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Worldwide Tax News

Approved Changes (1)

United States

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U.S. IRS Issues Inflation Adjustments for 2018

The U.S. IRS has issued Rev. Proc. 2017-58, which sets out the inflation-adjusted items for 2018 for over 50 provisions of the Internal Revenue Code, including the individual income tax rate tables. For the tax year 2018, the brackets and rates for unmarried individuals (other than surviving spouses and heads of households) are as follows:

  • up to USD 9,525 - 10%
  • over USD 9,525 up to 38,700 - 15%
  • over USD 38,700 up to 93,700 - 25%
  • over USD 93,700 up to 195,450 - 28%
  • over USD 195,450 up to 424,950 - 33%
  • over USD 424,950 up to 426,700 - 35%
  • over USD 426,700 - 39.6%

The top marginal bracket (39.6%) for surviving spouses and married couples filing jointly is USD 480,050, for heads of households is USD 453,350, and for married filing separately is USD 240,025.

Proposed Changes (3)

Australia

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Australia Publishes Draft Tax Ruling on When a Base Rate Entity is Considered to Carry on a Business

On 18 October 2017, the Australian Taxation Office (ATO) published Draft Taxation Ruling TR 2017/D7 on when a company is considered to carry on a business within the meaning of section 23AA of Income Tax Rates Act 1986. Section 23AA concerns when an entity is a "base rate entity" for the purpose of the reduced corporate tax rate from 2017 (previous coverage). Comments are due by 1 December 2017.

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Draft Taxation Ruling TR 2017/D7: Income tax: when does a company carry on a business within the meaning of section 23AA of the Income Tax Rates Act 1986? provides guidance on when a company carries on a business. The draft Ruling confirms that it is not possible to definitively state whether a company is carrying on a business. It does however confirm that Limited and No Liability companies are likely to be carrying on a business where they are established and maintained to make a profit for their shareholders, and invest their assets in gainful activities which have both a purpose and prospect of profit.

The draft Ruling addresses whether a company carries on a business in a general way. It does not address what the scope or nature of a company's business is. This is a separate question that needs to be answered in order to work out the taxation consequences of the transactions a company undertakes, such as whether a gain made is ordinary income or a capital gain, or whether an outgoing or loss is capital in nature.

The draft Ruling is open for comment until 1 December 2017.

European Union

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European Council Adopts Conclusion on Digital Europe and Other Issues

On 19 October 2017, the European Council adopted its conclusions on the broad points for successfully building a Digital Europe and other issues. With respect to taxation, the conclusions include that the EU needs an effective and fair taxation system fit for the digital era to ensure that all companies pay their fair share of taxes and to ensure a global level-playing field in line with the work currently underway at the OECD. Further, the European Council invites the Council to pursue its examination of the Commission communication on this issue and looks forward to appropriate Commission proposals by early 2018.

Click the following link for the European Council conclusion paper, which also includes conclusions regarding migration and security and defence.

Ireland

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Ireland Finance Bill 2017 Published

On 19 October 2017, Ireland's Department of Finance announced the publication of the Finance Bill 2017, which includes the measures announced as part of the 2018 Budget (previous coverage). The Bill also includes measures beyond what was announced in the Budget, including certain anti-avoidance measures in relation to capital gains taxation, as well as amendments to begin the process of implementing the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).

Click the following link for the Finance Bill 2017 webpage for more information, including the text of the Bill, the explanatory memo, and other information.

Treaty Changes (5)

Argentina-Brazil

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Update - Protocol to Tax Treaty between Argentina and Brazil

The protocol to the 1980 income tax treaty between Argentina and Brazil was signed on 21 July 2017. The protocol is the first to amend the treaty and includes several changes resulting from the BEPS project. Some of the main changes include:

  • The title and preamble of the treaty are updated, including new language regarding treaty abuse developed as part of the BEPS project;
  • Article III (General Definitions) is amended with respect to the Argentine competent authority (Ministry of Finance), as well as the addition of a definition for closely related persons, which means when one person has control over the other or both are under the control of the same person, and in any case, when one directly or indirectly holds more than 50% of the beneficial interest in the other or when another person directly or indirectly holds more than 50% of both;
  • Article V (Permanent Establishment) is amended with the respect to specific PE exemptions and agent PEs as per BEPS recommendations, as well as the addition of provisions regarding insurance PEs;
  • Article X (Dividends) is amended to provide a 10% withholding tax rate if the beneficial owner is a company that directly owns at least 25% of the paying company's capital for a period of at least 365 days, including the date of payment; otherwise 15%;
  • Article XI (Interest) is amended to provide a 15% withholding tax rate;
  • Article XII (Royalties) is amended to provide a 15% withholding tax rate for royalties paid for the use of or right to use trademarks; otherwise 10%;
  • Article XXIII (Methods for the Elimination of Double Taxation) is replaced to provide that both Contracting States will apply the credit method for the elimination of double taxation (under current treaty, Brazil generally provides credit method, while Argentina applies exemption method);
  • Article XXV (Mutual agreement procedure) and ARTICLE XXVI (Exchange of information) are replaced;
  • Article XXVI (Exchange of information) is replaced; and
  • A new Article XXVII (Limitation on Benefits) is added, including a principal purpose test, as well as a limitation regarding offshore transport, banking, and certain other income taxed at a lower rate, a limitation where a legal entity is more than 50% owned by non-resident persons (unless carrying on substantial business activity), and a limitation where a Contracting State attributes income of a resident to a PE in a third state and the tax on such income in the third state is less than 60% of the tax that would be due in the Contracting State had it not been attributed to the PE.

The protocol will enter into force 30 days after the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

Colombia-Hungary

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Tax Treaty between Colombia and Hungary under Negotiation

According to recent reports, officials from Colombia and Hungary have begun negotiations for an income tax treaty. 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.

Japan-Sweden

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SSA between Japan and Sweden under Negotiation

According to a release from Japan's Ministry of Foreign Affairs, officials from Japan and Sweden began the third round of negotiations for a social security agreement on 23 October 2017. Any resulting agreement would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

Romania-United Kingdom

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Romania to Sign New Tax Treaty with the UK

On 18 October 2017, the Romanian government authorized the signature of a new income tax treaty with the UK. The treaty must be finalized, signed, and ratified before entering into force and, once in force and effective, will replace the 1975 tax treaty between the two countries.

United States-Sweden

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U.S. Publishes CbC Exchange Arrangements with Sweden

The U.S. IRS has published the competent authority arrangement on the exchange of Country-by-Country (CbC) reports with Sweden. The arrangement was signed 28 September 2017 and is effective from that date.

The arrangement provides that pursuant Article 26 (Exchange of Information) of the 1994 Sweden-U.S. income tax treaty, as amended, each competent authority intends to automatically exchange CbC reports received from each reporting entity resident for tax purposes in its jurisdiction, provided that, on the basis of the information provided in the CbC report, one or more constituent entities of the MNE group of the reporting entity are resident for tax purposes in the jurisdiction of the other competent authority, or are subject to tax with respect to the business carried out through a permanent establishment situated in the other jurisdiction.

With respect to fiscal years beginning on or after 1 January 2016, CbC reports are to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC report relates. With respect to fiscal years beginning on or after 1 January 2017, reports are to be exchanged no later than 15 months after the last day of the fiscal year.

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