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Worldwide Tax News

Approved Changes (3)

Brazil

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Brazilian Senate Approves Changes to Taxation of Interstate Online and Phone Sales

Brazil's Senate has approved Constitution Amendment Bill 7/2015 (Constitution Amendment Bill 197/2012 as considered by the Chamber of Deputies), which introduces changes to levy of the country's state value added tax (ICMS) on interstate online and phone sales.

Currently, online and phone sales of goods to final consumers are subject to ICMS at the internal rate in the state of the supplier only. Under the new rules, ICMS on interstate sales will be split between the state of the supplier and the state of the final consumer.

The state of the supplier will charge the interstate ICMS rate, 7% or 12% depending on the state, and the state of the final consumer will charge the difference between the interstate rate and the internal rate of that state. The general standard internal rate is 17%, although some states have a higher standard rate including 18% for São Paulo and Paraná e Minas Gerais, and 19% for Rio de Janeiro.

As part of the change there is a transition period over which the difference between the interstate rate and internal rates will be split and gradually shifted to the state of final consumer. The transition is as follows:

  • 2015 - 20% of the difference to the state of final consumer and 80% to the state of the supplier;
  • 2016 - 40% of the difference to the state of final consumer and 60% to the state of the supplier;
  • 2017 - 60% of the difference to the state the state of final consumer and 40% to the state of the supplier;
  • 2018 - 80% of the difference to the state the state of final consumer and 20% to the state of the supplier;
  • 2019 - 100% of the difference to the state of the final consumer

The amendment was published as EC 87/2015 on 17 April 2015 and entered into force on that date.

European Union

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The Council of the European Union Adopts New Anti-Money Laundering Rules including Central Registers for Beneficial Ownership Information

On 20 April 2015, the Council of the European Union adopted a new anti-money laundering directive and regulation. The directive includes the requirement that all EU Member States maintain a central register of Information on beneficial ownership of companies, which must be accessible to competent authorities, financial intelligence units and, as part of customer due diligence, obliged entities such as banks. Other persons or organizations that can demonstrate a legitimate interest will also be allowed access to the registers. The minimum amount of information on beneficial owners to be made available includes:

  • Name;
  • Month and year of birth;
  • Nationality;
  • Country of residence; and
  • The nature and approximate extent of the beneficial interest held

The European Parliament has already agreed to adopt the directive at an upcoming plenary session, and Member states will have two years to transpose the directive into national law.

Click the following link for a press release issued by the Council of the European Union.

South Africa

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South Africa has Published a Draft Interpretation Note on the Place of Effective Management for Tax Residence Purposes

The South African Revenue Service has recently published a draft interpretation note providing guidance on the interpretation and application of the term "place of effective management" in determining the tax residence of a company and any other entity or body of persons that is not a natural person.

According to the South Africa Income Tax Act No. 58 of 1962, a resident means any person (other than a natural person) which is incorporated, established or formed in the (South African) Republic or which has its place of effective management in the (South African) Republic. Although the Tax Act does not define the term "place of effective management," according to the interpretation note, a company’s place of effective management is generally defined as the place where key management and commercial decisions that are necessary for the conduct of its business as a whole are in substance made. When such decisions are made at more than one location, the company’s place of effective management will be the location where those decisions are primarily or predominantly made.

In addition to the general definition, the interpretation note covers several factors which may impact the determination of the place of effective management, including:

  • The location of a company’s head office;
  • Whether the authority of the company board has been delegated to one or more committees and the location of such committees;
  • The location where a company’s board regularly meets and makes decisions;
  • The impact of telecommunications, information technology, global travel and modern business practices on how meetings are held and decisions made;
  • The level of influence of shareholders; and
  • The distinction between operational management and broader top level management

Other factors covered that are seen as less relevant include legal factors such as a company’s place of incorporation, formation or establishment; the extent of a company’s economic nexus with a country; and the location of support functions.

Comments on the draft must be submitted by 31 July 2015, and should be sent to policycomments@sars.gov.za. Click the following link for the Draft Issue 2 of IN 6 - Resident - place of effective management (companies).

Proposed Changes (2)

Australia

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Australia to Work with the UK on a Diverted Profits Tax

During the recent G20 meeting held 16 to 17 April 2015, UK Chancellor of the Exchequer George Osborne and Australian Treasurer Joe Hockey announced plans to form a joint working group to develop a tax regime for Australia that is similar to the Diverted Profits Tax recently implemented by the UK. As with the UK regime, the Australian version will be aimed at countering arrangements which divert profits from Australia and escape taxation.

The joint working group will be formed after the UK general elections in May 2015, and will be open to any G20 member.

Romania

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Romania Looking to Tax Tips

The Romanian Ministry of Finance has issued a draft Emergency Ordinance that includes provisions for the taxation of tips (gratuities) paid in addition to the basic price of goods and services. If kept by the employer, tips would be subject to a flat tax of 16% of profit or 3% of income in the case of small enterprises. If the tips go to the employee, a 16% flat tax would apply on the income. VAT and social contributions would not apply.

Treaty Changes (4)

Canada-India

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SSA between Canada and India to Enter into Force

The social security agreement between Canada and India will enter into force on 1 August 2015. The agreement, signed 6 November 2012, is the first of its kind between the two countries and generally applies from the date of its entry into force.

Kyrgyzstan-Bahrain-Estonia-France-Hong Kong-Italy-Singapore-Turkmenistan-Vietnam

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Kyrgyzstan Provides Update on Current Tax Treaty Negotiations

The Kyrgyzstan government has recently issued an update on current tax treaty negotiations. According to the update, negotiations are ongoing with Bahrain, Estonia, France, Hong Kong, Italy, Singapore, Turkmenistan and Vietnam. Aside from France and Italy, any resulting treaties will be the first of their kind between Kyrgyzstan and the respective countries/jurisdictions. In regards to France, the 1985 tax treaty with the former Soviet Union is still applied by France, but not by Kyrgyzstan. In regards to Italy, the 1985 tax treaty with the former Soviet Union was terminated.

The treaties must all be finalized, signed and ratified before entering into force. Additional details for each will be published once available.

Malawi-Netherlands

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Tax Treaty between Malawi and the Netherlands Signed

On 19 April 2015, officials from Malawi and the Netherlands signed an income tax treaty. The treaty is the first of its kind directly between the two countries; although the 1948 tax treaty between the Netherlands and the UK had been extended to Malawi through the exchange of notes in 1969 and was later terminated with effect from 1 January 2014.

The new treaty will enter into force after the ratification instruments are exchanged. Additional details will be published once available.

Sweden-Uruguay

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TIEA between Sweden and Uruguay has Entered into Force

The tax information exchange agreement between Sweden and Uruguay entered into force on 17 April 2015. The agreement, signed 14 December 2011, is the first of its kind between the two countries and is in line with the OECD standard for information exchange. It generally applies from the date of its entry into force.

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