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Approved Changes (3)

Barbados

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Central Bank of Barbados Publishes Guidance on New 2% Foreign Exchange Fee

The Central Bank of Barbados has published guidance on the new foreign exchange fee (FXF) that was included in the Barbados Financial Statement and Budgetary Proposals for 2017 (previous coverage). Key points as provided by the Central Bank include:

  • The FXF is introduced in two phases: from 17 July 2017 for purchases of foreign cash, wire transfers, and bank drafts and from 1 September 2017 for foreign credit, debit, and prepaid travel card transactions.
  • The FXF is 2% and will be calculated based on the Barbados value of the transaction. It will also be clearly stated on transaction receipts.
  • The FXF applies to purchases of foreign currency and payments for foreign currency transactions only, so persons selling foreign currency to an authorized foreign currency dealer, depositing it into their account, or receiving wire transfers or bank drafts will not have to pay the FXF.
  • Credit card transactions billed in Barbados dollars will still be subject to the FXF.
  • Persons and entities (including entities in the International Business and Financial Services Sector) making payments from foreign currency accounts will not have to pay the FXF.

Click the following link for the FXF guidance page on the Barbados Central Bank website.

Indonesia

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Indonesia Issues Regulation on Application for Tax Treaty Benefits

The Indonesia Directorate General of Taxation has issued Regulation No. PER-10/PJ/2017 on the application for tax treaty benefits. The regulation provides for the process and requirements for application, including the general requirements for eligibility of an income recipient. The eligibility requirements form part of the treaty benefit application and include:

  • That one of the principal purposes of the arrangements or transactions is not to obtain benefits under the treaty;
  • There are relevant economic motives or other valid reasons for the establishment of the foreign entity;
  • The entity has its own management to conduct the business and such management has independent discretion;
  • The entity has sufficient assets to conduct business other than the assets generating income from Indonesia;
  • The entity has sufficient and qualified personnel to conduct the business; and
  • The entity has business activity other than receiving dividend, interest, and royalty income sourced from Indonesia.

In addition, the entity should not be acting as an agent, nominee or conduit, and should meet the following conditions:

  • The entity has controlling rights or disposal rights on the income or the assets or rights that generate the income;
  • No more than 50% of the entity's income is used to satisfy claims by other persons;
  • The entity bears the risk on its own asset, capital, or the liability; and
  • The entity does not have contracts that oblige the entity to transfer the income received to a resident of a third country.

Click the following links for Regulation No. PER-10/PJ/2017 (Indonesian language) and the application forms/instructions (English language).

Russia

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Russia Introduces New General Anti-Avoidance Rules in Tax Code

Russia has published Federal Law No. 163-FZ of 18 July 2017 in the Official Gazette, which introduces new general anti-avoidance rules. The rules are introduced as a supplemental amendment to Article 54 (General Matters of Tax Base Calculation) of the Tax Code, which includes the addition of Article 54.1. The new Article provides that:

  • Taxpayers are not allowed to reduce the tax base and (or) the amount of tax payable as a result of the distortion of information/facts in relation to economic events in statutory and tax accounting; and
  • Where there is no distortion, a taxpayer is entitled to reduce the tax base and (or) the amount of tax payable in accordance with the Tax Code, provided that the following conditions are met:
    • The main purpose of a transaction is not the non-payment (partial payment) of tax and (or) a tax offset (refund); and
    • The obligations of a transaction were actually performed by the counterparty to the relevant contract with the taxpayer and (or) by a person that assumed the obligation under contract or by law.

The burden of proof regarding the above conditions is on the tax authority. Further, the new rules provide that certain evidence cannot be regarded as an independent basis for the recognition of avoidance, including:

  • Primary documents are signed by unidentified or unauthorized persons;
  • The counterparty failed to pay taxes; and
  • The taxpayer could have obtained the same economic result through other transactions not prohibited by law.

Law No. 163-FZ enters into force on 20 August 2017.

Proposed Changes (1)

United States

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U.S. Stop Corporate Inversions Act Reintroduced

On 26 July 2017, U.S. Representative Sander Levin (D-MI) reintroduced the Stop Corporate Inversions Act in the House of Representatives. As provided in the announcement on the legislation, the Act includes the following:

  • The legislation closes a loophole used by companies to unfairly lower U.S. taxes. The legislation treats a combined foreign corporation as a domestic corporation if the historic shareholders of the U.S. corporation own more than 50% of the new combined entity (current threshold is 80%).
  • Regardless of the percentage ownership in the new combined corporation, if the affiliated group that includes the combined foreign corporation is managed and controlled in the United States and engages in significant domestic business activities in the United States, the U.S. corporation cannot invert under the legislation, and the combined entity would be treated as a domestic corporation.
  • As under current law, the legislation would maintain the substantial business exception under Section 7874 if the combined foreign corporation has substantial business activities in the foreign country where the combined entity is incorporated.

A Senate version of the bill was also reintroduced along with the reintroduction of the Pay What You Owe Before You Go Act, which requires inverting companies to pay their full U.S. tax bill on all deferred overseas profits before reincorporating in a new country, including a 35% exit tax with credits for foreign taxes paid against the overseas profits.

Treaty Changes (5)

Armenia-Israel

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Tax Treaty between Armenia and Israel Signed

On 25 July 2017, officials from Armenia and Israel signed an income and capital 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.

Aruba-Germany

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Update - TIEA between Aruba and Germany

The pending tax information exchange agreement between Aruba and Germany was sign on 29 June 2017. The agreement is the first of its kind between the two countries and will enter into force on the first day of the second month after the ratification instruments are exchanged. Once in force, it will apply for criminal tax matters for any taxable period, and will apply for other matters for taxable periods beginning on or after the date of its entry into force or, where there is no taxable period, all charges to tax arising on or after that date.

Australia-Mongolia

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Australia and Mongolia to Negotiate Tax Treaty

On 25 July 2017, officials from Australia and Mongolia met to discuss bilateral relations, including the implementation of an income tax treaty. 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.

Canada-Italy

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New SSA between Canada and Italy to Enter into Force

The new social security agreement between Canada and Italy will enter into force on 1 October 2017. The agreement was signed on 22 May 1995 and was amended by a protocol signed 22 May 2003. Once in force, the new agreement will replace the 1977 social security agreement between the two countries.

Japan-Slovak Republic

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Tax Treaty between Japan and Slovenia to Enter into Force

Japan's Ministry of Finance has announced that the pending income tax treaty with Slovenia will enter into force on 23 August 2017. The treaty, signed 30 September 2016, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Japanese income tax, corporation tax, special income tax for reconstruction, local corporation tax, and local inhabitant taxes. It covers Slovenian tax on income of legal persons and tax on income of individuals.

Residence

Article 4 (Resident) provides that 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. If no agreement is reached, the company will not be entitled to any relief or exemption from tax provided by the treaty.

In addition, Article 4 provides that if a resident of a Contracting State is subject to tax in that State only on income remitted to or received in that State, then any relief or exemption from tax provided for by the treaty in the other State will be limited to the amount remitted to or received in the first-mentioned State.

Withholding Tax Rates

  • Dividends - 5% (note - the final protocol to the treaty includes that the rate will be 10% if the paying company is entitled to a deduction for dividends paid to its beneficiaries, or liable to tax on its income at a reduced rate if it distributes its profits)
  • Interest - 5%
  • Royalties - 5%

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 shares or comparable interests if, at any time during the 365 days preceding the alienation, the shares or comparable interests derived at least 50% of their value directly or indirectly from immovable property situated in the other State (exemption if the shares or comparable interests are traded on a recognized stock exchange and the alienator together with related parties own in the aggregate 5% or less of the shares or comparable interests); and
  • Gains from alienation of any property, other than immovable property, forming part of the business property of a permanent establishment 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.

Limitation on Benefits

Article 21 (Limitation on Benefits) provides that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit. However, a benefit may still be granted if it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Effective Date

The treaty generally applies from 1 January 2018, although Articles 25 (Exchange of Information) and 26 (Assistance in the Collection of Taxes) apply from the date of its entry into force (23 August 2017).

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