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Worldwide Tax News

Approved Changes (2)

Colombia

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Colombia Sets UVT Value for 2016

The Colombian tax authorities (DIAN) have issued the adjusted tax value unit (UVT) value for 2016. The UVT value is set at COP 29,753 (~USD 9.65 Nov 2015), an increase from the 2015 value of COP 28,279.

The UVT is used in Colombian tax regulations, including incentives eligibility, tax penalties, individual income tax brackets and other fixed amounts. It is adjusted yearly based on the accumulated variation in the retail price index.

United States

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U.S. IRS Publishes Six International Practice Units

The U.S. IRS has recently published six international practice units, including:

International practice units are developed by the Large Business and International Division of the IRS to provide staff with explanations of general international tax concepts as well as information about specific transaction types. They are not an official pronouncement of law, and cannot be used, cited or relied upon as such.

Click the following link for the International Practice Units page on the IRS website.

Proposed Changes (3)

Australia

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Australian Tax Board Issues Discussion Paper on Hybrid Mismatch Rules for Public Comment

On 20 November 2015, the Australian Board of Taxation issued a discussion paper on the implementation of rules to neutralize hybrid mismatch arrangements. The rules are in line with guidance developed as part of Action 2 of the OECD BEPS Project, which Australia is planning to implement in full. Action 2 includes recommendations to counter various hybrid arrangements that result in:

  • Deduction / No Inclusion outcomes;
  • Deduction / Deduction outcomes (double deduction); and
  • Indirect Deduction / No inclusion outcomes.

For most hybrid arrangements, the recommendations include a primary rule where a deduction would be denied, and in certain cases, a defensive rule where the outcome would be included as ordinary income.

Based on the results of the consultation, The Board is to report to Australian government by March 2016 so the issue of hybrid mismatch arrangements may be considered as part of the 2016 Budget.

Click the following links for the Implementation of the OECD Anti-Hybrid Rules Consultation paper, and the related release from the Board of Taxation Example, including instruction on submitting comments.

France

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Update - France adds CbC Reporting Requirements to 2016 Budget Legislation

The French National Assembly has approved the addition of Country-by-Country (CbC) reporting requirements to the 2016 budget legislation, which is currently being debated. The CbC reporting requirements are based on the guidelines developed as part of Action 13 of the OECD BEPS Project. Under the requirements, a French multinational company will be required to submit a CbC report if its annual consolidated group turnover is at least EUR 750 million; and

  • It is the ultimate parent of its group; or
  • It is designated as the reporting entity of its group; or
  • It cannot show that any other entity in its group is designated as the reporting entity for its group or France is otherwise unable to obtain the report.

Subject to approval, the CbC reporting requirement will apply from the 2016 financial year, with the first report due within 12 months after the close of the year. Failure to comply will result in penalties of up to EUR 100,000.

Sri Lanka

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Sri Lanka Publishes National Budget 2016 Tax Proposals

On 20 November 2015, Sri Lanka's Minister of Finance Ravi Karunanayake presented the countries National Budget for 2016. The main tax-related proposals are summarized as follows.

Corporate Income Tax, Levies and Surtax

The following measures are proposed:

  • Simplifying corporate income taxation by introducing a standard 15% rate and higher 30% rate for betting and gaming, liquor, tobacco and banking and financial services (current rates range from 10% to 40% depending on industry);
  • Abolishing the Share Transaction Levy, Construction Industry Guarantee Fund Levy, Luxury & Semi-Luxury Motor Vehicle Tax and Tourism Development Levy; and
  • Implementing a 25% surtax on tobacco, liquor and casino industries.

Individual Income Tax

The budget proposes simplifying individual income taxation by introducing a standard 15% rate and increasing the tax free annual threshold to LKR 2.4 million (currently progressive rates apply up to 24%).

Value Added Tax (VAT)

The following measures are proposed for VAT:

  • Implementing three VAT rates of 0%, 3% and 12.5% (currently a single rate of 11% applies);
  • Increasing the VAT threshold to LKR 12 million per annum; and
  • Excluding wholesale and retail trade from VAT.

Tax Incentives

Several tax incentives are proposed, including:

  • A 5-year 50% corporate income tax holiday for venture capital firms investing in qualifying SMEs;
  • A 5-year 50% corporate income tax holiday for investments of at least USD 10 million in projects that employ at least 500 employees in designated export processing zones;
  • A 3-year 50% corporate income tax holiday for profits attributable to expansion from the modernization of existing factories, which is considered based on the employment generation and certain other criteria;
  • A 3-year 50% corporate income tax holiday for private sector investment in proposed mini-industrial parks in Moneragala, Puttalam, Jaffna/Vanni, and Ampara; and
  • Several other 50% tax holidays.

In addition the new incentives for specified industries/activities, it is also proposed to that any incentives for investment be under the supervision and monitoring of the Ministry of Finance, and that any ad-hoc and unproductive tax concessions offered by different agencies be removed.

Other Proposed Measures

The budget includes a number of other proposed measures, including

  • Increasing the Nation Building Tax (NBT) rate to 4%, and reducing the threshold to LKR 12 million per annum (currently 2% with LKR 15 million threshold), and removing the exemption for telecommunication services, supply of electricity and lubricants; and
  • Increasing the Economic Service Charge (ESC) rate on revenue of loss-making businesses from 0.25% to 0.5%, removing the exclusion of profit making businesses, removing the maximum ESC liability per year (currently LRK 120 million), and reducing the carry forward period of ESC from 5 years to 3 years.

Effective Date

If approved, the income tax and ESC measures will generally apply from 1 April 2016, and the VAT and NBT measures will apply from 1 January 2016.

Treaty Changes (2)

Macedonia-Slovak Republic

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SSA between Macedonia and the Slovak Republic to Enter into Force

The Macedonian Ministry of Labor and Social Policy has announced that the social security agreement (SSA) between Macedonia and the Slovak Republic will enter into force on 1 December 2015. The agreement, signed 21 November 2014, will replace the 1957 SSA between the former Czechoslovakia and the former Yugoslavia, which currently applies in relations between Macedonia and the Slovak Republic.

Norway-Serbia

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Update - Tax Treaty between Norway and Serbia

The new income tax treaty between Norway and Serbia was on 17 June 2015. Once in force and effective, the new treaty will replace the 1983 income and capital tax treaty between Norway and the former Yugoslavia, which currently applies in respect of Serbia.

Taxes Covered

The treaty covers Norwegian:

  • National tax on income;
  • County municipal tax on income;
  • Municipal tax on income;
  • National tax relating to income from the exploration for and the exploitation of submarine petroleum resources and activities and work relating thereto, including pipeline transport of petroleum produced; and
  • National tax on remuneration to non-resident artistes.

It covers Serbian corporate income tax and personal income tax.

Residence

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 based on its place of effective management, place of registration and any other relevant factors. If the authorities cannot reach mutual agreement, then any relief or exemption from tax provided by the treaty will not apply unless agreed upon by the competent authorities.

Service PE

A permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through one or more individuals present in that other State 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 - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 15%
  • Interest - 10%
  • Royalties -
    • 5% for the use of, or the right to use any copyright of literary, artistic or scientific work including cinematograph films, or films or tapes used for radio or television broadcasting;
    • 10% for the use of, or the right to use, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) will not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest or royalties are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

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 or comparable interests of any kind 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.

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.

The 1983 income and capital tax treaty between Norway and the former Yugoslavia will terminate in respect of Serbia once the new treaty enters into force, and its provisions will cease to have effect once the new treaty is effective.

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