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Worldwide Tax News

Approved Changes (6)

Colombia

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Colombia Adopts New Incentives for Renewable Energy

The Colombian government has announced the adoption of new incentives for the development of renewable energy projects. The incentives include:

  • An income tax deduction of up to 50% of investments made into renewable energy research, management or generation projects for up to 5 years;
  • A value added tax exemption on machinery and equipment and related services acquired for use in the generation and use of renewable energy;
  • A customs duty exemption on imports for use in renewable energy projects; and
  • An accelerated depreciation rate of 20% for machinery, equipment and certain other assets used in new renewable energy generation projects.

The incentives are to apply from February 2016.

Ecuador

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Ecuador Approves Public Works Investment Incentives Law

Ecuador's parliament has reportedly approved the Organic Law of Incentives for Public-Private Partnership and Foreign Investment. The law introduces incentives for foreign investment in public works development projects through public-private partnerships. The incentives include:

  • A 10-year income tax and remittance tax exemption;
  • A 10-year dividends tax exemption, regardless of where the recipient is resident; and
  • A real estate tax exemption for immovable property used for public works.

The incentives will apply for projects in three main areas: port infrastructure, road infrastructure, and social housing. An Interagency Public-Private Partnership Committee will be created to oversee and coordinate the application of the incentives for new projects.

The law has been remitted to the president for ratification.

Ireland

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Ireland Updates Code of Practice for Revenue Audit and other Compliance Interventions

On 20 November 2015, Irish Revenue published eBrief 112/15, announcing the update of the Code of Practice for Revenue Audit and other Compliance Interventions. The Code provides guidelines covering several areas of compliance interventions, including an overview of intervention types, regularization of tax and duty defaults, audit procedures and finalization, prosecution, and tax avoidance.

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Code of Practice for Revenue Audit and other Compliance Interventions

The Code of Practice for Revenue Audit and other Compliance Interventions (PDF: 691KB) has been updated and is now available on the Revenue website under: Tax Practitioners - Codes of Practice.

This Code of Practice for Revenue Audit and other Compliance Interventions is effective from 20th November 2015.

As regards compliance interventions, notice of which had been given but which had not been settled before the 20th November 2015, the taxpayer may choose whether the settlement is made under the terms of this Code of Practice for Revenue Audit and other Compliance Interventions or the Code of Practice for Revenue Audit and other Compliance Interventions dated 14th August 2014.

Kazakhstan

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Kazakhstan Approves New Social Health Insurance System

Legislation implementing mandatory employer and employee contributions for a new social health insurance system was approved by the Kazakh Senate on 29 October 2015. Beginning in 2017, employers will be required to contribute 2% of employees' salary to the system, with the rate increasing to 5% in 2020. Employees will be required to contribute 1% of their salary in 2019 and 2% from 2020 (withheld by employer). The contribution base will be capped at 15 times the minimum wage (KZT 21,364) and the contributions will be deductible for income tax purposes (corporate and individual).

Slovenia

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Slovenia Implements Amendments to the EU Parent-Subsidiary Directive and Changes in the Tax Treatment of Actuarial Gains and Losses

Amendments to Slovenia's domestic tax law for the implementation of amendments made to the EU Parent-Subsidiary Directive were published in the Official Gazette on 3 November 2015. The amendments include that the participation exemption provided for under the Directive will not be granted if:

  • A profit distribution made by a subsidiary to its parent company is deductible in the Member State of the subsidiary (hybrid mismatch); or
  • An arrangement or a series of arrangements are put in place with the main purpose or one of the main purposes of receiving a tax benefit and not for valid commercial reasons that reflect economic reality.

In addition, amendments were made to align the tax treatment of actuarial gains and losses with the treatment of employee benefits, which includes that 50% of the provisions for employee benefits are allowed as deductions from the tax base.

The participation exemption amendments apply from 1 January 2016, and the change concerning actuarial gains and losses applies from 1 January 2015.

United States

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U.S. Treasury Announces Additional Actions to Counter Corporate Inversions

On 19 November 2015, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued Notice 2015-79 on additional actions to make it more difficult for companies to invert and to reduce the tax benefits companies that do invert.

The additional actions to make it more difficult to invert apply to deals closed on or after 19 November 2015 and include:

  • Strengthening the requirement that the former owners of a U.S. company own less than 80% of the new combined entity by:
    • Disregarding stock of the foreign parent issued to the shareholders of the existing foreign corporation in certain cases; and
    • Clarifying that anti-stuffing rules apply to any assets acquired with a principal purpose of avoiding the 80% rules, regardless of whether the assets are passive assets; and
  • Strengthening the substantial (25%) business activities exception by limiting a combined group from satisfying the exception unless the new foreign parent is a tax resident in the foreign country in which it is created or organized.

The additional actions to reduce the benefits of inversions apply to deals closed on or after 22 September 2014 and include:

  • Expanding the scope of inversion gain for which current U.S. tax must be paid to include certain taxable deemed dividends recognized by an inverted company where that dividend is attributable to passive income recognized by a CFC when the CFC transfers foreign operations to the new foreign parent; and
  • Providing that all the built-in gain in the CFC stock must be recognized as a result of the post-inversion transfer, regardless of the amount of the CFC’s deferred earnings, thereby potentially increasing the amount of current U.S. tax paid as a result of the transfer.

Notice 2015-79 also makes corrections to the anti-inversion rules in Notice 2014-52 (previous coverage) in the context of the 80% ownership rule:

  • To ensure that assets used in an active insurance business are not treated as passive assets for the purpose of the “cash box” rule that disregards stock of the foreign parent that is attributable to existing passive assets; and
  • To ensure that the rule that would disregard certain pre-inversion extraordinary dividends does not apply when a foreign corporation acquires a U.S. company in an all-cash or mostly cash acquisition.

Click the following links for Notice 2015-79, the Treasury press release on the Notice, and a fact sheet on the additional actions.

Proposed Changes (1)

India

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India Announces Planned Phasing Out of Certain Exemptions and Deductions to Fund Corporate Tax Rate Cut

On 20 November 2015, India's Central Board of Direct Taxes issued a notice on plans for the phasing out of exemptions and deductions to correspond with the planned reduction in the corporate tax rate from 30% to 25% over the next four years as announced in the 2015-2016 Budget (previous coverage). According to the notice, changes will generally begin applying from the 2017-2018 financial year, and include:

  • Profit linked, investment linked and area based deductions will be phased out for both corporate and non-corporate taxpayers;
  • In case of tax incentives with no terminal date, a sunset date of 31 March 2017 will be provided either for commencement of the activity or for claim of benefit depending upon the structure of the relevant provisions - affected activities include development, operation and maintenance of infrastructure facilities, development of special economic zones, and others;
  • Provisions that have a sunset date will not be modified to advance the sunset date, and the sunset dates provided will not be extended; and
  • There will be no weighted (increased) deduction with effect from 1 April 2017, such as the 150% deduction for certain capital expenditures, 200% deduction for scientific research expenditures, etc.

Click the following link for the notice, which includes specific details and instructions for submitting comments on the plans.

Treaty Changes (3)

Japan-Philippines

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SSA between Japan and the Philippines Signed

On 19 November 2015, officials from Japan and the Philippines signed a social security agreement. The agreement is the first of its kind between the two countries. It will enter into force on the first day of the third month after the ratification instruments are exchanged, and will generally apply from that date.

Kazakhstan-Uzbekistan

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Protocol to the Tax Treaty between Kazakhstan and Uzbekistan under Negotiation

On 13 November 2015 the Kazakh government announced that negotiations are underway for a protocol to the 1996 income and capital tax treaty with Uzbekistan. The protocol will reportedly amend Articles 9 (Associated Enterprises), 10 (Dividends), 11 (Interest), 12 (Royalties), 14 (Independent Personal Services) and 26 (Exchange of Information).

The protocol will be the first to amend the treaty, and must be finalized, signed and ratified before entering into force.

Kenya-South Africa

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Tax Treaty between Kenya and South Africa has Entered into Force

According to a recent notice published by the South African Revenue Service, the income tax treaty between Kenya and South Africa entered into force on 19 June 2015. The treaty, signed 26 November 2010, is the first of its kind between the two countries, although an earlier 1959 treaty (terminated) between South Africa and the UK had applied in respect of Kenya.

Taxes Covered

The treaty covers Kenyan income tax, and South African normal tax, secondary tax on companies, withholding tax on royalties and the tax on foreign entertainers and sportspersons.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within 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%
  • Interest - 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; and
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from 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 apply the credit method for the elimination of double taxation.

Effective Date

The treaty applies from 1 January 2016.

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