Dividends from Spain to UK

Dividends from Spain to UK

The Spanish tax deducted from dividends paid by a Spanish Company at the agreement rate of 15 per cent (10 per cent where the recipient is a United Kingdom company controlling, directly or indirectly, at least 10 per cent of the voting power in the Spanish company - but see the final paragraph below) qualifies for credit as a direct tax. A reduction to the above rates is not given where the dividend is effectively connected with  a business carried on by the recipient through a permanent establishment in Spain.

Where the recipient of the dividend is a United Kingdom company controlling, directly or indirectly, at least 10 per cent of the voting power in the Spanish company paying the dividend, relief is also due for the underlying tax.

Although the agreement provides a 10 per cent rate of source state taxation in respect of direct investors, the EC Parent and Subsidiary Directive bars the imposition of withholding taxes on dividends paid by a company resident in one Member State of the Community to a company resident in another Member State, where the company receiving the dividend holds a minimum of 25 per cent of the capital of the company paying the dividend. The level of capital required to obtain the 0% rate is reduced to 20 per cent from 1 January 2005, 15% from 1 January 2007 and 10% from 1 January 2009.

The Directive overrides any provision made for withholding tax in the relevant bilateral treaty

Accrued and capitalised interest

Accrued and capitalised interest

Some news about wealth and asset protection. According to the Savings Directive, "Savings income is also regarded as paid for the purposes of the regulations when a money debt is sold to a paying agent (or a receiving agent) or redeemed by the debtor. Interest added to an account with a bank or building society when the account is closed is interest in the normal way and treated as such under the regulations. However, accrued interest, premiums and discounts paid out at the redemption of securities by the issuer, or included in part of the price paid by a third party purchaser at sale before redemption are also savings income for the purposes of the regulations.

UK market makers who purchase interest–bearing securities from relevant payees or residual entities in prescribed territories or UK agents acting for the seller (e.g. stockbrokers) could therefore be paying agents for the purposes of these regulations. This could be the case even if they are not the paying agent in respect of the coupon payments made to the relevant payee or residual entity selling the securities.

Accrued or capitalised interest normally only arises if:

• a security is sold to the paying agent cum dividend (with an entitlement to the next coupon payment) - in those circumstances the price will include an amount of accrued interest for the period from the last coupon payment date to the date of transfer of the security

• it was a purchased by the seller at a discount, or

• the sale price includes, or takes account of, a premium that is paid on redemption by the issuer.

There is no reportable savings income payment when an interest–bearing security is purchased by a relevant payee or residual entity in a prescribed territory.

If the security is purchased ex dividend (without an entitlement to the next coupon payment), there will not normally be any accrued interest in the selling price and so there may be no reportable savings income. The next coupon payment to the relevant payee or residual entity may, of course, be reportable in the normal way under the regulations by the appropriate paying agent.

('repo') agreements do not give rise to reportable savings income (and manufactured payments which are representative of interest on such debts are also not reportable savings income - see paragraph 89). But a money debt which is acquired by a relevant payee or residual entity under a stock loan or repo agreement may give rise to savings income if the debt is sold, or if interest on the debt is received, by the relevant payee or residual entity during the term of the agreement.

For accrued or capitalised interest you may report either the amount of the savings income or the full amount of the proceeds of the sale or redemption of the securities. You may rely on information from established information vendors in order to determine the savings income realised on sale or redemption."

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“Home country” rule

"Home country" rule

According to the Savings Directive "You may, if you wish, determine whether or not a fund has exceeded a threshold, or the amount of savings income to report in accordance with the "home country" rule. This means that, for a fund established in a prescribed or relevant territory, or one of the five other territories (not prescribed in Appendix 1), this determination is done in accordance with the rules set by the territory in which the fund is established. You may also rely, as provided in paragraph 123, on information provided on this basis by recognized industry sources."

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Permanent Establishment: a “fixed” place of business through duration in Asia

Permanent Establishment: a “fixed” place of business through duration.

Relating Permanent Establishment in Taiwan, as yet there is no formal legislation, ruling, or court case on the definition of a fixed place of business in terms of the duration for which the place is used.

However, there are some informal discussions within the tax authority concerning
investment bankers’ activities regarding the application of business profit
under DTAs. Due to the unique nature of the investment banking business,
investment bankers travel frequently from one country to another. One business
activity may also be related to different projects or different clients. These all
contribute to complicating the Permanent Establishment issue for investment banking business.

Therefore, it seems that the tax authority may not totally rely on the terms of the service agreement. Instead, it will also review any preparation work conducted
before the effective date of the service agreement. For example, the time spent on
preparation work will also be considered in determining Permanent Establishments under DTAs. These activities may include, but are not limited to, preparation meetings, liaison, performance of due diligence and advice given before listing. In addition, the time spent for the same client, though for different projects, will be aggregated for determining a Permanent Establishment.

More on Permanent Establishment at Permanent Establishment in Portuguese.

Permanent Establishment: “fixed” place of business through location in Asia

Fixed place of business for Permanent Establishment in Taiwan

According to MOF rulings, whether a geographical area constitutes one “place”
for the purpose of definition will depend on whether the place is located in the
tax jurisdiction governed by the same city tax office. Currently, except for
the MOF which is mainly responsible for designing tax policies and supervising
the collection of taxes and duties at all levels of tax offices, tax administration at the local tax office is organized as follows.

If the places are located in the same city and are governed by the same tax office, then these places of business constitute one “place” for the purpose of the definition.

There are three MOF rulings relating to the geographical location with regard
to Permanent Establishment issues.

When a construction company and its job site offices/reception centers are located in the same tax jurisdiction (same city), it is the company which should report VAT tax. However, if the company and the job site offices/reception centers are located in different tax jurisdictions, then the job site office/reception center should conduct its own tax registration if it has business/sales activity in the specific tax jurisdiction. If there are several job site offices/receptions in the same tax jurisdiction, then the company may nominate one of them to carry out the tax registration. This seems to suggest that if the “places of business” are located in the same city and governed by the same tax office, then these places of business constitute one “place” for the purpose of the definition.

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Permanent Establishment: core business activity

A core business activity (sales, manufacturing, etc.) is required to be carried at the location in Taiwan, accordin to several rulings (nos. 09504500160, 871936481,
09704523800, 810826274, 7521389, and 7558643) on the activities carried on by
the local entity which is considered to be a Permanent Establishment. According to these rulings, the core business activity needs to be involved at, in or though the place of business to be considered as being carried on through the place of business. If only auxiliary activities are provided, and no sales or manufacturing activity has been performed, these should not be considered as carried on through a place of business.

The following examples given by several rulings provide the guidance that when
several activities are combined and carried on at the same place/location, only if
core business activities have been provided will it be considered that a business
is being carried on.

When a local entity has been engaged by a foreign entity to provide the storage,
assembly, testing and delivery of goods to local clients or for export overseas
at a location in the free trade zone, the local agent is considered a business
agent and is carrying on business activities at that location (MOF ruling no.
9504500160).

When a local entity has been engaged by a foreign entity to import goods, or
to provide storage and sales to local clients at places of business, the local agent
is considered a business agent and is carrying on business activities at that location.

If the activities carried on are only limited to storage, disassembly and
rearrangement of the goods, and the nature, shape, function and color have not
been changed, then these activities will not trigger the Permanent Establishment issue and therefore no Taiwan income issue will arise.

Whether a job site office or reception center has sales activities will depend on
whether the receipt of deposit, conclusion of contract and collection of payments
is involved. If the activities are only limited to client reception, liaison or checking and acceptance of goods without sales activities, then there is no need to
carry out a tax/business registration (MOF ruling no. 810826274).

If the services rendered are limited to job supervision, trial run of machinery
and equipment and technical cooperation, the foreign entity may be exempt from
tax/business registration (MOF ruling no. 7521389).

If the liaison office of the foreign entity in Taiwan provides procurement
services for the foreign entity with no other business activities, the liaison
office is also exempt from tax/business registration, which have effects in the Permanent Establishment consideration.

More abou Permanent Establishments in Permanent Establishment International Lawyers and Asset Protection with Permanent Establishments

Definition of a Permanent Establishment in Asia

The Permanent Establishment in Taiwan
Both OECD and UN models were taken into consideration when the Taiwan MOF drafted the International Tax Agreement and negotiated and concluded agreements with other countries. However, in order to broaden the tax basis for taxation, the Taiwan tax authority tends to adopt UN models when negotiating with developed countries. In addition, there are similar concepts of the Permanent Establishment in domestic laws such as the Value-Added and Non-Value-Added Act and guidance for the application of Double Taxation Agreements.

Under article 10 of the International Tax Agreement, the “fixed place of business” refers to fixed places for operation of business, including administrative offices, branch or sub-branch offices, business offices, factories, workshops, warehouses, mining fields and construction sites. However, this excludes warehouse or storage sites used exclusively for the purchase of goods and maintenance shops not used for processing or manufacturing products.

In addition, according to article 4 of the Enforcement Rules of the Value-
Added and Non-Value-Added Act , the “fixed place of business” means a fixed
place for selling goods or providing services, including a head office, administrative office, branch, business office, factory, maintenance shop, workshop,
machine shop, warehouse, mining field, construction site, show room, liaison
office, operating office, service station, operating division, branch store, sales
outlet, auction house, and other similar places.

The listed examples of Permanent Establishment under Double Tax Agreements, e.g. with Australia, include, but are not limited to, the following:
“a place of management, a branch, an office, a factory, a workshop, a mine, an
oil or gas well, a quarry or any other place of extraction of natural resources,
an agricultural, pastoral or forestry property, a building site or construction,
installation or assembly project which exists for more than 6 months.”

Which assets constitute a Permanent Establishment
The Taiwan tax authority has provided little guidance in the form of specific
rulings on the definition of “a place of business”, especially concerning
intangible assets. However, the position taken by the Taiwan authority in
respect of a place of business can be found in MOF ruling no. 890458931 dated 5
January 2001. However, because this ruling is for the purpose of interpretation of
the Double Tax Agreements signed between Taiwan and Singapore, the position taken by the Taiwan tax authority in this ruling cannot be applied to other cases which
might involve other agreements.

Under this ruling, if a Singapore enterprise does not have any branch or business
agent in Taiwan, or a website or server in Taiwan, but merely conducts its travel booking business for domestic airline companies through the internet services provided by a telecommunications service provider, the business profit earned by the Singapore enterprise for the services will not be subject to Taiwan income tax according to article 7(1) of the Double Tax Agreements between Taiwan and Singapore, where is stated that “The profits of an enterprise of a territory shall be taxable only in that territory unless the enterprise carries on business in the other territory through a permanent establishment situated therein. Furthermore, if the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other territory but only so much of them as is attributable to that permanent establishment.”

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