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Approved Changes (4)

Australia

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Australian Tax Office Issues Practice Statement on Dispute Settlements

On 15 January 2015, the Australian Tax Office (ATO) issued Practice Statement Law Administration: Code of settlement. The practice statement sets out the ATO’s policy on the settlement of taxation and superannuation disputes, including disputes involving debt.  The practice statement covers:

  • What is a settlement
  • Settlement negotiations
  • Settlement considerations
  • Settlement decision
  • Settlement deed
  • Use of a settlement agreement in future years

The practice statement also notes that If taxpayers reasonably relied on the practice statement in good faith, they will be protected from interest and penalties if a statement turns out to be incorrect and taxpayers underpay their tax as a result. However, they will still have to pay the correct amount of tax provided the time limits under the law allow it.

Click the following links for more information:

Practice Statement Law Administration: Code of settlement

Practical guide to the ATO Code of settlement

Costa Rica

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Costa Rican Withholding Tax on Credit and Debit Card Payments Now Effective

Costa Rica's 2% withholding tax on credit and debit card payments became effective 15 January 2015, following a decision by the Administrative Court on 8 January 2015 to dismiss a petition by the Costa Rican Business Chamber Union (UCCAEP) claiming the withholding was double taxation.

Resolution DGT-R-036-2014, published On 25 August 2014, introduced the requirement that financial entities processing credit or debit card payments must withhold 2% of the amounts paid, credited or made available to beneficiaries in any other form. The 2% withholding was to apply from 1 October 2014, but was delayed to 1 November 2014, and was subsequently delayed to 1 December 2014. The tax was then suspended following an injunction issued by the Administrative Court as a result of the petition filed by the UCCAEP.

Although the Court has dismissed the petition and the withholding tax is effective, the decision can still be appealed.

Luxembourg

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Luxembourg's Temporary Budget Balancing Income Tax

Luxembourg has introduced a 0.5% tax on individual income. The tax was originally introduced as a special contribution for the future of children, but was restated as a budget balancing tax under the State Budget for 2015. The tax applies to all individual income, including professional and replacement income, as well as dividends, interest and capital gains income.

For professional income, the tax basis is gross income less the minimum wage (3/4 minimum wage for self-employed). For replacement income, the tax basis is gross income less 3/4 of the minimum wage. For dividend, interest and capital gains income, the tax base is net taxable income.

The temporary tax applies from 1 January 2015.

Malaysia

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New Malaysian Tax Incentives for 2015

Malaysia's 2015 Budget, which was enacted 30 December 2014, includes several provisions regarding tax incentives, including:

  • A five year income tax holiday for companies engaged in managing, maintaining and upgrading industrial parks in underdeveloped areas, and a five year 70% income tax exemption for such activities in other areas
  • A 200% capital allowance for manufacturing automation investments up to MYR 4 million for highly labor intensive manufacturing from 2015 to 2017, and automation investments up to MYR 2 million for other manufacturing from 2015 to 2020

Incentives will also be introduced for principal hubs for multinational companies. Those incentive details will be published once available.

Proposed Changes (1)

Japan

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Japan's Proposed Anti-Hybrid Rule

Japan's  2015 Tax Reform as proposed by the country's governing coalition includes an anti-hybrid rule. Under the rule, dividends received from a foreign company would not be eligible for the country's participation exemption for foreign dividends if the dividend is deductible in the jurisdiction of residence of the foreign company. The rule would apply for dividends received in taxable years beginning on or after 1 April 2016. However, a two year grandfathering would apply for dividends from shares held on 1 April 2015.

Japan's participation exemption regime exempts 95% of dividends received by a Japanese company from its qualifying shareholdings of 25% or more in a foreign company when held for at least six months before the dividend determination date. Relevant tax treaty provisions may also apply.

Treaty Changes (3)

Croatia-United Kingdom

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Tax Treaty between Croatia and the U.K. Signed

On 15 January 2015, officials from Croatia and the United Kingdom signed an income and capital tax treaty. Once in force and effective, the treaty will replace the 1981 tax treaty between the U.K. and the former Yugoslavia, which is still generally applied in regard to the U.K. and Croatia.

Taxes Covered

The treaty covers Croatian profit tax, income tax, and the local income tax and any surcharges. It covers U.K. income tax, corporation tax and capital gains tax.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly or indirectly holdings at least 25% of the paying company's capital; 15% if the dividends are paid out of income (including gains) derived directly or indirectly from immovable property by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempted from tax; otherwise 10%
  • Interest - 0% when paid in connection with the sale on credit of any industrial, commercial or scientific equipment, or of any merchandise by one enterprise to another enterprise, or on any loan granted by a bank; otherwise 5%
  • Royalties - 5%
  • Capital Gains - generally exempt, except for gains from the alienation immovable property, gains from the alienation of movable property forming part of the business property of a permanent establishment, and gains from the alienation of share or interest in a partnership or trust deriving more than 50% of their value from immovable property (exemption for shares regularly traded on a Stock Exchange)

Double Taxation Relief

Both countries generally apply the credit method for the elimination of double taxation. However, the U.K. will exempt dividends paid by a Croatian company to a company resident in the U.K. if the conditions for an exemption under U.K. law are met.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged.

For withholding taxes, the treaty will apply in both countries from 1 January of the year following its entry into force. For other taxes, the treaty will apply in Croatia from 1 January of the year following its entry into force. In the U.K. it will apply for corporation tax from 1 April of the year following its entry into force, and for income tax and capital gains tax from 6 April of the year following its entry into force.

The provisions of the 1981 treaty between the U.K. and the former Yugoslavia will cease to have effect for the relevant taxes on the dates the new treaty applies.

Monaco-United Kingdom

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TIEA between Monaco and the U.K. Signed

A tax information agreement between Monaco and the United Kingdom was signed by Monaco on 23 December 2014, and by the United Kingdom on 22 October 2014. The agreement is the first of its kind between the two countries and will enter into force once the ratification instruments are exchanged.

It will apply for criminal tax matters on the date of its entry into force, and for all other matters for taxable periods beginning on or after that date.

Singapore-Uruguay

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Tax Treaty between Singapore and Uruguay Signed

On 15 January 2015, officials from Singapore and Uruguay signed an income and capital tax treaty. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Singapore income tax, and Uruguayan business income tax, personal income tax, non-resident income tax, social security tax and capital 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 183 days in 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 - 5% for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films, or films or tapes used for radio or television broadcasting; otherwise 10%
  • Capital Gains - generally exempt, except for:
    • Gains from the alienation of immovable property situated in a Contracting State,
    • Gains from the alienation of movable property forming part of the business property of a permanents establishment in a Contracting State,
    • Gains from the alienation of shares or other corporate rights in a company directly or indirectly deriving more than 50% of their value from immovable property situated in a Contracting State (exemption when listed on a recognized stock exchange in either Contracting State), and
    • Gains from the alienation of shares or other corporate rights which entitles the owner to the enjoyment of immovable property situated in a Contracting State

Double Taxation Relief

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

MFN Clause

A protocol to the treaty, signed the same date, includes MFN clauses in regard to dividends and interest. According to the clauses, if after the entry into force of the treaty Uruguay enters into an agreement with any other jurisdiction providing for exemption or a lower withholding tax rate for dividends or interest from Uruguay, then such exemption or lower rate will automatically apply to dividends or interest governed by the provisions of the Singapore-Uruguay tax treaty.

Entry into Force and Effect

The treaty will enter into force 15 days after the ratification instruments are exchanged.

The treaty will apply in Singapore in respect of taxes withheld at source from 1 January of the year following its entry into force, and for other taxes from 1 January of the second year following its entry into force. It will apply in Uruguay from 1 January of the year following its entry into force.

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