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Approved Changes (5)

Costa Rica

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Costa Rica Publishes Resolution for Alternate Tax Period

On 18 September 2015, Costa Rica published resolution DGT-R-27-2015 in the Official Gazette. The resolution regulates the implementation of an optional alternate calendar tax year (1 Jan to 31 Dec) for certain qualifying taxpayers. Costa Rica's standard tax year is 1 October to 30 September.

Taxpayers that are eligible for the alternate tax year include:

  • Public institutions that are obliged to set their budget period between 1 January and 31 December;
  • National airlines and related companies;
  • Institutions obliged to prepare financial statements following the calendar year, including political parties, religious institutions, cooperatives, and others;
  • Certain financial and securities trading entities;
  • Enterprises engaged in the cultivation of bananas or rice and related activities; and
  • Subsidiaries, branches or agencies in Costa Rica of a foreign company when the foreign company does not follow Costa Rica's standard tax year.

In order to change the tax year, a taxpayer is required to submit an application to the tax administration including evidence that it meets the criteria of one of the taxpayer types listed above. Once the application is submitted, the tax authorities should reply as to whether the application is approved or not within two months. If approved, the new calendar tax year would begin from 1 January of the following the year, and the taxpayer would be required to file a return for the period 1 October to 31 December.

Taxpayers using the alternate tax year remain obligated to make three provisional tax payments, with the first due in June, the second in September and the third in December. The annual tax return is due within two months and 15 days after the end of the tax year (15 March).

A taxpayer may also request to change back to the standard tax year, or may be required to do so if the conditions for the alternate year are no longer met. In the event the conditions are no longer met, the tax authority will send a notification to the taxpayer including a deadline for the change, which may be no early than 9 months from the notification. When changing to the standard tax year, the tax year would start from the following 1 October, and a return must be filed for the period 1 January to 30 September.

The Resolution entered into force the date it was published, 18 September 2015.

Kuwait

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Kuwait Adopts Virtual Service PE Approach

According to recent reports, Kuwait’s Department of Inspections and Tax Claims has modified its interpretation of a permanent establishment (PE) to include a virtual service PE. The concept is similar to a virtual service PE approach recently adopted in Saudi Arabia (previous coverage).

The virtual service PE concept applies for services provided under contract to a Kuwaiti entity when in connection with that entity's activities in Kuwait. In such cases, the duration of the contract is used to determine whether the threshold period for a PE under an applicable tax treaty is exceeded. This applies regardless of the actual activities of the service provider in Kuwait, and may even apply if the services are provided entirely offshore.

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Peru Publishes Regulation for Private Letter Rulings

On 12 September 2015, Peru published Supreme Decree No. 253-2015-EF in the Official Gazette. The Decree sets out the conditions for requesting private letter rulings on tax matters from the tax authority (SUNAT).

Rulings are available for tax matters concerning corporate income tax and value added tax. When requested, a ruling should be issued by SUNAT within 4 months. However, the decree states that if a response is not given within the 4-month period, it does not indicate the acceptance of a tax position.

As part of a transition, rulings are initially only available for taxpayers meeting one of the following conditions:

  • Taxpayers that have entered into a government approved investment agreement, stability agreement, or a public-private partnership agreement;
  • Taxpayers planning to invest at least USD 10 million as indicated in a feasibility study submitted to SUNAT, and have declared net income of at least 15,000 tax units (~USD 17.9 million) in the annual tax return for the previous period;
  • Taxpayers that have declared securities investments of at least 3,000 tax units (~USD 3.6 million) in the annual tax return for the previous period; or
  • Non-resident taxpayers with declared securities investments of at least 3,000 tax units (~USD 3.6 million)

The availability of rulings will be expanded to additional taxpayers in the future, although no specific period has been given.

Supreme Decree No. 253-2015-EF entered into force and is effective from 13 September 2015.

Portugal

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Portugal Publishes Decree on State Aid Compliance for the Investment Support and Reinvestment of Retained Earnings Incentive Regimes

On 21 September 2015, Portugal published Decree No. 297/2015 in the Official Gazette. The Decree regulates the investment support regime (RFAI) and the deduction for reinvestment of retained earnings regime (DLRR) for compliance with EU State Aid rules.

RFAI

Concerning the investment support regime, conditions set out in the Decree include the following:

  • The regime may not apply for taxpayers subject to an outstanding EU Commission recovery order for illegal aid;
  • At least 25% of an investment must be funded by the taxpayer's own resource or third-party non-public financing;
  • The regime may only apply for initial investments related to:
    • The creation of a new establishment;
    • Increasing the capacity of an existing establishment;
    • Diversification of the production of an establishment with regard to new products not previously manufactured; or
    • A fundamental change in the overall production process of an existing establishment;
  • For investments related to the diversification of the production of an establishment, the initial investment must be equal to at least 200% of the net book value of assets that are reused;
  • For investments related to a fundamental change in the overall production process of an existing establishment, the initial investment must exceed the amount of depreciation and amortization of assets associated with the activity in the three previous tax periods;
  • In determining the investment amount, any investment made by a beneficiary or group company will be considered part of a single investment project if made within three years following another investment in the same region that has been granted tax benefits;
  • The granting of aid for large investments (EUR 100 million), investments involving same or similar activities in the European Economic Area ended by the taxpayer in the preceding two years, and certain other cases must be reported to the European Commission; and
  • Taxpayer's whose investments are subject to Commission reporting must submit a form demonstrating that, if not for the tax benefits (incentive effect), the investment in a region would not be made because the investment would not be sufficiently profitable or the disadvantages and associated costs of investing in the region would be too great.

DLRR

Concerning the deduction for reinvestment of retained earnings regime, conditions set out in the Decree include the following:

  • The regime may not apply for the reinvestment of retained earnings in the fishing, aquaculture and primary agricultural production sectors.
  • The regime may not apply for:
    • Taxpayers subject to an outstanding EU Commission recovery order for illegal aid; and
    • Taxpayers considered to be undertakings in difficulty, which includes cases where accumulated losses exceeds 50% of its subscribed capital, one or more members has unlimited liability for the taxpayer's debts, the taxpayer is subject to collective insolvency proceedings, and certain other cases.

Click the following link for the full text of Decree No. 297/2015 (Portuguese language).

Tunisia

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Tunisia Publishes Supplementary Finance Law 2015

On 21 August 2015, Tunisia published the Supplementary Finance Law for 2015 in the Official Gazette. Main changes include:

Individual Income Tax

The standard individual income tax exemption is increased from TND 1,500 to TND 5,000. The change is effective 1 January 2016.

Value Added Tax

The applicable valued added tax rate for tourism related services, such as hotel services, domestic tours, spas, golf courses, etc. is changed from the 12% reduced rate to the 6% reduced rate. The change is effective 30 August 2015.

Incentives for Newly Recruited Employees

The incentives based on newly recruited employees in the 2012 and 2014 Supplementary Finance Laws for Investment Incentives Code projects are extended for employees newly recruited through 31 December 2016. The incentives include a payroll tax exemption for new employees for 5 years, a tax credit equal to 10% of total wages, salaries and fringe benefits for new employees for 3 years, and others.

Proposed Changes (1)

Italy

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Italy Planning Digital Services Tax on Non-Residents from 2017

Italian Prime Minister Matteo Renzi has reportedly confirmed the government's intentions to introduce a tax on digital services provided by non-residents from 2017. According to Renzi, the government had hoped for consensus at the EU level on the taxation of cross border digital services, but doesn't expect consensus any time soon and will move forward with its own plans.

Details of Italy's current plans are unclear; however, earlier in 2015 the government was considering the taxation of digital activities based on a virtual permanent establishment (PE) concept. Under that approach, a withholding tax would be introduced on payments made by Italian customers to a foreign supplier when the supplier is considered to have a significant virtual presence in Italy based on a certain digital sales threshold. Banks or other financial intermediaries facilitating payment for the digital supplies would be responsible for the withholding.

Treaty Changes (1)

Cayman Islands-Isle Of Man

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TIEA between the Cayman Islands and the Isle of Man Signed

A tax information exchange agreement was signed by the Cayman Islands on 10 September 2015 and by the Isle of Man on 22 September 2015. The agreement is the first of its kind between the two jurisdictions and is in line with the OECD standard for information exchange.

The agreement will enter into force 30 days after the ratification instruments are exchanged. With respect to criminal tax matters, it will apply for tax periods beginning on or after 1 September 2005, and to other matters for tax periods beginning on or after 1 January of the year following its entry into force.

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