installation project or supervisory activities last more than six months in a Contracting Party. In addition, a permanent establishment will be deemed constituted if an enterprise furnishes services through employees or other engaged personnel in connection with a site, a project or supervisory activities if such services continue for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 12.5%
  • Royalties - 15%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 21 (Other Income) will not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest, royalties or other income are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

Capital Gains

The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:

  • Gains from the alienation of immovable property situated in the other Party;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
  • Gains from the alienation of shares of a company deriving 50% or more of its asset value directly or indirectly from immovable property situated in the other Party, unless such shares are quoted on a stock exchange of either Contracting Party or other exchange as may be agreed to by both Contracting Parties

Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.

Double Taxation Relief

Both jurisdictions generally apply the credit method for the elimination of double taxation.

Effective Date

The treaty applies from 1 January 2016 in Italy and from 1 April 2016 in Hong Kong.

Philippines-Cambodia-Hong Kong-Laos-Mexico-Myanmar

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Philippines Announces Negotiation Status of Tax Treaties with Cambodia, Laos, Mexico, and Myanmar and TIEA Negotiations with Hong Kong

The Philippine Bureau of Internal Revenue recently announced that tax treaty negotiations are ongoing with Cambodia, Laos, Mexico and Myanmar. Negotiations are also ongoing for a tax information exchange agreement with Hong Kong. The treaties and agreement will be the first of their kind between the Philippines and the respective jurisdictions, and must be finalized, signed and ratified before entering into force.

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