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Approved Changes (6)

Belarus

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Belarus Clarifies Reduced Individual Tax Rate for High-Tech Park

The Belarusian Taxes and Levies Ministry has issued a guidance letter on the reduced individual income tax rate in relation to the Belarusian high-technology park. According to the letter, individual entrepreneurs registered as residents of the high-tech park and individuals employed by residents of the park are eligible for a reduced income tax rate of 9% (standard rate 13%). The reduced rate, however, does not apply for individuals providing security and other maintenance services.

Bulgaria

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Bulgaria Approves Electronic and Amended Return Filing Requirements

On 23 November 2016, the Bulgarian parliament approved amendments to the corporate and individual income tax return filing requirements. The changes include:

  • Requiring the electronic filing of corporate tax returns (proposed electronic filing requirement for individuals was removed); and
  • Allowing both corporate and individual taxpayers to file an amended return by 30 September of the year in which the initial return was filed without needing to submit a written correction request to the tax authority.

The electronic filing requirement applies from 1 January 2018, while the amended return changes apply from 1 January 2017.

Malaysia

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Malaysia Public Ruling on Industrial Building Capital Allowances

On 23 November, the Inland Revenue Board of Malaysia issued Public Ruling (PR) No. 8/2016 to explain the types of buildings that qualify as industrial buildings under Schedule 3 of the Income Tax Act 1967 (ITA) for capital allowance purposes. PR 8/2016 covers several buildings types and provides examples of their qualification as an industrial building, including:

  • Buildings used as a factory:
    • Buildings equipped with plant and machinery to carry out the manufacturing or processing of materials to produce a product; and
    • Buildings that houses machinery or plant for the manufacturing or processing of materials or products, or the generation of power used for the purposes of that manufacturing or processing;
  • Buildings used as a dock, wharf, depot or jetty, or other similar building;
  • Buildings used as a warehouse where the business consists or mainly consists of the hire of storage space to the public;
  • Buildings where the business is that of supplying water or electricity for consumption by the public or providing telecommunication services to the public;
  • Buildings used in connection with the working of a farm and the business consists or mainly consists of the working of the farm with or without other farms provided no claims are made for qualifying agriculture expenditure;
  • Buildings used in connection with the working of a mine where the business consists or mainly consists of the working of a mine with or without other mines provided no claims are made for qualifying mining expenditure;
  • Buildings provided for the facility of employees; and
  • Certain other buildings treated as industrial buildings, including:
    • Private hospitals;
    • Buildings used for research;
    • Buildings used for approved service projects;
    • Hotels;
    • Airports;
    • Educational institutions; and
    • Others.

PR 8/2016 also provides a summary of industrial building types and the rates of allowances.

Click the following link for PR No. 8/2016 on the Inland Revenue Board of Malaysia website.

Russia

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Russia Finalizes Revised List of Jurisdictions without Adequate Information Exchange for 2017

On 28 November 2016, Russia published Order No. MMB-7-17/527, which approves the revised list of jurisdictions that do not have adequate tax information exchange with Russia. The main impact of the list is in relation to the Russian tax exemption for controlled foreign company (CFC) profits, which is not available if a CFC is located in a listed jurisdiction.

Changes in the list include the addition of South Korea and the removal of Aruba, Bermuda, the Cayman Islands, Estonia, Georgia, Hong Kong, and Mauritius.

The order enters into force on 1 January 2017.

Switzerland

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Switzerland Adopts Ordinances on Automatic and Spontaneous Exchange of Information

The Swiss Federal Council has announced its adoption of the Ordinance on International Automatic Exchange of Information in Tax Matters (AEOI) and the revised Tax Administrative Assistance Ordinance, which provides for spontaneous exchange of information.

The AEOI ordinance contains the Federal Council's implementing provisions for the Federal Act on the International Automatic Exchange of Information in Tax Matters (AEOI Act), which provides for the exchange of financial account information under the OECD Common Reporting Standard (CRS). The ordinance will enter into force on 1 January 2017, with the first exchanges to take place in 2018.

The revised Tax Administrative Assistance Ordinance defines the framework and the procedures required for the spontaneous exchange of information including those that apply for the exchange of information on advance tax rulings. The revised ordinance will enter into force on 1 January 2017, with the first spontaneous exchanges of information taking place from 1 January 2018.

United States-European Union- WTO

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WTO Rules Boeing Tax Breaks Illegal

On 28 November 2016, the World Trade Organization ruled that tax breaks provided for Boeing for the development and production of the new 777X jetliner in the U.S. state of Washington are illegal state subsidies. The case was brought before the WTO by the European Union in 2014, and is part of a large trade dispute between the U.S. and the EU regarding Boeing and Airbus, which itself has also been ruled against by the WTO for illegal subsidies in the past.

The case concerns a 2013 Washington state tax package that amended and extended various tax incentives for the aerospace industry. Although the EU challenged several aspects of the tax package, the focus of the WTO ruling is in relation to a renewed cut in Washington state's business tax rate for the aerospace industry until 2040. The issue with the business tax rate cut is that it includes the condition that the tax break will be terminated if any final assembly or wing assembly has been sited outside the state of Washington, which was found to be in violation of WTO rules. In particular, the condition was found to be in violation of Article 3.1 (b) of the WTO Agreement on Subsidies and Countervailing Measures, which prohibits subsidies contingent upon the use of domestic over imported goods.

While the WTO has not specified the exact amount of the illegal subsidy for Boeing, the EU has claimed an amount of USD 5.7 billion. Boeing on the other hand, has claimed the benefit of the tax break would only be worth approximately USD 50 million per year, beginning from 2020 when deliveries of the new jets are scheduled to start.

As a result of the ruling, the WTO has recommended that the illegal subsidy be withdrawn within 90 days. However, it is unlikely that any benefit will be recovered in the near future as both sides have the right to appeal the decision, and Boeing has reportedly stated that is confident the decision will be overturned.

Click the following links for a summary of the dispute and findings and the full WTO report and addendum.

Treaty Changes (4)

Argentina-Untd A Emirates

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Update - Tax Treaty between Argentina and the U.A.E.

The income and capital tax treaty between Argentina and the United Arab Emirates was signed on 3 November 2016. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Argentine income tax, presumed minimum income tax, and personal assets tax. It covers U.A.E. income tax and corporate tax.

Residence

The treaty includes the provision that if a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be entitled to the benefits and exemptions provided by the treaty.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged persons if the activities continue for a period or periods aggregating more than 6 months within any 12-month period.  

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 15%
  • Interest - 12%
  • Royalties - 10%

The final protocol to the treaty provides that:

  • The withholding tax rate for dividends is limited to 5% if the beneficial owner is the government of a Contracting State;
  • Interest is exempt if paid to the government of a Contracting State; and
  • The 10% withholding tax rate for royalties is limited in the following cases, otherwise domestic rates apply:
    • Contracts regarding transfer of technology must be registered or authorized according to the requirements of domestic law; and
    • The beneficial owner of royalties derived from the use or the right to use any copyright of literary, dramatic, musical, or any other artistic work must be the author or his/her heirs.

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;
  • Gains from the alienation of shares deriving more than 50% of their value from immovable property situated in the other State; and
  • Gains from alienation of shares representing the capital of a company that is a resident in the other State, but limited to 10% for gain on a direct participation of at least 25%, otherwise 15%.

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

The final protocol to the treaty stipulates the rate of tax on gains from the alienation of shares will be limited to 5% if the shares are in a publically listed company and the gains are derived by the government of a Contracting State.

MFN Clause

The final protocol to the treaty states that if Argentina concludes a tax treaty that limits the taxation in the State of source of dividends or capital gains derived by the Government of a Contracting State to a rate that is lower than that provided for in the final protocol (5%), the lower rate (including any exemption) shall automatically apply for the purposes of this Convention from the date on which the other tax treaty is effective.

Double Taxation Relief

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

Limitation on Benefits

Article 25 (Limitation on Benefits) states that the benefits of the treaty will only be available for a resident of a Contracting State if the resident is a qualified person as defined in the Article. However, if a resident does not meet the conditions as a qualified person, the benefits may still apply if the resident demonstrates to the competent authority that the establishment, acquisition, or maintenance of the resident and the conduct of its operations do not have as one of its principal purposes the obtaining of benefits under the 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.

Hungary-Turkmenistan

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Tax Treaty between Hungary and Turkmenistan has Entered into Force

The income and capital tax treaty between Hungary and Turkmenistan entered into force on 19 November 2016. The treaty, signed 1 June 2016, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Hungarian personal income tax, corporate tax, land parcel tax, and building tax. It covers Turkmen tax on profits of legal entities, tax on income of individuals, and tax on property.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 15%
  • Interest - 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 comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State.

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

Double Taxation Relief

Turkmenistan applies the credit method for the elimination of double taxation, while Hungary generally applies the exemption method. However, Hungary will apply the credit method for income that may be taxed in Turkmenistan under the provisions of Articles 7 (Business Profits), 10 (Dividends), 11 (Interest), and 12 (Royalties).

Limitation on Benefits

Article 28 (Special Provisions) includes the provision that a resident of a Contracting State may not receive the benefit of any reduction in or exemption from tax provided by the treaty if the main purpose or one of the main purposes of such resident or a person connected with such resident was to obtain the benefit. Before a resident is denied a benefit, the competent authorities of both States will consult with each other.

Effective Date

The treaty applies from 1 January 2017.

Iceland-Liechtenstein

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Tax Treaty between Iceland and Liechtenstein to Enter into Force

The income and capital tax treaty between Iceland and Liechtenstein will enter into force on 14 December 2016. The treaty, signed 27 June 2016, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Icelandic income tax to the state and income tax to the municipalities. It covers Liechtenstein personal income tax, corporate income tax, real estate capital gains tax, and wealth tax.

Withholding Tax Rates

  • Dividends - 0% if the beneficial owner is a company that has held at least 10% of the paying company's capital for at least one year prior to the payment of the dividends, or if the beneficial owners is a pension fund or qualified charitable entity; otherwise 15%
  • Interest - 0%
  • Royalties - 5% for royalties paid for the use of or the right to use any patent, trademark, design or model, plan, secret formula or process; otherwise 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 deriving more than 50% of their value directly or indirectly from immovable property situated in the other State.

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

Double Taxation Relief

Iceland generally applies the credit method for the elimination of double taxation, while Liechtenstein generally applies the exemption method. However, Iceland will exempt income that is taxable only in Liechtenstein under the treaty, and Liechtenstein will allow a credit in respect of Icelandic tax on income covered by Articles 10 (Dividends) and 12 (Royalties).

Limitation on Benefits

Article 28 (Entitlement to Benefits) includes the provision that a benefit under the treaty will not be granted in respect of an item of income or capital if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit. In such case, a benefit may still be granted if it is established that granting the benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.

Effective Date

The treaty applies from 1 January 2017.

Seychelles-St. Vincent

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Seychelles and St. Vincent and the Grenadines to Negotiate Tax Treaty

Officials from Seychelles and St. Vincent and the Grenadines have reportedly met to discuss their intentions to negotiate an income tax treaty. Any resulting treaty would be the first of its kind between the two countries and would need to be finalized, signed, and ratified before entering into force.

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