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Worldwide Tax News

Approved Changes (2)

Hungary

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Hungary Publishes CbC Report Submission Guidance

On 15 September, the Hungarian National Tax and Customs Administration published guidance for the submission of Country-by-Country (CbC) reports (Form 16CBC). Hungary's CbC reporting requirements apply for fiscal years beginning on or after 1 January 2016 for MNE groups meeting the standard consolidated revenue threshold of EUR 750 million in the previous year (1 Jan 2017 for foreign parented groups) (previous coverage). The guidance notes that Form 16CBC may only be submitted electronically using a downloadable form filler program or a general service using XML for automated data loading. In addition to the technical submission, the guidance also covers the information to be reported, which is in line with standard CbC requirements.

Ireland

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Ireland Publishes eBrief on Updated Guidelines for VAT Registration

Irish Revenue has published eBrief No. 82/17 on updated guidelines for VAT registration.

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Guidelines for VAT registration

Updated Guidelines for VAT registration (Tax and Duty Manual Part 38-01-03b) include a focus on the importance of a Revenue appraisal of all VAT applications. Appraisals assess the risks involved and, where necessary, the need to use Revenue powers, including Section 108D of the VATCA 2010.

With some identified exceptions, all applications should be made online through eRegistration.

Additional supporting documentation can be submitted through MyEnquiries (tax registration/ cancellation and VAT supporting documentation).

Updated standard reply letters are included in the Appendices of the Guidelines.

Electronic filing of returns, and payment of liabilities, is mandatory in all VAT registrations since June 2012, unless a taxpayer qualifies for an exemption from mandatory efiling.

Proposed Changes (3)

France

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French Government Adopts Draft Finance Bill for 2018

On 27 September 2017, the French Council of Ministers adopted the draft Finance Bill for 2018. The main measures of the bill reportedly include:

  • A reduction of the corporate tax rate as follows:
    • 2018 - 28% on income up to EUR 500,000, with the excess subject to current standard 33.33% rate;
    • 2019 - 28% on income up to EUR 500,000, with the excess subject to a standard 31% rate;
    • 2020 - 28% for all companies;
    • 2021 - 26.5% for all companies;
    • 2022 - 25% for all companies;
  • The repeal of the 3% tax on profit distributions, which has been ruled against in recent cases at both the French and EU level;
  • The repeal of the rule limiting the deduction of interest expenses related to the financing of the acquisition of qualifying participations when the acquiring company cannot demonstrate that they actually, and autonomously, make decisions concerning the qualifying participation and, when the acquired entities are controlled or influenced, that they exercise this control or influence (the Carrez rule); and
  • The repeal of the 7% competitiveness and employment tax credit (crédit d’impôt pour la compétivité et l’emploi - CICE) from 2019, which would be replaced by a reduction in employer social security contributions by up to 9.9%.

The draft Finance Bill for 2018 is to be finalized and approved by the end of the year. Additional details will be published once available.

Kazakhstan

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New Kazakhstan Tax Code Presented to Parliament

On 21 September 2017, a draft version of a new tax code was presented to the finance and budget committee of the lower house of the Kazakh parliament (the Mazhilis) for consideration. As presented by Deputy Minister of National Economy, Ruslan Dalenov, some of the main aspects of the new tax code include:

  • Fairer treatment for tax disputes and audits:
    • All ambiguities and inaccuracies will be interpreted in favor of taxpayers in order to treat tax disputes more fairly
    • Tax-related fines and penalties will not be applied if a taxpayer acts in accordance with explanations provided by the tax authority if such position subsequently changes
    • The requirement for appropriate justification will be strengthened in relation to any additional charges resulting from a tax audit
  • Existing special tax regimes for SMEs and agribusinesses will be maintained, and new alternative mode of fixed deductions will be introduced for smaller businesses that will allow a deduction equal to 30% of earnings without confirmation, with additional deductions allowed if adequate expense records are maintained;
  • The income thresholds for the simplified declaration regime will be harmonized for both individuals and legal entities, and the simplified rate on turnover will be reduced from 2% to 1%;
  • The taxation of the extractive industry will be changed with the excess profits tax and the commercial discovery bonus abolished, and a simplified alternative to subsurface use tax introduced for marine and deep oil deposits;
  • VAT exemptions will be introduced for the automotive sector under special investment contracts (SIC), including a VAT exemption on the import of components and raw materials, as well as a VAT exemption on the sale of goods produced under SIC; and
  • New investment incentives will only be granted for new projects and new enterprises, but for existing enterprises, new corporate tax benefits will be introduced for investment in modernization and reconstruction projects.

As proposed, the changes are to be included under a single law, which subject to approval by Parliament, is expected to apply from 2018. Additional details will be published once available.

United States

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US Tax Reform Framework Published

On 27 September 2017, the Trump administration published the U.S. tax reform framework, the Unified Framework for Fixing Our Broken Tax Code. The business-related tax measures are generally as expected and include:

  • A reduction in the corporate tax rate to 20%;
  • The introduction of a 25% top tax rate for business income of pass-through entities (sole proprietorships, partnerships, and S corporations);
  • The immediate expensing of the cost of new investments in depreciable assets other than structures made after 27 September 2017 for a period of at least five years;
  • The introduction of partial limits on the deduction of net interest expense incurred by C corporations, with the treatment of interest paid by non-corporate taxpayers to be considered;
  • The repeal of the current-law domestic production ("section 199") deduction, as well as the repeal or restriction of a number of other special exclusions and deductions, although the business credits for research and development (R&D) and low-income housing will be specifically retained;
  • The modernization of rules for special tax regimes for certain industries and sectors in order to better reflect economic reality and limit opportunities for tax avoidance;
  • The replacement of the current worldwide tax system with a system that will provide a 100% exemption for dividends from foreign subsidiaries in which the U.S. parent owns at least a 10% stake;
  • A transition to the new system that will include treating accumulated overseas earnings as repatriated and subject to tax, with foreign earnings held in illiquid assets subject to a lower tax rate than foreign earnings held in cash or cash equivalents; and
  • The introduction of new rules to prevent companies from shifting profits to tax havens by taxing at a reduced rate and on a global basis the foreign profits of U.S. multinational corporations.

Some of the main individual tax measures include:

  • A reduction in the number of individual income tax brackets to three brackets of 12%, 25%, and 35%, with a potential additional top rate for the highest-income taxpayers (bracket thresholds not specified);
  • An increase in the standard individual deduction to 12,000 for single filers and 24,000 for married couples filing jointly;
  • The repeal of the estate (death) tax and individual alternative minimum tax; and
  • The elimination of most itemized deductions, although the deduction for mortgage interest and charitable contributions will be retained, as well as tax benefits that encourage work, higher education and retirement security.

The framework will serve as a template for the tax-writing committees that will develop legislation through a transparent and inclusive process. A hearing on reform is to be held by the Senate Finance Committee on 3 October 2017.

Treaty Changes (4)

Albania-Germany

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SSA between Albania and Germany to Enter into Force

The pending social security agreement between Albania and Germany will enter into force on 1 December 2017. The agreement, signed 8 September 2015, is the first of its kind between the two countries and will generally apply from the date of its entry into force.

Armenia-Kyrgyzstan-Uzbekistan

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Armenia to Sign Tax Treaties with Kyrgyzstan and Uzbekistan

According to a 25 September 2017 release from the Armenian Ministry of Finance, Armenia will sign income tax treaties with Kyrgyzstan and Uzbekistan by the end of the year. The treaties will be the first of their kind between Armenia and the respective countries. Details of each treaty will be published once available.

Belarus-United Kingdom

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Tax Treaty between Belarus and the UK Signed

On 26 September 2017, officials from Belarus and the United Kingdom signed an income and capital tax treaty. Once in force and effective, the treaty will replace the 1985 tax treaty between the UK and the former Soviet Union as it applies in respect of Belarus and the UK.

Taxes Covered

The treaty covers Belarusian tax on income, tax on profits, income tax on individuals, and tax on immovable property. It covers UK income tax, corporation tax, and capital gains tax.

Withholding Tax Rates

  • Dividends - 5% in general, although a 15% rate applies to dividends paid out of income (including gains) derived directly or indirectly from immovable property by an investment vehicle that distributes most of its income annually and whose income from such immovable property is exempted from tax
  • Interest - 5%, with an exemption if the beneficial owner is a bank, a central bank, the government of a Contracting State, etc.
  • 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 deriving more than 50% of their value directly or indirectly from immovable property situated in the other State (exemption for shares substantially and regularly traded on a stock exchange); 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 generally apply the credit method for the elimination of double taxation. However, the UK will exempt dividends paid by a Belarus company to a company resident in the UK if the conditions for an exemption under UK law are met. Exemption may also apply for profits of a permanent establishment in Belarus of a UK company if the conditions for an exemption under UK law are met. Where a dividend paid by a Belarus company does not qualify for exemption in the UK, the UK credit will take into account the Belarusian tax payable in respect of the profits out of which such dividend is paid, provided that the UK resident controls directly or indirectly at least 10% of the voting power in the Belarus company.

Limitation on Benefits

Article 27 (Special Provisions) provides that a benefit under treaty shall not be granted in respect of an item of income or a capital gain 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, unless it is established that granting that benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.

MFN Clause

The final protocol to the treaty includes the provision that if any agreement between Belarus and an OECD member state (member as of 26 September 2017) is signed after the Belarus-UK treaty was signed and such agreement provides for an exemption or lower rate of tax on royalties than provided under paragraph 2 of Article 12 (Royalties) of the Belarus-UK treaty, then such exemption or lower rate will automatically apply for royalties governed by that paragraph.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged. It will apply in Belarus from the first day of the third month following its entry into force in respect of withholding taxes and from 1 January of the year following its entry into force in respect of other taxes. It will apply in the UK from the first day of the third month following its entry into force in respect of withholding taxes, from 1 April next following its entry into force in respect of corporation tax, and from 6 April next following its entry into force in respect of income tax and capital gains tax. Articles 24 (Mutual Agreement Procedure) and 25 (Exchange of Information), however, will apply from the date of the treaty's entry into force in both countries.

The 1985 tax treaty between the UK and the former Soviet Union will cease to apply between Belarus and the UK from the last date the new treaty becomes effective.

Colombia-Luxembourg

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Tax Treaty between Colombia and Luxembourg to be Negotiated

According to a release from the Luxembourg government, officials from Colombia and Luxembourg met on 22 September 2017 and agreed on the need to begin negotiations for 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.

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