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Worldwide Tax News

Approved Changes (2)

Australia

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Australia Issues Taxation Determinations on Whether a Partnership or Trust can be Taken to Hold a Direct Control Interest for the Purpose of NANE Income

On 18 October 2017, the Australian Taxation Office (ATO) issued Taxation Determinations TD 2017/21 and TD 2017/22 on whether a partnership or trust can be taken to hold a direct control interest in a foreign company for the purpose of Subdivision 768-A of the Income Tax Assessment Act 1997 where an Australian corporate tax entity is a partner in the partnership or a beneficiary of the trust. Subdivision 768-A provides that in certain circumstances an equity distribution made by a foreign company to an Australian resident corporate tax entity is non-assessable non-exempt income (NANE income), which includes the condition that a participation test is met.

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TD 2017/21 Income tax: where an Australian corporate tax entity is a partner in a partnership, can the partnership 'hold' a direct control interest (within the meaning of section 350 of the Income Tax Assessment Act 1936) in a foreign company for the purpose of Subdivision 768-A of the Income Tax Assessment Act 1997?

Taxation Determination 2017/21 complements TR 2017/3 Income tax: distributions from foreign companies - meaning of 'at the time the distribution is made' when applying the participation test and new TD 2017/22 (detailed below). It confirms that an Australian corporate tax entity can have an indirect participation interest in a foreign company through a partnership.

TD 2017/21 will help Australian corporate tax entities determine whether the participation test is satisfied in relation to a foreign company and whether foreign equity distributions from that company will be non-assessable non-exempt income under Subdivision 768-A of the Income Tax Assessment Act 1997.

TD 2017/22 Income tax: where an Australian corporate tax entity is a beneficiary of a trust, can the trust be taken to 'hold' a direct control interest (within the meaning of section 350 of the Income Tax Assessment Act 1936) in a foreign company for the purpose of Subdivision 768-A of the Income Tax Assessment Act 1997?

Taxation Determination 2017/22 complements TR 2017/3 Income tax: distributions from foreign companies - meaning of 'at the time the distribution is made' when applying the participation test and new TD 2017/21 (detailed above). It confirms that an Australian corporate tax entity can have an indirect participation interest in a foreign company through a trust. It provides a number of illustrative examples, developed in consultation with key stakeholders.

TD 2017/22 will help Australian corporate tax entities determine whether the participation test is satisfied in relation to a foreign company and whether foreign equity distributions from that company will be non-assessable non-exempt income under Subdivision 768-A of the Income Tax Assessment Act 1997.

United States

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IRS Releases Practice Units on U.S. Real Property Holding Corporations, Entity Classification Regulations, and Accounting for Land Developers and Subcontractors

The U.S. IRS has recently released three international practice units, including:

International practice units are developed by the Large Business and International Division of the IRS to provide staff with explanations of general international tax concepts as well as information about specific transaction types. They are not an official pronouncement of law and cannot be used, cited, or relied upon as such.

Click the following link for the International Practice Units page on the IRS website.

Proposed Changes (2)

Bahrain

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Bahrain Cabinet Approves Agreement on Introduction of Selective Excise Tax

According to a release from the Bahrain News Agency, the Bahrain Cabinet approved on 16 October 2017 the draft law for the ratification of Gulf Cooperation Council (GCC) Unified Selective Excise Tax. The Cabinet also endorsed a bill on the Selective Excise Tax, which includes a tax of 100% on goods that are harmful to human health such as tobacco products, 100% on energy drinks, and 50% on carbonated beverages, as well as measures to address related tax evasion, penalties, tax registration, etc. The draft ratification law and the tax bill have been sent to the Legislative Branch for approval. Additional details will be published once available.

Canada

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Canada to Introduce Measures to Limit the Tax Deferral Opportunities Related to Passive Investments

According to a release from Canada's Department of Finance, the Government intends to introduce measures to limit the tax deferral opportunities related to passive investments. In developing these measures, the Government will ensure that:

  • All past investments and the income earned from those investments will be protected;
  • Businesses can continue to save for contingencies or future investments in growth;
  • A CAD 50,000 threshold on passive income in a year is available to provide more flexibility for business owners to hold savings for multiple purposes; and
  • Incentives are in place so that Canada’s venture capital and angel investors can continue to invest in the next generation of Canadian innovation.

The measures are part of the Government's efforts to ensure that Canadian-controlled private corporation (CCPC) status is not used to reduce personal income tax obligations for high-income earners rather than supporting small businesses.

Treaty Changes (5)

Maldives-Untd A Emirates

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Tax Treaty between the Maldives and the U.A.E. Signed

On 17 October 2017, officials from the Maldives and the United Arab Emirates signed an income and capital tax treaty. The treaty is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged. Details of the treaty will be published once available.

Poland-Turkey

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SSA between Poland and Turkey Signed

On 17 October 2017, officials from Poland and Turkey signed a social security agreement. The agreement is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.

Romania-Spain

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New Tax Treaty between Romania and Spain Signed

On 18 October 2017, officials from Romania and Spain signed a new income tax treaty. The treaty will enter into force after the ratification instruments are exchanged and, once in force and effective, will replace the 1979 tax treaty between the two countries. Details of the new treaty will be published once available.

South Africa

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South Africa Publishes Revised Draft List of Jurisdictions for CbC Exchange Purposes

The South African Revenue Service (SARS) has published a revised draft list of jurisdictions for CbC exchange purposes in relation to the secondary local filing requirements in South Africa's CbC reporting regulations (previous coverage). The revised draft updates and expands upon the initial draft (previous coverage), including further information on when secondary local filing applies, as well as additional details on the jurisdictions with which exchange agreements are in place and the reporting fiscal years for which the exchange is effective. The draft also notes that in addition to referring to the SARS list to assist in determining if a local filing obligation exists, companies may also refer to the OECD's Country-by-Country exchange relationships webpage.

Comments on the revised draft must be submitted by 3 November 2017. A final list is to be issued by the end of November, but given the ongoing activations of CbC exchange relationships, it may be subject to additional changes.

United States

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U.S. Publishes CbC Exchange Arrangements with Canada and Italy

The U.S. IRS has published the competent authority arrangements on the exchange of Country-by-Country (CbC) reports with Canada and Italy. The arrangements were signed 7 June 2017 and 27 September 2017, respectively, and are effective from those dates.

The arrangements provide that pursuant to the exchange of information provisions of the 1980 Canada-U.S. income and capital tax treaty and the 1999 Italy-U.S. income tax treaty, each competent authority intends to automatically exchange CbC reports received from each reporting entity resident for tax purposes in its jurisdiction, provided that, on the basis of the information provided in the CbC report, one or more constituent entities of the MNE group of the reporting entity are resident for tax purposes in the jurisdiction of the other competent authority, or are subject to tax with respect to the business carried out through a permanent establishment situated in the other jurisdiction.

For both Canada and Italy, CbC reports will be exchanged for fiscal years beginning on or after 1 January 2016, with the first exchange to take place no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC report relates. With respect to fiscal years beginning on or after 1 January 2017, reports are to be exchanged no later than 15 months after the last day of the fiscal year.

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