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Approved Changes (4)

Chile

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Chile's Optional 32% Final Tax Expires end of April

The optional 32% final tax for accumulated profits (positive FUT ledger balance) up to 31 December 2016 will expire 30 April 2017. The 32% tax was introduced in 2015 as part of a transition to Chile's new tax regimes and later extended through April 2017 by Law No. 20.899, which also clarified the application of the two new regimes; the standard attribution regime (AIS) and the partially integrated regime (PIS) (previous coverage). Taxpayers wishing to avail of the 32% rate have until 30 April to make the election and pay the tax due with a credit for first category income tax (FCT) already paid. Once paid, the accumulated profits may be withdrawn/distributed at any time without further taxation.

India

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India Issues Notification on Patent Box Regime Application

India's Central Board of Direct Taxation has issued Notification No. 25/2017 concerning the country's patent box regime, which was introduced as part of the Finance Act, 2016. The regime, which is based on the BEPS modified nexus approach, provides for a concessional tax rate of 10% on royalty income derived by Indian residents from patents developed and registered in India. For this purpose, "developed in India" means that at least 75% of the expenditure for the development of the eligible patent is incurred in India.

Notification No. 25/2017 sets out the rules to apply for the 10% rate on royalty income. This includes that an eligible assessee must electronically furnish Form No. 3CFA under digital signature or through electronic verification code by the deadline for the return on income for the relevant assessment year. The form includes sections on:

  • General taxpayer information;
  • Assessment year and return of income details;
  • Whether the patent regime rate is not claimed on royalty income in any of the five assessment years following the assessment year it was previously claimed (in such case the taxpayer would be ineligible to claim the patent regime rate for five years); and
  • Details of the eligible patent, including patent number, date granted, amount and nature of royalty income, expenditure incurred, and other details.

Click the following link for Notification No. 25/2017, which is in force from 1 April 2017.

Netherlands

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Letter on Dutch APA and Tax Ruling Practice Published

A letter from Dutch State Secretary for Finance Eric Wiebes to the Dutch House of Representatives has been published concerning the Dutch practice for advanced pricing agreements (APA) and advance tax rulings (ATR). The letter provides an overview of APA/ATR team's approach as well as specific areas for which advance certainty may currently be provided, including:

  • Application of the participation exemption for intermediate holding companies in international structures and for top holding companies;
  • International structures involving hybrid forms of financing or hybrid entities (hybrid mismatches);
  • Existence of a permanent establishment in the Netherlands or in the BES-islands;
  • Application of Section 17, Paragraph 3, part b of the Corporate Tax Act (CTA) regarding taxable income from a substantial interest;
  • Existence of a permanent establishment in the BES islands for a resident of Aruba, Curaçao or Sint Maarten;
  • Allocation of a shareholding in a company with a permanent establishment in the Netherlands or the BES islands;
  • Whether an entity is conducting Dutch business as defined in Section 17a of the CTA;
  • Whether a cooperative has a dividend withholding tax obligation; and
  • Determination of the arm’s length remuneration or of the method to be used for the determination of such remuneration for cross-border transaction between related entities, and the allocation of profits to permanent establishments of related entities.

With regard to hybrid financing and the participation exemption, the letter notes that advance rulings are no longer provided from 1 January 2016 given the amendments to the EU Parent-Subsidiary Directive, which clearly restricts exemption when payments are deductible for the subsidiary. The letter also notes that issues with hybrid mismatches will be further neutralized with the upcoming changes resulting from the EU Anti Tax Avoidance Directive (previous coverage).

Click the following links for the letter and the attachment, which includes the detailed information. Both are in Dutch.

Sweden

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Interest Due on Sweden Withholding Tax Refund Only if Withheld in Breach of EU Law

The Swedish Tax Agency (Skatteverket) has published a decision statement regarding the payment of interest on excess tax withheld. According to the statement, the Tax Agency will only pay interest on excess withholding tax refunded if the tax was withheld in breach of EU Law. In such case, Interest is then paid on the refund amount from the day following the date the tax was withheld to the date of its recovery. A request for interest on excess withholding tax must be received by the Tax Agency by the end of the fifth calendar year after the payment. Decisions regarding interest may be appealed within two months of the decision.

Proposed Changes (1)

Australia

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Australian Legislation Submitted to Parliament on Access to Losses and Intangible Asset Depreciation

The Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 is currently before the Australian House of Representatives. The Bill includes amendments announced as part of the Government’s National Innovation and Science Agenda relating to the access to losses and intangible asset depreciation.

Access to Losses

The Bill includes amendments to introduce a similar business test to supplement the same business test that currently applies for losses when there is a change in ownership. The similar business test is meant to improve access to losses for companies (and certain trusts) that have changed ownership and allow those companies and trusts to seek out opportunities to innovate and grow without losing access to losses.

In general, a company will satisfy the similar business test if the business it carries on throughout the income year when it wants to use a loss (the ‘business continuity test period’) is similar to the business it carried on at the time immediately before the change of ownership or control. In working out whether the current business is similar to the former business, regard will be given to four main factors:

  • The extent to which the assets (including goodwill) used in the current business to generate assessable income were also used in the company's former business to generate assessable income;
  • The extent to which the activities and operations from which the current business generates assessable income were also the activities and operations from which the former business generated assessable income;
  • The identity of the current business and the identity of the former business; and
  • The extent to which any changes to the former business resulted from the development or commercialization of assets, products, processes, services, or marketing or organizational methods, of the former business.

As proposed, the similar business test will apply to income years starting on or after 1 July 2015.

Intangible Asset Depreciation

The Bill includes amendments to provide taxpayers with the choice to self-assess the effective life of certain intangible depreciating assets rather than using the statutory effective life currently specified in the law. The option would apply for the following assets:

  • Standard patent;
  • Innovation patent;
  • Petty patent;
  • Registered design;
  • Copyright (except copyright in film);
  • License (except one relating to a copyright or in-house software);
  • License relating to a copyright (except copyright in a film);
  • In-house software;
  • Spectrum license;
  • Data-casting transmitter license; and
  • Telecommunications site access right.

With the amendments, taxpayers are also allowed to recalculate the effective life in later years if no longer accurate due to a change in the circumstances relating to the nature of the asset's use, and are required to recalculate the effective life if the cost of an asset increases by 10% or more in a later income year and in certain other cases.

As proposed, the amendments apply to intangible assets that start to be held on or after 1 July 2016.

Click the following link for the full text of the Bill and the explanatory memorandum.

Treaty Changes (2)

Korea, Rep of-Vietnam

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SSA between South Korea and Vietnam under Negotiation

According to a release from the South Korean Ministry of Foreign Affairs, officials from Korea and Vietnam met 10 to 12 April 2017 to discuss the signing of a social security agreement. Any resulting agreement would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

Lithuania-Oman

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Lithuania and Oman Commit to Concluding Tax Treaty

According to an announcement from the Lithuanian Ministry of Foreign Affairs, officials from Lithuania and Oman signed a joint communiqué on 11 April 2017 that includes a commitment to concluding an income tax treaty, as well as other bilateral agreements on economic cooperation and promotion and protection of investment. The tax treaty would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

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