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Worldwide Tax News

Approved Changes (3)

India

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Indian Tax Authority Issues Income Computation and Disclosure Standards

On 31 March 2015, the Indian Central Board of Direct Taxes issued Notification S.O. 892 (E), which includes income computation and disclosures standards applicable for the computation of taxable income from the profit and gains of a business or profession and income from other sources. The notification specifically states that standards are not for the maintenance of books of accounts.

The notification covers 10 main areas, including:

  • Significant accounting policies;
  • The valuation of inventories;
  • The determination of income for a construction contract;
  • The recognition  of  revenue from the sale of goods, the rendering of services, and the  use  by  others  of  resources  yielding  interest,  royalties  or dividends;
  • The treatment of tangible fixed assets;
  • The effects of changes in foreign exchange rates;
  • The treatment of government grants, including subsidies, cash incentives, duty drawbacks, waivers, concessions, reimbursements, etc;
  • The treatment of securities held as stock-in-trade;
  • The treatment of borrowing costs; and
  • The treatment of provisions, contingent liabilities and contingent assets

The notification is in force with effect from 1 April 2015. Click the following link for the full income computation and disclosure standards notification as issued.

Nigeria

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Nigeria Issues Circular on Luxury Surcharges on Private Jets and Air Ticket Levies

The Nigerian Minister for Finance and Coordinating Minister for the Economy recently issued a circular on the implementation of a luxury surcharge on private jets and a levy on certain air tickets with an effective date of 11 February 2015. The circular was issued despite the fact that the 2015 budget proposal that includes the new luxury surcharges and levies has not yet been approved.

According to the circular, registered and local foreign private jets operating in Nigeria are subject to a surcharge base on the weight of the jet at a rate of NGN 3,200 per kilogram. For first class and business class international air tickets, a levy of NGN 15,000 applies.

Russia

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Russia Issues Guidance on the Delayed Creation of Consolidated Tax Groups Registered in 2014

The Russian Ministry of Finance recently issued guidance on the rules regarding the creation or amendment of consolidated tax groups and the impact of Federal Law 366-FZ, which entered into force the end of 2014 and includes provisions delaying group formation.

Standard Rules

According to the standard rules in the Russian Tax Code, a consolidated group is created by the registration of a contract to consolidate corporate tax liabilities. In order to be formed, the required registration documents must be submitted to the Russian Tax Authorities by 30 October of the year proceeding the tax year in which the tax consolidation is intended to begin.

The tax authorities are then required to register the consolidated group contract the group within one month of the submission or issue its decision if rejecting the registration. If the contract is registered by the tax authorities, the consolidate group is deemed created in the year following the year of registration.

Similar rules apply for agreements to amend consolidated tax groups, but the deadline to submit is 30 November, and the tax authorities must register the amendment within 10 days.

Delays for 2014 Registrations

As a result of Federal Law 366-FZ, the formation of and certain amendments to consolidated tax groups is delayed. Article 8 of Federal Law 366-FZ states that contracts registered to create a consolidated group in 2014 will not enter into force until 1 January 2016. It also states that amendments registered for the addition of new members will not enter into force until 1 January 2016, except when the addition is due to the reorganization of excising member(s). However, as the guidance clarifies, other amendments submitted by the deadline, aside from the addition of new members not resulting from reorganization, do apply from 1 January 2015 as per the standard rules in the Tax Code.

Proposed Changes (1)

Canada

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Canadian 2015 Budget Delivered

On 21 April 2015, Canadian Finance Minister Joe Oliver delivered the 2015 Budget and Economic Action Plan. Key tax related measures are summarized as follows.

Small Business Tax Rate

The plan proposes a reduction in the small business federal tax rate from 11% to 9%. The reduced rate applies on the qualifying active business income of a Canadian-controlled private corporation (CCPC) up to CAD 500,000. For CCPCs with taxable capital exceeding CAD 10 million to 15 million, the income amount eligible for the reduced rate is proportionately reduced, while the income of CCPCs with taxable capital exceeding CAD 15 million is not eligible at all.

The proposed rate reduction would take place over four years as follows:

  • 2016 - 10.5%
  • 2017 - 10%
  • 2018 - 9.5%
  • 2019 - 9%

No other corporate tax rate changes are proposed.

Accelerated Capital Cost Allowance for Manufacturing

The plan proposes a 10-year accelerated capital allowance incentive for investment in productivity-enhancing machinery and equipment for manufacturing and processing. The inventive allows for a capital allowance rate of 50% on a declining-balance basis for qualifying machinery and equipment acquired on or after 1 January 2016 up to 31 December 2025. Such machinery and equipment acquired after that period will be eligible for a capital allowance rate of 30% on a declining-balance basis.

Income Tax Withholding for Non-Resident Employers

The plan proposes an exception to the individual income tax withholding requirements for payments by qualifying non-resident employers to qualifying non-resident employees. Currently it is generally required that employers, including non-residents, withhold income tax for employees working in Canada, although a waiver for a specific employee may be applied for.

In order to reduce the administrative burden, an exception is proposed with certain conditions for the employee and the employer. The employee conditions for the exception include that the employee:

  • Is exempt for Canadian income tax because of a tax treaty; and
  • Is not in Canada for more than 90 days within any 12 month period in which the employee payment is made

The employer conditions for the exception include that the employer:

  • Is a company resident in a country with which Canada has a tax treaty; or
  • Is a partnership where at least 90% of the partnership’s income is allocated to persons resident in a country with which Canada has a tax treaty in the fiscal period in which the employee payment is made

The exception for qualifying employees and employers would apply for payments made on or after 1 January 2016.

Anti-Avoidance Rules for Capital Gains

The plan proposes the expanded application of subsection 55(2) of the Income Tax Act, which includes an anti-avoidance rule preventing corporate shareholders from converting a capital gain on a disposal of shares into a tax-free inter-corporate dividend. The rule applies when one of the purposes of the dividend is to significantly reduce a capital gain on the share, unless the dividend can be reasonably attributed to after tax earnings, and certain other cases.

Under the proposal, the subsection 55(2) rule would be expanded to also apply to cases where one of the purposes of the dividend is to significantly reduce the fair market value of any share or a significant increase in the total cost of properties of the recipient of the dividend.

The proposed measure would be effective from 21 April 2015.

Anti-Avoidance Rules for Captive Insurance

The plan proposes stricter anti-avoidance rules for captive insurance in addition to the rules included in the 2014 Budget, which prevent Canadian resident taxpayers from shifting income from the insurance of Canadian risks to controlled foreign affiliates through insurance swaps. Under the rules, such income is considered foreign accrual property income (FAPI) and is taxable in the hands of the Canadian taxpayer on an accrual basis.

Under the proposal, similar arrangements are targeted where a foreign affiliate cedes a portfolio of Canadian risks in exchange for a portfolio of foreign risks, the difference between the fair market value and the cost of the Canadian risks will then be considered FAPI.

The proposed measure would apply for tax periods beginning on or after 21 April 2015.

Treaty Changes (3)

Barbados-Untd A Emirates

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Update - Tax Treaty between Barbados and the U.A.E

On 24 September 2014, an income tax treaty between Barbados and the United Arab Emirates was signed. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Barbados income tax, corporation tax, and the petroleum winning operations tax. It covers U.A.E. income tax and corporate tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 9 months.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • 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, but the tax charged will be reduced by 50%; 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 2014.

Colombia-Panama

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Negotiations Begin for a Tax Treaty between Colombia and Panama

On 20 April 2015, officials from Colombia and Panama met for the first round of negotiations for an income tax treaty. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Additional details will be published once available.

Macedonia-Vietnam

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Macedonia Approves Tax Treaty with Vietnam

On 14 April 2015, the Macedonian parliament approved the law for the ratification of the pending income tax treaty with Vietnam. The treaty, signed 15 October 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Macedonian personal income tax and profit tax, and covers Vietnamese personal income tax and business income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months in any 12-month period.

A permanent establishment will also be deemed constituted when a person conducts activities in a Contracting State which relate to the exploration for and exploitation of natural resources located in that State.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 70% of the paying company's capital; 10% if the if the beneficial owner is a company directly holding at least 25% but less than 70% 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;
  • Gains from the alienation of the capital stock of a company, or of an interest in a partnership, trust or estate, the total asset value of which is comprised directly or indirectly principally (greater than 50%) of immovable property situated in the other State; and
  • Gains from the alienation of shares, other than those mentioned above, in a company resident 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. A provision is also included for a tax sparing credit for tax that would otherwise be payable but has been reduced or exempted under legal provisions of a Contracting State for tax incentives.

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.

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