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Worldwide Tax News

Approved Changes (1)

Croatia

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Croatian Related Party Interest Rate for 2016

On 23 December 2015, the Croatian Ministry of Finance announced in the Official Gazette that the related party interest rate from 1 January 2016 will be 5.14%. The rate had been 7% until 30 October 2015, and reduced to 3% for the period 31 October 2015 to 31 December 2015.

The related party interest rate applies as a minimum interest rate for interest income on cross-border financing between related parties when the Croatian resident provides the loan, and as a maximum rate for the deduction of interest expense on such cross-border financing when the Croatian resident receives the loan. The rate similarly applies for loans between resident related parties if one is in a favorable tax position.

Proposed Changes (3)

Chile

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Chilean Legislation Proposed to Simplify and Clarify Provisions of the 2014 Tax Reform

On 15 December 2015, the Chilean government reportedly submitted legislation to Congress that includes measures meant to simplify and clarify certain provisions of the 2014 tax reform (previous coverage). The 2014 tax reform introduced a number of changes, including new tax regimes from 2017, the standard attribution regime (AIS) and the partially integrated regime (PIS), as well as new CFC and thin capitalization rules, a new general anti-avoidance rule (GAAR) and others.

Some of the main measures in the proposed legislation are as follows:

  • The AIS regime would only be made available to companies that are directly owned by individuals subject to individual income tax (Under AIS regime, owners are taxed whether or not a distribution is made, but with a full imputation credit);
  • A transition rule would apply for the PIS regime, where a taxpayer resident in a country with which Chile has signed a tax treaty before 1 January 2017 would be allowed a full imputation credit against withholding tax on distributions up to 31 December 2019 (under the current rule, such a tax treaty must be in force for the full credit to apply, otherwise only 65% is available);
  • The deduction of foreign tax credits under the CFC rules would be expanded and other issues concerning double taxation that has not been eliminated or reduced would be addressed;
  • The 35% tax on excessive interest payments made to non-resident related parties under the thin capitalization rules would apply to any payments subject to withholding tax at a rate less than 35%, not only payments that had been subject to the reduced 4% withholding tax;
  • The scope of the GAAR would be limited to transactions executed or concluded after 30 September 2015, even if the transactions have tax consequences after that date; and
  • A tax credit under the general foreign tax credit rules would be allowed for foreign taxes paid in a country where the taxpayer has an indirect investment, with the condition that Chile has entered into a tax treaty or tax information exchange agreement with the country.

The proposed legislation must be approved by Congress and published in the Official Gazette before entering into force.

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Oman’s Consultative Assembly has Approved Proposed Tax Rate Changes and Other Measures

On 23 December 2015, Oman's Consultative Assembly (lower house of the Council of Oman) reportedly approved changes to the country's tax rates and other measures. The main changes include:

  • An increase in the standard corporate tax rate from 12% to 15%;
  • The extension of the 55% rate for income from oil sales to income from liquid natural gas sales;
  • The removal of the exemption for taxable income of OMR 30,000 (~USD 78,000) or less; and
  • The removal of the tax exemptions for certain business activities/sectors.

The proposed changes must be passed by the Council of State (upper house) and published in the Official Gazette to be enacted, and are to apply from 1 January 2016.

Poland

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Poland's Proposed Tax on Financial Institutions Approved by Lower Chamber of Parliament

On 17 December 2015, Poland's lower chamber of parliament (Sejm) approved a proposed tax on financial institutions including banks and insurance and reinsurance companies. The tax was included in a number of proposals made by Poland's Law and Justice Party after taking control of parliament in October (previous coverage). The tax would be levied monthly based on the total value of assets exceeding PLN 4 billion (~USD 1.03 billion) at the following rates:

  • For banks - 0.0325% (0.39% annual); and
  • For insurance and reinsurance companies -  0.05% (0.6% percent annual)

The new tax must be approved by the upper chamber of parliament (Senate) and signed into law by the president. Once approved, it is to apply from 1 February 2016.

Treaty Changes (6)

Belarus-Georgia

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Tax Treaty between Belarus and Georgia has Entered into Force

According to an update from the Belarusian Ministry of Taxes and Duties, the income and capital tax treaty with Georgia entered into force on 24 November 2015. The treaty, signed 23 April 2015, is the first of its kind between the two counties.

Taxes Covered

The treaty covers Belarusian tax on income, tax on profits, income tax on individuals and tax on immovable property. It covers Georgian profit tax, income tax and property tax.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 10%
  • Interest - 5%
  • Royalties - 5%

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 participation interests 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

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

Effective Date

The treaty applies from 1 January 2016.

Belgium-Grenada

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TIEA between Belgium and Grenada to Enter into Force

According to an update from the Belgian government, the tax information exchange agreement with Grenada will enter into force on 13 January 2016. The agreement, signed by Belgium on 15 March 2010 and by Grenada on 18 March 2010, is the first of its kind between the two countries and is in line with the OECD standard for information exchange. It generally applies from the date of its entry into force.

China-Estonia

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Protocol to the Tax Treaty between China and Estonia has Entered into Force

On 18 December 2015, the protocol to the 1998 income tax treaty between China and Estonia entered into force. The protocol, signed 9 December 2014, replaces the protocol originally signed with the treaty and makes a number of amendments summarized as follows:

  • It replaces Paragraph 3 of Article 2 (Taxes Covered), which includes Estonian income tax, and Chinese individual income tax and enterprise income tax;
  • It replaces Paragraph 1 of Article 4 (Resident), which removes place of head office as part of the definition of "resident of a Contracting State" and adds place of effective management;
  • It replaces Paragraph 3 of Article 7 (Business Profits) concerning the deduction of expenses for determining the profits of permanent establishments;
  • It removes paragraph 8 of Article 7 (Business Profits) concerning the taxation of insurance business;
  • It replaces Paragraph 3 of Article 11 (Interest) concerning the withholding tax exemption where the beneficial owner of the interest is the Government of the other Contracting State, financial institution wholly owned by that Government, etc.;
  • It replaces Paragraph 4 of Article 13 (Capital Gains) to clarify that the threshold for taxation of gains from the alienation of shares deriving value from immovable property is more than 50% of the total value;
  • It replaces Subparagraph (b) of Paragraph 2 of Article 23 (Methods for Elimination of Double Taxation), which increases the ownership threshold from 10% to 20% for China to also include taxes on profits of an Estonian payer when determining the tax credit for dividend income; and
  • It replaces Article 26 (Exchange of Information), bringing it in line with the OECD standard for information exchange.

In addition to the changes made to the treaty Articles, the protocol also includes references to Article 6 (Income from Immovable Property) concerning:

  • The taxation of income from immovable property in a Contracting State resulting from the entitlement to the enjoyment of the property based on the ownership of shares in the company holding the property; and
  • Clarification that the term "immovable property" includes any rights of claim in respect of immovable property.

The new protocol applies from 1 January 2016, and the protocol originally signed with the treaty ceases to have effect from that date.

Gibraltar-Italy

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TIEA between Gibraltar and Italy has Entered into Force

The tax information exchange agreement between Gibraltar and Italy entered into force on 12 June 2015. The agreement, signed 2 October 2012, is the first of its kind between the two jurisdictions and is line with the OECD standard for information exchange. It generally applies from the date of its entry into force.

India-Macedonia

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Tax Treaty between India and Macedonia has Entered into Force

According to a recent notice published by the Indian government, the income tax treaty with Macedonia entered into force on 12 September 2014. The treaty, signed 17 December 2013, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Indian income tax, including any surcharges, and covers Macedonian profit tax and personal income tax.

Residence

If a company is a resident of 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 considered a resident of either State for the purpose of enjoying the benefits of the treaty.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 90 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties and Fees for Technical Services - 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 alienation of movable property forming part of the business property of a permanent establishment in the other State;
  • Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in the other State; and
  • Gains from the alienation of shares, other than the above, in a company resident 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

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

Limitation on Benefits

Article 28 (Limitation on Benefits) includes the provision that the benefits of the treaty will not be available to a resident of either Contracting State if the main purpose or one of the main purposes of the creation or existence of the resident or transactions undertaken by the resident was to obtain the benefits of the treaty that would not otherwise be available.

Effective Date

The treaty applies from 1 April 2015 in India and from 1 January 2015 in Macedonia.

India-Thailand

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New Tax Treaty between India and Thailand has Entered into Force

According to a recent notice published by the Indian government, the new income tax treaty with Thailand entered into force on 13 October 2015. The treaty, signed 9 June 2015, replaces the 1985 income tax treaty between the two countries.

Taxes Covered

The treaty covers Indian income tax, including any surcharges, and covers Thai income tax and petroleum income tax.

Permanent Establishment

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 personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.

A permanent establishment will also be deemed constituted when an insurance enterprise collects premiums in a Contracting State or insures risks situated in a Contracting State through a non-independent agent. An exemption applies for re-insurance.

Withholding Tax Rates

  • Dividends - 10%
  • 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 alienation of movable property forming part of the business property of a permanent establishment in the other State;
  • Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in the other State; and
  • Gains from the alienation of shares, other than the above, in a company resident 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

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

Limitation on Benefits

Article 27 (Limitation on Benefits) includes the provision that the treaty in no case prevents a Contracting State from applying the provisions of its domestic law or measures concerning tax avoidance or evasion.

Assistance in Collection of Taxes

The protocol to the treaty, signed the same date, includes the provision that if Thailand introduces a provision in its domestic law regarding assistance in collection of taxes or agrees to enter into such assistance with any other treaty partner, then the competent authorities of India and Thailand will open negotiations to amend the treaty to provide such assistance to each other.

Effective Date

The treaty applies in India from 1 April 2016 and in Thailand from 1 January 2016.

The 1985 income tax treaty between the two countries will cease to have effect once the provisions of the new treaty become effective.

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