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Worldwide Tax News

Approved Changes (2)

China

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China Issues Notice on Animation Industry Import Incentive

On 17 August 2016, China's State Administration of Taxation published Notice No. 36/2016 on the import exemption incentive for qualifying animation companies established in China. According to the notice, the incentive applies from 1 January 2016 through 31 December 2020 and includes an exemption from both import duties and value added tax on the import of animation equipment and materials by qualifying companies. Qualifying companies include those that independently develop and produce animation products, including print comics, animated films, TV series, shorts, etc., and online animation and comics.

Luxembourg

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Luxembourg Adopts Amendments to EU Administrative Cooperation Directive on the Exchange of Tax Rulings

Luxembourg has published the Law of 23 July 2016 (Bill 6972) in the Official Gazette. The Law transposes into domestic law the amendments made by Council Directive (EU) 2015/2376 to the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) concerning the exchange of cross border tax rulings and advance pricing agreements (APAs). With the legislative procedure complete and the Law published, Luxembourg will begin the automatic exchange of information on tax rulings and APAs from 1 January 2017. Information will also be exchanged on the following rulings and APAs issued prior to that date:

  • Rulings and APAs issued, amended or renewed between 1 January 2012 and 31 December 2013, if still valid on 1 January 2014; and
  • Rulings and APAs issued, amended or renewed between 1 January 2014 and 31 December 2016.

For exchange of past information, Luxembourg has adopted the option provided in the Directive to exclude the exchange of information on rulings or APAs issued, amended or renewed before 1 April 2016 if the annual net revenue of the relevant companies is less than EUR 40 million. However, this does not apply for rulings or APAs issued to companies conducting mainly financial or investment activities.

Click the following link for the Law as published in the Official Gazette (French language).

Proposed Changes (3)

Belarus

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Belarus Publishes Draft Amendments Clarifying Related Parties, Expanding Appeal Rights, and Other Changes

The Belarusian Ministry of Finance recently published draft legislation that includes a number of amendments to the Tax Code. Main changes include:

  • The definition of related parties is clarified to include at least 20% direct or indirect capital ownership;
  • The reduced corporate tax rate of 5% on IT-related profits of qualifying members of specified scientific and technological associations is abolished;
  • The right to appeal a decision of the tax authority is expanded to include persons affected by a decision that are not the taxpayer in the case concerned; and
  • An online taxpayer portal will be established for the purpose of electronic communication and exchange of documents with the tax authorities.

Subject to approval, the amendments will generally apply from 1 January 2017.

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OECD Issues Public Discussion Draft on Branch Mismatch Structures under BEPS Action 2

On 22 August 2016, the OECD issued a public discussion draft that deals with branch mismatch structures under Action 2 (Neutralizing the Effects of Hybrid Mismatch Arrangements) of the BEPS Project. The discussion draft identifies five basic types of branch mismatch arrangements where the ordinary tax accounting rules for allocating income and expenditure between the branch and head office result in a portion of the net income of the taxpayer falling out of the charge to taxation in both the branch and residence jurisdiction. These include:

  • Disregarded branch structures where the branch does not give rise to a permanent establishment (PE) or other taxable presence in the branch jurisdiction;
  • Diverted branch payments where the branch jurisdiction recognizes the existence of the branch but the payment made to the branch is treated by the branch jurisdiction as attributable to the head office, while the residence jurisdiction exempts the payment from taxation on the grounds that the payment was made to the branch;
  • Deemed branch payments where the branch is treated as making a notional payment to the head office that results in a mismatch in tax outcomes under the laws of the residence and branch jurisdictions;
  • DD branch payments where the same item of expenditure gives rise to a deduction under the laws of both the residence and branch jurisdictions; and
  • Imported branch mismatches where the payee offsets the income from a deductible payment against a deduction arising under a branch mismatch arrangement.

For each branch mismatch type, the discussion draft sets out preliminary recommendations for domestic rules, based on those in the Action 2 Report, which would neutralize the resulting mismatch in tax outcomes.

Click the following link for the discussion draft. Comments are due by 19 September 2016.

Uruguay

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Uruguay Proposed Transparency Reform Includes New Rules on Tax Havens and CbC Reporting Requirements

The Uruguayan government has submitted draft legislation to parliament that includes a number of tax reform measures concerning transparency and the prevention of money laundering. The main measures are summarized as follows.

Financial Account Information Reporting

Resident financial institutions and branches in Uruguay of non-resident financial institutions will be required to annually report to the tax authorities on account balances and income of both resident and non-resident individuals. Information will also need to be reported when the account holder is considered an entity with a high risk of fiscal evasion.

Ultimate Beneficiary Reporting

Resident entities and non-resident entities that have a permanent establishment or place of effective management in Uruguay will be required to identify their ultimate beneficiary(s). For this purpose, ultimate beneficiaries include individuals that directly or indirect hold at least 15% of the capital or voting rights of the entity, or otherwise exercise ultimate control.

Low or No Tax Jurisdictions and Tax Regimes

The current list of low or no tax jurisdictions will be eliminated and the executive government will be granted the authority to establish new criteria for determining low or no tax jurisdictions and special tax regimes. In addition, a number of measures are introduced in relation to entities that are resident, domiciled or incorporated in low or no tax jurisdictions or subject to special tax regimes (low tax entities). Main measures include:

  • Low tax entities will be subject to an increase in the non-residents tax rate from 12% to 25% (7% tax on dividends will be unchanged);
  • Income from the transfer of shares or other equity participations in low tax entities will be considered Uruguayan source income if at least 50% of the value of the entity's assets is derived from assets in Uruguay;
  • Transactions carried out with low tax entities will be considered controlled for transfer pricing purposes whether related or not;
  • Capital gains derived by a low tax entity from the alienation of immovable property situated in Uruguay will be subject to the standard tax rate of 25% plus an additional tax of 5.25%;
  • Income derived by a low tax entity from the sale of goods located in Uruguay will be subject to tax on deemed net income equal to 30% of the sales price; and
  • Individuals resident in Uruguay with a direct or indirect participation in a low tax entity will have the income of the entity allocated to them as a deemed dividend or profit distribution in proportion to their participation percentage.

CbC Report and Master File

Resident corporate taxpayers that are members of large MNE groups will be required to submit an annual Country-by-Country (CbC) report and a Master file based on BEPS Action 13. For this purpose, large MNE groups will include those with consolidated annual revenue exceeding a yet to be established threshold. The CbC report requirement will not apply, however, if another member of a taxpayer's group files a CbC report in a jurisdiction that will exchange the report with Uruguay.

Effective Date

Subject to approval, the measures will generally apply from 1 January 2017, although the measures regarding low tax entities will enter into force once the legislation is published in the Official Gazette. Additional details will be published once available.

Treaty Changes (4)

Bulgaria-Canada

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Bulgaria to Sign SSA with Quebec

On 17 August 2016, the Bulgarian government authorized the signature of a social security agreement with Quebec, Canada. The agreement will be the first of its kind between the two jurisdictions, and must be finalized, signed and ratified before entering into force.

Hong Kong-Turkey

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Negotiations for a Tax Treaty between Hong Kong and Turkey Concluded

According to recent reports, officials from Hong Kong and Turkey concluded negotiations with the initialing of an income tax treaty following the recent round of negotiations held 10-12 August 2016. The treaty will be the first of its kind between the two jurisdictions and must be signed and ratified before entering into force.

India-Kenya

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Update - New Tax Treaty between Indian and Kenya

The new income tax treaty between India and Kenya was signed on 11 July 2016. Once in force and effective, the new treaty will replace the 1985 income tax treaty between the two countries, which is currently in force.

Taxes Covered

The treaty covers Indian income tax, including any surcharge thereon, and Kenyan taxes on income chargeable under the Income Tax Act.

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 the same or connected project for a period or periods aggregating more than 90 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties - 10%
  • Fees for management, professional and technical services - 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 shares of the capital stock of a company or of an interest in a partnership, trust or estate, the property of which consists directly or indirectly principally of immovable property situated in the other State; and
  • Gains from the alienation of shares, other than the 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.

Limitation of Benefits

Article 29 (Limitation of Benefits) includes the provision that a resident of a Contracting State will not be entitled to the benefits of the treaty if its affairs were arranged with the main purpose or one of the main purposes to take the benefits.

The Article also includes the provision that any person, including legal entities, without bonafide business activities will not be entitled to the benefits of the treaty.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged, and will apply in India from 1 April of the year following its entry into force and in Kenya from 1 January of the year following its entry into force. The 1985 tax treaty between the two countries will cease to have effect from the date the new treaty is effective.

Liechtenstein-OECD

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Liechtenstein Deposits Ratification Instrument for Mutual Assistance Convention

On 22 August 2016, Liechtenstein deposited the ratification instrument for the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. Liechtenstein signed the convention as amended on 21 November 2013.

According to the OECD overview of signatories to the convention, the convention will enter into force in Liechtenstein on 1 December 2016.

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