Uruguay: Executive Power formally proposes accountability bill 2016

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The Executive Power of Uruguay submitted to Congress for consideration the 2016 Accountability Bill on 20 June 2017. The Bill includes provisions on Internet services and the software industry. The bill would also modify the Free Zones (FZ) law. If enacted, the provisions of the bill would apply as of 1 January 2018.

According to the bill, net Uruguay-related revenue from the production or distribution of cinema movies and tapes, broadcasting services relating to cinema movies and tapes and television transmissions and other similar means of transmission would no longer be determined on the basis of the remuneration received for use in Uruguay. The bill would treat such income as Uruguayan sourced and, therefore, taxable. The bill would also address the income of non-resident companies providing services directly through the Internet, technological platforms, computer applications or similar means as total Uruguayan sourced income for income tax purposes.

Income received from mediation and intermediation in the supply and demand of services rendered through the internet, technological platforms, computer applications or similar means would be 100% Uruguayan sourced when the supplier and the acquirer of the service are located in Uruguay. The income would be considered as 50% Uruguayan sourced if either the supplier or the acquirers of the service are located abroad.

The Bill would consider services as located in a Uruguayan territory when the services are paid through electronic methods of Uruguay, including electronic money instruments, credit or debit cards, bank accounts, or other similar payment options established through regulations in the future.

In case of value added tax, income gained from mediation and intermediation services associated with supply and demand of services made through the internet, technological platforms, computer applications or other similar means would be considered as Uruguayan-sourced income and, therefore, would be subject to VAT when both parties are located in Uruguay.

According to the Bill, software amortization would be deductible only if the general deductibility requirements for corporate income tax (CIT) purposes are met and this would include the counterparty rule requirement by which expenses are deductible only if the counterparty is subject to income taxation in Uruguay or abroad at the rate of at least 25%. Taxpayers would no longer be able to deduct 1.5 times the actual amount of expenses incurred from software services rendered by taxpayers subject to the CIT. Income obtained from the performance of logical support and related services would be exempt from income tax subject to certain conditions.

Also, income gained from the use of intellectual property and other intangible goods would be exempt from income tax subject to the condition that the goods are the result of research and development activities within free trade zones and other requirements are met.

Companies in free trade zones would be able to provide services to taxpayers subject to CIT outside of the free trade zones, as long as the amount of those services does not exceed 5% of the other services provided within the fiscal year. Additional compliance regulations, such as regulations regarding revocation of the users’ agreement, information to be included in the users’ request and maximum period of the users’ agreement would be added.

According to the bill, a two- to eight-year prison sentence for tax fraud would be imposed when invoices or other equivalent documents used for documenting transactions were, totally or partially, ideologically or materially false.

Uruguay- Fiscal Transparency Law issued

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Uruguay has issued Decree 77/2017 as a guide to Law No 19.484 which sets out the provisions on compliance with international standards for fiscal transparency.

The Decree clarifies which companies are required to provide the tax authorities with information about the average balances and income held and obtained by Uruguayan residents and non-residents taxpayers. The Decree also provides specific information about the scope and content of the information that are required to be reported.

Under the new rule, income from the transfer of shares of a company located in a low or non-tax jurisdiction which directly or indirectly holds more than 50% of its total assets in Uruguay will be deemed as Uruguayan sourced and will be subject to the corporate income tax, the non-resident income tax, and the individual income tax on residents in Uruguay.

The non-resident income tax rate applicable to income of companies located in in a low or non-tax jurisdiction has been increased to 25%. However, the dividends and profits paid by taxpayers who are subject to corporate income tax will remain as previous rate of 7% withholding tax rate.

According to the new rule, in addition to the current requirement of filling the local file, the Uruguayan taxpayers, including head offices and permanent establishments, which are part of a large multinational group and satisfy the definition of related party will have to submit an annual master file and country-by-country reports with the Uruguayan tax authorities in accordance with BEPS action plan 13. The new law also fulfills the conditions of the BEPS Action Plan 14 and allows taxpayers to apply for bilateral and multilateral Advanced Pricing Agreements (APAs) to ensure the taxation of intercompany transactions with multinational groups.

Companies that do not comply with Law 19.484 will be subject to major penalty sanctions.

TIEA between Chile and Uruguay enters into force

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The Exchange of Information Agreement of 2014 between Chile and Uruguay entered into force on 4th August 2016 regarding tax matters and generally applies from 4 August 2016. The announcement of the entry into force of the agreement was published in the Chilean official gazette on 11th February 2017.

DTA between Luxembourg and Uruguay enters into force

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The Double Taxation Agreement (DTA) between Luxembourg and Uruguay entered into force on 11 January 2017. The agreement applies from 1 January 2018. From this date, the new treaty generally replaces the Uruguay-Luxembourg Income and Capital Tax Treaty (1990).

According to the treaty the maximum rate of withholding tax on dividends is 10%. However, if the beneficial owner of the dividends is a company (other than a partnership) and holds a direct holding of at least 10% of the share capital of the company paying the dividends for an uninterrupted period of at least one year, the treaty provides for a 5% rate. Withholding rate of interest is 10%. For royalties, 5% is applicable for the use of industrial, commercial of scientific equipment and 10% is applicable for others.

The treaty generally follows the OECD Model. Luxembourg applies the credit and exemption-with-progression methods for the avoidance of double taxation whereas Uruguay applies the credit method for the avoidance of double taxation.

DTA between UK and Uruguay now in force

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The comprehensive Double Taxation Agreement (DTA) between UK and Uruguay has taken effect from 1 January 2017. The UK and Uruguay signed a convention to avoid double taxation and prevent fiscal evasion related to taxes on income and on capital on 24 February 2016 in Montevideo. The document was signed by the former Ambassador, Ben Lyster-Binns and the Minister of Foreign Affairs, Rodolfo Nin Novoa.

It entered into force on 14 November 2016 and has taken effect from 1 January 2017 for taxes withheld at source, and in respect of other taxes, for taxable periods (and in the case of UK Corporation Tax, financial years) beginning on or after 1 January 2017.

Uruguay: Fiscal benefits extended for implementation of electronic invoicing system

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The Decree of 19 December 2016 adopted by the Ministry of Economic Affairs and Finance extended the benefits provided for by Regulation No 324/011 concerning the development and implementation of the system of electronic tax documents until 31 December 2017.
Currently the benefits are provided for investments related to equipment for electronic data processing and software which include fixed or intangible assets that are used completely for the development and implementation of the electronic invoicing system. The benefits include exemption from the corporate income tax for up to 50% of the invested amount for the first five fiscal years and exemption from net wealth tax on the promoted goods for all their useful life.

Luxembourg: Parliament ratifies DTA with Uruguay

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Luxembourg ratified the income and capital tax treaty with Uruguay on 23 December 2016. The treaty was signed on 10 March 2015.