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Approved Changes (3)

Australia

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Australian Mining Exploration Development Incentive Approved

A new Australian mining exploration development incentive has been enacted as part of the Tax and Superannuation Laws Amendment (2014 Measures No. 7) Bill 2014, which received assent on 19 March 2015. The incentive is aimed at fostering the discovery of new resource deposits and encouraging investment in eligible junior exploration companies conducting greenfields mineral exploration.

The incentive allows junior exploration companies to give up part of their losses related to exploration expenditure in an income year in the form of a credit. The credit may be issued to the company's Australian resident shareholders, subject to an annual cap.

A company’s cap for an income year is based on its exploration or prospecting expenditure and tax loss for the previous income year, adjusted by a modulation factor declared by the Commissioner to ensure that the total value of all credits provided in respect of expenditure in an income year does not exceed the cap for a given year. The caps are AUD 25 million for expenditure incurred in 2014-15, AUD 35 million for expenditure incurred in 2015-16 and AUD 40 million for expenditure incurred in 2016-17.

The incentive will not be available for expenditure incurred in income years after 2016-17.

France

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France to Increase VAT Rate on E-Books

France is currently preparing to increase the value added tax rate applicable to e-books from the 5.5% reduced rate to the 20% standard rate. The change follows the decision of the European Court of Justice published 5 March 2015, that applying a reduced rate for e-books was not compliant with EU law. A similar decision was published the same date concerning Luxembourg, which is also planning to increase its rates as a result.

The French rate change is expected to apply from 1 January 2016.

India

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India Clarifies Dividends Paid by Foreign Companies out of Shares Deriving Value from Indian Assets are Not Deemed to be Indian Source Income

On 26 March 2015, the Indian Ministry of Finance issued Circular No. 4 /2015 clarifying the taxation of dividend income declared by a foreign company outside India when the share or interest in the company directly or indirectly derives its value substantially from assets located in India.

The clarification is in regard to Section 9(1)(i) of the Indian Income Tax Act which essentially states that any income directly or indirectly arising from a business connection, property, asset, source or transfer of capital asset in India is deemed to be India source income. Explanation 5 to Section 9(1)(i) further states that the share or interest of a foreign company or entity is deemed to be situated in India if the share or interest directly or indirectly derives its value substantially from assets located in India.

Circular No. 4 /2015 clarifies that Section 9(1)(i) and Explanation 5 applies for the direct or indirect transfer of a capital asset situated in India. When the transfer of any share or interest in a foreign company or entity has the effect of directly or indirectly transferring the underlying assets located in India, the income will then be considered India source. Because the declaring of a dividend does not have the effect of transferring any underlying assets located in India, such dividend income declared is therefore not deemed to be India source income.

Click the following link for. Circular No. 4 /2015 as issued

Proposed Changes (2)

Poland

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Poland's Proposed Changes to R&D Tax Treatment and Incentives

Draft legislation for the introduction of new rules and incentives for research and development activities was submitted to the Polish parliament on 16 March 2015. The new incentives would replace certain current R&D incentives.

The main proposed measures include:

  • R&D expenditure would be deductible from gross profits regardless of the outcome, instead of only being deductible if R&D results are utilized
  • SME's and micro-enterprises would be allowed to deduct 150% of R&D expenses, while larger companies would be allowed to deduct 120% of R&D expense, and
  • A tax exemption would be introduced for qualifying companies investing only innovative technologies

If adopted, the new measures would apply from 1 January 2016.

Spain

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Spain Proposes New Transfer Pricing Documentation Requirements Including Country-by-Country Reporting

The Spanish Government has released draft legislation to modify the country's transfer pricing documentation rules, including the introduction of a country-by-country (CbC) reporting requirement. As drafted, the new rules closely follow the guidelines developed as part of Action 13 of the OECD Base Erosion and Profit Shifting (BEPS) Project, which includes a new CbC report.

The CbC reporting requirement would apply for Spanish resident entities that are the head of a corporate group and are not under any other entity. The threshold for reporting follows the OECD recommendation of EUR 750 million consolidated group revenue in the previous fiscal year. The report must include information for each country in which the group operates on a per country aggregate basis, including:

  • Total revenue for the group
  • Accounting results before tax
  • Tax paid and tax accrued
  • Share capital and equity
  • Tangible assets and real estate
  • A list of entities and permanent establishments in each country including the main activities of each
  • Any other information deemed relevant and explanations as needed

The master file and local file requirements are also amended in line with the OECD BEPS recommendations. In general, this means the level of detail for each file is increased. In terms of the master file, greater details must be included on the organizational structure, business activities, intangible assets, and financing activities of the group, and for the local file, greater detail is required for intercompany transactions.

For smaller groups with net turnover below EUR 45 million in the preceding year, an exemption from filing the master file will apply. For the local file, a simplified approach will be implemented for groups with net turnover below EUR 45 million in the preceding year.

The new requirements, which are subject to approval, would apply for the fiscal year beginning on or after 1 January 2016, with the first report due before the end of 12 months following the close of the fiscal year.

Treaty Changes (3)

China-Indonesia

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Protocol to the Tax Treaty between China and Indonesia Signed

On 26 March 2015, officials from China and Indonesia signed a protocol to the 2001 income tax agreement between the two countries. The protocol is the first to amend the treaty and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

Hong Kong-Italy

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Italy Approves Tax Treaty with Hong Kong

On 4 March 2015, Italy's Chamber of Deputies approved a law for the ratification of the pending income tax treaty with Hong Kong. The treaty, signed 14 January 2013, is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Hong Kong profits tax, salaries tax and property tax. It covers Italy's personal income tax, corporate income tax and the regional tax on productive activities (IRAP).

Residence

If a company is a resident of both Contracting Parties, its residence for the purposes of the tax treaty will be decided by the competent authorities of both Parties through mutual agreement based on its place of effective management. If no agreement is reached, the company will not be entitled to the benefits of the treaty.

Construction / Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted if a building site, a construction, assembly or installation project or supervisory activities last more than six months in a Contracting Party. In addition, a permanent establishment will be deemed constituted if an enterprise furnishes services through employees or other engaged personnel in connection with a site, a project or supervisory activities if such services continue for a period or periods aggregating more than 6 months within a 12 month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 12.5%
  • Royalties - 15%
  • 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 of a company deriving 50% or more of its asset value directly or indirectly from immovable property in a Contracting Party unless such shares are quoted on a stock exchange of either Contracting Party

Double Taxation Relief

Both jurisdictions generally 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 in Italy from 1 January of the year following its entry into force and in Hong Kong from 1 April of the year following its entry into force.

Nigeria-Qatar

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Tax Treaty between Nigeria and Qatar to be Signed

According to recent reports, Qatar's Cabinet approved the signature of an income tax treaty with Nigeria on 24 March 2015. The treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Additional details will be published once available.

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