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Approved Changes (3)

Argentina

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Argentina Extends Financial Transaction Tax through 2017

On 4 November 2015, Argentina published Law No. 27199, which extends the country's financial transactions tax (bank tax) through 31 December 2017. The financial transactions tax is levied on debits and credits to current accounts at a rate of 0.6% per transaction. Of the amount levied on credits, 0.2% may be taken as an advance payment of income tax or minimum presumed income tax.

The law also extends the special tax regime for small taxpayers, and the taxes on cigarettes, lottery and gambling.

China

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China to Implement Lottery System for Tax Audits

According to a recently published English translation of a notice from China's State Administration of Taxation (SAT), the SAT will implement a lottery system to select taxpayers for audit each year. The system will randomly select about 20% of major taxpayers each year, with no major taxpayer selected more than once every 5 years. It will also select no more than 3% of non-major taxpayers and no more than 1% of non-corporation taxpayers each year.

The lottery system will exclude taxpayers already selected for investigation, including those found to be involved in illegal tax behaviors such as tax dodging, tax evasion, refusal to pay taxes, etc.

South Africa

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South Africa Publishes Updated Interpretation Note on Place of Effective Management

On 3 November 2015, the South African Revenue Service published Interpretation Note 6 (Issue 2) - Resident: Place of Effective Management (Companies), which is an update of the original Note published in 2002.The Note provides guidance on the interpretation and application of the term “place of effective management” in determining the tax residence of a company.

The Note defines a company's place of effective management as the place where key management and commercial decisions that are necessary for the conduct of its business as a whole are in substance made. It also goes into a number of specific issues related to the determination of the place of effective management, including the key facts and circumstances, the location of the head office, the delegation of authority, the location of a company's board, and others.

Click the following link for Interpretation Note 6 (Issue 2), which is effective for years of assessment commencing on or after the date it was published, 3 November 2015.

Treaty Changes (4)

Australia-Germany

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Tax Treaty between Australia and Germany Signed

On 12 November 2015, officials from Australia and Germany signed a new income and capital tax treaty. Once in force and effective, the treaty will replace the 1972 income and capital tax treaty between the two countries, which is currently in force.

Taxes Covered

The treaty covers Australian income tax, fringe benefits tax and resource rent taxes imposed under the federal law of Australia. It covers German income tax, corporate income tax, trade tax and capital tax.

Residence

If a company is considered resident in both Contracting States, its residence for the purpose of the treaty will be based on its place of effective management. If the place of effective management cannot be determined, the competent authorities of both States will determine its residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be considered resident of either State for the purpose of enjoying the benefits of the treaty.

Withholding Tax Rates

Dividends

The Withholding tax rate on dividends is 5% if the beneficial owner is company that has directly held at least 10% of the voting power of the company paying the dividends for a period of at least 6 months including the day the dividends are paid; otherwise 15% (15% rate applies for a German Real Estate AG with listed share capital regardless of meeting conditions for the 5% rate).

Dividends are exempt from withholding if the beneficial owner has directly held shares representing at least 80% of the paying company's voting power for at least a 12-month period ending the date the dividend is declared, and:

  • The beneficial owner's principal class of shares are listed and actively traded on one or more recognized stock exchanges, as set out in the treaty; or
  • The beneficial owner is directly or indirectly owned by a one or more companies:
    • Whose principal class of shares are listed and actively traded on one or more recognized stock exchanges, as set out in the treaty; or
    • Each of which would be entitled to equivalent benefits under a tax treaty if it directly held the shares in respect of which the dividends are paid; or
  • The beneficial owner does not meet any of the above requirements, but the competent authority of the dividend paying State has determined that the beneficial owner does not meet the conditions of Paragraph 2 of Article 23 (Limitation on Benefits).

Interest

The withholding tax rate on interest is 10%. Interest is exempt from withholding if the beneficial owner is a financial institution that is unrelated to and dealing independently with the payer. However, if interest is paid as part of an arrangement involving back-to-back loans or an arrangement with similar effect, the 10% rate applies.

Royalties

The withholding tax rate on royalties is 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 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 or comparable interests that have derived more than 50% of their value directly or indirectly from immovable property situated in the other State at any time during the 365 days preceding the alienation

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

Double Taxation Relief

Australia applies the credit method for the elimination of double taxation, while Germany generally applies the exemption method, including for dividends when the beneficial owner is a Germany company that owns 10% or more of the voting power of the Australian payer and the payer is not tax exempt or able to deduct the dividends. However, Germany applies the credit method for dividends not meeting the previous conditions, interest, royalties and certain other items of income in accordance with German tax law.

Limitation on Benefits

Article 23 (Limitation on Benefits) includes the provision that a benefit under the treaty will not be granted if it is reasonable to conclude that one of the principal purposes of any arrangement or transaction was to obtain the benefit, unless it is established that granting the benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.

Refund of Tax Withheld at Source

If tax is withheld by a Contracting State on dividends, interest, royalties or other items of income at a rate higher than the rate provided for by the treaty, the beneficial owner of the income in the other State may apply for a refund of the excess tax withheld within 4 years from the end of the calendar year in which the income is paid.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged. It will apply in Australia from 1 January next following the date of its entry into force in respect of withholding tax, from 1 April next following its entry into force in respect of fringe benefits tax, and from 1 July next following its entry into force for all other taxes. It will apply in Germany from 1 January next following the date of its entry into force.

Once the new treaty enters into force, the 1972 income and capital tax treaty between Australia and Germany will terminate, although its provisions will continue to apply for periods before the new treaty is effective.

Brazil-Guernsey-Jersey-Cayman Islands-Uruguay

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Brazil Approves TIEAs with Guernsey, Jersey, the Cayman Islands and Uruguay

On 6 November 2015, the Brazilian government approved for ratification the pending tax information exchange agreements with Guernsey, Jersey, the Cayman Islands, and Uruguay.

  • The agreement with Guernsey was signed 6 February 2013, and will enter into force and generally apply 30 days after the ratification instruments are exchanged;
  • The agreement with Jersey was signed 28 January 2013, and will enter into force and generally apply once the ratification instruments are exchanged;
  • The agreement with the Cayman Islands was signed 19 March 2013, and will enter into force and generally apply 30 days after the ratification instruments are exchanged; and
  • The agreement with Uruguay was signed 23 October 2012, and will enter into force and generally apply 30 days after the ratification instruments are exchanged.

Each of the agreements are the first of their kind between Brazil and the respective countries.

Saudi Arabia-Venezuela

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Tax Treaty between Saudi Arabia and Venezuela Signed

On 11 November 2015, officials from Saudi Arabia and Venezuela 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 will be published once available.

United Kingdom-Brazil

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UK Ratifies TIEA with Brazil

On 11 November 2015, the United Kingdom published the order ratifying the pending tax information exchange agreement with Brazil. The agreement, signed 28 September 2012, is the first of its kind between the two countries, and will enter into force and apply once the ratification instruments are exchanged.

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