Worldwide Tax News
Update - Brazil's New Progressive Capital Gains Tax Rates Effective Date
As previously reported, Brazil recently passed legislation introducing a progressive capital gains tax of 15% to 22.5%. The progressive rates were originally introduced in Provisional Measure 692/2015 and were to apply from 1 January 2016. However, in the final legislation the president vetoed the provision for that effective date due to constitutional issues. Under Brazil's Federal Constitution, the new rates could only apply from 1 January 2016 if the provisional measure had been converted into law in 2015. Because of this, the new rates are to apply from 1 January 2017.
Note - The previous report on the legislation has been amended to reflect this.
Scotland Act 2016 Passed by UK Parliament and Receives Royal Assent
The Scotland Act 2016 was passed by the UK Parliament on 23 March 2016 and received Royal Assent the same day. The Act provides for the devolution of several powers to the Scottish Parliament. The powers devolved concern:
- Setting Scottish income tax rates and thresholds;
- Assigning a portion of UK value added tax to the Scottish budget;
- Administration of the Universal Credit and certain other benefits of the welfare system; and
- Certain other areas.
While the various sections of the Act generally enter into force on the date the Act was passed or two months after that date, most of the tax-related provisions require additional regulations from Treasury and the welfare provisions require regulations from the Secretary of State.
Click the following link for additional information on Scotland Act 2016 on the Parliament.UK website.
Committee of Israel's Knesset Approves Making Tax Evasion a Predicate Offense of Money Laundering
On 29 March 2016, the Constitution, Law, and Justice Committee of Israel's Knesset (parliament) approved legislation making intentional tax evasion a predicate offense of money laundering. If approved by the full Knesset, it would result in greater penalties for tax evasion, including prison sentences of up to 10 years and the possible confiscation of assets. The greater penalties would apply for income tax evasion exceeding ILS 1 million in a single year or ILS 2.5 million over four years, as well as underpayment of value added tax exceeding ILS 170,000 in a single year or ILS 480,000 over four years.
Tax Treaty between Cyprus and Hong Kong to be Negotiated
According to a recent update from the Hong Kong Inland Revenue Department, officials from Cyprus and Hong Kong will meet 29-31 March 2016 for the first round of negotiations for an income tax treaty. Any resulting treaty would be the first of its kind between the two country jurisdictions, and would need to be finalized, signed and ratified before entering into force.
Update - New Tax Treaty between India and South Korea
The new income tax treaty between India and South Korea was signed 18 may 2015. Once in force and effective, the new treaty will replace the 1985 tax treaty between the two countries, which is currently in force.
The treaty covers Indian income tax, including any surcharge thereon, and Korean income tax, corporation tax, and the special tax for rural development.
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.
- Dividends - 15%
- Interest - 10%
- Royalties - 10%
- Fees for technical services (managerial, technical or consultancy) - 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 alienation of movable property forming part of the business property of a permanent establishment in the other State;
- Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally (more than 50%) of immovable property situated in the other State; and
- Gains from the alienation of shares, other than the above, in a company resident in the other State if the alienator held directly or indirectly 5% of the capital of the company at any time during the 12-month period preceding the alienation
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.
Article 28 (Limitation on Benefits) includes the general provision that no person will be entitled to the benefits of the treaty if its affairs were arranged with the main purpose or one of the main purposes of avoiding taxes to which the treaty applies.
In addition, Article 28 includes the provision that a resident of a Contracting State will not be entitled to the benefits of Articles 10 (Dividends), 11 (Interest), 12 (Royalties and Fees for Technical Services), 13 (Capital Gains) and 22 (Other Income), if:
- The resident is directly or indirectly controlled by one or more person that are not resident of that Contracting State; or
- It was 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 treaty will enter into force once the ratification instruments are exchanged, and will apply in India from 1 April of the year following its entry into force and in South Korea from 1 January of the year following its entry into force.
The 1985 tax treaty between the two countries will cease to have effect on the dates the new treaty is effective.
Latvia Provides Update on Tax Treaty and Protocol Negotiation Status
On 1 March 2016, the Latvian Ministry of Finance published an update on the status of current tax treaty and protocol negotiations. According to the update, Latvia has initialed an income tax treaty with Vietnam and a protocol to the 2002 income and capital tax treaty with Switzerland. In addition, negotiations are underway for tax treaties with Japan and South Africa, as well as a protocol to the 1999 income tax treaty with Singapore.
The treaties will be the first of their kind between Latvia and the respective countries, and the protocols will be the first to amend the respective treaties. All will need to be finalized, signed and ratified before entering into force.
Slovakia Intends to Negotiate Tax Treaty with Egypt
On 19 March 2016, Slovakia expressed its intent to negotiate an income tax treaty with Egypt during a meeting between officials from the two countries on strengthening bilateral relations. Any resulting treaty would be the first of its kind between the two countries, and would need to be finalized, signed and ratified before entering into force.