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Approved Changes (2)

Argentina

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Argentina Updates White List for Transfer Pricing Purposes

Argentina's Revenue Service has recently released an update of its white list of cooperative jurisdictions. For transfer pricing purposes, transactions with residents of jurisdictions that have been excluded from the white list are subject to transfer pricing rules whether related or not. This generally includes jurisdictions with which Argentina has not entered into agreements that provided for the exchange of tax information.

Jurisdictions added in the latest update include Barbados, Belarus, Bulgaria, Cameroon, Cyprus, Gabon, Gibraltar, Hong Kong, Niue, Senegal, Seychelles, and Uganda. Jurisdictions excluded include Angola, Haiti, Kenya, Kuwait, Montenegro, Nicaragua, Qatar, the United Arab Emirates, and Vietnam.

Click the following link for the updated white list of cooperative jurisdictions, which is effective from 1 January 2016.

United Kingdom-Ireland

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Google to Pay GBP 130 Million in UK Tax Settlement

Google has reached an agreement with HMRC to pay a total of GBP 130 million in back taxes and to pay tax based on revenue from UK-based advertisers going forward. The back taxes cover the period since 2005, during which Google netted an estimated GBP 7.2 billion in profits from the UK on which it had only paid approximately GBP 70 million in UK corporation tax. Google was able to pay such a low amount of tax in the UK through strategies involving the allocation of profits to Ireland, where its European operations are headquartered.

While Chancellor of the Exchequer George Osborne has touted the agreement as "a major success of our tax policy", others in the government have stated that the tax to be paid under the agreement, which results in an effective rate of 2.77%, is too little. The UK's corporation tax rate was 30% in 2005 and is currently 20%. The UK Parliament’s Public Accounts Committee has scheduled an enquiry for Google and HMRC to explain how the agreement was reached, although it is uncertain if the results of the enquiry will have any effect on the agreement.

Proposed Changes (1)

Belgium-Austria-Estonia-France-Germany-Greece-Italy-Portugal-Slovak Republic-Slovenia-Spain-European Union

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Belgium Planning to Drop its Support of an EU Financial Transactions Tax

Belgium is reportedly planning to drop its support of the initiative to create a Financial Transactions Tax (FTT) in the EU. The FTT has been pursued by a number of EU Member States through the enhanced cooperation procedure following the European Council's inability to reach unanimity on an FTT proposal in 2012.

Initially 11 Member States took part in the enhanced cooperation procedure for the FTT. However, Estonia decided to drop its support of the initiative in December 2015. If Belgium decides to drop its support as well, only nine Member States will remain, including Austria, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain. This is the minimum number of Member States needed for the enhanced cooperation initiative to move forward.

Treaty Changes (4)

Chile-Japan

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Tax Treaty between Chile and Japan Signed

On 21 January 2016, officials from Chile and Japan signed and an income tax treaty. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Chilean taxes imposed under the Income Tax Act. It covers Japanese income tax, corporation tax, special income tax for reconstruction, local corporation tax, and local inhabitant taxes.

Resident

Article 4 (Resident) includes the provision that 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 any reduction or exemption of tax provided by the treaty.

In addition, Article 4 (Resident) includes the provision that if any income is taxed in a Contracting State by reference to the amount remitted or received in that State and not by reference to the full amount, then any relief from tax provide for by the treaty in the other State will be limited to the amount of income taxed by the first-mentioned State.

Permanent Establishment

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged individuals when the activities continue for a period or periods aggregating more than 183 days within any 12-month period. In determining if the 183 days limit has been met, connected activities of associated enterprises in a Contracting State will be considered.

The treaty also includes provisions based on the new language developed as part of Action 7 of the OECD BEPS Project concerning a dependent agent PE. Under the provisions, a permanent establishment will be deemed constituted where a person is acting in a Contracting State on behalf of an enterprise and habitually concludes contracts or plays the principal role leading to the conclusion of contracts that are:

  • In the name of the enterprise; or
  • For the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use; or
  • For the provision of services by that enterprise.

These provisions are meant to counter the avoidance of PE Status through commissionaire and similar arrangements.

Withholding Tax Rates

  • Dividends -
    • 5% if the beneficial owner is a company that has directly held at least 25% of the voting power of the company paying the dividends for a period of at least 6 months ending on the date on which entitlement to the dividends is determined;
    • Otherwise 15%;
    • The rate limits for dividends do not limit the application Chile's 35% additional withholding tax on dividends with a credit for corporate tax (FCT) paid, but the protocol to the treaty states that if the additional withholding tax exceeds 35% or the FCT paid ceases to be fully creditable, the allowance of the additional withholding tax in Chile will no longer apply and the withholding tax rate under the treaty will be 20%
  • Interest -
    • 4% if the beneficial owner is either:
      • A bank;
      • An insurance company;
      • An enterprise substantially deriving its gross income from the active and regular conduct of a lending or finance business involving transactions with unrelated persons, where the enterprise is unrelated to the payer of the interest;
      • An enterprise that sold machinery or equipment on credit; or
      • Any enterprise that in the three taxable years preceding the taxable year in which the interest is paid, derives more than 50% of its liabilities from the issuance of bonds in the financial markets or from taking deposits at interest, and more than 50% of the assets of the enterprise consist of debt-claims against unrelated persons;
    • Otherwise 10% (15% in the first two years) (interest that would otherwise be eligible for the 4% rate will be subject to the 10% rate if paid as part of an arrangement involving back-to-back loans)
  • Royalties - 2% for royalties for the use of, or the right to use, industrial, commercial or scientific equipment; otherwise 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 alienation of any property, other than immovable property, forming part of the business property of a permanent establishment in the other State;
  • Gains from the alienation of shares, comparable interests or other rights if:
    • The alienator at any time during the 365 day preceding the alienation directly or indirectly owned shares, comparable interests or other rights representing at least 20% of the capital of a company resident in the other State; or
    • At any time during the 365 day preceding the alienation, the shares, comparable interests or other rights directly or indirectly derived at least 50% of their value from immovable property situated in the other State; and
  • Any other gains from the alienation of shares, comparable interests or other rights representing the capital of a company resident in the other State, but the tax on such gains may not exceed 16%

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

MFN Clause

The protocol to the treaty, signed the same date, includes the provision that if Chile agrees to limit the application of its additional withholding tax (35%) in any other treaty, the Contracting States will consult with each other to amend the Chile-Japan treaty.

The protocol also includes that if Chile concludes a treaty with a third state that includes a lower rate of withholding tax on interest or royalties, or further limits the right of taxation of capital gains, the Contracting States will consult with each other to amend the Chile-Japan treaty to incorporate such lower rates or limits on taxation of capital gains.

Limitation on Benefits

Article 22 (Limitation on Relief) includes the provision that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit.

Article 22 (Limitation on Relief) also includes the provision that the benefits of the treaty will not apply when a resident of one Contracting State derives income from the other State and the first-mentioned State treats the income as attributable to a permanent establishment of that resident in a third jurisdiction, if:

  • The total tax actually paid on the income in the first mentioned State and the third jurisdiction is less than 60% of the tax that would have been paid in the first-mentioned State had the income not been attributable to the permanent establishment; or
  • The third jurisdiction does not have a tax treaty in force with the other Contracting State from which the benefits of the treaty are being claimed, unless the income attributable to the permanent establishment is included in the tax base of the enterprise in the first-mentioned Contracting State.

When the above limitation applies, the income may be taxed in accordance with the domestic law of the other Contracting State. However, any tax on affected interest or royalty income is limited to 25%.

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 generally apply from 1 January of the year following its entry into force. However, Article 26 (Exchange of Information) will apply from the date of its entry into force.

Cyprus-Ethiopia

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Update - Tax Treaty between Cyprus and Ethiopia

The income tax treaty between Cyprus and Ethiopia was signed 30 December 2015. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Cypriot income tax, corporate income tax, special contribution for the Defense of the Republic, and capital gains tax. It covers Ethiopian tax on income and profit, and tax on income from mining, petroleum and agricultural activities.

Withholding Tax Rates

  • Dividends - 5%
  • Interest - 5%
  • Royalties - 5%

Offshore PE

Article 13 (Offshore Activities) includes the provision that a permanent establishment will be deemed constituted if an enterprise of one Contracting State carries on offshore activities in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in the other State if such activities continue for a period or periods aggregating more than 30 days in any 12 month period. In determining if the 30 days limit has been met, activities of an associated enterprise that are substantially the same will be considered.

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; and
  • Gains from 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. A provision is also included for a tax sparing credit for tax that would otherwise be payable but has been reduced or exempted for a limited period of time in a Contracting State in accordance with the laws and regulations of that State aimed at promoting economic development.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged. It will apply in Cyprus from 1 January of the year following its entry in to force, and in Ethiopia from 8 July next following the date of its entry into force.

Iran-Slovak Republic

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Tax Treaty between Iran and Slovakia Signed

On 19 January 2016, officials from Iran and Slovakia signed an income tax treaty. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Iran income tax and Slovak income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through employees or other engaged personnel if the activities continue for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 5%
  • Interest - 5%
  • Royalties - 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 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 or other corporate rights 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.

Limitation on Benefits

Article 26 (Limitation of Benefits) includes the provision that the benefits of the treaty will not apply if income is paid or derived in connection with an artificial arrangement.

Entry into Force and Effect

The treaty will enter into force on the first day of the third month following the exchange of the ratification instruments. It will apply in Slovakia from 1 January of the year following its entry into force, and In Iran from 21 March (first day of Farvardin - Iranian calendar) of the year following its entry into force.

Switzerland-Guernsey-Iceland-Isle Of Man-Jersey-Norway

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Switzerland Signs Declarations on Automatic Exchange of Information with Guernsey, Iceland, the Isle of Man, Jersey and Norway

On 20 January 2016, the Swiss Federal Council published a press release announcing that Switzerland has signed joint declarations on the automatic exchange of information in tax matters with Guernsey, Iceland, the Isle of Man, Jersey and Norway. The joint declarations apply on a reciprocal basis and will be implemented under the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA). Switzerland intends to begin the automatic exchange of information in 2018.

Click the following link for the press release.

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