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Approved Changes (4)

India

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India Clarifies Tax Treatment of the Sale of Listed Shares or Securities as Capital Gains or Business Income

On 29 February 2016, India's Central Board of Direct Taxes issued Circular No. 6/2016 on the tax treatment of income from the sale of listed shares or securities. The circular states that no universal principle in absolute terms can be laid down, but does provide basic guidelines for Assessing Officers as follows:

  • Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income.
  • In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years.
  • In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the previous Circulars issued by the CBDT (specifically Instruction No. 1827/1989 and Circular No. 4/2007).

The Circular also states that the above does not apply where the genuineness of the shares/securities transaction itself is questionable.

Click the following link for Circular No. 6/2016.

Portugal

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Portugal Adopts 2016 Budget including CbC Reporting Requirements

Portugal's parliament reportedly adopted the 2016 Budget on 16 March 2016. One of the main tax related measure is the introduction of Country-by-Country (CbC) reporting requirements in line with the guidelines developed as part of Action 13 of the OECD BEPS Project. Although the final legislation is not yet available, the final requirements are not expected differ from the draft version, which include:

  • The CbC reporting requirement will apply from the 2016 fiscal year;
  • The content of the report will follow the OECD guidelines;
  • The reporting threshold will be consolidated group revenue in the previous fiscal year of EUR 750 million;
  • The reporting deadline will be 12 months after the fiscal year concerned;
  • Entities required to file a report in Portugal will include:
    • Ultimate parent entities of MNE groups resident in Portugal;
    • Group entities resident in Portugal if the ultimate parent is not required to file in its jurisdiction of residence, or Portugal does not have automatic exchange of CbC reports with that jurisdiction or the Portuguese tax authority has notified a group entity that there is failure to exchange with that jurisdiction; and
    • Group entities resident in Portugal that have not demonstrated that another group entity has been designated to file a CbC report - either an entity resident in Portugal or resident in a jurisdiction with which CbC reports are automatically exchanged;
  • The identity and tax residence of the reporting entity must be provided to the Portuguese tax authority by the end of the fiscal year concerned;
  • A penalty of up to EUR 20,000 will apply for failure to file when required.

The 2016 Budget legislation must now be signed by the president before entering into force. Additional details on the CbC reporting requirements and other measures will be published once available.

United States

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U.S. Revises Interest Rates on Overpaid and Underpaid Tax for Q2 2016

On 16 March 2016, the IRS issued revised interest rates for overpaid and underpaid tax for the second quarter of the year beginning 1 April 2016. The IRS had initially announced on 14 March that the rates were unchanged.

The revised rates are 4% for both overpayment and underpayment by individuals, and 3% and 4% for corporate overpayments and underpayments respectively.

The rate for a corporate overpayments exceeding USD 10,000 in a tax period is 1.5% on the portion exceeding that amount, and the rate for large corporate underpayments exceeding USD 100,000 is 6%.

The revision is due to an increase in the federal short-term rate from 0% to 1%. This is the first change to that rate since the fourth quarter of 2010.

Zimbabwe

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Zimbabwe's New Transfer Pricing Rules

Zimbabwe has enacted new transfer pricing legislation governing controlled transactions between both domestic and foreign parties. The new rules reference both OECD and UN transfer pricing guidelines.

Arm's Length Principle and Transfer Pricing Adjustments

Under the new rules, all controlled transactions must be in accordance with the arm's length principle. For this purpose, the concept of the arm’s length range is introduced. If the relevant financial indicator for a controlled transaction falls outside the arm's length range, the tax authority may make an adjustment to the median of the range and issue a tax assessment accordingly. For adjustments that may result in double taxation, the rules also provide for corresponding adjustments for both domestic and international transactions.

Transfer Pricing Methods

In determining the arm's length price, the following methods are accepted:

  • Comparable uncontrolled price method;
  • Resale price method;
  • Cost plus method;
  • Transactional net margin method;
  • Transactional profit split method; and
  • Other methods if the above five do not result in a reliable comparable figure.

In reviewing a controlled transaction, the tax authorities are limited to using the transfer pricing method chosen by the taxpayer, as long as the taxpayer has satisfied the requirements of the law.

Intra-group Services

In addition to the general application of the arm's length principle, the new rules also specifically address intra-group service transactions. The rules include that for such controlled transactions to be considered at arm's length, the following conditions must be met:

  • The service is actually rendered;
  • The service provides economic or commercial value to the recipient;
  • An independent party would purchase the service in comparable circumstances or would have performed the service in-house; and
  • An independent party would be willing to pay the amount charged in comparable circumstances.

Intangible Assets

The new rules include that for controlled transactions involving intangible assets, the determination of the arm’s length price must take into account the position of all parties to the transaction, including the value and usefulness of the intangible assets to each party's business.

Documentation Requirements

The new rules do not contain statutory requirements for the submission of transfer pricing documentation. However, taxpayer's are required to prepare documentation to substantiate that their controlled transactions comply with the arm's length principle.

Effective Date

The new transfer pricing rules are effective from 1 January 2016.

Proposed Changes (1)

Greece

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Greece to Implement Amendments to EU Rules on Automatic Exchange of Information and Hybrid Mismatches

On 16 March 2016, draft legislation was submitted to the Greek parliament for the implementation of amendments made by EU Directives 2014/107/EU and 2014/86/EU regarding information exchange and hybrid mismatches respectively.

Directive 2014/107/EU amended the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) by expanding the scope of the automatic exchange of information to include interest, dividends, and gross proceeds from the sale of financial assets and other income, as well as account balances.

Directive 2014/86/EU amended the EU Parent-Subsidiary Directive (2011/96/EU) by restricting the benefits of the Directive (exemption) for dividends received in hybrid mismatch situations where the dividend payments are deductible for the subsidiary.

Treaty Changes (3)

Belgium-Uruguay

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Update - Tax Treaty between Belgium and Uruguay

The income and capital tax treaty between Belgium and Uruguay was signed 23 August 2013. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Belgian individual income tax, corporate income tax, income tax on legal entities, and income tax on non-residents. It covers Uruguayan tax on business income, personal income tax, non-residents income tax, tax for social security assistance, and capital tax.

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 - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 15% (exemption if paid to a pension fund subject to certain conditions)
  • Interest - 10% (exemption if paid to a pension fund subject to certain conditions)
  • 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;
  • 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, with an exception for:
    • Shares listed on an approved stock exchange of either Contracting State;
    • Shares alienated in the course of a merger or division of the company holding the shares; and
    • Shares deriving value from immovable property in which an active trade or business is carried on

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

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

MFN Clause

The protocol to the treaty, signed the same date, includes the provision that if either Contracting State signs an agreement with an EU Member State that provides for a lower rate or exemption than provided for in Articles 10 (Dividends), 11 (Interest) or 12 (Royalties), then the competent authorities of the Contracting States shall consult with each other.

Entry into Force and Effect

The treaty will enter into force 15 days after the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

Bosnia Herz-Poland

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Tax Treaty between Bosnia and Herzegovina and Poland has Entered into Force

The income and capital tax treaty between Bosnia and Herzegovina and Poland entered into force on 7 March 2016. The treaty, signed 4 June 2014, replaces the 1985 tax treaty between Poland and the former Yugoslavia as it applies in respect of Bosnia and Herzegovina and Poland.

Taxes Covered

The treaty covers Bosnia and Herzegovina individual income tax and enterprise profit tax, and covers Polish personal income tax and corporate income tax.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% 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;
  • 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

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Bosnia and Herzegovina applies the credit method for the elimination of double taxation. Poland applies the credit method for income covered by Articles 7 (Business Profits), 10 (Dividends), 11 (Interest), 12 (Royalties), 13 (Capital Gains) and 20 (Other Income). Otherwise, Poland applies the exemption with progression method.

Limitation on Benefits

Article 26 (Limitation on Benefits) includes the provision that a resident of a Contracting State will not be entitled to the benefits of the treaty in respect of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 13 (Capital Gains) if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the income is paid is to take advantage of those Articles by means of that creation or assignment.

Effective Date

The treaty generally applies from 1 January 2017. However, the provisions of Article 24 (Mutual Agreement procedure) and Article 25 (Exchange of Information) apply from the date of its entry into force.

The 1985 tax treaty between Poland and the former Yugoslavia is terminated and ceases to have effect on the dates the provisions of the new treaty apply.

Iraq-Pakistan

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Iraq Approves Signing of Tax Treaty with Pakistan

According to recent reports, the Iraq Council of Ministers has approved the signing of an income tax treaty with Pakistan. The treaty will 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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