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Proposed Changes (5)

Australia

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Legislation Submitted to Australian Parliament to Require GST on Low Value Goods Imported by Consumers

Legislation was introduced in the Australian parliament on 16 February 2017 that will require overseas vendors, electronic distribution platforms, and goods forwarders to account for GST on sales of low value goods to consumers in Australia. As a result of the changes introduced by the legislation, an overseas supplier with turnover for GST purposes exceeding the AUD 75,000 registration threshold will be required to register and remit GST on its supplies (previous coverage).

Click the following links for the Treasury Laws Amendment (GST Low Value Goods) Bill 2017 as introduced and the explanatory memorandum. Once approved, the changes are to apply from 1 July 2017.

European Union

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EU Council Agrees to Not Automatically Include Zero Tax Rate Jurisdictions in EU Blacklist

During the Economic and Financial Affairs Council meeting held 21 February 2017, the Council reportedly agreed to not automatically include zero tax rate jurisdictions in the EU list of non-cooperative jurisdictions (blacklist) that is currently being developed. Instead, a zero tax rate will serve as an indicator for the need for further evaluation based on other criteria, which as agreed to in November 2016, are to include: tax transparency, fair taxation, and implementation of anti-BEPS measures (previous coverage).

The decision has already drawn criticism, including from EU Parliament member Sven Geigold of the Greens/EFA group, who has stated "If countries with a tax rate of zero do not appear on the blacklist, it is not worth the paper it’s written on".

Hong Kong

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Hong Kong Budget 2017-18 Delivered

On 22 February 2017, Hong Kong Financial Secretary Paul Chan Mo-po delivered the 2017-18 Budget. The direct tax-related measures of the budget are mainly limited to:

  • Reducing profits tax for 2016-17 by 75%, subject to a ceiling of HKD 20,000 (also applies for salaries tax and tax under personal assessment); and
  • Widening the marginal bands for salaries tax from the current HKD 40,000 to HKD 45,000 starting from 2017-18, which would result in the following brackets:
    • up to HKD 45,000 -2%
    • over HKD 45,000 up to 90,000 - 7%
    • over HKD 90,000 up to 135,000 - 12%
    • over HKD 135,000 - 17%

The budget also notes that Hong Kong has joined the inclusive framework for implementing the BEPS package and that a tax policy unit will explore enhanced tax deductions for innovation and technology expenditure. Further details are not provided in the budget, although Hong Kong has held a consultation on the legislative framework for certain BEPS measures, including the exchange of tax rulings, transfer pricing rules based on the OECD guidelines, and documentation requirements based on Action 13 (previous coverage). Required legislation is to be introduced in mid-2017.

Click the following link for the Hong Kong 2017-18 Budget webpage.

Ireland

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Ireland Launches Public Consultation on a Review of the Corporation Tax Code

On 21 February 2017, Ireland's Department of Finance launched a public consultation seeking views on a review of Ireland’s corporation tax code. The review will be conducted by an independent expert (Mr. Seamus Coffey appointed in October 2016) in respect of the following matters:

  • Achieving the highest international standards in tax transparency, including in the automatic exchange of information on tax rulings with other relevant jurisdictions, having regard to benefits which may accrue to developing countries from enhancing global tax transparency;
  • Ensuring that the corporation tax code does not provide preferential treatment to any taxpayer;
  • Further implementing Ireland’s commitments under the Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting (BEPS) project to tackle harmful tax competition and aggressive tax planning;
  • Delivering tax certainty for business and maintaining the competitiveness of Ireland’s corporation tax offering; and,
  • Maintaining the 12.5% rate of corporation tax.

The main consultation questions are as follows:

  1. What additional legislative measures, if any, should Ireland take to achieve the highest international standards in tax transparency, having regard to the benefits which may accrue to developing countries from enhancing global tax transparency?
  2. What additional legislative measures should Ireland take to further implement the actions of the OECD initiative to combat BEPS?
  3. What legislative measures, if any, should Ireland take to maintain the competitiveness of the corporation tax code and deliver tax certainty for business in the context of the ongoing implementation of internationally agreed measures to combat BEPS?
  4. What is your view of sustainability of corporation tax receipts over the short to medium term?

Click the following link for the consultation paper. The consultation period will run from 21 February 2017 to 4 April 2017.

United Kingdom

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UK Publishes Draft Corporate Interest Restriction Amending Regulations for CIVs and Securitization Companies

On 21 February 2017, UK HMRC published draft legislation: the Corporate Interest Restriction (Consequential Amendments) Regulations 2017. The amending regulations make provisions for collective investment vehicles (CIVs) and securitization companies to ensure the operation of the corporate interest restriction (CIR) rules do not give an unintended result in these entities. The CIR rules are introduced as part of the Finance Bill 2017 and include a deduction limit equal to 30% of EBITDA (Fixed Ratio Rule), as well as an optional Group Ratio Rule that provides higher relief for commercially highly leveraged groups.

With respect to CIVs, existing tax rules deem certain distributions of interest type income as a payment of interest, rather than a dividend, to the investors. Because these distributions are not payments on a debt, the amending regulations exclude these amounts from the definition of tax-interest expense amount for the CIR rules.

With respect to securitization companies, special rules tax the securitization company on its retained profit to reflect the underlying economic reality of the company functioning as a conduit. The amending regulations provide that where a company is taxed under the Taxation of Securitization Companies Regulations 2006:

  • The retained profit figure is treated as the net tax-interest income amount for the CIR rules; and
  • Where the securitization company pays any fees to another UK group company for managing the securitized assets, an adjustment is made to ensure the fee is treated symmetrically across the group by adding the amount of these fees to the retained profit figure in calculating the net tax-interest income for the period (in effect removing the fee from the amount of tax-interest income) and treating this amount as a negative adjusted corporation tax earnings amount for the period.

The amending regulations also provide that where a company is taxed under either the Taxation of Securitization Companies Regulations 2006 or the Taxation of Insurance Securitization Companies Regulations 2007 that no downward adjustment is required to the qualifying net group-interest expense figure where any interest paid or other distribution made by a securitization company relates to a results-dependent security issued by an entity. This ensures the Group Ratio Rule within the CIR rules works as intended for groups which include securitization companies.

Click the following link for the Draft legislation: the Corporate Interest Restriction (Consequential Amendments) Regulations 2017 webpage for additional information. Comments are due by 18 April 2017.

Treaty Changes (6)

Denmark-Iran

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Denmark and Iran to Negotiate Tax Treaty

According to recent reports, Denmark has expressed its intent to negotiate an income tax treaty with Iran and initial discussions between officials from the two sides have been held. 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.

Egypt-Kenya

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Egypt and Kenya to Conclude Tax Treaty Negotiations

On 18 February 2017, officials from Egypt and Kenya met to discuss bilateral relations, including the need to conclude negotiations for an income tax treaty. The treaty will be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

Ghana-Morocco

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Tax Treaty between Ghana and Morocco Signed

On 17 February 2017, officials from Ghana and Morocco signed an income tax treaty. 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.

India-Israel

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Protocol to the Tax Treaty between India and Israel has Entered into Force

The Indian Ministry of Finance has issued a notification that the protocol to the 1996 income and capital tax treaty with Israel entered into force on 19 December 2016. The protocol, signed 14 October 2015, is the first to amend the treaty and makes the following changes:

  • Replaces paragraph 4 of Article 14 (Capital Gains), so that gains from the alienation of shares, or an interest in a partnership, trust, or other entity, deriving more than 50% of their value directly or indirectly from immovable property situated in a Contracting State may be taxed in that State;
  • Removes paragraphs 3 and 4 of Article 24 (Elimination of Double Taxation) - the removed paragraphs provide that that a credit of 15% of the gross amount applies for dividend income and a credit of 10% of the gross amount applies for interest income;
  • Replaces Article 27 (Exchange of Information) to bring it in line with the OECD standard for information exchange;
  • Adds Article 27A (Limitation of Benefits), which provides that the benefits of the treaty will not apply for a resident of a Contracting State or a transaction undertaken by such resident if the main purpose or one of the main purposes of the creation or existence of such resident or of the transaction undertaken by it was to obtain the benefits of the treaty; and
  • Removes paragraphs 2 and 3 of the final protocol originally signed with the treaty - the removed paragraphs include MFN clauses concerning withholding tax rates on dividends, interest, royalties, and fees for technical services, and the taxation of permanent establishments.

The protocol generally applies from 1 April 2017 in respect of India and from 1 January 2017 in respect of Israel. The new Article 27 (Exchange of Information), however, applies from 19 December 2016.

Iraq-Slovak Republic

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Iraq and Slovak Republic to Negotiate Tax Treaty

According to an announcement published 13 February 2017, the Iraq Council of Ministers has authorized the negotiation and signing of an income and capital tax treaty with the Slovak Republic. 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.

Norway-Egypt-Israel-Italy-Latvia-Liechtenstein-Malaysia-New Zealand-Singapore-Slovak Republic-Thailand-United States

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Norway Negotiating Tax Instruments with 11 Countries

According to an update from the Norwegian Ministry of Finance dated 14 February, negotiations are underway for new tax treaties to replace existing treaties with Egypt, Israel, Italy, Malaysia, New Zealand, Singapore, the Slovak Republic (Czechoslovakia-Norway treaty currently applies), Thailand, and the United States. Negotiations are also underway for a tax treaty with Liechtenstein, which will be the first between the two countries, and for an amending protocol to the 1993 tax treaty with Latvia. The tax instruments must all be finalized, signed, and ratified before entering into force. Additional details of each will be published once available.

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