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Approved Changes (4)

Australia

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Australia Publishes Guidance on New Rules for Property Capital Gains Withholding

On 13 May 2016, the Australian Taxation Office published updated guidance on the country's new rules for foreign resident capital gains withholding and on 19 May published additional guidance on the related clearance certificate requirements for Australian resident vendors. The new rules were introduced as part of the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Act (previous coverage) and include a 10% withholding tax to be withheld by the buyer of certain Australian real property and property rights. The new rules apply from 1 July 2016.

Click the following link for the Foreign resident capital gains withholding guidance (13 May) and the Property withholding rules explained (19 May).

Ecuador

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Ecuador Approves VAT Increase and Special Contributions to Fund Earthquake Reconstruction

On 12 May 2016, Ecuador's National Assembly approved legislation to adopt tax measures proposed by President Rafael Correa to fund reconstruction following the devastating earthquake in the country on 16 April 2016. The measures include:

  • A one-year increase in the value added tax rate from 12% to 14%;
  • A company profit based contribution equal to 3% of taxable income in 2015;
  • An equity based contribution for non-resident companies equal to 0.9% of the value of immovable property situated in Ecuador and of the nominal value of shares in Ecuadorian companies held by the non-resident (if the non-resident is resident in a tax haven, the rate is 1.8%);
  • An individual salary based contribution equal to 3.3% of monthly salary to be paid for up to eight months depending on the monthly salary amount as follows:
    • less than USD 1,000 - no contribution
    • USD 1,000 up to 2,000 - contribution made for 1 month
    • USD 2,001 up to 3,000 - contribution made for 2 months
    • USD 3,001 up to 4,000 - contribution made for 3 months
    • USD 4,001 up to 5,000 - contribution made for 4 months
    • USD 5,001 up to 7,500 - contribution made for 5 months
    • USD 7,501 up to 12,000 - contribution made for 6 months
    • USD 12,001 up to 20,000 - contribution made for 7 months
    • over USD 20,000 - contribution made for 8 months
  • An individual profit based contribution equal to 3% of taxable income exceeding USD 12,000 in 2015, excluding employee remuneration; and
  • An equity (wealth) based contribution for individuals equal to 0.9% of net worldwide wealth if exceeding USD 1 million as of 1 January 2016, with non-resident individuals required to pay the contribution on assets held in Ecuador if exceeding that amount .

Aside from the monthly salary based contributions, the contributions are to be paid in three monthly installments.

The measures generally apply from the date the legislation is published in the Official Gazette, although the VAT increase will apply from the first day of the month following the date it is published.

India

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India Publishes Finance Bill 2016 as Enacted

On 14 May 2016, India's Ministry of Law and Justice published the Finance Act, 2016 in an extraordinary edition of the Official Gazette, which received assent from the president on the same date. The Act provides for the measures announced in the 2016-2017 Union Budget (previous coverage). Some of the main measures include:

  • The introduction of Country-by-Country (CbC) reporting requirements in line with Action 13 of the OECD BEPS Project for MNE group's with annual consolidated group revenue exceeding a yet to be prescribed threshold (approximate INR equivalent of EUR 750 million in the previous year expected), which when required to be submitted in India, will be due with the annual tax return;
  • The introduction of a reduced rate of corporate income tax rate of 29% (plus surcharge and cess) for domestic companies with income not exceeding INR 50 million in the previous year; and a reduced rate of 25% (plus surcharge and cess) for companies solely engaged in manufacturing/production or related research that are established on or after 1 March 2016;
  • The introduction of a patent regime based on the modified nexus approach of Action 5 of the OECD BEPS Project, which provides a concessional tax rate of 10% (plus surcharge and cess) on royalty income derived from patents developed and registered in India; and
  • The introduction of a dividends tax of 10% on the aggregate amount of dividends declared, distributed or paid by a domestic company or companies to an Indian resident individual or firm exceeding INR 1 million.

The above changes generally apply from the 2017-2018 assessment year (i.e. for the 2016-2017 fiscal year). Additional details of the related rules/regulations will be published once issued by the Indian tax authorities.

Click the following link for the Finance Act, 2016 as enacted.

Ukraine

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Ukraine Clarifies VAT Liability for Cross Border Services

On 5 May 2016, Ukraine's State Fiscal Service (SFS) issued guidance on the value added tax (VAT) liability for cross border services. In particular, the guidance covers consulting services provided by a Ukraine resident to a foreign resident and global network access services provided by a foreign resident to a Ukraine resident.

According to the guidance, the provision of services is only subject to VAT in Ukraine if supplied in the customs territory of the Ukraine. For consulting services, the place of supply is the place where the recipient is registered or otherwise resident. Since the recipient of the consulting services is not resident or doing business in Ukraine, the services are not subject to VAT.

As with consulting services, the place of supply for telecommunications services, which includes global network access services, is the place where the recipient is registered or otherwise resident. Since the recipient of the network access services is resident in Ukraine, the services are subject to VAT, with the recipient acting as the tax agent to collect and remit the VAT due.

Treaty Changes (5)

Albania-United States

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SSA between Albania and the U.S. under Negotiation

On 27 April 2016, the Albanian government announced that negotiations are underway for a social security agreement with the U.S. 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.

Armenia-Belarus

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Protocol to Tax Treaty between Armenia and Belarus Signed

On 19 May 2016, officials from Armenia and Belarus signed a protocol to the 2000 income tax treaty between the two countries. The protocol is the first to amend the treaty, and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

Georgia-Kyrgyzstan

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Georgia and Kyrgyzstan Resume Tax Treaty Negotiations

According to recent reports, officials from Georgia and Kyrgyzstan have resumed negotiations for an income tax treaty. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

India-Netherlands

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India Intends to Revise Tax Treaty with the Netherlands

India has sent a formal request to the Netherlands to begin negotiations for a protocol to revise the 1988 income and capital tax treaty between the two countries. India reportedly intends to revise the treaty to provide for greater source-based taxation of capital gains. Any resulting protocol would be the second to amend the treaty.

United Kingdom-Uruguay

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Update - Tax Treaty between the UK and Uruguay

The income and capital tax treaty between the United Kingdom and Uruguay was signed on 24 February 2016. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers UK income tax, corporation tax and capital gains tax. It covers Uruguayan business income tax, personal income tax, non-residents income tax, tax for social security assistance and capital tax.

Residence

If a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be entitled to the benefits of the treaty aside from those covered in Articles 22 (Elimination of Double Taxation), 24 (Non-Discrimination) and 25 (Mutual Agreement Procedure).

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting State for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 15%
  • Interest - 0% if paid to a financial institution on a loan of at least three years for the financing of investment projects, or to a pension scheme; otherwise 10%
  • 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 movable property forming part of the business property of a permanent establishment in the other State;
  • Gains from the alienation of shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other State (exemption for shares regularly traded on a stock exchange); and
  • Gains from the alienation of shares or comparable interests that entitle the owner to the enjoyment of immovable property situated 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. However, the UK will exempt dividends paid by a Uruguayan company to a company resident in the UK if the conditions for an exemption under UK law are met. Exemption may also apply for profits of a permanent establishment in Uruguay of a UK company if the conditions for an exemption under UK law are met.

Entitlement to Benefits

Article 23 (Entitlement to Benefits) includes the provision that the benefits of the treaty will not be granted if it is reasonable to concluded that obtaining a 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 would be in accordance with the object and purpose of the relevant provisions of the treaty.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged. It will apply in respect of withholding taxes from the first day of the second month following its entry into force and for other taxes for tax periods beginning on or after 1 January of the year following its entry into force. However, Articles 25 (Mutual Agreement Procedure) and 26 (Exchange of Information) will apply from the date the treaty enters into force. In addition, the treaty includes that Article 21 (Capital) will not take effect unless the Contracting States agree through the exchange of diplomatic notes.

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