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Approved Changes (4)

Australia

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Chevron Withdraws Appeal in Intra-Company Loan Transfer Pricing Case

The Australian Government has announced that on 18 August 2017, Chevron decided to withdraw its appeal to the Australian High Court concerning a ruling from the Australian Taxation Office (ATO) that Chevron incorrectly priced an intra-company loan to shift profits offshore and avoid tax on Australian income. The case involved an assessment issued by the ATO in 2010 of approximately AUD 340 million related to excess deductions taken in respect of an intra-company loan, which the ATO determined had an excessive interest rate that was not at arm's length. The Australian Federal Court had dismissed a prior appeal in April 2017 (previous coverage).

Colombia

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Colombia Clarifies Amortization of Intangible Assets

Colombia's National Tax Authority (DIAN) recently issued a ruling on the amortization of intangible assets from 2017 as per the amended rules introduced by Law No. 1819 of 2016 (previous coverage). The ruling clarifies that for income tax purposes, acquired intangible assets may be amortized as per accounting rules, provided that the annual amortized amount does not exceed 20% of the intangible asset's cost basis, which is the initial cost of acquisition plus any additional costs in relation to preparing the asset for operation. Further, in order to be amortized, the intangible asset must have a definite useful life, must be identifiable and measurable in accordance with the accounting rules, and must have generated taxable income for the seller or been acquired from an unrelated third party abroad.

Romania

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Romania Publishes Ordinance on Mandatory Electronic Tax Return Filing

Romania has published Ordinance No. 2326/2017 of 2 August 2017 in the Official Gazette. The Ordinance sets out the tax returns that must be filed electronically to the National Agency for Fiscal Administration. This includes most tax returns, including income tax returns (excluding individual), withholding tax returns, value added tax returns, and others. The Ordinance is effective from January 2018.

Singapore

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Singapore Senior Minister of State for Law and Finance Speaks on Approach to Digital Economy

The Inland Revenue Authority of Singapore has published a speech by Senior Minister of State for Law and Finance, Ms. Indranee Rajah, on Singapore's approach in responding to the digitalization of the economy. According to Ms. Rajah, Singapore is taking a three-pronged approach in responding to the challenges:

  • First, Singapore is committed to providing a stable business environment for our businesses by upholding international principles and participating in international efforts;
  • Second, Singapore will continue to engage businesses to ensure that our tax system remains growth-oriented; and
  • Third, specific to the taxation of the digital economy, Singapore advocates three high-level principles - (i) tax certainty for businesses, (ii) tax neutrality between traditional and digital business models, and (iii) international consensus.

With respect to the third point, Singapore's positions are as follows:

  • On tax certainty for businesses, tax policies should provide tax certainty and minimize the regulatory and compliance burden. Rules should not be so onerous as to stifle innovation and growth.
  • On tax neutrality between traditional and digital business models, to ensure fair competition between traditional business models and those which have higher levels of digitalization, there should be fairness in terms of the taxes paid by businesses regardless of their extent of digitalization.
  • On international consensus, Singapore supports jurisdictions working together at international forums to achieve consensus on issues relating to the taxation of the digital economy.
    • Singapore is a member of the OECD’s Task Force on the Digital Economy (TFDE), which has been tasked to consider developing internationally-agreed policy options to address challenges posed to international tax rules by the digital economy.
    • Singapore is also in the TFDE Bureau, which guides the discussion of the TFDE. Singapore will participate actively in the discussions to shape outcomes, and work together with the international community to ensure consistent implementation and a level playing field across jurisdictions.

Click the following link for the full text of the speech.

Proposed Changes (2)

Brazil

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Brazilian Chamber of Deputies Announces Plans for Tax System Reform including Replacement of Consumption Taxes with New VAT

According to a recent release published on the Brazilian Chamber of Deputies website, Deputy Luiz Carlos Hauly is preparing to present the first text of proposed amendments to restructure the Brazilian tax system. The amendments are meant to simplify the current system, and in particular, support productive sectors and lower-income individuals. One of the main measures would be the replacement of several taxes with a single VAT. Taxes that would be replaced include ICMS (state value added tax), IPI (federal tax on manufactured products), COFINS (contribution for social security funding), and ISS (municipal services tax). In relation to the new VAT, a selective tax would also be applied, with a focus on electric energy, fuels, cigarettes, beverages, and certain other products.

Costa Rica

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Costa Rica Draft Tax Reform Law Presented to Legislative Assembly

Costa Rica's Ministry of Finance has announced the presentation of the draft Law for the Strengthening of Public Finances to the Legislative Assembly, which would introduce a number of changes to the country's tax system. The main changes include:

  • Income tax reform, including a change to a global income tax basis, regardless of the nature of the income, as well as new general expense deduction rules, rules for PE determination, an interest expense restriction (20% of EBITDA), and other changes;
  • Value added tax reform, including an increase in the standard VAT rate from 13% to 15%, and new provisions allowing a full input credit deduction; and
  • The introduction of a 15% capital gains tax, along with gain/loss determination provisions, exemptions, and other related rules.

As proposed, the VAT reform would apply 6 months after the Law is published, the income tax reform would apply from 1 January 2018, and the new capital gains tax would apply from 8 May 2018.

Treaty Changes (3)

Ecuador-Untd A Emirates

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

The income tax treaty between Ecuador and the United Arab Emirates was signed on 9 November 2016. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Ecuador income tax on individuals and on societies and similar entities, and covers U.A.E. income tax and corporate tax.

Income from Hydrocarbons

Article 3 (Income from Hydrocarbons) provides that the treaty will not affect the right of either one of the Contracting States to apply their domestic laws and regulations related to the taxation of income and profits derived from hydrocarbons and its associated activities situated in the territory of the respective Contracting State.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 10% for royalties paid for the use of, or the right to use industrial, commercial or scientific equipment; otherwise 15%

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. The final protocol to the treaty also clarifies that gains from the alienation of shares in a company or securities, bonds, debentures and the like, not dealt within Article 14 (Capital Gains), are taxable only in the State of which the alienator is a resident. It is further clarified that capital gains from the sale of intangible assets are subject to tax only in the State of which the alienator is a resident.

Double Taxation Relief

The U.A.E. applies the credit method for the elimination of double taxation, while Ecuador generally applies the exemption method. However, for income covered by Articles 11 (Dividends), 12 (Interest), and 13 (Royalties), Ecuador applies the credit method.

Limitation on Benefits

Article 25 (Limitation of Benefits) provides that a person (other than an individual) will only be entitled to the benefits of the treaty if such person is a resident of a Contracting State and is:

  • a Governmental entity; or
  • a company constituted in any of the Contracting States, with at least 50% of the voting power or value of shares owned directly or indirectly by one or more individuals resident in either Contracting State and/or by other persons that were constituted in any Contracting State and at least 50% of their voting power or value of shares, or profit-sharing is owned directly or indirectly by one or more individuals resident of either Contracting State; or
  • a partnership or association of persons, where at least 50% or more of the profit-sharing is owned by one or more individuals resident in either Contracting State and/or by other persons that were constituted in either Contracting States and at least 50% of their voting power or value of shares, or profit-sharing is owned directly or indirectly by one or more individuals resident of either Contracting State; or
  • a charitable institution or other entity that is exempt for tax purposes, whose principal activities are carried out in any of the Contracting States.

The final protocol to the treaty also provides that with respect to the entire treaty, the provisions of the treaty will not apply if the purpose or one of the main purposes of any person that applies such provisions was to take advantage of this treaty, provided that before denying the benefits the Contracting States communicate with each other. Similar main purpose tests are also included in Articles 12 (Interest) and 13 (Royalties).

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.

Romania-Serbia

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Romania Approves Pending SSA with Serbia

On 18 August 2017, the Romanian Government approved the draft law for the ratification of the pending social security agreement with Serbia. The agreement, signed 28 October 2016, is the first of its kind directly between the two countries and will enter into force on the first day of the third month following the exchange of the ratification instruments. Once in force, the 1976 agreement between Romania and the former Yugoslavia will cease to have effect.

Turkey-Ukraine

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Protocol to Tax Treaty between Turkey and Ukraine under Negotiation

According to a release from Turkey's Revenue Administration, officials from Turkey and Ukraine met 15 to 16 August 2017 for the first round of negotiations for an amending protocol to the 1996 income and capital tax treaty between the two countries. Any resulting protocol would be the first to amend the treaty, and must be finalized, signed, and ratified before entering into force.

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