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Worldwide Tax News

Approved Changes (3)

India

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India GST Council Decides on Turnover Thresholds and Taxing Authority

The Indian Goods and Services Tax (GST) Council (previous coverage) concluded its first meeting on September 23, during which it decided that the standard GST exemption threshold will be annual turnover of INR 2 million (~USD 30,000), instead of an earlier proposed threshold of INR 1 million. The threshold for companies in the northeast states, however, will be INR 1 million.

In addition, it was decided that state authorities will administer GST for companies with annual turnover of less than INR 15 million, and depending on certain risk factors, either state or federal authorities will act in a primary role to administer GST for businesses with higher turnover, with neither having sole responsibility. The risk factors will be defined at a later date.

The GST Council is planning to meet again on 30 September to finalize draft rules on the goods and services that will be exempt and on 17 to 19 October to finalize the GST rates. Provided that all the GST rules can be finalized, the government intends for GST to take effect from April 2017.

Norway-United Kingdom

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Norway Commits to Exchange of Beneficial Ownership Information

According to a recent update from UK HM Treasury, Norway has committed to the initiative for the automatic exchange of beneficial ownership information, which was originally proposed by Finance Ministers from France, Germany, Italy, Spain, and the UK (G5) in April (previous coverage). To date, 47 jurisdictions have committed to exchange beneficial ownership information, although a global standard must still be developed and implemented before exchanges can begin.

United States

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U.S. IRS Publishes Practice Units on FTC Limitation for Compensation Arrangements and Comparison of the Arm’s Length Standard with Other Valuation Approaches

The U.S. IRS recently published three 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 (4)

Germany

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Germany Working on Measures Targeting Tax Havens and Offshore Companies

On 22 September 2016, the German Federal Ministry of Finance announced that it has reached agreement with the German states on measures targeting tax havens and offshore (shell) companies. The measures include:

  • Expanding the notification obligations of taxpayers to include not only the obligation to notify the tax authority on formal legal ownership in foreign company, but also the obligation to notify when the taxpayer exercises a dominant influence over a foreign company;
  • Increasing the penalty for failing to notify on the above from EUR 5,000 to EUR 25,000;
  • Introducing the requirement that banks must report on any investments or other economic activities that have been facilitated in relation to shell companies;
  • Introducing the requirement that banks document the tax identification numbers of any account holder and/or beneficial owner to an account; and
  • Extending the investigation powers of the tax authorities by repealing section 30a of the Tax Code concerning bank secrecy, incorporating the possibility of collective information requests into law, and certain other changes.

Drafting of the required legislation for the proposed measures is to begin in October 2016. Click the following link for the announcement (German language).

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OECD Publishes Comments Received on Branch Mismatch Structures under BEPS Action 2

On 23 September 2016, the OECD published comments received on the public discussion draft on branch mismatch structures under Action 2 (Neutralizing the Effects of Hybrid Mismatch Arrangements) of the BEPS Project. The discussion draft identifies five basic types of branch mismatch arrangements and sets out preliminary recommendations for domestic rules, based on those in the Action 2 Report, which would neutralize the mismatch in tax outcomes (previous coverage).

Click the following links for the discussion draft and the comments received.

Russia

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Russia Consulting on Amended List of Jurisdictions without Adequate Information Exchange for CFC Profit Exemption Purposes

The Russian Federal Tax Service is currently consulting on an amended list of jurisdictions that do not have adequate tax information exchange with Russia, which affects the Russian tax exemption for controlled foreign company profits. Under Russian law, an exemption from tax is provided for the profits of CFCs meeting certain conditions (previous coverage), unless the CFC is resident in a listed jurisdiction. The amended list includes 128 jurisdictions that have either not entered into an agreement for information exchange with Russia, or have not responded adequately to information exchange requests. The main changes include the addition of South Korea and the removal of Aruba, Bermuda, the Cayman Islands, Estonia, Georgia and Hong Kong.

Once finalized, the amended list is to apply from 1 October 2016.

Switzerland

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Switzerland Consults on Intra-Group Interest Exemption

On 23 September 2016, the Swiss Federal Council announced a consultation on a proposed amendment to the Withholding Tax Ordinance to promote financing activities of groups in Switzerland. According to the media release, the amendment concerns groups in which a Swiss group company (guarantor) provides a guarantee for a bond of a foreign group company (issuer) belonging to the same group. With the proposed amendment, intra-group interest payments of the Swiss guarantor are no longer to be subject to withholding tax in all cases.

Treaty Changes (3)

Canada-Israel

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New Tax Treaty between Canada and Israel Signed

On 21 September 2016, officials from Canada and Israel signed an income tax treaty. Once in force and effective, the new treaty will replace the 1975 tax treaty between the two countries, which is currently in force.

Taxes Covered

The treaty covers Canadian taxes imposed by the Government of Canada under the Income Tax Act, and covers Israeli income tax and company tax (including tax on capital gains), and tax on gains from the alienation of property according to the Real Estate Taxation Law.

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, the place where it is incorporated or otherwise constituted, and any other relevant factors. If no agreement is reached, the company will not be entitled to claim any relief or exemption from tax provided by the treaty.

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%
  • Distributions made by an Israeli real estate investment fund - 15% if the beneficial owner is a company directly holding less than 10% of the fund's capital
  • Interest - 5% if the beneficial owner is a financial institution dealing at arm's length with the payer, subject to certain limitations; otherwise 10%
  • Royalties - 0% for:
    • Copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical or other artistic work (but excluding royalties in respect of motion picture films and royalties in respect of works on film, videotape or other means of reproduction for use in connection with television broadcasting); and
    • Royalties for the use of, or the right to use, computer software or any patent or for information concerning industrial, commercial or scientific experience (but not including any such royalty provided in connection with a rental or franchise agreement);
    • Otherwise 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 or an interest in a partnership, trust or other entity deriving more than 50% of their value directly or indirectly from immovable property situated in the other State at the time of the alienation or at any time during the twelve preceding months

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

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 13 (Capital Gains) will not apply if obtaining the benefits of the Articles was one of the main purposes of any person concerned with the creation, assignment or alienation of the shares, debt-claims, other rights or property in respect of which the dividends, interest or royalties are paid or gains are realized. The limitation is included in each of those Articles.

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. However, Article 23 (Mutual Agreement Procedure) and Article 24 (Exchange of Information) will apply from the date of its entry into force.

The 1975 tax treaty between the two countries will cease to have effect from the dates the new treaty is effective, and will terminate on the last date.

Ethiopia-Bahrain

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Ethiopia to Negotiate Tax Treaty with Bahrain

During a meeting held 19 September 2016, Ethiopian officials expressed interest in the negotiation of an income tax treaty with Bahrain, according to a release by the Ethiopian Ministry of Foreign Affairs. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

Switzerland-OECD

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Switzerland Deposits Ratification Instrument for Mutual Assistance Convention

On 26 September 2016, Switzerland deposited the ratification instrument for the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. Switzerland signed the convention as amended on 15 October 2013.

According to the OECD overview of signatories to the convention, the convention will enter into force in Switzerland on 1 January 2017.

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