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Worldwide Tax News

Approved Changes (1)
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OECD Webcast on BEPS Developments and Ongoing Work including the Multilateral Instrument for Implementation of Treaty-Related BEPS Measures

On 22 September 2016, the OECD held a webcast to provide updates on developments and ongoing work regarding the BEPS Project and other issues. One of the key items discussed is the development of the multilateral instrument for the implementation of the BEPS Project's tax treaty-related measures. Key points include:

  • Agreement in principle has been reached on the core text of the instrument, and will be further fine-tuned and finalized by November 2016;
  • Agreement has been reached on the title of the instrument - Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI);
  • The overall structure of the instrument includes:
    • Provisions implementing each of BEPS tax treaty-related measures - Action 2 (Hybrid Mismatches), Action 6 (Preventing Treaty Abuse), Action 7 (Preventing Artificial Avoidance of a PE), and Action 14 (Improving Dispute Resolution) ;
    • An optional provision on mandatory binding arbitration;
    • A flexible approach, with opt-ins, alternatives, and opt-outs (except for minimum standards (mainly Actions 6 and 14) to allow countries to follow their unique tax policy preferences; and
    • A series of notifications to ensure clarity on how the MLI will modify the operation of provisions in existing tax treaties; and
  • A signing ceremony for the MLI will take place in the first half of 2017.

Other items discussed include:

  • The G20 Tax Policy Symposium in Chengdu, China in July (previous coverage) and the G20 Leaders Summit in Hangzhou, China in September (previous coverage);
  • The new publication, Tax policy reforms in the OECD, which will be published annually to provide an overview of tax reforms across the OECD; and
  • What’s next:
    • A G20 Finance Ministers meeting on 6 October 2016, which will include discussion of the OECD's work in the area of beneficial ownership transparency;
    • A public consultation will be held on 11 to 12 October 2016 on attribution of profits to PEs and revised guidance on profit splits (previous coverage);
    • Continued work to finalize the approach to assessing implementation of the BEPS minimum standards, which include those developed under Action 5 (Countering Harmful Tax Practices), Action 6 (Preventing Treaty Abuse) and Action 14 (Dispute Resolution), as well as Country-by-Country (CbC) reporting under Action 13 (Transfer Pricing Documentation); and
    • Continued work to ensure the automatic exchange of information under the Common Reporting Standard.

Click the following link to view a recording of the webcast on the OECD website.

Proposed Changes (2)

Switzerland

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Swiss Canton of Zug to Cut Corporate Tax Rate and Introduce other CTR III Measures

According to recent reports, the Swiss canton of Zug is planning to reduce its corporate tax rate to 12% (current top rate 15.1%). The planned cut is in relation to Switzerland's Corporate Tax Reform III (CTR III) (previous coverage), which is meant to bring Switzerland in line with international standards, and includes abolishing the privileged cantonal tax regimes the cantons use to attract investment. In addition to the corporate rate cut, Zug is also planning to introduce the CTR III patent box regime with a 90% exemption, the 150% R&D super deduction, and the notional interest deduction.

Subject to a public referendum, it is expected that the measures will enter into force in 2019.

United States

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U.S. Rep. Pocan Introduces Bill to Strengthen Corporate Tax Disclosure and Transparency including Disclosure of CbC Information

U.S. Representative Mark Pocan D-WI has introduced the Corporate Transparency and Accountability Act in an effort to increase transparency and expose tax avoidance and profit shifting activities. Under Bill HR 6126, all publicly traded companies would be required to include Country-by-Country (CbC) financial information in their public SEC filings, including the disclosure of the information required under the new non-public U.S. CbC requirements (previous coverage), as well as the disclosure of total pre-tax profits and the amount paid in state, federal, and foreign taxes.

Click the following for the press release and the bill itself (text not yet published at time of writing).

Treaty Changes (5)

Bulgaria-Morocco

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SSA between Bulgaria and Morocco Signed

On 21 September 2016, officials from Bulgaria and Morocco signed a social security agreement. This is the first agreement of its kind between the two countries, and it will enter into force after the ratification instruments are exchanged. An administrative arrangement on implementation of the agreement is to be signed in the coming months.

Czech Rep-Botswana

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Czech Republic to Sign Tax Treaty with Botswana

On 21 September 2016, the Czech government approved for signature a draft tax treaty with Botswana. The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force.

Additional details will be published once available.

Ecuador-Qatar

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Ecuadorian Parliament Approves Tax Treaty with Qatar

On 22 September 2016, the Ecuadorian parliament approved the pending income tax treaty with Qatar. The treaty, signed on 22 October 2014, is the first of its kind between the two countries. It will enter into force once the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

Click the following link for details of the treaty.

Korea, Rep of-Turkmenistan

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Update - Tax Treaty between South Korea and Turkmenistan

The income tax treaty between South Korea and Turkmenistan was signed on 13 April 2015. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Korean income tax, corporation tax, special tax for rural development, and local income tax. It covers Turkmen tax on profits (income) of juridical persons and tax on income of individuals.

Service PE

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 personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 0% on interest paid in connection with the sale on credit of any industrial, commercial or scientific equipment, or paid in connection with the sale on credit of any merchandise by one enterprise to another enterprise; otherwise 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.

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.

Romania-Hong Kong

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Romania's Lower House Approves Tax Agreement with Hong Kong

On 20 September 2016, the Romanian Chamber of Deputies reportedly approved and forwarded to the Senate the pending income tax treaty with Hong Kong. The treaty, signed 18 November 2015, is the first of its kind between the two jurisdictions. It will enter into force once the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

Note - a previous article indicating that the Hong Kong-Romania treaty entered into force on 29 July 2016 has been amended to reflect that Hong Kong ratified the treaty on that date.

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