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Approved Changes (2)

Colombia

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Colombia Publishes List of Recognized Stock Exchanges for Place of Effective Management Rules Exemption

Colombia's National Tax Authority (DIAN) recently published Resolution 57 of 26 July 2016, which lists out the recognized stock exchanges for the purpose of Colombia's place of effective management rules. Under the general rules, if a foreign company's place of effective management is in Colombia, it will be considered a Colombian resident and taxed on its worldwide income. However, if a foreign company has issued bonds or shares on the Colombian Stock Exchange or other recognized international exchange, it will not be considered to have its place of effective management in Colombia for tax purposes. The recognized exchanges are as follows:

  • São Paulo Stock Exchange (BVSP) - Brazil
  • Toronto Stock Exchange (TSX) - Canada
  • TSX Venture Exchange - Canada
  • Santiago Stock Exchange (SSE) - Chile
  • Colombia Stock Exchange (BVC) - Colombia
  • Deutsche Börse A.G. (Frankfurt Stock Exchange, First Segment) - Germany
  • Tokyo Stock Exchange (TSE) - Japan
  • Mexican Stock Exchange (BMV) - Mexico
  • Oslo Stock Exchange - Norway
  • Lima Stock Exchange (BVL) - Peru
  • Singapore Exchange (SGX) - Singapore
  • Madrid Stock Exchange - Spain
  • SWX (SIX) Swiss Exchange - Switzerland
  • London AIM (Alternative Investment Market) - United Kingdom
  • London Stock Exchange plc (LSE) - United Kingdom
  • American Stock Exchange, Inc. (AMEX) - United States
  • NASDAQ - United States
  • Nasdaq Nordic - United States
  • New York Stock Exchange (NYSE) - United States
  • NYSE Arca - United States
  • NYSE MKT - United States

Malaysia

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Malaysia Issues Public Ruling on Group Relief for Companies

On 22 August 2016, the Inland Revenue Board of Malaysia issued Public Ruling (PR) No. 6/2016 to explain the tax treatment of group relief for companies in Malaysia. According to PR No. 6/2016, Malaysian group companies generally may surrender up to 70% of their adjusted loss for a basis period for a year of assessment to one or more related companies within the same group, subject to certain conditions.

For group relief to be available, the claimant company must have a defined aggregate income for the year of assessment, and both the surrendering and claimant companies must meet the following conditions:

  • Incorporated in Malaysia;
  • Resident in Malaysia in the basis year for that year of assessment;
  • Related (70% shareholding) throughout the basis period for that year of assessment and the 12-month period immediately preceding that basis period;
  • Have paid-up capital in respect of ordinary shares of more than MYR 2.5 million at the beginning of the basis period for that year of assessment;
  • Have a 12-month basis period ending on the same date;
  • Make an irrevocable election to surrender or claim an amount of adjusted loss in the return form furnished for that year of assessment; and
  • Subject to tax at the appropriate rate as specified in paragraph 2 of Part 1 of Schedule 1 (Rates of Tax) of the Income Tax Act.

In addition to the general requirements, PR No. 6/2016 also covers further details and examples on:

  • The definition of related companies and eligibility for group relief;
  • The computation of group relief;
  • Group relief with more than one surrendering or claimant company;
  • Revision of adjusted loss;
  • Penalty for incorrect information;
  • Companies not eligible for group relief; and
  • Other pertinent matters.

Click the following link for PR No. 6/2016 on the Inland Revenue Board of Malaysia website.

Proposed Changes (4)

Brazil

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Brazil Consultation on Draft Normative Instruction for MAP

On 18 August 2016, Brazil's Federal Revenue Department (RFB) launched a public consultation on a draft RFB normative instruction containing rules for mutual agreement procedures (MAP) under Brazil's tax treaties. The normative instruction is meant to formalize the rules regarding MAP proceedings and align Brazil's approach with the minimum standard for dispute resolution developed under BEPS Action 14. The consultation document contains:

  • The draft RFB normative instruction for MAP;
  • The draft application for MAP requests;
  • The draft application for refunds under MAP; and
  • The respective deadlines to initiate MAP with Brazil's treaty partners.

Click the following link for the consultation page (Portuguese language). The deadline for comments is 2 September 2016.

Kazakhstan

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Kazakhstan to Allow Banks to Write Off Bad Debts without Tax Consequences for the Debtor

The National Bank of Kazakhstan has reportedly announced plans to allow banks to write off bad debts without resulting in tax consequences for the debtor. Normally, when bad debts of a debtor are written off, the written off amount is treated as taxable income for the debtor.

Several of Kazakhstan's banks have signed a memorandum of understanding for the plan, although it must still be presented to parliament for approval before applying.

Philippines

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Philippines Issues Draft Revenue Memorandum Order on Claiming Treaty Benefits

The Philippines Bureau of Internal Revenue (BIR) has issued a notice calling for comments on a draft Revenue Memorandum Order (RMO) on simplified procedures for claiming tax treaty benefits on dividend, interest and royalty income of non-residents. The draft RMO includes the following procedures/guidelines for claiming treaty benefits:

  1. Non-residents claiming tax treaty relief must submit in triplicate a duly completed Certificate of Residence (COR) Form to their withholding agents/income payers before income is paid or credited to them (COR Form is a newly created BIR form to replace the previous treaty benefits forms);
  2. Failure to submit a COR Form to the withholding agent/income payer when requested will disqualify the non-resident from claiming tax treaty relief and such income will be subject to the normal rate provided under the National Internal Revenue Code (Tax Code);
  3. Withholding agents or income payers can withhold at a reduced rate or exempt the non-resident based on the duly completed COR Form submitted to them;
  4. BIR Form 1601-F must be filed and withholding taxes due must be paid in accordance with the Tax Code and existing revenue issuances;
  5. The withholding agent/income payer must submit an original of the duly completed COR Form to the International Tax Affairs Division within 30 days following payment of dividends or initial payment of interest or royalties; and
  6. Any change of residence must be communicated by the withholding agent by submitting a new COR Form.

Once finalized and issued, the draft RMO will have immediate effect. The provisions of RMO 72-2010 and any revenue issuance inconsistent with the draft RMO will be deemed revoked, repealed, or modified accordingly. However, for any income other than dividends, interest and royalties, the provisions in RMO 72-2010 will continue to apply, and obtaining a ruling will continue to be required.

Click the following for the notice calling for comment, and the draft RMO including the new COR Form.

Note - BIR had issued RMO 27-2016 on new procedures for claiming treaty benefits in June 2016, but that RMO and other recent BIR issuances were suspended by the new Internal Revenue Commissioner in July 2016 (previous coverage).

United States

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U.S. House and Senate Republicans Continue to Urge Revisions to Proposed Debt-Equity Regulations

In the latest effort to urge Treasury to revise proposed debt-equity regulations, Republicans from the U.S. House of Representatives and the Senate sent two letters to Treasury Secretary Jacob Lew on 22 August 2016. The proposed regulations (REG-108060-15) are under Internal Revenue Code section 385, and are mainly intended to counter corporate inversions and earnings stripping by allowing the IRS to recharacterize certain related-party interests as equity or part debt / part equity.

The House letter was sent by House Ways and Means Committee Chairman Kevin Brady R-TX, Tax Policy Subcommittee Chairman Charles Boustany R-LA, and all other Committee Republican Members. The letter addresses the primary concern that while Treasury has expressed its commitment to make modifications to address some of the negative impacts of the regulations, the possible modifications are not enough to eliminate the harm that the regulations would cause. The letter states that unless the regulations are completely overhauled, they would damage the economy, increase barriers to investment, and interfere with job growth - something the Committee cannot allow to happen.

The Senate letter was sent by Senate Finance Committee Chairman Orrin Hatch R-UT. The letter addresses Hatch's concerns with the pace at which the regulations are being advanced given the complexity of the issues, and the lack of transparency and accountability in the regulatory process. To alleviate the concerns, Hatch requests that the regulation be re-proposed to allow the time needed to understand fully the consequences and to ensure that the statutory and Executive Order requirements are followed.

Treaty Changes (2)

Malta-Vietnam

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Malta Ratifies Tax Treaty with Vietnam

On 19 August 2016, Malta issued the legal notice for the order ratifying the pending income tax treaty with Vietnam. The treaty, signed 15 July 2016, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Malta income tax and covers Vietnamese personal income tax and business income tax.

Residence

If a company is considered resident in both Contracting States and its place of effective management cannot be determined or its place of effective management is in neither State, 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 any relief or exemption from tax provided by the treaty.

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 6 months within any 12-month period.

Natural Resources Exploitation PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise conducts activities that relate to the exploration for and exploitation of natural resources located in a Contracting State.

Withholding Tax Rates

  • Dividends -
    • If paid from a Malta company to a beneficial owner in Vietnam, the tax is limited to the amount of Malta tax on the profits out of which the dividends are paid
    • If paid from a Vietnamese company to a resident in Malta, 5% if the beneficial owner directly holds at least 50% of the voting power in the paying company; otherwise 15%
  • Interest - 10%
  • Royalties -
    • 5% for royalties paid for the use of, or the right to use, any patent, design or model, plan, secret formula or process, or for information concerning industrial or scientific experience
    • 10% for royalties paid for the use of, or the right to use, a trade mark or for information concerning commercial experience
    • Otherwise 15%
  • Technical Fees for technical, managerial or consultancy services - 7.5%

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 deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
  • Gains from the alienation of shares, other than the above, in a company that is resident of the other State, if the alienator directly or indirectly held at least 15% of the capital of the company at any time in the 12-month period preceding the alienation

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 once the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

Poland-France

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Poland Intends to Negotiate New Tax Treaty with France

According to recent reports, the Polish Ministry of Finance has expressed its intent to the French government to begin negations for a new tax treaty. Any resulting treaty would need to be finalized, signed and ratified before entering in force, and once in force and effective would replace the 1975 tax treaty between the two countries, which is currently in force.

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