lunes, 23 de octubre de 2017

Dbriefs Bytes - 20 October 2017

Indonesia: New regulation clarifies CFC indirect ownership criteria

Indonesia’s Minister of Finance (MOF) issued a new regulation (PMK-107) on 27 July 2017, which revises the country’s controlled foreign corporation (CFC) rules as from the 2017 fiscal year. The regulation introduces indirect ownership criteria for determining when a foreign company is considered a CFC, and clarifies rules for calculating CFC dividends and foreign tax credits.
Under Indonesian tax law, a CFC is a foreign company in which an Indonesian resident company or individual (either alone or together with other shareholders) holds at least 50% of the company’s total share capital. An Indonesian shareholder in a CFC must pay Indonesian tax on its share of the CFC’s profits each year, by recognizing deemed dividends to the extent the profits are not distributed to the shareholder in the form of actual dividends. Where an actual dividend distribution exceeds prior year deemed dividends, the excess is taxable in the year the actual dividend is paid. The CFC rules do not apply to shareholdings in listed foreign companies.

Source & more info: Deloitte

jueves, 19 de octubre de 2017

Korea's 2018 tax reform bill under consideration by National Assembly

A package of tax reform proposals for 2018 that were submitted to Korea’s National Assembly on 1 September 2017 aim to increase tax revenue to support the country’s expansionary fiscal policies, revise corporate tax incentives to encourage job creation and redistribute income among individuals. The Ministry of Strategy and Finance released the proposals on 2 August 2017, which include increases in the income tax rates for the top tax brackets for both corporations and individuals, as well as measures that would limit the deduction of interest expense in certain instances as part of Korea’s commitment to the OECD BEPS project.
If approved, the measures generally would apply for financial years starting as from 1 January 2018.

Source & more info: Deloitte

miércoles, 18 de octubre de 2017

OECD Tax Talks #7 - Centre for Tax Policy and Administration

Greece enacts CbC reporting requirements

The Greek parliament approved a law on 28 July 2017 that implements the EU directive on the mandatory automatic exchange of tax-related information into Greek legislation and introduces country-by-country (CbC) reporting rules in line with action 13 of the OECD BEPS project. The most significant aspects of the new law, which was published in the official gazette on 1 August 2017, are summarized below.

CbC reporting requirements
For fiscal years (FYs) starting on or after 1 January 2016, CbC reporting obligations apply to Greek ultimate parent entities of a multinational enterprise (MNE) group that has consolidated group revenue exceeding EUR 750 million in the FY preceding the FY to which the CbC report relates. The CbC report must be submitted within 12 months from the last day of the reporting FY.
A Greek resident entity that is not the ultimate parent entity of an MNE group must file the CbC report in certain circumstances (i.e. where the country of the ultimate parent entity has not introduced CbC reporting requirements, has not signed an agreement with Greece for the exchange of information on CbC reports or has failed to comply with the requirements regarding the exchange of the reports with Greece).
The CbC report must include the following information:

  • Aggregated data relating to revenue, profit (loss) before income tax, income tax paid and due, share capital, accumulated profits, number of employees, and tangible assets other than cash or cash equivalents for each jurisdiction in which the group operates; and
  • Identification documents for the jurisdiction where each constituent entity is tax resident and – if this differs

from the jurisdiction of tax residence – the jurisdiction under which the constituent entity is organized and the nature of its primary business or businesses.
The source of information for the CbC report may be financial statements (statutory or otherwise) and/or internal management account records, and the same data sources should be used consistently year-over-year. There is no requirement for adjustments to be made for jurisdictional differences in accounting standards, nor is it necessary to reconcile differences in revenue, profits and taxes between the CbC report and the consolidated financial statements.
The penalty for failure to submit the CbC report is EUR 20,000, and the penalty is EUR 10,000 for late submissions or inaccurate disclosures.
Any constituent entity that is a tax resident of Greece but that is not required to submit the CbC report must notify the reek tax authorities of the identity and tax residence of the reporting entity no later than the last day of the reporting FY. For the first year of application, the deadline is extended to the last day permitted for submission of the CbC report (i.e. 12 months from the last day of the reporting FY).

Exchange of CbC report information
The information contained in the CbC report will be shared between EU member states through the automatic exchange of information. Greece, as the competent authority receiving CbC reports, will share the reports with the competent authority of any EU member state in which one or more constituent entities of the group are incorporated, within 15 months from the last day of the reporting FY. However, for the first year of application (i.e. the FY beginning on 1 January 2016), reports may be exchanged up to 18 months from the last day of the reporting year.
The Greek tax authorities will use the CbC reports to evaluate potential areas of concern in relation to the pricing of intragroup transactions and other risks associated with BEPS. The law explicitly provides that price adjustments for intragroup transactions will not be based on information provided in the CbC report. However, the information in the CbC report may be used as the basis for further scrutiny regarding the MNE group’s pricing arrangements or other tax issues in the context of a tax audit; hence, appropriate adjustments of a constituent entity’s taxable income may arise.

Source: Deloitte

martes, 17 de octubre de 2017

China's Tax authorities stepping up efforts to collect individual income tax

The local tax authorities throughout China are stepping up their efforts to collect individual income tax (IIT) and are carrying out more frequent and extensive investigations of both individuals and companies. In particular, an intensified focus is expected on claims relating to nontaxable benefits in kind (BIKs), potential permanent establishment (PE) exposure where a nonresident company sends business travelers to China and the taxation of Chinese individuals receiving foreign-source income.
Source & more info: Deloitte

lunes, 16 de octubre de 2017

Malaysia’s principal hub incentive guidelines revised

The Malaysian Investment Development Authority (MIDA) has issued revised guidelines for the “principal hub” incentive introduced in 2015, which are effective as from 7 July 2017 and apply to companies approved as a principal hub on or after that date. The revised guidelines make clarifications and modify the criteria for the corporate tax incentive and the benefits available for qualifying companies, especially for companies with approved operational headquarters (OHQ), international procurement center (IPC) or regional distribution center (RDC) status and other existing companies.
Briefly, a principal hub is a company incorporated in Malaysia (with minimum paid-up capital of MYR 2.5 million) that uses Malaysia for conducting its regional and global businesses and operations to manage, control and support its key functions, including risk management, decision making, strategic business activities, trading, finance, general management and human resources.
Qualifying companies approved as a principal hub have been subject to corporate income tax under a three-tiered structure (instead of the standard 24% flat rate) based on the value created, such as the types of services, the number of countries in which the hub serves affiliated companies, employment, annual business spend, etc. Tier 1 companies are subject to a 0% corporate tax rate, Tier 2 companies are subject to a 5% rate and Tier 3 companies are subject to a 10% rate for a period of five years, with a possible extension for another five years; however, the extension is not available for existing companies that have OHQ, IPC or RDC status and have been granted OHQ/IPC/RDC incentives.
Principal hub companies also are entitled to other benefits, including a customs duty exemption on certain raw materials, components or finished products; no requirements for local equity ownership (i.e. the hub company may be wholly foreign owned); the ability to use foreign professional services if such services are not available in Malaysia; and flexibility in foreign exchange administration.
An application must be submitted to the MIDA by 30 April 2018 for a company to be considered a qualifying principal hub company.

Source & more info: Deloitte

sábado, 14 de octubre de 2017

Puerto Rico announces Tax and administrative relief due to hurricane

The Puerto Rico Treasury Department (PRTD) has issued a series of administrative determinations that implement tax and administrative relief measures as a result of the declaration of the emergency caused by Hurricane Maria, including an exemption from personal income tax for “qualified disaster relief payments” and certain interest-free loans. The measures are effective immediately.

Qualified disaster relief payments
On 4 October 2017, the PRTD issued an administrative determination that establishes a temporary exclusion from taxable gross income for “qualified disaster relief payments” made to or for the benefit of an individual by his/her employer to help compensate for the damages caused by Hurricane Maria.
Qualified disaster relief payments include the following payments made by an employer in an effort to assist its employees as a result of the hurricane:
  • Payments made directly to suppliers of goods or services for necessary and reasonable expenses of the individual or his/her family members, such as food, medicine, gas, living quarters, medical expenses, child or dependent care, power generators and funeral expenses incurred as a result of the disaster;
  • Payments made directly to suppliers of goods or services for expenses incurred for the repair or rehabilitation of a principal residence, or for the repair or replacement of its contents, to the extent that the need for such repair, rehabilitation or replacement is attributable to the disaster; or
  • Payments made directly to the employee to help cover the costs of damages suffered as a result of the disaster.
The following requirements must be met for the exclusion from gross income to apply to a payment:
  • The payment must be made between 21 September 2017 and 31 December 2017;
  • Payments made directly to an individual must be in lieu of lost wages as a result of the disaster, and may not exceed a total of USD 1,000 per month; and
  • The payment must be in addition to other compensation paid by the employer to the employee on account of employment.
Payments that discriminate in favor of highly compensated employees, or that take into account an employee’s position or salary, will not be considered qualified disaster relief payments.
Employers may deduct qualified disaster relief payments from their taxable income. Each employer making qualified disaster relief payments must provide to the PRTD, no later than 31 January 2018, a sworn statement that provides the name and social security number of each employee who received qualified disaster relief payments, including the total amount of relief payments made.
Interest-free loans
Interest-free loans granted by employers to employees between 21 September 2017 and 30 June 2018 to assist with necessary expenses or for repair or construction of a principal residence due to the hurricane are excluded from the employee’s taxable income, provided the amount of the loan does not exceed USD 20,000.
Other relief measures
The administrative determinations provide for the following sales and use tax, real property tax and administrative relief:
Effective 3 October 2017, a temporary exemption from sales and use tax applies to donations of tangible personal property and services by foreign donors to hospitals, nonprofit organizations, public bodies and municipalities (including their legislative and judicial branches) and individuals.
The previously announced sales and use tax exemption for sales of prepared food is extended until further notice.
The requirement to remit sales and use tax bimonthly is suspended from 1 September to 30 November 2017, except for large taxpayers.
The imposition of interest, surcharges and penalties on late payments of real property taxes due for the first semester of the 2017-2018 fiscal year is suspended through 31 December 2017.
Various extensions of due dates are granted, e.g. to file returns, to file administrative complaints before the PRTD and to submit requested information or documents for audits.
The US Internal Revenue Service (IRS) also has postponed certain tax filing and payment deadlines for individuals and businesses in Puerto Rico and other locations that have been affected by hurricanes in recent months. The IRS also issued guidance on 4 October 2017 to provide relief to residents of Puerto Rico and the US Virgin Islands who evacuated or could not return because of Hurricane Irma or Hurricane Maria. The relief extends the usual 14-day absence period to 117 days (beginning 6 September 2017 and ending 31 December 2017) for purposes of the presence test for residency under the US tax rules.

Source: Deloitte

Italy’s postponement of tax return filing deadline affects both transfer pricing documentation and CbC notification

Italy recently – and exceptionally – postponed its income tax return filing deadline from the end of September to October 31, 2017. Because the notification of which entity in a multinational entity (MNE) group will be filing the country-by-country (CBC) report is made in the annual income tax return, the deadline for that notification is therefore also postponed.

Decree n. 78 of May 31, 2010, introduced the possibility that taxpayers may avoid administrative penalties in the event of a transfer pricing adjustment, provided the taxpayers had documented their intercompany transactions in compliance with the requirements set forth in regulations the Revenue Agency issued on September 29, 2010.
Documentation is not mandatory, and no specific penalties for lack of documentation have been introduced; rather, the decree introduced the concept of a “premium” for taxpayers who, through the preparation of proper transfer pricing documentation, demonstrate their willingness to cooperate with the tax authorities to facilitate the assessment of the arm’s length nature of their intercompany transactions.
If prepared under the standards dictated by the regulations, the transfer pricing documentation would allow taxpayers to benefit from full protection from administrative penalties (ranging from 90 percent to 180 percent of the additional taxes deriving from the adjustments) applicable in case of transfer pricing adjustments.
Transfer pricing documentation for penalty protection purposes must be prepared on a yearly basis.
The taxpayer must communicate to the Italian Revenue Agency the availability of documentation prepared in compliance with the requirements set forth in the regulations by checking a box in the tax return (row RS106 of the tax return form – “Redditi SC 2017” – for fiscal year 2016). However, the transfer pricing documentation itself must be delivered to the tax auditors only upon request, and within 10 calendar days. In other words, the regulations do not impose a contemporaneous filing requirement.
Regardless of the availability of the penalty protection regime, taxpayers should disclose in the tax return the total amount of intercompany costs and revenues, as well as indicate if the entity filing the return:

  • Option A: Is directly or indirectly controlled by a nonresident company;
  • Option B: Directly or indirectly controls nonresident companies; or
  • Option C: Has carried out intercompany transactions with foreign companies that are controlled by another group company.

According to Italian law, the ordinary statutory due date for filing a tax return is within nine months from the end of the fiscal year to which it is relevant (for example, for entities with calendar year reporting periods, the deadline for submission is the end of September).
The Italian Ministry of Economy and Finance issued a decree on July 26, 2017, to postpone the September tax return filing deadline to October 31, 2017. This postponement applies to taxpayers with ordinary filing deadlines for their tax returns between July 1, 2017, and September 30, 2017, that is, with fiscal years ending on December 31, 2016.
The decision to postpone the filing deadline of tax returns follows an urgent request made by the Italian National Council of Chartered Accountants claiming that the measure was necessary due to an extraordinary concentration of tax deadlines between June and July, which would’ve made it difficult for professionals to manage the related filings.
The postponement applies also to the communication of the option for the preparation of transfer pricing documentation for FY 2016 as well as, implicitly, to the first day from which such documentation could eventually be requested by tax auditors (10 calendar days after October 31).
Finally, the postponement of the tax return filing deadline applies also to the notification requirement regarding the country by country (CbC) reporting requirement introduced by paragraph 145, Article 1 of Budget Law 2016, approved on 28 December 2015. Indeed, entities that are part of multinational enterprise groups subject to the obligation to file the CbC report must notify in their tax return (at row RS 268) the details of the group entity in charge of the preparation of the CbC report, including its tax jurisdiction.

Source: Deloitte

viernes, 13 de octubre de 2017

Dbriefs Bytes - 13 October 2017

Deadline for French SMEs to file transfer pricing form approaching

The deadline for filing a French transfer pricing form that is newly applicable to small and medium-sized enterprises (SMEs) is fast approaching.
In late 2016, France lowered the threshold for requiring the filing of the transfer pricing form – Form 2257-SD – to EUR 50 million of annual pre-tax turnover or total gross assets on the balance sheet, effective for fiscal years that ended on December 31, 2016, and thereafter. The threshold had been previously set at EUR 400 million.
Under current law, French entities that meet the threshold must file annually with the French tax authorities Form 2257-SD, which provides both general information on the multinational group and specific information on the French entity subject to the filing requirement.
This requirement directly impacts SMEs and middle-market companies, because it affects French legal entities that meet the new threshold, as well as legal entities that have either a 50 percent or more direct or indirect shareholder or subsidiary that meet the new threshold. Similarly, this obligation applies to legal entities that are members of a tax group if one of the companies meets the above criteria.
According to this new requirement, which was introduced by the law of December 9, 2016, on transparency, fight against corruption, and modernization of economic life that modified Article 223 quinquies B of the French General Tax Code, the legal entities subject to the new threshold must submit electronically within six months of the filing of their tax return, Form 2257-SD detailing their main intragroup flows. For fiscal years ending December 31, 2016, the deadline for filing the form is November 3, 2017, which does not allow much time for preparation of the form.
The new legislation confirms that the transfer pricing policies of MNE groups, regardless of their size, are particularly scrutinized by the French tax authorities. Therefore, these groups need to strengthen their transfer pricing processes to be able to demonstrate the arm’s length nature of their policies in the event of a tax audit.
In practice, the French tax authorities are likely to raise questions regarding a company’s transfer pricing policies if international intragroup transactions exist, without any materiality threshold. A lack of structuring and documentation of intragroup transactions sometimes leads to easily avoidable adjustments.
Source: Deloitte

OECD releases additional implementation guidance on CbC reporting and appropriate use of information in CbC reports

The OECD on 6 September released additional guidance on the implementation of the country-by-country (CbC) reporting requirement introduced in the BEPS Action 13 final report. In addition, the OECD released guidance on the appropriate use of information contained in CbC reports (CbCRs).
The new guidance consolidates and expands on all of the implementation guidance issued by the OECD since the release of the Action 13 final report. Also included in the text of the new guidance, therefore, is the additional implementation guidance issued on:
  • 29 June 2016;
  • 5 December 2016;
  • 6 April 2017; and
  • 18 July 2017.
Because the 6 September release includes all the information found in the prior four releases, when consulting OECD additional guidance on the Action 13 final report, it will only be necessary to refer to the 6 September guidance going forward.
The new implementation guidance addresses four specific issues:
  • Items reported as revenues in Table 1 of the CbCR, when financial statements are used as the source of the data to complete the CbC template;
  • Income taxes paid in advance in Table 1 of the CbCR;
  • Treatment of tax refunds in Table 1 of the CbCR; and
  • Transitional relief for multinational enterprise groups (MNE groups) with a short accounting period that starts on or after 1 January 2016 and ends before 31 December 2016.
Source & more info: Deloitte

jueves, 12 de octubre de 2017

Mozambique approves transfer pricing regulations

On 12 September 2017, Mozambique’s Council of Ministers approved the regulations on transfer pricing, which introduce the procedures for the assessment of the transfer pricing transactions between related entities and allow for corrections to the taxable profit by the tax authorities as well as documentation requirements.
Currently the regulations have not been published but are expected to enter into force during January 2018.

Source: EY

miércoles, 11 de octubre de 2017

EU Commission takes next steps against Ireland and Luxembourg in Apple and Amazon State aid cases

On October 4, 2017, the European Commission (EC) continued its ongoing challenges to Member States’ transfer pricing tax regimes by advancing two high profile cases to the next stages.  In the Apple case, the EC referred Ireland to the Court of Justice of the European Union (CJEU) for failing to enforce an August 2016 State aid recovery decision. In the Amazon case, the EC announced its conclusion that Luxembourg’s tax treatment of Amazon gave rise to unlawful State aid.

Source & more info: PwC

United States: Update on IRS Competent Authority Arrangements for exchange of country-by-country reporting data

The IRS updated its website last week to reflect the current status of negotiations regarding Competent Authority Arrangements (CAAs) for exchange of country-by-country (CbC) reporting data. In addition to listing CAAs that already have been signed, the IRS website now also includes a list of jurisdictions with which the United States currently is in the process of negotiating CAAs.

Source & more info: PwC

martes, 10 de octubre de 2017

EU proposes mandatory disclosure of tax information for reportable cross-border arrangements P

The European Commission (EC) published a draft Directive on 21 June 2017 entitled Proposal for a COUNCIL DIRECTIVE amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements.  This would amend further (and for the fifth time) the EU’s Directive on administrative cooperation in the field of taxation. The draft Directive would impose mandatory reporting by taxpayers and intermediaries to the tax administrations of EU Member States for various cross-border transactions and arrangements. It also addresses the consequent automatic exchange of information on those transactions and arrangements across the EU.

The quarterly automatic exchange of information between tax authorities envisaged to take effect from 1 January 2019 would be based on domestic disclosure regimes gathering details of transactions involving one or more taxpayers in the EU, or at least one intermediary in the EU. These mandatory disclosure regimes (MDRs) would be similar to domestic MDRs currently operating within the EU in the United Kingdom, Ireland and Portugal. The proposed model borrows especially from the UK disclosure of tax
avoidance schemes (DOTAS) regime for structure, but with general and specific ‘hallmarks’ for identifying disclosable tax planning arrangements that go much wider.
A Member State may argue that some current elements of the EC’s proposals may potentially contravene EU law and therefore might need amending. Elements of the hallmarks could create a restriction on the free movement of capital or be deemed to disproportionately burden intermediaries/taxpayers in relation to the objective. Other elements might need to be restricted to wholly artificial arrangements in order to comply with EU law. Further clarity also is needed regarding alignment with the EU’s general principle of
legal certainty.

Source & more info: PwC

lunes, 9 de octubre de 2017

The New Zealand BEPS Journey: Key policy decisions announced

The New Zealand Government recently announced a number of significant BEPS-related policy decisions.  The Government plans to strengthen New Zealand’s transfer pricing rules, tighten rules around interest deductibility, counteract permanent establishment avoidance and hybrid mismatches, and introduce new administrative measures focused on large multinationals.

Source & more info: PwC

viernes, 6 de octubre de 2017

France publishes list of partner countries for automatic exchange of CbC information

A ministerial order presenting the list of countries with which France will exchange country-by-country (CbC) reporting information automatically and bilaterally was published July 8 in France’s official journal.

For fiscal years that begin on or after January 1, 2016, the list includes:

  • All European Union member states (following the enactment of Council Directive 2016/881 of May 25, 2016)
  • Australia
  • Brazil
  • Canada
  • Chile
  • China
  • Indonesia
  • Mexico
  • New Zealand
  • Norway
  • South Africa
  • South Korea
  • United Kingdom’s overseas territories: Bermuda, Guernsey, and Jersey
  • India and Japan are also on the list, but only for fiscal years that begin on or after April 1, 2016.

The list is expected to grow by the end of the fiscal year, as long as new countries sign the multilateral competent authority agreement (MCAA) and fulfill the conditions to exchange information with France. Of note, France is also currently in open discussions with the United States to enter into a bilateral automatic exchange agreement for the exchange of CbC information.

France has enacted CbC reporting requirements for fiscal years that begin on or after January 1, 2016. The CbC report must be filed within 12 months following the fiscal year end, either in France or in one of the countries listed above. Failure to file the CbC report exposes French entities that are members of a multinational group to a penalty up to EUR 100,000.

Source: Deloitte

US Treasury recommends substantial changes to eight tax regulations

The US Treasury Department on October 4, 2017, released its report recommending specific actions for eight previously identified regulations that either ‘impose an undue financial burden’ and/or ‘add undue complexity.’

These regulations and the summary recommendations are as follows:

This review is part of the President’s Executive Order (EO) 13789 calling for a reduction of tax regulatory burdens. The April 21, 2017 EO set a 60-day deadline for Treasury to issue an interim report on regulations deemed to (1) impose an undue financial burden; (2) add undue complexity; or (3) exceed the statutory authority of the IRS. On June 22, 2017, Treasury issued its interim report, identifying eight regulations to be further considered and withdrawn, modified, or revoked.

In addition to its recommendations for the eight regulations, Treasury will continue to review “all recently issued significant regulations and is considering possible reforms of several recent regulations not identified in the June 22 Report.” The report further states that these include the regulations under Section 871(m) and the Foreign Account Tax Compliance Act. 

Treasury expects to issue additional reports on reducing the tax regulatory burdens and on the status of the Treasury’s actions from the October 4 report.

Source: PwC

jueves, 5 de octubre de 2017

Malaysia introduces master file requirement, other BEPS recommendations

Malaysia’s Inland Revenue Board (IRB) has released the first set of revisions to the Malaysian Transfer Pricing Guidelines 2012, to align with BEPS Actions 8-10 and Action 13 recommendations.

The revisions pertain to guidance on the arm’s length principle and documentation, dedicate separate new chapters to intangibles and commodity transactions, and provide Malaysia-specific examples on interpretation.  They are effective since 15 July.

Source and more info: Deloitte