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Approved Changes (2)

India-Ireland

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Indian Tribunal Holds Google Adwords Distribution Fees can be Treated as Royalties

On 23 October 2017, the Bangalore Income Tax Appellate Tribunal issued its decision on whether distribution fees paid in respect of Adwords in India should be treated as royalties for withholding tax purposes.

The case involved Google India Private Ltd (Google India), which under a distribution agreement was granted non-exclusive marketing and distribution rights to essentially resell Google Adwords online advertising space to Indian customers and provide related after sales service to the India advertisers. As part of the agreement, Google India collected and remitted payments of approximately INR 14.57 billion (~USD 224 million) to Google Ireland in the years 2006-07 to 2011-12, with no tax withheld.

In reviewing Google India for the years concerned, the assessing officer determined that the payments should be treated as royalty payments, for which tax should have been withheld (10%). This determination was based on the complex nature of the Adwords program itself and the services provided by Google India, which in the assessing officer's view, did not merely entail the sale of advertising space, but rather the use of the underlying IP that enabled the functioning of the Adwords program and the targeted placement of advertisements. Google India unsuccessfully challenged this position, and then appealed.

In its decision, the Bangalore Income Tax Appellate Tribunal found in favor of the tax authority and dismissed the appeal of Google India. The Tribunal rejected Google India's contention that it was merely a reseller of advertising space, and found that the terms of the distribution agreement granted Google India access to all intellectual property and confidential information that is used by the Google India in exercising its Adwords sales/service activities under the agreement. Further, the Tribunal found that the IP rights granted can be considered in the nature of royalty under both the Income Tax Act and the 2000 India-Ireland tax treaty, and therefore the payments can be subject to withholding tax.

The decision of the Tribunal may be further appealed to the High Court and Google India reportedly intends to do so.

Lebanon

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Lebanese Parliament has Adopted Revised Legislation to Increase Tax Rates

The Lebanese parliament has reportedly adopted amended legislation to increase revenue, including an increase in the corporate tax rate from 15% to 17% effective January 2017 and an increase in the value added tax rate to from 10% to 11% effective October 2017. Legislation for the increased tax rate was originally enacted in August 2017, but in September 2017, Lebanon's Constitutional Court issued its decision abolishing the law after it was challenged on constitutional grounds (previous coverage). Additional details will be published once available.

Proposed Changes (1)

European Union

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European Commission Consults on Fair and Effective Taxation of the Digital Economy

The European Commission has announced the launch of a public consultation on how the EU can ensure that the digital economy is taxed in a fair and growth-friendly way. The Commission is particularly interested in gathering views on the main problems related to taxing the digital economy, for Member States and business. It also asks for feedback on possible solutions to these problems - both targeted, temporary measures and comprehensive long-term solutions.

Click the following link for the public consultation, which runs until 3 January 2018.

Treaty Changes (5)

Gibraltar-United Kingdom

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Tax Treaty between Gibraltar and the UK to be Negotiated

According to recent Reports, the UK is considering entering into negotiations with Gibraltar for an income tax treaty. Any resulting treaty would be the first of its kind between the two jurisdictions, and must be finalized, signed, and ratified before entering into force.

Jersey-Untd A Emirates

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Tax Treaty between Jersey and the U.A.E. has Entered into Force

According to an update from the Jersey government, the income tax treaty between Jersey and the United Arab Emirates entered into force on 15 February 2017. The treaty, signed 20 April 2016, is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Jersey income tax, and U.A.E. income tax and corporate tax.

Income from Hydrocarbons

Article 3 (Income from Hydrocarbons) includes the provision that the treaty will not affect the right of either Contracting Party to apply their domestic laws and regulations related to the taxation of income and profits derived from hydrocarbons and its associated activities situated in the territory of the respective Contracting Party.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting Party through employees or other engaged personnel for a period or periods aggregating more than six months.

Withholding Tax Rates

  • Dividends - 0%
  • Interest - 0%
  • Royalties - 0%

Capital Gains

The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:

  • Gains from the alienation of immovable property situated in the other Party; and
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party.

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

Double Taxation Relief

Both jurisdictions apply the credit method for the elimination of double taxation.

Effective Date

The treaty applies from 1 January 2018.

Mozambique-Turkey

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Tax Treaty between Mozambique and Turkey under Negotiation

According to a release from Turkey's Revenue Administration, the first round of negotiations for an income tax treaty with Mozambique was held 16 to 20 October 2017, with a second round to be held after the two sides reach consensus on outstanding issues. 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.

Pakistan-Bulgaria

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Pakistan Approves Signature of Tax Treaty with Bulgaria

According to a recent government release, Pakistan's Federal Cabinet has approved the signing of an income tax treaty with Bulgaria. The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force. Additional details will be published once available.

United States

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U.S. Unlikely to Finalize all Needed CbC Exchange Arrangements by End of 2017

According to recent reports, Assistant Deputy Commissioner (International) of the U.S. IRS Large Business and International Division, Theodore Setzer, has stated that it is unlikely that the U.S. will be able to finalize all required Country-by-Country (CbC) Report exchange arrangements by the end of the year. The comment was made while speaking at the 5th Annual International Tax Enforcement and Controversy Conference in Washington, DC on 27 October 2017.

To date, the U.S. has signed competent authority arrangements on the exchange of CbC reports with 29 jurisdictions and negotiations are ongoing with at least 13 others. For U.S. MNEs that have taken advantage of voluntary filing in the U.S. to meet their CbC reporting obligations in respect of fiscal years beginning before 30 June 2016, additional local filing may still be required in other jurisdictions if the exchange arrangements cannot be finalized by the end of the year.

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