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26 Int'l Tax Rev. 58 (2015-2016)
International Updates

handle is hein.journals/intaxr26 and id is 616 raw text is: Albania Treaty analysis: Albania and Kosovo sign new double taxation agreement Dorina Asllani Ndreka, Eurofast Global A n agreement for the avoidance of dou- ble taxation of income and capital taxes and the prevention of fiscal evasion, concluded between the Republic of Albania and the Republic of Kosovo, entered into force in March 2015 and will apply from January 1 2016. The agreement replaced and updated the previously-valid 2004 agreement, which was concluded by the Council of Ministers of Albania and by the UN Mission in Kosovo on behalf of Kosovo. By introducing new clauses and by updat- ing the existing provisions, the aim of the new agreement is to create a complete legal framework for handling the tax treat- ment of physical and legal persons with businesses activities or revenues under the tax jurisdiction of both countries. Albania and Kosovo are not just bor- dering countries; they share several fea- tures, including language, history and tradition. However, there are also eco- nomic and political reasons which make the double tax treaty (DTT) crucial for the continuation of financial and econom- ic cooperation between the two countries. Many companies perform business activities in both countries, and this num- ber is constantly increasing due to the opportunities offered by both states. Albania and Kosovo have agreed on the free movement of persons and guarantee several facilities regarding the transit of goods. According to data published by the Tirana Chamber of Commerce and Industry, there are now 502 Albanian businesses that operate in Kosovo. This number is expected to grow due to the provisions of the new treaty. One of the objectives of the agreement is the redefinition of the mutual coopera- tion clause and the obligation of the con- tracting states to exchange information to prevent fiscal evasion by entities that operate in both countries. The following taxes will be subject to the new agreement: In Albania: * Taxes on income, including company profit tax, personal income tax from capital gains and from alienation of movable and immovable property; * Tax on small business activities; and Tax on wealth. In Kosovo: * Personal income tax; * Corporate income tax; and * Property tax. The new treaty also includes several other changes and novelties. It contains a provision regarding the fiscal treatment of stateless persons as well as an arbitration clause which is a new possibility for solv- ing disputes arising from the agreement. In accordance with the new provisions, the contracting states have the obligation to render information to the other party, and also to lend assistance in the collec- tion of revenue claims. Considering the special relations between the two countries, the agreement will improve economic flow, open new economic perspectives of cooperation and help foreign investors consider the possi- bility of increasing their activity in both states. Dorina Asllani Ndreka (tirana@eurofast.eu) Eurofast Global, Tirana Office Tel: + 355 (0) 42 248 548 Website: www.eurofast.eu Argentina Argentina and Mexico sign double tax treaty Andres Edelstein and Ignacio Rodrfguez, PwC Argentina and Mexico signed a new 51double tax treaty (DTT) on November 4 in Mexico City. The subse- quent exchange of ratification instru- ments is expected to occur soon and will make the DTT effective as from January 1 following such ratification process. The tax treatment of Argentine trans- actions under the newly signed tax treaty with regard to (i) interest, (ii) royalties, (iii) dividends and (iv) capital gains would be as follows: Interest Domestic Argentinean tax law generally subjects interest payments on related- party loans to a foreign beneficial owner to a 35% withholding tax rate. However, under the tax treaty, interest payments on such loans paid to Mexican benefici- aries should be subject to a maximum withholding tax rate of 12%. Although the treaty contains non-dis- crimination provisions, these do not override domestic thin capitalisation rules that establish a 2:1 debt-to-equity ratio. Royalties Under the tax treaty, royalties and tech- nical assistance payments made to a Mexican beneficial owner should be sub- ject to Argentine income tax withholding at a 10% or 15% rate, as the case may be. Note that under domestic Argentine tax law royalties may be subject to withhold- ing tax rates as high as 31.5%. The DTT generally follows the OECD model. However, there are some deviations from that model, such as list- ing technical assistance services in article 12 on royalties, considering those ren- derings of independent services consist- ing of the provision of non-registrable knowledge through any mean as a royal- ty payment. Dividends Under Argentine domestic law, dividend payments are subject to 35% withholding tax to the extent the payment exceeds the amount of accumulated tax earnings. On top of this, a flat 10% withholding on the gross amount of the dividend applies. The treaty does not provide any relief in this regard. Capital gains Under this treaty taxation on capital gains derived from the sale of shares would be limited to a 10% tax on the gain to the extent that the seller held more than a 25% stake. If shareholding is lower than that, taxation would be limit- ed to a 15% tax. This may imply a relief from an Argentine perspective since under domestic law foreign beneficiaries are subject to a 13.5% effective tax on gross proceeds or, alternatively, 15% tax on the actual capital gain duly support- ed. Please note that the above potential relief will not apply if more than 50% of the value of the relevant shares is derived from real estate property. Limitation of benefits and other clauses Some other particular features the treaty provides are as follows: As Argentina recently agreed with Chile for the very first time, the treaty with Mexico includes a limitation of benefits (LOB) clause. Although these LOBs may be relaxed and some relief may be provided by the relevant con- tracting state under certain specific facts and circumstances, they are clear- ly aligned with global trends (for example, BEPS) mainly aimed at avoiding treaty-abuse practices and instances of double non-taxation. It is stated that a permanent establish- ment is deemed to exist in the other WWW.INTERNATIONALTAXREVIEW.COM 58 December/January 2016

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