International Tax News Welcome

Tax Legislation
Proposed Legislative
Changes
Administration
and Case Law
International
Tax News
Edition 6
June 2013
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In this issue
Welcome
Keeping up with the constant flow of
international tax developments worldwide
can be a real challenge for multinational
companies. International Tax News is a monthly
publication that offers updates and analysis
on developments taking place around the
world, authored by specialists in PwC’s global
international tax network.
We hope that you will find this publication
helpful, and look forward to your comments.
Cyprus
Netherlands
Recent legislative changes
reaffirm Cyprus’s attractive
tax regime
Netherlands renews decree
on limitation of interest
deduction
Azerbaijan
Hong Kong
Azerbaijan expands tax
treaty network
Bill would further liberalise
Hong Kong’s exchange of
information regime
Tony Clemens
Global Leader International Tax Services Network
T: +61 2 8266 2953
E: [email protected]
Tax Legislation
Proposed Legislative
Changes
Administration
and Case Law
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In this issue
Tax legislation
Administration and case law
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Azerbaijan
Inbound structuring update
Australia
Non-resident taxpayer successful in challenging tax on
sale of shares in Australian gold mining company
Azerbaijan
Azerbaijan expands tax treaty network
Singapore
Exchange of information update
Cyprus
Recent legislative changes reaffirm
Cyprus’s attractive tax regime
Netherlands
Landmark decision on Netherlands-India tax treaty
China
China’s latest interpretation on ‘beneficial ownership’
for Hong Kong tax-resident enterprises receiving
China-sourced dividends
Spain
New Cyprus-Spain tax treaty signed
Portugal
Administrative cooperation between Member States
Netherlands
Netherlands renews decree on limitation of
interest deduction
Hong Kong
Hong Kong signs tax treaty with Guernsey
Spain
New Argentina-Spain double tax treaty signed
Romania
Reorganisations made easier
Portugal
Taxation of service payments
Hong Kong
Tax treaty with Malaysia took effect April 1, 2013
Proposed legislative changes
Singapore
Update on tax administrative issues
Ireland
Ireland signs double tax treaty with Ukraine; double tax
treaty with Uzbekistan enters into force
Singapore
Recent case addresses the determination of
insurers’ profits
Netherlands
Tax treaty network update
Switzerland
Minimum threshold for contribution of qualifying
investments to a subsidiary reduced from 20% to 10%
Portugal
Treaty update
United Kingdom
The UK as a business hub
Singapore
Update on tax treaties
Denmark
Danish government proposes pro-investment changes
to tax law
Hong Kong
Bill would further liberalise Hong Kong’s exchange of
information regime
Portugal
Government announces framework of proposed
corporate income tax reform
Tax Legislation
Proposed Legislative
Changes
Administration
and Case Law
Tax Legislation
Azerbaijan
Inbound structuring update
Effective January 1, 2013, Azerbaijani taxpayers can enter
into ‘Tax Partnership Agreements’ with the tax authorities
to minimise tax risks.
Minimisation of tax risks is defined as mitigation and elimination of
negative impacts on full or partial execution of duties of taxpayers
on tax calculations. The Cabinet of Ministers has been asked to draft
guidance on the nature of, and procedures for, Tax Partnership
Agreements. After the Cabinet of Ministers issues the guidance, it
should be clear whether Tax Partnership Agreements will be similar to
tax rulings in other countries.
Non-residents are taxed in Azerbaijan only in respect of their income
from Azerbaijan sources. Since January 1, 2013, income types from
Azerbaijan sources have been expanded to include payments made for
engineering, architecture, culture, art, theatre, films, radio, TV, music,
painting, sport, and science services.
PwC observation:
Among the key issues regarding Tax Partnership Agreements that
have not yet been resolved are whether they will be binding and
whether they will have the effect of tax rulings.
Sevinj Aliyeva
Baku
T: +994 12 497 2515
E: [email protected]
Sakina Ibrahimova
Baku
T: +994 12 497 2515
E: [email protected]
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Cyprus
Portugal
Recent legislative changes reaffirm Cyprus’s attractive
tax regime
Administrative cooperation between Member States
Cyprus has recently signed a Memorandum of
Understanding (MoU) with international lenders that
sets the framework to rebuild the soundness of the
Cyprus banking sector through its restructuring and
recapitalisation and to control public finances through cost
cutting and efficiencies in order to support sustainable and
balanced growth. Notably, Cyprus’s attractive tax regime
remains fundamentally unchanged by the MoU.
Effective January 1, 2013, the statutory corporate income tax rate
increased from 10% to 12.5%. Effective April 29, 2013, the rate of the
Special Defence Contribution on ‘passive’ interest income increased
from 15% to 30%, but this increase does not apply to interest on intragroup loans, which is taxable -- net of deductible business expenses
-- at the corporate income tax rate of 12.5%.
Decree-Law 61/2013 (the Directive), published in the
Official Gazette of May 10, 2013, has transposed Council
Directive 2011/16/EU, dated February 15, 2011, on
the matter of administrative cooperation in the field
of taxation.
The Directive provides the tax authorities with clearer instructions
regarding administrative cooperation between Member States,
allowing more effective action against tax evasion and fraud.
PwC observation:
The Directive reflects the increased concerns of the Member States
regarding the loss of tax revenue due to tax fraud and evasion, and
is designed to expand the scope of the cooperation between tax
authorities. The measures foreseen in the Directive aim to keep tax
legislation current with respect to new corporate structures used
by modern global companies through information sharing among
the tax authorities of Member States, allowing for tighter control of
international tax schemes.
PwC observation:
Throughout the process of negotiations with international lenders,
Cyprus has successfully safeguarded its attractive tax regime. The
above changes should not have an adverse impact on international
groups establishing their holding, financing, and intellectual
property structures in Cyprus.
Stelios Violaris
Nicosia
T: +357 22555300
E: [email protected]
Nicos Chimarides
Nicosia
T: +357 22555270
E: [email protected]
Jorge Figueiredo
Lisbon
T: +351 213 599 618
E: [email protected]
Catarina Nunes
Lisbon
T: +351 213 599 621
E: [email protected]
Tax Legislation
Proposed Legislative
Changes
Administration
and Case Law
Romania
Reorganisations made easier
At the end of 2012, new legislative provisions were
introduced allowing fiscal losses to be transferred by spinoffs and mergers to the successor entities.
In particular, losses can be recovered by the successor entities
following spin-offs and mergers in proportion to the assets and
liabilities transferred to them. The successor entities can use such
losses during the remainder of the initial loss carryforward period of
five or seven years.
PwC observation:
This is an important milestone for both multinationals doing
business in Romania and local entrepreneurs, especially in the
current economic context. Restructured businesses will be able to
benefit from the tax advantage offered by loss carry-forwards.
Alexandra Smedoiu
Bucharest
T: +40 212 253 681
E: [email protected]
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Tax Legislation
Proposed Legislative
Changes
Administration
and Case Law
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Proposed legislative changes
Denmark
Proposed amendments to Danish tax legislation
The Danish government has proposed legislative changes
that are aimed at encouraging growth and employment by
making it more attractive to invest in Denmark.
The proposals are based on the tax reform plan under the heading
Growth Plan Denmark, for which the government has obtained
majority support.
On the corporate tax side, the presented tax bills include the
following initiatives:
Reduction in corporate income tax rate
The corporate income tax rate would be reduced gradually from the
current 25% to 24.5% in 2014, 23.5% in 2015, and 22% in 2016.
Increase in the amount of tax credits for R&D costs
As of income year 2012 companies with tax losses arising from
research and development (R&D) activities can request a tax credit
(refund) for the tax value of up to 5m Danish kroner (DKK) (i.e.
maximum amount paid out is DKK 1.25m under applicable corporate
income tax rate of 25%). This amount would be increased to DKK 25m
effective from 2015 (i.e. with the reduced corporate income tax rate of
22%, a tax credit of up to DKK 5.5m could be claimed).
Søren Jesper Hansen
Copenhagen
T: 39 45 33 20
E: [email protected]
Natia Adamia
Copenhagen
T: 39 45 94 92
E: [email protected]
PwC observation:
The tax bills are expected to be adopted during the current
parliamentary session; and no major changes are expected during
the hearing process. The proposed amendments are expected
to improve conditions for Danish-resident companies and to
encourage investment in Denmark.
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Tax Legislation
Proposed Legislative
Changes
Administration
and Case Law
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Portugal
Bill would further liberalise Hong Kong’s exchange of
information regime
Government announces framework of proposed
corporate income tax reform
The Inland Revenue (Amendment) Bill 2013 was gazetted
on April 12, 2013.
On April 23, 2013, the Minister of Economy announced
major guidelines of the corporation income tax (CIT)
reform aimed at fostering investment in Portugal by
simplifying the Portuguese tax system and making it
more competitive.
•
•
•
tax information can be exchanged under a standalone Tax
Information Exchange Agreement (TIEA)
information related to taxes not covered by a double tax treaty
(DTT) or in respect of any periods before the relevant DTT/TIEA
came into operation can be exchanged, provided the information
is related to carrying out provisions of the DTT/TIEA or for tax
assessment in respect of any periods after the DTT/TIEA has
come into operation, and
persons who do not possess but have control of the information
requested are obligated to provide the information.
PwC observation:
If enacted, the Bill would open a new chapter for the exchange
of information in Hong Kong. Under the proposed exchange
of information regime, tax information can be exchanged
through either a DTT or a TIEA, and the scope of tax information
that can be exchanged would be broadened. Multinational
corporations with cross-border operations/transactions should
be mindful of the changing exchange of information landscape
in Hong Kong and evaluate its potential impact on their tax risk
management practices.
Fergus WT Wong
Hong Kong
T: +852 2289 5818
E: [email protected]
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Hong Kong
The Bill seeks to further liberalise the exchange of information regime
in Hong Kong so that:
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The tax reform will introduce substantial changes to the CIT system
and improve communication between taxpayers and the Portuguese
tax authorities.
Key aspects of the CIT reform will include intra-group:
•
Reduction of the CIT rate.
•
Simplification of the current system.
•
Broadening the CIT base.
•
Review of the tax regime applicable to group companies.
•
Reinforcement of rules applicable to tax groups with excessive
debt.
•
Review of the international tax policies of Portugal to promote
internationalisation of Portuguese companies.
•
Improvement of the relationship between CIT and the Portuguese
general anti-abuse provision.
•
Reinforcement of the territoriality principle regarding the
taxation of capital gains and dividends.
•
Simplification of the tax regime applicable to tax losses transfers
and carryforwards.
•
Review and reform of existing tax benefits.
Jorge Figueiredo
Lisbon
T: +351 213 599 618
E: [email protected]
In parallel with the CIT reform, the Minister of Economy has
announced several measures to promote investment in Portugal that
are expected to enter into force in 2013. These measures include the
creation of an Extraordinary Tax Credit to Investment, as well as
the reinforcement of the tax benefits foreseen in the tax investment
support regime (RFAI). Also included in this package are the reduction
of the response time for tax ruling requests and the creation of an
international investor’s tax office.
PwC observation:
The measures being discussed are due to be implemented between
2013 and 2020. The expected changes will, in principle, have a
major impact on the taxation of Portuguese companies in Portugal
and those investing abroad, as well as on foreign entrepreneurs
investing in Portugal. The simplification of the tax system -combined with the reduction of the tax rates and the reform of the
existing tax benefits -- justify close monitoring of this subject once
more concrete measures have been announced (expected by the end
of June), because this reform may provide a valuable opportunity to
increase investment in Portugal.
Catarina Nunes
Lisbon
T: +351 213 599 621
E: [email protected]
Tax Legislation
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Changes
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Administration & case law
Australia
Non-resident taxpayer successful in challenging tax on
sale of shares in Australian gold mining company
The Federal Court recently found in favor of the taxpayer in
Resource Capital Fund III LP v Commissioner of Taxation
[2013] FCA 363 (RCF).
The Federal Court in this case considered whether a Cayman Islands
limited partnership (Cayman LP) was taxable in Australia under the
Australian equivalent of the US Foreign Investment in Real Property
Tax Act rules on a capital gain arising from the disposal of shares in a
listed Australian gold mining company. The Federal Court found that:
•
The Cayman LP (deemed to be a company under Australian
domestic law but fiscally transparent for US tax purposes) was to
be respected as a fiscally transparent entity under the AustraliaUnited States tax treaty in accordance with Organisation for
Economic Co-operation and Development (OECD) principles. As
a result, the Cayman LP was held not to be subject to Australian
capital gains tax.
•
The Australian non-resident capital gains tax exemption should
apply to prevent Australia from taxing the capital gain arising on
disposal of the shares because the company was not land rich (as
defined under Australian domestic law).
The Commissioner of Taxation has not yet indicated whether he will
appeal this decision.
Peter Collins
Melbourne
T: +61 3 8603 6247
E: [email protected]
David Earl
Melbourne
T: +61 3 8603 6856
E: [email protected]
PwC observation:
The RCF decision is relevant to foreign investors holding Australian
investments through fiscally transparent entities. The decision
seems to re-confirm that Australia should follow OECD principles in
applying tax treaties to fiscally transparent entities.
It is also relevant to foreign investors in the Australian mining
industry as the application of the valuation principles outlined in
the Federal Court’s decision may have broader application. For
example, any foreign investors that may have paid non-resident
capital gains tax or stamp duty should investigate the potential
opportunity to seek tax refunds.
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Tax Legislation
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Netherlands
Landmark decision on Netherlands-India tax treaty
The Hyderabad Tribunal ruled in Vanenburg Facilities
B.V. vs. ADIT (ITA No. 739 and 2118/Hyd/2011,
March 15, 2013) that the sale of shares in an Indian
company should not be taxable under the Indian Income
Tax Act or the Netherlands-India double tax treaty (DTT).
In this case, a Dutch taxpayer (the seller) sold its 100% shareholding in
an Indian subsidiary to a third party located in Singapore (the buyer),
resulting in a capital gain. In addition, the buyer paid interest on
delayed payment of the sale consideration. Taxes with respect to the
realised capital gain and interest on delayed payment were withheld
at the level of the Singapore buyer. The seller filed its corporate
income tax return and claimed a refund of the taxes withheld by the
buyer, stating that the capital gains were not taxable in India under
the Netherlands-India DTT. The taxpayer also claimed a refund with
respect to the taxes on interest on delayed payment, on the basis that
the interest did not accrue/arise in India.
The Hyderabad Tribunal concluded that the term ‘immovable property’
in the context of the transfer of shares under the Indian Income Tax Act
may not be used for interpretation of the Netherlands-India DTT. Gains
relating to the sale of shares therefore are not taxable under article
13(1) of the Netherlands-India DTT. The Tribunal further stated that
interest income should not be taxable because the source of interest is
outside India.
PwC observation:
This case affirms the principle that a shareholder should be distinct
from its subsidiary. The case also sheds light on the interpretation
and use of terms in domestic Indian law vs. the interpretation and
use of such terms in tax treaties such as the Netherlands-India DTT.
The Indian tax authorities stated that the seller transferred ‘immovable
property’ as defined in the context of transfer of capital assets in the
Indian Income Tax Act. Consequently, article 13 (1) of the NetherlandsIndia DTT should apply to the transaction, which results in an
Indian right to levy taxes on the transfer. In addition, the Indian tax
authorities argued that the interest income was inseparably linked to
the sale of shares, and therefore was taxable in India.
Jeroen Schmitz
Amsterdam
T: +31 88 79 27 352
E: [email protected]
Ramon Hogenboom
Amsterdam
T: +31 88 79 26 717
E: [email protected]
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Pieter Ruige
Amsterdam
T: +31 88 79 23 408
E: [email protected]
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On March 25, 2013, the Dutch Secretary of State
published a Decree that replaced the Decree of December
23, 2005, with respect to the Dutch anti-base-erosion
rule in connection with the deductibility of interest under
Article of the 10a of the Dutch Corporate Income Tax Act
1969 (CITA).
PwC observation:
The Decree does not appear to change the deductibility of interest
under Article 10a, and we expect the Dutch courts also to take this
view. However, the Dutch authorities may use the new Decree as a
basis for challenging the deductibility of interest under Article 10a.
Interest expenses are in principle deductible in the Netherlands,
unless there are no ‘sound business’ reasons available for the debt.
In this respect, Article 10a CITA denies the deduction of interest
expenses on debts to affiliated companies or affiliated individuals if
financing relates to so-called tainted transactions. Examples of tainted
transactions include dividend distributions, repayment of capital, and
capital contributions made by a Dutch taxpayer or one of its Dutch
affiliates, and the acquisition of entities that are, or become, affiliated
parties. Such interest should, however, be deductible if the taxpayer
can demonstrate that both the transaction and the financing thereof
are predominantly based on ‘sound business’ reasons, or that the
interest income is sufficiently taxed.
In the Decree, the Dutch State Secretary clarified his position with
respect to the deductibility of interest expenses on debts resulting
from capital contributions, the availability of ‘sound business’ reasons,
situations in which the shares in a related company (whose acquisition
qualified as a tainted transaction) are sold, and the ‘dynamic versus
static’ approach with respect to the sufficiently taxed test.
Jeroen Schmitz
Amsterdam
T: +31 88 79 27 352
E: [email protected]
Ramon Hogenboom
Amsterdam
T: +31 88 79 26 717
E: [email protected]
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Netherlands
Netherlands renews decree on limitation of
interest deduction
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Pieter Ruige
Amsterdam
T: +31 88 79 23 408
E: [email protected]
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Changes
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and Case Law
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Portugal
Taxation of service payments
On January 14, 2013, the Portuguese Arbitration Court
issued its decision in Case no. 44/2012-T, which addresses
the taxation in Portugal of service payments made by a
Portuguese resident company to a non-resident company
in connection with the development of a project for the
reduction of fuel consumption.
The court held that although the service was wholly realised outside
Portugal, it was used in Portugal, and therefore subject to withholding
tax (WHT) in Portugal.
The Portuguese Corporate Income Tax Code establishes that services
realised or used in Portugal are subject to taxation in Portugal, except
if related to transportation, communication, or financial activities.
Neither the Portuguese tax law nor the Portuguese tax authorities have
provided a definition of ‘transportation, communication, or financial
activities’. The tax law further provides that even if the services are
wholly realised outside Portugal, payments for those services can
be taxed by Portugal when the services relate to assets located in
Portugal or to studies, projects, management or technical support,
accounting or audit services, consulting, organisation, investigation,
and development services, regardless of where performed, if utilised
in Portugal.
Jorge Figueiredo
Lisbon
T: +351 213 599 618
E: [email protected]
Catarina Nunes
Lisbon
T: +351 213 599 621
E: [email protected]
The court reasoned that, although the services were wholly realised
outside Portugal, they were considered consulting services (technical
support services) and were utilised in Portugal by the fleet of the
Portuguese acquirer of the services, so therefore they should be subject
to WHT in Portugal. The court also ruled that ‘transportation activities’
(which, as mentioned above, are covered by an exception in the tax
law and are not subject to taxation in Portugal) are exclusively those
that are part of a transport contract (including activities that when
viewed in isolation cannot be regarded as transportation), and not
those that not being transportation activities themselves, are related
to a transportation activity due to the fact that they are rendered to a
taxpayer that carries out transportation activities.
PwC observation:
Non-resident entities providing services to Portuguese-based
companies should be aware of the broad scope of the Portuguese
Corporate Income Tax, since it can apply based not only on where
services are realised but also on where they are utilitsed and their
connection to Portugal. The court also has clarified the concept of
‘transport activities,’ which are not subject to taxation in Portugal,
by ruling that the exemption applies only to activities that are
covered by exemption applies only to activities that are covered by
transportation contracts.
Note that the Portuguese WHT rate on services provided by nonresident entities has increased to 25% effective January 1, 2013,
unless the income is exempted from taxation in Portugal under the
business profits article of a double taxation treaty.
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Tax Legislation
Proposed Legislative
Changes
Administration
and Case Law
Treaties
The Monetary Authority of Singapore (MAS) on March 28,
2013, issued two circulars on March 28, 2013, outlining
improvements to insurance-related tax incentives.
According to one circular, the tax exemption for the underwriting of
offshore qualifying insurance risks has been is extended to include
offshore catastrophe excess of loss as a qualifying specialised
insurance risk. This is intended to encourage the underwriting of
severe and volatile catastrophe risks from Singapore.
The other circular outlines the following enhancements to the tax
incentives for the insurance brokerage business:
•
•
•
Extension of the tax incentive for the offshore insurance
brokerage business by five years to March 31, 2018.
A change in the definition of qualifying income to include
insurance brokerage activities when the risks being insured or
reinsured are offshore risks. This aligns the incentive with the
revenue model of insurance brokers.
Introduction of a new tax incentive scheme for offshore specialty
insurance brokerage business under which qualifying income
from specialty insurance and reinsurance broking activities is
taxed at a concessionary tax rate of 5%.
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Singapore
Singapore
Update on tax administrative issues
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Case law
PwC observation:
The circulars provide details of the changes to tax incentives that
were announced during the 2013 Budget Speech.
There are specific provisions in the Singapore tax legislation
that prescribe how the profits of insurers should be
ascertained. A recent High Court case dealt with the issue of
whether a general insurer can hold shares as capital assets,
or whether gains arising from the disposal of those shares
would become taxable pursuant to the above provisions.
The court upheld the Income Tax Board of Review’s ruling that an
insurance company can hold assets on capital account.
It is our understanding that the IRAS is appealing the decision.
PwC observation:
This decision would provide much-needed clarification regarding
an issue that has long been the subject of disagreement between
the insurance industry and the IRAS. The outcome of this case -- if
the High Court decision is upheld -- should be well received by the
insurance industry.
The MAS also issued a circular on April 22, 2013, to provide details of
the extension of the tax incentive scheme for approved special purpose
vehicles engaged in asset securitisation transactions. The scheme is
extended for five years to December 31, 2018.
The Singapore tax authorities (Inland Revenue Authority of Singapore
or IRAS) issued a revised circular dated April 26, 2013, to provide
details of the phasing out of the tax incentive schemes for equity-based
remuneration incentive schemes.
David Sandison
Singapore
T: +65 6236 3388
E: [email protected]
David Sandison
Singapore
T: +65 6236 3388
E: [email protected]
Tax Legislation
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Changes
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Switzerland
United Kingdom
Reduction of minimal threshold for the contribution
of qualifying investments into a subsidiary (from 20%
to 10%)
The UK as a business hub
The Swiss Federal Tax Administration recently announced
that it will accept a contribution of a 10% investment in a
company as a tax-neutral contribution of such company to
a subsidiary -- a reduction from the former 20% investment
requirement. That is, the Federal Tax Administration
will treat the contribution for corporate income tax
and issuance stamp duty tax purposes as a tax-neutral
reorganisation for the transferred investment as well as for
the transferring and the receiving company.
Because this practice is not clearly set forth in the relevant tax laws, we
strongly recommend obtaining an advance ruling.
Note that for contributions of establishments, operational units, or
operational assets into a subsidiary the minimum investment in the
receiving subsidiary remains 20%.
PwC observation:
This is a positive development for Swiss-based companies planning
to contribute participations to subsidiaries.
Stefan Schmid
Zurich
T: +41 58 792 44 82
E: [email protected]
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The UK Government is committed to attracting business to
the UK.
Recent changes to the UK corporate tax regime, together with the
existing strong business environment, now make a compelling
proposition for business to locate their activities and functions in
the UK.
The Government has recognised the importance of the UK tax
authorities (Her Majesty Revenue & Customs or HMRC) giving
businesses the certainty they need to make their investment decisions.
HMRC now has an Invest UK team that will enter into discussions with
businesses at the feasibility stage and ultimately will give binding
rulings on tax treatment. The HMRC Invest UK team will coordinate
with other HMRC specialists and lead discussions so as to ensure
consistency and speed of delivery.
More information is contained in a new UK Trade and Investment
(UKTI, a UK Government department) publication “Business in Great
Britain - A guide to UK taxation”, which is available via the UKTI
website: www.ukti.gov.uk. The launch of this publication coincided
with a series of events on the US West Coast co-hosted by PwC and UK
Government representatives to explain the current UK tax landscape.
PwC observation:
PwC has set up a team to mirror the HMRC Invest UK team and has
actively engaged with HMRC to discuss the parameters of potential
agreements. PwC has helped a number of businesses relocate to the
UK through helping them achieve certainty by obtaining clearances
through the HMRC Invest UK team.
Matthew A Ryan
Birmingham
T: +44 (0)121 265 5795
E: [email protected]
Ian Dykes
Birmingham
T: +44 (0)121 265 5968
E: [email protected]
Diane Hay
London
T: +44 (0)207 212 5157
E: [email protected]
Tax Legislation
Proposed Legislative
Changes
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and Case Law
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Azerbaijan
Azerbaijan expands tax treaty network
Azerbaijan’s double tax treaty (DTT) with Slovenia became
applicable in Azerbaijan as of January 1, 2013. A DTT
with Croatia came into force on March 18, 2013, and will
become applicable in Azerbaijan January 1, 2014.
PwC observation:
Implementation of the DTTs with Slovenia and Croatia will
help residents mitigate double taxation of their income in
multiple jurisdictions.
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Sakina Ibrahimova
Baku
T: +994 12 497 2515
E: [email protected]
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China
Hong Kong
China’s latest interpretation on ‘beneficial ownership’
for Hong Kong tax-resident enterprises receiving
China-sourced dividends
Hong Kong signs tax treaty with Guernsey
On April 12, 2013, the State Administration of Taxation
(SAT) released an ‘SAT Reply’ (the Reply) addressing five
specific cases for the determination of beneficial ownership
(BO) status in respect of dividend income under the ChinaHong Kong double tax treaty (DTT).
The Reply sets out the general principles and further guidelines
in relation to how to interpret the guidelines in two previous SAT
circulars on the determination of BO status for tax treaty purposes.
PwC observation:
Even with the previous SAT guidance, some Chinese local-level
tax authorities are still facing practical difficulties in assessing BO
status for DTT purposes. The Reply sets out general principles and
further guidelines for the determination of BO status for dividend
income under the China-Hong Kong DTT. Technically, the Reply is
binding only with respect to the five specific cases listed therein.
Nevertheless, since the Reply was based on the interpretation
of the China-Hong Kong DTT, we expect that the principles and
guidelines in the Reply should be applicable to other Hong Kong
BO applications for dividends. For applicants from tax jurisdictions
other than Hong Kong, the Reply cannot be applied automatically,
but, we believe that the principles and guidelines in the Reply
would provide good reference for similar situations.
Sevinj Aliyeva
Baku
T: +994 12 497 2515
E: [email protected]
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Matthew Mui
PwC China
T: +86 6533 3028
E: [email protected]
Hong Kong signed a double tax treaty (DTT) with Guernsey
on April 22, 2013, bringing the number of treaties signed
by Hong Kong to 28. The Hong Kong-Guernsey DTT has not
yet entered into force, pending completion of the ratification
procedures by both sides.
PwC observation:
Guernsey-resident companies deriving royalty income from
licensing or sub-licensing an intellectual property for use in Hong
Kong may benefit from the Hong Kong-Guernsey DTT. Under the
DTT, the withholding tax (WHT) rate for royalties derived by
Guernsey corporate residents from Hong Kong is reduced from
4.95% to 4%.
Fergus WT Wong
Hong Kong
T: +852 2289 5818
E: [email protected]
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Ireland
Tax treaty with Malaysia took effect April 1, 2013
Ireland signs double tax treaty with Ukraine; double
tax treaty with Uzbekistan enters into force
The Hong Kong Inland Revenue Department (HKIRD)
recently announced that the Hong Kong-Malaysia double
tax treaty (DTT) entered into force on December 28, 2012.
The table below set out the effective dates of the treaty in Hong Kong and
Malaysia respectively.
Treaty
Date of
signing
Date of entry
into force
Date of effect
Hong KongMalaysia DTT
April 25,
2012
December
28, 2012
From April 1, 2013 in
Hong Kong
From January 1, 2013 in
Malaysia
PwC observation:
The conclusion of a DTT with Malaysia should foster closer
economic and trade links between Hong Kong and Malaysia. Hong
Kong resident investors can benefit from the DTT by means of the
reduced WHT rates on interest, royalties, and technical service
fees received from Malaysia as well as potential tax exemption for
capital gains derived from the disposal of investments in Malaysia.
Fergus WT Wong
Hong Kong
T: +852 2289 5818
E: [email protected]
Ireland has signed an double tax treaty with Ukraine. The
treaty will enter into force after the exchange of ratification
instruments between the countries.
The Ireland-Ukraine double tax treaty was signed in Kiev on April 19,
2013. This is the first agreement of its kind between the two countries.
The treaty provides for a withholding tax (WHT) of 5% on dividends
if the beneficial owner is a company that holds directly at least 25%
of the capital of the payer company. In all other cases, WHT of 15%
applies to dividends. WHT at a maximum rate of 5% will apply to
interest payments in connection with the sale on credit of industrial,
commercial, or scientific equipment, or on any loan granted by a bank.
WHT at a maximum rate of 10% will apply to other interest payments.
WHT at a maximum rate of 5% will apply to royalty payments in respect
of any copyright of scientific work, any patent, trade mark, secret
formula, process or information concerning industrial, commercial, or
scientific experience. WHT at a maximum rate of 10% will apply to other
royalty payments.
The Ireland-Uzbekistan treaty, which was signed on July 11, 2012,
came into force on April 17, 2013. The treaty will be effective from
January 1, 2014. The treaty provides for a WHT of 5% on dividends
if the beneficial owner is a company that holds directly at least 10%
of the capital of the payer company. In all other cases, WHT of 10%
applies. WHT at a maximum rate of 5% will apply to interest and
royalty payments.
Denis Harrington
Dublin
T: +353 (0)1 792 8629
E: [email protected]
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PwC observation:
The signing of the double tax treaty with Ukraine and the entry into
force of the treaty with Uzbekistan signal Ireland’s commitment to
expanding and strengthening its tax treaty network. Ireland has
now signed comprehensive double taxation agreements with 69
countries, 64 of which are in effect, and negotiations are ongoing
with other territories at this time. Tax treaties seek to eliminate
or at least minimise double taxation of companies operating
cross-border and are an essential tool for achieving international
tax efficiencies. The agreements generally cover income tax,
corporation tax, and capital gains tax.
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Netherlands
Tax treaty network update
Double tax treaty negotiations planned in 2013
The Dutch Ministry of Finance announced the start of negotiations for
double tax treaties (DTTs) between the Netherlands and Costa Rica,
Tanzania, and Uruguay this year. The Netherlands currently has no
DTT with any of these countries. The Dutch Ministry of Finance further
announced that negotiations are scheduled in 2013 with respect to
the renewal of the existing DTTs between the Netherlands and Spain,
Poland, South Africa, Korea, Malawi, and Tajikistan.
Netherlands - Norway double tax treaty signed
On April 23, 2013, the Netherlands and Norway agreed to significant
amendments to the DTT between the two states, which dates to 1990.
Important features of the new DTT include:
•
0% withholding tax (WHT) on dividends received by pension
funds (15% under the current treaty), and
•
updated Organisation for Economic Co-operation and
Development (OECD) Model Treaty provisions on business profits,
exchange of information, and arbitration.
PwC observation:
It is anticipated that the forthcoming negotiations will be in line
with the Dutch tax treaty policy document published by the Dutch
Ministry of Finance on February 11, 2011. Based on that document,
the Dutch Ministry of Finance will likely aim in the negotiations for:
•
•
•
the inclusion of an extensive exchange of
information provision
the inclusion of anti-abuse provisions, and
the use of the OECD Model Treaty as a starting point.
Jeroen Schmitz
Amsterdam
T: +31 88 79 27 352
E: [email protected]
Ramon Hogenboom
Amsterdam
T: +31 88 79 26 717
E: [email protected]
In this issue
Pieter Ruige
Amsterdam
T: +31 88 79 23 408
E: [email protected]
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Portugal
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Singapore
Thailand tax treaty
Treaty update
Andorra tax treaty
On January 29, 2013, negotiations were initiated between Portugal
and Andorra towards the conclusion of a tax treaty. This treaty follows
the tax information exchange agreement (TIEA) signed between the
two jurisdictions, which entered into force on March 31, 2011.
Singapore tax treaty
On January 29, 2013, a parliamentary commission for foreign affairs
presented its report regarding approval of the Protocol amending the
Portugal-Singapore tax treaty signed on May 28, 2012. The Protocol
foresees the replacement of Article 27 (Exchange of Information) with
a provision in line with Article 26 of the Organisation for Economic Cooperation and Development (OECD) model tax convention on income,
further establishing the procedures and obligations to the exchange
of information to be complied by the tax authorities of the signing
countries. The parliamentary commission recognised the relevance
of this amendment aimed at updating and reinforcing the existing
mechanism for the exchange of information between the States
concerning tax matters.
Uruguay tax treaty
On January 30, 2013, it was announced that the tax treaty between
Portugal and Uruguay has entered into force, with effect from
September 13, 2012. The provisions of the tax treaty have effect in
Portugal regarding taxes withheld at source from January 1, 2013, and
in respect of other taxes, as to income arising in any tax year beginning
on or after January 1, 2013. In Uruguay, the provisions of the tax treaty
regarding periodical income taxes will take effect -- regarding periodic
taxes -- as to taxes applicable in the tax year beginning on or after the
date in which the tax treaty entered into force, September 13, 2013,
and regarding other taxes -- take effect yet on the date of the tax treaty.
Jorge Figueiredo
Lisbon
T: +351 213 599 618
E: [email protected]
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Catarina Nunes
Lisbon
T: +351 213 599 621
E: [email protected]
On February 18, 2013, negotiations were initiated between Portugal
and Thailand towards the conclusion of a tax treaty. The status of the
negotiations is not known and there is not an estimated date for the
conclusions of the tax treaty, which will be subject to Parliamentary
approval and Presidential ratification.
PwC observation:
Portugal has been increasing its network of tax treaties aiming
not only at fostering at investment and economic transactions
between Portuguese and foreign companies but also allowing
the communication and exchange of information between tax
authorities of the signing countries. The conclusion of the tax
treaties with Andorra and Uruguay may lead to the removal of these
jurisdictions from the Portuguese list of tax havens.
Update on tax treaties
Tax treaties
Singapore and Kazakhstan signed a protocol on April 9, 2013,
incorporating the internationally agreed Standard for Exchange of
Information (EOI) into the existing treaty. The protocol is not yet
ratified and does not have the force of law.
In addition, the treaties with Jersey and the Isle of Man were ratified
and entered into force on May 2, 2013. These treaties incorporate
the EOI.
Indian certificate of tax residence requirements
India’s Finance Bill 2013-2014 proposes to withdraw the requirement
to obtain a certificate of residence (COR) in a prescribed format. If
this amendment is passed, Singapore companies should be able to
use the standard COR issued by the Singapore tax authority to avail
themselves of treaty benefits under the India-Singapore treaty.
PwC observation:
The treaties with the Isle of Man and Jersey should facilitate
Singapore’s exchange of information with those jurisdictions.
Regarding Indian certificate of tax residence requirements, it has
been administratively cumbersome for Singapore companies to
obtain a COR in India’s prescribed format. If this requirement is
removed, it will be easier for Singapore companies to enjoy the
benefits of the India-Singapore treaty.
David Sandison
Singapore
T: +65 6236 3388
E: [email protected]
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Singapore
Spain
Exchange of information
New Cyprus-Spain tax treaty
Exchange of information
OECD peer review - phase 2
The Global Forum on Transparency and Exchange of Information for
Tax Purposes (the Global Forum) published its Phase 2 report of the
peer review of Singapore’s implementation of the EOI on April 2, 2013.
The Global Forum affirmed that Singapore’s exchange of information
regime is in line with the internationally agreed standard.
The peer review comprehensively examined Singapore’s legal and
regulatory framework for transparency and exchange of information,
as well as the practical implementation of that framework. The report
noted the following:
•
Singapore has extensive laws to ensure that ownership and
identity information of relevant entities are available.
•
Singapore’s competent authority (Inland Revenue Authority
of Singapore or IRAS) has broad powers to access and obtain
information from any person who holds the information.
•
Singapore exchanges information with its EOI partners in an
effective and timely manner.
David Sandison
Singapore
T: +65 6236 3388
E: [email protected]
Co-operation with overseas tax authorities
The tax authorities of Australia, the UK, and the US have announced
that they will be sharing data and working together to investigate
offshore structures that are being used to conceal assets in certain
jurisdictions, including Singapore. In response to this, the Ministry of
Finance, the Monetary Authority of Singapore (MAS), and the IRAS
issued a joint statement on May 9, 2013, announcing that Singapore is
fully committed to cooperating in the fight against international tax
offences, and that the Singapore authorities will assist the overseas tax
authorities to the fullest extent possible under Singapore’s laws and
tax agreements.
PwC observation:
Singapore is committed to maintaining its reputation as a
responsible financial centre and the authorities have repeatedly
expressed a commitment to cooperate with international efforts
to combat cross-border tax evasion through effective exchange of
information. However, taxpayers may be assured that Singapore’s
laws allow the authorities to accede only to information requests
that are clear, specific, relevant, and consistent with the EOI.
Requests that are frivolous or spurious in nature will not
be entertained.
A treaty with Cyprus was signed on February 14, 2013.
The treaty provides no withholding tax (WHT) on
dividends subject to a minimum 10% direct shareholding
requirement and 5% in other cases.
Interest and royalties are taxable only in the State of residence.
Capital gains arising from the sale of shares are not taxable unless the
issuer is a real estate company, unless its shares are publicly traded. An
important effect of this treaty, once it enters into force, is that Cyprus
will cease to be treated as a tax haven for Spanish income tax purposes.
PwC observation:
This treaty should give rise to planning opportunities because a
significant number of Spanish anti-avoidance rules will no longer
apply to payments made to Cypriot companies.
Ramon Mullerat
Madrid
T: +34 915 685 534
E: [email protected]
Anna Mallol Jover
Barcelona
T: +34 932 537 166
E: [email protected]
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Spain
New Argentina-Spain double tax treaty
A new Argentina-Spain treaty was signed on
March 11, 2013; the previous one was terminated by
Argentina in June 2012 effective January 1, 2013.
Once the new treaty is in force, it will have take effect retroactively as
of January 1, 2013. Probably the most important feature of the new
treaty is that it allows Argentina to levy its wealth tax on Spanish
shareholders of Argentine companies.
On the other hand, in spite of the rumours during the negotiation
process, the new treaty does not exclude Spanish ETVEs (Entidades de
Tenencia de Valores Extranjeros or Spanish holding companies of foreign
companies) from treaty benefits.
Regarding withholding taxes (WHT), the one on dividends remains
at 10%/15%, but is not relevant to the extent that Argentina does not
impose a WHT under its domestic rules. The WHT rate on interest has
been reduced from 12.5% to 12%, whilst for royalties the new treaty
provides four rates (3%, 5%, 10%, and 15%) depending on the nature
of payment.
The capital gains tax provision dealing with the sale of shares has
also been amended by establishing a 10% tax rate if the transferor has
directly held an equity interest of at least 25%, and a 15% tax rate in
other situations. Again, this provision should not apply to the extent
that Argentina continues to treat foreign-to-foreign sales as foreign
source income not subject to Argentine tax.
Ramon Mullerat
Anna Mallol Jover
Madrid
Barcelona
T: +34 915 685 534
E: [email protected]
T: +34 932 537 166
E: [email protected]
PwC observation:
The treaty will enter into force once the instruments of ratification
have been exchanged with retroactive effect to January 1,
2013, which is also the date on which the former 1992 treaty
ceased effect.
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International tax services
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