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Proposed Changes (3)

European Union

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European Commission Launches Consultation on Reducing Barriers to Post-Trade Services Including Inefficient Withholding Taxes Procedures

On 23 August 2017, the European Commission launched a public consultation on reducing barriers to post-trade services across financial markets. The consultation seeks input covering several issues, including inefficient withholding tax collection procedures. In this respect, the consultation highlights the following and seeks input on other issues or approaches that should be explored. Comments are due by 15 November 2017.

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To avoid double taxation of cross-border investment, most bilateral tax treaties provide for withholding tax refund mechanisms. However, all financial markets participants across the EU face complex, demanding and costly recovering proceedings. The cost of those inefficiencies in 2016 has been estimated at EUR 8.4 billion per year. This issue has also been mentioned in the March 2017 Report on national barriers to capital flows. The European Post-Trade Forum (EPTF) also specifies other issues regarding the withholding tax procedures, such as a different structure for withholding tax relief in each market, mandatory use of local tax advisory firms, forcing foreign intermediaries to use local fiscal agents, etc.

As committed in the Capital Markets Union (CMU) Action Plan, the Commission has promoted best practice and developed with Member States a code of conduct for more efficient withholding taxes procedures. The code will propose pragmatic and operational solutions to achieve standardization and simplification of refund (and existing relief at source) procedures. Despite being a non-binding instrument, the code is a valuable, practical, operational short-term solution to simplify withholding tax procedures.

France

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France Planning Temporary Tax on Large Companies to Replace Distribution Tax

According to recent reports, the French government is planning to introduce a temporary tax on large companies to replace lost revenue resulting from its planned repeal of the 3% tax on profit distributions that has been ruled against in recent cases at both the French and EU level. Measure to introduce the temporary tax and repeal the distribution tax are expected to be included as part of the 2018 finance bill, which is to be submitted to Parliament in September.  

Romania

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Romania Introducing VAT Split Payment System

The Romanian Government has consulted on a draft ordinance to introduce a split payment system for value added tax (VAT). The system is meant to counter VAT fraud by requiring that registered VAT taxpayers open special VAT accounts for the deposit of VAT collected and paid on all supplies of goods and services considered made in Romania, with some exceptions for special VAT schemes. The VAT accounts will be opened with the tax office where the taxpayer is registered, or taxpayers may opt to open a VAT account with a commercial bank if the bank can support the new system. The split payment system will be optional from 1 October 2017 and will be mandatory from 1 January 2018.

Click the following links for the latest announcement from the Ministry of Finance and the latest version of the draft ordinance (Romanian language).

Treaty Changes (5)

Barbados-Chile

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Tax Treaty between Barbados and Chile to be Negotiated

On 24 August 2017, officials from Barbados and Chile met to discuss bilateral relations, including the negotiation and signing 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.

Denmark-Austria

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Danish Ruling that Subcontracted Activities may Constitute PE

On 23 August 2017, the Danish tax authority (SKAT) published a binding ruling on the existence of a permanent establishment (PE) in Denmark of a foreign company planning to subcontract certain activities in Denmark. The ruling involves an Austrian company that constructed a building in Denmark that was completed in 2016. In order to maintain the facades of the building, the Austrian company intends to enter into a 10-year agreement with another foreign company to manage maintenance, cleaning, small repairs, etc. As part of this agreement, the other foreign company, which may further subcontract the work, will be provided with offices and stock at its disposal.

In determining whether the subcontracted activities result in a permanent establishment, SKAT looked at the provisions of the 2007 Austria-Denmark tax treaty in light of the OECD Model Commentary. SKAT looked at two main types of PEs that may be constituted in this particular case; a construction PE and a fixed place PE. With regard to a construction PE, SKAT determined that although in relation to the construction project, the nature of the subcontracted work could not be considered as construction, building, or installation work that would result in a PE. With regard to a fixed place PE, however, SKAT determined that because the agreement included the use of office space, this would constitute a fixed place through which the business (subcontracted) activities of the Austrian company are carried on, and therefore would result in a PE.

Liechtenstein-Monaco

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Liechtenstein Approves Pending Tax Treaty with Monaco

On 23 August 2017, the Liechtenstein Government announced the approval of the pending income and capital tax treaty with Monaco. The treaty, signed 28 June 2017, is the first of its kind between the two countries (previous coverage). It will enter into force 30 days after the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

Paraguay-Untd A Emirates

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Update - Tax Treaty between Paraguay and the U.A.E.

The income tax treaty between Paraguay and the United Arab Emirates was signed on 16 January 2017. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Paraguayan individual income tax, corporation tax, income tax on agricultural business, and income tax on small business. It covers U.A.E. income tax and corporate tax.

Income from Hydrocarbons

Article 3 (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.

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 9 months.

Withholding Tax Rates

  • Dividends - 15%
  • Interest - 6% on interest from banks loans or insurance companies, regulated by each country's regulation; otherwise 15%
  • Royalties - 15%

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; and
  • Gains from the alienation of movable 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.

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 in which it was signed (1 January 2017).

Switzerland-Ukraine

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Protocol to Tax Treaty between Switzerland and Ukraine under Negotiation

On 24 August 2017, officials from Switzerland and Ukraine reportedly met to begin negotiations for an amending protocol to the 2000 income and capital tax treaty between the two countries. Any resulting protocol would be the first to amend the treaty, and must be finalized, signed, and ratified before entering into force.

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