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Approved Changes (4)

France

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French Parliament Approves Temporary Surcharge on Large Companies

On 14 November 2017, the French National Assembly (lower chamber of parliament) gave final approval for an amendment to the budget law for 2017 for the introduction of a temporary surcharge on large companies to offset the cost of pending refunds resulting from the repeal of the 3% tax on profit (dividend) distributions in October. The surcharge applies for financial years ending on or after 31 December 2017 up to 30 December 2018.

In the final version, the rate of the exceptional surcharge remains 15% for companies with gross revenue exceeding EUR 1 billion, with an additional 15% surcharge for companies with gross revenue exceeding EUR 3 billion. However, a ratio calculation had been added to provide for a reduced surcharge rate for companies with gross revenue exceeding EUR 1 billion but below EUR 1.1 billion. This ratio, which is applied to the surcharge rate, is equal to (gross revenue - EUR 1 billion) / EUR 100 million. Similarly, in determining the additional surcharge rate for companies with gross revenue exceeding EUR 3 billion but below EUR 3.1 billion, the ratio is equal to (gross revenue - EUR 3 billion) / EUR 100 million. Where the ratio applies, the surcharge is the resulting rate up to the second decimal place, which is rounded up if the third decimal place if 5 or greater (e.g., 10.345% would be 10.35%).

In general, at least 95% of the surcharge and additional surcharge due should be paid by the last advance payment for the financial year, with the balance due by the final corporate tax payment. However, for taxpayers closing their financial year up to 19 February 2018, the initial advance payment should be made by 20 December.

Challenges to the exceptional surcharge are already being prepared for filing with the French Council of State (Conseil d'État - Supreme Administrative Court). Any subsequent developments will be reported.

OECD-Curacao-Denmark-India-Isle Of Man-Italy-Jersey

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OECD Publishes Exchange of Information Compliance Ratings for Six Jurisdictions under Enhanced Peer Review Process

On 17 November 2017, the OECD announced that the Global Forum on Transparency and Exchange of Information for Tax Purposes has published the enhanced exchange of information peer reviews for Curaçao, Denmark, India, Isle of Man, Italy, and Jersey. The enhanced peer review process concerns the exchange of information upon request, with a focus on beneficial ownership information exchange.

Three jurisdictions – Isle of Man, Italy, and Jersey - received an overall rating of Compliant, Denmark and India were rated Largely Compliant, and Curaçao was rated Partially compliant.

Romania

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Romania Publishes Emergency Ordinance on EU Anti-Tax Avoidance Directive and Other Measures

Romania has published Emergency Ordinance No. 79 of 8 November 2017 in the Official Gazette. Some of the main measures are in relation to the transposition of the EU Anti-Tax Avoidance Directive (Council Directive (EU) 2016/1164 - ATAD1), which are summarized as follows:

Interest Deduction Restriction

The interest deduction restriction rules limit the deduction of net interest expense exceeding the RON equivalent of EUR 200,000. The excess is limited to 10% of a calculation basis, which is essentially EBITDA. Non-deductible amounts may be carried forward indefinitely. An exemption from the restriction is provided for independent entities without associated entities or permanent establishments (PE), and in respect of excess borrowing costs resulting from loans used to finance long-term public infrastructure projects.

Exit Tax

The exit tax rules provide that gains from the transfer of assets from Romania to another Member State or to a third State are calculated as the difference between the market value and the tax value of the assets transferred. Such gains are subject to corporate tax (currently 16% standard rate) to the extent that, as a result of the transfer, Romania loses the right to tax the transferred assets. Where assets are transferred to another Member State or a third EEA State, the tax may be paid in installments over five years, subject to certain conditions.

GAAR

The general anti-avoidance rule (GAAR) provides that the tax authority may ignore an arrangement or a series of arrangements that have been put into place with the main purpose of one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax provisions, and not for valid commercial reasons that reflect economic reality.

CFC Rules

The controlled foreign company (CFC) rules provide that a foreign entity or PE will be considered a CFC if:

  • The taxpayer directly or indirectly holds itself, or with associated enterprises, more than 50% of the foreign entity's (PE's) capital, voting rights, or rights to profit; and
  • The actual corporate tax paid by the foreign entity or PE on its profits is less than the difference between the corporate tax that would have been paid under Romania's tax provisions and the actual corporate tax paid on the profits by the entity or PE.

Where an entity or PE is considered a CFC, the controlling taxpayer will include in its taxable base the following undistributed income of the CFC:

  • Interest or any other income generated by financial assets;
  • Royalties or any other income generated from intellectual property;
  • Dividends and income from the disposal of shares;
  • Income from financial leasing;
  • Income from insurance, banking and other financial activities; and
  • Income from invoicing companies that earn sales and services income from goods and services purchased from and sold to associated enterprises, and add no or little economic value.

The inclusion of income will not apply, however, if the CFC carries on a substantive economic activity supported by staff, equipment, assets, and premises, as evidenced by relevant facts and circumstances, and where the CFC has its residence or is located in an EEA country.

Other Measures

Other key measures of the Emergency Ordinance include:

  • A reduction in the general individual income tax rate from 16% to 10%;
  • A reduction in the overall social security contribution rate from 39.25% of gross salary to 37.25% along with a shift in the contribution burden, with employees subject to a 35% contribution rate on their gross salary and employers subject to a 2.25% rate on total gross salary (employee contribution will fund pension and health insurance; employer contribution will fund labor insurance for unemployment, sick leave, work accidents, etc.); and
  • An increase in the turnover threshold for the micro-enterprise regime from EUR 500,000 to EUR 1,000,000 (1% flat tax on turnover), as well as an expansion of the permitted scope of eligible activities to include taxpayers with consultancy and management revenues exceeding 20% of total revenue and no longer excluding taxpayers engaged in banking, assurance, reassurance, capital market, gambling activities and exploration, development, or exploitation of oil and natural gas.

The Emergency Ordinance applies from 1 January 2018.

United Kingdom

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UK Finance Act (No. 2) 2017 has Received Royal Assent

On 16 November 2017, the UK Finance (No. 2) Act 2017 received Royal Assent (was enacted). The Act includes a number of measures originally meant for the first Finance Act 2017, which received Royal Assent in April 2017. Two of the main Corporation Tax measures include:

  • New rules on carried-forward tax losses, effective 1 April 2017, which removes the restriction on setting off carried-forward losses against income of the same type, but limits the offset to 50% of profits per year in excess of an annual allowance of up to GBP 5 million, as well as related anti-avoidance rules; and
  • New corporate interest restrictions, effective 1 April 2017, which limits net deductions for interest to 30% of EBITDA with an optional group ratio rule based on the net-interest to EBITDA ratio for the worldwide group that may permit a greater amount to be deducted in some cases.

Other corporation tax measures include clarifying amendments to the hybrid and other mismatch regime, amendments to ensure that companies are neither penalized nor able to gain an undue advantage under the patent box regime when performing R&D under a cost-sharing arrangement, and provisions for the application of Northern Ireland Corporation Tax Rate (12.5%). The hybrid mismatch and patent box amendments apply from 1 January 2017 and 1 April 2017, respectively, while the Northern Ireland provisions are treated as if they had been made in the Corporation Tax (Northern Ireland) Act 2015 Act in the first place.

Treaty Changes (5)

Belgium-Iceland

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Protocol to Tax Treaty between Belgium and Iceland in Force

According to recent reports, the amending protocol to the 2000 income and capital tax treaty between Belgium and Iceland entered into force on 14 April 2015. The protocol, signed 15 September 2009, replaces Article 26 (Exchange of Information) to bring it in line with the OECD standard for information exchange. The protocol applies from 1 January 2016.

Estonia-Japan

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Estonia Approves Pending Tax Treaty with Japan

On 16 November 2017, the Estonia government approved the pending income tax treaty with Japan. The treaty, signed 30 August 2017, is the first of its kind between the two countries and will enter into force 30 days after the ratification instruments are exchanged (previous coverage).

Kosovo-Germany

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Kosovo to Negotiate Tax Treaty with Germany

According to recent reports, the government of Kosovo has authorized the negotiation of an income tax treaty with Germany. Any resulting treaty would be the first of its kind directly between the two countries and must be finalized, signed, and ratified before entering into force. Once in force and effective, the treaty would replace the 1987 tax treaty between Germany and the former Yugoslavia as it applies in respect of Germany and Kosovo.

Kuwait-Lithuania

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Tax Treaty between Kuwait and Lithuania has Entered into Force

According to an announcement published in Lithuania's Official Gazette, the income tax treaty with Kuwait entered into force on 8 September 2017. The treaty, signed 18 April 2013, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Kuwaiti corporate income tax, the contribution from the net profits of the Kuwaiti shareholding companies payable to the Kuwait Foundation for Advancement of Science (KFAS), the Zakat, and the tax subjected according to the supporting of national employee law. It covers Lithuanian profit tax and income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 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 15%
  • Interest - 10%
  • Royalties - 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; 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 apply the credit method for the elimination of double taxation.

Effective Date

The treaty generally applies from 1 January 2018.

Maldives-Untd A Emirates

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Update - Tax Treaty between the Maldives and the UAE

The income and capital tax treaty between the Maldives and the United Arab Emirates was signed on 17 October 2017. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Maldives business profit tax, and UAE income tax and corporate tax.

Income from Hydrocarbons

Article 3 (Income from Hydrocarbons) includes the provision that the treaty will not affect the right of either Contracting State to apply their domestic laws and regulations related to the taxation of income and profits derived from hydrocarbons and its associated activities situated in the territory of the respective Contracting State.

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 a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • Royalties - 7%

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 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, unless listed in a recognized stock market.

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 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 in which it was signed (1 January 2017).

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