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Approved Changes (4)

Australia

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Australia Capital Gains Improvement Threshold for the 2017-18 Income Year

The Australian Taxation Office has issued Tax Determination (TD) 2017/16, which provides that for the 2017-18 income year, the improvement threshold for capital gains tax (CGT) purposes is AUD 147,582. The threshold applies in relation to the CGT treatment of capital improvements to pre-CGT assets (those acquired before 20 September 1985). Such improvements are treated as separate assets and subject to CGT at the time the asset is sold (or other CGT event) if the cost base of the improvement is more than the improvement threshold for the income year and more than 5% of the amount of consideration received.

India

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India Issues Notification on Acceptable Arm's Length Price Variance for International Transactions

India's Ministry of Finance has issued Notification No. 50/2017/F, which was published in the 9 June 2017 extraordinary edition of the Official Gazette. The notification states that for years of assessment 2017-18 and 2018-19, when an international transaction does not vary from the arm's length price determined under ITA section 92C by more than 1% in the case of wholesale trading and 3% in other cases, such transactions will be deemed to be at the arm's length price.

International transactions will be considered wholesale trading for the purpose of the notification when the following conditions are met:

  • The purchase cost of finished goods is 80% or more of the total cost pertaining to such trading activities; and
  • The average monthly closing inventory of such goods is 10% or less of the sales pertaining to such trading activities.

The years of assessment 2017-18 and 2018-19 are in respect of the tax years ending 31 March 2017 and 31 March 2018.

Morocco

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Morocco Publishes Finance Law for 2017

On 12 June 2017, Morocco published the Finance Law for 2017 (Law No. 73-16) in the Official Gazette. The law provides for the budget measures for 2017, including:

  • An anti-avoidance rule that allows the authorities to recharacterize transactions that have been undertaken for the main purpose of evading or reducing taxes, or to obtain benefits from tax incentives;
  • A tax exemption for dividends, interest, and rental income for real estate collective investment undertakings, subject to the following conditions:
    • The sole activity of the undertaking is the lease of immovable properties used for professional purposes;
    • The assets contributed to the undertaking are assessed by a certified contributions assessor and kept for a minimum of 10 years; and
    • At least 85% of the annual rental profits are distributed;
  • Expansion of the five-year tax exemption for profits derived from export operations to indirect exporters locate outside export free zones and to other industries selling goods to export companies;
  • A capital gains tax exemption for assets transferred between qualifying members of a group (95% ownership and certain other conditions); and
  • A three-year VAT suspension for the acquisition of equipment acquired for investment projects of at least MAD 100 million under an investment agreement with the government for both new and existing companies.

Click the following link for the Finance Law for 2017 (French language). The law generally applies from 1 January 2017.

Poland

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Poland Issues Warning on Aggressive Tax Planning Using Foreign Registered Companies to Conduct Business in Poland

On 12 June 2017, Poland's Ministry of Finance issued a warning notice on aggressive tax planning through the use of foreign registered companies to conduct business in Poland, and the application of place of effective management rules and the general anti-avoidance rule (GAAR) introduced in July 2016. In particular, the warning addresses arrangements where a Polish natural or legal person has registered a company in foreign country through which revenue is only taxed in the other country. The warning also address the use of foreign registered companies to acquire luxury or sports cars that are then made available for use in Poland (to avoid Polish VAT and excise tax) and the use of foreign companies for selling shares, issuing debt, receiving dividends, interest and royalties, and other commercial transactions.

When such structures are encountered and aggressive tax planning is suspected, the tax authorities will evaluate the place of effective management of the foreign company, which if determined to be in Poland, means the foreign company may be taxed as a resident company on its worldwide income. In determining place of effective management, the tax authority will evaluate a number of factors, which may include:

  • The board members are individuals or other companies performing their function as a contracted service and without professional experience in the field of industry;
  • The board members are also members of the board of the Polish company;
  • The board members reside and perform their functions in Poland;
  • There is a lack of documentation concerning the tasks performed by the board members;
  • There is lack of contact information for the board members, such as email, phone number, etc.;
  • Board members visit the country of the foreign company to adopt resolutions or sign agreements that were determined or negotiated in Poland;
  • The adoption/signing of resolutions, agreements, or other documents is done by proxy, usually by a law firm or other provider;
  • The staff employed at the foreign company is limited (or mainly limited) to administrative staff;
  • The foreign company outsources most of its basic functions (including the use of domiciliation services or fiduciary services);
  • Decisions of the foreign company are mainly made in consultation with Polish advisors, including tax advisors;
  • The foreign company lacks genuine operations in its country of residence; and
  • Company documents, such as accounting, corporate, and legal records, are not stored in the foreign company's country of residence.

In addition, the tax authority will look at the aim of the foreign company, the form of its acquisition, and the scope of activities. Where it is determined that a foreign company has its place of effective management in Poland, the board members will be responsible for declaring Polish income tax due according to Polish law and may face criminal penalties. Further, the warning notes that these principles will not only apply to future settlements, but may also apply for past periods, including periods prior to 15 July 2016 (the date the new GAAR came into effect).

Proposed Changes (2)

Canada

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Canadian Parliament Committee Proposes Measures to Support Media Industry

The Canadian Parliament's Heritage Committee issued a report on 15 June 2017 that outlines proposed measures to support the country's struggling media industry, especially traditional media. One of the controversial measures proposed is the expansion of the 5% levy for Canadian content production on broadcasting distribution undertakings to broadband (internet) distribution. The levy is currently imposed on cable and satellite TV services, with the proceeds going to the Canada Media Fund, which supports the production of Canadian content. However, the same day the report was issued, Prime Minister Justin Trudeau came out to say that the government will not consider a tax on broadband that would increase taxes for the middle class.  

Other tax-related proposals in the report include:

  • Amending the Income Tax Act to allow deduction of digital advertising on Canadian-owned platforms;
  • Introducing a temporary five-year tax credit to compensate print media companies for a portion of their capital and labor investments in digital media; and
  • Ensuring that foreign news aggregators, which publish Canadian news and sell advertising directed to Canadians (such as Facebook and Google), are subject to the same tax obligations as Canadian providers.

Click the following link for the full report.

European Union

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EU Council Fails to Reach Agreement on Reduced VAT Rates for E-Publication and General Reverse Charge

The EU Economic and Financial Affairs (ECOFIN) Council reportedly failed to reach agreement during its 16 June 2017 meeting on proposals to allow Member States to apply a reduced value added tax (VAT) rate for e-publications and to allow the use of a general VAT reverse charge for domestic supplies exceeding EUR 10,000 to counter VAT fraud. The main holdouts are France, which supports a reduced rate for e-publications but not the reverse charge, and the Czech Republic, which wants the reverse charge but voiced concerns about being forced to apply reduced rates for e-publications.

Currently, e-publications are subject to a minimum standard rate of 15% under EU law (as digital services), while printed publications may be subject to a reduced rate or even zero-rated, and VAT reverse charge is generally not allowed.

Treaty Changes (4)

Belarus-Moldova

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SSA between Belarus and Moldova to be Negotiated

According to recent reports, officials from Belarus and Moldova agreed during meetings held 13 to 14 June 2017 to begin negotiations for 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.

Hong Kong

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Hong Kong Publishes Amendment Ordinance on Reportable Jurisdictions for Automatic Exchange of Financial Account Information

The Hong Kong Government has announced that the Inland Revenue (Amendment) (No. 2) Ordinance 2017 (Amendment Ordinance) was published in the Official Gazette on 16 June 2017. The Ordinance, which will come into operation on 1 July 2017, amends the definition of reportable jurisdiction for the purpose of automatic exchange of financial account information (AEOI) and adds the 75 reportable jurisdictions previously announced, including 13 confirmed AEOI partners and 62 prospective AEOI partners. The 62 prospective AEOI partners include the following three categories:

  • Jurisdictions which have expressed an interest in conducting AEOI with Hong Kong to the OECD or jurisdictions suggested by the OECD;
  • Hong Kong's tax treaty partners which have committed to AEOI; and
  • All member states of the EU.

Click the following link for the full text of the Amendment Ordinance.

Nigeria-OECD

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Nigeria Approves Signature of BEPS Multilateral Instrument

On 14 June 2017, the Nigerian government approved the signature of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). The initial signing ceremony for the BEPS MLI was held 7 June 2017, with 68 jurisdictions signing the agreement, and 8 formally expressing their intent to sign, including Nigeria (previous coverage). Once signed and the ratification instrument deposited, a match-making process will determine which provisions of the MLI apply to Nigeria's covered bilateral tax treaties with jurisdictions that have also included Nigeria in their list of covered tax treaties.

Switzerland

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Swiss Federal Council Adopts Dispatch on Automatic Exchange of Financial Account Information with 41 States and Territories

The Swiss Federal Council announced on 16 June 2017 that it has adopted the dispatch on the introduction of the automatic exchange of financial account information with 41 states and territories. Implementation is planned for 2018, and the first sets of data should be exchanged in 2019 based on the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information. Exchange will be activated with each individual state or territory by means of a specific federal decree within the framework of the dispatch.

The states and territories include:

Andorra, Antigua and Barbuda, Argentina, Aruba, Barbados, Belize, Bermuda, Brazil, British Virgin Islands, Cayman Islands, Chile, China, Colombia, Cook Islands, Costa Rica, Curaçao, Faroe Islands, Greenland, Grenada, India, Indonesia, Israel, Liechtenstein, Malaysia, Marshall Islands, Mauritius, Mexico, Monaco, Montserrat, New Zealand, Russia, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, San Marino, Saudi Arabia, Seychelles, South Africa, Turks and Caicos Islands, United Arab Emirates, and Uruguay.

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