miércoles, 23 de agosto de 2017

Romania implements country-by-country reporting requirements

On June 9, 2017, the Romanian Government passed legislation implementing country-by-country (CbC) reporting requirements in Romania, transposing the provisions of Directive (EU) 2016/881 of 25 May 2016 into the national legislation. The legislation applies to fiscal years beginning on or after January 1, 2016.

The new CbC reporting provisions follow the OECD Base Erosion and Profit Shifting (BEPS) Action 13 initiative.

As such, Romanian ultimate parent entities controlling a Multinational Enterprise (MNE) group whose total consolidated group revenue is EUR 750 million or more must file CbC reports with the Romanian tax authorities in line with the new regulations. These provisions also will affect other Romanian companies that are part of a MNE group but are not necessarily parent companies.

Source & more info: PwC

martes, 22 de agosto de 2017

Cyprus updates guidance on embedded IP income, CbC reporting requirements; expands tax treaty network

The Cyprus Tax Authorities (CTA) recently announced that transfer pricing (TP) studies based on the methodologies of the latest Organisation for Economic Co-operation and Development (OECD) TP guidelines are required to support the level of embedded intellectual property (IP) income for the application of both the ‘old’ and the ‘new’ Cyprus IP boxes.

On May 26, 2017, the Cyprus Minister of Finance issued a decree updating the country-by-country (CbC) reporting requirements for multinational enterprise (MNE) groups generating consolidated annual turnover exceeding €750 million.

In tax treaty developments:

  • The first double tax treaty (DTT) between Cyprus and Jersey was signed in July 2016 and entered into force on February 17, 2017. The DTT will take effect January 1, 2018. 
  • Cyprus and Barbados signed their first DTT on May 3, 2017. Cyprus ratified the treaty on May 12, 2017. The DTT will take effect on January 1 of the year following the year in which the DTT enters into force.

Source & more info: PwC

lunes, 21 de agosto de 2017

India: High Court rules payments under secondment agreement do not attract withholding tax

The Bombay High Court issued a decision on 3 May 2017, concluding that payments made under a secondment agreement were reimbursements of expenses, not technical service fees and, therefore, were not subject to Indian withholding tax under the India-UK tax treaty. The court upheld an earlier decision of the Mumbai Income Tax Appellate Tribunal (ITAT).

Facts of the case
In 2008, a UK retailer (UK Co) set up an Indian joint venture company (JV Co) with a large Indian retailer, with a view to expanding the presence of the UK company in India. JV Co thereafter concluded an agreement with UK Co, under which several UK Co employees were seconded to India to help set up the Indian business. The employees were to carry out certain management functions; assist with property selection, retail operations, merchandising and product selection; and set up a merchandising team. The employees remained on the payroll of UK Co, but the salaries were
taxable in India. Under the terms of the secondment agreement, JV Co reimbursed UK Co for a portion of the expenses relating to the seconded employees. JV Co did not withhold Indian tax from these payments.
The Indian tax authorities took the position that the nature of the activities of UK Co’s employees in India were technical services and, therefore, the payments made by JV Co under the secondment agreement constituted fees for technical services (FTS), subject to withholding tax under article 13(4) of the India-UK tax treaty. The tax authorities held JV Co in default for failing to withhold tax. JV Co appealed to the Commissioner of Income Tax (Appeals), who reversed the order in favor of JV Co. The Indian tax authorities then appealed to the Mumbai ITAT, which agreed with the commissioner, and further appealed to the Bombay High Court.

High Court decision
In its decision, the High Court summarized the findings set out by the Mumbai ITAT and affirmed the ITAT’s conclusion that JV Co was not required to withhold tax from the payments it made to UK Co under the secondment agreement. In reaching its decision, the ITAT had held that:

  • The payments made by JV Co were not in the nature of FTS, which would have been subject to Indian withholding tax under the India-UK tax treaty. The ITAT referred to several previous High Court and ITAT decisions that interpreted the definition of FTS under a treaty to require that technical knowledge, experience, know-how and/or process skills that enable the person acquiring the services to apply the technical knowledge, etc. be “made available.” The ITAT determined that the assistance provided by the seconded employees to JV Co did not include making available the technical knowledge or skills and, therefore, the payments made by JV Co could not be considered FTS under the treaty.
  • The payments made by JV Co were reimbursements of UK Co’s expenses relating to the secondment of its employees (i.e. the payments did not include a profit element) and, thus, the payments could not be regarded as income (subject to withholding) in the hands of UK Co. The ITAT noted that the relevant agreements between JV Co and UK Co supported this position.
  • The entire salary received by the seconded employees had been subject to individual income tax in India at the highest average tax rate, thus refuting the finding of the Indian tax authorities that JV Co should be held in default for failure to withhold tax due.

Source: Deloitte

IRS launches country-by-country reporting web pages

The IRS recently launched several new webpages providing information about country-by-country (CbC) reporting on irs.gov. These pages provide background information on CbC reporting and other useful resources. The main IRS CbC reporting page provides links to CbC information for US MNEs, CbC reporting guidance and resources, CbC frequently asked questions (FAQs), the IRS CbC newsletter, and several other related items.
Source & more info: Deloitte

OECD releases new discussion draft on attribution of profits to PEs

The Organisation for Economic Co-operation and Development (OECD) on June 22 released two non-consensus discussion draft documents concerning the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (TPG). These documents are part of the base erosion and profit shifting (BEPS) project, which began in 2013.

The first discussion draft, which deals with work in relation to BEPS Action 7, contains additional guidance on the attribution of profits to permanent establishments (PEs). The second discussion draft, which deals with BEPS Actions 8-10, provides proposed revised guidance on the application of the transactional profit split method.

Action 7 of the BEPS Action Plan (Preventing the Artificial Avoidance of Permanent Establishment Status) mandated the development of additional guidance on the issue of attribution of profits to PEs, in particular for PEs outside the financial sector. Under this mandate, the OECD released in July 2016 a discussion draft for public comment and held a hearing in October 2016. After considering the comments received and the positions of countries, the OECD released this new discussion draft, which replaces the discussion draft issued in 2016.

The new discussion draft sets out high-level general principles for the attribution of profits to PEs in the circumstances addressed by Action 7 of the BEPS Action Plan. According to the OECD, countries agree that these principles are relevant and applicable in attributing profits to PEs.

In particular, the new discussion draft provides guidance with respect to the following:

  • PEs arising from article 5, paragraph 5 of the OECD model treaty, including examples of a commissionnaire structure for the sale of goods, an online advertising sales structure, and a procurement structure.
  • PEs created as a result of the changes to article 5, paragraph 4, including an example on the attribution of profits to PEs arising from the anti-fragmentation rule included in new paragraph 4.1 of article 5.

It is noteworthy that, unlike the discussion draft issued in 2016, this discussion draft does not contain numerical examples. The OECD indicated that this is to avoid drawing conclusions from this guidance on the level of profitability of the intermediary or the PE. The profits of the intermediary and the PEs should be determined under the relevant articles in the applicable tax treaty (i.e. Article 7 and, when applicable, Article 9) based on the specific facts and circumstances of the case.

The new discussion draft encourages administrative simplification for taxing profits of a dependent agent PE (DAPE) through combined allocation to the dependent agent enterprise that creates the DAPE. This encouragement does not repeal the OECD’s original analysis of the “single taxpayer approach” in the 2008/2010 Authorized OECD Approach (AOA) Report or alter its conclusions that such approach is fundamentally incorrect under the OECD treaty. It also does not require host-PE countries to ignore their taxing rights over two separate enterprises, nor does it change the taxing rights of the home country where the host-PE country provides administrative accommodation permitting allocation solely to a dependent agency enterprise. However, the nod provided to administrative convenience is intended to address practical application of a host-PE country’s tax base and encourage mutual accommodation when segregating ownership and service-based profits makes little economic difference.

The attribution of profits illustrations in the discussion draft address more common conditions of non-financial enterprises where a residual reward to capital risk may more often be substantially reduced in relation to the service-based profit remuneration owed to the dependent agent. However, the discussion draft does not amend or provide any additional guidance for the “role of capital” in the context of residual rewards to a financial enterprise’s capital at risk over that already provided in the 2008/2010 AOA Report in Part III, Section C-2(iv). Accordingly, at this time, there may remain a divergence between the quantum of profits that should be expected to be available for attribution to a DAPE in non-financial enterprise fact patterns compared to financial enterprise cases where rewards to capital may commonly be materially higher. The OECD announced at their annual Washington, D.C. conference on June 6, 2017 that additional guidance on the transfer pricing treatment of financial transactions is planned for release later this summer.

Source: Deloitte

OECD releases third discussion draft on transactional profit splits

The Organisation for Economic Co-operation and Development (OECD) on June 22 released two non-consensus discussion draft documents concerning the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (TPG).1 These documents are part of the base erosion and profit shifting (BEPS) project, which began in 2013.

The first discussion draft, which deals with work in relation to BEPS Action 7, contains additional guidance on the attribution of profits to permanent establishments (PEs). The second discussion draft, which deals with BEPS Actions 8 through 10, provides proposed revised guidance on the application of the transactional profit split method.

Actions 8 through 10 of the BEPS Action Plan focus on ensuring that transfer pricing outcomes are in line with value creation. In particular, Actions 8-10 invited clarification of the application of the transactional profit split method in the context of global value chains. The June 22 discussion draft is the third round of non-consensus discussion drafts relating to profit splits issued by the OECD – two earlier drafts were released on December 16, 2014, and July 4, 2016. Comments were submitted by stakeholders on each of the prior discussion drafts, and those comments were published on February 10, 2015, and September 8, 2016, respectively. This revised document replaces the discussion draft released in July of 2016. Interested parties are invited to send comments on this discussion draft by September 15, 2017.

The more significant unresolved issues from the July 4, 2016, guidance that came out of the public consultations held at the OECD are as follows:

  • Value chain analysis: Whether to keep the guidance concerning a value chain analysis; and, if so, whether to include such guidance in Chapter II of the TPG, which discusses the selection of the most appropriate transfer pricing method, or whether to include it in Chapter I of the TPG, which discusses the concept of the “accurate delineation of the actual transaction” within a multinational enterprise (MNE);
  • Parallel and sequential integration: Whether to keep the distinction between parallel and sequential integration of an MNE as a useful tool for tax administrations and taxpayers to inform the selection of the profit split as the most appropriate method;
  • Split of actual versus anticipated profits: Whether the guidance on when the split of actual profits would be the most appropriate method in comparison with those circumstances in which the split of anticipated profits would be the most appropriate method could be further clarified and simplified;
  • Unique and valuable contributions: Whether a profit split requires that both participants make unique and valuable contributions to the transaction; and
  • Acceptable profit split keys and application: Whether to clarify or simplify the guidance on which profits to split (e.g., contribution margin, gross margin, or operating margin) and which keys to apply on such profits.

The profit split discussion draft begins to address these unresolved issues, and generally results in simplified guidance compared to the July 4, 2016, non-consensus draft.

The profit split discussion draft does not mention the concept of “value chain analysis.” Likewise, the importance of the notion of sequential versus parallel integration as a useful tool to evaluate the appropriateness of a transactional profit split receives little to no attention. Instead, the profit split discussion draft focuses squarely on the question of how the “risk control” framework of the revised Chapter I of the TPG might apply in the context of (i) the selection of the transactional profit split as the most appropriate transfer pricing method, and (ii) the application of a profit split key that may reasonably result in an arm’s length outcome.

Some of the other important guidance in the July 4, 2016, non-consensus draft remains in the June 22 discussion draft. This includes the requirement that profit split keys be verifiable and based on internal accounting data or on measurable market data. According to the profit split discussion draft, management representations of where value is created in the MNE generally will not meet this requirement because such representations typically are difficult for a tax administration to verify (i.e., audit) because of their intrinsically subjective nature.

Source: Deloitte

UK country-by-country reporting notification deadline approaches

The first country-by-country (CbC) reporting notifications required to be made to the UK tax authorities are due by 1 September 2017.

This deadline applies to all reporting periods that end on or before 1 September 2017. After 1 September 2017, the standard UK notification date is the end of the CbC reporting period.

A few examples regarding the application of these rules follow.

  • Example 1: A group with a 31 December year end must notify by 1 September 2017 in respect of the year to 31 December 2016 (and by 31 December 2017 in respect of the year to 31 December 2017).
  • Example 2: A group with a 31 March year end must notify by 1 September 2017 in respect of the year to 31 March 2017 (and by 31 March 2018 in respect of the year to 31 March 2018).
  • Example 3: A group with a 30 June year end must notify by 1 September 2017 in respect of the year to 30 June 2017 (and by 30 June 2018 in respect of the year to 30 June 2018).
  • Example 4: A group with a 30 September year end must notify by 30 September 2017 in respect of the year to 30 September 2017 (and by 30 September 2018 in respect of the year to 30 September 2018).

All multinational groups that meet the threshold for CbC reporting that have a UK resident constituent entity or a UK permanent establishment will need to provide at least one notification. There is optional administrative simplification in cases when multiple notifications are due.

UK notification obligations vary depending on the location of the ultimate parent entity. For UK-parented groups, the responsibility lies with the UK ultimate parent entity. For non-UK-parented groups with a UK presence, the notification obligations fall on the top UK entities (or top entities with UK permanent establishments).

In accordance with UK regulations, the notification for each period must include:

  • The identification of the group entity (including the unique taxpayer reference or equivalent) that will file the country-by-country report and where it will file it; and
  • Names and unique taxpayer references of all of the group’s entities that are resident in the UK, are UK permanent establishments, or are UK partnerships.
Source: Deloitte

viernes, 18 de agosto de 2017

Dbriefs Bytes - 18 August 2017

Colombia: Tax authorities clarify VAT treatment of digital supplies made by nonresidents

On 21 March 2017, the Tax and Customs Administration clarified that supplies of digital services by nonresident companies to recipients located in Colombia are subject to Colombian VAT as from 1 January 2017.
In the case of business-to-business digital supplies (i.e. when the service is provided to a business customer in Colombia that itself is a VAT taxpayer), the business customer must account for and remit VAT under the reversecharge mechanism. In contrast, business-to-consumer supplies (i.e. when the service is provided to a private individual in Colombia), in theory, are subject to VAT, but the mechanism for VAT accounting with respect to such supplies is that credit and debit card issuers and other payment processors must withhold the VAT due before payment is made to the nonresident supplier. The latter rule, which will not apply until 1 January 2018, also will apply to supplies made to individuals in Colombia in cases where the nonresident service provider fails to fulfill its VAT filing and payment obligations.
The Tax and Customs Administration is expected to issue a list of nonresident service providers whose services could be subject to VAT under these rules. The Colombian government has not yet issued any rules or guidance as to how credit/debit card issuers and other payment processors are to determine when VAT is due or how nonresident service providers are to fulfill their filing and payment obligations, including any registration requirements.

Source: Deloitte

jueves, 17 de agosto de 2017

Bermuda: CRS regulations, guidance notes issued and portal open

In April 2017, Bermuda’s Ministry of Finance published the highly anticipated Common Reporting Standard (CRS) Regulations and Guidance Notes, which clarify the CRS obligations of Bermuda reporting financial institutions (FIs), in advance of the first enrollment and reporting deadlines on 14 July and 30 August, respectively. Intended to supplement the comprehensive guidance and commentaries already released by the OECD, the Bermuda CRS regulations and the guidance notes provide additional clarification and practical assistance with the implementation of the CRS for Bermuda FIs.
Additionally, the CRS reporting portal (Bermuda Tax Information Reporting Portal) began accepting CRS enrollments and filings from Bermuda FIs on 16 June 2017.
The Ministry of Finance signed the OECD’s multilateral competent authority agreement on 29 October 2014 to become a member of the “early adopters group” for the CRS, meaning that the group will begin exchanging CRS information with partner jurisdictions in September 2017.

Source & more info: Deloitte

miércoles, 16 de agosto de 2017

Barbados Budget includes hike in National Social Responsibility Levy, new foreign exchange tax

The Barbados Minister of Finance presented the 2017/2018 budget on 30 May 2017 against a backdrop of minimal-tozero economic growth, a significant fiscal deficit and high debt repayment obligations, and pressure to address rising social service costs and infrastructure. The Barbados government also is facing a backlog of VAT refunds owed to taxpayers.
In response to these challenges, the budget contains proposals to increase certain taxes, reinstate an amnesty to encourage the payment of overdue value added tax (VAT) and land tax and introduce a national tax registration initiative. The proposals are intended to take effect from 1 July 2017, once amendments to the income tax act are enacted (expected by 30 June 2017). If enacted as proposed, the measures would affect both businesses and the general population.

Source & more info: Deloitte

martes, 15 de agosto de 2017

Austria is negotiating a new tax treaty with the UK

An updated draft of a revised tax treaty between Austria and the UK, which is currently under negotiation to replace the existing treaty that has applied since 1969, was released in April 2017. The Austrian business community has welcomed the provisions of the draft, not only because the treaty will have a significant impact on trade between Austria and the UK in a post-Brexit world, but also because this may be the first tax treaty to implement the BEPS minimum standard on treaty shopping (under BEPS action 6) into the Austrian tax treaty network.
Although Austria and the UK both signed the multilateral instrument (MLI) to implement the tax treaty-related measures to prevent BEPS on 7 June 2017, the current treaty negotiations are expected to proceed to allow the two countries to customize the terms of their treaty.
In many respects, the draft treaty is in line with the most recent version of the OECD model convention, as well as Austria’s current tax treaty policies. However, there are several provisions worth highlighting from an Austrian perspective, which reflect either the implementation of the BEPS minimum standard on treaties or the UK’s tax treaty policies. The draft treaty is subject to change until it is finalized and signed by both contracting states.

Source & more info: Deloitte

lunes, 14 de agosto de 2017

CRS rules apply in China as from 1 July 2017

Long-awaited rules implementing the OECD common reporting standard (CRS) in China will apply as from 1 July 2017.
The final rules, issued by the State Administration of Taxation (SAT), Ministry of Finance and financial regulatory bodies on 19 May 2017, address financial institution (FI) reporting, reportable financial accounts and due diligence procedures.
The OECD published the Standard for Automatic Exchange of Financial Information in Tax Matters (AEOI) in 2014, in response to the growing concern that taxpayers were concealing reportable income in offshore assets and accounts to evade tax in their home jurisdiction(s). The AEOI was modeled on the inter-governmental agreement framework under the US Foreign Account Tax Compliance Act. In September 2014, China committed to the implementation of the AEOI
and, in December 2015, China signed the Multilateral Competent Authority Agreement (MCAA), which was developed to provide a standardized and efficient mechanism to facilitate the AEOI – the MCAA avoids the need for multiple bilateral agreements to be concluded. On 14 October 2016, the SAT published a draft version of the CRS rules for public consultation.
The final rules implementing CRS in China generally are similar to the draft rules with respect to the procedures for assessment and identification of FIs and financial accounts, etc. The final rules require FIs to undertake due diligence procedures to identify specified financial accounts held by nonresidents and to report specific information on the accounts to the SAT. The SAT then will exchange the information with the tax authorities of jurisdictions in which the account holders are resident. The final rules make some changes to the draft rules, for example, by requiring the total
aggregate balance in the financial account to be in USD, defining the conversion rule for currencies other than USD, adjusting some of the key dates, setting out the requirements for registration on the SAT website and specifying measures for noncompliance.

Source & more info: Deloitte

domingo, 13 de agosto de 2017

Trump Administration, Republican Congressional leaders release statement on tax reform goals

The Trump Administration and Congressional Republican leaders today released a joint statement outlining key principles and goals for comprehensive tax reform. The brief statement calls for tax reform that makes taxes “simpler, fairer, and lower” for American families, and provides “lower rates for all American businesses.” The statement sets a goal for the House Ways and Means Committee and the Senate Finance Committee to produce tax reform legislation that “reduces rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas.” The most significant element of today’s joint statement is the announcement that the House Republican Blueprint proposal from June 2016 for a border adjusted tax (“BAT”) has been dropped from further consideration.

Source & more info: PwC

sábado, 12 de agosto de 2017

Spain-Mexico Double Tax Treaty amended by Protocol

The 2015 protocol to the 1992 tax treaty will enter into force on 27 September 2017 and will apply for withholding tax purposes as from that date. When in effect, the protocol provides for a 0% withholding tax rate on dividends paid to a company whose capital is wholly or partially divided into shares and that holds directly at least 10% of the capital of the payer company, or paid to a pension fund; otherwise, the rate will be 10%. A 0% rate will apply to interest paid to a pension fund; a 4.9% rate will apply to interest paid on loans granted by a bank or other financial institution (including investment banks, savings banks and insurance companies) and to interest paid on bonds and other debt instruments that are regularly and substantially traded on a recognized stock exchange; otherwise, the rate will be 10%. The withholding tax rate on royalties will not be affected by the protocol.

Source: Deloitte

IRS announces a one-year delay in Section 385 documentation requirements

Today, Treasury and the IRS issued Notice 2017-36, announcing a one-year delay in the application of the documentation requirements in final regulations under Section 385.  Section 385 authorizes Treasury to prescribe rules to determine whether certain instruments between related parties are treated as debt or equity (or as in part debt and in part equity). Treasury and IRS intend to amend the documentation regulations to apply only to interests issued or deemed issued on or after January 1, 2019.
This delay is in response to taxpayer concerns and the recently announced review of the final and temporary Section 385 regulations per Notice 2017-38. That Notice was in response to Executive Order 13789, which required additional review of significant tax regulations.
The Notice requests comments concerning whether this proposed delay will provide "...adequate time for taxpayers to develop any necessary systems or processes to comply with the Documentation Regulations."  Interested taxpayers should consider submitting comments, which are due to the IRS by September 1, 2017.

Source: PwC

jueves, 10 de agosto de 2017

India Tax Authority issues rules for implementing secondary transfer pricing adjustment provision

India’s Finance Act, 2017 (FA 2017) introduced “secondary transfer pricing (TP) adjustment” provisions in the Indian Tax Law (ITL) to ensure that profit allocation between the associated enterprises (AEs) is consistent with the primary TP adjustment. Primary TP adjustment is defined to mean determination of the transfer price in accordance with the arm’s length principle resulting in an increase in the total income or reduction in the loss, as the case may be, of the taxpayer. The secondary adjustment is required where a “primary adjustment” to the transfer price: (a) has been made voluntarily by the taxpayer in the tax return; (b) made by the tax officer and has been accepted by the taxpayer; or (c) is determined pursuant to an Advance Pricing Agreement (APA), safe harbor or Mutual Agreement Procedure (MAP).
Under the secondary adjustment provision, if the primary adjustment is not repatriated to India within a prescribed time, the amount not repatriated would be deemed to be an advance made by the taxpayer to such AE and interest would be charged on the advance in the manner prescribed. The Central Board of Direct Taxes (CBDT), the apex Indian Tax Administration, through a notification dated 15 June 2017, has issued rules to support the implementation of the provision by prescribing the time limit for repatriation and the method of computing the interest. While generally providing a 90-day time limit for repatriation, the rules require charging an annual interest beyond the prescribed period until the advance is settled. The notification also clarifies that the secondary TP adjustment provision is applicable from the Financial Year (FY) 2016-17 onwards and would apply only where the quantum of primary TP adjustment is in excess of INR10 million (approx. US$154,000).

The FA 2017 introduced some significant changes to the ITL with the objective of strengthening the anti-abuse measures as well as to align the ITL with international practices. One of the changes included the introduction of secondary adjustments in the TP regulations.
The secondary adjustment rules are an internationally recognized approach and already part of the TP regulations in many leading economies. The Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for Multinational Corporations and Tax Administrations (OECD Guidelines) define the term secondary adjustments as “an adjustment that arises from imposing tax on a secondary transaction.” A secondary transaction is further defined as “a constructive transaction that some countries will assert under their domestic legislation after having proposed a primary adjustment in order to make the actual allocation of profits consistent with the primary adjustment.” Secondary adjustments may take the form of constructive dividends, constructive equity contributions or constructive/deemed loans.
While the approaches to secondary adjustments by individual countries vary, they represent an internationally recognized method to realign the economic benefit of the transaction with the arm’s length position, and seek to restore the financial situation of the relevant connected parties to an arm’s length scenario.
Seeking to align Indian TP regulations with OECD Guidelines and international practices, FA 2017 introduced the “secondary adjustment” provision in the ITL.

Meaning of primary adjustment and secondary adjustment

  • Primary adjustment is defined to mean determination of the transfer price in accordance with the arm’s length principle resulting in an increase in the total income or reduction in the loss, as the case may be, of the taxpayer.
  • Secondary adjustment has been defined to mean an adjustment in the books of accounts of the taxpayer and its AE to reflect the actual allocation of profits between the taxpayer and its AE consistent with the transfer price determined as a result of primary adjustment.

Applicability of secondary adjustment
The provisions, as introduced by the FA 2017, are applicable in cases where the primary TP adjustment to the transfer price is:

  • Made voluntarily by the taxpayer in its income-tax return
  • Made by the tax officer or the appellate authority and accepted by the taxpayer
  • Determined by an APA entered into by the taxpayer with the Indian Tax Administration
  • Made as per the safe harbor rules framed under the ITL, Or
  • Resulted from the resolution of an audit adjustment by way of the MAP under a double taxation avoidance agreement (tax treaty)

The secondary adjustment provisions required that, where as a result of a primary adjustment to the transfer price, there is an increase in the total income or reduction in the loss of the taxpayer, the “excess money” (i.e., the difference between the arm’s length price determined in the primary adjustment and the price at which the international transaction was actually undertaken) which is available with its AE, needs to be repatriated into India within the prescribed time. In the case of non-compliance, such excess money shall be deemed to be an advance made by the taxpayer to such AE. Further, interest on such advance shall be computed as the income of the taxpayer in the prescribed manner. While the notification does not explicitly mention that the “excess money” should be accounted for in the books of account of the taxpayer, it can be perceived that the intent of the law is to ensure that there is no imbalance between the arm’s length price determined and the price declared in the books of account.
The CBDT has now issued rules in this regard to support the implementation of the secondary adjustment provision by prescribing the time limit for the repatriation of “excess money” and the method of computing the interest.

Time limit for repatriation and applicable interest rate for delayed receipts
Type of primary adjustment
Time limit for repatriation
Applicable interest rate for delayed receipts
Transaction in Indian Rupee
Transaction in Foreign Currency
Adjustment made by the Indian Tax Authority and accepted by the taxpayer
On or before 90 days from the date of relevant order
One year marginal cost of fund lending rate of State Bank of India as of 1 April of the relevant FY plus 325 basis points
Six month London Interbank Offered rate as of 30 September of the relevant FY plus 300 basis points
Suo-moto adjustment by the taxpayer
On or before 90 days from the due date of filing return of income
Adjustment pursuant to APA, Safe Harbor or MAP
If the “excess money” is not repatriated within the prescribed time limit, the interest shall be computed at the rate as prescribed above, on an annual basis, until the “excess money” is repatriated.

Year of applicability
The provision as enacted by the FA 2017 was ambiguous on the year of application of secondary adjustment in light of the fact that the provision required satisfaction of two conditions which seemed to be “cumulative” viz.: (i) primary adjustment is less than INR10 million; and (ii) primary adjustment is for FY 2015-16 and earlier years. Thus the literal interpretation of this proviso would have led to wider and unintended ramifications, including application of secondary adjustments for any previous years so long as the primary adjustment is in excess of INR10 million. Further, any amount of primary adjustment (less than INR10 million) in relation to FYs 2016-17 onwards, would trigger a secondary adjustment risk.
However, this notification clarifies that the secondary TP adjustment provision is applicable for FY 2016-17 onwards and would apply only where the quantum of primary TP adjustment is in excess of INR10 million.

When a TP adjustment is made to one member of a group (primary adjustment), it may give rise to a number of collateral consequences which may include correlative allocations, conforming adjustments and set-offs, on which no guidance existed in the ITL. By introducing the concept of secondary adjustment in the ITL and prescribing the rules for implementation, the ITL now requires appropriate adjustments to be made to conform a taxpayer’s accounts so they reflect the primary adjustment, followed by repatriation of the funds into India within a prescribed time or alternatively, treat the same as an interest-bearing advance and charge interest at the prescribed rates on an annual basis. While the stated objective of the provision is to align Indian TP regulations with international practices, the provision could trigger additional income tax consequences, including the risk of double taxation. Taxpayers who are likely to be subject to a primary TP adjustment should therefore review the impact of this provision on their TP positions in India as well as in the other country and proactively consider measures such as MAP, APAs for managing TP controversy.

Source: EY

miércoles, 9 de agosto de 2017

Mexico publishes final rules for Country-by-Country Reporting

Article 76-A of Mexican Income Tax Law (MITL), which went into effect on January 1, 2016, requires certain taxpayers in Mexico to submit the following three information returns: Master File, Local File, and Country-by-Country (CbC) Report. The deadline for filing 2016 returns is December 31, 2017.

The final rules — published by the Mexican tax authorities on May 15, 2017 — are generally consistent with Action 13 of the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, generally called the CbC Report. However, for the Local File, the final rules may be viewed by some taxpayers as going beyond what is stated in Action 13 of BEPS and may require information that may not be available to the Mexican subsidiaries. As a result, some Mexican taxpayers may consider whether a constitutional trial (Amparo) against these additional obligations would be desirable or feasible.

Source & more info: PwC

martes, 8 de agosto de 2017

Court decisions provide opportunities to claim 3% French distribution tax refunds

In a decision dated May 17, 2017, the European Court of Justice decided that a French company’s liability for the 3% tax on distributions received from its subsidiaries established in another EU Member State is incompatible with the Parent-Subsidiary directive in that it creates double taxation on profits realized within the EU.

These decisions provide an additional opportunity to claim refunds of the 3% tax paid before December 31, 2016, by French companies at least 95%-owned by MNEs that are subject to CIT or by French companies on redistribution of dividends received from their EU subsidiaries subject to CIT.

The ECJ’s decision (an anticipated development) is important in disputes relating to the 3% contribution, but is only one step. The litigation likely will continue on the basis of constitutional law issues.

Source & more info: PwC