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Worldwide Tax News

Proposed Changes (2)

Hungary

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Hungarian Tax Cuts to be Included in the 2016 Budget

On 21 April 2015, the Hungarian government announced plans to reduce the personal income tax rate from 16% to 15% as part of the 2016 Budget. The government also plans to reduce the VAT rate on pork from 21% to 5%, and reduce fees and duties payable for several public utilities provided by state operators. As previously announced the bank tax rate will be reduced from 0.53% of the balance sheet total to 0.31% in 2016 and further reduced to 0.21% in 2017.

Although not covered in the announcement, it is also expected that Hungary will adjust the application of its advertising tax. This may include a reduction in the rate, which currently reaches 50% on advertising income exceeding HUF 20 billion.

The 2016 budget bill is scheduled to be submitted to Parliament on 13 May 2015.

Switzerland

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Switzerland to Allow PEs to Claim Flat-Rate Tax Credit as part of Upcoming Corporate Tax Reforms

On 22 September 2014, the Swiss Federal Council announced its decision on the next steps following the consultation on the proposed granting of the flat-rate tax credit for permanent establishments (PE) in Switzerland. The change will be made in order to resolve potential issues of double taxation when a PE receives dividend, interest or royalty income from a third country. The Council has instructed the Federal Department of Finance to create the legal basis to be included into Switzerland's third series of corporate tax reforms.

The double taxation issue affects PEs in Switzerland where the foreign company has their registered office in a country with which Switzerland has a tax treaty and that country exempts Swiss profits of the PE. If the PE receives dividend, interest or royalty payment revenue upon which a non-recoverable withholding tax is levied from a third country with which Switzerland has signed a tax treaty, double taxation can arise because the foreign company's country cannot credit the residual taxes from third country and Switzerland's flat-rate tax credit isn't available because the PE is considered non-established in Switzerland (a current condition for the credit).

The amendment will resolve the issue by allowing PEs to claim the flat-rate tax credit, but only when tax treaties are in place between Switzerland and the relevant countries and the PE is subject to ordinary taxation in Switzerland.

Treaty Changes (8)

Argentina-Chile

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Tax Treaty between Argentina and Chile Initialed

On 22 April 2015, officials from Argentina and Chile Initialed an income tax treaty. The 1976 tax treaty between the two countries was terminated effective 1 January 2013. The new treaty must be signed and ratified before entering into force.

Additional details will be published once available.

Australia-Israel

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Australia Intends to Negotiate Tax Treaty with Israel

On 22 April 2015, Australian Treasurer Joe Hockey announced Australia's intent to negotiate an income tax treaty with Israel in the near future. 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.

Additional details will be published once available.

Austria-Romania

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Romania Clarifies Withholding Tax on Interest under the Tax Treaty with Austria

The Romania Ministry of Finance recently published Circular Nr. 674003, which clarifies the application of the interest withholding tax provisions of the 2005 tax treaty with Austria following the introduction by Austria of a 25% withholding tax on interest payments to non-resident natural persons.

Under the 2005 Austria-Romania tax treaty, the withholding tax rate for interest is 3%, although several exemptions apply including that the rate will be 0% as long as Austria, under its national legislation, levies no withholding tax on interest paid to a Romanian resident. Because of the change in Austria's national legislation in regard to interest payments to non-resident natural persons, Romania will now apply the 3% withholding tax rate on interest payment made to natural persons resident in Austria, but will continue to apply the 0% rate for payments made to legal entities.

In order to claim the 0% rate, the Austrian beneficial owner must be considered a legal entity under Austrian law, and provided the Romanian tax authorities with confirmation that it is a permanent tax resident in Austria.

Bangladesh-Belarus

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Update - Tax Treaty between Bangladesh and Belarus

The income tax treaty between Bangladesh and Belarus was signed 9 July 2013. The treaty is the first of its kind between the two countries and has not yet entered into force.

Taxes Covered

The treaty covers Bangladesh income tax, and Belarusian income tax, profits tax and individual income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted if 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 183 days in any 12-month period.

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 12%
  • Interest - 7.5%
  • Royalties - 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 shares of a company, the assets of which consists wholly or mainly 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.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Entry into Force and Effect

The treaty will enter into force on the first day of the second month following the month in which the ratification instruments are exchanged. It will apply in Bangladesh from 1 July of the year following its entry into force and in Belarus from 1 January of the year following its entry into force.

Belarus-Georgia

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Tax Treaty between Belarus and Georgia Signed

On 23 April 2015, officials from Belarus and Georgia signed an income tax treaty. The treaty is the first of its kind between the two counties, and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

Chile-China

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Chile and China Conclude Tax Treaty Negotiations

On 21 April 2015, officials from Chile and China concluded tax treaty negotiations with the initialing of an income tax treaty. The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force.

Additional details will be published once available.

Gibraltar-Guernsey

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Protocol to the TIEA between Gibraltar and Guernsey Signed

A protocol to the TIEA between Gibraltar and Guernsey was signed by Guernsey on 23 March 2015 and by Gibraltar on 6 April 2015. The protocol adds Article 5A (Automatic Exchange of Information) and Article 5B (Spontaneous Exchange of Information), and amends Article 11 (Mutual Agreement and Arbitration Procedures) to reflect the addition of Articles 5A and 5B.

The protocol will enter into force once the ratification instruments are exchanged and will apply from that date.

Ireland-Pakistan

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New Tax Treaty between Ireland and Pakistan Signed

On 16 April 2015, officials from Ireland and Pakistan signed a new income tax treaty. Once in force and effective, the treaty will replace the 1973 income tax treaty between the two countries, which is currently in force.

Taxes Covered

The treaty covers Irish income tax, universal social charge, corporation tax and capital gains tax. It covers Pakistani income tax.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 10%
  • Interest - 10%
  • Royalties and Fees for Technical (managerial, technical or consultancy) 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 shares in a company or an interest in a partnership or trust, the property of which consists directly or indirectly principally (value exceeding 50% of total asset value) of immovable property situated in the other State (an exemption applies for shares listed on a recognized stock exchange) ; 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.

Double Taxation Relief

Both countries generally apply the credit method for the elimination of double taxation.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged, and will apply in Ireland from 1 January of the year following its entry into force and in Pakistan from 1 July next following its entry into force.

The 1973 income tax treaty between Ireland and Pakistan will cease to have effect on the dates on which the new treaty becomes effective. However, any provisions of the 1973 tax treaty that provide for greater relief from tax than provided for in the new treaty will continue to apply for a period of 12 months following the effective date of the new treaty, while the provisions for the Irish tax credit included in Article XV of the 1973 treaty will continue to apply for 5 years. The tax credit provisions include a tax sparing credit for Pakistan tax that would otherwise be payable but has been reduced or exempted under legal provisions included in clauses (126D), (126E) and (133) of Part 1 of the Second Schedule to the Pakistan Income Tax Ordinance 2001.

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