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Worldwide Tax News

Approved Changes (2)

Finland

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Finland Implements Amendments to the EU Parent-Subsidiary Directive

On 31 December 2015, Finland published Law 1599/2015 in the Official Gazette, which implements amendments made to the EU Parent-Subsidiary Directive into domestic law. The amendments include that the participation exemption will not be granted if:

  • Dividends paid by a subsidiary to its parent company are deductible in the Member State of the subsidiary (if partially deductible, the non-deductible portion will remain exempt); or
  • An arrangement or a series of arrangements are put in place with the main purpose or one of the main purposes of receiving a tax benefit and not for valid commercial reasons that reflect economic reality.

The change applies in Finland from 1 January 2016.

United States-European Union

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U.S. Senate Finance Committee Requests that Treasury Caution the EU Commission on EU State Aid Investigations Impacting U.S. Companies

On 15 January 2016, U.S. Senate Finance Committee members sent a letter to Treasury Secretary Jack Lew urging him to increase efforts to caution the EU Commission to avoid imposing retroactive results from State aid investigations on U.S. companies. The following is a release posted on the Finance Committee site.

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WASHINGTON – In a letter to Treasury Secretary Jack Lew today, Senate Finance Committee Chairman Orrin Hatch (R-Utah), Ranking Member Ron Wyden (D-Ore.), and Committee members Rob Portman (R-Ohio) and Chuck Schumer (D-N.Y.) warned the European Union’s (EU) state aid investigations could lead to retroactive taxation on multinational enterprises and have an adverse impact on U.S.-based companies.

In recent years, the EU has launched a series of formal investigations into its member countries’ tax treatment of various multinational companies.

The Senate Finance Committee has examined the potential impact these investigation could have on U.S. firms. Today, the Senators urged Secretary Lew to increase efforts to caution the EU Commission to avoid imposing retroactive results that are inconsistent with international tax standards.

"Our concerns are driven not only by these initial cases, but also by the precedent they will set that could pave the way for the EU to tax the historical earnings of many more U.S. companies – in some cases, the earnings in question could have been generated up to a decade ago," wrote the Senators. "We urge Treasury to intensify its efforts to caution the EU Commission not to reach retroactive results that are inconsistent with internationally accepted standards and that the United States views such results as a direct threat to its interests. We also ask that you consider, under section 891, whether U.S. corporations are being subjected to discriminatory taxation."

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Click the following link for the full text of the letter.

Proposed Changes (2)

European Union

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EU Commission to Present Action Plan on Countering VAT Fraud in March

The European Commission is planning to present an action plan on countering value added tax (VAT) fraud in March 2016 according to a statement by Commission vice-president Valdis Dombrovskis following a 15 January 2016 ECOFIN meeting. The plan will set out ways to tackle VAT fraud, especially on cross-border transactions involving carousel fraud where VAT refunds are claimed on supplies not actually made. The Commission will also look at the option of the reverse charge mechanism and other options to tackle tax fraud in the EU.

Netherlands-European Union

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Dutch IP Regime to be Amended based on BEPS Project Outcomes

According to recent comments from the Netherland's Minister of Finance Jeroen Dijsselbloem, the country is planning amendments to the country's IP regime. The IP regime will be amended based on international standard developed as part of Action 5 of the OECD BEPS project. These standards are based on a modified nexus approach, which aligns the research and development activity actually carried out by the taxpayer with the benefit received under the IP regime.

Changes are to be made by 30 June 2016, and according to Dijsselbloem, should be implemented under EU law (i.e. under an EU Directive).

Treaty Changes (4)

Canada-Taiwan

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Tax Agreement between Canada and Taiwan Signed

Taiwan's Ministry of Foreign Affairs has announced that an income tax agreement with Canada was signed on 13 January 2016 by Taiwanese officials and on 15 January 2016 by Canadian officials. The agreement is the first of its kind between the two jurisdictions and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

Czech Rep-Ukraine

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Protocol to the Tax Treaty between the Czech Republic and Ukraine has Entered into Force

The protocol to the 1997 income and capital tax treaty between the Czech Republic and Ukraine entered into force on 9 December 2015. The protocol, signed 21 October 2013, is the first to amend the treaty.

Treaty Amendments

Some of the main changes include:

  • In Article 5 (Permanent Establishment), the aggregate time over which a service PE is deemed constituted for furnishing services in a Contacting State is increased from more than 3 months in a 12-month period to more than 6 months in a 12-month period;
  • In Article 10 (Dividends), the definition of dividends is amended to include other income which is subjected to the same tax treatment as income from shares by the laws of the State of the distributing or paying company;
  • In Article 11 (Interest), the specific governmental financial institutions exempted from withholding tax on interest are listed, and the definition of interest is amended to specifically exclude penalty charges for late payment and any item of income which is considered as a dividend under the provisions of Article 10 (Dividends);
  • In Article 12 (Royalties), the definition of royalties is amended to include other means of image or sound reproduction for radio or television broadcasting in addition to films or tapes;
  • In Article 13 (Capital Gains), the taxation rights of a Contracting State on capital gains is clarified to include gains from the alienation of shares or other interests deriving 50% or more of their value from immovable property situated in the State;
  • Article 23 (Elimination of Double Taxation) is replaced with additional provisions specific to each country, although both countries continue to apply the credit method; and
  • Article 26 (Exchange of Information) is replaced, bringing it in line with the OECD standard for information exchange.

Limitation on Benefits

In addition to the Article amendments, the protocol also includes a limitation on benefits provision, which states that the benefits of the treaty will not be granted to companies of either Contracting State if the purpose of the creation or existence of such companies is to obtain benefits under the treaty that would not otherwise be available.  

Effective Date

The protocol applies from 1 January 2016.

Denmark-Ghana

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Tax Treaty between Denmark and Ghana has Entered into Force

The income and capital tax treaty between Denmark and Ghana entered into force on 3 December 2015. The treaty, signed 20 March 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Danish income tax to the state and income tax to the municipalities. It covers Ghana income tax and capital gains tax.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company that directly holds at least 10% of the paying company's capital, or is a pension fund or similar institution; otherwise 15%
  • Interest - 0% if paid in connection with the sale on credit of any merchandise or equipment, or the beneficial owner is a pension fund or similar institution; otherwise 8%
  • Royalties and Service Fees (of a managerial, technical or consultancy nature) - 8%

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; and
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated 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.

Limitation on Benefits

Article 22 (Miscellaneous Rules) includes the provision that if income or capital gains are taxed in a Contracting State by reference to the amount remitted or received in that State and not by reference to the full amount, then any relief from tax provide for by the treaty in the other State will be limited to the amount of income or gains taxed by the first-mentioned State.

In addition, the protocol to the treaty, signed the same date, includes the provision that the treaty will not apply to companies or other persons established under the laws of a Contracting State that are wholly or partly exempted from tax under special tax regimes under the laws of that State.

Double Taxation Relief

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

Effective Date

The treaty applies from 1 January 2016.

Hong Kong-Russia

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Tax Treaty between Hong Kong and Russia Signed

On 18 January 2016, officials from Hong Kong and Russia signed an income tax treaty. The treaty is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Hong Kong profits tax, salaries tax and property tax. It covers Russian tax on profits of organizations and tax on income of individuals.

Service PE

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

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 15% of the paying company's capital; otherwise 10%
  • Interest - 0%
  • Royalties - 3%

Capital Gains

The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:

  • Gains from the alienation of immovable property situated in the other Party;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
  • Gains from the alienation of shares of a company deriving more than 50% of its value directly or indirectly from immovable property situated in the other Party, with an exception for:
    • Shares quoted on a stock exchange as may be agreed to by both Parties;
    • Shares alienated or exchanged in the framework of a reorganization of a company, a merger, a scission or a similar operation; or
    • Shares in a company deriving more than 50% of its asset value from immovable property in which it carries on its business

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

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 13 (Capital Gains) will not apply if it was the main purpose or one of the main purposes of any person concerned with the creation, assignment or alienation of the shares, debt-claims, other rights or property in respect of which the dividends, interest or royalties are paid, or the gains are realized was to take advantage of those Articles by means of that creation, assignment or alienation. The limitation is included in each of those Articles.

Double Taxation Relief

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

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged, and will apply in respect of Hong Kong tax from 1 April of the year followings its entry into force and in respect of Russian tax from 1 January of the year following its entry into force.

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