The main connecting factors which are commonly used by States to establish jurisdiction to tax the profits of multinational enterprises are “residence” and “source”, which are linked to concepts of “nationality” and “territoriality” used in public international law.Notions of residence and source are recognized by both OECD and UN and are reflected in their tax treaty models.Under residence approach, a state imposes its taxing rights of legal entity or individual based on its relation to the person who derives income.Under source principle, a state assess legal entity or individual to tax based on its relation to assets that generate income.All the states use source principle to levy taxes on income generated within state’s territory. Some states invoke residence/nationality principle and thus tax their citizens and residential companies on their worldwide income (the USA, Russia, Finland, etc.). Some states adopted only territorial principle (Hong Kong SAR, Singapore, Malaysia, Panama, Costa Rica, etc.). However, and most of states utilize both principles.State practice in determining place of residence comprises two main tests: place of...
Double Taxation Agreements (DTAs) are predominantly bilateral in nature. They are concluded on international level under international public law and thus on international level guarantee that they will become a part of domestic law of contracting states after their ratification.There are two ways how contracting states incorporate DTAs into their domestic legislation: Direct effect incorporation does not require any additional legal procedures, and DTA automatically becomes a part of domestic legislation right after its ratification (the USA, France, Switzerland, Luxemburg). In some jurisdictions a legislative act is required (Austria).Indirect effect incorporation needs special legislation for incorporation of DTA into its domestic law system (the UK, India).DTAs override domestic legislation, they prevail over internal laws and regulations. There are three main models of DTAs:The US Model Treaty (updated in 2016) is used by the USA in negotiations with other states, with inclusion of citizenship and focus on limitation of benefits.
The UN Model Treaty (updated in 2017) is used by developing countries, allocates more taxing rights for source countries.
Back in the first quarter of 2018, namely on February 19, 2018, a draft of advisory document was published on the official website of the Organization for Economic Cooperation and Development (OECD), which called on all interested parties to join the discussion on the OECD strategy for combating the loopholes on using the Common Reporting Standard (CRS, Single standard of tax information exchange) in the “citizenship by the investment” (CBI - granting citizenship in exchange for investments) and “residence by the investment” (RBI - granting a residence permit in exchange for investments). To date, more than 70 jurisdictions in the world offer these schemes.
On April 17, 2018, a 96-page document was published on the OECD website (PUBLIC INPUT RECEIVED ON MISUSE OF RESIDENCE BY INVESTMENT SCHEMES TO CIRCUMVENT THE COMMON REPORTING STANDARD), which, in fact, summarized the first results of the discussion and the contents of the official letters to the organization. More than 20 structures were the speakers, including:AFME office in London (Association of Financial Markets in Europe, it brings together the largest agents in the capital markets in the region);
The existing European mechanisms for arbitration resolution of tax disputes on double taxation, prescribed in tax agreements and in accordance with the EU Arbitration Convention, do not always result in effective resolution of tax disputes. The recent monitoring carried out by the Council of the European Union revealed certain shortcomings, especially in relation to accessibility of dispute resolution mechanisms, as well as the length and effective conclusion of the procedure. According to the European Commission, the estimated figure of tax disputes on double taxation in the EU is about 900, with approximately 10.5 billion euros at stake.In this regard, on October 10 this year, the EU Council approved the Directive to resolve tax disputes (hereinafter - the Directive). The directive is aimed at changing the current situation, when the scope for mandatory arbitration in dispute resolution is limited to the issues of transfer pricing adjustments and the profit distribution of related persons. Thus, legal persons and natural persons will be able to resolve all disputes related to the interpretation and application of agreements that provide for the elimination of double taxation...
UK and Colombia signed an agreement on avoidance of double taxation November 2, which is designed to support trade and investment by setting the upper limit of income tax on cross-border income.
The agreement was signed by the Financial Secretary of the Treasury, Jane Ellison, and Colombian finance minister Mauricio Cárdenas.
Income which was received through the international border, potentially exposed to tax in two countries, giving birth to the problem of double taxation. Agreement on avoidance of double taxation ensures that it is fixed, and the income earned in one country is taxed only once, not twice. Eliminating the risk of double taxation will give greater confidence for employees and companies between Britain and Colombia about which taxes they pay and where. The agreement will reduce barriers for international trade and investment, and promote growth and jobs. Also, an agreement of avoidance of double taxation includes provisions to help both countries work together to solve evasion and tax avoidance.
The agreement provides that dividends accruing to the pension fund under certain circumstances, dividends will be subject to income tax at a rate of zero percent. If...
German Ministry of Finance of 24 October confirmed that the double tax avoidance, the contract between Germany and Costa Rica, will be applied from January 1, 2017.
The agreement, which was signed on 13 February 2014, is the first such agreement between Germany and Costa Rica, and contains the OECD standard for the exchange of information between the tax authorities of the two countries.
The tax on dividends will generally be limited to 15 percent. However, the rate of five percent would apply if the dividend recipient is a company (other than partners), which directly owns at least 20 percent of the shares of the paying company.
Income tax on the interest payments, as a rule, is limited to five per cent. At the same time, the withholding tax on royalties will be capped at 10 percent.
Author: Olena Kutova
senior lawyer of the Finance Business Service company
The Government of Japan and Austria have agreed in principle to amend its dual agreement on the avoidance of taxation, in order to further develop trade and investment between the two countries.
The new agreement will allow, in accordance with the procedure of mutual agreement, to ensure the settlement of the double tax disputes.
Also, the new agreement will reduce the rate of withholding tax at the source of investment income (dividends, interest and royalties), as well as to expand cooperation between the tax authorities of the two countries by providing assistance in collection of taxes.
The Organization for Economic Cooperation and Development, in its final report, recommended that countries adopt a binding international agreement on avoidance of double taxation, to the dispute resolution mechanisms have become more efficient. Japan and Austria are among the 20 countries which have declared their commitment to the project.
Changes to the Agreement shall enter into force after the completion of the approval process in both countries.
Author: Olena Kutova
senior lawyer of the Finance Business Service company
Protocol double tax agreement tax between Japan and India came into force on 29 September.The Protocol updates the provisions on the exchange of tax information existing contract. It also amends the list of state financial institutions or central banks eligible for exemption from income tax at source of interest payments presentation in Article 11.
The revised pact is active in Japan since 1 January 2017, and in India from April 1, 2017.
The new double tax agreement with Germany Japan also entered into force on 28 September. The new contract provides for more favorable conditions for companies engaged in trade or investment between the two territories. Agreement again provides tax exemption at source for interest and royalties.
Income from dividends will be removed if the company which receives income has a 25 percent share in dividends at least 18 months. Dividend income might otherwise qualify for a reduced rate of five per cent if the company which receives the dividends are held at least five percent of the company paying the dividends for at least six months. Otherwise, it will apply the rate of 15 percent.
For updated provisions on the exchange of tax information, which...
The Ukrainian parliament is currently being finalized for submission to the discussion of the draft law on ratification of the Protocol amending the Convention between the Government of Ukraine and the Government of the Republic of Cyprus for the avoidance of double taxation and prevention of tax evasion on income tax. This Protocol provides for changes in the taxation of dividends, interest on loans, as well as the alienation of the property income.
With regard to dividends, the top rate will be reduced from 15 to 10%. But lower tax rate - 5% survive only if ownership of at least 20% of the capital of a legal entity. But how exactly a person - remains a mystery, as in the original text of the Protocol stated "Partnership About", ie the "Partnership", while the bill "Partnership About" translated as "Society". As such, this provision leaves room for corruption because it allows you to abuse the tax authority in determining the rate that must be applied by the payer.
The rate of taxation of interest on loans increased from 2% to 5%.
Changes are also proposed concerning the taxation of income from the alienation of shares and corporate rights. Unfortunately, due to the incorrect...
Department of Finance of Ireland began meeting on the changes in the tax agreement with the United States.The Department explained that the update is seen as necessary in accordance with the decision of the United States to upgrade its model tax treaty.The United States took into account the recommendations on the update within reduce their tax base and shift profits. For example, in 2016, the model does not reduce withholding taxes on payments to highly mobile income - income that taxpayers can easily shift around the globe through deductible payments such as royalties and interest rates - which are made by persons who enjoy low or no tax in respect of income in accordance with the preferential tax regime.In addition, a new article obliges the partners to the extent necessary to make changes to the contract, if the changes cause a doubt one of the partners in the domestic law. Model 2016 also includes measures to reduce the tax benefits of corporate inversions.The update also included the US regulations, which provide that disputes between countries in the application of a double taxation agreement should be resolved through binding arbitration through the "last best...