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Worldwide Tax News

Approved Changes (1)

Australia

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Australia Launches Consultation on New Financial Statement Submission Requirements for Large Multinationals

The Australian Taxation Office has launched a public consultation on the new requirement to submit general purpose financial statements by the due date of the tax return, unless already required to submit with the Australian Securities and Investments Commission. The requirement was introduced in the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 (previous coverage) and applies for income years beginning on or after 1 July 2016 for corporate tax entities (either an Australian resident entity or foreign resident entity operating an Australian permanent establishment) that are considered significant global entities. Significant global entities include a global parent entity with an annual global income of AUD 1 billion or more, or a member of a consolidated group meeting that threshold.

The consultation seeks input to address any difficulties or complexities that may arise in meeting the new requirement, including in relation to:

  • The entities affected by this measure;
  • The general purpose financial statement and the applicable accounting standards for preparation;
  • How the general purpose financial statement is to be provided;
  • Additional guidance that may be needed; and
  • Certain other areas.

Click the following link for the consultation page. Comments are due by 30 September 2016.

Proposed Changes (5)

Czech Rep

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Czech Republic Consults on CbC Reporting Legislation

The Czech Ministry of Finance has launched a public consultation on draft legislation (Czech language) for the introduction of Country-by-Country (CbC) reporting requirements in line with Action 13 of the OECD BEPS project, and the requirements included in Council Directive (EU) 2016/881 on the exchange of CbC reports (previous coverage). The consultation runs through 30 August 2016, after which final draft legislation will be submitted to parliament for approval.

As drafted, the CbC reporting requirement will apply for fiscal years beginning on or after 1 January 2016 for Czech-parented MNE groups meeting the standard consolidated group revenue threshold of EUR 750 million in the previous year (or equivalent in Czech koruna based on the January 2015 exchange rate).

The draft legislation also provides for secondary reporting requirements, whereby a CbC report will need to be filed by a constituent entity in the Czech Republic or a surrogate parent entity if the Czech authorities are unable to obtain a CbC report through exchange from the ultimate parent's jurisdiction of residence. In general, the secondary reporting requirements will apply for fiscal years beginning on or after 1 January 2017. However, this one-year deferral will not apply if a surrogate entity has been designated.

When required, the CbC report will be due within 12 months following the end of the ultimate parent's fiscal year. Compliance failures will result in penalties of up to CZK 3 million.

Finland

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VAT Return Filing Changes Included in Finland Budget for 2017

Finland's Ministry of Finance recently published the draft budget for 2017, which includes measures concerning value added tax (VAT) and other tax changes. One of the main measures is a proposed change in the annual revenue thresholds that determine the required frequency for filing value added tax (VAT) returns. Currently, the standard VAT return period is monthly, although taxpayers with annual revenue not exceeding EUR 50,000 may file quarterly, and those with annual revenue not exceeding EUR 25,000 may file annually. The proposed changes would increase those thresholds to EUR 100,000 and EUR 30,000 for quarterly and annual filing respectively.

Other proposed measures include allowing VAT payers with revenue below EUR 500,000 to pay VAT when payments for supplies are received (versus when invoiced), expanding the ability to offset losses, and indexing individual income tax brackets for inflation.

Click the following links for an English language release on the budget from the Ministry of Finance and the text of the draft budget (Finnish language).

Guatemala

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Guatemala Tax Reform Legislation Includes Increased Corporate Tax Rate

Guatemala's Ministry of Finance has announced that legislation including a number of tax reform measures has been submitted to Congress. The main measures include:

  • Increasing the corporate tax rate from 25% to 29%;
  • Allowing the carry forward of ordinary operating losses for up to four years (currently, no carry forward allowed);
  • Introducing accelerated depreciation for fixed assets; and
  • Introducing a tax regularization regime.

Additional details of the reform measures will be published once available.

Philippines

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Philippine 2017 Budget to Include Tax Rate Cuts

The Philippine's 2017 Budget was submitted to Congress on 15 August 2016. While short on details, President Rodrigo Duterte's budget message includes a tax reform package with the following proposals:

  • Reducing the top corporate tax rate from 30% to 25%;
  • Reducing the top individual income tax rate from 32% to 25%;
  • Expanding the value added tax base and indexing oil excise taxes to inflation (to offset the corporate and individual tax rate cuts);
  • Improving the systems and capacity of the Bureau of Internal Revenue and Bureau of Customs; and
  • Strengthening the fight against tax evasion by relaxing the Bank Secrecy Law and amending the Anti-Money Laundering Act to make tax evasion a predicate crime to money laundering.

Click the following link for the President's Budget Message.

United Kingdom

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UK Issues Multiple Consultations on Making Tax Digital

On 15 August 2016, UK HMRC issued six separate consultations related to the initiative for Making Tax Digital, as well as an overview consultation on the main design choices. The consultations and brief descriptions are as follows.

Making Tax Digital: Bringing business tax into the digital age

This consultation considers how digital record keeping and regular updates should operate. The proposals allow tax to be integrated into day to day business activity and enable businesses to provide a single update for multiple taxes, while offering maximum flexibility - for example as to when a business makes accounting adjustments or claims for allowances and reliefs - so that tax requirements fit in with existing business practices.

Business Income Tax: Simplifying tax for unincorporated businesses

This consultation seeks views on:

  • Changing how the self-employed map accounting periods onto the tax year (basis period reform);
  • Extending cash basis accounting to larger businesses;
  • Reducing business reporting requirements; and
  • Reducing the need to distinguish between capital and revenue for businesses using cash basis accounting.

Business Income Tax: Simplified cash basis for unincorporated property businesses

This consultation considers the extension of the cash basis to landlords. Its introduction will ease the transition to Making Tax Digital for those landlords who will be required to report at least quarterly.

Making Tax Digital: Voluntary pay as you go

This consultation:

  • Looks at options for customers covered by the requirement for digital record-keeping to make and manage their voluntary payments;
  • Considers how voluntary payments will be allocated across a customer’s different taxes; and
  • Explores the best way of dealing with the repayment of voluntary payments.

Making Tax Digital: Tax administration

This consultation covers aspects of the tax administration framework that need to change to support Making Tax Digital. It also sets out proposals to align aspects of the tax administration framework across taxes including the simplification of late filing and late payment sanctions.

Making Tax Digital: Transforming the tax system through the better use of information

This consultation focuses on how HMRC will make better use of the information currently received from third parties to provide a more transparent service for customers that reduces end of year under- and over-payments. It also explores future ambitions for the use of third party information from 2018 onwards.

Making Tax Digital for Business - an overview of the main design choices from the consultations

This consultation includes a summary of the main issues included in the six full consultations and specific questions that are aimed at small businesses and smaller landlords.

The deadline to submit comments for all the consultations is 7 November 2016.

Treaty Changes (3)

Brazil-Poland

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Tax Treaty between Brazil and Poland under Negotiation

According to a recent update from the Polish government, negotiations are underway for an income tax treaty with Brazil. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Costa Rica-Germany

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Tax Treaty between Costa Rica and Germany has Entered into Force

The income and capital tax treaty between Costa Rica and Germany entered into force on 10 August 2016. The treaty, signed 13 February 2014, is the first of its kind between the two countries, although a tax treaty had been signed in 1993, but never ratified.

Taxes Covered

The treaty covers Costa Rican income tax, the tax on immovable property and the tax on vehicles, ships and aircraft. It covers German income tax, corporation tax, trade tax and capital tax.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is company directly holding at least 20% of the paying company's capital; otherwise 15%
  • Interest - 0% for interest paid in respect of a sale on credit of commercial or scientific equipment, a sale on credit of goods by an enterprise to another enterprise, and any loan made by a bank resident in a Contracting State; otherwise 5%
  • Royalties - 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 shares or similar rights in a company, the assets of which directly or indirectly consist principally of immovable property situated in the other State; and
  • Gains from the 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

Costa Rica applies the credit method for the elimination of double taxation, while Germany generally applies the exemption method. However, Germany may apply the credit method for dividends, interest, royalties and certain other items of income in accordance with German tax law.

Effective Date

The treaty applies from 1 January 2017.

India-Mauritius

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Protocol to the Tax Treaty between India and Mauritius has Entered into Force

The protocol to the 1982 income and capital tax treaty between India and Mauritius entered into force on 19 July 2016. The protocol, signed on 10 May 2016, is the first to amend the treaty.

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, except for those mentioned in Articles 14 (Independent Personal Services) and 15 (Dependent Personal Services), as consideration for managerial, technical or consultancy services, including the provision of services of technical or other personnel.

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 applicable 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.

Effective Date

The protocol generally applies in India from 1 April 2017 and in Mauritius from 1 July 2017. However, the protocol specifically provides that the changes in Article 13 (Capital Gains) apply from the 2018-19 year of assessment, and the new articles on exchange of information and assistance in tax collection apply from the date of the protocol's entry into force, 19 July 2016.

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