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Worldwide Tax News

Approved Changes (2)

Canada

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Canada's Economic Action Plan 2015 Act, No. 1 Receives Royal Assent

On 24 June 2015, Canada's Economic Action Plan 2015 Act, No. 1 received royal assent. The Act contains most of the tax provisions included in the 2015 Economic Action Plan, which was introduced with the 2015 Budget in April.

The main business related tax measures include:

  • Reducing the small business federal tax rate from 11% to 9% by 2019, with an initial cut to 10.5% from 1 January 2016;
  • Providing a 10-year accelerated capital allowance rate of 50% on a declining-balance basis for investment in productivity-enhancing machinery and equipment for manufacturing and processing acquired on or after 1 January 2016 up to 31 December 2025;
  • Increasing the Lifetime Capital Gains Exemption to CAD 1 million for owners of farm and fishing businesses from 21 April 2015; and
  • Extending the Mineral Exploration Tax Credit until 31 March 2016

Click the following links for previous coverage of the action plan and a summary of the amendments provided by the Department of Finance Canada.

Russia

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Russian Law Amending CFC and Tax Residence Rules Signed into Law

According to recent reports, amendments to Russia's controlled foreign company (CFC) and tax residence rules were signed into law on 8 June 2015. The main CFC amendments are in regard to the exemption for active foreign holding companies; exemption if participating through a listed company; dividend income exemption; and controlling persons of structures not formed as legal entities. Amendments are also made in regard to the determination of Russian tax residence of foreign companies. The amendments are in force from 8 June 2015, and generally apply from 1 January 2015.

Click the following link for previous coverage of the changes.

Proposed Changes (3)

Poland

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Poland Revises Proposed Transfer Pricing Documentation Rules

Following a public consultation held in May, Poland has revised its proposed transfer pricing (TP) documentation rules. Two key changes from the previous draft include:

  • The shareholding threshold for determining if parties are related would be increased from 5% to 25%, instead of 20% as previously proposed; and
  • The entry into force date is delayed one year, from 1 January 2016 to 1 January 2017

In addition, a new transaction value based threshold is included in the draft rules. The EUR 2 million total annual revenue/costs threshold remains, but a company exceeding that revenue/cost threshold may still be outside the scope of the TP documentation rules if the annual value of a particular related party transaction is under the transaction value threshold; EUR 50,000 plus EUR 1,000 per EUR 1 million of annual revenue over EUR 2 million. However, the tax authorities may still request documentation on transactions below the annual threshold, and the documentation must be submitted within 30 days of the request.

Click the following link for previous coverage of the proposed TP documentation rules.

Switzerland

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Switzerland Delays Withholding Tax Reform

On 24 June 2015, the Swiss Federal Council posted an announcement that it has decided not to move forward with a proposed reform of the country's withholding tax system that would have included a switch from the debtor principle to the paying agent principle.

According to the announcement, the Council will instead propose an extension of the temporary tax exemption for contingent convertible bonds and write-off bonds. A similar exemption would also be established for bail-in bonds. All of the exemptions should come into effect on 1 January 2017 and be limited to a five-year period. The Federal Department of Finance has been instructed to prepare the corresponding dispatch by September 2015.

A switch from the debtor principle to the paying agent principle is to be considered again before the five-year temporary tax exemption extension ends.

Click the following link for the Federal Council announcement.

United States

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Bill Introduced in the U.S. Senate to Restrict the Insurance Business Exception to the PFIC Rules

On 25 June 2015, Senate Finance Committee Ranking Member Ron Wyden, D-Ore introduced a bill, the Offshore Reinsurance Tax Fairness Act, which would restrict the insurance business exception to the passive foreign investment company (PFIC) rules. The main purpose of the bill is to target hedge fund reinsurance companies that are taking advantage of the current law loophole, and stop the abuse of the PFIC exemption.

Under the provisions of the bill, to be considered an insurance company eligible for the exception, the company’s insurance liabilities must exceed 25% of its assets. If the company fails to qualify because it has 25% or less (but not less than 10%) in insurance liability assets, the company may still be considered predominantly engaged in the insurance business based on facts and circumstances. A company with less than 10% of insurance liability assets will not be considered to be an insurance company in any case and would be ineligible for the PFIC exception and subject to current taxation.

Click the following link for the text of the Bill.

Treaty Changes (3)

Egypt-Luxembourg

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Tax Treaty between Egypt and Luxembourg under Negotiation

According to recent reports, officials from Egypt and Luxembourg engaged in a second round of negotiations for an income tax treaty during meetings held 18 to 21 May 2015. Any resulting treaty will be the first of its kind between the two countries, and will enter into force after it has been finalized, signed and ratified.

Gambia-Turkey

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Gambia Approves Tax Treaty with Turkey

On 23 June 2015, the Gambian parliament approved for ratification the pending income tax treaty with Turkey. The treaty, signed 11 February 2014, is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

Switzerland-Cyprus

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Switzerland Approves Tax Treaty with Cyprus

On 19 June 2015, the Swiss parliament announced that it has approved for ratification the pending income and capital tax treaty with Cyprus. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Swiss federal, cantonal and communal taxes on income and capital, and covers the following Cyprus taxes:

  • Income tax;
  • Corporate income tax;
  • Special contribution for the defense of the republic;
  • Capital gains tax; and
  • Immovable property tax

Withholding Tax Rates

  • Dividends - 0% if the beneficial owner is a company whose capital is divided into shares and directly holds at least 10% of the paying company's capital for an uninterrupted period of at least 1 year, or the beneficial owner is a qualifying pension fund; otherwise 15%
  • 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 the 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 or other corporate rights in a company the assets of which consist directly or indirectly of more than 50% of immovable property situated in the other State; although an exemption is provided if:
    • The shares are quoted on a recognized stock exchange;
    • The company carries on its business in the property; or
    • The alienated shares are derived in the course of a corporate reorganization, amalgamation, division or similar transaction

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Cyprus applies the credit method for the elimination of double taxation, while Switzerland generally applies the exemption with progression method. However, in the case of dividend income, Switzerland may apply the credit method, a lump sum reduction, or a partial exemption.

Anti-Abuse

A protocol to the treaty, signed the same date, includes the provision that the benefits of the treaty will not apply in cases of abuse.

Arbitration Clause

The treaty's article on mutual agreement procedures does not include an arbitration clause. However, the protocol to the treaty includes the provision that if Cyprus later enters into an agreement with another State that does include an arbitration clause, such a clause will be added to the Swiss-Cyprus treaty.

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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