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Approved Changes (1)

Belarus

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Belarus Adopts Legislation for VAT on Foreign E-Service Supplies

On 6 October 2016, the Belarusian parliament adopted legislation introducing new value added tax (VAT) requirements for foreign suppliers of e-services to Belarusian residents. Under the new requirements, foreign suppliers making e-service supplies to individuals in Belarus (B2C) are required to register for VAT in Belarus, file returns, and pay the amount of VAT due at the standard 20% rate. Where a supply is made through a foreign intermediary, the requirements apply for the intermediary.

The types of e-service supplies subject to VAT under the new rules include:

  • Online software access, including games and databases;
  • Online access to e-books, music, video, and other digital content;
  • Online advertising services;
  • Online sales platform services;
  • Webhosting and domain services; and
  • Various other services provided online.

For the purpose of the VAT liability, a supply to an individual will be considered to be in Belarus if:

  • The individual is resident in Belarus;
  • Payment for the e-service is facilitated through a bank or other e-payment provider located in Belarus;
  • The individual uses a Belarusian IP when purchasing the e-service; or
  • The individual uses a Belarusian telephone number to purchase the e-service

The new VAT requirements are to apply from 1 January 2018 (updated).

Proposed Changes (2)

United Kingdom

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Criminal Finance Bill Submitted to UK Parliament including a New Criminal Offense for Failing to Prevent Tax Evasion

On 13 October 2016, the Criminal Finances Bill (HC Bill 75) was submitted to the UK House of Commons. The Bill includes measures to significantly improve the government’s ability to tackle money laundering and corruption, recover the proceeds of crime, and counter terrorist financing.

Criminal Offense for Failing to Prevent Tax Evasion

One of the main measures of the bill affecting corporate taxpayers is making it a criminal offense where a relevant body fails to prevent an associated person from criminally facilitating the evasion of a tax, whether the tax evaded is owed in the UK or in a foreign country. For this purpose, a relevant body means an incorporated body or partnership, regardless of whether it is established under UK law or the law of a foreign jurisdiction. An associated person means an employee, agent or other person who performs services for or on behalf of the relevant body, and can be an individual or an incorporated body.

Stages for the Criminal Offense

For both domestic and foreign tax evasion, the new criminal offense involves three stages:

  • Stage one: the criminal tax evasion by a taxpayer (either an individual or a legal entity) under existing law;
  • Stage two: the criminal facilitation of the tax evasion by an associated person of the relevant body who is acting in that capacity; and
  • Stage three: the relevant body's failure to prevent its representative from committing the criminal facilitation act.

If stage one and two offenses are committed, then the relevant body will be criminally liable unless it can show that it has put in place reasonable preventative procedures to prevent the criminal facilitation of tax evasion by an associated person, or it is unreasonable to expect such procedures.

For foreign offenses, the following conditions must also be met:

  • UK Nexus: the foreign tax offense is committed by a relevant body:
    • Incorporated under UK law;
    • Carrying on a business or other undertaking from a permanent establishment within the UK; or
    • Whose associated person is located within the UK at the time of the criminal act that facilitates the evasion of the overseas tax; and
  • Dual Criminality:
    • The overseas jurisdiction must have an equivalent tax evasion offense at the taxpayer level and it must be the case that the actions carried out by the taxpayer would constitute a crime if they took place in the UK; and
    • The overseas jurisdiction must have an equivalent offense covering the associated person’s criminal act of facilitation, and it must be the case that the actions of the associated person would constitute a crime had they taken place in the UK.

Prosecution and Penalties

UK offenses will be investigated by HMRC and prosecutions brought by the Crown Prosecution Service (CPS). Foreign offenses will be investigated by the Serious Fraud Office (SFO) or National Crime Agency (NCA) and prosecutions brought by either the SFO or the CPS.

The penalties for the criminal offense will include:

  • Unlimited financial penalties; and
  • Ancillary orders such as confiscation orders or serious crime prevention orders.

A Deferred Prosecution Agreement (DPA), which can be used for fraud, bribery and other economic crimes, will also be available for the new criminal offense in certain cases.

For more information, click the following links for the Criminal Finances Bill (HC Bill 75) and the Government guidance for the corporate offense of failure to prevent the criminal facilitation of tax evasion.

United States

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Update - U.S. Chamber of Commerce Lawsuit Challenging Rule Allowing IRS to Disregard Recent Acquisitions in Determining Inversion Thresholds

On 11 October 2016, both sides filed motions in the case of Chamber of Commerce of the United States of America et al. v. IRS et al. in an attempt to end the case on technical grounds. The plaintiffs have asked a U.S. District Court to set aside the so-called Multiple Acquisition Rule that applies in relation to the inversion thresholds under IRC § 7874 in an effort to respond to the government’s motion to dismiss for lack of subject matter jurisdiction.

Motion for Summary Judgment

In its Memorandum in Support of its Motion for Summary Judgment, the plaintiffs reiterated the claim in their initial complaint that Treasury regulation 1.7874-8T is unlawful. That section disregards stock issued by a foreign corporation in U.S. acquisitions that occur in the three years before the signing date of a pending domestic entity acquisition. The plaintiffs argue that the rule exceeds statutory authority, constitutes an arbitrary and capricious change in agency policy, and was promulgated without providing notice and opportunity to comment in violation of the Administrative Procedure Act (APA). In particular, the memo contends that given the Treasury Department does not have authority to alter the statutory ownership percentage thresholds of § 7874, it in turn does not have the authority to modify the numerator and denominator that establish the statutory percentage. Treasury can alter the application of § 7874's numerical test "only when the transacting parties seek to avoid the statute's purposes by manipulating the relevant ownership percentages through artificial schemes," the plaintiffs contend.

The plaintiffs further believe that Treasury did not make a good-cause finding, nor did they provide any rationale in the rule itself, as is mandated by the APA.

The plaintiffs also more broadly focus on the U.S. worldwide taxation system in their memoranda, stressing that "U.S.-based multinational corporations are at a disadvantage to those incorporated elsewhere" and that businesses are given only two undesirable options: (i) to indefinitely defer U.S. taxes on foreign income by keeping it out of the U.S. and, as a result "hampering capital investment, job creation, and economic development…"; or (ii) to invert, which enables companies to invest income earned abroad in the U.S. "without suffering additional U.S. taxes."

Motion to Dismiss

The IRS argued in its Motion to Dismiss that the plaintiffs lack standing to bring suit, as no individual member has been shown to have standing, and that the Anti-Injunction Act (AIA) bars their suit. Further, the IRS argues the claim that the rule precludes specific inversions fails to identify a specific transaction that would be subject to the rule and "overstates the impact of the rule." The rule does not block inversions, the agency writes in its motion.

The failed Pfizer Inc.-Allergan PLC merger (cited in the initial complaint) is past harm, the IRS continued, even if it could be traced to the rule. The government contends that the plaintiffs failed to show that setting aside the rule would redress the harm in that particular transaction. This is not the type of imminent future harm required for standing, they said.

The relief the plaintiffs request is exactly the type of pre-enforcement interference the AIA prohibits, the government argues. The Act states that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person." While plaintiffs’ claims fail to satisfy the judicial exceptions to the AIA recognized by the Supreme Court, the IRS argues, they could get redress by filing a refund suit," the motion states. In addition, the IRS contends that the plaintiffs cannot meet the exception applicable when it is apparent the government cannot ultimately prevail, and equity jurisdiction otherwise exists. The IRS’ motion states that it has a strong position on the merits, arguing that it was given the authority by Congress to prevent avoidance of the purposes of § 7874 and to prescribe regulations to determine whether a corporation is a surrogate foreign corporation, including to "treat stock as not stock.

Treaty Changes (7)

Brazil-Paraguay

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Brazil and Paraguay to Negotiate Tax Treaty

According to a release from the Paraguayan government, Brazilian President Michel Temer and Paraguayan President Horacio Cartes met 3 October 2016 and agreed on the need to negotiate an income tax treaty. It is unclear if the negotiations will be for amendments to the tax treaty signed between the two countries in September 2000 (not yet ratified) or the drafting of an entirely new treaty.

Georgia-Kyrgyzstan

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Tax Treaty between Georgian and Kyrgyzstan Signed

On 13 October 2016, officials from Georgia and Kyrgyzstan signed an income tax treaty. The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

Additional details of the treaty will be published once available.

Guernsey-Seychelles

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Tax Treaty between Guernsey and Seychelles has Entered into Force

The income tax treaty between Guernsey and Seychelles entered into force on 12 October 2016. The treaty, signed 27 January 2014, is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Guernsey income tax, and Seychelles business tax, income and non-monetary benefits tax, and petroleum income tax.

Service PE

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

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • 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; 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 jurisdictions apply the credit method for the elimination of double taxation.

Effective Date

The treaty applies from 1 January 2017.

Indonesia-Laos

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Indonesia Ratifies Pending Tax Treaty with Laos

Indonesia has published the decree ratifying the pending income tax treaty with Laos. The treaty, signed 8 September 2011, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Indonesia income tax, and Lao tax on profits (income) of enterprises and organizations, and tax on income of individuals.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when 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 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 15%
  • Interest - 10%
  • 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 movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares of the capital stock of a company, or of an interest in a partnership or a trust, the property of which consists principally of 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.

Limitations on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 13 (Capital Gains) will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of any share, debt-claim, property or right in respect of which the income is paid or gains are derived was to take advantage of these Articles by means of that creation or assignment. The limitation is included in each of the Articles.

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 in respect of withholding taxes from 1 January of the year following its entry into force, and in respect of other taxes from 1 January of the second year.

Korea, Rep of-Trin & Tobago

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South Korea and Trinidad and Tobago to Negotiate Tax Treaty

According to a release from the Trinidad and Tobago Foreign Ministry, the first round of negotiations for an income tax treaty with South Korea will be held in December 2016. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Singapore-Japan-Korea, Rep of

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Singapore Signs Agreements for Automatic Exchange of Financial Account Information with Japan and South Korea

Singapore has signed competent authority agreements for the automatic exchange of financial account information with Japan on 13 October 2016 and with South Korea on 14 October 2016. Under the agreements, each country will automatically exchange information on accounts held in the respective country by tax residents of the other country based on the OECD Common Reporting Standard (CRS). The automatic exchange is to begin by September 2018.

United States

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U.S. IRS Publishes Revised Publication 901 on Income Tax Reductions / Exemptions under Tax Treaties

The U.S. IRS has published Publication 901 (Rev. September 2016), which covers whether a tax treaty between the U.S. and a particular country offers a reduced rate of, or possibly a complete exemption from, U.S. income tax for residents of that particular country. The publication contains discussions of the exemptions from tax and certain other effects of the tax treaties on the following types of income:

  • Pay for certain personal services performed in the U.S.;
  • Pay of a professor, teacher, or researcher who teaches or performs research in the U.S. for a limited time;
  • Amounts received for maintenance and studies by a foreign student or apprentice who is in the U.S. for study or experience; and
  • Wages, salaries, and pensions paid by a foreign government.

Click the following link for Publication 901 (Rev. September 2016).

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