Worldwide Tax News
On 22 March 2017, Law No. 9428 was published in Costa Rica's Official Gazette, which implements a new version of the country's annual registration tax on companies, which was found unconstitutional in January 2015 (previous coverage). Under the new version, the registration tax will be levied as follows:
- For companies, including branches of foreign companies, that are registered in the register of legal entities but are neither declarants nor taxpayers, the registration tax is equal to 15% of the monthly base salary;
- For companies with declared gross income of less than 120 monthly base salaries in the tax period, the registration tax is equal to 25% of the base salary;
- For companies with declared gross income of 120 monthly base salaries up to 280 base salaries in the tax period, the annual registration tax is equal to 30% of the base salary; and
- For companies with declared gross income exceeding 280 monthly base salaries in the tax period, the annual registration tax is equal to 50% of the base salary.
The registration tax is to be paid within 30 days of the beginning of each calendar year and is non-deductible. Penalties will apply for failing to pay the tax, and the dissolution of a company will result if not paid for three consecutive periods.
The monthly base salary in 2017 is CRC 426,200 (~USD 770).
Canada's Federal Budget 2017 was tabled by Finance Minister Bill Morneau on 22 March 2017. The business related tax measures proposed in the Budget include:
- Measures related to investment fund mergers, including:
- Extending the mutual fund merger rules to facilitate the reorganization of a mutual fund corporation that is structured as a switch corporation into multiple mutual fund trusts on a tax-deferred basis;
- Allowing insurers to effect tax-deferred mergers of segregated funds and allowing segregated funds to carry over non-capital losses;
- Extending the scope of eligible equipment for accelerated capital cost allowance for clean energy generation equipment;
- Measures related to Canada development expense (CDE) and exploration expense (CEE), including:
- Reclassifying most expenditures related to drilling or completing a discovery well as CDE (deducted at 30% per year on declining-balance basis) instead of CEE (deducted in full in year incurred);
- No longer allowing small oil and gas corporations to treat the first CAD1 million of CDE as CEE;
- Clarifying that in determining whether de facto (factual) control of a corporation exists, the factors that may be considered are not limited to factors that include a legally enforceable right to effect a change to the board, or to exercise influence of shareholders;
- Measures related to the timing of recognition of gains and losses on derivatives, including:
- Introducing an elective mark-to-market regime for derivatives held on income account;
- Introducing a specific anti-avoidance rule that targets straddle transactions;
- Eliminating certain incentives, including
- The 50% additional deduction for donations of medicine;
- The investment tax credit for child care spaces;
- The tax exemption for insurers of farming and fishing property;
- Eliminating the ability for designated professionals to elect to use billed-basis accounting;
- Extending the base erosion rules to foreign branches of life insurers to ensure that Canadian life insurers are taxable in Canada with respect to their income from the insurance of Canadian risks; and
- Amending the definition of a taxi business to require providers of ride-sharing services to register for the GST/HST and charge tax on their fares in the same manner as taxi operators.
UK HMRC has opened several consultations on certain measures announced in the Spring Budget 2017, but not included in the 2017 Finance Bill, and has published the outcomes of several consultations that have closed. Newly opened consultations include:
- VAT: Tackling fraud on goods sold online - update on split payment
- Landfill Tax: Extending the scope to illegal disposals
- Making Tax Digital: sanctions for late submission and late payment
- Non-resident companies chargeable to income tax and non-resident capital gains tax
- VAT fraud in labour provision in construction sector
- Withholding tax exemption for debt traded on a Multilateral Trading Facility
Consultation outcomes published include:
- Double Taxation Treaty Passport scheme review
- Tackling the hidden economy: sanctions
- Tackling the hidden economy: conditionality
- Tax-advantaged venture capital schemes - streamlining the advance assurance service
- Stamp duty land tax: changes to the filing and payment process
- Partnership taxation: proposals to clarify tax treatment
Click the following link for all consultations published by HMRC.
Puerto Rico's Resident Commissioner Jenniffer Gonzalez-Colon has submitted Bill H.R.1403 in the U.S. House of Representatives that would make permanent the 9% deduction for domestic production activities in Puerto Rico (Section 199 deduction). The bill would strike subparagraph (C) of Section 199(d)(8) of the Internal Revenue Code, which currently provides that with respect to Puerto Rico activities, the deduction applies for the first 11 taxable years of the taxpayer beginning after 31 December 2005 and before 1 January 2017.
Brazil's Federal Revenue Department has announced that an agreement for the automatic exchange of financial account information was signed with Argentina on 17 March 2017. According to the announcement exchange under the agreement will be in accordance with the Convention on Mutual Administrative Assistance in Tax Matters.
Bahrain reportedly ratified the pending income tax treaty with Bangladesh on 21 March 2017. The treaty, signed 22 December 2015, is the first of its kind between the two countries (previous coverage). It will enter into force once the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.
Pakistan Rules Finalized for Implementation of Common Reporting Standard for Exchange of Financial Account Information
On 15 March 2017, the Pakistan Federal Board of Revenue issued Notification S.R.O. 166 (I)/2017 on final amendments to the Income Tax Ordinance for the implementation of the OECD's Common Reporting Standard (CRS) for the automatic exchange of financial account information. Under CRS, countries collect information on financial accounts of non-resident's and exchange that information with the respective countries that have also adopted the standard and have entered into an agreement for exchange.
On 21 March 2017, officials from Pakistan and Switzerland signed a new income tax treaty. Once in force and effective, the new treaty will replace the 2005 tax treaty between the two countries.
The treaty covers Pakistan income tax, the super tax, and the surcharge. It covers Swiss federal, cantonal, and communal taxes on income, including total income, earned income, income from capital, industrial and commercial profits, capital gains, and other items of income.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.
- Dividends - 10% if the beneficial owner is a company that directly holds at least 20% of the paying company's capital; otherwise 20%
- Interest - 10%
- Royalties - 10%
- Fees for Technical Services (managerial, technical or consultancy) -7%, provided that Switzerland does not, according to its inland law, levy a tax at source on payments for services paid to nonresidents; otherwise 10% (conditional 7% rate provided in final protocol to the treaty)
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 in a company deriving more than 50% of their value directly or indirectly from immovable property situated in the other State, with an exemption for shares listed on a stock exchange in either Contracting State (or other exchange agreed to) and an exemption if the company caries on its business in the property.
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Pakistan applies the credit method for the elimination of double taxation, while Switzerland generally applies the exemption with progression method. However, in respect of income covered by Articles 10 (Dividend), 11 (Interest), 12 (Royalties), and 13 (Fees for Technical Services), Switzerland may allow a deduction of the Pakistan tax paid (not exceeding Swiss tax), a lump sum reduction of the Swiss tax, or a partial exemption. In addition, a Swiss resident company deriving dividends from a Pakistan company will be entitled to the same relief that would be granted to the Swiss company if the company paying the dividends were a resident of Switzerland.
Article 26 (Entitlement to Benefits) provides that a benefit of the treaty will not be granted if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.
The treaty will enter into force once the ratification instruments are exchanged and will apply in Pakistan from 1 July of the year following its entry into force and in Switzerland from 1 January of the year following its entry into force. The 2005 tax treaty between the two countries will terminate upon the entry into force of the new treaty and will cease to have effect for the following fiscal year.
According to a 16 March 2017 update from UK HMRC, the Bank Levy Double Taxation Agreement with Germany was terminated on 20 February 2017 with effect from 1 January 2015, the date of entry into force of EU Directive 2014/59.