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Approved Changes (3)

Egypt

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Egypt Suspends Capital Gains Tax on Gains from the Sales of Shares but Retains Dividends Tax

On 18 May 2015, the Egyptian government announced a two-year suspension of the 10% capital gains tax (CGT) on annual net gains derived from the sale of shares in companies listed on the Egyptian stock exchange. The 10% CGT was introduced as part of Decree-Law No. 53, which entered into force 1 July 2014.

The 10% withholding tax on dividends that was also introduced as part of Decree-Law No. 53 will continue to apply as a final tax. The tax is reduced to 5% when the beneficial owner holds greater than 25% of the capital or voting rights of the paying company for at least two years. A 90% participation exemption applies for parent and holding companies if the 25% holding requirement is met and the participation is held for at least two years or committed to be held for at least two years.

European Union

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EU Parliament Approves New Anti-Money Laundering Rules including Central Registers for Beneficial Ownership

On 20 may 2015 the European Parliament approved a new anti-money laundering directive that had been adopted by the Council of the European Union on 20 April 2015 (previous coverage). The directive as approved includes the requirement that all EU Member States maintain a central register of Information on beneficial ownership of corporate and other legal entities, as well as trusts, which were added as part of the Parliamentary negotiations.

The central registers must be accessible to competent authorities, financial intelligence units, and obliged entities such as banks as part of customer due diligence. Other persons or organizations that can demonstrate a legitimate interest may be allowed access to the registers as well. A legitimate interest must be in suspected money laundering, terrorist financing and in "predicate" offences that may help to finance them, such as corruption, tax crimes and fraud. In regard to trusts, however, only authorities and obliged entities may have access.

EU Member States will have two years to transpose the directive into national law.

Click the following link for the press release issued by the European Parliament.

Korea, Rep of

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Korea Issues Guidance on APA Applications

The Korean National Tax Service (NTS) recently issued guidance on the general procedures and requirements for applying for an advance pricing agreement (APA). The basic steps and requirements are summarized as follows.

Pre-Filing Meeting

A pre-filing meeting is held to discuss the background of the request, past tax returns covered by the APA, the taxpayer's eligibility, the transactions to be covered and the proposed transfer pricing method.

APA Application

The APA Application is made by submitting the prescribed form (Form no. 3) to the International Cooperation Office Division of the NTS by the end of the first taxable year to be covered. The form includes the applicable period and transactions covered, the parties involved and the transfer pricing method.

The following documentation must be submitted along with the application form:

  • An overview of the involved parties' business profile, organization and investment relationship;
  • The involved parties' financial statements for the past three years, a copy of tax returns, a copy of the transaction contract and any other relevant documents;
  • Documentation detailing the following:
    • The methods used to evaluate comparability and the adjustment of differences in factors determining comparability;
    • Where the financial statements of comparable companies are used, the difference in the accounting principle and the method for adjusting such differences;
    • Where financial or cost data segmented by transaction item is used, the segmentation standards;
    • Where two or more comparables are used, the arm's length range and the method for its calculation;
    • An explanation of the conditions or assumptions that form a premise for the transfer pricing method; and
    • Any other relevant documents supporting the proposed transfer pricing method

Additional documentation may be required, such as when a taxpayer requests a mutual agreement procedure.

The entire review process can take up to two years for unilateral APAs and longer in the case of bilateral APAs.

APA Compliance

Once the APA is reviewed, finalized and entered into, the taxpayer must submit an annual status report. An APA may be canceled or withdrawn if the taxpayer fails to file the annual report, or when other conditions of the APA are not complied with, or critical assumptions are not realized or have changed. In the event that assumptions have changed or the approved transfer pricing method can no longer be applied, the taxpayer may request a modification of the APA.

Simplified APA Program

Although not covered in the recent guidance, from 2015 Korea also provides a simplified APA program for foreign small and medium sized enterprises in the manufacturing, wholesale/retail, and service industries with annual sales not exceeding KRW 50 billion (~USD 45.7 million). The program applies only for unilateral APAs.

The basic procedure is the same but the application documentation requirements are simplified, and the process is to be completed in one year.

Proposed Changes (1)

United States

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US Treasury Issues Proposed Revisions to the US Model Tax Convention

On 20 May 2015, the US Treasury issued five proposed revisions to the US model tax convention for public comment. The revisions are mainly aimed at preventing double non-taxation and are consistent with the G20/OECD Base Erosion and Profit Shifting (BEPS) Project.

Proposed Treaty Rule Addressing So-Called Exempt Permanent Establishments

This proposal includes the addition of a new Paragraph 7 to Article 1 (General Scope) of the model that would deny the tax benefits of the treaty if a resident of a Contracting State earns income from the other Contracting State through a permanent establishment (PE) situated outside of the Contracting State of residence and:

  • The resident is subject to a significantly lower tax rate with respect to the income attributable to the PE; or
  • The jurisdiction of residence of the PE does not have a tax treaty in force with the Contracting State from which the treaty benefits are being claimed

Proposed Treasury Rules Addressing Payment by Expatriated Entities

This proposal includes the addition of new paragraphs to Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 21 (Other Income) that allows the US to deny any reduced withholding tax benefits of a treaty and fully tax any payments covered by these articles in accordance with domestic law if paid by an expatriated (inverted) entity. This exception from withholding tax benefits would apply for 10 years from the date the acquisition of the entity is completed.

Proposed Treaty Rules Addressing Special Tax Regimes

This proposal includes adding a new definition of "Special Tax Regime" in Article 3 (General Definitions), which is defined to include any legislation, regulation or administrative practice that provides a preferential effective rate of taxation to such income or profit, including through reductions in the tax rate or the tax base with certain exceptions.

"Special Tax Regime" would be referenced in new provisions added to Articles 11 (Interest), 12 (Royalties) and 21 (Other Income), which would deny the tax benefits provided for income covered by those articles if the payer and the beneficial owner are related and the beneficial owner is subject to a special tax regime.

Proposed Limitation on Benefits Article

This proposal includes a number of changes to the current model Article 22 (Limitation on Benefits), including the addition of a derivative benefits rule in paragraph 4, and the addition of a base erosion test in paragraphs 2(d)(ii), 2(f)(ii) and 4(b)(i), as well as new definitions under paragraph 5, including:

  • 5(e) - equivalent beneficiary;
  • 5(f) - qualifying intermediate owner;
  • 5(g) - tested group; and
  • 5(h) - gross income

Proposed Article Addressing Subsequent Changes in Law

This proposal includes the addition of Article 28 (Subsequent Changes in Law). Under Article 28, the provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 21 (Other Income) would cease to have effect if at any time after the signing of the treaty the general rate of company tax falls below 15% with respect to substantially all of the income of resident companies in either Contracting State or either Contracting State provides an exemption from taxation to resident companies for substantially all foreign source income. A similar provision would apply for individuals if the highest marginal income tax rate falls below 15%.

Treaty Changes (2)

Belgium-Russia

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New Tax Treaty between Belgium and Russia Signed

On 19 May 2015, officials from Belgium and Russia signed a new income and capital tax treaty. Once in force and effective will replace the 1995 tax treaty between the two countries, which is currently in force.

Taxes Covered

The treaty covers Belgian individual income tax, corporate income tax, income tax on legal entities, and income tax on nonresidents. It covers Russian individual income tax, corporate income tax, property tax and the tax on personal property.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company that has directly held at least 10% of the paying company's capital for a continuous period of at least 12 months and the participation in the capital is at least EUR 80,000 or equivalent in RUB; otherwise 15%
  • Interest - 10%, although an exemption is provided for interest paid on a loan made by an enterprise of one Contracting State to an enterprise of the other State
  • Royalties - 0%

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

Russian applies the credit method for the elimination of double taxation, while Belgium generally applies the exemption method. However, subject to the provisions of Belgian law, Belgium will apply the credit method for interest and royalty income.

Limitation on Benefits

Article 27 (Limitation on Benefits) includes the provision that the benefits of the treaty will not apply for a resident of a Contracting State if the main purpose or one of the main purposes of such resident or a connected person was to obtain the benefits of the treaty.

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.

The provisions of the 1995 income and capital tax treaty between Belgium and Russia will cease to have effect once the new treaty is effective.

OECD-Seychelles-Ghana

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OECD Announces the Signing of the Agreement on Automatic Exchange of Financial Account Information by Ghana and Seychelles

According to an announcement by the OECD, Ghana and Seychelles signed the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information on 14 May 2015. To date, 54 countries/jurisdictions have signed the agreement. Most signatories intend to begin the automatic exchange of information in 2017, including Seychelles, although Ghana intends to begin in 2018.

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