International Tax AlertISSUE 10 OCTOBER 2012

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Welcome

Welcome to the October 2012 edition of the PKF International Tax Alert (ITA), an online publication that summarises the latest key tax changes from selected countries around the world. In this tenth edition, there are contributions from PKF member firms’ tax experts in 28 countries.

The ITA is issued three times per year and can be downloaded from the PKF International website at www.pkf.com

If any of your tax colleagues would like to be added to the distribution list for international tax publications, please email christiane.morris@pkf.com

Jon Hills, Chairman,PKF International Tax Committeejon.hills@uk.pkf.com

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ContentsCHAIRMAN’S NOTE 2

NEWS IN BRIEF 4from Argentina, Ireland, Isle of Man, Paraguay, Romania and Singapore

COUNTRY UPDATES

AUSTRIA 7Thomas Ausserlechner sets out the new VAT regime for renting out property for business use

BELGIUM 8Chris Peeters reports on the latest tax changes

CHILE 9Antonio Melys explains the new income tax rates

CYPRUS 10Nicolas Stravrinides sets out four new changes to the tax regime

GHANA 11Afoakwa Kwabena summarises ten tax changes

HUNGARY 12Krisztian Vadkerti reports on the government’s tax changes for 2013

IRELAND 13Catherine McGovern sets out the key measures of the Finance Act 2012

ITALY 15Salvatore Delvecchio and Walter Bonzi report on six changes to Italian tax law

JORDAN 17Ali Al-Qudah sets out the conditions for exempting taxpayers from penalties and interest

KENYA 18Sylvia Awori summarises three changes to Kenyan tax law

MALAYSIA 19Chin Chin Lau looks at the new Transfer Pricing guidelines 2012

MEXICO 21Mario Camposllera summarises the new decree to consolidate various tax benefits and administrative measures

THE NETHERLANDS 23Jan Roeland summarises the changes to Dutch corporate law and new tax treaties

OMAN 25Percy Bhaya sets out the key features of the long awaited Executive Regulations to the Income Tax Law

PAKISTAN 29Malik Haroon Ahmad sets out the 12 key features of the amendments made in the Income Tax Ordinance, 2001

PUERTO RICO 31Jorge Guzman explains the latest Internal Revenue Code for a New Puerto Rico

ROMANIA 33Florentina Susnea summarises the changes to corporate, withholding, VAT and income taxes

RWANDA 35Starlings Muchiri explains the changes to the law on tax procedures

SLOVAK REPUBLIC 36Richard Clayton Budd looks at the financial guarantees to be required when registering for VAT and other tax changes

SPAIN 37Aischa Laarbi and Santiago Gonzalez summarise a selection of recent tax changes contained in the Royal Decree Law 20/2012

TURKEY 38Selman Uysal looks at the new incentive system and reduced corporate tax rates for investments

UGANDA 40Albert Beine explains the new system for motor vehicle e-registration

UNITED KINGDOM 41Jon Hills reports on various developments including a new patent box regime, changes for property holding structures and an agreement for applying FATCA

UNITED STATES 47Cristina Wolff, Jay Bakst and Michael Laveman report on the latest FATCA developments and OCDP update

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ARGENTINA REVOKES TAX TREATIES WITH SPAIN AND CHILE

Argentina has given Spain a notice of termination of the Tax Treaty that had been in effect since 1995. The notice was sent through diplomatic channels on 29 June 2012 and it is believed that the advantage given to Spain in Wealth Tax (especially for individuals and companies residing in Spain investing in Argentina) triggered the decision.

The measure will affect Spanish companies. Some payments on royalties or interests shall be subject to higher taxation.

Tax technicians from Spain and Argentina negotiated for several months without positive results but it is hoped that a further agreement can be made in the New Year. The convention ceased to have effect in respect for taxation years beginning 1 January 2013.

Argentina has also given Chile a notice of termination of the Tax Treaty that had been in effect since 1985. The notice was sent through diplomatic channels on 29 June 2012. It was considered that the advantage given to Chile on income sourced in Chile (not levied in Argentina, without tax credit) and on Wealth Tax (especially for individuals and companies residing in Chile and investing in Argentina) triggered the decision.

The convention ceased to have effect in respect for taxation years beginning 1 July 2012.

For more information please contact: Gustavo Director, Tax Partner PKF Villagarcía & Asociados E: gdirector@pkfargentina.com.aror Santiago González BarrauTax Partner, PKF Attest, Spain E: sgonzalez@pkf-attest.es

PKF FIRM IN IRELAND SETS UP CORPORATE RECOVERY DEPARTMENT

PKF O’Connor, Leddy and Holmes, the member firm in Dublin, Ireland has recently established a corporate recovery department that will be led by Declan de Lacy.

The services provided by the new corporate recovery department include receivership, liquidation and restructuring advice. Tax colleagues may wish to note that our corporate recovery team have extensive experience of winding-up SPVs incorporated in Ireland to avail of favourable tax treatments and treaty access.

Declan de Lacy has joined the firm from a top ten practice where he was responsible for corporate finance and corporate recovery assignments. Declan is a Chartered Accountant with degrees in law and economics.

For more information please contact: Declan de LacyPKF O’Connor, Leddy and HolmesT: +353 1 4961 444 E: d.delacy@pkf.ie

NEW FOUNDATIONS FOR THE FUTURE IN THE ISLE OF MAN

The Foundations Act 2010 passed through the Isle of Man Parliament and became law in January 2012. This allowed for the creation of a new legal entity, The Isle of Man Foundation. This is a niche product but one which may well prove attractive to those PKF International firms which provide cross-border fiduciary arrangements.

It is designed to appeal to clients and practitioners in civil law jurisdictions who are looking for a well-regulated and respected European jurisdiction in which to place a foundation. To date, only 12 have been established but international awareness is awakening with Council Members drawn from not just the Isle of Man but also Wales, Poland, Russia and Hong Kong.

The Foundations Act has created a new vehicle which has some traits familiar to trust lawyers in common law jurisdictions while also being, in some ways, similar to a civil law Foundation or a company. Foundations may be used for charitable or non-charitable purposes and can offer an attractive asset management structure when combined with the already existing high levels of corporate services available on the Island.

The Isle of Man Foundation is a separate legal entity and has the ability to manage and own assets in its own name and arrange for its own funding. It is a separate legal person in its own right, as opposed to a trust which is a legal relationship between

Trustees and Settlor/Beneficiaries. Assets held by a Foundation will be held in its own name; an Isle of Man Foundation can trade and arrange for finance in its own right.

For more information please contact: Paul Seaward, PKF (Isle of Man) LLCT: +44 1624 652000E: paul.seaward@pkfiom.com.W: www.pkfiom.com

PERSONAL INCOME TAX PARAGUAY

From August 2012, the Personal Tax comes into force in Paraguay with a tax rate of the 10% on the earnings obtained by natural persons.

Various discounts are available to individuals who retain proper documentation of their business expenditure at home and abroad . The regulations related are the Law Nº 4673/12, the Decree 9371/12 and the General Regulation Nº 80/12.

For more information please contact: Silvia Raquel Aguero RPKF Controller Contadores & AuditoresT: +595 21 49 34 11E: raguero@pkf-controller.com.pyW: www.pkf-controller.com.py

News in Brief

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ROMANIAN FIRM EXPANDS ITS TRANSFER PRICING DEPARTMENT

During the past year, PKF Finconta has developed its transfer pricing (TP) department by recruiting more tax professionals and expanding its portfolio of clients.

The firm’s main objective is to assist companies in managing TP risks by providing high quality services in a flexible, dynamic and cost-effective way. Through a clear understanding of customer needs, it creates and delivers tailored solutions in a practical and efficient manner and are now considered to offer a real alternative to the services offered by Big Four firms.

The TP department works on the principle of continuous innovation, seeking the best solutions based on a thorough knowledge of legislation and practical experience. PKF Finconta also has access to the major commercial databases needed to undertake TP projects including Amadeus, the ISI Emerging Markets and Royaltystat.

For more information please contact:Florentina SusneaPKF Finconta SRLT: +40 21 317 3190E: florentina.susnea@finconta.ro

FIVE TAX CHANGES IN SINGAPORE

1. Simplified tax filing With effect from the Year of Assessment 2012, small companies with annual revenues of less than S$1m will only need to complete the simplified tax return Form C-S. Such companies will also not be required to file their estimated chargeable income (ECI) if it is expected to be nil.

2. Enhancement to Group Relief System With effect from the Year of Assessment 2013, unutilized renovation and refurbishment costs can be transferred under the Group Relief System.

3. Enhancements to incentives for the shipping industry The various tax incentives will now be brought under the single umbrella of Maritime Sector Incentive (MSI). Significant enhancements have been made to the various schemes.

4. Deductibility of pre-commencement

expenses This will now extend to expenses incurred in the accounting year immediately preceding the year in which the business earns its first dollar of revenue.

5. Goods & Services Tax – exempt supplies update 5. Investment-grade gold and precious metals will be treated as exempt supplies for the purpose of GST with effect from October 2012.

For more information please contact:

GOH Bun Hiong (吴文雄)Director of TaxesPKF-CAP Advisory Partners Pte LtdT : (65) 6500 9359E: bunhiong@pkfsingapore.comW : www.pkfsingapore.com

News in Brief

Country Updates

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NEW VAT REGIME FOR RENTING OUT PROPERTY FOR BUSINESS USE

Receipts from renting out property for business use have in the past been treated either as zero-rated or (optional) subject to VAT (at the regular rate of 20%). Residential properties are and from now on will be taxed at 10% VAT. In the first case, the landlord gives up the right to deduct input VAT incurred on expenses, purchase costs, etc. Opting to regular taxation, on the other, hand entitles the landlord to reclaim VAT incurred on expenses and building costs.

As of 1 September 2012 an amendment of the Austrian VAT legislation on the rent and lease of property came into effect. For all newly concluded lease and rent contracts on property the option to regular taxation of the lease and rent will no longer be available

if the tenant is not allowed to deduct input VAT. In particular, this new legislation will have an effect on renting out premises to banks, insurance companies, medical clinics and public bodies.

The consequence on the landlords’ side is that they will lose the deduction and refund of input VAT. Beyond that, certain VAT amounts incurred for construction, comprehensive non-recurring refurbishment, etc that have been deducted in prior periods might have to be adjusted and paid back to the authorities. The amounts payable depend on the time elapsed between the year of VAT deduction and the change in VAT treatment of rental receipts. The relevant adjustment period for VAT deducted in the past has also now been extended to 20 years from 10 years.

Any change in ownership regardless of the title involved (sale, gift, inheritance) after 1 September 2012 is deemed as a new tenancy from a VAT perspective although, under civil law, the rental agreement between the former owner and the lessor does not automatically end with the change in ownership. On the other hand, a change of tenants after 1 September 2012 does not in all cases exclude the lessor from opting to VAT. If the lessor was the builder (construction at the owner’s risk) and the construction of the building started before 1 September 2012 then opting out of the zero-rated treatment is still allowed for this particularly qualified lessor.

The extension of the adjustment period to 20 years together with the new regime on renting for business purposes calls for particular consideration in the planning and controlling of future property investments in Austria.

Austria

For more information please contact: Thomas Außerlechner, PKF Österreicher - Staribacher | T: +43 (1) 5128780 | E: thomas.ausserlechner@pkf.at

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Belgium

MORE SEVERE ANTI-ABUSE RULE IN BELGIAN INCOME TAX, TRANSFER TAX AND INHERITANCE DUTIES

Belgian tax laws are based on the constitutional principle that taxation can only take place if clearly defined by law. This implies that, in certain situations, by choosing a legally correct structuring of a transaction, tax advantages could be obtained or taxation avoided.

The former general anti-abuse rule in Belgian income tax, transfer tax and inheritance duties proved to be ineffective. Tax Authorities could only disallow legally correct transactions if they could replace them with another legally correct transaction which had similar legal consequences to the original transaction.

The new legislation provides that Tax Authorities will be able to disallow legally correct transactions if they have only been set up to artificially avoid taxation or artificially benefit from a tax advantage.

The condition that the alternative transaction put forward by the Tax Authorities should have similar legal consequences has been removed.

As before, the taxpayer can avoid any disallowance by putting forward valid (non fiscal) motives underlying his choice for a certain type of transaction.

The new general anti-abuse rule will imply that, for certain types of transactions, a more detailed preparation and motivation will be essential to avoid discussions with the Tax Authorities. Additionally, it will increase the importance of applying for a preliminary ruling with the Tax Authorities confirming that there are valid (non fiscal) motives underlying the taxpayer’s choice for a certain type of transaction.

THIN CAP AND OTHER CHANGES IN BELGIAN CORPORATE INCOME TAX

Some relevant modifications have been made to the Belgian corporate income tax.

1. Thin cap restrictions

Interest paid by companies with regard to loans received from associated companies will only remain tax deductible if these loans do not exceed certain limits.

As of 1 July 2012, the interest will only be deductible insofar as, with the company paying the interest, the loans received from associated companies do not exceed five times the sum of:

• the taxed reserves at the start of the taxable period and

• the fiscal paid-in share capital at the end of the taxable period.

Specific anti-abuse rules apply if a financial institution is used as an artificial intermediary between the associated companies (eg. with so called “back-to-back” loans).

Companies performing treasury activities for related parties on the basis of a written contract can benefit from a less strict regime. For these activities, the amount of interest that could be disallowed is limited to the positive difference of:

• the interest paid or attributed by the company to related parties in the framework of the treasury activities and

• the interest received or acquired from related parties in the framework of the treasury activities.

Thanks to this “netting”, and depending on the figures, companies performing treasury activities for associated companies may well suffer little impact from the thin-cap restrictions. The thin-cap rules do not apply to:

• financial companies in relation to their activities in:

– leasing of movable assets

– leasing real estate

– factoring

• companies carrying out a public-private project that has been obtained from a government after a public tender.

2. Limited taxation of capital gains on shares

Belgian corporate income tax exempts capital gains on shares provided that certain subject-to-tax requirements are met with the subsidiary in which the shares are held.

Capital gains on shares will now, in any case, become taxable against a reduced corporate income tax rate of 25.75% if the shares are alienated before 12 months of uninterrupted full ownership have passed.

The biggest impact will be on shares held as short term investment while capital gains on shares acquired as financial fixed assets will usually continue to benefit from a corporate income tax exemption.

A different regime applies to shares held as “trading stock” by certain credit institutions and collective investment vehicles. Capital gains are subject to the normal tax rate of 33.99% while minus-values are tax deductible.

For more information please contact: Chris Peeters, Tax adviser, PKF accountants en belastingconsulenten CVBA | T: +32 (0)2 242 11 41 | W: www.pkf.be

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NEW INCOME TAX RATES

Some tax reforms - mainly affecting income taxes - have been approved in Chile. The three most significant changes expected to take effect soon are:

1. Business taxes

The First Category income tax rate is set at 20% and will be applicable to the profits of companies starting this year. This tax must be declared and paid in April 2013. The tax rate applicable before the change is 18.5%.

2. Tax on individuals resident and domiciled in Chile

Progressive taxes on income of individuals (Second Category tax or Complementary Global Tax, as appropriate) will have lower tax rates on income obtained from 1 January 2013 as follows:

From To New tax rate % Current tax rate %

0 1115 0 0

1115.1 2480 4 5

2480.1 4130 8 10

4130.1 5780 13.5 15

5780.1 7430 23 25

7430.1 9910 30.4 32

9910.1 12390 35.4 37

Over 12390.1 40 40

3. Tax on individuals non-resident or non-domiciled in Chile

Regulations on withholding taxes have been changed and unified for individuals non-resident or non-domiciled in Chile. For some transactions, there will be the possibility that withholding tax is applied alternatively on the amount of the transaction or on the taxable profit obtained or otherwise not to apply any withholding taxes when there are losses or income is not taxable. The maximum tax rate has been kept at 35%.

Chile

For more information please contact: Antonio Melys, Tax Division Director, PKF Chile Auditores Consultores Ltda | T: +56 2 650 43 00 | E: amelys@pkfchile.cl

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FOUR RECENT CHANGES TO THE TAX REGIME

1. Tax benefits of new Intellectual Property Regime

• The cost of acquisition or development of Intellectual Property (IP) will be amortized equally over a period of five years, giving a 20% taxable allowance each year.

• 80% of the profit deriving from either royalty income (including compensation for improper use), or sale of IP is deducted as a tax expense, leaving only 20% of the net profit being taxed.

• Income may include royalty payments and damages for wrongful use of the IP.

• The above profit is calculated after deduction of any relevant expense in deriving such income. Example of such expense is interest paid to finance the acquisition or development of the IP.

• There is a wide range of qualifying IP rights.

• Effective tax rate is 2%, since Cyprus has the lowest corporate tax rate in the EU of 10%.

• Effective date of the amendment is 1 January 2012 applied retrospectively.

• Qualifying Intellectual Property Rights

– Patents

– Copyrights

– Trade marks

– Service marks

– Software

– Trade secrets

– Know-how

– List of clients

– R&D

2. Interest payable on loans to acquire shares in a 100% subsidiary

• Interest payable for the purchase of shares in a wholly-owned subsidiary will be allowed as a tax deductible expense, as long as the subsidiary does not have assets not used in the business.

• Where non-business assets exist in the subsidiary, interest will be restricted accordingly.

• Previously interest payable for the purchase of shares in any company was not allowed as a tax deductible expense.

• Effective date of the amendment is 1 January 2012.

3. Group tax loss relief

• Where a subsidiary is incorporated during the year, it will be considered as part of a group for tax loss relief.

• Previously, for a company to be considered as part of a group for tax loss relief, it had to satisfy the criteria (75% rule) for a whole calendar year.

• Effective date of the amendment is 1 January 2012.

4. Tax Treaty Update: New Agreements with Germany

and Russia

• Cyprus – Germany: The new tax treaty replacing the old treaty entered into force from 16 December 2011.

• Cyprus – Russia: The protocol on the existing tax treaty entered into force from 2 April 2012.

Cyprus

For more information please contact: Nicholas Stavrinides, Director, PKF Savvides & Co Ltd | T: +357 25 868 000 | E: nicholas.s@pkf.com.cy

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A SUMMARY OF 10 OF THE LATEST TAX CHANGES IN GHANA

1. Incentives for hospitality industry and hotels

a. Incentives which used to be administered by the Ghana Investments Promotion Center (GIPC) are now to be incorporated in the Internal Revenue Act 2000(Act 592) and managed by the Ghana Revenue Authority (GRA). A full list of the incentives is to be published by the GRA soon.

b. Corporate tax rate reduced from 22% to 20%.

2. Self-employment income tax revenue enhancing project

This project is to be established to help broaden the tax net through which the contribution of the self-employed sector to domestic tax revenue would improve from the current 4% to a targeted level of 8%.

3. Value Added Tax (VAT) threshold increased

To raise the number of companies liable to pay VAT, the threshold for VAT has been increased from an annual turnover of GH¢ 90,000 in 2011 to GH¢120,000 in 2012.

4. VAT refund and duty drawback

Measures have been put in place to address problems in the implementation of VAT Refund and Duty Drawback. The GRA is to adopt an accounting system that will allow taxpayers to offset such refunds against other tax obligations.

5. New tax rates for mining companies

a. Corporate tax rate is increased from current 25% to 35%.

b. Windfall profit tax of 10% has been introduced.

c. There is a uniform regime for capital allowance of 20% for five years (similar to the Oil and Gas sector).

6. Enviromental tax on plastic packaging materials and products

a. This has been reduced from the current 20% to 15%.

b. Also exemption of this tax has been extended to pharmaceutical and agricultural sectors.

7. Anti-avoidance schemes through transfer pricing

It has been calculated that Ghana loses about US$36 million a year through transfer pricing. Regulations are to be drafted to strengthen existing legislation to deal with taxation of multinational companies and minimize the incidence of abuse of transfer pricing.

8. Oil companies (ring fencing)

From 2012, the cost in one contract area or site will not be allowed to be set off against profits from another (belonging to the same company) in determining chargeable income for tax purposes.

9. Ghana Stock Exchange(GSE)

1. A tax holiday enjoyed by the GSE for the past 20 years since 1992 has been extended for another five years to improve its capitalisation.

2. An exemption from capital gains tax has also been extended for a further five years to promote investment and increase

activities on the stock exchange.

3. Mutual Funds and Unit Trust Funds that invest in stocks on the stock exchange will also be exempt from VAT on financial services.

10. Personal income tax

The personal income tax thresholds and brackets have been revised in line with the current inflation trends as a result of the impact of a real increase in GDP on personal income and to compensate for the

loss in purchasing power of income earners.

Details are as follows:

Meanwhile, individuals are encouraged to take advantage of the increased personal reliefs announced in the 2011 budget.

Other tax news includes:

A Tax Administration Bill is to be laid before Parliament to consolidate the common procedures of the Internal Revenue Bill, Customs Bill and the VAT Amendment Bill.

Capital gains tax is to be imposed on any appreciation in the value of companies arising from changes in their ownership structure through takeovers and acquisitions.

Tax holidays are to be granted to entities that donate or import sports equipment into the country.

The National Fiscal Stabilization Levy (NFSL) has been abolished with effect from 1 January 2012.

Ghana

For more information please contact: Afoakwa Kwabena, PKF Ghana | E: kafoakwah222@yahoo.com

IncomeGH¢

RateTaxGH¢

Cumulative Income

GH¢

Cumulative TaxGH¢

First 1,440

0% 0.00 1,440 0.00

Next 720

5% 36.00 2,160 36.00

Next 1,008

10% 100.80 3,168 136.80

Next 25,632

17.5% 4,485.60 28,800 4,622.40

Exceeding 28,800

25%

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NEW TAX LEGISLATION FROM 2013

The Hungarian government has already announced some of the changes effective from 1 January 2013.

INSURANCE TAX

There is a new tax introduced for insurance companies that takes effect from 01 January 2013, with the following rates:

• 15% of tax base in the case of car insurance products (except for liability coverage)

• 10% of tax base in the case of property and accident insurance products.

The insurance tax will be calculated based on the insurance fees, replacing the special tax on insurance companies and the fire protection contribution. The new charge does not cover life and health insurance.

The 30% “accident tax” still remains effective on the liability coverage of car insurance.

FINANCIAL TRANSACTION TAX

From the beginning of next year, financial institutions with a head office or branch in Hungary are liable to financial transaction tax on transactions such as bank transfers, collections, cheque payments, letters of credit, etc.

Transactions which do not imply tax liabilities:

• payments between different accounts of the same person or organization;

• payment transactions related to securities accounts

The rate is 0.1% of the tax base (except for certain transactions carried out by the National Bank, where it is 0.01%).

REDUCTION OF SOCIAL CONTRIBUTION TAX

The current rate of social contribution tax (27%) will be significantly reduced for certain groups of employees in order to increase employment in Hungary.

In the case of employees under 25 and above 55 years, as well as unqualified employees between 25 and 54 years, the social contribution tax is going to be reduced by 14.5%. The rate for employees under 25 years without work experience will be further reduced by 12.5% (thus eliminating the total tax).

There is no social contribution tax on the salaries of the previously permanently unemployed for two years. In the third year, there is a 14.5% discount. The same discounts apply after the maternity and child care period.

All of the above discounts apply to the part of the monthly gross salary below 100,000 HUF (~350 EUR).

CHANGES IN THE VAT ACT

Companies under 500.000 EUR net sales income can choose to report and pay VAT only when the related invoice is settled by their clients.

Hungary

For more information please contact: Krisztián Vadkerti, PKF Hungary | T: +36 1 391 422 | E: krisztian.vadkerti@pkf.hu

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BUSINESS TAX: GROUP RELIEF FOR IRISH LOSSES

Finance Act 2012 introduced an amendment to group relief for Irish losses. Prior to the amendment, a group for Irish loss relief purposes could not exist where it was necessary to trace through a non-EU resident company.

It is now possible for a group to exist for the surrender of losses where the claimant company and the surrendering company are at least 75% members of the same group and can be traced through a company resident in a country with which Ireland has a double taxation agreement or a company which is quoted on certain recognised stock exchanges (or 75% subsidiaries of companies so quoted).

These changes only apply for accounting periods ending on or after 1 January 2012.

FOREIGN DIVIDENDS

Finance Act 2012 also includes an amendment to the treatment of foreign dividends received by Irish resident companies. Irish resident companies who received dividends from companies resident in another EU Member State or resident in a territory with which Ireland has a double taxation agreement (DTA) or is part of a quoted group can be taxed at 12.50% rate in Ireland.

Finance Act 2012 extended the above provision to dividends received from trading companies resident in a territory which has ratified the Convention on Mutual Administrative Assistance in Tax Matters. This provision applies to dividends received on or after 1 January 2012.

SPECIAL ASSIGNEE RELIEF PROGRAMME (SARP)

SARP is a relief from income tax for individuals assigned to work in Ireland. The relief applies to a proportion of the income earned by individuals who are assigned to work in Ireland by a relevant employer.

The relief will apply to individuals who:

– were asked by their employer organisation to work in Ireland from 1 January 2012

– were non-resident for the five years immediately preceding the tax year of arrival in Ireland

– have base salaries of €75,000 or more

– will exercise all their employment duties in Ireland for a minimum of 12 months

– were employed on a full time basis by an associated employer outside Ireland for the entire 12 months immediately before arrival in Ireland.

Ireland

For more information please contact: Catherine McGovern, Tax Partner, PKF O’ Connor Leddy Holmes | T: +353 1496 1444 | E: c.mcgovern@pkf.ie

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Ireland

For more information please contact: Catherine McGovern, Tax Partner, PKF O’ Connor Leddy Holmes | T: +353 1496 1444 | E: c.mcgovern@pkf.ie

CHANGES TO THE SARP RELIEF

– Irish domiciled individuals can now qualify for the relief

– Income threshold for relief to apply has been decreased from €100,000 to €75,000

– Qualifying individuals can now be engaged on Irish employment contracts rather than just overseas contracts

– Relief may be claimed up front via a payroll deduction

– School fees of up to €5,000 per child will be tax free subject to certain conditions.

The relief reduces the individuals’ employment income liable to Irish income tax which is over the lower threshold (€75,000) and below the upper threshold (€500,000) by 30%. For example, if a relevant employee earns €175,000 the maximum relief would be €30,000 (€100,000 x 30%). It should be noted that the relief provides for an exemption from income tax only.

There is no social contribution tax on the salaries of the previously permanently unemployed for two years. In the third year, there is a 14.5% discount. The same discounts apply after the maternity and child care period.

All of the above discounts apply to the part of the monthly gross salary below 100,000 HUF (~350 EUR).

IRELAND AS A HOLDING COMPANY LOCATION

Ireland has numerous merits as a holding company location which include the following:

1. 12.5% Corporation Tax applies to most trading profits while a 25% rate applies to passive investment income.

2. Irish Holding Companies may be exempt from Irish Capital Gains Tax on the disposal of shares in certain subsidiaries subject to certain conditions.

3. Ireland has limited transfer pricing legislation currently in place.

4. The 12.5% tax rate that applies to foreign dividends also includes dividends from non-treaty/non-EU locations as outlined above.

5. A potential 25% credit is available in respect of expenditure on qualifying research and development within the European Economic Area.

6. Intellectual property relief is in the form of capital allowances available for expenditure incurred by companies on intangible assets.

SUBMISSION OF FINANCIAL STATEMENTS IN iXBRL

The Revenue Commissioners have announced that Financial Statements will be filed in the future in iXBRL. This development is scheduled to become live on 23 November 2012. This service will be optional at first but will become mandatory from October 2013 for Corporation Tax returns dealt with by the Large Cases Division in respect of accounting periods ending on or after 31 December 2012.

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SIX RECENT CHANGES TO ITALIAN TAX LAW

1. Expenses for property renovation: new tax deduction percentages

Article 11 of Law Decree 83/2012 (converted by Law 134/2012) has increased the percentage of deductions from 36% to 50% on expenses incurred by private individuals for property renovation (over a period of 10 years via the annual tax return). The threshold of expenses to apply the new percentage was increased from €48,000 to €96,000.

Enforcement of the new rules

The new regime applies to expenses incurred and paid out by individuals from 26 June 2012 and it will remain in force until 30 June 2013.

The following table summarises the enforcement of the new rules and the possibility of deduction.

2. New VAT regime for sales and renting of residential estates

Article 9 of Law Decree 83/2012 has introduced a new regime for property for residential use. VAT continues to be applicable for the sale of property when the seller is the building contractor (or the company that has carried out a renovation) and the purchase agreement has been signed within five years from the finalisation of the construction or completion of the renovation. Moreover, once the five years have expired, the company is allowed to opt for the application of VAT, which must be specified in the purchase agreement. Finally, VAT can also be applied to the sale of property defined as social housing.

In general, tenancy agreements continue to be VAT exempt. In any case, a 10% VAT rate can be applied if the lessor that has carried out a renovation is a building contractor or a company. Also in this case, the choice must be specified within the tenancy agreement and VAT can also be applied to agreements concerning social housing.

3. New VAT regime for sales and renting of business property

As a general rule, the sale of business property is also VAT exempt. However, VAT can be applied when:

– the seller is the building contractor (or the company that has carried out a renovation) and the purchase agreement has been signed within five years from the finalisation of the construction or completion of the renovation or

– the seller opts for the application of VAT by specifying this choice within the purchase agreement.

When the option for the application of VAT is not specified within the agreement, the renting of business properties which cannot be utilized unless radical transformation is carried out is VAT exempt.

In both cases, the application of VAT allows the seller or the lessor to recover VAT on the costs incurred during the construction or renovation of the real estate.

Italy

Payment of expensesDeduction for building

restructuring

From 01.01.2012 to 25.06.2012 36% up to €48,000

From 26.06.2012 to 30.06.2013 50% up to €96,000

From 01.07.2013 36% up to €48,000

For more information please contact: Salvatore Delvecchio or Walter Bonzi, MGP Studio Tributario e Societario | T: +39 02 43981751 | E: s.delvecchio@mgpstudio.it or wbonzi@mgpstudio.it | W: www.mgpstudio.it

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4. New Limited Liability Companies with reduced capital

Article 3 of Law Decree 1/2012 (converted by Law 27/2012) has introduced the option to incorporate a new kind of limited liability company called a “Simplified Limited Liability Company”. The main characteristics of this type of company are:

– the company’s share capital must be at least €1 and no higher than € €9,999.99

– it can only be incorporated by individuals whose age is 35 or under. The company’s incorporation requires a Notary deed but no notary fees are charged

– the directors must be chosen from among the shareholders

– the Articles of Association need to be drawn up in accordance with a standard document recently published by the Italian Government.

No fees and no stamp duties are due for registering the company at the Register of Enterprises.

More recently, art.44 of the Law Decree 83/2012 (converted by law 134/2012) has introduced the option to incorporate the abovementioned limited liability company for shareholders older than 35. In this case, it is not compulsory to choose the directors from among the shareholders and the ordinary fees (stamp duties, Companies House and Notary fees) need to be paid.

5. New fulfillments for mergers and demergers

By amending a few articles of the Italian Civil Code, Article 1 of Decree 123/2012 has simplified the fulfillments required for executing mergers and demergers between Italian companies. Being a new decree in force, it is no longer compulsory for the merger plan to be filed at the Register of Enterprises in the district where the companies’ registered offices are located. As an alternative to such filing, companies are allowed to publish the merger plan on their own websites.

In the above case, the company must allow anyone the option to download the merger plan from its website, along with the Financial Statements of the last three financial years and the Directors’ and Statutory Auditors’ reports.

Finally, should all the shareholders of the two companies express their unanimous consent, their administrative bodies are allowed the option to not prepare a financial report but, if a report is drawn up, its reference date must not exceed four months prior to the date of the merger plan. Moreover, a financial report can be replaced by the last Financial Statements of the companies, as long as the FS reference date is no longer than six months prior to the date of the financial report itself.

6. Corporation tax deduction for losses on trade receivables

Article 33 of Law Decree 83/2012 has amended an article of the Italian Fiscal Code (Decree 917/1986) concerning the deduction of losses incurred on trade receivables for corporation tax purposes. In particular, in accordance with the new Article 101 of Italian Fiscal Code, companies are now allowed to deduct such losses when one of the following three conditions is met:

– the debtor underwent one of the bankruptcy proceedings stated by Italian laws (such as imposed liquidation, bankruptcy and “extraordinary administration of insolvent companies”)

– the debtor has drawn up a debt restructuring agreement which has been reviewed and accepted by the local Court

– the loss has actually been substantiated by specific and precise evidence.

The specific and precise evidence is considered to be met when a payment deadline of six months has expired and, furthermore, when the trade receivable is:

– not higher than €5,000 for those companies whose turnover is at least €100 million

– not higher than €2,500 for any other company.

Italy

For more information please contact: Salvatore Delvecchio or Walter Bonzi, MGP Studio Tributario e Societario | T: +39 02 43981751 | E: s.delvecchio@mgpstudio.it or wbonzi@mgpstudio.it | W: www.mgpstudio.it

17

DECISION TO EXEMPT TAX PAYERS FROM PENALTIES AND INTEREST

The Jordanian Council of Ministers has issued a decision number (516) to exempt all taxpayers from due penalties and interest under the following conditions:

• The exemption assigned for the year 2009 and the previous years.

• The taxpayer only has to pay the due tax amount.

• A tax payer can pay an installment within 12 months but he/she has to pay 25% of the due tax amount and provide a financial guarantee for the rest of the amount outstanding.

• Where the taxpayer only has to pay the penalties – that is, where no taxes are imposed by the Tax Department but there are penalties owing - the Council of Ministers allows the taxpayer to pay only 25% of the imposed penalties and he/she will be exempt from the paying the remaining 75%.

• For the taxpayer to take advantage of the tax exemption, he has to drop the case filed at the Tax Court against the Tax Department.

• The exemption was reduced by 20% monthly starting 21 August 2012 as illustrated in the table below:

OTHER TAX UPDATES

1. The Jordanian Council of Ministers decided on 21 June 2012 to exempt all taxpayers who failed to register for Sales Tax (VAT) from 100 % of delaying penalties. In this case, the tax payer has to register for Sales Tax at the date on which he should have originally registered. This has been effective to include the period starting from 1 June 2012 to 31 December 2012.

2. Starting from 19 May 2012, Sales Tax (VAT) has been reduced on cell phones from 16% to 8%.

3. The Special Sales Tax (SST) on air tickets rose from 30 JOD to 40 JOD for each ticket with effect from 1 July 2012.

Jordan

Exemption Rate Payment Period

100%20 June 2012 until 20 August 2012

80%21 August 2012 until 20 September 2012

60%21 September 2012 until

20 October 2012

40%21 October 2012 until

20 November 2012

20%21 November 2012 until

31 December 2012

For more information please contact: Ali Al-Qudah, Partner, PKF Planning Tax Advisory | T: +962 6 5627129 Ext:125 | E: aqudah@pkf.jo | W: www.pkf.jo

18

CHANGES TO THE TAX LAWS FOR THE TELECOMS INDUSTRY

Investors in the telecommunications industry will be keen to note that gains and profits from transmitting messages derived from Kenya by non-resident persons will now be subject to withholding tax at the non-resident rate of 5%.

The burden for collection of the withholding tax on the income earned by VSAT and satellite operators has now been shifted to the resident consumer of the services. Before this change in legislation it was not clear if a local consumer was expected to deduct withholding tax on such services or not.

This move is in line with the international best practice governing taxation of VSAT and satellite operators and is aimed at guaranteeing revenue collection on such operations by the Kenya Revenue Authority.

MANAGEMENT ACCOUNTABILITY

In a bid to protect shareholders from wanton and risky investment decisions by the management team, the Income Tax Act now provides that, where an offence has been committed by a corporate body of persons, individuals (such as a director, general manager, and corporate secretary) in their capacity will be held guilty unless they can prove otherwise.

Such individuals may be ordered by the court to make payments relating to the unpaid tax assessed in addition to the penalties imposed.

This change in the tax legislation is aimed at aligning itself with the provisions of the Kenyan Companies Act which holds the management team of a company liable for any negligent acts or omissions in their course of duty.

TAX INCENTIVE ON CONSTRUCTION OF COMMERCIAL BUILDINGS

The Kenyan tax incentive regime has been given a further boost with the introduction of a 25% industrial building allowance on capital expenditure on the construction of a commercial building.

For an investor to enjoy this, however, he also needs to construct roads, power, water and other social infrastructure alongside the commercial building.

The downside of this provision is that investors who previously enjoyed the allowance at 10% will no longer qualify for the same if their buildings do not have the prescribed social infrastructure.

Kenya

For more information please contact: Sylvia Awori, Tax Manager, PKF Kenya | T: +254 20 427 0000 | E: sawori@ke.pkfea.com

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THE MOST RECENT KEY TAX DEVELOPMENTS IN MALAYSIA

New Transfer Pricing Guidelines 2012

• In line with the introduction of the newly gazetted Income Tax (Transfer Pricing) Rules 2012 which have a retrospective effect from 1 January 2009, the new Transfer Pricing Guidelines 2012 (the new TP Guidelines) were issued by the Malaysian tax authorities on 20 July 2012. The new TP Guidelines replace the previous Transfer Pricing Guidelines issued on 2 July 2003.

• These TP Guidelines are largely based on the governing standard for transfer pricing which is the arm’s length principle as set out under the Organization for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines.

• While the Transfer Pricing Rules cover the application of Section 140A of the Malaysian Income Tax Act 1967 (the Act), the TP Guidelines are intended to explain the administrative aspects of the Rules and provide clear guidance for taxpayers in their efforts to determine transfer prices which are consistent with the arm’s length principle.

• Basically, the TP Guidelines apply to all taxpayers who meet the following conditions:

– For taxpayers carrying out businesses with a gross income of more than RM25 million and a total amount of related party transactions of more than RM15 million

– For taxpayers providing financial assistance of more than RM50 million. Transactions involving financial institutions are excluded.

• Taxpayers who fall under the above scope of the TP Guidelines need to prepare contemporaneous transfer pricing documentation. For taxpayers who do not fall under the scope, they are nevertheless encouraged to do so to help to justify that their related party transactions are transacted at the arm’s length price.

• Tax adjustments as a result of a transfer pricing audit are subject to penalty under subsection 113(2) of the Act with the following penalty rates applicable:

Taxpayers who do not fall under the scope of the Guidelines and have not prepared a contemporaneous transfer pricing documentation may be subject to 25% penalty on adjustments due to transactions not concluded at arm’s length.

Malaysia

If there is no contemporaneous transfer pricing documentation

35%

If there is transfer pricing documentation prepared but not according to requirements

in the Guidelines25%

For more information please contact: Chin Chin Lau, Director, PKF Tax Services | T: 6 03 6203 1888 | E: chinchin@pkfmalaysia.com | W: www.pkfmalaysia.com

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New Advance Pricing Arrangement Guidelines 2012

• Following the gazette of the Income Tax (Advance Pricing Arrangement) Rules 2012 on 11 May 2012, the Inland Revenue Board of Malaysia has issued the new Advance Pricing Arrangement Guidelines (the APA Guideline) on 20 July 2012.

• The APA Guidelines provide guidance on the procedures to apply for an APA as well as the manner in which such an application will be processed and administered. For the purpose of the Guidelines, a Permanent Establishment (PE) will be treated as a (hypothetically) distinct and separate enterprise from its head office or other related branches.

• An application for APA will only be considered for cases involving:

a. a company assessable and chargeable to tax under the Act

b. turnover value exceeding RM100 million

c. threshold of the proposed covered transaction:

– for sales, it must exceeds 50% of turnover

– for purchases, it must exceed 50% of total purchases

– for other transactions, the total value must exceed RM25 million.

• The expected duration of the whole process of applying for a unilateral APA is between six to 12 months while it is between one to two years for bilateral / multilateral APA.

• As long as an APA remains in effect and the taxpayers comply with the terms and conditions of the APA, no penalty under the Act will be imposed with respect to the covered transactions for the covered period.

• However, where there is a need to revise rollback years of assessment as a result of application for an APA, such adjustments may be subject to penalty provisions under the Act.

Deferment of GST Implementation

• The Malaysian Government has announced that the Goods and Services Tax (GST) will not be implemented this year as the government is focusing on creating awareness of the new taxation mechanism among the people.

Malaysian Budget 2013

• The Malaysian Budget 2013 was tabled in Parliament on 28 September 2012. Hence, more updates on key changes to the Malaysian tax legislation will be given in the next International Tax Alert.

Malaysia

For more information please contact: Chin Chin Lau, Director, PKF Tax Services | T: 6 03 6203 1888 | E: chinchin@pkfmalaysia.com | W: www.pkfmalaysia.com

21

NEW DECREE TO CONSOLIDATE VARIOUS TAX BENEFITS AND ADMINISTRATIVE MEASURES

On 30 March 2012, a decree which pulls together various tax benefits and administrative simplification measures was published in the Official Journal of the Federation. This decree came into force on 1 April 2012.

The following four main benefits are provided for in the decree:

1. Entities that work under a Maquila Program to promote manufacturing industry, maquila and export services from domestic suppliers according to the Program referred to by the Decree may withhold VAT tax which is transferred by the acquisition of such goods as per Article 1, Section IV of the VAT Tax Law, without having to comply with the requirement to have a domestic vendor program.

For the application of such benefits, the following requirements were added:

• In order to determine a resulting credit balance, the withheld tax of the month period in question will be reduced.

• To contract with domestic suppliers of raw material or goods who have accepted to have tax withheld.

• To provide domestic suppliers with a certified copy of their current authorisation of the maquila program.

2. A tax incentive is given to importers or sellers of juices, nectars, concentrated fruit or vegetable and drink products in which milk is a component that is combined with vegetables, dairy cultures or lactobacillus, sweeteners or other ingredients such as drinking yoghurt, fermented milk product or shakes as well as bottled water or whose containers are less than ten litres.

The tax incentive consists of the equivalent amount to the 100% VAT payable for the importation or sale of the above products and shall only be applied while it is not transferred to the acquirer any amount in respect of VAT on the disposal of such goods. Such tax incentive will be creditable against the tax payable by such activities.

3. Trailers and semi-trailers are exempt from 80% of income tax incurred derived from rental income provided they are imported on a temporary basis up to a month as per Article 106, Section I of the Customs Law.

To apply this exemption, taxpayers engaged in the activity of land freight trucking who fulfill their tax obligations under the terms of Title II, Chapter VII or Title IV, Chapter II, Sections I and II of the Income Tax Law and who rent trailers or semi-trailers referred in the above paragraph shall withhold the income tax referred to in Article 188 of the said Law, considering the exemption referred to in this article.

4. The Decree includes a number of new benefits aimed at simplifying administrative procedures to enable taxpayers to comply with certain tax obligations faster.

The simplified measures include:

– The option to treat tax withheld from interest as a final tax

– Relaxation of the rules for tax returns where the income of the previous year was less than $40 million

– Relaxation of the rules for disclosing tax incentives, except where disclosure of particular incentives is considered necessary for administrative reasons.

AMENDMENTS TO THE CORPORATIONS LAW

On 15 December 2011, the Official Journal of the Federation published a Decree amending, supplementing and repealing various provisions of the Foreign Investment Law, the Corporations Law, and the Organic Law of Federal Public Administration.

The following three relevant changes were made:

• The duration of corporations may be for an indefinite period.

• The requirement of minimum capital for Limited Liability Companies and Corporations was removed. In both cases the capital will be established in the social contract.

• The Ministry of Economy is granted the power to authorise the use of denomination or official names for the formation of companies, as well as for those companies seeking to change their corporate name.

Mexico

For more information please contact: Mario Camposllera, Partner, PKF Mexico | T: +33 3634 7159 | E: mcamposllera@pkf.mexico.com | W: www.pkfmexico.com

22

AMENDMENTS TO THE CORPORATIONS LAW

On 15 December 2011, the Official Journal of the Federation published a Decree amending, supplementing and repealing various provisions of the Foreign Investment Law, the Corporations Law, and the Organic Law of Federal Public Administration.

The following three relevant changes were made:

• The duration of corporations may be for an indefinite period.

• The requirement of minimum capital for Limited Liability Companies and Corporations was removed. In both cases the capital will be established in the social contract.

• The Ministry of Economy is granted the power to authorise the use of denomination or official names for the formation of companies, as well as for those companies seeking to change their corporate name.

CRITERIA ISSUED BY THE MEXICAN TAX AUTHORITIES ON THE APPLICATION OF THE BENEFITS CONTAINED IN THE INTERNATIONAL TREATIES

The Servicio de Administración Tributaria (SAT) Tax Administration Service has determined that, in order to access benefits provided in the Tax Avoidance Treaties, taxpayers will need to:

• Prove that taxpayers are resident in the country in question by providing a certificate of residence or a copy of the Income Tax Statement from the previous fiscal year

• Comply with the provisions of the treaty.

Treaties to avoid double taxation in general do not establish rules of procedure, so that each State has the authority to specify in its legislation the requirements for the application of the benefits referred to in such treaties. This is recognised by the comments to the articles of “Tax Convention Model on Income and Capital”, referred to by the recommendation adopted by the Board of the OECD on 23 October 1997.

Therefore, for the purposes of Article 5, first paragraph of the Income Tax Law, people who intend to apply the benefits of these treaties must comply with the procedural provisions contained in said Law.

Mexico

For more information please contact: Mario Camposllera, Partner, PKF Mexico | T: +33 3634 7159 | E: mcamposllera@pkf.mexico.com | W: www.pkfmexico.com

23

Below are summaries of the latest tax developments in the Netherlands. The content below is of a general nature and should not be regarded as an exhaustive outline or as a substitute for detailed legal advice.

DUTCH CORPORATE LAW

From 1 October 2012, adjusted rules for the incorporation of a private limited liability company (“Besloten vennootschap”) were enacted. These new rules apply for all limited liability companies including those already established on 1 October 2012. The new rules aim to provide a more flexible framework for setting up a private limited liability company. Below are some of the essential changes:

• Upon incorporation, only one share needs to be issued without the requirement to state the authorised or paid in capital and a minimum capital of €18,000 is no longer required

• Non-voting and/or non-profit participating shares can be formed but no combination thereof

• Distributions of profits and reserves can be made subject to consent of the management board. By giving its consent, the management board should assess whether the company continues to be in a position after the distribution to pay its payable debts (“good financial position test”)

• Declaration of no objection from the Ministry of Justice is no longer required with respect to the incorporation of a private limited liability company or the amendment of its Articles of Association (already applicable from 1 July 2012)

• It is no longer required to obtain a bank statement with respect to the capital contributed to a private limited company upon incorporation.

The “good financial condition test” has had the most attention in the discussions surrounding the new rules. This open test is perceived to potentially create discussions between management and the shareholder(s) with respect to distributions.

DUTCH CORPORATE INCOME TAX

The tax budget 2013 contains a limited number of proposed corporate income tax amendments:

• The thin capitalisation rules will be abolished. The thin capitalisation rules, in short, deny the deduction of interest paid on related party debt if the company is considered to be overleveraged according to certain rules. This proposal is linked with the introduction of interest deduction limitations regarding interest payable on loans linked with the financing of a participation (see below).

• In view of the changes to Dutch corporate law (see above) which inter alia allows the creation of shares without voting rights or profit rights, the fiscal unity rules will be amended. Under current law, the parent company should own at least 95% legal and economic ownership of the subsidiary. Under the proposed rule, the parent company should hold at least 95% of the statutory voting rights. In addition to that, the parent company should be entitled to 95% of both the profits and equity of the subsidiary.

• The scope of the foreign taxpayer regime will be broadened with respect to director’s fees paid to a foreign company. Under current law, only fees paid to a foreign company in its capacity as a board member of a Dutch company are taxable in the Netherlands by matter of Dutch domestic law. Under most tax treaties – ie the provision regarding the taxation of director’s fees – the Netherlands can effectuate its domestic rule. According to case law, the term “board member” should be interpreted in a formal manner as the person who is a member of the corporate body that, in accordance with the Articles of Association, is responsible for the management of the Dutch company.

• Pursuant to the proposal, the remuration received for the performance of management activities and services – even if the foreign company is not a board member – will also be taxable pursuant to Dutch domestic law. In the event that the Netherlands has concluded a bileteral tax treaty with the country in which the foreign company is resident , the proposed change will only have effect to the extent the applicable tax treaty would allocate the right to tax the remuneration for the management activities and services to the Netherlands.

The Netherlands

For more information please contact: Jan Roeland, Partner, PKF Wallast | T: +31 20 654 11 37 | E: jrd@pkfwallast.nl

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PROPOSAL REGARDING THE LIMITATION OF INTEREST DEDUCTION

At the beginning of June 2012, the Dutch government published a Bill that aims to avoid the asymmetrical tax treatment with respect to participations. Costs, including interest, linked with a subsidiary that qualifies as a participation are normally, subject to certain specific conditions, tax deductible against ordinary income/profits but the benefits with respect to a participation are tax exempt in the Netherlands by virtue of the participation exemption. The proposal aims to disallow the deduction of interest and expenses to the extent that the financing is considered excessive and abusive. The general rule is that aggregate deemed to be financing costs, including intra-group and non-related, of a participation in excess of €1,000,000 will not be deductible. The excessive and abusive financing is calculated on the basis of a specific formula.

According to the legislative history, the proposed enactment date is 1 January 2013 without grandfathering for existing structures.

VALUE ADDED TAX

As part of the measures to combat the financial crises in the Netherlands, the value added tax (VAT) rate of 19% is raised to 21% as of 1 October 2012.

INTERNATIONAL TAXATION

The Netherlands and Germany have signed a new bilateral tax treaty. The current 1959 treaty is quite outdated. The new treaty follows the OECD model tax treaty with some deviations. With respect to residency rules, certain tax exempt entities such as pension funds will be considered a resident for purpose of the treaty. Furthermore, withholding tax rates for interest and royalties are 0%. For dividends, there are three rates: 5%, 10% and 15% subject to certain conditions.

It should be noted that the EU Parent –Subsidiary directive which provides for 0% withholding on dividends has priority over the treaty provisions in the event of a Germany to Netherlands dividend or vice versa.

The new treaty changes the allocation of the taxation of capital gains made upon the sale of shares in non-listed real estate investment companies. Subject to certain provisions, the sale of shares in such a company will become subject to tax in the State where the real estate is located, except if:

(i) the shareholder selling the shares owned less than 50% of the shares in the real estate investment company prior to the first sale and

(ii) the alienation takes place in the course of a corporate reorganisation, amalgamation, division or similar transaction.

The new treaty also contains a provision dealing with hybrid entities. This provision is similar to the one that can be found in the Netherlands – US tax treaty (Article 24(4)). The provision aims to cover situations where an entity is treated as tax transparent in one country and non-transparent in the other. For situations that are not solved by the hybrid entity provision, the states may endeavour to seek mutual agreement. The treaty also provides that each State will not be prevented from imposing their domestic rules for the avoidance of taxation with guidance laid down in the Protocol to the treaty.

The new treaty will generally apply for tax periods starting on or after January 1 of the calendar year following the calendar year in which the treaty enters into force. The entry into force will be the first day of the second month after the States exchange the ratification instruments. At this moment, it does not seem likely that the new treaty will become applicable by 1 January 2013.

The Netherlands

For more information please contact: Jan Roeland, Partner, PKF Wallast | T: +31 20 654 11 37 | E: jrd@pkfwallast.nl

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NEW EXECUTIVE REGULATIONS TO THE INCOME TAX LAW OF OMAN ISSUED

The long awaited Executive Regulations to the Income Tax Law have been issued by Ministerial Decision No. 30/2012. They will apply to tax years commencing from 1 January 2012 and are intended to promote clarity and transparency in the application of the Oman Tax Law. The comprehensive Executive Regulations comprising of 154 Articles relating to application of the various provisions of the tax law and tax compliance requirements would significantly affect the tax obligations, procedures and exposures in Oman.

The major corporate tax implications are summarised below.

1. Dependent Agent

An agent shall be deemed to form a Permanent Establishment (PE) for a foreign company in Oman on fulfilment of following conditions:

• If he is dependent on the foreign company economically or legally

• If he habitually exercises the authority to act and conclude contracts in Oman in the name of the foreign company within the limit of the activity practised

• In the case of agency of a foreign insurance company, he must have the authority to collect insurance premium or insure against risks

• Consequent to this Executive Regulation, foreign companies which presently do not have PE in Oman but are doing their business in Oman through a dependent agent, would now be liable to tax in Oman.

2. Allowance of expenses as deductible expense

Expenses shall be allowed as a deductible expense only if they have been:

• Actually incurred

• Related to the tax payer’s business

• Necessary for production of gross income of the company

• Recorded in the accounting records of the company

• Supported by documents.

Expenses incurred should be proportionate to the value of services received / benefit received as decided by the Secretary General for Taxation.

3. Deducting contributions paid to the Pension Fund

Companies must comply with the following rules in order to get contribution to Staff Pension Funds treated as a deductible expense.

Pension Fund set up in Oman:

• Pension Fund shall be independent from the tax payer and the fund money shall be separately kept from the tax payer’s money, which will be invested in the fund’s own account.

• Amount paid as contribution to the Pension Fund shall be calculated in accordance with the rules and regulations adopted by the Fund.

• Tax payer shall submit to the Secretary General of Taxation rules and regulations of the Fund as well as licence issued thereto and the Fund’s financial statements certified by the Auditor locally registered in Oman.

Pension Fund set up outside Oman:

• The Fund should be established in accordance with the laws and rules applicable in the country in which it was established.

• The tax payer shall submit to the Secretariat General certified copies of the following:

– Licence issued to the Pension Fund

– Social Security Plan administered by the fund.

– Rules and regulations of setting up and managing of the Fund.

4. Allowance of bad debts as deductible expense

The debt shall have arisen due to business transaction carried out by the tax payer which was necessary for production of gross income. The amount of debt should be included in the accounting records. Specific procedures should have been carried out by the tax payer for different categories of debts as per the Executive Regulations.

In case of debts of over RO.1,500, the establishment, Omani company or PE should have:

i. Lodged a claim for bad debt before the liquidator in the case of dissolution and liquidation of the indebted company.

ii. Taken legal action for realisation of the debt and other procedures as stipulated in Executive Regulations.

iii. Obtained an order for the payment of the debt by the competent judge in favour of tax payer.

Consequent to this Executive Regulation, many companies may find it difficult to claim bad debts as deductible expense, particularly for debts above RO 1,500 which will be allowed only if legal action is initiated to recover the debt or debt claim is made with the liquidator of the company.

Oman

For more information please contact: Percy Bhaya or Zarir Patwa, PKF LLC Chartered Accountants | T: +968 24563196 | E: muscat@pkfoman.com | W: www.pkfoman.com

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5. Deduction of sponsorship fees

To allow the deduction of sponsorship fees a sponsorship agreement should have been entered into. The tax payer should have actually incurred the sponsorship fee during the tax year, which shall not include commission paid or payable for purchase of merchandise or goods.

Deductibility shall be restricted to 5% of taxable income calculated before deducting sponsorship fee but after adjusting the carry forward loss from the preceding years.

6. Deducting commission of authorised agent in case of insurance companies

Conditions and limitations stipulated in Executive Regulations are in line with the present tax law. The foreign company and the agent shall abide by the obligations under the Insurance company Law. The amount of commission paid to the agent allowed to be deducted as a deductible expense shall not exceed 25% of the net premium collected.

7. Deduction of remuneration and perquisites to the owners and rent paid

Conditions stipulated for payment of rent and remuneration including perquisites to the proprietors/partners/members/directors/partners are largely in line with the present ministerial decisions. Rent agreement has to be registered with the Municipal Authorities for the rent to be allowed as a deductible expense.

8. Deduction of interest on loan

Interest expenses must be incurred for business purposes and carrying out business activities and should be charged in the financial statements.

In the case of an establishment (sole proprietor), interest expense will be allowed only if it is borrowed from the bank registered in Oman and is not used to finance or raise capital.

In the case of interest on loan paid/payable by Omani company to related parties, the interest deduction shall be allowed subject to debt to equity ratio of 2:1. In computation of equity, legal reserve, retained profits and general reserve will be considered as well as paid up capital.

Deductions for interest on loans provided by Head office or related party shall be allowed only if the loan agreement has been made between Head office and branch on an arm’s length basis.

Head office should have actually borrowed from a bank / third party and given this amount as loan to the branch and loan should have been utilised for financing the business operations of the branch.

Certain other specific conditions have to be satisfied for deductibility of interest on loan in case of establishment/Omani company and Permanent Establishment which has been laid down in the Executive Regulations.

The Executive Regulations intend to curb the practice of using debt instead of equity to fund business operations and will adversely affect those companies who have debt to equity ratio over 2:1 and have borrowed at market rate of interest from related parties to fund their operations. Further, interest charged by Head office to branch on loans given by them will not be allowed as a deductible expense unless the above conditions are fulfilled.

9. Head office overheads

Head office expenses / overheads shall not be allowed as a deductible expense if it is incurred for a Permanent Establishment (PE) in Oman for supervision and control.

Head office expenses will be allowed only if they are necessary for the production of the gross income of the PE in Oman and they are recorded in the audited financial statements of PE in Oman.

Allowance of Head office overheads incurred for and allocated to Oman PE is restricted to:

• 3% of the gross income of PE during the tax year

• 5% of the PE’s gross income in the case of banks and insurance companies

• 0 % of the PE’s gross income in the case of major industrial companies using modern and sophisticated means of productivity or adopting scientific research methods or offering technical assistance or using patents that require exchange of information and technical expertise.

Where there are Double Tax Avoidance Agreements (DTAAs) between Sultanate of Oman and other countries, administrative expenses as per DTAA are required to be fully allowed if certain conditions are fulfilled and, in such a case, the above restrictions of 3%, 5% or 10% of the gross income may not apply.

In the case of a branch of a GCC state, as per the GCC Economic Agreement, there should be no discrimination in business conducted amongst GCC states. Accordingly, as per the ministerial decision, GCC branch companies are required to be treated at par with Omani companies. As such, it would be interesting to see whether restriction on deductions applicable to branches of foreign companies would apply to branches of GCC companies.

Oman

For more information please contact: Percy Bhaya or Zarir Patwa, PKF LLC Chartered Accountants | T: +968 24563196 | E: muscat@pkfoman.com | W: www.pkfoman.com

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10. Leasing companies

Financial leasing

Amount of expenses incurred by the lessee during the lease period shall be allowed provided the asset is accounted in the books of the lessee as financial lease in accordance with International Accounting Standards (IAS).

The relationship between the lessor and the lessee shall be considered to be that of the lender and borrower.

Amount received by lessor from lessee shall be treated as income from lease as per IAS.

Depreciation shall not be allowed to be deducted in the books of lessor in case of finance lease.

11. Corporate tax exemption

Conditions laid down for obtaining first five years’ tax exemption are largely in line with the current practice followed. However, in the case of extension of tax exemption for next five years, the following additional stringent conditions have been laid down:

The net profit made by the establishment or Omani company during the exemption period shall not exceed 50% of the paid up capital at the commencement of the exemption period as per the audited financial statements after deducting any loss incurred.

The establishment or Omani company shall achieve during the last two financial years of exemption period 10% increase in the average ratio of Omani to non-Omani employees above the ratio prescribed for the sector by the Ministry of Manpower. Further, such a percentage shall be evenly distributed through the various administrative levels such as senior management, professional and engineering, and secondary works.

Minimum investment in the fixed assets by an establishment / Omani company should be RO.1.5 million, whereas earlier it was RO.750,000.

Consequent to this Executive Regulation, it would now be much more difficult to get tax exemption extended for a further period of five years.

12. Rules for exemption from submitting the tax returns

The establishment or Omani company which fulfils the following conditions shall be exempted from submitting tax returns in any accounting period related to a tax year:

• The capital at the end of the accounting period as registered in the commercial Register shall not exceed RO 20,000

• The gross income realised shall not exceed RO 100,000

• Average number of employees during the abovementioned accounting period shall not be more than eight persons

• The exemption from submitting tax returns shall only take effect following approval from the Secretary General or his authorised representative upon a request by the establishment or Omani company, after ensuring fulfilment of all the conditions specified in the Executive Regulation.

This Executive Regulation is a positive step in right direction as it will relieve a number of small organisations from the burden of filing tax returns and audited financial statements with the tax department and will hopefully encourage individuals to become entrepreneurs and be more focused on their business activity.

Oman

For more information please contact: Percy Bhaya or Zarir Patwa, PKF LLC Chartered Accountants | T: +968 24563196 | E: muscat@pkfoman.com | W: www.pkfoman.com

28

13. Rules for exemption from submitting the financial statements with the final returns

The Secretary General may exempt any establishment or Omani company from submitting the audited accounts prepared for any accounting period relating to a tax year on fulfilling the following conditions:

• The capital of the establishment or Omani company as recorded in the commercial Register at the end of the accounting period shall not exceed RO 50,000

• The gross income realised shall not exceed RO 300,000

• The average number of employees during the abovementioned accounting period shall not be more than 10 persons.

• The exemption from submitting tax returns shall only take effect following the approval from the Secretary General or his authorised representative upon a request by the establishment or Omani company, after ensuring fulfilment of all the conditions specified in the Executive Regulation.

This Executive Regulation will relieve a number of small organisations from filing audited financial statements with the tax department. Further, it will also relieve the tax department from carrying out tax assessments of thousands of small establishments/ Omani companies from whom negligible amount of tax was collected and allow them be more focused on large companies. However, one needs to see the actual implementation of this Executive Regulation. For example, whether the tax department would carry out further investigation and seek various information, details or close tax assessment based on final returns. If this happens, then the very objective of this relaxation would be defeated.

14. Procedures for assessment

As per the abovementioned regulations, the Secretary General for Taxation has the right to conduct an examination at a tax payer’s premises during its working hours following a notification specifying the date and duration of the examination to be submitted to the taxpayer at least 10 days prior to the date of the examination.

Tax payer will have to produce documents, accounts, records and statements for a period not exceeding 10 years for inspection.

Oman

For more information please contact: Percy Bhaya or Zarir Patwa, PKF LLC Chartered Accountants | T: +968 24563196 | E: muscat@pkfoman.com | W: www.pkfoman.com

29

This update sets out the 12 key features of the amendments made in the Income Tax Ordinance, 2001 through Finance Act, 2012.

1. Income Tax Law is amended to tax the capital gain arising from the disposal of immoveable property as per the following rates of tax:

On the other hand, adjustable advance withholding tax at 0.5% of the consideration received on sale/transfer of immoveable property is levied on sellers/transferors of immoveable property under section 236C of the Income Tax Ordinance, 2001.

2. Prior to Finance Act, 2012 commercial imports, export of goods, indenting commission, sale of goods to an exporter or to an indirect exporter and trading of goods are subject to Presumptive Tax Regime and taxes collected or deducted at source are treated as a final tax liability.

Persons under this regime are not allowed to be taxed on net income basis i.e. under normal law. Through Finance Act 2012, such persons have now been provided an option to be taxed on net income basis. However, that option will be subject to a condition that minimum tax liability in respect of such income shall not be less than:

(i) 60% of tax collected at the import stage

(ii) 70% of tax deducted at source on sale of goods

(iii) 50% of the tax collected at the time of realisation of export proceeds and indenting commission.

3. A new sub-section has been inserted in section 37A that lays down the method of calculating the capital gain arising on the disposal of a security as under A – B where:

A. Consideration received on disposal of the security

B. Cost of acquisition of security.

Special provisions relating to capital gain arising from the disposal of securities of listed companies and tax thereon have also been enacted. Furthermore, enquiries shall not be made of the nature and source of the amount invested in companies listed on stock exchanges until 30 June 2014 subject to the conditions that a) amounts remain invested for 120 days, b) tax on capital gains has been duly discharged in the manner prescribed and c) a statement of investments is filed with the return of total income/ wealth statement.

4. Currently, inter-corporate dividend within the group companies entitled to group taxation is exempt from levy of tax. However, the recipient undergoes withholding tax on dividend. Finance Act 2012 grants exemption from collection of withholding tax on dividends. The Act also exempts from collection of withholding tax of inter-corporate profit on debt within the group companies entitled to group taxation under above referred sections.

5. Minimum tax u/s 113 of the Ordinance at a rate of 1% has been reduced to 0.5% of turnover.

6. Withholding tax provisions applicable on payments to Permanent Establishment of a non-resident person on account of sale of goods, rendering of or providing services or execution of a contract have been consolidated with other payments to non-residents.

7. Through Finance Act, 2012, scope of Pakistan source dividend income is extended to include remittances of after tax profit by a branch of a foreign company operating in Pakistan. Previously, the definition of dividend given in section 2(19) (f) had been amended through Finance Act, 2008 to include such remittances

Pakistan

S. No Period Rate of Tax

1Where holding period of Immovable

property is up to one year.10%

2Where holding period of Immovable property is more than one year but

not more than two years.5%

For more information please contact: Malik Haroon Ahmad, FCA Partner, Tariq Abdul Ghani Maqbool & Co. Chartered Accountants | T: +92 42 35776682-3 | E: malik.haroon@tagm.co | W: www.tagm.co

30

8. Section 65B amended to states that investment made for BMR during July 2011 to June 2016 allowed tax credit at the rate of 20% and shall be available for adjustment up to five years.

9. There is a tax credit under Section 65D for newly established industrial undertaking set up with 100% equity allowable against minimum tax and final tax.

10. Issuance of new shares against cash to be recognised as new equity. Short term financing for working capital requirements is not a bar for claiming tax credit.

11. Section 65E is amended to provide a tax credit where investment is made by a company set up in Pakistan before 1 July 2011 through 100% new equity raised through issuance of new shares in the purchase and installation of plant and machinery for an industrial undertaking including corporate dairy farming for the purposes of:

A. expansion of the plant and machinery already installed; or

B. undertaking a new project.

The tax credit will be allowed against the tax payable including minimum tax and tax paid under FTR for a period of five years from the date of setting up or commencement of commercial production from the new plant or expansion project, whichever is later.

In the case of a new project where the tax payer maintains separate accounts, he shall be allowed a tax credit equal to 100% of the tax payable including minimum tax and taxes payable under FTR attributed to such expansion project or new project.

Where separate accounts are not maintained, the tax credit will be allowed in the ratio of the new equity and the total equity including the new one.

12. Undertakings engaged in corporate dairy farming are also eligible to tax credit under Section 65D and 65E

Pakistan

For more information please contact: Malik Haroon Ahmad, FCA Partner, Tariq Abdul Ghani Maqbool & Co. Chartered Accountants | T: +92 42 35776682-3 | E: malik.haroon@tagm.co | W: www.tagm.co

31

NEW INTERNAL REVENUE CODE

The “2011 Internal Revenue Code for a New Puerto Rico” was enacted in 2011. Below is a brief summary of some of the changes.

PERSONS AND ENTITIES SUBJECT TO TAX

Taxpayers are now classified as:

• Individuals

• Corporations and associations

• Partnerships and partners

• Estates and trusts

• Foreign taxpayers

• Non-profit entities

• Other special entities (insurance companies, registered investment companies, employee-owned special corporations, special partnerships, corporations of individuals and tax exempt entities under special tax incentives laws).

INDIVIDUAL TAXPAYERS

• The number of classifications for the filing status of the individual taxpayers has been reduced to: Individual taxpayer, Married, Married filing separately.

• The personal exemption is increased to a uniform amount of $3,500 per person ($7,000 for married taxpayers filing jointly).

• All the brackets of net income subject to tax were expanded, reducing the determinable tax on all levels of income.

TAXABLE INCOME

• The dependents’ deduction is maintained at $2,500.

• The limit of net income subject to alternate basic tax is increased from $75,000 to $150,000.

• The limit on the gross income that may be earned by a regular student is increased from $3,400 to $7,500 without the taxpayer who claims the exemption for the university student losing the right to claim the dependent, even if the student has the obligation to file a tax return.

CORPORATIONS

The amendments for corporations include:

• Rate structure – In the tax computation, the flat rate of 20% on the normal tax net income continues to apply. The combined marginal tax (normal and surtax) would be:

1. 20% on taxable income not over $750,000

2. 25% on taxable income from $750,001 to $2,500,000

3. 30% on taxable income in excess of $2,500,000

• Alternative minimum tax – The tax rate applicable to the alternative minimum net income is reduced from 22% to 20%.

PARTNERSHIPS

The new Code includes a new chapter for partnerships that incorporates similar US federal tax rules related to partnerships. Under the new rules, partnerships are not subject to tax on their income at the partnership level. Instead, partners are subject to tax on it even though the corresponding income is not distributed.

Existing partnerships may elect to continue to be treated as corporations for tax purposes

Puerto Rico

2011 2012 2013 2014Tax Rate

Up

to

$5,000 $6,500 $9,000 $12,000 0%

From

to

$5,001

$22,000

$6,501

$23,000

$9,001

$25,000

$12,001

$26,0007%

From

to

$22,001

$40,000

$23,001

$41,300

$25,001

$41,500

$26,001

$42,75014%

From

to

$40,001

$60,000

$41,301

$61,300

$41,501

$61,500

$42,751

$62,75025%

Over $60,000 $61,300 $61,500 $62,750 33%

For more information please contact: Jorge A Guzman, PKF Torres-Llompart, Sánchez-Ruiz LLC | T: +1 787 758 4620 | E: guzman@pkfpr.com | W: www.pkfpr.com / www.tlsr.com

32

LIMITED LIABILITY COMPANIES

Limited liability companies (LLCs) continue to be subject to tax in the same manner as corporations but may elect to be treated for tax purposes as partnerships.

However, if the LLC is treated for purposes of the US Internal Revenue Code of 1986 or similar provision of a foreign country as a partnership or pass-through entity, it must also be treated as a partnership for Puerto Rico income tax purposes. In such cases, the LLC will not be allowed to be taxed as a corporation.

SPECIAL PARTNERSHIPS

Under the new Code no elections for special partnership status are permitted for taxable years commencing after 31 December 2010. Existing special partnerships continue to be treated as partnerships for tax purposes.

ELECTION TO BE TAXED UNDER THE PREVIOUS CODE

Individuals, corporations and partnerships have the option to determine the income tax liability under the Puerto Rico Internal Revenue Code of 1994. Once made, the election is irrevocable for the five years to which apply.

DUE DATE OF THE INCOME TAX RETURN

• Individual’s income tax return continues to be 15 April.

• Corporations and existing partnerships and LLC who elect to be treated as corporations will continue to file the return on the 15th day of the fourth month after the close of the taxable year.

• The date for partnerships, limited liabilities companies, special partnerships and corporations of individuals will be the 15th day of the third month after the close of the taxable year.

• Partner’s Distributable Share on Income Informative Return: Due date is the last day of the third month after the close of the taxable year.

• Qualified employees trust and pensions plans will be the last day of the seventh month following the close of the plan’s taxable year.

AUDITED FINANCIAL STATEMENTS

The requirement of accompanying financial statements with the income tax return, audited by a CPA licensed in PR, now apply to all businesses (individuals, partnerships, corporation, etc) whose volume of business exceeds $3 million. This requirement does not apply to non-profit corporations.

CONSOLIDATED FINANCIAL STATEMENTS

With the new Code, every group of related entities engaged in trade or business in Puerto Rico shall submit the financial statements on a consolidated basis presenting the financial position and the results of operations of the parent company and its subsidiaries as if they were a single entity.

The accounting books and all pertinent documents of the operations of the branches or divisions shall be made available at all times in Puerto Rico.

Puerto Rico

For more information please contact: Jorge A Guzman, PKF Torres-Llompart, Sánchez-Ruiz LLC | T: +1 787 758 4620 | E: guzman@pkfpr.com | W: www.pkfpr.com / www.tlsr.com

33

Below is a summary of recent tax developments in Romania between June and September 2012.

CORPORATE INCOME TAX

1. New limitations for the deductibility of specific expenses

From 1 July 2012, new deductibility limitations have been introduced for expenses incurred by companies in relation with vehicles.

Secondly, the deductibility of expenses incurred with vehicles, other than those that exceed 3,500 kilos and have more than nine seats, is limited to 50% unless the vehicles are used exclusively for business purposes. As an exception from the said rule, expenses incurred for vehicles are fully deductible provided that these are used for specific activities such as sales, acquisitions, medical emergency services, protection and security services, and transportation services.

Methodological norms have been published to explain in what conditions it is considered that a vehicle is used exclusively for business purposes, what documents need to be prepared in order to document such transactions, and what types of expenses are considered to be incurred in relation with the vehicles.

2. Deductibility for specific provisions

From 1 July 2012, taxpayers are allowed to deduct expenses incurred with provisions and/or adjustments for the depreciation of receivables purchased from credit institutions in order to be further redeemed. The deduction is permitted in the limit of the difference between the value of the receivable purchased via assignment and the price paid to the assignor for receivables that meet certain conditions.

3. Fiscal losses in case of reorganizations

From 1 October 2012, specific provisions are enforced in relation to fiscal losses such as:

• The fiscal losses recorded by taxpayers ceasing/not ceasing their existence following a merger or a division shall be recovered by the new taxpayers or by those undertaking the ownership of the absorbed/divided entity, as the case may be, proportionally with the actives and passives transferred to the beneficiary legal entities and respectively with those set aside by the assignor entity, as provided in the merger/division project

• In cases of cross-border reorganisations (mergers, divisions, partial divisions, transfers of going concern and change of shares in which are involved companies from two or more member states), when the assignor entity registers fiscal loss, this shall be recovered by the permanent establishment of the beneficiary entity residing in Romania

• In cases of transfer of legal headquarter of a European company from Romania in other member state, when such company registers fiscal loss, this shall be recovered by the permanent establishment of the said company in Romania.

WITHHOLDING TAX

From 1 July 2012, non-resident taxpayers who are beneficiaries of income derived from Romania and who have custody accounts opened with custodian agents, have the obligation to submit their original certificate of tax residency with the custodian agents, who will further deposit a copy to every person that made payments to the non-resident.

Non-resident individuals deriving capital gains from Romania in relation with the transfer of securities, other than shares and securities held in closed companies, are no longer obliged to submit the copy of their certificate of tax residency along with the tax assessment statement in view of application of the double tax treaties.

Romania

For more information please contact: Florentina Susnea, PKF Finconta | T: +40 21 317 3190 | E: florentina.susnea@finconta.ro | W: www.finconta.ro

34

VALUE ADDED TAX

• From 1 July 2012, the limitation of 50% on VAT deduction rights related to the acquisition of vehicles has been extended to leasing, rental and other automotive services. The limitation is applicable only if the vehicles are not fully used for business purposes.

• From 1 July 2012, the threshold for VAT registration has been increased from EUR 35,000 (RON 119,000) to EUR 65,000 (RON 220,000).

• There has been some clarification regarding the cancellation of VAT registration. Starting from July 2012, the registration will be cancelled for taxpayers who have not submitted any return for six consecutive months / two consecutive quarters or who did not undertake any acquisitions /deliveries in this period.

• From 1 January 2013, for companies with a turnover lower than RON 2,250,000 (approximately EUR 500,000) a scheme of charging VAT upon cashing in the invoice will apply if payments are made through bank transfers. However, after 90 days from the chargeable date, the supplier is liable to collect the VAT regardless if the invoice was cashed in or not. The client will deduct VAT only after the payment.

• The liability to pay VAT for imports is extended until the end of 2016 (except for those who obtain a payment deferment certificate).

• From 1 January 2013, the place of supply of long-term rental and leasing of modes of transportation to non-taxable persons will be where the customer is established.

• Fom 1 January 2013, there will be clarification on the use of technologies other than the electronic signature and EDI for invoicing.

INCOME TAX

Taxpayers who derive income from independent activities are allowed to deduct only 50% of the expenses related to motor vehicles, similar to the provisions above on corporate income tax.

Taxpayers shall no longer calculate the net gains / loss resulting from the transfer of securities other than shares and closed companies’ securities on the basis of the quarterly tax return.

Taxpayers who derive income from independent activities and liberal professions as freelancers will continue to make quarterly advance tax payments based on the estimated annual income or on the net income obtained in the previous year, just as they have been required to do in the past. As such, the income payer will not be required to withhold the 10% advance tax. Similar clarifications are also provided for rental income obtained by such individuals.

Income derived by individuals from agricultural activities for which the income payer has the obligation to withhold the income tax (2%) at source. From 1 July 2012, the income payer also has the obligation to withhold the individual health insurance contribution (5.5%). The pension contribution is not due for this type of income.

SOCIAL CONTRIBUTIONS

The Fiscal Code title regulating social contributions has been restructured because some provisions have been abrogated from special laws and included in the Fiscal Code.

In the case of income for which the income payer is required to withhold tax, the income payer is required to calculate, withhold and pay the social security contributions.

From July 2012, individuals receiving salary income from employers established in non-EEA countries with which Romania has not concluded social security agreements are required to file specific monthly declarations (ie. Declarations 112) reflecting the social security charges due in Romania. As before, payments of social contributions have to be in RON, by the 25th of each following month for the salary income derived in the previous month.

Romania

For more information please contact: Florentina Susnea, PKF Finconta | T: +40 21 317 3190 | E: florentina.susnea@finconta.ro | W: www.finconta.ro

35

CHANGES TO TAX PROCEDURE LAWS

On 26 March 2012, the Government of Rwanda introduced the following amendments to the law on tax procedures:

• Taxpayers with an annual turnover equal to or less than Rwf 200,000,000 (USD 322,500) may opt to declare and pay staff payroll taxes (PAYE) on a quarterly basis

• The taxpayer may request the Rwanda Revenue Authority (RRA) to resolve tax disputes in an amicable manner

• During the appeal process, RRA may conduct a new audit in case new information arises favouring the taxpayer

• RRA may carry out a desk audit without notifying the taxpayer

• RRA may audit a taxpayer for up to ten years with or without notice

• Shareholders of a private company are personally and jointly responsible for taxes and penalties due by their company where the company fails to pay the tax

• Tax officers may enter a taxpayer’s premises, whether public or private, search and seize documents and items that relate to the tax payer

• Tax officers have easier access to taxpayer data from other public administrative bodies

• Stiffer penalties were prescribed for non-compliance with tax laws.

IMPLICATIONS OF THE CHANGES

Law Nº 01/2012 of 03/02/2012 now eases the dispute resolution procedures for taxpayers as it provides procedures for amicable resolution of disputes with the tax administration. The changes also provide for easier and cheaper compliance procedures for small and medium sized enterprises.

On the other hand, the law has given RRA more powers in conducting audits, investigations and enforcement of tax legislation.

The changes are designed to bring more taxpayers into the tax net, reduce compliance costs for SMEs which form the backbone of the Rwandan economy, and improve compliance by existing taxpayers.

Taxpayers and potential investors will need to put in place good tax management and compliance systems to mitigate potential taxes, penalties and interest risks.

Other tax changes introduced by the Government of Rwanda in its 2012/3 budget include:

Introduction of gaming tax

The Minister of Finance announced the introduction of a gaming tax. Gaming tax will be charged at a rate of 13% of the gross winnings and replaces Value Added Tax on gaming activities.

Turnover tax for small and micro-enterprises

The Minister proposed a new tax regime for SMEs. He introduced two tax bands for SMEs, namely:

• Small Enterprises with annual turnover of Rwf 12 million - Rwf 50 million (USD 20,000 - USD 82,000). These will pay income tax at the rate of 3% of their turnover.

• Micro Enterprises with annual turnover of Rwf 12 million (USD 20,000) or less. Micro enterprises are divided into four tax bands based on the turnover. Micro enterprises will pay fixed amounts of income tax ranging from USD 100 to USD 500 per year.

Revision of duties on construction materials

Registered investors with construction projects worth at least USD 1.8 million will now pay tax at a single rate of 10% up from 5% for imported construction materials. This single rate tax is payable in lieu of customs duty, Value Added Tax and withholding tax on imports.

Rwanda

For more information please contact: Starlings Muchiri, Tax Manager, PKF Rwanda | T: +250 500 126 | E: smuchiri@rw.pkfea.com

36

FINANCIAL GUARANTEES TO BE REQUIRED WHEN REGISTERING FOR VAT

The tax authorities will register a taxable person for VAT within 60 days from receipt of an application for tax registration where the taxable person will, after 1 October 2012, be required to provide a financial guarantee to cover possible VAT arrears. Financial guarantees are provided to the tax authorities for a 12 -month period from the date of registration either as a cash deposit or an unconditional guarantee from a bank.

The amount of financial guarantees is decided by the tax authorities, taking into consideration the potential risk of tax arrears. Under the amendment to the VAT Act, that amount would be set between EUR 1,000 and EUR 500,000. An appeal can be lodged against any decision to require a financial guarantee but it has no suspensive effect. A registrant is required to provide a financial guarantee within eight days of having received a decision from the tax office to impose a financial guarantee.

The preconditions for providing a financial guarantee to cover VAT are for the registrant to:

• be either an individual proprietor or a director or shareholder serving as director in a legal entity or

• a shareholder or partner in a company that has had no tax arrears when they register for VAT

• have had no tax arrears when it deregistered earlier or

• be commencing activities and not yet made any outbound taxable supply.

Where a taxable person is required by law to register for VAT – when the threshold of EUR 49,790 in the prior 12 months is breached - no financial guarantee will be required by the tax authorities. In the case of tax arrears, the tax authorities will use the procedure provided by the tax code.

Financial guarantees would be used to cover tax arrears that appear after the taxable person has registered as a VAT payer, with the decision about when to apply them to be decided by the tax authorities. If financial guarantees have not been applied to cover tax arrears within 12 months from the date when the VAT payer provides them, the full amount will be returned by the tax authorities within 30 days from the end of the 12-month period. VAT payers will not be entitled to interest on financial guarantees provided to the tax authorities that are subsequently returned.laws.

DEFAULT TAX PERIOD FOR FILING VAT RETURNS TO BECOME MONTHLY

Also starting 1 October 2012 (the first day of the fourth quarter), the general tax period becomes the calendar month, with specific exceptions. A VAT payer may opt for a quarterly tax period if more than 12 calendar months have passed since the end of the calendar month in which the taxable person became a VAT payer and where turnover for 12 consecutive months has not reached EUR 100,000.

Registered VAT payers whose tax period was quarterly as at 30 September 2012 may continue to file VAT returns quarterly until the end of the calendar quarter in which they no longer meet those conditions and are required by law to file monthly – for example, when turnover exceeds EUR 100,000.

ONLY ONE VAT REGISTRATION PER PERSON

A taxable person may not after 1 October 2012 register for VAT more than once in Slovakia. This amendment to VAT law was in response to cases of VAT fraud where individuals would register multiple companies and claim transactions between them.

An application for § 7 registration (acquisition of goods from another Member State worth more than EUR 13,941.45) would not be submitted if an application for § 7a registration (recipient of services from outside the territory of the country) had already been submitted.

REVERSE CHARGE MECHANISM SHELVED FOR THIRD-COUNTRY IMPORTS

Earlier in the year, the Slovak Parliament approved an amendment to the VAT Act to allow application of the reverse charge mechanism to the importation of goods from third countries after 1 January 2013 if a VAT payer meets certain conditions. In order to consolidate public finances, this provision has been suspended until 1 January 2014.

This also means that the Slovak customs authorities will continue to levy VAT on imports from third countries into the Slovak Republic.

Slovak Republic

For more information please contact: Richard Clayton Budd, PKF Slovensko, s.r.o | T: +421 46 518 3829 | E: budd@pkf.sk | W: www.pkf.sk

37

This article summarises a selection of recent tax changes or developments in Spain, essentially contained in the Royal Decree Law 20/2012 published in Official Gazette (BOE) of 14 July 2012.

CORPORATE TAX

Limits decreased to offset tax losses

Offsetting tax losses is limited to 50% (previously 75%) of the prior tax base to such compensation when the net turnover is at least EUR 20 million but less than EUR 60 million in the preceding 12 months.

Offsetting tax losses is limited to 25% (previously 50%) of the prior tax base to such compensation when the net turnover is at least EUR 60 million in the preceding 12 months.

1. Temporal limitation to the deduction of goodwill and intangible assets

The deduction of goodwill is limited at 1% during the fiscal years beginning in 2012 and 2013. The deduction of intangible assets is limited at 2% during the fiscal years beginning in 2012 and 2013.

2. Changes in prepayments

The tax base on which the prepayment is calculated increases integrating 25% of the dividends and income eligible for exemption to avoid international double taxation.

Prepayment amount is adequate in terms of net turnover:

• 21% for net turnover below EUR 10 million

• 23% for net turnover between EUR 10 million and EUR 20 million

• 26% for net turnover between EUR 20 million and EUR 60 million

• 29% for net turnover exceeds EUR 60 million.

3. Limitation to the deduction of financial expenses

There has been an extension of the limitation to all companies. They do not now need to belong to trade groups.

4. Special tax on foreign incomes (dividends and capital gains)

There is a new special voluntary tax on income and foreign source dividends at the rate of 10% (up to 30 November 2012).

PERSONAL INCOME TAX

Increase in withholding tax rates from 1 September 2012

• For teaching courses and conferences, the rate has been increased to 21%.

• For professional activities, the rate has been increased to 21% (9% during the first two years of activity).

VALUE ADDED TAX

VAT rate increases from 1 September 2012

• General rate increases from 18% to 21%.

• Reduced rate increases from 8% to 10%.

• Some products or services rise from super-reduced rate to reduced, and others rise from reduced rate to general.

TRANSFER TAX

Regulatory changes in each Autonomous Community

It is important to consider the Autonomous Community in which the transaction occurs as each one sets different rates for the same operations.

SOCIAL SECURITY AND EMPLOYMENT

Changes in the surcharges and bonuses suppression

• When payment is late, you will pay 20% surcharge regardless of time elapsed until payment.

• All bonuses have been abolished apart from:

– Recruitment of employees with disabilities

– Young entrepreneurs

– Long-term unemployed over 45 years old

– Women.

Spain

For more information please contact: Aischa Laarbi or Santiago González, PKF Attest | T: +34 915 561 199 | E: egaldpt@pkf.es or sgonzalez@pkf-attest.es | W: www.attest.es

38

NEW INCENTIVE SYSTEM AND REDUCED CORPORATE TAX RATES FOR INVESTMENTS

The “Decision on Government Support in Investments” has been finalised with the Council of Ministers Decision no. 2012/3305 published in the Official Gazette dated 19 June 2012 and the “Communiqué on the Implementation of the Decision on Government Supports in Investments” no. 2012/1 has been published in order to determine the principles and procedures for application of the Decision.

The new incentive system has four main categories:

• General incentive applications

• Regional incentive applications

• Incentivisation of large scale investments

• Incentivisation of strategic investments

The “Reduced Corporate Tax” application is set out under article 32/a of the Corporate Tax Law no. 5520 and was enforced with the “Law on the Amendment of Certain Laws” no. 5838, which was published in the Official Gazette dated 28 February 2009. Reduced Corporate Tax application has been introduced to provide new investments and extension investments with government support.

In the Reduced Corporate Tax application, there are two groups of investments: completely new investments and extension investments. The investment types of “modernization”, “product diversification” and integration”, for which the Ministry of Economy issues investment incentive certificates, should also be deemed to be extension investments. An investment shall be considered as an extension investment if the type of investment is specified as such in the investment incentive certificate.

Under the article 32/a of the Corporate Tax Law no. 5520, it is stated that the gains derived from investments with incentive certificate granted by the Treasury Under-secretariat shall be subject to corporate tax at reduced rates up to the investment contribution amount, as of the fiscal period when the partial or complete operation of the investment is commenced. Investment contribution amount refers to the portion of investment costs to be covered by the government through the tax waived by applying reduced corporate tax rate, while the investment contribution rate refers to the rate to be calculated by dividing the investment contribution amount by the total investment made.

The Reduced Corporate Tax (RCT) practice is based on the gains derived from investments. Accordingly, the practice involves a reduction in the tax rate rather than a reduction in the gains and can be benefited from without any time restriction. Although there are no benefits from RCT practice in certain periods when there is no tax base due to loss deduction, exempted gains and other deductions, it will benefit the investment contribution amount in other periods when the tax base can be calculated.

The RCT will be largely applicable to the gains derived only from investments with an incentive certificate, just like the former incentive practice. Unlike the former system, the practice can be applied to gains derived from all activities in the period of investment until reaching a certain percentage of the investment contribution amount for companies investing in the 2nd, 3rd, 4th, 5th and 6th regions.

In large scale investments and investments performed in the scope of regional applications, the reduced rates to be applied to corporate tax or income tax, as well as investment contribution rates under the article 32/a of the Corporate Tax Law no. 5520 are specified on the next page.

Turkey

For more information please contact: Selman Uysal, International Liaison Partner, Sun Bagimiz Dis Denetim Y.M.M.A.S | T: +90 232 445 60 40 | E: selmanuysal@pkfismir.com

39

The following reduced rates and investment contribution rates shall be applied in cases where investment commenced until (and including) 31 December 2013 in the scope of incentive certificates to be issued as per this Decision.

On the other hand, the tax reduction rate and investment contribution rate applicable in all regions for strategic investments are determined as 90% and 50% respectively.

Turkey

RegionsInvestment

Contribution rate (%)

Corporate / income tax

reduction rate (%)

Investment Contribution

rate (%)

Corporate tax / income tax

reduction rate (%)

I 10 30 20 30

II 15 40 25 40

III 20 50 30 50

IV 25 60 35 60

V 30 70 40 70

VI 35 90 45 90

Regional Investment Applications

Large Scale Investments

RegionsInvestment

Contribution rate (%)

Corporate / income tax

reduction rate (%)

Investment Contribution

rate (%)

Corporate tax / income tax

reduction rate (%)

I 15 50 25 50

II 20 55 30 55

III 25 60 35 60

IV 30 70 40 70

V 40 80 50 80

VI 50 90 60 90

For more information please contact: Selman Uysal, International Liaison Partner, Sun Bagimiz Dis Denetim Y.M.M.A.S | T: +90 232 445 60 40 | E: selmanuysal@pkfismir.com

40

UGANDA INTRODUCES MOTOR VEHICLE E-REGISTRATION

Uganda has now adopted an IT-based platform for registering its motor vehicles. With effect from 1 July 2012, motor vehicles will now be registered under the Uganda Revenue Authority’s (URA) eTAX system. The registration will be in two categories:

• For vehicles that were registered earlier and are already being used

• For vehicles that have just been imported into the country.

For vehicles already in use, their owners, who must possess a valid Tax Identification Numbers, will be required to visit the URA website - www.ura.go.ug and log in details of their motor vehicles. URA will compare the data supplied to the data in their records and, if the information supplied matches, the old logbook will be withdrawn and a new one issued. In case of any mismatch, the owner will be required to take their car to the nearest URA office for verification.

For imported cars, the clearing agent will be required to register the motor vehicle at the customs border point at the time of importation. The customs officials will physically examine the motor vehicle to verify the accuracy of the information provided by the clearing agent and confirm registration of the motor vehicle.

BENEFITS OF E-REGISTRATION

This move is aimed at reducing the time spent on processing motor vehicle transactions. Since everything will be online, the opportunities for files to go missing will be considerably reduced providing assurance to motor vehicle owners on the validity of the registration of their motor vehicles.

They will also be alerted in the event of any unauthorised or illegal changes to the registration status of their vehicles via automatic emails sent to their email addresses. Prospective buyers will be able to confirm the ownership status of any motor vehicles they intend to purchase thus significantly reducing cases of fraud.

Registration under this new system is free of charge as is the issue of new logbooks.

COST OF NON-COMPLIANCE

Motor vehicle owners have until 30 June 2013 to register their motor vehicles online. Failure to register the motor vehicles within this period will render the existing logbooks invalid.

For more information please contact: Albert BeineTax Senior ManagerPKF Uganda T: +256 41 434 1523 E: abeine@ug.pkfea.com

Uganda

For more information please contact: Albert Beine, Tax Senior Manager, PKF Uganda | T: +256 41 434 1523 | E: albeine@ug.pkfea.com

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NEW PATENT BOX REGIME

A new patent box regime will apply from 1 April 2013 to companies subject to UK corporation tax. The regime must be entered into by election and will eventually provide for an effective tax rate of 10% on various sources of profit derived from patents held by the company concerned. The regime is being phased in between 1 April 2013 and 31 March 2017 as illustrated by the table below.

*as currently proposed.

The regime will apply to existing and new patents granted by the UK Intellectual Property Office, the European Patent Office and a number of other specified EEA national patent offices. Surprisingly, the patent offices of the USA and Japan are not included within the approved list:

• Austria,

• Bulgaria

• Czech Republic

• Estonia

• Finland

• Germany

• Poland

• Portugal

• Romania

• Sweden.

Some European Union plant breeder or variety rights and EU marketing authorisation rights of medicinal or plant protection products will also be included in the patent box.

Although the patent box will not provide for a reduced rate of tax on the profits from other forms of intellectual property (e.g. copyright, trade marks, brand names) the range of types of profit to which the regime will apply is very broad and includes:

• royalties

• licensing or sale of patent rights

• sales of the patented invention or products incorporating the patented invention (no matter how small a contribution the patented invention makes to the income derived from sale of those products)

• notional royalties for the use of the patented invention in the company’s trade

• receipts from infringement of the patent and compensation received for loss of patent income.

The regime applies both to the legal owners of patents and to those companies that have been granted exclusive licence to use patents within an area comprising at least one national territory (and have rights to bring infringement proceedings to defend their rights in the patented invention and be entitled to most of the damages so arising).

Further conditions must be met in connection with the development of the patent and, where ownership and development is carried on within different group companies, the holder must also meet an ‘active ownership’ condition. Broadly speaking, these rules are designed to prevent the regime from applying to patents held passively by UK companies as non-trading investments.

As mentioned above, it is necessary to elect into the patent box regime on a company by company basis. Once elected into the regime, a company can exit the regime at any time but cannot then re-enter for five years.

The patent box involves a complex set of calculations which are carried out to determine a pure profit figure to which a deduction is then applied. A mark-up for routine expenses and notional royalties deemed to be received for use of the company’s brand are deducted in arriving at this profit figure. The deduction has the effect of taxing the identified profits at a rate of 10%, although in some cases a patent box loss may arise which must then be utilised against the patent box profits relating to other trades or group companies.

Only profits from patents which have already been granted can be included, although there is a mechanism for bringing into account up to six years of profits from patents pending in the period in which the patent is granted. The company must, however, have elected into the patent box at the time the patent pending income was earned.

United Kingdom

Financial Year 2013 2014 2015 2016

% of reduced rate in force

60% 70% 80% 90%

Main rate of CT* 23% 22% 22% 22%

Effective tax rate on qualifying profits

15.2 13.6 12.4 11.2

For more information please contact: Jon Hills, PKF (UK) LLP | T: +44 (0)20 7565 1000 | E: jon.hills@uk.pkf.com

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INTER-GOVERNMENTAL AGREEMENT (IGA) FOR APPLYING FATCA

In response to the introduction of the Foreign Account Tax Compliance Provisions (FATCA) by the US Government, the UK joined with four other countries to produce, along with the US, a model Inter-Governmental Agreement (IGA) which details the way in which FATCA will be applied to financial institutions based in their respective territories. The UK Government subsequently signed a bilateral agreement based on the model agreement on 12 September 2012 setting out the specific procedures it expects to apply to UK financial institutions.

The IGA set out to address the legal barriers that exist in each territory to complying with FATCA and to ensure that the burdens to be imposed on financial institutions are proportionate to the goal of combating tax evasion and to establish a reciprocal approach to FATCA implementation. In particular, the withholding taxes that financial institutions may suffer or are required to impose under FATCA are largely replaced with reporting requirements that have similarly been amended so that they are compatible with domestic money laundering procedures and data protection requirements. A wider range of institutions are exempt from the FATCA requirements under the bilateral agreement than under the US regulations. These include:

• non-profit organisations, such as registered charities

• certain financial institutions which are licensed and regulated under UK laws have no fixed place of business outside the UK and do not solicit business outside the UK (including building societies, investment trust companies and venture capital trusts).

In addition, certain types of accounts do not need to be reported on, including:

• registered pension schemes

• individual savings accounts (ISAs)

• premium bonds

• approved share option schemes.

The UK/US model agreement applies to those financial institutions that are physically present in the UK. This includes both UK resident institutions and the UK branches of overseas resident institutions (but not the overseas branches of UK resident institutions). It applies to four types of institution:

1. Custodial institutions: these are entities which hold, as a substantial portion of their business, financial assets for the account of others. Generally speaking, this means that the entity earns at least 20% of its gross income from such activities and is intended to apply only to professionally managed trusts leaving, for example, most family trusts out of scope.

2. Depository institutions: these are entities that accept deposits in the ordinary course of a banking or similar business.

3. Investment entities: these entities conduct as a business one of various investment activities, including trading in money market instruments, portfolio management and the investing of funds on behalf of other persons.

4. Insurance companies that provide certain types of products that are expected to make regular cash payments, such as annuities.

Such entities will be required to provide certain types of information to HMRC regarding accounts that are held by US persons or by entities that are controlled by US persons. This must be provided by 31 March after the end of the calendar year to which the information relates (although information for 2013 will not need to be provided until 31 March 2015, with data for 2014 to be provided by 30 June 2015).

United Kingdom

For more information please contact: Jon Hills, PKF (UK) LLP | T: +44 (0)20 7565 1000 | E: jon.hills@uk.pkf.com

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Once assimilated, HMRC will then pass this information onto the IRS by 30 September after the year to which the information relates (30 September 2015 for 2013 and 2014 information). The amount of information to be provided will increase over time as set out in the table below.

Provided they meet with these reporting obligations, financial institutions will be treated as complying with FATCA and will not be subject to withholding on their US source income. Entities will be treated as non-participating financial institutions (NPFIs) if they have been listed as such by the US following significant non-compliance which could include:

• the intentional provision of substantially incorrect information

• the deliberate or negligent omission of required information

• ongoing or repeated failure to register, supply accurate information or establish appropriate governance or due diligence processes

• repeated failure to file a return or repeated late filing.

Under the agreement there is an 18 month window, from the US notification to HMRC of significant non-compliance, for HMRC and the financial institution to resolve this before the entity is listed as non-compliant.

UK financial institutions will also be required to carry out due diligence processes to establish the status of account holders (in order to determine whether they are US persons) and those non-participating financial institutions to which they make payments. Whether or not such processes are required depends on the size of the relevant account balance, type of account and whether it is a pre-existing (i.e. as at 31 December 2013) or new account. Accounts with a balance of over $1m at 31 December 2013 or at the end of any subsequent year will be subject to enhanced due diligence procedures. It is anticipated that financial institutions will follow the UK’s money laundering/know your client procedures but may, by election, apply the procedures set out in the US regulations if these offer a less burdensome approach.

VAT ON EXHIBITION STANDS IN THE UK

HMRC has now set out a revised policy on the place of supply of exhibition stands. HMRC believes the provision of a defined space for an exhibition stand with no accompanying services is a supply of land. For VAT purposes, this would be supplied in the country where the exhibition space is located. The supply would, therefore, be exempt from VAT unless the provider has specifically ‘opted to tax’ supplies of land at that venue. Where an option to tax applies, VAT will be charged to all exhibitors, regardless of whether they are from the UK or overseas.

However, HMRC now considers that the supply of a stand as part of a package of exhibition services is a ‘general rule’ supply. This would be subject to VAT when hired by UK exhibitors, but outside the scope of VAT when hired by an overseas business. HMRC says that a package of services is supplied when the hire includes benefits such as the design and erection of a temporary stand, security, power, telecommunications, hire of machinery or publicity material. The practical effect of HMRC’s announcement is to make the majority of stand hires to overseas based exhibitors outside the scope of VAT – a change from the previous position.

From the point of view of the exhibitor, this would be a welcome simplification as it means they could account for the VAT in their own country under the reverse charge mechanism instead of paying UK VAT to the venue and making a time-consuming EU VAT refund claim to recover it.

United Kingdom

Year Information to be provided

2013 onwards

• Name, address and US tax identification number (TIN) of client (or date of birth if no TIN available)

• Account number (or reference number if there is no account number)

• Name and identifying number of reporting institution

• Account balance or value

2015 onwards

In addition to the above:

• For custodial accounts: the total gross interest, total gross dividends and other income generated from assets held in the account

• For depository accounts: the total gross amount of interest paid or credited to the account

• For any other account: the total gross proceeds paid or credited to the account holder

2016 onwards

In addition to the above:

• Total gross proceeds from the sale or redemption of property paid or credited to the account.

For more information please contact: Jon Hills, PKF (UK) LLP | T: +44 (0)20 7565 1000 | E: jon.hills@uk.pkf.com

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United Kingdom

STATUTORY TAX RESIDENCE RULE

After an initial consultation exercise, the UK Government has published draft legislation to implement its new statutory residence test for individuals. Consultation will continue but the test is to take effect from April 2013. It is still the case that actions taken now could affect an individual’s UK tax status for 2013/14 so individuals who may be affected should consider the proposals carefully and seek urgent advice.

The basic structure of the original proposals (three layers of tests) has been preserved but, alongside some rounding of day count tests, a number of changes are proposed which clarify some key definitions and how the rules are to be interpreted in different situations. It is also now clear that HMRC will publish non-statutory guidance on the legislation, hopefully before April 2013, on how it should be interpreted in certain scenarios.

Along with the some small changes on the day counts, HMRC has clarified what can be counted towards the 35 hour working week and how the location of work will be determined. For instance, the time spent commuting to work can be counted as working time if the individual is carrying out work duties such as sending work emails during this time. Days taken as sick leave will not be deducted when looking at whether, on average, 35 hours a week are worked overseas. Where an individual is leaving the UK to take up work overseas, travel from the point of embarkation on the overseas part of the journey will be treated as working time but travel from the individual’s UK residence to the point of embarkation will not. In addition, the Government is proposing that special rules will apply for international transportation workers.

For all layers of the statutory residence test, time spent in the UK on training courses will count as work if provided or funded by the employer. This is a significant change as such activities are currently regarded as ‘incidental duties’ and not counted as days working in the UK.

A supplementary rule is being considered for individuals who spend a large number of days in the UK in a tax year but are rarely present at midnight (i.e. individuals who commute from overseas to work in the UK on a daily or weekly basis). In addition, up to 60 days in a tax year can be disregarded if, in exceptional circumstances, an individual ends up being in the UK for reasons beyond their control (for example, war, civil unrest, natural disasters or sudden or life-threatening illness or injury).

The draft legislation does not define a ‘home’ very precisely but HMRC has clarified some points that are expected to be included in its non-statutory guidance in due course. For example, where the ownership of a UK home is a significant factor, a UK home will only be taken into account if there is a continuous period of residence of at least 91 days.

TRANSITIONAL RULE

The original 2011 consultation document did not include any transitional rules. However, one is now proposed in respect of the look-back element of some tests. As some of the new rules depend on an individual’s residence status in prior years, a transitional rule will allow individuals to apply the new rules in determining if they were resident in the UK in one or more of the previous three years. For example, an individual trying to work out his or her status for 2013/14 could elect to apply the new rules for one or all of the 2010/11, 2011/12 and 2012/13 tax years. If the election is made, it will not disturb the individual’s actual status for the elected year, it only affects the application of the new rules in 2013/14. The new rules cannot be applied when looking back at previous years for any other reason.

So far, the proposals contain few conditions for use of the election so the option to choose which rules you wish to apply to review each of the prior three years could prove to be advantageous in tax terms as well as administratively.

ORDINARY RESIDENCE

The Government also proposes to abolish ordinary residence for all purposes other than overseas workday relief (which is to be put on a statutory footing) from 2013/14 onwards. This is intended to simplify tax legislation for the majority of affected individuals.

This means that, from 6 April 2013, the remittance basis of taxation will only apply where an individual is UK resident but non-UK domiciled (and then only if they are not ‘based’ in the UK). Grandfathering rules will apply, so that individuals who are currently UK resident and domiciled but not ordinarily resident and currently claim the remittance basis can continue to do so for a further two tax years after ordinary residence is abolished (i.e. the 2013/14 and 2014/15 tax years).

For more information please contact: Jon Hills, PKF (UK) LLP | T: +44 (0)20 7565 1000 | E: jon.hills@uk.pkf.com

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TAX CHANGES FOR PROPERTY HOLDING STRUCTURES FROM 6 APRIL 2013

In Budget 2012, the Chancellor announced new taxes on UK residential properties valued at £2m or more owned by non-natural non-UK persons. The rules will affect individuals owning UK residential property indirectly i.e. through another entity such as a company, a partnership with a corporate member, a collective investment scheme (including some limited partnerships) but individuals holding property in their own name will not be affected. The rules will vary slightly depending on the structure involved but there will be one definition of residential property and anti-avoidance measures are proposed where a property is of mixed use.

Although there is an exemption for property development companies, such companies will need to take extra care to ensure they do not fall foul of the new regime.

THE KEY CHANGES

The proposals create two new tax charges and increase an existing charge by:

• introducing an annual charge on UK residential properties valued at £2m or more that are owned by non-natural persons (companies, partnerships with a company member and collective investment schemes, but not trusts) which will apply to both existing and new structures

• extending capital gains tax (CGT) to disposals by non-UK resident non-natural persons (as above, but including trusts) where the consideration exceeds £2m

• increasing the stamp duty land tax (SDLT) charge for companies acquiring residential properties valued over £2m – with effect from 21 March 2012 – from 7% to 15%.

The proposals do not affect inheritance tax (IHT) so UK residential property owned by non-UK companies will continue to qualify as excluded property and such structures will often remain highly effective for IHT purposes.

1. The annual charge

The annual charge will be paid by the non-natural person owning the property and calculated as a percentage of the value of property as at 1 April 2012 (although it will be uprated for inflation each April based upon the CPI rate of the previous September and revaluations will be required every five years). The charge will operate in four stepped bands as set out below with the first tax return and payment is likely to be required by 1 October 2013.

*Uprated for inflation for later years.

2. Extension of CGT

From 6 April 2013, CGT will be extended to gains on disposals of UK residential properties (where the consideration exceeds £2m) by non-UK resident non-natural persons (defined as above but also including trusts, personal representatives, clubs and associations).

Crucially, CGT will apply to all disposals after 6 April 2013 and there are no plans to exempt any growth in property values before that date so this could lead to harsh consequences for long term property investors. Despite references to encourage de-enveloping in the consultation document, there is no mention of any transitional rule, so the existing CGT anti-avoidance provisions could trigger substantial tax charges where property is de-enveloped before April 2013. However, in most circumstances, there are a number of options for mitigating tax on future gains so investors should seek specific advice based on their personal situation.

The proposals include a rule that sales of shares in any company, where more than 50% of the value is represented by UK residential property, will also be subject to CGT.

3. Increasing the SDLT charge

The most straightforward and immediate change affects all UK residential properties acquired by companies. The 15% charge affects both UK resident and non-UK resident companies but acquisitions by trusts are unaffected. Difficulties will inevitably arise where the property holding entity does not directly correspond to classification as a corporate or non-corporate structure, for example a Liechtenstein Foundation or Delaware LLC. Both the exemption for developers and the definition of affected dwellings will be problematic and new property developers should seek expert advice on how to structure ventures involving residential properties valued at £2m or more.

United Kingdom

Property value at 1 April 2012*

Annual charge 2013/14

£2m - £5m £15,000

£5m - £10m £35,000

£10m - £20m £70,000

Over £20m £140,000

For more information please contact: Jon Hills, PKF (UK) LLP | T: +44 (0)20 7565 1000 | E: jon.hills@uk.pkf.com

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IMPACT ON EXISTING STRUCTURES

In all circumstances, holding the UK property in your own name will mean that these new taxes do not apply. However, other taxes might, with the main risk being possible IHT exposure. With such a wide variety of property holding structures in use and the huge diversity of individuals’ personal circumstances, there can be no one planning solution to these new taxes.

Many UK property owners will have to make tough decisions in the light of these proposals to strike a balance between on-going costs, current and potential future liabilities. Although there is still a great deal of uncertainty around the proposals, property owners should not delay exploring their options as the sooner you seek advice, the more likely it is that an acceptable solution can be implemented before 6 April 2013.

PAYE REPORTING CHANGES

Real time information (RTI) is being introduced to improve the operation of the UK’s pay-as-you-earn (PAYE) system for deduction tax at source from employee earnings. HMRC has said that it will make the PAYE system easier for employers to operate and help support the introduction of universal credits (consolidated state benefits) in October 2013.

Under RTI, employers and pension providers will tell HMRC about tax, national insurance and other deductions when (or before) the payments are made (i.e. usually monthly) instead of waiting until after the end of the tax year. When employers run their payroll, they will have to use new payroll software to gather the information required and send it to HMRC electronically. Therefore, there will undoubtedly be additional software costs for employers as RTI is introduced.

HMRC is piloting RTI until April 2013, when large employers will be required to start using it. All employers must be using RTI for payroll reporting by October 2013 (regardless of the size of their UK payroll). Switching to RTI will effectively mean a move to monthly payroll returns for UK employers and all the burdens that go with them. So before switching over to RTI it is vital for employers to check that their payroll records are accurate and to ensure that every employee record has the following information:

• Surname and forename

• National insurance number

• Gender, address, date of birth

• Tax code and basis

• NIC letter

• Previous employment earnings where applicable.

United Kingdom

For more information please contact: Jon Hills, PKF (UK) LLP | T: +44 (0)20 7565 1000 | E: jon.hills@uk.pkf.com

47

THE IRS FORGES AHEAD WITH FATCA: DRAFT FORMS AND REGISTRATION PROCESS

On 6 June 2012 the Internal Revenue Service (IRS) released draft versions (as of 31 May 2012) of revised Form W-8BEN and new Form W-8BEN-E, which are designed to conform to new Chapter 4 of the Internal Revenue Code, effective 1 January 2013. The IRS is also working on its system for the online registration process that will enable foreign financial institutions (FFIs) to become FATCA compliant as described below, since the IRS expects FFIs to register during the period 1 January 2013- 30 June 2013 in order to ensure that US withholding agents making payments to them will treat them as properly registered by 1 January 2014 when FATCA withholding generally begins.

Below are the important aspects of these developments.

Background

The Foreign Account Tax Compliance Act (FATCA) added Chapter 4 to the Internal Revenue Code, which generally provides that an FFI (.g, a foreign hedge fund, private equity fund, etc.) will need to be registered as a Participating FFI (PFFI) (or a Deemed-Compliant FFI) in order to avoid a 30% withholding tax on withholdable payments (generally US source passive income (FDAP) and gross proceeds from the sale of US securities).

On 8 February 2012, the Treasury Department issued proposed regulations for FATCA implementation which require foreign persons to document their Chapter 4 status (e.g., foreign individual, PFFI, non-participating FFI, nonfinancial foreign entity, etc.) to their US withholding agents. The proposed regulations are modeled after the familiar Chapter 3 regulations, under which US withholding agents are required to document the status of their foreign payees, generally by obtaining Forms W-8BEN, W-8IMY, etc (referred to below as the “old forms”).

New Draft W-8BEN Forms

Form W-8BEN is used by the foreign beneficial owner of US source income to certify its status as foreign and, if applicable, claim a reduced rate of withholding pursuant to a treaty. The old Form W-8BEN was used by an individual, corporation, or other beneficial owner that was not a pass-through entity (which instead uses Form W8-IMY). Chapter 4 establishes many new withholding categories for foreign entities, prompting the IRS to create a new six-page Form W-8BEN-E for entities, while making some revisions to the one-page Form W-8BEN (which henceforth is to be used only by foreign individuals).

The new forms, drafts of which can be obtained at www.irs.gov/FATCA, are designed to address both Chapter 3 and Chapter 4 status so that withholding agents will not have to maintain two separate forms. The draft forms are expected to be finalised in December 2012, six months after which withholding agents will not be able to accept a prior version of the form. Draft instructions to the forms have not yet been released.

One of the most significant changes in the new draft forms is that a foreign tax identifying number is now required. This is especially significant, not only because foreign persons may be reluctant to provide it, but also because the withholding agent may have certain responsibilities to validate this information. The instructions are expected to address these requirements in detail.

Draft Form W-8BEN-E requires a foreign entity to:

(i) certify its Chapter 3 status (e.g., corporation, tax-exempt entity, et.)

(ii) certify its Chapter 4 status (e.g., Participating FFI, Nonparticipating FFI, etc)

(iii) complete a short special section tailored to the status checked in (ii) above.

Participating FFIs will have to provide their FFI EIN (line 7), as discussed further below, so that the withholding agent will be able to validate it by reference to the list that the IRS will publish, as well as their FATCA ID (line 13) which will be a different, more confidential, number that a PFFI will use for FATCA reporting.

FATCA Registration Process for Foreign Financial Institutions

The IRS is in the process of reviewing and considering over 200 comment letters it received on the proposed regulations and has started designing the registration process based on the proposed regulations so that it can be in a position to have the final online process in place by 1 January 2013.

Below are highlights of the registration process as the IRS currently envisions it. Please note that the information set forth below is subject to change, as a result of changes that might be made to the proposed regulations before they are finalized.

How will an FFI register online to become a Participating FFI?

The process starts by logging on to www.irs.gov/FATCA and under the “Information for Foreign Financial Institutions” section, clicking on a link (to be added) entitled “Login or Create FATCA Account”.

United States

For more information please contact: Jay Bakst and Michael Laveman, Eisner Amper LLC | T: +1 212 891 4236 or +1 212 891 8750 | E: jay.bakst@eisneramper.com or michael.laveman@eisneramper.com

48

Who participates in the registration process?

There are three types of individuals who can potentially participate:

1. Responsible Officer (RO) - Individual officer of the FFI in a position to register and sign the FFI agreement.

2. Point of Contact (POC) - Listed individuals (up to five per FFI) selected by the RO (or by an ATP, see 3 below) to help complete all aspects of the registration process except signing. The FFI must have one in-house POC and also may designate certain qualified local or US third parties.

3. Authorized Third Party (ATP) - Certain in-house individuals and certain types of US-licensed tax professionals designated (through power of attorney procedures) by the RO to perform all registration duties, including signing the FFI agreement/ certification. (The standards for eligible individuals are still under development.) While an ATP may sign the agreement, the RO still remains responsible.

How will the IRS verify the identity of the individual who will sign the FFI agreement or the annual certification of compliance?

Positive ID verification is required for the individual who will sign the FFI agreement/ certification, which is accomplished as follows:

• Electronic: The RO may provide his/her SSN or ITIN in the registration system

• Paper: The RO may provide new Form 8956 and appropriate documentation but the process for ATPs is still being developed.

A FATCA Individual Identification Number (FIIN) will be issued to the RO or ATP once his/her identity is verified. The FIIN is then used by the individual who signs the FFI agreement/certification. The registration process includes an affirmative statement that the person signing has the authority to act for the FFI.

What type of information will be required to be submitted as part of the registration process?

• The specific type of FFI (eg, PFFI, Deemed-Compliant, etc)

• Types of accounts maintained by the FFI (eg, for investors in an FFI which is a fund)

• Mailing and physical address of the FFI

• Date and country of incorporation or organization

• FFI country of residence for tax purposes

• List of all registering members of the lead FFI’s Expanded Affiliated Group

• Designation of RO and POC, including name, title, address, telephone, and email address.

What happens after the agreement/certification is signed and submitted?

• For a single FFI, after signing the agreement/certification the FFI will be notified when it is approved by the IRS and will receive an FFI EIN.

• For an Expanded Affiliated Group, each registering FFI in the group must sign the agreement/certification and, after each FFI in the group has done so, the group will be approved and each FFI will receive an FFI EIN.

• PFFIs and registered Deemed-Compliant FFIs will be placed on a publicly available list.

• Once the online application is signed and submitted, the approval is expected to happen “quickly” according to IRS representatives.

Can a PFFI access its own FATCA-related information online?

Yes, FATCA registration will create a user-maintained account which can be edited or modified by the user. Similar to a private online account, it is intended that every time a change is made an email will be sent to the POC(s).

The FFI’s account will have a home page showing:

• key information, such as status as PFFI, RO, ATP, FIIN, POC, FATCA ID, and FFI EIN

• Message board, through which the IRS will communicate with the FFI regarding its FATCA account.

Conclusion

FFIs and those dealing with them should begin now to prepare for use of revised Form W-8BEN and new Form W-8BEN-E and for the registration process outlined above.

United States

For more information please contact: Jay Bakst and Michael Laveman, Eisner Amper LLC | T: +1 212 891 4236 or +1 212 891 8750 | E: jay.bakst@eisneramper.com or michael.laveman@eisneramper.com

49

US BANKS MUST REPORT INTEREST ON DEPOSITS BY NON-RESIDENT ALIENS

The Internal Revenue Service (IRS) has released final regulations requiring reporting of interest paid on deposits maintained at US offices of certain financial institutions by non-resident alien individuals beginning on 1 January 2013. The regulations require reporting only for interest paid to a resident of a country with which the US has an exchange of information agreement in effect. In addition, the rules seek to reassure stakeholders that strict confidentiality will be maintained not only by the US but also by the foreign jurisdiction receiving the information.

Background of the rules

The focus by the IRS on reporting of interest on deposits of non-resident aliens is not new, as the proposed regulations date back to 2001 and subsequently 2002. The 2002 proposed regulations would have required reporting of interest paid to such individuals who were residents of certain designated countries including Canada and 15 others. In January 2011 new proposed regulations were released and the final regulations adopt the 2011 proposals with certain revisions. One such revision is the requirement to report only where the interest is paid to residents of a country with which the US has an information exchange agreement in effect.

Basic approach of the rules

The new regulations clarify that, for purposes of determining country of residence, the reporting institution can rely on the permanent address provided on a valid IRS Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for US Tax Withholding) unless the institution knows or has reason to know that the W-8BEN is incorrect or unreliable for purposes of establishing the country of residence.

Objective of the rules

The US does not impose its income, gift or estate taxes on most non-business bank deposit interest or accounts of foreign persons, so this measure is likely not aimed primarily at enforcing US federal taxes.

However, the IRS is in process of finalising regulations under the US Foreign Account Tax Compliance Act (FATCA) which, inter alia, will require foreign financial institutions and others to provide US taxpayer information.

The success of this approach may hinge in part on the ability of the US to exchange financial account information with other countries’ governments, so providing a US mechanism for obtaining such information for other countries may assist enforcement efforts under FATCA and similar legislation.

OFFSHORE VOLUNTARY DISCLOSURE PROGRAM (OVDP) 2012 UPDATES AND NEW STREAMLINED PROCEDURE FOR LOW-RISK US TAXPAYERS ABROAD

Various initiatives for voluntary taxpayer disclosure of offshore financial accounts and tax compliance have been made available since 2009 by the Internal Revenue Service (IRS) and several additions have recently been issued.

Updates to the 2012 OVDP

The 2012 OVDP is substantially similar to the 2011 disclosure program but with some important differences. For instance: there is no set deadline to apply, the maximum penalty is 27.5% and the terms of the program can change or terminate without advance notice.

The current program has been updated effective June 2012 to include new procedures to allow resolution of certain issues relating to foreign retirement plans such as late elections permitted by treaty for the deferral of current income earned by a foreign retirement plan.

In addition, recent IRS guidance consisting of 55 Frequently Asked Questions (FAQs) and accompanying answers has been posted to the agency’s website. These include matters such as:

• Penalties or limited eligibility under the 2012 OVDP for all or certain taxpayers or defined classes of taxpayers

• The voluntary disclosure period covered: for calendar year taxpayers, the most recent eight tax years for which the filing due date has already passed but not including current years for which non-compliance has not yet occurred.

• Which entities are eligible to participate in the 2012 OVDP

• Confirmation that so-called “quiet” disclosure – by filing amended returns and paying any related tax and interest for previously unreported offshore income without otherwise notifying the IRS – still permits the taxpayer to enter the 2012 OVDP

• No penalty imposition for failure to file delinquent Foreign Bank Account Forms (FBARs), Forms 5471 and Forms 3520 if these do not involve underreported tax liabilities and the taxpayer has not previously been contacted regarding an income tax examination or a request for delinquent returns

• Exclusion from the 2012 OVDP of certain taxpayers with accounts at specified financial institutions, due to US government actions already commenced with those financial institutions

• Closure of a so-called “offshore loophole” by excluding taxpayers who failed to notify the US Department of Justice of their appeal of a foreign government’s disclosure of tax information from 2012 OVDP eligibility.

United States

For more information please contact: Cristina Wolff, Eisner Amper LLC | T: +1 347 735 4614 | E: cristina.wolff@eisneramper.com

50

Updates to the 2012 OVDP

The 2012 OVDP is substantially similar to the 2011 disclosure program but with some important differences. For instance: there is no set deadline to apply, the maximum penalty is 27.5% and the terms of the program can change or terminate without advance notice.

The current program has been updated effective June 2012 to include new procedures to allow resolution of certain issues relating to foreign retirement plans such as late elections permitted by treaty for the deferral of current income earned by a foreign retirement plan.

In addition, recent IRS guidance consisting of 55 Frequently Asked Questions (FAQs) and accompanying answers has been posted to the agency’s website. These include matters such as:

• Penalties or limited eligibility under the 2012 OVDP for all or certain taxpayers or defined classes of taxpayers

• The voluntary disclosure period covered: for calendar year taxpayers, the most recent eight tax years for which the filing due date has already passed but not including current years for which non-compliance has not yet occurred.

• Which entities are eligible to participate in the 2012 OVDP

• Confirmation that so-called “quiet” disclosure – by filing amended returns and paying any related tax and interest for previously unreported offshore income without otherwise notifying the IRS – still permits the taxpayer to enter the 2012 OVDP

• No penalty imposition for failure to file delinquent Foreign Bank Account Forms (FBARs), Forms 5471 and Forms 3520 if these do not involve underreported tax liabilities and the taxpayer has not previously been contacted regarding an income tax examination or a request for delinquent returns

• Exclusion from the 2012 OVDP of certain taxpayers with accounts at specified financial institutions, due to US government actions already commenced with those financial institutions

• Closure of a so-called “offshore loophole” by excluding taxpayers who failed to notify the US Department of Justice of their appeal of a foreign government’s disclosure of tax information from 2012 OVDP eligibility.

New streamlined procedure for low-risk US taxpayers residing abroad

From 1 September 2012, so-called “low-risk” non-resident US taxpayers can take advantage of streamlined filing procedures outside the 2012 OVDP, with their applications reviewed on an individual basis.

To be eligible for the streamlined process, a taxpayer must:

• Not have resided in the US since 1 January 2009

• Not have filed a US tax return for 2009 or later

• Not owe more than $1,500 in US tax on any of the specific returns being submitted to the program.

Taxpayers utilizing the streamlined procedure must file delinquent tax returns, with appropriate related information returns such as Form 3520 or Form 5471, for the past three years and delinquent FBARs for the past six years. Payment of taxes and interest, if applicable, must be remitted along with the delinquent returns.

Taxpayers must also submit a signed Questionnaire consisting of 20 yes/no questions regarding eligibility, financial accounts, tax advisors, tax position and other matters.

United States

For more information please contact: Cristina Wolff, Eisner Amper LLC | T: +1 347 735 4614 | E: cristina.wolff@eisneramper.com

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