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Approved Changes (3)

China

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China Clarifies Continued Application of Local and Regional Tax Incentives

The China State Council has recently issued a notice clarifying its position on tax incentives introduce by local and regional authorities. This follows a notice issued the end of 2014 that any incentives not in compliance with China's international obligations or that hinder domestic competition and trade will be removed, and only the State Council will have the authority to introduce new incentives in the future.

According to the recent notice, incentives already agreed to between a local/regional authority and an enterprise may continue as per the terms of the contract and will not be revoked. If an incentive is for a fixed period, it should continue for that period. If not for a fixed period, transitional measure should be developed to bring the incentive into compliance.  Going forward, any new local/regional incentives must be approved by the State Council.

Latvia

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Latvia Relaxes Residence Certificate Requirements for Claiming Treaty Benefits

Effective 1 May 2015, Latvia has relaxed the residence certificate requirement for non-residents claiming treaty benefits for payments received from Latvian residents.

Prior to the change, non-resident were required to provide the Latvian payer a residence certificate before the payment was made in order to claim applicable treaty benefits. Under the new rule, non-residents must instead provide the residence certificate to the payer before the relevant tax return is due.

Poland-Aruba-Belize-Cayman Islands-Gibraltar-Montserrat-Turks Caics

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Poland Removes Six Jurisdictions from Blacklist

Poland has published changes to its blacklist, which are effective 19 May 2015. The changes include the removal of six jurisdictions from the list:

  • Aruba;
  • Belize;
  • The Cayman Islands;
  • Gibraltar;
  • Montserrat; and
  • Turks and Caicos

The main effect of removal is that companies in these jurisdictions will no longer be automatically considered CFCs under Poland's CFC regime. In addition, when a company in these jurisdictions is otherwise deemed to be a CFC under the standard rules, the CFC income attributed to the taxpayer is prorated based on the period during the year the CFC is controlled instead of the CFC income for the whole year.

Removal from the list also affects transfer pricing documentation requirements. The transaction amount threshold for preparing transfer pricing documentation in relation to companies in these jurisdictions is no longer EUR 20,000, but is instead EUR 30,000, EUR 50,000 or EUR 100,000 depending on the transaction type.

Treaty Changes (5)

Armenia-Slovak Republic

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Tax Treaty between Armenia and Slovakia Signed

On 15 May 2015, officials from Armenia and Slovakia 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.

Belarus-Austria

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Belarus Approves Protocol to the Tax Treaty with Austria

On 6 May 2015, the Belarusian Chamber of Representatives approved the law ratifying the protocol to the 2001 income and property tax treaty with Austria. The protocol, signed 24 November 2014, is the first to amend the treaty. It updates the competent authority for Belarus and replaces Article 26 (Exchange of Information), bringing it in line with the OECD standard for information exchange.

The protocol will enter into force on the first day of the third month following the exchange of the ratification instruments, and will apply for tax periods beginning on or after 1 January of the year following its entry into force.

Chile-Austria

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Chile Approves Tax Treaty with Austria

On 13 may 2015, Chile's Chamber of Deputies approved the law for the ratification of the pending income and capital tax treaty with Austria. The treaty, signed 6 December 2012, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Austrian income tax, corporation tax, land tax, the tax on agricultural and forestry enterprises and the tax on the value of vacant plots. It covers Chilean taxes imposed under the Income Tax Act.

Residence

If a company is considered resident in both Contracting States, then the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement based on its place of effective management, the place of its main or head office, place of incorporation, or any other relevant factors. If the authorities cannot reach mutual agreement, the benefits of the treaty will not apply except for Articles 24 (Non-Discrimination) and 25 (Mutual Agreement Procedure).

Service PE

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

Withholding Tax Rates

  • Dividends - 15%
  • Interest - 5% on interest derived from loans granted by banks and insurance companies; bonds or securities that are regularly and substantially traded on a recognized securities market; or a sale on credit of machinery and equipment; otherwise 15%
  • Royalties - 5% on royalties paid for the use of, or the right to use, industrial, commercial or scientific equipment; otherwise 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;
  • Gains from the alienation of shares or other rights representing the capital of a company that is a resident of the other State if:
    • The alienator directly or indirectly owned share or other rights representing at least 20% of the capital of the company in the 12-month period preceding the alienation; or
    • The gains derive more than 50% of their value directly or indirectly from immovable property situated in the other State; and
  • Aside from the above, any other gains from the alienation of shares or other rights representing the capital of a company that is a resident of the other State may also be taxed by that other State, but such tax is limited to 17%

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

Double Taxation Relief

Chile applies the credit method for the elimination of double taxation, while Austria generally applies the exemption method. However, Austria will apply the credit method in regard to income covered by Article 11 (Interest), Article 12 (Royalties), Article 13 para. 4 (Capital Gains from shares), and Article 21 para. 3 (Other Income not covered by the treaty). In regard to income covered by Article 10 (Dividends), Austria also applies the credit method, but the credit is limited to 15% of the gross amount of the dividend.

Limitation on Benefits and Anti-Abuse

A protocol to the treaty, signed the same date, includes a limitation on benefits provision and an anti-abuse provision.

The limitation on benefits provision states that the treaty benefits included under Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of a right or debt-claim in respect of which dividends, interest or royalties are paid was to take advantage of those Articles.

The anti-abuse provision states that the benefits of the treaty will not apply when:

  • A resident of one Contracting State derives income from the other State which is attributable to a permanent establishment of that resident in a third jurisdiction; and
  • The total tax actually paid on the income in the first mentioned State and the third jurisdiction is less than 60% of the tax that would have been paid in the first mentioned State if the income was not attributed to the permanent establishment

In such case, the income will be subject to tax under the provisions of the domestic law of the other State.

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.

France-Tajikistan

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New Tax Treaty between France and Tajikistan to be Negotiated

The Tajikistan government has recently announced that the first round of negotiations for a new income tax treaty with France will take place near the end of 2015. Any resulting treaty will be the first of its kind directly between the two countries. The tax treaty between France and the former Soviet Union had applied in respect of Tajikistan, but was terminated effective 31 December 2014.

India-Korea, Rep of

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New Tax Treaty between India and South Korea Signed

On 18 may 2015, officials from India and South Korea signed a new income tax treaty (previous coverage of the basic revisions included in the new treaty). The treaty will enter into force after the ratification instruments are exchanged, and once in force and effective will replace the 1985 treaty between the two countries, which is currently in force.

Additional details will be published once available.

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