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Approved Changes (5)

Bolivia

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Update - Implementing Decree Published on Bolivian Penalty Interest and other Changes

On 29 November 2016, Supreme Decree No. 2993 was published in Bolivia's Official Gazette, which implements amendments to the tax code that parliament approved in July 2016 (previous coverage). One of the main amendments is in relation to late tax payment penalties, which includes a change in the interest rate from the rate published by the Central Bank of Bolivia plus 3%, to fixed rates of 4% per annum for the first four years of arrears; 6% per annum for the 5th year to the 7th year; and 10% per annum for the 8th year and subsequent years until paid.

Other changes include a change in the statute of limitation to eight years with a possible two-year extension in certain cases, new rules for amending tax returns, and the extension of penalty reductions.

Burkina Faso

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Burkina Faso National Assembly Adopts Finance Law 2017

On 15 December 2015, the National Assembly adopted the Finance Law 2017. The law contains a number of important amendments including, in particular, the following:

Definition of Permanent Establishment

The law introduces a definition of permanent establishment under domestic law. The definition closely follows Art.5 of the UN Model.

Limitation of Deductibility of Headquarter Charges

Headquarter charges may be deducted up to a maximum of 10% of the taxable income of the payer before the deduction of the charges. In case taxable income for the year is negative, the 10% limit is calculated by reference to the most recent profitable tax year not yet covered by the statute of limitations. In case there is no such profitable reference tax year, the deduction is definitively forfeited.

Introduction of a "Sixth" Transfer Pricing Method

The law introduces the concept of "sixth" transfer pricing method. Under the method, the price charged for commodities and natural resources quoted on an exchange may not be lower than the quotation price on the day sales are made.

Denmark-Germany-European Union

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ECJ Strikes Down Danish Rules Disallowing Exemption of Interest Non-deductible under German Thin-cap Rules

On 21 December 2016, the European Court of Justice issued its decision in the Case C 593/14 (Masco Denmark ApS/Damixa ApS). The case relates to the Danish rules concerning the treatment of interest income received by a resident company but the deduction of which was disallowed at the level of the payer pursuant to thin-capitalization rules.

The Danish thin-capitalization rules applied initially only to non-resident lenders. In 2004, the rules were extended to cover pure domestic lending relationships as well, probably to circumvent the risk of them being considered in conflict of tax treaties and EU law. However, in order to avoid economic double taxation, the legislator determined that where the borrower and the lender are both resident companies, and the borrower is disallowed a deduction of the interest by virtue of the thin-capitalization rules, then the disallowed interest shall be exempt at the level of the receiving lender. This relief does not apply where the borrower is a non-resident.

In 2005-20006, Damixa ApS, a Danish resident subsidiary of Masco Denmark ApS, granted loans to its German subsidiary Damixa Armaturen, which was in financial distress having led to negative own equity. Damixa Armaturen did not deduct the interest paid on the loans from its German taxable base due to the German thin-capitalization rules applicable at the time. In parallel, Damixa ApS did not include the interest accrued on the loans in its Danish taxable base, on the grounds that it should be exempt in Denmark in the same way as if it accrued on loans to a Danish resident the deduction of which is disallowed under Danish tax rules. The Danish tax authorities determined that the interest accrued on the loan to the German subsidiary must be included in Danish taxable income, regardless of the fact that the interest deduction was disallowed by German law. The determination was backed by a first court judgment before being referred to the ECJ at the following jurisdictional level.

Before the ECJ, the taxpayer argued that the Danish rules in question create an unjustified difference of treatment between two comparable situations and are, thus, contrary to the freedom of establishment enshrined in Art. 49 TFEU, as read in conjunction with Art. 54 TFEU. The Danish tax authorities submitted, on the other hand, that the rules are consistent with the provisions of EU law based, notably, on the following arguments:

  • It is the application of the German tax rules which has led to the situation in which Damixa Armaturen was unable to make a deduction for interest expenditure in its tax return;
  • The tax disadvantage at issue in the main proceedings has arisen as a result of the parallel exercise by Denmark and Germany of their powers of taxation; and
  • The Danish rules are justified in that they ensure a proper allocation of taxing rights between the Member States.

In its decision, the ECJ sided with the taxpayer and determined that the Danish rules at issue in the proceedings are contrary to the freedom of establishment enshrined in Arts. 49 and 54 TFEU. In reaching the decision, the Court reasoned as follows:

  • Whilst the provisions of the TFEU concerning the freedom of establishment are directed to ensuring that foreign nationals and companies are treated in the host Member State in the same way as nationals of that State, they also prohibit the Member State of origin from hindering the establishment in another Member State of a company incorporated under its legislation. This has been stressed by previous case law.
  • The exemption, at the level of the lender, of interest the deduction of which is disallowed at the level of the borrower when both are resident entities, and the denial of the same exemption when the borrower is resident in another Member State, creates a difference of treatment between two objectively comparable situations.
  • This difference in treatment between two objectively comparable situations may discourage parent companies of one Member State from exercising their freedom of establishment in another Member State. To that extent, it is in breach of the freedom of establishment.
  • Whilst Member States are not required to align their national tax legislations on that of other Member States to preclude occurrences of discrepancies (principle of autonomy), the Danish rule at issue goes beyond what is needed to restore the allocation of taxing powers between the Member States and cannot be justified on those grounds.
  • The Danish tax rule at issue cannot be justified on the grounds of tax avoidance either. This ground is justified only when addressing purely artificial constructions, which is clearly not the case here.

Note - In siding with the taxpayer, the Court went against the conclusions of its own Advocate General on the case. The Advocate General concluded that the Danish rule is not in breach of EU law on the grounds, notably, of the autonomy principle (previous coverage).

Luxembourg

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CbC Update - Luxembourg Extends First CbC Notification Deadline

On 27 December 2016, the Luxembourg tax authorities published the procedures to submit the CbC notification as required under the CbC reporting law (Law 7031), which was published in the Official Gazette on the same date (previous coverage). In addition to providing the procedures, the authorities also extended the deadline for the CbC notification for the first year to 31 March 2017. For later years, the deadline is the end of the fiscal year reported on as provided under the CbC Law.

Click the following link for the procedures for notification, which is made via the MyGuichet e-filing system.

Netherlands

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Dutch Tax Plan 2017 Adopted

The Upper House of the Dutch parliament approved on 20 December 2016 the Tax Plan 2017 submitted by the government on 20 September 2016. The Plan had earlier been adopted by the Lower House of parliament on 17 November 2016, and has now passed into law with its adoption by the Upper House.

The Plan notably amends the IP (or Innovation) Box regime and further restricts interest deduction in line with the BEPS findings. The main changes are summarized as follows:

  • The income tax brackets for 2017 are amended as follows for individuals below retirement age (social security component reduced for older individuals):
    • up to EUR 19,982 - 36.55% (8.90% plus 27.65% social security)
    • over EUR 19,982 up to 33,791 - 40.80% (13.15% plus 27.65% social security)
    • over EUR 33,791 up to 67,072 - 40.80%
    • over 67,072 - 52.00%
  • Changes in the R&D wage tax reduction introduced in the 2017 tax plan are confirmed for 2017, including 32% of the first EUR 350,000 in R&D wage expenditure (40% for startups) and 16% of the excess (same for startups).
  • The innovation (IP) box regime is amended to bring it in line with the modified nexus approach developed as part of Action 5 of the OECD BEPS Project with an effective date of 1 July 2016, including that the benefits of the regime are restricted for income in relation to R&D outsourced to related parties and the scope of eligible IP is limited to patents, IP rights similar to patents, and software;
  • Current interest deduction limitation rules are strengthened for excessive debt in regard to financed acquisitions and fiscal unities (deductibility initially limited to a maximum loan-to-purchase price of 60%; reduced by 5% per year over seven years to 25%):
    • A provision is added so that the limitation may apply when a debt has been pushed down to an acquired company;
    • An anti-refresh provision is added so that the seven-year period may not be reset by transferring the acquired company to another company;
    • A provision is added so that when an acquired and acquiring company were part of a pre-2012 fiscal unity (prior to the interest deduction limitation rules) and later form a new fiscal unity, the seven-year period will start from the year the acquired company originally became part of the pre-2012 fiscal unity; and
    • The term related party is broadened so that a collaborating group of shareholders may constitute an affiliated entity and the interest deduction limitation may apply;
  • To comply with EU law, changes are made in regard to dividends withholding tax, which will allow non-resident shareholders of Dutch companies to apply for a refund of tax withheld if the tax amount is higher than the amount that would be levied for a resident shareholder; and
  • Environmental taxes are increased overall, including the energy tax, waste tax, tax on coal, etc.

The Dutch government is also planning to increase the threshold between the first corporate tax bracket (20%) and the second bracket (25%) in stages to EUR 350,000 by 2021, but the change is not planned to begin until 2018 with an initial increase from EUR 200,000 to EUR 250,000.

Click the following link for the summary of the Tax Plan 2017 changes (Dutch language) as published by the Ministry of Finance.

Proposed Changes (1)

Egypt

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Egypt Draft VAT Regulations Clarifying Applicable Rates for Services

The Egyptian tax authorities are currently consulting with stakeholders on draft regulations to further clarify the definition of exempt services and the application of reduced rates for certain services under the country's new value added tax (VAT) regime, which was introduced under Law No. 67 enacted in September 2016 (previous coverage). The draft regulations clarify the following for VAT purposes:

  • Exempt banking services are defined as services furnished by banks subject to supervision of the Central Bank of Egypt;
  • Exempt insurance and reinsurance services are defined as those furnished by individual or legal persons who are authorized by the competent authority to provide insurance services (excludes services of insurance liquidators, appraisal experts, and related legal services, as well as insurance-related repair and maintenance services performed by insurance companies or others);
  • Exempt medical services are defined as medical services rendered to patients at hospitals, medical centers, or clinics (excludes services provided by hospitals that have a commercial or investment nature, such as cosmetic surgeries);
  • Exempt advertising services are defined as services in their final form furnished by the advertiser to the client either through media, publishing, or other means of advertising (excludes the production of advertising materials);
  • Professional and consulting services subject to a 10% rate are defined as services provided by individuals or legal persons operating independently (excludes commercial and industrial services);
  • Contracting and construction services subject to a 5% rate are defined as building and concrete works, as well as construction works for railways, roads, airports, underground works, sewage and water services, gas, fuel, and renewable energy (if the supply or building work is contracted separately, the standard 13% VAT rate would apply).

The final draft regulations will be issued after the consultation is completed.

Treaty Changes (5)

Canada-Switzerland

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Canada and Switzerland Exchange Notes on the Automatic Exchange of Financial Account Information

On 23 December 2016, the Canadian Department of Finance announced the exchange of notes between the Government of Canada and the Government of the Swiss Confederation concerning the automatic exchange of financial account information. The information exchange will be carried out based on the OECD Common Reporting Standard (CRS) and is to begin in 2018 in respect of tax periods beginning on or after 1 January 2017.

Chile-Czech Rep

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Tax Treaty between Chile and the Czech Republic has Entered into Force

The income and capital tax treaty between Chile and the Czech Republic entered into Force on 21 December 2016. The treaty, signed 2 December 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Chilean taxes imposed under the Income Tax Act and Czech tax on income of individuals, tax on income of legal persons, and tax on immovable property.

Residence

The treaty includes the provision 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.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged persons if the activities continue for a period or periods aggregating more than 183 days within any 12-month period.

For determining whether the 183-day threshold is exceeded, activities carried on by an associated enterprise are included if substantially the same and concerned with the same project.

Withholding Tax Rates

  • Dividends - 15% (the rate set in the treaty will not limit Chile's application of the additional tax payable on dividends (35%), provided that the first category tax is fully creditable in computing the amount of the additional tax)
  • Interest - 5% for interest derived from loans or credits granted by banks or insurance companies; otherwise 15%
  • Royalties - 5% for royalties for the use of, or the right to use, any industrial, commercial, or scientific equipment; otherwise 10%

MFN Clause

Article 11 (Interest) includes the provision that if any agreement or convention between Chile and a third State that is a member of the OECD provides for an exemption on interest or provides a lower rate than provided for in the Chile-Czech treaty, such exemption or lower rate will automatically apply under the Chile-Czech treaty from the date such other agreement or convention is effective.

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 alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the direct or indirect alienation of shares, comparable interests, or other rights in a company resident 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. However, the treaty includes the provision that the exemption method may be applied by a Contracting State if in accordance with its domestic laws.

Limitation on Benefits

Article 28 (Miscellaneous Rules) includes the provision that the beneficial provisions of Articles 10 (Dividends), 11 (Interest), and 12 (Royalties) will not apply if one of the main purposes of any person concerned with the creation or assignment of the right or debt-claim in respect of which the dividends, interest, or royalties are paid, is to obtain the benefits of those Articles by means of that creation or assignment.

Article 28 (Miscellaneous Rules) also includes the provision that the benefits of the treaty will not apply when:

  • A resident of one Contracting State derives income from the other State and the income is attributable to a permanent establishment of that resident in a third State or jurisdiction; and
  • The total tax paid on the income in the first mentioned State and the third State or jurisdiction is less than 60% of the tax that would have been paid in the first-mentioned State had the income not been attributable to the permanent establishment.

In such case, the other State may tax the income under the provisions of its domestic law.

Effective Date

The treaty applies from 1 January 2017.

Georgia-Liechtenstein

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Tax Treaty between Georgia and Liechtenstein has Entered into Force

The income and capital tax treaty between Georgia and Liechtenstein entered into force on 21 December 2016. The treaty, signed 13 May 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Georgian profit tax, income tax, and property tax. It covers Liechtenstein personal income tax, corporate income tax, capital gains tax, wealth tax, and coupon tax.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • Royalties - 0%

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 alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated 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

Georgia applies the credit method for the elimination of double taxation, while Liechtenstein generally applies the exemption method. However, in the case of income covered by Articles 14 (Income from Employment), 15 (Directors' Fees), and 16 (Artistes and Sportsmen), Liechtenstein applies the credit method.

Effective Date

The treaty applies from 1 January 2017.

Italy-Liechtenstein

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TIEA between Italy and Liechtenstein has Entered into Force

The tax information exchange agreement between Italy and Liechtenstein entered into force on 20 December 2016. The agreement, signed 26 February 2015, is the first of its kind between the two countries and applies from the date it was signed.

With the entry into force of the exchange agreement, Italy and Liechtenstein are to begin negotiations for an income tax treaty as previously agreed.

Singapore-New Zealand

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Singapore and New Zealand Sign Competent Authority Agreement for Exchange of Financial Account Information

According to an update from the Inland Revenue Authority of Singapore, a competent authority agreement for the automatic exchange of financial account information was signed with New Zealand on 22 December 2016. Under the agreement, each country will automatically exchange information on accounts held in the respective country by tax residents of the other country based on the OECD Common Reporting Standard (CRS). The automatic exchange is to begin by September 2018 for information collected on the 2017 reporting year.

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