Worldwide Tax News
On 24 April 2015, India's Central Board of Direct Taxes instructed its tax offices to process claims for tax treaty benefits by foreign institutional investors within one month of the claim being filed. This follows an announcement made 22 April 2015 that FIIs will be exempt from Minimum Alternate Tax (MAT) on capital gains recognized through 31 March 2015 if the FII is resident in a country with which India has a qualifying tax treaty in effect, although the instruction to the tax office on processing claims within one month does not mention the MAT exemption specifically.
The reason for the 31 March date is that India's 2015-2016 Union Budget, presented in February 2015, includes the measure that FII's would be exempt from MAT on long-term capital gains from securities transactions effective 1 April 2015. However, shortly after the Budget was presented, it was announced that the government would still pursue MAT on capital gains prior to that date.
Indian MAT is equal to 18.5% of a company's book profits plus surcharges, resulting in an effective rate of about 20%. The tax is levied if the resulting amount of MAT exceeds the amount of tax payable under the standard corporate tax rules. Although MAT was previously seen as only applicable for Indian resident companies, the Indian tax authorities began assessing MAT on non-resident companies in 2012. Appeals of such assessments are currently pending before India's Supreme Court.
On 22 April 2015, Ireland Revenue published a guide providing a general outline of the tax reliefs, deductions and exemptions that contribute towards the creation of jobs. Some of the key schemes are summarized as follows.
Tax relief for new start-up companies is available for the first three years of trading in the form of a tax credit for Pay Related Social Insurance (PRSI) paid by a company in an accounting period. The credit is subject to a maximum cap of €5,000 per employee and an overall cap of €40,000. The credit applies where the total Corporation Tax payable for an accounting period does not exceed €40,000, with marginal relief available on a tapering basis where total Corporation Tax payable is between €40,000 and €60,000.
Certain employment grants or recruitment subsidies paid to an employer who employs a person or persons under certain employment schemes are to be disregarded for all the purposes of the Tax Acts. This includes grants and subsidies paid under:
- The Department of Social Protection back to work scheme;
- Any scheme established by the Department of Jobs, Enterprise and Innovation which promotes the employment of individuals who have been unemployed for three or more years;
- The Employment Support Scheme administered by the National Disability Authority; and
- Several others
The scheme provides relief in the form of a corporation tax credit related to the cost of production of certain qualifying films. The credit is granted at a rate of 32% of the lowest of:
- Eligible expenditure (expenditure incurred by the qualifying company on the employment of eligible individuals or on goods, services or facilities within the State on the production of a qualifying film);
- 80% of the total cost of production of the film; or
- EUR 50,000,000
The minimum amount that must be spent on the production is EUR 250,000 and the minimum eligible expenditure amount to qualify is EUR 125,000.
A tax credit of 25% is available on R&D expenditure incurred on trading expenses (e.g. wages, materials, utilities etc.) and plant and machinery. The credit is given at a rate of 25% on qualifying R&D expenditure. For accounting periods beginning on or before 31 December 2014, the credit is given on incremental expenditure over expenditure in the 2003 base year. For accounting periods beginning on or after 1 January 2015, there is no requirement to subtract base year expenditure from qualifying expenditure when calculating claims. This R&D tax credit is in addition to the normal 12.5% deduction for trading expenses and capital allowances.
Companies are also allowed to surrender a portion of the R&D credit to "key employees" who have been involved in the development of R&D. The employee may then use the credit to offset their own income tax liability.
Click the following link for the full guide.
On 23 April 2015, Malta published extended deadlines for filing tax return electronically. The extended dates are as follows:
- Standard Deadline: 31 March 2015 - Electronic Filing Deadline: 30 June 2015
- Standard Deadline: 30 April 2015 - Electronic Filing Deadline: 30 June 2015
- Standard Deadline: 31 May 2015 - Electronic Filing Deadline: 31 July 2015
- Standard Deadline: 30 June 2015 - Electronic Filing Deadline: 31 August 2015
- Standard Deadline: 31 July 2015 - Electronic Filing Deadline: 30 September 2015
- Standard Deadline: 31 August 2015 - Electronic Filing Deadline: 31 October 2015
- Standard Deadline: 30 September 2015 - Electronic Filing Deadline: 21 November 2015
The general rule for the tax return and final settlement of tax deadline in Malta is the later of either 9 months following the end of a company's financial year or 31 March of the year following the calendar year in which financial year ends.
Click the following link for the Malta Inland Revenue Services on-line.
Turkey Publishes General Communiqué on 50% Corporate Tax Exemption for Earnings Related to Patents and Utility Models
On 21 April 2015, Turkey published General Communiqué No. 8 in the Official Gazette. The Communiqué amends General Communiqué No. 1 on Corporate Income Tax and provides instruction for the implementation of Article 5(b) of the Corporate Income Tax Law (CITL), which was introduced by Law 6518 enacted on 6 February 2014.
Article 5(b) provides for a 50% corporate income tax exemption for earnings derived from the use of inventions created through research, development and innovation activities and software development carried out in Turkey, when such inventions have been granted a patent or utility model certificate. The qualifying earnings sources include:
- Earnings generated from the lease of such inventions;
- Earnings generated from the transfer or sale of such inventions;
- Earnings generated from the mass production and marketing in Turkey of such inventions; and
- Earnings generated from the sale of goods produced by using such inventions, limited to the amount attributed to the qualifying patents or utility models
In order for the 50% exemption to apply:
- The related R&D activity for the invention must have been undertaken in Turkey;
- The invention must be protected through the granting of a patent or utility model certificate within the framework of the Decree with the Force of Law on the Protection of Patent Rights
- The patent or utility model must be registered according to an exclusive license; and
- In the first year the exemption is to apply, a valuation report must be drawn up by the Ministry of Finance in order to establish the transfer or sale value, taking into account the added value the invention shall provide
The exemption period begins the date the patent or utility model certificate is issued, and will apply up to the protection period granted in the patent or utility model certificate. Generally, the period is 20 years for patents granted with substantive examination, 7 years for patents granted without substantive examination, and 10 years for utility model certificates.
Hong Kong Launches Public Consultation on the Automatic Exchange of Financial Account Information in Tax Matters
On 24 April 2015, the Hong Kong government announced the launch of a public consultation on proposals to apply the automatic exchange of financial account information in tax matters (AEOI). The proposals are based on the Organization for Economic Cooperation and Development (OECD) standard promulgated in July 2014. The proposals relate to:
- The definitions of Financial Institutions (FIs);
- The types of information FIs have to secure from account holders;
- The due diligence and reporting requirements FIs have to follow;
- The powers of the Inland Revenue Department to collect relevant information from FIs and forward such information to designated bilateral AEOI partners; and
- The sanctions for non-compliance and confidentiality provisions
The government plans to introduce an amendment bill including final measures concerning AEOI into the Legislative Council in early 2016, and begin the first information exchanges by the end of 2018. The information exchange will be conducted on a bilateral basis with jurisdictions with which Hong Kong has signed a tax treaty or tax information exchange agreement.
Click the following link for the AEOI consultation paper. Comments must be submitted by 30 June 2015.
On 22 April 2015, the Swedish government issued a memorandum proposing changes to the country's participation exemption rules and the anti-avoidance rules under the Tax Avoidance Act.
The participation exemption rule change would include a limitation in line with the EU Parent-Subsidiary Directive amendment adopted in July 2014 to counter double non-taxation from hybrid arrangement, whereby an exemption for dividends received would not apply if the dividends are deductible for the distributing company. However, the Swedish proposal would apply the limitation to any dividends received by a Swedish company, not only dividends received according to the Parent-Subsidiary Directive.
In regard to Sweden's Tax Avoidance Act, it is proposed that the Act be expanded to cover the Swedish Coupon Tax Act, which covers outgoing dividend payments and withholding tax exemptions. Currently the Tax Avoidance Act only covers the Income Tax Act, i.e. incoming dividend payments exemption. This change follows the adoption of new anti-abuse rule amendment to the EU Parent-Subsidiary Directive in January 2015.
Subject to approval, the proposed changes are expected to enter into force on 1 January 2016.
On 26 March 2015, officials from China and Indonesia signed a protocol to the 2001 income tax treaty between the two countries. The protocol is the first to amend the treaty and clarifies that a resident of a Contracting State engaged in the operation of aircraft in international traffic in the other Contracting State will be exempt from value added tax (VAT) or similar taxes in the other Contracting State.
The protocol will enter into force after the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.
On 29 April 2014, officials from Croatia and Turkmenistan signed an income tax treaty. This treaty is the first of its kind between the two countries and is not yet in force.
The treaty covers Croatian profit tax, income tax, local income tax, and any other surcharges. It covers Turkmen tax on profits (income) of juridical persons, and tax on income of individuals.
- Dividends - 10%
- Interest - 10%
- Royalties - 10%
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 directly or indirectly deriving more than 50% of their value 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.
Both countries apply the credit method for the elimination of double taxation.
The tax 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 Arab Economic Unity Council reportedly met 22 April 2015 to discuss revisions to the income and capital tax agreement signed 3 December 1997. The 1997 agreement is intended to replace a 1973 agreement, but has not yet entered into force.
The Council countries and signatories to the agreement include Egypt, Jordan, Iraq, Kuwait, Sudan, Syria and Yemen.
The 1973 agreement was signed 3 December 1973, and has been in force since 13 July 1975.