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Worldwide Tax News

Approved Changes (1)

Australia

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Australia Publishes Updated Tax Risk Management Guide

On 20 July 2015, the Australian Taxation Office published an updated version of its tax risk management and governance review guide. The guide outlines best practices for large corporations, consolidated groups, and foreign multi-national corporations conducting business in Australia.

The guide covers:

Board-level responsibilities – an outline of how a board can ensure they are both independent and effective, including the establishment of a framework to identify and manage tax risk; and

Managerial Level responsibilities – examples of the controls that can be implemented to help mitigate tax risks and how management can test and provide assurance for the operational effectiveness of their controls.

Click the following link for the Tax risk management and governance review guide.

Proposed Changes (2)

France

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France Planning Major Increase in Carbon Taxes

On 22 July 2015, the French National Assembly approved legislation increasing the carbon tax by nearly 600% by 2030. Under the legislation, the current rate of EUR 14.5 per metric ton will be increased to EUR 22 in 2016, and further increased to EUR 56 by 2020 and EUR 100 by 2030. The legislation also includes a number of energy usage related plans, including an increase in the use of renewable energy, a reduction in the use of nuclear energy and a reduction in carbon emissions.

United States

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U.S. Congressmen Release Draft Innovation Box Legislation

On 29 July 2015, U.S. Congressmen Charles W. Boustany R-LA and Richard Neal D-MA release a discussion draft for legislation to introduce an innovation box (patent box) regime in the U.S.

If enacted, the Innovation Promotion Act of 2015 would allow for a 71% deduction of innovation box profits resulting in an effect tax rate of 10.15% on such profits. Eligible profits are equal to gross receipts from qualified intellectual property (IP) less cost of goods sold (COGS) and expenses, multiplied by the company's research and development (R&D) ratio. The R&D ratio is equal to the company's domestic R&D expenditure in the previous five years divided by its total costs in the previous five years less COGS, interest and taxes.

In addition, the legislation would allow companies to distribute the appreciated IP of a CFC to the U.S. parent tax-free. The distribution would be treated as a dividend to the extent of the CFC’s earnings and profit (E&P), and the U.S. parent would receive a 100% dividends received deduction. If the distribution exceeds the CFC’s E&P, the excess would be treated as decreasing the parent’s basis in the CFC, with any remaining excess decreasing the parent’s basis in the property.

IP eligible for the 71% deduction and the tax-free distribution include patents, inventions, formulas, processes, designs, patterns, and knowhow (and property produced using such IP), as well as other types of IP like computer software.

The innovation box deduction would apply for tax years beginning after the date of enactment of the legislation, while the tax-free distribution would apply for distributions made after 31 December 2015.

Click the following links for the draft Innovation Promotion Act of 2015, the Technical Explanation, and the request for feedback.

Treaty Changes (4)

Andorra-Malta

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Tax Treaty between Andorra and Malta under Negotiation

Officials from Andorra and Malta have begun negotiations for an income tax treaty during a meeting held 23 July 2015. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

Andorra-Untd A Emirates

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Tax Treaty between Andorra and the U.A.E. Signed

On 28 July 2015, officials from Andorra and the United Arab Emirates signed an income tax treaty. The treaty 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.

Colombia-France

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Update - Tax Treaty between Colombia and France

Colombia and France signed an income and capital tax treaty on 25 June 2015. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Colombian income tax, complementary tax, and CREE tax. It covers French income tax, social contributions, corporation tax, contributions on corporation tax, and the solidarity tax on wealth.

Permanent Establishment

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

In addition, a permanent establishment will be deemed constituted if an enterprise from one Contracting State caries out activities in the other State in connection with the exploration or exploitation of natural resources situated in that State for a period or periods aggregating more than 60 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holdings at least 20% of the paying company's capital; otherwise 15% (the 15% rate also applies for dividends paid by a Colombian company out of profits that have not been taxed at the corporate level)
  • Interest - 0% for interest paid in relation to the sale on credit of any industrial, commercial or scientific equipment, or a credit sale of any goods and merchandise from one enterprise to another; interest on bank loans granted for a period of less than three years; and interest paid by one financial institution to another; otherwise 10%
  • Royalties - 10%

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 shares or other rights in a company, trust or any other institution or entity where 50% or more of the value of its assets or property is directly or indirectly derived from immovable property situated in the other State (excluding immovable property used for its own business activity);
  • 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 rights in a company resident in the other State when the alienator, alone or with related parties, has a 25% or greater direct or indirect participation in the company

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

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 20 (Other Income) will not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest, royalties or other income are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

The Treaty also includes a limitation on benefits Article (26), which includes the provision that the benefits of a reduction or exemption of tax provided by the treaty will not apply if the main purpose or one of the main purposes of a resident of either State or a related party was to obtain the benefits of the treaty. For the purpose of the provision, parties are related if one holds a 50% or greater interest in the other or a third party holds a 50% or greater interest in both.

Article 26 also includes the provision that the benefits of the treaty will not apply if the recipient of income is not the beneficial owner, and the transaction allows the beneficial owner to bear a lower tax burden than it would have incurred if it had received the income directly.

Double Taxation Relief

Both countries generally apply the credit method for the elimination of double taxation.

Entry into Force and Effect

The treaty will enter into force on the first day of the month following the exchange of the ratification instruments, and will apply from 1 January of the year followings its entry into force.

Marshall Isl-Sweden

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TIEA between the Marshall Islands and Sweden to Enter into Force

The tax information exchange agreement between the Marshall Islands and Sweden will enter into force on 1 August 2015. The agreement, signed 10 September 2010, is the first of its kind between the two countries. It is in line with the OECD standard for information exchange and applies from the date of its entry into force.

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