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Approved Changes (4)

Australia

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Australian Taxation Office Reminds Taxpayers to Provide Notification if Arrangements within Scope of New Anti-Avoidance Law

On 16 March 2016, the Australian Taxation Office (ATO) published a reminder that taxpayers have until 31 March 2016 to provided notification to the ATO or risk facing increased penalties if their arrangements are within the scope of the Multinational Anti-Avoidance Law (MAAL).

The MAAL was introduced as part of the Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015, which received Royal Assent on 11 December 2015 (previous coverage). Under the MAAL, significant global entities (revenue of AUD 1 billion or more) that have entered into arrangements that artificially avoid having a taxable presence in Australia will be taxed as if the arrangement was made through a permanent establishment in Australia. The difference from the adjustment will be subject to double the normal penalties that would normally be imposed.

The MAAL applies to tax benefits obtained on or after 1 January 2016, but if arrangements potentially subject to the law are notified to ATO by 31 March 2016, the increased penalties would not apply.

Click the following link for the ATO reminder and additional information.

Colombia

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Colombian Tax Authority Issues Ruling that Payment to Foreign Providers for Services through Mobile Applications are Subject to Tax

According to a recently published ruling from the Colombian tax authority (DIAN), services provided by non-resident providers to Colombian consumers through mobile applications are considered Colombian-source income and are subject to tax. Payments for such services are subject to 1.5% income tax withholding and 16% value added tax to be withheld by the financial entity processing the related debit or credit card payments. If the taxes due are not withheld, the non-resident service provider is required to file an income tax return.

The ruling was made in relation to the U.S. transportation company Uber, although the position of the DIAN would likely apply to any non-resident provider of services through mobile applications to Colombian consumers.

Switzerland

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A Server in Switzerland May Constitute a PE for VAT Purposes

In a recent decision, the Swiss tax administration determined whether a server located in Switzerland may constitute a permanent establishment (PE). The decision was in regard to a value added tax (VAT) refund claim made by a foreign company that had imported servers and related equipment to be used in a colocation data center in Switzerland. The servers were used for the foreign company's business, which involved providing cloud-based applications access to its customers, all of which are located outside Switzerland.

While a refund claim for import VAT would normally be accepted from a company established outside Switzerland under VAT law, the tax administration rejected the claim in this case because it determined that the servers constituted a permanent establishment. This determination was made because the servers were part of the core business of the foreign company, and did not have only a preparatory or ancillary function.

United States

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U.S. IRS Publishes Practice Units on FDAP Income, Interest Expense Limitation Computation, Foreign Personal Holding Company Income, and Others

The U.S. IRS has recently published five international practice units, including:

International practice units are developed by the Large Business and International Division of the IRS to provide staff with explanations of general international tax concepts as well as information about specific transaction types. They are not an official pronouncement of law, and cannot be used, cited or relied upon as such.

Click the following link for the International Practice Units page on the IRS website.

Proposed Changes (2)

European Union

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EU Parliament Committee Calls for Greater EU Commission Role in CbC Report Exchange and Stricter CbC Reporting Requirements

During a 16 March meeting of the European Parliament Committee on Economic and Monetary Affairs, committee members called for the European Commission to play a greater role in the exchange of Country-by-Country (CbC) reports in the EU. In particular, the committee wants the draft directive for the exchange of CbC reports in the EU to be amended so that reports will also be automatically exchanged between EU Member States and the Commission. In this way, the Commission can directly monitor how the exchange is taking place and report to Parliament on the effectiveness of the automatic exchange system.

In addition to the call for automatic exchange with the Commission, several members of the committee also reportedly called for full public disclosure of CbC reports and stricter reporting requirements, including the use of the EU Accounting Directive threshold for large companies (EUR 40 million revenue, 250 employees) instead of the recommended EUR 750 million, and setting an earlier filing deadline than the recommended 12 months after the fiscal year concerned. While some form of public disclosure is possible, such extreme deviation from the OECD guidelines regarding thresholds and deadlines is unlikely.

Poland

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Poland Proposes Increased R&D Incentives, Reduced Tax Rate for Small Taxpayers, New Anti-avoidance Measures and Other Changes

Poland's Ministry of Finance has recently proposed a number of draft amendments to the Corporate Income Tax Law. The main proposals are summarized as follows

Increased R&D Incentives

Under Poland's current R&D incentives, which have only been effective since 1 January 2016, SME's and micro-enterprises are allowed to deduct 120% of eligible R&D expenses, large companies are allowed to deduct 110% of eligible R&D expense, and all companies are allowed to deduct 130% of salary/wages and social security contributions for R&D employees (previous coverage). The changes proposed by the Ministry of Finance include:

  • Increasing the deduction to 150% of all eligible expenses for SMEs and micro-enterprises;
  • Increasing the deduction to 150% of R&D employee expenses and 130% of all other eligible expenses for large companies;
  • Expanding eligible expenses to include the acquisition of patents in Poland or abroad;
  • Extending the carry forward of unused R&D deductions from three years to six years;
  • Introducing a cash refund for unused deductions for startups; and
  • Introducing additional relief equal to 50% of the increase in R&D expenditure in a year in relation to the average expenditure in the previous three years, with the condition that the R&D expenditure amount in a year is at least 50% more than the average (example: if average is 100 in previous three years and expenditure in current year is at least 150, then additional relief of 50% of the difference (25) would be available)

Reduced Tax Rate for Small Taxpayers and Startups

A reduced corporate income tax rate of 15% is proposed for small taxpayers with annual sales below EUR 1.2 million and for startups for the first year operations begin. The reduced rate would not apply for new operations resulting from the restructuring of a former taxpayer.

Clarification of Taxation of Polish-source Income

The proposal would clarify the taxation of Polish-source income, especially for cases where there is no applicable tax treaty between Poland and the jurisdiction of the non-resident receiving the income. The proposal includes a list of items of income that would automatically be subject to Polish income tax if not covered by a treaty, including:

  • Income from securities or derivatives traded on the Polish stock exchange;
  • Income from receivables paid by individuals or corporate or non-corporate entities resident in Poland;
  • Income from any activity carried out in Poland, including activities of permanent establishments;
  • Income from real estate, rights to real estate, or the sale of real estate situated in Poland; and
  • Income from the sale of shares in Polish companies, partnerships, or investment funds, the assets of which consist (majority) of real estate situated in Poland.

Clarification of the Tax Exemption for Interest and Royalties

The law would be amended to introduce the" beneficial ownership" concept in order to clarify that the exemption under the EU Interest and Royalties Directive (Directive 2003/49/EC) applies for the beneficial owners of interest and royalty payments.

Anti-avoidance Measures

Certain measures are proposed targeting tax avoidance in relation to share exchanges, reorganizations and transfers:

  • The conditions for the tax exemption for the exchange of shares would be modified so that the exemption will only apply for an exchange of shares if performed for sound economic reasons and not only for tax purposes;
  • Mergers and divisions would assume to be motivated by tax purposes and subject to tax assessment if no sound economic reasons can be shown; and
  • The value of in-kind contributions of assets to corporate entities would be specified as the value indicated in the company's articles of association and not the nominal value of shares issued to the taxpayer as is often argued currently to limit income tax on assets transfers (not applicable for an enterprise or organized part of an enterprise).

Effective Date

As proposed, the above changes would apply from 1 January 2017. The proposal must be finalized by the government, submitted to parliament for approval, and signed into law by the president before entering into force.

Treaty Changes (2)

Belarus-Kazakhstan

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Protocol to the Tax Treaty between Belarus and Kazakhstan Signed

On 16 March 2016, officials from Belarus and Kazakhstan signed a protocol to the 1997 income and property tax treaty between the two countries. The protocol is the first to amend the treaty, and reportedly adds an article on the income of teachers and researchers, amends Article 4 (Residence), and replaces Article 26 (Exchange of Information) to bring it in line with the OECD standard for information exchange. It will enter into force after the ratification instruments are exchanged.

Singapore-Untd A Emirates

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Protocol to the Tax Treaty between Singapore and the U.A.E. has Entered into Force

On 16 March 2016, the protocol to the 1995 income tax treaty between Singapore and the United Arab Emirates entered into force. The protocol, signed 31 October 2014, is the first to amend the treaty. The main amendments made by the protocol are as follows.

Permanent Establishment

Article 5 (Permanent Establishment) is amended so that the period of time for a construction PE to be deemed constituted is increased to 12 months, and the period of time for a service PE to be deemed constituted is increased to 300 days. In addition, provisions are added concerning a fixed place of business engaged in a combination of exempt activities of a preparatory or auxiliary character, and the provisions concerning agent PEs are amended.

Withholding Tax Rate Changes

  • Dividends - reduced to 0% (originally 5%)
  • Interest - reduced to 0% (originally 7%)

Royalties

Article 12 (Royalties) is amended by the removal of payments for the use of, or the right to use, industrial, commercial or scientific equipment from the definition of the term royalties.

Limitation of Relief

Article 22 (Limitation of Relief) is deleted. Subsequent Articles are not renumbered.

Exchange of Information

Article 26 (Exchange of Information) is replaced to bring it in line with the OECD standard for information exchange.

Other Changes

The protocol also makes amendments to Articles 3 (General Definitions), 4 (Residence), 9 (Associated Enterprises) and 13 (Independent Personal Services).

Effective Date

The protocol applies in respect of withholding taxes from 1 January 2017, and for other taxes from 1 January 2018. The new Article 26 (Exchange of Information) applies for requests made on or after 16 March 2016 concerning tax periods beginning on or after 1 January 2017.

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