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Approved Changes (3)

Croatia

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Croatia Publishes Rules for Concluding APAs

The Croatian Tax Administration has announced the entry into force on 29 April 2017 of new rules on the procedures for entering into advance pricing agreements (APAs) on transfer pricing. Main aspects of the rules include:

  • APAs may be concluded as unilateral, bilateral, or multilateral;
  • The general APA process includes five main steps:
    • The initial application;
    • Initial consultation (if application not rejected);
    • Formal submission of declaration to conclude the APA;
    • Conclusion of the APA;
    • Monitoring and implementation of the APA;
  • Once concluded, APAs may apply for up to five years, and may be extended if application for extension is made six months before expiration;
  • APAs may be terminated or revoked by the Tax Administration in cases where:
    • There are errors or omissions in the declaration to conclude the APA and related documentation submitted;
    • The taxpayer fails to comply with the conditions of the APA;
    • There is a significant deviation in one or more critical assumptions; or
    • There was a change in relevant regulations, including provisions of a tax treaty, resulting in a change in circumstances that cannot be resolved through amendments to the APA;
  • Costs to the taxpayer for conclusion of a unilateral APA range from HRK 15,000 to 50,000 depending on the amount of revenue in the taxpayer's last tax return - costs increased by HRK 50,000 for a bilateral APA and by HRK 100,000 for a multilateral APA.

Click the following link for the full text of the APA rules (Croatian language). Initial applications can be sent via email to: sporazum.tc@porezna-uprava.hr.

Malaysia

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Malaysia Announces Increased Penalty for Undeclared and Under Declared Income

The Inland Revenue Board of Malaysia has published a media release on the implementation of a 100% penalty on the additional tax payable resulting from undeclared and under declared income. The 100% penalty will apply in various cases, including:

  • Repeated offences of undeclared or incorrectly declared income received by way of a return form;
  • Refusal to give full co-operation during an audit or investigation process;
  • Failure to give information or documents requested to assist in an audit or investigation process;
  • Carrying out an organized tax evasion scheme; and
  • Failure to comply with the tax law even though the taxpayer has been audited or investigated before.  

The 100% penalty will be imposed from 1 January 2018.

Russia

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Russia Clarifies Input VAT Deductibility for Services Provided to a Non-Resident

The Russian Ministry of Finance has issued Letter No. 03-07-08/18280, which clarifies the deductibility of input VAT on goods, works, or services  acquired in relation to the provision of services by a Russian entity to a non-resident. The letter clarifies that whether input VAT is deductible depends on the place of supply of the services (and whether they are subject to VAT). In general, if the place of business of the entity receiving the services is in Russia, the service is deemed supplied in Russia, is subject to VAT, and input VAT deduction is allowed. If the entity receiving the service is registered and operates in a foreign country, the service is not deemed supplied in Russia, is not subject to VAT, and input VAT deduction is not allowed. In such case, the only way to recover the input VAT amount is for the Russian supplier to include the amount accordingly in the cost of the service to the non-resident.

Treaty Changes (6)

Barbados-Cyprus

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Update - Tax Treaty between Barbados and Cyprus

The income tax treaty between Barbados and Cyprus was signed on 3 May 2017. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Barbados income tax and corporation tax, and covers Cyprus income tax, corporate income tax, the special contribution for the defense of the Republic, and capital gains tax.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • Royalties - 0%

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 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.

Offshore PE

Article 20 (Offshore Activities) provides that a permanent establishment will be deemed constituted if a resident of one Contracting State carries on offshore activities in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in the other State, if such activities continue for a period or periods aggregating more than 30 days in any 12-month period. In determining if the 30-day period has been exceeded, activities of an associated enterprise that are substantially the same will be included.

Article 20 also provides that gains derived by a resident of one Contracting State may be taxed by the other State if derived from the alienation of exploration or exploitation rights, property situated in the other State used in connection with exploration or exploitation, and shares deriving the greater part of their value directly or indirectly from such rights or property.

Double Taxation Relief

Both jurisdictions 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 from 1 January of the year following its entry into force.

Ghana-Netherlands

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Update - Protocol to Tax Treaty between Ghana and the Netherlands

The amending protocol to the 2008 income and capital tax treaty between Ghana and the Netherlands was signed on 10 March 2017. The protocol:

  • Replaces the title and preamble to introduce language developed under BEPS Action 6 that the Contracting States intend to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through evasion or avoidance;
  • Amends Article 3 (General Definitions) with respect to competent authority for Ghana;
  • Inserts Article 24A (Entitlement to Benefits), which provides that a benefit of the treaty will not be granted in respect of income or capital gains if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit;
  • Amends Article 27 (Exchange of Information) with regard to the use of exchanged information for other purposes and requests for information held by banks and other financial institutions
  • Replaces Article 28 (Assistance in the Collection of Taxes);
  • Amends Article 30 (Territorial Extension) with respect to the extension of the treaty to any part of the Kingdom of the Netherlands that is not situated in Europe; and
  • Amends the final protocol to the treaty with respect to certain changes above.

The protocol will enter into force on the last day of the month following the month in which the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

Iceland-Japan

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Tax Treaty between Iceland and Japan under Negotiation

According to a release from Japan's Ministry of Finance, the first round of negotiations for an income tax treaty with Iceland began 17 May 2017. 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.

Kuwait-Tanzania

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Kuwait to Negotiate Tax Treaty with Tanzania

According to recent reports, Kuwait has expressed interest in negotiating an income tax treaty with Tanzania during a 12 May 2017 meeting between officials from the two countries. Any resulting treaty would be the first of its kind between the two jurisdictions, and will need to be finalized, signed, and ratified before entering into force.

Netherlands-United States

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CbC Exchange Agreement between Netherlands and U.S.

The Netherlands has published the English text of the bilateral competent authority agreement with the U.S. on the exchange of Country-by-Country (CbC) reports. The agreement provides that pursuant to the provisions of Article 30 (Exchange of Information and Administrative Assistance) of the 1992 income tax treaty between the two countries, as amended, each competent authority will automatically exchange CbC reports received from each reporting entity resident for tax purposes in its jurisdiction, provided that, on the basis of the information provided in the CbC report, one or more constituent entities of the MNE group of the reporting entity are resident for tax purposes in the jurisdiction of the other competent authority, or are subject to tax with respect to the business carried out through a permanent establishment situated in the other jurisdiction.

With respect to fiscal years beginning on or after 1 January 2016, CbC reports are to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC report relates. With respect to fiscal years beginning on or after 1 January 2017, reports are to be exchanged no later than 15 months after the last day of the fiscal year.

The agreement was signed by the Netherlands on 6 April 2017 and by the U.S. on 11 April 2017, and is effective from the latter date of signature (11 April).

South Africa-Panama-Singapore-United States

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South Africa Negotiating CbC Exchange Agreements with Panama, Singapore, and the U.S.

According to an update from the South African Revenue Service published 16 May 2017, bilateral competent authority agreements for the exchange of Country-by-Country reports are in process of negotiation or have been finalized with Panama, Singapore, and the United States. The agreements must be signed before entering into force. Details of each will published once available.

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