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Approved Changes (1)

Cyprus

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Cyprus Adopts Amendments to IP Regime with Modified Nexus Approach

On 14 October 2016, the Cyprus parliament adopted amendments to the country's intellectual property (IP) regime to align the regime with the guidelines developed as part of BEPS Action 5. Key aspects of the amended regime include:

  • An 80% tax rate deduction (effective 2.5% rate) for profits derived from qualifying IP assets, with related losses also reduced by 80%;
  • Qualifying IP assets include patents, copyrighted software, and utility models, as well as certain other useful and novel IP assets from which income does not exceed EUR 7.5 million per year (Marketing-related IP assets, including trademarks, brands, and image rights are specifically excluded from the regime);
  • A modified nexus ratio must be applied to determine the amount of qualifying income from qualifying IP assets: nexus ratio = (qualifying in-house and third party R&D expenses) / total expenses, with an up to 30% uplift allowed for non-qualifying expenses (related party R&D and IP acquisition costs); and
  • Foreign permanent establishments of Cyprus tax resident companies that are engaged in R&D activities may give rise to qualifying expenses if an irrevocable election is made to have the PE's profits taxed in Cyprus (unilateral credit available if also taxed overseas).

The amended IP regime applies retroactively from 1 July 2016. As part of a transition, the prior regime will generally continue to be available until 30 June 2021 for IP assets qualifying under the prior regime as of 30 June 2016. For IP assets acquired from related parties between 2 January 2016 and 30 June 2016, the transition period will end 31 December 2016 if, at the time of acquisition, the IP assets were not already qualified under the Cyprus IP regime or similar foreign regime.

Proposed Changes (4)

Colombia

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Colombian Tax Reform Legislation Submitted to Parliament

On 19 October 2016, tax reform legislation was submitted to the Colombian parliament as part of efforts to balance the country's budget and maintain its credit rating. The key measures proposed reportedly focus on simplifying the tax system overall, increasing revenues and reducing evasion. The measures include:

  • Repealing the CREE tax (CREE tax already paid for 2016 may offset following surtax);
  • Increasing the corporate income tax, and levying a temporary surtax in 2017 and 2018 for taxpayers with taxable income exceeding COP 800 million as follows:
    • 32% in 2016,
    • 34% in 2017 (39% with 5% surtax),
    • 33% in 2018 (36% with 3% surtax), and
    • 32% in 2019;
  • Introducing a 10% withholding tax on dividends distributed to non-residents;
  • Introducing a general 15% withholding tax on income accrued by non-residents;
  • Limiting the carry forward of losses to eight years;
  • Increasing the standard value added tax (VAT) rate from 16% to 19%;
  • Subjecting digital service supplies from non-residents to VAT; and
  • Measures to reduce tax evasion, including:
    • Increasing the exchange of financial and tax information;
    • Introducing measures targeting tax havens;
    • Introducing a new criminal offense for omission of assets or overstatement of liabilities in tax returns; and
    • Introducing a mandatory disclosure requirement for aggressive tax planning.

Additional details of the proposed tax reform measures will be published once available.

Ireland

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Ireland Publishes Finance Bill 2016

Ireland Minister for Finance published the Finance Bill 2016 on 20 October 2016. The Bill includes the measures announced as part of the Budget 2017 (previous coverage). Some important measures of the Finance Bill not covered in the Budget are as follows:

CbC Reporting

Amendments are made to section 891H of the Taxes Consolidation Act 1997 concerning Country-by-Country (CbC) reporting in order to transpose Council Directive (EU) 2016/881 on the automatic mandatory exchange of CbC reports in the EU. This includes allowing for the appointment of an EU designated entity that can file a CbC Report on behalf of all EU constituent entities of a non-EU parented MNE group, and providing the Revenue Commissioners the power to make regulations in respect of notification requirements of such an EU designated entity that is tax resident in Ireland.

Changes are also made to section 891H to clarify that that a fiscal year for which a CbC report must be filed can be a period of less than 12 months if the ultimate parent entity of an MNE group prepares its financial statements for such a shorter period, and to include the requirement that the CbC report include the tax identification number of all entities within the MNE group.

Section 110 Amendments

Amendments are made to section 110 to provide that where specified mortgages are held by qualifying companies the coupon on profit participating notes will not be deductible in calculating the profits of the specified property business unless the profit participating note is paid to:

  • An individual within the charge to income tax or a company within the charge to corporation tax;
  • An Irish or EEA pension fund, or
  • An EEA citizen or company who will pay tax on receipt of the interest, without any deduction for profit participating interest, provided that the payment of the coupon to the EEA citizen or company is not for tax avoidance purposes.

The amendment will apply to accounting periods ending on or after 6 September 2016.

Irish Real Estate Funds

Amendments are made to provide for a tax regime for Irish Real Estate Funds (IREFs). IREFs are investment undertakings (excluding UCITS) where 25% of the value of that undertaking is made up of Irish real estate assets. Under the regime, IREFs must deduct a 20% withholding tax on certain property distributions, including payments made to unit holders who are not within the charge to Irish tax, out of profits arising from its Irish land. The withholding tax will not apply to certain categories of investors such as pension funds, life assurance companies and other collective investment undertakings.

The amendment will apply to accounting periods beginning on or after 1 January 2017.

Click the following links for the Finance Bill 2016 and the Explanatory Memo.

Malaysia

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Malaysia 2017 Budget Presented

On 21 October 2016, Malaysian Prime Minister Najib Razak presented the 2017 Budget. The main tax-related measures include:

  • An increase in the stamp duty rate from 3% to 4% on real estate transfers of MYR 1 million or more from 1 January 2018;
  • The introduction of a special scheme for the 2017and 2018 years of assessment that provides for a reduction of the standard income tax rate for the year-on-year increase in chargeable income as follows:
    • 1% reduction for an increase in chargeable income of 5% to below 10% (23% rate on the increase amount);
    • 2% reduction for an increase in chargeable income of 10% to below 15% (22% rate on the increase amount);
    • 3% reduction for an increase in chargeable income of 15% to below 20% (21% rate on the increase amount); and
    • 4% reduction for an increase in chargeable income of 20% or more (20% rate on the increase amount);
  • The reduction of the lower income tax rate for SMEs from 19% to 18% on chargeable income up to MYR 500,000 from year of assessment 2017; and
  • The extension of certain incentive schemes, including pioneer status for new 4- and 5-star hotels through 2018, the income tax and stamp duty exemption for Islamic banking and takaful (Islamic insurance) business activities through 2020, and the double deduction for or the Structured Internship Program through 2019.

Click the following link for the 2017 Budget Speech.

Mexico

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Mexico to Adopt Mandatory Arbitration

According to recent reports, the Mexican Treasury Department is considering the adoption of mandatory arbitration provisions in its tax treaties. Although Mexico has had valid reasons for not accepting mandatory arbitrations in the past, a Treasury official has said that such provisions are being considered now in order to provide more certainty for taxpayers.

Treaty Changes (4)

Eq. Guinea-Untd A Emirates

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Tax Treaty between Equatorial Guinea and the U.A.E. Signed

Officials from Equatorial Guinea and the United Arab Emirates signed an income tax treaty on 19 October 2016. The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

Iran-Luxembourg

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Tax Treaty between Iran and Luxembourg to be Negotiated

According to a release from the Luxembourg Ministry of the Economy, officials from Iran and Luxembourg agreed to begin negotiations for an income tax treaty at a 17 October meeting. 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.

Italy-Chile-Panama

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Italian Senate Approves Tax Treaties with Chile and Panama

On 18 October 2016, the Italian Senate approved the laws for the ratification of Italy's pending income tax treaties with Chile and Panama.

The income tax treaty between Chile and Italy was signed on 23 October 2015 and is the first of its kind between the two countries (previous coverage). 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.

The income tax treaty with Panama was signed 30 December 2010 and is the first of its kind between the two countries (previous coverage). The treaty will enter into force on the first day of the fourth month following the exchange of the ratification instruments, and will generally apply from 1 January of the year following its entry into force. With respect to exchange of information, information requests may be made for any date within three years prior to the treaty's entry into force.

Turkey-Jordan

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Turkey Ratifies SSA with Jordan

Turkey published the decree ratifying the pending social security agreement with Jordan in the Official Gazette on 18 October 2016. The agreement, signed 27 March 2016, is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

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