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Worldwide Tax News

Approved Changes (4)

Australia

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Australia Enacts and Publishes Law Reducing Corporate Tax Rate for Smaller Businesses

On 23 May 2017, Australia published the Treasury Law Amendment (Enterprise Tax Plan) Act 2017 after receiving royal assent on 19 May. The main changes the legislation provides for are a reduction of the reduced corporate tax rate for small businesses and an increase in the turnover threshold. The legislation also changes the term "small business entity" to "base rate entity" for the purpose of the reduced rates from 2017.

The small business (base) rate is reduced from 28.5% to:

  • 27.5% from 1 July 2016 (2016-17 to 2023-24 income years);
  • 27.0% from 1 July 2024 (2024‑25 income year);
  • 26.0% from 1 July 2025 (2025‑26 income year); and
  • 25.0% from 1 July 2026 (2026‑27 and later income years).

The turnover threshold to qualify for the small business (base) rate is increased from AUD 2 million to:

  • AUD 10 Million from 1 July 2016 (2016-17 income year);
  • AUD 25 Million from 1 July 2017 (2017-18 income year); and
  • AUD 50 Million from 1 July 2018 (2018‑19 and later income years).

Aggregated turnover for the year must be less than the threshold for the reduced rate to apply. For companies not under the threshold, the standard 30% corporate tax rate applies.

Click the following link for updated guidance from the Australian Taxation Office on the reduced rates.

Belgium

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Belgium Publishes Updates Guidance on CbC Report, Notification, Master File, and Local File including Forms

Belgium's Federal Public Service (SPF) Finance has published updated guidance on the country's BEPS Action 13 requirements, including for the Master file, Local file, Country-by-Country (CbC) report, and the CbC notification. The guidance provides an overview of each requirement, Belgium's adoption of OECD guidance, and the related forms. The requirements all generally apply for fiscal years being on or after 1 January 2016.

Master/Local File

The Master file and Local file requirements apply for each Belgian constituent entity of a multinational group where, according to the entity's statutory accounts for the immediately preceding year, any one of the following criteria was exceeded:

  • EUR 50 million in operating income and financial income, excluding non-recurring income;
  • Balance sheet total of EUR 1 billion;
  • Annual average of 100 full-time equivalent employees.

For the local file, which is split into three parts (A, B, C), part B applies from 1 January 2017 and only in respect of business units with related-party cross-border transactions exceeding EUR 1 million. In addition, a materiality requirement of EUR 25,000 per transaction applies.

CbC Report and Notification

For the CbC Report, the Standard EUR 750 million threshold applies and the report is due 12 months after the end of the reporting fiscal year. Belgium also requires submission of a CbC notification by the end of the reporting fiscal year, but has extended the deadline for the first year to 30 September 2017.

In relation to the CbC report, the updated guidance also notes that Belgium has adopted the latest OECD guidance on CbC reporting, including the guidance released 6 April 2017 (previous coverage). Entities submitting CbC reports are asked to follow the latest OECD guidance, in particular in relation to:

  • The definition of revenues;
  • The definition of related parties;
  • The accounting principles/standards for determining the existence of and membership of a group;
  • The treatment of major shareholdings; and
  • The definition of total consolidated group revenue.

However, as a concession for groups that are already well advanced in fulfilling their obligations, Belgium will not impose fines on groups deviating from the latest OECD guidance, but clarification should be provided to the Belgium authority that indicates any such deviations. For reporting periods from 1 June 2017, the latest guidance must be followed and no relief will be provided.

Click the following link for the updated guidance (French language, Dutch also available). Forms are also provided near the end of the guidance page in French (Dutch) and English language for the Master file, Local file, CbC Report, and CbC Notification.

Israel

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Israel Approves Regulations to Finalize New IP Regime with Modified Nexus Approach

On 16 May 2017, the Finance Committee of the Israeli Knesset (parliament) approved regulations to finalize the country's new IP regime with the modified nexus approach developed as part of BEPS Action 5. The IP regime itself was enacted in December 2016 (previous coverage) pending final regulations to ensure the regime is in line with the modified nexus approach.

The IP regime provides for a reduced corporate tax rate on qualifying IP-related income, including qualifying gains from the sale of IP. A rate of 6% is provided if group annual revenue exceeds ILS 10 billion, while a 12% rate applies if group revenue is below that amount (7.5% if company located in certain areas - Zone A). With the modified nexus approach, the benefits of the regime are limited based on a formula: (Qualifying R&D Expenditure x 130% (uplift) / Total R&D Expenditure) x Taxable Income from IP (previous coverage). In general, qualifying expenditure includes expenses for activities performed by the taxpayer and for activities outsourced to other Israeli parties, while non-qualifying expenditure includes outsourcing expenses with non-Israeli related parties and IP acquisition costs (some exceptions).

The IP regime with the nexus approach is effective from 1 January 2017.

Philippines

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Philippine Court of Tax Appeals Clarifies Conditions for Refund of Creditable Tax Withheld

On 18 May 2017, the Philippine Court of Tax Appeals (CTA), En Banc (full bench) issued a decision that clarifies the conditions that must be met for a creditable withholding tax (CWT) refund claim to be granted.

The case involved Honda Cars Makati, Inc., a registered taxpayer in the Philippines, which in filing its tax return for 2009 indicated its option to be issued a tax credit certificate (TCC) for its excess and unutilized CWT for the year. In 2011, Honda filed a formal request for the refund or issuance of a TCC for the excess and unutilized CWT. However, due to inaction from the tax authority, Honda filed a petition for review, which was partially granted with the Court in Division issuing an order in 2015 that a TCC be issued to Honda. A petition for review was then filed by the tax authority, which argued that Honda was not entitled to a refund or TCC on the grounds that:

  • There was no entry in creditable tax withheld column of the annual tax return, and based on a previous CTA case, the lack of entry can be taken to mean that no part of gross income reported was ever subject to CWT; and
  • The certificates of CWT provided by the withholding agent showing the amount deducted and withheld is not sufficient evidence of payment and remittance to the Bureau of Internal Revenue (BIR) and that the best proof is certification from the BIR' s Revenue Accounting Division.

Despite the tax authority's arguments, the Court, En Banc found in favor of Honda. The Court held that the argument regarding lack of entry in the CWT column has no merit and that previous decisions of the CTA do not constitute precedent and are not binding on the Court. In order for a claim for tax refund or TCC to be granted, the taxpayer must only establish the following:

  • The claim for refund is filed within two (2) years as prescribed in Section 230 (now 229) of the 1997 NIRC;
  • The income upon which the taxes were withheld were included in the return of the recipient; and
  • The fact of withholding is established by a copy of statement (BIR Form 1743-A, now Form 2307) duly issued by the withholding agent to the payee showing the amount paid and the amount of tax withheld.

Finding that Honda had established that the conditions were met, the petition for review by the tax authority was denied and the prior decision of the Court in Division is upheld.

Proposed Changes (1)

Gibraltar

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Gibraltar Legislation Issued to Implement CbC Reporting

The Government of Gibraltar has reportedly issued draft legislation to transpose into domestic law the amendments made to the EU Directive on administrative cooperation in the field of taxation (2011/16/EU) concerning the exchange of Country-by-Country (CbC) reports (Council Directive (EU) 2016/881). As per the Directive, standard CbC reporting rules will apply, including requirements from fiscal year 2016, the EUR 750 million group revenue threshold, the requirement to submit the report within 12 months following the end of the reporting fiscal year, secondary local filing requirements, and CbC notification requirements. Regarding the last two, Gibraltar plans to require secondary filing from 2017 and to require the CbC notification by the tax return deadline (9 months after year ends).

Additional details will be published once available.

Treaty Changes (4)

Estonia-Kyrgyzstan

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Update - Tax Treaty between Estonia and Kyrgyzstan

The income tax treaty between Estonia and Kyrgyzstan was signed on 10 April 2017. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Estonian income tax and Kyrgyz tax on income and profits of legal persons and income tax on individuals.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting State for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 20% of the paying company's capital; otherwise 10%
  • Interest - 10%
  • Royalties - 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 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

Kyrgyzstan applies the credit method for the elimination of double taxation, while Estonia generally applies the exemption method. However, Estonia will apply the credit method in respect of income covered by Articles 10 (Dividends), 11 (Interest), and 12 (Royalties). With respect to dividends, application of the credit method by Estonia is limited to dividends that would be subject to the 10% withholding tax rate.

The treaty also provides that where a company that is a resident of a Contracting State receives a dividend from a company that is a resident of the other Contracting State in which it owns at least 10 per cent of its shares having full voting rights, the first-mentioned State shall allow as a deduction from the tax of that resident an amount equal to the income tax paid in that other State by the company on the profits out of which the dividend is paid.

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.

Germany-Turkmenistan

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Update - German Parliament Approves Pending Tax Treaty with Turkmenistan

On 12 May 2017, The German Federal Council (upper house of parliament - Bundesrat) approved the pending income and capital tax treaty with Turkmenistan. The treaty, signed 29 August 2016, will replace the 1981 tax treaty between Germany and the former Soviet Union, which generally continues to apply in respect of Germany and Turkmenistan.

Taxes Covered

The treaty covers German income tax, corporation tax, trade tax, and applicable surcharges. It covers Turkmen tax on profits (income) of juridical persons, tax on income of individuals, and tax on property.

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%, with an exemption for interest paid in connection with the sale on credit of industrial, commercial or scientific equipment, or in connection with a sale on credit of goods by an enterprise to another enterprise
  • 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 shares or similar rights in a company whose assets directly or indirectly consist principally of immovable property situated in the other State; and
  • Gains from the 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

Turkmenistan applies the credit method for the elimination of double taxation, while Germany generally applies the exemption method, including for dividends when the beneficial owner is a Germany company that directly owns at least 25% of the capital of the Turkmen payer, and the dividends were not deducted in determining the payer's profits (also applies for taxes on capital if conditions for dividend exemption would be met). However, Germany applies the credit method for dividends not meeting the previous conditions, as well as for interest, royalties, and certain other items of income in accordance with German tax law.

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. Once in force and effective, the 1981 tax treaty between Germany and the former Soviet Union will cease to have effect in relation to Germany and Turkmenistan.

Hong Kong-OECD

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Hong Kong Considering Mutual Assistance Convention to Expand Automatic Information Exchange Network

The Hong Kong Government has issued a release on the status of the automatic exchange of financial account information, which Hong Kong intends to begin exchanging from September 2018. The release notes that, to date, Hong Kong has signed bilateral exchange agreements with 11 jurisdictions and is planning to sign with 30 more. It also notes that Hong Kong is actively considering the possibility of extending the application of the Convention on Mutual Administrative Assistance in Tax Matters to Hong Kong in order to expand the exchange network more quickly. Although not clarified in the release, it is possible the Convention could be extended to Hong Kong as a territory of China (in force since February 2016).

Russia

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Russia Approves Signing of BEPS Multilateral Instrument

The Russian Government has announced the issuance of Order No. 963-р, which authorizes the signing of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). According to the announcement, the MLI will apply to 63 of Russia's tax treaties, with the exception of treaties with countries that are not a member of the MLI ad hoc group and the treaties with Japan and Sweden (related revisions currently under separate negotiation).

The BEPS MLI is for the purpose of implementing the treaty-related measures developed as part of the BEPS Project without needing to separately amend each bilateral treaty. This includes measures developed as part of BEPS Action 2 (Hybrid Mismatches), Action 6 (Preventing Treaty Abuse), Action 7 (Preventing Artificial Avoidance of a PE), and Action 14 (Improving Dispute Resolution).

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