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Approved Changes (5)

Brazil

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Brazilian Court Rules Imports Subject to IPI Tax at Customs Clearance and When Subsequently Sold

The Brazilian Superior Court of Justice has ruled that the sale of imported goods are subject to IPI (the federal excise tax on manufactured products) in addition to the levy of IPI at the time of customs clearance. The ruling was made 14 October 2015 concerning an appeal on the matter.

The appellant had argued that IPI should not apply on the sale of imported goods after customs clearance because no manufacture was performed in Brazil. However, the Court determined that entities selling imported goods are considered industrial entities, and therefore the sales are subject to IPI.

The IPI rate in Brazil varies greatly depending on product type based primarily on how essential the product is. Rates range from 0% to 330%, with 10% being the average.

Ecuador

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Ecuador Removes Profits and Dividends Reporting Requirement for 2013

On 8 October 2015, Ecuador published Resolution No. NAC-DGERCGC15-00000731 in the Official Gazette. The Resolution amends requirements for the annual report (annex) on profits, dividends distributed and dividends received during the reporting period (previous coverage). It removes the requirement that a report be filed for 2013, but keeps the requirement that a report for 2014 be filed by 30 November 2015.

The reports must be file electronically via the Ecuador Internal Revenue Service (SRI) website. In 2015 and subsequent years, the report is due in May of the year following the reporting period, with the exact deadline date based on the taxpayer's registration number (RUC).

Indonesia

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Indonesia's New Thin Capitalization Rules

On 9 September 2015, Indonesia's Ministry of Finance issued Regulation No. 169/PMK.010/2015, which includes new rules on borrowing cost deductions for the purpose of calculating taxable income (thin capitalization rules). The following summarizes the main aspects of the new rules, which apply for the 2016 tax year and subsequent years.

Debt-to-Equity Ratio

The regulation sets a debt-to-equity ratio of 4:1, above which borrowing costs are nondeductible. This applies for Indonesian resident taxpayers (domiciled or incorporated). It does not apply for non-residents or permanent establishments of non-residents in Indonesia.

The affected borrowing costs specified in the regulation include:

  • Loan interest expenses;
  • Discount and premium on loans;
  • Arrangement expenses for loans;
  • Finance charges for leasing;
  • Loan repayment guarantee fees; and
  • Foreign exchange differences relating to interest expense or other borrowing costs listed above.

For related party loans, the borrowing costs must still be at arm's length for full deductibility even if the 4:1 ratio is not exceeded.

In addition, if a taxpayer's equity for the year is zero or negative, no borrowing costs will be deductible.

Definitions of Debt and Equity

For the purpose of the new rules, debt is defined as the average debt balance for the fiscal year based on the month-end outstanding debt balances for each month of the year, including long-term and short-term debt and interest bearing trade payables. This includes both related and third-party debt, but does not include non-interest bearing related party loans.

Equity is defined as the average equity balance for the fiscal year based on the month-end equity balances for each month of the year as determined in accordance with Indonesian Financial Accounting Standards, plus non-interest bearing related party loans.

Exemptions

The following taxpayers are exempt from the 4:1 ratio limit:

  • Banks;
  • Financial institutions and leasing companies engaged in providing funds or capital goods;
  • Insurance and reinsurance companies;
  • Oil and gas and mining companies that already have a specific debt-to-equity ratio included in the provisions of  a contract of work, production sharing contract or other agreement with the Indonesian government;
  • Taxpayers whose income is subject to final tax; and
  • Taxpayers engaged in the infrastructure sector.

Foreign Loans Reporting

All foreign private sector loans must be reported to the Indonesian Director General of Taxes. If a taxpayer fails to report a foreign loan, all borrowing costs related to the loan will be nondeductible.

Panama

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Panama Introduces VAT Withholding Requirements for Certain Taxpayers

On 19 October 2015, Panama published Executive Decree 493 in the Official Gazette. The decree enters into force on 1 November 2015 and introduces the requirement that taxpayers that have acquired goods or services of at least PAB 10 million in the previous year must act as withholding agents for value added tax (VAT) purposes. As withholding agents, they must withhold 50% of the VAT due as indicated in each invoice.

The decree also notes that credit and debit card companies are required to withhold 2% of all transactions paid for via a credit or debit cards from 1 November 2015, and 50% of the VAT due on each transaction from 1 November 2016.

Following the date the decree was published, a list of entities designated as withholding agents for 2015 was published in the Official Gazette. The list of designated entities will be published each year going forward.

In addition to the new requirements above, Governmental bodies and public enterprises will be required to withhold on all transactions regardless of the amount, instead of the current requirement to withhold on transactions over 20,000. VAT must be withheld in full for professional services, and 50% for other transactions.

Regarding payments made to non-resident suppliers with no registered agency, branch, or permanent establishment in Panama, all taxpayers must withhold the VAT due in full. The same applies for agencies, branches, and permanent establishments regarding taxable supplies performed by their parent companies.

Poland

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Update - Poland's New R&D Incentives Signed into Law

On 16 October 2015, Poland's President Andrzej Duda signed into law the Amendments to Certain Acts Related to Supporting Innovation Act, which introduces new research and development (R&D) incentives (previous coverage). Current R&D incentives are abolished the end of 2015.

Under the new R&D incentives regime, SME's and micro-enterprises are allowed to deduct 120% of eligible R&D expenses, large companies are allowed to deduct 110% of eligible R&D expense, and all companies are allowed to deduct 130% of salary/wages and social security contributions for R&D employees. The approved incentives are less beneficial than the incentives originally proposed by the President, which included a 150% deduction for SME's and micro-enterprises and 120% for large companies.

Additional details not previously covered include:

  • Qualifying expenditure must generally be deducted in the year incurred, but may be carried forward up to three years if the taxpayer did not generate enough income or incurs a loss for the year;
  • Taxation of non-monetary contributions of commercialized intellectual property (excluding software copyrights) made in 2016 or 2017 may be deferred until the time the shares received for the contribution are sold; and
  • The tax credit for investments in new technology under the current regime will remain available for tax years that begin before 1 January 2016.

The new R&D incentive regime applies from 1 January 2016.

Treaty Changes (3)

Chile-Italy

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Tax Treaty between Chile and Italy Signed

On 23 October 2015, officials from Chile and Italy signed an income tax treaty. The treaty is 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.

Kazakhstan-Kuwait

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Kazakhstan and Kuwait Conclude Tax Treaty Negotiations

According to recent reports, officials from Kazakhstan and Kuwait have concluded negotiations for an income tax treaty. 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.

Mauritania-Untd A Emirates

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Tax Treaty between Mauritania and the U.A.E. Signed

On 21 October 2015, officials from Mauritania and the United Arab Emirates signed an income tax treaty. The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

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