Worldwide Tax News
Brazil Extends and Introduces Special Regimes for Oil and Gas Sector
On 18 August 2017, Brazil published Decree No. 9128/2017 and Provisional Measure 795/2017. Decree No. 9128/2017 extends to 31 December 2040 the special customs regime for the import and export of equipment used in oil and gas reserve development activities (REPETRO). Provisional Measure 795/2017 established a new special tax regime for the oil and natural gas sector. Key points of the regime include:
- A federal tax suspension on permanently imported goods used for the exploration, development and production of oil, natural gas and other fluid hydrocarbons, including for:
- Import tax (duty);
- Tax on manufactured products (IPI);
- Contribution for the social integration program (PIS) on imports; and
- Contribution for social security funding (COFINS) on imports;
- Five years after import, the suspension on import tax and IPI becomes an exemption, and PIS/COFINS contributions rates become 0%; and
- A similar suspension/exemption for the import and acquisition in the domestic market of raw materials, intermediate products, and packaging materials to be used in the final production process in relation to the oil and gas activities mentioned above.
Both the Decree and the Provisional Measure entered into force the day they were published and are effective from 1 January 2018. However, the Provisional Measure must be extended or converted into law within 60 days to remain in force.
Ecuador Updates Tax Havens List with Addition of Hong Kong and Certain Regimes in Costa Rica, the Netherlands, New Zealand, and the UK
The Ecuador Internal Revenue Service (SRI) issued Resolution No. NAC-DGERCGC17-00000433 on 17 August 2017, which amends the country's list of tax havens and preferential tax regimes issued in 2015. Changes include:
- The addition of Hong Kong; and
- The addition of the following country-specific regimes:
- With regard to Costa Rica, private company regimes, where a company is created under Costa Rican law but not registered with the Costa Rican tax administration;
- With regard to the Netherlands, tax regimes for investment companies providing an exemption or zero rate of income tax, tax regimes subject to prior tax decisions/rulings, and innovation (patent) box regimes;
- With regard to New Zealand, the tax regime applicable to trusts; and
- With regard to the United Kingdom, tax regimes enabling companies to maintain capital rights with nominal holders without economic risk of ownership and beneficial ownership is unknown, and innovation (patent) box regimes.
There are a number of tax consequences in relation to Ecuador's tax haven list, including increased withholding taxes, an increased income tax rate in Ecuador when owned by a resident of a tax haven, and others (previous coverage).
Italy Clarifies Credit for Foreign Taxes Withheld for a CFC
Italy has published Resolution No. 112/E of 11 August 2017, which clarifies the foreign tax credit available in Italy for foreign taxes paid by a controlled foreign company (CFC). The resolution concerns an Italian parent of a Hong Kong CFC that was subject to withholding tax on income derived from Malaysia, the Philippines, and Taiwan for the provision of advisory services. According to the resolution, where the CFC rules apply, a credit is available for the parent company in Italy not only for the tax paid by the CFC in its jurisdiction of residence, but also for tax paid through withholding on income derived from other jurisdictions, provided that the tax was actually charged to the CFC. The resolution also notes that this position is in line with the results of BEPS Action 3 and the Anti-Tax Avoidance Directive (EU) 2016/1164.
Venezuela Sets 3.0% Special Contribution Rate for Insurance Sector
Venezuela has published Resolution No. 498 of 1 August 2017 from the Ministry of Banking and Finance, which sets a 3.0% rate for the special contribution payable by insurance and reinsurance companies, companies engaged in prepaid medicine for health plans, risk managers, and companies that finance insurance fees or premiums. The special contribution is to finance the Superintendence of Insurance Activity, and is to be paid semi-annually based on the taxpayer's net income from premiums, interest, and related fees. The rate may be set periodically within a range of 1.0% to 3.0%.
Australia and Uruguay to Reopen SSA Negotiations
Officials from Australia and Uruguay have recently met to discuss the reopening of negotiations for a social security agreement. Any resulting agreement would be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.
Brunei and the Philippines Conclude Tax Treaty Negotiations
According to recent reports, officials from Brunei and the Philippines have concluded negotiations for an income tax treaty. The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force.
Tax Treaty between Hong Kong and Saudi Arabia Signed
On 24 August 2017, officials from Hong Kong and Saudi Arabia signed an income tax treaty. The treaty is the first of its kind between the two jurisdictions.
The treaty covers Hong Kong profits tax, salaries tax, and property tax. It covers Saudi Zakat and income tax, including the natural gas investment tax.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting Party 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 - 5%
- Interest - 0%
- Royalties - 5% for royalties paid for the use of, or the right to use, industrial, commercial, or scientific equipment; otherwise 8%
The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:
- Gains from the alienation of immovable property situated in the other Party;
- Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
- Gains from the alienation of shares of a company deriving more than 50% of its asset value directly or indirectly from immovable property situated in the other Party; and
- Gains from the alienation of shares of a company resident in the other Party if the alienator owns 10% or more of the shares of the company.
Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.
Both countries apply the credit method for the elimination of double taxation.
The treaty does not include a non-discrimination article, although the final protocol provides that if Saudi Arabia enters into a tax treaty that does include an article on non-discrimination (with certain exceptions), then negotiations will be entered into to introduce provisions on non-discrimination into the Hong Kong-Saudi Arabia treaty.
The treaty will enter into force on the first day of the second month following the exchange of the ratification instruments, and will apply in Hong Kong from 1 April of the year following its entry into force and in Saudi Arabia from 1 January of the year following its entry into force.
Morocco Approves Pending SSA with Bulgaria
On 24 August 2017, the Moroccan Council of Ministers approved the pending social security agreement with Bulgaria. The agreement, signed 21 September 2016, is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.
Peru Planning to Conclude Negotiations for Tax Treaties with France, Germany, Spain, and the UK
Peru's Ministry of Foreign Affairs is planning to conclude negotiations for income tax treaties with France, Germany, Spain, and the UK. Treaties with France, Germany, and the UK would be the first of their kind between Peru and the respective countries, while a treaty with Spain would replace the tax treaty between the two countries that was signed in 2006, but never ratified.