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Worldwide Tax News

Approved Changes (2)

Tunisia

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Tunisia Introduces 7.5% Contribution Tax for 2017 and Revises Individual Income Tax Rates

From 1 January 2017, a 7.5% exceptional contribution tax is introduced on Tunisian businesses in addition to the standard 25% rate. This temporary tax was introduced in the Finance Law for 2017, which was approved by parliament on 10 December 2016 and entered into force on 1 January 2017. It is uncertain if the tax will be extended beyond 2017.

In addition to the new tax, the Finance Law also revises the individual income tax rates and brackets as follows:

  • up to TND 5,000 - 0%
  • over TND 5,000 up to 20,000 - 26%
  • over TND 20,000 up to 30,000 - 28%
  • over TND 30,000 up to 50,000 - 32%
  • over TND 50,000 - 35%

Click the following link for the Finance Law for 2017 (Arabic language). Additional details will be published once available.

United States

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U.S. IRS Releases Revenue Procedure on CbC Voluntary Filing

The U.S. IRS has released a draft revenue procedure (Rev. Proc. 2017-23) that describes the process for filing Form 8975, Country-by-Country Report, by ultimate parent entities of U.S. MNE groups for reporting periods beginning on or after 1 January 2016 but before 30 June 2016 (the effective date of the U.S. CbC reporting requirements). Rev. Proc. 2017-23 it to be officially published on 13 February 2017.

The purpose of voluntarily filing for earlier periods is that most countries that have adopted CbC reporting requirements apply the requirements from 1 January 2016. To enable compliance with the CbC reporting requirements already implemented in other countries and avoid local filing, the IRS will accommodate voluntary filing and intends to exchange the reports with the relevant countries.

According to Rev. Proc. 2017-23, ultimate parent entities of U.S. MNE groups will be allowed to voluntarily file Form 8975 beginning 1 September 2017 with their income tax return for the earlier period. If the return has already been filed for the period, an amended return must be filed with Form 8975 attached within 12 months of the close of the period reported on. Filing an amended return solely for the purpose of attaching Form 8975 will have no effect on the statute of limitations for the income tax return.

Treaty Changes (10)

Belgium-Aruba

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Belgium Approves TIEA with Aruba

On 12 January 2017, the Belgian Chamber of Representatives approved for ratification the pending tax information exchange agreement with Aruba. The agreement, signed 24 April 2014, is the first of its kind between the two countries and is in line with the OECD standard for information exchange. It will enter into force on the first day of the second month following the exchange of ratification instruments, and will apply for criminal tax matters from the date of its entry into force and apply for all other matters for tax periods beginning on or after 1 January of the year following its entry into force.

Hungary-OECD

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Hungary Signs Multilateral Agreement for the Exchange of CbC Reports

According to a 19 January 2017 update from the OECD, Hungary has signed the Multilateral Competent Authority Agreement (MCAA) for the exchange of Country-by-Country (CbC) reports. The signing brings the total number of signatories to 51.

As part of the conditions for signing the CbC MCAA, signatories must be a party to the OECD Council of Europe Convention on Mutual Administrative Assistance in Tax Matters and have (or commit to introduce) CbC reporting requirements. Although Hungary has not yet finalized its CbC reporting requirements, the country is required as an EU Member State to introduce requirements that apply from 1 January 2016, with a possible deferral to 1 January 2017 for non-resident parented groups.

Click the following link for the list of the CbC MCAA signatories to date.

India-Slovenia

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Protocol to Tax Treaty between India and Slovenia has Entered into Force

The Slovenian Ministry of Finance has announced that the protocol to the 2003 income tax treaty with India entered into force on 21 December 2016. The protocol, signed 17 May 2016, is the first to amend the treaty. It replaces Article 26 (Exchange of Information) to bring it in line with the OECD standard for information exchange and inserts Article 27 (Assistance in the Collection of Taxes), with the subsequent articles renumbered accordingly.

The protocol applies from 1 March 2017.

Indonesia-Japan

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Indonesia and Japan to Continue Negotiations to Revise Tax Treaty

According a recent release from Japan's Ministry of Foreign Affairs, officials from Indonesia and Japan have met to discuss continuing negotiations for revisions to the 1982 income tax treaty between the two countries. Any resulting agreement for revisions will be the first to amend the treaty, and must be finalized, signed, and ratified before entering into force.

Italy-Costa Rica

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Italy Approves Pending TIEA with Costa Rica

On 14 January 2017, the Italian Council of Ministers approved for ratification the pending tax information exchange agreement with Costa Rica. The agreement, signed 27 May 2016, is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.

Japan-Latvia

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Tax Treaty between Japan and Latvia Signed

On 18 January 2017, officials from Japan and Latvia signed an income tax treaty. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Japanese income tax, corporation tax, special income tax for reconstruction, local corporation tax, and local inhabitant taxes. It covers Latvian enterprise income tax and personal income tax.

Residence

If a company is considered resident in both Contracting States, the competent authorities of both States will determine its residence for the purpose of the treaty through mutual agreement based on its place of head or main office, its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. If no agreement is reached, the company will not be entitled to any relief or exemption from tax provided by the treaty.

Withholding Tax Rates

  • Dividends - 0% if beneficially owned by a person other than an individual; otherwise 10%
  • Interest - 0% if beneficially owned by a person other than an individual; otherwise 10%
  • Royalties - 0%

Note - The exemption provided for dividends will not apply if the paying company is entitled to a deduction for dividends paid to its beneficiaries in computing its taxable income. The exemption provided for interest will not apply to interest that is determined by reference to receipts, sales, income, profits, or other cash flow of the debtor or a related person, to any change in the value of any property of the debtor or a related person, or to any dividends, partnership distribution, or similar payment made by the debtor or a related person.

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 any property, other than immovable property, forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares or comparable interests if, at any time during the 365 days preceding the alienation, the shares or comparable interests derived at least 50% of their value directly or indirectly from immovable property situated in the other State (exemption if the shares or comparable interests are traded on a recognized stock exchange and the alienator together with related parties own in the aggregate 5% or less of the shares or comparable interests).

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

Entitlement to Benefits

Article 22 (Entitlement to Benefits) includes substantial provisions regarding a resident's entitlement to benefits under the treaty. This includes that a resident of a Contracting State will only be entitled to the withholding tax exemptions provided under Articles 10 (Dividends), 11 (Interest), and 12 (Royalties) if the resident is a qualified person, which includes:

  • An individual;
  • A qualified governmental entity;
  • A company, if its principal class of shares is listed or registered and is regularly traded on one or more recognized stock exchanges;
  • A pension fund or pension scheme, subject to certain conditions;
  • A person established and operated exclusively for a religious, charitable, educational, scientific, artistic, cultural, or public purpose, subject to certain conditions; and
  • A person other than an individual, if at least 50% of its voting power or other beneficial interests is owned, directly or indirectly, by residents of either Contracting State that meet the conditions for qualified persons above during the twelve month period including the date of the payment.

Provisions are also included whereby a resident of a Contracting State will be entitled to the exemption benefits if:

  • The resident is carrying on business in that Contracting State (other than the business of making or managing investments for the resident's own account, unless the business is banking, insurance, or securities business carried on by a bank, insurance company or securities dealer); and
  • The item of income is derived in connection with, or is incidental to, that business.

Additional conditionals apply regarding the above in relation to associated enterprises and partnerships.

Provisions are also included whereby the benefits may still apply for a resident that is not a qualified person or does not meet the conditions above, provided that the competent authority of the Contracting State to which the benefit is claimed determines that the establishment, acquisition, or maintenance of such resident and the conduct of its operations did not have as one of the principal purposes the obtaining of such benefit.

Lastly, a general anti-abuse provision is included, which provides that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.

Double Taxation Relief

Both countries 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 from 1 January of the year following its entry into force.

Senegal-Vietnam

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Tax Treaty between Senegal and Vietnam under Negotiation

According to recent reports, officials from Senegal and Vietnam have met and agreed to continue negotiations for 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.

Slovenia-United States

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SSA between Slovenia and the U.S. Signed

On 17 January 2017, officials from Slovenia and the U.S. signed a social security agreement. The agreement is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.

United Kingdom-Uruguay

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UK Confirms Royalties Exemption under Tax Treaty with Estonia based on MFN Clause

On 18 January 2017, UK HMRC published an update concerning withholding tax on royalties under the 1994 income and capital tax treaty with Estonia. The update confirms that due to the MFN clause included in the exchange of notes to the 1994 Estonia-UK treaty relating to Article 12 (Royalties) and the entry into force of the 2014 protocol to the 2002 Estonia-Switzerland tax treaty on 16 October 2015, the exemption for royalties provided under the protocol also applies under the Estonia-UK treaty from 16 October 2015.

Untd A Emirates-United Kingdom

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Tax Treaty between the U.A.E. and the UK has Entered into Force

The income and capital tax treaty between the United Arab Emirates and the United Kingdom entered into force on 25 December 2016. The treaty, signed 12 April 2016, is the first of its kind between the two countries.

Taxes Covered

The treaty covers U.A.E. income tax and corporate tax, and covers UK income tax, corporation tax, and capital gains tax.

Residence

If a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be entitled to the benefits of the treaty aside from those covered in Articles 21 (Elimination of Double Taxation), 22 (Non-Discrimination), and 23 (Mutual Agreement Procedure).

Withholding Tax Rates

  • Dividends - 0%, although a 15% rate applies for dividends paid out of income (including gains) derived directly or indirectly from immovable property by an investment vehicle that distributes most of its income annually and whose income from such immovable property is exempted from tax (15% rate does not apply if dividends are paid to a pension fund)
  • Interest - 0% if the beneficial owner is:
    • An individual;
    • A company whose principal class of shares are substantially and regularly traded on a recognized stock exchange;
    • A pension scheme;
    • A financial institution that is unrelated to and dealing wholly independently with the payer; and
    • Any other company, provided the competent authority determines that its main purpose or one of its main purposes was not to secure the benefits of Article 11 (Interest);
    • Otherwise domestic rates apply
  • Royalties - 0%

Limitation on Benefits

The 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 the 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;
  • Gains from the alienation of shares or comparable interests deriving the greater part of their value directly or indirectly from immovable property situated in the other State (exemption for shares regularly traded on a stock exchange); 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.

Double Taxation Relief

Both countries generally apply the credit method for the elimination of double taxation. However, the UK will exempt dividends paid by a U.A.E. company to a company resident in the UK if the conditions for an exemption under UK law are met. Exemption may also apply for profits of a permanent establishment in the U.A.E. of a UK company if the conditions for an exemption under UK law are met. Where a dividend paid by a U.A.E. company does not qualify for exemption in the UK, the UK credit will take into account the U.A.E. tax payable in respect of the profits out of which such dividend is paid.

Effective Date

The treaty applies from 1 January 2017.

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