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Approved Changes (3)

Czech Rep

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Czech Senate Approves Legislation for CbC Reporting

The Czech Ministry of Finance has announced that on 16 August 2017, the Senate approved Bill No. 177, which amends Act no. 164/2013 on International Cooperation in Tax Administration and related acts to transpose amendments made to the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) concerning the exchange of Country-by-Country (CbC) reports (Council Directive (EU) 2016/881). The bill will become law once signed by the president and published in the Official Gazette. Main points of the CbC reporting requirements include:

  • The requirements apply for MNE groups meeting a EUR 750 million consolidated group revenue threshold in the previous year or average equivalent in another currency as published by the European Central Bank in January 2015;
  • The requirements apply for fiscal years beginning on or after 1 January 2016 for Czech parented groups and for fiscal years beginning on or after 1 January 2017 for non-Czech parented groups (secondary local filing);
  • Local non-parent constituent entities are required to submit CbC reports subject to standard secondary local filing conditions, including that the ultimate parent is not required to submit a CbC report in its jurisdiction of residence, there is systemic failure to exchange, etc.;
  • CbC reports are due within 12 months following the end of the reporting fiscal year; although in the case of systemic failure for exchange, the deadline is at least 3 months from the date such failure is notified to the local entity;
  • All Czech members of an MNE group must provide notification to the tax authority including details on the ultimate parent, the surrogate parent, or other reporting entity (if any) by the end of the reporting fiscal year, with a deadline of 15 days to report any changes to the notification - a deadline extension to 31 October 2017 is provided for reporting fiscal years ending up to that date; and
  • Failing to comply with the CbC reporting obligations will result in penalties of up to CZK 1.5 million.

A separate decree from the Ministry of Finance will be published detailing the form and instruction for submission of CbC reports and notifications.

Philippines

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Philippines Court Holds Period to Issue Additional Assessment may not be Extended without Sufficient Proof of Fraud

The Philippine Court of Tax Appeals recently issued a decision on whether the Philippine Bureau of Internal Revenue (BIR) can impose an additional assessment after the expiry of the standard three-year period following the submission of a tax return. The case involved a Yamaha distributor, Norkis Trading Co. Inc., which was issued an additional assessment of approximately PHP 286 million (~USD 5.6 million) in July 2014 for an alleged tax deficiency (inclusive of interest and penalties) with respect to the 2006-07 tax year. The assessment was issued based on the BIR's determination that Norkis failed to report a USD 6 million indemnity payment from Yamaha Motors Co. Ltd. in March 2007 that resulted in a substantial under-declaration of income that could be considered fraud, for which the BIR has 10 years to issue an assessment.

In its decision, the Court of Tax Appeals found in favor of Norkis. The Court stressed that fraud is a question of fact that should never lightly be presumed and must be supported by clear and convincing proof. Considering that the BIR failed to prove that there was an indemnity agreement and/or that Norkis received the USD 6 million indemnity payment, there is no proof as to the alleged substantial under-declaration and/or commission of fraud. Therefore, the standard period for an additional assessment applies (three years after return), which clearly expired (14 October 2010) before the assessment was issued. As such, the Court ordered the assessment canceled and set aside.

Singapore

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Singapore Publishes New and Updated E-Tax Guides for GST Schemes

The Inland Revenue Authority of Singapore has published new and updated e-Tax guides for the following GST schemes:

  • GST: Approved Third Party Logistics Company Scheme, which allows GST-registered logistics companies acting on behalf of overseas persons (not registered for GST) to:
    • Import goods belonging to the logistics company and/or its overseas principals with GST suspended;
    • Remove imported goods belonging to the logistics company and/or its overseas principals from a Zero-GST (ZG) warehouse with GST suspended; and
    • Remove and supply the imported goods locally without having to charge GST to persons (including customers of overseas principals) who are approved under certain GST schemes.
  • GST: Guide on Approved Import GST Suspension Scheme (AISS), which allows qualifying businesses in the aerospace industry to import goods and freely move aircraft parts into Singapore and from the Free Trade Zones (under prescribed scenarios) free of GST;
  • GST: Approved Contract Manufacturer and Trader (ACMT) Scheme (Twelve edition), which relieves contract manufacturers and traders of the need to account for GST on value added activities supplied to non-GST registered overseas customers; and
  • GST: Approved Refiner and Consolidator Scheme (ARCS) (Sixth edition), which provides relief for qualifying refiners and consolidators of investment precious metals (IPM) in their payment of GST on import and purchase of raw materials and relief for input tax incurred on refining activities.

The IRAS regularly publishes new and updated e-Tax guides to provide clarity on certain issues or reflect changes in tax rules.

Treaty Changes (4)

Belgium-Mexico

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Protocol to Tax Treaty between Belgium and Mexico has Entered into Force

The protocol to the 1992 income tax treaty between Belgium and Mexico entered into force on 19 August 2017. The protocol, signed 26 August 2013, is the first to amend the treaty.

Treaty Article Amendments

Main changes include:

  • The replacement of Article 2 (Taxes Covered);
  • The amendment of Article 3 (General Definitions) with respect to the meaning of "competent authority" for Belgium, as well as the addition of definitions for the terms "enterprise", "business", "pension fund", and "recognized securities market";
  • The replacement of Paragraph 3 of Article 4 (Resident) to provide that in the case of dual residence of a person other than an individual, residence for the purpose of the treaty will be determined by the competent authorities through mutual agreement within four years from the presentation of the case to the competent authority of a Contracting State;
  • The replacement of Paragraph 3 of Article 5 (Permanent Establishment) to provide that a service PE will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel, if the activities continue for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period;
  • The amendment of Article 10 (Dividends), including a withholding tax exemption if the beneficial owner is a company that has held at least 10% of the paying company's capital for an uninterrupted period of at least 12 months, or the beneficial owner is a pension fund (subject to conditions); otherwise the rate is 10%;
  • The amendment of Article 11 (Interest), including a withholding tax exemption if the beneficial owner is a pension fund (subject to conditions), and a rate of 5% for interest paid in respect of any loan granted by a bank or other financial institution, including investment and savings banks, as well as insurance companies, and for interest paid on bonds or securities that are regularly and substantially traded on a recognized securities market; otherwise the rate is 10%;
  • The amendment of Article 13 (Capital Gains) to provide that:
    • Gains from the alienation of shares of a company resident in a Contracting State may be taxed in that State, but such tax may not exceed 10% of the taxable gain; and
    • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in a Contracting State may be taxed in that State, but immovable property in which the company carries on its business will not be taken into account;
  • The deletion of Article 14 (Independent Personal Services), and the removal of reference to Article 14 and "independent personal services" in other Articles of the treaty, including Articles 6 (Income from Immovable Property), 10 (Dividends), 11 (Interest), 12 (Royalties), 13 (Capital Gains), 17 (Entertainers and Athletes), and 21 (Other Income);
  • The amendment of Article 22 (Methods for Avoiding Double Taxation) with respect to Belgium, which includes expanded provisions overall;
  • The replacement of Article 25 (Exchange of Information) to bring it in line with the OECD standard for information exchange;
  • The replacement of Article 26 (Assistance in Collection), which includes more detailed provisions;
  • The replacement of Article 27 (Diplomatic Agents and Consular Officers) with Article 27 (Miscellaneous Provisions), which maintains the provision regarding diplomatic agents and consular officers, and adds limitation on benefits provisions, including that:
    • A company resident in a Contracting State may not claim the benefit of a reduction of tax levied by the other State on dividend, interest, and royalty income, if residents of the other State have a direct or indirect interest of more than 50% in that company and the income benefits from an exemption, special deduction, rebate, or other concession or benefit in the first-mentioned State that is not available to other residents of that State; and
    • No reduction in or exemption from tax provided for in the treaty will be applied to income paid in connection with a wholly artificial arrangement, with the provision that an arrangement will not be considered as wholly artificial where evidence is produced that the arrangement reflects economic reality.

Final Protocol Amendments

In addition to the amendments to the main Articles of the tax treaty, a number of amendments are also made to the final protocol to the treaty (originally signed the same date as the treaty). Two of the main amendments include new provisions that:

  • Gains from the alienation of shares as provided in the amended Article 13 will only be taxable in the Contracting State of the alienator if:
    • The alienation takes place between members of the same group to the extent that the remuneration received by the transferor consists of shares or other rights in the capital of the transferee, or of another company that owns directly or indirectly at least 80% of the voting rights and value of the transferee and is a resident of one of the Contracting States or of a country with which the Contracting State granting the exemption has an exchange of information agreement at least as broad as the exchange of information established under Article 26, and certain other conditions are met;
    • The gains have been derived by an insurance company, a bank, or a pension fund; or
    • The alienation takes place through a recognized stock exchange, except where a resident of a Contracting State directly or indirectly held at least 10% of the shares in the company resident in the other State, and in a period of 24 months such resident alienates 10% or more of the shares through one or more transactions through a recognized stock exchange, or the alienation is carried out within a recognized stock exchange through any kind of transaction that prevents such resident from accepting offers other than those received before and during the period in which the alienation is carried out;
  • If, after the signature of the amending protocol, Mexico signs an agreement with a third State that provides for a mandatory arbitration procedure, the arbitration provisions as provided in the protocol will apply from the date on which the agreement between Mexico and the third State becomes applicable.

Effective Date

The amending protocol generally applies from 1 January 2018, although the new Article 25 (Exchange of Information) applies from 1 January 2006 with respect to criminal tax matters.

India-Japan

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India Court Holds Liaison Office does not Constitute PE under Tax Treaty with Japan

The Delhi High Court recently issued a decision on whether or not a liaison office (LO) in India may constitute a permanent establishment under the 1989 India-Japan tax treaty. The case involved Japan-based Mitsui & Co. Ltd., which had engaged in two power projects in India. In addition, Mitsui maintained an LO in India as permitted by the Reserve Bank of India (RBI) to carry on liaison activities only, which included identifying new purchasers and sellers of goods and merchandise, and reporting information to the head office.

In its returns for the years concerned, Mitsui claimed nil income in respect of the LO because it considered that it met the conditions set by the RBI, which included that the LO does not carry on any trading, commercial, or industrial activity. However, in reviewing the returns, the assessing officer determined that the LO constituted a permanent establishment because the LO and the separate project offices shared a common chief representative and certain telephone expenses of one of the power projects had been allocated to the LO. Based on this, a tax adjustment was issued, which Mitsui appealed, with the case eventually making its way to the High Court.

In its decision, the High Court found in favor of Mitsui. In order for the LO to be treated as a permanent establishment, the Court held that the tax authority must prove that it met the conditions for a permanent establishment as set out in Article 5(1) and 5(2) of the India-Japan tax treaty. In particular, it must be shown that the LO was a fixed place of business through which the business of Mitsui was wholly or partly carried out. Because the LO was clearly not used for the purpose of business in the years concerned and the conditions set by the RBI were met, it could not be considered a taxable permanent establishment. With respect to the shared chief representative and the allocation of telephone expenses, the Court found it was not sufficient to conclude that the LO was carrying on the business of the enterprise.

Iraq-Turkey

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Tax Treaty between Iraq and Turkey under Negotiation

According to a release from Turkey's Revenue Administration, officials from Iraq and Turkey met 8 to 10 August 2017 for the first round of 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.

Qatar-Serbia

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SSA between Qatar and Serbia under Negotiation

According to a release from the Serbian Ministry of Labour, Employment, Veteran and Social Affairs, officials from Qatar and Serbia met 9 August 2017 to discuss bilateral relation, including continued negotiations for a social security agreement. Any resulting agreement would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

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