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Approved Changes (4)

France-Ireland

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France Willing to Negotiate with Google on Recovery of Taxes

According to recent comments of France's Minister of Public Action and Accounts Gerald Darmanin published by French publication Les Echos, the French Government is ready to negotiate with Google on back taxes it deems are owed for Google Ireland's activities in France. In a recent decision by the Paris Administrative Tribunal, Google Ireland avoided a potential assessment of EUR 1.12 billion when it was found not to have a permanent establishment in France (previous coverage). The Government maintains its position that taxes are owed and initially intended to appeal that decision, but is now willing to instead negotiate in order to avoid a lengthy legal process that would delay recovery.

Italy

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Italy Increases Taxable Percentage of Qualifying Capital Gains

On 11 July 2017, Italy published the Ministerial Decree of 26 May 2017 in the Official Gazette. The Decree increases the taxable percentage for capital gains (and losses) realized by non-residents on the transfer of qualifying shares in Italian companies from 49.72% to 58.14%. In general, where a non-resident transfers shares in a resident company and the participation exceeds 20% of the voting rights or 25% of the stated capital (2% or 5% for listed shares) in the previous 12 months, the standard corporate tax rate (24% from 2017) applies on the taxable percentage. If the participation does not meet those conditions, a 26% substitute tax rate applies on the full amount, although certain exemptions may apply.

The increase in the taxable percentage for qualifying shares is meant to offset the reduction in the standard corporate tax rate from 27.5% to 24% from 2017. The change applies from 1 January 2018.

Russia

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Russia Amends Taxation of IP Rights and Increased Deduction for R&D Costs

Russia has published Federal Law No. 166-FZ of 18 July 2017 in the Official Gazette, which introduces certain changes in relation to intellectual property rights and R&D activity. The first change provided in the law is the addition of the following to Article 251 (income not included when determining the taxation base) of the Tax Code: property rights resulting from intellectual activity that are identified in the course of the taxpayer's inventory of property and property rights during the period 1 January 2018 to 31 December 2019. In addition, several changes are made in relation to the increased deduction for qualifying R&D expenses (1.5 times expense amount), which includes expanding the scope of eligible expenses until 31 December 2020 to include:

  • Expenses for incentive payment to R&D employees, including bonuses and other work-based incentives, as well as employee insurance premiums; and
  • Expenses for the acquisition of exclusive rights to inventions, utility models, or industrial designs under an alienation agreement or rights to use the specified results of intellectual activity under a license agreement, provided the rights are used exclusively in scientific research and/or experimental development.

The law also adds that 1.5 times the eligible expenses may be included in the value of resulting intangible assets and amortized instead of included as an increased deduction in the tax period the related R&D work was conducted. Further, the law amends the related reporting requirements for claiming the increased deduction to include that a taxpayer no longer needs to submit a report on its R&D activities at the time of its tax return in order to claim the increase, provided that a report has already been filed in an electronic information system determined by the Russian Government.

Sweden

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Swedish Court Confirms that Participation Exemption not Available in Relation to Legal Entities Resident in No Tax Jurisdictions

The Swedish Tax Agency (Skatteverket) has published updated guidance on the treatment of shares in foreign legal entities in relation to the participation exemption, which includes the condition that the foreign legal entity must be similar to a Swedish limited liability company (Aktiebolag - AB). The update concerns a recent decision of the Supreme Administrative Court on whether a company limited by shares established in the British Virgin Islands meets that condition. The Court found that because such companies enjoy a general and complete exemption from income tax in the British Virgin Islands, the company may therefore not be considered to be similar to a Swedish AB. The decision confirms the Tax Agency's position that participation exemption does not apply in relation to legal entities resident in a jurisdiction that has no income tax for legal entities.

Proposed Changes (2)

Belgium

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Agreement Reached on Belgian Budget Tax Measures for 2018 including Corporate Tax Rate Reduction

The Belgian Government has reportedly reached agreement on tax measures for the 2018 Budget. Key measures include:

  • A reduction in the corporate tax rate from 33% to 29% from 2018, and to 25% from 2020;
  • The phased removal of the 3% austerity (crisis) surcharge;
  • The introduction of a 20% tax rate for SMEs on the first EUR 100,000 of taxable income; and
  • The introduction of a limit on carried forward losses, notional interest deduction, and dividends received deduction to 70% of taxable income exceeding EUR 1 million.

Additional details of the 2018 Budget measures will be published once available.

Panama

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Panama Planning to Introduce APA Procedures

According to recent reports, the Panama tax authority (DGI) has prepared draft legislation to introduce amendments to the Tax Code that would provide for advance pricing agreements (APA). The draft sets out the general requirements for an APA application, which are fairly standard, including identification of the taxpayer, the related party, details of the covered transactions, the period covered, proposed transfer pricing methodology, assumptions made, etc. The draft also provides that the DGI would have 12 months from the application date to review an application and issue a decision. If an application is rejected, the DGI is to provide details on the reasons for rejection to the taxpayer. If no decision is made within 12 months, the application will be deemed rejected.

Treaty Changes (4)

Israel-United States

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Israel and U.S. Considering Protocol to Revise Current Tax Treaty

According to recent reports, officials from Israel and the U.S. met on 24 July 2017 to discuss a possible protocol to revise the 1975 income tax treaty between the two countries, and agreed to the establishment of a negotiating team to evaluate the impact of any changes. Any resulting protocol would be the third to amend the treaty, and must be finalized, signed, and ratified before entering into force.

Moldova-Untd A Emirates

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Update - Pending Tax Treaty between Moldova and the U.A.E.

The pending income and capital tax treaty between Moldova and the United Arab Emirates was signed on 10 July 2017. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Moldovan income tax, and U.A.E. income tax and corporation tax.

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 in a Contracting State if the activities continue for a period or periods aggregating more than 6 months.

Withholding Tax Rates

  • Dividends - 5%
  • Interest - 6%
  • Royalties - 6%

Limitation on Benefits

The provisions of Articles 10 (Dividends), 11 (Interest), and 12 (Royalties) will not apply if 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 income is paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of the 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 in a company whose capital stock is formed, directly or indirectly, of more than 50% by immovable property situated in the other State (exemption for shares listed on a recognized stock market).

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Income from Hydrocarbons

Article 22 (Income from Hydrocarbons) provides that the treaty will not affect the right of either one of the Contracting States to apply their domestic laws and regulations related to the taxation of income and profits derived from hydrocarbons and its associated activities situated in the territory of the respective Contracting State.

Double Taxation Relief

The treaty provides for the exemption method for the elimination of double taxation, except in the case of items of income taxed under Article 10 (Dividends) and 11 (interest), for which the credit method is applied.

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 in which the treaty was signed (2017).

Mozambique-Portugal

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SSA between Mozambique and Portugal has Entered into Force

The social security agreement between Mozambique and Portugal entered into force on 1 July 2017. The agreement, signed 30 April 2010, is the first of its kind between the two countries and generally applies from the date of its entry into force.

Turkey-Isle Of Man

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Turkey Approves Pending TIEA with the Isle of Man

On 21 July 2017, a decree was published in Turkey's Official Gazette for the ratification of the pending tax information exchange agreement with the Isle of Man. The agreement, signed 21 September 2012, is the first of its kind between the two jurisdictions. It will enter into force once the ratification instruments are exchanged and will apply for criminal tax matters on the date of its entry into force and for other matters for tax periods beginning on or after that date.

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