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Worldwide Tax News

Approved Changes (4)

Brazil

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Brazilian Supreme Court Issues Decision Limiting Tax Penalty

In a ruling published in December 2014, the Brazilian Supreme Court held that a tax penalty exceeding the amount of tax due is unconstitutional. The ruling was based on the constitutional tax principle of non-confiscation established in the Brazilian Constitution. The case involved a disputed penalty of 120% of the tax due.

Although the ruling only applies to one particular case, it follows a trend of rulings regarding tax penalty disputes. The court has heard cases involving penalties of as much as 500% of the tax due, and in many cases ruled in favor of the taxpayer on the grounds of non-confiscation.

Croatia

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Croatia Reduces Time Limit for Non-Resident VAT Registration

Croatia has recently adjusted the requirements for VAT registration for non-resident suppliers. Under the change, non-residents must register for VAT within 8 days of starting taxable activities in the country (previously 15 days). Taxable activities include intra-community supplies/acquisitions, supplies of goods and services not subject to reverse-charge, and distance sales exceeding the threshold (HRK 270,000).

Hong Kong

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Hong Kong has Published Revised Application Forms for Certificate of Resident Status

The Hong Kong Inland Revenue Department has published revised application forms for Certificate of Resident Status. The certificate is needed for the purpose of claiming tax treaty benefits. Different forms are used for natural and legal persons, and whether the benefits claimed are in regard to the Hong Kong -China tax treaty, or a treaty between Hong Kong's and other jurisdictions.

The new forms are required for applications made on or after 1 February 2015.

Click the following link for the Certificate of Resident Status webpage on the Hong Kong IRD site for the downloadable forms and instructions.

Nigeria

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Clarification of Nigeria's Non-Resident Tax Return Filing Requirements

Nigeria has issued a public notice clarifying that the requirement for non-residents to file tax returns in compliance with the Companies Income Tax Act instead of on a deemed profit basis applies from the assessment year starting 1 January 2015. The documentation required to be submitted with a tax return include:

  • Audited financial statements,
  • Tax computations on actual profits,
  • A duly completed self–assessment form,
  • Evidence of tax payment,
  • Transfer pricing declaration and disclosure forms, and
  • Other relevant information

Despite the requirement, the Nigerian tax authorities still have the right to assess on a deemed profit basis.

Proposed Changes (2)

Finland

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Finland Considering Provision to Allow Tax Authorities to Recharacterize or Disregard Transactions in Transfer Pricing Cases

On 7 January 2015, the Finnish government issued a draft proposal to amend the countries transfer pricing rules by adding a new general anti-avoidance clause. The clause would empower the Finnish tax authorities to recharacterize or disregard transactions when the legal form of a transaction does not correspond with its commercial substance.

The proposal is in response to a Finnish Supreme Court decision in 2014, that a transaction may only be recharacterized for transfer pricing purpose when the country's general anti-avoidance rules and the transfer pricing adjustment rules both apply. That decision was in regard to the recharacterization of a hybrid instrument as equity instead of debt, which was denied.

Thailand

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Thai Government Proposes New Tax Benefits for International Headquarters and Trading Centers

The Thai Cabinet has recently approved a proposal for two new tax regimes for International Headquarters and International Trading Centers. The regimes would relax certain foreign ownership and activity limitations, and provide the following key tax benefits:

International Headquarters

  • Tax exemption on net profits derived by an associated company or branch outside Thailand
  • Reduced 10% income tax rate on the net profits of an associated company or branch in Thailand
  • Exemption from withholding tax on dividends distributed to nonresidents
  • Exemption from business tax and withholding tax on intercompany loans

International Trading Centers

  • Tax exemption on income from goods or services transactions with associated parties when the goods do no enter Thailand or the income from services is derived outside Thailand
  • Reduced 10% income tax rate on income from the sale of raw materials and intermediated goods sourced in Thailand and sold to associated parties for the manufacture of goods outside Thailand
  • Exemption from withholding tax on dividends distributed to nonresidents

The new regimes will not enter into force until a royal decree is issued, and the specific benefits of the regimes and their application are subject to change.

Treaty Changes (2)

Italy-Jersey

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TIEA between Italy and Jersey has Entered into Force

The tax information exchange agreement between Italy and Jersey entered into force on 26 January 2015. The agreement, signed 13 March 2012, is the first of its kind between the two jurisdictions and is in line with the OECD standard for information exchange. It applies from the date of its entry into force for criminal tax matters, and for other matters for tax periods beginning on or after that date.

Kuwait-Lithuania

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Kuwait Approves Tax Treaty With Lithuania

On 27 January 2015, the Kuwait National Assembly approved the pending income tax treaty with Lithuania. The treaty was ratified by Lithuania 27 march 2014. It was signed 18 April 2013, and is the first of its kind between the two countries.

Taxes Covered

The treaty covers Lithuanian profit tax and income tax, and the following Kuwaiti taxes:

  • Corporate income tax,
  • The contribution from the net profits of the Kuwaiti shareholding companies payable to the Kuwait Foundation for Advancement of Science (KFAS),
  • The Zakat, and
  • The tax subjected according to the supporting of national employee law

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% 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.

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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