World Tax Brief: December 2016

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Bulgaria E-filing: The amendments to the Corporate Income Tax Act have been published in the State Gazette on 6th December 2016. Accordingly, a compulsory obligation for electronic filing of corporate income tax returns is announced and the new requirement will be applicable from 1st January 2018.
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Colombia Years records must be retained: According to ruling 31252 of 2016, the tax authority of Colombia (DIAN) pronounced on the obligation for taxpayers to keep accounting records. Commerce Code article 19 provides that individuals and companies considered to be merchants are obliged to keep accounting records of their financial transactions.
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Cyprus Payment of tax: The tax department of Cyprus has recently issued a circular on provisional tax payment. The department clarified that companies whose income is not subject to tax withholding by the employer are required to pay the second instalment of their estimated income tax liability for 2016 under the self-assessment scheme by 31 December 2016.
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PE rules: On 14 October 2016 the Cyprus Parliament passed amendments to the Cyprus Income Tax Law 118/2002, as amended, relating to foreign Permanent Establishments (PEs). After the amendments, Cyprus taxpayers have the option to elect to tax profits of foreign PEs and also be able to claim as a credit any foreign taxes imposed on the foreign PE’s profits. If this option is not elected, the exemption method will remain at the default position. Transitional rules also apply for the claiming of foreign tax credits for those taxpayers that previously had utilised foreign PE tax losses.
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Georgia Filing return: The Ministry of Finance of Georgia published a draft order on 5 December 2016 which introduces a monthly corporate income tax return form. According to the adopted regime, corporate income tax will apply in accordance with the distribution of profits to the shareholders and the taxpayers are required to file a tax return on a monthly basis, no later than the 15th day of the month following the reporting period. The new corporate income tax regime will become effective from 1 January 2017.
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Germany The statute of limitation period for tax evasion: The German Federal Cabinet on 21 December 2016 approved the draft bill on the combat of tax avoidance. Accordingly, the statute of limitation period for tax evasion will be 10 years.
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Loss carry-forward: The Federal Council permitted the bill on amendments to the change-in-ownership rules on 16 December 2016. According to the section 8c of the Corporate Income Tax Act and under the change-in-ownership rules, a company is not allowed to carry over losses if, within 5 years, more than 50% of the capital or participating interest, membership or voting rights in that company are transferred, directly or indirectly, to a purchaser or a person related to the purchaser. The loss carry-forward will be disallowed pro rata for transfers of shares or voting rights between 25% and 50% within 5 years.
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Hungary Corporate income tax rate: Hungary’s prime minister says the government will introduce a flat corporate tax rate of 9% from 2017, the lowest in the European Union. Prime Minister also said that the new rate is part of the government’s efforts to boost competitiveness. The current rates are 10% on annual corporate profits below 500 million forints ($1.7 million) and 19% above.
SME: The rate of small business tax (KIVA) will be reduced to 14% from current rate of 16% and this replaces the corporate income tax, social security tax and vocational training contribution. This rate of KIVA will further be reduced to 13% as from 2018.
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India Incentives: The Central Board of Direct Taxes announced on 19 December 2016, that in order to achieve the government’s mission of moving towards cashless economy and to incentivize small businesses to reduce the existing rate of deemed profit of 8% under section 44AD of the Act to 6% in respect of the amount of total turnover or gross receipts received through banking channel/digital means for the Financial Year (FY) 2016-17.
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Italy Interest & Penalties: Italy issued Ministerial Decree on 7 December 2016 which was published in the Official Gazette. Accordingly article 1 of the Ministerial Decree, the statutory interest rate will be set to 0.1 %( previously 0.2%) on a yearly basis effective from 1 January 2017.
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Japan Incentives: The government released its 2017 tax reform plan on 8 December 2016. According to the plan, the possibility of research and development credits will be expanded to a range between 6% and 14% from 8% to 10%.
CFC rule: Through the 2017 tax reform plan a new CFC income rules have been proposed, with a foreign subsidiary being subject to CFC rules if: it fails to meet any of the economic activity tests and the foreign tax burden is less than 20%; it meets all the economic activity tests but the foreign tax burden is less than 20%. However, only certain passive income will be included as CFC income; or it is either a “paper” company, “cash-box” company or located in a blacklisted country, and has a foreign tax burden that is less than 30%.
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Korea, Rep Of Loss carry-forward: On 2 December 2016, Korea passed the 2017 tax reform bill. According to the adopted Bill the amount of loss carried forward that a foreign company can deduct has been limited to 80% of the income earned in the relevant business year and this rule will be effective from the beginning of the 2017 business year.
WHT on technical fees: Income arising from the provision of “technical services” will be subject to a 3% withholding tax if suggested by an applicable treaty where the consideration for such services is paid in Korea even if the services are provided outside of Korea. This amendment will affect those companies which are planning to conclude a technical services agreement with an Indian company and this will be applicable to applicable services provided after 1 January 2017.
The statute of limitations on refund claims: The adopted Tax Bill has extended the refund request period from 3 years to 5 years and this will be applicable to requests for refund made after 1 January 2017.
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Utilisation rules for losses: Korea recently enacted the tax reform bill of 2017 on 20 December 2016 which was approved by the National Assembly on 2 December 2016. According to the Tax Reform of 2017, domestic merged brother-sister companies would be considered as tax-free if and only both of them are wholly owned by the same parent company and this will effective from 1 January 2017. Additionally, previously domestic companies other than small and medium-sized enterprises and certain other companies (like companies which are under court receivership) were subject to a limitation on the utilisation of net operating losses (NOLs) to 80% of taxable income. The tax reform bill of 2017 further extended to cover domestic branches of foreign companies and this became effective from 1 January 2017.
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Luxembourg Corporate income tax rate: Luxembourg Parliament adopted the 2017 tax reform on 14 December 2016 which introduces new tax measures for corporate taxpayers. According to the new law, the corporate income tax rate (currently 21%) will be reduced to 19% for 2017 and 18% for 2018. However, the rates applicable to the municipal business tax and the solidarity surcharge will not be amended. As a result, the global combined corporation tax rate will stand at 27.08% in 2017 and 26.01% from 2018 for companies with taxable profits exceeding EUR 30,000 in Luxembourg-City, taking into account the municipal business tax and the solidarity surcharge.
Loss carry-forward: Recently, Luxembourg tax law also provides that companies may carry their losses forward indefinitely and off-set them against any future profits. The 2017 tax reform provides that losses generated during and after 2017 will only be carried forward for a maximum period of 17 years. Losses that have been realised before 2017 will remain unaffected by this time limit.
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Netherlands Dividends: The Deputy Minister of Finance presented a bill to the Parliament regarding a proposal for changes to the tax treatment of certain profit distributions on 16 December 2016. According to the bill, it would modify the dividend withholding rules and would make holding cooperatives subject to tax in certain occurrences. It will be effective from 1 January 2018.
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Saudi Arabia Group reporting: The General Authority for Zakat and Tax (GAZT) of Saudi Arabia published Circular No. 36025/9/1437 dated 14/11/1437H (17 August 2016) of the General Authority of Zakat and Tax, each of the wholly owned subsidiaries are now obliged to file an additional information form in addition to the holding company’s filing of a consolidated zakat return. This will be applicable to all zakat payers who file on Hijri year basis from 30th Dhu-al-Hijjah 1437H (that is,1 October 2016) and those filing on Gregorian Calendar basis 31 December 2016.
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Payment procedures: The General Authority for Zakat and Tax (GAZT) of Saudi Arabia published Circular Number 6768/16/1438 on 4 December 2016 (5/3/1438H), according to the circular prior year assessments will be finalised in accordance with the information available. The advance tax payment will be required in following years based on the amount of corporate tax paid in the preceding year. Saudi listed companies that are already subject to zakat and tax according to this circular will no longer able to file a consolidated zakat return. Each wholly owned subsidiaries will file tax return independently.
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Taiwan CFC rule: Taiwan’s Ministry of Finance on 9 November 2016, released proposed regulations on a controlled foreign company (CFC) and according to the new regulations, the CFC rules will require a Taiwan company to include currently in its taxable income its pro rata share of the taxable profits of its CFC. The CFC rules will be triggered where a Taiwan company, alone or with related parties, directly or indirectly owns more than 50% of the shares of a foreign entity or is capable of having a “significant impact” on a foreign entity. The rules will not apply, however, if the foreign entity has active operating activities or if the income it earns each year is below the relevant standard set out by the Ministry of Finance.
Place of effective management rule: Taiwan’s Ministry of Finance on 9 November 2016, released proposed regulations on the place of effective management (the PEM) rules. Currently, an enterprise is considered a Taiwan resident only if its head office is located in Taiwan. Under the new POEM rule, a foreign entity that has its place of effective management in Taiwan will be deemed to be a Taiwan resident and, thus, will be subject to tax on its worldwide income and also will be required to comply with other Taiwan tax rules. In other words, the rules will require foreign companies that carry out all of their management functions in Taiwan to pay tax and file returns as domestic business entities.
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UK Sanctions for tax evasion: The UK Draft Finance Bill 2017 includes a new ‘Requirement to Correct’ (RTC) historic offshore tax evasion and non-compliance. It introduces a new obligation for taxpayers to ensure that undeclared UK tax liabilities in respect of offshore interests relating to all periods up to and including 5 April 2017 are fully disclosed to HMRC before 30 September 2018. Accordingly, taxpayers who fail to correct historic errors in the ‘RTC period’ (6 April 2017 to 30 September 2018) face much tougher new penalties for their ‘Failure to Correct’ (FTC). FTC penalties include: a standard penalty of between 100% and 200% of the tax that has not been corrected; a 10% asset-based penalty (relevant to ‘the most serious cases’ where tax underpaid in a tax year is greater than £25,000); an enhanced penalty of 50% of the standard penalty amount if HMRC could show that assets or funds had been moved to attempt to avoid RTC; and naming and shaming of taxpayers ‘in the most serious cases’ (total loss of tax greater than £25,000).
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Corporate income tax rate: The autumn statement delivered by the Chancellor on 23 November 2016 provided for new tax measures, many of which will be included in the Finance Bill 2017. The Chancellor announced that the corporation tax rate would fall to 17% by 2020.
Incentives: Two new funds are to be introduced in relation to innovation, research and industrial strategy. A review of the current R&D tax incentives will be carried out. Also, investment is planned for innovative start-up businesses through venture capital funds.
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US Compensation for overpaid tax and refunds: The Inland Revenue Service released Revenue Ruling 2016-28 on 5 December 2016 with the announcement of the interest rates on tax overpayments (i.e. tax refunds) and tax underpayments (i.e. tax assessments and late tax payments) for the calendar quarter beginning 1 January 2017.
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