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Approved Changes (2)

India

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Indian Government has Decided Not to Appeal High Court Decision in Favor of Vodafone

Following a Cabinet meeting on 28 January 2015, Minister of Communications and Information Technology Ravi Shankar Prasad announced that the government will not appeal the 10 October 2014 High Court ruling in favor of Vodafone India involving a transfer pricing dispute. According to Prasad, it is hoped that the decision will help to boost foreign investors’ sentiment.

The case involved a 2008 issuance of shares at a premium by Vodafone India Services Pvt. Ltd. to its Mauritius-based holding company. In its tax return, Vodafone India reported the arrangement as a non-taxable international capital transaction. The Indian tax authorities subsequently determined that the shares were undervalued and performed a transfer pricing adjustment of over INR 13 billion, which was treated as a loan by Vodafone India to the Mauritius-based holding company with an imputed interest rate of 13.5%. Vodafone India appealed.

The case eventually made its way to the High Court, which sided with Vodafone. The High Court held that the issuance of shares should be considered a capital transaction not giving rise to any income subject to tax, and therefore not subject to Indian transfer pricing provisions.

Following its decision not to appeal the High Court decision, the Indian government has also reportedly requested that the principle be applied to other similar transfer pricing disputes, such as the much larger INR 150 billion transfer pricing adjustment for Royal Dutch Shell. In November 2014, the Indian High Court sided with Shell in that case for similar reasons as the Vodafone case.

Pakistan

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Pakistan Announces 2% Tax Rate on Immovable Property Transfers for Non-Filers

The Pakistan Federal Board of Revenue has issued notice that from 19 January 2015, a 2% tax will be collected from non-filers when registering or attesting transfer of immovable property with a value exceeding PKR 3 million. Non-filers are persons (natural and legal) whose name does not appear on the Active Tax-payers List (ATL), or does not hold a valid taxpayer card. For filers, the rate is 1%, which prior to 19 January also applied for non-filers.

The ATL, which includes over 880,000 taxpayers, can be found on the Pakistan Federal Board of Revenue website, and is updated monthly.

Proposed Changes (2)

Costa Rica

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Costa Rica to Implement Shareholder Registry

On 19 January 2015, the Costa Rican Ministry of Finance published a draft executive decree for the creation of a shareholder's registry. The registry is meant to improve tax collection, including taxes that arise as the result of indirect transfers.

All companies registered in Costa Rica would be obligated to submit information on their shareholders, including name, personal or corporate ID, number of shares, share acquisition date and percentage holdings. Companies would also be required to update the information whenever there is a change in ownership.

The proposed registry follows a proposal for a shareholder informative return requirement in February 2014, which was not implemented. Costa Rica also introduced a requirement for large taxpayers to update their tax information, including shareholder information, via a new online platform (AMPO) in August 2014, but that platform has not yet been launched.

Luxembourg

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Luxembourg to Introduce Simplified Limited Liability Company Form

On 21 January 2015, Luxembourg's Governing Council adopted a proposal for the creation of a simplified limited liability company (Sàrl-S). The new business form is for natural person entrepreneurs, and involves lower establishment costs, quicker establishment time and an initial capital requirement of just 1 euro. The Sàrl-S may be formed by a notarial deed or a private agreement, and formation should be able to be completed in 1 day.

Treaty Changes (3)

Benin-Qatar

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Negotiations for a Tax Treaty between Benin and Qatar Concluded

The primary negotiations for an income tax treaty between Benin and Qatar have concluded, with officials from both countries initialing the treaty on 26 January 2015. The treaty will be the first of its kind between the two countries, and must signed and ratified before entering into force.

Additional details will be published once available.

Bosnia Herz-Macedonia

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Tax Treaty between Bosnia and Herzegovina and Macedonia in Force

According to recent reports, following the completion of the ratification procedures by both countries, the income and capital tax treaty between Bosnia and Herzegovina and Macedonia has entered into force and is effective from 1 January 2015. The treaty, signed 24 September 2013, is the first of its kind between the two countries.

Taxes Covered

The treaty covers individual/personal income tax, profit tax and property tax of both countries.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital, otherwise 15%
  • Interest - 10%
  • Royalties - 10%
  • Capital Gains - generally exempt, except for gains from the alienation of immovable property, and gains from the alienation of movable property forming part of the business property of a permanent establishment

Double Taxation Relief

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

Effective Date

The treaty applies from 1 January 2015.

Kazakhstan-Macedonia

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Update - Tax Treaty between Kazakhstan and Macedonia

On 28 January 2015, Kazakhstan's lower chamber of parliament approved the draft law ratifying the pending income tax treaty with Macedonia. The treaty, signed 2 July 2012, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Kazakhstan corporate income tax and individual income tax, and Macedonian personal income tax and profit tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected projects for a period or periods aggregating more than 6 months within any 12 month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital, otherwise 15%
  • Interest - 10%
  • Royalties - 10%
  • Capital Gains - generally exempt, except for gains from the alienation of immovable property, gains from the alienation of movable property forming part of the business property of a permanent establishment, and gains from the alienation of shares or comparable interests in the capital of a company deriving more than 50% of their value from immovable property situated in a Contracting 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 following its entry into force.

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