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Approved Changes (1)

Italy

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Italy Issues Implementing Rules for Changes in International Advance Tax Agreements

On 21 March 2016, the Italian tax authorities issued Protocol No. 42295, which includes the implementing rules for the changes in advance tax agreements for companies with international operations as introduced in Legislative Decree No. 147 in September 2015 (previous coverage). Two of the main changes include the expanded scope of issues advance tax agreements can cover and new rollback provisions.

Expanded Scope

The scope of tax issues an advance tax agreement may cover is expanded to include:

  • Asset bases in the case of inbound and outbound migrations; and
  • Fair market value of costs incurred with black list entities for deduction purposes for taxpayers taking part in the Cooperative Compliance Program.

The previous scope of tax issues remain under the new rules, including:

  • Transfer pricing issues (advance pricing agreements);
  • Cross-border flows of dividends, interest, royalties and other income;
  • Attribution of profits/losses to domestic and foreign PEs; and
  • Existence of PEs in Italy.

Rollback Provisions

For an advance tax agreement based on arrangements reached with other jurisdictions under the mutual agreement procedures of an applicable tax treaty, the agreement will apply from the date the request was filed. For all other advance tax agreements, taxpayers have the option to rollback the terms of the agreement to the year it was requested. In such cases, the taxpayer may apply the terms and file amended tax returns for the years concerned without penalty.

Requesting an Advanced Tax Agreement

Taxpayers may request an advance tax agreement by submitting an application to the Office for Advance Rulings and International Disputes. The application must include all relevant information of the taxpayer, the tax issues to be covered, and supporting documentation based on the nature of the issues the requested agreement would cover.

In general, the tax authorities should finish the initial review of whether the application has been properly submitted within 30 days and the entire process is to be completed within 180 days. However, this may be extended in certain cases, including when foreign tax authorities are involved.

Once issued, an advanced tax agreement is binding from the year of issue and the following four years. An agreement may also apply for previous years as per the rollback provisions described above.

Effective Date

The new rules apply from 21 March 2016 for requests made on or after that date, as well as requests submitted prior to that date if still pending.

Proposed Changes (2)

Malaysia

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Malaysia Planning to Update Current Transfer Pricing Documentation Requirements and Introduce CbC Reporting

The Inland Revenue Board of Malaysia reportedly announced during a 24 March 2016 consultation with the Chartered Tax Institute of Malaysia that they are planning to make changes based on Action 13 of the OECD BEPS Project. This includes amending current Master and Local file documentation requirements to bring them in line with the Action 13 guidelines, as well as introducing Country-by-Country (CbC) reporting requirements. Details of the new requirements and effective dates are not yet available, but legislation for the changes is expected mid 2016 and would likely apply from 1 January 2017.

Poland

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Poland Considering VAT Changes to Ease Burden on Small Businesses

The Polish Ministry of Finance (MoF) is reportedly considering increasing the value added tax (VAT) registration threshold from PLN 150,000 to PLN 200,000 in order to reduce the compliance burden on small businesses. In addition, the MoF is considering the introduction of a simplified VAT regime for small business that would include a lower rate without the need to account for input and output VAT as required under the standard regime.

Treaty Changes (4)

Belgium-Japan

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Protocol to the Tax Treaty between Belgium and Japan under Negotiation

The Japanese Ministry of Finance has announced that the first round of negotiations for protocol to the 1968 income tax treaty with Belgium began 29 March 2016. The protocol will be the third to amend the treaty and will need to be finalized, signed and ratified before entering into force.

Finland-Untd A Emirates

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TIEA between Finland and the U.A.E. Signed

On 27 March 2016, officials from Finland and the United Arab Emirates signed a tax information exchange agreement. The agreement is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.

Georgia-Korea, Rep of

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Tax Treaty between Georgia and South Korea to be Signed

The Georgian Ministry of Finance has announced that Minister of Finance Nodar Khaduri will sign an income tax treaty with South Korea during an upcoming visit to the country. Negotiations for the treaty began in June 2015, and once signed, it will be the first of its kind between the two countries and will enter into force after that ratification instruments are exchanged.

Philippines-Germany

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Philippine Court Holds Failure to Apply for Treaty Relief not Sufficient Basis to Deny Treaty Benefits

On 21 March 2016, the Philippine Court of Tax Appeals issued its decision concerning the availability of treaty benefits when an application for benefits has not been properly submitted. The case involved Lufthansa's Philippine branch and Lufthansa's gross Philippine billings for online activities in 2008.

In its tax return for 2008, Lufthansa applied a 1.5% rate for its billings for online activities as provided for under Article 8 (Shipping and Air Transport) of the 1983 Germany-Philippines tax treaty. However, the Philippine tax authorities (BIR) took the position that because Lufthansa had not applied for treaty relief as per Revenue Memorandum Order (RMO) No. 1-2000, the 2.5% rate under the National Internal Revenue Code (NIRC) should instead apply and a deficiency income tax assessment was issued.

Under RMO No. 1-2000, an application for treaty relief is to be submitted to the BIR International Tax Affairs Division at least fifteen days before a transaction. However, Lufthansa argued that the obligation to comply with a tax treaty must take precedence over the RMO No. 1-2000 requirement,  and that a tax treaty relief application should merely operate to confirm the entitlement of the taxpayer to relief.

In reviewing the case and similar past cases, the Court sided with Lufthansa, finding that there is nothing in RMO No. 1-2000 that would indicate a deprivation of entitlement to tax treaty relief for failing to comply with the RMO. Furthermore, in reviewing Lufthansa's entitlement to benefits under the treaty itself, it found that Lufthansa has sufficiently proven that it is a resident of the Germany and it is licensed to engage in air travel transport. Therefore, the Court found that there is no basis to deny the application of the 1.5% treaty rate and the deficiency income tax assessment is canceled.

Click the following link for the full text of the decision.

Note - The 1983 Germany-Philippines tax treaty was replaced by a (new treaty) that is effective from 1 January 2016.

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