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Approved Changes (3)

Belgium

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Belgium Repeals Patent Box Regime

The Belgian parliament has approved the repeal of the country's patent box regime (80% patent income deduction) with effect from 1 July 2016. The regime has been repealed because it does not comply with the new modified nexus approach developed as part of Action 5 of the OECD BEPS Project. Under this approach, the benefits received are to be aligned with the amount of R&D expenditure incurred by the taxpayer, excluding related-party expenditure (possible 30% uplift).

In order to transition out of the repealed regime, a grandfathering period applies for patent income up to 30 June 2021, provided the patent application was submitted or the patent was acquired before 1 July 2016. However, this is not available for a patent directly or indirectly acquired from an associated company on or after 1 January 2016 if such patent was not eligible for the Belgian regime or a similar foreign regime in the hands of the associated company.

Belgium is expected to finalize a new patent regime based on the modified nexus approach by the end of the year that will apply from 1 July 2016. Details of the new regime will be published once available.

Guernsey-United Kingdom

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Guernsey Commits To Exchange of Beneficial Ownership Information

In a release published 15 July 2016, the Guernsey government announced its commitment to the initiative for the automatic exchange of beneficial ownership information, which was originally proposed by Finance Ministers from France, Germany, Italy, Spain, and the UK (G5) in April (previous coverage). To date, 43 jurisdictions have committed to exchange beneficial ownership information, although a global standard must still be developed and implemented before exchanges can begin.

Guernsey has also agreed through the exchange of notes with the UK to provide law enforcement authorities, including tax authorities, with beneficial ownership information for legal entities.

Click the following link for the release.

Trin & Tobago

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Trinidad and Tobago Introduces Tax Amnesty Program and Delays Insurance Contributions Increase

Trinidad and Tobago Finance Minister Colm Imbert has announced a tax amnesty program that will run through 16 September 2016. The tax amnesty is available for both individual and corporate (business) taxpayers, and provides an interest and penalty waiver for taxes/returns that were due up to December 2015, including income tax, corporation tax, value added tax, and the business and green fund levies. Once 16 September passes, all interest and penalties will again become due.

In addition, the Finance Minister announced that the increase in the maximum monthly income basis for national insurance contributions to TTD 13,600 and the increase in the contribution rate to 13.2% will apply from 5 September 2016 (originally to apply from 4 July).

Proposed Changes (1)

Czech Rep-European Union

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Czech Republic to Implement Amendments to EU Administrative Cooperation Directive on the Exchange of Tax Rulings

On 17 July 2016, the Czech government submitted legislation to parliament for the implementation of amendments made to the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) concerning the exchange of cross border tax rulings and advance pricing agreements (APAs). The amendments to the Directive were made by Council Directive (EU) 2015/2376, which was approved 8 December 2015 (previous coverage). Individual EU Member States need to adopt the laws, regulations and administrative provisions necessary to comply with the new requirements by 31 December 2016, with the automatic exchange of tax rulings and APAs to begin 1 January 2017.

The legislation must be approved by parliament and signed into law by the president before entering into force.

Treaty Changes (5)

Austria-Iceland

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Tax Treaty between Austria and Iceland Signed

According to a 30 June 2016 announcement from the Icelandic Ministry for Foreign Affairs, an income and capital tax treaty has been signed with Austria. The announcement includes that the withholding tax rates under the treaty are as follows:

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

The treaty is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

Cyprus-Latvia

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Update - Tax Treaty between Cyprus and Latvia

The income tax treaty between Cyprus and Latvia was signed on 24 May 2016. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Cyprus income tax, corporation tax, special contribution for the Defence of the Republic, and capital gains tax. It covers Latvian enterprise income tax and personal income tax.

Withholding Tax Rates

  • Dividends - 0% if the beneficial owner is a company (other than a partnership); otherwise 10%
  • Interest - 0% if paid by a company that is a resident of a Contracting State to a company (other than a partnership) that is a resident of the other Contracting State and is the beneficial owner of the interest; otherwise 10%
  • Royalties - 0% if paid by a company that is a resident of a Contracting State to a company (other than a partnership) that is a resident of the other Contracting State and is the beneficial owner of the royalties; otherwise 5%

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 of any kind in a company or other entity deriving more than 50% of their value directly or indirectly from 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.

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.

India-Singapore-United Kingdom-United States

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Indian Tribunal Holds Fees for Overseas Marketing Services do Not Constitute FTS under Singapore and UK Tax Treaties

The Kolkata Income Tax Appellate Tribunal recently issued a decision on whether fees paid to overseas subsidiaries for marketing support services constitute fees for technical services (FTS). The case involved Batlivala & Karani Securities Pvt. Ltd. (B&K), an India-based brokerage company providing services for institutional clients.

In the year concerned, B&K paid service fees to its subsidiaries in Singapore and the UK for marketing support services for the expansion of its business overseas. The service fees paid covered the costs of the subsidiaries to provide the services plus a markup, with no tax withheld. In auditing B&K, the assessing officer determined that the service fees constituted FTS, and that tax should have been withheld. As a result, the assessing officer disallowed the deduction of the service fees by B&K, and B&K appealed.

In its decision, the Tribunal sided with B&K. It determined that since the marketing support services did not make available any knowledge, experience, skill, know-how or processes to the Indian taxpayer, the service fees could not be treated as FTS. This determination was based on the definition of FTS in India's tax treaty with the UK and Singapore, as well as the MoU with the U.S. on interpreting Article 12 (Royalties and Fees for Included Services) of the India-U.S. tax treaty, which includes a definition of "included services" that is similar to the Singapore and UK treaty definitions of FTS. Based on this and the fact that that neither the Singapore or UK subsidiaries had a permanent establishment in India, the Tribunal held that no withholding tax was due and the deductions should be allowed.

Italy-Switzerland

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Protocol to Tax Treaty between Italy and Switzerland has Entered into Force

According to an update from the Italian Ministry of Finance, the protocol to the 1976 income and capital tax treaty with Switzerland entered into force on 13 July 2016. The protocol, signed 23 February 2015, replaces Article 27 (Exchange of Information) to bring it in line with the OECD standard for information exchange. It applies for requests made on or after the date of its entry into force.

Portugal-Oman-Saudi Arabia

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Portugal Ratifies Tax Treaties with Oman and Saudi Arabia

On 18 July 2016, the decrees ratifying Portugal's pending income tax treaties with Oman (previous coverage) and Saudi Arabia (previous coverage) were published in the Official Gazette. The treaty with Oman was signed 28 April 2015 and the treaty with Saudi Arabia was signed 8 April 2015. Both treaties are the first of their kind between Portugal and the respective countries, and will enter into force after the ratification instruments are exchanged.

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