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Approved Changes (3)

Latvia

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Latvia Publishes 2017 Budget Measures in the Official Gazette Includes Loss Carry Forward Restrictions

On 10 December 2016, the amendment laws for the 2017 Budget were published in Latvia's Official Gazette. One of the main tax-related measures is an amendment to the Corporate Income Tax Law restricting the use of carried forward losses. With the amendment, a taxpayer may only offset up to 75% of its taxable income per year with losses carried forward for previous years. The amendment includes that this restriction only applies for losses incurred in 2008 and subsequent years. These losses may be carried forward indefinitely, while losses incurred prior to 2008 may only be carried forward up to eight years.

Click the following link for the law on amendments to the Corporate Income Tax law (Latvian language), which enters into force on 1 January 2017.

Taiwan

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Taiwan Individual Income Tax Brackets for 2017

The Taiwan Ministry of Finance has published the individual income tax rates and brackets for 2017:

  • up to TWD 540,000 - 5%
  • TWD 540,001 - 1,210,000 - 12%
  • TWD 1,210,001 - 2,420,000 - 20%
  • TWD 2,420,001 - 4,530,000 - 30%
  • TWD 4,530,000 - 10,310,000 - 40%
  • TWD 10,310,001 and over - 45%

In comparison to 2016, the bracket thresholds are increased overall, while the number of brackets and corresponding rates remain the same.

United States

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U.S. to Exchange Unilateral APAs as per BEPS Action 5 by the End of the Year

According to recent comments from IRS officials, the IRS will begin the exchange of information on unilateral advance pricing agreements (APAs) by the end of the year as per BEPS Action 5. Although Action 5 sets out six categories of rulings to be exchanged, the IRS has so far only identified unilateral APAs as meeting the conditions for exchange. The six categories under Action 5 include:

  • Rulings related to preferential regimes;
  • Unilateral APAs and other transfer pricing rulings;
  • Rulings that give unilateral downward adjustments;
  • Permanent establishment rulings;
  • Related party conduit rulings; and
  • Other rulings subsequently agreed to give rise to BEPS concerns.

Under Action 5, the exchange of information should begin by 31 December 2016 for past rulings issued on or after 1 January 2010 and still in effect on 1 January 2014, as well as rulings issued from 1 January 2014 to 1 April 2016, whether still in effect or not. Rulings issued on or after 1 April 2016 should be exchanged within 3 months of their issuance.

For the purpose of the exchange, the IRS will use the template from the OECD (Action 5 Report Annex C), which includes high-level information on the taxpayer, period covered, ruling type, transaction amounts, jurisdictions involved, etc. The ruling itself would only be exchanged upon request from a foreign jurisdiction through the standard exchange of information process.

Proposed Changes (1)

United Kingdom

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Scottish Draft Budget 2017-18 Includes New Individual Income Tax Bands

On 15 December 2016, the Scottish government published its Draft Budget 2017-18. One of the main changes included in the Budget is in relation to the individual income tax bands, which Scotland is now allowed to adjust under powers transferred to the Scottish Parliament (previous coverage). As proposed, Scottish Income Tax rates and bands would be as follows:

  • over GBP 11,500 up to 43,430 - 20% basic rate (assumes standard UK personal allowance of GBP 11,500)
  • over GBP 43,430 up to 150,000 - 40% higher rate
  • over GBP 150,000 - 45% additional rate

While the Scottish rates are the same as the UK rates, the band threshold between the basic and higher rate is lower than the UK standard of GBP 45,000 (including allowance for 2017-18). Going forward, the higher rate threshold will be increased in line with inflation.

Click the following link for the Tax and the Fiscal Framework chapter of the Budget for more information.

Treaty Changes (6)

Belarus-Luxembourg

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Tax Treaty between Belarus and Luxembourg under Negotiation

On 12 to 13 December 2016, officials from Belarus and Luxembourg met for the negotiation of an income tax treaty. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Cyprus-India

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Tax Treaty between Cyprus and India has Entered into Force

On 16 December 2016, the Indian Central Board of Direct Taxes announced the entry into force of the new income tax treaty with Cyprus. The announcement does not indicate the date of entry into force, although local reports state 14 December. The new treaty, signed 18 November 2016, replaces the 1994 tax treaty between the two countries.

Taxes Covered

The treaty covers Cyprus income tax, corporation tax, special contribution for the defence of the Republic, and capital gains tax. It covers Indian income tax, including any surcharge thereon.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 90 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 10%
  • Fees for technical services (managerial, technical or consultancy) - 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 alienation of movable property forming part of the business property of a permanent establishment in the other State;
  • Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in the other State; and
  • Gains from the alienation of shares, other than the above, in a company resident 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.

Note - The final protocol to the treaty includes the transitional provision that gains from the alienation of shares that have been acquired at any time prior to 1 April 2017 will be taxable only in the Contracting State of which the alienator is a resident.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Effective Date

The treaty applies in Cyprus from 1 January 2017 and in India from 1 April 2017. The 1994 tax treaty between the two countries will be terminated on the date the new treaty is effective.

Cyprus' Status as Notified Jurisdictional Area

With the entry into force of the new tax treaty, India has rescinded Cyprus' status as a notified jurisdictional area for lack of effective exchange of information (Notification No. 114/2016). Status as a notified jurisdictional area results in transactions with the jurisdiction being treated as transactions between associated parties, imposes restrictions on the deductibility of payments to the jurisdiction, and imposes an increased withholding tax rate of 30% on certain payments to the jurisdiction.

The announcement on the new treaty's entry into force states that the Cyprus' status has been rescinded with effect from 1 November 2013, while Notification No. 114/2016 states that the status is rescinded , "except as respects things done or omitted to be done before such rescission, with effect from the date of publication of [the] notification in the Official Gazette". Additional clarification on the effective date will be published once available.

India-Tajikistan

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India to Sign Protocol to Tax Treaty with Tajikistan

On 14 December 2016, the Indian Ministry of Finance announced that the Union Cabinet has approved the signing of a protocol to amend the 2008 income tax treaty with Tajikistan. The protocol will enable sharing of information exchanged under the treaty with other law enforcement agencies for non tax purposes.

Pakistan-OECD

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Pakistan Deposits Ratification Instrument for Mutual Assistance Convention

On 14 December 2016, Pakistan deposited the ratification instrument for the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. Pakistan signed the convention as amended on 13 October 2014.

According to the OECD overview of signatories to the convention, the convention will enter into force for Pakistan on 1 April 2017.

Singapore-Iceland

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Singapore and Iceland Sign Competent Authority Agreement for Exchange of Financial Account Information

According to an update from the Inland Revenue Authority of Singapore, a competent authority agreement for the automatic exchange of financial account information was signed with Iceland on 13 December 2016. Under the agreement, each country will automatically exchange information on accounts held in the respective country by tax residents of the other country based on the OECD Common Reporting Standard (CRS). The automatic exchange is to begin by September 2018 for information collected on the 2017 reporting year.

South Africa-Untd A Emirates

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Tax Treaty between South Africa and the U.A.E.

The income tax treaty between South Africa and the United Arab Emirates entered into force on 23 November 2016. The treaty, signed 23 November 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers South African normal tax, withholding tax on royalties, dividend tax, withholding tax on interest, and tax on foreign entertainers and sportspersons. It covers U.A.E. income tax and corporation tax.

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 for the same or connected project for a period or periods aggregating more than 9 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 10%
  • Interest - 10%
  • Royalties - 10%

Limitation on Benefits

The beneficial provisions of 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 the shares, debt-claims, or other rights in respect of which the income is paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

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.

The final protocol to the treaty further clarifies that gains from the alienation of shares in a company or of securities, bonds or debentures will only be taxable in the Contracting State of which the alienator is a resident.

Double Taxation Relief

South Africa applies the credit method for the elimination of double taxation, while the U.A.E. applies the exemption method.

Effective Date

The treaty applies from 1 January 2017.

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